The housing market is starting to recover in earnest, fueling a debate over the mortgage interest tax deduction, according to a recent article from CNN Money. Lobby groups and politicians on both sides of the aisle have entered the fray as the economic focus shifts to the housing industry.
Who’s On Board with the Mortgage Interest Tax Deduction
One of the oldest tax breaks still in effect, the mortgage interest tax deduction is intended to encourage home ownership by lowering tax costs for property holders. Proponents of the tax break claim that removing a key tax deduction would hurt the middle class and hamper economic recovery. Housing is one of the few bright spots in an otherwise dreary financial landscape, with home sales climbing over 2% in October, a rate of sales nearly double that of the previous year. Spending on new home construction is also on the rise, 17 percent higher than in February of 2011.
And Who’s Not…
Opponents of the mortgage deduction argue that the benefits to the taxpayer are offset by their limited scope and the loss of government revenue. According to the Congressional Research Service, the deduction is the third largest tax expenditure on the federal budget. If left in place, the deduction would cost the government $100 billion in revenue by 2014. Additionally they point to the limited scope of the deduction, which tends to benefit upper middle class families the most.
The housing industry as a whole actively lobbies in support of the mortgage interest tax deduction, spending a combined $30 million this year, up from $27 million in 2011. The most active lobby is the National Association of Realtors, which spent a record $25 million on lobbying efforts this year. Other groups include the Mortgage Bankers Association, with collected $1.16 in donations for its lobbying efforts in 2012.
The debate comes at a tense time for US policymakers. With the “fiscal cliff” looming, lawmakers are struggling to find ways to head off disaster. President Obama has proposed a cap on itemized deductions, moving the rate for high-income taxpayers from 35% to 28%. In addition to the mortgage interest deduction, the cap would limit many other popular tax breaks, including charitable deductions.
Thus far, lobbying efforts and citizen support have prevented any attempts at reforming or removing the mortgage interest tax deduction. However, change may be on the horizon. House Republicans, breaking with years of tradition, have begun to argue in favor of reducing tax deductions as a means of raising government revenue and reducing the deficit. It remains to be seen whether lobbyists can resist that momentum.