As Congress and the White House have looked into potential paths forward on tax reform, one of the areas discussed has been the mortgage interest deduction on homes.
At a recent hearing before the Senate Finance Committee, the chairwoman of the Federal Taxation Committee of the National Association of Realtors (NAR) said history showed that misguided tax reforms could threaten the economy.
“Real estate is the most widely held category of assets that American families own, and for many Americans, it’s the largest portion of their family’s net worth,” Harrison said, testifying at a hearing titled “Individual Tax Reform.”
“As 64 percent of American households are owner-occupied, we believe that homeownership is not a special interest, but is rather a common interest,” she said.
Tax reform proposals have included the elimination of important benefits such as the state and local tax deduction, a near doubling of the standard deduction – which would all but nullify the benefits of the mortgage interest deduction – as well as caps to the mortgage interest deduction, NAR said in a release.
NAR stated that changes to the mortgage interest deduction could raise taxes on middle-class homeowners and put the value of their homes at risk. Harrison sought to back those claims in her testimony.
She noted that 70 percent of real property tax deductions in 2014 were to taxpayers with incomes less than $200,000, and 53 percent of those claiming itemized deductions for real estate taxes earned less than $100,000. In contrast to critics who say the deductions benefit a small group of wealthy individuals, Harrison said, half of taxpayers with mortgages of more than $500,000 have average gross incomes below $200,000.
“When Congress last undertook major tax reform in 1986, it eliminated or significantly changed a large swath of tax provisions, including major real estate provisions, in order to lower rates, only to increase those rates just five years later in 1991,” Harrison cautioned. “Most of the eliminated tax provisions never returned and in the case of real estate, a major recession followed.”
Despite the concerns raised during the hearing, Harrison reminded senators that NAR supports tax reform.
“Homeowners already pay 83 percent of all federal income taxes, and reform that raises their taxes is a failed effort,” she said. “But NAR supports the goals of simplification and structural improvements for the tax system, and individual tax rates should be as low as possible while still providing for a balanced fiscal policy. We simply believe that to achieve these goals, Congress should commit first to doing no harm to the common interest that homeownership provides.”