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Senate tax overhaul draws tepid industry response


The Senate’s tax overhaul bill — which was passed after a marathon session lasting into the early morning Saturday — has so far drawn a mixed response from the housing and mortgage lobbies.

Realtors remain the strongest critics of the Republican plan, which will water down longstanding incentives to own a home.

taxdebateThe Senate bill was passed 51-to-49 vote, with U.S. Sen. Bob Corker, R-Tennessee, joining all Democrats in voting against the bill. Corker opposed the bill out of concerns about future budget deficits. The Congressional Budget Office pegs the cost at $1.47 trillion over a decade. 

As with the House version, the Senate bill nearly doubles the standard deduction. The Senate bill preserves the mortgage interest deduction with the current cap on mortgage debt up to $1 million (unlike the House bill, which proposes to allow tax filers to only claim a deduction on $500,000 in mortgage debt from newly purchased homes). By doubling the standard deduction, however, the number of people who will itemize will be significantly reduced, effectively nullifying this homeownership perk for most Americans, according to the nonprofit Urban Brookings Tax Policy Center.

In a late change, the Senate bill also allows itemizers to deduct up to $10,000 of local property taxes, but eliminates the current deductions on sales and state income taxes. This change brought the Senate version in line with the House bill. Analysts say that the lesser deductions for state and local income taxes will mean that some middle-class filers may pay higher taxes in states like New York, New Jersey and California.

NAR believes that the totality of these changes — a marginalized mortgage-interest deduction combined with the loss of itemized deductions for state and local taxes — will mean that all homeowners will eventually see a significant erosion in home equity, as home values decline.  

“The tax incentives to own a home are baked into the overall value of homes in every state and territory across the country,” said Elizabeth Mendenhall, president of the National Association of Realtors, in a statement issued late Friday.

“When those incentives are nullified in the way this bill provides, our estimates show that home values stand to fall by an average of more than 10 percent, and even greater in high-cost areas,” she said.

In a news release, NAR acknowledged that there would be “some winners in this legislation,” but “millions of middle-class homeowners would see very limited benefits, and many will even see a tax increase.” The trade group said homeowners will see “much or all of their home equity evaporate as $1.5 trillion is added to the national debt and piled onto the backs of their children and grandchildren.”

The Mortgage Bankers Association (MBA) praised Senate Republicans for making a last-minute change — the so-called Rounds Amendment — that protected mortgage servicers from higher taxes on servicing rights.

MBA’s President David Stevens said in a statement “this package will protect the ability of most Americans to obtain safe, decent shelter and affordable home mortgage credit without disruption." MBA has previously expressed alarm at GOP proposals that would minimize housing incentives.

Homebuilders came out strongly against the bill last month after the Senate refused to include a homeownership tax credit that would replace the mortgage interest deduction. In a prepared statement, the National Association of Home Builders (NAHB) said affordable housing and small businesses do better in the Senate version than the House bill.

“Though far from perfect, the Senate tax-reform bill does contain key elements that would help spur the production of badly needed affordable housing and enable small businesses to remain competitive with corporations,” NAHB Chairman Granger MacDonald said in a prepared statement.

Major banking trade groups, such as the American Bankers Association and Independent Community Bankers of America, issued news releases in support of the GOP plan to significantly reduce the corporate tax rate, and other perceived pro-growth reforms.   


 

Questions? Contact at (425) 984-6017 or victorw@scotsmanguide.com.

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