By Peter Ricci
Every day, if not every moment of every hour, new details are reported about Congress’ ongoing battle to avert the so-called “Fiscal Cliff,” with various policies, tax proposals and political rhetoric being exchanged across the aisles. But now, in the wake of a tweet, of all things, from President Obama, analysts and the National Association of Realtors have drawn their attention to another possible bargaining chip in the Fiscal Cliff discussions – the mortgage interest tax deduction, or MID.
Amidst Fiscal Cliff Talks, is MID in Danger?
Often called the “third rail” of tax policy, MID has been historically an untouchable issue for lawmakers, but as the president tweeted on Tuesday, should taxes on higher income earners not go up before the end of the year, the government may be forced to seek alternate forms of revenue to avoid the Fiscal Cliff, and eliminating MID, and the $100+ billion it will cost the government in 2013, may be an option.
Obama’s tweet read, “Breaks for middle class [important] for families & econ. If top rates don’t go up, danger that middle class deductions get hit.”
And we should point out, though public support for MID is broad, it still has its share of critics, particularly in the academic sector. As Paul Waldman wrote in a recent piece for The American Prospect, MID has earned “almost universal condemnation” from economists, while research by the Joint Committee on Taxation has found its benefits are overwhelmingly enjoyed by higher-income earners. Given MID’s popularity, though, Waldman ultimately predicted that should lawmakers approach it, they’ll do so tepidly, and will at most cap the interest one could deduct.
How Would Changes to MID Affect the Housing Market?
Among Realtors, though, the message is quite clear – any changes or alterations to MID could have substantial effects on the housing market, particularly now when it is just beginning to recover. Unsurprisingly, NAR is upfront in its opposition to any MID changes, and lobbying furiously on its behalf.
Robyn Jones, the broker/owner of Robyn Jones Homes in Houston, said altering the nature of MID would mean changing the benefits of homeownership, and while there are individuals that will always own homes regardless of homeownership’s relative benefits, there are undoubtedly other consumers who could change their minds if MID were reformed.
“There are many buyers who ‘buy into’ home ownership due to the tax breaks, incentives and long-term upside of homeownership,” Jones said. “As tax incentives are reduced, so will a certain segment of the buying population, which could, of course, cause home prices to fall, as demand goes down. It is clear it will certainly affect certain segments of the market more than others, such as first-time home buyers and home buyers looking to buy bigger homes.”