NAHB SAYS FEDERAL TAX PLAN HURTS HOMEOWNERSHIP |
A presidential commission report calling for an overhaul of the nation’s tax code was blasted by NAHB as a “the biggest tax hike for home owners ever proposed.†Developed by the President’s Advisory Panel on Federal Tax Reform over the past 10 months, the tax overhaul was presented to Treasury Secretary John Snow on Tuesday. Among other things, the plan collapses six tax brackets into four, eliminates the Alternative Minimum Tax and replaces the popular mortgage interest deduction with a much more limited 15% tax credit. It also eliminates deductions for state and local taxes and interest deductions currently permitted for home equity loans and second homes. “It’s the biggest tax hike for home owners ever considered,†said Jerry Howard, executive vice president and CEO of NAHB. “Replacing the mortgage interest deduction would punish millions of home owners, particularly those living in California and other high-cost markets. Equally disturbing, the tax reform proposals would reduce home values and send a chill through the housing market, which has been leading the economic expansion for the past three years.†Under the panel’s plan, most deductions, credits and other tax breaks would be eliminated under a dramatically simplified income tax structure. The current six tax brackets ranging from 10% to 35% would be replaced by four tax brackets of 15%, 25%, 30% and 33%. Under current tax law, homeowners are permitted to deduct interest payments on mortgage debt of up to $1.1 million, including $100,000 for home equity loans. That deduction, under the tax panel’s proposal, would be replaced by a credit equal to 15% of the interest paid on mortgages ranging from $227,000 to $412,000 in high cost markets. For ongoing updates on this subject, go to: www.nahb.com Comment anyone? blue |
Replies
That's likely going to split along high-price markets and low-price markets.
There's not a lot of building being driven by MID until you get into the larger developments in the three/four larger cities in Texas.
I'm sure it's easy to cast this argument in the way it has always been traditionally framed, using very expensive markets as examples. Except that such markets are only a fractional share of the market as a whole. Ok, so there will be a strong impact in CA, and in several markets--but not all markets, I'm thinking. Yuba City, Mendocino, Fresno even, seem like unlikely markets for "bay area" prices where MID would affect the economics of building/ownership.
But, that's just my read, too. Others differ. Many of whom seem to all have incomes based on percentage of sale price, so selling more expensive homes might be seen to be in their financial interest. (Yes, there's a ton of conditionals in that statement, which is deliberate, it is meant as a generalization--don't want my Realtor aunt in SD to come beat me up <g>.)
Equally disturbing, the tax reform proposals would reduce home values and send a chill through the housing market
The last thing our industry needs is a "chill"! This particular "chill" kinda reminds me of the last time we had a major tax change (1979 I think) in the real estate field. The shock wave sent our industry into a recession and it took almost a decade to climb out of it.
When you combine this "chill" with the other scary signs in the housing industry, well, I just don't like it. I've survived two major downturns and I'm not looking forward to the third.
blue
When you combine this "chill" with the other scary signs in the housing industry
Quite. Scary stories are supposed to be reserved for around campfires and the like.
Late 70's was back i nthe scary days of prime rates in double digits (and all you needed to open a thrift was some letterhead). With inflation rates similar to the interest rates (and top tax rates still in th 74% range), 'ordinary' folk needed MID just to get by, buying a house. I'm not sure that MID does that much for enough people to justifly it as national policy.
But that may also be because the few people I know who are making decisions based on MID are already ridiculously (to my hugely conservitive--bearish-- & old-fashioned thinking) over-extended in the first place. Creating a business model that 'relies' on other people's higher-financial risk-taking just seems a little scary to me.
Ok, and I'm not trying to get by in the Bay area, or the LA basin, or around Boston (or far too many places in the BosWash corridor) or the like.
I'm not real happy that my local area seems to have most of the commercial construction "leveraged" with strip lease space (we have about a 450% surplus of strip lease space now). But the market & financial conditions do not offer much more to make one's bread & butter upon. It's not a comfortable feeling by any measure.
At the same time, using my tax money to "pay" for other people's mortgage interest does not warm my libertatian feelings any too much either. As I have no better answer at present, in the present is how I will live. Occupational hazard of my occupation not being around (sorry Bubba)
"...eliminates the Alternative Minimum Tax and replaces the popular mortgage interest deduction with a much more limited 15% tax credit."
What exactly is the "15% tax credit"? I heard that term, but don't know what it means yet.
Boss, I don't know anything about the new tax plan. That 15% is a mystery to me too. I just relayed this topic because it was sent to me from my builders' association.
blue
There are a lot of tax plans. Most make someone unhappy.
Wait until a plan passes. Learn how to live with it.
MID's are actually "housing subsidies" from those who truly own their homes (not "renting from the bank").
Owners pay the full tax with no credits, while borrowers (renters) are allowed deductions based on how much interest they pay. Owners, therefore, are penalized for being good stewards of their finances (maximum down payment and quick payoff or outright purchase with savings) while borrowers are rewarded for leveraging home "purchases" as much as possible.
I think that the concept is bassackwards.
NOONE should, I believe, receive ANY benefit either way. Lower risk in return for ownership (+ appreciation, - depreciation), higher risk for leverage. As it is now, the higher risk (borrowing) is rewarded with maximized returns (+ appreciation, - depreciation + tax deduction incentives) for minimized investment (down payment).
If MID's were removed, I believe "true" ownership rates would rise, "McMansions" would decline and neighborhoods would become more stable over time.
I say slay the deduction. I'm ready to cull through the carnage and take advantage of the lower prices. But then, we're not "renters" and the depreciation of market prices will affect us very little.
Troy Sprout
Square, Level & Plumb Renovations
Great points Troy.The MID (as are most parts of our convoluted tax code) is a highly prized "special interest" tax break that benefits home borrowers (not home "owners") and some builders. Not that special interests are necessarily bad. Everybody enjoys some sort of lobbying on behalf of their wn special interest. But at least understand where this argument is coming from.I personally enjoy a MID, but I would be happy to do without ANY convoluted special interest driven tax code if it means simplifying our tax code and reducing overall taxes. My only worry is simply removing this break, and not as part of the process, overhauling the entire tax code (anybody remember Steve Forbes?).However I feel a little taken aback by the NAHB hijacking this forum with their obvious scare tactic polical posting. I bet you will find this exact posting slammed all over message boards everywhere. It is the equivelant of message board junk mail. Would prefer the forum be left to individuals and individual business.
"I feel a little taken aback by the NAHB hijacking this forum with their obvious scare tactic polical posting."
The NAHB didn't post that here - One of our long-time posters did.
Seems to me it's a reasonable way to bring the topic up for discussion.
The only difference between a tax man and a taxidermist is that the taxidermist leaves the skin. [Mark Twain]
One of our "long-time posters" obviously just cut and pasted an NAHB press release. Same difference. If one feels strongly enough to post, one ought to at least be able to put it in his or her owns words.
"One of our "long-time posters" obviously just cut and pasted an NAHB press release. Same difference."
No - It's COMPLETELY different. The NAHB didn't post it here, which is what you said.
"If one feels strongly enough to post, one ought to at least be able to put it in his or her owns words."
If he puts it in his own words, then everything we read is subject to HIS interpretation of what he read. By posting it here for us to read, everyone can draw their own conclusions and then discuss it.
Education is going to college to learn to express your ignorance in scientific terms.
One of our "long-time posters" obviously just cut and pasted an NAHB press release. Same difference. If one feels strongly enough to post, one ought to at least be able to put it in his or her owns words
I'm far too lazy for that.
Im not too hip on politics. I prefer sports talk radio. I'm not totally an ostrich and if the NAHB, which lobbys on behalf of my profession, speaks up, I'll read a bit about it. I didn't actually go to their website though, because I'm not that interested...yet. I gotta give this some time and see how the pols change this into a tax increase with an increase in the home mortgage deduction. Of course they'll probably tack that onto a law against kiddie porn or something so everyone will vote for it.
I'm just offering a warning to the youngsters that haven't experienced the wonderful life of no construction. I believe it's coming. I've seen it before and there are a lot of signs telling me that it's coming faster than later.
Get your name off the notes.
blue
the higher risk (borrowing) is rewarded with maximized returns (+ appreciation, - depreciation + tax deduction incentives) for minimized investment (down payment).
That's a good point, in the harshest sort of black & white economics of it. I still feel it's better, overall to have more owners, even if less financially well-off than fewer.
I'm just not sure that a federal subsidy like MID is the best way to achieve that.
That will not be good news for people who are in the most expensive housing markets, the ones paying $12-14,000 or more in interest every year (about where MID makes financial 'sense') just because the market makes their house three times more expensive than mine.
The fact that some places, one modest income wil lbuy the same number of square feet as two superlative incomes barely can in another is not likely well corrected by federal tax law, I'm thinking.Occupational hazard of my occupation not being around (sorry Bubba)