Commentary: Eliminating the mortgage deduction would threaten recovery

Policymakers who are looking to curtail or even eliminate the mortgage interest deduction in an attempt to ease the federal deficit should seriously reconsider before going down this path.

Any attempts to tamper with the mortgage interest deduction would not only undercut the housing market, but also raise taxes on millions of home buyers and homeowners, exert more downward pressure on home values and threaten the fragile economic recovery.

This vital housing tax incentive primarily helps middle-class homeowners; 89 percent of taxpayers who use the deduction make less than $200,000 and virtually anyone who has ever owned a home has utilized this deduction at some point.

Eliminating the mortgage interest deduction would be especially harmful for the Washington. There are about 113,000 homeowners in the nation’s capital and more than 81,000 benefit from this deduction. The average homeowner in Washington claims almost $17,000 in mortgage interest deductions for a tax benefit of nearly $3,000, according to an analysis of IRS data by the National Association of Home Builders.

For many young households living in a high-cost market such as ours, the difference between ever being able to afford a home or not will hinge on the availability of the deduction. This is particularly true when you consider the transient nature of the metro area. Many homeowners, whether in the military, government or other forms of public service, stay here for a few years. The bulk of these households are comprised of younger buyers who have growing families, limited wealth and depend on this tax provision as an important part of their family budget. Undermining the mortgage interest deduction would hurt the ability of new arrivals to buy homes, and for those leaving the area, to sell their homes.

A study by the Tax Policy Center found that merely limiting the deduction to a 28 percent maximum tax rate — as the Obama administration proposed — would cause housing prices in large metropolitan areas such as ours to tumble by as much as 10 percent.

At a time when stabilizing housing prices is of paramount importance to restoring the economy, a deliberate action by the nation’s elected leaders to devalue homes and force even more homeowners under water would trigger a new wave of foreclosures and cause already cash-strapped local governments in D.C. and surrounding areas to further cut jobs and essential services.

With the cost of housing production financing soaring for the lucky few builders still able to obtain it, the price of building materials on the rise and profit margins already at razor-thin levels, doing away with the mortgage interest deduction would be especially harmful for condo development in Washington and single-family production in both the inner and outlying suburbs.

Idling more construction workers, hurting homeowners and reducing tax revenues for local government will certainly not get our local or national economy moving again.

The mortgage interest deduction has been embedded in our tax code for nearly a century, and this longstanding policy has helped millions of Americans achieve the dream of homeownership. When you consider that each new home generates three jobs and nearly $90,000 in federal, state and local taxes, what we need from Washington are actions that will create sustainable upward momentum in housing.

Bob Nielsen is chairman of the National Association of Home Builders, a Washington-based trade association that helps promote policies that make housing a national priority.

 
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