Real estate industry, others under pressure to play role in reducing federal debt

These leaders have been a driving force behind the nation's economic policies since the financial crisis of 2008.
Friday, October 22, 2010; 9:28 AM

Kenneth R. Harney

Washington Post Staff Writer

Could the forthcoming report of a bipartisan presidential deficit-reduction commission - due Dec. 1 - lead to fundamental changes in the way home ownership is treated by the federal tax system?

Are you kidding? For decades the political rule on Capitol Hill has been that nobody messes with homeowners' tax benefits - mortgage interest deductions, capital gains exclusions, property tax write-offs - even if they cost the government hundreds of billions of dollars in tax revenue each year and increase the federal deficit.

But now the sheer size of the country's fiscal problems, a $1.3 trillion deficit for 2010 and a fast-mounting $13.6 trillion debt overall, could be slowly altering the equation. Not only are some Republicans and Democrats joining in support of plans to lower the deficit through across-the-board cuts in defense spending, social programs and tax subsidies, but even leaders in the real estate industry are also speaking up.

At a Washington session of the annual fall meeting of the Urban Land Institute on Oct. 14, all five panelists, Democrats and Republicans, agreed that although continuing tax-system support for housing is important, the current mix of tax incentives is costly and imbalanced, favoring home ownership disproportionately over rental alternatives.

At a private meeting after that session, one of the panelists, Henry G. Cisneros, who was secretary of the Department of Housing and Urban Development during President Clinton's first term, said serious leaders on both sides of the political aisle increasingly think that the weight of public debt, plus the hundreds of billions of dollars per year required to make interest payments to creditors, could wreck the economy within the decade.

"This is a catastrophe looming," said Cisneros, citing a Congressional Budget Office estimate that the public debt will amount to 69 percent of the national gross domestic product by 2020, hobbling the country with $778 billion in annual interest payments simply to service that debt.

Since leaving public office, Cisneros has been in the housing development industry and is executive chairman of the realty investment company CityView. Although Cisneros has long been an ardent proponent of home ownership, he now thinks that the real estate and housing industries must be willing to contribute their fair share to any "comprehensive long-term plan" to balance the budget.

J. Ronald Terwilliger, former chief executive of giant developer Trammell Crow Residential and a contributor to some Republican campaigns, agreed that federal tax incentives for ownership should be throttled back - "a phased-in reduction" over a period of years so as not to worsen a strained housing market.

Steve Preston, the last secretary of HUD under President George W. Bush, suggested that a "comprehensive policy" covering all key sectors of the economy stands the best chance of gaining the broad political support needed to push a deficit-reduction and balanced budget program through a fractious Congress.

In theory, at least, that is what the National Commission on Fiscal Responsibility and Reform is supposed to deliver to President Obama in six weeks. The 18-member commission is co-chaired by former senator Alan Simpson of Wyoming and former Clinton White House chief of staff Erskine Bowles, and has been holding hearings and gathering deficit-reduction ideas since February.

CONTINUED     1        >

© 2010 The Washington Post Company