Representatives of housing and related industries reacted with anger and alarm yesterday to word that Treasury Secretary Donald T. Regan may propose eliminating tax deductions for mortgage interest on second homes.
"Details are skimpy as to what the Treasury means by second homes, but assuming it includes any structure other than a primary residence, this is a premier example of callous disregard for good sense both for consumers and for producers and workers in the housing-related industries," said Randall Scott of the American Land Development Association, a trade group representing a variety of types of developers, including builders of vacation homes.
Eliminating the deduction would mean that much rental housing no longer would make economic sense, resulting in "a massive dumping of rental property on the resale market," Scott said. That, in turn, would undercut prices of existing houses and "disasterize new housing production," he charged.
The idea surfaced Monday following comments by Treasury Department spokesman Marlin Fitzwater that Regan is studying the need for new tax increases to cut federal deficits. However, Regan has not spelled out what new taxes he has in mind, and President Reagan warned reporters, "Don't believe everything you read in the papers."
Fitzwater noted that the proposal would raise only modest amounts of revenue, and most industry spokesmen pointed to that as evidence that the Treasury's real goal is limiting or eliminating all mortgage interest deductions.
"It's really the first step toward an all-out assault on mortgage deductability," said Bill Ellingsworth of the National Association of Home Builders.
Mark J. Riedy of the Mortgage Bankers Association of America and Jack Carlson of the National Association of Realtors described it as a "foot in the door," and Scott termed it a "nose under the tent."
The mortgage interest deduction is "a tempting target for those who look only at economic efficiency, as this administration is prone to do," said Carlson. He added that the proposal illustrates the "limited perspective of the Treasury Department. The tax code is not just an efficient mechanism for raising funds -- it also affects incentives," and homeownership is one that should be encouraged, he said.
The administration is "not credible" now, he added. "They say they want to cut spending but only in certain areas." To be credible, "You have to be across the board," he said.
Riedy agreed. Proposing elimination of the deduction "might give the appearance of doing something but, in fact, it's avoiding the real problem," he said.