The U.S. tax system "ain't broke" and Congress shouldn't fix it, the head of the nation's largest homebuilder group told a House subcommittee this week.
"There is really nothing wrong with the system," said John Koelemij, president of the National Association of Home Builders. The parts of the tax code "that deal with housing incentives, we feel, should remain there."
The builders' position underscores the real estate industry's increasingly vocal opposition to the idea of revamping the tax code.
As one of the most tax-favored sectors of the economy, real estate has much to lose in such a reform. But the industry initially had taken a low-key stance to tax-reform proposals last year, apparently feeling that these plans had little chance.
But as it has become evident that the issue isn't going to go away, the volume of industry criticism has been growing.
A number of groups have commissioned studies concluding that the Treasury's plan, as well as others under discussion, would put upward pressure on rents, raise the cost of homeownership and discourage investment. Many of these groups have said, however, that they would be willing to work with Congress for some more palatable version of tax reform.
But the homebuilders, backed by the Associated General Contractors of America, took a harder line.
"What we are saying . . . is that the status quo -- that there is nothing bad about it, because the system is working," Koelemij told the economic stabilization subcommittee of the House Banking Committee Tuesday.
He added that "if there are some inequities in the marketplace, then the Congress can just correct those inequities. The Treasury Department can correct many of the so-called inequities without rewriting . . . the whole tax code."
Subcommittee Chairman John J. LaFalce (D-N.Y.), who opened the hearing by ticking off a list of 10 provisions in the Treasury's tax-reform plan that are alarming to the industry, pressed Koelemij to name the one tax benefit that he would choose to keep if faced with the elimination of all others.
"It is very difficult to point out one item that we could give," Koelemij replied, because the impacts of the various provisions are not the same for all segments of the industry.
He argued that the dramatic reduction in the budget for the Department of Housing and Urban Development over the past five years has left the tax code as the main provider of government assistance to housing. He added that in his view, the tax code has worked very well, making the United States "the best-housed nation on earth."
"We feel the remaining incentives that are in the tax code at the present time are incentives -- they are not loopholes . . . . Now, I don't know if the Treasury Department or the administration or the Congress feels we are too well housed. We feel we're not."
"In other words, you wouldn't touch anything in the existing tax code that affected housing because you believe all of those are strong points to continue a viable expansion program," said Rep. George C. Wortley (R-N.Y.).
"That is correct, yes sir," Koelemij replied.
Billy R. Carter, representing the Associated General Contractors, said, "We sort of feel the same way," adding that the reform plans offered so far would do nothing to end current abuses. "We think that if Treasury would enforce the laws and regulations that they have in place at this time that many of those abuses could be eliminated . . . . We just think they need to get on with enforcing the law rather than change it every year."
While not speaking ill of tax reform, few members of the panel rushed to embrace it, either. They indicated that the idea is popular with constituents and they are feeling pressure to act on it. But at the same time, they are worried about the possibility that the real estate industry might be right about the economic dislocations it could cause, and they are not enthusiastic about being held responsible for that.
LaFalce worried that because tax breaks do serve a variety of social purposes, perhaps the government ought to have direct spending programs in place if and when it revises the tax system.
He also urged the builders and contractors to consider the possibility that the Treasury proposal might be adopted in part, with some breaks for real estate retained. If that were the case, he said, the industry ought to have an alternative proposal ready.
"I assume that you gentlemen come to this table considering it a bargaining table where you don't offer anything initially -- you say the status quo is perfect. But I also suspect that if you're confronted with the reality of either (a) overall tax reform or (b) the necessity of raising some portion of revenues through the tax code in order to help reduce the deficit, you'd then be willing to deal," LaFalce said. But he noted, "We're not at that point yet."