Housing Lobby Enters Fray Over Tax Reform

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The powerful housing lobby will be in the center of tax reform negotiations on Capitol Hill for the next few weeks as lawmakers try to hammer out the legislation.

Republicans want to eliminate prized housing tax breaks to raise revenue in exchange for lowering tax rates. Real estate agents, homebuilders, and investors want to hold onto those breaks, especially the deductions for mortgage interest and for state and local property taxes.

Now, rank-and-file Republicans must decide whether to go along with the plan devised by President Trump and GOP leadership or to try to reshape it to accommodate the housing industry.

Meanwhile, housing lobbyists have only a few weeks to figure out what to cede, what to fight for, and who to sway.

"It is fluid," said one industry lobbyist.

The National Association of Homebuilders, one of the biggest housing trade groups, made a consequential decision this month. It voted not to insist on the preservation of the mortgage interest deduction. Instead, the homebuilders decided to try to work with lawmakers on finding other ways to boost housing, while pursuing the goal of lower tax rates.

The National Association of Realtors, however, went in a different direction, criticizing the plan and suggesting that the group would challenge Republicans' plans.

The homebuilders' strategy hinges on the perception that Republicans won't back down on their proposal to double the standard deduction, a signature part of their reform.

Doubling the standard deduction is a great talking point for Republicans. It represents tax simplification: Rather than having to claim deductions for charitable contributions, state and local taxes, and so on, the vast majority of people can simply deduct a larger standard amount from their taxable income. The doubled standard deduction is what allows the GOP to say most people will be able to file their taxes on a postcard.

But it would mean that the mortgage interest deduction would become less relevant. The standard deduction could provide a bigger tax break than itemizing the mortgage interest and other deductions for many people.

"From where we sit, the mortgage interest deduction is preserved in name only" in the GOP plan, said James Tobin, a lobbyist for the homebuilders group. Roughly 90 percent of the value of credits claimed for mortgage interest would be undone by a doubling of the standard deduction, he noted.

Because the doubling of the standard deduction was in the tax framework jointly agreed to by the Trump administration and Republican congressional leadership and is a core component of their messaging, Tobin sees it as a "cornerstone" of the tax reform — a measure that won't go away. Rather than try to fight it, the homebuilders will aim to convince Republicans to add other housing incentives to the bill.

The National Association of Realtors, however, signaled its opposition to the treatment of the mortgage interest deduction. The group called doubling the standard deduction a "backdoor elimination of the mortgage interest deduction."

The group raised another concern: Eliminating the state and local deduction, which provides a break for property taxes and thereby boosts homebuilding.

For that fight, they have blue-state Republicans as potential key allies.

Lawmakers such as Rep. Peter King, who represents a Long Island district, have warned that they would vote against a bill that repeals the state and local deduction.

Yet, the GOP cannot keep the deduction and get tax reform passed. "Without having that $1.2 trillion in revenue, it gets pretty hard to move toward that comprehensive reform," said Tom Reynolds, a former House Ways and Means Committee Republican from New York who is now senior policy adviser to the law firm Holland & Knight.

One way for leaders to bring New York, California, and New Jersey representatives on board would be to convince them that the final bill will include enough rate-cutting and tax relief in the form of the standard deduction and child credits that every family would be better off.

"We're still focused on delivering tax relief to every American, regardless of where they live," House Ways and Means Chairman Kevin Brady said in response to a question about eliminating the state and local tax deduction.

Additionally, taxwriters could offer a new housing incentive that would more narrowly target existing housing tax breaks to middle-class families, while doing as much to encourage housing construction and sales as the current tax code does.

One such possibility would be converting the mortgage interest deduction into a credit. With the credit, all taxpayers, whether they itemize or not, would be able to subtract part of their interest expense from their total tax bill. By doing that, Congress would raise revenue, cut middle- and lower-income taxes, and encourage even more homebuying. "You'd have a smaller subsidy, but it would be available to more people," said Eric Toder, a tax expert at the Tax Policy Center.

Another option would be to do what former Ways and Means Chairman Dave Camp proposed in his 2014 tax reform draft bill and reduce the total amount of mortgage debt on which interest can be deducted from $1 million to $500,000. That move would raise more revenue that could be applied to more targeted lower-income and middle-class tax breaks.

In the absence of legislative text for the current GOP plan, the Camp proposal remains the "baseline" for the current talks, said one industry lobbyist.

Even with Brady expected to introduce legislation in a matter of weeks, many of the key provisions that would affect housing remain a mystery, said another lobbyist. In the Senate, Finance Committee Chairman Orrin Hatch has said that he is interested in accommodating the state and local tax break.

In the meantime, the housing industry is pitted against GOP ambitions.

Last week, the free-market group Freedom Partners, closely allied with the White House on tax reform, specifically called out the National Association of Realtors for opposing the doubling of the standard deduction, accusing the group and others of "rigging the system." Freedom Partners' goal is the lowest tax rates possible.

The real estate group says its members have met with every member of Congress, trying to convince them to change the plan.

This is source I found from another site, main source you can find in last paragraph

Source : http://www.washingtonexaminer.com/housing-lobby-enters-fray-over-tax-reform/article/2637315



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