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Mortgage Bankers Cautions Against Cutting Back Mortgage Interest Deduction

Dennis Norman St Louis

Last week the co-chairs of the National Commission on Fiscal Responsibility and Reform (the group that is supposed to figure out how to rescue our country out of the financial quicksand it’s in) issued a draft proposal of a plan the committee says “will make America better off tomorrow than it is today”.

In addition to such enlightening statements such as “America cannot be great if we go broke” the report outlines a plan that makes five basic recommendations:

  1. Enact tough discretionary spending caps and provide $200 billion in illustrative domestic and defense savings in 2015.
  2. Pass tax reform that dramatically reduces rates, simplifies the code, broadens the base, and reduces the deficit.
  3. Address the “Doc Fix” not through deficit spending but through savings from payment reforms, cost-sharing, and malpractice reform, and long-term measures to control health care cost growth.
  4. Achieve mandatory savings from farm subsidies, military and civil service retirement.
  5. Ensure Social Security solvency for the next 75 years while reducing poverty among seniors.

Part of the plan for number 2 includes changes to the tax code which would reduce the mortgage interest deduction as well as tax capital gains and dividends at ordinary tax rates, rather than the current lower rates.

Given that we are about three years into a troubled housing market and still are not on our “road to recovery” necessarily, it doesn’t seem like a good time to do anything else to negatively impact the housing market and the Mortgage Bankers Association (MBA) issued a statement to that effect the same day the draft report was released. The MBA issued the followign statements:

“Given the fragile state of the nation’s housing market, now is not the time to be scaling back incentives for homeownership. The mortgage interest deduction is one of the pillars of our national housing policy, and limiting its use will have negative repercussions for consumers and home values up and down the housing chain.

“We are also concerned about proposals to tax dividends and capital gains at ordinary tax rates, which would seriously impact investment in commercial real estate.

“We share the widespread concern over the growing national debt and want to help identify reasonable solutions, but we cannot support proposals that would chip away at the foundations of the real estate market.”

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