When the economy starts shifting, the government begins looking for ways to cut costs or “save money”. The tax benefits related to home ownership have periodically come under scrutiny as a way for the government to retain more money by not allowing certain credits, allowances or write-offs.
In December 2010, the President’s National Commission on Fiscal Responsibility and Reform (best known as the Deficit Commission) issued a report identifying tax and spending changes designed to significantly reduce the deficit over the next decade. That Commission recommended different tax options. At least three different approaches were included:
• Eliminate all “tax expenditures” (deductions, exclusions, credits).
• Eliminate the MID (Mortgage Interest Deduction) for second homes and reduce the amount of allowable mortgage debt from $1 million to $500,000.
• Convert the deduction to a 12% tax credit.
Since this report was issued, the National Association of Realtors has aggressively reminded Congress that any change to the tax rules that apply to home ownership would disrupt the market and cause home values to further decline.
The above factors deal with the monetary part of the home ownership equation. However, our general economy correlates almost directly to the housing market. The ripple effect of building a home and then purchasing it benefits individuals in numerous related companies including banks, mortgage companies, title, all the trades, heat and air, plumbing, electrical, wood production, cement, carpet, flooring, appliances, appraisal and much more.
The bigger question is “If you take away those tax benefits, what is the incentive to own”? As evidence of this, the recent tax credits offered to buyers of $8000 caused more activity and sales, showing that a credit does incentivize buyers to purchase.
Taking away these benefits would permanently and dangerously change Americans views of the American dream, home ownership. It also would immediately impact those baby boomers that were relying on what equity they have to retire and live comfortably. What about all those industries that would be impacted with less work, fewer orders for improvements, etc.? If every property eventually becomes a rental, how often will landlords improve them? Certainly not as often as a homeowner does. The end result is a huge negative impact that will have a ripple effect on everyone. There are other ways to generate revenue. If we are all trying to “run lean and mean” how about the government doing that for a number of years with the goal being no deficit?
