By Ken Trepeta
By now, I am sure everyone reading this has heard about the so-called “lame duck” session of Congress expected after the election. The biggest issue is the “fiscal cliff” and its embedded calamity “taxmageddon.”
The spending side of the fiscal cliff is basically a series of mandatory spending cuts set to take effect as part of the August 2011 deal to expand the debt ceiling. If Congress could not agree to cuts on their own, approximately $110 billion would be cut equally from defense and non-defense discretionary spending automatically. This cut would repeat itself over a 10-year period, yielding a total of more than $1 trillion in savings. The concern is that the spending cut will harm economic growth, especially when coupled with an enormous tax increase.
“Taxmageddon” is the expiration of all the Bush era tax rate cuts on income, child credits, dividends and capital gains, as well as some from the Obama era, most notably the two-point reduction in the payroll tax. It also includes numerous “tax extenders”—tax cuts that have been around for a while but have never been made permanent. The most commonly known extender is the Alternative Minimum Tax (AMT) fix for middle class taxpayers. The fix basically prevents middle class taxpayers from getting caught in the decades old AMT. It is unclear whether Congress and the Administration will address every tax item above. In fact, it is unlikely, given the proposals from both sides of the aisle. If Congress doesn’t address the expiring cuts at all in its lame duck session, there will be a huge tax increase, which some have estimated to be more than $500 billion in a single year.
While these are major issues that must be dealt with, there are many smaller issues as well. One is “mortgage cancellation.” When a person who is underwater on a mortgage sells the home and the discrepancy in the debt is forgiven, the difference is nevertheless considered income. The result was that people were being asked to pay income taxes on money they were never paid. NAR spearheaded an effort to address this and secured legislation in 2007 that provided relief through December 31, 2012. The legislation essentially removed this phantom income from taxation. While many people have benefited, there are many more who are still in trouble and will likely need this relief. That is why NAR is working hard to ensure Congress extends the mortgage cancellation provisions past the end of the year.
Another issue is the expiration of the USDA’s eligibility rules for rural housing loans. It was feared that more than 900 communities nationwide would lose access to rural housing programs in October due to implementation of 2010 Census data in their programs. While the Office of Rural Development has delayed implementation of this provision through March 27, 2013, NAR will continue to work with Congress during the lame duck session, and throughout early next year, to address this issue.
Finally, the House passed H.R. 2446, “The RESPA Home Warranty Clarification Act,” over the summer. It is now waiting for Senate action. If the Senate does not act before the end of the year, the process will have to start all over again in the next Congress. NAR is working with industry partners and the Senate to enact this legislation before the end of the year.
There will likely be many other issues on the table during the lame duck session, as well as heading into 2013, such as H.R. 4323, “The Consumer Mortgage Choice Act,” which fixes discrimination against affiliates in the Qualified Mortgage regulation (which is due before the end of the year). In fact, many Dodd-Frank regulations are set to be finalized by January 21, 2013 and some may require legislative action to fix problems. It is important for everyone to stay engaged after the election and into 2013 and be prepared to weigh in with your Members of Congress and the regulatory agencies on these key issues.
This column is brought to you by the NAR Real Estate Services group.
Ken Trepeta is the director of Real Estate Services for the National Association of REALTORS®.
For more information, visit www.realtor.org.