After much conversation revolving around tax policy, and anticipation from the Republican Party to successfully pass tax legislation by end of year, House Republicans passed their controversial tax overhaul plan in a successful 227-205 vote. President Donald Trump visited Capitol Hill on the morning of the announcement to promote the legislation. The Senate will still have to vote on their version before both bills are reconciled in conference.
“It’s disappointing to see this legislation move forward, but the real work to shape this debate is just getting started,” said National Association of REALTORS® (NAR) President Elizabeth Mendenhall in response to the vote. “REALTORS® will now look to the Senate as we make our case that the tax reform proposals pending before Congress overwhelmingly remove the tax incentive to purchase and own a home in America.
“This is about much more than a cap on the mortgage interest deduction,” Mendenhall said. “Rather, it is about whether homeowners will have the rug pulled out from under them with a tax system that suddenly favors renting over owning in a big way. Make no mistake: Middle-class homeowners will see their home values fall if this proposal moves forward, while large corporations walk away with the bulk of the tax cuts. American homeowners shouldn’t have to pay for corporate tax cuts with their home equity It’s a matter of basic fairness; 1.3 million REALTORS® have known since the beginning, and America’s 75 million homeowners are just beginning to learn, that homeowners will be the ones paying the tab. REALTORS® will do our part to spread the word as we work with the Senate to address this impending assault on homeownership.”
“The Tax Cuts and Jobs Act is a bad deal for hard-working American families,” said Granger MacDonald, chairman of the National Association of Home Builders (NAHB), in a statement. “It provides a huge windfall to major corporations paid for in large part by millions of working class homeowners, who will see their housing tax incentives severely diminished. The bill effectively renders mortgage interest and property tax deductions unusable for middle-class homebuyers and homeowners. By threatening the value of the largest asset held by most Americans, these changes will hurt the middle class by lowering household wealth.
“The House bill also severely diminishes the effectiveness of the Low-Income Housing Tax Credit (LIHTC), which is essential to spur the production and rehabilitation of affordable rental housing,” MacDonald said. “With the nation already in the midst of an affordability crisis, undermining the LIHTC will deal a crippling blow to keep housing affordable and available for those citizens who are most in need, and the bill will make it far more difficult for small businesses to compete and thrive because it disproportionately benefits corporations. Given the major shortfalls in the House tax reform bill, NAHB will look to the Senate to craft a better package that meets the needs of middle class families and the small business community.”
On the eve of lawmakers’ vote for the House tax overhaul bill, NAR outlined its stance on both bills and the effect they will have on homeowners and middle-class Americans in a media conference.
Mendenhall stated that the Association is sharing the message of its 1.3 million members that “Tax reform should first do no harm to homeowners,” a sentiment she said does not ring true in the proposed bills.
In terms of tax policy, Mendenhall said it goes beyond the mortgage interest deduction, stating that the removal of the State and Local Tax (SALT) deduction is an overarching problem, and not just in high-cost states. According to Mendenhall, the removal of the SALT deduction will raise taxes on middle-class homeowners, while others will not get benefits at all. Before Evan Liddiard, NAR’s senior policy representative, presented in the conference, Mendenhall ended with the question, “Do we want a nation of renters or a nation of homeowners?”
Liddiard delved deeper into the proposed tax reform, breaking down the impact of various policies on the industry overall. He began by stating three major concerns:
- The bills eliminate or cripple tax incentives for homeownership, while making home values drop.
- The proposed plans discriminate against millions of middle-income homeowners.
- The policies will freeze the real estate market and will inhibit wealth and growth through homeownership.
In terms of the standard deduction, Liddiard believes it is not a true doubling, but rather a bait and switch, adding that it will make renting and owning equivalent in regard to tax deductions for the great majority, and will also lower home values by more than 10 percent.
He added that these problems would be exacerbated by the $500,000 mortgage interest deduction cap in the House bill, the lack of a deduction for second homeowners in the House bill and the repeal of SALT—a full elimination in the Senate bill with only a partial removal in the House bill.
Liddiard called the bills an overall assault on housing as they limit or exclude gains on sales of principal residences, and repeal the deduction of student loan interest, which will make it more difficult for millennial buyers to purchase their first homes. In addition, Liddiard said the repeal of moving expenses and the dilution of low-income housing units being built will have a destructive impact on homeownership.
Along with other proposed changes, Liddiard said the alteration of the child tax credit mitigates problems for some, but not all, as older children over 16 don’t qualify in the Senate bill and many larger families lose out.
According to Liddiard’s breakdown, the House bill increases the child credit from $1,000 to $1,600, and gives the Family Flexibility credit to each adult (expires after five years). Meanwhile, the Senate bill increases the child credit from $1,000 to $2,000. In the end, Liddiard said families will come out behind by $438 per child if the tax policy is changed according to the House bill.
NAR has been very active in its opposition of the bills. According to Jamie Gregory, NAR’s deputy chief lobbyist, the Association is running online videos in up to 60 districts.
“There is recognition (from lawmakers) that these provisions will cause damage. We will be really focused on what happens in the next few weeks,” said Gregory.
According to Mendenhall, “This is the largest grassroots efforts that NAR has been behind.” She reiterated that they will continue to fight for a tax policy that benefits homeowners.
NAR isn’t alone in voicing its opinions against the bills. Members of the real estate industry in California, which stands to lose because of its high cost of living and housing crisis, is speaking out, as well. The California Association of REALTORS® (C.A.R.), along with the California Building Industry Association (CBIA) and the California Housing Consortium, sent an open letter to President Trump and the California Congressional Delegation this week.
“Tax reform shouldn’t hurt Californians, but this proposal does, in a big way,” said C.A.R. President Steve White in the letter. “This plan eliminates important incentives that help first-time homebuyers and existing homeowners by capping the mortgage interest deduction and limiting property tax deductibility, as well as capital gains exemptions. From the Oregon border south to San Diego, working Californians take a beating.”
Meanwhile, the CBIA asked Congress to maintain property tax deductions and keep the mortgage interest deduction at its $1 million cap.
“When the average home in California costs two-and-a-half times the national average, now is not the time to limit incentives to homeownership,” said Amy Glad, interim chief executive officer of CBIA in the letter. “Housing is a major stimulus to the economy, a tremendous job generator and an essential component for lifting people out of poverty for first-time homebuyers and minorities and middle-class families.”
Stay tuned to RISMedia for more developments.
Liz Dominguez is RISMedia’s associate content editor. Email her your real estate news ideas at ldominguez@rismedia.com.
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