The tax code may be broken, but now's not the time to fix it, at least as it pertains to the mortgage interest deduction and other write-offs afforded home owners, witnesses testified at a Senate hearing on tax reform options.
Even those who believe the MID must go don't think lawmakers should mess with it while the housing market remains mired in its worst recession since the Great Depression.
"In a perfect world," said Richard Green, director of the Lusk Center for Real Estate at the University of Southern California, it might make sense to drop the write-off in favor of a tax credit. But not now. Rather, he told the Senate Finance Committee, he would wait until the housing market recovers, adding that "it may be some time before that occurs."
Even then, Green would phase-out the deduction over time, perhaps by lowering the $1 million ceiling by $100,000 a year for 10 years.
Economist Karl Case, a senior fellow, at Harvard University's Joint Center for Housing Studies and the co-creator of the Case-Shiller house price index, favors dumping the MID because he believes it tends to lead buyers to "over-leverage" – but not until later." In the short-term, he testified, "I'd strongly recommend against it."
As might be expected, industry representatives implored the panel not to touch the mortgage interest deduction, or any other write-offs granted to home owners.
Robert Dietz, assistant vice president for tax and policy issues at the National Association of Home Builders, said the argument that the MID encourages buyers to purchase larger homes doesn't hold water. Rather, he told the committee, it allows for larger families to buy places that are sized more appropriately for their needs.
"How housing is treated will shape the economy going forward," he said.
Gregory Nelson of the Pulte Group, one the nation's largest home building enterprises, said the MID had nothing to do with the collapse of the housing market, which is now in its sixth dismal year. Lawmakers would better serve the economy and the housing sector by taking the write-off off the table, he said.
Congress "needs to reduce the uncertainty by reaffirming its commitment to housing tax policy," he said. Such a step "would tell people on the fence that it is safe to buy a home."
