Mortgage tax fight tests clout of home industry

The power of the real estate and home building industries is being put to the test in a fight with Republicans over a key tax break for homebuyers — the mortgage interest deduction.

The National Association of Realtors and the National Association of Home Builders (NAHB) worry the new tax-reform plan from President Trump and congressional GOP leaders will undercut the deduction, and the groups are vowing to use their considerable political muscle to save the benefit.

“Since 1913, [Congress has] provided an incentive in the tax code to buy a house. We as a society and as a country decided long ago that homeownership stabilized communities and increased involvement,” said Jamie Gregory, the deputy chief lobbyist at the National Association of Realtors. 

{mosads}The mortgage deduction allows homeowners who itemize their returns to deduct interest paid on their mortgage from their taxable income, and is one of the most popular benefits in the tax code.

The new GOP tax-reform plan nearly doubles the standard deduction from $12,700 for a married couple to $24,000, making it likely fewer Americans would claim the mortgage deduction. The plan also gets rid of another benefit that allows taxpayers to deduct state and local taxes from their income.

While the mortgage deduction is staying on the books, those two changes, industry groups fear, could deliver a one-two punch to homebuyers and the real estate market.

“One of the thing we’re telling members is that while the mortgage interest deduction is being retained, there is a bigger public policy effect happening,” Gregory explained. “You’re going to have less homeownership because you’re taking away one of the incentives to do it.”

The industry groups have long flexed their clout on Capitol Hill. They have members in virtually every congressional district. The industry also makes up a huge chunk of economic activity, with housing investment representing 15-18 percent of Gross Domestic Product, according to a study by NAHB. 

The lobbying groups are also big spenders. The National Association of Realtors is often the second-highest spender on advocacy, second only to the U.S. Chamber of Commerce.

Already in 2017, the group has spent more than $21 million, according to disclosure records, a total that includes all political spending, such as campaign contributions and state and local spending. 

The fight over the deduction has high stakes for both sides.

According to Svenja Gudell, chief economist at Zillow, an online real estate company. roughly 30 percent of homeowners benefit from the mortgage interest deduction. Gudell told The Hill that figure could drop to 5 percent or lower under the GOP tax plan.

The IRS says 22 percent of homeowners claimed the deduction in 2015 alone.

A study commissioned by NAR claims as many as 78 percent of homeowners use the mortgage interest deduction at some point.

The White House and Congress are strongly behind the tax plan, which they unveiled last week. And they are downplaying the effect on the homebuying deduction.

“People don’t buy homes because of the mortgage deduction,” Gary Cohn, Trump’s chief economic adviser, told reporters on Thursday.

Rep. Kevin Brady (R-Texas), chairman of the tax-writing House Ways and Means Committee, told reporters last week that despite the changes in the GOP’s proposal, lawmakers will work to ensure Americans are still encouraged to become homeowners.

“We’re focused on continuing to reward and incentivize homeownership. In a simpler tax code, a post-card style system, fewer Americans will need to itemize,” said Brady. “They’ll get their tax cut in the simpler form. So we’ll continue [to] explore ways to make sure that that homeownership and investment people make … is protected.”

Gregory said realtors are already ramping up their efforts to protect the deduction.

“We still have a long way to go. The framework has to be fleshed out, but we are starting to increase our activity,” Gregory said. “Before we get to a Ways and Means markup, yes, it will be all hands on deck,” including mobilizing the group’s members in congressional districts.

The National Association of Realtors’ political action committee (PAC) has already doled out $2.5 million to congressional campaigns and still has about $10.6 million in its coffers for the 2018 election. It also has a super-PAC at the ready.

The home builders group is taking a slightly different tact. It is offering broad support for the GOP tax plan while also voicing its concerns over the effects on the mortgage deduction.

“I’ve made a lot noise saying we’re at DEFCON 1 to be for or against this bill,” said Jerry Howard, the CEO of the National Association of Home Builders, “And we’ve pushed the button to be for the bill and we’re going to do the best we can to help craft a very good piece of tax legislation and get it passed.”

NAHB says that like Brady they want to find “creative” ways to offset any damage to potential homebuyers.

“We are very aware of the fact that the mortgage interest deduction is watered down and made very inefficient. If you read the actual language in the proposal in the itemized deduction section, it talks about a meaningful tax incentive or maintaining tax incentives for mortgage interest,” Howard said.

“We believe they are open to alternatives which might be more efficient than the proposal that’s on the table,” he continued.

He floated offering a tax credit for buying a home instead of a deduction.

His group spent more than $2 million on federal advocacy in the first half of this year, including $446,500 in political contributions.

“You put a bunch of bright people in a room and there’s all kinds of ideas that get flowing,” Howard said.

“We want to be in the room.”

— Naomi Jagoda contributed