Homeowner Tax Breaks: Here Today, Gone Tomorrow?
Policy + Politics

Homeowner Tax Breaks: Here Today, Gone Tomorrow?


While owning a home continues to be widely perceived as a good personal and financial decision, many Americans are now questioning whether encouraging home ownership should be a government priority, according to a new survey.

An Allstate/National Journal/ Heartland Monitor poll released Thursday found that  51 percent of Americans believe that government  tax policies and other incentives to encourage  home ownership have destabilized many communities because of excess debt and soaring foreclosure rates. The poll focused on how Americans have been coping with the post-recession economy and how they view home ownership.

Americans were divided — 46 percent on each side — over whether the federal government should continue funding home ownership programs such as tax incentives for first-time buyers and mortgage interest deductions.

“The government’s role in the housing market was part of the problem,” said Jared Bernstein, chief economist and advisor to Vice President Biden, at a conference sponsored by the National Journal on Thursday. “It got way out of hand and that needs to be corrected. One of the most important parts of that correction is winding down of the GSEs [government-sponsored enterprises]. There is a role for government but it has got to be one that supports sustainable homeownership, not the kind we had.”

The survey follows a 16.9 percent plunge in the annual rate of new single-family home sales in February -- a record low level of 250,000 sales.  Continued high unemployment, a glut of housing inventory and tumbling home prices were the primary drivers of the decline.

The poll found that despite the housing meltdown in 2007, American’s still want to buy homes as part of what they view as the American Dream, but for many the purchase of a home is at least temporarily out of reach.
The underlying consumer demand for homes has not changed, but there is a temporary imbalance of supply and demand, said Tom Wilson, Allstate chairman and chief executive officer.  According to Moody’s Analytics, the existing home inventory is beginning to clear and is drawing closer to a normal level g of about a six month supply, but it’s still holding back home sales.

The rapidly falling home prices and an uncertain labor market have given potential buyers little incentive to purchase a house in the near future. Other experts said tight credit and high unemployment are the primary drivers behind anemic home buying trends.

Meanwhile, limiting the mortgage-interest deduction continues to be a discussion of federal tax reform. Mortgage-interest deduction is one of the costliest deductions in the tax code. It is estimated that it will reduce 2012 tax revenue by $131 billion.  Forty-three percent of Americans polled favored eliminating or limiting the tax break for mortgage interest. The poll suggests one reason may be that few Americans understand how they benefit from Washington's role in homeownership. Three-fourths of homeowners said they have not benefited from any federal program to promote ownership, even though 71 percent of those owners acknowledged they take the mortgage interest deduction.

A group of panelists on Thursday agreed that mortgage-interest deduction should not be revisited now or changed while the housing market is depressed. Jerry Howard, CEO of the National Association of Home Builders, was confident the mortgage-interest deduction would remain as is, even as the federal deficit conversation, which stands at $1.6 trillion, grows louder.

Last year former senator Pete Domenici, R-N.M., and former Congressional Budget Office director Alive Rivlin proposed limiting the mortgage interest deduction to loans under $500,000 in their deficit reduction report. Henry Cisneros, former Secretary of the Housing and Urban Development, was on the Domenici-Rivlin Debt Reduction Task Force and endorsed the idea to replace the mortgage deduction with a refundable 15 percent credit.

“While I don’t advocate fiddling with the fundamental mechanism, it’s certainly viable to me to think in terms of second homes and vacation homes and boats,” Cisneros said.

Asked whether there would be significant changes to the mortgage interest deduction, he said it’s not an easy fight and depends on Congressional action. “If they are really serious and they put something on the table that hurts a lot of interests in order to get ‘the big deal’ that has been described, then I think there will be changes to the home interest mortgage deduction,” Cisneros said. “It wouldn’t be eliminated.”

Related Links:
Why Some Americans Will Always Buy (National Journal) 
Q&A: Foreclosures, Property Taxes, Deductions—and More (Wall Street Journal)
The Foreclosure Fighters (The Fiscal Times)