Senator Scott Brown (R) said there needs to be a “comprehensive” approach to an overhaul of the tax code when asked if he would fight to preserve the mortgage interest deduction at the third senatorial debate with Elizabeth Warren (D) at Symphony Hall in Springfield.
The mortgage interest deduction allows homeowners to deduct the interest that they pay on their mortgage every year. For many middle class families, this deduction is the largest and only deduction that they are allowed. If the mortgage interest deduction is eliminated it would effectively mean a tax increase for the middle class, but it didn’t seem that Senator Brown recognized this fact based on his statements during the debate.
“Let’s make it clear, I am not going to be raising taxes on anyone in Massachusetts or anyone in the United States,” Brown said before indicating that he is not committed to preserving the mortgage interest deduction.
“We need to have a comprehensive tax reform,” Brown said. “”With regard to the mortgage interest deduction, charitable deductions, and a whole list of other things; we need to do a top to bottom review of our tax code…we can’t be pitting people against each other. It needs to be done in a truly bi-partisan manner.”
At the second senatorial debate on October 1, Brown told debate moderator, Meet the Press’ David Gregory, that he would keep the mortgage interest deduction. The reason for his apparent flip on the issue could be because the Republican Party platform is also less-than-committed to preserving it.
Warren said that she would preserve the popular deduction. However, an opinion piece in the Boston Globe stated that Warren has been wishy washy on this issue as well, but she may be indicating her support for President Obama’s proposal to eliminate the mortgage interest deduction for those making over $250,000. She has been campaigning as a champion of the middle class.
The National Association of REALTOR® (NAR) has lobbied against any changes to the mortgage interest deduction. NAR believes that its elimination will lead to a drop in home prices and will destabilize the already vulnerable economy.
NAR President, Moe Veissi, stated in a Wall Street Journal letter:
“If the mortgage-interest deduction were eliminated or reduced, the value of higher-priced homes would decline, leading to lower demand and lower prices. This would ultimately hinder a housing market that is still recovering. Housing is a key driver in our national economy, accounting for more than 15% of U.S. GDP. Home sales generate more than 2.5 million jobs in an average year. As the housing market and economy stabilize, we should focus on doing no harm by maintaining current federal incentives to homeownership such as the mortgage-interest deduction.”
What’s more, according to a 2011 Gallup Poll, 61% of Americans are opposed to eliminating the mortgage interest deduction.
Some tax policy analysts say that the mortgage interest deduction benefits wealthy homeowners more than lower income homeowners, so the impact of eliminating the tax deduction on the economy and the middle class would be minimal. The Reason Foundation, a libertarian organization, concluded in their study that the average annual tax savings for those making between $40K and $50K per year save only $120, those making between $75K and $100K save $373, and those making over $200K save $1,862 per year.
However, Melissa Labant, of the American Institute of Certified Public Accountants paints a different picture, which more accurately reflects the realities of Massachusetts higher home prices. She calculated for The New York Times the tax savings with the mortgage deduction for a couple making $137,300 per year with a $350,000 mortgage at 5% interest would realize a savings of $4,735. A couple with a million dollar home with 5% interest would realize a savings of $17,500.
According to the National Association of Home Builders, “Taxpayers earning less than $200,000 pay about 40% of all income taxes. However, they receive about 70% of the total benefit of the mortgage interest deduction.”.
The mortgage interest deduction costs the federal government an estimated $100 billion a year in lost revenue.
If you are planning on buying or selling a home in the Pioneer Valley, make your first call to Michael Seward at 413-531-7129. You’ll be glad you did.