Villain emerges at Builders' Show: MID reform

Orlando -- The National Association of Home Builders (NAHB) made it very clear during the International Builders' Show that it's prepared to fight for the mortgage interest deduction. 

In fact, the fight has already begun. On a web site hosted by the NAHB called, policy and research reports make the case to save the deduction -- including research that shows the beneficiaries of the MID aren't the wealthy, but rather a cross-section of taxpayers in the $40,000 to $200,000 bracket.

During the NAHB's residential construction forecast presentation at the show, NAHB's chief economist David Crowe was asked if the removal of the MID would change his forecast of 710,000 starts in 2011. After joking that it was upsetting even to consider the subject, he answered: "That would be awful for housing."

But overhauling the MID has its supporters. This research paper from the Urban Institute and Tax Policy Center points out the MID will cost the Federal Treasury about $131 billion in 2012. "Eliminating the mortgage interest deduction would increase calendar year tax liability by $108 billion in 2012, relative to current law, and by about $1.26 trillion over 10 years," it estimated.

And the National Commission on Fiscal Responsibility and Reform's chapter on "Tax Reform," recommends a 12% non-refundable tax credit for all taxpayers, not just those who itemize their deductions. The commission also recommends applying the credit only to mortgages under $500,000 -- currently the cap is $1 million. 

A key part of the NAHB's gameplan is to debunk the alleged myth that the deduction is only for the wealthy.

Robert Dietz, assistant VP for tax and policy issues for NAHB, said it's difficult to quantify the impact of tax reform, but one can deduce, he said, that young home owners would suffer the most from MID reform. The first years of a mortgage have heftier interest payments, and therefore heftier interest deductions.

The average mortgage interest deduction peaks for taxpayers in the 35 to under-45 age group, followed by the 18-to 34-aged taxpayers, and declines as the taxpayer gets older, according to the NAHB.

Dietz added that arguments for the  elimination of the MID as a way to simplify an overly complex tax code are a poor excuse to wallop young home owners. There are some areas of tax law that are indeed complicated, he said, pointing to the process of figuring depreciation. However, the MID deduction is a simple matter of plugging in a number, usually on TurboTax, he said. 

"The MID has always been identified as a sacred cow, and politicians who challenge it do so at their own peril," said J.P Delmore, senior federal legislative director for the NAHB. 

"If the Administration doesn't embrace this as a key priority, it's going to whither and die," Delmore said. "I expect to see it highlighted." He further expects the hearing process to begin in late January. 

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