The GOP Tax Bill Will Place A Dagger In The American Dream Of Home Ownership

Should the bill pass, Republicans in Congress will need to answer to millions of Americans who see their ambitions of owning a home go up in flames.

As we now know, both chambers of Congress have introduced their versions of legislation to overhaul our tax system, or, rather, the tax code. Some say it is reform, others more properly say it is merely a tax cut for the wealthiest and most powerful of American persons and corporations at the hands of those less fortunate, the middle class. But to give the rich their largesse, the middle class is being looked to as the sacrificial lamb by having certain deductions stripped away from them. Among the most critical of these deductions are the ones that make home ownership ― the American “dream” ― more impossible to achieve. They are state and local taxes and property taxes (“SALT”), which promise to become a real lightening rod in passing any tax legislation in the weeks and months ahead (Senate Tax Plan Diverges From House Version, Highlighting Political Pressures). Lessening the mortgage interest deduction, as House Republicans want to do, is also a problem (How The Republican Tax Plan Could Change Mortgage Interest and Property Tax Deductions).

In recent days, Congressman Peter King (R-NY) said he will not vote for the removal of any such deductions since it will mean his constituents in New York (Long Island) will find their federal income taxes going up. He espouses a view in microcosm held by millions across the nation in middle class suburbia that pay high state and local taxes. Besides New York, other states like Connecticut, Illinois and California readily come to mind. But, who cares, so says Republicans in states who do not have high SALT; what is important is to “feed” the pocketbooks of the “uber” class ― Republican donors and fat cats. This is the Robin Hood scenario but in reverse; take from the poor and give to the rich.

Rep. King also said that tax deductions impacting home ownership had their beginning 104 years ago. One hundred and four years ago? Well, he was correct. The history of these deductions had as their genesis the Revenue Act of 1913, the post-Sixteenth Amendment legislation creating the modern individual income tax (The State and Local Tax Deduction: A Primer). These deductions have had, to be sure, a colorful legislative history, most currently in the 1980s, which called for the complete elimination of them as part of discussions involving the Tax Reform Act of 1986. But in the end, this most recent major tax legislation kept in place these deductions. It is thus not the purpose to explain why these deductions were created, have remained in place, or their purpose, but what has occurred for over a century that made these deductions valuable for home ownership. In a nutshell, taxes imposed by local and state taxing bodies have gone up considerably to finance public goods and services; the price of housing has gone up; and the ability for millions of Americans to attain this “American dream” has for millions hardened over the decades. So these deductions have had a valuable place to at least offset price increases in paying the tax collector; affording the cost of a home; and paying the interest charged by mortgage companies to finance mortgages on individual residences. Remember the days of double-digit mortgage interest for long time homeowners, many of whom are probably retired by now?

The House bill (HR 1, Sec. 1303(B)) caps the property tax deduction at ten thousand dollars, and reduces the mortgage interest deduction from $1.0M to $500K. SALT was to be eliminated entirely, but that is now being negotiated as part of amendments to the House bill. The property tax cap would apply for taxable years after December 31, 2017, but, critically, not only would it apply to new purchases, but to existing homeowners too! So, for homeowners that have owned their homes for years and have relied on the property tax deduction to, in some measure, offset the cost of their homes and mortgage payments, the present House bill will coldly strip that benefit away. Unfair you say? Absolutely! The same would apply to the mortgage interest deduction (Will Tax Reform End The American Dream of Owning A Home?) Drafters of the House bill say to help offset these losses, the standard deduction will double, from $12,700 to $24,400 for joint filers and from $6,350.00 to $12,200 for singles. But isn’t the standard deduction for those that do not itemize? Those that rely on deducting SALT, mortgage interest and property taxes on their 1040s do so because they itemize and thus cannot take a standard deduction so any increase in the latter in the House bill is, in practical terms, useless and meaningless.

The Senate’s draft legislation is even worse for the middle class homeowners than the House bill. The former, for example, excludes the deductibility of all property and SALT taxes (Senate Plan Could Increase Taxes on Some Middle-Class Workers).

So while a Republican, Rep. King should be the paragon of legislators wanting to ensure fairness across all sectors of the country’s economic population. But using a dagger to cut out the heart of home ownership for the middle class by eliminating or capping SALT, property taxes and mortgage interest deductions in order to provide benefits for the wealthy and rich is a death knell for the middle class American dream of home ownership. To those Republicans in Congress, restore these deductions ― follow Rep. King’s lead.