2101 Wilson Boulevard, Suite 610
Arlington, VA 22201
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April 12, 2017
Rep. Kevin Brady Sen. Orrin Hatch
Chairman Chairman
House Ways and Means Committee Senate Finance Committee
1102 Longworth House Office Building 219 Dirksen Senate Office Building
Washington DC 20515 Washington DC 20510
Rep. Richard Neal Sen. Ron Wyden
Ranking Member Ranking Member
House Ways and Means Committee Senate Finance Committee
1139E Longworth House Office Building 219 Dirksen Senate Office Building
Washington DC 20515 Washington DC 20510
Dear Chairman Brady, Ranking Member Neal, Chairman Hatch, and Ranking Member Wyden:
As Congress takes up tax reform, the Community Home Lenders Association (CHLA) writes to express serious concerns about the impact of proposals for large increases in the standard deduction – proposals that, however well-intentioned, could result in a significant devaluation of the mortgage interest deduction.
CHLA appreciates that proposals to increase the individual standard deduction – e.g., up to anywhere from $24,000 to $30,000 for a family – would have the beneficial impact of lowering taxes. However, our concern is that such proposals would also significantly reduce the effective value of the mortgage interest deduction – with potentially the vast majority of homeowners no longer benefitting from the MID.
The impact could be a lower homeownership rate, reduced home prices, fewer new construction starts, and ultimately harm to the broader economy. This is at a time when the national homeownership rate is at a 50-year low, with millennials showing less of an interest in buying a home than previous generations at comparable ages. Moreover, this is at a time when home prices are just rebounding from drops of as much as 30 to 40% in certain areas because of the 2008 housing crisis – creating the possibility of a one-two punch to the housing market. Finally, as we learned in 2008, declining home purchases, home prices, and constructions starts can cause significant harm to the economy as a whole, reducing jobs and GDP.
We believe it is important for Congress to understand the full extent of the detrimental impact of this change on homeowners, home prices, and the economy – and to take steps to ameliorate such an impact.
Therefore, CHLA requests that the Joint Committee on Taxation (JCT) be directed to calculate and display in their scoring of any tax bill the revenue impact currently associated with the MID that is transferred and effectively taken through an increased standard deduction – as well as the number of existing homeowners that would have the direct value of their MID reduced or eliminated.
Additionally, CHLA would request that any such tax bill include a restoration of all or a significant portion of this effective MID loss through the creation of a separate mortgage interest credit, mortgage interest deduction that can be utilized outside of the standard deduction, or home purchase tax credit.
More Information is Needed on the Impact of a Higher Standard Deduction on MID
Homeowners who itemize deductions receive a tax benefit from the mortgage interest deduction, while homeowners who use the standard deduction do not. The MID has a powerful impact – not just on the taxes of these homeowners – but also in creating powerful incentives for families to buy a home.
In fact, our members’ experience is that a significant percentage of families and individuals buying a home take into account the tax benefit associated with the MID in their decision about whether and when to buy a home– and that the MID is an important factor in this decision.
A significant increase in the standard deduction – particularly if coupled with other changes that curtail other itemized deductions or cap their use – would mean that a significantly higher percentage of families and individuals would use the standard deduction. As a result, such taxpayers would no longer be receiving a tax benefit from the mortgage interest deduction. More broadly, there would be a significant reduction in the tax incentives to buy a home – likely reducing the level of homeownership, as well as home prices.
Unfortunately, a scoring of the revenue impact of the increase in the standard deduction will likely not display the impact of the reduction in the effective value of the mortgage interest deduction. That is because there is no change in net revenues from the transfer of the portion of the deduction that goes from being taken through the mortgage interest deduction to being taken as part of the standard deduction.
CHLA believes that Congress should not act to significantly increase the standard deduction without being fully cognizant of the specific tax impact on the MID – both with respect to the dollar amount of the reduced MID tax benefit, as well as the number of families affected.
The JTC scoring we are suggesting would clearly show this impact.
Changes are Needed to Ameliorate Negative Impact on Mortgage Interest Deduction
It is true that families receiving an increased standard deduction would benefit through a reduction in their taxes and further that the portion of deduction that is taken in a different manner (through the standard deduction instead of the MID) would not increase the taxes of a family or individual.
However, families and individuals in the class of homeowners could be significantly hurt by this change, through a likely reduction in the value of their homes.
Therefore, CHLA recommends inclusion of a provision in such a tax bill that would either provide for a credit for mortgage interest, for the mortgage interest deduction should be permitted as a deduction outside of the calculation of itemized deductions, for a tax credit for home purchase, or some combination. These options would help restore the lost value of the MID resulting from an increase in the standard deduction.
We appreciate your consideration of this letter.
Sincerely Yours,
COMMUNITY HOME LENDERS ASSOCIATION