Domestic Taxes

GOP tax platform stirs debate on mortgage interest deduction’s future

Republicans are not giving ironclad protections to the mortgage interest tax deduction in their platform this year, but lobbies connected to the housing industry don’t seem worried.

GOP delegates, in hashing out a draft platform this week, brushed aside language that said the mortgage break must be preserved at all costs. 

Instead, ahead of next week’s convention, the platform fully backs the push for tax reform, and says the mortgage deduction should be preserved if those efforts fall short. 

{mosads}But even with those less than airtight assurances, both the National Association of Home Builders and the National Association of Realtors said they viewed the platform language as a win. 

“At a time when so many are struggling to recover from the recession, this action helps cement much-needed political support for a tax break that primarily benefits middle-income families,” Jerry Howard, the NAHB chief executive, said in a statement. 

But some tax and fiscal analysts said the treatment of mortgage interest could illustrate a momentum behind tax reform that may not have existed in previous election years, something that could force officials to make difficult decisions on a range of tax breaks.

Four years ago, Republicans approved a platform that said that a reformed tax code “should continue to encourage homeownership, recognizing the tremendous social value that the home mortgage interest deduction has had for decades.”

The mortgage interest deduction also survived the last time Washington broadly revamped the tax code in 1986. And top lawmakers on both sides of the aisle – like House Majority Leader Eric Cantor (R-Va.) and the top Democrat on the House Ways and Means Committee, Rep. Sandy Levin (Mich.) – have in recent months and years either expressed support for the deduction, or skepticism that it’s going anywhere.

Jonathan Traub of Deloitte Tax said the GOP’s mortgage interest decision in Tampa was a sign that policymakers were taking reform seriously. 

“To do comprehensive tax reform which brings down rates in a revenue-neutral manner is going to be difficult,” said Traub, a former top GOP staffer for the Ways and Means Committee. “There isn’t an easy honey pot of loopholes to close, and that’s going to require making tough decisions.” 

Both the GOP-led House and the Democratic-controlled Senate have passed plans that would at least extend some current rates for a year, a move observers say could be attempts to lay the groundwork for reform in 2013. 

But at the same time, top officials on both sides of the aisle also disagree on basic issues – such as whether an overhaul should create immediate revenue for deficit-reduction.

Romney has said that he would like to reform the tax code without adding to the deficit, though he has not explicitly said which tax breaks were on the table to help pay for his rate reductions. 

But he has given some suggestions on what he would do with the mortgage interest break. He told a fundraiser in April that he would look to scale back the deduction for wealthy taxpayers’ second homes, and told Fortune that he would not reduce the deduction for middle-income homeowners. 

For his part, Rep. Dave Camp (R-Mich.), the Ways and Means chairman, has said a comprehensive, revenue-neutral tax reform did not have to scale back all tax breaks, though he also suggested that mortgage interest could be among the toughest discussions in reform. 

With all that in mind, some analysts say the Tampa platform decision suggests that the mortgage interest deduction will be part of tax reform next year. 

Brian Gardner of Keefe, Bruyette and Woods said that the platform language was not a major development, and that tax writers could look to cap the deduction and limit it to primary homes. 

“We continue to believe that a tax reform bill would most likely reduce the MID but not eliminate it, and existing mortgages are likely to be grandfathered,” Gardner wrote in a client note. 

The president’s fiscal commission, which some view as a template for a broad deficit package, proposed shifting to a mortgage interest credit, only for primary residences and capped at $500,000.

But a spokeswoman for the National Association of Realtors called the new mortgage interest language a “clear victory” – saying that this year’s platform gave specific support to the tax break, while the 2008 platform backed it only as part of a broader set of housing principles.

“NAR will continue to work closely with our industry partners and congressional allies to ensure all homeowners will continue to receive the MID as part of any tax reform,” the spokeswoman, Sara Wiskerchen, told The Hill in a statement.

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