Are fiscal cliff negotiations placing the mortgage interest tax deduction, or MID, in danger?
By Peter Ricci
Every day, if not every moment of every hour, new details are reported about Congress’ ongoing battle to avert the so-called “Fiscal Cliff,” with various policies, tax proposals and political rhetoric being exchanged across the aisles. But now, in the wake of a tweet, of all things, from President Obama, analysts and the National Association of Realtors have drawn their attention to another possible bargaining chip in the Fiscal Cliff discussions – the mortgage interest tax deduction, or MID.
Amidst Fiscal Cliff Talks, is MID in Danger?
Often called the “third rail” of tax policy, MID has been historically an untouchable issue for lawmakers, but as the president tweeted on Tuesday, should taxes on higher income earners not go up before the end of the year, the government may be forced to seek alternate forms of revenue to avoid the Fiscal Cliff, and eliminating MID, and the $100+ billion it will cost the government in 2013, may be an option.
Obama’s tweet read, “Breaks for middle class [important] for families & econ. If top rates don’t go up, danger that middle class deductions get hit.”
And we should point out, though public support for MID is broad, it still has its share of critics, particularly in the academic sector. As Paul Waldman wrote in a recent piece for The American Prospect, MID has earned “almost universal condemnation” from economists, while research by the Joint Committee on Taxation has found its benefits are overwhelmingly enjoyed by higher-income earners. Given MID’s popularity, though, Waldman ultimately predicted that should lawmakers approach it, they’ll do so tepidly, and will at most cap the interest one could deduct.
How Would Changes to MID Affect the Housing Market?
Among Realtors, though, the message is quite clear – any changes or alterations to MID could have substantial effects on the housing market, particularly now when it is just beginning to recover. Unsurprisingly, NAR is upfront in its opposition to any MID changes, and lobbying furiously on its behalf.
Emilio Palomo, an agent with Riteway Properties in Miami who also chairs the Miami Master Brokers Forum, said the essential fact that lawmakers should consider is that real estate transactions do not simply benefit agents – they benefit the entire economy.
“Not only a Realtor earns a fee,” Palomo explained. “So does an attorney, a title company, a surveyor, an inspection company, bank or mortgage company and an appraiser. And after a closing, you usually have some or all of these other people involved in some capacity: roofers, floor installers, painters, appliance stores, contractors, landscapers, furniture stores and many more; so as you can see, in my opinion, any real estate transaction not made affects a lot more people than just us Realtors.”