It’s not enough to save the MID if most middle-income households end up paying more.
By Lawrence Yun, NAR chief economist
Renters will come out ahead, albeit temporarily, if the “Big 6” tax reform framework is passed in its current form. They stand to get about $500 in tax cuts each year. The plan was released at the end of September by the Trump administration and Republican leadership in Congress.
Because there is no free lunch, who then will foot the bill? Homeowners. Particularly families with children. While it’s unlikely lawmakers intended to hurt them, that will be the result.
Tax reform is a laudable goal. Lower tax rates are what people want. And Americans are fed up with the many hours it takes to comply with today’s complex code.
But a reform at the expense of homeowners is misdirected. Homeowners already pay 80 to 90 percent of all federal income tax in any given year.
The plan to double the standard deduction (from about $12,000 to $24,000 for a family) means far fewer homeowners will use the mortgage interest deduction. Some homeowners may come out ahead while others will lose out. But larger families will be faced with a particularly difficult challenge, because the personal exemption and the exemptions for dependents, which are both $4,050 per individual, would go away.
For renters, who don’t take the mortgage deduction, the higher standard deduction will likely make most of them better off. Historical data has shown that renters do not accumulate wealth over the long haul. The latest Federal Reserve data show the typical wealth of a renting household has fallen from $5,900 to $5,100 since 2010, while homeowning households have seen their wealth jump from $192,800 to $231,400.
Congress needs to thoroughly review the tax code with an eye toward simplifying it and reducing the tax burden on Americans, particularly middle-income households who today pay a disproportionate share of our nation’s taxes. Reduced payments in a simplified system could even boost long-term GDP growth. But Congress must never forget, sustainable and successful homeownership should be encouraged.
Reprinted from REALTOR® Magazine Online, November 2017, with permission of the National Association of REALTORS®. Copyright 2017. All rights reserved.