Realtors to rally against proposed change affecting Md. mortgage-interest deduction
Realtors have kicked off a campaign to keep legislators from approving a budget proposal that would reduce the amount of itemized deductions higher-income Marylanders could claim on their state taxes, a move they say would effectively cap the mortgage-interest deduction.
They're running ads, posting pieces online and organizing a rally in Annapolis Wednesday -- with transportation provided from locations across the state -- that they hope will draw homeowners as well as agents.
The proposal, part of the consolidated budget bill submitted on behalf of Gov. Martin O'Malley, would reduce by 10 percent the amount of itemized deductions that individuals and couples can take if they have adjusted gross income of more than $100,000 but no more than $200,000. Those with adjusted gross income of more than $200,000 would see their itemized deductions reduced by 20 percent.
The Maryland Association of Realtors says this would effectively limit the mortgage-interest deduction, a big piece of what people typically itemize, as well as deductions for property taxes.
"We think it makes it harder for homeowners to own their homes and to stay in their homes," said Mark Feinroth, director of regulatory affairs with the trade group. "It's very bad tax policy."
But Raquel Guillory, a spokeswoman for O'Malley, said 10 states -- including Pennsylvania and West Virginia -- have no itemized deductions for personal income taxes. Five others, plus D.C., limit them for some filers, she said.
"Under this plan, 8 out of 10 Marylanders will see no change in their deductions," she said in an email.
A taxpayer with an adjusted gross income of $150,000 and $24,000 in itemized deductions would pay $191 extra in Maryland taxes under the proposal, Guillory said. For the $275,000-income taxpayer with $33,000 in itemized deductions, it would come to $541 extra.
The budget proposal doesn't specifically target the mortgage-interest deduction, but that deduction has been the target of national discussions about changing tax policy to help plug the deficit. Here's an example of the back-and-forth last year. And in late 2010.
Some think the deduction is a bad idea, period.
"If someone proposed a tax 'reform' designed to push house prices up and encourage buyers to borrow to the limit of their ability at taxpayers’ expense, it is unlikely that they would get much support. Yet that is precisely what the home mortgage interest deduction does," Alan Mallach, a senior fellow at the Center for Community Progress, wrote in a Reuters opinion piece last year.
He added: "No matter what real estate agents say, there is no evidence it encourages home ownership overall. When it comes to home ownership rates in developed countries, the United States is roughly in the middle of the pack, about the same as Australia and Canada, which don’t have a similar deduction. Italy abolished its deduction in 1992, and still has a much higher home ownership rate than the U.S."
Thirty-eight percent of Marylanders claimed the mortgage-interest deduction in 2008, according to the Tax Foundation -- the highest share in the nation.
The head of the Tax Foundation testified last year that almost two-thirds of the benefits of the mortgage-interest deduction go to taxpayers earning more than $100,000, along with even more of the benefits of deductions for state and local taxes.
"Many rightfully argue that these provisions effectively subsidize high-tax communities at the expense of low-tax communities or subsidize homeowners at the expense of renters," Scott A. Hodge, president of the group, said in his written testimony.
The Obama administration is also proposing a reduction to itemized deductions for higher-income taxpayers. The National Association of Realtors said it doesn't think the idea has a chance in Congress.
"The nation's homeowners already pay 80 to 90 percent of U.S. federal income taxes," Moe Veissi, president of the trade group, said in a statement. "Raising taxes on them, now or in the future, could critically erode home values at all price levels."
Thumbs up, down or sideways to the mortgage-interest deduction?