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February 28, 2012

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?

Posted by Jamie Smith Hopkins at 6:00 AM | | Comments (16)
Categories: Mortgages


Well If I lose the Deduction i would just walk away from my house and let the bank take possesion of it. i could then rent a House or appt and not have the problems of owning. Thanks governor you are making my decsion easier for me.

Joe-Ball, you realize the proposal isn't to get rid of the deduction, right?

Thumbs way down. This is obviously just another money grab by our leaders in Annapolis. Instead of making tough choices to run an efficient government, they elect to take money from the people THEY feel can afford to pay more. Most people make long term housing decisions that factor in the size of the mortgage & thus deductions. Our leaders want to rewrite the law to effectively render those housing decisions ineffective. Two facts: 1) Per capita, Marylanders earn more income than 90% to 95% than other states, 2) As a percentage, we also pay more in taxes than 90% of the other states. Those two facts combined tell you that our leaders ALREADY have more of our $$$ per capita with which to run our state gov't than any other state. What services do we get that other states don't? We obviously have one of the least if not THE least efficient state governments in the US. I'm so sick of people in Annapolis justifying their tax increases. Just admit, you have made poor decisions and you want us to bail you out. The only solution is to VOTE THESE PEOPLE OUT. Don't just vote one party...that's why Annapolis has such a culture of entitlement.

Thumbs up - we're being asked to pay more at the pump and give up some deductions in the name of balncing the budget. Unless someone has a better idea I think we need to get our house in order as a State and learn to live within our means. That should mean paying more in some ways and spending less in others, and this is a spending less proposal because it's eliminating a deduction, not raising a tax.

In respose to Kevin's rant about what our taxes go to in Maryland, I would say that at least we have the best public education system in the country, and first rate public libraries. I don't want to pay any more taxes than I have to, but I do think that education (vocational, traditional, technical, etc) is extrememly important to us all.

Tax deductions should be seen as a windfall, not a guarantee. If the underlying rate is inappropriate, change that. But with the low levels at which states charge income tax this is just monkeying around the edges. $200 or $550 had better not be breaking anyone making $150K or $275K.

In the long term the deduction needs to go away, at least in its permanent form. It may be a good idea to forgive taxes on the immediate cost of buying a house, but getting the interest deducted in years 2, 3, 10, 20 encourages people to pay too much for real estate.

According to all metrics, we Marylanders already pay more...and you say it is for education & libraries. What else?! Agreed, we have a pretty good educational system in Maryland but is that because it is the most expensive? I'm sure that the students in Baltimore City & PG county would not agree that they are getting a good education and their spending per student is THE highest in the state. Additionally, the state is shifting the majority of teacher's retirement obligations to the counties while still raising our taxes. What do you think the counties will do in response?

My point is that our existing gov't is not efficient. Do you really think Annapolis will lower our taxes in the future if revenues exceed expenditures or will they simply find another way to spend our money.

Do our citizens really have a spending problem? Personally, I think our state gov't has a spending problem. Jim, the state's spending issue can be solved in one of two ways - cut spending or raise revenues. This proposal is a "raising revenues" solution. Eliminating a deduction is that same as a tax increase. If you think Annapolis is being run adequately as is, then that is your opinion. I do not call your response a rant, I'm simply stating that we as citizens should demand more from our elected representatives. The one party system in MD just ensures that all idea's will not be explored. We also need citizens to be more informed and not buy into every argument coming out of Annapolis to justify spending increases. How efficiently are existing revenues being spent?

How wrong - well I just watched a 23 year old who bought a house two years ago fill out his income tax - and as he waited for tax turbo - he said just wait until I add in my mortgage interest deduction-I'll get money back. And he did! His income by the way - well let's just say that a trip to McDonalds would be exciting!

Regardless of what other states do or do not do, housing and real estate are one of the most heavily taxed sectors of the economy. Maryland has one of the most aggressive real estate tax structures in the country, ranking 11th among all states in terms of total real estate tax burden. Asking Maryland homeowners, who are already overly burdened tax-wise to pay more is simply unfair.

On the first home purchase with no limit relative to income and successive purchases of primary residence up to $X in AGI... yes 100% mortgage interest deduction.

Second homes, vacation homes, primary homes if AGI is above $X... no mortgage interest deduction.

90% of working Americans won't see any difference in their lives. The other 10% can fend for themselves.

I agree Kevin, that government should be run as efficiently as private business. I work for a medium size business and when things tightened up 2007-2008, we did too, and we found ways to do what we had to with less.

When I say that gov't could be run better though, it's with the acknowledgement that I can't think of a single service I would cut or position I would eliminate.

Roads, schools, police, fire, libraries, rec's and parks - I use all these services and don't want to see them diminished. Do you have any specific suggestions? I just don't think a 10-20% haircut is outragous. I did see Franchot was at this rally so the bill is most likely DOA anyway. He's got an election coming up too.

Why do people let this nonsense perpetuate? In light of all the fraud and shenanigans involving housing of the last decade, isn’t it time to expose the mortgage interest tax deduction for what it really is---a way to spend/borrow/and get taxed on a higher value of your home? How does that benefit anyone other than banks and gov't? If we give everyone in the US 100k towards the purchase price of a home, what do you think that would do to home values- they would go up by 100k-DUHH!

Jaime- Set this up. I will debate any realtor (or for that matter anyone else), anywhere, at anytime in any public forum about the notion of home ownership as an investment. It will be like debating a 5 year old. If realtors were truly on your side, they would be rallying against this deduction because it encourages you to borrow more and get taxed on more. THIS IS A BARRIER TO HOME OWNERSHIP. Lowering the entrance price helps remove the barrier. If you know a realtor, ask them why they support such hypocrisy and watch them squirm.

elweedz, I don't get to set up public forums (I'm pretty overwhelmed these days with just my reporting/blogging duties), but I think that would be a very interesting debate.

Jaime- i know you are busy and i was a little fired up on my post.

But- I also know enough of them read this blog and you wont hear a peep from them in response.

Home values increasing isnt income. It allows you to borrow against it. Yeah another loan, how wonderful for you.

Thumbs Down-
The government cannot do their job so they are sticking it to us to fix it for them. if any business was so bad that they couldn't balance a budget as bad as the MD government has, it wouldn't exist. I live in Montgomery county and get taxed enough. Taking a tax break away from me is gonna make things even tougher. Also, how do they expect to get people to want to live in this state? Millionaires have already flocked to Virginia when they produced that millionaires tax that they are looking to resurface. Genius! Keep it up boys. Bang up job so far.

Take all deductions away and give us a flat tax rate! Then we won't have to hear anymore about "higher income" taxpayers. Everyone pays the same rate regardless of your income level

I think the bill as described is unfair, since it picks winners and losers based on an arbitrary income cut-off. It kind of wreaks of class warfare.

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About Jamie Smith Hopkins
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
Baltimore Sun articles by Jamie

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