The Chair of the House Ways and Means Committee wants to reform the monstrous tax code, but his comprehensive initial slate of ideas has people in the housing finance industry up in arms.
On Wednesday U.S. Rep. Dave Camp, R-Mich., unveiled his Tax Reform Act of 2014, which critics say could drastically increase taxes on homeowners and homebuyers, and which would levy a new lending tax on financial institutions.
“This legislation does not reflect ideas solely advanced by Democrats or ideas solely advanced by Republicans, nor is it limited to the halls of Congress,” Camp said. “Instead, this is a comprehensive plan that reflects input and ideas championed by Congress, the Administration and, most importantly, the American people. In other words, it recognizes that everyone is a part of this effort and can benefit when we have a code that is simpler and fairer.”
(It’s a hefty read, just shy of 1,000 pages, but you can read the Tax Reform Act of 2014 here.)
Among other items of contention and concern for homeowners and financiers, the proposed act would limit mortgage interest deductions and gradually step down the maximum amount. The current limit is $1.1. million on a principle and second residence, but the reform bill would limit that to $875,000 in 2015, $750,000 in 2016, $625,000 in 2017 and $500,000 in 2018 and beyond.
Camp’s bill would also repeal the real estate tax deduction for state taxes in states with a property tax, and tighten the requirements for the exclusion gains from a principal residence sale, extending the residency requirements. Finally, the bill eliminates in 2015 the moving expenses deduction and repeals green home improvement tax credits.
So which organizations are opposing these fundamental reforms to the tax code? Pretty much every association with the words “bankers” or “finance” in the name.
Among others, the American Bankers Association, the Consumer Bankers Association, the Financial Services Forum, the Financial Services Roundtable, the Independent Community Bankers of America, the Institute of International Finance, the Mortgage Bankers Association, the Property Casualty Insurers Association of America, the Securities Industry and Financial Markets Association, the Clearing House Association, and the U.S. Chamber of Commerce.
“(I)n keeping with our support for pro-growth tax reform, we write to strongly oppose the imposition of any arbitrary new tax on financial institutions. A targeted tax on financial institutions, regardless of form or motivation, is misguided and utterly at odds with the fundamental objective of comprehensive tax reform,” states a letter signed by the aforementioned associations. “The assessment will penalize customers, employees, and investors, increase the cost of capital for American businesses, and undermine the competitiveness of America’s financial sector -- all of which will adversely impact economic growth and job creation.
“A specific tax imposed on a single industry sector is wholly inconsistent with the fundamental purpose of tax reform -- to broaden the tax base, lower rates, simplify the code, and reduce economic distortions that impede growth. As a glaring diversion from that broad objective, a financial institution tax undermines the compelling logic of, and argument for, tax reform, jeopardizing the broad consensus necessary to achieve that important goal. It is no better to drive capital away from certain industries or sectors than it is to divert capital to favored industries through special tax breaks,” they write. “Authentic, pro-growth tax reform cannot entail unintended consequences that would undermine economic growth, job creation, and America's international competitiveness. For these reasons, we respectfully request that any new targeted tax on financial institutions be rejected.”
While observers and insiders say they don’t think Camp’s tax overhaul will pass, much less get Senate approval and a White House signature, there is concern among some that some housing-related proposals like the ones mentioned above could come up in Congress again.
Former U.S. Rep. Rick Lazio, R-New York, and a partner at Jones Walker LLP, says that this is troubling because “affordable housing comes up the loser in this plan.”
Lazio says that a significant percentage of rehabilitation and production of affordable units will be affected by the housing mandates in the tax reform bill, and that there are several damaging provisions in this bill, most notably the repeal of the 4% credit and the elimination of tax-exempt private activity bonds.