SALT LAKE CITY — A national housing advocate claims that changing the way homeowners receive tax benefits from the federal government could help boost revenue in the long run and reduce the number of Americans who are without shelter.
Speaking at the state Capitol on Wednesday, Sheila Crowley, CEO and president of the Washington, D.C.-based National Low Income Housing Coalition, said her organization is launching an effort to address the nation’s housing shortage that is disproportionately affecting low-income families in Utah and across the country.
The United for Homes campaign proposes to fund the National Housing Trust Fund through modifications to the current mortgage interest deduction, Crowley explained. The changes would reduce the size of a mortgage eligible for a tax break to $500,000, and convert the deduction to a 15 percent nonrefundable tax credit, she said.
The mortgage interest tax deduction is a part of the tax code that allows some homeowners to deduct a portion of the interest they pay on their mortgage from their taxable income.
Under current law, homeowners who itemize on their tax returns can deduct the interest paid on mortgages on first and second homes up to a total of $1 million, and the interest on up to an additional $100,000 in home equity loans.
Targeting mortgage interest tax breaks more toward middle-class and lower- income homeowners will provide a tax benefit where it is needed most and create revenue that can be used to help end homelessness, Crowley said.
She added that the changes would produce a fairer tax policy, and would raise over $200 billion in revenue over 10 years that could be used to end homelessness and address our most important housing problems by funding the National Housing Trust Fund. A measure introduced in Congress, HR1213 — the Common Sense Housing Investment Act of 2013 — would enact the changes to the mortgage interest deduction and would capitalize the trust fund, she said.
“It is money that would be distributed among the states,” she said. Under the proposal, Utah would receive about $20.4 million to help create affordable housing opportunities for low-income people.
In describing the advantage of the proposed changes, Crowley explained that tax deductions are subtracted from a taxpayer's total income in order to calculate taxable income, while tax credits would be subtracted directly from a taxpayer's tax bill.
Tax credits result in a dollar-for-dollar reduction in the amount of tax a taxpayer owes, she said, and can be more beneficial to taxpayers than tax deductions — especially to those who do not itemize on tax returns.
Crowley said 24 percent of all taxpayers claim the mortgage interest deduction. By converting to a credit, all homeowners with mortgages would get a tax break, not just those who have enough income to file itemized tax returns. Through the proposed housing tax reform, the number of homeowners with mortgages who would get a tax break would increase from 39 million to 55 million.
“You’re helping a larger number of homeowners,” she said.
In Utah, there is a 49,000 unit shortage of housing for people making less than $20,000 annually, she explained. Between 2007 and 2011, the number of homes statewide with mortgages in excess of $500,000 was about 1.7 percent, she said.
While some critics might argue that the proposal would have a negative impact on a significant number of homeowners nationwide, Crowley said the benefits would far outweigh the drawbacks.
“This is a tax reform in which people at the high end would pay more in taxes,” she admitted. There is no public policy benefit for subsidizing million dollar homes, she said.
“If we’re going to be subsidizing homes, it should be in a more modest range."
She said getting support for the measure in Congress would likely be very challenging, but she is hopeful that the campaign will gain momentum in the next year or two so that a version of the proposal would go before Congress by 2015.
Meanwhile, Gordon Walker, director of the Housing and Community Development for Utah — whose agency would likely be responsible for the program locally — said the plan has merit but it also has some flaws that may be tough to overcome in its current proposed form.
“Class issues (i.e. — reducing the deduction) have been a difficult sell in Congress,” he said. “This proposal is a major swing of the pendulum (for social policy) whether our society chooses to go in this direction or not, that question is still unanswered.”