With the Fiscal Cliff Leering, Are MID's Days Numbered?

by Reno Manuele


Are fiscal cliff negotiations placing the mortgage interest tax deduction, or MID, in danger?

Every day, if not every moment of every hour, new details are reported about Congress’ ongoing battle to avert the so-called “Fiscal Cliff,” with various policies, tax proposals and political rhetoric being exchanged across the aisles. But now, in the wake of a tweet, of all things, from President Obama, analysts and the National Association of Realtors have drawn their attention to another possible bargaining chip in the Fiscal Cliff discussions – the mortgage interest tax deduction, or MID.

Amidst Fiscal Cliff Talks, is MID in Danger?

Often called the “third rail” of tax policy, MID has been historically an untouchable issue for lawmakers, but as the president tweeted on Tuesday, should taxes on higher income earners not go up before the end of the year, the government may be forced to seek alternate forms of revenue to avoid the Fiscal Cliff, and eliminating MID, and the $100+ billion it will cost the government in 2013, may be an option.

Obama’s tweet read, “Breaks for middle class [important] for families & econ. If top rates don’t go up, danger that middle class deductions get hit.”

And we should point out, though public support for MID is broad, it still has its share of critics, particularly in the academic sector. As Paul Waldman points out in a recent piece for The American Prospect, MID has earned “almost universal condemnation” from economists, while research by the Joint Committee on Taxation has found its benefits are overwhelmingly enjoyed by higher-income earners. Given MID’s popularity, though, Waldman ultimately predicted that should lawmakers approach it, they’ll do so tepidly, and will at most cap the interest one could deduct.

How Would Changes to MID Affect the Housing Market?

Among Realtors, though, the message is quite clear – any changes or alterations to MID could have substantial effects on the housing market, particularly now when it is just beginning to recover. Unsurprisingly, NAR is upfront in its opposition to any MID changes, and lobbying furiously on its behalf.

Tom Krettler, a broker associate with RE/MAX Unlimited Northwest in Palatine, said that MID is an integral part of the housing market, with how it incentivizes new and existing homeowners to purchase residences; he just had a buyer in Arlington Heights, in fact, who purchased a townhouse because of MID.

Krettler also said, though, that lawmakers should not tamper with MID, especially during the “tenuous recovery” currently under way for the housing market.

“If there’s a third rail, it’s the mortgage deduction. It should be left untouched,” he said. “If they want to pick the perfect worst time, this is it.”

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