Hidden Attack on MID Lurks in House Tax Reform

An economist explains that although the House tax reform proposal may be not calling for extreme reforms to the MID, it could still crush one of the most treasured financial benefits of home ownership.

May 15, 2014

If Rep. David Camp (R-Mich.) gets his way, the mortgage interest deduction could be a housing incentive in name only.

That dire warning about the proposed tax reform released from the retiring chair of the House Ways & Means Committee came from John Buckley, a former chief tax counsel for the Ways & Means Committee and a Georgetown Law professor during the National Association of REALTORS®’ 2014 REALTOR® Party Convention & Expo in Washington, D.C.

The warning, expressed during NAR’s Federal Taxation Committee Wednesday, may come as a surprise to many members, because Camp hasn’t directly proposed significant changes to the mortgage interest deduction itself, aside from halving the cap to $500,000. But Buckley said the proposal would nonetheless cause serious changes to the way the mortgage interest deduction functions in the lives of most Americans.

“There’s a line between legislative creativity and being too cute. …This [proposal] crosses the line. It's just an attempt to hide the real impact,” Buckley said of Camp’s proposal. “Essentially, I think it is tantamount to removing these deductions, all in the context of a bill that pretends not to touch the mortgage interest deduction.”

Buckley explained why he’s worried: When Camp proposes a significant increase in the IRS' standard deduction combined with the repeal of deductions for state and local income taxes, he would be putting a large majority of the population in the position where it’s more beneficial to choose the standard deduction, rather than itemizing their tax deductions. When fewer people itemize, Buckley says that itemized deductions such as the MID are “wasted.”

“You get a benefit from your itemized deductions only to the extent that they exceed the standard deduction,” Buckley explained. “Without that, you lose the incentive effect of your mortgage interest payment.”

The effect could make property-related deductions functionally obsolete and could have a negative effect on housing nationwide, Buckley said.

“Even an indirect removal, such as what you see with the Camp [proposal], could have deleterious effects on home prices,” Buckley said. He said that this could easily lead to lower levels of investment in real estate, and “less investment in real property reflects lower housing prices.”

He said that while the most obvious threat to the housing industry for most NAR members might be the $500,000 reduction in the mortgage interest deduction, that won’t matter if Camp’s proposal becomes law. Buckley said that most people whose loans fall under the lowered cap will be better off using the standard deduction, with only some 5 percent of the population qualifying for the MID or other property deductions.

Furthermore, Buckley noted that if less than 5 percent of the population takes advantage of the MID, the industry will have an even harder time justifying the continuation of such a tax incentive. 


Members of the taxation committee asked NAR staff what the association is doing to combat the bill. Staff responded that their efforts thus far have been purposefully nuanced.

“Our position hasn’t changed in that we’re opposed to … a number of things that are in the Camp draft,” said Ken Wingert, a senior legislative representative with NAR, in response. “Because it’s been a draft, we haven’t come up with a sledgehammer, and I think that’s been appreciated on the Hill.”

Still, Buckley warned that, while tax reform won’t happen this year, Camp’s proposal would eventually be “very easy to argue for … because it does not increase anyone’s taxes.” While he doesn’t think the Camp solution is the right one, Buckley said he was thankful for the congressman’s action.

“I think Dave Camp has done a service here, because he has moved the debate,” he said. He noted that it’s easy to come out in favor of tax reform in the abstract, but now that concrete reforms are on paper in legislative language, the discussion can begin. And while real estate pros can take solace in the fact that this legislation isn’t going anywhere soon, Buckley said the time for REALTORS® to speak up is now.

“It is clear that tax reform is not going to happen this year… [and it] may not occur until the next presidential election, ” he said. “This period of time provides an opportunity for organizations like this to make their views clear.”

“Nobody is more influential with a member of Congress than a REALTOR® or other professional,” Buckley said. “I think you have an opportunity to educate here. … I would say you should get busy.”

The Future of Reform

Evan Liddiard, the NAR staff liaison to the committee, noted that with Camp’s retirement, it’s hard to predict what his successor will incorporate from the proposal.  Paul Ryan (R-Wisc.) is widely considered to be the next chair, Liddiard said.  “We don’t know a lot about the specifics [other than the fact that] he has distanced himself from the Camp plan.”

Still, Liddiard said that traditionally, the President of the United States has been vital to securing major tax reforms, and if Obama decides his legacy will be based on immigration reform or other non-fiscal topics, “We may have to wait until 2017 until we see changes in tax reform.”

Meg White

Meg White is the former managing editor of REALTOR® Magazine.