NAHB Commends GOP Tax Reform Plan

Filed in Economics, Housing Finance by on September 27, 2017 11 Comments

President Trump and Republican congressional leaders today introduced a broad framework to alter the tax code that would lower business and individual rates. During the past several months, NAHB has conveyed its views and concerns to policymakers.

In an official statement, NAHB Chairman Granger MacDonald said this plan “represents a positive step in the right direction.”

The proposal, entitled “Unified Framework for Fixing Our Broken Tax Code,” is not a comprehensive tax reform plan. Rather, it is a set of detailed principles intended to serve as a template for the tax-writing committees. But it also allows the committees the flexibility to work their will and fill in the many unmentioned details.

Here are key components of the GOP tax plan:

  • Homeownership tax incentive. The framework eliminates all itemized deductions but retains tax incentives for home mortgage interest and charitable contributions. The document notes that these “tax benefits help accomplish important goals that strengthen civil society, as opposed to dependence on government: homeownership and charitable giving.

NAHB recognizes that although the mortgage interest deduction remains untouched, its effectiveness could be diminished as more families elect to take a higher standard deduction that is also included in the proposal. NAHB has not weakened its long-standing policy support for homeownership tax incentives. As the debate moves forward, NAHB will work with the White House and members of Congress to ensure that all American home owners, not just a select few, have access to a meaningful housing tax incentive.

  • Low Income Housing Tax Credit (LIHTC). In a major victory for NAHB and the housing community, the framework explicitly preserves the LIHTC as one of two business tax credits “where tax incentives have proven to be effective in promoting policy goals important in the American economy.” The other tax incentive retained is the popular research and development (R&D) tax credit.
  • Business interest deduction. NAHB launched an aggressive advocacy campaign to educate Congress on the importance of debt to real estate, particularly for smaller home builders.  That message was received, and the framework includes a significant concession by moving away from full repeal. The framework now proposed to “partially limit” the deduction for interest on business debt for C-corporations, while leaving the door open for pass-throughs. The tax reform plan states that “the [congressional] Committees will consider the appropriate treatment of interest paid by non-corporate taxpayers.” More details are needed, and we will continue to work with Congress to address our concerns.
  • Lower individual marginal tax rates. Individual rates would be consolidated into three brackets (12%, 25%, and 35%). The blueprint allows flexibility for an additional top rate to the  “highest-income” taxpayers to “ensure that the reformed tax code is at least as progressive as the existing tax code.”
  • Tax structure for pass-throughs: The framework proposes to limit the maximum tax rate applied to the business income of small and family-owned businesses conducted as sole proprietorships, partnerships, and S corporations to 25%. The framework does assume that measures will be adopted “to prevent the recharacterization of personal income into business income to prevent wealthy individuals from avoiding the top personal tax rate.”
  • Tax structure for corporations. The framework proposed a corporate tax rate of 20% and moving to a “territorial” system in which companies are generally not taxed on foreign income.
  • Expanded expensing. The framework would allow businesses to immediately expense the cost of new investments in depreciable assets other than structures and land. This expanded expensing provision is put forward as a temporary tax provision that will last for at least five years. The framework is otherwise silent on depreciation periods for structures, or what would replace expensing after it expires in five years. NAHB has advocated for maintaining the 27.5-year depreciation period for multifamily real estate and endorsed an academic study showing the true economic life of multifamily structures is approximately 20 years.
  • Estate tax. The framework would repeal it.
  • Alternative Minimum Tax. The framework would repeal it.
  • Standard deduction. The plan would nearly double the standard deduction to $12,000 for single filers and $24,000 for married taxpayers filing jointly. This big increase would mean most people who itemize would switch to the standard deduction. In turn, this could marginalize the mortgage interest deduction.

Finally, while the framework generally envisions that deductions and credits not explicitly mentioned would be repealed, it continues to provide the tax-writing committees with flexibility to retain other provisions “to the extent budgetary limitations allow.” This gives NAHB the opportunity to continue to engage on other key provisions.

For more information, contact J.P. Delmore at 800-368-5242 x8412.

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  1. DON FALZON says:

    The loss of the state and local income tax and real estate tax deduction in high RE tax areas like Nassau County in NY would hurt many taxpayers.
    This structure would also be an incentive to homeowners who have the ability to take money out of savings and pay off their mortgages, since it may not be beneficial as a tax deduction any longer.
    What does this do to home values especially in high RE taxed areas?
    Also the loss of the state and local income tax deduction is double taxation.

    • Dan Hayes says:

      To me, the only social benefit for the interest deduction is that it encourages people to have their primary residents fully paid for by retirement. It provides fiscally responsible people with an incentive to do so. The current deduction subsidizes investors (speculators) who see little gain in paying off the mortgage. It distorts the market and penalizes people who don’t have the money to buy into the game.

      Tax revenue would increase as more people opted to speculate, particularly in high value markets. It would not require actually transferring title into the IRA as it would with a trust. You can refinance. You can borrow against equity, but must follow the IRA rules for repayment and the penalty for failing to do so The accounting would be similar to the old “roll-over” rules for computing capital gains.

      In today’s environment, I think it is important to stop talking politics and start talking policy. What is the rationale for the interest deduction and is it still valid?

  2. Dan Hayes says:

    Homeownership tax incentive – Make it elective – Treat the home as an IRA, Roth or traditional. The same rules for borrowing and terminating apply. Limit it to one home with a cap on value.

    At the same time revise the $250,000 exclusion on proceeds. This fueled the rampant speculation that undermided the housing market in 08.

  3. Norm Hyman says:

    Trump has been honest in dropping the phrase, tax reform.” He’s now calling it a “tax cut”.

  4. Milo Klanke says:

    Not sure why you advocate a tax plan that would massively increase the national debt and increase taxes on most Americans.

  5. Milo Klanke is right on. The NAHB is not representing me, and probably not many other of their members as well.

  6. Tom Pahl says:

    This not a tax plan, it is barely more useful than a barstool conversation. It doesn’t do a thing for the long term viability of the middle class working families. How about addressing the “capital gains” give away… if I work with my hands, my income is taxed at a much higher rate than someone who pushes a piece of paper from one side of his desk to another. Address the regressive cap on social security and Medicare taxation or do nothing, but don’t give more of my money to the already wealthy. Shame on NAHB!

  7. Ben says:

    Shame on you NAHAB. Now I know who you represent and it is not the average American contractor.

  8. Randy Lewis says:

    I don’t trust any thing that the gop does.

  9. Richard Niday says:

    GOP: Grand Old Party? Not lately.

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