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DC Lobbyists Know How to Spend Your Money Better than You Do

By Bryan Berky | April 28, 2017

On Wednesday, President Trump released an outline of his vision for tax reform.  While it was light on details, one of the key components was to double the standard deduction while eliminating the litany of existing tax credits and deductions.  With two key exceptions, one for the charitable deduction and one for the mortgage interest deduction.

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In a plan that eliminates so many tax carve-outs, keeping the incredibly expensive (more than $70 billion annually) and regressive (77% of the benefits go to the top 20%) mortgage interest deduction would seem to be a huge victory for the powerful housing lobby.  But apparently it is not good enough.

The National Association of Realtors called the plan a “non-starter” and the National Association of Home Builders also came out in opposition.  Why?  The Chairman of the NAHB says, with no apparent comedic intent, that “doubling the standard deduction could severely marginalize the mortgage interest deduction, which would reduce housing demand and lead to lower home values.”

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Translation: doubling the standard deduction would allow taxpayers to keep more of their money to spend how he or she wants to, rather than how the housing lobby wants them to.

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Standard DeductionIn fact, the CEO of NAHB was less cryptic about the position in December when outlining the organization’s opposition to the House draft proposal that also doubled the standard deduction: “We’re looking at the current draft plan as an assault….By raising the standard deduction you put money in people’s pockets, yes, but you’re not encouraging them how to use the money.”

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The housing industry is among the most subsidized industries in America.  There are 160 federal housing programs administered by 20 different federal entities that cost more than $160 billion annually.  The American taxpayers had to bail out mortgage giants Fannie Mae and Freddie Mac to the tune of nearly $200 billion in 2008.  They still survive to this day as wards of the state that could call upon taxpayers to bail them out again at a moments notice.

Yet, a plan to dramatically improve the broken shambles that is the U.S. tax code is a non-starter in the minds of DC lobbyists because they do not want you to have the freedom to make spending decisions for you and your family.  Apparently, that is what DC politicians are for.

However ludicrous this may sound, it is important to note that the housing industry is a powerful lobby inside the beltway.  The National Association of Realtors alone has spent more than $100 million lobbying Congress since 2015 – second only to the Chamber of Commerce.   Further, there may be some local interest in maximizing the value of a deduction that disproportionately benefits swamp-front property.  Due to its proximity to the epicenter of federal bureaucracies, interest groups and contractors, the Washington DC region contains five of the six richest counties by median household income in the United States.  It just so happens that DC, Maryland, and Virginia rank 1, 2, and 3 in the highest mortgage interest deduction value per capita and they all rank in the top 5 of mortgage interest deduction value per claimant.

On the flip side, what does this position mean for younger people?  Only one in three Americans under the age of 35 own a home, compared to three out of every four that are 65 or older. Moreover, recent data shows 2.2 million millennials live at home with their parents and do not have a job or go to school – signs that they are being hammered by a weak economy.  Hardly the American dream.

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No Lobbyists Beyond This PointIt will not just be the housing lobby that will try to get Congress to save long-standing tax carve outs that take away your freedom in favor of their special interests.  Registration for tax lobbyists has already doubled from last year and a lobbying “frenzy” is expected on the Hill.  These well-heeled DC lobbyists will not be happy with a plan that allows the American people more freedom to choose how they spend their money.  It is imperative that Congress does not heed their advice.

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