On April 15, NLIHC, on behalf of the United for Homes campaign, submitted comments to the Individual Income Tax Working Group of the Senate Committee on Finance. The comments called for modification of the mortgage interest deduction in order to fund the National Housing Trust Fund (NHTF).

The Finance Committee formed five bipartisan working groups in January to examine particular aspects of the tax code and produce a report of legislative options to inform the Committee’s work on comprehensive tax reform. As part of this process, stakeholders and members of the public were invited to submit comments and suggestions towards the working groups’ final recommendations to the Senate Finance Committee Chair Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR) at the end of May.

The comments to the Individual Income Tax Working Group focused on the United for Homes campaign proposal to fund the NHTF with revenue raised through modifications to the mortgage interest deduction. The proposal would cap the amount of interest a household could claim as a tax benefit at $500,000, down from $1 million plus $100,000 in home equity loans. NLIHC analysis of Home Mortgage Disclosure Act (HMDA) data shows that between 2011 and 2013, only 4.5% of mortgages nationwide were valued at more than $500,000. In 40 states, 4% or fewer mortgages were for more than $500,000. California, the District of Columbia, and Hawaii are the outliers with 15-20% of mortgages valued above $500,000.

The proposal would also convert the current deduction to a 15% nonrefundable credit. The conversion to a credit makes the mortgage interest tax break available to a larger and less wealthy home owning population than receives it now. Based on an analysis by the Tax Policy Center commissioned by NLIHC, the number of homeowners to get a tax break would expand from 39 million to 55 million, and 99% of that increase would be taxpayers with annual income of $100,000 or less.

The analysis by the Tax Policy Center shows that these two changes, phased-in over five years, would raise $230 billion in revenue over ten years. NLIHC proposes that this new revenue be directed to the NHTF.

In addition to outlining the details of the proposal and providing supporting data, NLIHC President and CEO Sheila Crowley presented the case for why the time is right to modify the mortgage interest deduction and address the shortage of 7.1 million housing units available and affordable to extremely low income households. Ms. Crowley said, “We readily acknowledge proposing to fund a federal trust fund by raising revenue through reform of a federal tax expenditure is unorthodox. But it is the kind of creative, out-of-the box thinking that is required in this era of diminishing resources for low income housing programs.” Ms. Crowley included the list of the more than 2,000 endorsers of the United for Homes campaign in the comments. 

United for Homes’ comments to the Individual Income Tax Working Group are at http://nlihc.org/sites/default/files/NLIHC-Comments_Individual-Income-Tax-Reform-Working-Group.pdf