Eliminating the Mortgage Interest Deduction?

Rep. John Dingell (D-Mich.), chairman of the House Energy and Commerce Committee, wants to phase out mortgage interest write-offs for houses larger than 3,000 square feet, using a graduated scale that ends with zero deductions for properties with 4,200 square feet or more, which he calls "energy guzzlers," in the interest of global warming.

Here is a quote from Representative John Dingell's proposal summary: "These homes have contributed to increased sprawl and longer commutes. Despite new homes in and of themselves being more energy efficient, the sheer size, sprawl and commutes lead to dramatically more energy use – or to put it more simply, a larger carbon footprint."

He puts it simply, albeit too simply. Dingell's stated goal is to reduce U.S. carbon emissions 60 percent by 2050 but hasn't explained how his proposal will specifically achieve this.

He fails to make any exceptions for the lifestyle of each home's residents. For example, a family occupied, 3,000 square foot home, has a smaller carbon footprint on a per capata basis than a 3,000 square foot home with only one or two people living in it. Both scenarios should not be held to the same standard.

Furthermore, homeowners that maintain home offices have a justifiable need for more square footage and directly contribute to reduced traffic congestion and the pollution that results from longer commutes but there is no accomodation for this in Representative Dingell's plan either.
I am in favor of reducing each home's carbon footprint but Representative Dingell's proposal is too extreme for many reasons but mostly because it arbitrarily focuses on square footage instead of differentiating between homes that are environmentally friendly and those that are not.

A new or remodeled home of 3,000 square feet or more could easily have a smaller carbon footprint than a smaller home with fewer resource-efficient elements that are crafted to exceed building codes while protecting the environment. Penalizing tax payers for harming the environment based on square footage is unjustifiable because square footage doesn't consistently correlate to a specific carbon imprint.

It would be nice to see a proposal that continues to reward owners of green-built homes rather than punishes owners of homes based solely on their square footage. The movement to build "Green" has already taken off without the need for government intervention because green-built homes are more energy and water efficient, more cost effective to own and maintain, healthier to live in and friendlier to the environment than traditional homes.

The concept doesn't require government intervention because it is already economically viable for builders and owners. Small investments can pay huge dividends over time. Even modest measures can result in significant savings of money, improvements in the health of the residents and conservation of resources.

Here in Washington State, we have "Built Green" which is an environmentally-friendly, non-profit, residential building program of the Master Builders Association of King and Snohomish Counties. The organization was developed to provide consumers with easy-to-understand rating systems, which quantify environmentally friendly building practices for remodeling and new home construction. Our citizens are paying close attention to a home's rating and this is already starting to have an impact on home values.

The timing of the proposal stands to further depress real estate markets and the economy as a whole. The mortgage interest deduction was meant to be an incentive for people to buy and afford a home and mortgage interest write-offs are among the largest benefits in the federal tax code. The Congressional Joint Committee on Taxation estimates that homeowners will take $403 billion in deductions from 2006 to 2010. Legislating away the mortgage interest deduction on homes that are more than 3,000 square feet would stigmatize affected properties and further contribute to the existing glut of homes on the market which would the delay the stabilization of the housing market prediced for 2008.

According to the National Association of REALTORs, this legislation will cost consumers $34 billion:

Mortgage Interest Deduction Tax Benefit for 2005: $116 billion
Portion of that to large-home owners: $31 billion (27 percent)
Increase in mortgage debt since 2005: 10%
Tax cost in 2007: $34 billion

Representative Dingell's concern for the environment is commendable and his willingness to propose such controversial solutions is a true testament to his committment to the cause. However, if Representative Dingell insists on moving forward with his proposal, he needs to wait until the real estate market has stabalized and his proposal needs to provide tax credits instead of tax penalties. The basis for the credits should focused on energy efficiency standards and lifestyle variables not arbitrary square footage calculations.

David Edwards
REALTOR®
Keller Williams Realty Southeast Sound
Phone: 425-890-8045
E-Mail: david@davidjedwards.com
Website: http://www.davidjedwards.com/
Blogsite: http://www.davidjedwards.com/renton-info-blog.asp

David J Edwards is a full time real estate agent and REALTOR® with Keller Williams Realty specializing in Residential Real Estate for buyers and sellers in Washington’s Renton Highlands, Newcastle and South Bellevue.