Republicans mortgaging their political future?

October 15, 2005

Guest Post by Morbo

The Bush administration has just handed the Democrats another sure-fire issue, but I have to wonder if the Dems are paying enough attention to notice.

The New York Times reports that a tax commission established by Bush has recommended new limits on home interest deductions.

With a mandate to develop a proposal for changing the tax system that is revenue neutral — meaning it neither raises nor lowers total tax receipts — the commission must find enough revenue to offset the amount now generated by the alternative minimum tax.

That is mainly what led to an examination of ways to modify the deductions for mortgage interest and health insurance, two of the largest tax breaks now available to individuals. Together, the two deductions will cost the treasury about $250 billion this year, with the benefits going disproportionately to the most affluent taxpayers.

Abolishing or limiting either deduction would be a radical step sure to annoy lots of suburban middle-class voters — a target audience for the Democrats. The home interest deduction, for example, while it is often described as a subsidy for the affluent, benefits many members of the middle class as well. An argument can be made that the deduction does need to be scaled back for wealthy homeowners — but the tax commission seems to be taking about something much more far-reaching. The story reported, “The panel members agreed that any of these changes would have to be phased in gradually to reduce the financial disruption for homeowners.”

Financial disruptions for homeowners? Now we’re talking about something we can sink our teeth into. First the Republicans try to abolish Social Security, now they want to make it harder for middle-class families to buy their first home or keep the one they have. The radio and television ads write themselves.

I know this is only a commission and the proposal is only a recommendation. I also think it’s unlikely to ever happen. The mortgage brokers are already throwing a fit, and even the gang at Fox News went ballistic when word got out. But you know what? I don’t care. The Democrats need to be on the attack right now. Do you think the Republicans got control of all three branches of government by paying attention to every nuance and always bending over backwards to be fair? As I write these words, the GOP candidate for governor of Virginia is accusing his Democratic opponent of being soft on Hitler. These guys play hardball. We need to do the same.

Bottom line: A commission formed by a Republican president has recommended ditching the mortgage deduction. We should begin by immediately referring to this proposal, in every opportunity, as “the Bush tax plan to take away your mortgage deduction.” Let him defend it, let him deny it. Putting Bush on the defensive is half the battle.

And remember, I’m not saying the mortgage deduction is sacrosanct. People who own $1.4 million McMansions don’t need it and should not get it. A middle-class family in the Rust Belt or small farm community with a $120,000 rancher does and should. But for right now, I would not get in to those distinctions. The message should be simple: Bush and the Republicans are scheming to take away your mortgage deduction.

More in-depth discussion of the issue can come later. That dialogue is needed because instead of curtailing the deduction, it may actually make sense to expand it. In May, the Progressive Policy Institute, the centrist Democratic faction, issued a report calling for extending the mortgage deduction to the folks who need it most. PPI would give the deduction to all homeowners, not just those who itemize (who tend to be more affluent).

By allowing non-itemizers to claim the deduction, we can increase homeownership while reducing the number of Americans who must file the more complicated 1040 tax form.

At the same time, the group called for closing various tax loopholes that benefit only the affluent. The group singled out 68 tax breaks aimed at special interests that could cost the U.S. Treasury $2.5 trillion over 10 years. Closing these loopholes and curtailing the mortgage deduction for the superrich would more than pay for expanding the deduction to the middle and lower-middle class.

I realize some liberals are not fans of the PPI. They do tend to be pretty moderate. But they are talking about a strategy here that could help the Dems win back middle-class suburban and even exurban voters. We need to listen.

Home ownership evokes all sorts of emotional responses among Americans. Republicans talk constantly about making home ownership a reality for more Americans, but the White House’s tax commission just handed Bush a recommendation that would make that goal more difficult. Democrats would have to be crazy not to exploit that.

Putting Bush on the defensive is half the battle.

You hit the nail on the head. I not sure that this is the issue, but we must find issues which will knock these guys back on their heels. These guys are so bad we there are certainly issues we can exploit which do not require us to be dishonest. Fight hard. Fight Fair.

  • I don’t know what it’ll take to crack open the suburban voters. Their economic interests should make them prime targets for Democrats, but their fear and loathing of all things urban and urbane really are hard to overcome. No amount of reasoning seems to work with them. My guess is that the only thing which can penetrate is mindless, charismatic, sexy celebrity.

  • A small observation on wordplay. After Katrina, there was talk on the left of how useful it would be to have back in the revenue stream, the money that’s been lost to tax-breaks for the very wealthy. Since those tax breaks are now in place, that was dismissed by the right as just being tax “increases” and very outrageous. These mortgage and health insurance “modifications” being considered should get the same treatment. If a tax benefit is being scrutinized for reduction or withdrawal, it also can be identified as a tax increase and marketed as such to the folks whose Labrador Retriever’s are being gored.

    It’s kind of dopey. The term “tax increase” has already been demonized pretty thoroughly even though it has a valid place in the economic toolbox. But if it’s useful, it would seem their own word-nastics could be tossed back at them.

    P.S. Ed, your recommendation the other day of One Look as an online dictionary resource was excellent. Thanks

  • Am I missing something?

    I thought the panel recommended a cap of $300,000 for mortgage interest. That would affect rich people a lot. The rich would get it all back, and then some, by repealing the AMT.

    This mortgage change would not have on most people since most people do not have $300,000 mortgages. The elimination of AMT would be a big benefit for the fairly rich. The really rich basically do not pay AMT because they make so much money that they do not pay AMT.

    Having a mortgage cap is not the issue for the Democrats to hang their hats on.

  • but their fear and loathing of all things urban and urbane really are hard to overcome.

    “Urban” and “urbane” are obvious typos for “black” and “Hispanic”.

  • The Republicans — through this proposal — are making a HUGE statement. They are sacrificing the suburban middle-class — in favor of their real constituents, who are the truly wealthy. Why? Because on the one hand, for political reasons they are trying to show progress in a balanced budget. But most importantly, in their political calculus they realized THE WEALTHY DO NOT NEED A MORTGAGE DEDUCTION BECAUSE THEY ARE SO WEALTHY THEY DO NOT NEED LOANS TO PURCHASE PROPERTY.

    The Republicans are also banking on one more thing — that Democrats won’t seize this opportunity and secure the Suburban vote because of some simple misperceptions.

    This is the real issue. So you might ask — how can a suburban household making $250k a year feel poor?

    A family with a $500K mortgage must earn at least $200k – $250k per year. It sounds like they’re earning alot — but their monthly home expense alone is roughly $5,600 / month. That is a huge proportion of their after-tax income — possibly over 40%-50%. Add on top of this, all the other expenses a family must bear — car, health, education, utilities, etc. — it’s easy to see how a “high-income” family could feel very poor. The mortgage deduction is a huge component of this — ~$2,000/month. That is an issue that, highlighted by the Dems — would not only get their attention but their vote.

    So, who is wealthy if not people making mid-six figures? There is only one sure way to define this, and that is: Wealthy people are those who do not need jobs or earn income to live. These are “non-laborers” — people who have enough cash to be able to live off their investments and income.

    And how much is that? Just to give you an idea — a person who owns a home, has paid off their mortgage and has $1M in the bank — can “earn” roughly $70k annually on interest alone. This person is wealthy. This person is NOT a “laborer”. This person is not financially struggling. This is NOT a person whom the Democratic party should necessarily represent nor protect.

    Suburbanites are often mis-labeled the “rich” but they feel very, very poor because they must work to meet their expenses. The reason why suburbanits are mis-classified as the “rich” is often due to arbitrary census metrics that lump them in with the truly wealthy. But in truth, their realities, interests and the opportunity this represents to the Democratic party are quite different.

    tTe suburbanites are a hugely influential voting block. They set the tone for national politics. They used to be the backbone for the Democratic party — but that was lost. It is imperative that the Democrats regain this — and to succeed, the Democratic party must invest the time to understand who these suburbanites are, what what they earn, how they live, the pressures they face — and have the acuity to fight for them.

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