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Wed 19 Oct, 2005 08:32 am
K Street scrambles to protect mortgage-interest tax break
By Elana Schor
The Hill
10/19/05
The president's tax-reform panel held its final meeting yesterday under a cloud of criticism from conservative tax activists as well as the real-estate industry, which fears that the panel's plan to call for limiting the mortgage-interest tax deduction will be a huge economic blow.
Taxpayers can deduct interest paid on up to $1 million in mortgage loans, but panel members revealed last week that they would suggest new caps as low as $312,000, which would dramatically increase taxes on middle-income and wealthy homeowners and homebuyers in high-end Northeast and West Coast areas.
Lobbyists immediately began issuing a barrage of letters to protest changing a deduction that has fueled record home purchases and record housing-market profits.
"It would have a chilling and potentially devastating effect on home prices across the board," said Bob Davis, executive vice president of America's Community Bankers (ACB). "I just can't imagine that the support of homeownership for middle-class Americans will be abandoned, especially in the range where the proposed reduction would hit."
The ACB on Friday wrote to former Sens. Connie Mack (R-Fla.) and John Breaux (D-La.), whom President Bush tapped to lead his tax-reform panel earlier this year, asking that the panel drop the change in the mortgage-interest break from consideration. The National Association of Homebuilders, National Association Realtors (NAR) and Mortgage Bankers Association (MBA) also have been actively fighting the idea of curbing the deduction since its initial proposal.
In a letter, NAR President Al Mansell underscored the aftershocks felt by the already volatile housing market in the wake of the first reports regarding the tax-reform panel's recommendations. The uncertainty over what specific cap the panel hoped to impose, Mansell said, has led to conflicting media reports and confusion among real-estate agents and homebuyers.
"The panelists must understand that limiting or eliminating tax benefits will have an adverse impact on housing markets and the value of housing," Mansell wrote.
The uncertainty that concerns Mansell and many lobbyists centers on several panelists' preference for using the Federal Housing Administration's maximum mortgage-insurance levels as a model for the new deduction. The FHA maximum fluctuates based on year and location, meaning that the cap would vary widely for individual taxpayers.
During yesterday's meeting, the panel also included the martgage-interest break in a list of deductions it wants converted to credits.
"This is a full-scale assault on middle-class homeowners, and we need even at this early moment to indicate to the president that we'll bear any burden to defend against it," said Rep. Steve Israel (D-N.Y.), who represents Long Island's perennially packed housing market. "We ought to take a look at the lavish [tax] giveaways we give to huge corporate interests."
Israel, along with Rep. Katherine Harris (R-Fla.), is circulating a "Dear Colleague" to generate a congressional outcry against the tax panel's plan, and the Congressional Real Estate Caucus is working on a similar effort.
Israel noted the irony cited by many fans of the deduction: Limiting mortgage-interest tax breaks would be necessary to pay for a revenue-neutral repeal of the alternative-minimum tax, or AMT. But the AMT hits many of the same blue-state, middle-class taxpayers who take advantage of the mortgage-interest deduction in the first place.
"They're robbing Peter to pay Paul," Israel said.
Mortgage interest was the top deduction on individual returns for 2002, with homebuyers claiming $337 billion in tax benefits from their mortgage payments, according to the Internal Revenue Service. Though the tax-reform panel's other big idea ?- restricting employers' ability to deduct worker healthcare expenses ?- is just as politically unpopular, the mortgage-interest change has met with near-universal dissent.
"I haven't heard anyone on the Hill say it's a good idea yet. It's being treated as a trial balloon, and the reaction of members of Congress and industry groups and consumers is being measured by the public record," said Erick Gustafson, vice president of government affairs at the MBA.
One of the panel's few cheerleaders is The Washington Post, whose editors praised Mack, Breaux and their cohorts earlier this week for having the courage to call for eliminating politically popular tax breaks.
"You can promote homeownership without promoting mansion ownership," the Post said.
Mack and Breaux have good reason to shy away from the corporate-tax increases that Israel suggested. Breaux now works for Patton Boggs, whose clients include Mars Inc., Wal-Mart and Abbott Labs, and Mack advises the lobbying team at King & Spalding, which represents Bacardi and R.J. Reynolds.
The tax-reform panel began its work in January with a potentially sweeping mandate. Bush often has singled out revamping the tax code as one of his major policy goals for his second term, and Congress's failure to reach consensus on politically incendiary changes to Social Security had many on the Hill looking to tax reform as an issue to unite the GOP in 2006.
But the panelists' targeting of the mortgage-interest deduction is only the latest in a series of moves that have disappointed the conservative community. In an echo of the right wing's frustration over the Supreme Court nomination of Harriet Miers, anti-tax activists are aggressively questioning the president's commitment to the large-scale tax shifts they had expected the panel to embrace.
"This seems to reveal the usual Ways and Means [Committee] mindset of how to more efficiently shear the taxpaying sheep, instead of the fundamental reform this panel was tasked with," said Ken Hoagland, spokesman for Americans for Fair Taxation, a Houston-based grassroots group that lobbies for the abolition of the IRS and its replacement with a complex tax code known as FairTax, centered on a national sales tax.
The group's congressional patron is Rep. John Linder (R-Ga.), who has attracted 41 co-sponsors but little legislative buzz to his bill creating a FairTax-style tax system. That has not stopped the group from amassing against the tax-reform panel before its final report hits the president's desk at the end of this month, starting with a press conference yesterday that brought seven other tax-activist groups to its side.
In an interview with The Hill last month, as the firestorm of criticism was beginning, Mack acknowledged the difficult road the tax panel would face.
"The bit of advice we got," Mack said, "is that you need to understand that in this process there are going to be winners and going to be losers, and you have to be prepared for that."
Budget vise tightens
Budget vise tightens
By Patrick O'Connor
The Hill.com
10/19/05
With their backs against the wall on a series of upcoming spending votes, Republican House leaders went on the offensive yesterday, hoping to pressure Democrats to support their effort to reduce the deficit.
But the lobbying effort could fall short, setting up a likely showdown between the parties on the budget-reconciliation package.
In the House, Republicans have narrowly passed some controversial bills ?- such as the Medicare drug measure and the Central America Free Trade Agreement ?- with the help of a few Democrats who bucked their party.
But this time, Republicans will need to do more to minimize defections to enact spending cuts that could total at least $50 billion over five years. Democrats typically vote unanimously against GOP spending measures ?- as they did earlier this year on the House Republican budget resolution.
The pending spending votes come at a tenuous time for House Republicans, after the recent indictment of Rep. Tom DeLay (R-Texas) that forced him to step aside as majority leader.
In his absence, the Republican Conference agreed to a temporary leadership structure with Majority Whip Roy Blunt (R-Mo.) and Rules Committee Chairman David Dreier (R-Calif.) filling the role once occupied by DeLay, but the pressure is on these members as they close out this year with a series of tough votes that could further splinter an already divided GOP conference.
If Republicans fail to cut the budget as they plan, it will be viewed as a telling sign of how politically weakened President Bush and congressional Republicans have become over the past year.
"The current leadership has a lot riding on this to succeed," one GOP House member said on the condition of anonymity. "The next couple of weeks could be tough. We'll see how [the conference] confronts the reconciliation challenge."
But that same member said cutting spending could also unite members after six weeks of internal debate. "Spending issues are the glue that holds the party together," the lawmaker said.
In the beginning of what could be a prolonged partisan battle, Republicans pointed fingers at the other side of the aisle yesterday.
"This year, the Democratic leadership has recklessly urged House Republicans to abandon our deficit-reduction efforts by scuttling the [budget] reconciliation process," House Speaker Dennis Hastert (R-Ill.) said in a release put out by his office yesterday. "It is one thing to criticize if you have a real plan, but the Democrats have failed to find ways to keep our children from bearing the burden of a skyrocketing deficit."
Democrats have publicly rejected the proposed cuts.
"It is perverse, it is bad policy, and I think Americans will see it as such," Minority Whip Steny Hoyer (D-Md.) said yesterday about misplaced priorities.
Hastert and Chief Deputy Whip Eric Cantor (R-Va.) decried this lack of support, citing a reconciliation vote from 1997 ?- the last time the House addressed reconciliation ?- in which 51 Democrats joined the Republicans to pass a bill, 327-97. President Clinton signed that bill into law, after vetoing a similar measure in 1995.
Leaders, including DeLay, Appropriations Committee Chairman Jerry Lewis (R-Calif.) and Budget Committee Chairman Jim Nussle (R-Iowa), met yesterday afternoon to discuss the series of budget cuts they are expected to pursue.
Few members were willing to comment on the timeline for floor action as they left the meeting.
Blunt told reporters that leadership would bring a bill to the floor once it settled on the maximum number of cuts that could win the minimum number of votes on the House floor to win passage.
Republican leaders are trying to tack an additional $15 billion on to the already-agreed-upon $35 billion in cuts that were included in the 2006 budget that passed the House last spring. To do that, they are attempting to reopen a budget bill for the first time since 1977.
That amendment, titled the Spending Restraint Amendment, is expected to come to the floor in the next two weeks. If it passes, House committees must then incorporate the extended cuts into the reconciliation numbers they present to the Budget Committee by Oct. 28. Leadership must then pass its version of the bill on the House floor and subsequently pass whatever version of the bill comes out of conference.
This process could drag out until the end of the year, according to members and aides.
Republican leaders were initially reluctant to propose budget offsets in the face of demands from their conservative members. The Republican Study Committee (RSC) rolled out a series of proposed spending cuts to offset the $62.3 billion in supplementary spending bills Congress passed to rebuild the hurricane-damaged Gulf Coast region.
Leadership eventually settled on a four-point plan to offset these costs:
An increase from $35 billion to $50 billion in mandatory savings through the reconciliation process.
An across-the-board cut in 2006 discretionary spending.
Work with the White House and Senate to create a package of additional rescissions to further offset the reconstruction costs.
The permanent elimination of federal programs through the annual appropriations process.
Congress Daily reported yesterday that those across-the-board cuts will not be part of the budget-reconciliation package, but could resurface in appropriations bills.
Blunt waged a public showdown with RSC Chairman Mike Pence (R-Ind.) and his supporters during the budget vote last spring, but reluctance could come from the centrist wing of the party during this series of votes.
All but 12 Republicans supported the House budget resolution. However, the resolution passed only after Hastert struck a deal with House Republican centrists for a floor vote on stem-cell legislation.
The trick for House leaders is to cut the budget enough to secure the support of their conservative members while keeping most of the centrists in line.
Conservatives off the Hill added a new wrinkle to the dilemma facing Hill leaders by increasing their pressure on Republicans. Club for Growth President Pat Toomey, American Conservative Union President David Keene (a Hill columnist) and Heritage Foundation President Ed Feulner are scheduled to hold a press conference tomorrow in the Rayburn Building to ask President Bush for additional spending cuts.
The Hill.com Editorial
The Hill.com Editorial
K Street wise
10/19/05
It would be extraordinary today if a major U.S. corporation did not bother with representation in Washington to make sure its interests were advanced rather than trammeled by the federal government.
Ever since Microsoft found itself in 1997 targeted by a Justice Department complaint and demand that it pay $1 million a day in fines for alleged breaches of an anti-trust consent decree, America's businesses have known that they go without K Street's services at their peril.
As reporter Jim Snyder reports on Pages 22 and 23, Vonage has had its Microsoft moment. It came when the Federal Communications Commission decided to force the company, and other businesses that deal in voice over Internet protocol, to provide 911 emergency services to their customers by a date certain ?- Nov. 28 to be precise. Vonage says it will gladly do so but it needs access to the emergency networks controlled by its rivals, the traditional phone companies.
Thus Vonage has spent the past year massively increasing its heft in Washington, establishing an in-house lobbying team and hiring a string of lobbying firms to generate a corps of lawmakers and aides who are on its side.
The details of this case are important in an era of unparalleled change in communications technology and entrepreneurship. But the particulars of Vonage's problem are less striking than the fact that the company and every other business needs heft these days on Capitol Hill. No one wants to climb the Hill unarmed.
It does not make much difference whether the executive and legislative branches of government are controlled by the Republicans or the Democrats; it remains the case that the volume of regulations handed down by Washington to corporate America keeps increasing.
Whether you think this is a good thing or a bad thing ?- whether you regard it as a welcome process of restraining unshackled capitalism or as an unnecessary and damaging tangle of red tape ?- there is no doubt that businesses have to have powerful allies and must employ lobbyists who can woo them.
There are those who see only the problems of such a system ?- which can be corrupting, as both logic and several investigations of lawmakers and lobbyists make plain ?- but, as Sen. Conrad Burns (R-Mont.) told a breakfast gathering of lobbyists in August, K Street's inclusion in the process makes sure lawmakers write legislation only after hearing the concerns of those at the sharp end of their policies.
Quote:The bit of advice we got,” Mack said, “is that you need to understand that in this process there are going to be winners and going to be losers, and you have to be prepared for that.”
And as usual the losers will be the middle class. Particularly those who reside in the high cost [of housing} states.
In addition another proposal is to eliminate the deduction of state taxes. Another blow to the middle class.
As for the AMT there would have been no problem if the tax code were adjusted to inflation. This tax was put in place to assure that the wealthy do not escape paying tax. Not to bleed the middle class out of existance.
Re: K Street scrambles to protect mortgage-interest tax brea
BumbleBeeBoogie wrote:Taxpayers can deduct interest paid on up to $1 million in mortgage loans, but panel members revealed last week that they would suggest new caps as low as $312,000, which would dramatically increase taxes on middle-income and wealthy homeowners and homebuyers in high-end Northeast and West Coast areas.
Apparently Elana didn't actually bother to read the proposal or she wouldn't have written this nonsense. The $312,000.00 MINIMUM would be in the lowest cost of living areas. People in the northeast and west coast would actually have their limit increased based on the median cost of house in the area so there would be no "dramatic increase" in taxes unless the mortgage is well in excess of the median for the zip code.
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