Members of the House and Senate tax-writing committees are putting together legislative drafts that may determine the fate of one of our most prized tax benefits, the second home mortgage interest deduction. In addition other key tax deductions, such as, property tax write offs and capital gains exclusions are on the table for elimination too.
Committee chairs have promised tax reform and have been evaluating deductions, credits, and loopholes in terms of revenue cuts and economic benefits, which includes both primary and secondary home mortgage interest deductions.
On the Senate-side of Congress, Finance Committee Chair Max Baucus (D-Montana) asked other Senators in both parties to submit recommendations on which tax preferences should be preserved starting from an assumption that all current benefits (deductions) would be eliminated. His approach is the most serious effort to simplify federal tax law since the Tax Reform Act of 1986.
To keep the negotiations under a political cover, the Senate Finance Committee has placed all recommendations under a 50-year top secret classification and has restricted access to just 10-staff.
On the House-side, Ways and Means Committee Chairman Dave Camp (R-Michigan) instructed committee staff to move ahead with drafts during the recess. which would allow the committee to consider a tax reform bill in October.
So what is really on the chopping block?
The House bill being drafted seeks to reduce individual and corporate marginal tax rates. It would clear out deductions enough to lower the maximum individual tax rate to 25% down from the current 39.6% The alternate minimum tax would be eliminated and corporate tax rates would be reduced.
The problem is that lowering the tax rates would cost trillions of dollars in lost revenues over the coming decade and would only be partially paid for by eliminating or cutting tax deductions. The deficit could possibly soar. In addition, the mortgage interest and property tax deductions are so engrained in our economy that eliminating them or significantly reducing them would shock the national economy, especially the boating economy. Think tanks in DC are predicting we would loose about one million jobs just due to elimination of the mortgage and property tax deductions.
These findings lead some DC Hill insiders to predict that neither the House nor Senate can afford to make the decision to support this kind of tax reform. As a result even though staff are putting together a major tax reform package and Committee chairs have indicated a willingness to consider a bill, the politics are far too great for either Chamber to pass anything.
I hope this brings you up to date on what is happening on the tax reform issue and the threat to the second home mortgage interest deduction.
I think the time is right for our industry to contact Members of Congress in support of the second home mortgage interest deduction.
The MRAA has always sought to protect the interest deduction for boats qualifying as second home. We will continue to watch this issue closely.