In this issue of Home Base:

Grassroots Alliance to Congress: Improve Home Ownership Incentives

A bold new plan will expand home ownership, reduce the deficit, and help the economy.

The American Homeowners Grassroots Alliance has proposed dramatic changes to current federal home ownership tax incentives that will help expand home ownership and end the foreclosure crisis. The restructuring of current tax incentives would not affect current federal tax revenues but would also contribute to long term deficit reduction. The changes would enhance the home ownership tax incentives for younger workers and business owners in the earlier stages of their careers and income path.

AHGA proposed the changes to the Members of the Joint Select Committee on Deficit Reduction. This special bipartisan committee was recently formed by Congress to develop means to reduce the federal deficit, a goal which AHGA strongly supports. AHGA also asked President Obama to support the proposal.

AHGA also urges its members to share their own deficit reduction recommendations with the committee. Links to the committee and its members are at the end of this article.

The text of our letter to the committee is below.
 

We write to urge you to consider changes to the mortgage interest deduction in the federal tax code which would significantly reduce long term federal spending on means-tested programs such as Medicaid and other low income subsidy programs. The proposed changes would have no net effect on current tax revenues and would expand home ownership and help end the current foreclosure crisis.

Accumulated home equity represents the greatest share of the net worth for most American homeowners. It accumulates over time and plays a significant role in providing a comfortable retirement for most homeowners. By comparison most non homeowners at similar income levels have a lower average net worth.

This has particularly significance for spending on federal programs that are tied to low incomes and/or low net worth. Long term homeowners are less likely to need or be eligible for such programs because of the savings they have acquired through accumulated home equity over many years. While the numerous other benefits of home ownership are widely recognized, the direct inverse relationship between home ownership and these areas of federal spending have often been overlooked. Simply put, expanding the number of home owners over time will reduce federal spending on federal, state and local means tested programs. Encouraging people to become homeowners in the earlier stages of their careers will enhance the benefit.

The percentage of Americans who own homes has been declining for a number of years. Home ownership rates for households in the top 5% of earnings are well over 90%, while less than half of households in the lower quintile own homes, according to U.S. Census data. There are several reasons that home ownership growth has not kept up with U.S. population growth. One is that average U.S. salaries in real dollars have been declining over most segments of the population. Globalization has resulted in income stagnation and in many cases real income reduction for most skilled workers as well as many categories of white collar workers. Unfortunately there are few realistic policy options that can address the downward pressure of globalization on the real income of U.S. workers.

What policy makers can and should do is find ways that would help reduce the cost of living and increase the rate of savings for early career/moderate income workers and business owners. This can be achieved through a restructuring of the current mortgage interest deduction in a manner that would have no impact on federal tax revenues. Under the current mortgage interest deduction formula the highest income earners with the largest mortgages (up to mortgage amounts totaling $1 million dollars) receive the greatest tax benefits. The highest income workers benefit the most because their mortgage interest deductions are subtracted from the highest income tax bracket.

At the other end of the scale there is no home ownership tax incentive for most workers or business owners earning less than $35,000 per year (61% of all workers) and of only limited home ownership tax benefit to workers with incomes in the $35,000 - $50,000 range per year (13% of all workers) in most cases. Renters earning less than $35,000 usually take the “standard” income tax deduction because they typically have few if any income tax deductions. For a worker earning $35,000 a year the standard deduction is the same total amount as the annual mortgage interest deduction would be on the largest mortgage they could qualify for (about $135,000 at today’s 30 year fixed rate mortgage interest rates). As a result today’s mortgage interest deduction is meaningless to most workers earning under $35,000 annually.

If Congress leveled the effective home ownership tax benefit across all income levels, those earning less than $50,000 (74% of all workers) would for the first time have significant tax incentive to own a home. The way to achieve this would be to replace the current tax deduction with a flat rate tax credit that is based on total mortgage interest payments and not tied to the taxpayers’ marginal income tax rate. The rate of the credit should be set at an amount such that these changes would have no net impact on federal revenue related to the current mortgage interest deduction. The effect of the restructuring would shift more of the home ownership incentives to younger workers and business owners, both of whom tend to earn less in the early stages of their careers. Only those who became very successful and ended up owning large homes would find their lifetime home ownership tax incentives reduced, and they would be reduced at a point in their life when their future as already most certainly financially secure.

The maximum amount of the credit should be tied to the maximum total mortgages a typical individual earning $200,000 or year or married taxpayers earning $250,000 a year could qualify for. This would be approximately $675,000 for individual taxpayers and $850,000 for married taxpayers based on current lender mortgage qualification requirements. It would apply to the total amount of individuals or a couples mortgages (primary residence, second home, and/or rental properties). The credit would not be refundable, but individuals or couples with taxable incomes of $50,000 or less would still be allowed to take the standard deduction. Individuals and couples earning between $200, 000 and $250,000 would also be eligible for the standard deduction, but it would be reduced by any other deductions to which they are entitled on a dollar for dollar basis.

This new formulation would substantially increase the home ownership tax incentives for workers earning less than $50,000 (74% of all U.S. workers). We believe that the result would be a substantial increase in home purchases by workers earning less than $35,000 and a significant increase in home purchases by workers in the $35,000-$50,000 salary range.

We believe that the aggregate impact of this change would have very little impact on workers or small business owners earning between $50,000 and $200,000/$250,000 per year. In almost all cases the total amount of their mortgages would be eligible for the tax credit, and those with few or no other tax deductions would also be eligible for the standard deduction. A small share of taxpayers in this segment who currently have other substantial tax deductions might not fare as well, but they would tend to be at the higher levels of this range.

While an equalized flat mortgage interest tax credit would of necessity be less generous than current home ownership tax incentives to the much smaller number of taxpayers earning more than $200,000/$250,000 per year, it would likely have a limited effect on that end of the market. Very wealthy people sometimes pay cash for multimillion dollar homes, and in other cases aren’t deterred by the fact that only half the payment on their 2 million dollar mortgage is currently tax deductible. Many of them own much larger homes than they need because of the potential investment return and/or the prestige factor and neither of these significant factors would be impacted by our proposed changes to the mortgage interest deduction.

There would be other significant immediate benefits for the private sector, the government, many other current homeowners, and the economy. Home builders, mortgage lenders, and real estate brokers would see a significant increase in their business. The sale of government or lender owned foreclosed homes with current market values of approximately $170,000 or less (an amount affordable to a worker with a $50,000 income) would increase substantially. The vast majority of the many government or lender owned foreclosed homes have current market values of $170,000 or less, so this new tax policy would contribute significantly to eliminating the current housing and foreclosure glut. The increased economic activity would also spur employment and generate additional federal tax revenues.

For all these reasons these proposed changes to the federal mortgage interest deduction make sense. We urge you to give them serious consideration.

AHGA welcomes your thoughts on this issue, and also encourages members to share their views with the Joint Select Committee on Deficit Reduction. You can do so on the Committee’s web page at http://deficitreduction.senate.gov/public/index.cfm/contact . If any of the following Committee members represent your state or Congressional district, you may also want to click on their name. This will take you to their individual website, where you can share your views with them directly. In the latter case be sure to let them know that you are a constituent. If you are unsure whether your representative is on the list, or would like to express your own views on the subject, you can look up your legislators by zip code on the AHGA website.

Rep. Jeb Hensarling (R-Texas), Co-Chair
Sen. Patty Murray (D-Wash.), Co-Chair
Sen. Max Baucus (D-Mont.)
Rep. Xavier Becerra (D-Calif.)
Rep. Dave Camp (R-Mich.)
Rep. James Clyburn (D-S.C.)
Sen. John Kerry (D-Mass.)
Sen. Jon Kyl (R-Ariz.)
Sen. Rob Portman (R-Ohio)
Sen. Pat Toomey (R-Pa.)
Rep. Fred Upton (R-Mich.)
Rep. Chris Van Hollen (D-Md.)

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EPA Launches Green Product Web Portal

Portal includes links helpful to homeowners.

EPA’s September launch coincides with September 19-25 Pollution Prevention Week There is much helpful information available through the www.epa.gov/greenerproducts portal. They include links to EPA websites targeted to homeowners. EPA’s Green Homes provides information for homeowners on creating healthy and efficient places to live. EPA’s Greenscapes provides homeowners with information on cost-efficient and environmentally preferable landscaping solutions.

The EPA Greener Products Portal is designed to help the user navigate the increasingly important and complex world of greener products. It allows users to search for EPA programs related to greener products based on the type of user and their specific product interests. It also links to additional greener products information from EPA and other sources.

By looking for greener products when you shop and using products in ways that respect the environment, you will be helping to protect public health and the environment. Using products in ways that respect the environment includes conserving energy, water, and materials as well as disposing of the products responsibly through recycling and reuse.

Some ways you can make a difference include:

● Energy-efficient choices such as ENERGY STAR can save families up to a third on their energy bills, with similar savings of greenhouse gas emissions, without sacrificing style or comfort.

● The average household spends as much as $500 per year on its water and sewer bill but could save about $170 per year by retrofitting with water-efficient fixtures and incorporating water-saving practices.

● Consumers can purchase Design for the Environment-labeled cleaning products and know they are buying products that are safer for their families and the environment.

● By driving a SmartWay certified vehicle, your vehicle will emit fewer air pollution-causing emissions while saving money on fuel costs.

When purchasing products, look for:
1. Product standards or eco-labels with published criteria for qualifying their products (such as lists of product criteria published on their websites).
2. Product standards or eco-labels issued or supported by organizations that are widely respected and trusted.
3. Products claims accompanied by some type of third party verification.
4. Products qualifying for EPA eco-labeling programs or meeting standards EPA helped develop and manage.
5. Products meeting broad-based environmental criteria. For example, computers (and other electronics) meeting the IEEE 1680 family of product environmental performance standards that EPEAT products must meet.

Additional EPA websites also contain more information about environmentally sustainable products: Plug in to eCycling promotes opportunities for individuals to donate or recycle electronics through a partnership with leading consumer electronics manufacturers, retailers, and mobile service providers. EPA Environmentally Preferable Purchasing (EPP) Program provides information and guidance for consumers interested in buying more environmentally friendly products.

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The latest Trulia survey found that 3/5 of renters still want to become homeowners.

Given the sad state of the U.S. housing market it’s very encouraging that 59 percent of renters would like to become homeowners, according to a Harris Interactive online survey conducted for Trulia between August 30 to September 1, 2011. More than half (57 percent) of current homeowners said owning a home is among the best long-term investments they could make, ahead of putting money in a 401K or other retirement accounts (52 percent). In fact, 80 percent said they plan to buy another home in the future. That includes 69 percent of homeowners aged 55 years old or older. Meanwhile, across all age groups – even among 18-34 year olds, who have the lowest homeownership rates in the country – the majority of respondents said their American Dream includes owning a home.   

Falling home prices and low interest rates aren’t enough to overcome the biggest obstacles to homeownership for aspiring homeowners. Among renters who wish to buy a home at this time, more than half (51 percent) said saving enough for a down payment is a major barrier to homeownership. This especially rang true for young adults (18-34 year olds), with 62 percent saying this was what kept them from purchasing a home at this time. Meanwhile, mortgage qualification and having a poor credit history were a bigger concern among 35-54 year olds.

Reflecting the change in consumer spending habits, home buyer preferences in today’s post-bubble economy have become more practical and less aspirational. Among Americans who said homeownership is part of their personal American Dream, only 6 percent said their ideal home size is more than 3,200 square feet – a 36.5 percent decrease from 9 percent in 2010. In addition to shunning super-sized homes, future demand may turn away from traditional suburban neighborhoods as Baby Boomers retire and trade down while Millennials move closer to employment hubs and accessible transit. When asked what would be the most important neighborhood amenities if they were in the market for a new home, 56 percent of Americans aged 55 years or older – more than any other age group – say being near more restaurants and shops while shorter commutes would be a higher priority for 57 percent of young adults (18-34 year olds).

“Despite the slow and weak economic recovery and stumbling housing market, the American Dream of homeownership is alive and well. Given the strong intent to buy a home among today’s renters and homeowners, I am optimistic that long-term housing demand will recover – even though today’s prices tell a different story,” said Jed Kolko, Trulia’s Chief Economist. “But the homes that people will want in the future will look different than today’s housing stock. Retiring baby boomers won’t want big suburban houses: they care more about easy access to restaurants and retail and will be willing to trade down. High gas prices – which make long-distance commuting more expensive – will accelerate this trend especially among Millennials, as would changes to the mortgage interest deduction that reduce demand for expensive homes. But in many cities, regulations against dense development push new construction to outlying, lower-density areas.”

“From saving enough for a down payment to qualifying for a mortgage and having a poor credit history, today’s aspiring homeowners face many financial obstacles in order achieve their American Dream of homeownership,” said Jed Kolko, Trulia’s Chief Economist. “These obstacles keep some would-be homeowners from taking advantage of low mortgage rates; on the other hand, they prevent some people from buying homes they can’t really afford. Government homeownership policies can target some of these obstacles to homeownership, but only stronger economic recovery will help households facing multiple obstacles become better able to buy homes.”

“The upbeat outlook of many renters contrasts with the pessimism shared by many current homeowners”, observed Bruce Hahn, President of the American Homeowners Foundation. A September 15-17 Rasmussen Reports national telephone survey of 753 homeowners shows that 40% of U.S. homeowners now expect their home’s value to go down over the next year, the highest level of pessimism to date. Prior to the latest finding, this number ranged from a low of 19% to a high of 37% since April 2009.

Just 13% expect the value of their home to go up over the next year. While that shows no change from last month, it's up just two points from the all-time low reached in July. Forty-five percent (45%) think their house will be worth about the same amount in one year’s time. When it comes to the longer term, 36% believe their home’s value will go up during the next five years, down from 40% last month and just one point above the lowest level measured in over two years. This finding was over 50% for much of 2009 and 2010.

Twenty-four percent (24%) think housing values will decrease over the next five years, up slightly from the past two months. Thirty percent (30%) predict that their home's value will be about the same in five years. While investors and non-investors share the same level of optimism when it comes to housing values in the short-term, investors are more confident about housing values in five years' time.

Older homeowners are more optimistic about the long-term value of their homes than those who are younger.  Homeowners who make $20,000 or less annually are more likely than those who earn higher incomes to believe the value of their home will go down in one and five years.

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Finding a leader and a unified focus will be a challenge.

Congress has become increasingly partisan in recent years. At the same time the number of centrist lawmakers has declined precipitously. According to American University’s Center for Congressional and Presidential Studies, the share of federal legislators considered centrist has declined from around 30% in the 1970’s to 5-8% today. By contrast more of the U.S. population is centrist today than is either liberal or conservative. The Center’s Director, James Thurber, believes that the migration of the dominant Congressional ideology to the far right and far left has lead to increasing incidents of gridlock and is becoming a structural problem our democracy.

Former Representative Bart Gordon (D-TN) views centrists as the facilitators of the respective parties. When their numbers were more robust the respective party leaders were under more pressure to accommodate the views of centrists. Their influence made the positions of both parties more centrist, reducing the philosophical gap between them and making eventual compromise between the two parties more likely.

Redistricting is also contributing to this growing structural problem. Political parties draw the district lines in 37 states, and they increasingly gerrymander those district lines to ensure that someone of their respective party is most likely to get elected. This process is also driving the parties and elected officials towards the extremes, according to former Representative Mickey Edwards (R-Ok). In the growing number of what are effectively one party districts the electoral outcome is more likely to be determined at the primary level, where voter turnout is typically lower. At that level the influence of activists is far greater, and most activists tend to come from their party’s extremes. By Congressman Gordon’s calculation only about 70 of the 435 current members of Congress are from swing districts, compared to the approximately 130 in the 1970’s.

As the respective leadership of the Democratic and Republican parties drifts further to the left and the right, the contrast between campaign posturing and policy actions is also widening. Elections are all about getting more than half the vote, and that means getting centrists to vote for you. To do that both incumbents and challengers, both of whom are increasingly likely to be at the extremes of their respective party, need to temporarily re-posture themselves as moderates during the election cycle. Afterwards they can revert to the practice of the ideology needed to engender the continued support of the activists who are key to maintaining their success at the primary level.

Many centrists are beginning to wake up to the fact that the legislator they may have voted for is not voting the way they had been lead to believe by his or her campaign ads. These factors are one of the reasons that voter respect for our nation’s political leaders has dropped to all time lows. A recent Gallup poll revealed that a record high 81% of Americans are dissatisfied with the way the country has been governed. A majority (53%) have little to no confidence in the people seeking elective office, a 21% increase in the last three years.

Reasons cited by voters for their disillusionment with policymakers include the lack of compromise and conciliation. They're sick and tired of the partisan divisiveness that makes it impossible for the extremists that control either party to address their problems. They see an electoral process that is largely controlled by these same political leaders and political platforms that are largely defined by special interests. The two major parties currently have a duopoly over a political system that is increasingly unable to solve our problems and it's not addressing the needs that people feel. Because they are policy prisoners to interest groups and ideological litmus tests, both parties are unable to blend the best of liberal and conservative thinking.

In the face of these trends there are signs that many centrist voters are beginning to resent their political impotence and are taking steps to reassert their influence. A majority of Americans support the creation of a third party in a May Gallup poll, which was before the more recent federal budget debacle and the most recent stock market meltdown. In the last Presidential election Unity08 provided a platform for moderates for the first time. Several new centrist organizations are active in the current election cycle. One is Americans Elect, which had quietly collected enough signatures by July to secure a 2012 presidential ballot line in eight states, including Arizona, Michigan, and Missouri. The group claims it isn't a third party, but rather is a second nominating process aimed at recruiting moderate presidential candidates regardless of their party affiliation.

Americans Elect has a goal of placing its presidential nominees on the ballot in all 50 states. It hopes to field recognized candidates through an internal Presidential primary contest that would pair three recognized moderate democrats and three recognized moderate republicans Presidential candidates with their choice of independents or moderate vice presidential candidates from the other party. If the Americans Elect ticket gets at least 5% of the vote in most states, it would also be guaranteed a ballot line in 2014 and 2016, creating a base for future party growth in those states and impetus for growth in other states.

Other centrist groups include No Labels, which encourages bipartisan problem-solving in our politics. Both of these groups face considerable challenges. In the case of Americans Elect, no third-party candidate has won a U.S. presidential election since 1860. Norman J. Ornstein of the American Enterprise Institute and Thomas E. Mann of the Brookings Institution have pointed out that a bipartisan approach is no guarantee of a bipartisan solution. An earlier Commission appointed by President Obama made bipartisan deficit reduction recommendations (the Simpson-Bowles deficit reduction plan, which was supported by AHGA), but it failed to gain traction. Third parties and third party movements also often end up tilting an election to one or another major party candidate, which is contrary to Americans Elect’s objectives. A militant moderate’s response to these points might be that the U.S. political system is broken anyway, so there is little risk of additional harm. A centrist effort to reinstate the influence of a disenfranchised set of voters that’s bigger than the minorities of the far right and far left who control both parties is a matter of fairness and likely to lead to real solutions and a more representative democracy.

The widening distrust of Congress has spawned numerous articles and media stories on the subject. Many of them speak to a possible, and in many cases a hoped for resurgence of centrist influence on the political process. The visibility of the aforementioned organizations alone is not going to guarantee that outcome. Even if they are successful in adding more momentum to the process, individual voters of centrist persuasion need to get more involved.

Many militant moderates are urging other activist centrists to take these steps to enhance the effectiveness of the movement:

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