Watch CBSN Live

Housing Lobby Nixes Plan To End Tax Breaks

After Rep. John Dingell announced a proposal to phase out the holy grail of homeowner tax breaks for super-sized McMansions, the National Association of Realtors’ army of researchers got to work creating rhetorical ordnance to blow apart the idea before it ever appears in a bill.

The home industry is working to persuade Dingell that his idea to phase out a portion of the mortgage interest tax deduction on most homes between 3,000 and 4,199 square feet — and eliminate it entirely for homes bigger than that — would wreak havoc on an already weak housing market and hurt all homeowners.

The phaseout is part of Dingell’s plan to reduce global warming. The idea is to encourage the building of smaller, more energy-efficient homes, which would reduce consumption. The Senate is scheduled to begin work Thursday on its version of the global warming bill, which does not include the provision.

Dingell said he is still taking comments on the idea. He intends to introduce a formal bill by the end of the year.

So far, the initiative’s natural allies, environmentalists, seem mostly absent from the discussion on Dingell’s idea. They are either preoccupied with other congressional energy fights, unhappy with Dingell’s tax approach or distrustful of the Michigan Democrat, who many believe has stood in the way of tougher fuel efficiency standards for years.

By staying away, the fractured greenies have given an advantage to the housing industry, which wants to kill the idea. To make their case, lobbyists for the realtors are meeting regularly with Dingell’s office, armed with fun facts like:

• The phaseout would result in a national median price decline of about 4 percent on all homes.

• That kind of slide would lead to an additional 280,000 foreclosures, according to a First American CoreLogic study released earlier this year.

• The deduction phaseout would affect more than 10 million homes.

Joining the realtors’ lobbying effort is the National Association of Home Builders, which has already contacted its 9,000 members in Michigan and urged them to poke Dingell and the rest of their congressional delegation.

“The reaction was very strong and very sudden that this was not something they wanted to see happen or get moving through the House,” said Bill Killmer, NAHB’s vice president for advocacy. “Nothing focuses them on the policy side like a good tax debate.”

The home builders, who have also talked with Dingell’s staff, argue that penalties shouldn’t be based on home size, but rather on a home’s energy efficiency. To that end, the trade group has spent $2 million this year working to establish national green building standards.

Both the realtors and the builders say they are hopeful their arguments will win over Dingell. If not, they’re prepared to rally their substantial resources. The realtors group has 1.3 million members, who tend to be active in their communities.

“We can generate thousands of letters in days. They’re very engaged,” said Mary Trupo, a spokeswoman for the realtors group.

The home builders’ 235,000 members are in every congressional district and are “certainly ready to ratchet up the heat when this drops,” Killmer said.

Combined, the two groups spent more than $7.5 million during the first half of the year, according to the Center for Responsive Politics.

Because of Dingell’s influence, legislators are waiting to see if the bill will include the proposal before criticizing it. No need to spend political capital on an idea that might not have legs. But the realtors and home builders aren’t likely to have trouble rallying opponents on Capitol Hill, if it comes to that.

Both Killmer and Trupo emphasized how seriously they take Dingell’s proposal and were careful in their comments, which owe to Dingell’s influence as chairman of the House Energy Committee and as the chamber’s longest-serving member.

Here’s how Dingell’s proposal would work: ( the bigger the house, the smaller the deduction. For instance, a deduction worth $4,500 for a house smaller than 3,000 square feet would be worth $3,825 in a home up to 3,199 square feet and would be forfeited completely on a house 4,200 square feet or larger.

Environmental groups appear to be counting on Dingell to include the mortgage phaseout without much lobbying. The groups support it but aren’t working as hard as the housing industry is.

In addition to the mortgage phaseout, Dingell’s proposal includes a carbon and gasoline tax. Erich Pica, a lobbyist for Friends of the Earth, supports the package but has been busy lobbying on the energy bill and working on a Senate carbon cap and trade initiative.

“I think the housing industry has vastly more resources than the environmental community has on this,” he said. “These guys are powerful interests, and they have a lot of money at stake with preserving the mortgage interest tax deduction. I’m sure they’re going to pull out all the stops to get it taken out. Mr. Dingell has a good policy, and we hope he’s able to stick to it.”

Even if the provision is excluded before legislation is introduced, the bill will have several stops in the legislative process, where environmental lobbyists could work to change the bill, he said.

Pica agrees with Dingell that large houses increase sprawl and, no matter how energy-efficient, suck up additional resources. For similar reasons, Pica said he would also like to see the mortgage interest deduction for second homes eliminated.

His group e-mailed its 100,000 members and asked them to show Dingell their support, but it has not done much lobbying beyond that.

Charles Komanoff, co-director of the Carbon Tax Center, supports the initiative and has done research for Dingell. He said the environmental community has been slow to respond and has not organized a lobbying push.

Environmentalists will never achieve their goals of open space, clean air and reduced sprawl, he said, “if the Treasury is throwing money at the home-building industry to build gargantuan houses.”

The lack of lobbying energy among environmentalists can be traced in part to skepticism of Dingell, an ally of the auto industry. In addition, Komanoff says the green movement is now “overly conservative” and demonstrates “a poverty of vision.”

Tyson Slocum, director of Public Citizen’s Energy Program, said environmentalists have a more discreet reason for opposing Dingell’s idea: He’s putting a price tag on the cost of conservation.

“If you talk to environmentalists, they sneer when Dingell’s name is mentioned, because he is not on message,” Slocum said. “When you talk about, ‘Let’s have some shared sacrifice,’ that doesn’t poll well.”

He said he applauds what the congressman is doing but said he “would be shocked” if the phaseout were eventually included, because “people are addicted to the mortgage interest deduction.”

Slocum said his group hasn’t lobbied or submitted comments to Dingell yet, but Public Citizen would like to see the price increases on gas and carbon offset with financial help to the poor and the middle class.

Got a McMansion? Hate McMansions? Chat live with Chris Frates about the dustup between Rep. John Dingell and the housing industry on Thursday at 3 p.m.