Time for Special Interests to Count Tax Blessings

Almost everyone who is anyone in housing-related activities now admits that Congress is likely to come up with a comprehensive tax reform package this summer--possibly within 60 days. And the formula for changes is expected to follow closely the thorough restructuring set down in the Senate version orchestrated by Sen. Robert Packwood, the Oregon Republican.

And the magic key or number is the top rate of 27%, which seems to become more and more palatable to upper-middle income and really rich Americans. They realize that they will be losing some deductions and face stretched-out depreciation, loss of the capital gains exclusion, and builder bonds would lose favorable treatment. But the basic upper tax rate is still only 27%.

Some leaders in housing, real estate and mortgage banking associations are crying their usual public tears but they are also saying privately that tax reform has become inevitable. Thus, it may behoove all special interests to count their blessings instead of their misfortunes, tax-wise.

For instance, the crux of the reform game plan created by the Packwood committee is that nobody gets hurt more than 27% worth. This is a break for the very rich and heavy earners who were in a higher tax bracket.

But the kicker is that more of the very rich and big earning group will have to pay some taxes because of a loss of loopholes. It now seems that a key push for senators to take significant tax reform action stemmed from a high-earning business executive, who told a senator: “I don’t know anyone who pays any taxes.”

The main thrust of the Packwood plan is to make more rich people pay some taxes and to ease the tax gouging on big earners and investors who didn’t have enough loopholes to avoid paying taxes. Meanwhile, however, the average American homeowner and potential buyer will continue to have the traditional tax incentives for home ownership--full deduction of mortgage interest on a principal home and one second residence, plus the usual deductions for state and local property taxes.

On the positive side, tax-exempt interest would not be included in the minimum tax, and the sale of private mortgage-backed securities would be abetted. And mortgage revenue bonds would continue unchanged this year and next.

On the negative side, non-home mortgage interest deductions would be limited to the amount of an individual’s investment income, and depreciation would be stretched out to 27 1/2 years on residences owned as investment, while commercial depreciation would be stretched to 31 1/2 years.

But there seems to be considerable concern about the effect on multifamily housing investments--and thus on eventual new construction and the level of rents. Ronald Poe, president of the Mortgage Bankers Assn., contended that the new tax reform plan would “divert capital from housing and commercial development,” causing rents to be raised and property values to be lowered.

The National Multi Housing Council argued that the Packwood version is harder on rental housing than the House version and would “virtually abolish any incentives to invest in limited partnerships” that produce rental housing.

And the National Assn. of Home Builders predictably estimated that the Senate tax reform version would trim potential 1987 housing starts by 400,000. NAHB agreed generally with MBA that the Packwood plan has some good aspects--particularly preserving the deductions for property taxes and mortgage interest and reducing income and corporate tax rates, while also removing millions of lower-income Americans from the tax rolls.

Veteran Washington realtor Wallace B. Agnew suggested that the housing and housing-related trade associations might do well to mute their special-interest criticism of the Packwood plan and concentrate efforts to support Congress in what might be a breakthrough tax reform plan that would help the poor, be more equitable for the rich and also make some very rich Americans pay income taxes for the first time.

June is recognized as the crucial month for the full Senate to vote on the Packwood plan. It was pointed out that public television will cover the hearings on the tax proposal. That will give some senators the public platform they want, but force others to curb their pleas for special interests.

Now it is recognized that tax reform is on a fast track and could get out of the Senate pretty much unscathed within four to six weeks and then become a priority for quick revision in the House and eventual consensus and passage before the summer recess.