Good morning and thank you for joining us today as we continue our dialogue with individuals, families and job creators of all sizes about the critical steps Congress can take through tax reform to get our economy back on solid footing.
At the risk of sounding like a broken record, it is important for Congress to fix our broken tax code. As anyone in this room who just completed their taxes in the last few weeks will tell you, today’s tax code is far too complex and takes far too much time and money to comply with. And, while I often joke that the code is more than 10 times the size of the Bible with none of the Good News, what I should also add is that not everything in the code is bad.
However, with more than 4,000 changes made to the tax code in the last decade alone – more than one per day – it’s tough to imagine that all those changes have made the code more user friendly. It’s just the opposite, and that is why we owe it to the American people to go line-by-line through the code and see how we can make it work better for hardworking taxpayers – not just those who can afford a good accountant.
The two primary keys to tax reform are to make the tax code simpler, fairer and more transparent for families and employers, and to strengthen the economy so we can create more jobs and increase wages for American families. So, today, as part of our top to bottom review of the code, we will examine how tax policy related to residential real estate lines up with those goals. And, we will do so with two questions in mind: does current tax policy help American families and does it make our economy stronger?
Homeownership is an integral part of the American dream, and the tax code has long provided a variety of incentives to make it easier for families to buy and own a home. We also know that the real estate industry plays a large role in our economy. So, this is an area that needs careful, thoughtful review.
A number of federal tax preferences provide benefits for residential real estate. While some are very familiar, others are lesser known. Although these provisions all pertain to housing, each is governed by different rules and criteria. If you are looking to understand how complex, confusing and costly our code can be, consider just a few of the following examples involving residential real estate.
Perhaps the most well-known tax provision affecting real estate is the mortgage interest deduction, which has specific rules and limitations. For instance, only taxpayers who itemize their deductions may deduct mortgage interest. Other interactions within the tax code can also limit the use of this provision. By way of example, the deduction for interest on home equity indebtedness is disallowed for purposes of the Alternative Minimum Tax.
Furthermore, federal tax benefits for real estate treat homeowners differently than renters. A taxpayer who pays $1,000 per month to rent an apartment may not deduct that amount from income, but a taxpayer who pays mortgage interest of $1,000 may take a deduction if they itemize.
Though these examples are from real estate provisions, this complexity plagues the entire code and underscores one simple fact – the tax code is a mess.
You shouldn’t need an army of lawyers and accountants to understand our tax code. And, it shouldn’t take American taxpayers over 6 billion hours and $168 billion every year to comply with the code. We should get rid of the loopholes in the code and make it more efficient and effective for hardworking taxpayers.
However, as we get started today let me emphasize that not every credit or deduction is a loophole. The largest investment most people have is their home, and, as I noted earlier, policies like the home mortgage interest deduction have played a big role in home ownership.
I also believe that tax reform, which can help us create a stronger economy with higher paychecks, is one of the best ways we can help families struggling to save for college, save for retirement or – of particular interest to some on our second panel today – save for a down-payment for that first home.
So, I look forward to the testimony of both panels today and hope that the witnesses will help this Committee better understand how we can balance the goal of that simpler and fairer code with the needs facing consumers in the residential marketplace. Both are important to American families and your expertise and insight will be critical to all of us in meeting their needs.