October 15, 2024
The Honorable Mike Kelly, Chair
The Honorable Claudia Tenney, Vice-Chair
Community Development Tax Team
The Honorable Brian Fitzpatrick, Chair
The Honorable Nicole Malliotakis, Vice-Chair
Working Families Tax Team
Committee on Ways and Means
U.S. House of Representatives
1139 Longworth House Office Building
Washington, DC 20515
Dear Chair Kelly, Vice-Chair Tenney, Chair Fitzpatrick, Vice-Chair Malliotakis, and Members of the Tax Teams:
On behalf of National Taxpayers Union (NTU), America’s oldest national taxpayer advocacy organization, I write to offer some brief comments on the role of tax policy in community development and home affordability for working families that I hope the Tax Teams will find useful. These comments are supplemented by several other comments NTU is filing with other Tax Teams as well as the full Committee.
As you are aware, many federal Tax Code provisions have been created to incentivize the construction of housing, development of communities and businesses, preservation of open space and historical structures, and first-time home purchases. Often absent from this process, however, is consideration of the many tax-related barriers to community development that currently exist.
While NTU had some notion of these barriers, we have been reminded recently that both their number and scale are much greater than many—including us—tend to appreciate. Just two months ago, we filed comments with the Consumer Financial Protection Bureau (CFPB) in response to its Request for Information on what it calls “junk fees” in the home loan closing process.1 In the course of preparing comments, we were surprised to have discovered the dimensions of the tax problem in just this one area of economic activity. Among the items we relayed to CFPB:
Property taxes, levied upon homeowners annually, have a direct connection to both initial and refinanced mortgage affordability over the longer term. According to the U.S. Census Bureau, state and local property tax collections rose 24 percent between the first quarter of 2020 and the first quarter of 2024, and nearly 16 percent between the first quarter of 2022 and the first quarter of 2024. Though they may not indicate so on a percentage basis, on a dollar amount basis these increases can translate to per-homeowner amounts (depending on jurisdiction) much larger than the ones CFPB identified for items like credit report fees.
The government of the District of Columbia conducts a comprehensive annual survey of household tax burdens by income category for a major metropolitan area in each of the 50 states. The latest survey, for the year 2021, found that a hypothetical family of three at an income level of $50,000 faced a median property tax of $1,683, far higher than the income, sales, or automobile taxes for which they were liable. A family at $75,000 faced a median property tax burden of $2,552—slightly less than their income tax liability, but still much heavier than their sales or automobile tax liability. These are ongoing financial challenges to homeowners that likely extend to rural areas as well.
A bankrate.com report, citing CoreLogic’s ClosingCorp, notes that the average total closing cost for a single-family home purchase in 2021 was “$6,905 including transfer taxes, and $3,860 without.” In this example, taxes comprise 44 percent of total closing expenses. Even acknowledging that there is a difference between averages reported here and medians reported by CFPB, it is not difficult to conclude that taxes and fees imposed by governments would dwarf any other single category of closing cost, save that of points or (in a few states with particularly low taxes) title insurance.
Many of the maladies described above are the primary responsibility of state and local government. As our comments to CFPB pointed out, one analysis from Fannie Mae suggested that “[l]ocal jurisdictions could explore ways to expand existing programs that waive or reduce one-time taxes and government fees borne by first-time and low-income homebuyers.”
Nonetheless, on the federal level, additional steps can be taken. Prior to Tax Year 2022, Private Mortgage Insurance (PMI) was deductible under itemization rules for the individual income tax. According to IRS data for the 2021 Tax Year, the average deduction for PMI across all filers with taxable returns was $2,074.2 The actual realized tax savings from the deduction would vary according to individual situations, but, because of income limitation rules, most filers claiming the expense would fall in the 10 or 12 percent brackets, with some in the 22 percent bracket. Thus, a hypothetical average range of between $207 and $456 in per-filer savings was possible. Congress has not yet seen fit to extend or expand this deduction, but its lack of availability today shows vividly how the decisions of public officials can drive up costs of homeownership near or in excess of the fees that CFPB was examining in its own RFI.
A well-tailored and modest response for PMI deductibility, already embodied in bipartisan legislation,3 would be far superior to federal loan, direct subsidy, or other grandiose programs for home affordability that have been proposed over the past several months. It is correctly calibrated to correct a specific challenge that homebuyers face, without creating a massive deficit impact that could also dramatically exacerbate home-price rises. It also recognizes that PMI offloads risk that taxpayers will find increasingly difficult to bear in light of a $35 trillion national debt.
NTU normally views deductions and credits in the Tax Code with a skeptical eye: given the simplification, certainty, and growth that a broad base with lower rates always brings, each deduction and credit should be able to prove itself as correcting a distortion in the law or excluding economically logical elements from the base. For some time now, however, we have avoided lumping in the PMI deduction with provisions that cannot justify themselves on such grounds. As we noted in 2009, “mortgage insurance is a critical factor in allowing many moderate-income families, first-time buyers, and veterans to obtain their piece of the American Dream, but the larger costs of using this option do not receive a similar level of tax treatment provided to those who can afford larger down payments.” Furthermore, as we noted in 2021, “absent more holistic reforms to government-sponsored enterprise (GSE) and federal housing administration (FHA) loans, private mortgage insurance can help insulate taxpayers from exposure in bailouts.” This is still true today.
“Holistic reforms” to the way GSEs and FHA operate are not within the Community Development or Working Families Tax Team’s purview. Still, we believe that your work is vital in advocating for smart solutions that remain consistent with the overall goals of pro-growth tax policy and are consistent with economic reality. In so doing, you could help to facilitate broader discussions about community development and home affordability for working families across Congress and the rest of the federal government. We hope that the recommendations above will assist you in your deliberations, and should you have any questions, we are at your service. Thank you for your consideration.
Sincerely,
Pete Sepp
President
1. See our comments to CFPB from August 2, 2024, at https://www.ntu.org/publications/detail/ntu-submitted-comments-to-cfpb-on-junk-fees-in-mortgage-lending#_ftn23.
2. See p. 148 of IRS Publication 1304 for Tax Year 2021, accessible at https://www.irs.gov/statistics/soi-tax-stats-individual-income-tax-returns-complete-report-publication-1304.
3. HR 4212, S 1938.