New LIHTC Bill Introduced in Senate, Gordon Smith Cosponsor.

A new Low Income Housing Tax Credit (LIHTC) bill, S.2666, has been introduced in the Senate by Wa. Senator Maria Cantwell. The bill, HERE, is cosponsored by Oregon Senator Gordon Smith.

Cross Post: Oregon Open Government: Privately Financed Travel for Oregon Delegation -Gordon and Earl In the Lead.

Cross Post from my Oregon Open Government Blog on this subject is HERE.

Bond Cap Increases, Refinancing Discussion Gearing Up.

The WSJ reported yesterday HERE that NY Senator Chuck Schumer is advancing a proposal to lift state tax exempt housing bond caps by $10 billion in 2008 and 2009 and by another $3 billion in 2010. Eligible uses of bond proceeds would include single family and multifamily refinancings.

Another more modest plan from Oregon Senator Smith and Mass. Senator Kerry (the long couple?) would provide a temporary cap increase of $15 Billion over three years and may include only single family refinancings.

Blog readers may recall that Senator Clinton first raised the idea of expanding single family bonds to include refinancings last October. My earlier blog post on that subject is HERE.

Extension of Mortgage Insurance Deduction: Unpublished Letter to Oregonian Editor.

[Link Correction]
I sent this letter on Thursday December 27th to the Letters to the Editor at the Oregonian. I expect it will not be published.

To the Editor:

Today's editorial Gordon Smith on the Home Front (HERE) lauded Senator Smith for passage of an extension of the tax deductibility of mortgage insurance premiums. The editorial projected that 90% of the Oregonians would be income eligible for the deduction. There are two problems I see with your endorsement of this costly revenue reducing tax provision.

1. The deduction is NOT targeted. Whether good or bad, the SCHIP child health insurance debate helped to focus attention on income targeting. This deduction is NOT targeted and would allow homeowners with income in excess of $100,000 to claim the deduction (phase out begins only at $100,000 of adjusted gross income for married couples). Up to the phase out levels, the higher the income and the higher the cost of mortgage insurance/more expensive the home, the higher is the potential cost to the government in lost revenue. (The 90% of Oregonians cited as income eligible in the editorial is meaningless—renters can't claim the deduction, and only those owners who pay mortgage insurance AND who itemize the deduction will be able to take the deduction on their federal tax return). See this Tax Foundation Fact sheet (http://www.taxfoundation.org/files/ff49.pdf) for more information on who benefits from the home mortgage interest deduction.

2. The Cost for this Additional Home ownership Subsidy Is Not the Highest Housing Priority. The Congressional Budget Office projects that the cost of the mortgage insurance provision will be $570 million dollars over the next 10 years. (See CBO cost estimates for H.R. 3648 found at http://www.cbo.gov/ftpdocs/86xx/doc8667/hr3648.pdf). With the current federal revenue loss from property taxes, mortgage insurance, and gain on sale estimated at more than $120 BILLION a year [see footnote at the bottom page 17 of the Congressional Research Service analysis of H.R. 3648 found at http://assets.opencrs.com/rpts/RL34212_20071206.pdf) and with other housing programs facing budget cutbacks, adding yet another additional subsidy without significant income targeting for home ownership cannot be the highest housing priority facing our country.

Senator Smith’s Mortgage Insurance Deduction Benefit Numbers Are WRONG.

A December 2007 press release from Oregon Senator Gordon Smith HERE about the extension of the mortgage insurance tax deduction claimed that “Over 12 million American homeowners benefited from this deduction in the first year alone.”.

The Congressional Budget Office in another December 2007 cost estimate HERE said that the cost of mortgage insurance deduction during all of FY 2009 will be $109 million. (estimated costs over 10 years were $570 million).

Dividing CBO’s cost estimate of $109 million in FY 2009 by Senator Smiths assertion that 12 million households benefitted in the first year results in the calculation that the average ANNUAL revenue loss would be $9.08 per household. ($109,000,000/12,000,000=$9.08).

Conclusion: The calculated home ownership tax benefit per household of a little more than $9 per year clearly cannot be accurate. Instead, I seriously doubt that there were 12,000,000 ACTUAL beneficiaries of the mortgage insurance deduction in the first year as claimed by Senator Smith. Instead at best, I expect that there MAY be 12,000,000 POTENTIAL beneficiaries who had incomes below the phase out threshold AND who owned a home AND who had mortgage insurance on their homes. (This potential beneficiary base however ignores the fact that many homeowners do NOT itemize their deductions and therefore could not claim this deduction).

Note : If the ACTUAL annual number of beneficiaries were only 1/10 of the Smith 12 million assertion (1,200,000 households) the net benefit per household would still be less than $91 annually, an amount insufficient to convert many (if any) renters into homeowners.