Lobbyists are hired to advance their industry's interests, which are often at odds with the public interest. But the real estate lobby is currently engaged in a more cynical gambit: waging a lobbying war directly against their own customers.
The National Association of Realtors is not lobbying mostly to preserve their special tax carveout — they are mostly lobbying against a tax break for middle-class taxpayers. And they are doing this not out of concern for the federal deficit, but because they want to be the gatekeepers of middle-class tax cuts.
Here's the background on this issue: Republicans taking up tax reform this week want to double the federal standard deduction, thus cutting and simplifying taxes for millions of middle-class families. This would actually zero out federal income taxes for many lower-to-middle-income earners.
The standard deduction is what you claim as an alternative to itemizing deductions. The most typical itemized deductions are for (1) charitable giving, (2) state and local income taxes, and (3) the interest payments on your mortgage. If your itemized deductions would be less than the standard deduction (just above $6,000 for single filers and just above $12,000 for couples), then you take the standard deduction.
The larger the standard deduction is, the fewer people bother to itemize their deductions. This is why Realtors oppose increasing the standard deduction. Fewer people would take the tax deduction for having a mortgage, because those people would get a tax break even without a mortgage.
The mortgage-interest deduction is pretty hard to justify to begin with. Why should the tax code favor homeownership over renting? Why should bigger mortgages mean a bigger tax cut? Most of this tax benefit goes to wealthy people with expensive houses.
But here's the thing: Republican lawmakers aren't talking about eliminating or even scaling back the mortgage-interest deduction. They are instead planning to make it a moot point for millions of people by giving them a deduction that's even better, with fewer strings attached, not dependent on whether they have a mortgage.
For instance: If a couple buys a house for $400,000, and borrows 80 percent of that at 5 percent interest, they will pay about $15,000 in interest in the first year. Under current law, obviously they will itemize and use the mortgage-interest deduction. If their marginal rate is 25 percent, their taxes will go down $3,750 thanks to the mortgage deduction.
But doubling this couple's standard deduction to $25,000 has two consequences for them: Their taxes will go down, and they will stop itemizing (unless they give more than $10,000 in charitable gifts). This is good for the couple, but the Realtors' lobby doesn't like it.
"Doubling or tripling the standard deduction," Iona Harrison, representing the National Association of Realtors, testified before the Senate Finance Committee September 13, "destroys the incentive value of itemized deductions for most, as the great majority of taxpayers would receive the same tax benefit whether or not they engaged in the behavior the deduction is designed to encourage, whether it is to purchase a home or to donate to a charitable cause."
This obviously isn't a deficit concern. They don't mind you getting a deduction. They just want you to go through them to get it.
The Realtors' lobby argues that homeownership is a social good and should be subsidized by the tax code. Of course, every interest group makes a similar argument. And there's a plausible argument that tax deductions for homeownership fuels inequality. They could point out that because the deduction inflates home prices, then mooting the deduction for millions of homeowners will have a downward effect on home prices. But this effect would be confined mostly to those who currently itemize, but who would shift to the standard deduction — that is, to those who would be getting a decent tax cut out of the change anyway.
The Realtors make for a powerful lobby. In the first six months of 2017, NAR reported $21 million in lobbying expenses, more (by a lot) than any other single-industry group, according to the Center for Responsive Politics. Their in-house lobbyists include the former top tax advisor to Sen. Orrin Hatch, chairman of the tax-writing Finance Committee. NAR also operates a $10-million-a-year political action committee.
Their chief weapon may be the army of real estate agents distributed throughout the country. Every member of Congress has agents in his or her district, and NAR will deploy those agents to oppose the larger standard deduction.
This powerful lobbying force will spend the next few months fighting against a tax cut for you, because they want you to rely on them for the tax break. Even for K Street, that's pretty cynical.
Timothy P. Carney, the Washington Examiner's commentary editor, can be contacted at email@example.com. His column appears Tuesday nights on washingtonexaminer.com.