A key home builders group is now opposing the Republican tax plan -- and it's a sign of trouble to come

Paul ryan mitch mcconnellPablo Martinez Monsivais/Getty ImagesHouse Speaker Paul Ryan and Senate Majority Leader Mitch McConnell
  • The National Association of Home Builders on Sunday came out against the forthcoming Republican tax bill.
  • The NAHB was working with lawmakers on changes to the mortgage-interest deduction in the plan, but did not support the proposed changes and said the bill would not incentivise homebuying.
  • The NAHB’s position indicates a broader problem for Republicans as they try and eliminate various deductions.

Republicans lost a big ally in their fight to overhaul the US tax code Sunday, when the National Association of Home Builders came out against the forthcoming legislation.

According to The Wall Street Journal’s Richard Rubin, the group was initially open to changes in the tax plan — but after seeing details decided to come out against it.

Jerry Howard, the CEO of the NAHB, told the Journal that the plan is a “bad bill for the housing sector” and that the group “will not be for it.”

The NAHB had been working with lawmakers to replace the mortgage-interest deduction — which lets homeowners subtract interest payments from their federal tax bill — with a tax credit offering the same incentive.

Instead, according to reports, there will be no similar credit proposed in the GOP tax plan. And changes to the standard deduction would likely lead to fewer people using the mortgage-interest deduction, since taking itemized deductions would be deemphasized.

According to the Tax Policy Center, such a change would bring down the percentage of Americans taking the deduction to 4% from the current 21%. That would make the deduction “irrelevant for all but a small fraction of homeowners.” The NAHB said it could disincentivize homebuyers and could be a drag on the housing market.

“All the resources we were going to put into supporting are now going to go into opposing the plan,” the NAHB CEO said.

Isaac Boltansky, an analyst at the research firm Compass Point, said losing the NAHB’s support represented a serious blow to the tax reform efforts.

“Losing a single lobby will not sink the GOP’s tax reform effort, but the NAHB’s opposition is meaningful given the considerable influence of the mortgage industrial complex in DC,” Boltansky said in a note to clients.

The NAHB’s shift is also the symptom of a larger headache for the GOP: Any sector that sees a tax credit or deduction changed could put pressure on lawmakers, much in the same way the NAHB is planning to do. With the release of the full bill Wednesday, pressure from interest groups will only ramp up.

“The tax bill release will be a significant moment, and filled with about as much drama as a tax event can have, but we caution that the release will usher in a new and volatile phase of the process,” Boltansky said. “The moment the tax proposal is released there will be a tonal shift on Capitol Hill as the vague platitudes that have dominated the tax conversation thus far are replaced by policy battles, budgetary estimates, and lobbyist bellows.”

According to multiple analyses of the original tax reform framework, the plan would add up to $US2.5 trillion to the federal deficit over 10 years. The GOP’s budget resolution provides room for the tax bill to add only $US1.5 trillion to the deficit over that same time, however.

Finding an additional $US1 trillion revenue gap means many deductions would have to be scrapped.

For example, changes to annual contribution limits on retirement accounts like 401(k)s that have been floated over the past week could draw the ire of asset managers, according to analysts at Morgan Stanley. From the report:

“A key challenge to this bill’s success is the heretofore unknown ‘pay-fors’ that will turn the previously announced tax framework into a bill that fits the Senate’s deficit allowance under the budget resolution. That means finding about $US1T of fresh revenue beyond what’s already been disclosed. Hence, we may see tax rate targets rise and fresh loophole-closing proposals, like 401k Rothification. To the extent that any of these become substantially polarising (i.e., new rate levels violate White House ‘red lines’, the retirement lobby puts up a good fight on Rothification, etc.), negotiating a way forward will take more time.”

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