The Wichita Area Association of Realtors and the city’s two biggest residential brokerages are criticizing Gov. Sam Brownback’s income tax proposal, saying it unfairly shifts tax burdens to homeowners instead of actually reducing taxes..
That’s a complaint rejected by Kansas Secretary of Revenue Nick Jordan, a principal advocate for Brownback’s plan to broaden the state’s tax base while cutting marginal tax rates.
The centerpiece of the local objections is the demise of the mortgage interest tax deduction for homeowners. That move, Wichita real estate officials say, would devastate a local housing market that’s beginning a slow but steady recovery. The Associated Press reported Wednesday that Jordan’s staff has been e-mailing state real estate officials asking them to contact legislators in support of Brownback’s tax plan.
Brownback’s income tax plan, SB339, will be heard Wednesday in the Kansas Senate’s tax committee. The bill is stalled in the Kansas House tax committee as HB2560, but a vote is expected Monday on an alternative Republican tax plan that keeps the mortgage interest tax deduction while taking money from the state highway plan.
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“The elimination of the mortgage interest deduction in Kansas under the governor’s plan will place housing at a virtual standstill,” said John McKenzie, president of the city’s second-largest residential broker, Coldwell Banker Plaza Real Estate. “It’s something that the housing market cannot afford during these tough economic times.”
Gary Walker, residential general manager for J.P. Weigand & Sons, the city’s largest broker, said the deduction should be increased at the state level.
“Our society and government have historically supported home ownership, and the mortgage interest deduction has become such a part of our fabric … that eliminating it is a negative.
“First, it would eliminate the affordability of home purchasing for many prospective buyers, as the savings from the deduction allows them to more easily budget for a mortgage. Second, if retroactive, it could increase the number of foreclosures on existing mortgages as the increased tax liability could make payments unaffordable.
“But if the deduction were to be increased, the opposite could occur. Homeownership would grow, jobs would be created, the spendable dollars of the consumer would increase. Revenues themselves could increase.”
The position of state and local Realtors is even more pointed. They accuse Brownback of trying to shift tax burdens with his proposal onto the state’s homeowners through the elimination of the mortgage interest tax deduction.
Tessa Hultz, chief executive of the Wichita Area Association of Realtors, criticized “the very optimistic promise that in a number of years down the road the state may find the ability to reduce income taxes to zero.”
“The last five years should have shown us how difficult it is to try to predict the economic conditions five years from now,” she said.
The Kansas Association of Realtors calls Brownback’s tax plan a “competitive disadvantage for Kansas homeowners compared to homeowners in other states.”
“Faced with the challenges created by a struggling economy and housing market, we believe that now is not the time to increase the tax burden on Kansas home owners,” the state association says.
Jordan, the revenue secretary, said the income tax breaks in Brownback’s plan will outweigh the mortgage interest deduction for most homeowners who itemize on their state income taxes. And he said the move has no effect on the federal mortgage interest deduction, which is the larger of the two.
“Everybody’s tax rates go down under this plan,” Jordan said. “I don’t know how you shift the tax burden when you reduce tax rates.
“I understand the Realtors’ viewpoint. They’re concerned about something that is a benefit for their industry, and I don’t want to minimize that. But we feel this minimizes the tax benefit of that deduction compared to the income rate reduction they’ll get.”