The chairman of a key congressional committee has provided new details on his controversial plans to deny mortgage interest deductions to people who own large homes.
Rep. John D. Dingell (D-Mich.), who as chairman of the Energy and Commerce committee is one of the most powerful leaders in the House, last Thursday unveiled a draft of his forthcoming "carbon tax" legislative reform package. As expected, the bill would impose new federal taxes of $50 a ton on coal, petroleum, natural gas and other carbon-based fuels; a new 50 cents per gallon tax surcharge on gasoline, jet fuel and kerosene; and "phase out the mortgage interest deduction on large homes."
Dingell defines large as 3,000 square feet or more of interior space. The draft language does not explain who will be responsible for measuring houses' square footage or how the federal government will audit compliance.
The bill, which will be part of Dingell's comprehensive plan to address global warming, would offer exemptions to certain "historical homes" built before 1900, houses on farms, and houses whose owners purchase "carbon offsets" to make their properties "carbon neutral." The bill would also provide exemptions for large houses built to certified high energy-efficiency standards.
In a statement, Dingell said he is targeting big houses because they "have contributed to increased sprawl and longer commutes. Despite new houses in and of themselves being more energy efficient," he said, "the sheer size, sprawl and commutes lead to drastically more energy use-or to put it more simply, a larger carbon footprint."
In the draft released Thursday, Dingell offered a detailed phase-out schedule for the mortgage interest writeoff, beginning with houses of 3,000 square fee-which would lose 15 percent of their deductions-and ending with houses of 4,200 square feet and larger, which would receive no deductions at all.
An example of how the sliding scale would work was included in the draft: Assuming a series of houses of various sizes, all with first mortgages of $300,000 at 6 percent, and all owned by taxpayers in the 25 percent marginal bracket, each house would generate $18,000 a year in interest payments. The current value of the deduction for each owner would be $4,500 ($18,000 x 0.25).
Under the Dingell plan, however, owners of homes 3,000-3,499 square feet would be limited to claiming 85 percent of that $4,500 writeoff ($3,825). Owners of homes between 3,200-3,399 square feet would be capped at 70 percent ($3,150.) Those with 3,400-3,599 square feet could only take 55 percent of the deduction ($2,475); owners with 3,600-3,799 square feet would get 40 percent ($1,800); homes of 3,800-3,999 square feet would be limited to 25 percent ($1,125); those with 4,000-4,199 would get just 10 percent ($450); and anyone owning a home of 4,200 square feet or more would get zero.
Dingell defends his tax proposals as needed remedies to overconsumption and wasteful use of energy, which he argues are contributing to excessive greenhouse gas emissions and global warming.
"In order to address the issues of climate change," he said, "we must address the issue of consumption-we do that by making consumption more expensive."
Dingell's plans have drawn criticism from the National Association of Realtors and the National Association of Home Builders, both of whom questioned its practicality and its focus on square footage rather than energy efficiency and measured usage. The NAR estimated that roughly 10.4 million single family homes in the U.S. have more than 3,000 square feet, and represent 27 percent of the total valuation of single family units.
Dingell's legislation is still at the drafting stage, but is heading for introduction in the weeks ahead. Dingell's committee has congressional jurisdiction over energy issues, but tax proposals must go before the Ways and Means committee, where the limitation on mortgage interest deductibility is likely to meet strong, bipartisan opposition.