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Realtors Fear Flat Tax Would Spell Disaster

As discussions proceed about the flat tax proposal, based on a simplified tax code and a postcard-size return, it becomes clear there are no more dedicated opponents than the nation’s Realtors.

This is war, and when you speak with Gil Woods, president of the National Association of Realtors, you can hear faint echoes of Winston Churchill rallying his people against an imminent German invasion.

This is mortal combat. The Realtors feel they must save themselves and the nation from the most accursed idea they have ever encountered, that of doing away with the home mortgage interest and property tax deductions.

Those, of course, are items in the flat tax, a proposal that would replace the current personal, corporate, and estate and gift taxes - and double taxation too - with one simple tax on every dollar of income.

According to Rep. Dick Armey, R-Tex., its chief advocate, it would mean lower and fairer taxes for most people, eliminate miles of absurdly complex rules and regulations, and create a healthier, more vigorous economy.

But as he and apparently millions of believers advance the idea with patriotic fervor, the Realtors are as dedicated in their opposition. A fight’s a fight, and the faxes are flying with accusations and denials.

It would cost America’s 64 million homeowners nearly $1.7 trillion, the Realtors declared as they released a study commissioned from DRI-McGraw Hill, a consulting firm. The price of homes would dive 15 percent in two years.

It would also cause existing home sales to fall by 19 percent, and housing starts to drop 22 percent. It would cost jobs. It could push borrowers into default, cause a financial crisis and maybe a recession.

The response from Armey’s office was immediate. Homeowners would prosper in a flat tax boom, he said. He said that what the Realtors had analyzed was not the proposal he offered. They made their own assumptions, he said.

For one thing, he explained, the Realtor study greatly understated the drop in interest costs that would occur under a flat tax since, while interest expenses would not be deductible, interest earnings would not be taxed.

Also: By lowering taxes generally, the economy would be freed to produce goods, including new houses, at a lower cost. True, he said, prices of existing houses might drop, but that might be offset by lower upkeep costs.

Armey dismissed the Realtors’ study as “of little value as a guide to the flat tax, its effect on housing, or its impact on the economy,” and last week offered his own study of 800 recent homebuyers.

By a 67 percent to 19 percent margin, his office said, recent homebuyers would be willing to give up their home mortgage interest deduction if that loss were offset by a reduction in their overall tax bill by a similar amount.

Nothing was said about the opinions of existing homeowners, but in his earlier criticism of the Realtor study Armey conceded that existing homeowners would have to refinance their homes to get the promised lower interest rates.

Conceding that refinancing involves costly fees, he suggested that existing mortgages could be “grandfathered,” leaving the interest tax deductible to the borrower but taxable to the lender.

These accusations and countercharges are mere opening salvos. The Realtors are committed to not giving up the interest rate deduction. As is evident from their claims, they see its continuance as vital to their survival.

And for the flat tax advocates, continuance of the interest rate deduction would gut the philosophical basis for their proposal, which is founded in the belief that tax fairness means no exceptions.

Remember - exceptions, contingencies and other asterisked matter are what made the present system what it is, and it is the elimination of these same factors that gives the flat tax a good deal of its appeal.

That, and the savings. Armey’s office didn’t mention it in its response to the Realtors, but the Tax Foundation, an independent research organization, estimates that compliance expenses alone cost taxpayers $200 billion a year.

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