The interest deduction has been a bulwark of home ownership for decades, but conservative think tanks and economists have long advocated repealing it because of its cost to the government.
Trump has also promised dramatic “tax reform” if elected including simplifying the tax code by eliminating deductions.
Michigan Republican Dave Camp, who chairs the influential House Ways and Means Committee, has already drafted legislation under the guise of “tax reform” that would repeal key middle-class tax breaks such as itemized deductions for state and local taxes.
His measure would also set a 2 percent floor on charitable contributions and limit home mortgage tax deduction to mortgages of $500,000 or less compared with the current cap of $1 million.
“The discussion draft would effectively repeal long-standing incentives for charitable giving and home ownership for all but 5 percent of individual taxpayers,” according to Tax Analysts, an independent, nonpartisan policy organization dedicated to defending the public interest.
The percentage of individuals unable to claim the charitable and home mortgage deductions may grow in the future,” the group warned in an analysis of the provision when it was first introduced two years ago.
The “hidden” repeals result from the combination of direct changes to those deductions and the indirect effects of changes to other provisions, it said.
Trump has been purposely vague about policy provisions, except to propose a series of tax cuts for the wealthy and corporations on top of several expensive new programs and a dramatic increase in defense spending.
Trump’s policies would add an additional $11.5 trillion to the debt over the next decade, according to the nonpartisan Committee for a Responsible Federal Budget.
In order to carry out his plans, he will be desperately searching for new revenue sources, and conservative lawmakers will be ready to offer up Camp’s plan or something similar.
The deduction costs the federal government roughly $70 billion a year. It’s one of the largest and one of the few tax deductions available to middle class homeowners, who don’t usually have extensive investment and depreciation deductions available to Trump and other wealthy investors.
Repeal of the interest deduction would have a double whammy on the housing market. According to economists the deduction allows families to buy homes that are 15 percent to 30 percent more than the could otherwise afford.
If the deduction were repealed, tens of thousands of homeowners could suddenly find themselves unable to make their mortgage payments because of the tax bite. Loss of the deduction would also depress home values causing many homeowners to sink under water on their mortgages.
But the situation would be a boon for investors who would be able to buy homes at rock bottom prices and rent them back to families.
The National Association of Realtors has already raised red flags about the trend.
Thanks to a new Wall Street strategy, big investors are buying huge numbers of single family homes and converting them to rentals. In just the last two years, investors have bought more than 200,000 single-family homes mostly through short sales and foreclosures. They purchased more than $250 million worth of foreclosed homes from Fannie Mae alone.
Since 2005, the organization notes, the number of renter households has grown 10 times faster than owner households.
Indeed, home ownership hovered at a 48-year low of 63.5 percent in the second quarter of 2016, according to U.S. Commerce Department.
Some of these large investors are the very same ones who created and invested in residential mortgage securities, which fueled the real estate bubble a few years ago, the association notes.
“Now they’re slicing and dicing debt tied to single-family rental homes and selling those bonds to investors. An estimated $7 billion in these new rental-backed securities is expected to be issued this year, and the market could easily grow to $20 billion,” it said.
But to really make these investments lucrative, Wall Street needs a way to dispossess homeowners of their property at a faster rate at low prices. But repealing the home interest deduction, Trump and Congressional Republicans would provide the catalyst to fuel the market.
Trump is appealing to lower and middle-class voters who are largely non-college educated white men. Among those voters, their largest asset is usually their home, which the count on to build equity and provide retirement income.
But they are also the most vulnerable to losing their homes, should the mortgage interest deduction be repealed or phased out.
“In a final twist of irony, many of the tenants in this new breed of rental homes are the very same homeowners who were foreclosed on,” according to the Realtors’ association.
Trump, who got his start as a residential landlord and still owns a huge rental portfolio, may already be investing in these securities through the Trump Organization.
Without the release of his tax returns, it’s impossible to know.
But one thing is certain Trump has a history of selling out his investors and selling out his small business partners in his construction protects.
He would likely have no qualms about selling out his voter base in the name of “tax reform.”