Thoughts are mixed about how a proposal by Gov. Sam Brownback to end the mortgage interest deduction would affect the local housing market.
Brownback wants to eliminate two popular state income tax deductions for homeowners. He has recommended the end of an income tax deduction claimed by Kansans for the property taxes they pay on their homes and the deduction for the interest paid on home mortgages.
About 372,000 of the state’s 1.4 million taxpayers use the property tax deduction, with an average tax savings of $125 expected for this year. About 315,000 claim the mortgage interest deduction, with an average tax savings of $300.
Randy Flickinger, owner of Advantage Real Estate of McPherson, said he thought taking away the deductions would be a great blow to the housing market, and he expected both homeowners and real estate agents to fight the measure.
“From a Realtor’s perspective, most people’s greatest source of savings is their home or their investment in housing,” Flickinger said. “Any legislation that would damage or take away that incentive is a mistake.”
Although interest rates are low right now, Flickinger said eliminating tax incentives for home owners could ultimately soften the housing market and lower home values.
Flickinger said he sees a big fight on the these two deductions in the legislature.
“At this point, the governor sees Kansas as grand experimentation grounds for pure conservative beliefs and minimum government,” Flickinger said.
“Through the elimination of tax deductions, he feels he can simplify government and grow the economy and create new employment opportunities and more investment. Whether that will work or go too far and leave ourselves and schools hurting, remains to be seen.”
The elimination of the two tax deductions is part of Brownback’s broader plan to keep the state budget stable after aggressive income tax cuts last year. He wants to keep the state’s sales tax at its current rate, rather than allowing it to drop in July as scheduled by law, but his plan also includes a second round of reductions in income tax rates and provisions for automatic income tax cuts in future years.
Legislators saw more details Wednesday, when the Senate Assessment and Taxation Committee agreed to sponsor a bill containing Brownback’s plan and Budget Director Steve Anderson briefed the budget-writing Senate Ways and Means Committee.
The governor’s proposal to eliminate the mortgage interest deduction received widespread attention last week, but there’s been little notice given by legislators to his plan to eliminate the property tax deduction.
Fred Bohnenblust, senior vice president at Home State Bank & Trust of McPherson, said he did not think eliminating housing tax deductions would discourage home buyers.
“Home ownership is such an important thing in our country,” he said. “Irregardless of the mortgage deduction, people will continue to have that as a dream or goal. I know the Realtors association lobby groups may feel otherwise.”
Dale Anderson, real estate broker with Action Realty of McPherson, said he also did not think the elimination of the mortgage interest tax deduction at the state level would have much effect on the local housing market. Deeper effects would be felt if the deduction was eliminated at the federal level, he said.
Anderson said McPherson has been fortunate to have a strong housing market.
“We have great interest rates,” he said. “If someone wants to buy, they are going to buy.”
However, Anderson also said he thought the governor is facing an uphill fight in the legislature to get the deductions eliminated.
“I don’t think it will be eliminated,” he said. “Whenever you try to take money out of someone’s pocket, they are going to scream.”
In order for the Brownback’s budget plan to work, he needs the revenue from the elimination of the two housing deductions.
Kansas’ aggressive income tax cuts last year left Kansas with a projected $267 million budget shortfall for the fiscal year beginning in July. The administration projects eliminating the two deductions will raise an additional $231 million during the fiscal year beginning in July. He also is proposing keeping the sales tax at 6.3 percent. Keeping the sales tax at its current rate would generate $262 million.
Lawmakers and Brownback’s Democratic predecessor as governor boosted the sales tax in 2010 to close a previous budget shortfall but promised it would drop back to 5.7 percent after three years.
The Associated Press contributed to this story.
Contact Cristina Janney at cristina.janney@
mcphersonsentinel.com or follow her on Twitter @macsentinel.