Are the Payroll Tax Cuts Being Paid for With Your Home Mortgage?
The payroll tax cut extension is being paid for by increases in fees associated with home mortgages. That’s the story making the rounds these days. I’ve been asked about it a number of times, starting with a piece from CBS News from February of this year that was posted on my Facebook page with the comment:
“ I have to ask: With all the polemic about extending the payroll tax cut and how to pay for it, how did we all miss this?
When I saw the comment, I had to scratch my head. I’ve read the payroll tax cut legislation (downloads as a pdf) and I didn’t recall a word about mortgages paying for the payroll tax cut. But the story continues to be circulated by bona fide news agencies. So I did some digging. And here’s what really happened…
When the payroll tax cut extensions came up for consideration at the end of last year, Republicans were adamant that there would be no extensions without offsets to pay for them. All sorts of ideas were bandied about, including a Democratic attempt to impose an income tax surcharge on millionaires and the Republican counter to freeze pay for federal employees. Neither of those suggestions made the “final” cut passed in December which extended the payroll tax cuts for two months. What was included, however, as a means to pay for the extensions were a few taxes and fees snuck in at the last minute, including a “recapture” tax on high income taxpayers and a new fee on mortgages for home buyers.
As written, the new fee was to be a minimum of .1% on Fannie Mae- and Freddie Mac-backed loans. It was to be imposed for each of the next 10 years on most new mortgages and re-fis for the life of the loan. For homeowners, it was a considerable chunk of change. If you consider that the average cost of a new home in 2010 was $272,900, the last year for which data is available from the US Census (downloads as a pdf), the new fee would have cost the average new homeowner $22.74 per month. Over the cost of the lifetime of a mortgage, the result could be more than $8,000 in fees. The new fee was expected to generate $35.7 billion for the Treasury.
Only it won’t happen.
Like the “recapture” tax, the new fee on mortgages was eliminated in the final version of the payroll tax cut extensions. The payroll tax cut extensions were pushed through without offsets in revenue or spending.
What happened? Mostly pressure from the mortgage and real estate industries. The Mortgage Bankers Association, in particular, lobbied Congress hard not to include an increase in fees for new homeowners:
“ Policy makers need to go back to the drawing board and come up with a thoughtful, comprehensive approach to paying for the payroll tax holiday, one that doesn’t increase taxes by thousands of dollars on homebuyers, at a time when the housing market is already struggling.
And so, perhaps driven by lobbyists (or the collective voices of taxpayers), Congress did exactly that.
The final version of the payroll tax cut extensions does not include any offsets to pay for them. There are no brakes on spending. There’s no millionaire tax. There’s no “recapture” tax. And indeed, there are no new fees on home mortgages.
For now.
