Cohn: New Mortgage Deduction Limit Won't Hurt Housing Market

The House tax bill’s proposal to limit the mortgage interest deduction for new purchases of homes won’t crimp the housing market, said White House Economic Adviser Gary Cohn.

“The ability to deduct interest is a component that allows you to buy a bigger house, not what drives you to buy a house,” Cohn said during a Bloomberg Television interview Friday.

The tax-overhaul bill released Thursday included an unexpected provision that would cap the mortgage-interest deduction on home sales at $500,000 -- a departure from the current cap of $1 million for couples filing jointly. The National Association of Realtors, which has been wary of the tax plan, said that measure “appears to confirm many of our biggest concerns.”

Mark Zandi, chief economist at Moody’s Analytics, said the tax changes could initially cut prices by 10 percent in expensive markets and 3 percent to 5 percent across the U.S. An S&P index of homebuilders tumbled as much as 2.7 percent on Thursday, the biggest loss since November 2016.

The House bill would also deliver a 20 percent corporate income tax rate -- down from the current 35 percent. Cohn repeated that the corporate tax cut is a “bright line” for President Donald Trump, and will help to make the U.S. more competitive relative to other countries and spur wage growth.

“We’re not seeing wage growth in the job numbers and that’s why we need tax reform,” Cohn said. He added that the president wants the rate to take effect in January 2018.

Trump’s Council of Economic Advisers has said that cutting the corporate rate would increase average household income by at least $4,000. Other economists have questioned that claim.

Cohn also said that infrastructure will be the next big issue the White House tackles after a tax bill is signed.