An e-mail from a colleague in the industry this morning pointed me in the direction of a new research report from the NAHB on housing-related tax deductions. And by that we mean mortgage interest deductions and real estate tax deductions. (You can access the whole report here.)

I have to be totally up front and say that I am very passionate about these issues because, well, to put it simply, I'm directly affected. I am a homeowner and, therefore, pay interest on my mortgage and property taxes and consequently benefit from the current tax law, which allows me to deduct these costs. And in my case, I feel it's a significant benefit to my household economy. These deductions allow me to access a tax refund, which I then pretty much sink right back into my house--and yes, I have a fixer upper.

So, when talk of doing away with these homeownership tax benefits resurfaces again--I was sort of hoping we had dodged that bullet when Obama was positioning himself as a pro-housing kind of guy--I get very serious very quickly. And if you haven't gotten the memo, this issue is totally heating up again.

For me, the tax benefits aren't just money in my pocket to spend on travels (although I'd like to) or fun stuff like an iPad (those look cool, too). It equates to real stuff--like air conditioning or a new bathroom or a new roof. (That's the kind of stuff you're dealing with when you've got a 102-year-old row home in D.C.) Without that tax benefit, those projects take so much longer to complete, which means the value of my house, and consequently neighborhood, increases more slowly.

And in my book that's not a great thing for the local government. If my house doesn't increase in value because I can't make, dare I say necessary, improvements to it, then I don't pay more in real estate taxes (and neither do my neighbors). Local governments end up with fewer tax revenues to pay for super important stuff like police, fire, schools, parks, etc.

So, needless to say when I caught wind of this report, I read it with much interest, particularly since it sliced and diced tax revenue information by demographics rather than just income segments, which is how it most often is analyzed. The results were revealing because they challenged the belief that housing-related deductions benefited mostly high-income households.

And we all know that when we're talking Obamanomics, high-income households have the broadest shoulders to support the government's self bailout plan. Right, wrong, or indifferent, that's just the way it goes these days. So what these results suggest to me, at least, is people who want to keep homeownership-related tax benefits might just have a leg to stand on against the prevailing winds on Capitol Hill.

I'll save you some of the wading through technical jargon in the report and cut right to the chase:

"The mortgage interest deduction's most important beneficiaries are younger households, who typically have large mortgages, small amounts of equity in their homes, and growing families."

Put another way, this research suggest that the people who will feel the most pain from any change to the tax law will be the people who need it most. These are generally not rich people exploiting a tax loophole; rather, these people, many of whom are first-time buyers, are most likely people who have scrimped and saved to have the privilege of investing in their local communities. They are people, like me, who have taken a stake in improving, growing, and strengthening a neighborhood rather than just taking from it. These don't exactly sound like the people to blame for the housing crisis.

But I think there was an undertone in the report that's worth pointing out because it's a bit subtle and could be easily missed. Check out Figure 7, which I've reposted here. As you can see, average mortgage interest deduction peaks for taxpayers between the ages of 35 and 44, followed by the taxpayer group of 18- to 34-year-olds.

So, we get that it's younger people who benefit most from the mortgage interest deduction. But think again--who are these people?

I look at this data, and this fact jumps out at me: It's Gen X that is currently benefiting most from the current tax deduction policy. Let's review a few things about Gen X. These people--generally 30-somethings and early 40-somethings, although some people debate the exact cutoffs--are also known as the "baby bust" or "sandwich generation." They're called that because they are smashed into between the boomers and the echo boomers (also called Gen Y). In terms of numbers, they are a very small generation in comparison to either group. Using rough numbers, let's put them at around 50 million strong, compared with the roughly 75 million boomers and 75 million echo boomers.

Can someone then please explain to me how essentially making Gen X pay more into our system by removing the mortgage interest tax deduction is going to significantly move the needle when it comes to the government's funding gap? Gen X simply isn't big enough. It's not big enough to support health care or Social Security, so how is it also supposed to solve our goverment funding issues?

So, then comes the question of Gen Y. Now, we're talking a huge number of people who are expected--or at least were expected--to hit a peak home buying period around 2012. So, on the one hand, if they continue to buy homes at a normal pace, there are enough of them to help generate the needed revenue for the federal government. But that's a big if.

The crappy economy has done enough to push back Gen Y's dreams of homeownership. By also removing housing-related tax benefits like mortgage interest deduction, the federal government will have voided out a significant homeownership incentive. That means fewer Gen Yers will be refilling the ranks of homeowners, which incidentally have also taken a hit thanks to the foreclosure crisis. Not to mention that it'll take longer to get vacancies and oversupply in check. But the more serious implication is this: With fewer Gen Yers pursuing homeownership, there's little hope for many of our nation's cities. So many of them desperately need new or at least more robust revenue streams just to keep up basic municipal services.  

So, before I've spent too long on the soapbox, I urge you to take a look at the report and try to get involved to help shape any changes to the current tax policy. For as critical as our concerns are over the federal debt levels, fixing it shouldn't challenge the value of homeownership, which is critical to the economic well being of our local communities.

Chart source: NAHB