With more and more families at risk of losing their home to foreclosure, Congress has introduced legislation that would seem to give homeowners who do not itemize their federal taxes some financial help as part of the effort to stem the tide of home foreclosures. However the proposed law raises serious concerns, according to a new analysis by the Center on Budget and Policy Priorities.

The Housing Foreclosure Prevention Act (H.R. 3221) would, among other things, provide homeowners who don't itemize on their federal taxes with a $500-per-person ($1,000-per-couple) deduction against property taxes. The rationale is that additional money could provide those in danger of losing their home with the means to stave off foreclosure. As of May, New Jersey had the 10th highest foreclosure rate in the country. Although most homeowners itemize on their federal income tax returns, giving them a break on mortgage interest and property taxes, most non-itemizers are lower-income people, including seniors on fixed incomes who already paid off their mortgage.

However the Senate version of the bill has a little-noticed stipulation that would in most cases deny the deduction to taxpayers whose local government increases property taxes between the time the bill is adopted and next January 1.

Supporters of this provision say it's needed so local governments aren't tempted to raise property taxes knowing that for homeowners the increase will be cancelled out by the new federal deduction. However the idea that federal deductibility rules might prompt local governments to raise property taxes ignores the real reasons property taxes go up, including the cost of maintaining roads and bridges and providing adequate police and fire protection -- not to mention the pressure caused by reduced aid from Trenton under the state budget adopted earlier this week. And, areas hardest hit by the foreclosure crisis have seen shrinkage in the housing values on which taxes are based at the same time a worsening economy increases the need for many services.

"New Jerseyans know how heavy the property tax load is" said NJPP President Jon Shure. "We debate the reasons and remedies, but it's a stretch to think federal deductibility rules are a trigger. Congress shouldn't take away with one hand what it's giving with the other."

A new analysis from the Center on Budget and Policy Priorities calls the provision "unnecessary and impractical."

The Center's analysis specifically finds that the provision "is likely to impede efforts of localities to provide an adequate level of services for their residents, including schools, public safety, roads, libraries, parks, and social services" and states that "it is an unwarranted and unprecedented intrusion by the federal government into policies that always have been left to the states to determine."

If approved by the Senate, the bill would go back to the House. That is not expected to happen until after the July 4 recess, perhaps providing some breathing room for common sense to prevail.

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