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December 22, 2014

From Right or Left, Home Ownership Is a Core Value

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From Right or Left, Home Ownership Is a Core Value

REALTOR® Party Convention preview: A REALTOR® Magazine Q&A with Steve Schmidt and David Plouffe

They have very different political orientations but Steve Schmidt, a top Republican political strategist, and David Plouffe, one of his counterparts on the Democratic side, are in lockstep when it comes to the importance of home ownership in anchoring a growing U.S. economy and building strong communities.

Steve Schmidt

The two strategists share the stage May 13 at the REALTOR® Party Convention & Trade Expo in Washington to talk about how this year’s national elections could shake things up in Congress just as lawmakers turn the spotlight on issues—like secondary mortgage market reform and changes to the tax code—critical to real estate.

Schmidt, an adviser for Sen. John McCain when he ran as the Republican presidential nominee in 2008, says lawmakers on both sides of the aisle understand the centrality of home ownership to the economy and are likely to proceed cautiously on any changes that could impact markets. “With home ownership, you have a tax base, good schools, people investing in their community,” he says in an interview with REALTOR® Magazine. “You’re going to have a tax benefit for owning a home, as far as I can see.”

David Plouffe

Plouffe, the top campaign policy adviser for President Barack Obama in both 2008 and 2012, says efforts to improve the federal government’s financial picture don’t have to come at the expense of home ownership. “There are a lot of other places to look before you [make changes to the mortgage interest deduction],” says Plouffe. “My guess is you don’t need that to achieve your economic and deficit-reduction goals.”

The analysts say the country still has a ways to go before it’s fully recovered from the financial crisis in 2008, but they bring different perspectives on what needs to come next to get the economy right. For Schmidt, the government needs to let the private sector spur broad economic growth — ”You can’t solve problems with an economic growth rate of 2.8 percent,” he says — while the government needs to improve its own program management and help get funds into the economy for infrastructure improvement.

Plouffe says the capital requirements and other regulatory controls put in place to curb private-sector financial abuses need to be watched carefully to make sure they prevent a recurrence of the global financial crisis. “We’re still only halfway through the historical recovery period,” he says. “We all want to make sure the recovery isn’t based on bubbles, on smoke and mirrors.”

Turning their eyes to national elections later this year, the analysts say Congress is unlikely to engage in the kind of political brinkmanship that roiled markets over the last few years. That means no battles over raising the debt ceiling. But, once the elections are over and attention turns to the presidential election in 2016, political games could start anew. “I don’t share the optimism of those who believe the debt ceiling as a political weapon has been forever retired,” says Plouffe.

Both analysts would like to see Congress tackle immigration reform. “You have to be able to work at some level within the bounds of reality to get the best kind of business done for the American people,” Schmidt says.

On health care reform, the analysts differ on where the federal government goes from here. For Plouffe, the focus must be on refinements, while Schmidt says the program needs to be reformed again. “It’s certainly not going to help Democrats in the short term,” he says.

The session with Schmidt and Plouffe is called “Congressional Actions and the 2014 Midterm Election: Federal Legislative & Political Forum.” It’s Tuesday, May 13, 8–9:30 a.m. at the Marriott Wardman Park Hotel, Marriott Ballroom Salon 1.

Here's the complete REALTOR® Magazine Q&A:

REALTOR® Magazine: What is the next Washington crisis?

Steve Schmidt: It’s almost unimaginable the Republican party would engineer another debt crisis and government shutdown, knowing full well what the consequences of that would be, particularly in an election cycle in which Republicans are an expanding majority in the House and are well positioned to take the Senate. It would just be asinine at a level that’s difficult to comprehend.

David Plouffe: I think there’s going to be a reprieve from self-inflicted political crises. Not permanently, but certainly through the end of the year. That said, the debt ceiling is going to come back next spring, and I don’t share the optimism of those who believe the debt ceiling as a political weapon has been forever retired. That’s the only thing that’s looming that’s a potential negative.

RM: What grade would you give President Obama on his five years in office?

Plouffe: Well, I’m going to be grading him on a curve. But a fair assessment has to recognize that he inherited an economic crisis only surpassed by the Great Depression. Stabilizing that was the first order. He got that done; now the question is, can we get back to the right kind of growth, in terms of pace but also in terms of more broad growth that helps the middle class prosper? The recovery so far has clearly advantaged people more on top of the income scale than in the middle. On other issues, he promised to tackle health care reform, which he did. Whether you’re for it or against it, it was 100 years of failure that finally succeeded. He’s also been able to do more in the energy space, although not as much as he’d like. He also inherited a foreign policy that was in dire need of change, so I go back to the campaign and what he promised. He promised to end the Iraq war, which he did. He promised to end the war in Afghanistan and target al Qaeda leadership, which he did. I think it’s a big deal to try to put diplomacy back in our tool box. My suspicion is, when history looks back, it will see a consequential presidency, with a lot of time left to go still. His presidency will also be defined by the zealous opposition to him. That is a bigger question for the country.

Schmidt: In the pantheon of Democratic victories, health care is a big one. It’s certainly not going to help Democrats in the short term, and it’s going to have to be reformed again. But President Obama got that done. He also wound down Iraq and Afghanistan in a really complex world. The presidency is a very difficult job and we tend to view presidents differently after the passage of time. History is going to regard him as a big figure who certainly moved the country left and realigned its politics in a rather substantial way. It will force the Republican party to evolve.

RM: What grade would you give Congress for its performance over the last five years?

Schmidt: They have a 9 percent approval rating. It’s extraordinary. The American people are deeply unhappy, but the recourse that people would normally have is largely absent if you only have 20 competitive elections. That’s what happens when politicians get to pick their voters [thanks to redistricting and gerrymandering] versus the other way around. It’s very unhealthy. You have to have competitive elections.

Plouffe: Most people right now believe one of the greatest threats to our country, and our economy, is Congress. It’s an unprecedented place we find ourselves in. Congress has been causing problems instead of solving them. There were some individual issues on which you might grade Congress OK. There were a few Republicans on the stimulus package, which I think history will show prevented another Great Depression. Health care, obviously, was an all-Democratic show. But we needed to get it done. There were things like the START treaty, “don’t ask don’t tell,” any number of tax provisions where we had Democratic and Republican support.

RM: What is the best hope for improving the public view of Congress?

Plouffe: There are some things the public would applaud, like if immigration reform passed. And if there’s an economic package that does some things on infrastructure, which would be good for the housing industry, and that creates jobs and helps our long-term debt. There will be provisions in those things that some people won’t like, but the public is so hungry for leadership and problem-solving that, from a political standpoint, you can actually make something of these successes.

Schmidt: Electoral reform definitely. Earmark reform. Curbing earmarks has not done anything to make governing work. Earmarks are how the system works and always has been. It’s made House Speaker John Boehner’s job really difficult. It’s weakened the leadership’s position to outside groups, away from the political party structure. As a result, all these groups first and foremost advance ideology, many times on a single-issue basis. The central question is whether Republicans will be a national party or not. You can’t govern with just a small group of true believers. You have to be able to work at some level within the bounds of reality to get the best kind of business done for the American people. Conservatism has been defined in recent years around personalities. If you look at talk radio, whoever has fidelity to the outrageous statement one of these guys make, that’s defined as a true conservative, versus defining a true conservative in the way we used to, like [former Republican congressman from New York and former HUD secretary] Jack Kemp, for example. That is, as a policy innovator. We need to talk about economic growth optimistically, how to deal with the challenges the country faces, competitively, domestically, and internationally.

RM: What reforms would help the government overcome its partisan gridlock?

Schmidt: There’s a deep suspicion in the electorate of anything big, not just of government but of big business, big labor, big banks, Wall Street, and in that space there’s possibility of realignment of some of the coalitions. There’s the ability for the Republican party to run not as an ideological party but as a reform party. If you look at some of these issues broadly, as big a debacle as the whole Obamacare website was, there’s a huge debacle — and I think it says a lot about the government’s capacity to operate in this type of space — with the military’s F-35 Joint Strike Fighter. That’s a debacle that makes the Obamacare website pale in comparison when you look at cost overruns and inefficiencies. So, how we spend money, how we’re taxed, how we compete, how we reform a lot of sclerotic institutions. ... Talk about the complete and total disgrace that the Department of Veterans Affairs backlog is and how we can possibly abide that. Talk about accountability, frugality, getting the country’s fiscal house in order. Talk about what we all have in common as opposed to trying to divide the country up. The party has to be positioned in a way that can deal with a fundamental structural problem. If you look at the last six presidential elections Democrats have won — there are 538 electoral votes; you need 270 to win — and you can’t count on Florida, Ohio, Virginia, New Mexico, Nevada, New Hampshire, or any of those states. So, it’s very hard to win a presidential election when the electorate is going to be 2 percent less white with each succeeding four-year presidential cycle. When George H.W. Bush gets 59.5 percent of the white vote, he has 423 electoral votes, and when Mitt Romney gets the same number, he gets 191. You have a big problem. If you can’t fix that, it’s really hard to win a presidential election.

Plouffe: There have been some changes in the Senate; they helped get nominations through the approval process. If gridlock continues, maybe there should be more of that kind of change. Hopefully we’ll see more states going in the direction of redistricting reform. Iowa, for instance, does redistricting in a completely nonpartisan way. That would be very good, although in and of itself, redistricting reform won’t end gridlock. It’s more complicated that that. Right now, the voices on the left and right are so loud, and Congress is following them so religiously, that progress is hard. The problem in the Republican party is more pronounced, at least right now, but you’re starting to see Republicans in the center getting tired of it. And campaign money is a big issue, and it’s only going to get worse, probably. You’re going to have individuals out there trying to buy United States senators, governors, and even the White House. The major actors in our politics right now are not the campaigns; they’re the super [political action committees]. A very small number of people in both parties are funding these PACS.

RM: What issues will be getting the most buzz in Washington in the run-up to the midterm elections this year?

Plouffe: Health care is clearly going to be an issue. My suspicion is it will not be the weapon Republicans think it will be, because voters are tired of it, whether they’re for or against it. Smart Republicans understand they can’t be Johnny One-Notes, obsessed with health care; they need to have a positive agenda. The economy, clearly, will be another issue. If the economy picks up, as many economists believe, as we head into the fall, that will be good for incumbents in both parties. Foreign policy is not going to drive a lot of the vote, but if foreign policy issues really flare up around the election, they could have an impact.

Schmidt: Very little is going to get done legislatively. Republicans want to maintain the status quo. You have a six-year incumbent president whose polling range is now in the 40s. The strategy for Republicans has to be Obamacare–plus. Republicans want individual campaigns to be viewed as part of a national environment. They want to push red-state Democrats into the White House as partners with Obama. Democrats, on the other hand, want to localize the election. The other subplot is whether the Republicans are going to be able to get through the primaries without a bunch of these nutty candidates who cost six Republican seats in the Senate the last two election cycles. So, there’s not going to be a lot of incentive to work with Obama or do anything that messes up the status quo. The subtext will be all this national security stuff. It has the potential to cut the president up and lower his approval ratings.

RM: What will be the issues shaping the 2016 presidential election?

Schmidt: There are two types of elections: stay-the-course elections and change elections. 2016 is going to be a change election. So, Hillary Clinton represents huge change. The first woman nominee, potentially the first woman president. On the Republican side, I think Republicans have to nominate someone who’s a governor, outside of Washington, or someone who’s inside Washington but broadly shaking up the existing coalition structure. Any of the Washington senators really has no chance in a general election. People don’t like the Republican Congress. If you have a governor, the race is wide open. I think Sen. Rand Paul (R-Ky.) is interesting, because he’s the one guy out there in Congress who’s doing things that have the potential to alter the electoral coalition. He’s getting cheered at Berkeley. He represents a dormant wing of the Republican party that could come to life in a really big way in 2016, so the race couldn’t be more wide open.

Plouffe: If immigration reform doesn’t get passed, that’s going to be a big issue. Will there be further economic and deficit legislation? If there’s not, than one of the big questions for the nominees of both parties will be, ‘‘OK, how are you going to handle the economy?” Also, by 2016, health care will be seen by even the Republican nominee as a settled affair, I think. The question will be, “How are you going to change it?” The Republican nominee will probably suggest they can’t pull it out by the roots but they can trim it here or there, and the Democratic nominee will probably have to say, “How can we build on it?” The key question will be, middle class voters and not-quite middle class voters will be asking, “Who’s going to look out for me?” That’s a debate we won against Mitt Romney in 2012 decisively, even in a tough macroeconomic climate. Whoever wins that question will likely win the election.

RM: Is home ownership still a worthy public policy goal of the federal government?

Plouffe: Home ownership is still important for the country. It’s the most proven way to build equity and it gives families security. It doesn’t mean it’s right for everybody. We live in an economy where people who are in their 20s are going to have eight or 10 jobs and will move around a lot. It’s different than it was a couple of generations ago, when you bought a home, planted roots, and you were going to be there forever. Our economy’s changed and our housing market’s changed. But I still think home ownership is, for most people in the long term, a smart financial move. And there’s no doubt from an economic standpoint, most voters don’t view the economy through the lens of gross domestic product numbers, or even the unemployment rate; they view it through their own personal lens. Are the local stores hiring? Can they or their family members get a job? Are they able to go out to dinner once a month? But the most important thing is the state of their home. There’s no doubt the driver of economic optimism tends to be home price increases. People just tend to feel a little better about things when their home value goes up. So, home ownership is still a critical thing for the country. It’s something we as a country have always valued and rightfully so.

Schmidt: There are lots of benefits of home ownership for individuals, families, and neighborhoods. You want to have nice neighborhoods. With home ownership, you have a tax base, good schools, people investing in their community. But it’s not a choice between home ownership, with irresponsible lending, and something else. Is it difficult for ordinary people to access money to buy a home? The answer is certainly yes. Part of what the government can do is get out of the way and let the free market function. It’s good for people to own homes, but you also don’t want a repeat of what happened.

RM: Have the measures taken by the federal government since the financial crisis been enough to prevent a recurrence of the bubble and bust we saw in the housing market? What more needs to be done?

Schmidt: The real estate market does well when the economy grows. So, the remedy is not just an advantage through a tax code fix; it’s how you grow the economy. Most of the country’s most pressing problems can get solved if you hit the right economic growth rate. You can’t solve problems with an economic growth rate of 2.8 percent. So, there are many issues upon which we can increase our competitiveness and secure the country geopolitically. One of these ways is to take advantage of the enormous natural gas reserves in the United States and across North America. We should be lifting all barriers to the export of natural gas to Europe. We should be building facilities on the East Coast. We should repair our crumbling infrastructure. We should reform our tax code. We should pass the U.S.- E.U. free trade agreement. We should work with the Canadians to protect our resource advantage in the Arctic, particularly in an area where we’re going to be competing with the Russians. We also need to send clear signals about what type of military deterrent we’re going to have. Then you have a mess of an education system in parts of the country, people not being prepared competitively to succeed. Immigration is a disaster. So, there are any number of things that can get government out of the way of the entrepreneur, the innovator, the scientist, the engineer. And in areas where the government spends money, demand a return, have accountability, reform sclerotic institutions. And deliver best-in-class services to the American people. How do you make government work again? Republicans have to talk about that.

Plouffe: The financial system has been solidified, with things like capital requirements and making sure banks have plans, so if there’s a financial crisis down the road, taxpayers aren’t on the hook. That’s a valuable lesson learned from 2008. But we still have to be watchful that the same sorts of instruments, like the collateralized debt obligations, don’t pose new threats. Now, financial crises historically have taken eight to 10 years to recover from, so think about that. We’re still only halfway through the historical recovery period. We all want to make sure the recovery isn’t based on bubbles, on smoke and mirrors. So, it would seem the rise in housing prices is not outrageous given that the economy has created jobs 50 straight months and we’ve had positive growth. In many respects, the recovery is being led by the recovery in housing prices. One of the reasons people are so angry at the financial crisis is, it snuck up on everybody. What is very much needed are red flags that can be thrown up in enough time to prevent something. Hopefully Wall Street will be a little more responsible in the packages they put together. There’s no doubt from a lending standpoint, as your members know, credit’s been tightened up a little bit. But for good reason. I know that’s frustrating, because the flow of credit is so important, but on the other hand, this affected everybody in the world. And there are still a lot of people who are recovering from it. On Main Street, people are still feeling very wary. They feel like things are getting better bit not necessarily in their own situation. They know that on Wall Street, things have never been better. The American people are smart; they understand the financial crisis had many factors, but the chief one was Wall Street–engineered.

RM: Is some change in tax benefits for real estate inevitable, given the federal budget deficit?

Plouffe: The mortgage interest deduction on primary homes—that’s a tough one to do. It’ll be interesting to see what happens at the end of the day. If you really do tax reform properly, you’re going to have to make some people unhappy. That’s with any major piece of legislation. But MID plays such an enormous role for middle class families. My personal view is, there are a lot of other places to look before you go there. And my guess is you don’t need that to achieve your economic and deficit-reduction goals.

Schmidt: Certainly there should be limits in the context of overall tax reform, like simplifying the code to make it more competitive. Can the country afford to subsidize millionaires with interest deductions for multimillion-dollar properties? By saying things like that, I can wind up being in jeopardy, or at least being called out on. You have to have an explanation of how changes like that affect the market, broadly speaking. That said, you’re going to have a tax benefit for owning a home, as far as I can see, because, on the one hand, Democrats can never get crosswise with that part of an expanding majority [aspiring home owners among growing minority populations] and, on the other hand, changes to MID violate all the no-new-taxes pledge promised by Republicans. So, it’s not going away. For people at the top end, should that number come down? Sure, theoretically.

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