Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: THURSDAY, June 29, 1995                   TAG: 9506290053
SECTION: BUSINESS                    PAGE: B-8   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

REALTORS CLAIM FLAT TAX WOULD ONLY FLATTEN ECONOMY

Realtors warned Wednesday of dire consequences for homeowners and the economy from radical tax reform. Meanwhile, a Republican commission pressed ahead with developing a sweeping tax code overhaul before the 1996 elections.

A study commissioned by the National Association of Realtors said eliminating the mortgage-interest and property-tax deductions, as proposed in House Majority Leader Dick Armey's flat tax, would cost the nation's 64 million homeowners nearly $1.7 trillion.

``Put another way, the average homeowner would lose 15 percent of his home's value within two years,'' the association said in a statement issued with homeowners' groups at a news conference.

The study, conducted by DRI-McGraw Hill, a Lexington, Mass., economic consulting firm, predicted what the real estate trade group called ``dire consequences for housing and the rest of the economy.'' The impact would be felt most acutely by upper- and middle-income homeowners, who itemize their deductions more commonly than lower-income homeowners, it said.

Citing Congressional Budget Office figures, the study valued the mortgage-interest deduction at $62 billion by 1997 and the property-tax deduction at $22 billion.

Meanwhile, a commission headed by former Housing Secretary Jack Kemp conducted its second public meeting Wednesday, hearing from leading congressional tax-reform advocates including Armey, R-Texas, and House Ways and Means Chairman Bill Archer, R-Texas.

The commission, appointed by Senate Majority Leader Bob Dole, R-Kan., and House Speaker Newt Gingrich, R-Ga., has been charged with sorting competing reform plans and making recommendations by November, in time for next year's presidential and congressional elections. Later this summer, it plans field hearings outside Washington.

Armey outlined his flat tax, which would eliminate most deductions and credits, exclude from taxation individuals' capital gains, interest and dividend income, and tax all wages and pensions at 17 percent after exempting the first $36,800 of income for a family of four. Archer advocated replacing the income tax with a consumption tax, similar to a retail sales tax or a value-added tax.

Senate Budget Committee Chairman Pete Domenici, R-N.M., and Sen. Sam Nunn, D-Ga., presented their Unlimited Savings Allowance tax, which essentially would allow a deduction for every dollar saved or invested.

The Realtors' study said the effect on housing - a 19 percent decline in existing-home sales and a 22 percent drop in construction of new homes - would cause a recession dwarfing the last downturn in 1990-91.

Advocates of the flat tax argue that its economic benefits outweigh any negative consequences of eliminating the housing deductions.

``The flat tax would produce a higher economic growth rate and raise living standards,'' Armey said in testimony to Kemp's National Commission on Economic Growth and Tax Reform.

``It would liberate the economy to be more efficient, replacing today's maze of politically targeted tax breaks with a system that is perfectly neutral as between types and sizes of business, between economic sectors, and between types of investment,'' he said.

But the Realtors said any benefits couldn't make up for loss of home equity, which could reduce consumer spending.

Ed Gillespie, a spokesman for Armey, faulted the Realtor's study on three points. First, it assumed - erroneously, he said - there would be no transition period to ease impact; it assumed a higher tax rate than Armey would impose; and it underestimated the economic benefits of lower interest rates produced by a flat tax.