In a well meaning move, President Bush last January appointed a bipartisan panel to give him advice on options to reform the tax code - to make it simpler, fairer, and more pro-growth to benefit all Americans.

And therein lies the problem.

What’s fair to one person is often seen as unfair to another, especially when our current tax code rewards one set of taxpayers at the expense of other taxpayers. The goal of benefitting all Americans sounds good, but when it comes down to who will lose deductions and who will gain them, the fairness issue becomes less clear.

Earlier this fall, the Advisory Panel on Federal Tax Reform recommended four housing-related steps that they believe would serve to simplify the current tax system. Unfortunately for those of us in the real estate industry, the recommended steps hit us right in the wallet.

Among other proposals, the panel recommends:

1. that Congress replace the popular mortgage interest deduction with a considerably more limited credit of 15% of interest paid on a principal residence. The ceiling on the mortgage amount used for calculating the credit would drop from a current $1.1 million to an amount based on FHA regional loan limits. The current FHA loan limit for the Atlanta area is slightly under $205,000.

Anyone who owned a house with a loan amount of more than the ceiling amount would still get the credit up to the limit for the area. In addition, the deduction for home equity loans would be completely eliminated.

2. that all tax deductions for second homes be eliminated entirely. This would hit resort and vacation areas of our country, as owners of vacation homes would decide their investment was not as beneficial as it once was, and large numbers of current owners might decide to sell.

According to a study by the National Association of Realtors (NAR) last year, second home sales accounted for 36% of all home sales in 2004.

3. that all deductions for state and local taxes be eliminated. This would include any deductions for local property taxes and sales taxes. The rationale is that some states don’t have sales taxes, while some states don’t have property taxes.

Yet 43 million households deducted state and local taxes last year for a tax savings of $45 billion.

And finally, the panel recommended

4. that the "principal residence" rules be changed. Under current law, a couple who sells their principal residence can exclude up to half a million dollars of gain from taxation, provided they have lived there for at least two of the five years preceding the date of sale.

The panel recommended that the owner-occupancy requirement be increased from two years to three years, thus making it more difficult for sellers to take advantage of the tax benefit.

Of the four major real estate related proposals, the modification of the mortgage interest deduction would likely hurt the most. Of the nation’s estimated 74 million home owners, some 37 million used the current mortgage interest deductions for a total tax savings of $70 billion in 2004.

Predictably, the Realtors trade organization has objected loud and long to these proposals, using every possible means to communicate their views.

Earlier this month, the NAR launched an advertising campaign warning that home values could drop significantly if the federal tax panel recommendations were adopted into law.

"All homeowners will suffer if this policy is enacted, whether they take advantage of the mortgage interest deduction or not," said Thomas Stevens, NAR president. "Reducing the mortgage interest deduction would drive down home values and have a devastating effect on the housing market as well as the nation’s economy."

According to projections from the NAR Economic Research Division, the value of the nation’s residential property could decline 15% or more if the mortgage interest deduction is lost.

The Realtors group claims a national membership of 1.2 million agents and brokers, and has been effective in years past at preserving the most cherished of housing tax breaks. Whether or not their lobbying powers will prevail in this battle remains to be seen.

Not surprisingly, the National Association of Home Builders (NAHB) has weighed in on the panel’s recommendations, and it doesn’t like what it sees.

"The timing for such a proposal could not be worse," said NAHB vice president Jerry Howard. "Home appreciation rates are already easing, sales are slowing and interest rates are rising."

And considering that a substantial portion of the wealth of American homeowners comes from the equity they have in their homes, millions of taxpayers are not likely to support the proposals.

The president is under no obligation to follow the panel’s recommendations, and the proposals have not been well received on Capitol Hill.

Commenting on the plan, Rep. Jerry Weller (R-Ill.), a member of the Ways and Means Committee, declared that the proposals would be "dead on arrival" if presented to his committee.