[Rhodes22-list] Taxes - Timely Article

[Bill Effros]

Brad,

I like serious discussions.

Real estate prices will always run up, and always have.  The home I grew 
up in cost my parents $25,000.  Middle class at that time was someone 
earning $10,000.

Is middle class today $100,000?  Is that home now worth more than 
$250,000? 

Yes, the home is worth more than $250,000.  Why?

Because there are many more people earning $100,000 today than there 
were people earning $10,000 in 1953 when my parents bought our home.  
But there are no more homes of that quality and amenities (my parents 
added a lot of features to the home over the years) that close to NYC in 
a safe, excellent schools, suburban neighborhood.

So the people who could afford my parents' $250,000 home must compete 
for it by "running up" the price they are willing to pay.

It is simple free market economics.  It will always happen, and it is 
economic fundamentals that makes it happen.

With regard to your construction business, if 1/2 the people now 
building private homes suddenly find themselves with no homes to build 
they will all start competing for the "infrastructure" (should we read 
that as "government subsidized") business.  There won't be enough 
business to employ them all, and there won't be enough taxes collected 
to increase the level of government spending--unless we go back to the WPA.

I can't imagine that's what you are hoping for.

Taxing is tough and political.  Reagan's tax law did not simplify the 
tax code, it simply shifted the burden and added words.

Republicans have had total control of all branches of government for the 
past 6 years, and yet they have done nothing to fundamentally change the 
tax code.  Why?  Because they have managed to shift the burden from the 
richer to the poorer--and that was their true aim.

Please understand.  I will benefit from every change because I am in a 
position to put myself into the category that benefits from every shift 
in "social engineering".

I can even make an argument for "why should rich people have to pay more 
taxes than poor people?"  Why don't we all just pay the same amount 
every year?  (Except for people who don't have any money to pay--we used 
to throw them into the "poor house" but that costs more money than it 
collects...uh oh, my extremely simple tax code is getting more 
complicated already......)

Bill Effros

Brad Haslett wrote:
> Bill,
>
> Do you want a serious discussion or not?  The point the author of the
> article is making is that the mortgage deduction for second homes is 
> highly
> regressive.  There is nothing in the economic fundamentals that can 
> account
> for the current run-up in real estate prices.  It's a wonderful thing if
> you're riding the wave but not so good if you're young and trying to buy
> your first home.  Gary and I don't build homes, we're infrastructure 
> people
> and a hellava a lot of underground infrastructure needs to be replaced,
> we'll be fine thank-you.  Our tax code is nine millions words long.  
> This is
> ridiculous!  Housing won't collapse, but it just might return to a 
> sane and
> rational market.  David hit the nail on the head with his comments about
> social engineering.  This is not about common sense and 'fairness', it is
> all about power.  A flat tax would simplify life for 50% of the US
> population because they wouldn't have to fool with it at all.  How about
> Milton Friedman's negative income tax?  Look it up.  You mouth a lot 
> about
> 'fairness' but I think your game is all about power and control as well.
>
> Brad
>
>
> On 1/18/07, Bill Effros <bill at effros.com> wrote:
>>
>> Brad,
>>
>> What's your problem with the home interest deduction?  This is "social
>> engineering" that benefits you.  The housing industry has kept this
>> country going after the stock market collapsed.  Who do you think is
>> pouring money back into second houses--poor people?  Don't you think
>> they will all sell off their second homes if you take the interest
>> deduction away from them?
>>
>> Oh, and by the way, I don't have a dog in this hunt.  My real estate is
>> owned corporately.  While there is a cap on individual mortgage
>> deductions, there is no cap on corporate deductions, and, of course, no
>> one is talking about removing the corporate deduction...only the
>> personal deduction.
>>
>> If they took away the personal mortgage deduction the construction
>> industry you and your brother are in would collapse.  There would be a
>> lot more equipment and workers than there are jobs.
>>
>> Why are you for this?
>>
>> Bill Effros
>>
>> Brad Haslett wrote:
>> > Here's an article from today's WaPo that dovetails neatly with our
>> recent
>> > discussion.  Care to make a bet about the home interest deduction?  No
>> > one
>> > in the Congress has the guts to take on that sacred cow!
>> >
>> > Brad
>> >
>> > -----------
>> >
>> > *The $800 Billion Tax Loophole
>> > *
>> >
>> > By Maya MacGuineas
>> > Special to washingtonpost.com's Think Tank Town
>> > Thursday, January 18, 2007; 12:00 AM
>> >
>> > Democrats are in a bind when it comes to their domestic economic 
>> agenda.
>> > They have promised a number of new and costly initiatives such as
>> > fixing the
>> > Alternative Minimum Tax, providing middle-class tax relief, and
>> > increasing
>> > spending on homeland security and education. But they have also made a
>> > commitment to fiscal responsibility. So how can they deliver on their
>> > promises without opening themselves up to the old "tax and spend" 
>> label?
>> > Reforming tax entitlements -- a large, mostly under-the-radar part of
>> the
>> > federal budget -- might just give them a way out of their predicament.
>> >
>> > As a result of the 1986 bipartisan tax reforms, the tax base was
>> > broadened
>> > and the tax code was greatly simplified. But these reforms have been
>> > gradually undone as Congress has created scores of new tax breaks and
>> > loopholes. Want to preserve historic buildings, encourage alternative
>> > energy
>> > sources, help working families, or give certain industries a boost
>> > without
>> > appearing to increase spending? Voil? -- a new targeted tax break is
>> > born.
>> >
>> > Most tax expenditures are really spending programs designed to look
>> > like tax
>> > cuts. Picture them as vouchers for healthcare, mortgage payments,
>> > daycare,
>> > transportation -- name the tax break. Dressing these programs up as
>> > tax cuts
>> > makes them a much easier sell for politicians who fear the "big 
>> spender"
>> > label. But call them what you will, they drain the money from the
>> > Treasury
>> > and extend the scope of government. All told, this portion of the 
>> budget
>> > represents $800 billion in lost government revenues annually.
>> >
>> > Not only do these tax breaks mask the true size of the government,
>> > they are
>> > a terrible way to make policy. They regularly pay people and
>> > businesses to
>> > do what they would do anyway, making them both poorly targeted and
>> > unnecessarily expensive. They are also extremely regressive. A
>> particular
>> > tax exemption might be worth 35 cents on the dollar to a wealthy
>> > individual
>> > and only 10 cents to someone on the other end of the income scale who
>> > faces
>> > a lower tax rate. It would be hard to justify a housing policy that 
>> does
>> > more to subsidize the rich than the poor, yet that is exactly what the
>> > $80
>> > billion a year home mortgage interest deduction does.
>> >
>> > Moreover, tax expenditures do not get nearly the level of scrutiny 
>> they
>> > should. (If they did, would we really have a government program that
>> > subsidizes millionaires who buy vacation homes?) New government 
>> programs
>> > should only be created following vigorous debate over whether a 
>> proposed
>> > policy is important enough to warrant government intervention, and if
>> > it is,
>> > whether it will be effective. Discussions about new tax programs
>> however,
>> > tend to focus almost exclusively on the cost. Billions of dollars of
>> > targeted tax cuts have been passed in the past few years with little
>> > or no
>> > discussion about the worthiness of their goals. And unlike spending
>> > programs, which are subject to congressional review, tax expenditure
>> > programs are pretty much on automatic pilot.
>> >
>> > Reforming this area of the budget would not only be a critical step in
>> > improving the tax code (and probably the closest thing we will see to
>> > fundamental tax reform in the next two years) it could also generate
>> > tens --
>> > if not hundreds -- of billions of dollars in savings.
>> >
>> > The first step should be capping a number of existing tax breaks.
>> Capping
>> > two of the largest breaks -- the home mortgage interest deduction and
>> the
>> > exclusion for employer-provided healthcare, would easily provide over
>> $50
>> > billion a year in savings. Both of these changes would reduce the 
>> large
>> > subsidies that go to the highest earners while freeing up resources.
>> > Getting
>> > rid of a host of other tax breaks that subsidize certain businesses or
>> > industries could easily generate another $25 billion. A thorough
>> > review of
>> > the over 150 existing tax expenditures to determine which ones have
>> > outlived
>> > their usefulness would yield still more in savings. As Democrats
>> > search for
>> > ways to offset the costs of their new agenda, reducing the $800
>> > billion tax
>> > loophole would be an excellent place to start.
>> >
>> > *Maya MacGuineas is the Director of the Fiscal Policy Program at 
>> the New
>> > America Foundation.*
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