Please, Change Our Horrible Tax Code!

Along the same vein as the article I linked to on why we should get rid of the mortgage tax deduction, this Washington Post editorial nails it, we need to change our insanely regressive tax code if we are to create a more equitable society. And social equity isn't just about being nice, it's about protecting what we have. Any society in which the majority of the members are getting shafted while a few benefit will inevitably end and typically in a very messy way. Personally, I like peace and so I'm very interested in social equity. Of course from a simple fairness perspective social equity makes a lot of sense. Although I disagree with his proposed solutions Dean Baker's free book The Conservative Nanny State convincingly demonstrates that the economic 'losers' in our society are, at least in part, losing because we have designed government policies to make it so. The Washington Post editorial really just demonstrates a variant on Dr. Baker's arguments. Baker's book is short and sweet, I heartily recommend it (so long as you can stomach his neo-socialist remedies, ignore the remedies and focus on his identification of the problems).

N.B. Oh and read Greg Palast's latest diatribe to get a feel for just how inequitable our society is. Do you honestly think this can go on forever?

7 thoughts on “Please, Change Our Horrible Tax Code!”

  1. Sadly many think that giving some mortgage company a dollar so they can get thirty-some cent from the government is a good trade.

    I once observed that houses are purchased not based on price but actually based on “how much can I afford each month.” The tax loophole effectively lowers that monthly cost, and as a result sellers can demand a higher price. This leads effectively to the inflation of housing costs. There is a perverse inverse relationship to interest rates here as well. The higher the interest rate, the greater the deduction, and the lower the effective monthly cost.

    The biggest losers of the elimination of the loophole would be people selling homes, especially those selling a LOT of homes. Folks like the land developers who stamp out sprawling cookie-cutter suburban subdivisions (yes, I am bitter). With out the extra incentives, they would either have to lower their prices, sell smaller houses, or go out of business. None of which would be bad. I’m all for the elimination of the loophole.

  2. Indeed, I’ve always wanted to run the numbers comparing prices in Vancouver, BC with the Seattle areas. The two areas are ‘roughly’ comparable but Canada apparently doesn’t have a mortgage deduction.

    I once did such a comparison very informally with a friend of mine from Vancouver when we were both looking for houses and it did appear that houses in Vancouver (at the time) were cheaper than Seattle by an amount that more or less seemed to match the mortgage deduction.

    If the government gives everyone who buys ice cream $1 then the price of ice cream will go up $1. The real consequence of the mortgage deduction is to take money from people who don’t own houses and give it to people who are selling houses. As you point out, builders are the biggest beneficiaries.

  3. I would respectfully disagree with the premise of Roger’s argument, “The tax loophole effectively lowers that monthly cost, and as a result sellers can demand a higher price. This leads effectively to the inflation of housing costs.”

    The primary cause of housing inflation is anti-sprawl policies enacted by large metropolitan areas (like King County, WA where I live). If you prevent expansion outward then the available housing becomes dramatically more valuable. We have a serious supply shortage here and that is a direct result of restrictions on expansion.

    Who benefits? Current real property owners, especially the mega-owners whose families have been here forever and have the local governments in their back pocket. They are still able to develop any land they have because they can “backdoor” the permitting process. Not so for you and me.

    As for tax policy, the real blockers of true reform are the accounting lobby. If any widespread simplification of the tax code were to occur businesses like H&R Block would go under the next week. Large lobby groups have the weight (spelled c-a-s-h) to keep the bureaucracy in place that keeps them rich and powerful. If you think that’s going to change then you’re dreaming.

  4. I must admit that I have trouble believing that there is a shortage of housing in King County. I see so many housing developments (and recently bought into one of them) that I can’t fathom the non-stop development as a ‘shortage’. Just look on the Plateau, it’s nuts!

    But the right way to settle the argument would, I suspect, be to compare the amount of housing units built or in process of being built in King County against the number of family “units” (e.g. groups of people who want to live together) in the area. But I don’t have those numbers off hand.

  5. Paul,

    What you assert about anti-sprawl policies is an additional but orthoginal cause of housing inflation. Additionally, these policies also cause sprawl to occur just beyond the bounds of the controled region, and are as equally short sighted as the mortgate deduction.

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