housing inventories construction tax reform

Geonomists Were Not Surprised but Others Were
interest deduction homeownership

LA Times -- Tax Reform that Hits Home

Most experts missed calling the upturn; we didn't. At least one editorialist can make sense on tax breaks. We excerpt two 2013 articles from (1) New York Times, Mar 20, on the turnaround by C. Rampell, and (2) >Los Angeles Times, Feb 6, on deductions, by D. McManus.

by Catherine Rampell and by Doyle McManus

The housing turnaround seems to have caught almost everyone in the business by surprise.

Nationwide, sales prices rose 7.3 percent over the course of 2012. Across the country, the raw number of homes for sale is at its lowest level since 1999.

Inventories have been whittled down largely because new construction ground to a standstill for several years. Investors large and small have also scooped up most of the backlog of foreclosures and short sales.

But steady job growth has put more people back to work, and families that put off moving because they couldn’t afford it are finally ready to do so. “Distressed” sales are down and conventional sales are up.

Extraordinarily low mortgage rates don’t hurt, either.

Housing permits, while far below their peak, surged in February to their highest level since June 2008, an increase of nearly 34 percent from a year earlier. But it will still be many months before new homes now going through the approval process will be ready to move in.

Construction is expected to take longer than usual, though; after six years of almost no local building, skilled labor is scarce. Many workers in the immigrant-heavy industry have left the area, returning to Mexico and other points south. Others pursued work in Texas’s energy boom, where both drilling and construction jobs have become more plentiful. Those who stayed in the local area often switched to medical data entry, U.P.S. delivery services, or anything else that they could find. Or they filed for disability and dropped out the labor force altogether.

To read more

JJS: The media gives so much coverage to people who consistently get it wrong (unlike our in-house experts), making anyone who once gets it right a lone voice in the wilderness.

Would you support a tax reform measure that could help reduce the federal deficit, remove a needless distortion in the economy and make the system fairer?

Me too, which is why I'm taking aim at a sacred cow: the home mortgage interest deduction.

That's right, the mortgage interest deduction that every homeowner, including me, loves.

If you listen to home builders and real estate agents, they'll tell you that the mortgage interest deduction is what makes homeownership possible for millions of Americans.

Yet last year, homeownership in the United States, battered by mortgage foreclosures, sank to 65%, a 17-year low, while next door in Canada, where taxpayers don't get a deduction for mortgage interest, homeownership continues to rise, reaching more than 69% last year.

The reason is that our mortgage interest deduction doesn't directly support homeownership; instead, it supports mortgage indebtedness, which isn't the same thing at all.

The mortgage deduction is only useful to people who itemize deductions, which only about 30% of taxpayers do. Second, it helps people with big mortgages more than those with small ones. Third, like all deductions, it helps people with the highest incomes (who get the equivalent of 39.6% of their mortgage interest knocked off their tax bill in the top bracket) more than people with lower incomes (who get 25% or less off if they itemize). Moreover, if someone buys a vacation home, that mortgage interest is deductible too, as long as the total debt is under $1 million.

But don't take it from me. Take it from the economists at the Mercatus Center, a mostly conservative think tank at Virginia's George Mason University.

"Most taxpayers do not benefit from this deduction at all or receive a very small benefit," they wrote in a report issued last month. "The only taxpayers who do receive a large benefit are those in the upper income brackets.... Its primary effect is to encourage Americans who would have already been able to afford a house to take on even more debt.

"Recent empirical research suggests that the mortgage interest deduction increases the size of homes purchased but not the overall rate of homeownership," they wrote.

But wait, you and your real estate agent will say. Won't a change in the mortgage interest deduction knock a hole in home values?

Yes — at least at the high end, where high-bracket taxpayers take on million-dollar mortgages. At the lower end, where modest homes are bought by people of modest means? No effect on prices at all, economists say.

The mortgage interest deduction subsidizes big houses and bigger mortgages, but that's not a good use of tax dollars. Its benefits flow disproportionately to the wealthy and do nothing for the working poor.

The deduction currently costs the Treasury about $100 billion a year. That's money we could use to lower taxes, shrink the deficit or pay for Medicare — a debate Obama and the Republicans will surely have.

There aren't many policy changes that would increase government revenue, remove distortion from the economy and make the distribution of income fairer all at the same time.

Fellow homeowners, let's take this one for the team.

To read more

JJS: If someone with a mortgage then had to pay a higher income tax, then government should lower its rate or exempt the person’s first $12,000 (or whatever would be the equivalent of poverty wages).

Indeed, government should move in the opposite direction and recover all the rental value of home sites and all land while repealing taxes on buildings, purchases, and earnings. Doing so would make the economy much more efficient.

If government needed more revenue for any legitimate services, it should recover all the rental value of resources and airwaves, and of any privileges it grants, like corporate charters and patents and copyrights.

Stop giving away those valuable pieces of paper for free to rich and/or well-connected insiders. Turn those values into common wealth and return a hefty portion to citizens as a dividend.

Dividends and zero taxes on our efforts makes more sense and more justice than tax loopholes which are a boon to the few on top and just crumbs for everyone else.

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Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .

Also see:

Banks Profit From Owning Homes They Foreclosed
http://www.progress.org/2012/reload.htm

When Mortgages Exclude the Location
http://www.progress.org/2012/stratala.htm

Could a new kind of tenure create security?
http://www.progress.org/2012/taxrevol.htm

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