Free Markets, Free People

Daily Archives: June 10, 2010


Looting Taxpayers: Mortgage Interest Deduction Editon

Government policy is always the unpredictable bugbear of free-marketeers. Yet, while it’s irresistibly tempting for some to lambaste libertarian types as the pie-in-the-sky Utopians, the latest tax policy scheme to come from the Obama administration is by far the most outlandish fantasy around:

The popular tax break for mortgage interest, once considered untouchable, is falling under the scrutiny of policymakers and economic experts seeking ways to close huge deficits.

Although Congress last year rejected the White House’s proposed cut to the amount wealthier taxpayers can deduct for home mortgage interest payments, the administration included it again in its 2010 budget — saying it could save $208 billion over the next decade.

Stop. Think. How is the federal government going to “save” money by charging taxpayers more? Answer: it isn’t. Raising taxes doesn’t “save” anything but the government’s ability to spend more of your money.

And now that sentiment has turned against all the federal red ink — and cost-cutting is in vogue — Democrats on President Barack Obama’s financial commission are considering the wisdom of permanent tax breaks such as the mortgage deduction and corporate deferral. Calling them “tax entitlements,” senior Democratic lawmakers have argued they should be on the table for reform just like traditional entitlement programs Medicare, Social Security and Medicaid.

Again, we need to reject that implicit assumption — i.e. that the money being “saved” is the government’s to begin with. In addition, we cannot accept the equivalence drawn between wealth transfers like Medicare, Social Security and Medicaid, and tax breaks like the mortgage interest deduction (MID). In one case, the government is taking money from someone else (despite how it has been characterized) and giving it to another, while in the other situation the government is simply deciding how much of one’s hide it will charge for its oh-so-wonderful services (a.k.a. taxes). It’s the difference between transferring money from one to another, and refraining from taking the money in the first place.

The new spotlight on the mortgage deduction and other tax expenditures comes as the Obama administration and Congress consider ways to reduce deficits the Congressional Budget Office (CBO) expects will average nearly $1 trillion over the next decade.

And there is the real problem: government spending. Because Congress has been so profligate for decades, we’re all in a real pickle now. In order to cover their own derrieres, the government needs to find new revenue. And that’s where we, the taxpayers, come in.

What’s really happening is a tax hike. Where a homeowner paid X dollars on Y adjusted gross income (AGI) before, that homeowner would be paying X+ dollars on Y + ($ spent on mortgage interest), which equals much greater tax burden.

It is true that this is a “tax break” in that the government is taking less of your money than it otherwise would, and that the tax is not spread evenly across the population. In that sense, there is no question that the “tax break” is not really fair. People who claim that this is nothing more than social engineering (by incentivizing home ownership over renting) are correct. Aside from current tax policy (where interest earned is taxed as capital gains, but interest spent is only capital loss on homes), there really is not any valid reason why owners should be treated differently than renters. The government decided that home ownership was a good idea for “society” and thus the MID was born. But now that we homeowners have been led down the primrose path, how fair is it to push us into a thicket of thorns?

Whatever the fairness, the consequences of ending MID will be drastic at best. Not only would it lower home prices in the midst of a recession, it would cast thousands (perhaps magnitudes more) of homeowners, who are currently paying their mortgages, into bankruptcy almost overnight. And don’t forget, the Bush tax cuts are going to expire on January 1, 2011. That’s a devastating double whammy. Taxpayers will be crushed, tax revenues will sink even further, and the economy may start living up to its unheralded name of “The Great Depression Part II.”

Obviously, I have a vested interest in the outcome of this policy debate. While I don’t really have any problem with ending the MID tax break (and, in fact, find much to commend about it), doing it now, without any sort of grandfather clause, would be a catastrophe. Those who relied on MID when deciding to purchase a home will be left out to dry, many of whom won’t be able to pay their mortgages in the face of severe tax hikes.

Heck, even with a grandfather clause, a struggling housing market won’t be revived by tanking home values and discouraging ownership. The only realistic result will be to, at best, trap people in their current homes and make prospective purchasers quite wary (if they could even get a loan).

Regardless of my personal interest, the impetus behind this idea is positively ludicrous. No matter what anyone says, it will not raise tax revenue. Instead, it is destined to lower them, along with the standard of living for Americans in general. Citizens who have invested in homes only to find that they are now ratcheted up into a much higher tax bracket are not likely to continue paying for those homes, nor to keep their incomes as such a level as to be penalized. People really do respond to incentives.

Whether or not this trial balloon floats, it is a good indicator of what’s to come. A government without revenue is like a starving beast on the prowl. It needs its sustenance, and it will find a way to feed, by force or guile. As I said a few weeks ago:

No matter how ingenious the plan, or divine the motives, the only way for governments to fund the welfare state is to tax the wealth-creators. As even the most Marxist of intellectuals knows, if you want less of something, then tax it. This is why cigarettes are levied against in ridiculous proportions, and why carbon taxes are considered (by some) to be the savior of our planet. Well, taxing wealth-creation works exactly the same way: tax it more, and you will get less of it. Which leads to the inexorable conclusion that, as the governments of the world sink deeper into fiscal crisis, the looters will be coming en masse.

This is the first wave of the looters. Expect more.


Dale’s Observations For 2010-06-10

If you think AT&T's data network sucks now, wait 'til iPhone 4 users start streaming HD video. Or trying to, anyway. http://bit.ly/aSR1zb #

Obama kills the mortgage interest deduction in the 2011 budget. Drowning kittens in a sack would be more popular. http://bit.ly/cIF2xE #

Jebus Cripes, how is it that we here in California keep sending this dolt back to Senate?! http://bit.ly/crJxdd #

The whole point of uaving a CEO is so the board doesn't have to oversee every decision. #

Gibbs to press: O hasn't spoken to BP CEO 'cuz the board has to approve the CEO's decisions. Pure BS. Corporations aren't run that way. #


Democrats new immigration approach? Talk like Republicans

It may soon no longer be cool among Democratic legislators to call those that show up here illegally “undocumented workers”. Polls tell them to say “illegal immigrants”. Because that’s what the vast majority of Americans call them.

And drop the “earned path to citizenship” stuff too. It should be “unacceptable” that 12 million illegals are living here. Government should “require” them to “get right with the law”. That means “Obey our laws, learn our language and pay our taxes” or they’re out of here.

Those are the recommendations of some Democratic operatives that have been studying the issue since the 2007 defeat of comprehensive immigration reform. They’ve done extensive polling and what that has told them is, well, Republicans have the lead on this one.

Here’s the new Democratic pitch:

“This time around, the message starts with a pledge to secure the borders and crack down on employers. It then moves to this: “It is unacceptable to have 12 million people in our country who are outside the system. We must require illegal immigrants to register for legal status, pay their taxes, learn English and pass criminal background checks to remain in the country and work toward citizenship. Those who have a criminal record or refuse to register should be deported.”

Of course the devil is not only in the details but in the implementation. We’ve heard all the happy talk about securing the border before. And yet it remains terribly porous.

I can’t wait to hear these yahoos try to spin this as the plan all along. I can’t wait to hear the reaction of tha part of the Latin community that looked to the Democrats to ease their path. And, of course, I can’t wait to here Mexico’s reaction.

~McQ


The most ethical Congress ever

You remember that promise from Speaker of the House Nancy Pelosi, don’t you? “Draining the swamp” and all that.

Well, apparently the draining is going a little better than expected and the members of the Congressional Black Congress would like to see the Office of Congressional Ethics brought under a little closer control. It is starting to get in the way of their junkets to the Caribbean.

Seems the OCE is to aggressive in its pursuit of Congress members charged with unethical conduct.

Now, to be fair, much of this has to do with what the OCE should or shouldn’t be able to report, and the CBC isn’t the only group who are unhappy with the OCE:

The OCE is “out of control,” one House Republican told POLITICO. A Democrat close to Pelosi said the OCE was “way out of bounds” when it sent information to the Justice Department on an investigation into lawmakers’ ties to the defunct PMA lobbying group.

“They’re not supposed to be an independent prosecutor,” said one Republican lawmaker. “I think there’s a lot of regrets with having those people [OCE] there.”

There is some validity in the criticism. But it again underscores how poor a job Congress does legislating anything, even something as simple as setting up a ethics panel and empowering it. Now they’re stuck with a product they don’t like that’s not doing the type job they envisioned for it.

Welcome to the club – most of what Congress passes has that sort of effect in fly-over land.

It is also interesting to see this emerging in an election year. What in the world are they thinking? They’re trying to pass it off as trying too “promulgate rules for the 112th Congress”. Really? Democrats may not even have a majority in the 112th. And even if they do, aren’t those sorts of rules something for the 112th to decide?

Yet even Majority Leader Steny Hoyer (D-Md.) acknowledges that the House may have to take a second look at the powers of this outside ethics office, which has the authority to publicize its inquiries, unlike the formal House ethics panel, which is much more secretive.

I find it ironic that the main complaint about the OCE is they’re … wait for it … too transparent in their investigations.

If that doesn’t provide you with a little chuckle, I’m not sure what will.

~McQ


Iran: If these are tough sanctions, what were the "low-impact" options?

Well I’m pretty sure Iran is just horrified at the new sanctions – the toughest ever as our president claimed.

“With time, we got a resolution that we felt was very meaningful and credible and significant,” said Susan E. Rice, the United States ambassador to the United Nations. “But had we wanted a low-ball, low-impact resolution, we could have had that in a very short period of time.”

Good thing they went for the brass ring and didn’t take a low-ball, low-impact resolution, by gosh. I mean, check this beauty out:

The main thrust of the sanctions is against military purchases, trade and financial transactions carried out by the Islamic Revolutionary Guards Corps, which controls the nuclear program and has taken a more central role in running the country and the economy.

Right – so now they’ll set up front companies and do their business through willing countries like Turkey, Brazil and Venezuela. Moving on:

The sanctions tighten measures previously taken against 40 individuals, putting them under a travel ban and asset freeze, but adds just one name to the list — Javad Rahiqi, 56, the head of the Isfahan Nuclear Technology Center.

Whoa – they added one person to the sanctions of travel bans and asset freezing for a total of 41? My goodness, the humanity. That has a terrific chance of stopping any nuclear program dead in its tracks.

More:

The sanctions require countries to inspect ships or planes headed to or from Iran if they suspect banned cargo is aboard, but there is no authorization to board ships by force at sea. Iran has also proved itself adept at obscuring its ownership of cargo vessels.

So, wait, other countries can try to inspect Iranian ships they suspect of carrying banned cargo, but they cannot use force to board that ship. In other words, all the Iranian captain has to say is “no” and refuse to allow them on board, and the “inspection” is over? Thank goodness they didn’t go for low-ball, low-impact sanctions. They’d have probably allowed the Iranians to board the inspecting ship.

Another aspect of the sanctions bars all countries from allowing Iran to invest in their nuclear enrichment plants, uranium mines and other nuclear-related technology, and sets up a new committee to monitor enforcement.

Well there you go – the one positive aspect of this whole thing: the UN has managed to form yet another committee which will offer employment to a plethora of 3rd world diplomats who might otherwise have to do something useful to earn their keep without it.

The almost childlike belief by this administration that it can accomplish anything through the UN, especially stopping Iran from achieving a nuclear device, is incredible on its face. But to think the list of “sanctions” above equals “tough” is mind-boggling.

There is no appetite among the 3rd world to punish Iran in favor of the US’s policy desires. And especially now that they see a weak horse in charge here. The Obama administration can call this anything they want, but calling them “tough sanctions” is embarrassing. Thank goodness they didn’t opt for the low-impact, low-ball option. I’m sure that included a strongly worded letter.

~McQ

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