The Tax Plan

It was never a convincing argument, but now we're hearing it again: reduce their tax load, and businesses will create more jobs and pay more in salaries.  It's never happened, and it never will.

Businesses expand based on increased demand for their products; demand increases when consumers (read workers) have more money to spend.  In the absence of increased demand, businesses sink extra cash into stock buybacks, shareholder dividends, and executive bonuses.

Right now, American corporations have a lot of extra cash just sloshing around, providing no economic stimulus at all.  They don't need more cash; they need more affluent customers.  The Republican tax plan may provide a fleeting infusion of cash into some middle-class wallets, but most of the $1.5 trillion addition to the national debt will wind up in the pockets of the very rich — as usual.

Still, there are some features of the plan that make good economic sense: most notably, the cap on mortgage interest deductions.  It is hard to justify subsidizing the McMansions of the "comfortably well-off," their claims to middle-class status notwithstanding.  Builders will complain – McMansions are much more profitable than the kinds of homes families earning less than six figures might afford – but an impetus for builders to provide more affordable starter homes and fewer rococo monstrosities is long overdue.

Housing Deductions

Yes, I take the deductions for mortgage interest and property taxes.  Just the same, I think we all can live without either of them, and probably should — in time.

Most important, they're not fair.   Renters pay their landlords'  mortgage interest and property taxes, but the landlords get the tax advantages.  Those who can afford the biggest, most expensive homes get the greatest benefit, and those who can afford multiple homes get even more.  Change has to happen — but given the popularity of of the mortgage and property tax deductions, the big question is how to get those particular loopholes closed.

As Lord Robert Baden-Powell, homosexual hero of the Siege of Mafeking in the Boer War and founder of the Boy Scouts is reputed to have said, "Softly, softly, catchee monkey."  (Damn, those Brit colonialists were so attuned to those they conquered and oppressed.  Nevertheless...)

"Softly, softly" means not all at once.   That makes a lot of sense.  People (with encouragement from their realtors) factor in tax savings when they buy.  Realtors are able to convince them they can afford houses far larger and fancier than they really ought to be considering.  Granted, if they lost their mortgage interest deductions all at once, there would be a hell of a lot more foreclosures.

The obvious answer is to cap the mortgage interest deduction — so only mortgagees of relatively expensive houses would be screwed.  After that, we could drop the cap, year by year.  After ten or fifteen years, the deduction would be gone.  Housing prices would fall, gradually, and families would stop buying more house than they really could afford.  Since mortgage interest is front-loaded, current homeowners should feel little financial impact year to year.  New buyers should be able to predict how the phase-out of the deduction would impact them, and let that help guide their home buying decisions.

The property tax deduction could be phased out in much the same way, only faster.  The greatest impact would be in wealthier, higher-tax areas — and the change might create political pressure for the states to take on more of the burden of funding education, which might create greater equity among school districts.

By the way, I believe the phase-out of any and all deductions should be accompanied by higher tax rates, because when government takes money out of people's pockets, it has an obligation to put some back by providing better services and benefits — but for all, not just for some.

Tax Policy

I've been trying to figure out what kinds of tax policy are endorsed, respectively, by Obama and Romney.  It's not easy.  Yes, we know Obama wants the two top income tax brackets and the capital gains tax back where they were under Clinton, but those ideas are not policy — they're talking points.  They have as much chance of making it through Congress as a squirrel fart has of making it through a hurricane.  We also can look back to some Obama proposals when he and Boehner were trying to strike a "grand bargain," but those ideas were contingent on Boehner accepting some elements that he had no way of getting past the House he allegedly leads.

Romney is even harder to nail down.  He maintains he can lower everybody's taxes by plugging "tax loopholes," but he refuses to identify any of those "loopholes"  — better known as subsidies, tax credits, and tax deductions.  Personally, I think we would be better off if all the credits and deductions in our convoluted tax code were eliminated, and subsidies limited to R&D — albeit I think a lot of it has to be done gradually.

The biggest "loophole" of all is the mortgage interest deduction.  At this time, it applies to interest on loans of up to one million dollars, which means it is regressive.  The greatest advantages go to those who finance the most expensive homes — which means that people like you and me, who don't live in $125 million dollar homes, get a lot less out of the deduction than our more affluent non-neighbors do.  Renters get nothing.

Eliminating the mortgage interest deduction would depress property values, because without that deduction, home buyers could not afford the payments on more expensive homes.  Even homes sold out of foreclosure would cost their buyers more.  The solution is to drop the cap on mortgage interest deductions gradually, so that property values could adjust gradually.  Needless to say, this won't happen.

Representative democracy in conjunction with capitalism doesn't work too well.  The people who want to lead us feed us bullshit.  The plutocrats control the flow of money, power, and ideas.  I don't suppose it bothers too many of us with consistent sources of income and decent health insurance all that much, but it bothers me.

The current Republican credo is "leave every child (except mine) behind, so long as I get to hang onto my current comfort level."  It just might work this November, but it still makes me sick.