Posted by aogTuesday, 27 March 2012 at 22:24
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As I listen to the arguments about POR-care I am struck by how little concern about legal limits its backers have. It seems to me that the gist of their argument is “the government needs to regulate health care therefore anything it does in that area is Constitutional”. For instance, Walter Dellinger, the Duke law professor who supports the law, pointed out that the plaintiffs effectively made it clear that the only way to create national health insurance would be through a single-payer system. That’s not a legal argument, that’s a pure policy argument.
From the same article we have
As somebody who knows the policy issues, the hearing was incredibly frustrating to watch. Both judges and lawyers, on both sides, seemed not to understand the specifics of the health care market and why it would (or would not, depending on your legal philosophy) make the mandate constitutional.
Am I the only one who finds this point laughably obtuse? No economic feature of health care or specifics thereof can make the insurance mandate Constitutional or not and to think otherwise is to not understand law.
Other arguments are about cost shifting, free-riders, and other purely economic points. I think this is why the arguments are going badly before the Supreme Court because fundamentally they don’t make legal sense. I don’t think the POR axis grasped this because to them there is no limit to their power, only policy questions about what to do.
Friday, 06 April 2012 at 14:31|
Bret — what you are describing is a consequence of taxing income. Of course rentiers get to deduct all manner of costs because in order to determine net, as opposed to gross, income.
However, that still leaves several points completely untouched.
Why should rentiers enjoy a total (rather than merely extensive) tax advantage over owner-occupiers? Both are in the business of providing housing, after all: an owner occupier is engaged in precisely the same economic activity as a rentier; the only difference is address.
This points out why housing is a different than other businesses. In every other case I can think of offhand, economic activity consists of consuming the product of someone else’s efforts. And where that isn’t the case, say Bret being in the business of building robotic devices, the distinction between his business efforts and other’s consumption thereof is completely clear. Yet in the case of housing, this distinction is completely non-existent, yet despite that already distinctly favors rentiers over owner-occupiers. When a rentiers sell properties, they get to deduct the depreciated costs of improvements to those properties. Yet when owner occupiers make exactly the same improvements, and conduct exactly the same transactions, they don’t.
It is odd that so many people reflexively consider the mortgage interest deduction for owner occupiers a subsidy, while completely ignoring the far more extensive tax breaks for rentiers. After all, if renters are subsidizing home ownership through paying higher taxes to compensate for owner-occupiers lower taxes, that logic must cut both ways. Renters pay less because all the business expense deductions rentiers get to claim mean a lower gross income will produce a given net income, which is why rentiers are in the business in the first place.
Given that rentiers are already extensively favored for doing exactly the same thing as owner occupiers, what would be the consequences of making that even more complete? I don’t completely buy into the mantra about the societal benefits of home ownership that led to the CRA debacle, but they aren’t non-existent. Does it make sense to further penalize owner-occupiers for their self sufficiency?
I think you are both looking at this completely backwards. Since the economic activity — providing housing — is exactly the same for rentiers and owner-occupiers, then the tax code should treat them exactly the same.
So, by all means, eliminate the mortgage interest deduction, and every other break, for both.
Tuesday, 10 April 2012 at 15:31|
It matters because a subsidy is a specific thing: it must transfer resources from one group of people to a distinctly different group of people. The MAL is fond of calling “tax breaks” to oil companies corporate subsidies. But, even granting the original charge that oil companies are getting preferential treatment in the tax code, those breaks cannot be a subsidy, because everyone uses energy, and energy prices are lower because of those “tax breaks”.
Just so here. The mortgage tax deduction cannot be a subsidy unless you can specify two distinct groups betwen which money is transferred. As it happens, those two groups do exist. Once you identify them, you will see why I insist the mortgage interest deduction should not belong to the class of things that businesses can deduct, but private individuals cannot. (Rough, this will also answer why I think the activities are identical; the extent risks exist for rentiers, they are priced into rent.) And, further, why eliminating the mortage interest deduction for owner-occupiers must have the consequence of even further favoring rentiers, and will also then constitute a far less justifiable subsidy than what currently exists.
As for your hypothetical, I have a couple problems. First, the marginal tax rate upon which the mortgage deduction only go up to 35%, and one has to be doing darn well to get there. Second, it introduces complications where none need exist (inflation, degradation).
So try this one. My brother and I each buy dwellings each as owner occupiers, then sell them after some period of time. Now, reset the tape, and this time I buy my brother’s dwelling and rent it to him, and he does the same for me. To make matters easy, let’s say both dwellings are identical houses, next door to each other in a subdivision, and they receive equal amounts of residential nurturing.
Why is it the second arrangement should obtain a substantial tax advantage over the first? (To use very round numbers, on $500,000 loans and a 33% tax bracket, over 10 years that advantage works out to be something like $60,000. ($18,000 per year in interest payments; $6,000 deduction per year, 10 years.)
It isn’t clear to me rentiers are getting a better deal than owner-occupiers.
Rentiers get to depreciate capital investment regardless of capital gains or losses. An owner occupier does not. As an owner occupier, If I spend, say, $30,000 in repairs (a new driveway and roof will get there easily), I can’t deduct any of that from any gain I make on the property when I sell it, nor, unlike a rentier, can I deduct it from my income. That is why I think rentiers are getting a better deal. Additionally, there would seem to be the self evident case that if the deduction wasn’t a better deal than its absence, it either wouldn’t exist in the first place, or no one would use it.