A common theme of Republican policy proposals, especially when Rep. Paul Ryan is involved, is that it’s like liberalism, but designed by fucking morons. That is, they identify a problem and then proceed to propose a solution that not only doesn’t solve the problem, but creates brand new problems too.
Which brings us to the Republican tax ‘reform’ proposal (as is the case with all proposals called reform, keep your hand on your wallet at all times). It would have a significant effect on the housing market (boldface mine):
Take, for instance, the proposed elimination of the deductibility of state and local taxes. That is obviously a cynical, politically motivated ploy on Donald Trump’s part to penalize voters who didn’t vote for him (for good reason) in high-tax blue states, such as New York and California, and to give a benefit to the red-state voters who did vote for him. (I get it, elections have consequences.) Eliminating the deductibility of state and local taxes is an incredibly divisive plan. “It’s a transfer to red-state wealthy guys,” said the executive, who lives in a blue state.
Worse, he says, it could lead to another housing crisis, just as the last one is (or should be) still fresh in our collective memories. Here’s his thinking (which is hard to refute): Since, generally speaking, one of the largest state taxes is on property—your home—eliminating the federal tax deduction for state property taxes will inevitably cause the cost of homeownership in states with high property taxes to go up. It follows, logically, that if the annual cost of home ownership goes up, then the value of the home—which is for most people their single most-valuable asset—must go down. The National Association of Realtors commissioned a recent study that predicted that the elimination of the deduction for state and local taxes could result in a decrease in home valuations of between 10 percent and 17 percent.
That would wipe out a huge amount of homeowner equity, with the usual expected consequences: the sick feeling that comes from knowing that suddenly you are poorer, which can then lead to lower consumer spending, kicking off a recession. Furthermore, if the value of homes goes down, then whatever equity has been built up in those homes will also go down, and the ability to unlock that equity—through home-equity loans or reverse mortgages—will also decrease. Lower home values could also lead to problems—again—for the government-sponsored entities Fannie Mae and Freddie Mac that have guaranteed some home mortgages, which are secured by homes worth materially less. New problems for the G.S.E.s will make it harder for people to get mortgages, leading to a lower level of home ownership than already exists.
Once upon a time owning a home was the chief pillar of the American dream. (Home ownership rates reached a 50-year low in 2016.) It has proved historically to be a typical American family’s greatest chance for wealth creation. Poof goes the American dream, again.
I’ll confess my unpopular opinion: the massive subsidies for home ownership need to be unwound. Housing prices are artificially inflated because of these deductions. They represent a subsidy of owners by renters (who are disproportionately urban* or low-income). These tax breaks disproportionately target wealthy people with expensive houses and in high-income tax brackets. Given that the housing market is still, to this day, discriminatory, this increases wealth disparity between whites and minorities. And having your largest source of retirement funds and savings tied up in a single, incredibly illiquid investment is a stupid retirement/saving strategy for an entire country.
All that said, the Republican plan goes about this the wrong way (in part, because the change has nothing to do with housing policy). First, local municipalities–and the services they need to provide–will be hammered as the value of their property tax rolls drops, but the decrease in tax expenditures (the amount the government refunds you) isn’t doing anything to fix that (i.e., the ‘saved’ money won’t be spent on things local government does). Second, it’s not like the ‘savings’ will be spent on public housing for low-income and middle-income people, or to help struggling households stay in their homes (or for utility bill assistance, such as LIHEAP). Instead, the money will be used to give corporations, along with Qusay, Uday, and Ivanka, tax cuts. This is nothing new either: Little Lord Pontchartrain proposed doing this in 2007 (why some Democrats have decided to rehabilitate that asshole escapes me. He was fucking awful). Third, the money will not be spent to increase Social Security payouts to help people in retirement.
So, once again, we have a Republican policy proposal that will make things worse, while not solving the problem that it’s putatively supposed to solve.
Same as it ever was.
*Urban isn’t code; I simply mean city-dwellers, regardless of ethnicity or race.