Op-Ed: The Homeowner Tax Exemption From a Different Perspective

by Kyle Scott
Department of Political Science
and Honors College
University of Houston

While media coverage of the race to the White House is continuous, it lacks a certain depth into the issues and implications of each candidate’s policy proposals. Where the candidate’s stand in starkest contrast is where most of the coverage goes, but in areas where there is similarity, a full treatment of the implications of their policy proposals is lacking. This creates the false sense that where they agree there can be no disagreement. There is one area where this seems to be most true: the homeowner’s tax exemption should be protected. This tax exemption has become the new third rail in politics now that we openly discuss reform of Social Security and Medicare.

The homeowner tax exemption is pitched by both Mitt Romney and Barack Obama, as well as their parties, as a benefit for the middle class. While this may be true, it does not help everyone in the middle class, particularly those in the middle class who are looking to become homeowners. When people have to pay less in taxes they have more money to spend. So when you get a tax break for being a homeowner you have more money to spend on things like a mortgage. The effect is that this props up home values beyond what the market would price a home at if the government were not subsidizing homeownership. This then serves as a barrier into the market for first time homebuyers which can only be overcome by other government programs that help first time homebuyers. Just like any other subsidy, the homeowner tax exemption feeds into a cycle of government intervention that has unforseeable consequences that wreak havoc on the economy when unanticipated events take place because government intervention weakens the market’s ability to react to changes in the economy that government policies tend to hide.

Closing this loophole would generate an extra $100 billion in revenue per year. Yet this is not a policy that will get pushed through anytime soon given that voters do not want to hear there taxes are going up by getting rid of loopholes they benefit from. A more modest proposal, albeit one that will not necessarily help those in the middle class who seek homeownership but will help generate revenue for the government, is to cut the exemption for the wealthy. There is plenty of talk about making the notorious one percent pay their fare share in income tax but little about their tax burden in other areas. Perhaps this is an area that can generate compromise since compromise seems to be out of reach anywhere else. Certainly those in government can get behind the idea that anything beyond your primary residence should not get a tax exemption and if your home value exceeds the median home price in your market area, say fifty percent above the median, then you don’t get this tax break.

Certainly this single act won’t do much to pay down the deficit but you have to start somewhere. Moreover, if you look at only big cuts or revenue increases you will look in vain for a policy that will get through. Small, incremental adjustments is the only way to craft bipartisan compromise absent some significant shock.

But, the most important lesson to be taken from this example, is that in no way should voters assume that the ideas being debated are the only possible ideas. This is true regardless of country or circumstance. The only way to make new insights and break out of the same cycles is to look for new possibilities and view the debates in a different light.

Kyle Scott teaches American politics and constitutional law at the University of Houston. His commentary on current events has appeared in Forbes, Reuters.com, Christian Science Monitor, Foxnews.com, and dozens of local outlets including the Charlotte Observer, Philadelphia Inquirer, Houston Chronicle and Baltimore Sun. Contact him at kyle.a.scott@hotmail.com

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So I guess there's nothing to see here. Move along now :o)

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