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What I'm saying: Promoting homeownership makes it politically difficult to raise taxes on real estate, because raising taxes on real estate will cause people's houses to decline in price and their total housing expenses to increase (since interest payments and loan amortisations do not decline just because taxes are increased).

You dismiss this with some hand-waving about lowering other taxes to compensate.

First, that won't work. The reason real estate taxes are less upwardly flexible than other taxes is that they make real estate lose value as mortgage collateral. If you make a revenue-neutral shift in the tax share from income to real estate, real estate prices are going to drop. Which may cause homeowners to become insolvent even though they are still able to make their monthly payments.

And second, even if it did work, it would build a general tax-cut bias into your political economy, because every time a wingnut government lowered taxes on real estate, the next responsible government would have to limit itself to revenue-neutral tax reforms in order to prevent a housing panic. Over a full cycle, this causes a net drop in tax rates. Thus, a built-in tax-cut bias.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 4th, 2011 at 10:24:14 AM EST
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