By TigerHawk at 10/29/2011 07:45:00 AM
There was a big story yesterday, but most of the blogosphere, caught up in shaping the narrative around the Occupy activists, ignored it. Too bad, because it is much more important.
The Census Bureau reported that American mobility -- the condition of people moving around this vast and beautiful land of ours in search of new opportunity -- has stopped like a car door slamming, and is at its lowest level since World War II. The reason given is that Americans are "locked in place," confined by houses they cannot sell -- or will not sell because they do not want to recognize losses that they have already incurred -- and young people are living with their parents.
Any reasonably large employer knows how bad this has become -- we are no longer really a national labor market, because so many otherwise excellent recruits cannot afford to relocate because they cannot sell their houses. The new American immobility is not only bad for our restless national spirit, it is terrible for GDP, and it needs to be fixed.
Separately, Mitt Romney drew rare praise from the Wall Street Journal for speaking the truth about housing and foreclosures.
Campaigning last week in Nevada, the epicenter of the housing bust, Mr. Romney was asked by the Las Vegas Review-Journal editorial board what he would do about housing and foreclosures. His reply:
"One is, don't try and stop the foreclosure process. Let it run its course and hit the bottom. Allow investors to buy homes, put renters in them, fix the homes up. Let it turn around and come back up. The Obama Administration has slow-walked the foreclosure processes that have long existed, and as a result we still have a foreclosure overhang."
Romney is right -- the country will not really recover until housing transactions start to clear at something akin to a natural price. This is easier said than done for many reasons. Many homeowners heard some number for their house's value back in 2006 and thought of their equity as savings, and now feel they have to hang on until they recover their paper profits. Others bought at those levels and will lose most or all of their down payment when they sell. Still others could sell if they could reduce the outstanding debt, but it is no longer a simple matter to negotiate with one's mortgagee.
There is, however, a solution that might increase the velocity in the American housing market, restore the geographic mobility that is arguably our greatest cultural patrimony, and appeal to both Democrats and Republicans.
The Official TigerHawk housing proposal is this: Allow housing losses realized between 2011 and 2015 to be deductible against ordinary income with no limits (or some really high limit) in any tax year through 2021. What about sellers who cannot use the tax deduction (perhaps because it overwhelms their income, or they are part of the 47%)? Allow them to sell those losses, for cash, to individuals, to partnerships of individuals (the pooling of purchasers would create a more efficient market for the losses), and any corporation that hires and relocates the seller.
So, for example, if Joe Doakes, who used to earn $120,000 a year and is now unemployed and therefore earning nothing, bought his house for $800,000 in 2006 and sells it in 2011 for $550,000, his loss is the greater of $250,000 or (if the mortgage exceeds the proceeds) the sum of his down payment and any deficiency he pays the mortgagee. Under the Official TigerHawk proposal, Joe would be able to sell his (say) $250,000 loss to some affluent fellow (or, more likely, a pool of affluent fellows). If Richie Rich pays income taxes at, say, a state and federal marginal rate of 40%, Richie is probably willing to pay 35% -- or around $87,000 -- for Joe's loss. That gets Richie a 14% virtually risk-free return if he uses that loss in the next year, which is a pretty investment in any market. Indeed, if other alternatives suck enough and there is enough demand from One Percenters, prices paid for losses might rise to within a couple of points of the typical marginal rate.
Of course, Joe still eats a loss, as he should, but he gets cash now to help with buying his new (and presumably much cheaper) house across the country where he can actually get a job.
The further advantage of this idea is that it moves money around without the need for a single additional federal bureaucrat. Existing IRS form designers could come up with a fairly straightforward "1099-M" that Richie (or the partnership that he has an interest in) would issue to Joe, thereby tracking both the deduction and the payment.
Of course, liberals will hate this idea because it is a "tax cut for the rich" instead of a subsidy that can be handed out to specific voters by Democrats. That may mean that it needs to be paired with tax increases on the "rich" as part of a broader deficit deal. While that would irritate Republicans, the structural beauty of the scheme is that tax rate increases on the One Percenters would increase the value of the tax deduction, and therefore the cash paid to Joe, who really needs it, all while it eases the blow of the tax increase.
Finally, unlike the tax shelters of old, it does not subsidize economically stupid new construction and therefore does not sew the seeds of the next bubble and crash. Rather, it spreads (and, yes, partially socializes) the losses of the current crash organically, without any need for fraught decisions from banks, politicians, or federal agencies.
Release the hounds in the comments, and pass the post along if you like the idea.
No comments:
Post a Comment