By William Haupt III (The Center Square)
“The poor of the world cannot be made rich by the redistribution of wealth.” – P. J. O’Rourke
The mortgage interest deduction is one of the oldest and largest tax expenditures in the federal government. It is the largest federal subsidy for owner-occupied housing. Homeowners are also able to deduct residential property taxes and exclusion of tax on the first $250,000 ($500,000 for joint returns) of capital gains on housing.
That is why politicians sink money into housing markets when the economy is struggling. And that is also why every American has a desire to buy a home.
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After his victory in the 1984 presidential election, President Ronald Reagan made simplification of the tax code his goal during his second term. Working with Democrat House Speaker Tip O’Neill, Reagan was able to sell his proposal to the Democratic Congress, which didn’t want such a radical reworking of the federal tax code. Reagan’s objective was to simplify the tax code, which would remove six million lower-income middle class Americans from the federal tax base completely.
The act lowered federal income tax rates, and reduced the top tax rate from 50% to 28%. The act expanded the earned income credit, the standard deduction, and the personal exemption. The tax act eliminated a number of write-offs but lowered tax rates with a higher personal exemption. It eliminated most consumer interest write offs but it retained the home mortgage interest deduction.
Although people whimpered and moaned about losing their credit card interest and car loan write-offs, Reagan leveled the playing field for those who take the short form just as Donald Trump did with his tax cuts. With over half of the people taking the short form, they benefited most.
“I am the only president who ever raised his own tax rate so other people could pay less.” – Donald Trump
For years, politicians from both parties, for the most part, respected homeowners and their ability to write off mortgage interest. Some even went too far such as Jimmy Carter and Bill Clinton. Carter claimed “homeownership was an American right not a privilege earned though hard work.” While Bill Clinton helped create a chaotic mess of creative financing that collapsed the industry in 2007.
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During the darkest days of the Great Recession, the Fed went overboard with quantitative easing, and lowered the prime rate to “zero” to pump up the housing market. Fed Chair Janet Yellen floated Obama’s recovery with zero interest rates for eight years. Since the Fed was giving money away, home sales and prices took off like a cat running form a rocking chair.
“We invested a huge sum of money into housing to help end the recession and it didn’t cost Americans a dime.” – Barack Obama
The Fed did not start raising interest rates until Donald Trump took office. Before the pandemic, his economy was booming. Black and Hispanic employment was the highest in history and the rate of unemployment was the lowest in decades. Even though the Fed started raising the prime interest rate, home sales and prices continued to soar. This lasted until the pandemic shut the nation down.
Since Biden took office, he has been spending money like a Vegas high roller. But the difference between the “high roller” and Biden is, when the gambler runs out of money he knows it is time to quit gambling. On the other hand, Joe Biden has an endless bankroll; the Fed and the taxpayers. Besides record high inflation and energy prices, he has increased entitlement spending by 41%. According to recent figures from the CBO, Biden has added nearly $10 trillion in new debt to our nation’s deficit. Jason Smith, head of the House Budget Committee, says, “Washington Democrats have embarked on a massive, reckless spending spree that has driven consumer prices up 13.7% since Joe Biden took office and is leading Americans into an economic recession. After 19 months of this Administration, it’s clear that President Biden is all talk and no action on deficit reduction.”
Although liberal media has downplayed Biden’s spending, with the Fed cutting the money supply, Biden is looking under every rock for spare change to keep spending. Biden gave the IRS the OK to hire 87,000 new IRS agents to squeeze every extra dime he can out of the American taxpayer.
“Too many fat cats have not been paying their fair share of taxes for too long a time.” – Joe Biden
Biden has just revealed a scheme to help finance his spending and redistribute the wealth and misery for American taxpayers. For the first time in the history of this nation, Biden plans to make home buyers with high credit scores and those buying better homes pay a penalty for having good credit and too much money. He wants to redistribute their wealth so he can make them miserable.
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NewsNation reported Biden’s spread the wealth rule goes into effect on May 1, 2023, at the start of the spring buying season. Buyers with a credit score of 680 or higher will pay $40 a month more for a $400,000 loan than people with worse scores. This group will also see a huge spike in the cost of mortgages. The biggest increase will be for those who put down 15% to 20% when they buy a home.
According to HUD, the higher fees imposed on borrowers with high credit scores is the best way to subsidize those with low credit scores. Their goal is to increase homeownership across the country with these penalties. But the Federal Housing Authority, which oversees Fannie Mae and Freddie Mac, fears this scheme will backfire and repeat what happened in 2007, and make matters worse.
“Why mess with something that works and screw it up? If it ain’t broke don’t fix it.” – Bert Lance
A loan officer at Bay Equity Home Loans in San Francisco said, “The changes do not make sense. Penalizing borrowers with larger down payments and credit scores will not go over well. It will over-complicate things for consumers during a process that is already overwhelming with the amount of paperwork, jargon, etc. Confusing the borrower is not a good idea no matter what you are selling.”
Former Obama housing consultant David Stevens said, “I am all for the first-time buyer having a chance to get into the market. But it’s clear these decisions aren’t being made by folks that do not understand the mortgage process. This confusing approach won’t work! Additionally it came at the worse time for an industry whose buyers are struggling with record high inflation and regulation!”
James Madison told us, “The government is not a charity.” Biden’s scheme is déjà vu of Carter and Clinton that blew up the housing market in 2007. Soon, banks will be forced by government quotas to make risky, creative loans to get more identity groups into homes at the expense of taxpayers. Democrats never learned that loaning money to those who can’t pay it back is a recipe for failure.
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This is just another liberal scheme to redistribute wealth; nothing more. Like last time the housing market blew up the economy, liberal media blamed the evil banks who were forced to loan money to people who could not pay it back. Will they blame Joe Biden for it this time? Don’t count on it.
“Reaching into one’s own pockets to help a fellow man in need is praiseworthy and laudable. But reaching into someone else’s pocket is despicable and worthy of condemnation.” – Walter Williams
Syndicated with permission from The Center Square.
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