Tuesday, April 28, 2009

Ann of a thousand yachts 

It's last week of the semester here, and it's going to be a little harder to post things during the day this week. I have some links I put up for development students on my class blog, class of which occupied my morning.

I am probably the most sympathetic conservative to the idea of removing tax preferences in legislation, but I think Rep. Ann Lenczewski has missed the main message of tax reform. The lesson from 1986 was that you could only trade their removal for lower tax rates. The 2005 tax reform proposal at the Federal level was an example of this as well. But removing tax preferences makes substantial changes in the tax price of certain economic activities. Removing the tax preference for home ownership raises the cost of it, at a time when the market needs to stabilize. The plan Lenczewski proposes reminds me of nothing so much as the famous yacht tax. The home construction industry is probably in worse shape in 2009 than the boat-building industry was in 1990. Million-dollar mortgages support million-dollar homes which support many electricians and carpenters. A phase-in during a period of robust home construction would make much more sense than the present bill.

I could go on, but time is short. I outsource my own thoughts on tax reform to Alvin Rabushka.

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