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Good tax policy

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Commenter jwilliams writes in response to my post [2] arguing that the reduction in capital gains on housing in 1997 may have been the decisive event that started the rocketing upward of housing prices that created the mortgage mess and subsequent financial collapse:

What conclusions do you draw from this interpretation?

That the government should not have reduced taxes on home capital
gains? That the taxes should have been decreased more gradually? That
all capital gains taxes should be equal to avoid favoring one investment
over the other?

The latter. You don’t want to tax-advantage one investment over another or you induce a disproportionate flow of capital into that asset. That’s the tragedy of the last ten years that’s hidden. Tax policy and what came afterward caused trillions of dollars (not millions, not billions, but trillions) from China and here and elsewhere to go into building new and bigger houses rather than into more productive assets. It was a colossal mistake approved by a Republican Congress and signed by a Democratic president.

The defenders of such policies usually argue that you want more capital to flow into homes because home ownership creates a good society of responsible individuals. Maybe. Maybe not. But such talk is accepted most readily by those who benefit from the policies.

Ever-increasing home ownership is not the American dream. It’s the dream of the National Association of Home Builders.