Mortgage Bankers Solution to Economic Downturn: Give Us More Tax Subsidies
January 17, 2008
CongressDaily reported this morning that Democrats in Congress are seeking to help prop up the housing market as a way of helping a weakening economy. From CongressDaily AM:
Top Democrats are weighing the need for a rescue package for the nation’s battered housing industry, exploring the possibility of allowing state housing authorities greater ability to go into distressed areas to finance the purchase of foreclosed homes and creating a temporary government agency that would provide insurance to stabilize the rattled mortgage-backed securities market.
The proposal would likely be in addition to the debate consuming Capitol Hill over whether to provide a stimulus to stave off a recession.
The thinking among lawmakers such as House Financial Services Chairman Frank and Joint Economic Committee Chairman Charles Schumer, D-N.Y., is that since the downturn has been driven by a collapse in the home mortgage market, efforts tailored to bring stability to the industry could be most the effective in helping the economy recover.
After detailing various proposals, the article concludes with one recommendation from a rent-seeking lobbyist in the mortgage industry who says the solution is to “help my industry.”
Erick Gustafson, senior vice president of legislative and political affairs for the Mortgage Bankers Association, said he believes that it is too early to discuss any RTC-type of proposal and would like lawmakers to consider tax items that could bring stability to the market, such as allowing nonitemizers to deduct mortgage interest and providing a tax credit for first-time homebuyers.
Unbelievable. With the possible exception of medicine and education, there is no industry more subsidized by government spending and tax policy than housing. So what happens when we don’t like how that market is performing because we think too many people bought into this market? Let’s give the industry more subsidies and more special tax goodies to encourage even more people on the margin to buy into this market in the future.
Mr. Gustafson has gotten it 180-degrees wrong. The mortgage interest deduction should be eliminated, not expanded. (That is, unless we begin to tax net imputed rental income on housing.) And members of Congress and the American public should take what lobbyists like him (and others from similar groups) have to say about housing with a grain of salt. No, make that a pound of salt.