Why Tax Reform Is Difficult: Realtors® President Says “Politics Is Our Business”

January 15, 2008

If anybody ever wonders why tax reform is so difficult to accomplish, one need look no further than the website of the National Association of Realtors®, which is featuring on the front page a podcast where its president, Dick Gaylord, talks about how “politics is our business.” You would think real estate is their business, but then again, the NAR’s primary mission appears to be to influence policy in order to get Congress to pass friendly legislation. In a word, the NAR is what economists call a rent-seeker.

It’s sad that people believe that more special tax breaks are needed for housing. The Congressional Budget Office has calculated that capital income derived from owner-occupied housing has a -5.1 percent effective tax rate. That’s right, a negative tax rate. In other words, the tax code is subsidizing housing.

But the fact that we are over-invested in housing thanks to the tax code leads to a kind of catch-22 in terms of rhetoric because then the Realtors® and other special interests in housing (e.g. NAHB) can make claims on how housing is a vital part of the American economy, citing how many “jobs they create.” And therefore, they can argue that their industry is worthy of even more subsidies and friendly policies.

This is nothing new. It’s the famous “what is seen versus what is not seen” problem of the political economy. They make these claims about the importance of real estate as if everyone would be homeless and the real estate agents would be begging on the street corners if not for the special tax treatment they are receiving. The fact of the matter is that more people would be renting and real estate agents would be doing something else, possibly making less as they would no longer be extracting rents from taxpayers and consumers. But that does not necessarily mean social welfare would be less. In fact, it would be higher, albeit distributed in a different (and fairer) manner.

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