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Housing: sacred cow?

  • Design
  • Political Science


JF(~(0J(~1F©ln ~~~~)~1FW(~ IP1 ©\n~ Jk (lJ) ~r § t\\ T~ J'-~~~}:] .:~\ iYY rc~. n~ ~) (C: f(j' ~) C_~~ L _~_~ 1J. c .. ,_, ~ _1 ~._~ __ ~_/ ~) November 28, 1980 Housing: Sacred Cow? Some sacred cows wi II have to be slaugh- tered in the lean years looming ahead, and housing-industry leaders are beginning to re- alize that they may provide one of the more tempting targets in this regard. Business Week, in a recent editorial, putthe problem in these terms: "The diversion of capital from industry to housing-the primary aim of government policy-is one of the reasons investment in productive facilities has been inadequate." And its prescription was forthright: "Wean the housing industry of continuing government assistance and make it stand on its own feet." The genesis of this viewpoint is a growing body of evidence that inflation and tax pol icy have caused an over-allocation of resources to the housing sector over the last decade. As the nation enters the 1980's with the goal of expanding the energy and defense industries and "reindustrializing" the economy, the pressure to redirect resourcesto these sectors will increase. Policies that are designed to promote housing activity at the expense of other sectors are thus likely to come under increasing scrutiny. The causes The argument that the housing sector was overemphasized during the last decade rests on a number of factors. First, tax policy treats homeownership relatively favorably. Home- owners can deduct all interest payments from taxable income. They also benefit from their ability to sell their homes without paying capital-gains taxes on the proceeds (provided another home is purchased), and to take out $100,000 in capital gains afterthe age of 55 without paying any tax at all. In contrast, capital-gains proceeds from financial invest- . ments (such as stocks and bonds) are taxed, albeit favorably relative to wage and salary income. In addition, homeowners are nottaxed on the "implicit" i

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