Drudge Retort: The Other Side of the News
Sunday, November 19, 2017

"It's a Ponzi scheme," a Wall Street executive told me, dismissing the idea that a multi-trillion dollar tax cut for multinational corporations would trickle down throughout the economy and also pay for itself. It's a view that's widely shared among the bankers, hedge-fund managers, traders, and quants whose job it is to determine, with Vulcan accuracy, how the Republican tax bill that passed the House yesterday will actually affect the markets. It's also more than a little ironic, given that the plan was spearheaded by two former senior partners of Goldman Sachs turned Trump shills -- Gary Cohn and Steve Mnuchin -- a pedigree that has done little to reassure Wall Street veterans who worry that the White House may accidentally nuke the economy in the name of "tax reform." "Will this be the first tax cut in American history that actually results in a recession?" the executive asked.

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It's a great question. And the House plan provides plenty to be worried about in that regard. Take, for instance, the proposed elimination of the deductibility of state and local taxes. That is obviously a cynical, politically motivated ploy on Donald Trump's part to penalize voters who didn't vote for him (for good reason) in high-tax blue states, such as New York and California, and to give a benefit to the red-state voters who did vote for him. (I get it, elections have consequences.) Eliminating the deductibility of state and local taxes is an incredibly divisive plan. "It's a transfer to red-state wealthy guys," said the executive, who lives in a blue state.

Worse, he says, it could lead to another housing crisis, just as the last one is (or should be) still fresh in our collective memories. Here's his thinking (which is hard to refute): Since, generally speaking, one of the largest state taxes is on property -- your home -- eliminating the federal tax deduction for state property taxes will inevitably cause the cost of homeownership in states with high property taxes to go up. It follows, logically, that if the annual cost of home ownership goes up, then the value of the home -- which is for most people their single most-valuable asset -- must go down. The National Association of Realtors commissioned a recent study that predicted that the elimination of the deduction for state and local taxes could result in a decrease in home valuations of between 10 percent and 17 percent.

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That would wipe out a huge amount of homeowner equity, with the usual expected consequences: the sick feeling that comes from knowing that suddenly you are poorer, which can then lead to lower consumer spending, kicking off a recession. Furthermore, if the value of homes goes down, then whatever equity has been built up in those homes will also go down, and the ability to unlock that equity -- through home-equity loans or reverse mortgages -- will also decrease. Lower home values could also lead to problems -- again -- for the government-sponsored entities Fannie Mae and Freddie Mac that have guaranteed some home mortgages, which are secured by homes worth materially less. New problems for the G.S.E.s will make it harder for people to get mortgages, leading to a lower level of home ownership than already exists.

#1 | Posted by Gal_Tuesday at 2017-11-19 02:37 PM | Reply | Newsworthy 2

Golly, how would a billionaire real estate investor benefit from using his government power to deliberately lower real estate prices?

#2 | Posted by snoofy at 2017-11-19 03:06 PM | Reply

Eliminating the deductibility of state and local taxes is an incredibly divisive plan. "It's a transfer to red-state wealthy guys," said the executive, who lives in a blue state.

The deduction is a wealth transfer from the 70% who don't itemize taxes to the upper 30$ who does. This is a progressive reform.

#3 | Posted by AndreaMackris at 2017-11-19 03:25 PM | Reply | Funny: 2

If you want to see how your state will be effected, go here:

Click to see the distribution for taxes in your state:

itep.org

For example:

The Senate tax bill released last week would raise taxes on some families while bestowing immense benefits on wealthy Americans and foreign investors. In New York, 38 percent of the federal tax cuts would go to the richest 5 percent of residents, and 19 percent of households would face a tax increase, once the bill is fully implemented. See below for graphs and data tables showing these effects in New York in 2019 and 2027, and see here for our full report on the Senate bill.

#4 | Posted by Gal_Tuesday at 2017-11-19 04:51 PM | Reply

"who don't itemize taxes"

every home owner itemizes taxes. so you want to hurt the middle class?

what shameful lying you do.

#5 | Posted by klifferd at 2017-11-20 12:00 AM | Reply

every home owner itemizes taxes.

I know plenty of home owners that don't because their mortgage is paid off.

But a lot of middle class homeowners count on the property tax and mortgage interest deduction to reduce their income taxes.

#6 | Posted by 726 at 2017-11-20 04:35 PM | Reply

The deduction is a wealth transfer from the 70% who don't itemize taxes to the upper 30$ who does. This is a progressive reform.

#3 | Posted by AndreaMackris at 2017-11-19 03:25 PM | Reply | Flag:

Yes lots of poor people have private jets that they now can write off thanks to this "progressive" reform.

What utter crap.

#7 | Posted by 726 at 2017-11-20 04:37 PM | Reply

The Shame of the Mortgage-Interest Deduction

Although about two-thirds of American households own a home, only one-quarter of them claim the deduction, which sometimes gets abbreviated to MID. As Matthew Desmond, a sociologist at Harvard University, explains in a magisterial essay on the MID in the New York Times Magazine, this little fact has played an outsized role in the United States' yawning wealth inequality.

Federal housing policy transfers lots of money to rich homeowners, a bit less to middle-class homeowners, and practically nothing to poor renters. Half of all poor American families who rent spend more than 50 percent of their income on housing costs. In May, rental income as a share of GDP hit an all-time high. Meanwhile, in 2015, the federal government spent $71 billion on the MID, and households earning more than $100,000 receive almost 90 percent of the benefits. Since the value of the deduction rises as the cost of one's mortgage increases, the policy essentially pays upper-middle-class and rich households to buy larger and more expensive homes. At the same time, because national housing policy's benefits don't accumulate as much to renters, it makes it harder for poor renters to join the class of homeowners.

www.theatlantic.com

#8 | Posted by AndreaMackris at 2017-11-20 04:45 PM | Reply

"It's a Ponzi scheme," a Wall Street executive told me...

Article could've stopped there.

#9 | Posted by SheepleSchism at 2017-11-20 05:57 PM | Reply

While I do support SALT deductions, and medical deductions, come on how much do libbies really approve of unlimited mortgage deductions????

#10 | Posted by DavetheWave at 2017-11-20 06:35 PM | Reply

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come on how much do libbies really approve of unlimited mortgage deductions????

#10 | Posted by DavetheWave

Fine.

Limit them for millionaires and up but keep them for the rest of us.

#11 | Posted by donnerboy at 2017-11-20 07:20 PM | Reply

11 So a mortgage of 2 million is "the rest of us"?

#12 | Posted by DavetheWave at 2017-11-20 10:01 PM | Reply

So a mortgage of 2 million is "the rest of us"?

The current limit is $1,000,000.

"Mortgages you (or your spouse if married filing a joint return) took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2016 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately). "

www.irs.gov

#13 | Posted by 726 at 2017-11-21 08:02 AM | Reply

--The current limit is $1,000,000.

Oddly enough, people who claim to be progressive oppose reducing it to 500k as in the repub bill.

#14 | Posted by nullifidian at 2017-11-21 09:15 AM | Reply

"Although about two-thirds of American households own a home, only one-quarter of them claim the deduction"

aka, new home owners... starting families.

not all of us can get a few million from our old boss.

#15 | Posted by klifferd at 2017-11-21 09:21 AM | Reply

also not a single person i know in connecticut, new york, california, maryland, new jersey, massachusets or anything have a fully paid off home...

lemme guess, 2/3rds are white people who inherited there wealth or got their old boss to pay them for their silence.

#16 | Posted by klifferd at 2017-11-21 09:23 AM | Reply

their*

#17 | Posted by klifferd at 2017-11-21 09:23 AM | Reply

"people who claim to be progressive oppose reducing it to 500k as in the repub bill."

That's not the part progressives are opposing.

#18 | Posted by Danforth at 2017-11-21 09:26 AM | Reply

#14 | POSTED BY NULLIFIDIAN

Nulli!!!!!!

#19 | Posted by AndreaMackris at 2017-11-21 09:48 AM | Reply

people who claim to be progressive oppose reducing it to 500k as in the repub bill.
#14 | POSTED BY NULLIFIDIAN

Progressives say the same thing about women and sexual harassment, whats important to them really is that the amount of payout be small and secret.....

#20 | Posted by AndreaMackris at 2017-11-21 09:50 AM | Reply

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