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End the mortgage interest deduction

Great post from Matthew O’Brien at the Atlantic over just how regressive this tax benefit is.  This chart really demonstrates the fact:

Mortgage4.png

It’s no secret the mortgage-interest deduction is regressive. Richer taxpayers have 1) houses, 2) bigger houses, and 3) get bigger deductions because their tax brackets are bigger. But the bad policy doesn’t stop with subsidies for those who least need them. There’s also the small matter of incentivizing leverage. In other words, households that take on more debt get more of a tax break. That’s a head-scratcher in our post-bubble world.
None of this has been a secret for decades. The mortgage interest deduction was rotten policy in the 1980s and it’s rotten policy today. Back then Michael Kinsley made the case against this taxpayer sacred cow — along with his classic definition of a gaffe — when President Reagan hinted at eliminating it. Spoiler alert: We didn’t. Three decades on, it’s depressing how much of Kinsley’s analysis reads like it was written today.
We spend $100 billion every year — that’s the annual cost of the deduction — subsidizing bigger houses for the upper middle class. This should be among the lowest of low-hanging fruit when it comes to tax reform. It would be nice to end welfare for the well-off.
Ahhh, “should be” indeed.  Alas, I think it’s fair to say that the upper middle class and above have more than their fair share of political influence and like this break.  And most everybody else probably figures that it benefits them much more than it actually does.  I still remember when I first became a homeowner in Lubbock, Texas– where housing prices are jaw-droppingly low– and was quite surprised at how little benefit we received from this deduction after hearing all my life how great it was.  Now, if we had been able to afford a half million dollar home (which basically buys you a castle in Lubbock) things would have been different.

Obamacare myths

The New York Times’ Bill Keller had a nice little piece debunking five “Obamacare” myths.  Quite usefully, he particularly takes on the canards how Republicans would repeal health care reform:

THE UNFETTERED MARKETPLACE IS A BETTER SOLUTION. To the extent there is a profound difference of principle anywhere in this debate, it lies here. Conservatives contend that if you give consumers a voucher or a tax credit and set them loose in the marketplace they will do a better job than government at finding the services — schools, retirement portfolios, or in this case health insurance policies — that fit their needs.

I’m a pretty devout capitalist, and I see that in some cases individual responsibility helps contain wasteful spending on health care. If you have to share the cost of that extra M.R.I. or elective surgery, you’ll think hard about whether you really need it. But I’m deeply suspicious of the claim that a health care system dominated by powerful vested interests and mystifying in its complexity can be tamed by consumers who are strapped for time, often poor, sometimes uneducated, confused and afraid.  [emphasis mine]

“Ten percent of the population accounts for 60 percent of the health outlays,” said Davis. “They are the very sick, and they are not really in a position to make cost-conscious choices.”

Exactly, you are not exactly going to comparison shop based on price when you have a broken arm or a serious liver disease.  Also:

LEAVE IT TO THE STATES. THEY’LL FIX IT. The Republican alternative to Obamacare consists in large part of letting each state do its own thing. Presumably the best ideas will go viral.

States do have a long history of pioneering new ideas, sometimes enlightened (Oregon’s vote-by-mail comes to mind) and sometimes less benign (see Florida’s loopy gun laws). Obamacare actually underwrites pilot programs to reduce costs, and gives states freedom — some would argue too much freedom — in designing insurance-buying exchanges. But the best ideas don’t spread spontaneously. Some states are too poor to adopt worthwhile reforms. Some are intransigent, or held captive by lobbies.

You’ve heard a lot about the Massachusetts law. You may not have heard about the seven other states that passed laws requiring insurers to offer coverage to all. They were dismal failures because they failed to mandate that everyone, including the young and healthy, buy in. Massachusetts — fairly progressive, relatively affluent, with an abundance of health providers — included a mandate and became the successful exception. To expand that program beyond Massachusetts required … Barack Obama.

And, of course, he doesn’t even bring up the lowest common denominator of regulation example, i.e., all are credit card companies are incorporated in Delaware and South Dakota where they have bought the rights from those state legislators to completely screw us.  There’s surely be a race to the bottom that would take advantage of many people by selling very poor and poorly regulated insurance across state lines.

Photo of the day

From Time’s photos of the week.  Found this one pretty amusing:

Dividend income

Oddly enough, I own a good number of shares of Dominion Power stock (short version: I inherited them).   I was intrigued to receive a letter last week telling me to contact my  member of  Congress to make sure my taxes on dividends do not  go up.  Of course, I do think those taxes should go up, but I didn’t actually know anything about it.  Via Wonkblog:

The Democratic leadership on Capitol Hill rushed to unite behind President Obama’s proposal to pass a one-year tax cut extension for household incomes below $250,000. Rep. Nancy Pelosi and Sen. Chuck Schumer quickly dropped their call for a $1 million threshold for tax cuts, and Senate Democrats are now pushing for a one-year tax cut extension with a $250,000 cut off that could come up for a vote as soon as next week.

But there is one key difference between the Senate Democrats’ plan and Obama’s: Senate Dems want a tax of 20 percent on dividend income for 2013, according to details of the plan provided by a Senate Democratic aide. That’s higher than the current rate of 15 percent under the Bush tax cuts, but it’s lower than what would happen if the Bush tax cuts simply expired. Obama, by contrast, allows the Bush tax break on dividends to expire entirely: In his 2013 budget, investment income would be taxed as ordinary income, which means the tax rate could rise as high as 39.6 percent.

Of course, my marginal rate isn’t getting anywhere near 39.6 anytime soon so I’m just fine with America’s wealthiest paying their fair share on their tax dividends and I suppose I’ll owe a fairly modest amount more.

The candidate factor

As political scientists, with all the talk about the role of partisanship and the economy in explaining the election (especially with the surprisingly accurate models based solely on the economy and presidential approval) it is pretty easy to overlook the role of candidate factors.  But, when you go to your elections textbook on presidential elections, we talk about partisanship, issues (including the valence issues of peace and prosperity) and candidate factors in shaping vote decisions.  Yet, this last factor doesn’t seem to get a lot of discussion.   Thing is, one of the reasons Obama probably has his small, but consistent leg up on Romney is the fact that, on a personal level, he’s simply a more likable, i.e., better, candidate.  Here’s Tomasky:

Conventional wisdom suggests that an incumbent presiding over a people this unhappy should lose. According to a June poll by the Pew Research Center, only 11 percent of Americans think the economy is “excellent” or “good.” Only 28 percent (PDF) are “satisfied with the way things are going in the country.” Americans think (PDF) the country is on the “wrong track” by a margin of almost two to one.

And to a significant degree, they blame Barack Obama. A January Pew poll found that only 38 percent approve of the way he’s handling the economy. On the budget deficit, only 34 percent approve. On energy, it’s 36 percent. When asked in June which candidate is best capable of “improving economic conditions”—clearly the election’s dominant issue—Pew found that Mitt Romney bests Obama by eight points.

Yet despite all this, about as many Americans approve of the job Obama’s doing as disapprove. And he leads slightly in the polls. Which is to say, there’s a yawning gap between how Americans feel the country is doing and how they feel Obama is doing. There’s even a significant gap between the way they feel about Obama’s performance on key issues and the way they feel about his performance overall.

So, Obama may pull out this election simply because he is more likable.  Where’s that in the economic prediction models?  It’s already in there (as all these models include presidential approval).  Obama’s approval rating is significantly higher than one would expect given the state of the economy.  Many factors may be at work, but surely one is his personality.  John Sides had a very nice analysis at 538:

So why would Mr. Obama be more popular than the economy and other factors might predict? One possibility is his personal likeability. Despite thearmchairdiagnoses of some pundits, large majorities of Americans perceive him as warm, empathetic and a good communicator. Although many fewer Americans approve of his performance in office, perhaps his personal appeal has boosted his job approval among some Americans.

Interestingly, this would also seem to suggest that the quality of the challenger, i.e., Romney really doesn’t matter all that much.  Again, these models aren’t 100% precise, and presumably some of that imprecision stems from the relative quality of the challenger.  In this case, I’m pretty confident in declaring Romney a significantly sub-optimal candidate (though, a damn well-funded one), which presumably helps Obama at the margins.  Again, everything suggests a really close election, and in that case, anything that matters you can say is a crucial difference.  Still, if Obama is re-elected I think it would be quite fair to include that it was in large part due to his personal appeal and Romney’s lack of appeal.

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