When policies collide

Congress may, or may not, extend tax break for struggling homeowners. Until 2007, the IRS treated as income any debt forgiven in a short sale (but not, just to confuse matters, debt forgiven on an earlier “cash-out refinancing”). Pretty tough to pay tax on “income” you don’t have, so the other branch of our government gave the debtors a break and declared that a debt forgiveness didn’t count. That seems wise, but in the liberal interpretation of deductions, every dollar held by every American rightfully belongs to the government, so any deduction is counted as a tax break and a cost to the Treasury – hence, this tax loophole which, again employing he terminology of the regressives, is costing $1.3 billion, money that could otherwise be controlled and distributed to friends of Obama.

So what to do? One branch of the government is trying to ease the mortgage mess by paying banks $0.63 on the dollar to write off debt, the other, acting on the regressive’s concept of tax deductions, wants to capture that money by taxing it. Cross-purposes? Our government? Say it ain’t so.

* One could certainly make an argument against this tax forgiveness: a conscientious couple who settle for a $350,000 house because that’s all they can afford may be a little annoyed to see a friend buy a house for $700,000 and, after writing off the debt, continue living in a house twice as nice as theirs at no extra cost whatsoever. Another friend might have refinanced his house back when times were good, taken $250,000 in the proceeds and spent it as he pleased: Disney World vacation, new Mercedes, whatever, and, with debt forgiveness and no tax liability, make himself look like a genius and the good citizens look like chumps. Fairness to the fiscally prudent and punishment for the profligate, however, has never been part of the liberal agenda so we need no concern ourselves with that here.


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16 responses to “When policies collide

  1. Inagua

    It is pointless to chase short sellers for taxes they probably can’t pay.

    A more fitting sanction might be suspension of voting privileges. Why should anyone so improvident be trusted with the vote?

    Also, why should anyone who does not pay federal income taxes be allowed to vote in federal elections? If you are not helping to fund the feds, why should you have a say in what they do?

  2. AJ

    Pay taxes on income you don’t have? That’s a good one, especially when debt is forgiven on an asset you no longer hold after you just went broke. Sort of like having to pay tax on the rest of your car payments that you can’t make after your car was just repossessed. This must be from the same school of thought that money you never made is considered a loss, the same school that considers pro forma and off balance sheet accounting as legitimate accounting. You just don’t seem to get it, but then you’re thick headed and don’t seem to understand that the government owns all of your money, and out of kindness of heart and largesse, begrudgingly lets you keep some.

    ‘The ‘Your Money Is Not Yours’ Crowd’

    “…One branch of American politics shares Krugman’s view that the money you earn — the material manifestation of your mental and physical labor — is not yours. It belongs to the government….”

    “..But a system of extorting money from one group for the benefit of another group cannot last for long without collapsing under the weight of its own guarantees. As Benjamin Franklin said, “When the people find that they can vote themselves money, that will herald the end of the republic.”…”


  3. Walt

    Dude –
    Here is the truth on the fair share on taxes. The truth is the top 5% pay more than their fair share. But the Democrats control the MSM, so people believe the Obama propaganda and rhetoric.

    And in Britain, the NHS, which Obamacare aspires to, is killing babies:

    And Barry is pulling all this off in plain sight. Disgusting.
    Brunch today?
    Your Pal,

  4. anonymous

    Take a step back and look at the big picture…if we don’t get housing sorted out, we will never ever get back on the road to economic recovery. We should continue to allow forgiveness of debt as a tax-exempt transaction. It’s better than having abandoned or bank owned homes in the neighborhood with unmowed lawns that drag prices down further. Another ” unfair” suggestion…keep mortgage deduction rules exactly as they are. If we disallow mortgage deductions, you will see many high end homeowners that can’t afford their homes which will have a cascading effect on home prices. This will ripple throughout the economy.

    • Yeah or nay on mtg deduction, it is capped at $1.1 million and the folks who take that don’t need it, they just understandably don’t want to leave money on the table. In fact, these are referred to as “millionaire mortgages”. So, at least in this area, what passes fir high end isn’t dependent on mtg interest deductions.
      Which still leaves for discussion all the other issues you raise, I just thought I’d clarify that one point.

  5. JRH

    Inagua’s arguments may be tongue-in-cheek, but they’re a great illustration of Tea Party-sympathizers who claim to love the Constitution but not so much the Equal Protection Clause.

    And CF, trying to pass off what every economist will tell you — that tax subsidies are somehow different than any other federal spending program — as the liberals’ invention doesn’t pass the laugh test. In fact, the economist who most vocally advocates for tax expenditure reform (he coined the phrase) is Reagan’s chief economic adviser and Harvard economics professor Martin Feldstein, see, e.g., this.

  6. JRH

    Obviously meant to say that what every economist will tell you is that tax subsidies are not somehow different than any other spending program.

  7. Libertarian Advocate

    Inagua: You sir are “un agent provocateur”. That said, you are also correct.

  8. Inagua

    JHR – The due process clause does not bar states from setting voting requirements. For example, many states bar felons from voting, and some states even bar incarcerated misdemeanor offenders. There would be no bar to a state refusing to let a deadbeat borrower (which is essentially what a short seller is) from voting. I suspect that a state could also bar non-federal income tax payers from voting as well. The Founders all came from states that limited the franchise essentially to property holders. The theory openly stated at the time was that only those with a stake in the community should have a say in its management. James Madison estimated that only about one-quarter of the men had the franchise in the early 19th century. While I readily admit that there is no popular support for my ideas, I do not think they are unconstitutional, unless constitutionality is to be judged by a wise Latina or other similar judicial incompetent. Certainly neither Madison nor Jefferson would object to my ideas. Have you taken Con 1 yet?

  9. JRH

    Ah, behold the arrogance of the ignorant. To begin, I was talking about the Equal Protection Clause, not the Due Process Clause. They’re different things (if you couldn’t tell from their different names). And while neither of those two clauses “bar[s] the states from setting voting requirements” in general, each of the two has something to say about what kind of voting requirements the states may set. You are right about one thing, though: most of the founders wouldn’t object to your ideas. Unfortunately for you, that’s all but irrelevant to whether states could do what you’d like them to do today. You see, as easy as it is for you to say, “But the Constitution means today what it meant to Madison and Jefferson,” even Justice Scalia would know to laugh. Madison and Jefferson did indeed envision property requirements on the franchise, but they also read the Constitution to allow the disenfranchisement of women and blacks. Of course, the Constitution does not allow for the disenfranchisement of women and blacks today. (And no, not just because of the 15th Amendment.) If you had taken Con 1, 2, 3, or 4,000, you might have read a case called Harper v. Virginia St. Board of Elections. Even if you haven’t read the case, maybe you know its rule: that poll taxes are unconstitutional, prohibited by . . . wait for it . . . the Equal Protection Clause. And did Justice Douglas speak narrowly in handing down his decision? Not quite: “Voter qualifications have no relation to wealth.” Stated plainly, the Court held that states may not condition the right to vote on the payment of any fee or tax. This is not a hard question. Your ideas plainly offend the Constitution. Like I said earlier, it never ceases to amuses me how you Tea Partiers love the Constitution so much but hate its implications. And you’re so patriotic that you want to put a fence around the polling booths of nearly half your countrymen. Delicious.

  10. anon

    Sounds like JRH is doing his professors proud by earning his Mandatory Liberal Stripes at Harvard Law. I expect him to Go Forth soon to slay all the Conservative Dragons with His Diploma Of Equal Justice.

  11. Inagua

    “…you want to put a fence around the polling booths of nearly half your countrymen.”

    Right. And a good place to start is with the non-federal income tax payers. After those freeloaders are taken care of, I would move on to the federal income tax payers who cannot pass the immigrant citizenship test. A final touch would be to make voting cumulative, giving one vote for each $100,000 or portion thereof paid in federal income tax.

    Why do you think that people who have no skin in the game should get to help set the rules?

  12. JRH

    @anon: the anonymous ad hominem, I see. Class act! If you think that agreeing with a 50-year old precedent is liberal activism, get a dictionary. If you think the constitutionality of the poll tax is controversial, get a book. And if you want to go online and anonymously snipe at people, get a hobby.

    @Inagua: Right. Your ideas, then, are for (a) a poll tax, (b) a literacy test, and (c) unequal voting shares by wealth. (A) and (c) are plainly unconstitutional. I guess that if that question were on your hoped-for civics literacy test, you’d better hope you got the answers right because it seems like you’d get points off on that one. Go read Harper if you can’t believe it. (b) is, of course, plainly outlawed by the Voting Rights Act of 1965 — but I suppose you’d like to repeal that monument of the civil rights movement, wouldn’t you?

  13. pike

    Commerade Inagua should have a seat at the politiburo.

  14. anon

    @JRH: Take heed:
    A person without a sense of humor is like a wagon without springs. It’s jolted by every pebble on the road.
    Henry Ward Beecher

  15. JRH

    Got one, just didn’t sense any