Tag Archives: Home Ownership

Mobility, or, the Marijuana Tax Credit

The Economist has a story which mentions, in passing, that America’s high rates of home ownership (inflated by federal subsidies) hurt the unemployment more than taxes or regulations:

A decade ago Andrew Oswald of the University of Warwick in Britain argued that excessive home-ownership kills jobs. He observed that, in Europe, nations with high rates of home-ownership, such as Spain, had much higher unemployment rates than those where more people rented, such as Switzerland. He found this effect was stronger than tax rates or employment law.

If there are few homes to rent, he argued, jobless youngsters living with their parents find it harder to move out and get work. Immobile workers become stuck in jobs for which they are ill-suited, which is inefficient: it raises prices, reduces incomes and makes some jobs uneconomic. Areas with high home-ownership often have a strong “not-in-my-backyard” ethos, with residents objecting to new development. Homeowners commute farther than renters, which causes congestion and makes getting to work more time-consuming and costly for everyone. Mr Oswald urged governments to stop subsidising home-ownership. Few listened.

America subsidises more than most. Owner-occupiers typically pay no tax on capital gains and can deduct mortgage interest from their income-tax bills. Fannie Mae and Freddie Mac, two government-backed mortgage firms, have squandered a fortune promoting home-ownership among the uncreditworthy.

The other threat to mobility is health insurance. A company can buy health insurance for its employees with pre-tax dollars; an individual can buy it only with after-tax dollars. So although soaring premiums are prompting many firms to drop or restrict coverage, most Americans still get their health insurance from their jobs.

This makes it hard for anyone with a sick child to quit and start a new firm. It also makes it harder to switch jobs, despite a law helping employees to stay in company plans for 18 months after they leave. Scott Adams of the University of Wisconsin-Milwaukee found that married men with no alternative source of insurance were 22% less likely to switch jobs than those who, for example, could get covered by their wife’s employer.

President Bush deserves blame for much of this. He though the poor, the working class, and politically correct minorities would acquire middle class values if they own a mortgage. This Conservative Social Engineering backfired, when his efforts resulted in a wave of foreclosures and angry cries (from his beneficiaries) that they should not have been trusted after all.

Bush’s failure to make personal health care spending tax deductible is simply inexplicable.

I have hope for a better future under President Obama. I expect Obama to see the greatest collapse in home ownership in American history, easily wiping out the gains that blacks and the working class (among others) made under President Bush. Likewise, I expect Obama to socialize health care much more than it is now.

Presuming that Obama stops making fun of cancer patients, we may even see a day under the Obama administration when purchase of medical marijuana is tax deductible, like spending on other drugs are already indirectly deductible to employers.