Homeowner's reform
You almost have to laugh at the scale of the assault now being waged against Steve Forbes' flat-tax proposal. It's virtually universal -- across the media and even among his primary opponents there doesn't seem to be a shred of good to be found anywhere in the idea. We assume most intelligent voters figure there's got to be another side to something like this, but where they find the other side must sometimes seem a mystery. Probably on the Internet. It reminds us of how during the 1994 campaign, Newt Gingrich's Contract With America was universally a media laughingstock, a joke. The Republicans now control Congress.</br></br>At the moment, most of the carpet-bombing against the flat tax is based on the argument that eliminating the mortgage interest deduction will tank real-estate values and hurt the middle class. Bob Dole, with the support of Governor Stephen Merrill, is trying to win the New Hampshire Republican primary with this argument.</br></br>On the surface, the mortgage-deduction defenders seem to have an audience. The middle class has good cause to distrust politicians: Presidents Reagan, Clinton and Bush increased the payroll tax numerous times, a shift carried largely by those who make less than $60,000. State and local taxes take 40% more out of citizens' paychecks than they did in 1960.</br></br>Inflation also distorted middle America: The run-up in property prices of the 1970s and 1980s erected a line between haves (older homeowners who bought with 5% mortgages) and have-nots (late baby boomers and Generation X-ers who faced much higher prices and much higher interest rates). Amid this heavy load on after-tax family budgets, mortgage deductibility seemed to represent the main consolation.</br></br>We also have a pair of DRI-McGraw Hill studies done for the National Association of Realtors that foresee a 15% decline in home values if the deduction is eliminated. In turn, this is said to lead to a doubling of home foreclosure rates. We guess the argument, then, must be that the Forbes or Armey-Shelby flat tax will make life worse for the middle class than the tax pain already imposed by the current generation of politicians.