By Sam DeBord
The U.S. tax code includes multiple incentives for buying and owning real estate. The mortgage interest deduction and property tax deduction are just a couple of the incentives that have come under fire in new “tax reform” plans for their purported special treatment of the real estate industry and home owners.
Do we really need tax deductions for real estate? In short, no. We don’t need them at all. We also don’t technically need government-incentivized public schools, roadways, or infrastructure for businesses. And yet, we find ways in our balancing act of budget spending and revenue to make room for them. There’s a reason for that.
The tax code in the United States, as imperfect as it is, was designed to encourage behavior that is good for the country. We don’t tax purely to attain a certain level of assets in a treasury account. We choose to tax certain activities at lower rates to spur economic growth. We spend those tax revenues on the kinds of programs that create a healthy atmosphere for further growth: an educated populace, safe transportation, viable communities in which to do business, and a stable, secure country.
If a taxpayer’s behavior improves the country’s health via increased economic activity, we support it through the tax code. We allow deductions for student loan debt, for having children (social security revenues are dependent on a growing population), for buying health insurance, and for business expenses. If an activity contributes positively to the standard of living for Americans, our tax code does, and must continue to, make that activity affordable through tax incentives.
No matter what stripe our politicians bear, they almost universally accept the notion that we’re all better off when the economy is booming, tax receipts are increasing, and our citizens’ net worth is rising. Real estate accounts for around 15 percent of our GDP. It’s one of the biggest drivers of consumer purchases nationally and excise taxes locally. Every single home purchase drives tens of thousands of dollars in related economic activity. Real estate’s ability to spur economic activity is unmatched.
We could spend a lot of time extolling homeownership’s impact on the stability of communities, schools, and families. These are all important. For fiscal discussion purposes, though, we need not go past the dollars and cents. Real estate activity has led us out of every economic downturn in recent history, and it is on its way to doing so again today. Incentivizing real estate sales and homeownership has a net positive effect on jobs, on communities, and on tax revenues in the long-term.
Do we really need tax incentives for real estate? We don’t need them any more than we need to be economically prosperous. The choice to keep those incentives or not is ours, and the answer seems obvious.