From a big-picture economic perspective, I worry most about the damage of high tax burdens on innovation, entrepreneurship, and investment.
Those are things that generate enormous benefits for society, yet also things that are very sensitive to bad tax policy (specifically high marginal tax rates and the tax code’s bias against saving and investment).
Sadly, I don’t have first-hand experience to share when writing about these issues.
Today, however, I get to write about a tax issue that directly impacts me.
I’ve been living in the same Virginia house for more than 30 years. It’s now way more house than I need since my kids are now grown up and living elsewhere. I would like to sell my house and become a snowbird with two modest-sized residences in Virginia and Florida.
And that plan might be financially feasible since my house is now worth a lot more than it cost me back in 1993 (thanks in part to inflation, but also because successful “rent seeking” by the parasite class has resulted in ever-greater demand for housing in and around DC).
Yet I’m not going to sell my house. And the explanation is that I love my kids more than I love government. Or, to be more accurate, I love my kids and have disdain for government.
To elaborate, here are some excerpts from a Washington Post column by Jim Parrrott of the Urban Institute. He starts by explaining there is a problem in the housing market.
Homeownership is out of reach for many Americans, a situation driven primarily by a shortage of homes for sale that has driven up prices. One factor contributing to that scarcity: Older adults are staying put…, keeping millions of homes off the market. …As older Americans pay for excess space, younger families are stuck in homes too small for their needs. …That cohort’s delay in advancing from starter homes has spillover effects for renters looking to become first-time homeowners. In short, empty nesters’ economics are creating a market-wide logjam.
He then correctly notes that the problem is caused by taxes.
Under existing law, sellers owe capital gains taxes on home sale profits exceeding $250,000 for single filers and $500,000 for married couples filing jointly. Most homeowners 65 and older have held on to their homes for nearly a quarter-century, a period of remarkable price gains. …
Congress didn’t intend to saddle older homeowners with those costs. After lawmakers set capital gains exclusions to current levels in 1997, few sales resulted in federal tax liability. But they didn’t peg those limits to inflation or changes in home prices. So as prices shot up, the number of homeowners facing a federal tax bill upon selling increased as well. Today, a third of homeowners would owe federal taxes if they sold their home.
As a result, many seniors are choosing to remain in their homes until death so that their beneficiaries inherit the houses with a stepped-up tax basis, eliminating the taxable capital gains. This makes sense for their family’s finances but creates a mess in the housing market. …Raising the exclusion to around $500,000 for single homeowners and roughly $1 million for married homeowners would be sufficient to remove the tax barrier for all but the wealthiest seniors.
This column explains my situation.
If I stay in my home until death, my kids benefit from my home’s increased value. If I sell my house, politicians get a big chunk of the increased value.
Needless to say, that make my choice very simple. Especially since a non-trivial share of the gain is only due to inflation and it’s outrageous that the government taxes us on gains that only exist because the government has irresponsible monetary policy.
I’ll close by shifting the discussion from what’s best for me and my kids to what’s best for the country. The bottom line is that there should not be any capital gains tax. Not on me. Not on anyone.
Indeed, it will be much more important for prosperity to get rid of the capital gains tax on investors rather than homeowners.
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