Stop using tax cuts as industrial policy
Larry Kudlow is dead solid perfect here:
But here’s what I don’t like about this story: Big, central-planning, government-directed tax preferences for housing, like the $8,000 dollar tax credit for new buyers. Or even the popular mortgage interest deduction. And let’s not forget perhaps the biggest one of all: Home sales are basically capital-gains-tax free. That passed back in 1997. Many people (including myself) believe it helped create the bubble.
Why not eliminate the capital-gains tax for everyone and all sectors, including investors and stocks and bonds? Why direct it only to housing? Let’s abolish the capital-gains tax altogether. Let’s quit double-taxing investment, which is what capital gains does. But let’s do it for everyone and everything — not just housing. While we’re giving all these preferences to housing, what about manufacturing? What about transportation? Or health care? Or any other sector in the economy for that matter?
We also could be cutting business tax rates across-the-board for companies big and small.
Me: The story of the Great Recession is the error of government policy — the Fed, housing policy, Fannie and Freddie, ratings agency favoritism. Kudlow’s idea would be a big step in the right direction.