Stop using tax cuts as industrial policy

October 1, 2009

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.

2 comments

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A lot of folks think I suffer from wealth envy. As usual, they’re wrong. What I do envy is the ability to profit not from intelligence and innovative thinking, but from remaining greedy and stupid and having the Govt enable my success in spite of my ignorance and sloth.

Using policy and taxes to make profits is flat wrong and the reason America is lagging behind as the rest of the world gains.

Posted by Unemployed | Report as abusive

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Why should capital gains tax on stock investments be eliminated? Buying on the secondary stock market is actually quite meaningless, as far as increasing productivity or any kind of activity that should be thought of as an investment. When I think investment, I think ‘direct money at a company so it can expand or improve itself, and in turn make more money’; buying stocks on the secondary market does not accomplish this in any way. Sure, if you want to eliminate tax on IPO purchase gains, that’s probably reasonable.

I agree inasmuch that tax breaks shouldn’t be directed at owning a home, but I think these kinds of measures were enacted with a figurative gun pointed at the government’s head. Lobby politics need to stop in Washington so appropriate responses to problems can be formed.

Posted by the Shah | Report as abusive