Tuesday, June 29, 2010


Much space has been taken up on tax blogs lately regarding the rampant fraud relating to the refundable homebuyer tax credit. It got me thinking . . .

There is no doubt that home ownership is a part of the “American Dream”.

Home ownership is also, if done correctly, generally a good investment – and under the right conditions can be “more better” financially than renting.

But home ownership is not an “entitlement”, not a “birth right” of all Americans – it is something one aspires to and must prepare for, something that one must work for and earn.

There is a theory that a person, or family, will take better care of a home that they own then they would of a home, such as an apartment, that is rented. But it is “more true” that a person, or family, will take better care of a home that they have worked and saved for then one that is handed to them.

Many people do not have the temperament, nature or ability, financial or otherwise, to properly own and maintain a home. They obviously should not be homeowners.

Should the government aggressively encourage homeownership? I do believe there is benefit in assisting current homeowners via a tax deduction for real estate tax and “acquisition” mortgage interest. But I have sincere questions about the appropriateness of handing $8,000 to any Tom, Dick or Harriet who wants to buy a house.

The ease of buying a home is what got us into this trouble in the first place. A client mentioned to me last year that when he went to purchase a home for his family, in the late 1970s, he had to prove to the bank every penny that he earned and that he could truly afford to own and maintain the home. He observed, correctly, that there was a point recently where the only question the bank would ask is “How much to you want?”!

Should the government aggressively help specific industries or markets that are temporarily depressed, possibly as a result of their own actions? Should we help increase home sales or car sales with tax benefits and other governmental incentives? What if the toothpick industry is depressed? Should we provide a refundable tax credit for the purchase of toothpicks?

The government should attempt to stimulate the economy in times of downturn. It should encourage savings and investment in general – but I do not think it should “bail out” in any form specific industries or markets, many of which have “made their own beds”.

The ability to live beyond one’s means, which appears to be uniquely American, has only been around in my lifetime. Before I was born there were no such thing as credit cards – no VISA or MasterCard. People could purchase items on credit from department stores like Sears or Macy’s – but the ability was usually specifically limited by item of purchase and short-term in nature.

You could purchase a washing machine or refrigerator “on time” or via “lay away”. But you could not buy a pair of pants and a record album and a power saw on credit and pretty much have forever to pay for them, as long as you made truly minimal monthly payments.

In the old west general stores would extend credit to farmers and ranchers for everyday items, knowing that when the crops were harvested or the livestock was sold the outstanding bills would be paid in full.

And one’s mortgage principal was never more than the initial cost of the home.

I sincerely believe that all high school students (or perhaps starting earlier) should be required to take a full-year course of study in financial stewardship (which would include a chapter or two on income tax).

So what do you think?


No comments: