There's Plenty of Blame to Go Around!
Posted by: Carleton Sheets in Taxes, Housing Market, Economy on Dec 25, 2008.
I've read countless articles about how the housing bubble evolved ... and why it burst into flames! And although each article has its own spin, all usually agree that a number of factors are to blame for the condition the current housing market is in---de-regulation leading to lax lending practices, Wall-Street greed, and over-speculation by builders and investors, among others.
And now, here is a new direction to point the finger of blame! Included in the growing "blame game," according to an article in The New York Times, is a capital gains tax break that was proposed and signed into law in 1997. This particular tax break exempted most home sales from capital gains taxes. For example, it exempted the first $500,000 from a married couple ($250,000 for a single person) of gains from the sale of a home ... as long as the home was owner-occupied for at least two of the previous five years.
Some economists are blaming this tax break for driving people to the real estate market and promulgating the home-as-an-investment attitude, thus driving demand and prices higher. And perhaps it may have played a part. But whenever there's a tax break involved, doesn't it make that particular investment more attractive? If a new tax break was created for investing in precious gems, wouldn't it drive more people to consider buying precious gems?
What do you think? Did the 1997 capital gains tax break play a major---or minor---role in the unsustainable rise and fall of the housing market?
