Tax Break Contributed to Bubble


Don't blame it all on Bush, or on deregulation-crazed Republicans. An article in the NY Times today suggests that the housing bubble, and its subsequent bursting, may have been aided by a Clinton cut on capital gains tax. One real estate broker made $700,000 in three years, "and thanks to a tax break proposed by President Bill Clinton and approved by Congress in 1997, he did not have to pay tax on most of that profit. It was a break that had not been available to generations of Americans before him." Such situations enticed more and more folks into real estate, making homes "tax-free windfalls" and increasing sales by 17 percent. The tax breaks caused a zeitgeist shift, whereby a home became less an abode than an investment. They admit, though, that a tax break alone is not responsible for the mess. Other reasons include "a relaxation of lending standards, a failure by regulators to intervene, a sharp decline in interest rates and a collective belief that house prices could never fall." And it turns out the tax cut came from the Clinton administration, but was in the mind of the Dole camp; they rolled out the idea first, making Clinton nervous; he pledged to cut capital gains to catch up.
Tax Break May Have Helped Cause Housing Bubble [NY Times]
Photo by Paul Graham Raven.

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