Tax break for builders: “perverse, absurd, unwarranted”

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The main housing debate in our nation’s great sausage factory is over write-downs, or cram-downs: Should lenders be encouraged (forced?) to write down bad mortgages, and if so, under what terms, and what possible benefits? And where do the new mortgages come from, and who is on the hook for them?

That said, the Senate, in its great wisdom, continues to push for a seemingly unrelated tax break for home-builders. The headline above comes from a particularly scathing Slate.com analysis in which Daniel Gross argues that the tax break -- technically a ‘tax-loss carryback’ -- is better described as ‘a bubble-head tax break.’ Oh, yes, and it’s ‘perverse, absurd and unwarranted.’

Gross: ‘The proposed tax break is hard to justify for several reasons. It does nothing for slow and steady companies that keep their heads and simply rack up profits year after year — and pay their taxes accordingly. Rather, it rewards the most reckless participants in the bubble. If you borrowed a ton of money to build spec houses in Miami and reported $2 billion in profits between 2002 and 2007 but gave up all those profits by notching a $2 billion loss this year, the extended carryback has a great deal of value. If you’ve been building affordable housing in Wichita, Kan., and booked $300 million in profits in those years, and then, through careful management of costs, managed to eke out a $5 million profit this year, it has no value. The big public homebuilders, whose shares rallied on the news of this potential tax break, didn’t pay any windfall taxes on the bubble-era earnings. Why should they get an extraordinary post-bubble windfall?’

More: ‘The proposal to give new tax breaks to homebuilders and banks is yet another example of the pernicious trend of privatizing profit and socializing losses, which is gnawing away at faith in the system. Dilute the shareholders, not the taxpayers.’

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Hat Tip: Patrick.net
Photo Credit: Getty Images