Bruce Bartlett posted a blog piece on imputed taxes for homeowners on The New York Times’ Economix blog. Check it out. In the post, Mr. Bartlett lays out an argument for taxing the foregone rental income a homeowner may have made if he was paying himself rent for living in his home.
It’s kind of like those time travel scenarios from a science fiction movie. You know. What would have happened had I not met your mother so you go back to ensure that I do meet your mother but in going back you change the temporal outcome of some major event, and …oh well.
Like messing with the ebb and flow of temporal currents, taxing imputed income is like punishing someone for not making a pure investment decision. Instead of renting out their home, an individual decides to live in it as a residence. The house could have been put into the stream of commerce or leveraged for actual, realized rental income, but instead the consumer makes the choice to enjoy the house privately.
Mr. Bartlett argues that taxing the imputed income of a homeowner but allowing them the same write-offs as a pure investor would equate the two and we bring this about by allowing the government to force some homeowners to turn the house into a revenue stream via tax policy.
I don’t think the government should force that choice.
Rather than equate the homeowner with a pure investor by treating their rental income the same under a tax mechanism, the government should make the line of distinction clearer by eliminating mortgage interest deductions for home ownership. The homeowner is not putting his property to productive use and is not incurring the level of risk to capital that the landlord has decided to take on. Why should the homeowner enjoy any deductions a landlord enjoys? They are involved in two distinct activities; renting out a house versus consumer it as an end user. The tax code should reflect that.
Personally, I don’t like the idea of borrowing huge amounts of money in order to buy a house and not make any money off of it, but I’d rather see that decision to waste leverage be made by the individual with the government not helping along with any additional consequences.