A Tax Deduction Solution to the Housing Crisis

Since the energy debate has taken a backseat to the economy, I thought I might make some comments about the economy and a proposal to create real stimulus.  Several economists have said that the key to the turnaround in the economy is solving the housing crisis.

My solution to the housing crisis is to bring in private capital with tax incentives.  The private capital would come from real estate investors.  We need to quickly revise the tax laws on rental income property. We need to make it attractive to invest in rental property (single family homes and multi-family housing).  We have a large inventory of homes on the market and prices have declined significantly.

The tax laws that need to be changed are as follows:

1. Accelerate the depreciation deduction on property.

2. Allow improvements to be expensed in the year they occur.

3. Remove the passive activity loss rules and remove the maximum on deductible losses.  Remove the income limitations on losses.

The tax law changes would stimulate the economy through investment in housing as rental property.

No Consequences Society

We now live in a society where there are no consequences.  Top executives and CEO’s for major financial institutions and banks can make poor decisions entering into very risky investments and jeopardizing the financial stability of not only their company but other institutions as well.  Our government tells us that these companies are too big to fail and we must bail them out with taxpayer money.  These companies are allowed to survive with no consequences. Executives still receive their bonuses and separated executives receive their golden parachutes.

Homeowners buy over-priced homes and enter into mortgage contracts with no down payments and risky adjustable interest rates knowing full well that they can barely afford the mortgage at the low interest rate.  Along comes the government with a bail-out.  Congress passes a law to force lenders to reduce the principal on the loan so that these people can stay in their homes with no consequences.

Major automotive manufacturing companies make bad business decisions and enter into unreasonable contract terms with Unions impacting the profitability of those companies.  When a recession hits these companies and their losses threaten millions of jobs, they have their hands out for bail-out money from the taxpayers.  Again the government says that these companies are too big to fail.  No consequences for union executives or the company executives.

State governmental officials,  governors  and legislatures have squandered their state taxpayer’s  money with bloated budgets  and are requesting bail-out funds from the federal government. These states have made bad decisions and failed to balance their budgets.  Again, the government says that we cannot allow these states to go under. The new stimulus bill proposed is reported to provide more taxpayer money as aid to the states.  Again, there will be  no consequences.

I wonder if the government will bail out the oil companies if the oil price continues to drop.  Many oil companies  entered into many projects that were based on high oil prices and these projects are now probably uneconomic.  Are the oil companies  too big to fail or too important to the country?  How will the government respond?  I doubt if the oil industry will be included in the  “No consequences society”.

United States Drilling Activity Tumbles

US drilling activity continues to decline with the uncertainty in the economy.  According to the Baker Hughes Inc.,  the total US rig count was down 34 to 1,589 rotary rigs still working compared to 1,744 rigs during the same period a year ago.  The biggest decline was in land operations.  There was a 39 rig drop to 1,508 working rigs.  Offshore operations gained 2 units to 65 active rigs in the Gulf of Mexico and 70 in US waters overall.

Of the rigs still working, 1,239 are drilling for natural gas or 28 fewer than the previous week.  The oil rig count is 341 with a decline of 5 units.  Texas droppped the largest amount with a decrease of 34 rigs with 713 still working.