October 15, 2007 - If you think that the housing market is bad right now, just wait until Rep. John Dingle (D-Mich) gets through with it. He's come up with a hair brained scheme for "carbon credits" that could effectively put the nail in the coffin for many home owners. Among other things, his proposal would begin to eliminate the interest payment tax deduction on houses that are 3,000 square feet or more. If you think that such a proposal wouldn't impact you since your house may be on the  smaller side, it will definitely affect jobs and the economy as a whole; impacting us all. Oh, and did we mention that he also wants to hike the tax on gasoline by $0.50 per gallon?

Dingle's proposal is nothing other than a tax increase disguised as an environmental bill. And it's being brought to the American people by the same body and with the same amount of forethought that gave us the 1.6 gallon flush toilette. Yes, Congress did mandate 1.6 gallon flush toilettes in new home construction. They did this at considerable tax-payer expense and with no research at all. A number of studies have concluded the result of that law has been increased water usage since the toilettes regularly clog, leading to more flushes and increased water usage.

The main points of Dingle's bill include the elimination of the interest rate deduction on "larger" homes. It would also raise the gas tax by $0.50 per gallon; draining the economy of about $100 billion in consumer spending every year.

Homeowners would be able to continue to get a portion of the tax deduction for interest if they purchase "carbon credits". If you are not familiar with carbon credits, these are essentially the cost to plant new trees which absorb carbon dioxide - a greenhouse gas - and produce oxygen.

Never mind the fact that new homes - even large new homes - are often much more efficient than old homes - even small old homes. This is because new windows, insulation and building techniques let less heat escape in the winter and help keep the cool air in during the summer. The appliances also tend to be newer and more energy efficient.

The biggest problem with Dingle's proposal is what it will do to the economy.

If Dingle's bill were to become law, there would be an immediate impact. First, people who already own larger homes would see a lot of their equity simply evaporate. This is because the market for these homes would shrink overnight. This isn't speculation. It's a matter of simple economics. Many homeowners count of the income tax deduction for mortgage interest. Without it, they wouldn't be able to afford the homes that they are in. Dingle's bill would effectively shrink the market for so-called larger homes.

Another immediate impact would be a slow down in new home construction and remodeling in one of the few bright spots in the current housing market. New home construction is one of the primary drivers of the US economy. When it suffers, every other industry also suffers. This is one of the primary reasons that the federal government offers a deduction for mortgage interest.

As bad as the housing market is today, affluent areas continue to see fairly good sales numbers of new and used homes. If the demand for these homes slows, a large number of people will find that they may be looking for work elsewhere. Unfortunately, they may not be able to find it. A shrinking economy means job losses in all sectors.

A secondary effect of the Dingle bill would be that even affluent people would have less incentive to take out home equity loans for home improvement or for major purchases. Over the past ten years, this kind of activity has been a primary driver for consumer spending. It is one of the primary reasons that unemployment numbers haven't skyrocketed. By eliminating the interest deduction, a large portion of this spending will also be eliminated; affecting the entire economy.

If Dingle's goal is truly to improve the environment, there are several things he could propose that would actually benefit the American people as well as the economy. First, there is an income tax credit for the installation of new windows and insulation that is set to expire at the end of this year. That tax credit should actually be expanded and extended.

Secondly, he could propose a law that requires the countries that we import goods from to have the same high environmental standards as the United States, or force them to purchase carbon credits as an offset. This would make foreign goods more expensive and make it more attractive for companies to produce goods here in the United States. This would also have a much larger impact on the global environment than Dingle's current proposal.

He could propose to offer additional tax credits to people who install solar, wind or other alternative energy sources in their homes. He could propose incentives for purchasing hybrid cars rather than a tax on gas. Or incentives for the development of alternative fuels. There are a lot of things that he could propose that would help us all. But he hasn't done any of that.

John Dingle is proposing nothing other than huge tax increase that will negatively impact every family in this country. Unfortunately, his proposal seems to be gathering steam as environmental groups are beginning to support it.  

The stakes with Dingle's ill-conceived plan are high. They involve the potential loss of hundreds of thousands of jobs and reductions in the standard of living for millions more. On a longer term basis the plan would impact many peoples ability to retire if the equity in their homes suddenly disappeared.

The plan should be put where it belongs; in the toilette. Unfortunately, with only 1.6 gallons per flush it would probably get stuck so we'll settle for sticking it in the garbage can.

by Jim Malmberg

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