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If their mortgage goes underwater, it does not mean they are insolvent, if their other wealth increases.

But it won't.

Household's bankable assets are basically houses and pensions. And raising real estate taxes will not increase the nominal value of their pensions.

And anyway, this is an issue of politics. That is a very poor starting point for seeking remedies. Politics must follow policy, not the other way around.

As I've pointed out in the context of the Euro crisis, it is unwise to design a system that grants a structural advantage to bad policies.

When banker incomes are economic rent (created interest charges over existing wealth, like land, real estate, shares etc.) these "incomes" are the actual "the beef" that destroy demand.

Look, the household doesn't care whether it pays rent to the taxman or to the bank. It loses the income either way.

The banker does care, because he gains income in the first case and not in the second. So the banker will have less money to spend. This destroys demand.

There's no problem with that, because the government can always spend enough to ensure full employment. But that's the spending side, not the taxation side.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 5th, 2011 at 05:00:40 AM EST
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