Because the 2021 election was largely a referendum on President Mr . trump, many of Joe Biden's policy proposals happen to be overlooked until now. The recent announcement of some of his cabinet picks shows that he's more establishment than revolutionary. While it's great that he is not stumping for communism, a review of his website shows that he is in favor of policies that have good intentions that will likely conclude with unintended harmful results.
Rebuilding the center Class
One of the Biden Campaign's main themes was \”Rebuild the center Class.\” Most Americans consider themselves middle-class, either due to their current income or even the type of lifestyle they experienced when they grew up. Typically middle class is recognized as a household with an annual income between $47,000 – $141,000. Studies show that the middle class is shrinking with many people moving upward.
Prior to COVID, household incomes were increasing after the GOP's tax reforms. But since March, many Americans are experiencing the worst financial duration of their lives. Biden wants the economy to recover and his plan to rebuild the center class includes policies which will raise taxes on businesses, raise taxes on individuals, making labor more expensive for businesses.
These are not new ideas but one aspect of Biden's plan that is relatively new is that he is taking the position that housing is really a human right.
“Housing should be a right, not a privilege,” the Biden website states. “Joe Biden will invest $640 billion over 10 years so every American has access to housing that is affordable, stable, healthy and safe, accessible, energy efficient and resilient, and discovered near good schools and with a reasonable commute to their jobs… .”
Investing in Communities Through Housing
One of Biden's intends to make housing more affordable is the fact that he will issue Section 8 vouchers to anyone who spends more than 30 percent of their income on rent. The aim of this policy is that it will release funds that renters can later use to save and one day use as a down payment for their own home. One likely unintended result of this policy is that landlords will raise rents without the renter feeling the pain from the increase because the faceless taxpayer will get the difference.
When the federal government steps in having a plan to make something more accessible and affordable there is always a backfire.
Likewise, Biden also proposes to offer a permanent tax credit of $15,000 for anyone making a down payment on their mortgage. This really is intended to lower the bar so that more people can afford a mortgage. This can also create an increased demand for homes to own and will help lead to the price of a house increasing. Actually, home prices on average have been increasing every year since 2021 in part because record low interest rates have made getting a mortgage less expensive to millions, which has consequently already created high demand.
Federal Dollars to Build Houses
Biden's plan assumes that if the supply of houses increases to meet rising demand, then prices should stabilize or perhaps fall. He wants to use $100 billion tax dollars to construct and upgrade affordable housing. It will likely be private contractors that are politically connected who are awarded this work, with a large bureaucracy to oversee it.
A better way to expand the supply of low-income housing would be to make all new construction that meets that requirement exempt from income taxes. The IRS considers property developers who buy and improve land on the market to be property dealers and also the profits from these sales are taxed as normal income with rates.
“Here's the rub: the federal income tax rules generally treat a land developer as a real estate ‘dealer,’ Bill Bischoff points out at Marketwatch. “As such, your make money from developing and selling the land is considered profit from selling ‘inventory.’ Which means the entire profit – including the portion from any pre-development appreciation in the value of your land – will be high-taxed ordinary income rather than lower-taxed long-term capital gain.”
Because of this, an individual investor could be paying federal tax rates up to 37 percent on their profits along with state and local taxes.
With a tax exemption, a developer can keep 100 percent of the profit they make while providing a product that benefits the poor. This would almost certainly spark development.
Taxpayer dollars, meanwhile, are saved and the location and quality of the housing would definitely be improved because property developers tend to know their local markets better than a bureaucrat in Washington ever could. Housing would also be constructed much faster when left to individuals within the free market.
Government Backed Guarantees Raise Costs
When the us government steps in with a plan to make something more accessible and affordable there is always a backfire. For example, the price of college tuition has exploded over the past 30 years because of government guaranteed student education loans.
When housing is declared to be a human right with the power of Washington willing to part of and pay part of someone's rent with no questions asked, then the landlord will raise the rent because he can easily make more money.
As Steven Pearlstein writing for the Washington Post noticed a decade ago, a culture of subsidies inflates costs. College, healthcare, and home ownership have all increased in price because when someone else is paying a portion of the cost, individuals are either unaware or don't care about what the overall cost is. The one thing they are paying attention to is what amount of money is coming out of their pockets.
With the old Washington establishment back in power in the White House, we're going to be seeing more reincarnations of poor policies not less than the next four years, unfortunately. The rich and connected will get richer and some people at the base will also benefit, but it all will be at the expense of the middle class and U.S. taxpayers.