Democrats have been making the case for some time that many Americans are hurting economically, no matter what the national data may show about overall economic growth and the low unemployment rate. Many point to trouble in the housing sector as a cause of worry for ordinary Americans. Political analyst Charlie Cook talks about the dichotomy:
In New York, everyone is white-knuckled as fears over the economy and a mounting credit crunch are pervasive. What started as a subprime mortgage crisis has since spread far beyond the housing sector. That, combined with oil prices exceeding $90 a barrel, constitutes a two-pronged attack on economic expansion. However, among elected officials and staffs in Washington, there seems to be little talk about the economy and hardly any mention that the housing sector is in a free-fall. Most of the conversation steers away from economic problems, other than possibly the deficit and federal spending. Furthermore, the recent Democratic and Republican presidential debates have devoted hardly any time to the direction of the economy or the housing crisis.
Given the concerns in the housing and real estate sectors, is this really the right time to sock them with a huge tax increase?
The Real Estate Roundtable’s members include the top executives of companies that together hold a total of $700 billion in real estate assets. It hired Douglas Holtz-Eakin, the former director of the Congressional Budget Office, to conduct the study. The study found that real estate partnerships account for 45 percent of all investment partnerships filing to the IRS. There are 6. 6 million such real estate partnerships, which hold roughly $1.3 trillion in assets, about a quarter of the value of all commercial real estate in the U.S. In a conference call with reporters, Holtz-Eakin argued that raising taxes on the industry would have a 15 to 20 percent hit on real estate fund managers’ income. That, in turn, would threaten real estate projects in marginal neighborhoods, reducing the choice in housing and shopping for residents. He said the tax increase would also hurt the construction industry. “I don’t think people have recognized the pervasive impact of this policy,” Holtz-Eakin said.
As we’ve covered here before, it’s unlikely that the U.S. Senate will stand for a tax increase to offset the lost revenue from an AMT “patch.” As a result, when the House votes to raise taxes by tens of billions to “pay for” an AMT fix, the supporters of the tax increase will be taking a politically difficult vote that may come back to haunt them at the ballot box next year. Oh well. I’m sure Speaker Pelosi knows what she’s doing. Update: Erick Erickson of Red State is not sanguine about the re-election prospects of Democrats who vote to hit a weak sector with higher taxes.
