Billions in future tax payments are being risked to bankers. They are supposed to pay back the debt to the Treasury when things pick up. Hopefully.
The economy won’t pick up until the housing market picks up. Kick-starting the housing market is going to take one helluva kick. In America Obama is talking about a 90-day moratorium on home repossessions and McCain is advocating government-backed mortgage rescheduling, another policy idea doing the rounds is giving home buyers $15,000 tax relief, effectively making a mortgage deposit tax deductible.
Something glaring that strikes Guido as unfair in the British tax system* is that whereas the bank corporations will be able to deduct loan interest payments from their tax bills, individuals can’t. Why not bail-out homeowners too by making their mortgage interest payments tax deductible? Consumers are feeling the pinch, if they could claim the same tax relief that the bankers will, they would spend it and boost the economy. Boosting the economy is key to keeping the recession short. Unlike the banker bail-out this isn’t a handout from taxpayers, it lets taxpayers keep their money flowing into the economy.
*Gordon took away mortgage interest tax relief in 1999.
UPDATE : The comments below from some call this proposal neo-Keynesian, suggest it would re-flate the housing bubble and call it a middle-class subsidy.
The idea that people should be taxed less to promote spending growth is pretty straight forward. Keeping people’s earnings in their pocket to spend promotes growth in a much healthier way than the government taxing their earnings more to spend inefficiently. Some people fetishisise taxes as if they were a good thing in and of themselves. The property market is not going to bubble again in our lifetimes, have no fear. A subsidy is what public sector tenants have, taking less in taxes off people is not subsidising them.