1) I'm not sure I understand your footnote. The historical rate of return on the stock market (after inflation) is in the vicinity of 8%. Are you saying that the average individual can't borrow on terms that make a leveraged 8% investment advantageous?
2) Government deficits are, of course, a way for individuals to borrow at low rates. Instead of taxing you $1 today, they borrow at, say 3% (a rate you could never get for yourself) and tax you in the future for enough to pay back the debt. If you take the funds you would have otherwise paid in taxes and invest them in, say, the stock market , you've made the equivalent of a leveraged investment, borrowing at 3% for an expected return of 8%.
The downside is that if you default on this 3% debt (by not paying your future taxes) you go to jail. But it's precisely the threat of jail that makes govt debt secure enough so they can borrow at 3%. That makes govt debt pretty much an exact substitute for debtor's prison --- if we still had debtor's prisons, you could borrow at much lower rates on your own without needing the govt to do it for you.
3) People overinvest in housing because of the mortgage interest deduction. The solution is to tax all interest at the same rate. But that rate should be zero, which is already the case for mortgage interest. So eliminating the mortgage interest deduction is both good and bad, with perverse incentives either way. You've pinpointed some perverse incentives of the status quo; it's easy to pinpoint perverse incentives of the alternative. I'm not sure which are worse.
4) The quickest and best answer to "How do we fix that?" is to eliminate all caps on IRAs, creating an alternative attractive and legible investment vehicle --- this is, of course largely equivalent to fixing the mortgage interest deduction not be eliminating it but by extending it to a much wider class of investments.
no subject
2) Government deficits are, of course, a way for individuals to borrow at low rates. Instead of taxing you $1 today, they borrow at, say 3% (a rate you could never get for yourself) and tax you in the future for enough to pay back the debt. If you take the funds you would have otherwise paid in taxes and invest them in, say, the stock market , you've made the equivalent of a leveraged investment, borrowing at 3% for an expected return of 8%.
The downside is that if you default on this 3% debt (by not paying your future taxes) you go to jail. But it's precisely the threat of jail that makes govt debt secure enough so they can borrow at 3%. That makes govt debt pretty much an exact substitute for debtor's prison --- if we still had debtor's prisons, you could borrow at much lower rates on your own without needing the govt to do it for you.
3) People overinvest in housing because of the mortgage interest deduction. The solution is to tax all interest at the same rate. But that rate should be zero, which is already the case for mortgage interest. So eliminating the mortgage interest deduction is both good and bad, with perverse incentives either way. You've pinpointed some perverse incentives of the status quo; it's easy to pinpoint perverse incentives of the alternative. I'm not sure which are worse.
4) The quickest and best answer to "How do we fix that?" is to eliminate all caps on IRAs, creating an alternative attractive and legible investment vehicle --- this is, of course largely equivalent to fixing the mortgage interest deduction not be eliminating it but by extending it to a much wider class of investments.