patrick.net

Malcolm Says:
Yup, the only way it works is for the end harvest to not only be a larger gain than all of the combind losses but it also has to outweigh the opportunity costs on the principal fo the whole time. Historically houses don’t go up 10% a year, since that would mean they would double in value every 7.5 years.

I’m not sure still what the problem is. I think you are more irritated by low gains rates since in your scenario you have to have a huge gain at the end for it to work. If it doesn’t work and the house also goes down in value, the house ends up becoming a large loss for the bank when the investor walks away from it.

Malcolm, you don't seem to have got the gist of my post at all. There is no real rationality behind the stampede towards over-priced property with a poor cash return -- it is based on wishful thinking, the content of RE seminars and sales pitches by developers, tracking secular trends over the last 3 decades or so and cherry-picking the best figures, etc. I'm not saying property goes up 10% every year, the gurus and salesmen say it. This is the whole point of the post. You seem to think the world follows your logic, and you view the world through the prism of your logic, rather than seeing the world as it really is, irrational exuberance, unenlightened selfish individualism and all. The fact is that many people have been influenced to buy investment property even though it is heavily cash-flow negative at the outset, in the hope of making capital gains. One commentator has indicated there could be billions of dollars lost by these purchasing mistakes over time, and people are too embarassed to talk about their losses...

You don't get a 'huge gain at the end', there is supposed to be some sort of steady gain outstripping inflation, as per my post text. The fact that the economic fundamental of wages and salaries would suggest that this is not sustainable for very long doesn't seem to occur to the people stampeding into property purchases. As for the dot com boom/bust, with its crazy P-to-E ratios. In turn, the real estate industry then tries to keep the party going when it appears capital gains are not going to occur by raising rents, if that is possible in an oversupplied market.

The observations I have made represent about half the rationale of this web site. I'm not sure why you keep quibbling with everyone over every little thing.

OO,

True enough, you will pay a premium for a good finish and for an upper floor apartment with views (corner doesn't seem to be a big problem, all the new Shanghai construction seems to be provide a largely N-S plan). And yes, about 20% will be unusable public space (though I've seen some novel colonization efforts to reclaim public space). I'm thinking in terms of local purchasing power, in which case they would buy something like that 2M RMB place, spend 500K RMB finishing it up, and end up with a pretty decent 120 sq meter place in downtown Shanghai. That's insanely expensive when you look at the average local salary, but only about half of the price you indicated. One could spend a lot more, especially if one feel compelled to live in an American style McMansion in a close-in Shanghai suburb, but there's no need to.

Comparing downtown Shanghai to Cupertino is not really a very illuminating comparison. The lifestyles and locations are so different that they don't really compare at all even if the prices are similar. The downtown Shanghai buyer (even one looking at maopei second hand places) is at the top of the heap in the center of a major metropolitan area. The Cupertino condo buyer is at the bottom of the local homeowner heap and at the periphery of a the Bay Area. Cupertino is certainly preferable in many ways to even the cream of Shanghai's RE crop, but same could be said for London or New York or even SF.

As for the schooling issue. You're looking at it from an ex-pat perspective. I agree with you that I would not send my hypothetical children to any PRC school. However, my cousins have received pretty good education in China's grade schools. Indeed, to survive China's university system, one almost have to go through the grind of the grade school system first!

Randy: You think that only Boomers would object? How about all the poor, huddled masses yearning to be free? Or yearning to get more stuff for free, as it were. The rich get taxed more because they must have done something unfair to earn that extra money, right? It's not personal initiative, intelligence, skill or anything of that nature. Definitely not because they don't waste four hours a day watching NASCAR and drinking PBR. Let's face it, in a republican democracy the majority will carry, except for some basic rights.

The worst thing we've done in this country is allow people to feel entitled. Poor people should be instilled with work ethic; intelligent, industrious and eventually wealthy people should be instilled with a sense of philanthropy and civic duty. Generosity should be a cultural value, not a government mandate... but I digress.

Randy: How would you explain the huge amounts of income being earned if it really is a dissincentive to earn marginal income? Aside from the fact that there are a percentage of the population who are naturally high achievers or passionate about building a large company up from the ground, I would dare say that to the rich the marginal dollar is not as valuable as a lower income person. Meaning; that your first dollar you earn goes to rent or food, one of those basic necessities, once you pass the subsistance level the money is more disposable, moving all the way up to the money to burn crowd. With that said, that is why I believe a progressive income tax is the fairest way to collect money to pay the bills. (Obviously aside from duties, and foreign paid taxes) Your illustration works the other way, if we take the budget and divide it by the whole population, a good chunk of people would end up paying everthing they have plus needing a loan to pay their taxes. Take 2.9 trillion and divide by 300 million people and I think you get around $10,000 for each man, woman, child. Obviously children can't contribute nor can the elderly, so some who have it do need to pay a higher percent.

Back in 1990 G Bush Ist, signed the luxury tax on cars above 30K and the initial result was a disaster. Unlike Peter, I don't want to slow consumption because it works well as a pull system to force efficiency in production to where you can have your taxes, and eat your cake too.

http://www.taxpolicycenter.org/budget/current/presidents_budget.cfm

Different Sean, no disrespect but your assertion is not a little thing to quibble about. The recent trend has been for high gains that's why the gurus say what they say, and can say it with a straight face. I don't presume to dictate to people where to invest their money. It is you and a few others who are taking a recent phenomenon and distorting it to be the norm and wanting to basically levy a new tax on all homeowners with mortgages because of a number of bandwagon idiots. You also fail to see another fact that an idiot throwing his money away normally as someone a little brighter making money, and paying taxes. I am still not convinced that your point of view has a net loss to the tax rolls. In the end it is a free market system and people can pay what they want for whatever they want.

"The observations I have made represent about half the rationale of this web site. I’m not sure why you keep quibbling with everyone over every little thing."

I haven't posted anything for a few weeks, and yesterday I posted only a few things, not the other way around. If you really feel that way, point out a couple of things so that I know what is irritating you. I feel like everytime I say anything (not even controversial to most) every little detail has to be drawn out when I prefer the larger concepts. You do need to understand that most people don't share your point of view that investors, dumb as they can be, are somehow a drain on the economy. I suspect that's what your point is, and I'm sorry if disagreeing with something that is that radical and foreign to me bothers you.

Bruce Says:
July 8th, 2007 at 2:32 pm
Malcolm said:
"What is wrong with taxing income versus consumption apart from simplicity?
If taxation is applied to discourage specific behavior, as it seems to me it sometimes is, then Peter P’s preferences encourage initiative and thrift.
If, on the other hand, it’s shaped by a social model seeking to distribute wealth (or poverty), as it seems to me it also sometimes is, then you tax income and subsidize consumption. Which is where we are now."

The goal of a tax system should be to get a desired amount of money into the treasury. It should not be a behavior modification tool unless to offset speicific social costs. I worry that the basic concept of a free society is becoming more and more antiquated.

The current system does not subsidize consumption. And it is not good for the poor.

In the end all taxes are paid by the consumer, because all taxes are incorporated into the price of the goods we buy. When a corporation pays income tax, that tax is part of their cost of doing business. They seek an after-tax return. If the tax rate is higher then the price charged for the goods must be higher.

The workers pay income taxes, and those taxes come from the compensation paid by the employer. The gross salary including taxes is incorporated into the price of the goods for sale.

So the truth is that the taxes are all paid by all consumers. Higher income taxes just get passed through. The poor pay a heavy burden with our current system because the income taxes are included in the prices they pay. With a luxury focused VAT or sales tax the taxes could be shifted to the rich.

Taxing the rich is not about some issue of fairness or morality. You can make an argument for that if you like. But then you miss the point.

Why tax the rich? Because that is where the money is!

Malcolm, it's very hard to dissect what you're saying, because I haven't said any of the things you are claiming I have, and therefore there's nothing for me to clarify. You don't seem to have read my posts in the last 2 threads closely, and you seem to be taking the content of excerpted articles I've posted and attributing them to me (although I largely agree with the sentiment in them), but you also seem to misunderstand the points that are being made. There is no new tax, as you claim, they are reducing taxes, and so on. There were about 5 straw men in each of your posts which just leaves me bewildered, and unwilling to touch them for sheer workload reasons.

We have in no way even begun to touch on the realities and problems of the housing affordability crisis in your responses.

Not that any one cares, but here's an update on my search for a rental: Not Going well.

Maybe I'm just spoiled by living in Mountain View and Sunnyvale, but man o man the quality of rental stock simply blows in the Peninsula. Pricey, very shoddy, terrible parking, some have laundry rooms that look like they're from the Hannibal Lecter/Saw series. Or next to Caltrain.

My favorite are the 700 sqft places that tell you they're 900 sqft on the phone. Sheesh.

These rental places are so bad, heck I'm thinking of buying in this bubble just to not have to rent in some of these awful places.

That's the only reason I put forth for taxing the rich. Not to punish or control, because that is where the money is. It's kind of hard to tax the poor. Send out the Sheriff of Notingham.

Let's not forget it's the rich who control how much the poor get by wage setting. The rich also control how much the rich get...

I have no argument with Zephyr's comments.

My perspective is certainly not to shield the rich from paying taxes. But rather to set up a system whereby the really do pay unavoidable taxes that are levied upon clearly luxury, exceptional or fairly substitutable products.

And why the focus on "the rich"? Working class people waste their money too. Why should we subsidize them for buying X-Box gaming systems, Ben & Jerry's cookie dough ice cream, or high-class bio-dynamically NO GMO milk? If Nascar Ned wants to buy a PS3 or get his wife an iPhone then it *should* cost him exactly the same amount as it does me. Income taxation subsidizes his behavior and penalizes mine.

Malcolm, the reason people still earn a lot of money is because they don't tax 100% of it. But the higher the tax on the rich's income, the larger the chasm between the rich and the next class, because the rich will just sequester more of their wealth to retain the same relative status. All you're doing is shutting off the conveyor belt to the rich. Why do you think there is already a huge gap in the income distribution between $150K and $400K, then a larger one to +$1mm? After the 80s tax reforms there incomes largely smoothed out, but with ever creeping taxes has come enormous stratification.

*their

All prices (including wages and investment returns) are ultimately determined by supply and demand. When labor is in short supply real wages rise. When labor is abundant real wages fall. Some sectors and types of employment have seen dramatic increases in recent years while others have suffered. Competition (supply and demand) drives prices. Good luck if your job can be done in China, or by a low skilled worker here because there are plenty of them.

Different Sean:

First, look up strawman since you are using the term incorrectly. I cannot erect a strawman on my own point of view, a strawman is the technique most commonly used here and not by me where you misquote someone's point of view to then obliterate that point of view. Hence the name strawman as it is easy to knock down.

With that said, you then go on to say that you somewhat share the point of view in general with the article. Now you are equivocating. I did not misunderstand anything, it is you who misunderstood me when I made the point that investors won't carry a loss year after year unless the harvest does X. I was actally agreeing with your Google speculative point that it is the specualation not the actual income/dividend stream (which should be the real valuation).That statement was not a challenge to you in any way, for some reason you took it as such. It was a challenge to the logic of the article. You embelesed it with your own additions of 20 years of losses to stick it to society. You can review your post from yesterday 7:54. I can assure you I read your posts very closely and the link you posted.

Whatever you tax will be discouraged, and whatever you subsidize will be encouraged. So tax what you want less of, and subsidize what you want more of.

Currently, we tax productivity and efficiency, and we subsidize unwed teenage mothers.

As for no new tax, that is semantics. The discussion was removing MID which is a tax increase on home borrowers but I know there are those who will bicker with me that removing a tax deduction is not levying a new tax, but then they consider the deduction a subsidy (in the negative context, not the purely economic definition) anyway, so eventually even I tire of seeking specific clarity instead of the hot button words to evoke emotion in what should be a very casual discussion.

Abortion is murder.

Zephyr, you make an interesting point about pass-through. However, your statement appears to assume a closed economy. Consider that if we tax a product too much on U.S. soil, it might become more profitable to import that product. You can't just pass through the cost if your competitors will pursue more profit or lower cost. Thus tax policy in some manner directs specific actions from corporations. For instance, my employer incorporated in Singapore to get a 10-15% tax rate instead of the U.S. corporate rate. That has transferred considerable employment opportunities to Singapore from the U.S. It is also wreaking havoc on our competitors because we pass so much more net margin to the bottom line.

Which gets me to my next point.

Malcom, your statement that taxation is about the treasury is simply not correct. Taxation is both a fiscal and a political tool. You cannot decouple the financing from the end result, which is government spending money on programs selected by a political process. Taxation is also an effective behavior modification tool, as evidenced by Rome, the British Empire (tea party, anyone?) and other historical governments. Short of outright written laws, taxation is one of the most effective means to encourage investment or flight from certain asset classes and business sectors. Want to make ethanol look good? Tax gasoline. Want to get money into the stock market? Lower capital gains taxes. Encourage home ownership? Mortgage interest deduction. Get more in-country R&D investment? Allow cheap funds repatriation.

btw, the Treasury? What treasury? :o This country is using taxes to produce cash flow to maintenance our debt. Our treasury is a cavernous, empty vault with an IOU for several trillion dollars, backed up only by a printing press.

a strawman is the technique most commonly used here and not by me where you misquote someone’s point of view to then obliterate that point of view. Hence the name strawman as it is easy to knock down.

I thought that's very much what you are doing, Malcolm. I don't even understand the points you are making they are so far removed from what I have said in my posts. You seem to be projecting a whole host of implications in your writing, but I really can't be bothered quoting them all back at you again, I just wish you'd stop doing it.

Malcolm, I have been to many 'RE guru' seminars and sales talks, sometimes by 2-tier marketers, and they exhort people to buy property although it is cash-flow negative upfront, as 'the Tax Office will bail you out', 'the taxman is your friend', etc. Some people carry a loss which may set them out of pocket $100 a week indefinitely going forward after tax deductions have been made. Some of them cannot afford it and have to sell their 'investment', sometimes at an overall loss, especially when transfer costs are taken into account. This is one of the reasons foreclosure rates have doubled and tripled in recent times, just as the gurus were at the peak of their frenzied advice (which usually occurs at the end of a trend rather than the beginning.) As I have said, 'negative gearing' has been a common practice in this country for some time, and they are known as 'negative gearing crazies' by a leading economics commentator, as they are risking money now to get a hoped for capital gain later which will vastly eclipse their cashflow loss.

Big Brand,

I know it's not correct, my statement is how it should be and taxes should only be raised to pay the bills not to punish. I know how the world works. I do however maintain that it should be decoupled and see no reason that it can't be. I agree that the selection of projects is political, paying for those projects doesn't have to be. All the projects and programs add up to one budget. Fairness in taxation should be the goal, not self appointed overseers determining whose is a worthwhile venture, or who is buying 'luxury' goods. Your tea party example works for me as well. Let's recall that the USA didn't become the USA because of the amount of taxes England was levying, it was the perceived fairness that was the issue.

You're still equivocating because that was not what you were saying. What do you care what the gurus are saying about the tax man? Use your own head, and think it through. You just now admitted that the houses end up in foreclosure, not carried year after year. BTW, when that happens here, the borrower has to pay tax on the writeoff the bank takes.

Come on, if you want to fight, fight fair, show me just one spot where I misquoted your point of view. I even cited the exact post where you made your point.

"I don’t even understand the points you are making they are so far removed from what I have said in my posts."

Now you are admitting that it is you who don't understand my posts, I thought it was I who misunderstood your points. I have for the last couple of days made a very consistent point that I disagree with your/article notion that an investor who loses money on a house is somehow subsidized at the cost of taxpayers. You moved the topic from not just personally occupied homes for the MID deduction (which is what the topic was) to basically saying that interest as an investment expense was a tax loophole to be closed. (paraphrased feel free to correct me if I am misquoting). When I asked you if you realized that income tax is designed to tax income you said yes, but then continued with the same drivel about gurus talking people into buying houses and somehow this was at the detriment of the taxpayer.

Different Sean Says:
July 8th, 2007 at 7:51 pm
"Let’s not forget it’s the rich who control how much the poor get by wage setting. The rich also control how much the rich get…"

Really? No other market forces at work? The poor are paid just what the rich FEEL like paying for their services? I'm really not trying to be rude but you seem off today, have you been drinking? Not judging, I am really curious, you seem half cocked today.

Randy H Says:
July 8th, 2007 at 7:55 pm
"And why the focus on “the rich”? Working class people waste their money too. Why should we subsidize them for buying X-Box gaming systems, Ben & Jerry’s cookie dough ice cream, or high-class bio-dynamically NO GMO milk? If Nascar Ned wants to buy a PS3 or get his wife an iPhone then it *should* cost him exactly the same amount as it does me. Income taxation subsidizes his behavior and penalizes mine."

See this is where I start getting a little nervous. Even the smallest pleasures are now being scrutinized as waste, luxury, or excess. I do agree conceptually, I just can't bring myself to start passing judgement on what other people do. I live my life pretty conservatively, well within my means and I know others can't for some reason.

>> Not that any one cares, but here’s an update on my search for a rental: Not Going well.

FED will make conditions such that everbody has to pay:

* traditional renters: pay rent for space

* so called owners (debt slave) : pay rent for money

FED serves only one master -- the banks.

Here is a story on Chindian mafia:

http://www.mercurynews.com/ci_6326347?nclick_check=1

`Honors students' Niehoff received a fax from SBC on Feb. 8, 2006. The IP addresses belonged to a 49-year-old man named Greson Ma who lived at 766 Beechwood Drive in Daly City. It was a nice neighborhood with ocean views. Homes there sold for more than $600,000.

The Daly City police knew Ma's address well. Three and a half years earlier, they had arrested his eldest sons - Alvin and Calvin - for using stolen credit cards to buy stuff on the Internet. Greson Ma was not charged in that case.

Daly City police detective Joseph Bocci caught the brothers in October 2002 as they were picking up a $1,900 minibike they had ordered from an Internet retailer with a stolen credit card. When confronted by the detective, Alvin politely explained he had gotten the credit card number from someone he met in an Internet chat room.

Then in their late teens, the brothers were unlikely criminals, Bocci recalled. They were mild-mannered and respectful. They looked like "honors students," he said.

Their criminal scheme was similarly clean-cut: They stole identities, bought stuff online and resold it.

The brothers were convicted of grand theft and placed on probation in 2005. However, little changed in their daily lives.

Calvin Ma graduated from Westmoor High School and joined his brother at the College of San Mateo. The brothers took turns watching a younger brother after school. They worked at Circuit City in Daly City.

Alvin organized an Asian-American beauty pageant in San Francisco with support from See's Candies and the Oakland Vietnamese Chamber of Commerce. The videos of Alvin Ma's girlfriend, Linda Phung,being named Miss National Asia in the summer of 2006 are posted on YouTube.

From outward appearances, no one would have guessed Alvin and Calvin were living a double life as digital gangsters.

Niehoff served a search warrant on the Ma home on Feb. 14, 2006. The two-story house was painted pink and protected by a locked security gate. Neither Alvin nor Calvin was home when the detective arrived, but there was a Dell computer in the living room. Niehoff took it and gave Greson Ma a receipt.

Back in San Jose, Niehoff quickly found a folder on the computer containing e-mails written by Twnkletoe. He also found logs of Internet chats. In stored instant-message conversations, Alvin Ma bragged of using stolen credit cards to buy things on Craigslist and eBay.

Ma boasted how he used a free software program called "Dark Mailer" to create e-mails with fake headers that appeared to be from AOL or PayPal. This practice is called phishing, and security experts say it represents one of the most serious threats to consumers' safety on the Internet today.

Phishing for passwords "It's quite easy to make up an e-mail that looks just like it's coming from a legitimate company," said Robert Chestnut, eBay's global head of trust and safety. "Everybody gets these phishing e-mails with the eBay logo and PayPal logo, the Bank of America logo, the Amazon Logo. . . . They send them to me at eBay."

Phishing e-mails contain a link to Web sites created by fraudsters that are designed to trick victims into entering their passwords. The fraudsters then use the passwords to break into accounts in order to steal identities or money.

Phishing is one of the fastest growing forms of electronic fraud. According to the Anti-Phishing Working Group, the number of phishing Web sites grew to more than 55,600 by April 2007 - a 60 percent increase over the previous year.

Niehoff found a template for the phishing Web site "AOL.com Billing Central" on Ma's computer, along with more than 20,000 AOL e-mail addresses.

Niehoff's investigation was clearly just beginning.

PayPal was particularly helpful, he said, and assigned a company investigator to the case to help identify additional victims. Niehoff spent the next few months contacting more than three dozen victims.

As Niehoff's collection of cell phone and e-mail records grew, so did the evidence against the crew. Along with computers, they had bought and sold more than $50,000 worth of Xboxes and Rolexes. Niehoff found the Gmail account that had been used to collect passwords entered into the phishing Web site, and the PayPal accounts the group had used to resell stolen machines on eBay.

Victim snaps photo One of the victims - who by coincidence was also an eBay employee - provided Niehoff with a photo he had snapped of Kevin Lum, 26, one of the four members of the ring, with his cell phone, after Lum picked up an Apple PowerBook the employee had listed for sale on Craigslist on Jan. 11, 2006. Lum and the fourth member, Frank Lin, 22, are from San Francisco.

The Santa Clara County District Attorney's Office filed charges of computer intrusion, grand theft and identity theft against all four members of the crew at the end of July. By the end of November all four had struck plea bargains. Niehoff estimated they made off with $60,000 to $75,000 in this case.

"It was a very strong case," said Deputy District Attorney Thomas Flattery.

Now in jail in San Quentin, the Ma brothers did not respond to requests to speak with a Mercury News reporter. Their mother and brother declined to speak with a reporter who knocked on the door of their home on Beechwood Drive. None of the four defense attorneys would return phone calls.

In a letter to the judge written on April 27, 2007, Alvin Ma insisted he was "not a bad individual or just any repeating offender." Though he acknowledged he had pleaded guilty to 40 counts of felonies, he asked the judge for a chance to turn his life around.

"I feel like I lost my future," he wrote. "But I completely understand I did this to myself."

Malcom: Okay, so you're an idealist. I think that brings a different light to your statements. I, of course, am a pragmatist. But I did watch a lot of Star Trek: The Next Generation when I was a kid, so I appreciate the utopian viewpoint. :)

Different Sean: This is what I meant the other day when I joked that you're an expert at knocking down straw men, whilst complaining about other people's straw men. Although technically, saying "there's just so much wrong with your argument that I feel no need to address it at all, but trust me, you're soooo totally wrong" might not be a bona fide straw man. It might just be vagueness coupled with an odd strain of deus ex snootiness. I'd have to consult a philsophy major on that fine point. :o

But seriously now, if you're going to attack Malcom for misidentifying your point of view, you could be burdened to provide one specific instance of said transferrence. If Malcom has so maligned you (and I'm not saying that he hasn't), it should be pretty straightforward to call out some examples.

Different Sean Says:
July 8th, 2007 at 8:20 pm
"Malcolm, I have been to many ‘RE guru’ seminars and sales talks, sometimes by 2-tier marketers, and they exhort people to buy property although it is cash-flow negative upfront, as ‘the Tax Office will bail you out’, ‘the taxman is your friend’, etc"

I'm really not trying to be a dick, but you're just baiting me at this stage. You look down your nose at these people as being losers yet you've been to 'many' seminars presumably because you want to be one of them.

Brand,

Star Wars & Star Trek ironically the work of boomers who definitely don't lead by example were basically my foundations of my value system. From Star Trek, I developed my optimism that there is a solution that can make everyone happy. I fail often in doing so, but I believe enlightened people try.

Malcolm, I've been to the seminars because I want to see how they operate, including the crooked 2-tier marketers. Click on my name if you want to read my blog.

Really? No other market forces at work?

No.

Now you are admitting that it is you who don’t understand my posts, I thought it was I who misunderstood your points.

I don't understand how you draw the conclusions you do. They are non sequiturs, and flying to extremes, putting words in my mouth, etc. A straw man argument is to misrepresent another view and then demolish it, which is to demolish nothing.

With no disrespect again, I would ask you for just one example. I'm pretty confident of my conclusions and find it arrogant for someone to just dismiss someone else because not all of us care to hear someone else's points. Let alone someone who actually has a track record in the area of discussion. There weren't that many posts from yesterday or earlier today that involved us, so it should be super simple for you to find one example of me misquoting you.

Malcolm,

See this is where I start getting a little nervous. Even the smallest pleasures are now being scrutinized as waste, luxury, or excess. I do agree conceptually, I just can’t bring myself to start passing judgement on what other people do. I live my life pretty conservatively, well within my means and I know others can’t for some reason.

I am not passing judgment, because I don't view those behaviors as "frivolous". I do state they are *discretionary*, *exceptional*, or *substitutable*.

People are free to buy what they will, for whatever reason they see fit. I am not so arrogant as to pretend to know what is best for other people. I'm not going to try to understand their reasons or motivations. But I want them to be properly incentivized by being forced to pay their full share of that consumption, not stealing consumption from the "mean old rich".

There are of course obvious exceptions, but by and large those people would callously call "rich" are often among the most frugal and sparse consumers around. This is why the "trickle down" Reaganomics had a tough time. If you give wealth to the rich they like to keep it. I note that many on the left-er side of this debate would almost surely agree with me that trickle-down didn't work. But it is then a contradiction to argue that a progressive tax system is anything but regressive in practical nature. You can't have it both ways.

OK, let me call out some examples, to waste some space, whereupon Malcolm will presumably diverge on more tangents, nonsequiturs, and straw men, requiring another 1000 words:

You understand that income tax taxes income right?

Unhelpful baiting to start the ball rolling.

Right, that’s called a business loss, that’s how it works here. A net loss on a rental comes off of your adjusted gross income. You need to come and meet some Americans to really understand the pettiness here.

I don't even understand that last sentence. I've pointed out that it happens regularly, it just depends on how long an investor can sustain making a loss in order to *attempt* to reap a capital gain windfall later. They are trying to ride the inflation wave, plus the property boom, when it is booming. Surveys have shown a 'conditioning' effect, where when a market has been booming for some time, 'ordinary' people believe it will continue to boom indefinitely. AS I've already pointed out, inflation also helps the 'investor' in the long term regardless of booms.

But I’ll help you do the same as the gurus. For every dollar you send me for the next 20 years, I will send you back 50 cents.

Baiting again. However, this is exactly what happens, if 'investors' can sustain say a $50 or $100 shortfall every week for a period. You have to ask what sort of 'investment' loses money for so long, but that is what is happening. The 'investor' hopes and prays for capital appreciation that outweighs the loss, as you have indicated elsewhere.

If you send me 50c back for every dollar I send you for 20 years, and then pay me $1M on top at the end of it, you've got a deal, as that's what these 'investors' expect to happen.

All kidding aside, here you don’t even need it to be an investment property, you can claim a second residence and deduct that interest as well straight off the top. I’ll patiently await the knee jerk outrage before I explain the thinking behind the 2nd residence rule, although I know there are people here smart enough to know the reasoning.

I assume you are talking about using the MID deduction here. However, you presumably could not also deduct HOA fees, council rates, fitting and fixture depreciation, maintenance expenses, and so on, which you could do if you listed it as an investment, not as a principal place of residence.

Hence, owning an investment property lets you deduct a MID amount plus all the other expenses of owning it.

Frankly that thinking scares me, but I realize there are two points of view here. Mine is that the state derives it’s [sic] powers and revenues from taxes paid from wealth, whereas the other point of view is that everthing starts out as belonging to the state, and the state takes what it deems a fair amount. The latter is distinctively un-American.

Who is proposing these 'two points of view'? You are, and only you. I would probably disagree with your viewpoint, but I have not done so anywhere in my writing, nor implied the other binary viewpoint you have proposed. This is the sort of straw man raising I'm talking about. You have defined 2 and only 2 allowable viewpoints, then decided that one is 'unAmerican' whatever that means. Is the Patriot Act 'unAmerican', where it limits freedoms and allows unlimited intrusion into your affairs? However, every act passed by Congress by definition must be 'American', so the 'unAmerican' discourse always trips itself up, as it's self-defining -- all things happening in America are American. (In fact, the other inhabitants of the North and South Americas would justifiably be upset at the co-option of the word America when referring to the US only.) So we have baiting, straw men, acceptance of status quo, unreflexive jingoism and ethnocentrism so far.

I’m not sure still what the problem is. I think you are more irritated by low gains rates since in your scenario you have to have a huge gain at the end for it to work. If it doesn’t work and the house also goes down in value, the house ends up becoming a large loss for the bank when the investor walks away from it

1) I'm not irritated. 2) I haven't indicated there's a 'problem' along the lines you're suggesting. That's 2 more straw men. 3) The house doesn't end up being a huge loss for the bank necessarily, it becomes a huge debt for the investor which he owes to the bank. These are the rules of securities and foreclosure, where the prudent bank has secured their loan against other assets to be claimed at the time of sale or default. Hence the use of 80% LVRs, cross-collateralisation, etc.

Post Script -- there seems to be a distinction being made between the MID as a title for the owner-occupier mortgage interest deduction allowance in the US, which only partially equalises with the landlord expenses deduction, as the landlord can claim a whole lot more types of deduction on a property, and the concept of deductions in general. I have been using MID more as an abbreviation, not as a program.

The MID as a program was allowed for a while in the UK, then taken off again. It has not been allowed in Australia for decades, if ever. There are a number of proposals on the table now however.

Patrick's original assertion was that the MID as an owner-occupier benefit would lead to house price inflation. I maintain that this can only happen once, at the time it is introduced, whereupon it would probably get capitalised into the cost of housing very quickly by the market. This is unfortunate, as it negates the point of introducing the MID. Hence, other types of controls or benefits need to be looked at to prevent these apparently unanticipated consequences of the market-based approach to allocating housing.

DS says: Patrick’s original assertion was that the MID as an owner-occupier benefit would lead to house price inflation. I maintain that this can only happen once, at the time it is introduced, whereupon it would probably get capitalised into the cost of housing very quickly by the market. This is unfortunate, as it negates the point of introducing the MID.

Actually, I would disagree with the assumed point of MID. I understand the intention to be encouraging homeownership.

I think that at best the MID is a mathematical wash, but people don't really understand that. Americans are fairly bad at math. They can't correlate a monthly payment to a yearly loss via interest to a bank. So what they ultimately see is a low, low monthly payment of X, and then a tax deduction of 12*X at the end of the year, resulting in a "refund" of approximately 0.3*12*X. Nevermind that there is a minimum standard deduction, or that they have lost 0.7*12*X to the bank.

In much the same way, Americans can't correlate yearly inflation to the overall rising value of their house. Since they don't understand the cost of leverage or the opportunity cost of time, the resulting gain seems wicked awesome, and they get a tax benefit to boot. Thus, mission accomplished from a government policy standpoint, even if the math is sometimes shaky. It doesn't help that most accountants will tell you that buying a home is great for your taxes. I think that's what Malcom meant when he said, "You need to come and meet some Americans to really understand the pettiness here." They will cut themselves just to prick the tax man.

I can't tell you how many people say in passing, "I wish I would have bought property here in the 1980's." To which I typically respond, "I wish I would have leveraged into the DOW or S&P 500 in the late 80's." Most people seriously have no idea how the math really works, or what the relative asset classes have done over the past 50 years.

Brand Says:
Actually, I would disagree with the assumed point of MID. I understand the intention to be encouraging homeownership.

This is what I meant. However, the MID quickly gets capitalised into the cost of housing once introduced, thus negating the benefit. Clearly the MID is intended to reduce monthly housing debt via a tax break, thus making homeowning easier. However, I find it bizarre, as there is an immediate unanticipated consequence of the market to inflate prices to absorb the saving. For this reason, I always oppose politicians' suggestions for such schemes, including drawing down from your pension plan to afford today's over-inflated prices, and specific home owner grants of other sorts, without some sort of price control or hiding of the grant from the market. There are better ways to get the desired result.

PermaRenter Says:
“Chindian lemmings” and “Chindian mafia” both are very powerful group

This is the second or third time you brought this up, so it looks like you have some sort of bee up your bonnet on this. 'Chindian lemmings' was a joke, they aren't any kind of powerful group. As for the 'mafia' comment, the chindians I have worked with are too busy trying to one-up each other - so it is very unlikely there is an organized gang that is out to keep you down. It is probably something else altogether... :-)

SP