Weekend open thread

Now that the Feds have a $700 billion bailout bill for the mortgage mess, I'm thinking the next administration will be looking for creative ways to increase taxes without the stigma of raising the income tax. I'm willing to bet the mortgage interest tax deduction will be one of the first to fall.

While I'm a homeowner, and I'm very happy to cash that check every year, I agree with many economists who posit that the deduction simply pushes up the prices of houses—as realtors, creditors and buyers all factor in the value of credit when negotiating housing prices.

On top of that, the fact that so much Home Equity debt can so easily be rolled into your mortgage, written off as a deduction—well, lets just say that it leaves an open door for creative accounting. Have $20,000 in credit card debt and own your own house? Don't fret about your lifetime of poor financial decision making. Just roll the debt into your mortgage and take a huge tax deduction!

According to this NY Times piece, in 2006, the interest tax credit was worth about $78 billion. I'm assuming that by now, that's probably a cool $100 billion in revenue, just waiting to be reclaimed.

Let me stress, I'm not a proponent of back-door tax strategies. But the Feds will have to find some way to pay for this mess, not to mention everything else.

NYT has text of the proposed bail-out legislation.

Econoblog Marginal Revolution continues to be a good "hang out" for informed thought. Scroll down and read.

Economist Greg Mankiw posts a long analysis of the bail-out, giving it a thumbs down ("Why you should hate the Treasury bail-out proposal").

Bloomberg has more reaction and information, including the Roubini quote now making the rounds,

"He's asking for a huge amount of power," said Nouriel Roubini, an economist at New York University. "He's saying, 'Trust me, I'm going to do it right if you give me absolute control.' This is not a monarchy."

Jeff @ Armchair FP