Getting What We Pay For

Everyone wonders why we got into this mess. One place to look is tax policy.

Back in the ‘80s, we lowered the tax rate and eliminated a lot of deductions. But a few stayed. Specifically, mortgage interest is deductible for consumers but corporate dividends are not deductible for companies. Since that time, mortgage debt has exploded and corporate equity has contracted a percent of our economy.

This isn’t an issue of national irresponsibility. This is a matter of getting what we pay for. Washington has decided to subsidize home ownership and to penalize corporate dividends. Is it any wonder that we have an surplus of mortgage debt and a dearth of corporate equity in this country? Now we’re seeing some of the unintended consequences.

The national scolds all say that we’re headed for a time of national retrenchment, with consumers increasing their savings because they’re “supposed to.” But I don’t see it unless and until Washington stops subsidizing debt and penalizing savings. Because, when it comes to our money, taxes speak louder than words.

Douglas R. Tengdin, CFA
Chief Investment Officer
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