A Letter to the Tax Reform Panel: FairTax Boon to Home Building

(Forrest K Harstad)

I’d like to explain how the FairTax will be one of the greatest boons to homeownership and the home construction industry in the history of America.

I have been a Realtor since 1975 and a home builder/ developer since 1980 in the metro area of Minneapolis/St Paul, Minnesota.

First, the FairTax eliminates the imbedded expenses of income tax, payroll tax and tax compliance from all the products of our great nation. This has been estimated by economic scholars, including Harvard’s Dale Jorgensen, to average from 22% to 25% of the price of our products. Surely new home construction is at the high end of imbedded tax costs due to the thousands of components and man-hours in every new home.

When the actual cost of constructing a new house is at least 22% less, the FairTax just brings its price back to the level it is today. Since existing homes are not subject to the tax, all home values will remain about the same. But the consumption of all the materials, energy and labor that it takes to build a new home should be taxed. And when that consumption is taxed, new home sales will produce one of the largest portions of the fuel for the engine that powers our great country’s economy. That’s fair. That’s good for The United States Of America today and it’s in the best interest of our children’s children’s children -even those who will become Realtors and Builders tomorrow.

Now recognize that the FairTax will eliminate the same imbedded costs to provide loans. Mortgage rates will become competitive to the rates of tax-exempt loans. The bond market shows us that the difference between taxed and tax-exempt rates just happens to align with Dale Jorgensen’s prediction. Tax-exempt loans tend to be about 25% lower. So mortgage rates that are today say 6.5% will instead be more like 4.9%. That of course will be in the best interest of all our children who need or want a new home today as well as tomorrow.

But that’s not even the main reason for the great boon. The following is. Since tax withholdings are eliminated by the FairTax, take-home pay goes up instantly. Every American will have 100% of their income at their own disposal –including to save for a down-payment on their new home with pre-tax dollars. And since mortgage rates will be about 25% lower, many, many more Americans will qualify for mortgages. And all will qualify for larger mortgages. That can’t help but be a boon to the housing industry both immediately and into the future.

But what about the FairTax eliminating mortgage deductions? Over time, myths have a way of becoming assumed to be truths. Such is the case with the perceived benefits of mortgage interest deductions. First of all, over 70% of Americans don’t even file the long tax form -they don’t even take deductions. But even the 27% who do will come out ahead due to the facts above. (Calculation tables supporting this statement can be readily found on the FairTax web site.) Also, my 30+ years in the business have shown me that buyers just don’t purchase or select a home because of their potential mortgage deduction. Compared to the overall, nation-wide benefit to homeownership provided by the FairTax, even the rare few who can actually show a benefit within today’s archaic income tax system still come out ahead with the FairTax -by far, irrefutably. That the mortgage interest deduction is a “benefit” is false promise in the first place and its now being used by those who have a vested interest in the present income and payroll tax system as a tactic to scare the unaware away from the FairTax.

With the FairTax replacing our income and payroll taxes, not only do buyers of new homes win, but all who work in and around the housing industry win and that helps America win. The FairTax is good for home-buyers, home-sellers and home-builders as well as our kids and their kids and their kids and theirs….

Please visit www.FairTax.org to learn more.

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