Tax Me Later, Tax Me Now

Secretary Geithner insists the Administration will not raise taxes in a recession, as the recession will be over in when their proposed increases take effect in 2011.

Let's hope the recession is over then. But people plan for taxes, and their expectations affect their perceived wealth. If they know a tax increase is coming, and suspect a larger one may follow, they will be less confident in their wealth and less likely to consume.

The reductions in mortgage interest deductions are particularly daft. We might argue about the importance of income expectations. But any responsible homebuyer will look at their service costs over the long term. They will not estimate tax savings on interest based on temporary deduction rules. To the extent those deductions affect home prices, the proposed reductions will surely act against home price recovery. Is that the policy this Administration wants to pursue?