The American Dream – Part 1

The American Dream touches many aspects of our lives. It does so in ways that may not be readily apparent.

This is to be the first of a series, addressing those various aspects.

I promise to hold your interest; at least intermittently. It affects your billfold, your lifestyle, your present, your future, your dream.

If memory serves, I have been an apartment dweller on 4 different occasions, for a total of perhaps five years, or so. I presently live in a suburb on little more than a postage stamp lot.

I prefer such a detached house. That may be an actual preference or simply a factor of being far more accustomed to it. What ever the reason, I felt such a disclosure to be called for. I trust it doesn’t color my sentiments as expressed in these few pages. If you think it might have, let me know.

First, we need to understand that anything the government does, or indeed, doesn’t do, has ramifications throughout the country. Even those who strongly advocate for small government should appreciate that government cannot help having an effect on our society. It may be expressed as an effect in the social realm, or education, or any number of ways or combinations.

In most cases the primary effect or one of the collateral effects will be financial. It’s just the name of the game.

Governments, all governments, use the tax code to mold the society in a particular way. Sometimes that is good. Sometimes it is bad. Sometimes it achieves its intended purpose. Sometimes it doesn’t.

Taxing some areas more heavily will divert resources away form those areas. That’s the theory, at least. It tends to work that way but taxes are not usually the sole factor involved. Likewise, with the same caveat, tax incentives are used to direct resources to one or more specific area.

Remember, sometimes this is good. Sometimes it isn’t.

We often hear that this country has the smallest rate of savings of any mature economy. Well, that depends on how you rekkon that number.

To say that we are at the bottom in savings means that whoever calculated that rate omitted our largest mode of saving. Housing. Many people are in trouble because they put their savings in the purchase of a home and used their equity (savings) as an automated teller. They spent their savings. Now, their house is worth less than what they owe.

Adding the money we put into housing to the other modes of savings could put us at or near the top.

Why do we channel so much of our wealth into housing? There are many reasons. One major reason is the power of the American Dream. Almost every American wants to realize that dream simply because it has been ingrained in us, perhaps even, prenatally.

Another reason is because we have bought into the myth that real estate always goes up. That may not be too common a belief at the present. However, the dream of having your house work for you has been a powerful element. Rent is considered wasted money and we don’t want to waste.

Then there are the tax advantages of home ownership. You can deduct the interest you pay. How many other investments share that advantage. Capital gains? The first half million dollars is exempt for couples. Oh, and your local real estate taxes are deductible. improvements are deductible. Basically, everything about real estate is deductible.

Given just the tax code advantages, most people have considered putting a substantial chunk of your income into real estate a slam-dunk option.

So, other than putting large numbers into financial difficulty and making the loss of their home through foreclosure, or at least facing that threat, what have our tax codes wrought? It has brought on a mess that we fail to recognize, despite it being in our face.

Money that other nations use to invest in the manufacture of numerous goods, exports, infrastructure; the beat goes on. Sure, home construction creates jobs, but at the cost of starving every other sector of our economy.

Those jobs created by housing may not be the jobs you want. When my house was being built six years ago, i noticed that the carpet installers were Mexican, as were the roofers, as were others. The siding crew was Mostly Mexican, led by a Russian.

The present situation means we lead the world in home ownership but lag in almost every other financial measure. It isn’t necessarily a bad way to invest some of our savings but it will not for many more decades sustain our lifestyle or our position in the world.

So, the question is: where should we direct our savings? There is also the question of how or whether we want to use the government, through the tax code or otherwise, to direct those funds to areas identified as providing the greatest benefits.

Just so you know that I am not completely naive about the politics involved, let me address that issue. I am fully cognizant of the hazards for any politician trying to take away the incentives the government has piled upon us over the past several decades. It may not be possible to wean us off of these benefits for a couple of generations, if then. We are too happy every year to see our tax liability drop dramatically when we factor in the real estate perks. We have become spoiled. We have lost sight of the alternatives. We do not appreciate the benefits of those alternatives. America will slip in the special standing it has had for a century or more but Americans will continue mowing their lawns.

Stay tuned for the further adventures of John Q. Public’s love affair with the American Dream.

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