While I have always intently followed the latest economic business news, lately I have invested even more time in trying to read all the snippets that I can regarding the latest opinions on our lagging economy. In doing so, I began to formulate my own ideas of how I would stimulate the economy if the job were thrust upon me. I think I have one particularly good idea that could provide an immediate shot in the arm... A demolition tax credit.
Now, I know what you are thinking - more stimulus, increasing the deficit, blah, blah. This idea is not based on a particular political ideology but sheer practical economics. Ironically, I found support for what I already perceived regarding our tax policy when it comes to stimulating the economy within an article found
here on the CNBC website. Basically, it supports that while seemingly silly and derided politically the "Cash for Clunkers" program was actually quite effective.
It's well established that a significant portion of our economy is driven on consumption and construction. In order to have both on prolonged basis, you have to have disposal and destruction. We find ourselves in this current mess because we allowed housing and real estate credit to become too available to sectors of the population that traditionally have not been able to support it. Likewise, commercial development arose off pure speculation rather than traditional needs analysis within the area. "Build it and they will come" became the mantra for the last decade. Now we have oversupply. I would wager, presently, that demographically we do not have enough households to absorb all the homes currently available irrespective of the unavailability of credit. We have too many residences and commercial structures that were recycled and couched as "renaissance" development when in fact these buildings should have been razed to make way for more functional and energy efficient structures. Why do we insist on maintaining homes (and perceive them as more valuable) and buildings that are contaminated with lead, asbestos, poor wiring, and poor ventilation? Why not builder a newer model that resembles the old home or old department store downtown?
A $10,000 owner tax credit for the demolition of any residence that is now vacant but inhabited within the past 24 months or a commercial or retail structure now vacant but leased in the last 24 months would effectively shelter $35,000 worth of value or income for a taxpayer if he/she/it who contracts with a demolition contractor to remove the structure. Verification of the demolitions could be completed by a local HUD building inspector and documentation could be provided for submission with taxpayer's income tax return. The federal government could budget this tax credit and allocate among the states based on need similar to the current methodology used for allocating low income housing tax credits.
The benefits of such a demolition tax credit would be immense and immediately felt. Under this scenario, a bank who is carrying a yet-to-be written down REO if fair valued at less than $35,000 could effectively rid itself of this REO by destroying it and claiming the tax credit with no impact on earnings or capital. The bank would contract with a local demolition contractor (probably for less than $10,000) to have the building razed. The contractor would immediately hire people, rent equipment, and buy supplies for the demolition. The landfills and waste management companies would see up ticks in revenue not to mention the increased sales tax collections on the equipment and supplies. In the not too distant future, a new more energy efficient more valuable structure would be built in the same place resulting in a collection of higher tax revenue for the city or county government. There are too many other indirect benefits to name resulting from the implementation of a such a policy. On the opposite side, as a tax credit the federal government would get a 12 month economic advance before having to take the cash hit when the credit is ultimately claimed.
Carefully structured with other complementary programs and initiatives, I believe such a program could provide immediate results for our economy but the long-term derivative benefits would be huge.
Whitney Oswalt
Landworth, LLC