House made of $50 bills.

TEXT OF INTERVIEW

Scott Jagow: Time for a visit from our economics correspondent, Chris Farrell. The last time he was on, Chris argued for getting rid of the mortgage tax deduction and the real-estate capital gains advantage. Boy, did the e-mails come pouring in. And Chris, some people weren't very nice to you.

Chris Farrell: I'll say! People were sending me to various places . . .

Jagow: We can't repeat all of them on the air, but I thought we might go through a couple of them. We'll start with one listener, who says: "What is this guy thinking? The reason we have a tax deduction for mortgage interest is because housing is a necessity -- not an investment in the same way stocks and bonds are an investment." What do you say to that, Chris?

Farrell: First of all, housing is not optional, yes. All I'm saying is, you just don't have to have a tax deduction worth $80 billion a year to support it. Other nations have very high levels of homeownership without the mortgage tax deduction. There's the rental option. You might end up with a smaller home.

Jagow: I think this listener -- and this thread kind of runs through some of the e-mails we got -- is saying, "I do have a small house." And here's another one: "I think if you take away the tax deduction, you are once again penalizing the middle class." And that seems to be the theme -- people are saying, "We don't have big houses here, we don't have McMansions. This is really the only way we can afford even a modest home."

Farrell: Well, I think that's the real serious complaint. We've been weened on this mortgage interest deduction, and then in 1997, they changed the capital gains law. So you're a single person, you can sell your home, have a profit of $250,000, you pay no taxes. A couple: $500,000. Now, these are very valuable deductions in capital-gains treatment, I understand that. But what I'm saying is, stocks are important, bonds are important. Why are we favoring real estate over these other investments? And in 2005, we had about a third of private investment in this country was pouring into residential real estate. This is bad public policy.

Jagow: Yeah, Chris, there seems to be a dichotomy here with people who are in the middle class, but then you also have on the other side the speculators, people who are flipping houses. And that's where people have taken advantage of this new tax law.

Farrell: That's right. I have no problem with speculation. All I want to see is that real estate, stocks, bonds, gold -- I don't care what investment we're talking about -- that they all be treated the same when it comes to taxes. Because then, the individual is making a decision on where they think the best prospects are. And by the way: Most of the wealth of this country is being created by corporations, and they benefit when investors decide we're going to put some money into equity.

Jagow: Well Chris, you are entitled to your opinion, and the idea of this show is to generate discussion and hear from various points of view. We're going to put your feet to the fire with these e-mails.

Farrell: From the seventh circle of Hell, I've really enjoyed these e-mails. A number of good points, and I still feel real estate should not be a tax-favored investment.

Jagow: All right, Chris Farrell, our economics correspondent. Thanks.

Farrell: Thanks.

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