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How We Got Here

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While you can blame Moody's, Countrywide, or low interest rates, here's another possible reason for the housing bubble and our wrecked economy: The New York Times looks at the effect that a 1997 tax law change had on the market, and how it helped shape the perception of a home as a investment, and something to be flipped and sold. "The provision — part of a sprawling bill called the Taxpayer Relief Act of 1997 — exempted most home sales from capital-gains taxes. The first $500,000 in gains from any home sale was exempt from taxes for a married couple, as long as they had lived in the home for at least two of the previous five years. (For singles, the first $250,000 was exempt.)" The most interesting part of the story is how the tax break can be traced back to a speech given by Bob Dole during the 1996 presidential election. Dole called for a reductions in capital-gains tax, a move that made Bill Clinton nervous enough to come forth with his own proposal (the aforementioned provision). "Three weeks after Mr. Dole’s speech, with support from top Treasury officials, the proposal made it into Mr. Clinton’s speech at the Democratic convention. During the presidential debates that followed, he used it to parry Mr. Dole’s calls for a big tax cut. The following summer, Mr. Clinton signed the provision into law." Not all experts, however, believe the the tax provision was a big factor behind the housing bubble. [NY Times]