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Monday, July 8, 2013

Booker Attacks Fairness, Attacks Equality

New Jersey taxpayers and homeowners may want to hide their pocketbooks if Cory Booker gets to the Senate. 

Newark Mayor Cory Booker (D-Facebook) launched an unprecedented attack on the core American concepts of fairness and equality with a new 15-page policy paper.  Among the shocking proposals: major new federal government giveaways including mortgage principal reductions, a minimum wage hike and a new government-funded trust fund giving $400 per year to each child whose parents receive the Earned Income Tax Credit.   

The EITC college fund proposal does not answer several contingencies. What happens to the money if the kids don't go to college? What if they don't finish? Is the money a loan or a grant? And -- here's the best part -- since Booker wants the government to match donations to the fund from families (or states or nonprofits), if the family of a grant recipient is able to make a donation, what the heck are they doing getting an EITC subsidy in the first place?!

However, the biggest objection should be that the working class, right above the subsidy threshold, will face the indignity of working hard so that the children of the non-working will have more access to college than their own children.  In essence, working is a punished activity. 

Booker also raises the issue of mortgage principal reduction. This is shades of the twice-vetoed New Jersey Residential Foreclosure Transformation Act (against which I testified before the New Jersey Assembly last year).  This is horridly bad policy for two strong reasons.  First, a principal reduction for some homeowners is about as unfair as it gets for every other borrower who is struggling to pay on time and in full.  The counterargument, that principal reductions are needed to avoid foreclosures, abandoned houses and falling property values due to blight, is pure bunk and also represents a form of bribery.  Principal reductions result in only a modest reduction in the homeowner's monthly payment, the same reduction that is achieved with a temporary moratorium on interest rate increases. The borrower's ability to stay in the home is barely affected, because the causes of that borrower's delinquency or default are often so great that their ability to pay anything  on the house is in grave question. Secondly, principal reduction forces the banks or the investors holding the mortgage to absorb and recognize an immediate loss, an event which will make them increasingly reluctant in the future to either issue or buy mortgages.  Those consequences will reduce real estate market liquidity when it becomes much harder to get a mortgage, on any terms, at any interest rate. 

In plain English, this means that homeowners paying their mortgages get to pay (through higher bank fees levied on their accounts and loans) for reduced mortgage balances for defaulting homeowners. So if you pay your mortgage, you're then paying for your deadbeat neighbor. This equates to 105, 110, 120% of your mortgage.

Each of these proposals is virtually guaranteed to result in the opposite effect of what is (purportedly) intended. And each proposal means that the working class and middle class will get hammered to pay for those below them on the income scale. 

Furthermore, there is no indication -- not from the press reports at least -- as to how the Questions That Shall Not Be Asked, will be answered, or how they will be answered. (These questions, of course, are: Who pays for these subsidies? and What will these subsidies cost?)

Cory Booker's policy paper makes it appear that Booker will be running eagerly to the left of President Obama.  We are rapidly moving to the point where the working poor are worse off than the non-working poor.  At that point, when people get punished for working, the concepts of fairness and equality lose their traditional meaning. Is this progressive? 

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