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Second Homes Penalty

October 06, 1985

I take issue with your Sept. 15 article, "Expert Sees Tax Reform in Good Light," as (Anthony Downs, senior fellow at the Brookings Institution) implies tax reform acceptability in ending the deductibility of second-home interest and real estate tax. Please consider:

The reform proposal is economically unsound because:

--The second-home industry is an important segment of the economy, supporting over 2.4 million construction and service jobs, as well as many local economies.

--323,000 jobs will be lost, with a devastating impact on the isolated economies that depend on the second-home industry and it imposes an emotional and financial hardship on the people who live there. These areas have only two basic industries: construction and tourism . . . everything else services these two groups.

The reform proposal is unfair because:

--The impact will be borne largely by middle-class America . . . not by the wealthy as is often assumed. The median family income of second-home owners is $45,000 to $55,000. The median value of second homes in America is $68,000.

--The proposal is discriminatory against younger and less affluent people with little or no net investment income. Wealthy people with substantial net investment income will continue to deduct all of their interest on second-home mortgages.

The reform proposal does not achieve the objectives of fairness and economic growth, because:

--It does not result in simplification. Instead, it encourages the use of various tax avoidance schemes such as borrowing against the primary home for the purpose of buying a second home or other consumer credit needs.

--It would not increase federal tax revenues as suggested by the Treasury Department. Economic analysis demonstrates that revenues would be decreased by $2.9 billion during the first two years.


Los Angeles

Bolker is president of Brighton International Development Corp.

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