Today’s Wall Street Journal features an op-ed piece by Vernon L. Smith, a professor of law and economics at George Mason University, called “The Clinton Housing Bubble.”*
Mr. Smith, who is also the 2002 Nobel Laureate in economics, is engaging in some revisionist history in the piece when he contends that President Clinton’s signing of the Taxpayer Relief Act of 1997 caused the housing bubble!
One of the provisions of the Act is that the profit from the sale of residential real estate is exempt from capital gains tax up to $250K for singles and to $500K for married couples filing a joint tax return. However, the exemption from the tax only applies to a “personal residence.” This means that you must reside in the home as your permanent residence for a minimum of two years before you can sell the home without paying tax on the capital gains (up to those amounts).
The professor is looking foolish when the American landscape is littered with empty condo buildings and houses bought by speculators who never set foot in, let alone lived in them. At the height of the housing mania, speculators were selling their deposits on new construction for a profit long before the property reached the settlement table. And who enabled these speculators? Alan Greenspan did by keeping Fed funds at ridiculously low rates from late 2001-2005, and at 1% from June 2003-2004, the years corresponding to the height of the housing bubble.
* You must be a print or online Journal subscriber to read the professor’s piece.