The short answer is Lobbying. Federal and state income tax laws in the United States give homeowners a huge tax break that is not available to tenants. Home mortgage interest, which is generally the biggest single expense for homeowners, is tax-deductible. However, rent is not tax-deductible. In other words, homeowners get to pay their mortgages with pre-tax income, but tenants have to pay their rent with after-tax income. Why is that? Well, it is simply the power of lobbying. There are very powerful and well-funded trade associations that want home mortgage interest to remain tax-deductible, including the National Association of Realtors and the National Association of Home Builders. These groups have the ability to write out checks for millions of dollars to PACs (Political Action Committees) and Super PACs that back compliant and ‘morally flexible’ politicians. Tenant associations don’t have that kind of money. It now costs over $10 million, on average, to get elected to the U.S. Senate. In most industrialized nations, home mortgage interest is not tax deductible. For example, in Canada, there is no tax benefit or deduction for home mortgage interest. Why? It is because they also don’t have Political Action Committees in Canada, and lobbyists in Canada cannot legally give money to politicians.
I am always very suspicious whenever I hear the term ‘windfall profits tax.’ The term ‘windfall profit tax’ is just a euphemism, and it is invariably used as a gimmick to get a new tax measure passed that could not get passed on its own merits. A windfall profits tax is never actually a tax on windfall profits, like winning the lottery or finding a chest of pirate gold in your back yard. A ‘windfall profits tax’ is called that because a lot of voters will support anything called a ‘windfall profits tax’ without thinking about it because it appeals to people on an emotional level.
Right now, the ‘Berkeley Robin Hood Committee’ (as they call themselves) is collecting signature to put a measure on the November ballot to create a ‘windfall profits tax’ on landlords. The new tax will be 3% of gross rents collected. A tax on gross rents is not a ‘windfall profits tax.’ In fact, it is not a tax on profits. It is a sales tax, and like all sales taxes, it will be paid by consumers, in this case, tenants. Businesses do not pay sales tax. They collect sales tax from their customers and send the money to the government. All sales taxes work this way. You know that. You have paid sales taxes often enough. Landlords will simply add the cost of this new tax to their rents. The money will not come out of the pockets of landlords. It will be paid by tenants. This so-called ‘windfall profits tax’ will simply raise rents in Berkeley. It will not reduce landlord profits.
It is ironic that the sponsors of this ‘windfall profits tax’ call themselves the ‘Robin Hood Committee.’ According to legend, Robin Hood stole from the rich and gave to the poor; however, sales taxes are regressive in nature. They take a disproportionate amount of money from the poor, not the rich, and this tax will be paid by tenants, not landlords or homeowners.
As you can tell, I don’t like this ‘windfall profits tax’, which I think is a cruel voter hoax; however, there is one good thing about it. I will be exempt from paying it! Yes, this ‘windfall profits tax’ ballot initiative specifically states that landlords who own single family houses and duplexes will not have to pay the new tax, and the only rentals I own in Berkeley are single family houses and duplexes. So even though I think this tax is a bad idea, I don’t plan to get involved in this campaign.
The Berkeley city council is planning to put an initiative on the ballot in November to tax soft drinks. The tax will be 1 cent per ounce. Several other cities have already voted on similar ballot measures, but none of them have passed. Coke and Pepsi spent huge sums of money to defeat similar measures elsewhere.
Taxing Sugar. After the ratification of the U.S. Constitution, the biggest problem facing the new government was that it was broke. The U.S. Treasury was empty. What little money was collected in taxes mostly went to state governments. When George Washington was president, Congress spent much of its time trying to figure out how to get money to pay for basic government services, like paying the salaries of soldiers and lighthouse keepers. John Adams argued that Congress could and should finance the federal government by taxing liquor, tobacco, and sugar. Adams argued that nobody needs these products and that most people would be better off if they consumed less of them. Congress did tax liquor and tobacco, but they never taxed sugar. Prior to the passage of the 16th Amendment (Income Tax), the U.S. government got over half its total income from liquor taxes, and much of the rest came from tobacco taxes. I don’t know why Congress never seriously considered taxing sugar. During World War 1 and World War 2, sugar was severely rationed, but it was never taxed. Nevertheless, what John Adams said over 200 years ago about sugar is still true. Nobody needs it, and most people would be better off if they consumed less of it. (Sorry if I dwell too much on history. I teach American history at Orinda Intermediate School.)