Some time ago, somebody somewhere figured out that it was good social, economic and political policy to create incentives promoting home ownership. Each year the Powers That Be in the public and private sector look for additional ingredients to modify or add to our current cornucopia of tax incentives — first-time buyer programs, for example, that make it possible to fulfill the American dream of home ownership.
I ask myself if we're doing all we can to continue making these dreams come true. My answer: I think not.
There are three pillars on which home ownership is based — income, debt and asset ownership or wealth. That's how we determine what we can afford. Over the past 20 years or so, however, we've moved away from treating each one equally. If you were to rank them in hierarchical form now, income would be at the top, followed by debt and then wealth.
Often both income and debt can be cosmetically enhanced through a variety of tax incentives and programs. But when it comes to wealth, no magic potion or smoke and mirrors can be used.
Either you have it or you don't.
The unbridled market exuberance we've experienced in the last decade or so has allowed us the luxury to develop, initiate and create some devilishly inventive accounting methods. Red ink is no longer red but cadmium, and black becomes anthracitic grey. We blend them and remix them, developing new shades (and so it seems new interpretations).
Eventually, though, we lose sight of the primary colors, the purest meanings and the ultimate objective — wealth. I'm not referring to cultural or corporate wealth but to the individual's ability to obtain wealth.
The standard bearer of individual economic health that the economists often use, and the most frequently reported and commented on, is income. Discussions of wealth (beyond Forbes' richest 100) are rare. We make more, we spend more, but do we have more (of course adjusted for inflation) at the end of the day?
For some unknown reason we seem to have difficulty including in our discussion how to increase wealth along with increasing income.
If you've concluded that the wealthy are getting wealthier at a faster rate than you are, your conclusion would be correct. The top 20 percent of households earned 56 percent of the nation's income and commanded an astonishing 83 percent of the nation's wealth. In stark contrast, the bottom 40 percent of Americans earned just 10 percent of the nation's income and owned less than 1 percent of the nation's wealth. Bump that bottom percentage up to 60 and the picture gets marginally better, with 23 percent of income and less than 5 percent of wealth.
Looked at from this perspective, the wealth gap overshadows the income gap.
Wealth is important for reasons I can only briefly note here. Assets are security in the sense that they allow you to plan for your future and for your children's future. Assets can be bequeathed to future generations, along with the status and opportunity they confer. Income, although important, can't be passed on.
Wealth is like horsepower — the more of it you have the more powerful you are, and the more powerful you are the more powerful your political influence becomes as you try to protect your wealth.
Wealth is important because, like debt, it replicates itself. Interest compounds and turns wealth into more wealth, and over time the interest accumulates in a savings account. Similarly, debtors who continue to pay interest on credit card accounts or consumer household debt end up poorer over time.
Even if our tax policies regarding wealth-building were impartial and non-partisan, the results would be the same and the asset gap would still be as severe. But for some time the tax incentives have been anything but neutral and in general can be categorized into two polices — tax benefits that build assets for those who have them, including home ownership, college savings and retirement savings; and income support for the rest.
Tax benefits that encourage the creation of wealth are a good thing and should be encouraged. The problem is that 90 percent of the benefits of the two largest programs — home ownership and retirement savings — go to the wealthiest 55 percent of taxpayers, which is regressive for those who don't earn enough to enjoy the benefits built into the code. In addition, many poor Americans face limitations on the amount of wealth they can possess since they'd lose access to essential food, health and other income support assistance.
Next week: Some interesting solutions you might want to consider.
THIS WEEK'S TIP: Native Plants Cut Down on Maintenance Chores
As the weather warms, it's natural to start planning your landscaping and lawn care for the year. You might not know that landscaping in general can be one of your best property-related investments — those $20 seedlings mature into trees and plants worth hundreds of dollars. Some studies indicate landscaping returns as much as 120 percent of your investment.
Here are some tips for improving on that outdoor investment at the same time you reduce the care and maintenance it requires:
· Cut down on the size of your lawn. By widening your landscaping border, for instance, you could cut lawn care time and expense.
· Allow some areas to grow wild. Many homeowners actually prefer a natural look for their backyard, and allowing areas to return to their natural state certainly cuts down on yard work. So stop mowing part of your yard, then watch as new plants and flowers slowly fill the area.
· Along the same lines, use native plants and shrubs for any new plantings. Native plants require much less upkeep than do exotic plants that aren't suited to this environment. In addition, native plants are more attractive to the birds and animals that are native to this area. Moreover, native plants are more disease- and pest-resistant.
· For more tips on low-maintenance landscaping and lawn care, call a local nursery.
Home Work is a weekly column geared toward residential real estate.