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Post by Christine on Dec 28, 2017 15:59:52 GMT -5
The two examples you gave are in two entirely different markets. There is no national market for real estate, only thousands of local ones. Of course, some people are going to benefit from any market distortion, and others are going to lose because of the same distortion. That's what makes it a distortion. You can't determine the health of a forest by examining a couple of trees. And as I pointed out earlier, the fact that property values are so much higher in some parts of the country than in others is precisely why the $313,000 cap is essentially meaningless, except in a subset of markets at the very top of that range. Look at the forest, not the individual trees. Not to mention that you've clearly described a political benefit for the New Jersey couple, being paid for by the couple living in fly-over country. I disagree that it's a benefit, or that it's "paid for" by the couple in fly-over country. Perhaps I didn't communicate this properly. In my example, the couple in NJ and the couple in fly-over country have similar houses. That one costs $150k and one costs $400k is due to the market, as you say. It's cheaper to live in fly-over country. So, even though the two couples have similar houses, the cost of those houses are very different. Their incomes are also different, but each couple's financial ability to purchase (again, similar) houses is the same. Now, because the NJ couple makes more money, they're in a higher tax bracket. That it costs more to live in NJ doesn't factor into tax brackets. So, it makes perfect sense that they would be allowed an MID at the same tax rate of the bracket they're in. It also makes perfect sense that they be allowed to deduct their state income taxes, which is a cost that the fly-over couple doesn't have. Unless you are of the opinion that "oh well, sucks to live in New Jersey." Essentially, getting to a number for each couple that reflects their gross income minus their housing costs (again, for similar houses) and then taxing that amount is more equitable than just looking at gross income. It is not regressive at all. Now, like I said before, I realize this isn't the case for every couple, but when it comes to blue vs. red states, or rural vs. urban, that's the rationale for the deductions. It's not that, e.g., the city dwellers have "political privilege." That said, it's a highly imperfect system. I'd be fine with the $313,000 limit coming down. I'm also okay with the MID debt limit being reduced from $1,000,000 to $750,000. The state and property taxes are another matter. The $10,000 limit is leaving a lot of middle class people out in the cold, I think. I do wonder why the federal government has never tried to implement some sort of COLA mechanism into the tax code. Seems to me it really wouldn't be that hard, and it would be more equitable.
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Post by Christine on Dec 28, 2017 16:12:26 GMT -5
That rationale requires a leap of faith. I can give similar rationales for just about any deduction, including one that would make credit card interest deductible: eliminating personal debt should be encouraged (if you can deduct your interest payments, you'd have more money to pay down the debt). In order for this to work as a similar rationale, wouldn't you provide the credit card interest deduction in order to encourage people to increase their credit card purchases?
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Post by Don on Dec 29, 2017 7:42:32 GMT -5
The two examples you gave are in two entirely different markets. There is no national market for real estate, only thousands of local ones. Of course, some people are going to benefit from any market distortion, and others are going to lose because of the same distortion. That's what makes it a distortion. You can't determine the health of a forest by examining a couple of trees. And as I pointed out earlier, the fact that property values are so much higher in some parts of the country than in others is precisely why the $313,000 cap is essentially meaningless, except in a subset of markets at the very top of that range. Look at the forest, not the individual trees. Not to mention that you've clearly described a political benefit for the New Jersey couple, being paid for by the couple living in fly-over country. I disagree that it's a benefit, or that it's "paid for" by the couple in fly-over country. Perhaps I didn't communicate this properly. In my example, the couple in NJ and the couple in fly-over country have similar houses. That one costs $150k and one costs $400k is due to the market, as you say. It's cheaper to live in fly-over country. So, even though the two couples have similar houses, the cost of those houses are very different. Their incomes are also different, but each couple's financial ability to purchase (again, similar) houses is the same. Now, because the NJ couple makes more money, they're in a higher tax bracket. That it costs more to live in NJ doesn't factor into tax brackets. So, it makes perfect sense that they would be allowed an MID at the same tax rate of the bracket they're in. It also makes perfect sense that they be allowed to deduct their state income taxes, which is a cost that the fly-over couple doesn't have. Unless you are of the opinion that "oh well, sucks to live in New Jersey." Essentially, getting to a number for each couple that reflects their gross income minus their housing costs (again, for similar houses) and then taxing that amount is more equitable than just looking at gross income. It is not regressive at all. Now, like I said before, I realize this isn't the case for every couple, but when it comes to blue vs. red states, or rural vs. urban, that's the rationale for the deductions. It's not that, e.g., the city dwellers have "political privilege." That said, it's a highly imperfect system. I'd be fine with the $313,000 limit coming down. I'm also okay with the MID debt limit being reduced from $1,000,000 to $750,000. The state and property taxes are another matter. The $10,000 limit is leaving a lot of middle class people out in the cold, I think. I do wonder why the federal government has never tried to implement some sort of COLA mechanism into the tax code. Seems to me it really wouldn't be that hard, and it would be more equitable. Benefit: a payment or gift made by an employer, the state, or an insurance company. So, yeah, it's a political benefit, whether it "makes sense" to you or not. NJ couple retains a larger portion of their wealth relative to FO couple, compared to what they would see absent the policy. Balance the equation and you can tell me who's paying and who's gaining, regardless of whether it "makes sense" to make that wealth transfer or not. Whether or not it "makes sense" has nothing to do with the facts. There is political privilege at the root of the mortgage deduction, whether it "makes sense" to grant that benefit or not. You can't redefine a political benefit just because you think it's a good idea. Your entire argument boils down to "it makes sense to grant this political privilege that benefits one couple at the expense of another because..." What you've done with this example is prove my case. Because the deduction is national and not market-based, it benefits those in wealthier communities at the expense of those in poorer communities. It benefits those with the wealth to invest in real estate over those who are living paycheck-to-paycheck. Neither of those meet Amadan's description of the purposes of taxation. Whether or not it "makes sense" to do so doesn't alter those facts. Oh, and FWIW, there's no COLA because inflation is a useful tool for quietly moving members of the working class into higher and higher tax brackets over time, without the politicians having to actually raise rates. Inflation is a stealth tax that would be eliminated by COLA adjustments to tax brackets. Don't hold your breath waiting for a COLA tax bracket adjustment. It'll happen right after unicorns start farting rainbows. That rationale requires a leap of faith. I can give similar rationales for just about any deduction, including one that would make credit card interest deductible: eliminating personal debt should be encouraged (if you can deduct your interest payments, you'd have more money to pay down the debt). In order for this to work as a similar rationale, wouldn't you provide the credit card interest deduction in order to encourage people to increase their credit card purchases? Yes. With the false rationale that you're giving a break to the working class to encourage savings. Again, the real benefits would accrue to the banks and the merchants, by encouraging more debt and the purchase of goods that would not be purchased absent the higher debt load encouraged by the policy. Once again, intentions don't trump actual performance.
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Post by robeiae on Dec 29, 2017 8:14:30 GMT -5
That rationale requires a leap of faith. I can give similar rationales for just about any deduction, including one that would make credit card interest deductible: eliminating personal debt should be encouraged (if you can deduct your interest payments, you'd have more money to pay down the debt). In order for this to work as a similar rationale, wouldn't you provide the credit card interest deduction in order to encourage people to increase their credit card purchases? Well, you can extrapolate just about any justification when you're not dealing with actual facts. That's kinda the point. The MID doesn't encourage home ownership and doesn't make homes more affordable. All it does it provide some tax relief for a percentage of the population (in this case homeowners). Reinstating the deductions for all loan interest would do the same thing: provide some tax relief to people who owe money. It wouldn't encourage increasing one's debt, nor would it encourage decreasing one's debt. Arguing for either of these rationales is, I think, obviously ridiculous. So why do we suffer the stupidity of the MID rationale? Too hard to let it go?
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Post by Don on Dec 29, 2017 8:20:04 GMT -5
It's incentives all the way down. Cheap money encourages debt. A tax deduction for interest lowers the real cost of borrowing. How does that not encourage increasing one's debt? The economic incentive is certainly there.
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Post by Christine on Dec 29, 2017 19:47:17 GMT -5
In order for this to work as a similar rationale, wouldn't you provide the credit card interest deduction in order to encourage people to increase their credit card purchases? Well, you can extrapolate just about any justification when you're not dealing with actual facts. That's kinda the point. The MID doesn't encourage home ownership and doesn't make homes more affordable. All it does it provide some tax relief for a percentage of the population (in this case homeowners). Reinstating the deductions for all loan interest would do the same thing: provide some tax relief to people who owe money. It wouldn't encourage increasing one's debt, nor would it encourage decreasing one's debt. Arguing for either of these rationales is, I think, obviously ridiculous. So why do we suffer the stupidity of the MID rationale? Too hard to let it go? I think it's logical to deduce that people will use the rationale of deductible credit card interest to rack up credit card debt. It's an incentive, like Don says. And it's a bad behavior to encourage. Buying a home -- purchasing an asset that should retain its value, and even increase in value -- is a better goal to incent. You and Don don't seem to agree as to whether the deduction is an incentive or not.
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Post by Christine on Dec 29, 2017 20:03:02 GMT -5
What you've done with this example is prove my case. Because the deduction is national and not market-based, it benefits those in wealthier communities at the expense of those in poorer communities. No, I haven't proven your case, at all. Out of one side of your mouth you protest that there is no national market, so deductions shouldn't be national, while out of the other side of your mouth, you protest (or ignore) when deductions are effectively market-based. I agree that there is no national market, and have explained that this is why since federal tax brackets treat people like they live in a national market when they don't--like in my example, where it's more expensive to live in NJ than in flyover country-- at least the deductions are more market-based, because of the differing housing markets . It helps to mitigate the fact that someone in a high cost-of-living area who is charged a higher rate of federal income tax isn't, sans deductions, charged so much tax that they can't even afford to live there. We're talking about millions of middle class people living in NJ, NY, CA, etc.... you know this, right? Since everything on the federal level is national and not market-based, yes, more people in lower-cost areas get to take (unfair) advantage of the national deductions. That's what makes the system so imperfect. But for you to insist that my NJ couple is "wealthier" than my flyover couple is to miss the point entirely, and I don't know if you're doing so deliberately, so that you can fit the factual example into the "Evil Government Who Steals" mantra, or whether you truly aren't connecting the dots here. Again: while weathy(er) people do have an advantage with the mortgage interest deduction on a national level, there are many people whom it helps, like my NJ couple. In my example, the NJ taxpayers pay higher federal income taxes and incur a higher cost of owning a similar home to the flyover couple. They are not wealthier than the flyover couple, because of how much it costs for them to live where they live. They live mortgage payment-to-mortgage payment, just like the FO couple. I suppose you could counsel the NJ couple to move to flyover country. Then again, you could counsel the flyover couple to move to New Jersey. Different markets. Different economic circumstances. The tax brackets don't account for the disparity. The deductions help to mitigate that fact, though imperfectly, as I've said.
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Post by robeiae on Dec 30, 2017 8:37:28 GMT -5
I think it's logical to deduce that people will use the rationale of deductible credit card interest to rack up credit card debt. It's an incentive, like Don says. And it's a bad behavior to encourage. Buying a home -- purchasing an asset that should retain its value, and even increase in value -- is a better goal to incent. You and Don don't seem to agree as to whether the deduction is an incentive or not. Well, I don't think people plan that far ahead, by and large, especially people who go deep into debt. But there are two things being conflated here: 1) the rationale/justification for a given tax deduction, as offered by those making it (or keeping it) the law of the land 2) the actual impact of that given deduction, what behavior it actually does incentivize, and how that plays out across time (because an incentive to do x doesn't automatically mean one will do x, since there could be other incentives to not do x or to do y) So again, there's no evidence that the MID incentivizes home ownership at all. Yet, that's the rationale/justification behind it (now). I submit--and here's where Don and I absolutely do agree--that good intentions mean squat when it comes to government policy. Bad policy is bad policy, regardless of intentions. And ineffective policy is ineffective policy, regardless of intentions. At best, the MID is the latter. I happen to think it's very much the former. But either way, it doesn't do what people who want to keep it claim that it does.
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Post by Christine on Dec 30, 2017 19:04:20 GMT -5
Well, I don't think people plan that far ahead, by and large, especially people who go deep into debt. Debt is, by and large, a bad thing. Or so my father taught me, and experience hasn't proven him wrong. His general rule (and mine now too, finally) is if you can't pay for it with cash, for the love of Dawg, don't buy it. Mortgage debt is different from credit card debt, because everyone has housing costs, whether they're renting or buying. If a portion of those costs could be going towards principal payments on property instead of 100% to rent, the interest portion is justified. Especially with rates as they are now... I got 3.5% with only slightly above average credit. It goes lower than that. It makes no sense to keep handing money to a landlord if you can buy, assuming you're not transient. A big issue, imo, is the down payment for a home purchase. Twenty percent down on even the cheapest home is a lot of money. I didn't have $70k for the $350k home I wanted to buy, and purportedly could afford, based on my income. I only had $40k, which took me about 6 years to save up--which is a pretty short time period relative to what the average middle class person might be able to swing. The down payment requirement is the biggest problem for those living paycheck-to-paycheck. It's probably common knowledge that if a borrower can't put 20% down, they can--via federal government loans--put down as little as 3%, and "just" pay insurance--PMI. So for that $350k home I could "afford," I was looking at non-deductible PMI, which didn't expire even when I reached 20% equity... I'd have to refinance and pay the related costs to get out of it. It was such a waste of money as to be insulting. If the PMI were at least deductible, I might have pondered on it some more. So I bought a smaller, less expensive property where I could put 20% down, shorten the mortgage period to 20 years, and where now my annual interest and property taxes are so low they don't exceed my standard HoH deduction. And I'm totally fine with that, because, all factors considered, I am avoiding a lot of wasted money and gaining equity much more quickly. I also paid extra toward the principal this year, and plan to keep doing so, to shorten the mortgage period and save interest. I also still have my eye on some $350k homes... eventually I could turn my town home into a rental property and buy what I originally wanted. The ability to deduct mortgage interest will be a factor in that decision, just like the non-deductibility of the PMI was a factor. One of many factors, but still, a factor. Costs being deductible or non-deductible is an economic factor for any rationally thinking person. That's your opinion, backed up by nothing, not even an anecdote. At least I provided an anecdote. I think the availability of the deduction is clearly an economic decision-making factor, though not the only factor. It has to be a factor, since it can have a significant economic impact on the affordability of a home, along with property tax deductibility, as I've tried to demonstrate in previous posts. Here's an RCP article discussing the potential impact on the housing market from reducing the MID and property tax deductions. OH! And one more thing: the new tax code doesn't limit property tax or mortgage interest deductions for LANDLORDS, or for entities who invest in real estate. In fact, there is a NEW deduction for passthrough entities who invest in real estate, so owners are effectively taxed at LESS than their individual rate, if they happen to be wealthy. So, all the prior deductions, as well as new deductions, are available for people like, oh, I dunno, Trump, for example. The Conservative Party in action. Fecking heck.
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Post by Don on Dec 30, 2017 21:43:30 GMT -5
You're still missing the unseen here. Included in that $350,000 purchase price you're striving for is the net future value of those years of tax deductions. So the buyer is paying more, financing that additional delta, and paying the bank each year for the privilege. Then the buyer is getting only a fraction of that interest back from the government. So the net flow of the wealth represented by that delta over the life of the mortgage is from the home buyer to the bank. It may be simpler to see if you consider the impact of making cheaper money available in a market by granting a special class of people the ability to pay only 3% down. The market adjusts prices upward to account for those additional buyers. The net impact of that increase in market prices over time is a transfer of wealth from those who paid 20% down to those who paid 3% down, who would not even be in the market absent that special privilege. And those paying only 3% down get an additional boost because they're leveraging their investment better. A similar impact on housing prices plays out because everybody gets an interest deduction, and they factor that deduction into the amount they're willing to invest into a house. The market again adjusts prices upward to account for that. The primary difference is that the delta introduced in the market by the MID benefits primarily the banks, instead of those granted the privilege of the 3% rate. If the average homeowner is in the 20% tax bracket, then the delta accrues roughly 80% to the banks and 20% to the home buyers. So the home buyers are essentially paying for 80% of that delta, while thinking they're getting cheaper housing because of it. What a deal. As Frédéric Bastiat noted way back in 1850 :
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Post by robeiae on Dec 31, 2017 9:50:23 GMT -5
That's your opinion, backed up by nothing, not even an anecdote. At least I provided an anecdote. The idea that the MID encourages home ownership--incentivizes it--among the middle and lower economic classes is what requires some evidence to support it (I don't need to prove that an unproven claim us unproven; that's true by definition). Barring such evidence, it is exactly as I say: "there's no evidence that the MID incentivizes home ownership at all." And I think this bit is accurate as well, is not a matter of opinion: "...good intentions mean squat when it comes to government policy. Bad policy is bad policy, regardless of intentions. And ineffective policy is ineffective policy, regardless of intentions." Which leave just this: "At best, the MID is the latter. I happen to think it's very much the former. But either way, it doesn't do what people who want to keep it claim that it does." Barring any evidence to the contrary, I think this is true as well: the MID is ineffective policy with regard to it's supposed intentions/goal. If it was effective, there's be evidence to that end, no?
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Post by Christine on Jan 4, 2018 20:44:30 GMT -5
That's your opinion, backed up by nothing, not even an anecdote. At least I provided an anecdote. The idea that the MID encourages home ownership--incentivizes it--among the middle and lower economic classes is what requires some evidence to support it (I don't need to prove that an unproven claim us unproven; that's true by definition). Barring such evidence, it is exactly as I say: "there's no evidence that the MID incentivizes home ownership at all." And I think this bit is accurate as well, is not a matter of opinion: "...good intentions mean squat when it comes to government policy. Bad policy is bad policy, regardless of intentions. And ineffective policy is ineffective policy, regardless of intentions." Which leave just this: "At best, the MID is the latter. I happen to think it's very much the former. But either way, it doesn't do what people who want to keep it claim that it does." Barring any evidence to the contrary, I think this is true as well: the MID is ineffective policy with regard to it's supposed intentions/goal. If it was effective, there's be evidence to that end, no? Yeah no, because there's a significant difference between disbelieving a claim sans evidence, and offering a counterclaim. You don't have evidence, either, but you're making a claim, and you haven't proven that claim, so, pot/kettle. Shaddup. I offered my thinking when I was purchasing a home. I'm not representative of everyone's thinking, but I think it's safe to say that many people do think about these things. There needs to be a bit more than anecdotes or a Bastiat quote here to back up anyone's claims, to be sure. That said.... I bought a car a couple of days ago and got 0% interest on the loan. And fuck if I didn't sit in that damned financing office remembering Don and his dire warnings about cheap loans and worrying that SOMEHOW, SOMEWAY, I was paying more than I should. Thanks a lot, Don.
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Post by Don on Jan 5, 2018 6:39:59 GMT -5
The idea that the MID encourages home ownership--incentivizes it--among the middle and lower economic classes is what requires some evidence to support it (I don't need to prove that an unproven claim us unproven; that's true by definition). Barring such evidence, it is exactly as I say: "there's no evidence that the MID incentivizes home ownership at all." And I think this bit is accurate as well, is not a matter of opinion: "...good intentions mean squat when it comes to government policy. Bad policy is bad policy, regardless of intentions. And ineffective policy is ineffective policy, regardless of intentions." Which leave just this: "At best, the MID is the latter. I happen to think it's very much the former. But either way, it doesn't do what people who want to keep it claim that it does." Barring any evidence to the contrary, I think this is true as well: the MID is ineffective policy with regard to it's supposed intentions/goal. If it was effective, there's be evidence to that end, no? Yeah no, because there's a significant difference between disbelieving a claim sans evidence, and offering a counterclaim. You don't have evidence, either, but you're making a claim, and you haven't proven that claim, so, pot/kettle. Shaddup. I offered my thinking when I was purchasing a home. I'm not representative of everyone's thinking, but I think it's safe to say that many people do think about these things. There needs to be a bit more than anecdotes or a Bastiat quote here to back up anyone's claims, to be sure. That said.... I bought a car a couple of days ago and got 0% interest on the loan. And fuck if I didn't sit in that damned financing office remembering Don and his dire warnings about cheap loans and worrying that SOMEHOW, SOMEWAY, I was paying more than I should. Thanks a lot, Don. You're most sincerely welcome. If you apply that logic before any major transaction, you'll save a ton of money, because you won't get suckered. What's seen and what's unseen; you better figure out both, because the good money-handlers already have, and they're figuring it into their deal. In this case, the "unseen" is the interest on the money that still has to be paid, even though you won't be paying it each month as part of your car payment. TANSTAAFL. Zero Interest is one of those things rob refers to as an incentive, and the dealer has that incentive factored into their profit margin on that particular car. You paid the interest on that loan up front. There's a million ways they can do it. But guaranteed that dealership did not leave a penny on the table because you got zero interest on your loan. Neither car dealerships nor banks are interested in losing money because you have use of it for a period of time. Somebody is paying the financing institution up front for the use of that money, and it's not the dealership. Guess who? The net future cost, to the dealer, of that zero-interest loan was available to a cash buyer as a further decrease in the purchase price. Had you offered cash, you could have gotten a lower purchase price. Don't believe anybody who tells you any different. Quite often, the NFC appears in the form of a "Zero Percent for 6 years, OR $750 cash back offer (or whatever the zero-interest loan is costing the dealership), which exposes what's going on for anyone who cares to see it. And that expense to the dealership is factored into the bottom line of every car that moves off their lot. Did you give up a cash incentive to get zero interest? If so, that's what you paid for "zero interest." If not, you can bet it's in the price of the car somewhere else. Unless you're very, very, very good friends with either the sales person or someone higher up the chain in the dealership, they did not lose money so you could have zero interest. Math is math, and banks and car dealerships are either very good at it or go out of business.
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Post by robeiae on Jan 5, 2018 8:14:50 GMT -5
Yeah no, because there's a significant difference between disbelieving a claim sans evidence, and offering a counterclaim. You don't have evidence, either, but you're making a claim, and you haven't proven that claim, so, pot/kettle. Shaddup. Nope. Again: "there's no evidence that the MID incentivizes home ownership at all." I can't provide evidence, as a matter of course. The lack of evidence--that the MID incentivzes home ownership--is my evidence. Sucks for you, but them's the breaks when your position is built on an assumption of efficacy, with respect to government policy. But that's as it should be, no? If you--the general "you"--want to claim that policy x will have y result, it's 100% on you (i.e. technocrats in DC) to make that case, to both offer a rationale to justify it (which has been done here, to be fair) and the evidence after the fact to demonstrate it's accuracy. This last is what's lacking. And obviously so. Look here, at the graph showing ownership rates since 1966. And remember, the MID has been around since 1913, but the "encourage home ownership" aspect was really expounded in 1986. Really, this is the same sort of thing that happens with minimum wage debates, wherein minimum wage proponents insist that minimum wage increases raise the standard of living and don't have a negative impact on employment, yet can't actually offer evidence for the former--but it just seems like it must be true, right?--and purposefully ignore the actual evidence that tends to disprove the latter.
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Post by Don on Jan 5, 2018 12:46:14 GMT -5
The minimum wage is having its desired effect. Destroying opportunities for the very poorest in society. Another case of the seen and unseen. In pursuit of a "living wage" for everyone that holds any sort of job whatsoever, the ability to even enter the marketplace is the first place has been eliminated for precisely those people who need an entry-level position the most. So they are forever denied the opportunity to learn the basic skills that would allow them to start climbing the ladder. Look at what's happened to the employment rate among young minority men, for example. Toss in the war on drugs and the job opportunities that creates for those same marginalized people, and you have a good start for understanding the shape of our inner cities. People need to understand the consequences of economically illiterate policies.
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