Fed’s Kocherlakota Calls For Tax Code Changes

Claiming the tax system offers “incentives for destabilizing activities by banks and households,” Narayana Kocherlakota, the president of the Federal Reserve Bank of Minneapolis, said the code should be changed to reduce the mortgage interest deduction for households and to cut the amount of interest corporations can write-off.

“Of course, it would be appropriate and important to adjust the timing of these changes in light of prevailing macroeconomic conditions,” he told the Tri-State Bankers Summit in Montana, according to text of his speech, which was released by the Fed.

The “sharp and largely unanticipated fall” in residential land prices caused the financial crisis, he said.

“Household and financial institution leverage exacerbate the sensitivity of the financial system to declines in land prices and so reduce financial stability,” Kocherlakota added. And leverage is promoted by the tax system.

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