Where is most of our home equity? It's in the garage.

I am surprised that Ronald Raegan is not widely recognized as the initial force that made home equity something to spend. He removed the deductibility of interest on consumer credit. He allowed home mortgages to continue to be deductible, and that was the first step in making second mortgages and home equity lines of credit socially acceptable. He was directly responsible for that shift. Until the change in tax laws, you could deduct interest on your car loan, as well as revolving credit account interest. After the change, to continue deductibility, you needed to tie all your debt into your home.

In order to fix this problem, we need to make some changes, and there are two alternatives. We can restore deductibility of all consumer interest, or we can remove the deductibility of home mortgage interest. While both work, one would obviously be more popular.

25 years ago, a retiree typically had two major assets, the cash value in his life insurance and the equity in his home. Today we are much wiser and more sophisticated. The average retiree today has an old boat, thoughts of a short sale, and an opportunity to maybe return to the work force. That is the economic Raegan legacy.