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As more and more people simply walk away from their homes it occurred to me that this may be the tipping point for something more ominous.   A book written by Malcolm Gladwell a few years ago, The Tipping Point, posits that there is a critical point at which people change their attitudes, en masse, about a particular outlook they once held which becomes replaced by a new perspective.

With respect to foreclosures, the concept of losing a home once held a bit of stigma but those feelings are quickly being muted in today’s housing fiasco but more ominous is whether this represents a tipping point of financial responsibility.

When a person walks away from a home, it just isn’t a bank taking a hit on a loan, it is also the local county tax assessor that loses out on property tax revenue.  It is the city & state losing out on a bit of sales tax revenue associated with everything that is purchased for a home.  It is the federal government that loses out on fees and other taxes on services associated with your home: satellite/cable TV, phone service, etc.

The real issue however is whether people that walk away from foreclosure with no stigma, no liability and no consequence will begin to walk away from paying federal income taxes or state income taxes.   The IRS has an infamous track record of seizing property (e.g. homes) to settle tax debts but if people have no homes to seize then what else can they do?  Worse yet, these homes have negative equity so if the IRS does seize property it may need to pay local property taxes on it!

With an estimated 2 million foreclosures this year alone it is impossible to “lock up” millions of people without spending billions of dollars in new prisons & guards exacerbating tax revenue problems.

This housing mess couldn’t have come at a worse time as millions of boomers begin to retire there simply isn’t going to enough money to pay for all the government liabilities out there and 2008 may be the year of the tipping point.