On April 20, the Biden Administration announced that starting on May 1, Fannie Mae and Freddie Mac mortgage lenders must charge “loan-level price adjustment” (LLPA) upfront fees to people with good credit scores. That surcharge will be converted into a higher interest rate for the loan, effectively used to subsidize borrowers with poor credit scores. Since credit ratings are positively correlated with income levels, Biden’s FHFA rule imposes progressive interest rates.

Some commentators have questioned the FHFA rule’s incentive effects, but no one seems to have questioned its legitimacy. What is the underlying principle that justifies such a facially discriminatory policy? I think the lack of concern about legitimacy is due to the fact that almost all commentators, even economists, have, for far too long, uncritically accepted the legitimacy of progressive income tax rates.

[Exactly. That’s especially ironic given the mantra of “pay their fair share” from the progressives regarding income tax rates. Tax rates should be the same for everyone, and in the best possible system, a flat rate on all income with no deductions or “incentive” loopholes by which politicians conduct their social engineering. Not only would such a system be *literally* fairer, it would be much easier and drop compliance costs to nearly zero. That would demonstrate the equal application of law and ensure maximum transparency on taxes and revenues. — Ed]