Posted on 12 June 2010. Tags: barack obama, blog political, blog real estate, california real estate, class warfare, credit cycle, Economics, Fannie Mae, financial system, fiscal policy, FNM, freedom, home prices, homes manhattan beach, housing policies, housing policy, housing prices, HUD, income manhattan beach, inflation, liberty, manhattan beach, manhattan beach homes, manhattan beach income, manhattan beach property, monetary policy, money, mortgage, mortgage deduction, obama, political blog, political economy, Politics, politics blog, politics real estate, prices housing, Real Estate, real estate blog, real estate economics, real estate prices, real estate tax, Rob Viglione, socal real estate, socalrea, socialism, southern california, tax, tax real estate, taxation
The White House is urging Congress to limit, or cut, the once untouchable tax break for mortgage interest. In traditional class warfare parlance, the White House cap on mortgage interest deductions will fall only upon the wealthy. Let’s not drink the Obama Kool-Aid – the effects of this legislative move will impact everyone.
The Obama administration is proposing reducing deductions for homeowners who earn more than $250,000 pear year. Since I’m a southern California Realtor®, I’ll bring up an example from my local market – the South Bay; in particular, Manhattan Beach, CA.
Chart from LA Times Local Neighborhoods.
Manhattan Beach is a wealthy southern California city, nestled along a prime beach-front location. With 38% of Manhattan Beach residents earning over $125,000 per year, we expect this legislative change will materially impact our local market.
When many home buyers calculate the amount of home they can afford, mortgage interest deductions on income factor heavily into capital service capacity, i.e. how much mortgage they can comfortably afford to pay every month. If a high income earner is in the 34% income tax bracket and has a $5,000 per month mortgage, of which, say, roughly $4,000 is comprised of interest payments, the net annual benefit of the tax break is $16,320, or $1,360 per month.
with a simple 5% mortgage rate, the effect of removing the tax break amounts to reducing home values by $326,400, or 34%, the marginal tax rate. These are very simple assumptions; the reality of this legislative change will likely not be as severe. Higher end properties will likely be impacted the most, with falling price levels manifesting in some way throughout the entire housing market.
President Bush attempted to eliminate the mortgage tax break in 2005, but was stopped by Congress. The Obama administration tried this same legislative change with last years budget, but met similar obstacles. Given that the real estate market is in such turmoil, and that so many people gain advantage from perpetuating this tax break, it is unlikely the White House proposal will be accepted by Congress.
What Does The Mortgage Tax Break Mean For The Economy?
There is no free lunch in economics weve all heard that term, right? The same is true for tax breaks, or any legislative market manipulation. Enabling borrowers to write off interest payments from their income tax liability increases incentives to borrow money to buy real estate. This ultimately skews capital structures in that less equity investment is made with purchases relative to debt assumption. Increasing debt levels simultaneously increases prices and risk. In essence, the mortgage tax break causes housing to be over-capitalized, siphoning disproportionate capital resources from other parts of the economy.
Eliminating the tax break makes good economic sense; however, the result will inevitably be a deflation in housing prices. The magnitude of the deflation is uncertain. Given that real estate markets are already on shaky grounds, reducing, or eliminating, policies that support home prices can potentially lead to a market route.
All things considered, it is too bad President Bush was not able to repeal this tax break in 2005. That was probably the best time to moderate an over-heated market, and realign national capital resources in a relatively stable environment. We may have missed that opportunity for some time.
Posted in Investing, Politics, Real Estate
Posted on 27 March 2009. Tags: bank bailout, banking, banks, barack obama, business cycle, Capitalims, collectivism, communism, compensation, congress, Constitution. free society, control, democrats, depression, dollar, economic downturn, Economics, Edward Bernstein, Employment, executive bonuses, federal reserve, finance, financial industry, free enterprise, free trade, freedom liberty, Karl Marx, leftism, legislation, money, Mustasche Revolution, nationalization, not under my nose, Politics, President Obama, recession, revolution, Sam Rothrock, socialism, stock options, stress test, tax, taxation, temporary government ownership, United States of America, USD
The Mustache Revolution is brewing. It is not a fashion statement; it does not even involve hair. It is the revolution that is happening in America, Right Under Our Noses. It fits right in between Marxs model of government overthrow and Bernsteins democratic socialism. This is elected officials distracting the electorate that begs them to act unconstitutionally. Here is how it was done.
A Little History
Karl Marx advocated a violent revolution to nationalize industry, redistribute wealth, and create a proletarian dictatorship. This would be very difficult for the American left, since they are anti-gun, anti-violence, and tend to dislike noncompliance. Edward Bernstein came around after Marxs death and advocated democratic socialism. His goal was still to nationalize industry, but to accomplish it democratically. What is happening today is the Mustache Revolution; it meets the standards of both socialist ideologies. The US has elected our President and Congress democratically; most of the legislation has come about democratically; the problem is that the boundaries set by the constitution, make the process too slow. Therefore, in the name of Crises, Necessity, or Protection the limits on government are quickly removed.
Bailout Big Banks
Step one, use tax dollars to keep private businesses afloat. This gives government, not total control, but the ability to regulate finance in order to protect the interest of the people. Step two, make an enormous legislative blunder, and blame it on the banking industry. Let us not forget that the clause about the executive bonuses was removed, not forgotten, not left out, but removed. After there is a huge public outcry over executive bonuses, the next step is to levy a 90% tax. This tax of course is not limited to the bank that gave the bonuses, nor is it limited to the banking industry; the plan is to levy a tax on all executives who have a high salary and receive bonuses.
Stress Test
Of course, the wealth redistribution is not enough. The remaining step is to take major services, such as banking, health care, or auto manufacturers, and make them national industries. The first and most important of these is to take over the financial industry. The Financial industry is essential, because all businesses run off of the availability of credit (hence capitalism). Once all industries are getting their loans from the government, their nationalization will happen quickly and with little protest. So, after bailing out the banking industry, the next step is to create a stress test; this serves two purposes; 1) it asserts government power over the industry (no other industry needs to be deemed strong enough to survive in order to exist in the US economy), and 2) it makes people think that the government should step in when the test is not passed. Third, after the failure of the stress tests, the government will claim that the banks need to come under temporary government control. Since government has never improved a business after taking it over, temporary can be a very long time.
Not Under My Nose!
Things that stink are not meant to pass under your nose without notice! This revolution cannot continue to be ignored simply because we are in an economic downturn. Recession is not an excuse to jump from crises to crises without thinking out the political consequences of our actions. The hardest thing to regain, once it is lost, is freedom. And freedom is blindfolded on its knees in front of a gun named socialism.
Posted in Politics
Posted on 19 March 2009. Tags: American Recovery and Reinvestment Act, Atlanta, Attorney General, auto parts, bailout, Barack, bonds, bonus recipients, capitalism, Charles Rangel, collapose, congress, Crash Proof, debt, deflation, democrat, drug cartels, drug prohibition, drug war, Economics, Eric Holder, Fed, federal reserve, financial crash, free enterprise, Georgia, getting away with murder, gold, hedge inflation, inflation, interest rates, laws, local, long-term, medical marijuana, Mexico, montary policy, New York, obama, peter schiff, Politics, porkulus, President Obama, printing money, protectionism, Rob Viglione, socialism, state, stimulus bill, tax, tax bonuses, taxes, treasuries, U.S. dollar, War on Drugs
Congress wants to impose 90% tax on Wall St. bonus recipients, Fed will no longer raid legal marijuana dispensaries, auto parts suppliers to receive $5 billion in aid, Mexican drug cartels thriving in U.S., and the Federal Reserve creates $1.2 trillion in new money…just the latest in your Freedom Under Fire Report! Continue Reading
Posted in Featured, Freedom Under Fire
Posted on 22 February 2009. Tags: agenda, allegations of torture, banking, bankrupt, barack obama, bonds, British detainee, British Prime Minister Gordon Brown, broke, budget crisis, C.I.A. custody, california, Central Command, Central Intelligence Agency, Citi, Citigroup, Clinton implores Chinese to buy U.S. debt, construction, debt, democrats, Economics, equity stake in bank, europe, executive compensation, Executive Order 13502, fiscal issues, global New Deal, Green growth, Hillary Clinton, human rights, IMF, Internal Revenue Service, International Monetary Fund, IRS, Larry Kudlow, military leaving Iraq, moral hazard, mortgage bailout, nationalize banks, Nazi Germany, never charged with a crime, New York University, Nouriel Roubini, NYU, Obama ratings fall, offshore banking, Orwellian double-speak, payoff, payroll taxes, political pillage, Politics, pro-union, promote efficiency, promoting bad behavior, reform, refuse to be bullied by U.S., rehab, republicans, responsibility to world, Rick Santelli, Rob Viglione, sanctions on tax havens, secrecy, Secretary of State, shock tactics, social security, socialism, sparks revolt on trading floor, Spending, spending addicts, spending problem, Stern Business School, stop enabling, swiss banking, Switzerland, tax, taxation, taxes, temporary receivership, top Libertarian, treasuries, undeclared accounts, unfunded liability, union kickbacks, union mandates, USCENTCOM, voting authority, war in iraq, Wayne Root, White House Press Secretary Robert Gibbs, withdrawal, worst attacks on media, zombie banks
British PM calls for “Global New Deal,” Obama kicks back favors to unions, Swiss stand strong against U.S. bullying, Clinton implores China to continue buying U.S. junk assets, top Libertarian explains California’s budget problems, Rick Santelli sparks revolt over mortgage bailout, military preparing for Iraq exit, top economist rationalizes bank seizures, EU clamping down on financial industry, C.I.A. finally releases U.K. citizen after 7 yrs without formal charges and allegations of torture, Obama’s ratings fall, government to take big ownership stake in Citi, U.S. troops in Pakistan, and Social Security hits Obama’s reform agenda…just the latest in your Freedom Under Fire Report! Continue Reading
Posted in Featured, Freedom Under Fire
