Congress just passed a $15k tax break (or 10% of the value) on a purchase of a new or existing home as part of the new "stimulation package". This will cost the government about 19 billion in lost tax revenue. I'm not sure how much it will stimulate the economy. Buying a new home will help by creating or at least helping maintain employment. Buying existing homes will not. It will help with home sales though.
The tax credit would give buyers 10 percent of the price of a primary residence bought within one year, up to $15,000. I have not seen the details of this provision yet. I don't know if there are income caps attached to it or not. This brings Obama's stimulation package over the 900 Billion mark.
They've also added a tax break for the purchase of new cars. You now can write off the tax and interest for purchases made this year.
It seems our new government is using this crisis as an excuse to go on a spending spree. Keeping the masses appeased by throwing a few bones our way such as these temporary tax breaks. Obama's been in office 3 weeks and he's already spending over 900 Billion AND cutting revenue.
Hmmmm isn't that the exact same behavior as the consumers that created this mess?
BTW, is it just me or does anyone else want to scratch there eyes out when watching Nancy Pelosi on TV.
10 comments:
I have actually cancelled ALL TV reception. No Satellite, no cable, no rabbit ears.
Pelosi was the justification I used to get it by the wife! :) I told her nobody should have to live in fear that watching TV could cause you to have to see that.
I'm with you, Pelosi is crap. I saw her in an interview defending the stimulus waste (ie money for the Smithsonian to boost the economy?) and I could have thrown a brick at her.
The tax breaks are interesting. I don't think it will help much. Like you said, it will help people buy crap and that is what got us in this mess. It won't create jobs, and that is what really needs to be done.
The Smithsonian isn't waste. America could use more public museums. It's horrible that we have to feed commercial maws like Disney for special occasions. In terms of stimulus, once you're in a deflationary depression just about any expenditure is helpful. Assets get wasted because the market can't organize production then so anything the government does is pretty much gravy.
A tax credit for house purchase is going to drive a lot of fraud though. Swap houses with your neighbor and get $15,000 each from the government! Woohoo!
Is this actually a "credit" though, or a 15y IO loan like last year's $7500 dp assistance? or a tax deduction?
I think that I read that the car one was not a credit, but a deduction.
For a 30k car, tax 8% =~2400, 1st y interest@6% =~1800. So if you are in the 30% Fed bracket, that is $5200 x 0.3, or $1560 tax break (assuming no AMT issues).
Not that 5% help is nothing, but that isn't enough to motivate me to take on more debt...
FreedomCM
A lot of right wing rants lately. Maybe we should stick to RE.
Anyway, the tax credit came from the senate bill and was proposed by Repub senators. It was modeled after a successful program in the mid-1970s when the economy was in pretty bad shape, too. Then, median home price was $31k and the credit was $2k, so you can see that the tax credit appears to be more or less the same thing, only it's adjusted for inflation.
The same senators are also looking to drive intrest rates to 4-4.5%. The idea behind the tax credit and depressed interest rate is to try to clear inventory and put a floor on the housing market. Many economists, including IE's own John Hussing, have said that the economy will not turn the corner until the housing market finds a floor.
I am not smart enought to comment on the effectiveness of the plan, or whether creating artificial economic floors is a good idea, but I'd be happy to get a$15k and a 4.5 percent interest rate on a 30year fixed, even if I had to overpay a little bit for a house because I would not be flipping the house in less than 5 or 10 years.
Fair Economist said "The Smithsonian isn't waste. America could use more public museums."
I say, so how much extra did you send in to the IRS last tax season? I suspect the answer is zero. Why do you think everybody else has to pay for your definition of culture?
You and every other government program lover out there could help out by sending in an extra $5k each tax year to fund all of your crap. In the meantime, I think I'm going to skedaddle to the middle of the desert somewhere and live a pure life free of interference!
I've got an idea that'll really stimulate the economy. They wouldn't even need to print more money. Since banks are in the business of writing-down loans now, why don't they just make it fair for everyone? They should write down every mortgage in America since 2002 to present. Every mortgage should be discounted up to a maximum 40% off for the peak values in 2007, and adjusted lower for years of lesser home inflation. This would balance out the bubble sized loans, and not punish people who managed their money during that time. Offer 30yr fixed rates at 5.25% and if people still can't afford the payment, then they'd have 3 months to vacate the property without dinging their credit. Like a one-time free-pass. This would clean out the severly stupid people from the market that shouldn't have bought their homes in the first place without completely destroying the neighborhood's value for everyone else.
The "bottom" would then be established at a decent level. Responsible homeowners would have more money through lower mortgages, and feel safer to take on more debt. Or at least they probably wouldn't be upside-down due to the foreclosure comps. Then they could sell, upgrade to larger homes, or simply spend their extra money to stimulate the economy.
It can't all be about pork and rewarding the irresponsible people. You have to put forth some type of incentives for everyone, even if they're making their payments on time. Reduce everyone's mortgage debt brought on by the bubble and make it fair to everyone. That's how you get America's buy-in on a stimulus.
Alex asked "Is this actually a "credit" though, or a 15y IO loan like last year's $7500 dp assistance? or a tax deduction?"
From the few details I have seen, this is NOT a loan like the $7500 buyers assistance. This is a simple across the board tax credit. Like I said, I haven't been able to find any details. And I did try to find the details. I don't know if it will apply to those of us "lucky" enough to fall into the AMT bracket. I would love to know the details but so far they seem to be keeping it under wraps.
SUCKER, while that sounds like a fair solution there's no way it's workable. Most of the loans are not owned by the banks anymore. They've been sold and chopped up and resold and those investors are not going to go for a plan like that.
Besides, there's already a system that does that. It's called foreclosure. The owner doesn't pay, the lender or servicer forecloses and the house sells at a 40 to 50% discount. It works great. And if the government would stop meddling with the current system we would be out of the mess much quicker.
Scoop on the $7500 tax credit....part of the stimulus is to make it JUST that - a CREDIT - now you have to pay it back over 10 years - there is talk that when the $15k hits - it will not have to be paid back. Also - if you bought a home that quals you for the $7500 (or soon to be $15k) and you already filed your 2008 tax return - (yes it is supposed to be retor'd) when the stimulus is approved (and I can tell you that both sides are hip on the $15k) you can then file an amended tax return to get the other $7500 (unless you owe that uncle of yours).
Look - I think it's all a bunch ca-ca myself - but hey - we alllll can agree - if we are given $15k for buying a home and most of us here are just bitting at the bit this year to do so - we will take it. Mine is going in savings for when the bomb hits....and the bomb I think has already has gone off...check redfin - more and more REO's popped up here in the last few days...I know for a fact that Countrywide started unloading their homes as of Feb 1st....I am in negotiations on one of their REO's in Riverside right now that JUST hit the market - and as for this being a tough year to sell homes - I don't think so - my realtor says that they are swamped - can't keep up with all the home buyers...hummm...not sure where the stats are coming from...
I'd be stimulated if they actually sent me a check for $15,000, but it doesn't sound like that is what they have in mind. $25/paycheck does squat to get me motivated to spend.
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