In A Few Years We’ll Be Calling These Days The Good Ol’ Days
Some believe that in the coming administration, their taxes will be lowered. Some even believe that they won’t have to worry about buying gas… or paying their mortgage… as Obama will make sure that all is well.
Let me tell you how the cow will eat the cabbage.
As of this writing, the federal government has pumped $2 trillion into places of which – thus far – they will not even divulge where the money is going. Keep in mind that is $2 trillion during a so-called “conservative” administration. At this rate, we will soon see a big spike in inflation as our money loses even more of its value. Our dollar has lost 27% over the last eight years… and these bailouts are nothing more than the government printing money – therefore making the remaining money supply worth that much less.
One of the changes that will take place at the end of the year is the revision of the capital gains exclusion – a change that will not benefit the taxpayer. Current tax law provides a $250K exclusion ($500K for married couples) from capital gains taxes on a primary residence that the taxpayer lived in for two of the previous five years. The new law will prorate the exclusion based upon how many years the taxpayer actually lives in the home.
Meanwhile, the inflation from the printing presses at the Treasury is going to cause a rise in the prices of everything – food, commodities, wages, housing… you name it. Higher wages will result in higher taxes due to the phenomena of bracket creep… and although real estate will rise in real value, it’s value on paper will appear to be much greater due to this inflation.
As many have noticed over the last ten years, property taxes have gone up as a result of tax assessors using higher property values as a means to get more money for the government coffers… and now as property values are declining, those same assessors are not interested in lowering those taxes. In many cases, taxing authorities have increased the millage rate to make up any possible shortfall.
The incoming president has communicated his desire to raise corporate taxes – completely ignoring the fact that corporations don’t pay taxes… they merely collect them from their customers – as well as his intention to raise capital gains taxes. With the cost of risk capital rising, coupled with the rising cost of doing business due to rising corporate taxes – and prices will be rising even if the inflation wasn’t there. Add them together and you have the perfect storm.
And please – spare me the mantra about Obama wanting to cut taxes on the middle class. I’ll believe that when I see it. As a US Senator, he voted to raise taxes on the middle class… and I’m still in the camp of those who tend to believe in someone’s actions before I’ll believe in someone’s empty words on the campaign trail.
Joe Strummer says:
Excellent post.
The problem has never been the taxing side – in spite of what Art Laffer says – the problem has been the spending side. When your budget is $3 trillion a year and you have a debt of $12 trillion not including entitlement commitments, you need to raise money somehow. You can either inflate the currency – which is an implicit tax on everyone because it lowers the value of their savings – or you can tax.
As for the particular kinds of taxes, I’m agnostic. It seems to me that this economy focuses too much attention on real estate and the incentives mostly run in that direction. Consequently, eliminating the capital gains exclusion on real estate gains seems like a good idea.
Another good idea would be to eliminate the tax deduction for mortgage interest.
Of course, the real estate lobby is pretty powerful, so one would expect some outcry. I think Reagan ran into a buzzsaw when he proposed that particular change in the early 80s.
I’m not sure your ire should be focused particularly on Obama. I mean, Bush has been catastrophically bad when it comes to spending, worse than anyone since LBJ. And that’s not even including the war spending.
November 13, 2008 — 11:39 am
Doug Quance says:
>Joe: I agree that Bush has been abysmal in regards to spending. His threat of a veto was as hollow as can be.
In regards to Obama, when asked if he was aware that the wealthy are paying a larger share of the the cost of government AFTER their tax rates were cut… and that raising taxes on the wealthy may not actually result in the increase of revenue – he said he didn’t care. He felt it was an issue of fairness.
When your tax policy is directed by your desire to punish the wealthy and grow government – and not to find the best way to fund the legitimate functions of government – I sense some serious trouble coming.
I have no problem with the idea of eliminating the home interest deduction… as long as it is tied to elimination of the current tax system for a replacement with the Fair Tax.
November 13, 2008 — 12:02 pm
Todd says:
Ending the war in Iraq will cause 10 billion dollars a MONTH to be added to the plus column of the Federal government’s books ( Yes, it really costs that much ).
Closing the income tax loop holes that Exxon exploits ( they haven’t paid one penny in income tax in the past 7 years ) will add another couple hundred billion.
Problem solved.
November 13, 2008 — 12:26 pm
J Boyer Morristown NJ says:
This article is very timely, at least for me. I just wrote about the best financial moves for the coming inflation. http://www.jboyerhomes.com/nj-real-estate-blog/?p=31
Jim
November 13, 2008 — 12:31 pm
Real Estate Raj says:
I also think that there’s reason to believe that Mr. Obama has the mandate of the people to make change. In case you haven’t noticed, big government is here. The people are now counting on it to get us out of the rut were in. Here’s to the newest of New Years.
November 13, 2008 — 12:46 pm
Doug Quance says:
>Todd: Did you know that our military costs – including the cost of both wars – is less as a portion of GDP than it was eight years ago? I’m not saying that withdrawing from Iraq won’t save us money… I’m simply saying that growth in other areas of government has been much higher.
And as I mentioned before, corporations don’t pay taxes… they collect them from their customers. The taxes that Exxon pays are factored into the price at the pump.
November 13, 2008 — 12:52 pm
Doug Quance says:
>Jim: Yes, I agree with your premise. It’s just sad that one day, the tax man wants a big chunk of something that didn’t really increase in value as much as it appears to have.
There are people out there who are getting a measly 3% interest on their savings – which means they are breaking even with inflation – while the government wants to tax the income. What income? At 3% you haven’t earned anything.
Tough times ahead, my friends.
November 13, 2008 — 12:56 pm
Doug Quance says:
>Raj: So if you have three children who vote for candy and ice cream instead of meat and veggies….
😆
Like children who don’t yet understand, the voters have voted for the nanny state – yes, that’s true. And one day, they might learn that those in government who claim to be saving us are the same crowd who brought us into this rut.
I’m starting to think that our Founding Fathers had it right when you had to be a property owner in order to vote. Unless you own “shares” in this society, I don’t think you should be voting.
November 13, 2008 — 5:07 pm
Red Door says:
I used to think that only letting property owners vote was the way to go, but now I think perhaps it’s not such a good idea after all (not that it would ever happen anyway). The problem is that property owners, as we particularly saw with the recent real estate boom, don’t necessarily have any equity. They don’t really own anything at all. In reality, the bank owns their home. The only people who are truly property owners are people whose homes are paid off, which is essentially only the elderly. I think a better idea would be to require an in-depth test on a person’s knowledge of the Constitution. We have the GMAT for b-school, the MCAT for med school … why not a test of your Constitutional knowledge to vote? It goes without saying that you shouldn’t be voting if you aren’t well-schooled in the Constitution. I guess it also goes without saying that it will never happen.
November 13, 2008 — 6:38 pm
Doug Quance says:
>Red: Although most of us would prefer voters who are educated about the Constitution, passing that threshold would not ensure that the voter is a net gain – or a net drain – on the country’s resources.
Anyway, the milk is spilt. It’s all over ‘cept the crying.
November 13, 2008 — 6:53 pm
Chris says:
The government needs to steal less and spend less of our hard earned money.
November 13, 2008 — 7:22 pm
Doug Quance says:
>Chris: I agree wholeheartedly.
November 13, 2008 — 7:58 pm