Thoughts on the Foreclosure Bailout
After watching President Obama’s speech last night, I decided to go back and look through the details of the Foreclosure Bailout… errr… Homeowner Stability program. Now, we know that it won’t be helpful for an area like the Real Bay Area – where there are almost no foreclosures, and where prices are magical.
But what do you think about the Foreclosure Bailout? Is this a worthwhile endeavor in the grand scheme of things? Are you outraged?
Please keep it civil… thanks!
February 25th, 2009 at 11:15 am
my comment in the LA foreclosure thread has left me all outraged out.
February 25th, 2009 at 11:30 am
Mr. er, Fine Borrower, gets his passel of money. He’s overwhelmed and decides to be a good boy, and uses it to pay down his mortgage and his credit cards, get current on his car loan again. Passel gets used up. 6 months or a year later, Mr FB is back in the same situation he is now, or worse because his job’s gone. Result: The money just went to banksters of various stripe.
February 25th, 2009 at 11:40 am
Not outraged at all. The federal government has spent or committed over 12 trillion since September 2008 while managing to completely ignore the cause of the entire meltdown.
This is a quite an achievement for the administration, considering that until last week, naught one penny nor one word has been expended in regards to the actual cause of the crisis.
It’s like getting kicked in the balls and then getting a brain MRI to figure out the treatment.
Perhaps a tangential benefit to Californians is that the program may plant a seed in the mortgage and securities arena that will help them realize that they are not getting their principal back because most of the mortgages they funded from 2003-2008 are defective.
Perhaps real loan modifications may be a whole hell of a lot cheaper for them than the coming wave of foreclosures via the Alt-A and jumbo prime crisis.
But I wouldn’t put it past this administration to kick back on Cali, let the foreclosure bomb blow while padding the Banks and local governments losses with even more federal money that it would take to just buy every bubble buyer and their angry renter counterparts a entire house.
February 25th, 2009 at 11:57 am
Nationwide Home Price Analysis:
http://www.doctorhousingbubble.com/home-prices-need-to-fall-50-percent-from-peak-nationwide-for-a-market-bottom-case-shiller-data-and-predicting-the-ultimate-bottom-5-charts-showing-we-are-far-from-a-bottom-in-housing/
Q408 HPI Update for the Bay Area:
http://www.housingbubblebust.com/OFHEO/Major/NorCal.html
February 25th, 2009 at 12:05 pm
joe, thanks for the HPI, but I don’t understand your point. none of those counties have any influence on the RBA. it’s different here.
February 25th, 2009 at 12:11 pm
I was not happy as the package excludes a lot of borrowers. This is what I wished he had proposed:
- Refinance current balance into FHA/FNMA/FDMC backed loan with no upper limit.
- Allow refinancing into long timeline with balloon repayment. For example, 0% for the first 20 years and the rest amortized over next 100 years.
- Price support at peak levels. If seller could not sell at peak price, govt will fill the difference.
In other words, undermine the dollar as much as possible so that now we CAN export goods to Japan & China and outsource jobs to Iowa from Bangalore.
Do others agree with my proposal?
February 25th, 2009 at 12:20 pm
Great chart. It shows the run-up in the Bay Area really started around 1997. That means we’ll be back at those levels plus inflation in no time. That is of course unless the stock market crash and recession pushes prices even lower. Also shows that everywhere except Stockton and Vallejo have a long, long way to fall.
February 25th, 2009 at 12:42 pm
I agree with 1997/98 levels plus inflation. But in some BA communities the definition of average home has changed.
Call it lowered expectations or commutative sacrifice by all for living within driving distance to Mecca Palo Alto, but that average home in 1997 was probably a 1400 sq ft sfh on a 5k lot, and should fetch a premium over today’s average dwelling – a 1200 sq ft HOA.
February 25th, 2009 at 1:10 pm
I think it’s actually good that this doesn’t benefit the Bay Area very much. We are still the area most in need of a drastic correction to bring home values in line with incomes. So a bunch of people will have their imaginary bubblewealth taken from them temporarily.. I’m in their boat anyway, as a future heir to a large and prime Bay Area home in the hills. It has fallen in value from an estimated $1M to perhaps $800K now, and may fall to $600K before things flatten out, seeing how that would be in line with the owner’s actual income. So what? They missed the opportunity to cash out when the going was good, but they’ll still live to see better days again.
When I first started looking into real estate in mid-2006, I was struck by the drunkenness and exuberance, the approximation and imprecision in valuations, the cult-like language that real estate types were using. It all felt like a Vector Marketing interview, just look how much money you’re going to make because real estate is the best investment ever because it has never gone down! At the time, the only area I could have afforded was Stockton, and through one of those real estate buddies, I started looking at foreclosure and REO lists to look for deals. I was dumbstruck by how much these people owed on their homes, not just in Stockton (which I could vaguely understand as a satellite of the Bay Area), but in places in the Central Valley which were truly in the middle of nowhere. The numbers never satisfied me, and I didn’t want to commute to San Jose from there, so since I couldn’t be satisfied with anything I bought, I held onto my money. Then slowly but surely, it all fell to pieces, one bit at a time.. first the Central Valley, then the East Bay, then the North Bay and South SC County, and now, the peninsula, San Francisco, Silicon Valley. I’ve watched it in real time since 2006. It is as inevitable as it was predictable.
February 25th, 2009 at 1:55 pm
Obama to propose 10-year, $634 billion health-care plan: WSJ
President Barack Obama plans to limit tax deductions on the rich and make spending cuts in current health-care spending to fund a 10-year, $634 billion health-care plan, The Wall Street Journal reported on its Web site Wednesday, citing a senior administration official. The plan would limit income-tax deductions for earners in the highest tax brackets and curb goverment spending on managed-care companies, drug manufacturers and hospitals, according to the Journal.
February 25th, 2009 at 1:58 pm
That’s just great, another $634 billion, and oh by the way, we’re going to cut the budget deficit by half in 4 years. Can somebody show me the math?
Bay Area is going to pay for this, since we’re all in the highest tax brackets.
February 25th, 2009 at 2:10 pm
RE: You are right. It will reduce the incomes wealthy (2 engineer) american families have to spend on their mortgages. So they will try to save more, which will reduce aggregate demand, lower business revenues, generate layoffs, the economy will contract further, etc.
Total incompetent. Complete FAIL.
February 25th, 2009 at 2:13 pm
All I can say is that I’m sure things will be better now that Bush is out of office.
February 25th, 2009 at 2:16 pm
This is pure socialism:
Under current law, taxpayers who itemize calculate their deductions based on their income tax bracket. A taxpayer who pays a 35% rate on his income may deduct 35% of various expenses — such as mortgage interest or charitable contributions — from his taxable income.
Under the Obama proposal, these deductions would be limited to a maximum of 28%, even for taxpayers paying higher tax rates.
February 25th, 2009 at 2:25 pm
Looks like we’ve found someone who forgets what the tax structure was like before the Reagan Revolution made taxing the rich unfashionable.
February 25th, 2009 at 2:28 pm
“That’s just great, another $634 billion, and oh by the way, we’re going to cut the budget deficit by half in 4 years. Can somebody show me the math?”
You wouldn’t understand it. Even if someone gave you a large crayon and a coloring book. Why would someone bother?
February 25th, 2009 at 2:50 pm
Bleen, well said on the public’s short-term memory. Back in the 1950s the marginal tax rates were upwards of 90% for the wealthiest. Don’t believe me? Voila.
But the biggest problem with the Reagan Revolution was the substitution of corporate for personal income tax. That and Santa Clara County v. Southern Pacific Railroad. That Supreme Court decision ruled that corporations are legally people, and what a terrible decision it was. People, you see, eventually DIE.
Remember, the biggest problem with Prop 13 is all the corporations who benefited on their property taxes too. And you thought it was about stopping little old ladies from losing their homes. Hah!
February 25th, 2009 at 2:56 pm
MADHAUS: My issue with this is the timing. You have Americans (finally) saving more, and the economy contracting because of that, so instead of the Government putting more money in people’s pockets so they can save while maintaining spending, Obama is adding to fiscal drag.
It is this type of utter foolishness that will turn this recession into a depression, or the 25+ year of miserable, grinding stagnation that Japan has been mired in since their property bubble burst.
February 25th, 2009 at 3:05 pm
zanon, you have C, you have I, you have G. C and I are down. If you don’t increase G, what do you think will happen?
I’ll wait right here.
February 25th, 2009 at 3:15 pm
Zanon, note that debt servicing is noted as savings. If no one borrows a cent and earlier borrowers just pay off portion of their debt, it gets counted as high savings rate. This savings is not an increase in bank balance. Economy is contracting due to less borrowing (or lending) and govt is taking up the slack. This kind of savings will not do a bit for the economy except that banks will have ability to extend more loans.
February 25th, 2009 at 3:18 pm
madhaus 17, good perspective but it only re-enforces the socialism point. Nixon – socialist. China, wage-price controls, enough said. Eisenhower – commie What was with all that military industrial complex mumbo jumbo and why didn’t he finish off both the chinese and the ruskies when he had the chance. Hoover – maybe the biggest pinko of them all with all that public land crap and the extreme financial regulation that precipated the depression. What we really needed in 1929 was a president who believed in the power of free markets!
February 25th, 2009 at 4:15 pm
As a lefty socialist, I admit I’m surprised he’d move to tax the rich so quickly given the recession. With Bill Clinton’s economy under him – sure, go for it. But with this economy, I’d have been content with letting the Bush tax cuts expire, and then putting this in a couple more years later.
You have to make big tax code changes gradually to avoid disruption – people like stability and the chance to plan.
The thing to remember about the healthcare plan is the potential savings to everyone who doesn’t have to put out as much out of pocket to get healthcare once it’s in place.
If the damned thing actually works, workers and companies will spend MUCH less on healthcare, and they’ll have the income for other stuff.
Win, meet win.
February 25th, 2009 at 4:16 pm
Say, how are you guys so good at finding old comments on burbed to link to?
I tried a google search but it failed – I was positive I could remember 3 keywords from a post, and it didn’t come up.
February 25th, 2009 at 4:20 pm
#9 sonarrat – good post.
I came back to the Bay Area in ’03 after a hiatus for school(s) (I grew up here), and felt like you do.
I should have convinced a relative to sell their RBA property in last year, I guess, so I could inherit it in cash from peak values, but it’ll still be worth a nice chunk after the 50% correction.
#4 Joe – very good links, thanks. That long-term C-S stuff is very powerful. The talks Schiller gave were really insightful wondering why people think real estate ‘must always increase’ – basically it took folks only until about 2003 to entirely forget the 1990s, which were not the worst housing market the US has seen by far.
Open question: why shouldn’t a 1990′s style correction, or worse, occur now in the RBA?
February 25th, 2009 at 4:24 pm
On the bailout, I’d say I’m moderately displeased, but as I mentioned before, it’s not actually a very big bailout, and won’t have that much affect.
There is certainly some moral hazard in there, and I think it’s a weak attempt at
1) building confidence, which might be the best tool the Government thinks it has to move the economy
2) making people happy and rewarding them for their votes – “all those struggling homeowners” were just thrown a bone, so maybe they’ll keep like the Obama administration, and give him the political capital he wants to steamroll healthcare, energy, education.
It’s actually pretty formulaic so far. Not that I fully approve, but Obama is a pretty centrist Democrat, and this is about what you should expect.
February 25th, 2009 at 4:50 pm
#21, steve, I can’t tell, are you being sarcastic or not?
A Lewis, from one lefty socialist to another, I agree with your last post (#25).
February 25th, 2009 at 4:58 pm
madhaus, I had hoped the last line would be the tipoff. that, and that you had greater faith in my sanity.
I see I’ll have to work harder.
February 25th, 2009 at 5:11 pm
MADHAUS: Reduce T so people can get to the savings level they desire, while maintaining spending and investment (C, I). They key here is not G or T, it is (G-T). Reducing T is instant. G takes forever, and cannot be undone. Increasing G *AND* T is totally counterproductive, and evidence of utter incompetence. these guys don’t have a clue. Not that you need any more evidence of that.
Once the recession is over, and the economy stops contracting, move T back
Sunnyvalerenter: I don’t agree with you about the useless of debt servicing (which certainly is saving). Banks are in trouble because people aren’t paying their loans. If more people paid their loans, banks would be in less trouble. I’d rather give money to HHs, than to banks. More money in HH pockets would help them maintain consumption, and pay loans.
btw. Japan, after their real estate crash, spent a tonne on infrastructure projects, propped up zombie banks, and raised taxes. The Obama administration has just hit the trifecta.
February 25th, 2009 at 5:29 pm
Dear A.
Happy to help. Type in the generic Google search:
keywords site:burbed.com
YMMV – Posts frequently stop coming up after a few months.
February 25th, 2009 at 5:56 pm
Zanon, we are talking about the reversal of debt cycle here. If the debt contracts, economy contracts. Whether the debt contracts due to less borrowing coupled with higher servicing of principal OR defaulting on the debt have similar effect on the economy. It is not due to people defaulting that banks suffered. It is due to people refusing to borrow extraordinary amounts of money to buy homes, hat triggered suffering of banks. Great Depression happened when private debt to GDP ratio hit <200% whereas we peacefully crossed 350%. The ponzi scheme just ran out of willing borrowers to bid up the prices and the whole scheme collapsed.
February 25th, 2009 at 6:25 pm
These days we are de-sensitized to the “billion” dollar figure. Has everbody seen this ad?
“Suppose you spent $1 million every single day starting from the day Jesus was born — and kept spending through today, a million dollars a day for more than 2,000 years. You would still have spent less money than Congress just did.”
February 25th, 2009 at 7:12 pm
That’s the problem with socialism. Half of ‘em are waiting for an inheritance, and the other half cant tell the difference between a grandma and a corporation, revenue-wise.
February 25th, 2009 at 7:29 pm
So, what is the marginal tax rate for self employed couple in the RBA making RBA-type income now, i.e. more than $250k?
Obama just proposed 39.6% top rate. California just passed a budget calling for 9.55% top rate. Payroll taxes add up to 15% (there is a cap, but Obama has been talking about lifting the cap for those at this income level). Add it up, you get around 64%. And if you want to go spend what is left, California wants another 9% off you. All in all, the RBA couple gets to spend about 35 cents out of any extra dollars they make.
Plug that back into that mortgage deduction calculation to see if renting is still the better idea.
February 25th, 2009 at 7:37 pm
WTF? Obama a centrist Democrat? He’s far left, borderline socialist. You must be a hardcore socialist to consider him centrist.
A Lewis spewed: It’s actually pretty formulaic so far. Not that I fully approve, but Obama is a pretty centrist Democrat, and this is about what you should expect.
February 25th, 2009 at 8:01 pm
sunnyvalerenter: We are talking about a reversal of the debt cycle, and yes, as debt contracts the economy contracts unless the Fed is willing to step in and lever up (increase the deficit) as the private sector levers down.
Default has very different effect than paying down principal. Just ask a bank if they care whether people pay down their debts, or default!
That’s why the Obama administration’s decision to raise taxes, and therefore not have the public sector lever up, means increasing private sector defaults and, by extension, turning the recession into a depression or japan style stagnation.
Total FAIL.
February 25th, 2009 at 9:00 pm
A quick look at Obama’s largest campaign contributors ought to dispel the “socialist Obama” myth pretty quickly.
You should ask a real socialist what they think of Obama. Chances are you don’t know any.
February 25th, 2009 at 9:27 pm
Obama seems a bit obsessed with raising taxes for higher earning people. The big problem I have with that is it feels like he’s out to hit high wage earners rather than the truly wealthy with lots of passive income. I know a business owner with at least 50% more income and 5x my net worth who pays less than 50% in taxes than I do.
I’d say fundamental changes need to be made in the tax structure of the nation. But it won’t happen because these are the special interests that lobby our “powerful forces” in Washington.
madhaus, excellent point in #17 regarding corporations that don’t die. The true irony is that most corporations didn’t even support Prop 13 at first.
February 25th, 2009 at 9:38 pm
Cisco scoreboard:
Real Estater: nil
http://www.burbed.com/2009/02/09/redwood-city-house-with-drive-through-garage/#comment-38465
nomadic: 1
http://www.burbed.com/2009/02/09/redwood-city-house-with-drive-through-garage/#comment-38465
I would rather have been wrong this time.
From today’s Wall Street Journal:
Cisco Systems Inc. laid off several hundred employees this week, joining other tech giants that have cut staff as they deal with the recession.
The layoffs are the first wave of a planned cut of up to 2,000 employees. The networking giant eliminated about 250 jobs at its San Jose, Calif., headquarters on Tuesday, according to a company spokesman.
February 25th, 2009 at 9:47 pm
#34 Hey, I grew up in Berkeley – what do you expect! Though I consider myself a ‘liberal progressive’ if you want a label. I think I have socialist tendencies, while at the same time embracing partially regulated capitalism.
I’m not interested in a boring, all-gray, totally socialist state where ‘all are forced to be equal’ (generally by achieving the lowest common denominator), but I am pretty interested in a solid social safety net, and regulation of industries that can totally screw us all over if let to run wild (water and energy are some of those…)
I’m willing to pay a moderate share (many of you might call it high) of my income in taxes, and to help out my fellow citizens who are poor, sick, or old, even if they’re not related to me. I also believe in long-term planning, and setting aside money for big projects only the government can handle (like the interstate highway system, or the national power grid, or the army, or in fact, a healthcare system).
I believe in putting extra money aside for education, even of people besides me and my children, because the educated populace will increase productivity, improve society via technology, art, philanthropy and wisdom, and better manage our resources and treasure to our highest potential, while lowering crime and corruption.
I think we’ve shifted too far to taxing income vs. capital (so you’ve got my vote on raising capital gains tax), and I’d be in favor of a flat tax if you could convince me all the highest income folks wouldn’t STILL find loopholes. I think the AMT, in principle, is fair (b/c of all the loopholes), though it should be adjusted for inflation each year, like a lot of things ought to be adjusted (your …cough…property taxes…cough..).
Oops, overload…thanks for listening.
February 25th, 2009 at 9:49 pm
#34 – oops, I was so busy going on with my lefty agenda I forgot to actually respond:
Yes, from my viewpoint Obama is a centrist. I aligned more closely with the platform laid out by Dennis Kucinich (or actually Al Sharpton, if you read his substance and not his rhetoric on policy!!), so Obama is to the right of me.
But there’s always someone to your left and to your right…
February 26th, 2009 at 12:31 am
#38,
It was widely reported by Bay Area radio stations that Cisco insists it did not layoff, but rather, it was a re-alignment of its business. They are cutting back in certain business units and hiring in other ones. This is something companies do during good times and bad.
February 26th, 2009 at 12:36 am
Historically a major differentiator of this country from other western nations such as Canada and many European nations is that this country practices much more captialism than socialism. Once we head down the path of socialism, our past greatness will have no hope of re-surfacing.
February 26th, 2009 at 8:05 am
Welcome to 1928. Thanks to unfettered capitalism, we’ll be happy and prosperous forever!
February 26th, 2009 at 8:18 am
So here’s a house that is up about 4.5% a year from its 1999 sale price. So 2001 prices plus inflation might be pretty accurate.
http://www.redfin.com/CA/Los-Gatos/204-Lester-Ln-95032/home/1754384
And I am in agreement with A. Lewis. With regards to the AMT. How many on here have ever been hit with the AMT? While I am not a tax guru, I don’t believe it is creeping into the middle or even upper-middle class. If people are hit with AMT, they are either making a lot of money ($300k+) or have high property taxes and mortgage interest relative to their income (AGI). Of course, owning just one investment property with a tax loss can reduce AGI enough to avoid AMT if you are in the upper income class. I don’t know, any tax experts out there that disagree with me?
Also, with regards to the US corporate tax. While we have a high statutory tax rate (35%), US corps have paid only 13% of their profits from 2000-2005 while 19 other developed countries paid 16%.
I have to say, I was much better off under the Clinton years where I was taxed higher and my portfolio grew significantly while my real property grew at a much more normal rate until Bush took office. I’m not saying it is all his fault, but the whole conservative “spin” of worrisome taxes is just that… hype.
February 26th, 2009 at 9:37 am
I’m not a tax expert but I disagree 100% about the AMT not affecting the middle/upper middle class. I’ve had to pay it every year since moving to California. My household income did not significantly increase in one big jump.
This is an older article, but the fact hasn’t changed:
In 1969, the exemption for everyone was $30,000, which adjusted for inflation is $165,000 today, said Olson. But under current law, the levels are just $45,000 for joint filers and $33,750 for single filers. Lawmakers have been passing annual “patches” to increase them, but they are nowhere near $165,000.
and
…millionaires with a lot of investment income from tax shelters are less susceptible to the AMT because their capital gains and dividends are taxed the same way as they are under the regular code – at a lower rate than ordinary income, Burman noted.
http://money.cnn.com/2007/03/07/pf/taxes/amt_hearing_house/index.htm
February 26th, 2009 at 9:40 am
The second part above is to point out that the government is increasingly putting the tax burden on higher wage earners rather than this phantom “wealthy” class Obama always talks about.
February 26th, 2009 at 9:57 am
Nomadic- Guess we disagree because I have never paid it, and I believe my profile would fit right in, that according to the media, I would have to pay it. Either my accountant is doing “funny” accounting, which I doubt, or your’s may have to figure something out for you unless of course you are making well above $300k.
February 26th, 2009 at 10:08 am
nomadic is 100% right about AMT. I’m brutalized by it and most of my friends are as well.
In 1970, the year after the brackets were set, 19,000 people had to pay AMT. In 2005, more than 4 million were hit by the tax (and, 45% of those had AGI below 200K). I thought it was almost unavoidable in states with high local taxes (income and property). It is criminal that the AMT trigger was not indexed to inflation.
February 26th, 2009 at 10:27 am
Question for you guys — as the Obama administration maneuvers the country into Japan style stagnation, through zombie banks, wasted “infrastructure”, and higher taxes, is there *any* hope for a rebound in RE?
REs been declining in Japan now for 25 years straight. Ouch!
February 26th, 2009 at 10:31 am
testing to see if my last comment went to moderation for the link…
February 26th, 2009 at 10:33 am
Ok, I will still disagree only because I have never paid it. My accountant says it is mainly because AGI is over $200k and someone has a large mortgage and taxes. Maybe my mortgage just isn’t big enough?
On another note, Nomadic, we will be up in the area this weekend looking for places to live. We are staying a night at the Hotel Los Gatos. What restaurants would you recommend with 2 early elementary age school children? I know someone mentioned Manresa, but probably not feasible with kids. California Cafe or Dio Deka, any others? Thanks for any insight.
February 26th, 2009 at 10:52 am
Ok, I stand corrected. I got hit in 2006 with AMT. But a lot was going on that year with more than just regular W-2 income. So to me 1.5% tax on my AGI is not that much to pay. I obviously didn’t even notice it, and I usually review it pretty thoroughly.
February 26th, 2009 at 1:03 pm
With two little kids maybe you should try Willow Street Pizza right in downtown LG. Or Pedro’s (Mexican restaurant) on Santa Cruz Ave. Not exactly fine dining, but family friendly.
For breakfast or lunch, Southern Kitchen is very good and there’s a new Hobee’s at Saratoga-Los Gatos Rd and University Ave.
February 26th, 2009 at 1:08 pm
BTW, I think California Cafe is so-so. The Cellar (under the Border’s) is much better. Pricey to feed kids there though, I suppose. You might also want to consider Los Gatos Brewing Company; it’s pretty good but I find the menu a little bit boring.
February 26th, 2009 at 1:29 pm
Nomadic- Thanks for the input.
February 26th, 2009 at 1:42 pm
Probably the issue on AMT is when we say things like ‘hit by it’ and ‘brutalized by it’. Those are subjective.
If your marginal rate was 35%, and your effective rate ended up being, say 22%, but you had so many deductions you ended up at like 12%, or 5%, but THEN the AMT kicks in, and brings you back to 18% or 25%, are you being ‘hit’, ‘brutalized’ or just ‘paying closer to your fair share’?
We’re often talking about $5k to $25k differences in tax bills here. How much money is that to you? The answer is it varies…
I think the thing to be angry about the AMT (besides it not being indexed to inflation) is when someone else has a different setup, and seems (or is) ‘richer’ than you, but isn’t paying it. I have sympathy for you.
For instance, I earn the same income as many other people, but because they own a home they get a HUGE income tax deduction on their payment for shelter, whereas I don’t as a renter. Doesn’t feel very equal to me, but it’s an American institution, and I don’t expect it to go away. It’s also an incentive to homeownership, which is a good idea and I support it. I’m just saying things can feel different on the other side of any fence…
Anybody paying AMT has enough income, and enough deductions that they can afford it, dammit. They just would PREFER to be having a lot lower tax burden, and there’s an idea that part of the tax code favors them which they love, but why can’t they get rid of this other part of the tax code that hurts them? I still think you should pay your AMT. The M stands for minimum…
Doing my own math, I’m pretty sure I’ll be paying a little more due to AMT starting next year. I think it’s fair.
I’ll still join you in lobbying for the index to inflation. Because unmodified in 50 years, the minimum wage would start to qualify…that’s silly.
February 26th, 2009 at 2:15 pm
They just would PREFER to be having a lot lower tax burden, and there’s an idea that part of the tax code favors them which they love, but why can’t they get rid of this other part of the tax code that hurts them? I still think you should pay your AMT. The M stands for minimum…
I couldn’t disagree more strongly. If you live in california and make a solid wage you will pay AMT provided you also have the joy of paying property tax on a decent home. As I put on my Rawlsian veil of ignorance I can think of no reason why folks in high tax states should be singled out for extra punishment.
Another seemingly unfair way you can pay AMT is if you have high medical expenses. Like state and local taxes, why should one deduction be allowed in one scheme and capped or excluded in another (AMT)? And, don’t get me started about ISOs and AMT.
Ironically, since you mention the home interest deduction, that is one way I could reduce my AMT burden (and there is careful thought behind my choice of that word). I think there is dubious benefit behind encouraging broader home ownership, and you can blame this misguided sentiment for much of the mess we are in today, but there is no reason society should reward me for increasing my debt with lower AMT. That’s insane.
For the record, I have no problems with progressivity in the tax code but I would greatly prefer a simplified 0 deduction scheme to mess we have today. Way too much money is wasted on compliance and avoidance.
February 26th, 2009 at 3:40 pm
AMT — we’ve been paying it for years and don’t make anything near $300K AGI. I don’t want to get into our tax situation and what made us hit AMT but there are a lot of routes to it. I noticed that a LOT of our deductions go away when computing it.
And yes, not indexing it to inflation is ridiculous.
Going back to the Econ 101 lesson from yesterday, I can see someone’s been drinking the Laffer Curve Kool-Aid. Or Flavor-Aid.
February 26th, 2009 at 4:08 pm
#27, steve: I humbly apologize for doubting you. The last line, indeed. You get the last Laff after all.
February 26th, 2009 at 4:23 pm
MV_Bound,
If your income is in the 6 figures, and your mortgage is not conforming, I cannot imagine you’re not paying AMT. I’d say there’s a good chance your accountant screwed something up.
February 26th, 2009 at 7:14 pm
RE- I was only hit in 2006, and that was from many deductions, capital gains, sale of property and business. My guess is those are the only reasons I was hit. Just went to the accountant today, and I am again not paying it for 2008. So sorry, to me, it’s all hype. And even in 2006, the AMT tax was only 1.5% of my AGI. Like I said, I didn’t even notice it.
Maybe people get hit like A Lewis because they don’t own a home. Hard for me to argue with that one, since I’ve owned a home since 1997, and prior to that I only made $60k, while my wife earned $40k. Maybe being married and the only spouse working is in my favor now? I don’t know, and guess I don’t care, since I have paid it only once in my lifetime. Doubt my accountant really screwed up, but maybe I will find out in 3 years if I am audited. Maybe, the IRS will go easy on me with penalty-free payments just like they did with Geithner.
February 26th, 2009 at 9:14 pm
#61 – yeah, my earlier post that’s STILL in moderation guessed that you are a single income household. That explains the lack of AMT impact (since I already assumed you’d earn under $200k or so). Yes, it’s hype for you personally. Still sucks for the 4 million of us who pay it. I’d much rather see reform in the tax code like steve mentioned in #57: a progressive tax that is a flat rate based on all earned income, regardless of source.
BTW, a renter is much less likely to pay AMT because they usually take the standard deduction instead of itemizing. I guess it levels the playing field a little since homeowners get other advantages.
February 28th, 2009 at 9:18 am
MV_Bound,
The person who owns a home is more likely to get assessed with AMT than a person who does not. One thing that triggers AMT is the high amount of deductions. Without mortgage deductions, a person is less likely to get AMT.
In any case, if I were you I’d gladly pay extra insurance to cover mistake by the accountant. In fact, why do you even need an accountant? Turbo Tax is easy enough. Plug in your number and see for yourself.
March 1st, 2009 at 1:29 pm
Nomadic- Nope, AGI is greater than the $200k a year. Only year I got it with it was over $300k, so I still believe it is hype, at least for a one-wage earner family in my situation which I can’t believe is that far different than many I know who don’t get it with it.
BTW, we love Los Gatos, aside from the rain today. I was surprised to see how many people were walking around in the rain. Completely unlike SoCal. There was even a bb team practicing at Van Meter school. I must say, we are sold on living in Los Gatos.
Not that PA was bad, it just seemed to big for us. I like the small community feel of Los Gatos even though it is a longer commute. Thanks for all the info over the last month or so.
March 1st, 2009 at 1:42 pm
I still believe it is hype
I’ll refer you again to what I wrote upthread and express my happiness for your good fortune:
In 1970, the year after the brackets were set, 19,000 people had to pay AMT. In 2005, more than 4 million were hit by the tax (and, 45% of those had AGI below 200K).