Housing Bailout, part 2, Congress makes tax code even more complicated
This is the second part of my post concerning the Housing Bailout, HB 3221. HB 3221 was passed by the House and will soon be passed by the Senate.
This post will focus on part of the bill; the part dealing with a “first time homebuyer credit;” which should actually be called a complicated interest free loan or an accountant and Internal Revenue Service job creation act.
Let me start by saying that our tax code is by far the most complicated in the world. Congress seems determined to make it more complicated each and every year. As most of you know I am a CPA and my profession benefits each time the tax code is made more complicated since it forces more people to hire a tax professional and since those tax professionals can charge higher fees as the work they perform for their clients becomes increasingly complicated.
I am against making the tax code more complicated because I think the tax code should be simple and easily understood by taxpayers…
With HB 3221 Congress is desperately trying to stimulate the US Housing Market. In its current form HB 3221 does quite a bit of tinkering with the tax code. This post will discuss the “tinkering” that I feel is the most egregious. The “first time homebuyer tax credit” is intended to make first time home buyers leap into the housing market by giving those tax payers a large cash infusion when they file their next annual tax return.
First time home owners are will now get a fully refundable Federal tax credit (actually an interest free loan) in certain circumstances. A first time homebuyer is a taxpayer who did not have an ownership interest in a principal residence in the US during the three year period prior to the purchase of the home to which the credit applies. The “tax credit” is granted to first time homebuyers who purchase a house between April 9th, 2008 and June 30th, 2009. (Don’t worry, Congress will almost certainly extend this next year as they always do).
Taxpayers who meet the above two requirements will receive a refundable tax credit on their personal taxes filed for the year in question. This tax credit will be 10% of the purchase price of the home with a maximum tax credit of $7500. This tax credit will phase out for single taxpayers who make between $75,000 and $95,000; meaning those who have an adjusted gross income (AGI) of less then $75,000 get the full tax credit, those who have an AGI above $95,000 get no tax credit, and those in between get a partial tax credit. Married filers phase out between $150,000 and $170,000.
This is best shown with an example. Lets say Bob is married and he and his wife Sue buy a house in downtown Fort Wayne in order to be near the Harrison Square Project. Lets say Bob and Sue were traditional college students and lived in dorms for the last four years and did not own a house in the last three years. Lets say Bob and Sue have a total AGI of $50,000 per year. Lets say they purchase a house for $100,000 on July 25th, 2008. This means they will qualify for a refundable tax credit of $7500 on their 2008 tax return which must be filed by April 15th, 2009. Lets say they have their taxes prepared by SBS CPA Group (My company) and they are due a Federal refund of $3000 without considering this tax credit. Since they qualify for the $7500 tax credit the IRS will send them a tax refund of $10,500 ($3000 + $7500). Congress hopes Bob and Sue will then turn around and spend this money in Fort Wayne to spur the local economy…
Now is where it gets much more complicated for the taxpayers who qualify for this tax credit; because, it is not really a tax credit at all, instead it is an interest free loan courtesy of Congress via the Internal Revenue Service.
The tax credit must be paid back to the IRS ratably over fifteen years with no interest charge beginning in the second taxable year after the taxable year in which the home was purchased.
This is best shown using the example of Bob and Sue above. Bob and Sue will have to pay $500 per year back to the Internal Revenue Service starting in the year 2010 and ending in the year 2024. In each of these years they will have to fill out an additional form and file it with their taxes. Lets say that SBS CPA Group prepares their 2010 taxes in early 2011. Lets say not including their payback of part of the “tax credit”to the IRS they would have received a Federal refund of $3000. Then we would take their refund due ($3000) and subtract the $500 they owe the IRS and they would instead get back a Federal refund of $2500.
But wait, it gets even more complicated…
If the taxpayer sells the home or the home ever ceases to be the primary residence of the the taxpayer or the taxpayers spouse prior to complete repayment of the tax credit, any remaining tax credit repayment amount is due on the tax return for the year the home is sold or ceases to be used as the principle residence. However, the credit repayment amount may not exceed the gain from the sale of the residence to an unrelated person. No amount is recaptured after the death of a taxpayer. In the case of a transfer of the residence to a spouse or to a former spouse incident to divorce, the transferee spouse (Not the transferor spouse) will be responsible for any future recapture.
The above section is long and complicated and will be litigated in court for sure since there is room for abuse. This section is best looked at with our example of Bob and Sue.
If Bob and Sue live happy lives in their house near Harrison Square until 2025 or beyond then they will simply pay $500 back to the IRS via their personal tax return for tax years 2010 - 2024.
If Bob and Sue are killed in a car crash in October of 2009 then the IRS will never be paid back the $7500 interest free loan at all.
If Sue gets a great job offer in Arizona in 2009 they may decide to sell their house near Harrison Square. Assuming they sell the house for $90,000 there is no gain on the sale of their house and the IRS will never be paid back the $7500 interest free loan. Assuming the house is sold for $110,000 then there is a $10,000 gain on the house and Bob and Sue will payback the entire $7500 credit back to the IRS when they file their 2009 tax return in early 2010. (So they better have that money saved and available to pay Uncle Sam) In this case the IRS would have basically given Bob and Sue $7500 in early 2009 and then in early 2010 Bob and Sue would send that money right back to the IRS.
Lets say Bob and Sue are living in Fort Wayne and they decide to get divorced. Lets say they get divorced in 2009. Lets say in the divorce settlement Sue gets the house and Bob gets their other assets. In this case Sue now owes the IRS $7500 and she will pay them back $500 per year over fifteen years as long as the house is her primary residence.
This has got to be one of the dumbest schemes I have ever seen Congress come up with. Some of my reasons for disagreeing with this “tax credit” are:
1. The Congressional Budget Office has estimated that this modification of the tax code will cost the taxpayers 4.853 billion dollars over the next ten years. This cost will be added to the National Debt and it will have to be paid back with interest. This cost assumes that the program will not be extended past June 30th, 2009 and we all know how doubtful that is… Please remember the Democrats suspended the “pay-asyou-go-rules” for HB 3221 since it is so important in their opinion that the cost should just be added to the Federal Debt. Basically the Federal Government is giving certain taxpayers an interest free loan and it is borrowing money by selling US Treasuries in order to get the money to finance that interest free loan… Only Congress could come up with something that stupid.
2. It makes the tax code even more complicated and will not in any way benefit this country in my opinion. I cannot imagine any reasonable person would ever go and purchase a house just so they could get an interest free loan for the government during the following year.
3. The IRS will have a difficult time tracking the repayments as will taxpayers and their tax preparers and accountants. This is going to get abused and will cause us to have to hire more IRS agents in order to track the payback system.
Provisions like this really increase my blood pressure.
Is there ANYONE reading this post who thinks that this specific provision of the Housing Bailout Bill is a good provision?
Really, I am looking for just one person…
Please let me know what you think in the comment section.
Mike Sylvester
Housing Bailout summary, part 1, the Democrats lied…
HB 3221 is a 700 page law that passed the House today and is likely to pass the Senate this week. The bill is not in its final form yet; therefore, some of the items in this post may change when the bill becomes law.
Over 99% of the Congressional Democrats support this bill. Between 1/3 and 1/4 of the Congressional Republicans support this bill.
Mark Souder, our Republican Congressman in Indiana’s 3rd Congressional District did vote correctly on this bill; he voted against it.
I disagree with this bill; however, after analyzing it I have to say it is not as bad as I originally thought it would be. I do oppose it; however, I have calmed down quite a bit after two or three hours of research. HB 3221 is a bill that should not have been passed; however, it is not as crippling as I first thought.
The worst thing about HB 3221 is that it once again illustrates how the Congressional Democrats are completely shattering their 2006 campaign promise to restore fiscal sanity to Washington. In 2006 Nancy Pelosi, Harry Reid, and the vast majority of Congressional Democrats ran on a platform that included “Pay-as-you-go-rules.” “Pay-as-you-go-rules” require that you designate new sources of revenue to pay for all new spending. HB 3221 is estimated to cost the US taxpayers 25 billion dollars. The Democrats decided to suspend the “Pay-as-you-go-rules” again and they decided to just add the costs of this bill directly to the Federal Debt (Which is currently just over 9.5 trillion dollars on a cash basis).
This is shameful and Nancy Pelosi and all of the Congressional Democrats who voted for this bill should be ashamed of themselves for passing the cost of this bill (with interest) onto future generations of Americans.
The second thing about this bill that angers me is that it raises the National Debt limit from 9.8 trillion dollars on a cash basis to 10.6 trillion dollars on a cash basis. This further shows that the Democrats have absolutely no intention of restoring fiscal discipline. IN fact, they are already saying that they will add at last another 1.1 trillion dollars to the National Debt.
The Democrats absolutely lied and have completely broken their campaign promise to restore fiscal discipline in Washington DC.
Part 2 of this post will analyze HB 3221 and its effect on America.
Mike Sylvester
Lessons Learned?
It’s important to keep a tally of lessons learned, especially during war, to try and avoid similar mishaps in the future:
- We misjudged then — and we have since — the geopolitical intentions of our adversaries … and we exaggerated the dangers to the United States of their actions.
- We viewed the people and leaders in terms of our own experience … We totally misjudged the political forces within the country.
- We underestimated the power of nationalism to motivate a people to fight and die for their beliefs and values.
- Our judgments of friend and foe alike reflected our profound ignorance of the history, culture, and politics of the people in the area, and the personalities and habits of their leaders.
- We failed to recognize the limitations of modern, high-technology military equipment, forces and doctrine.
- We failed as well to adapt our military tactics to the task of winning the hearts and minds of people from a totally different culture.
- We failed to draw Congress and the American people into a full and frank discussion and debate of the pros and cons of a large-scale military involvement … before we initiated the action.
- After the action got under way and unanticipated events forced us off our planned course … we did not fully explain what was happening and why we were doing what we did.
- We did not recognize that neither our people nor our leaders are omniscient. Our judgment of what is in another people’s or country’s best interest should be put to the test of open discussion in international forums. We do not have the God-given right to shape every nation in our image or as we choose.
- We did not hold to the principle that U.S. military action … should be carried out only in conjunction with multinational forces supported fully (and not merely cosmetically) by the international community.
- We failed to recognize that in international affairs, as in other aspects of life, there may be problems for which there are no immediate solutions … At times, we may have to live with an imperfect, untidy world.
Unfortunatley for all of us these were Lessons Learned by Robert McNamara from the Vietnam war and published in 1996…
Nancy Pelosi is at it again
Well it did not take her long; the Democrats in Congress are considering another wasteful economic stimulus package!
The last wasteful economic stimulus package was passed in a bi-partisan fashion and served to increase the annual budget deficit even further and hence will increase the national debt to even higher levels.
The last economic stimulus package has mostly been distributed to taxpayers; however, some taxpayers are still waiting for their checks due to not filing their tax returns in a timely manner.
As expected the first economic stimulus package has not had a noticeable effect on the economy; however, before it is even entirely distributed the Democrats want to borrow even more money we do not have and spend it.
Nancy Pelosi and the Democrats ran on a platform of fiscal sanity. They promised to institute Pay-as-you-go rules which would prevent the budget deficit from increasing even higher. The Democrats have suspended their Pay-as-you-go rules several times on issues that are “too important” for Pay-as-you-go. Every single time they suspend the “paygo” rules they are violating their campaign promise and they are passing more debt on to future taxpayers.
For example the Democrats suspended the Pay-as-you-go rules when they passed another economic stimulus package earlier this year.
The press is reporting that Nancy Pelosi and her Democratic allies are considering a second economic stimulus package that would likely be centered around the following four points:
1. Increased spending on roads and other infrastructure. Out of their four ideas this has the highest chance of success; however, Federal spending on infrastructure and roads is already at an all time high without increasing it further. Needless to say, I am against this.
2. Expanding unemployment benefits even further. I have discussed this in earlier posts; however, Nancy Pelosi and the Democrats seem determined to create an unemployment system that will discourage workers from finding new jobs and will allow unemployed workers to draw money for even longer. Needless to say, I am against this.
3. Ensuring even more money is spent on home-heating assistance for the poor. The Federal government is already slated to spend over 3 billion dollars to subsidize home heating. Apparently this is not enough for Nancy Pelosi. Needless to say, I am against this.
4. And the worst idea is to slate some Federal money for States who are struggling with budget problems. This is a terrible idea and I am not surprised that it is supported by Nancy Pelosi. California has created a fiscal mess for itself and I imagine Nancy Pelosi wants to take money from the fifty states and redirect it to those states who have made poor financial decisions. Needless to say, I am against this.
Unfortunately I imagine the Republicans will join with the Democrats and they will create a re-election stimulus package in an effort to ensure most of the incumbents are re-elected.
This economic stimulus package is an awful idea and the Democrats have completely abandoned their 2006 Campaign promise to restore fiscal sanity in Washington DC.
My predictions for the Presidential Election
I feel that Barrack Obama will be the next President of the United States. I think he will beat McCain in Ohio, Pennsylvania, and Michigan and that he will win enough other battleground states to win a relatively close election (Close per Electoral Votes).
I think he will choose Bill Richardson, the current Governor of New Mexico as his running mate.
I think that Barrack Obama will serve for one term and then be defeated in 2012. I think he will be defeated because I think the US economy is going to struggle over the next four years, because the media will turn on him and he will not be seen as “The Messiah” anymore, and because he will do at least of few of the things on the below list:
1. We will still have troops in Iraq past the 18 months he has promised; this will infuriate the Democratic base.
2. He will try to nationalize health care (Though he will fail).
3. He will let many of the Bush tax cuts expire and he will likely raise taxes. I prepare taxes for a living; almost all of the people I prepare taxes for feel that they pay too much in taxes; even those who pay no Federal income tax and even those who get more back from the Federal Government in various tax credits than they paid in!
4. He will pass some Global Warming tax that will hurt American manufacturers and force even more jobs overseas. This will not be popular with unions and will be a factor that will cause the economy to continue to falter.
5. The National Debt will increase markedly. He will spend even more money and the National Debt will increase.
6. He will grant amnesty to millions of illegal aliens. This will infuriate many Americans.
7. He will not have a comprehensive energy policy. He will not allow more domestic drilling and he will not increase nuclear power to the extent it should be increased.
I think that Barrack OBama is going to spend a lot of money in Indiana and he is going to campaign in Indiana. In past years Indiana has been a solidly Republican state; however, I think it is going to be much closer this year. I think McCain will win Indiana; however, by a relatively small margin. I think Barrack Obama will help the Indiana Democratic Party gain some more ground in Indiana; however, I think Mitch Daniels will be re-elected as Governor.
What are your predictions?
Mike Sylvester
More Anti-Gun Nonsense In JG Letter
A letter in today’s JG made the following claims:
The vast majority of handgun homicides across this country are committed not by criminals breaking in people’s homes but by “non-criminals,” such as husbands, wives and other family members shooting each other in domestic disputes.
According to many reports by police commissioners across the country, about 75 percent to 80 percent of handgun homicides are committed by non-criminals.
Where’s the data to back this up? You can bet that when a writer uses weasel words like “according to many reports” instead of just citing a report, that they don’t have any real data to back their claim.
Now for some real data from the Bureau of Justice Statistics:
Between 1976 and 2002, about
11% of murder victims were determined to have been killed by an intimate. 11% is hardly a vast majority.
In a 1997 BJS study of inmates convicted in firearm-related offenses (let alone just murder) they reported that only 22% of state inmates and 10% of Federal inmates had no prior criminal history.
Another BJS study analyzed felony defendants in the nation’s 75 largest counties and found that 81% of those charged with murder has prior arrests. In fact 28% of them had 10 or more arrests. Of course that blows the author’s bogus claim of “about 75 percent to 80 percent of handgun homicides are committed by non-criminals” right out of the water.
I think you’ll find that the reason the author doesn’t cite any actual studies to support his claims is because there aren’t any…
Obama wrong on his views concerning “English only”
You really should take the time to follow this link and learn more about Barrack Obama’s views on whether or whether or not we should pass “English-only” laws and his views concerning bilingualism.
One part of his speech is dead wrong.
He states and I quote “Now, I agree that immigrants should learn English. I agree with that. But understand this. Instead of worrying about whether immigrants can learn English — they’ll learn English — you need to make sure your child can speak Spanish. You should be thinking about, how can your child become bilingual. We should have every child speaking more than one language.”
The part that is wrong is when he says that “they’ll learn English.”
Many immigrants are not learning English anymore because they do not have to. Most products now have instructions in Spanish and English. Most parts of the US have many Spanish speaking radio stations. We have Spanish speaking TV stations.
A few years ago I worked at a factory near Hamilton, Indiana. A large percentage of our workforce was from Mexico. We had to have at least one interpreter on each shift so that we could communicate with the Mexican workers we had that spoke no English.
We desperately need “English-only” laws in the US. English is the language that holds us together and binds us as a nation. The US Government should do all business in “English-only.”
From a political standpoint Barrack Obama should pay attention to The Rasmussen Reports.
Per Rasmussen Reports: Eighty-three percent (83%) place a higher priority on encouraging immigrants to speak English as their primary language. Just 13% take the opposite view and say it is more important for Americans to learn other languages.
It is frightening that only 83% of those polled think that we should have a higher priority on encouraging immigrants to speak English as their primary language.
There are parts of what Barrack Obama said that I agree with. We should emphasize foreign languages more in our schools and I do wish more Americans spoke more than one language.
Mike Sylvester
Congressional approval ratings reach a historic low
According to the Rasmussen Reports those people who feel Congress is going a good or excellent job feel to a historic low of 9%.
9% of Americans polled feel that Congress (House and Senate, Democrat, Independent, and Republican) are doing a good or excellent job.
You can read the report here:
13% of self identified Democrats think Congress is doing a good or excellent job.
8% of self identified Republicans think Congress is doing a good or excellent job.
3% of those for do not self identify with either Republicans or Democrats think Congress is doing a good or excellent job.
So much for Nancy Pelosi and Harry Reid and their various campaign promises… So much for the Republican minority as well.
Congress is doing a pitiful job (Both Democrats and Republicans) and just about everyone knows it…
Mike Sylvester
Reverent & Free Speech
Craig over at Reverent and Free sounds off on a “Wake Up America” style rant that pulls no punches. I’m sure everyone won’t agree with what he has to say but in the spirit of Independence Day I thought it deserved highlighting as a reminder that in this great country we can spout off about nearly anything we choose. Free speech - ain’t it grand?
Now, we are told that the war record of another Vietnam vet is definitely “off limits”, unless of course it is used as evidence of McCain’s awesomeness.
With all due respect to all the vets out there, fuck Vietnam. I don’t care what happened to who over there. It was a fucked up, nasty war that no one ever should have fought. I wasn’t even born when the whole shitstorm started so I really don’t care.
Call me silly, but this seems a little more important than how LBJ fucked an entire generation…
[...]
The Taliban is back. You know, the primitive-gangsters who we should have been able to wipe from the face of the earth? You know, the people who were hiding Osama bin Laden after 9/11? You know, the man who actually launched an attack on this country?
So for all you Bush cheerleaders out there who thought something John Kerry said thirty fucking-years ago was somehow more important than a war that is actually being fought right now. Fuck you. Fuck you and fuck you some more you fucking assholes.
That is all
Mayor Daley, the 2nd Amendment & the 1968 Democratic National Convention
There wasn’t much council business tonight so I thought I’d add one more 2nd amendment related post in light of last week’s Supreme Court ruling. I remember watching current Chicago mayor Richard Daley ranting about the court’s decision shortly after it happened.
All I could think of was his own father (also mayor at the time) ordering a wave of police brutality against peaceful protesters during the 1968 Democratic National Convention in Chicago. And I wondered what this guy would do if he could truly disarm the entire citizenry - it wouldn’t be pretty.
So here are a couple of the current mayor’s comments along with a trip down memory lane to revisit the gestapo-like tactics of the Daley regime in 1968…
