Wednesday, October 15

Obama's Plan to Tax Earnings $250,000+ Will Worsen The Housing Bubble

The driving force of the current credit crisis is the housing bubble. This brings out a big problem. Just who can afford all those houses?

Clearly, many people who purchased houses over the last couple years were not able to afford them. Now, don't accept that BS being tossed around that these people were no longer able to afford their houses only after house prices fell. What a crock. The monthly payment didn't change just because the value of their homes went down. What changed was their ability to sell the homes for a profit (Or to refinance while cashing out more equity). Once it was no longer possible to re-sell their homes for a profit, they lost interest in them and all of a sudden they became 'victims'.

Now with the credit crunch, banks are only interested in giving mortgages to people who they expect to pay the loans back and only as much as they can afford to pay back. This is as it should be. Banks are after all in the business of making money, not giving it away.

More responsible lending standards will have the effect of reducing the pool of qualified buyers. So as the supply of homes is growing the supply of home buyers is shrinking at every price level. This should result in a reduction of home prices. This appears to be happening just not to the degree that it should, yet.

Now, Senator Obama, as part of his Presidential Tax plan, wants to raise the taxes on people who earn $250,000 and up.

It seems that his supporters don't seem to have a problem with that. Too bad, because they should as it will effect them. (And not just plumbers!) For example, how much house can you buy with a yearly salary of a quarter million? As it turns out, you can get about $800 thousand dollars worth of home with a salary like that. Few people earn that much money in the US. But if Obama raises taxes on those who earn that much and more, he will further reduce this already small poll of qualified home buyers.

Is this important? Take McLean, Virginia. There are almost 500 homes for sale and over half of them have asking prices of over $1 million. That is 200 homes in one area for over a million and half of those homes are going for over $2 million.

As it stands now, a very small percentage of the population makes that much money. All the better for Senator Obama to pick on them as the voice of opposition is small. For those looking to sell their expensive homes their one main option will be to reduce their asking prices to reposition the homes to match the new reduced income levels. You might even say that this is a good thing for the poor. Unfortunately that is not incorrect. Most poor would need to increase their income to be better able to afford their own homes. Senator Obama is not promising to do that if he becomes President. What he is promising to do is to have the Government provide more services and to force employers to provide better benefits to employees.

So what do you think is going to happen to salaries if:
  • - Companies have to pay more tax to the Government.
  • - If your health care is company-provided through Government Regulation.
  • - You have to pay no income tax (Keeping all your income)
  • - The Government adds to your income with refundable tax credits
The result is increased compensation, but not increased income. Your immediate needs might be better met, but you have less cash to decide how to use as you please. And if the Government is taking care of you and deciding how your employer needs to take care of you, those are all sorts of responsibilities that no longer need to be taken into account which certainly does nothing to pressure employers to increase your pay. In fact, it increases the likelihood that more money goes to the Government instead of you!
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Reference: See the distribution of houses for McLean below. As you can see, the picking lower on the list are pretty slim. Also note that while housing might be overly expensive in this area, the area also has a healthly supply of well-paying jobs for those who are qualified to hold them.

31 Houses under $300,000

59 Houses under $400,000

64 Houses under $500,000

91 Houses under $600,000

117 Houses under $700,000

149 Houses under $800,000

177 Houses under $900,000

203 Houses under $1,00,000 (271 Over $1M)

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Anonymous said...

Would you append the post to include what website you used for the real estate searches?

Fred Fry said...

Oops. Apologies for the omission.

The searches were conducted at

Clicking on the images above will now take you to the website's homepage.