Friday, May 21, 2010
You are the lucky winner of a new ObamaCare real estate tax!
You very likely know that the real estate and associate residential construction sectors are very depressed. So deeply depressed that the Obama Administration has spent money we do not have (deficit spending) and sponsored the never ending bail outs of Fannie and Freddie (money we do not have) to bolster these two sectors.
Economics 666: what we do is take an unrelated sector and create a tax that then negatively impacts another sector that you are simultaneously attempting to stimulate. Yes, we promote real estate on one side of the balance sheet yet demote real estate on the other side of the balance sheet.
No way! Way!
Dr. Dolittle economics: Pushmi-Pullya.
ObamaCare, your newest best friend, has a 3.8% tax on real estate sales embedded in the section 1411, "Imposition of Tax", in H.R. 4872, the Health Care and Education Reconciliation Act of 2010. (1) (2) (3)
Wait a darn minute! Capital gains on home sales, within limits, are exempt from tax. That is correct. However, ObamaCare merely added an additional tax beyond the capital gains limited exemption.
There are certain income and capital gains formulas for the newly imposed tax regarding principle residence sales that may or may not mitigate the tax. But if you own investment property or a seasonal home, no such formulas exist and prepare to pay the full 3.8% tax on the gain in value upon the sale of such property. The tax goes into effect in 2013.
By the way, the tax/income formula is not indexed for inflation hence as your income rises due to inflation, the formula for principle residences tax begins to encompass more and more people until theoretically we all pay more and more of the tax or, alternatively, your exemption from tax grows smaller and smaller.
Taxes and Time Horizons
When you first impose a tax or increase an existing tax on a good or service, generally speaking, the rule is: you will get less of that item. Further, with the tax imposed for an unlimited time as well as not indexed for inflation, the tax time horizon is such that behavior regarding real estate purchases and potential subsequent sales will be changed in the long term. Primary residential real estate, seasonal homes, and investment real estate will be negatively impacted.
The Obama Administration is attempting to stimulate the residential real estate and associated residential construction sectors through multiple policies while simultaneously depressing the long term real estate purchase/sales behavior by imposing a tax associated with ObamaCare which is associated with a completely different sector i.e. health-care.
Please try this link for additional information:
Settling the Question of a Real Estate Tax in Obamacare
UPDATE 2: 10/03/2012:
Property Owners Face a New Surtax - WSJ
Saturday, May 15, 2010
All central planning schemes that attempt to replace a free market eventually unravel. No one person or even group of people have the mundane knowledge to replace the free market mechanism with a predetermined outcome, centrally planned, price fixing scheme. Regardless of the notional argument that certain intellectuals possess "special knowledge", knowledge that will cause schemes to work, the empirical evidence is that no scheme can mimic a free market.
The quick unravel of the ObamaCare scheme is seen in its most recent form as coverage vs. penalties and immediate skyrocketing costs. However, the real unravel is the attempt to create an additional entitlement scheme in an environment of current overall entitlement schemes failing.
Providing Coverage vs. Paying Penalties
Once companies did the math on providing coverage vs. paying a health-care penalty, the efficient position is to pay the penalty and eliminate coverage. (1) (2) AT&T, Verizon and many others are weighing the option of dumping coverage and merely paying the penalty as the cost would be less.
Escalating Cost Estimates
Then comes more pesky math. Yes, allowing children to stay on their parents policy until age 26 will increase premiums. (3) Yes, several revisions of the cost of ObamaCare by the Congressional Budget Office have now pegged the cost to exceed $1 trillion and yes the federal government budget deficit will increase not decrease due to ObamaCare. (4) (5) (6) (7)
European Meltdown of Economies based on Entitlements
During the six or so weeks following the passage of the European style ObamaCare plan, we have experienced an European style financial meltdown in the home of socialized medicine. Yes, the European Union is melting down. (8) The meltdown in Europe is in part due to socialized medicine and its out of control costs.
Unfunded Entitlements, Empty Promises, and Unsustainable Costs
Progressives and/or socialists over the last 100 years solve every possible problem with more and more government intervention in the form of regulation, government programs leading to addition bureaucrats, and unfunded entitlements.
To understand this perpetual phenomena more fully, you have to understand progressives within the political class (democrats and/or republicans). The progressives within the political class are the anointed/intelligentsia that know what is best for the common man/woman. The progressive political class wants to paint the world in their own self image. They paint the world with "notions" that are not based on empirical evidence. These notions (the way things ought to be) are then argued through verbal virtuosity of moral obligation. Basically the political class argues that the producer class has a moral obligation to the recipient class. This moral obligation takes the form of transfer payments from the producer class to the recipient class.
Along the way, the progressive political class learned that they could build a constituency group, a voting block if you will, based upon the recipient class. The conduit of power is the "transfer payment" from the producer class to the recipient class. The power of the progressive political class is the transfer payment.
However, with any good scheme comes overreach. You see, the progressive political class made a major error in painting the world in their own self image through notions of the way things ought to be. The error is that the way things ought to be, in the long run, exceeds the summation of all possible transfer payments. Opps!
In other words, the accumulation of all the progressive political class actors over time and the accumulation of all their notions leading to all the schemes over time, go bust when the transfer payment from the producer class approaches or becomes equal to a 100% transfer to the recipient class. (9) (10)
The idea that the private sector is the only sector that fails is ridiculous. Both private and public sectors can and do fail. An overarching notion in progressive and socialist policies is the implicit assumption that the private sector is the only sector in which failure occurs and to limit or stop failure is the responsibility of the public sector with the implicit assumption that the public sector doesn’t itself fail. This is a ridiculous non-empirical assumption. The fact of the matter is that governments and government policy fails on a daily basis.
Sometimes Failure comes with a Warning
ObamaCare is merely another entitlement added to the sea of unfunded entitlements (currently standing at +$100 trillion unfunded) that will unravel like the other unfunded entitlements, the summation of which, are creating a word of hollow promises. Progressives and socialist have created the ultimate world of unreality. Promises built on a house of cards. Promises heading for a recognising day with of no funds and hence no benefits.
However a warning signal, a lighthouse standing on the rocks, a sinking ship distress signal is available for all to see. Greece is imploding due to unsustainable debt directly linked to unfunded and unsustainable entitlements (empty promises) made by their socialist government policies. The European Union, lead by Germany have arranged for a bail out. However, the bail out comes with conditions.
Of the many conditions of the bail out is the privatizing their health care system. No way! Way! That the Greek socialized medicine system needs privatized should be a warning that ObamaCare is merely an additional pathway to bankruptcy. (11)
The American people, armed with mundane knowledge, are signaling repeal of ObamaCare (12) (13). Political leaders should hear the message from the American people and see the warning that the Greece and euro-style financial meltdown is largely due to unsustainable unfunded entitlements. That current entitlements need addressed and fix before empty promises go bust. That no new entitlements such as ObamaCare need proposed until the U.S. financial house is in order which could take decades.