Fiscal Cliff

[mike777]

as you noted in passing and many people forget the real issue is often just how do you define taxable income..not so much rates..

 

Keep in mind the more pages, I mean thousands of pages, you add to the tax code the more people hire other people to avoid taxes.

 

For every action there will be a reaction. :)

[kenberg]

A Washington Post op-Ed this morning, by Senator Bob Corker http://www.washingto...6cc9_story.html

 

Part of it:

 

The proposal includes pro-growth federal tax reform, which generates more static revenue — mostly from very high-income Americans — by capping federal deductions at $50,000 without raising tax rates. It mandates common-sense reforms to the federal workforce, which will help bring its compensation in line with private-sector benefits, and implements a chained consumer price index across the government, a more accurate indicator of inflation. It also includes comprehensive Medicare reform that keeps in place fee-for-service Medicare without capping growth, competing side by side with private options that seniors can choose instead if they wish. Coupled with gradual age increases within Medicare and Social Security; the introduction of means testing; increasing premiums ever so slightly for those making more than $50,000 a year in retirement; and ending a massive "bed tax" gimmick the states use in Medicaid to bilk the federal government of billions, this reform would put our country on firmer financial footing and begin to vanquish our long-term deficit.

[/Quote]

 

"increasing premiums ever so slightly for those making more than $50,000 a year in retirement"

This would apply to me and I support it, even if it goes beyond ever so slightly, but with a proviso. Maybe it could be called the Grover proviso

I voted for Obama. I have friends who voted for Romney. As far as I know, no one voted for Grover Norquist. Speaking of metaphorical cliffs, it is way past time for him to be thrown over one. I would think our elected representatives would be pretty tired of looking like a bunch of patsies (I choose my description with the censor in mind). Dump the Grove. People have given their lives for this country and if Medicare needs a bit more to balance the budget, let me know where to send the check. But we have to seriously address this as a problem for everyone, and that very much includes the rich everyones.

[mike777]

Wow the states are guilty of bilking the federal govt out of billions..wow

 

http://www.ajc.com/news/news/bed-tax-a-windfall-for-some-hospitals-a-big-loser-/nS9hH/

 

 

I did just say for every action there will be a reaction.

[Bbradley62]

As a practical matter, though, it might turn out best to let the tax cuts expire naturally. That would give the Norquist republicans a chance to vote for a tax cut even if the new tax rates are higher than we pay now.

We had something similar to that here in Fulton County, GA, about 7 years ago. There had been a temporary (2-year, I think) reduction in the millage rate (the property tax rate) which was set to expire at the end of the year; with no new government action, the rate would return to the previous level. When the County Commission met to set the millage rate for the following year, Democrats proposed making it about halfway between the reduced rate and the previous rate. Republicans (led by Karen "Susan G Komen Cuts Ties With Planned Parenthood" Handel) said "no, we won't vote for a tax increase, and if we approve this proposal then next year's rate will be higher than this year's rate, so that would be a tax increase". Dumbasses!

[hrothgar]

It's interesting to watch the discussions around capping deductions.

[mycroft]

...compensation in line with private-sector benefits...

 

So, for the rank-and-file federal employee, it continues the Walmart race-to-the-bottom; for the higher-grade federal employee, it incentivises moving into the private sector, where they get the same benefits, but much higher pay rates. So we get lower-grade higher-grade employees, which will obviously improve results.

 

Government jobs (here and down South), and pseudo-government jobs like teachers, police and firefighters have used the lure of secure future and more secure present (in terms of not "at-will" contracts, and more difficulty in firing than outside) to pull in the people with the skills to make mondo cash as a lawyer, accountant, policy wonk, and such (I note that I never hear, when discussing "trimming the public sector", removal of lawyers or their support structure. I wonder why?)

 

I think what we need to do is bring compensation in the private sector in line with public-sector benefits. Might that just require the people at the top going back to 1950's style 8-1, 10-1 compensation (oddly enough, that's in line with public-sector CEOs which we think are "massively overpaid") in order to maintain profitability? Hmm, maybe.

[mike777]

I think what we need to do is bring compensation in the private sector in line with public-sector benefits

 

ok how do we do that?

[dwar0123]

10-1 compensation (oddly enough, that's in line with public-sector CEOs which we think are "massively overpaid")

I doubt the average employee at kraft foods is making 2.5 million annually.

[phil_20686]

So I have a few points, but no obvious solutions.

 

Minimum wage

Once, I, like most conservatives, thought that the minimum wage was "obviously a bad idea". It seems so logical that a company should pay its employees roughly their marginal productivity, and that therefore a minimum wage will reduce the number of jobs without increasing the pay of employed people. Thus I was surprised to find the empirical evidence was contrary, and that it does raise wages for the lowest paid.

 

Eventually I realised my error: The labour market(s) actually have two states, in the first, when the economy is at full employments, employees hold the power, their labour is in demand, and they can keep demanding higher wages up to their Marginal Productivity. In such a regime, clearly a minimum wage does not help anyone. However, in the second state there is slack labour, and companies hold the power. Then you get a race to the bottom in wages, as the unemployed compete with each other for jobs. In this situation wages can fall far from their workers Marginal Productivity.

 

Now, you might argue that recessions are rare, but in actual fact, there are often sectors of the economy which are, in effect, in recession, due to technological changes, which leads to massive oversupply of certain skill sets, and so there is oversupply of labour in certain segments, so I think regime two is actually more common and more relevant than the full employment one.

 

So I have changed my mind, and support the minimum wage.

 

Mortgage Deductions

I think that housing is one of the best long term investments a country can make. The cost of actually building a house is so minimal compared with the value you get out of it in the sixty to two hundred years that a good house will last. There seems no reason at all that rich countries like the UK and the US should not build really high quality social housing, in sufficient numbers that largish middle class houses along side efficient mass transit systems could be within the reach of even lower income families. I think that good city planning, and taking a long term view of building nice medium density housing is something that municipal governments can do very well, and that it would make a big long term increase in the quality of life. (You can compare the housing stock+infrastructure of somewhere like Germany to the UK and its clear that they are well ahead, and consequently that housing prices are cheaper and people have more disposable income).

 

Mortgage deductions, incrementally increase the amount of investment in housing, by raising the price people can pay for first homes. Consistent with this, we should cap it at roughly the price of the homes we are trying to build more of, so that we do not subsidise the building of mansions!

 

Child Benefit

So, whether you use this as a tax deduction, or straight up cash, it is one of the few government benefits that is unambiguously a good idea. One useful way to think about it is as consumption smoothing over a lifetime. Typically, you want parents to have children quite young, 25-30, but in today's economy you tend to earn most at the end of your life, when you have most experience and your children are no longer dependent. It makes sense to try to smooth consumption over a lifetime by, in effect, transferring wealth from when you have more money and fewer dependants, to when you have less money and more dependants. Further, a generous child benefit is an investment in the children. Insuring children have sufficient support makes them more productive future citizens, and I am fairly certain that the best way to maximise children's welfare for a given number of $$ is to give it directly to the parents. Sure, there are bad parents, but the norm is for parents to try their best to give their children a good life. Money helps.

 

Even if you don't have children, child benefit is a good idea. The idea of `saving for retirement' as if one is a self contained entity is somewhat strange. In the end, once you stop working you are supported by the production of the working age people. If there was no one to work, you would be very poor, regardless of the number of $ you had saved.

[mycroft]

[Me:]"I think what we need to do is bring compensation in the private sector in line with public-sector benefits."

 

ok how do we do that?

If I knew that, I'd be in politics rather than IT. I think that incentivising the market to not have 1000-1 payment pyramids might help. I think that laws that make it cheaper to remove skilled knowledge and manufacturing bases out of the country (or, perhaps, lack of laws that don't) would help.

I doubt the average employee at kraft foods is making 2.5 million annually.

Yeah, I don't think that's the way I was suggesting we fix the "treat labour like people rather than 'resources', while still maintaining profitability" problem...

[quiddity]

The mortgage interest deduction is a tough nut to crack. I agree that it doesn't make much sense and probably should be eliminated somehow, but the effect on recent home-buyers would be disastrous.

[Bbradley62]

The mortgage interest deduction is a tough nut to crack. I agree that it doesn't make much sense and probably should be eliminated somehow, but the effect on recent home-buyers would be disastrous.

It can be phased out, like the credit card interest deduction was 20 years ago. That was a five-year phase-out, with 80% of cc interest deductible in the first year, 60% in the second, etc. The mortgage deduction should probably be a ten-year phase-out.

[WellSpyder]

It can be phased out, like the credit card interest deduction was 20 years ago. That was a five-year phase-out, with 80% of cc interest deductible in the first year, 60% in the second, etc. The mortgage deduction should probably be a ten-year phase-out.

it was phased out in the UK by setting a maximum amount of mortgage that was covered. When it was set, the limit of £30,000 was more than the large majority of mortgages taken out, so it was viewed as a sensible limit to avoid subsidising mortgages on mansions. After years of inflation, the limit started to affect more and more mortgages, but it was never increased. By the time it was finally abolished, it was hardly noticed since most mortgages were for much more that £30,000.

[WellSpyder]

Mortgage deductions, incrementally increase the amount of investment in housing, by raising the price people can pay for first homes.

Except that (in the UK at least) most of the increase in price goes into the cost of the land needed to build on, rather than into building a better house.

[phil_20686]

Except that (in the UK at least) most of the increase in price goes into the cost of the land needed to build on, rather than into building a better house.

 

Indeed, which is one of the reasons that the housing market has always seemed ripe for government intervention. Such things are always easier said than done.

 

In the UK, there is already massive government intervention, to build social housing. My real bug bear is that such a lot of it is such poor quality. Glasgow, for example, has been redeveloping a bunch of social housing sites that are younger than me(!), because the fabric of the buildings was so poor. It seems like, if you are going to build social housing, you should do it properly, by (1) building better quality housing to start with, and (2) doing maintenance for your tenants.

 

(2) Is necessary because many council tenants fail to properly maintain their houses. Its pretty cheap to repair things straight away compared with later.

 

There are many other countries in the world, nordic and germanic countries particularly, but also singapore, and probably some others, that seem to have done much better than the UK in terms of providing high quality housing at reasonable prices. I'm not sure exactly how, but I am sure the government is to blame! (I think better mass transit systems are key, think of say, berlin, where housing is mega cheap compared to london, and the whole city feels spacious.

[kenberg]

I am not all together clear on just what social housing is in the UK. Actually I am a little vague on just how government supported housing works (if works is the right word) here. But my understanding is that proper maintenance is a real problem here, and I gather the same is true there. It's a problem worthy of serious thought.

 

People treat their own property with more care than they treat government owned property. Not necessarily true for everyone, of course, but I think it is the general rule. I very much favor home ownership. I am speaking here for people of modest means. Those with plenty of money can rent a palace or two, here or there, it's not my business. But for those coming from modest means, a neighborhood of family owned houses seems to me to be the right way to go. Some of my views come from philosophy, some from data and analysis, some from personal eccentricity, this one comes from direct personal experience and I won't be changing my mind.

[y66]

I am not all together clear on just what social housing is in the UK. Actually I am a little vague on just how government supported housing works (if works is the right word) here. But my understanding is that proper maintenance is a real problem here, and I gather the same is true there. It's a problem worthy of serious thought.

 

People treat their own property with more care than they treat government owned property. Not necessarily true for everyone, of course, but I think it is the general rule. I very much favor home ownership. I am speaking here for people of modest means. Those with plenty of money can rent a palace or two, here or there, it's not my business. But for those coming from modest means, a neighborhood of family owned houses seems to me to be the right way to go. Some of my views come from philosophy, some from data and analysis, some from personal eccentricity, this one comes from direct personal experience and I won't be changing my mind.

 

One of DC's most successful non-profits thinks this way too. At least they used to. My wife lived in a group house with some of the people who worked for this outfit 2+ decades ago. Super smart, super hard working and super likable ex-peace corps types on a mission to change DC one house and one block at a time.

[Cthulhu D]

I am not all together clear on just what social housing is in the UK. Actually I am a little vague on just how government supported housing works (if works is the right word) here. But my understanding is that proper maintenance is a real problem here, and I gather the same is true there. It's a problem worthy of serious thought.

 

People treat their own property with more care than they treat government owned property. Not necessarily true for everyone, of course, but I think it is the general rule. I very much favor home ownership. I am speaking here for people of modest means. Those with plenty of money can rent a palace or two, here or there, it's not my business. But for those coming from modest means, a neighborhood of family owned houses seems to me to be the right way to go. Some of my views come from philosophy, some from data and analysis, some from personal eccentricity, this one comes from direct personal experience and I won't be changing my mind.

 

It's been shown that you are right - people do better when you actually give them the apartment or whatever, or have some scheme where they can buy the place off you after renting for a while, and these schemes are cost effective for the government because they flip a homeless guy incurring medical bills into a low skill worker who pays a small amount of net taxes.

 

Unfortunately, they tend to be opposed by segements of the electorate despite the fact they are profitable for the government to operate.

[kenberg]

"give them the apartment or whatever' sounds like quite a bit more than I have in mind.. That's not to say that I have a thought out plan, it's more that I think it good for people to be able to buy houses to live in. For example, some speak as if we have to get housing prices back up again. That's a little weird. No one thinks it is good to get car prices up, or food prices up. We have a housing mess, caused at least in part by people (egged on by mortgage bankers who should have known better) buying houses that they could not afford and/or treating the house as a cash cow as the value went up. A stable reasonably priced housing market would appeal to me. And then some help for young families trying to buy. If they can get on board somehow, and then if they can keep their life together, this will work out well for them. Hardly a radical view.

 

The MANNA program Y66 cites sounds fascinating, and I would happily defer to them on practical matters of implementation.

[Bbradley62]

I very much favor home ownership. I am speaking here for people of modest means. Those with plenty of money can rent a palace or two, here or there, it's not my business. But for those coming from modest means, a neighborhood of family owned houses seems to me to be the right way to go.

This is a very suburban point of view. My grandparents, Irish immigrants, rented the same apartment in Washington Heights for 40 years, raising 3 children while he rose from fireman to Battalion Chief of the New York City Fire Dept. Home ownership is simply not something that urban dwellers of "modest means" even aspire to.

[awm]

I'm not really sure I understand the importance of home ownership.

 

Owning a house potentially ties you down, making it much harder to move for work. Job security is very low in today's economy... say you work at a local factory which shuts down; typically when this happens a lot of people lose their jobs and housing prices become depressed and if you're locked into a long-term home mortgage (likely now for more than your house is worth) it becomes much harder to relocate to another area where work is more easily available.

 

Owning a house means the vast majority of your "investments" are in a single asset. If housing prices go up and you can sell the place when your kids grow up and/or you retire for a significant gain that's great... but if the housing market collapses (as happened recently!) you are basically screwed. There's a reason investment advisors say to diversify.

 

Owning a house can also be a source of stress... what if there's a hurricane or earthquake and your property is seriously damaged or destroyed? Sure, you might have insurance (but those kinds of insurance are hard to get) or maybe the government bails you out eventually (but that's a political football) but do you want to take the chance? Even something minor like a termite infestation can cost you thousands of dollars that you may be unable to afford.

 

Renting seems a lot safer, makes it much easier to relocate, and leaves you without a massive overhang of debt.

 

Obviously the cost/benefit analysis here depends a bit on living situation (how much space do you need? what's the relative cost of renting and buying? how high are property taxes and interest rates?) and there's no "one size fits all" solution, but I'm really not convinced that owning a house is somehow better for the vast majority of people. My wife and I watch this "house hunters" show sometimes where the couples move across the country (or the world) to a new city they've never been to before and the first thing they want to do is buy a house, and it just seems crazy to me! Sure, if you're certain of where you're going to live for the next decade or so buying can be economical, but in an awful lot of cases it's not.

[phil_20686]

Renting is usually more expensive than owning, especially once you have equity in your house.

 

Owning capitalises your income. Money paid in rent is lost, but

Most of the money paid in a mortgage comes back when you sell.

 

Mortgages are therefore important savings vehicles.

[mike777]

As AWM points out there are a heck of alot of costs to owning a house besides a mortgage.

 

Keep in mind your house, lawn, etc basically starts falling apart the day you buy it.

 

Now add in taxes, insurance, interest costs etc.

 

Also add back in the value of your time all of this house costs you....most people dont add in most of these costs.

[kenberg]

As usual, Adam presents serious concerns. I want to respond in some length.

 

About house prices going up and down: I long ago paid off a mortgage. Go back a half century plus, and my parents had paid off their mortgage by the time I was old enough to know about such things. Think of the implications. If I were to sell my house now I would get far less than what I paid for it when I moved here six years or so ago. So what? The house I would now move to would also be lower priced than it was six years ago. In fact when I moved, the house I sold was for a highly inflated price, allowing me to pay the highly infled price of my current house. Owning a house is a very strong protectioin against changing markets, Markets go up and down, rental prices go up and down, my house has a market value of one house. I would find it no more difficult to move in today's depressed market than I did in another year's inflated market. Slightly easier, actually, because many charges associated with moving are a set fraction of the sale price, so the mice don't get quite so much cheese in a depressed market.

 

 

A home is an investment, sure, but I see it as most unfortunate that homes have come to be thought of as similar to stock purchases.A stock must go up in value, else purchasing the stock was a mistake. If you buy a house to live in, and you pay off the mortgage, then it can go up in price, down in price, it doesn't matter.

 

 

Anyway, we have a housing mess. Maybe someone bought a house for 400K, they still owe 350K, and current selling price is 300K. Hold on a moment. If they like their house and can afford to make the payments, they really have no more of a problem than I have. They eventually pay off the mortgage and they will own a house with the market value of one house. But maybe they have to move? That's a problem. I recognize that there are problems, but I think we should try hard to distinguish between real problems and constructed problems. The fact that a guy owes more than he can sell the house for is a real problem only if he needs to sell it. If it's just a matter of him not liking owing more than the current market value, well there are lots of things in this life that we may not like. If he can sit tight for a while, the situation will improve. Meanwhile, the depressed prices allow young families to buy in. That's if they can get financing. The financing is a problem for them, the low prices are not a problem, they are an opportunity.

 

A personal note, since as I mentioned this really is a personal view. My father had a stroke when I was 13. Over time he recovered and went back to work. We owned our home. No rent payments, no mortgage payments. Of course this did not solve all our problems, but it sure helped. Owning a home, and not being stupid about other debt, is a really good plan for dealing with adversity.

 

Let me switch from Adam to BBradley for a closing remark. Suburban??? OK, I now live in the suburbs. Or exurbs. Or somewhere far out. A mistake perhaps. I grew up in the center of St. Paul before suburbs much even existed, and my views on this matter were largely set then. I seriously doubt that my father even knew the meaning of the word suburb, at least not in the forties and early fifties when I was young. My cousin lived in an apartment in Chicago. Well, I liked Chicago. Houses are nice, they really are. Especially when you own them.

[mike777]

A home is an investment, sure, but I see it as most unfortunate that homes have come to be thought of as similar to stock purchases.A stock must go up in value, else purchasing the stock was a mistake. If you buy a house to live in, and you pay off the mortgage, then it can go up in price, down in price, it doesn't matter

--

 

 

Ken just to be clear:

1) yes you cannot live in a stock like you live in a house.

2) a stock does not have to go up in value....you can live off the dividends.

3) you dont have to pay taxes to hold a stock...you do a house.

3) you dont have to maintain a stock...you have alot of expenses to maintain a house.

 

so a house can stay even in value and you still have a ton of expenses so many you may not be able to afford to live in it.

 

but yes you cant live in a stock, but you might be able to live off a stock or it may at least help.

 

--

 

In any case having grown up in an apt in Chicago and Urbana I can understand where your cousin and awm come from.

 

I do seem to recall knowing many people who seem to work or live for their house, between paying for it or working on it in their spare time. :)

 

The good thing about owning a house and about an acre of land is there is always something that needs a fixing..