Yesterday, President Obama unveiled a "new" plan to help home-owners who may be able to benefit from re-financing (see article here). From what I have read, I think the program is good, but I'm not sure how successful it may be.
The program is designed as an aid to homeowners who want to refinance and take advantage of today's lower rates. Nothing that I have read says it will reduce the amount of the loan, only the interest rate. Let's say someone took out a loan on a $300,000 home in 2004 with a rate of 5.5%. If they had chosen a fixed rate, that's a payment of about $1700. If they can refinance to a 4% loan today, that's a payment of about $1430 and leaves $270 in their pocket.
So who loses the $270? Well, the new program is for people whose loans are owned by Fannie Mae and Freddie Mach, so they are obvious losers in the deal. Also, banks may lose as older loans are paid off earlier. However, banks will get some refinance $$ in their pocket as well as a better loan. If the old loan defaulted, banks were sure to lose.
So what is the down-side to the program? Well, refinancing costs money and some of that burden will be paid by the tax payer. I don't think that's a lot of money (compared to loan defaults), so I think this is a good program overall.
Trouble is, it doesn't address the amount owed. In my example above, I assumed the entire $300,000 would be refinanced. In reality, if they were current, they would only owe $262,000 at this point. But the problem comes in that the value of the house may have dropped. The house may only be worth $200,000 now and in that case, they wouldn't be able to refinance. under today's rules, but would be able to under the new rules.
The program looks like it helps out some people in certain circumstances and therefore I have no objection to it. I'm not overly excited, because it doesn't seem like it will affect many people. Maybe the president is trying to tackle the economic issues in small bites rather than a sweeping program that no one can pass.
Tuesday, October 25, 2011
Thursday, October 20, 2011
The 9-9-9 tax and the flat tax
Herman Cain has gotten a lot of attention for his 9-9-9 tax plan. I've looked into one part of the plan and decided I can't support it. Your responses are appreciated.
The plan is close to the Fair Tax that was discussed a few years ago. I confess, I didn't study the Fair Tax as I felt it had near-zero chance of being passed. I was forced to go look at it some. From what I've read the 9-9-9 plan has not laid out all the details and someone pointed me to the "prebate" part of the Fair Tax for more information.
The problem is that low income people today pay no income tax and will be forced to pay sales tax under 9-9-9. This additional burden on low income people would be offset (under the Fair Tax) by a "prebate", money given to them at the beginning of each month.
However, there is no mention of what happens to the current EITC and it appears to be eliminated. For those unfamiliar, the EITC is a refundable tax credit given to low income workers. The amount of the credit is based on the family size and the amount a person works. As the person's income increases, the EITC increases until it reaches a mid-point. Then it decreases, slower than the increase, until it gets to zero. Think of a standard curve, slightly skewed to the right.
EITC has been touted as "workfare, not welfare" because it encourages people to work. If the person has no earned income, they have no EITC. None other than conservative President Ronald Reagan pushed this program. You may not think the EITC is fair or that some people pay no income tax is not fair, but that's not part of my discussion today. Today, the EITC is the law and it gives low income workers additional cash. Taking that away may be revenue neutral to the government, but not to individuals.
Any tax plan that involves eliminating the EITC should include a plan (tax or otherwise) to address program. If a candidate decides not to replace it, he/she should clearly state that.
The plan is close to the Fair Tax that was discussed a few years ago. I confess, I didn't study the Fair Tax as I felt it had near-zero chance of being passed. I was forced to go look at it some. From what I've read the 9-9-9 plan has not laid out all the details and someone pointed me to the "prebate" part of the Fair Tax for more information.
The problem is that low income people today pay no income tax and will be forced to pay sales tax under 9-9-9. This additional burden on low income people would be offset (under the Fair Tax) by a "prebate", money given to them at the beginning of each month.
However, there is no mention of what happens to the current EITC and it appears to be eliminated. For those unfamiliar, the EITC is a refundable tax credit given to low income workers. The amount of the credit is based on the family size and the amount a person works. As the person's income increases, the EITC increases until it reaches a mid-point. Then it decreases, slower than the increase, until it gets to zero. Think of a standard curve, slightly skewed to the right.
EITC has been touted as "workfare, not welfare" because it encourages people to work. If the person has no earned income, they have no EITC. None other than conservative President Ronald Reagan pushed this program. You may not think the EITC is fair or that some people pay no income tax is not fair, but that's not part of my discussion today. Today, the EITC is the law and it gives low income workers additional cash. Taking that away may be revenue neutral to the government, but not to individuals.
Any tax plan that involves eliminating the EITC should include a plan (tax or otherwise) to address program. If a candidate decides not to replace it, he/she should clearly state that.
Wednesday, October 19, 2011
The President's teleprompter is stolen
I know, this sounds like a joke. It's not. It's true. To be fair, it wasn't just a teleprompter, it was a truck which contained sound equipment, podiums and yes, a teleprompter. The truck was later found in a hotel parking lot several miles away.
This happened about 1/2 mile from the Hampton Inn where I stay when I go to Richmond. I promise, I was no where near where the incident occurred. As for other comments, on the advice of counsel, I have no additional comments at this time.
Click here for the story from Richmond Times Dispatch.
This happened about 1/2 mile from the Hampton Inn where I stay when I go to Richmond. I promise, I was no where near where the incident occurred. As for other comments, on the advice of counsel, I have no additional comments at this time.
Click here for the story from Richmond Times Dispatch.
Thursday, October 13, 2011
Marx to market (Bloomberg Businessweek 9/19-25)
I'm a little behind on reading, but this article in Bloomberg Businessweek caught my attention. Follow this link to read the article. While not mentioning the Occupy Wall Street movement, it certainly seems to apply (although I confess, I haven't read all of the details on OWS).
The article/editorial talks about how times have changed, yet we seem to be going back to some Marxist ideas and it says this in a not-negative tone. "You might even say the Bearded One (Karl Marx) has rarely looked better." The article notes that with "U.S. unemployment rate is still more than 9 percent" and Marx had predicted that "companies would need fewer workers as they improved productivity." Peter Coy (the author of the editorial) points out that the blue-collar workers' condition is "still a far cry from the subsistnence wage and 'accumulation of misery' that Marx conjured" but he adds that "it's not morning in America, either." The last line is a reference that few conservatives would miss.
The article also stresses Marx' point that "the proletariat isn't paid enough to buy the stuff capitalists produce (a point I disagree with - all of the unemployed have very nice cell phones, TVs, etc).
The editorial says that it's "time for another burst of enlightenment" and says we are facing a "crisis of capitalism". He thinks that "grasping the ways in which Marx was right is the first step toward making sure that... predictions of capitalism's downfall remain wrong."
Might it be that Coy is correct? Are the rumblings of the OWS group rumblings from Marx' grave? Are these people anti-capitalists? I'm certain that I don't know and am looking for answers
The article/editorial talks about how times have changed, yet we seem to be going back to some Marxist ideas and it says this in a not-negative tone. "You might even say the Bearded One (Karl Marx) has rarely looked better." The article notes that with "U.S. unemployment rate is still more than 9 percent" and Marx had predicted that "companies would need fewer workers as they improved productivity." Peter Coy (the author of the editorial) points out that the blue-collar workers' condition is "still a far cry from the subsistnence wage and 'accumulation of misery' that Marx conjured" but he adds that "it's not morning in America, either." The last line is a reference that few conservatives would miss.
The article also stresses Marx' point that "the proletariat isn't paid enough to buy the stuff capitalists produce (a point I disagree with - all of the unemployed have very nice cell phones, TVs, etc).
The editorial says that it's "time for another burst of enlightenment" and says we are facing a "crisis of capitalism". He thinks that "grasping the ways in which Marx was right is the first step toward making sure that... predictions of capitalism's downfall remain wrong."
Might it be that Coy is correct? Are the rumblings of the OWS group rumblings from Marx' grave? Are these people anti-capitalists? I'm certain that I don't know and am looking for answers
Thursday, October 06, 2011
Bank fees
Unless you've been living under a rock, you've heard the mess about bank fees. At least four of the major banks (Bank of America, Wells Fargo, Sun Trust and Regions) are planning to start charging debit card holders a monthly fee of anywhere from $3 to $5. Citibank is increasing the fees on checking accounts. The president has said that the banks don't have the right to certain profits (more on that later).
The banks say that they have to do this to make up for the lost fees charged to retailers. In theory, retail prices should come down as their fees go down (I'm not holding my breath). Consumers are complaining it's not fair. My suggestion is simple. Change accounts or change banks.
Most banks have some accounts that will still be free. Simply sitting down with someone at the bank or calling the bank can help you understand your options. Before you do, write down your expectations/requirements. Do you use an ATM? Do you use other banks' ATM's? Do you use your debit card? Do you keep a balance? Do you have other accounts with the bank?
Also, banks may have other options available based on your age (I found out I'm a "senior" at age 52 at one bank) or school status (student checking is often free). Smaller banks or credit unions may have benefits based on your employer.
If the bank has no free account that fits your need, consider changing banks. Tell the person you've talked to at your current bank that you're planning to look at other banks. Be prepared to follow through.
My honest opinion is that this fuss will not last if consumers start changing banks. They will find ways to keep depositors from jumping ship. But there's no reason you should pay fees.
The banks say that they have to do this to make up for the lost fees charged to retailers. In theory, retail prices should come down as their fees go down (I'm not holding my breath). Consumers are complaining it's not fair. My suggestion is simple. Change accounts or change banks.
Most banks have some accounts that will still be free. Simply sitting down with someone at the bank or calling the bank can help you understand your options. Before you do, write down your expectations/requirements. Do you use an ATM? Do you use other banks' ATM's? Do you use your debit card? Do you keep a balance? Do you have other accounts with the bank?
Also, banks may have other options available based on your age (I found out I'm a "senior" at age 52 at one bank) or school status (student checking is often free). Smaller banks or credit unions may have benefits based on your employer.
If the bank has no free account that fits your need, consider changing banks. Tell the person you've talked to at your current bank that you're planning to look at other banks. Be prepared to follow through.
My honest opinion is that this fuss will not last if consumers start changing banks. They will find ways to keep depositors from jumping ship. But there's no reason you should pay fees.
Tuesday, October 04, 2011
The President's job speech - Reaction Part 2
This is a continuation of my previous post on the President's job speech. Part 1 is found here.
We are told that the President's bill (which was not released until days after the speech) will give companies an extra tax credit if they hire veterans. While this is a good idea, I'm not sure this will provide a lot of jobs and I don't think it belongs in a jobs bill. Was it added here so that the President could say that anyone who opposes this bill opposes veterans? I shouldn't be so cynical.
The bill offers "companies... a $4,000 tax credit if they hire anyone who has spent more than six months looking for a job." This is like the HIRE act I mentioned in Part 1 of my review, but it brings up an important point: why not limit unemployment benefits to six months as well? This way, you motivate both the employer and the employee.
The President promises us that the "typical working family will get a $1,500 tax cut next year." This is on top of the $2,000 we have already gotten. Anyone know where this comes from? It comes from Social Security payments we all make through payroll deduction. Someone should point out that this actually helps to remove the illusion that Social Security is anything but a tax.
President Obama promises that "the American Jobs Act will not add to the deficit." MSNBC (not exactly an anti-Obama source) in their fact-check of the President's speech explains this by saying "it will only be paid for if a committee he can't control does his bidding." To mis-quote President Truman, "the buck stops there" not with the current president.
Finally, about half-way through his speech, the President admits "this approach is basically the one I've been advocating for months." Nothing new. But pass this bill. Right away.
The speech goes on (my printed copy continues for five more pages), but as he said, there's not much new. The programs outlined are programs the President has been pushing for months or extensions of existing programs created and pushed with the last stimulus package. They didn't work then, and they won't work now. Congress should kill this bill. Right away.
We are told that the President's bill (which was not released until days after the speech) will give companies an extra tax credit if they hire veterans. While this is a good idea, I'm not sure this will provide a lot of jobs and I don't think it belongs in a jobs bill. Was it added here so that the President could say that anyone who opposes this bill opposes veterans? I shouldn't be so cynical.
The bill offers "companies... a $4,000 tax credit if they hire anyone who has spent more than six months looking for a job." This is like the HIRE act I mentioned in Part 1 of my review, but it brings up an important point: why not limit unemployment benefits to six months as well? This way, you motivate both the employer and the employee.
The President promises us that the "typical working family will get a $1,500 tax cut next year." This is on top of the $2,000 we have already gotten. Anyone know where this comes from? It comes from Social Security payments we all make through payroll deduction. Someone should point out that this actually helps to remove the illusion that Social Security is anything but a tax.
President Obama promises that "the American Jobs Act will not add to the deficit." MSNBC (not exactly an anti-Obama source) in their fact-check of the President's speech explains this by saying "it will only be paid for if a committee he can't control does his bidding." To mis-quote President Truman, "the buck stops there" not with the current president.
Finally, about half-way through his speech, the President admits "this approach is basically the one I've been advocating for months." Nothing new. But pass this bill. Right away.
The speech goes on (my printed copy continues for five more pages), but as he said, there's not much new. The programs outlined are programs the President has been pushing for months or extensions of existing programs created and pushed with the last stimulus package. They didn't work then, and they won't work now. Congress should kill this bill. Right away.
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