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Thread: What kind of Socialism?

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  1. #1
    Join Date
    Mar 2006
    Boston, Mass.

    Default What kind of Socialism?

    What kind of Socialism?

    Have Real Estate industry subsidies been good for the country? No, they've been a disaster. It's time to roll them back.

    Today I received the following email from a conservative friend who sent me the note to say she and her husband are reading my book and enjoying it, and what do I think of the following? Apparently this one is making the rounds today.
    Another Obama Nightmare

    Did you know that if you sell your house after 2012 you will pay a 3.8% sales tax on it?

    That’s $3,800 on a $100,000 home etc.

    When did this happen? It’s in the healthcare bill. Just thought you should know.

    SALES TAX TO GO INTO EFFECT 2013 (Part of HC Bill)


    So, this is "change you can believe in"?

    Under the new health care bill - did you know that all real estate transactions will be subject to a 3.8% Sales Tax? The bulk of these new taxes don't kick in until 2013 (presumably after obama’s re-election). You can thank Nancy, Harry and Barack and your local Democrat Congressman for this one. If you sell your$400,000 home, there will be a $15,200 tax. This bill is set to screw the retiring generation who often downsize their homes. Is this Hope & Change great or what? Does this stuff makes your November and 2012 votes more important?

    Oh, you weren't aware this was in the Obamacare bill? Guess what, you aren't alone. There are more than a few members of Congress that aren't aware of it either (result of clandestine midnight voting for huge bills they've never read). AND, there are a few other surprises lurking.

    Why am I sending you this? The same reason I hope you forward this to every single person in your address book.

    People have the right to know the truth because an election is coming in November!
    I responded:
    Glad you are enjoying the book. I'm glad you asked for my opinion on this new real estate tax but I'm not sure you're going to like my answer.

    Once you get to the part of my book about how the Real Estate industry lobbied successfully for government subsidies for decades you’ll see why an real estate transaction tax is good for the economy -- if and only if at the same time corporate and personal income taxes are lowered.

    Here’s the deal. Since the 1920s, the tax burden in the US has shifted from 80% on FIRE Economy industries and 20% on Productive Economy industries to the other way around. The tax cuts were only one of a long list of government subsidies to the Real Estate industry that has distorted our economy and pushed us to the edge of ruin. Another is the mortgage interest deduction, a tax on renters. Another is two now 100% nationalized banks, Fannie Mae and Freddie Mac that now buy 90% of all home mortgages in the secondary market.

    That’s right. We have a 90% federal government owned mortgage market in the US of A, land of free markets and unfettered capitalism. We must re-privatize our mortgage market. A publicly owned housing market is simply un-American. But given the state of the US housing market and economy, what kind of interest rates will Fannie Mae and Freddie Mac, the issuers of Agency Bonds that back the mortgages, have to offer to entice private buyers of the Agency bonds they issue? Ten percent? Fifteen percent? Those higher rates will then work their way into mortgage interest rates, and that can't help the housing market.

    One thing is for sure, the rate will have to be a whole lot higher than the yield on the bonds that current bonds holders are getting paid. Foreign central banks who hold Fannie and Freddie "Agency bonds" can do the math. For the past week have been dumping them like they were on fire. Since there are no private buyers, the Fed has been forced to buy them up.

    Foreign central banks sell $57 billion worth of Agency bonds in a week...

    ...while the Fed buys them up to the tune of $2.6 trillion since January 2002
    (Charts credit: Dan Norcini via JSMineset)

    This is what government subsidies do. They create perverse incentives. They distort markets, in this case the housing market and the market for housing loans.

    “Socialist” France and Germany don’t have any of these housing subsidies. In fact, no other country does. So what kind of "socialism" do we have here in the USA?

    Socialism for banks and insurance companies.

    Consider Obama’s so-called “Health Care Plan.” Out of five possible plans, that's the plan that the health insurance industry pushed through Congress. I call the “No Health Insurance Company Left Behind Plan” because it guarantees the health insurance industry 40 million new customers at taxpayer expense.

    No wonder US salaries are uncompetitive. The same quality of housing and health care costs two to three times as much here as in the countries we compete with on world markets. This is why the US has lost its industrial base. You can’t live in the US off a globally competitive wage because housing, education, and health care expenses have been inflated by our FIRE industry subsidies.

    Of course the real estate industry will yell and scream if Obama or anyone else tries to take their government subsidy away, just as the corn farmers did when McCain tried to eliminate the crazy and wasteful government subsidy of corn-based ethanol production. It costs two dollars to make one dollar's worth of ethanol, and takes more energy to produce a gallon of ethanol than a gallon of ethanol produces when it’s burned. It's nuts to make ethanol from corn. Ethanol belongs in martinis not cars, unless it’s produced with sugarcane in a tropical climate like in Brazil.

    This real estate tax is all about interests. It’s not a Left versus Right, or Conservative versus Liberal, or Capitalism versus Socialism issue. For some reason the media frames issues of competing interests that way that way. We never get to the real question: Who is going to take a loss now that the housing bubble is over but the debt and lopsided economic incentives remain?
    How will my friend respond to my note? I'll tell you how. On an ideological level, she'll like it. But on a personal level, she won't. You see, her father is in the real estate industry. As a matter of fact, most of us are in the real estate industry if we own a home. That's the problem. That's why we have such a hard time seeing the matter clearly.

    The libertarian minded among us believe that government subsidies are bad, but ideology is no match for a subsidy that benefits us personally. The other guy's government subsidy is bad. Ours is good.

    Putting personal interests aside, have Real Estate industry subsidies been good for the country? No, they've been a disaster. They created the nightmare economy we are in today. It's time to roll them back.

    See also:

    The committee to wreck the USA

    Forget the Bush tax cuts. We need a $1 trillion per year post credit bubble debt cut, but we’re not going to get one. That’s why the gold price is going through the roof.

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    Last edited by FRED; 09-20-10 at 03:38 PM.

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