Obama's Tax Plan and the Law of Unintended Consequences

[BodyWizard]

As I see it, government policies always defend the status-quo, unless events pressure them to take "remedial action". Unfortunately, such remediation is almost always too hasty, poorly-thought-out (if in fact thought-out at all), and corrupts or abuses the status-quo without either preserving or improving it.

If you really want to look at the genesis of the current trouble, it's necessary to take a much longer view: the social & economic & political aftermath of the First World War very directly resulted in the Crash of '29 & the Great Depression that followed; the steps taken to fight & win the Second World War, the shifts in US policy & global status that grew therefrom, the resulting radical restructuring of US society & the US economy, and the inevitable political shifts that came about in response - all combined in a thousand ways to bring us to where we are. The past IS prologue, and to wave that fundamental fact aside is to deliberately misunderstand our situation & willfully misconstrue the tides that washed us upon this shore.

Just as much so, if we ignore the repercussions of the 2 World Wars on nations, ethnic tensions and the entrenched powers, we are at the mercy of whatever fabulist may see a temporary political and/or economic prize to be won by dominating & directing the narrative of "what happened and what it all means". If the only narrative we're familiar with is that of "The Christian West vs. the Godless Communist East", then we'll interpret every fact in that context, whether it makes any sense to do so or not. Likewise with the other dominant narratives, such as "American Exceptionalism vs The Ungrateful Hordes", "Capitalism vs Socialism, Here And Abroad", or even "The Selfless Spread of Democracy vs THe Terrorists Who Hate Us For Our Freedom": they are all points of view, ways of making sense of events, and each with powerful political and economic motivations - NOT solid, empirical, objectively-verified truth.

The main failing of each of these narratives is NOT that they are advanced by economic and political interests for their own ends: it's that each of these leaves a lot of important events - causes AND effects - out of the equation entirely - and this makes it virtually impossible for a citizenry raised on patriotism and team sports to actually get the important facts & arrange them into a narrative that might actually explain some stuff...and give a better view of how to get where we actually want to go.

Unintended consequences are the rule not the exception, and they, as much as - or more than - any explicit policy decision, have brought us to our current sorry mess.

'Course, that's probably just me....

 

[EasyEJL]

for some reason, that reminds me of the most recent batman movie, do we get the president we need or the president we deserve?

 

[RobInKuwait]

Not necessarily. The majority of the value increase was 2002-2005. Many of these values now are dropping to pre 2000 values. You are seeing a half decade of home buyers get screwed....because of a 2-4% default rate.

The people who really get screwed are the people that bought in 2006 and early 2007, when the market was peaking.

Trust me, I know. :sad:

 

[BodyWizard]

well - *and* those who trusted a fracked-up spouse
(trust me: this one *I* know...:sad

 

[Dwight Schrute]

there is no fairness in injecting socialism into one of the core areas of capitalism - lending + credit....

Fairness went out the window a long time ago not to mention there have been many instances in which this government has interfered and the results were quite good.

The entire purpose of the CRA was in theory to avoid discriminatory lending yet the only evidence of discriminatory lending was a single faulty study done which showed low income blacks as disproportionately being denied loans. When the study was reviewed and credit scores were counted as part of the study, there were no signs of discrimination.

I am fully aware why the CRA was created and the majority of the accusations of discriminatory lending was in the early 90's...20+ years after the CRA was enacted.

 

[Dwight Schrute]

Not quite.

I bought my house (1600 sq.ft, 3BR, 2BA, single-floor) in June, 2000. By 2006, the street value went up from 140K to 170k. 5 years before, my sister had sold a house in the same neighborhood for slightly more than half what I paid for mine: 75k. She bought it around '88, when this was "a neighborhood in recovery", for roughly 38k.

Right now, the much-larger house next to me (5BR, 3BA, 3 floors, in-law suite) has been on the market for months, and they're trying to get 195k. The 'value' of my house now is somewhere between 95k & 120k - at best, 10k less than I owe on it. At worst, the amount of the cash down-payment my ex-wife stole from me.

Yes, quite. The annual percentage increase from 2002-2005 was double and almost triple that of the 90's. In 2004 it was 9.3%

The majority of the increases in house values, especially in the most hardest hit (Florida, Arizona, Nevada and California) peaked from 2002-2005 and it was in the double digits.

The average median house price from 2000-2004 jumped 50k. 4 years. It took less half the time then was seen earlier (1990-2000).

Your price range was the least effected.

 

[RobInKuwait]

well - *and* those who trusted a fracked-up spouse
(trust me: this one *I* know...:sad

Ouch :frustrate

 

[RobInKuwait]

Fairness went out the window a long time ago not to mention there have been many instances in which this government has interfered and the results were quite good.

When?!

 

[Dwight Schrute]

When?!

The RTC actually made money during the S&L crisis....and is the basis of the current bailout.

 

[Dwight Schrute]

Well, this is exactly what I stated, lol.

It sounded as if greed preceded government in your statement. (Greed + Government). If that wasn't representing a time frame of events, then you're correct...it would be similar.

Assuming one position or the other is more connected with reality is an act of bias, rather than objectivity.

No, its merely an observation that is shared by many.

 

[Mulletsoldier]

It sounded as if greed preceded government in your statement. (Greed + Government). If that wasn't representing a time frame of events, then you're correct...it would be similar.

Oh, no; it was a 'no present order' statement. Merely showing all the events which precipitated our current cluster-****.

 

[RobInKuwait]

The RTC actually made money during the S&L crisis....and is the basis of the current bailout.

Interesting. Looks like a decent program. Do they use the money they make on the sales to pay off the bankrupt bank's debt?

 

[BodyWizard]

Yes, quite. The annual percentage increase from 2002-2005 was double and almost triple that of the 90's. In 2004 it was 9.3%

The majority of the increases in house values, especially in the most hardest hit (Florida, Arizona, Nevada and California) peaked from 2002-2005 and it was in the double digits.

The average median house price from 2000-2004 jumped 50k. 4 years. It took less half the time then was seen earlier (1990-2000).

Your price range was the least effected.

Never meant to claim particular victim status, nor to pretend I have it worse than others. Then again, I have a modest little bungalow in a shabbily genteel 'hood, and only meant to point out that it wasn't *just* the high-flyers, speculators & advantage-takers that got bit, and that the rise began well before 2002.

 

[GotTest]

In terms of Military, I believe that is simply factually incorrect: In 1999 Clinton called for a 110-billion increase in Military spending over six years; disassemble - or even attempt to disassemble - the Military he did not. While this is a common misconception about the Clinton administration it is simple factually inaccurate. And, in fact, Republicans at the time lauded that particular portion of the Clinton Act (though disliked others, naturally).

Really....
http://query.nytimes.com/gst/fullpage.html?res=990CE0D81338F936A15755C0A963958260&sec=&spon=

One of these Naval training centers were closed in my hometown.

 

[badfish51581]

Being that I'm a HR Compensation Professional, I can answer a few of these...

-Anyone making under $300,000 but over $250,000 will ask their employer to lower their salary to $249,000 as after taxes it will probably be around the same number.

Beyond the fact that taxes don't work like that, you will never see this happen. I've only see one case where someone asked not to receive a yearly increase and it was an extreme situation where the employee needed to stay under a certain threshold to stay eligible for a federal program that was paying tens of thousands of dollars in medical fees.

-Anyone making significantly more money than $249,000 will probably look into getting a portion of their income in stock options, benefits, and other forms of compensation to skirt around taxes.

This isn't an option for 99.9% of people in the workforce. The plans that companies set forth aren't negotiable by individual employees. Stock options aren't attractive to companies anymore because of expensing rules, not to mention stocks are so far underwater that executive compensation has dropped dramatically this year because of the stock market. Benefits are typically negotiated at a company wide level so it's not like many people have the option to negotiate that aspect. Generally speaking, people prefer cash compensation over most forms compensation.

Joe

 

[EasyEJL]

This isn't an option for 99.9% of people in the workforce.

right, but the people who make over 250k a year are in that top 5% of the workforce, so they have a bit different clout than the janitor does

 

[RobInKuwait]

I was watching Huckabee this weekend and he had an economist on that said the actual cutoff was 200k....has anyone else heard this?

 

[RobInKuwait]

Being that I'm a HR Compensation Professional, I can answer a few of these...
Beyond the fact that taxes don't work like that, you will never see this happen. I've only see one case where someone asked not to receive a yearly increase and it was an extreme situation where the employee needed to stay under a certain threshold to stay eligible for a federal program that was paying tens of thousands of dollars in medical fees.

But isn't it more likely to happen if you there's a stiffer difference between the tax brackets?

This isn't an option for 99.9% of people in the workforce. The plans that companies set forth aren't negotiable by individual employees. Stock options aren't attractive to companies anymore because of expensing rules, not to mention stocks are so far underwater that executive compensation has dropped dramatically this year because of the stock market. Benefits are typically negotiated at a company wide level so it's not like many people have the option to negotiate that aspect. Generally speaking, people prefer cash compensation over most forms compensation.

Right, but benefits could come in the form of a company car, perks...basically anything that can get around taxes.

I'm obviously not a tax attorney. My point was that raising taxes encourages people to find creative ways in getting around taxes.

What will happen to Obama's plan when the rich people he's relying on to pay for everything find a way around his hikes? Will he push 250k down to 150k? Will he raise it even more on the rich? Will he just eat the loss and jack up the national debt that much more?

 

[DougMan]

The RTC actually made money during the S&L crisis....and is the basis of the current bailout.

RTC received its assets for free.

 

[Dwight Schrute]

RTC received its assets for free.

..but liquidated them for more than they were initially worth at the time of insolvency (most of them)...which is the point of the current bailout. The sole purpose is the remove them from the books, establish values and resell them.

 

[badfish51581]

right, but the people who make over 250k a year are in that top 5% of the workforce, so they have a bit different clout than the janitor does

You're welcome to your opinion, but 95% of executives ($250k plus) don't have control to alter the offerings of their compensation packages as they see fit. More so, anything that does change needs to be approved by the Board of Directors and is not at the whim of even a CEO.

But isn't it more likely to happen if you there's a stiffer difference between the tax brackets?

It doesn't make sense to do that. They'll make more money paying the taxes, then not because it's a progressive system.
Not to mention, they'll limit their future increases. Most raises are calculated as percent of base salary.

3% increase of $250,000 = $7,500
3% increase of $275,000 = $8,250
(Losing out on $750 of base income)

Most bonuses are caluclated as a percentage of base salary, so they'll also limit their overall bonus potential.

35% of $250,000 = 87,500
35% of $275,000 = 96,250
(Losing out on $8,750 of bonus)

By my calculations that works out to about $9,500 less gross earnings. Even when they pay marignally more on that extra $25,000 of earnings, the difference doesn't come out more than about $1,000. Not to mention it still won't make up that difference in lost income that will become compounded over years of avoiding paying the extra taxes.

Right, but benefits could come in the form of a company car, perks...basically anything that can get around taxes.

Companies won't agree to increase their operating costs to save employees from paying personal income taxes. The economy sucks for everyone and most comapnies can't burden that. As it is, they're continually passing off more costs to employees because they can't shoulder then burdens anymore - like health care and pention plans.

I'm obviously not a tax attorney. My point was that raising taxes encourages people to find creative ways in getting around taxes.

What will happen to Obama's plan when the rich people he's relying on to pay for everything find a way around his hikes? Will he push 250k down to 150k? Will he raise it even more on the rich? Will he just eat the loss and jack up the national debt that much more?

I have no comment on this...just answering questions I have an expertise on.

Joe

 

[DougMan]

..but liquidated them for more than they were initially worth at the time of insolvency (most of them)...which is the point of the current bailout. The sole purpose is the remove them from the books, establish values and resell them.

Pretty important distinction. RTC liquidated failed institutions, which I would assume means their share holders/debt holders were wiped out. The TARP will pay above market prices while requiring little in the way of pain to the current shareholders/debt holders or management. There is potential risk of a downside in the current bailout that did not exist with the RTC in terms of direct cost to taxpayers. The banks won't sell this stuff at market prices, else they would not be holding onto it. The government is going to have to pay a "hold to maturity price", meaning much of the upside will be paid for, making it a potentially terrible deal for the taxpayer.

The current bailout should be the like the RTC. Get rid of insolvent banks and liquidate their assets.

 

[Dwight Schrute]

Pretty important distinction. RTC liquidated failed institutions, which I would assume means their share holders/debt holders were wiped out.

The RTC mainly liquidated real estate assets.

THe majority of banks that failed this time around also had their share holders wiped out. Ask people who own Leyman, Bear Sterns, Fannie and Freddie, etc....

The TARP will pay above market prices while requiring little in the way of pain to the current shareholders/debt holders or management.

The shareholders have already got nailed. They faced the most pain of all not to mention the provisions made to eliminate compensation for management.

There is potential risk of a downside in the current bailout that did not exist with the RTC in terms of direct cost to taxpayers.

Sure it did. They didn't make money off of all assets..some got pennies on the dollar...other did not.

The banks won't sell this stuff at market prices, else they would not be holding onto it.

Actually, there is no market price. That's the problem...you don't even know most of the real values of these mortgage pools. Its mainly estimates but most investors say, over the long haul you should make a decent profit on many of them.

The government is going to have to pay a "hold to maturity price", meaning much of the upside will be paid for, making it a potentially terrible deal for the taxpayer.

Not form what I've heard. Many people are itching to get at them.

The current bailout should be the like the RTC. Get rid of insolvent banks and liquidate their assets.

The RTC liquidated assets of already insolvent banks...and most of it was real estate and mortgages.

If you just want these banks to fail, then your not in a minority here.