Extending and Expanding the Homebuyer Tax Credit

The new and beefed up homebuyer tax credit will likely help home sales continue to improve, but does it help in a temporary or long-term manner?  While a temporary boost makes us all feel warm and fuzzy, the real focus of any economic program needs to come back around to long-term fixes.

An area of the expanded program I have a real problem with is the extension of the credit to those that already have a home.  They need to have lived there for at least five years, but I don’t know how this matters much when you’re giving someone money to take one home off the market and put another one right back on.  This may stimulate home sales and inflate prices a bit, but it actually has a net zero effect on home inventory.

Another conceptual problem that I have had with the credit from the first time it rolled out is that we are trying to fix a market that suffered inflated prices due to outside manipulation by trying to stimulate inflated prices with outside manipulation, because we liked the higher prices better.  Higher home prices made us all feel wealthier and to the extent that you could take a loan on the inflated equity on your home and spend that cash, it truly did inflate your wealth.

The problem is that the wealth created by inflating home prices wasn’t real wealth, it was a glitch in the system that distorted the market with inflated, but unsustainable prices.  To the extent we are trying to restore that false market, the homebuyer tax credit only delays the day that we have to face the real market.

The long-term fixes to the market are the ones that are taking place on the lending side of the equation with tighening lending standards and honest loan evaluation.  More conservative valuation estimates for homes.  Making loans that will most likely be repaid, not making loans with the intent to refinance on a higher valuation in a few years.

The government throwing credit money around to help home sales will mostly leave us with temporarily inflated home prices and a bigger tax bill to pay in the future.  As if there weren’t plenty of other plans for spending all of our future income.

Conviscating professional services

I’ve been watching a lot of the health care debate and town-hall meetings lately, as I believe this is a seminal issue that will define our view of rights vs. privileges in this country for a long time to come.  Now the analogy that I am going to draw is a stretch, but it really is the general direction that we are currently headed.

What if some legislators decided that everyone in America had a right to ‘affordable’ professional tax preparation?  How would this potentially affect the market for tax preparation services?  Furthermore, these same legislators want to tell you how to provide this service and help you define the extent of service each client may need.  At the same time, they will tell you how much this service is worth under the auspice of ‘negotiating the best deal for the customer.’

Would you be excited to be providing services in this type of marketplace?  Would the customers be excited to receive the services that are grudgingly provided by professionals who used to work in a free enterprise?  Would there still be the same incentives to become more effective and efficient and utilize technology or would these improvements be mandated with more legislation and grudgingly implemented?

How do you think that doctors and patients will fare any better than other professionals under the same circumstance?  Are they so much more altruistic that it will work?

Government Health Care

This presidential race has garnered much attention for those who wish to socialize medicine by having the government guarantee health care for all.  Some of the problems in our current system are due to the government being a major customer of most if not all health systems.  However, the government either federal or state do not generally contribute to the profit of these health systems.

Medicare and Medicaid both work under a “cost reimbursement” system that only allows the government to be billed the actual cost of the procedure, rather than the market rate for that procedure.  The effect here is that to maintain profit margins across the whole system the “market rate” for those with private insurance and those who pay for themselves must be increased.  So we pay for the government health care plans with our tax dollars and further pay a subsidy to the hospitals through increased health care costs and higher insurance premiums.

A move to a single payor system (the government pays for and regulates all health care) could eliminate the profit from healthcare and greatly diminish quality.  It’s hard on the people with private insurance to make up the difference for Medicare and Medicaid twice (taxation and subsidy), but if a governmentally run healthcare system eliminates the profits from the industry there will be less pay for doctors, less structural improvements, less equipment upgrades, and more regulation of services provided. 

The effect of this change would not be apparent over night as it would be several years before the lack of structural improvements took a toll on the whole system, but it seems the system would necessarily deteriorate over time as profits were replaced with cost reimbursements across the board.

How ethical is corporate taxation?

Nothing said here will bring an end to corporate taxation, but I would like for a minute to pretend that it is negotiable to examine its legitimacy and the effects of the system in place.  Our founding fathers waged war with England for taxation without representation, but when we levy taxation against non-voting entities that is exactly what we get.

The corporation is a legal liability shield and capital raising device used to run many American businesses, however, without real people (employees, shareholders, vendors, customers) this legal entity is just a shell.  Most citizens are persuaded by politicians to look at corporations as merely a shell rather than to look at them for the sum of their real-people parts.  Thus, taxation of no one in particular is better than taxation of a specific person, so corporate taxation is popular.

This does not come without side effects as taxation without representation is not entirely true.  There is not legally sanctioned voting representation, so representation comes through the back door with lobbying, political contributions, and good old-fashioned bribery.  The result of taxing a non-voting entity with much money and power is a lot of unethical behavior brought about by the structure of the system.  The answer is not to police the unethical/illegal activity further, but to examine the system that produces it.

An excellent tenant of good government is transparency.  This is another problem with corporate taxation – the taxation of no one in particular.  Who really pays corporate tax (the corporation of course)?  The real people involved with the corporation must pay the tax in some way shape or form, because the shell in and of itself has no income or wages to tax.  The shareholders pay with decreased stock appreciation and lesser dividends.  The employees pay with lower wages and lesser benefits.  The vendors pay with lower profit margins themselves.  The consumers pay with higher prices used to subsidise the tax.

The lack of transparency imposed by corporate taxation may be the worst of all as the government is able to raise revenues with little to no legal accountability.  The group paying the tax is ambiguous, so it is hard to unite an ambiguous group to oppose tax increases or to help in drafting better tax policy (except for the opposition from the corporations themselves).  The opposition comes in the form of lobbying and bribery, which ends up being rather effective, but further muddies the ethical considerations and transparency of government.