Welcome Back, Carter - Tax Move May Hurt Home Purchases, Despite Historic Low Rates

I must admit, I'm still scratching my head trying to figure out how an annual income of $250K was determined to be associated with someone "rich" and "wealthy".

The move to increase taxes and limit deductions will have far reaching impact. 

I agree with NAR that there could be further erosion of home prices and values as home ownership doesn't look as sexy anymore.    

It's clear that Obama and his team believe that people making over $250K per year are "rich"...however there is a huge separation in this income level and the real rich.  

By the way, approximately 80% of this group of people (making more than $250k) are small business owners!!!  Hard working Americans that believed in the American dream and worked their tale off to make it come true for themselves.  And they are employing 8.4 million people.  When company revenues decline the first thing businesses do is cut head count.

But the biggest challenge to the housing problem is not....falling home prices, interest rates (of course they are at historic lows), but JOBS.  If people don't have Jobs they will not buy a house no matter what the price, no matter how low interest rates go, no matter if there are tax credits to buy (the new $8,000 credit), or if we do or don't get to deduct mortgage interest.

Obama is planning to pursue taxing this "rich" group further, which will have additional negative impact on our economy...

"The Bush tax cuts will be allowed to expire in 2011, upping taxes on couples making $250,000 or more. The top rate will rise from 35% to 39.6%." (Kiplingers 2/26/08)

And if that wasn't enough...Obama also plans to add new caps on ALL itemized deductions of these folks and cap the charitable deductions they make too.

Here is a short lesson in taxes...only the amount above $250K is taxed at the higher rate.  Here is how it works...if you are married, your first $16,700 is taxed at 15%, then from $16,701 to $67,900 your tax goes up to 25%.  From $67,901 to $137,050 you jump again to 28% and so on.  However regardless of how much money you make or what bracket you fall, you will be paying taxes until mid-May every single year.

Where do you fall?  Here are the Taxes Brackets for 2009 -

The liberals that are cheering Obama's tax levy on the $250K income earners might want to pause a little as Obama has a little something in store for everyone.  Obama also plans to allow the Bush tax cuts to lapse.  What would this mean to EVERYONE?  Income taxes would return to the 2000 level.  Now keep in mind that in Obama's world, this isn't a tax increase...it's just not re-enacting a prior cut.  Hmmm.  Looks like an increase to me. 

 Take a look at the 2000 figures and compare to 2009 above:

 Let's not forget the small businesses - small business owners will see more taxes in 2011. 

Our country is struggling thru this recession and an increase in taxes to will impact the overall economy. It isn't rocket science, if people have less money in their pocket they tend to buy less goods and services. 

What would happen if the "rich" folks slightly pulled back.  What if they get fed up with this negative attitude towards them?  The government continues to say "screw you" rich people...what if the rich people decide they are tired of carrying the load with no respect and say "screw you Uncle Sam, I'm through helping you"?   They slow down buying bigger houses...or houses period; they slow down buying cars; they slow down going to the movies, shopping, and dining out.  What happens to our economy then???  They provide more than 50% of the revenues to the government.

One third of American's pay no tax at all.  Who are they?

People - stand up a fight for the Fair Tax.  What is it?  How does it work?  There are NO taxes on income, capital gains, etc.  EVERYONE pays tax at the level of consumption.  The Fair Tax is very transparent.  When you go the store to purchase, you pay taxes...but you are taking your entire paycheck with you - not just a portion of it.

It's worth repeating again...you work until the middle of May before you start earning money for your family.

The Fair Tax will ends the underground economy.  It's a simple tax form that an 8 year old can complete.  It would bring in the same revenue to the government...just change the way we collect them. 

Until then...hope you loved the 80's.  Welcome back, Jimmy Carter.