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Where Do We Stand? Extended Buyer’s Tax Credit- Politics

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What are the consequences?

In an attempt to push the economy ahead short term, Congress has extended and enhanced the home buyer’s tax credit. $10.5 billion was spent in ’09 on the tax credit and no doubt at least that much will be spent on the new round pushing our national debt even higher. As we found out in the late ’70s and early ’80s, massive debt will mean much higher interest rates.

Are we willing to accept those higher rates to make things a little better in the short term or should we be taking a stand and saying no more? The consequences are all about the choices we make. Where do you stand?

Realtor, Speaker, former Indianapolis radio personality. Least prettiest person ever on HGTV. Crashed in a helicopter and a Cessna 182. Seven lives left. Blessed by an amazing family!

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23 Comments

23 Comments

  1. Elaine Reese

    November 8, 2009 at 1:12 pm

    I remember those days of 16% interest rates. My husband and I purchased a home at 11% right before that, but we did not go with the no-cap balloon loans that caught many off-guard. We and our friends were all upper middle income so we didn’t feel the effects that much. It was a much different climate then. The only credit cards people had were gas cards and dept store cards which we paid off each month. (Mastercard and Visa were just getting started.) We personally knew the bank president that granted our home and car loans. We ate dinners as a family at home with the produce we grew in our little gardens. We owned freezers that were filled with a side of beef and pork. If we couldn’t afford something, we didn’t buy it .. we actually SAVED for it. That climate was a much cheaper way to live, and most people didn’t have the “entitlement” attitude that is prevalent now. So we need to look at the whole picture of then vs now.

    While the extended/expanded stimulus may not be good for the economy long-term, what real estate agent is going to advise their client to not take advantage of it “for the good of the economy”? If the program helps my seller sell their home and move on with their life, then it’s my job to promote the program to potential buyers. If my buyer can get $6500 from the gov’t – like the banks & Big 3 get – I would be remiss if I didn’t help them do that. Regardless of my personal feelings on these programs, I have a job to do. Asking a client to boycott a program for the good of the economy isn’t realistic.

    On a personal level, I think all this debt is horrific!

  2. Bob

    November 8, 2009 at 1:50 pm

    An insolvent government leads to greater government takeover of the private sector. Is it by design or ignorance?

  3. Greg Cooper

    November 8, 2009 at 2:08 pm

    Elaine….well said. I spoke on the radio this week and said in the Macro sense we would pay for incurring more debt. Consumers, however should take the money!

    Bob…for the idealogues in power….the means justify the end. The more time that goes by and more evidence we have….the more we know what you just said is true.

  4. Benn Rosales

    November 8, 2009 at 2:28 pm

    Greg, sometimes you just have to rob peter to pay paul, and you step on mary to do it- it appears to be a reality. Is there much that can be done to soften the blow later? Nope, because one way or another we’re going to see higher interest rates, I personally believe with or without the tax credit. We’ll also see higher taxes, either with this administration or the next because peter is going to get his money.

    I do believe this bailout is helping a lot of folks right now, there’s no doubt, and I wonder if it would be worse longer without it- it’s hard to tell.

    Another fantastic addition.

  5. Bob

    November 8, 2009 at 2:30 pm

    Benn, its the cost of the credit vs the ROI. @$43k each, I have to believe there was a better way.

  6. Benn Rosales

    November 8, 2009 at 2:41 pm

    Bob, no doubt, it just doesn’t make sense to me, not at all.

  7. MIssy Caulk

    November 8, 2009 at 11:08 pm

    Well, I was not in favor of the extension or the expansion. Are they crazy up there? Look at the income limits that get a credit, even for move up buyers…A couple making up to 225K a year can get a credit? pleeeeeeeeeeeeezzzzzzzzzzzzzzzzzzz.

  8. Dan Connolly

    November 8, 2009 at 11:09 pm

    Why does it cost 43K per 8K tax credit? Plain English please!

  9. Paula Henry

    November 8, 2009 at 11:18 pm

    Greg – Well Spoken! I have never written a post about the $8000.00 tax credit and don’t have a count down in the top right corner of my blog. Have I written contracts for clients who have used the credit? Yes! They know about it and it’s not up to me to discourage home ownership.

    There will be a price to pay for the tax credit and yes, it will fall on the shoulders of our children and grandchildren. Another point we should consider, is the unknown. How many people used the tax credit, but are not ready for home ownership. Will they be the next casualties in the foreclosure market? If they don’t stay in the home three years, will the cost of paying back the tax credit put them in bankruptcy court?

    I don’t know the answers, just the questions in my head.

    • Paula Henry

      November 13, 2009 at 10:15 am

      Retract I did post one article about the $8000. tax credit. Just wanted to correct the error.

  10. Greg Cooper

    November 9, 2009 at 7:24 am

    Dan,

    Forgive me for putting words in Bob’s mouth but that number I believe reflects how much money that was spent on the housing stimulus divided by the number of buyers who participated plus the 8K back. In other words….the actual cost per first time home buyer is $43000 each.

  11. Jay Thompson

    November 9, 2009 at 1:02 pm

    “Why does it cost 43K per 8K tax credit? Plain English please!”

    Because the vast majority of home buyers that took advantage of the tax credit would have bought a home anyway without it. Depending on whose numbers you believe, 200,000 to 355,000 people bought a home because of the tax credit. Divide that by the 10 BILLION or so it’s cost so far and you get $28K – $50K per home actually sold due to the credit.

    That’s QUITE the subsidy to help the real estate market.

    My kids, grandkids and great-grandkids will be paying for this.

  12. Greg Cooper

    November 9, 2009 at 1:47 pm

    Paula….you have hit upon a big unspoken issue that we won’t know for several years. How many of those who used the credit will either lose their homes through foreclosure or BK? I don’t know who or how these things get tracked but you can bet it is…and not by the Feds.

    Jay…thanks for explaining it more precisely. To put some synthesis to this I agree that most would have already bought and those that needed the stimulus may well be those that will become the failures that Paula is alluding to.

  13. Joe Spake

    November 9, 2009 at 5:40 pm

    I do not favor the credits. Most of the houses I sold in the last 6 months were to buyers taking advantage of the credit. I have talked to most of them in the last couple of weeks, and they said they would have bought anyway. The $8000 was a nice Easter egg. (and as Jay has said many times, a very poor reason to make the decision to buy a home).
    I would like to see the market find its real bottom then start back with a healthy recovery. The credits are just postponing some pain down the road.

  14. Ken Montville

    November 9, 2009 at 8:31 pm

    I agree that the credit is a stimulus. Buyers that were in the market, even if only in their minds, got busy and bought a house which stalled the free fall in housing prices. The market was “stimulated”. Now, whether it needed to continue through the normally slow Winter months is another question.

    As to the expansion to existing home owners, I write on my personal blog that many of the existing buyers that may want to take advantage of it probably won’t because they can’t sell their existing home without a home sale contingency on the other end. The income limits are pretty robust but the purchase price cap is a respectable $800,000 which is only slightly above the FHA limit in my area. I think it really depends on your geography as to whether this is outrageous or simply a nice perk.

    I totally agree that the credit really just entices buyers that might be buying anyway to buy. That’s why it’s called a stimulus. Will it come back to bite us? I’m not so sure. Lending guidelines are so damn tight nowadays that I’m pretty sure these folks are going to be ok. Will it cause interest rate or general economic inflation? Not in and of itself. There’s plenty of other money being pumped into the system that will cause that but my guess is that State and Local governments will do plenty of taxing come 2011 and keep inflation down. After all, they won’t have the transfer and recordation fees from real estate to keep themselves afloat.

  15. Dan Connolly

    November 9, 2009 at 9:31 pm

    The thing that kills me is that everyone moans and groans about what this will do to our grandchildren yet we spend as much in ONE month in Iraq (10 billion/month in Iraq alone) as we do on the entire homebuyer tax credit. And we have been doing that for some seven years. It’s a tax cut people! Since when do conservatives complain about tax cuts? A lot of the buyers don’t get money back, they just don’t owe as much! It’s good for the real estate business and I am happy it has been extended.

    I still believe that the so called “cost” of the tax credit is inflated political spin. I would like to see some real numbers on that, from an unbiased source (as if there is one). What did they spend the money on? advertising? Bribing the politicians to vote for it (or against it)?

  16. Fred Glick

    November 13, 2009 at 9:24 am

    OK, here’s my 7 cents (due to inflations, 2 cents has been increased).

    If you saw my CNBC interview last week (still available at https://fredglick.com ), you would see that I called for the repeal of the credit and to take that money and earmark it for jobs.

    Well, after a bit more thought, 9 more cups of coffee (no, not at one time), a little discussion and putting on my diplomacy coat, I have come up with a compromise.

    How about leaving the credit as is but changing it ever so slightly:

    1. Monotize it so the buyer gets the money help as direct down payment.
    2. Make them pay it back, with 6% interest over 10 years.
    3. Use the recycled principal and interest to help fund the new health care bill.

    Now, what did we just do?

    Kept the status quo of the number of buyers who would have taken the credit anyway, brought the money back to coffers (a la TARP), lowers inflation (less dollars out there) and help reduce the tax burden we may have felt and made people better so they could get jobs and buy homes!

    It is government assisted capitalism at it’s best!

    Call your Senators, Representative and the White House today and let them know Fred Glick sent you.

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Politics

California’s gig labor bill hurts the people it’s trying to protect

(POLITICS) The law has loopholes for industries with good lobbyists, but it’s costing independent contractors, freelancers, and creatives their jobs.

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Uber subverts ab5 bill

So, there’s a new bill in California, Assembly Bill 5, that’s doing immense harm to freelancers across the state and throughout the country. The bill was intended to prevent tech companies from taking advantage of their employees by branding them as freelancers. But the thing took too wild a swing, and a lot of people have gotten hit by it.

We’re going to talk about how and why, but let’s get one thing straight, right off the bat:

We absolutely need something to help workers in this country. When we talk about why AB5 doesn’t work, I want to be very clear that I’m not turning my nose up at the idea of something like it. Rather, it’s this specific law that’s hurting a lot of people.

Let’s take a quick review at the environment that gave rise to Assembly Bill 5:

We live in an incredibly rough economy for most people. The stock market is doing phenomenally! But the stock market isn’t the same thing as the economy. The economy is made of people who are barely getting by, propping up a class of billionaires who are hording an amount of wealth that is increasing at a mind-boggling pace, instead of “trickling down”.

Productivity and wages used to rise together, but they got divorced in the 70s, and productivity’s been doing a lot for herself while wages have just sort of lazed around on the sofa, getting drunk. Productivity has grown 6 times more than pay since 1979. In the last ten years, the costs of education, housing, and medical care have ballooned, while the minimum wage has held steady at $7.25/hour. Not only is this financial climate hard for the average American, it’s going to be hard for a LOT of people, when the purchasing power of the middle class dwindles away to nothing and the bottom drops out of the whole contraption.

And there’s plenty of room for it to keep dropping! Because it turns out that a LOT of tech’s “innovation” just means “circumventing labor laws in ways that nobody’s made illegal yet”. Sometimes the tech world finds cools ways to get money and opportunities to people. Think of crowdfunding, or subscription services like Patreon that let middle-class artists do their thing sustainably.

But often, you instead wind up with companies like Uber, Lyft, and Favor. Rideshare apps view their drivers several different ways. They tell the government that they’re independent contractors. Drivers often claim that they’re running a small business, with the rideshare app’s help. Internally, (and to the SEC) they think of their drivers as the customers. The people who call for rides aren’t the customers—they’re the product that the app delivers to their customer, the driver.

What all of this means is that rideshare companies don’t have to pay minimum wage. They don’t have to offer benefits, like time off or healthcare. If the people who work for you are your customers, instead of your employees, you don’t have to take care of them the same way. (Funny how that works out, right?)
And in some ways, I can see the temptation to do things this way. Insurance is expensive, and it’s kind of wild that we make employers pay for it. Somehow saddling small businesses with that expense is considered the “conservative” option; I’ll never understand how that’s supposed to be good for the market. We’re the wealthiest nation in the world, and yet we’re just about the only country that puts the burden of healthcare on business owners instead of the government.

But here’s the thing: That’s how health care works in this country! It’s what we have. We have a public option, technically. But it’s been systematically gutted to the point of uselessness, intentionally, by people who resent it being passed in the first place. So until we get some kind of national healthcare system, it’s on business owners to make sure that their employees don’t die because they can’t afford medical care. That’s the law, and that’s the ethical thing to do in our current situation.

And tech companies tend not to like that. So we get situations like Uber, where people who are clearly employees are being framed as literally anything else. Because the companies hiring them would rather burn millions trying to render their employees obsolete than spend that money keeping them alive. (Fun side note: Remember when one of those self-driving cars killed a woman because Uber forgot to tell their AI that humans can exist outside of crosswalks?)

And just like I understand why companies would try to dodge those costs (even if it’s clearly wrong), I also understand what AB5 was trying to do. They’re trying to close that loophole. They’re trying to stop companies from BSing about who is an employee and who isn’t. That makes sense.

So the bill defines freelancers with help from a court case, Dynamex Operations West, Inc. v. Superior Court (2018). The main features are

1. Is the worker free from the control and direction of the hiring entity. Is the person who hired them telling them where, how, or when to do the work?
2. Is the work being performed outside of the normal course of business for the hiring entity?
3. Is this work that the worker normally does, independently of this one business relationship? Do they genuinely have their own business in this field? Or is this “freelancing” something they’re just doing for one company?

You can immediately see some huge questions raised here. Among them:

– How strict do you define “telling someone how to do their work?” Because I’ve never had a creative assignment that didn’t come with some sort of deadline, right?
– How do you define “the normal course of business?” The normal course of business for a magazine involves hiring dozens of writers to write hundreds of pieces. Does that stable of writers suddenly get smaller if you can’t afford to give them all benefits?

And we’re already seeing fallout from this. Large multimedia platforms, from Vox to CollegeHumor, are laying off huge swaths of their staffs. Under the new law, writers aren’t allowed to submit more than 35 pieces in a year and still be considered freelancers. That means that these outlets were going to have to either cast a much wider net for their bullpens, or cut their staff and focus on a core group of (presumably grotesquely-overworked) people. Unsurprisingly, they chose the latter pretty universally.

And it’s not just writers. Musicians are getting hit, too. A petition to secure an exemption is nearing 50,000 signatures on change.org. Any creative endeavor other than “a day job with a desk at Disney” is going to involve a network of people floating in and out as projects start and end. There’s a lot of room for exploitation, and there’s a lot of room for quashing that exploitation. But right now, this bill is mostly just putting people out of work.

And just like California’s (much-needed, fantastic) privacy protection laws are having an impact across the country, (because you never know if the data you’re collecting is on a Californian!) so too is their (terrible) freelancing law rippling out. Because work doesn’t happen in offices anymore. It happens everywhere. I recently released a song with musicians from six countries performing on it. That wasn’t even something I was trying to do. That’s just where my friends were!

Now, my piece was just me getting together with some friends to have fun. But professional recordings happen that way, too, all the time. And right now, if the person on either the hiring or performing side of that equation is in California, that relationship is in jeopardy.

And of course, the really fun thing is, that a lot of the industries that were intended as targets of the bill are sidestepping it with court challenges. And many industries lobbied for exemptions, meaning that real estate agents, CPAs, lawyers, surgeons, referral agencies, and lots of others were exempt from the get-go.

So what we’re left with is a law that’s meant to protect people. But many of the people it should’ve protected aren’t covered by it. And many legitimate freelancers are getting screwed out of business relationships that they used to rely on. The big publications that they used as cash cows to pay their bills are either capping them at 35 articles, or letting them go altogether. It’s not hard to see that this is wildly misguided, and that it’s causing more harm than help. We’ve got to pump the brakes on AB5 and try to figure something else out.

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Politics

How USMCA is different than NAFTA and if/when it will finally be passed

(POLITICS) The USMCA should be set to replace NAFTA early in the year, which will help small business and real estate alike with easier trade.

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USMCA signing

The United States-Mexico-Canada Agreement (USMCA), which has been a priority for President Trump, is one step closer to replacing NAFTA. Amid the impeachment hearings, the House of Representatives passed the USMCA by a vote of 385-41. The Senate must still approve the agreement, but according to CNBC, once the Senate gets back in session in January 2020, the agreement will pass.

The USMCA is a renegotiation of the North American Free Trade Agreement (NAFTA). It was informally agreed upon by President Trump, Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto in 2018. However, each country’s legislature must approve the agreement before it is ratified. Mexico’s legislature has ratified the agreement, but Canada has not. It is anticipated that the agreement will be re-introduced to the Canadian Parliament this session.

What’s the difference between USMCA and NAFTA?

NAFTA was created to reduce restrictions on trade between Mexico, Canada and the United States. It was to increase market access and investments between the North American countries. President Trump has referred to NAFTA as “the worst trade deal ever made.” The USMCA builds on NAFTA, but does alter some of the provisions. It’s unknown when the agreement will go into effect. Canada has not ratified the agreement.

How will the USMCA affect small businesses?

The official text of the USMCA hasn’t been released, but we do know a few of the provisions. The biggest impact for businesses may be in the automobile industry. Under USMCA, 75% of auto components must be manufactured in Mexico, U.S. or Canada to be eligible for zero tariffs. Under NAFTA, the figure was 62.5%. In addition, by 2023, 40% of workers who assemble cars or trucks must make at least $16/hour.

The USMCA reduces the timeline for brand-name biologic prescription drugs to be produced as generics. Some popular biologics include Humira, Lantus and Botox. Another key component of the agreement is opening the Canada dairy market. US farmers can now export up to 3.6% of Canada’s dairy market. The National Association of Realtors® (NAR) supports the USMCA because it will make it easier for real estate investors to travel between the countries.

Although the USMCA is not in effect yet, it does seem likely that it will be ratified this year to provide more opportunities between Canada, Mexico and the United States.

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Politics

FFEE Act wants to save you from having to pay to freeze your credit

(POLITICS NEWS) The FFEE Act wants to help give consumers more rights more control over how credit agencies use their data.

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impulse ffee

Taking action

Following the compromise of consumer data from credit reporting bureau Equifax, Senator Elizabeth Warren (D-MA) and Senator Brian Schatz (D-HI) have introduced the Freedom From Equifax Exploitation (FFEE) Act.

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This act aims to give consumers more rights more control over how credit agencies use their data.

The bill

The bill is available here, but here is a few of the bill’s highlights:

  • Create a uniform, federal process for obtaining and lifting a credit freeze.
  • Preventing credit reporting agencies from profiting off the use of consumer information for the duration of a credit freeze;
  • Strengthening the fraud alert protection from 90 days to a one year, with a year renewable.
  • In ID theft cases, a 7 year fraud alert is created.
  • Require any credit reporting agency who charged a fee to freeze credit in response to the data breach to refund those fees,
  • Allow for an additional free credit report (consumers already get one under the Fair Credit Reporting Act through annualcreditreport.com)

Freezing credit

The most important feature here is the removal of any fee to freeze your credit. Currently, agencies like Equifax charge nominal fees to freeze credit (anywhere from 3-10) dollars. If this bill passes – not only will that service be free, but it will restrict the way credit agencies use that information while the freeze is active.

The idea behind making this free also keeps credit companies, whom many believe are responsible for the security of credit information, from profiting off information breaches. Given that many financial advisors have advised those impacted to freeze their credit, this would be a benefit to consumers.

It is important to note here that Equifax has suspended the fees to freeze credit for the next month.

A credit freeze restricts access to your credit report. Simply put, it requires the credit agency to contact you first to ensure it was you who applied for credit, thus making it harder for you to apply for credit. You would need to unfreeze your account to apply for new credit. You must also freeze credit with each bureau, which can lead to some expenses as you must pay anytime to lift a freeze.

Remember: a credit freeze doesn’t impact current accounts or your credit score. If you apply for credit often, or open new accounts often, then a credit freeze may not be for you.

Lots of names

The bill has several original co-sponsors, including Senators Sanders, Franken, and Blumenthal. Companies like the National Consumer Law Center, Americans for Financial Reform, CREDO, and the Consumer Federation of America all have also endorsed the bill.

#CreditFreeze

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