When do taxpayers finally get angry enough to tell Congress that with the big bailout, the subsidy bonanzas stop here and now?
Someone I know was planning to buy a house. But after calculating the likely tax hit from the $700 billion mortgage crisis bailout, he’s not sure he can afford it anymore. His mistake was that instead of borrowing and spending beyond his means, he has been a thrifty, hard-working American, supporting a wife and a couple of kids, paying his bills in full and on time, and forking over a big whack of his earnings every year to the tax man.
Congress has repaid him with policies that produced the current financial crisis. For him, the bottom line is that he will now be so busy working to pay for other people’s houses that he may no longer be able to afford one of his own. So he’s written a letter to his congressman, giving one of the best summaries I’ve seen of the problem, the cause, and, what it means for him, as a member of the American Middle Class. With the names edited out, here it is –
Dear Congressman,
I am a Professor of Economics at a college in your district, and believe I understand the current economic condition at least as well as most. The root of the current crisis lies in the Community Reinvestment Act, which is essentially an income redistribution plan. I have been taxed heavily over many years. Based on the ratio of the current plan’s cost to total annual tax receipts taken in by the federal government (about 27%), and my tax bill last year, I estimate the bailout will cost me, personally, $20,000. After all, money for this comes from me, the taxpayer, and I do not expect congress will have the guts to find $700 billion in cuts to offset the cost of this program. At the same time, I will need to buy a house next year in your district as I am no longer eligible for college-subsidized housing.
To put this simply, I can either afford to bail out irresponsible lenders and borrowers created by a huge redistribution policy I have already subsidized in the past, or I can buy myself a house. I don’t think there is room in my budget for both. How should I feel if the federal government decides on the former?
Best wishes,
An American Taxpayer
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12 Comments
1. alina:Hey Alina,
Quite a day in Wall Street/Main Street. I like this article. I oppose Bush, Pelosi, McCain on trying to push the bailout through. I don’t like Obama for riding the fence. I am SICK of big government. I hope to God we don’t have hell to pay, but if we do…we do. It’s better than the corruption that has brought us to this point. At some point, there has to be a correction and I do believe in capitalism when morals rule. Unfortunately, greed has ruled. Power to the People!! and God help us all.
Sep 29, 2008 - 4:52 pm 2. MG:The letter’s author clearly doesn’t understand the nuance and complexity of contemporary politics. He seems to think the federal government exists to serve the people of the US. Rather, in a rather Byzantine way, the federal government exists to serve its (mostly) non-hereditary aristocracy and its retainers.
Best regards,
Louis XIV
Sep 29, 2008 - 5:04 pm 3. ic:Read this before you panic further:
But what if the bailout, as originally proposed and in its latest incarnation, would spend $700 billion of taxpayers’ money and actually make the economy worse? Believe it or not, there is good evidence this may happen. The inflationary prospects of the bailout price tag may lead to spikes in oil and crop prices that could hit ordinary Americans in their cars and on their kitchen tables. And government purchases of financial assets could ironically further constrain credit through causing write-downs on even the balance sheets of financial firms not participating in the bailout by worsening the effects of mark-to-market accounting rules.
An Associated Press story paraphrases American Enterprise Institute scholar Vincent Reinhart, a former Federal Reserve monetary affairs director, as saying that “if the auctions set too low a price for mortgage-related assets, other institutions with bad debt may be forced to take the distressed valuation onto their books under mark-to-market accounting rules.” Similarly a Washington Post story by financial reporter Neil Irwin says that the purchase could force more regional banks to write their assets down. Thus, regional banks as well as big banks will be subject to credit constraints.
http://www.spectator.org/dsp_article.asp?art_id…
Sep 30, 2008 - 7:32 am 4. ic:Mark-to-Market
“Because the mark-to-market rules require writedowns of even performing loans based on the last sale of similar assets, good banks holding mortgages that haven’t been impaired often have to adjust their books based on another bank’s sale — even if they plan to hold their loans to maturity. And because the rules are tied to solvency requirements from the government’s bank regulators, banks lose “regulatory capital,” even if the loss is only on paper. Thus, in the scramble to conserve capital, financial firms have less money to lend.”
Mark-to Market is a post-Enron cure, Freddie and Fannie are a low income home ownerships cure. Seems Congress should get out of the healing business.
Is it possible that this bailout an incompetent Treasury Secretary’s over reaction when he sees his own portfolio spitting blood? After all Leahman Brothers CEO was reduced from a billionaire to a 50-millionaire when Treasury refused to bail it.
Sep 30, 2008 - 7:33 am 5. KYDSO:I’m self-employed I pay my taxes/other obligations on time, all the time. Even if I go without.
embarrassed to say ). Lets just start from scratch, and vote in some real Americans, and not life time politicians that just want to live off the the tax payers to line their pockets! Tired of paying for someone else’s screw ups due solely on greed.
Sep 30, 2008 - 7:50 am 6. Linda:Sick of the Democrats and Sick of the Republicans (I am a republican
If the TAX PAYERS have to bail those screw up’s out
I want to see long term prison sentences with ALL the culprits names publicized. I want to see names! So they can live in shame the rest of their damned lives. There should be an investigation and names mentioned. I want blood! I’m so pissed off now, if Nancy P. was in front of me I’d plant my size 9 up her where the sun don’t shine. Just because.
Here’s the plan we sent to Washington.
Subject: The Birk Economic Recovery Plan
This idea sounds just crazy enough to possibly work, so naturally it won’t be given serious consideration. How great is our bureaucracy!!
Hi Pals,
I’m against the $85,000,000,000.00 bailout of AIG.
Instead, I’m in favor of giving $85,000,000,000 to America in a (We Deserve It Dividend.)
To make the math simple, let’s assume there are 200,000,000 bonafide U.S. Citizens 18+.
Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up..
So divide 200 million adults 18+ into $85 billion that equals $425,000.00.
My plan is to give $425,000 to every person 18+ as a We Deserve It Dividend.
Of course, it would NOT be tax free.
So let’s assume a tax rate of 30%.
Every individual 18+ has to pay $127,500.00 in taxes.
That sends $25,500,000,000 right back to Uncle Sam.
But it means that every adult 18+ has $297,500.00 in their pocket.
A husband and wife has $595,000.00.
What would you do with $297,500.00 to $595,000.00 in your family?
Pay off your mortgage – housing crisis solved.
Repay college loans – what a great boost to new grads
Put away money for college – it’ll be there
Save in a bank – create money to loan to entrepreneurs.
Buy a new car – create jobs
Invest in the market – capital drives growth
Pay for your parent’s medical insurance – health care improves
Enable Deadbeat Dads to come clean – or else
Remember this is for every adult U S Citizen 18+ including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back. And of course, for those serving in our Armed Forces.
If we’re going to re-distribute wealth let’s really do it…instead of trickling out a puny $1000.00 ( ‘vote buy’ ) economic incentive that is being proposed
by one of our candidates for President.
If we’re going to do an $85 billion bailout, let’s bail out every adult U S Citizen 18+!
As for AIG – liquidate it.
Sell off its parts.
Let American General go back to being American General.
Sell off the real estate.
Let the private sector bargain hunters cut it up and clean it up.
Here’s my rationale. We deserve it and AIG doesn’t.
Sure it’s a crazy idea that can ‘never work.’
But can you imagine the Coast-To-Coast Block Party!
How do you spell Economic Boom?
I trust my fellow adult Americans to know how to use the $85 Billion
We Deserve It Dividend more than I do the geniuses at AIG or in Washington DC
And remember, The Birk plan only really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam.
Ahhh…I feel so much better getting that off my chest.
Kindest personal regards,
Birk
T. J. Birkenmeier, A Creative Guy & Citizen of the Republic
PS: Feel free to pass this along to your pals as it’s either good for a laugh or a tear or a very sobering thought on how to best use $85 Billion!!
Sep 30, 2008 - 8:03 am 7. Mary Joan Kanzler:Why are people continuing to blame President Bush for our now critical financial mess? Put the blame where it belongs with our Democrat majority Congress!
Sep 30, 2008 - 4:39 pm 8. Burt B:$700Billion is probably enough to give anyone with a mortgage about $70,000. We can either pay down our mortgages or stimulate the economy!
Sep 30, 2008 - 6:15 pm 9. Surak:Either the economics professor can’t do math, or he’s trying to move into some real pricey real estate. Let a math professor help.
The per capita cost of the proposed bailout is about $2300 for every man, woman and child in the US. The numbers will vary with income, of course. In any case, the professor’s tax liability is about $80,000 per year, which puts his income somewhere in the vicinity of $200,000 per year (or more). And you can’t afford a house on that income? Please – give me a break.
Signed,
A free-market conservative and registered Republican
Sep 30, 2008 - 6:59 pm 10. Les:Linda, you must work for Congress. It’s $425.
You can rough it out this way. There are a thousand millions in a billion. Assume there are 200 million Americans. If it cost each one of them a thousand dollars, that would be 200 billion. The 85 billion is less than half of that, and therefore 425 should be less than half of a thousand, which it is.
Oct 1, 2008 - 5:35 am 11. dm:It’s all about reparations.
Someone’s ancestors were mistreated 160 years ago.
Now you have to pay.
Oct 1, 2008 - 12:27 pm 12. BeeBo:Nice try linda, et al. You just don’t get it.
If the US treasury used about 80 billion in 1929 -1930 to bail out the investments banks. We may have avoided the Great Depression -think how much socialism came into the system in the first two FDR terms.
Now imagine what an Obama administration with a democrat controlled congress can bring about in 8 years if they try to “fix” an economy with 8% unemployment let alone the 20% unemployment of the 1930’s
Anyone thinking this is the end of free market capitalism, hasn’t been paying attention the last 70 years. it died long, long ago with the invention of FDIC, government insured mortgages, the SEC, the FED.
Oct 2, 2008 - 12:17 pm