The Great Bailout and Taxes

The Great Bailout and Taxes

In a recent conversation with my dad he said that he never thought that tax revolts would occur in his lifetime, but for the first time, he is beginning to anticipate that a tax revolt is not too far away. I was a bit taken aback, but then began thinking about the possibility, and he may have a valid point. Consider two extremes – 0% taxation is total freedom, 100% taxation is essentially slavery. At what point are we all simply indentured servants to Uncle Sam? Right now, if you are actively working for a paycheck, it is likely that about half of the money that is paid by your employer to you is going to Uncle Sam. For some it is a little less, for some it is a little more.

Don’t believe it…? Are you taking into account your employers 7% of matching taxes that are paid and not even shown on your pay stub? How about gasoline tax? Who nets more money from your gallon of gas, the oil company or the government? Did you think about normal sales taxes? How about the approximately 22% of business taxes that has been found to be passed to consumers in the ordinary cost of goods?

This leads to a big question, are we all really working until lunch everyday just to raise enough money to pay taxes for the privilege of…working?

How is this possible? It's easy, no one knows what he or she pays in taxes. So, at what point does that amount become so exorbitant that people start to seek the information that is out there and figure out what they are paying? Can we always blame businesses for gouging consumers without looking at what the government is taking in? Thus far most Americans seem OK with taxes and small tax increases because the government is supporting our troops, building roads, funding schools, and helping less fortunate people. So we do our duty, complain a little, but cough up because at the end of the day it isn’t worth going to jail over taxes (which is what happens if you don’t pay, is it not?)

But then a program is proposed that just doesn't make sense and people like me get extremely irritated, such as, the mortgage bailout. In case you are not aware? Some people, mostly in Southern Florida similar areas bought property they couldn’t afford in fast appreciating markets, sat on it too long, and now they can’t unload it for the windfall profits that they were hoping to obtain. They now face foreclosure because they simply cannot afford the payments. President Bush announced an effort to allow the government to guarantee the loans of these people while they ride out this dip in the market, or continue to sell their property for a smaller amount of profit. Make no mistake, this isn’t mom and pop at the end of a thirty-year mortgage getting ready to be thrown out, these are people that bought way too much home thinking they would get to re-fi before the bigger payments hit, or re-financed at the appreciated value of their home, i.e. took out a bunch of cash and bought other stuff without understanding what they were getting into. After all, there was no end to how high their home values would go, right? Wrong, now their investment (a home is usually referred to as a person’s largest investment) is crashing and they can’t get away from it.

Real Estate is not a liquid asset, never has been, never will be. It's one of the reasons for the buyer beware motto when one is purchasing property. Now after subsidizing the cost rebuilding Southern Florida and coastal areas in post-hurricane season every year (if you don't think we are doing this just look at the price of lumber and construction materials in your area), we are going to bail the homeowners out of their bad investments? Or at least hold the fort down long enough to let them ride out the downturn.

Are we going to bail out business owners whose business fail in low-income parts of the country? Or investors who buy hot stocks and lose their shirts? Nope, just the people who guessed wrong on the housing market in over-valued areas. It is easy to get caught up in thinking that we are "helping" people, and as I have said most Americans believe in helping their fellow man or woman. We seem OK with taxes going to help people, so why is this any different? The difference here…these people are living BETTER than we are!!! That’s right, they are living in nicer houses, with fancier cars, toys, furnishings, etc in parts of the country that most of us only get to visit for a week on an overpriced vacation. Will the average American be OK with losing half of their income each day only to subsidize a person in a million dollar home in Southern Florida, driving a Hummer and/or Mercedes while he/she is driving two used cars and living in a modest home in this area because the cost of living was more manageable? Should those of us who didn’t over-buy, didn’t make a mistake, and didn’t wait too long to get out be footing the bill for those that did? Should those of us who moved to more rural, more consistent areas continue to subsidize big city and coastal living? I hope not.