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Posts Tagged ‘tax credit’

Supply-Side Economics | The CERF Blog

www.clucerf.org1/10/12

As early as the 1950s, Mundell proposed an economic policy program of tight monetary policy to stabilize the value of the currency and low tax rates to stimulate economic activity. During the late … The Reagan Scenario included a sharp drop in inflation, a recession in 1982 due to tight monetary policy, passage of the Kemp Roth tax cuts and an economic boom starting in 1983. … Inflation and interest rates are much lower and tax rates are lower as well. While a high …

The hidden dangers of low interest rates | David Cay Johnston

blogs.reuters.com1/10/12

Low rates also come at a cost, cutting income to older Americans and to pension funds. This forces retirees to eat into principal, may put more pressure on welfare programs for the elderly, and … If rates return to, say, 6.64 percent, the level they were in 2000, one year's interest costs would equal the individual income taxes for all of 2011 plus the first few weeks of 2012. Last week , rates took a step in that direction. The yield on the 10-year bond, a benchmark for other …

President Obama’s recent claim to homeowners, that refinancing their mortgage loans at a lower rate, equates to a tax cut, doesn’t ring true for many tax experts.

Obama said at a recent press conference that the housing plan his administration had launched, had “already contributed to a spike in the number of homeowners who are refinancing their mortgages, which is the equivalent of another tax cut. The main message we want to send today is that there are 7 to 9 million people across the country who right now could be taking advantage of lower mortgage rates and that is money in their pocket”.

What Obama failed to mention however is that unlike the housing boom that led to the current financial crisis, this time, only borrowers with strong credit ratings and stable jobs will be able to save money if they refinance.

Obama’s announcement caused many tax analysts, including Gil Charney, who is an analyst for The Tax Institute at H&R Block to shout “foul”;

“While there could be overall savings by refinancing and lower monthly payments, there also could be reduced tax benefits as less interest is paid. Also refinancing could extend the period before the mortgage is fully paid off, so this might not be desirable for someone who wants to be mortgage-free. Therefore, someone about to make a financial decision should take their complete financial picture into account, not just their tax situation”.

In fairness to Obama, some analysts like Mark Steber, who is vice president of tax resources at Jackson Hewitt Tax Service did express a more supportive viewpoint, “While generally there is no tax advantage to refinancing at a lower rate, an individual can save on the total out of pocket costs each year over the life of the loan. Though a tax bill will actually increase after refinancing, the increase in taxes may be less than half of the total difference in interest paid, so the taxpayer may save more money than their taxes increase, therefore resulting in net savings”.

If the stimulus package that the U.S. congress is proposing is completed in its present form it will raise the government’s financial commitments to $9.7 trillion and the pledges amount to almost two-thirds of the value of everything that was produced in the U.S. last year!

How big is $9.7 trillion?

To put it into perspective, it’s enough to pay off more than 90% of the nation’s home mortgages or enough to send a $1,430 check to every man, woman and child alive in the entire world!

Over the course of the last two years ‘The Federal Reserve, Treasury Department’ and ‘Federal Deposit Insurance Corporation’ have either lent or spent close to $3 trillion and they have pledged to provide up to $5.7 trillion more.

The ‘Troubled Asset Relief Program’ (TAR) which was approved four months ago was granted $700 billion and since then an additional $168 billion in tax cuts and rebates have been approved.

So who will get the other $8 trillion?

· Well none of the names have been disclosed, but the money will supposedly be used for lending programs and guarantees, all of which will be under the authority of the Fed and the FDIC.

The Treasury postponed a planned announcement about new guarantees for illiquid assets to insure against losses without taking them off banks’ balance sheets and said that the announcement will only be made after the Senate votes on the stimulus package.

The Fed said on Friday, February 2009, that it will delay the start of a $200 billion program called the ‘Term Asset-Backed Securities Loan Facility’ (TALF) which is intended to revive the market for securities that are based on consumer loans for credit-cards, automobiles and students.

When Congress approved TARP on Oct. 3 2008, both Fed Chairman Ben S. Bernanke and Henry Paulson who was then Treasury Secretary accepted the need for transparency and oversight but so far the Federal Reserve has refused to disclose loan recipients or reveal the collateral that they are getting!