Archive | 7:09 AM

Home purchase credit – questionable idea at best

29 Oct

Sen Dodd proposes extension of the $8,000 tax credit for first time home buyers.  The idea is to stabilize the home market, but why?

According to an ad by the National Association of Home Builders and the Nat’l Association of Realtors such an extension will:  create 350,000 new jobs, inject $28 billion into the economy and generate $12 billion in additional tax revenue.  No doubt it will also find a cure for obesity as well.

Housing prices are still too high, why do we want to prop them up? Historically a house costs about three times average income, you do the math. Today even after the decline in home values over the last year or so, the average price of a home in many parts of the country is far more than three times average income. My home has dropped in value in the last year, at one point it was worth nearly $700,000 today it is closer to $550,000 or so.  Did I lose money, that depends on your point of view, I paid $59,000 for the house in 1975. 

Wouldn’t it be more logical to allow prices to decline so that a home is more affordable to more people and not just some first time home buyers?  Where is the logic in giving people money to buy something for an inflated price as opposed to a strategy that lowers that inflated price?  Didn’t we get into this recession mess in part because we made it too easy to buy a home, no down payment, “creative mortgages” stretching our budget because the price of the home was so high?  The idea that we need to artificially prop up home prices to sustain the home equity built up in these homes is also questionable.  Clearly that is a long term goal for homeowners, but in the short term it is an often misused asset as many Americans have recently learned.

Stimulating home buying in the short term for a select group of Americans may seem like a good idea today, but at what price?  Do we want to add to the deficit, keep home prices over inflated and create a false sense of entitlement to those who want buy a home?

Would a long term strategy to assure that all Americans who can truly afford a house are able to obtain one at a realistic price and with a traditional long term and fixed payment mortgage?

 

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House Health Care Reform

29 Oct

I have just finished reading the section by section summary of the House reform bill released yesterday.

Here is my summary:

Plenty of insurance reform (leading to higher costs for those currently insured)
A tremendous amount of new regulation
Scores of new programs, studies, pilots, etc on everything from wellness to obesity and much more all under HHS
Many improvements to Medicare and Medicaid
Higher costs for employers including prohibitions on changes in retiree coverage, extension of benefits to adult children and more
Control of just about everything including the adequacy of provider networks
Gradual elimination of the Part D donut hole

In summary this is a massive piece of legislation that will require even more massive regulation and years to implement. In the final analysis it will be virtually impossible to know what worked or didn’t work and certainly with all the additional work left to the Secretary of HHS and to CMS it’s fair to say we will never know the true costs (or savings).

Bait and switch Congressional style

29 Oct

Now it is reported that Pelosi will send to the floor a bill with a public option that calls for negotiated rates rather than using Medicare rates for payment to health care providers.  Interesting start, but one can only imagine what will happen a few years after enactment when costs are still rising…does Medicare ring a bell?

However, you don’t even have to wait that long, to keep under the target cost projection the bill will also expand Medicaid,  this is what The Hill says about that:

“The negotiated rates plan is estimated to cost about $85 billion more than the Medicare-based reimbursements. To cut the number of uninsured without surpassing the $900 billion limit set by Obama, the bill will expand eligibility for the Medicaid health care program for the poor. The bill will also include an income surtax on the wealthy to pay much of the cost of the plan.”

I think they used to call that bait and switch.  They draw you in with a too good to believe sale and then sell you something else.  So, now the $85 billion is off the books for federal health care reform, but shifted to the states through expanded Medicaid.  Now you see it now you don’t.  And by the way, Medicaid costs money too.

As Margaret Thatcher said, the problem with socialism is that sooner or later you run out of other people’s money.

 

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