patrick.net

This is depressing. The optimal capital-gains tax rate should be 0%. Why would they want to raise it? 15% is already too high. Do we want to end up like Europe?

Hopefully, enough of middle class homeowners will feel threatened enough to make this tax hike a political third rail.

It is clear that the budget should be balanced through privatization, not taxation.

My dream of a flat tax system is fading. :(

I just can't see the agent actually following through and buying the property. It doesn't make any sense for them to buy something that nobody else wanted, and at a higher price. Realtwhores may be scum, but they are not that stupid, at least not with their own money.

I think the "agency offer" is made when they realize that the sellers wishing price is too high, it will take > 3 months for the seller to come to his senses, and they intend to lock the listing/commission up for longer than that.

Meanwhile, in the unlikely event of a sudden market turnaround, they have a "call option" to buy the house at a discount and flip it. If the market continues to go south until the option expires, they will invoke some contingency and get off the hook.

If the realtor *really* wanted to buy the house, they would buy it NOW for 2M, maybe discount heir commission to beat out other buyers. I don't think price collusion has anything to do with it. They want a transaction to happen, they don't care about the price. They only care about increasing the prices when it helps them to create panic buying, (read: more transactions).

They also want to do something to keep the listing active, I would think. In areas like MV they are fighting "toe-dipping" sellers. In both cases, the homes in question have been on and off the market for from 1 to 2 years. The sellers tend to list a wishing price, sit on it for a while then either get a low ball or agent pressure to drop the price, so they yank it and wait a while. A few months back they're on MLS again with a different agency. So this is a way the agent both locks up commission and keeps the listing active in the hope a fool will stumble upon it. After all, homes not on the market don't get sold.

The whole "agency offer" discussion also brings up the question of of how to deal with "insider transactions", and transparency in general.

I think there ought to be much stricter rules about reporting of real-estate transactions, and equally strict associated penalties for those who break the rules.

What is needed is

--rules about accurate reporting of sales and prices
--rules about open disclosure of all bids, to prevent fake bids
--mandatory reporting of "industry insider" selling and buying activity
--reporting of "off-market" transactions
--auctions should have published minimum bids

Total transparency is the goal. The stock market is much more transparent, although there is plenty of loopholes and shenanigans still going on there.

Social security is not going away. First of all it is financially solvent, at least through 2040, and even after that it is 80% solvent, meaning they could drop benefits 20% and it would be fine. Secondly, there are more elderly than ever and they vote.

Medicare is the thing that is going to bust the federal budget and I fully expect it to go away. Medical costs will end up bankrupting most of us before we die.

somewhat OT questions: is there a way to roll my 401k from a previous company into a Roth IRA? what are the tax implications?

also, when I read this blog from my Treo, each post is numbered, how come the post numbers don't show up when I use Firefox?

We recently had a tragic shooting in the BA.
A father's despair over money problems at a family-owned skin-care clinic in the East Bay led him to shoot his wife and their two children to death before turning the gun on himself, police said Tuesday.
So their business was having problems, but do you think this also had anything to do with it? The PropertyShark knows all.
Their house in Berkeley was bought on 3/21/05 for $640,000 with 100% financing from Impac Lending Group. The first mortgage for $512,000 shows up as variable. The second at $128000 is fixed. If the first was a 2/28 ARM, resets would have happened in March of this year. He registered his gun in April. Heartbreaking.

Do we want to end up like Europe?

Golly, "ending up like Europe" sounds awful. Far less unequal distribution of wealth and poverty. Cradle-to-grave healthcare coverage for all citizens. Fully or near-fully subsidized higher education. 2-3 months of mandatory paid vacation per year. Clean cities comparatively free of crime, gang violence, and graffiti. Strict immigration controls that ensure plenty of demand for a skilled and well compensated labor pool, even among the lowest tiers.

Sounds horrible. Where do I sign up? ;-)

Honestly, Peter, I'm not aching to have my own taxes raised, but if a capital gains tax-hike is one of your biggest concerns, then you must be doing rather well, no?

Worrying about how the mostly well off are going to pay (relatively modest) taxes on passively accumulated wealth is not really one of those things that keeps me up at night. I have substantial m. fund and 401k holdings and it doesn't even register on my 'big picture' radar. Losing my job to outsourcing or cheap foreign labor, or losing my medical coverage and being bankrupted by healthcare costs are a little higher up the priorities chain for me.

Just sayin'...

DinOR,

@ HARM,

I would really appreciate it if you could arrange for a password re-set!

My bad. Many thanks!

DinOR

@HARM

I rather dig Europe too. I think there are a great many things within countries like the Netherlands, Germany and the UK that the US could learn from. But economic stability and fairness is *not* among those attributes.

Keep in mind that most of those famous entitlements are crushing "old European" systems. Look up the percent of GDP debt carried in those cradle-to-grave countries as compared to the US. They're running their own ponzi scheme.

And the widely bandied "income disparity" numbers are misleading. Europe is incredible stratified, with little socioeconomic mobility. Whenever some NGO or the UN produces those famous studies showing the US is so terribly unbalanced compared to Europe they always (a) include social entitlements in wealth and (b) exclude private real estate ownership.

Randy,

got a pointer to such a study about Europe?

Peter P, I can't help but think that you live in some libertarian fantasy world.

Zero capital gains tax (and flat income tax) will do nothing good for society as a whole except conserving the wealth of those that have it already, and make it near impossible for anyone else to obtain wealth. Sitting around on ones ass owning stuff will be the only way to be wealhty.

Of course, it is pretty clear that what "conservatives" want to "conserve" is exactly that: The wealth and property of those who have it already.

justme,

The Economist covers the issue on a fairly regular basis. If you have a subscription, just do a search. If I recall it was in late January last time around.

I'm not trying to 'dis Europe. I think we could learn a lot from their health care systems -- both good and bad. But the health system we have now is shameful. The fact we cannot come together and fix something so primary shows one of the worse weaknesses of America.

But income disparity is deceptive when comparing the US to somewhere like France or Germany. In those countries the "middle classes" are primarily employed by the government directly or by protected-status labor jobs. Those countries also have very limited socioeconomic mobility, which is their downfall. To wit, even France is slowly and begrudgingly adopting more "Anglo" economic policies as a matter of survival.

DinOR,

Just emailed your new password --let me know if that doesn't work.

Look up the percent of GDP debt carried in those cradle-to-grave countries as compared to the US.

Most of the stats published here re: overall government debt-to-GDP ratio are misleading, as they conveniently omit our STATE and local government debt. Federalism is something relatively unique to the U.S.

I can give you an example HARM where capital gain tax is zero. If you hold onto your asset for more than 1 year capital gain is ZERO in INDIA and that's helping the economy. I support Peter on this.

Not saying (western) Europe is a perfect worker's paradise, just that --as Randy says-- we might learn something by keeping an open mind and considering successful social programs in other countries. I'm really tired of blanket assumptions like "all universal healthcare coverage programs are bad / creeping communism".

Public health and education are public goods. Woe to the society that neglects them.

HiThere,

0% c.g. might make more sense in India, which is a very poor, rapidly developing country, but not here. Obviously, we are about as "developed" as you can get, and the biggest threat to our own economy IMHO is not a lack of incentive in getting people to invest, but rather a wide-and-growing disparity in the distribution of wealth and our inability to provide basic, critical services like healthcare at a reasonable cost.

That said, I would be in favor of keeping c.g. taxes graduated --the longer an asset is held, the lower the tax rate. That way, you reward long-term (and retirement) investors vs. speculators. Where housing is concerned, our current structure is nuts. Today you pay 0% c.g. tax on a house if you: a) hold it for only 2 years, and b) claim to have "occupied" it (nudge-nudge, wink-wink) for 2 out of 5 years, non-consecutive. What's so wrong with going back to making this a one-time deal and only on your primary residence, and requiring a minimum holding period of, say, 10 years?

Some Europe vs. U.S. links:

http://www.taurillon.org/Europe-vs-USA-Whose-Economy-Wins
http://www.federalunion.org.uk/europe/060610EuropevsAmerica.shtml
http://www.spiegel.de/international/0,1518,366944,00.html

We tried selling our home in Blackhawk - a gated community - about 2 years ago with a discount broker. We were blackballed by one of the real estate agencies that had the majority of listings in the gated community.

The way I figured it out, was when I looked at who showed up for the Realtor Open House, only one agent toured the house from that company, whereas lots of agents toured the house from most of the other real estate companies.

Eventually, we ended up having to use a regular broker but at least we were able to negotiate the commisssion a little bit.

What I notice now, is that their lock on listings in that community is loosening. Don't you just love these little games !

Honestly, Peter, I’m not aching to have my own taxes raised, but if a capital gains tax-hike is one of your biggest concerns, then you must be doing rather well, no?

Not really. But I would like an efficient and simple tax system.

On the other hand, we must do everything possible to stop or slow the expansion of the tax system. The middle class will be the ultimate victim.

Not all gay-right activists are gay, right? ;)

I know Europeans are shocked when they hear what American business pays for liability insurance.

Losing my job to outsourcing or cheap foreign labor, or losing my medical coverage and being bankrupted by healthcare costs are a little higher up the priorities chain for me.

HARM, wealth can only be created through capital gains. The global trend cannot be stop. However, we can position ourselves for the effects.

But I would like an efficient and simple tax system.

Me too.

On the other hand, we must do everything possible to stop or slow the expansion of the tax system. The middle class will be the ultimate victim.

Yes and no. Not all taxes are created equal. The inheritance tax (reframed by rich apologists as the "death tax") is an excellent example of this. It primarily affects the rich, and among the rich, it mostly impacts inherited (not earned) wealth. The dead are not being taxed, rather, their lazy, unproductive trustafarian offspring are, which is not necessarily a *bad thing*. It can even be very beneficial to society *if* the money is put to productive use, like providing healthcare or college education grants for the poor. Of course, with such a large, inefficient and corrupt government, that's always a big "IF". I.T. by its nature also reduces income disparity, increases class mobility, and disincentivizes hereditary wealth transfer over the long term, which is arguably a very good thing for society.

On the other had, payroll taxes negatively impact productive people of all social strata, though to varying degrees. It hurts those at the bottom rungs the most, as a far greater % of their income must go towards basic necessities vs. the upper strata. The last thing you want to do when social engineering is to dis-incentivize productive work.

I think what I find most unfair about the cap gains rules for housing is that they treat a "once in a lifetime" event as though you made that much money ever single year....

The old rules permitted "income averaging" over 5 year periods. This was more fair, but it was done away with back in the '80's IIRC.

So now cap gains sales rules treat someone like me - who actually lived in a house for 25 years - the same as a "flipper" who faked living there for 2 years.

An example of a possible reform would be a gradation with more granularity that just "short term" and "long term" cap gains.

Under 1 year - short term rate 30%
Between 1 and 5 years - 25% ("flipper rate")
Between 5 and 10 years - 18%
Between 10 and 15 years - 12%
Between 15 and 20 years - 6%
Over 20 years - FREE NO TAX

Looks like Bears Stearn didn't manage to save the hedge funds. $800mil in securities seized and to be auctioned off today.

This could be the beginning of the hedgie wedgie fest, 2007.

"hedgie wedgie fest" LOL!

I like it! :)

On the other had, payroll taxes negatively impact productive people of all social strata, though to varying degrees.

Again, it is more important to have an economically efficient system than a "fair" system. The market can resolve any "unfairness" though incentivization. On the other hand, a populist "tax-the-rich-and-give-to-the-poor" system will surely lead to economic collapse.

Read this!

http://ridingtheelephant.blogs.fortune.com/2007/06/20/mukesh-ambani-builds-a-monument-for-his-wealth/

Again, it is more important to have an economically efficient system than a “fair” system. The market can resolve any “unfairness” though incentivization.

But how does the "market" incentivize efficiency or "fairness"? A: through rule-of-law and well designed (and tested) economic and social policies. Left completely to its own devices, any anarchistic "free market" will quickly devolve into unregulated and coercive monopolies, which typically join forces with corrupt kleptocracies. Such is the case in not-so-desirable parts of the world --Sudan, Myanmar, Zimbabwe, etc.

On the other hand, a populist “tax-the-rich-and-give-to-the-poor” system will surely lead to economic collapse.

“tax-the-rich-and-give-to-the-poor” is not an entirely accurate summation for what I have in mind, which is closer to "Modestly tax nonproductive, hereditary and passive wealth accumulation, while reducing taxes on productive activities (incomes and small businesses). Simplify the tax code and make it more effective at reducing growing wealth disparity and addressing critical social needs currently not being met, particularly in healthcare and education." This is actually close to what the U.S. tax system used to do back in the 1950-70s (when wealth disparity hit an all-time low and real wage growth was at all-time highs) and what western Europe more-or-less does today.

History haven't shown many examples of "overtaxing" the rich causing collapse or revolutions, while it is replete with examples of the opposite happening (French Revolution, Romanov Russia, Cuba, pre-Communist China, etc.).

populist “tax-the-rich-and-give-to-the-poor” system

Just had another thought on this: isn't this precisely what charities already do (on a voluntary basis)? If this always such a universally "bad" idea, then why are super-rich people and celebrities so personally invested in large-scale philanthropy? Bill & Melinda Gates foundation, Buffett donating most of his wealth, Ted Turner's huge gift to the U.N., etc.

I can understand the logic in not forcing productive, law-abiding citizens to subsidize unproductive people or criminals, but laziness and immoral behavior is hardly confined to any one social class. Simply put, is Paris Hilton more deserving of a tax cut than I am? Are robust yacht sales a higher national priority to us than universal healthcare?

Way to go. HARM. Your description of the situation is spot on. Branding your ideals as a

" populist “tax-the-rich-and-give-to-the-poor” system"

is just branding it, and nothing else. The conservatives always try to confuse the issue by casting aspersions on you.

@justme ;-)

For the record, I don't think Peter P is a bad guy, but we do have some significant philosophical disagreements over what constitutes a socially optimal tax policy and what social programs are or are not worthy of public funding.

I don’t think Peter P is a bad guy

Well, with this registration requirement, all the villains are gone...

Patrick.net needs a new bad guy. :twisted:

I agree that a universal health care system is necessary. However, I rather have the market decide what activities are productive.

Peter P = new blog villain? No way!
Although... Face Reality once called you "Darth Bubblehead".

I rather have the market decide what activities are productive.

Problem is, "the market" doesn't really decide which activities are more productive or socially beneficial --people do. And the richer you are, the more "votes" you get in the marketplace. Occasionally, extremely wealthy and powerful individuals select activities that are not necessarily in the general public's best interests, and may choose to neglect pressing social needs that do not affect themselves personally. Allow me illustrate through allegory:

Consider Laissez-Faire Village, a mythical place where unregulated anarchic capitalism rules the day. Population 100. In the beginning when the town is founded, everyone started out with a roughly equal share of land and natural resources. A few people are naturally lazy or physically handicapped, but for the most part, everyone pulls his own weight and is simply seeking to better his family and live a decent life.

Over time, though, the complete lack of regulation and governance eventually leads to situation where one citizen eventually acquires 95% of village land and resources. He accomplishes this feat through his ruthless and skilled use of information asymmetry, intimidation, collusion, bribery, blackmail, and --when necessary-- the tactical application of violence. The Prime Citizen becomes virtually all-powerful and even hires his own private police force to protect his property from enemies and angry villagers. He spends a modest % of his huge fortune to keep these mercenaries happy, and the rest on throwing himself lavish parties, building bigger mansions and generally amusing himself.

Meanwhile, the vast majority of the villagers are relegated to living in abject poverty, enjoying almost none of the fruits of their labor. They grow increasingly discontented at the status quo and decide to take action: they collectively form a village government. The first action the new government takes is to create a public village police force and outlaw private ones. Its next action is to outlaw intimidation, collusion, bribery, blackmail and violence from the village marketplace (the very things that made Prime Citizen extremely rich and themselves poor in the first place). Finally, it levies taxes on land and conspicuous consumption, to pay for food for the hungry, medicine for the sick and build schools, roads and other badly needed infrastructure improvements that will benefit all citizens.

Naturally, the Prime Citizen is not happy at all with this arrangement, but being an intelligent guy, quickly recognizes that he is outnumbered. If he refuses to accept the new status quo, he recognizes that he may be forcibly separated from his property, jailed or even killed by an angry, deperate mob. On the other hand, if he agrees to accept the new village government's terms, he will still have most of his wealth. So, he reluctantly accepts their control.

In the end, Prime Citizen does have to pay taxes and loses his private army, but... is astonished to find that he becomes even richer than ever before. The overall quality of life in the village and morale greatly improves, and the crime rate drops very quickly. The village economic output grows tremendously with the emergence of a new, healthy, well educated middle class. No one wants to kill the Prime Citizen anymore, so he no longer has a practical need to maintain the private army, even if he wanted one. His percentage of total village wealth falls somewhat, but because the total productive output is so much greater, he finds he has more wealth than ever. He still enjoys a broad amount of personal freedom and (within the bounds of the law) spends his wealth as he pleases. Everyone wins.

Eventually, the prosperous and happy descendants rename Laissez-Faire Village to 'Social Democracy City'. The end ;-)

Peter P.

> I agree that a universal health care system is necessary. However, I

I'm glad to hear that from you. I think you are a person with high ideals.

Harm,

>Eventually, the prosperous and happy descendants rename Laissez-Faire >Village to ‘Social Democracy City’. The end ;-)

A nice fable of how history tends to develop if no rules are followed

Cute story, HARM. And how many uber-powerful people actually choose to accept the rule of the masses? Let's see. The American Revolution, the French Revolution, the Bolshevik Revolution... I'm struggling to name a single time where power was diverted back to the people with such generosity. Normally the "prince" with his private army has a huge technological, informational and military advantage. They seem to go out with guns blazing.

Perhaps the Magna Carta serves your example, but that was more just the Lords getting their say with the King. Lots of bad stuff happened to the English masses even after that point.

@Brand,

Yeah, pretty unlikely, I know. But I wanted that 'feel good' happy ending :-) .