Political talk by a Realtor is almost always taboo. Fortunately, among the protected groups that I’m not allowed to discuss, liberals and conservatives aren’t as of yet on the list. Many would view politics and real estate as two different things, intertwined only vaguely and without consistency. There’s a chance you may have noticed that I’ve decided to steer clear of political commentary on this blog for quite some time, even though politics are on my mind most every second of every day. They’re not on my mind because I’m nuts, instead I worry about the real world ramifications of policy that is threatening the health and liquidity of my beloved Lake Geneva real estate market. If you’re the sort that might be offended by some candid thoughts about how the current administration is undermining our local real estate market, best shield your eyes.
For the sake of my business, and the selfish, accompanying goal of providing for my family, I will not express any disdain for the social policies of the administration. I have no reason to discuss the crushing burdens of the potential Markey-Waxman bill, or the folly of “shovel ready” stimulus projects or the massive propaganda associated with the health care bill. Normally, real estate and politics might not be nearly as co-joined as they have become under the current administration. As the now expired first time home buyer tax credit proved, it’s obvious that the policies and attitudes coming from Washington are not merely affecting the higher end markets like Lake Geneva. From the ongoing purchases of mortgage backed securities to the initiation of buyer tax credits, the real estate market has never relied so significantly on government policy.
Today, as I contemplate the upcoming elections, I can’t help but think that the short term health of our market depends very heavily on the results of those elections. What’s happening at the moment is an assault on the wealthy in this country, and on assault on wealth cannot bode well for a market that relies on the financial and emotional well being of that very demographic. The assault has been launched through many policy decisions, some obvious- others subtle, but the biggest attack will come in the form of tax increases at the end of 2010. At issue is the expiration of the Bush tax cuts, and the populous attitude from Democrats in Washington feels that the tax cuts need only be extended for the middle class. I would love for a liberal to please explain to me why the middle class is the most important class. What’s that? Because that class contains most of the population and therefore pandering to that class will help insure reelection? That’s what I was thinking too. Regardless, there’s a battle brewing, and without a GOP route in two weeks, there will be no opposition to this wealth sapping increase.
I can’t give tax cuts to the top 2 percent of Americans … and lower the deficit at the same time. … It would cost us $700 billion to do it. … We are not going to borrow hundreds of billions of dollars to give tax cuts to people who don’t need them. … On average millionaires would get a check of a hundred thousand dollars. … We can’t give away $700 billion to folks who don’t need it. … We can’t afford the economic injustice.”
That’s direct from our President. He’s not quite sure where he’ll spend that $100k that you earned, but he’s darn sure he can spend it better than you can. And it’s not stopping with the income tax increases. (Please don’t try to call it an expiration of tax cuts- it’s a tax increase if I have to make more next year to net the same net pay as this year). There’s a pending increase on capital gains taxes (15% to 20%), including a 3.8% Medicare surcharge on high earners on select asset sales. From a market perspective, it’s important to understand that capital gains rates mean much more to vacation home markets than they do to primary markets. Most second home sales are subject to capital gains taxes (I’m not an accountant- check with your accountant for your specific scenario), whereas many primary home sales fall within the exempt range. In a market where many homes have been in the family for generations, an increased tax liability does nothing to increase the motivation to sell. Without seller motivation, liquidity leaves the market, and we’re back to our historical shoving match between affluent buyers and affluent sellers who would rather hold a property for another decade than pay an extra 8.8% tax on the sale. A capital grains increase is devastating for real estate markets, and while it might be a boon for companies that handle 1031 exchanges, it’s poison for our local market.
In the event that you’ve received one of those spam emails about the 3.8% tax on all home sales as part of the health care bill, you might enjoy this. Many of those emails have circulated, and they’re almost always refuted with a “reply all” by some administration sympathizer stating that the email is false. In fact, the email is not entirely false. Here’s the response to that email from factcheck.org:
Q: Does the new health care law impose a 3.8 percent tax on profits from selling your home?
A: No, with very few exceptions. The first $250,000 in profit from the sale of a personal residence won’t be taxed, or the first $500,000 in the case of a married couple. The tax falls on relatively few — those with high incomes from other sources.
So the tax is acceptable as long as it only applies to those big, bad rich people? Those miserable people who have worked harder and smarter and managed to accumulate wealth? Apparently the answer is yes. I think the answer is no, but that’s just my ridiculous common sense rearing its ugly head again.
In order for buyers to pursue the purchase of a second home at Lake Geneva, the most important thing they need is a feeling of confidence. Confidence increases liquidity in real estate, just as the consumer confidence level is watched closely by retailers. If a buyer feels squeezed by policy and regulations that are put in place for the sole purpose of squeezing that individual, is he more likely to hunker down and wait out the onslaught, or is he more likely to drive to Lake Geneva and spend a couple million bucks on a summer home? The answer is obvious, unless your thinking is clouded by the celebrity of a president. I have felt a wave of increased confidence in the market this year, even as the administration angles and lobbies to increase the already crushing burden on the very demographic that I serve. Perhaps that’s because, combined with a DOW that has been reassuringly steady of late, they feel that there may be reason to breathe a little deeper come November 3rd?
Remember, “rich” is defined as any couple making in excess of $250k by this administration, so their idea of a “rich” person isn’t some guy puffing $40 cigars on a tufted leather chair in his walnut paneled office, it’s you. By the way, that rich guy puffing the $40 cigar? I want him to keep more of his money as well, because ultimately he’s going to need a new leather chair and the paneling is going to need to be re-stained, creating job opportunities for the middle class. Oops, there I go again thinking that wealthy people spend more money than poor people do.
The good news for me, and you, and our cherished Lake Geneva real estate market, is that the November elections provide an blatant opportunity to stifle this ideological and persistent battle against the “wealthy”. Without a majority in congress, the next two years might be full of compromise and vitality. With the check and balance system restored, some of the onerous policies aimed at taxing both income and wealth just might be stymied. To those who think the tax increase is necessary to help cut the deficit, my thoughts are simple. Instead of increasing taxes, just reduce spending. I just made Robert Reich’s head explode. See you at the lake.
well done as usual….