CNNMoney.com is running a piece on how consumers may benefit from President Obama’s new foreclosure and housing relief bill and his recently-passed economic stimulus package. Unfortunately, as we all know from common sense and a basic understanding of economic principles, what the government gives to one person it has to take from another.
Thus, more people currently in need may have to pay for the rewards given by the government to other special interest groups. As the politicians attempt to stimulate the auto industry and the housing market by taxing, borrowing, or printing money, it will have to depress other areas of production, thereby forcing the elimination of good jobs to subsidize bad companies and making us all poorer.
But let’s take a look at what CNNMoney is proposing as ways the new government spending and stimulus programs may help us all.
1. A lower mortgage rate
It used to be all but impossible to refinance if your equity stake was less than 20% of your home’s current value. Now you may be eligible for a refi even if you owe as much as 105% of what the house is worth. To qualify, you must have a loan balance of no more than $417,000 (unless you live in a high-cost area).
So, the government will be pouring money into federally-backed mortgage loans for people who may have borrowed more than they could afford and certainly more than their home is worth. One of the top reasons that people default on their mortgages is that their equity has disappeared since the housing market collapsed. Getting a government loan for 105% of a property still depreciating will lead to even more defaults.
But the government will have to take money from people renting or from homeowners who are not in danger of missing a payment to subsidize these new mortgages. This can only impoverish renters and responsible borrowers, while creating moral hazard. After all, why shouldn’t we all borrow more than we can afford to pay back if we can rely on the government to force our neighbors to help pay our loans back for us?
2. An insurance safety net
Normally if you lose your job, you’ll have to foot the bill to keep your former employer’s health insurance coverage. Now the government will pay as much as 65% of the monthly premium for up to nine months for most people who have lost a job since Sept. 1, 2008 (the break phases out for couples who earn more than $250,000).
The government, of course, will not pay the bill, but employers will pay the government more in unemployment insurance (either through direct taxes or inflation caused by printing the money to fund these programs). This will directly reduce the number of jobs available, as employers have to forgo increases in production to keep paying health insurance for lost employees.
Also, insurance companies, knowing that the government will pay a large portion of premiums, have every incentive to charge people and the government the maximum allowed by law. Health insurance is already extraordinarily expensive with prices rising faster than inflation because of government involvement in health care and insurance. Guaranteeing even more insurance will increase prices further, making it even more difficult to carry insurance in the future.
3. An incentive for new wheels
If you buy a new car, SUV, or motorcycle in 2009, you may be able to deduct the state and local sales and excise taxes you pay (couples with an adjusted gross income under $260,000 are eligible). State sales taxes average about 6%, so on a $30,000 car you could write off $1,800, plus any county or local sales taxes.
One of the last things Americans need more of right now is cars. A stunning lack of cars on the road is not a factor in the current recession. But this is more than just a tax break to buy a new auto — it is a way to subsidize the failing American auto industry. And the government is not reducing spending to give out this new tax break; no, the money lost in taxes on autos will be made up in new taxes or printing the difference.
The government is still forgetting about all of the people that will be hurt to provide these few special interests to overextended mortgage borrowers, health insurance companies, and the auto industry. Fewer responsible borrowers will be able to afford to refinance or buy a new home, employers will be less able to afford to hire new people, and other industries will be hurt with higher taxes or inflation to help provide benefits to the politically-power auto industries.
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