Recent events in the housing market have many people questioning if home ownership is still something to aim for. Even as the nation continues to recover from the economic downturn, the benefits of purchasing a home of your own remain as strong as ever. Good Investment- Renters receive no return on what they pay out in monthly rent - it's virtually money out the window. Even though renters are paying for living space, committing to a home purchase and monthly mortgage creates much more potential for a return on the investment. As you pay your mortgage each month, you are building equity and increasing your net worth. Equity is the value of the property that you own or what you have paid off each month. A home's equity is also combined with the amount of appreciation, or amount that your home has increased in value over time.
Building up your home's equity also opens the door to mortgage refinancing and home equity loans. Homeowners then have more financial flexibility towards financing large expenses such as remodeling, college tuition or debt consolidation. Of course it's always possible that the value of your property will go down and not up, as many homeowners throughout the country have experienced over the past few years. Still, if you look at the value of real estate over the long term it has gone up over time. Like any investment buying a home involves risk - research the real estate market in your area to help you make a decision that feels right for you.
So how did we get here? Any Finance 101 student, or person responsible for paying the household bills, knows that budgets are a function of income and expenditure. For thirty years we have reduced federal income (taxes) without corresponding cuts in expenditures. But when push came to shove even the most ardent tax cutters, Reagan and Bush Sr, raised taxes on the threat of a default. Clinton was so good on the budget that we had four years of surplus. But then Bush Jr. decided to fight two wars and implement a huge unfunded drug benefit while slashing taxes. But in a politically savvy if morally bankrupt maneuver, the Republicans portrayed the deficits as a spending problem not a revenue problem; this despite revenues declining by 17% of GDP in the last four years. I think if you took a 17% pay cut you would say you have a revenue problem. Further to be legal Bush's 2001 tax cuts had to expire in 2010. If that had happened we wouldn't be having this conversation. But adept politics by the Right extended the cuts, including for the wealthiest, until 2012. Even Democrats agree that taxes will not go up on anyone earning under $250,000.
SOLUTIONS- All previous debt crises have been resolved with increased revenue and cuts in expenditure. But this time the right has insisted that the entire burden be shouldered by cutting (which falls most heavily on the poor) while leaving taxes alone (benefiting the rich). They have presented tax increases as being job killing, without presenting a shred of evidence; while ignoring that if Federal employees, the unemployed and retirees aren't buying stuff jobs will really be lost. The best they can do is to demand that any increase in revenue generated by the closing of loopholes such as agriculture or energy subsidies be offset by lowering the tax rate - what's the point?
What the reactionary Republicans hope you won't dwell on is the biggest loophole - the mortgage interest/property tax deduction. (Can you imagine the chutzpah of raising taxes on middleclass homeowners while further cutting the rates for the wealthy). Another clue as to their mind set is the taxes on hedge-fund incomes. Currently fund managers can call the money they make 'carried-interest' as opposed to income so they are taxed at the capital gains rate of 15%, instead of the income tax rate of 35%. No wonder Warren Buffet pointed out that he paid a lower effective rate of tax then did his secretary.
Building up your home's equity also opens the door to mortgage refinancing and home equity loans. Homeowners then have more financial flexibility towards financing large expenses such as remodeling, college tuition or debt consolidation. Of course it's always possible that the value of your property will go down and not up, as many homeowners throughout the country have experienced over the past few years. Still, if you look at the value of real estate over the long term it has gone up over time. Like any investment buying a home involves risk - research the real estate market in your area to help you make a decision that feels right for you.
So how did we get here? Any Finance 101 student, or person responsible for paying the household bills, knows that budgets are a function of income and expenditure. For thirty years we have reduced federal income (taxes) without corresponding cuts in expenditures. But when push came to shove even the most ardent tax cutters, Reagan and Bush Sr, raised taxes on the threat of a default. Clinton was so good on the budget that we had four years of surplus. But then Bush Jr. decided to fight two wars and implement a huge unfunded drug benefit while slashing taxes. But in a politically savvy if morally bankrupt maneuver, the Republicans portrayed the deficits as a spending problem not a revenue problem; this despite revenues declining by 17% of GDP in the last four years. I think if you took a 17% pay cut you would say you have a revenue problem. Further to be legal Bush's 2001 tax cuts had to expire in 2010. If that had happened we wouldn't be having this conversation. But adept politics by the Right extended the cuts, including for the wealthiest, until 2012. Even Democrats agree that taxes will not go up on anyone earning under $250,000.
SOLUTIONS- All previous debt crises have been resolved with increased revenue and cuts in expenditure. But this time the right has insisted that the entire burden be shouldered by cutting (which falls most heavily on the poor) while leaving taxes alone (benefiting the rich). They have presented tax increases as being job killing, without presenting a shred of evidence; while ignoring that if Federal employees, the unemployed and retirees aren't buying stuff jobs will really be lost. The best they can do is to demand that any increase in revenue generated by the closing of loopholes such as agriculture or energy subsidies be offset by lowering the tax rate - what's the point?
What the reactionary Republicans hope you won't dwell on is the biggest loophole - the mortgage interest/property tax deduction. (Can you imagine the chutzpah of raising taxes on middleclass homeowners while further cutting the rates for the wealthy). Another clue as to their mind set is the taxes on hedge-fund incomes. Currently fund managers can call the money they make 'carried-interest' as opposed to income so they are taxed at the capital gains rate of 15%, instead of the income tax rate of 35%. No wonder Warren Buffet pointed out that he paid a lower effective rate of tax then did his secretary.
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