More than four decades of business experience, and a couple more of life experience, have taught me that when income declines we have two choices: cut expenses or borrow money to cover the shortfall. Bailouts were not an option.
Conveniently, our government can also print money or turn to its preferred method of solving all problems, raise taxes. Borrowing money has become an all too popular government-funding source while cutting expenses at all levels is the last resort, clearly unacceptable to most officials.
Housing markets in Massachusetts and across the country are in trouble and they need to improve before the general economy can recover. If you agree, you probably also agree that the 2009 Homebuyer Tax Credit is a good idea, at least conceptually if not in scope. After all, this generally accepted prescription for recovery only amounts to .8 percent of the $787 billion stimulus package.
OK, at least they’re trying. The credit does contribute to improving the affordability of housing and may start things moving in the right direction. Is it enough? Well, let’s see what else government is doing to help.
There’s energy scoring, a statewide sales tax on services, deeds excise tax increases, rental taxes on seasonal rentals and transfer taxes (again). Now, I’m no Albert Einstein but I am good at math and pretty sure these ideas will not help make housing more affordable. In fact, my calculus suggests that they will easily offset the Homebuyer Tax Credit.
Name Calling
Take energy scoring, for example. Defeated in Massachusetts last year, it is now a hot item on the minds of Congressmen Markey (D-MA) and Waxman (D-CA). They propose requiring point of sale (at closing) energy star labels for homes and commercial properties and providing funds to states to develop the labeling program.
Labels will not improve energy efficiency. They will stigmatize properties (especially older properties found in Massachusetts) and likely cause a loss of property value, thereby reducing family wealth and weakening the overall economy. A pre-sale audit would be required, further increasing the cost to sell. A more constructive use of these funds might be to offer incentives (i.e. tax credits) for actually making buildings more energy efficient.
Consider the proposed 5 percent statewide sales tax on services, including real estate commissions. Although withdrawn as an amendment to the House proposed budget, it would have increased the cost of selling a $400,000 home by approximately $1,400. Stay tuned as the Senate’s budget is released.
Barnstable County has proposed a $.43 per thousand increase in the deeds excise tax. Martha’s Vineyard and Nantucket are back with yet another Transfer Tax in addition to the 2 percent tax already in place. A Rental Tax of up to 9.7 percent of income has been proposed for short-term rentals of single-family homes and there is even talk of imposing a “hotel/motel” like tax on seasonal private homes.
Why is it that government, while claiming to “feel our pain,” seems unwilling or unable to act in furtherance of alleviating it? Why is it that we, the people directly affected by these tax grabs, are not screaming from the rooftops to stop them? Perhaps it is because all these fees and taxes by other names may not appear to affect us as individuals.
It seems to me that all government entities should be required to quantify and regularly report on the total cost of taxes and fees charged by them as a percentage of our household income. I call it “truth in taxation”. A good friend of mine suggested that a “household income impact statement” be required before any new or increased taxes or fees are adopted. I would be happy with either but both requirements would be better. Maybe then we will know when enough is enough.
