The 2% Solution-- A cure for what ails America?

Arthur Conan Doyle's Sherlock Holmes would create a solution of 7% cocaine and 93% water for his drug habit. When America's economy ails, the drug of choice for American politicians appears to be taxes.
As reported yesterday in The New York Times,

President Obama will propose further tax increases on the affluent to help pay for his promise to make health care more accessible and affordable, calling for stricter limits on the benefits of itemized deductions taken by the wealthiest households.

Today, February 26, 2009, the Wall Street Journal weighs in on the matter discussing The 2% Illusion,

President Obama has laid out the most ambitious and expensive domestic agenda since LBJ, and now all he has to do is figure out how to pay for it. On Tuesday, he left the impression that we need merely end "tax breaks for the wealthiest 2% of Americans," and he promised that households earning less than $250,000 won't see their taxes increased by "one single dime."

This is going to be some trick. Even the most basic inspection of the IRS income tax statistics shows that raising taxes on the salaries, dividends and capital gains of those making more than $250,000 can't possibly raise enough revenue to fund Mr. Obama's new spending ambitions.

The Journal then proceeds to show the weakness of the assumption that the tax increase will be a cure-all remedy. For instance,

The proposal is to raise the highest rate "only to 39.6%, plus another two percentage points in hidden deduction phase-outs. He'd also raise capital gains and dividend rates, but those both yield far less revenue than the income tax. These combined increases won't come close to raising the hundreds of billions of dollars in revenue that Mr. Obama is going to need."

But let's not stop at a 42% top rate; as a thought experiment, let's go all the way. A tax policy that confiscated 100% of the taxable income of everyone in America earning over $500,000 in 2006 would only have given Congress an extra $1.3 trillion in revenue. That's less than half the 2006 federal budget of $2.7 trillion and looks tiny compared to the more than $4 trillion Congress will spend in fiscal 2010. Even taking every taxable "dime" of everyone earning more than $75,000 in 2006 would have barely yielded enough to cover that $4 trillion.

The bottom line is that Mr. Obama is selling the country on a 2% illusion. Unwinding the U.S. commitment in Iraq and allowing the Bush tax cuts to expire can't possibly pay for his agenda. Taxes on the not-so-rich will need to rise as well.

Vested Title Inc.
648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306
Tel 201-656-9220 - Fax 201-656-4506
E-mail vti@vested.com - www.vested.com

Sphere: Related Content

National Law Journal - "Debating judges' role in foreclosure remedy"

Will judges soon have input in the solving of the economic crisis? Some hope so. As previously discussed in these pages, moves are under way to allow Bankruptcy Court judges to "cram-down" first mortgages.

Legislation to do just that has stalled in the House and the Senate for the past two years because of opposition by Republicans and the lending industry. Has the foreclosure landscape — by 2012, one in every nine homeowners will have lost homes to foreclosure, according to a Credit Suisse Securities analysis — changed sufficiently to break the back of this determined opposition?

Says Ellen Harnick, senior policy counsel at the Center for Responsible Lending,

"I am encouraged." "I think there is a strong sense across the board that this is needed, but industry opposition has really been the issue. It's surprising because the current situation might have made you think opposition either would have gone away quietly or failed to matter significantly."

But David Kittle, chairman of the board of the Mortgage Bankers Association, said

"cramdown" (reducing the creditor's secured claim to the current value of the property) makes no sense in any shape or form.

"We've defeated it twice," he said. "We acknowledge the environment and landscape have changed, but there is nothing good about filing for bankruptcy. Our Congress should not be in the business of encouraging people to go into bankruptcy."

There are arguments on both sides of the cram-down issue. To read the full article go here.

Vested Title Inc.
648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306
Tel 201-656-9220 - Fax 201-656-4506
E-mail vti@vested.com - www.vested.com

Sphere: Related Content

New Jersey Bulk Sales Reporting Requirements Impact Realty

Bulk Sales
Reporting Requirements Impact Realty

While the subject of tax-related reporting requirements is generally beyond the scope of title coverage, we have received several inquiries concerning Bulk Sales and the provisions of N.J.S.A. 54:50-38 as amended. Here’s summary of the topic that we hope you will find informative.

The bulk sale of certain assets is subject to taxation under the Sales and Use Tax Act, N.J.S.A. 54:32B-1 et seq. Accordingly, the statutory scheme imposed a notice requirement in connection with such sales. Practitioners who routinely handle the sale of businesses are familiar with the need for the preparation of a so-called “bulk sale notice.”

In 2007 the Legislature enacted P. L. 2007, c.100, §5, (eff. June 28, 2007 and operative Aug. 1, 2007). This section, which has been codified as N.J.S.A. 54:50-38, expands the bulk sale requirements as follows:

Whenever a person shall make a sale, transfer, or assignment in bulk of any part or the whole of the person’s business assets, otherwise than in the ordinary course of business, the purchaser ... shall, at least ten (10) days before taking possession of the subject of the sale ... notify the Director [of the Division of Taxation]. ... Within 10 days of receiving such notice, the Director shall notify the purchaser ... that a possible claim for State taxes exists ... . [Emphases added.]

The statute goes on to state that if the purchaser fails to give notice to the State, the amount of unpaid taxes becomes a lien on the proceeds of sale payable to the seller. Furthermore, the purchaser shall be personally liable for the payment of the taxes due to the State. See also N.J.S.A. 54:49-1 (entitled “Tax a debt and a lien...”).

Does the sale of real estate fall within the scope of the foregoing statute? This past summer the Treasury Department, Division of Taxation, published a Technical Bulletin regarding this subject. TB-60 (7-3-08). The bulletin notes that the term business assets includes realty, but only “if the primary use of the realty is to support a business on its premises”. [Emphases added.]

What does the last phrase mean? Some attorneys have advised that notice of the proposed sale of all non-single family real estate must be given to the Division of Taxation. That notice would be given via form C-9600, Notification of Sale, Transfer, or Assignment in Bulk that must be submitted 10 days “before taking possession of, or paying for, the property.” The form must be submitted by registered mail, but” certified mail or overnight delivery is also acceptable.” Responsibility for compliance lies with the purchaser (or his or her attorney). And in the event of non-compliance, a personal penalty is imposed on the purchaser (rather than a lien on the realty).

So just what transactions ARE covered by the new notice requirement? Is the conservative approach mentioned earlier warranted? In short, yes!

In response to an inquiry we made to the Division of Taxation as to the applicability of the notice provisions, by letter dated February 19, 2009 the Division responded,

"The general rule applied to real estate transfers should be: If the realty is not the primary residence of the seller, the transfer should be reported by the transferee or their representative to the Division of Taxation as per the TB-60. Since there may be some exception so this general rule, it is best to file form C-9600 and discuss the specific facts and circumstances with a representative of the Bulk Sale Section.”

The telephone number for the Bulk Sale Section is 609-292-6604. Keep it handy.

A copy of the Bulletin and links to related forms will be found at:
www.state.nj.us/treasury/taxation/pdf/pubs/tb/tb60.pdf

Thanks to Lawrence J. Fineberg, Esq. of Chicago Title Insurance Company for the background material.

Vested Title Inc.

648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306
Tel 201-656-9220 - Fax 201-656-4506
E-mail vti@vested.com - www.vested.com

Sphere: Related Content

Washington Report: Outlines of Stimulus Plan by Kenneth R. Harney

Realty Times contributor Kenneth R. Harney outlines the stimulus plan as it affects lenders and borrowers. The 3 key points

1. 3 to 4 million borrowers whose loans are owned by Fannie Mae or Freddie Mac will be eligible for rapid refinancings if equity is inadequate under normal guidelines. "Many of these owners will get new fixed, long-term rates in the low five percent range, improving their chances of staying out of default and foreclosure."


2. "An aggressive $75 billion outreach effort to keep millions of debt-laden, seriously delinquent owners out of foreclosure." Participating lenders and servicers will receive co-payments from the government that will reduce the monthly maximum housing expense from 38 % to 31 %.

3. Fannie Mae and Freddie Mac "will each receive $200 billion of additional injections of capital from the government, and the Treasury will continue to purchase their mortgage backed securities to keep interest rates low for all borrowers."


Says Harney,

It will be weeks and months before we begin to see just how effective the Obama housing relief effort is in stabilizing prices and preventing foreclosures.

Read the full report here.




Vested Title Inc.
648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306
Tel 201-656-9220 - Fax 201-656-4506
E-mail vti@vested.com - www.vested.com Sphere: Related Content

A Plea - Don't Allow Mortgage Cramdown

One of the proposals before Congress is to allow Bankruptcy Court judges to "cram down" first mortgages on residential real estate. Some believe this is good for the nation, others do not.

Today's Wall Street Journal features an op-ed by Todd J. Zywicki, "Don't Let Judges Tear Up Mortgage Contracts." Allowing a cram down "would be a profound mistake," he writes.

• Mortgage modification provides a windfall for some homeowners but "the ripple effects could further roil America's consumer credit markets."
• "In the first place, mortgage costs will rise."
• "Allowing mortgage modification in bankruptcy also could unleash a torrent of bankruptcies." "A surge in new bankruptcy filings, brought about by a judge's power to modify mortgages, could destabilize the market for all other types of consumer credit."

"There are other problems. A bankruptcy judge's power to reset interest rates and strip down principal to the value of the property sets up a dynamic that will fail to help many needy homeowners, and also reward bankruptcy abuse.

"Consider that the pending legislation requires the judge to set the interest rate at the prime rate plus "a reasonable premium for risk." Question: What is a reasonable risk premium for an already risky sub-prime borrower who has filed for bankruptcy and is getting the equivalent of a new loan with nothing down?"

We would have to agree that Mr. Zywicki's thoughts make sense. Are we willing to throw more homeowners into bankruptcy in order to test the waters of a mortgage cram down?

Read the full article here.

Vested Title Inc.
648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306
Tel 201-656-9220 - Fax 201-656-4506
E-mail vti@vested.com - www.vested.com

Sphere: Related Content

Revenge of the Tax Code

Chris Edwards of the Cato Institute says,

If it were a movie, it would be called "Revenge of the Tax Code." The complex income tax, which has bedeviled average Americans for years, is biting back at the elite who helped create it. Tom Daschle, former chief lawmaker in the Senate, withdrew his Cabinet nomination because of an "unintentional" $128,000 tax mistake. Rep. Charles Rangel, chief tax-writer in the House, is also entangled in a tax scandal, as is Tim Geithner, the Treasury secretary, and Nancy Killefer, another high-ranking nominee who has withdrawn.

"What is going on here?", Edwards asks. Mainly, it's the complexity of the tax code that causes good people to blunder into a tax morass and calculating folk to walk away from tax obligations.

The solution? "The solution to all these problems -- from the Enron debacle to Obama's tax-troubled nominees -- is to reform the tax code. With a simple and consistent base, taxpayers would know what they owe, and the IRS could easily enforce it. That is the promise of the "flat tax," which would tax all income once and create a level playing field with no tax-free loopholes," Edwards writes.

Has the time for a serious discussion of the flat tax come? We'll see. Read the full report here.

Vested Title Inc., 648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306
Tel 201-656-9220. Fax 201-656-4506
E-mail vti@vested.com - www.vested.com

Sphere: Related Content

Bad News for Lenders in Bankruptcy Legislation

Published: February 9, 2009. Washington Report: Bankruptcy Legislation, by Kenneth R. Harney in Realty Times reports on proposed legislation that will impact mortgage lenders across the country.

It's a controversial subject but one on the "fast track" to passage. It's mortgage "cram downs."

Cramdown means a court can tell a lender: Your borrower may owe you $200,000 on the house, but the property is only worth $100,000 in today's real estate market, so that's all you're owed from here on in.

To qualify for relief, the homeowner "will need to file for Chapter 13 bankruptcy, agree to a court-supervised household expenditures plan for up to five years, and make at least partial repayments on debts to their creditors. "

Though the final version of the legislation still must be negotiated between House and Senate, it's likely it will come with three key features:

First, only mortgages closed prior to the date of enactment will be covered.

Second, all delinquent borrowers will need to contact their lenders and inform them of their intention to file for bankruptcy. That will allow lenders to put together their best offer -- including a reduction of the amount owed and the interest rate -- before the borrower actually files.

And finally, if there is an increase in the value of the house during the five year bankruptcy period, the lender will be owed some portion of it.

Read the full report here.

Vested Title Inc.

648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306
Tel 201-656-9220. Fax 201-656-4506
E-mail vti@vested.com - www.vested.com

Sphere: Related Content

Mortgage Modifications a Bust?

We have previously written about the failure of mortgage modification programs in the current economic crisis. See our post of December 10, 2008, Foreclosure Follies: A rebuttal to the FDIC modification plan. In our post we pointed out that the FDIC's prediction of a 15% or so failure rate when loans are modified was too low. Now, the Comptroller of the Currency is weighing in with a 50% figure. See, Second time no charm for homeowners appearing through the Washington Post wire service.

To answer the question why so many modified loans are failing is not easy. Could it be

• Loss of job?
• The type of modification, e.g. is the rate lowered or is the arrearage merely spread out?
• A feeling of helplessness when the home is worth less than the mortgage?

Some are concerned that a focus on re-default rates could discourage loan modifications. "That data just makes me wonder what kind of modifications those national banks and thrifts are doing. Were they sustainable?" said Mark Pearce, North Carolina's deputy commissioner of banks and a member of the State
Foreclosure Prevention Working Group.

Vested Title Inc.
648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306
Tel 201-656-9220. Fax 201-656-4506
E-mail vti@vested.com - www.vested.com

Sphere: Related Content

Mortgage Modification May Not be a Cure-all

Realty Times carries an article by Broderick Perkins – "Is A Mortgage Modification For You?"

"Home loan modifications are designed to save homeownership, but they've also created a new mortgage maze pitted with "buyer bewares."

While the demand for modifications is increasing due to federal, state and local foreclosure and bailout efforts, Perkins writes, "Caught in the lurch, homeowners are finding it tough to know when a modification will work and how to best obtain one."

What is a mortgage modification?

A home loan modification, granted only upon the existing lender's approval, permanently reworks some of the terms of an existing mortgage in order to make the loan more affordable to the homeowner.

The strategy is typically designed for homeowners struggling to pay their mortgage, not for those who can pay their mortgage or are eligible for a refinanced loan

Will a modification work for a borrower? Maybe not if:

• The modified loan comes with payments you still can't afford.
• Your current interest rate is already low and there's no room for the lender to lower it further.
• You can make the new payments, but the mortgage balance is greater than the value of your home and you don't plan on staying put long enough to reverse the loan-to-value imbalance.
• You have not already missed payments on your mortgage or can't show financial hardship due, say, to job loss, pay decrease, illness or interest rate increase.
• You have other properties, investments or assets that could be liquidated to cover your mortgage debt.
• A short sale (The lender forgives a portion of the debt owed if you can find a buyer), bankruptcy, auction sale, refinance or other approach, short of a foreclosure, is a better option.

Read more here.

Vested Title Inc.

648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306
Tel 201-656-9220. Fax 201-656-4506
E-mail vti@vested.com - www.vested.com

Sphere: Related Content

Wall Street Journal - The 'Guarantee' Morgue

The 'Guarantee' Morgue - Good for bankers and politicians; bad for taxpayers.

The Wall Street Journal weighs in on the "fanfare" surrounding President Obama's limits on bankers' compensation. But, they say, "the real drama is taking place behind-the-scenes as the biggest banks lobby to have the federal government guarantee their toxic assets, and the political class seems ready to oblige."

The compensation caps are no doubt politically satisfying as revenge for Wall Street's role in creating the current financial mess. Heaven knows it's hard to sympathize with Goldman Sachs, which yesterday expressed its desire to leave the Troubled Asset Relief Program on the very day the new bonus limits were announced. We assume this means that from here to eternity Goldman will not be too big to fail.

Taxpayers need to realize, however, that Members of Congress want to impose salary and bonus limits to give themselves political cover when they are next asked to provide more bailout cash. Congress wants to seem to be tough on bankers in return for the cash, even if in reality the feds aren't tough at all.

What's next? Guarantees of one sort or another. "The Obama Administration is debating several new bailout options, and the favorite of bankers is federal guarantees. The idea is that the government would agree to absorb any potential losses on dodgy paper, perhaps after some small initial loss by the bank."

Chuck Schumer, the Senator from Wall Street, told Bloomberg this week that insuring bad bank paper "is one possibility that seems to be gaining some currency." And no wonder: For bankers and politicians, the benefits are clear. The bankers know their losses have been limited, which means their bad lending choices become largely the taxpayer's problem. Unlike a public capital injection, a guarantee also doesn't by definition dilute current shareholders. When the Federal Reserve guaranteed $29 billion in Bear Stearns paper for J.P. Morgan Chase last year, it came with no strings attached.

While guarantees are on the table, they are not a panacea. Read more here.

Vested Title Inc.
648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306
Tel 201-656-9220. Fax 201-656-4506
E-mail vti@vested.com - www.vested.com

Sphere: Related Content