The Federal Government has extended the payroll tax deduction that has been in place for the past year. Over the past year we businesses have been withholding 2% less of your income than was being withheld in 2010. This 2% would otherwise be paid to the federal government for social security tax etc. The government has extended the witholding break for 2 additional months.
For the two additional months of payroll tax break they threw in this long term bomb to the housing market.
1. The administration will impose a tax on all new loans for the next 10 YEARS that are bought by Fannie Mae and Freddie Mac. This increase in fees will increase will be passed on to those refinancing and buying homes with the cost to homeowners of about $180 per year for a $200,000 home. This equates to over $1,500 in interest charges over the next 10 years to get a $180 break over the next two months. It will increase the interest rate on mortgages by about 0.1% which will kill some refinances and lower home values by making them less affordable. Making this kind of deal with the government is like selling your soul for a lollipop.
Since the government doesn’t like you to do the math I will do it for you. It will cost over 700% more out of pocket to the homeowner over 10 years than they will get in a 2 month payroll tax cut. And you thought it was the banks who were screwing the consumer. This is what I call predatory tax breaks and predatory government.
The government will come back in January to then extend the tax break for the rest of the year. This additional extension will undoubtedly throw more tax burdens on the middle class and working man and further subdue the economy.
Hopefully if it will be a further drag on the economy this will lead to lower mortgage rates. So in that case, I take it all back.
