Surprise! Borrowers get to pay for payroll-tax holiday

posted at 1:25 pm on February 6, 2012 by Ed Morrissey

So you think you got a payroll-tax holiday for free? Think that the big fat-cat mortgage lenders will foot the bill as part of Obama’s promise to make the cut pay for itself? CBS’ Sharyl Attkisson delivers the wake-up call to home buyers, who will pay a pretty penny for the latest gimmick of Obamanomics:

Guess what?  The fees collected won’t even cover the loss to the Social Security fund.  It’s going into the general fund instead.  Meanwhile, the Obama administration says to quit whining and suck it up so that we can recapitalize the mortgage market:

An Obama administration official defended the mortgage fee, calling it “modest.” She said it’s “unlikely to negatively affect borrowers” because increases “will be phased in over the next two years.” And it will “help bring private capital back into the mortgage market, which [is] good for borrowers over the long term.”

Maybe so. But Patty Anderson only knows that for the next 30 years, she’ll be haunted by the Washington ghost of Christmas past.

“I think it just looks like Washington grabbing more money,” she said.

Remember this, and remember it well — fees placed on businesses get paid by consumers.  Taxes on businesses get paid by consumers.  Businesses pass costs along to consumers, and when they don’t, they don’t remain in business for very long.  As Robert Heinlein once wrote, “There ain’t no such thing as a free lunch.”

As Charles Blahous argues, it’s time we quit passing gimmicky, short-term economic measures and start revamping our tax structure for long-term investment and growth:

The economic policy dynamic would be far better for both sides if ongoing tax rates were permanent. Henceforth both sides could argue for their respective policy visions without being held to the other side’s exploitation of their pending expiration. From a budget process standpoint, the permanence of existing rates may actually matter more than what those specific rates are. We can only have a sensible conversation about our fiscal future if it is not distorted by pending expirations that no one believes will (or should) actually occur.

In recent years this dynamic has grown out of control, with a whole host of new “temporary” policies put into place. In December, 2010, lawmakers adopted a shortsighted policy of temporarily cutting the Social Security payroll tax and funneling general revenues (i.e., income taxes) into the program’s Trust Fund to make up the lost revenues. Originally supposed to be a one-year policy in 2011, it has already been extended for the first two months of 2012 and is likely to be extended through the end of the year at least. Though few believe it is sound policy to convert Social Security piecemeal into an income-tax-financed program, no one wants to be accused of raising the payroll tax, and so the policy continues.

Not one year into the payroll tax cut there came a forceful push for its extension, now likely to lead to greater fiscal pressures than were disclosed at the time of its original enactment. Indeed, many advocates already believe that they should be able to count on the tax cut’s extension as a given. In one recent Washington Post article, an economist was quoted as saying (of the payroll tax cut’s pending expiration), “This is just ridiculous. I never thought as an economist I would have to spend so much time doing political analysis. It’s hard to plan ahead when every policy decision waits until the last possible minute.” But it is folly to believe that temporary policies can ever come unaccompanied by political uncertainty. …

If the two sides could gloss over their long-term policy differences just long enough to agree to do away with the array of pseudo-temporary policies, both would benefit enormously. It would also become far easier for the two sides to negotiate adjustments to current policies going forward than it is in the current environment. The next president, whoever he is, could improve our fiscal practices enormously simply by leading a frontal, bipartisan assault on the various “temporary” tax and spending polices of the federal government.

Indeed.  We are in the Cash for Clunkers era, and while that didn’t start with Barack Obama, that has become the basis of his entire economic policy.


Related Posts:

Breaking on Hot Air

Blowback

Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.

Trackbacks/Pings

Trackback URL

Comments

Comment pages: 1 2

When congress passes a tax increase they pass it simply because they can. No one passed this tax in order to “pay for” anything. Supporting that rationalization means buying into the belief that government somehow deserves this money, and that anything it graciously allows us to keep we must make amends for in some other way.

There’s nothing special about payroll taxes that make them somehow more noble than income taxes, sales taxes, etc. Social Security is not funded in any meaningful way by payroll taxes. Payroll taxes just flow into the same giant chasm of debt as everything else.

GalosGann on February 6, 2012 at 3:37 PM

[Chuckles3 on February 6, 2012 at 3:36 PM]

Thanks for that, Chuckles3. Consider my comment revised as such.

Dusty on February 6, 2012 at 3:41 PM

No wonder he wants so many people to refinance! From what I can tell, the new charge is an increased interest rate on new originations of federally backed mortgages and refinancings. It does not appear that currently existing loans have this charge. He doesn’t seem to be including that part in his help for homeowners speeches.

talkingpoints on February 6, 2012 at 3:41 PM

Can someone, anyone, explain to me how raising fees that will be passed on to consumers will “help bring private capital back into the mortgage market”?!?!?

It makes no freaking sense at all.

PetecminMd on February 6, 2012 at 1:35 PM

Possible explanation. If I read the Drudge article correctly-theses fees only apply to loans from Fannie Mae and Freddie Mac. So this might allow other banks to offer lower rates and get a larger share of the market. This is just a guess on my part.

talkingpoints on February 6, 2012 at 3:44 PM

fees placed on businesses get paid by consumers.

Also remember that businesses that stick around must make a profit. And that means some kind of markup on whatever they are charged by the government. So the average homeowner will pay more in mortgage fees than the average worker saves in payroll tax cuts.

Rents will rise too — do renters really think they pay no property taxes?

EconomicNeocon on February 6, 2012 at 3:49 PM

No wonder he wants so many people to refinance! From what I can tell, the new charge is an increased interest rate on new originations of federally backed mortgages and refinancings. It does not appear that currently existing loans have this charge. He doesn’t seem to be including that part in his help for homeowners speeches.

talkingpoints

From what I’ve read, they are saying the new program he is touting will have NO closing costs to the borrower. He set the interest rate as well. I don’t see how he is going to force lenders, title companies, county recorders, etc. to re-do all the mortgages for free, especially when all the new loans will be unsaleable on the secondary market since there will be no credit reports or appraisals or income/asset verification. He will just be creating a pile of crap. Further evidence that this current move has nothing to do with privitizing the mortgage industry.

Night Owl on February 6, 2012 at 3:49 PM

Possible explanation. If I read the Drudge article correctly-theses fees only apply to loans from Fannie Mae and Freddie Mac. So this might allow other banks to offer lower rates and get a larger share of the market. This is just a guess on my part.

talkingpoints on February 6, 2012 at 3:44 PM

The bad news – nearly every mortgage today goes through Fannie/Freddie.

Steve Eggleston on February 6, 2012 at 4:07 PM

Does anyone really think that we are now going to have two different mortgage rates? With those backed by Freddie/Fannie averaging 0.1 percent higher than the others?

Word from the wise. ALL loans are going to be 0.1 percent higher. Some loans will cause the 0.1 percent to be sent to the U.S. general revenue fund. The other loans will have an extra 0.1 percent profit for the mortgage lender.

And, of course, the U.S. general revenue fund is then used to fund lawmaker’s favorite projects with residuals sent to their re-election campaigns. Not to mention the mortgage lenders that will be newly appreciative of the President just before the coming election.

“Follow the money.”

Carnac on February 6, 2012 at 4:09 PM

The bad news – nearly every mortgage today goes through Fannie/Freddie.

Steve Eggleston on February 6, 2012 at 4:07 PM

Not only that, even banks that keep the mortgages they originate still underwrite and price based on FNMA/FHLMC so they can sell them in the future should the need arise.

Night Owl on February 6, 2012 at 4:17 PM

Possible explanation. If I read the Drudge article correctly-theses fees only apply to loans from Fannie Mae and Freddie Mac. So this might allow other banks to offer lower rates and get a larger share of the market. This is just a guess on my part.

talkingpoints on February 6, 2012 at 3:44 PM

Freddie and Fannie have unlimited access to near 0% cash from the fed, whereas other companies have to pay their investors for the money they loan out. Fannie and Freddie do not have to make a profit in good years, they can just tap the tax payers in bad years to make up.

astonerii on February 6, 2012 at 4:18 PM

RIdiculous! George W. Bush proved you can cut taxes and not pay for it, with no ill effects.

OH WAIT…

Constantine on February 6, 2012 at 4:20 PM

Sharyl does good work. Fast and Furious, etc., etc.

Surprised she still has a job at CBS.

Her tweet, or twitter, or whatever to follow her F & F stories.

fred5678 on February 6, 2012 at 5:15 PM

I can only pray that this disgusting trick is hit again and again and is used in adds during the campaigns.This is the kind of low dealing which Gov Palin has talked about again and again. Is this going to be the last post on this matter? Why was Allen West ignored BY EVERYBODY!!!???

tullius on February 6, 2012 at 5:16 PM

Get rid of the home mortgage interest deduction! It is one of the more persistent and pernicious gimmicks in the tax code. The deduction distorts market prices by inflating housing costs. It is also a transfer payment from renters to home owners. Why should those who don’t buy homes subsidize those who do? And why should the government cost of homes be higher than their true market value by making it easier for home owners to buy more house for their money? End it now!

MJBrutus on February 6, 2012 at 5:39 PM

No matter what Obama does, he has a Carte Blanche Life Membership Pass issued by MSM. He can do no wrong. The masses will flock to vote him in again. These folks either have no conscience or they are not hurting enough. As the eternal optimist would say, “Thank God he can only serve eight years maximum, so there is light at the end of the tunnel. Yeah, I know, the eternal pessimist will say that the light at the end of the tunnel is an oncoming freight train.

timberline on February 6, 2012 at 5:43 PM

Why should those who don’t buy homes subsidize those who do?

MJBrutus on February 6, 2012 at 5:39 PM

It’s the Obama share the wealth thingy, son….it’s just the Obama share the wealth thingy…

timberline on February 6, 2012 at 5:45 PM

I’m sorry, but revamping our tax structure for long-term investment and growth wasn’t one of the boxes Obama had available to check.

SukieTawdry on February 6, 2012 at 6:06 PM

An Obama administration official defended the mortgage fee, calling it “modest.”

So you’re willing to increase my income by $160/month for 2 months; and at the “modest” price of $180/year (15/mo) for the next 10 years?

Sign me up? Who wouldn’t take out a loan of $320 in order to pay a $15 a month for the next 10 years?

That’s a rate of 56% on your debt, people should be happy at their loan at such a modest rate.

Seriously, what sort of credit rating do you have to have in order to get a loan at 56%?

gekkobear on February 6, 2012 at 6:25 PM

I find it deeply sad that people fail to understand the sorry story of fre/fnm. The small fee on fre/fnm backed loans is a super small pittance, compared to the damage that they’ve caused

A serious conservative would the deep malinvestment and moral hazard that has been engaged in by…well, everyone.

There are bad things about homeownership as well as good (think labor mobility)

I realize that borrowers like to get a good deal…and since the conforming loan max is something around 700K…the big borrowers love the deal hugely.

What really bothers me is that we, like greece, don’t want to give up our subsidies…let mikey eat it.

here’s a few excerpts from the wiki entry

Freddie Mac’s primary method of making money is by charging a guarantee fee on loans that it has purchased and securitized into mortgage-backed security bonds. Investors, or purchasers of Freddie Mac MBS, are willing to let Freddie Mac keep this fee in exchange for assuming the credit risk, that is, Freddie Mac’s guarantee that the principal and interest on the underlying loan will be paid back regardless of whether the borrower actually repays.

On Oct 21, 2010 government estimates revealed that the bailout of Freddie Mac and Fannie Mae will likely cost taxpayers $154 billion.[46]

The authority of the U.S. Treasury to advance funds for the purpose of stabilizing Fannie Mae or Freddie Mac is limited only by the amount of debt that the entire federal government is permitted by law to commit to. The July 30, 2008, law enabling expanded regulatory authority over Fannie Mae and Freddie Mac increased the national debt ceiling by US$800 billion, to a total of US$ 10.7 trillion in anticipation of the potential need for the Treasury to have the flexibility to support the federal home loan banks.[50][51][52]

read the whole thing

http://en.wikipedia.org/wiki/Freddie_Mac

r keller on February 6, 2012 at 6:32 PM

A serious conservative would understand the deep malinvestment and moral hazard that has been engaged in by…well, everyone.

r keller on February 6, 2012 at 6:33 PM

well, everyone.

r keller on February 6, 2012 at 6:33 PM

Like me, the guy who put off buying a house for 6 years while the bubble built? Thanks, glad I could be the one to be blamed for it all.

astonerii on February 6, 2012 at 6:39 PM

astonerii on February 6, 2012 at 6:39 PM

huh? you are the vic. the problem was a pol culture of manipulation. Low interest rates from the Fed. Insane housing ‘policy’ from the wizards of smart. Mortgage Bankers that were crooked. Appraisers that were crooked. Finanicial companies that had computer models that did not have a growth parameter that could be negative. Ratings agencies that rated mbs/abs AAA, regardless of the c*** that was in them (mostly because of the IMPLICIT government BACKING)

oh, did i mention the buyers who did the liars loans, the NINJA..no document loans

the Borrowers who were perfectly happy to go along with the scam and wink and nod at the lies????

And the press? David Gregorys wife was general counsel with fre

the problems…they are legion

r keller on February 6, 2012 at 6:50 PM

And of course…the only politicians on camera for this report are Republicans. CBS…why report the news when you can just spew propaganda that supports your lefty agenda?

Jaibones on February 6, 2012 at 6:51 PM

r keller on February 6, 2012 at 6:50 PM

As long as I am not included in your “well everyone” list, then I agree with you. I was totally disgusted with the whole event. When I refused to buy a house in 2005, my fiance left me. I knew the house would never be worth that much money long term… I found a better wife anyways. But I stood on principle through the whole event.

astonerii on February 6, 2012 at 6:58 PM

Deregulate.

Deregulate.

Deregulate.

J.E. Dyer on February 6, 2012 at 7:11 PM

And now Obama just came out with a new plan to help “borrowers who are underwater”. Do you really think they will be able to suck up another $9500 fee, when they can’t pay their original loan? I guess he is hoping the mortgage industry will suck it up. But then again, the third paragraph says it all.
How long will it take Obama to come out and blast the mortgage industry for passing along their (government’s) tax hikes? Two weeks?

djaymick on February 6, 2012 at 7:15 PM

Comment pages: 1 2