Monday, December 17, 2012

The Fiscal Cliff, Healthcare, Housing and You

As we near the end of 2012 and the edge of the fiscal cliff, as usual the big debate is whether the Bush tax cuts should be extended or allowed to expire, and if they should be extended, for whom. As liberals and conservatives debate the impact on the economy, the focus of the media's coverage of the debate seems to focus mainly on the increases to the top income tax rate. After a two year reprieve on these extensions, most Americans seem to now believe that it is best to let the tax cuts expire for the top earners while ensuring that they are maintained for everyone else.

I think that framing the Bush tax cuts debate only in terms of income tax increases really minimizes the full effect of allowing the tax cuts to expire. Remember that the tax cuts did more than just lower the income tax rate; they also gave a hefty shot in the arm to the real estate market.

Under the Bush tax cuts, an individual could sell his or her primary residence and realize up to a $250,000 gain tax free. A couple could sell their primary residence and realize up to a $500,000 gain tax free. And this gain did not have to be reinvested in a new primary residence to reap the tax advantages; the sellers could choose just to put the money from the sale in an investment account and rent for the rest of their lives. The capital gains tax holiday gave a powerful boost to the real estate market because it allowed Americans to purchase a home and benefit in a very direct way from their properties' appreciation.

If all of the tax cuts are allowed to expire, next year the sales of primary residences will again be subject to capital gains tax. (Presumably the tax will revert back to the prior law before the tax cuts where no capital gains is owed if a new primary residence of equal or greater value is purchased within a set period of time.) But what if the tax cuts are extended to the middle class and only allowed to expire for taxpayers with incomes of $250,000 a year or more? What effect will that have on the housing market?

Remember that for the past couple of years Fannie Mae and Freddie Mac's average borrower today has a credit score of 751 and a down payment of more than 30%. That means essentially that these two agencies, both of which have received hundreds of billions in tax dollar bailouts, are basically making loans to upper middle class borrowers--the ones who typically have higher incomes. A capital gains' tax on primary residences, combined with higher income taxes and a looming threat to discontinue the tax deduction for mortgage interest, may discourage these borrowers from investing in real estate. At the very minimum, it is going to discourage them from buying higher priced homes. Discouraging the very borrowers who are in the best position financially to purchase homes and pay the mortgages on them can only result in a further slowdown of the real estate market, and potentially greater declines in housing prices. Many of the taxpayers in the $250,000 bracket are actually small business owners. With increasing economic problems, and dropping market values, how comfortable are they going to feel going through the pain of purchasing a home knowing upon sale the gain will be subject to taxes because they earn over $250,000 a year?

I know that it can be argued that for many years primary residences were subject to capital gains tax upon sale, and that the tax did not stop people from buying or selling property. But I would counter that there is a strange phenomenon that comes into play when people are used to getting something (in this case a capital gains' tax holiday on their primary residence) and then see it taken away. We saw this with the home buyer tax credit. Buyers had bought and sold houses without an $8,000 tax credit since the beginning of civilization, but in the short time that it was implemented, buyers came to believe that they should expect a tax credit. Consequently, when the tax credit expired, buyers largely stopped putting in contracts on houses. The credit should not have provided all that much incentive--after all, the primary reward for purchasing a home is having a place to live--but once the inducement was offered and then removed, borrowers did not seem to see the point of buying a home for which they would not receive a tax credit.

Two years ago the tax cuts were extended for everyone. Now President Obama is adamant that they should be extended only for those earning less than $250,000. But this plan poses an additional set of challenges. The new health care law signed in March also contains a tax on real estate. The 3.8% tax on the sale of residential real estate applies to individuals with incomes higher than $200,000 and couples with combined incomes over $250,000. On a sale of a $300,000 home, the tax would be $11,400.00. This would be in additional to the capital gains tax. And since the health care tax is on the sales price and not on the gain, it would apply to any borrower in the income bracket being taxed. In other words, if you sell your house for enough to cover what you owe the bank plus the agent's commission and your costs as seller, you could still owe Uncle Sam a check.

We like to think that "rich" people, whom we as a society have defined as people with incomes over $200,000 or $250,000, have so much money that they don't feel these taxes at all and that any complaining that they do is only a result of greedy whining. But at what point do the more affluent people in our society decide that real estate is too heavily taxed and that they are better off renting rather buying? At what point do current homeowners who do have extra cash decide to offer their homes for rent rather than for sale because they are rebelling against a plethora of taxes which gobble up their equity? And what are the consequences of this shift in thinking for an already lethargic housing market?

In spite of reports that I have been reading all year, I personally have not seen a housing market recovery or improved housing prices. With one exception, none of the appraisals I ordered this year came in as well as expected. Properties that were purchased last year at lower than expected prices appraised this year for less than last year's purchase price. In my conversations with underwriters in other areas of the state, I have learned that this continued depreciation of the housing market is actually typical right now. Do we want to make a declining housing market worse than it already is by disincentivizing still more borrowers?

Raising taxes--even for the top income brackets--may generate a lot of money for the U.S. Treasury in the short term, but in the long term it will lead to increased unemployment which will lead to increased mortgage defaults and delinquencies at a cost to lenders, Fannie Mae, Freddie Mac, and ultimately the American taxpayers. Taxing the life out of what is left of the housing industry is really just cooking and eating the goose that laid the golden egg.

Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at

Thursday, December 13, 2012

Right to Work, Legalized Pot and the States vs. The Federal Government

The second week of December has been most interesting.  On Tuesday, Michigan Gov. Rick Snyder signed Michigan's first right to work law, officially banning the practice of forcing workers to pay union dues in the state.  What Michigan did was not really revolutionary--almost half of the states currently have right to work laws. What is extraordinary is that Michigan would pass such a law considering the long history of unions in the state.  What is also extraordinary is the national attention that this law has gotten.  I don't remember seeing all of this attention focused on Indiana in February when they chose to become a right-to-work state.  But since Tuesday, the focus of cable news has been the Michigan right to work law. Distraught union members have protested loudly, and sometimes violently; and Jimmy Hoffa Jr. has promised civil war. 
Amid all of the weeping and gnashing of teeth that has followed Michigan's passage of the right-to-work law, what appears to have largely been lost is that states have a clear right to determine the labor laws within their own borders.  The primary impetus for this law is that Michigan is losing business opportunities to its right-to-work neighbor Indiana.  In order to attract jobs and business opportunities, states have to compete, and right-to-work laws allow such competition.

As someone who has worked in a right-to-work state my entire life, I can tell you for a certainty that right-to- work laws do not destroy the worker--in fact they open up a lot of new opportunities.  For instance, in Texas, the right-to-work laws mean, in part, that a non-compete clause from an employment contract cannot, in most cases, be enforced against an employee.  In practical terms this means that the worker who has an opportunity to go to work for his employer's competitor for a higher wage can take advantage of that opportunity without any real fear of reprisal.  It also means that a person who want to open his own business competing in the same field as his current employer has the opportunity to do so without waiting out the non-compete time of the contract.  That means that he can take his contacts with him while they are still fresh and while he can still grow the business.  Right-to-work helps employers, but it also makes life much easier for workers who now have a lot more options.  And right-to-work states grow.  Texas' right-to-work laws--coupled with no state income tax--account in large part for the state's maintaining a solid economy even in the current difficult times.

What I find most interesting about the current uproar about Michigan's new law is that the discussion by opponents of the new law is not being framed in terms of Michigan's right to regulate its own labor laws.  Rather, opponents seem to believe that Michigan's new law is the outgrowth of a national conspiracy by conservatives in Michigan and other parts of the country to undermine the unions and by extension the Obama Administration. President Obama even spoke against the passage of the Michigan law saying that this new law was not about economics; it was only about politics and the "right to work for less money." Rather than acknowledging that the state has the same right as any other state to pass laws for the perceived betterment of the lives of its citizens, liberals seem intent on furthering their assertion that this law is somehow aimed at undercutting the Administration and that Gov. Snyder was acting outside of his authority in signing it.

While union leaders were rioting in Michigan this week, in Colorado the state's new law legalizing marijuana went into effect.  Let me begin this by saying that I, personally, am opposed to drug legalization at every level as I believe that all recreational narcotic substances are damaging to the individual and to society at large.  But there are much greater issues at play here than just personal morality about whether drugs should be legal.

Washington State and Colorado, of course, legalized recreational marijuana usage by popular vote on November 6, in a move that many have called "historic."  Clearly, the signing of these laws actually was outside of the authority of the state governors who signed them.  Federal law does not allow recreational marijuana usage, and state laws are not allow to preempt federal laws.  However, on this issue, the left is remaining very quiet.  I saw a portion of an interview with former attorney general Alberto Gonzales about possible actions that the Administration can take as a result of the passage of these laws.  Gonzales said that basically the government has three options:

1. The Feds can arrest and prosecute citizens of the states under the current federal drug laws and then argue in court that federal laws always preempt state laws.

2. The Feds can sue the states in court for violating federal laws.

3. The Feds can withhold funding for local law enforcement since the local law enforcement is refusing to uphold Federal law.

There is also a fourth option which Gonzales did not mention but which many progessives and libertarians are demanding.  The federal government can do nothing.  Legalization of recreational marijuana is, after all, supported by a majority of the voters in Colorado and Washington--two states which voted for Obama in the 2012 elections. Additionally, big money backers including hedge fund billionaire George Soros and Peter Lewis of Progressive Insurance support legalizing drugs. For the Administration to enforce the current drug laws would be very unpopular with both monied backers and the liberal voting blocks in those states, so it might be politically advantageous for the Obama Administration to not get involved.

Maybe.  Maybe not. Having two states pass laws legalizing drugs really is a clear affront to federal authority. As it turns out, Colorado and Washington's new laws violate not only federal law, but international United Nations' treaties--the 1961 International Convention on Narcotic Drugs outlaws marijuana and other drugs. That treaty is supported by two other treaties—the 1971 Convention on Psychotropic Drugs and the 1988 Anti-Trafficking Convention.  Whether the Obama Administration privately agrees with these state laws is not the point; the point is that by refusing to take any action on these laws, the Administration is sending a message that in some cases, at least, state laws can preempt federal laws and even international treaties.  In speaking out against the Michigan law, the President and his Administration are interjecting themselves into a matter that is clearly the state's to decide.  In refusing to stand up against legalized marijuana--if that is ultimately the case--the President and the Administration are conceding authority that the federal government actually does have to enforce laws.  The only legal way around this is to back federal bills to legalize drugs nationally.  Any such legislation would undoubtedly prove extremely contentious and difficult to pass in a government as gridlocked as this one. 

It will be interesting to see how this issue of the state authority versus federal authority is ultimately resolved. After all, if the test of whether we have to obey federal laws is determined by whether a majority of citizens in a state agree with the laws or not, there are millions of citizens living in red states who do not agree with a lot of the laws that this Administration is passing.  Could what happens in Colorado and Washington set up a precedent for red states to eventually vote to reject Obamacare? If popular will can nullify international treaties, could states down the road vote to disregard UN treaties such as the UN Small Arms Treaty and could the courts rule with them?  Could courts rule that since the Administration has allowed two states to openly violate federal law, they have sent a message that state laws passed by popular vote have more authority than federal laws passed by the houses of Congress and signed by the President.  If the courts do eventually determine that this is the case, the outcome could be a rebellion against federal control unlike anything we have witnessed in the past.  The outcome should be fascinating to watch.

Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at

Thursday, December 6, 2012

Jim DeMint, Sandra Fluke and the War of Ideas

Our nation is at war.  No I am not referring to the perennial war on terror or the constant threats that Middle Eastern dictators pose to America.  Rather we are engrossed in a civil war--a war of ideas.  The most recent battle in this war was the 2012 elections, a loss which conservatives are still grieving.  But 2012 was just a battleground--it was not the war itself. 

Through the events of 2012, many of us conservatives have come to really understand just how much ground we have lost in the culture wars over the last 40 or 50 years. All serious conservatives now acknowledge that we have totally lost broadcast television media--mainstream media outlets openly protected the Administration's errors and missteps while crucifying conservative opponents for relatively small infractions.  We have lost the school systems which are educating an army of socialist, liberal young people who support drug legalization, gay marriage and redistribution of wealth.  These losses are reflected in polls that show an increasing support for socialism and big government across the U.S. and, of course, they are reflected in the elections themselves.

I think Time Magazine's short list for Person of the Year may best reflect the ways in which liberal socialism is taking over our society.  On the short list were E.L. James, author of the mega-best-selling Fifty Shades of Grey Trilogy, Jon Stewart of the Daily Show, JayZ, and Sandra Fluke.  Assuming that Person of the Year acknowledges the individual who has made the greatest impact in the year, this is an astonishing list.  Using the criteria of accomplishment, James probably does deserve to be considered.  While I personally find it horrifying that society's morals have eroded to the extent that a series on sado-masochism can become an all-time bestseller, I also acknowledge that James accomplished something else that no one ever has.  She used modern technologies and social media to take an unknown book and make it into an international best seller.  Whether or not you agree with the specific content of her work, she has demonstrated an extraordinary understanding of how to market in the digital age, and in the rapidly changing world of publishing I can understand why the editors of Time would consider her.

Likewise, with Jon Stewart and JayZ, while I do not think that they have done anything worthy of the title of Person of the Year, I acknowledge that both men have demonstrated a high degree of personal success. Although I disagree with their actions and their politics, I also acknowledge that to rise to national fame in media and to influence a generation of voters takes a lot of discipline and commitment. 

That leaves Sandra Fluke.  What makes Sandra Fluke an interesting choice for Person of the Year is that she is the one person on the list with no accomplishments whatsoever.  She is famous only because Rush Limbaugh called her a "slut" on his radio show.  Her sole achievement consists of being insulted nationally by a famous personality.  She is a law student in her thirties who supports big government and insists that she is entitled to free birth control.  There is nothing exceptional about her in any way, and yet everyone in America knows her name.

Perhaps Time Magazine's thinking is that Sandra Fluke is a composite for the single young women of America.  In a way she is.  Sandra Fluke and her sisterhood of single, liberal women who overwhelmingly supported President Obama's re-election last month are the spiritual daughters of Hillary Clinton, and like their "mother" these women believe that it takes a village to do everything--including, apparently, prevent pregnancy.  The "Life of Julia" is these women's playbook--they expect and demand cradle to grave care from a huge federal government who will stand in the place of the husbands they choose not to have.  They become enraged if anyone takes exception to being forced to bankroll their promiscuous lifestyles.  I am certainly not saying that none of these women will ever marry--most of them undoubtedly will.  However, they plan to continue to look to the government as their protector and provider throughout their lives, so the government needs to be big and strong and generous so that it can meet their needs and those of whatever children they have.  They are life-long victims of mean, hateful, judgmental people who call them names in public.  But they don't aspire to elevate their status in the world; they just want to silence the voices criticizing them. For these women, conservatism is a foreign language they do not wish to learn; the ideas are hollow and offensive.

By even giving Sandra Fluke honorable mention as a contender for Person of the Year, Time Magazine is acknowledging that these women are the new future of our country.  They are also playing into the liberal, socialist mindset that accomplishment and achievement don't matter.  Hard work does not matter; success does not matter.  A person who has done nothing except demand government handouts and fend off insults is as worthy of recognition as the one who has worked hard and achieved something notable. 

In the face of this new mindset, where work and achievement are denigrated, where unaccomplished people demanding a free ride are celebrated, and where promiscuity and irresponsibility are rewarded, how do conservatives restore the voice of reason?  As I mentioned last week, liberals understand human nature much better than conservatives, and so they have done much better in this war of ideas than we have.  But as I also mentioned, conservatives have a much better grasp on reality than liberals, and we know that liberal ideas do not work over the long haul.  That is our strength--and our weakness.

With this in mind, I was initially very sad today to learn that SC Senator Jim DeMint is leaving the Senate and going to work as the head of the Heritage Foundation.  It was DeMint who blocked the ill-conceived and dangerous LOST Treaty from being ratified this summer; it was DeMint who virtually single-handedly prevented the unionization of the TSA.  DeMint has consistently stood for conservative principles--sometimes completely alone--and he has accomplished remarkable things in an often hostile environment. called him the most conservative member of the Senate--a title I think he deserves. When I heard the news, therefore, I thought, with a lot of sadness, that we are losing a strong, consistent advocate for freedom in the Senate.  But when I read DeMint's statement about why he is leaving now, I was heartened.  He wrote that his intention has always been to be a citizen legislator--never a career politician.  And then he added this:
"I’m leaving the Senate now, but I’m not leaving the fight. I’ve decided to join The Heritage Foundation at a time when the conservative movement needs strong leadership in the battle of ideas. No organization is better equipped to lead this fight and I believe my experience in public office as well as in the private sector as a business owner will help Heritage become even more effective in the years to come.”
He went on to say:
"This is an urgent time because we saw in the last election we were not able to communicate conservative ideas that win elections...We want to figure out what works at the local and state level."

As I have thought about DeMint's statement today and how the Senate will look without him, I have realized that we now have other strong true conservative voices in the Senate--Senator Mike Lee of Utah, Senator Rand Paul of Kentucky and incoming Texas Senator Ted Cruz.  Each of these men understands that freedom is essential, that U.S sovereignty is not negotiable and that we must stand up for the Constitution of the U.S.  Perhaps DeMint knows that the Senate now has the principled, strong conservatives it needs in order to stand in the gap for our country in the short term.  He also seems to know that the real war is not in the Senate--it is in the minds of Americans who read Time Magazine and watch broadcast news and are influenced more by celebrities than think tanks.  The true war is in the thinking of the millions of women like Sandra Fluke who rejoiced at Obama's election as a victory for their futures, and in the thinking of Americans of all colors who routinely vote Democrat out of a sense that the Democrat party looks after the "little people" while the Republicans only look out for their own rich friends. If we cannot clearly communicate conservative ideas in a way that all Americans can understand, soon we will not able to elect enough people committed to the Constitution to any branches of our government to preserve our way of life, and then we will lose the country completely.  If we don't win the war of ideas, in a short time none of the other battles will even matter.

Welcome to the fight, Senator DeMint.

Alexandra Swann is the author of No Regrets: How Homeschooling Earned me A Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at