Buy a Home, Get "Obama Money!"

I just recently purchased a home. Actually, I began looking to buy a home but soon realized building one would be only marginally more expensive. Also, I could get more of what I wanted by choosing the floor plan, interior and exterior materials and make different tweaks here and there. Win-win. I began looking for a home when the Obama Administration's "Homeowner Affordability and Stability Plan" kicked in back in early 2009. The section that applied to me was the whole "Buy a house and get $8,000 back as a tax credit." The idea behind this plan was those who couldn't really afford the down payment on a new home (I'm including myself in this group) could now secure a loan, make the initial payment and amend their taxes so they'd receive the $8K in 6-8 weeks. Depending on the price of the home, this worked out to paying the majority of a 4.5% down payment on a $200,000 home. Free money. Well, kind of.

When this program (similar to Cash for Clunkers, Cash for Caulkers, Cash for Appliances, Cash for Buying Crap You Can't Afford and Shouldn't be Purchasing But the Government Knows Best and Thinks Injecting 1.2 Trillion Dollars Worth of Tax Money into the Economy to Try and Save or Create 3 Million Jobs--that last one is not the "official" name) came about, I couldn't believe the federal government was really going to do it. I thought, "Yea, good idea, let's add to the nearly $11 trillion dollar debt. That'll make it easier to pay off." For the record, I wasn't in favor of Bush's spending while he was in office either, so let's put that argument to bed right now. These "Cash for" programs artificially inflate demand and restrict supply, driving prices up. Or if nothing else, they at least make an attempt to maintain the current price level in order to short circuit falling demand, which negatively affects our Gross Domestic Product. This gives the illusion that the economy is still growing. So the government will throw money at the automobile market, the appliance market and now the housing market in order to drive those who otherwise wouldn't--or couldn't--take the leap by themselves. The problem with doing this is simple: once the government funds run out, those who shouldn't buy don't and demand naturalizes back to the level the market dictates. We saw this in action earlier this week as the housing plan is now exhausted, pushing June home sales to the second lowest month on record. So anyone who was seriously considering buying a home now has one, meaning it will be months, if not years, before demand reignites after being smothered by supply.

These government programs are complete nonsense and only serve to collect votes for the Congressmen who pass them, not better the economy as they'd like you to think. The people who participate in these programs can be called "zero liability voters" (Andrew Wilkow coined this term and concept) and for this year, I am one. A zero liability voter is someone who doesn't pay any taxes. Now, there's a difference between filling out a tax form and actually paying taxes and this is it: if, when you receive your tax refund in May/June and you've received more money back from the government than you've paid, you're not paying taxes, you're a zero liability voter. This is not always a pejorative, though it can be. Since I decided to build a house and participate in the government program, I will receive back more money than I paid in taxes this year, making me a zero liability voter. The difference between people like me and others is I will not support any candidate for office that runs on this type of wealth re-distribution.

However misguided/wrong/stupid this tax credit was and even though I've further debased it in this post, I still accepted it. Sound hypocritical? Yea, it does and it is--to a point. The difference between people like me, who are principally against government handouts but take have taken them and others who scream for more of them is this: I do not vote for the politicians that believe in this nonsense. If a candidate for--pick an office--runs on the platform of "Cash for..." you can bet I'll be casting my vote for the other guy. Now, one could argue that if my wishes had been fulfilled and Obama hadn't made it into the Oval Office I wouldn't be able to purchase a house right now--and they'd be right. And that would be okay. How I break this down is simple: look out for number one.

Seriously. Here's some interesting math. In 2005, the average income in Idaho for a household with one worker was $47,975.00. Let's round up and call it $50K. Based on 2010 tax rates, the federal government will withhold $8,700 of that. In Idaho, after you make $24,737, they take 7.8% of the rest, meaning you lose another $4,000. Social Security removes about 6%, so there goes another $3,000. Lastly, you'll lose another $600 to medicare. So at year's end when you look at your $50,000 salary, you realize you only get $33,700. Total taxes taken out--just a tick over 1/3rd. 33% of your money goes to taxes before cost-of-living even enters the picture. Let's look at that: in rural Idaho you pretty much need a vehicle to get around. Let's say it's a Civic and costs about $350/mo. Food (not including restaurants): $300/mo. Clothing: $100/mo. Okay, totaled up that's $9,000 over the course of the year, resulting in $24,700 left from the original $50,000. Now here's the big one, the reason for this post and why this paragraph may have seemed like a tangent: the house payment. Using my limited experience in this arena I'm going to use a conservative number of $1,200/mo. Take $14,400 away and now you're looking at a little over $10K in your pocket. Oh, and feel free to pay for electricity ($150/mo.), water & sewer ($100/mo.). Don't forget gasoline (again, conservatively, $100/mo)Property taxes vary widely so we'll leave them out. When everything is said and done, that $50K you started with has become $5,800, about half the cost of a down payment on a $200,000 home.

So after the government takes what it wants and you pay for what you need, you have about $6,000 to spend however-the-hell-you-want. My point is this: when, after the course of a year you have about $6,000 left over (and most people don't--they simply blow it), the government giving you $8,000 towards a home looks pretty damn good, doesn't it? The problem with this is if they hadn't taken 1/3 of your money away from you in the first place that $8K, though still attractive, becomes less so. In fact, all they really did was take your money, run it through bureaucracy after bureaucracy--and then given it back. I think trusting you with your own money in the first place would've saved some time and taxpayer money. I look at it this way: if the government wants to take, at gunpoint, 1/3 of my income and blow it on "Cash for" crap for everyone, I better try to get some of it back. So I did.

Side-note: I don't make $50K, or really, even very close to that but it was a nice round number to use. I plan to surpass that within a few years and eventually retire on tens-of-millions. Want to have some real fun? See how much the government will take then.

For those who are curious, references here:

1. http://www.factfinder.census.gov/servlet/STTable?_bm=y&-qr_name=ACS_2005_EST_G00_S1902&-geo_id=04000US16&-ds_name=ACS_2005_EST_G00_&-_lang=en

2. http://www.factfinder.census.gov/servlet/STTable?_bm=y&-qr_name=ACS_2005_EST_G00_S1902&-geo_id=04000US16&-ds_name=ACS_2005_EST_G00_&-_lang=en

3.http://www.themoneyalert.com/Tax-Tables.html