Monday, 31 October 2011
Sunday, 30 October 2011
How my taxes are raised matters
I need to pay higher taxes. To get to fiscal balance, I need to pay higher taxes. To fund the things I support, such as national health insurance, more Section 8 housing, and a robust military, I need to pay higher taxes. But I am not paying them alone--to pay more without others paying more is a gesture, and would not solve anything.
The federal government can get at me one of two ways: it can scale back or eliminate my deductions, or it can raise my rates. If my mortgage interest deduction goes away, for example, my federal tax liability would increase by around 10 percent; alternatively, the federal government could just charge me a ten percent surtax on income.
If my income is taxed, the impact on my desire to work is ambiguous. On the one hand, because the cost of leisure would fall, I would have an incentive to work less. On the other hand, if I want to restore my previous after tax standard of living, I would have an incentive to work more.
If you take away my mortgage interest deduction, however, the impact is not ambiguous--I will have an incentive to work more. Leisure is no less expensive (there is no substitution effect), but my desire to restore my previous income remains as before.
The federal government can get at me one of two ways: it can scale back or eliminate my deductions, or it can raise my rates. If my mortgage interest deduction goes away, for example, my federal tax liability would increase by around 10 percent; alternatively, the federal government could just charge me a ten percent surtax on income.
If my income is taxed, the impact on my desire to work is ambiguous. On the one hand, because the cost of leisure would fall, I would have an incentive to work less. On the other hand, if I want to restore my previous after tax standard of living, I would have an incentive to work more.
If you take away my mortgage interest deduction, however, the impact is not ambiguous--I will have an incentive to work more. Leisure is no less expensive (there is no substitution effect), but my desire to restore my previous income remains as before.
Wednesday, 26 October 2011
Monday, 24 October 2011
The new HARP might help...
From this morning's New York Times:
The Federal Housing Finance Agency, which oversees mortgage finance giants Fannie Mae and Freddie Mac, said it was easing the terms of the two-year-old Home Affordable Refinance Program, which helps borrowers who have been making mortgage payments on time but have not been able to refinance as home values have dropped...
...To encourage banks to participate in the program, FHFA is revamping it to protect lenders from having to buy back HARP loans if underwriting problems are later found. Banks will only have to verify that borrowers have made at least six of their last mortgage payments and the new rules eliminate the need for appraisals in most cases.FHFA said government-controlled Fannie Mae and Freddie Mac will waive certain fees for borrowers that refinance into loans with a shorter term, such as 15 years, aiming to spur homeowners to pay down the amount they owe at a faster rate.
The elimination of the requirement for an appraisal will make a big difference. So will the waiver of fees for those who shorten terms. Lower interest rates and shorter terms will help borrowers get right-side up faster.
Saturday, 22 October 2011
Type I error, Type II error, and voting
No matter how our registration laws are set up, we will make errors: either people who are eligible to vote will be prevented from doing so, or people who are not eligible to vote will be allowed to do so. Type I error falsely rejects a null hypothesis, while Type II error falsely fails to reject a null hypothesis.
If the null is that people who should be eligible to vote should be allowed to vote, then the new voter registration laws being propagated around the country will produce more Type I error. Two points here--I suspect that the new laws will create a lot more Type I error than precent Type II error. Also, to me, Type I error is more serious than Type II error--preventing eligible voters from voting is a more egregious error than allowing ineligible voters to vote.
If the null is that people who should be eligible to vote should be allowed to vote, then the new voter registration laws being propagated around the country will produce more Type I error. Two points here--I suspect that the new laws will create a lot more Type I error than precent Type II error. Also, to me, Type I error is more serious than Type II error--preventing eligible voters from voting is a more egregious error than allowing ineligible voters to vote.
Thursday, 20 October 2011
Another impediment to short sales?
This morning, I participated in a conference in Lakewood on housing sponsored by Rep. Linda Sanchez. A HUD representative made me aware of an issue I hadn't known about before: how mortgage insurance is giving lenders an incentive to foreclose, rather than agree to short sales.
Apparently, a number of lenders bought mortgage insurance on particular mortgages from private mortgage insurance companies. To clarify, the lenders did not require borrowers to purchase the mortgage insurance, but rather bought mortgage insurance (and paid the cost) on their own.
Under the terms of the policies, the lenders get a pay-off from the PMI companies is they foreclose on a property, but not if they modify a loan or allow for a short sale. Consequently, lenders are better off foreclosing than modifying, even if the foreclosure produces lower proceeds than a modification.
This is yet another perverse incentive that is contrary to the policy aim of stabilizing the housing market. I have no idea how widespread this is, but if it is common, it is yet another problem.
Apparently, a number of lenders bought mortgage insurance on particular mortgages from private mortgage insurance companies. To clarify, the lenders did not require borrowers to purchase the mortgage insurance, but rather bought mortgage insurance (and paid the cost) on their own.
Under the terms of the policies, the lenders get a pay-off from the PMI companies is they foreclose on a property, but not if they modify a loan or allow for a short sale. Consequently, lenders are better off foreclosing than modifying, even if the foreclosure produces lower proceeds than a modification.
This is yet another perverse incentive that is contrary to the policy aim of stabilizing the housing market. I have no idea how widespread this is, but if it is common, it is yet another problem.
Monday, 17 October 2011
Plane and train envy
One of the privileges of my job is I get to travel a lot. In the past year, I have been to Hong Kong, Seoul and Singapore. All three cities have great airports, and nice, clean, comfortable, fast rail transportation from their central cities to their airports.
By comparison, many airport terminals in the US--including two of our biggest international airports, LAX and JFK--are embarrassing, and transportation options to them are limited. Perhaps such things don't matter much to economic performance--it is easy to overstate the wonders of nice infrastructure when the cost is being hidden via subsidies. Nevertheless, there is something about the ability of Asian cities to do infrastructure well that makes me envious.
By comparison, many airport terminals in the US--including two of our biggest international airports, LAX and JFK--are embarrassing, and transportation options to them are limited. Perhaps such things don't matter much to economic performance--it is easy to overstate the wonders of nice infrastructure when the cost is being hidden via subsidies. Nevertheless, there is something about the ability of Asian cities to do infrastructure well that makes me envious.
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