Taxes

[WarrenJ]

The following is from the S&A Digest. You can find it (and pay for it) at http://www.stansberryresearch.com .

" The Federal Housing Administration (FHA) has repeatedly said its reserves for loan losses would decline below the federally mandated 2% by this fall. But (no surprise to Digest readers) it's already broke. An audit of the FHA released Thursday showed capital reserves fell to $3.6 billion as of September 30, down 72% from a year earlier. That leaves reseves at 0.53% of the $685 billion in outstanding FHA loans.

The FHA says it won't need a government bailout, except under "the most severe economic scenarios." Considering the number of loans the organization now insures, the caliber of borrower the FHA insures, and that a mere half-percent drop in loan values would wipe out the FHA's equity... the organization may be understating its problems.

Artificially low mortgage rates, homebuyer tax credits, and FHA insurance are the only things propping up the real estate market today... Once one of the three legs breaks, housing is doomed.

The FHA now insures the majority of new home loans in the U.S. More than half of all FHA-insured loans have an initial loan-to-value of 95% or more. And FHA loans only require 3.5% down, meaning when things go south, the borrower will have little reason to save his/her home (we've seen how that situation plays out). Already, more than 14% of FHA loans are in default – more than three times the average for conventional mortgages. And the newest loans are defaulting the fastest.

We'll say it again... The failure of the FHA is inevitable, and U.S. taxpayers will foot another $100 billion bailout.

And how will the government continue providing these massive bailouts? Higher taxes, of course. Democrats in the House of Representatives are pushing for a 5.4% surtax on incomes greater than $500,000 for individuals and $1 million for joint filers. The government expects the new tax, which includes both capital gains and dividends, to raise some $460.5 billion.

The new tax kicks in on January 1, 2011 – the day the Bush tax rates of 2001 and 2003 expire. Today's capital gains tax of 15% would jump to 20% with the expiration of Bush's policies. The surcharge will bump the tax to 25.4%... That's a 69% increase. Encouraging people to dump stock in the face of a looming market downturn is a swell way to save our economy " [Emphasis mine, Warren].

Only a Democrat could understand this philosophy.

Regards,

Warren