The Proposed “Tax Hike” on Middle Class Retiree Homeowners That No One Is Talking About.
By now you’ve probably heard quite a bit about the different economic proposals from the presidential candidates Kamala Harris and Donald Trump.
While the left and right media continue to beat up each other’s proposals and even to a large extent lie about how the presidential candidates’ proposals will affect you economically, there is one aspect of these proposals which all major and even minor news outlets is completely missing.
One proposal from Kamala Harris that should be particularly disturbing to middle class retirees that own homes and want to stay in them is the $25,000 homeowner incentive for people to buy their first home.
Why is this particularly disturbing to the middle-class retiree? First, lets get a little perspective on actions which have already created inflation and hurt American Retiree’s.
In 2021 after Biden and Harris were elected president and vice president, they created the American Rescue Plan. At the time I said this plan will create a lot of inflation because of the overextension of payments to Americans which was not needed. I warned all of my clients beginning in May 2021 that due to inflation, the Federal Reserve would have to raise interest rates which would in turn hurt the stock market as well as the bond market.
I was right! The stock market continued to go up through 2021 as inflation inched up to the breaking point and highs not seen for more than 40 years at 9.1% in June of 2022. By the way, unlike what Donald Trump said about inflation being the worst ever, it has been much higher and volatile in the past, reaching 14.8% in May, 1980 and even a very painful 19% in April, 1947. It was even worse after the Revolutionary War and periods in the 1800’s.
The market crested at the very end of the year going into 2022. Due to our foresight on what would most likely happen combined with our technical analysis we were able to avoid most of the failure of the stock market caused by inflation which was caused by the American Rescue Plan implemented by the Biden / Harris administration. We did this by moving largely to cash, which unlike bonds and stocks didn’t lose value directly.
Historically our accounts lost a little value but not anywhere near the -15 to -25% of the account value that most Americans lost depending upon how they were invested. It was nice to be able to “save the day” for you, our clients.
The unfortunate impact of the American Rescue Plan and the ensuing inflation it caused was a devaluation of cash due to the not as easily traceable impact of inflation on your buying power. Inflation is sometimes called a shadow tax due to the indirect nature in which it affects everybody. It is most troubling on the economic impact of the lower and middle class and especially retirees due to their generally fixed income.
The American Rescue Plan sent out an additional $1400 per income tax filer which qualified.
This amount is equal to $401,511,524,000. This is an important figure to keep in mind especially when considering the vice president Harris proposal to send out $25,000 to 3 million new homeowners.
There is also a $10,000 tax credit which may also be available to those new homeowners. This is a total of $35,000 in cash and tax benefits to each person that qualifies.
This would equate to a total of $105,000,000,000.00 in possible cash and tax credit benefits to new homeowners. Again this is an amount that is not needed and is very inflationary, not only to housing prices but also to those industries which the housing industry affects, which is mostly everything. Everybody needs a home to live in.
Even though the housing market has cooled down in the last year or so, it is still relatively hot and certainly not in need of rescue.
Due to the increase in prices which already happened from 2020 through today, that is the primary reason many new potential new homeowners can’t buy a house. This has also pushed up the price of rent in many locations.
When I first heard of this proposal, I immediately knew that it would raise the price of homes and thereby inflation across America. Since initially hearing of this proposal articles from Realtor.com, Forbes, MarketWatch, Morningstar, even NASDAQ news among others have all agreed on one thing: this proposal will increase housing prices and values. Other aspects of the policy have been rationalized but nobody has addressed the effect to current homeowners and property taxes.
Ultimately if the price of the house is $500,000 and due to this incentivization the new price of the house goes up to $600,000 or 20% higher, the $25,000 giveaway has now cost the new homeowner $75,000. Add interest costs and a 30 year loan and the cost is even much higher. Further, in order to fight the inflationary effects, the Federal Reserve will probably have to again raise interest rates which could cause a cascading effect which actually hurts, not helps new potential home buyers as well as the stock and bond market, along the way.
But like I said the headline of this article is how this proposal drastically effects middle class retirees. This is the impact that either nobody is talking about, or nobody has thought all the way through and it is very dangerous to middle class retirees that own their own house and want to stay in it.
The number one complaint that I got in late 2023 and certainly this year, 2024 is how many of the retirees that I work with have seen their tax bills explode due to the higher valuation that they’re receiving from the municipalities due to the increased value of their house.
When house values go up almost every municipality values the house based upon what’s called the mill levy. When the mill levy goes up so do the real estate taxes that you have to pay on your house.
This will affect over 221 million people or 65% of America as they will be forced to pay higher taxes on the home they own.
Depending upon where you live in the country and the mill levy rate from the municipality in which you live, your taxes that you have to pay on your house could go up substantially.
Add this new tax to the already existing increase that you’ve had to deal with due to increased housing prices from 2020 to 2024 and you may be looking at an excruciating new payment which may make your house unaffordable.
Further Social Security increases are based upon inflationary values that affect wages and income. You will not get a Social Security boost due to the increased value of your home.
This may very well affect many people nationwide which may be forced to sell their home due to the increased value and the higher tax that they have to pay on their real estate.
The most vulnerable of this group are retirees.
Since you will be caught in the sandwich of higher home values and taxes without the benefits of increased Social Security which is already under tremendous pressure, you might be forced to sell your home because you can’t afford to pay the tax.
Ultimately, we’ve seen four years of both sides economies. Trump was at the helm from 2017 through the beginning of 2021. Harris was either of influence, or as president Biden has recently suggested, specifically knowledgeable and responsible for policies affecting the economy for the last four years.
As your financial advisor, affecting your future financial security and retirement, I wanted you to know.
Now, it’s up to you.
