Posts Tagged ‘how is the payroll tax holiday being paid for’

Have I got a deal for you …

January 3, 2012

Hooray.

Big victory for the middle class.

President Obama got his 2-month payroll tax holiday.

So, 150 million folks get $1,000 in 2012 tax savings.

Oops.

The program is only for 2 months, so the committed tax savings are only $167.

Still better than nothing, right?

Not so fast

How is it being paid for?

Well, first, “paid for” is a misnomer … it’s being offset in the governments 10 year hypothetical budget.

Hypothetical because the Senate hasn’t passed a 2012 budget, let alone a 10-year budget.

OK, let’s pretend.

The 2-month payroll tax holiday is being offset (over 10 years) by an increase in mortgage fees,

Every new or refinancing  loan going through Fannie Mae or Freddie Mac – that’s over 90% of all mortgages – get tagged with an added  fee (20 basis points, .2 %)

According to NPR, the added fee works out to about $17 per month for an average mortgage of about $200,000.

So, let’s work the nums.

“Average” folks who don’t have or don’t get or don’t refinance a mortgage walk away with $167 free and clear.

That’s a good deal.

“Average” folks who initiate a loan or refinance through Fannie or Freddie get hit with $17 in added monthly fees as long as they hold a mortgage … assuming that the added fee never goes away – a pretty safe bet.

Let’s pretend the average guy stays mortgaged for 30 years.

What’s the financial impact?

Well, the nominal cost of the mortgage adder is over $6,000.

But, to be fair, let’s discount it back to a present value.

For 30 years, the mortgage cost adder has an PV of over $3,100.

So, for the average guy with a new or refinanced mortgage, the payroll tax holiday will COST him a NPV loss of almost $3,000.

Still wonder why the economy is in trouble?

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