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?
The Homa Files 