The rent is too damned high... and wages are too damned low.

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Experts say that you shouldn't pay more than 30 percent of your income on housing, but a record number of Americans are doing just that. According to a new study by the Joint Center for Housing Studies of Harvard University, more than 20 million people were paying more than a third of their income on rent. And, over 70 percent of those living on $15,000 dollars a year are paying more than half their income. As American wages have stagnated, and more and more people have struggled to survive on poverty wages, the cost of housing has continued to go up.

That predicament has left people with no other choice but paying a larger and larger share of their income to put a roof over their heads, which means they have even less money to spend on other things. That means less money for basic necessities, like food and clothing, and it means that people have virtually nothing left over to save or invest. This is just a problem for people trying to get by on poverty wages, it has a broader effect on our entire economy. The solution is simple – continue the fight to ensure that everyone gets paid a living wage.

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Thom Hartmann A...
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I honestly don't know if this is a problem.

As productivity increases, the quality of life should increase. That may manifest itself in the abiltiy to purchase more or better goods and services, including housing, or in fewer hours worked.

At the end of the day, after working the same number of hours this year as he did last year, and purchased all the same goods and services as he did last year, what does it matter if x% went to housing and y% went to clothing, food, etc.?

Of course, that's not what's happening today. I think it's because productivity is not increasing. All the numbers say that productivity is increasing, but I think that is all paper-pushing labor in the finance industry, which represents a larger and larger share of our "economy" while manufacturing continues to decline.

chilidog
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Jul. 31, 2007 3:01 pm

This problem is based on 2 problems... a glutton of labor driving down wages.... lack of availability of housing.

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Capital1
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Jul. 31, 2012 6:38 am

Well, just shoot a few million workers....problem solved with a supply/demand market solution.

If there is a lack of housing, maybe instead of allowing foreclosed, abandoned homes to be gutted, set ablaze and bulldozed...we should have found a way to keep their previous owners in them.

We could, of course, always return to a reciprocal economic system where home ownership didn't have a mortgage attached to it.

Retired Monk - "Ideology is a disease"

polycarp2
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Jul. 31, 2007 3:01 pm

http://homeless.samhsa.gov/(S(bsjq5nboiabqxj45clyaihyt))/Channel/Cost-of-Homelessness-631.aspx

http://www.politifact.com/truth-o-meter/statements/2012/mar/12/shaun-donovan/hud-secretary-says-homeless-person-costs-taxpayers/

The 2009 study "Where We Sleep: The Costs of Housing and Homelessness in Los Angeles," which followed 10,193 homeless individuals, found that the typical public cost for services for residents in supportive housing was $605 a month. For the homeless the cost was $2,897.

The rate of $2,897 per month totals about $35,000 a year.

"This remarkable finding demonstrates that practical, tangible public benefits result from providing supportive housing for vulnerable homeless individuals," the researchers wrote.

For guidance on this story, we talked to Philip Mangano, the former homelessness policy czar under President George W. Bush. Mangano helped expand housing-first programs -- with federal dollars behind them -- into cities around the country.

As the programs became established, Mangano said he was able to compile data from 65 cities looking at all services affected by homelessness.

Hospitals, police and courts top the list. Chronically homeless people are regular visitors to emergency rooms, and each visit results in a hefty bill. They also frequently use mental health and addiction treatment services. They tend to rack up lots of arrests, leading to costly jail stays and use of court time.

"They randomly ricochet through very expensive services, Mangano said.

Mangano even looked at the impact on libraries, finding that many of them had to hire extra security to handle homeless loiterers.

Using data from the 65 cities -- of all different sizes and demographics -- the cost of keeping people on the street added up to between $35,000 and $150,000 per person per year, Mangano said.

Conversely, after the housing-first programs had been established, Mangano said, he looked at the cost of keeping formerly homeless people housed. That range: $13,000 to $25,000 per person per year.

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Phaedrus76
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Sep. 14, 2010 7:21 pm

In that study above they show clearly the financial benefit to taking care of the least fortunate. The political trouble is many of them are Hispanics and African Americans so one political party would prefer to triple on police, courts, prisons, and unpaid hospital bills than to care for the poor.

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Phaedrus76
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Sep. 14, 2010 7:21 pm
Quote polycarp2:

Well, just shoot a few million workers....problem solved with a supply/demand market solution.

I'm more inclined to force the 10M or so illegal job stealers from the US. Problem solved...

If there is a lack of housing, maybe instead of allowing foreclosed, abandoned homes to be gutted, set ablaze and bulldozed...we should have found a way to keep their previous owners in them.

Rewarding bad behavior... Always good for the community.. How are you certain some better does not araise from the ashes?

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Capital1
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Jul. 31, 2012 6:38 am
Quote chilidog:

I honestly don't know if this is a problem.

As productivity increases, the quality of life should increase. That may manifest itself in the abiltiy to purchase more or better goods and services, including housing, or in fewer hours worked.

At the end of the day, after working the same number of hours this year as he did last year, and purchased all the same goods and services as he did last year, what does it matter if x% went to housing and y% went to clothing, food, etc.?

Of course, that's not what's happening today. I think it's because productivity is not increasing. All the numbers say that productivity is increasing, but I think that is all paper-pushing labor in the finance industry, which represents a larger and larger share of our "economy" while manufacturing continues to decline.

I'm not sure what planet you're living on but there are plenty of productive workers in the US. If anything there is a glut of product. And you need to fold in the facts that 1) we are living in a global society so things need to even out globally not just for the US. Remember that someone on the other side of the global in a simple village can read the posts here and also see what life is like in the "first world" and wonder why they can't have that lifestyle themselves.

And 2) a lot of quality jobs have been offshored pushing lower skilled workers out of jobs here as those displaced by the outsourcing take those jobs even though they are "over qualified" for them. This increases poverty.

There are simply not enough jobs for everyone. But the stodgy greedcats who stole the economy are going to hold on for dear life making life miserable for everyone until the public wakes up and says "enough already" and takes away their hording either by taxes or by force. It is inevitable as it has occured every time this happens throughout history.

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captbebops
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Jul. 31, 2007 3:01 pm
Quote Capital1:
Quote polycarp2:

Well, just shoot a few million workers....problem solved with a supply/demand market solution.

I'm more inclined to force the 10M or so illegal job stealers from the US. Problem solved...

If there is a lack of housing, maybe instead of allowing foreclosed, abandoned homes to be gutted, set ablaze and bulldozed...we should have found a way to keep their previous owners in them.

Rewarding bad behavior... Always good for the community.. How are you certain some better does not araise from the ashes?

Probably trade policy that generates unemployment in Mexico, and domestic policy in opposition to the results is a bit schizophrenic. Dumping subsidized U.S. agriculture on Mexico under NAFTA devasted that county's large agricultural sector. No employment = increased migration.

I know, I know. We shouldn't reward the bad behavior of someone signing up for a crappy loan that has the payment double on them.

As in post #5 above, it's better to spend nearly $3,000 a month on them when they're homeless than to dump the higher interest payments. It's best to reward the banksters with bailouts and Quantitative Easing.. Taxpayers have no problem paying to bulldoze the vacant, vandalized, burned-out houses and creating a housing shortage that drives up rents.

It's a landord's dream world and a working stiff's nightmare.

Probably government, the economic system and institutions will continue to lose their legitimacy among growing segments of the population. The neo-liberal Washington and State House fools with their coporations and finance over all policy are playing with fire...just too dumb to realize it.

Retired Monk - "Ideology is a disease"

.

polycarp2
Joined:
Jul. 31, 2007 3:01 pm
Quote captbebops:
Quote chilidog:

I honestly don't know if this is a problem.

As productivity increases, the quality of life should increase. That may manifest itself in the abiltiy to purchase more or better goods and services, including housing, or in fewer hours worked.

At the end of the day, after working the same number of hours this year as he did last year, and purchased all the same goods and services as he did last year, what does it matter if x% went to housing and y% went to clothing, food, etc.?

Of course, that's not what's happening today. I think it's because productivity is not increasing. All the numbers say that productivity is increasing, but I think that is all paper-pushing labor in the finance industry, which represents a larger and larger share of our "economy" while manufacturing continues to decline.

I'm not sure what planet you're living on but there are plenty of productive workers in the US. If anything there is a glut of product. And you need to fold in the facts that 1) we are living in a global society so things need to even out globally not just for the US. Remember that someone on the other side of the global in a simple village can read the posts here and also see what life is like in the "first world" and wonder why they can't have that lifestyle themselves.

And 2) a lot of quality jobs have been offshored pushing lower skilled workers out of jobs here as those displaced by the outsourcing take those jobs even though they are "over qualified" for them. This increases poverty.

There are simply not enough jobs for everyone. But the stodgy greedcats who stole the economy are going to hold on for dear life making life miserable for everyone until the public wakes up and says "enough already" and takes away their hording either by taxes or by force. It is inevitable as it has occured every time this happens throughout history.

I don;t know if we disagree.

"we are living in a global society so things need to even out globally not just for the US." Well, that was a choice. We had the manufacturing base and decided to sell it. So now, things are "evening out" and their quality of life is increasing and our quality of life is decreasing (higher rent.)

"a lot of quality jobs have been offshored pushing lower skilled workers out of jobs here as those displaced by the outsourcing take those jobs even though they are "over qualified" for them." Doesn't that mean that mean that those workers are less productive?

chilidog
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Jul. 31, 2007 3:01 pm
Quote Capital1:
Quote polycarp2:

Well, just shoot a few million workers....problem solved with a supply/demand market solution.

I'm more inclined to force the 10M or so illegal job stealers from the US. Problem solved...

To poly's point, that seemed to work wonders after the Black Plague and the Second World War. Thom's remarked on his show as much in years past. Probably not a preferred alternative.

To Cap's point, I have a theory on rents in Los Angeles (and likely true elsewhere): At some point in time, maybe 30 years ago, a two-bedroom apartment in the seedier part of town was occupied by two working adults. People move in who are willing to live 3, 4 or more working adults in the same two-bedroom apartment (because that quality of life is better than the place they came from.) Three people working under the table bring home more cash each week than two people working with witholdings. The rent goes up. And as the rent in the seediest part of town goes up, so does the rent in the better areas.

chilidog
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Jul. 31, 2007 3:01 pm

The point I want to make is 1 floor of commercial space creates demand for 10-25 floors of residential space, this is often underestimated and the housing never gets build. This results in a chronic shortage of housing.
In modern offices, you can have 1 person every 2-4 m^2, but a family of 4 needs > 100 m^2 to live comfortably. This means 1 floor of commercial space creates demand for 25-50 floors of residential space of the same surface area.
To understand why housing can become very expensive, consider the situation where 5 housing units are available and 500 workers need them. The algorithm that the landlord executes is keep increasing the price until only 5 people can afford the 5 units.
To bring down the cost of housing, you should get to a situation, where if 500 housing units are needed by workers > 600 units are available and now competition among landlords start to the benefit of the renters.
Another reason residential buildings should be allowed to exceed 17 stories is in steel framed buildings, when the height exceeds 17 stories, the incremental cost of adding an extra floor starts going down. Thus building 1 17 stories building is cheaper than building 2 8 stories building and it uses less carbon too. Also, the higher a building, the less infrastructures resources/floor, such as sidewalk and street lighting is used.
Housing should be added on top of steel framed buildings, so they exceed 17 stories, because then, the incremental cost of adding 1 floor of apartments starts going down.
We need a state law that forces every city to be balanced and that forces every city to house its workers and students (number of housing units > (4 * number of jobs) + number of university students), the law should not allow any University or college to expand without supplying the additional housing required by the expansion. Cities with housing deficits should not be allowed to have height limits on residential apartment buildings, nor should they be allowed to have new commercial development.
Every city and university should think of itself as a cruise ship or a small island and be required to house all its workers and students.
Another possibility is to get US census figures on the number of people living in the US and the number of jobs. The ratio should give an approximate estimate of minimum acceptable number of housing units/job. There should also be a slight surplus of housing in every city to house people displaced due to catastrophes.

Forcing a developer to set aside 20 units of affordable housing when > 20000 people need them is a drop in the bucket. What proportion of affordable housing needs is this policy solving? All the eco/green programs won't work if you don't tackle overpopulation, housing deficits and suburban sprawl and honestly take into consideration the full cost of transportation.
Simple example on how to make housing expensive: build office space to employ 25000 people and build housing for only 100!! here you created demand for 100000 housing units ( 25000 and their families), but you built 100 units, thus you created a shortage of 99900 housing units. Another way, housing costs are increased is by increasing the cost of production. Frequently, city bureaucracies force housing developers to conduct study after study after study that end up adding millions of dollars to the cost of construction, then imbecilic city regulations force housing developers to build large amounts of parking space, that also greatly adds to the cost of construction (1 parking space costs around $30000 to build) and then these same politicians want to encourage people to go car free!!
The U.S. antitrust laws are supposed to prohibit this scenario. The main act that was passed in Congress is called the Sherman act. According to the book " Antitrust Law " by Philip Areeda and Herbert Hovenkamp(http://www.amazon.com/Antitrust-Law-Phillip-E-Areeda/dp/073552694X)
call number kf1649 a741 copy 1 page 4, the general goal of the Sherman Act is to promote "competition" and "maximize consumer welfare by encouraging firms to behave competitively".
It seems to me that zoning laws that enact a maximum height limit and put other restrictions on housing do the exact opposite of the Sherman Act: They minimize consumer (consumers of the housing commodity) welfare by encouraging firms (providers of the housing commodity) to behave NON competitively.
From the state of California booklet on antitrust:
On page 3, under " Other agreements among competitors ", I notice that output limitations are almost always illegal. Cities, in the name of Landlords and Property Owners, enact zoning laws that limit the amount of housing using height limits, allowing only single family homes etc. The consequence of these zoning laws is it is impossible to build enough housing to house all the workers and students who work or go to school in that city. No matter how you cut it, a City does not have the RIGHT TO SIMULTANEOUSLY ALLOW THE BUILDING OF OFFICES AND UNIVERSITIES AND PROHIBIT THE BUILDING OF THE NECESSARY HOUSING to meet the demand generated by those buildings. To protect consumers, construction of offices and universities should be accompanied by the construction of more than enough housing to meet the additional demand for housing generated by the additional construction of offices and universities. I believe this matter is the MOTHER OF ALL ANTITRUST cases. The antitrust laws should be clarified and amended to ban housing deficits and force every city to be balanced and be capable of housing all its workers and students.

Thanks in advance.
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Low housing density urban sprawl is also what keeps Americans addicted to their autos. Our communities aren't condusive to mass transit systems.

In some societies, as families grow, an additional floor is added to the house. The homes house multi-generational family units. Mini-apartment buildings limited to family use. One effect of that is less renters and more retained income. Another effect is less urban sprawl Our own culture discourages that.

Retired Monk - "Ideology is a disease"

polycarp2
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Jul. 31, 2007 3:01 pm

No one above addressed the conservative, landlord-centric complaint that sometimes occurs that low-income renters are often unreliable. The create problems for the landlord of one kind or another that supposedly better-off people would not be as likely to cause. Another complaint is that rent control limits the profits that a property owner can make from renting, and thus it is difficult for them to afford maintanence costs. Rent control is an effort to keep the rents within reason. I have not heard it mentioned outside of New York City, and am not sure that it is very widespread across the country. I already posted an entry before Thom did on the Harvard study on the financial difficulties of lower or modest-income renters. Not too many people saw fit to comment on it. Landlord concerns were mentioned, but hardly anything was brought up about the problems faced by renters analyzed in the study.

Progressives should start thinking about discrimination. Low income people are not well-known. Average people don't seem worth listening to. If that is the case, then what is the psychological motivation of polycarp2, chilidog, and the other above posters in responding to this issue? What is the point of talking about it without taking action, even it it is small and mostly symbolic, to point out to someone in a position to make a difference that a substantial number of people are having difficulty in affording housing, including but not exclusively those who once lived in a house which they lost. Many of the people in this situation lost their previous jobs and are now earning less than they did in their prior positions. Job creation has been shown to be greatest in the relatively low-paying, hourly wage service sector.

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Robindell
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Jul. 31, 2007 3:01 pm

My bet is if Thom owned a property to rent he would turn it over to a rent management firm. He would be a remote landlord and the renters subject to whatever the rent managerment firm demanded even if it didn't jibe with his politics. I know if I wanted to rent this house I would leave it up to a rent management company.

Some friends rented their house as they moved out the city to a house in the countryside. A few years later the tenants wanted to leave and then my friends were prepared to sell. In my friends case they told me the tenants left the house in a better condition than when they rented it to them.

When I moved out of my apartment the corporate residential apartment firm was NOT going to return my deposit. This was a very scumbag company who had taken over the complex which was previously run by Trammel-Crowe (who actually treated residents like they were important customers). I was prepared to have my cleaning lady bring in her crew to clean it as I finally moved out. I mentioned it to the maintenance head and he told me not to bother because they were going to strip and refurbish the apartment anyway. I had been their 9 years and they routinely refurbish every 6 years (in fact they offered to come in and do it at year 6 of my residence but it was optional). He blew his stack and told the management to give me my deposit as they were obviously ripping me off. I didn't exactly leave it in a dump anyway but I had watched them replace rugs and repaint over the years in apartments that had been vacated.

I don't know what you do with human being who live like dogs however. That's always the risk of renting out your properties.

Many of our living standards are apropos for an earth popuation of 2 billion or less. We have a different problem now.

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captbebops
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Jul. 31, 2007 3:01 pm

I've been on both sides of the rental fence. I've had good tenants and bad. One stole a kitchen...including the walls!

Rents always had to be sufficient to provide good maintenance...and at the time, they were more than ample. So were minimum wages relative to costs. They are the floor that all other wages are measured against.

Either wages are high enough to support broad based rental and home buyer markets....or they aren't.

Rents in my neighborhood are extremely low. They have to be, or the housing stays vacant. People double-up in this poverty-ridden town when they can't afford the rents. A problem with the low rents is my slumlord can't clear enough to maintain his properties.

The roof leaks, window frames are pulling away from the walls, I flush the toilet with a plunger and a portion of the floor is so rotted I don't dare walk on it....I'll fall through. Not one electric outlet in the living room works.The back door is so rotted I can't open it. It's nailed in place. My neighbors have similar complaints.

At some point, his properties will be uninhabitable...vacant...and vandalized. It will cost more to tear them down than even the land is worth.

The slumification of American is well under way. Incomes aren't sufficient to provide enough rent for maintenance.

Retired Monk - "Ideology is a disease"

polycarp2
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Jul. 31, 2007 3:01 pm

It sounds like his "properties" are uninhabitable right now, based on your description.

Note "propertieS." The house you live in has some value. If the investor/landlord cannot provide clean, safe premises, then HE SHOULD NOT BE ALLOWED TO BE IN THAT BUSINESS. Sell the damn property to an owner/occupier who doesn't owe any contractual duty to any tenant.

The condition of this house probably lowers the property values in the rest of the neighborhood, just by blight alone. It's likely a fire hazard (risk of property damage/personal injury to neighbors) as well if there's defective wiring, gas connections, etc.

If this landlord has "propertieS" he has made the calculation that he will get more money from rents than what he will get from selling it today.

chilidog
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Jul. 31, 2007 3:01 pm

America is very BROKEN. When I was in India I noted that it looked like not a lot had changed since the British left. It was like Indians didn't know how to keep things up or couldn't afford to. The US is now becoming a third world country.

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captbebops
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Jul. 31, 2007 3:01 pm

And it is not just rentals. Have you ever seen the condition of many homes that have been foreclosed on? Actually many people who bought homes back in the day probably intended to even do some improvements. But they were driven down by the economy to just hanging in there until they lost their job and found themselves underwater. No money for those improvements. Same with many homeowners who are just making the mortgage payments and nothing left over for improvements and even maintenance. It wasn't supposed to be this way.

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captbebops
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Jul. 31, 2007 3:01 pm

To say that America is becoming a third world country is an exaggeration to some extent which detracts from one of the main problems with a decline in income. Most people in the U.S. are still middle class. Their incomes may not have kept up entirely with inflation, and wealth is largely concerntrated in the hands of the few, but the fact is, the system is defective, but not entirely broken. The people who can only afford to rent apartments versus buy a home are still in the minority. Those who are employed outnumber those who are unemployed. While it is true that most of the new jobs are in the lower-paying service sector, a majority of people have not lost their jobs, even though millions have. The incomes of many have gone down, but this has not become visible enough evident or obvious enough for who want to deny that there has been a decline in employment availability and in what many jobs now pay, compared to a previous time. Some people who are in the majority of being middle class point to the continuation of the middle class as evidence that there is no crisis in employment or in incomes. There are many people who have no direct contact with low income families and individuals. They don't drive around in inner city neighborhoods where incomes tend to be lower than average.

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Robindell
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Jul. 31, 2007 3:01 pm

Maybe. Rents are going up as people get booted from their homes. Mine did, though incomes here keep rents pretty low or rentals remain vacant. Rents can't be high enough to maintain the properties regardless of who owns them.

Chilidog, in Colorado, it would be illegal to rent the house I live in. However, Missouri is a solid Republican state.

The exteriors are required to be presentable. The interiors are another story. Broken windows are patched with clear packing tape so they look presentable from the street.

It;s probably a good thing I live in and only furnish one room. The rest of the house is in pretty bad shape. If I wanted a TV in the living room, I'd have to run an extention cord from the nearest bedroom.

My neighbors have similar problems of bad electrical work, lousy plumbing, broken windows, leaky roofs, etc. Same landlord. He owns most of the block.

Retired Monk - "Ideology is a disease"

polycarp2
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Jul. 31, 2007 3:01 pm
Quote Robindell: To say that America is becoming a third world country is an exaggeration to some extent which detracts from one of the main problems with a decline in income. Most people in the U.S. are still middle class.

The middle class is defined usually by 20% percentiles, so by definition only 20% are in the middle class.

According to the Wkki page, the first fifth makes an average of 0, the next makes an average of 20k, while the middle - your 'middle class' makes an average of 38,000 (in 2004). That's family income.

Half the population has no net assets.

The top 1% owns 40% of the nation's wealth and half the stock market, and 25% of the nation's income.

The top 10% earns about half the nation's income.

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Dr. Econ
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Jul. 31, 2007 3:01 pm
Quote captbebops:

America is very BROKEN. When I was in India I noted that it looked like not a lot had changed since the British left. It was like Indians didn't know how to keep things up or couldn't afford to. The US is now becoming a third world country.

A few years ago I visited Palawan in the Philipines. I had never been and went against my normal method of exploring on my own and hired a guide that was seeking any client from passengers clearing customs. He had a motorcycle with a sidecar and one of the stops he showed me was his fishing village. The bamboo houses were built out over the sea on stilts. His had running water and electricity. The bathroom toilet was a bucket and a water drain but no sewage drain. There was a shinto/christian/budhist chapel, the kids were all playing on the dirt roads kicking a local handball variant, smiling and laughing. No locks on any huts. Some had set their doors up as top and bottom so the top would latch open and a shelf across the bottom part that was kept closed could have a display of loose cigarettes, sugar packets from restaurants, a pitcher of water, you know -the necessities.

The community hall had a satellite dish so the only television in town was there. He took me island hopping, snorkeling, did all the negotiating with local boat renters for the island trips, bought some fresh fish, rice, beer, and charcoal for a bbq on Starfish Island [about 1 sqaure acre] . When he took me to a hotel one of the first things he said was "We are not like Manila, we have no prostitutes". I was on my own, had not asked and was not looking but said 'OK'. He told me he had taken a course for being a guide from a lady that had been to Palawan to promote the trade. I asked him what she taught him and he said "She taught me to say we are not like Manila and don't have prostitutes". Anyhow, the village was also a staging area for refugees from Vietnam and elsewhere. Rent was actually free, no one owned the ocean yet [trump hasn't been there]. We went bowling and they use these little duck pins and balls about the size of a softball. On a walk I met an owner out on the countryside that had a home and he was interested in talking to me. He said politics in his country was kind of corrupt, votes were easily bought.

Technically that could be considered 3rd world, but it was safe, no one was hungry. No gangs, no guns, lots of sunshine,fresh air, fresh sea, fresh water, fresh fish, veggies, and rice were the norm. Even in the cafes when they were trying to rip you off a beer was 50 cents [the market only charged 10 cents-San Miguel]. They were better off and their families were better off than a lot of 1st world US residents. It was an amazing experience and a learning adventure.

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douglaslee
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Jul. 31, 2007 3:01 pm

It's called debt deflation. The owners of building don't hold the buildings for the rental income. They borrow enough to own the building and pay the mortgage net of depreciation to sell to someone else so they can get a low capital gain and pay the debt off. If they use the likekind exchange rules they won't even pay any tax and they'll own another bulding.

Then that person raises the rent to pay the new mortgage and waits for someone else to sell too.

The Royalists (to use your term) use the system to extract money from the rest of us.

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Dweinstein003
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Nov. 4, 2013 12:50 pm

When I sold a house I held title on last year I had a broker for that kind of thing inquire if that was what I was doing. Actually I just held the title and relatives paid for the house (they lived in it) and they got the proceeds.

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captbebops
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Jul. 31, 2007 3:01 pm
Quote Dweinstein003:

It's called debt deflation. The owners of building don't hold the buildings for the rental income. They borrow enough to own the building and pay the mortgage net of depreciation to sell to someone else so they can get a low capital gain and pay the debt off. If they use the likekind exchange rules they won't even pay any tax and they'll own another bulding.

Then that person raises the rent to pay the new mortgage and waits for someone else to sell too.

The Royalists (to use your term) use the system to extract money from the rest of us.

I don't understand your post.

The preferential treatment of real estate is ludicrous, but the like-kind exchange rules are the least offensive, IMO. The gains are not tax-free, they are tax-deferred, and while that ultimately may be a distinction without a difference, at least it's there.

The most offensive rule is this notion that you can depreciate a structure built 30 years ago. When you pay $400k for a POS house built in the the 1950's you're paying for the LAND. And when you get right down to it the tenant is paying for the LAND/location more so than the structure. Reagan allowed people to depreciate strip malls over 15 years.

Then of course there is the estate tax, where mom and dad die with $5 million of property that they paid $1 million for, they pay no estate tax, and the kids sell it for $5 million and pay no tax. THAT is tax-free.

Since 1997 you don't pay tax on the gain on the sale of your personal residence, and you can do this every two years. One of the things the Democrats actually did right was nixing the rule that allowed you to move into your beach house rental you bought 20 years ago, live in it for 2 years, and sell it tax-free.

Don't get me started on Proposition 13 in California...

chilidog
Joined:
Jul. 31, 2007 3:01 pm

As long as you stay in the rental "business"..... buying/selling of properties, you can defer taxes until you're buried.

The strip mall is supposedly worthless after 15 years. Tear it down and build something else and start the whole process all over again. It's just a part of the throw-away society that's stripping the planet bare..

Retired Monk - "Ideology is a disease"

polycarp2
Joined:
Jul. 31, 2007 3:01 pm

The Rent is high because there are more renters than rentals explanation is like the price of gas at the pump is high because there is more demand for it than supply of it (BS from PR).

Dishonest Sellers will always try to pretend scarcity of their product.

Recall back in the 80's when an underhanded President had our CIA raising money through Cocaine trafficking so they could engage in illegal foreign activities because Congress would not fund them (because they were heinous and illegal).

This resulted in an excess supply of Cocaine in the U.S. but the retailers did not want to lower their prices so they used the excess product to pay-off Law Enforcement with fake-busts (tell-tale signs of these were that often large caches were located and confiscated, but no one of significance was arrested in connection with it) of huge quantities (of product that they couldn't sell).

Yes, the rent is too high, but mainly because the wages are too low. If you want to have an indicator of what the minimum wage should be (since minimum wage earners are more likely to rent than own) - take the average rent and divide it by 30%. Then divide that by the average number of hours companies give their minimum-wage earners. That's your target minimum wage.

Example. Say average rent is determined to be $500. If average hours per week is 40, then a minimum wage of $9.61 - but if the prevailing business model calls for average hours per week is 30, then minimum wage should be $12.82.

Rodger97321's picture
Rodger97321
Joined:
Jul. 31, 2007 3:01 pm

The oil supply or gas supply surged and the price at the pump did not fall. Supply/demand doesn't work when derivitives and futures are in play. Adam Smith is rolling in his grave.

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douglaslee
Joined:
Jul. 31, 2007 3:01 pm

This has been happening for decades, on one end, since manufacturing moved out of the cities in the '70s to avoid paying high municipal taxes, and, on the other end, since Reagan deregulated the housing industry in the '80s. Thom likes to dismiss homelessness as just a problem of Reagan closing mental hospitals, and so, dismissively stereotype the homeless as all being crazy - which is what President G.H.W. Bush did when he called them, to paraphrase, "undereducated and crazy" - but it's really a matter of availability of affordable housing - ultimately made unavailable for those two reasons. Not only did the flight of manufacturing take away jobs for the uneducated and unskilled but also took away what was erstwhile the tax base for the cities. Manufacturers, no longer willing to be the tax base, moved out of the cities and the new municipal tax base became property taxes, so opening cities up to rapid gentrification. The deregulation of the housing industry and elimination of housing subsidies also played their roles.

Thom also mischarecterizes the primary reasons for capital flight or flight of manufacturing from the United States. Whereas Reagan's policies greatly greased the skids and facilitated the exodus the initial will to leave was already in the manufacturers' hearts and made intense by other factors, mainly that the "per unit cost of production", or the cost of manufacturing goods or producing services, became too high, or more than manufacturers were willing to pay.

This happened for a number of reasons, one was, in fact, the municipal taxes. Factories initially moved out of cities and into suburbs and suburban "industrial parks" in the '70s because those suburbs' taxes were lower and many suburbs tried to lure manufacturing with promise of lower taxes.

Another factor was environmental regulations. They were part of the reason manufacturing became so costly. Funny how we all complained about and villified the American factories in the '60s and '70s and now we want them back.

Another factor was union wages. Wages had gotten high, thanks to collective bargaining, even in non union shops to stay competitive and manufacturers didn't want to share their profits with their workers that much however just that might've been for them to do so.

The main factor, however, the factor behind all the other factors, the final shove in pushing manufacturing, first, out of the cities, then, out of the country in the '70s was the Oil Embargo of 1973. The Middle Eastern countries nationalized their oil industries and put the squeeze on their erstwhile colonial masters.

Thus the ending of the carefree economy Western Europe and the United States enjoyed in the '50s and '60s was not so much because of Ronald Reagan and Margaret Thatcher as because of the end of our imperial hegemony. When gasoline cost 14 cents a gallon in the West we didn't have to worry about anything but getting high and getting laid, our basic survival was all but assured.

What Reagan and Thatcher represented was the elites in our society, now feeling the squeeze of reduced profits because they now had to pay for what they before got for free by pillaging the colonized, trying to make up the difference by putting us, their fellow citizens, in the trick bag that was only peopled by darker skinned Eastern and Southern coolies before. It was the dropping of the pretense of national divisions, that are largely invented for the purpose of dividing the enslaved, turning them against one another, and the exposing of the class divisions that are the real operant relationship in our civilization. IOW we, the fellow citizens of the owners of the great manufacturing concerns, were to replace the colonized foreigners as their livestock and beasts of burden - their coolies and slaves. The Free Trade Agreements also exemplify this.

By Thom's figures we went from being a colonial power in the '70s, when we were the largest importer of raw materials, peaking in wealth in 1973 when the oil embargo was effected, to being colonized when we became the largest exporter of raw materials. The colonial practice was now internal, however, otherwise nomered "class exploitation". Again, the pseudo divisions of race and nationality were dropped and substantive divisions of class were enjoined with a new frankness.

The Stalinist Soviet Union has been aptly called a European colonial power that colonized and subjugated other white people - and for this reason found objectionable by white people. Reagan and Thatcher brought that model of colonization to the West.

Mark Saulys's picture
Mark Saulys
Joined:
Jan. 21, 2011 2:26 pm

The most offensive rule is this notion that you can depreciate a structure built 30 years ago.

Then of course there is the estate tax, where mom and dad die with $5 million of property that they paid $1 million for, they pay no estate tax, and the kids sell it for $5 million and pay no tax.

I forgot - mom and dad have real estate they bought for $1 million 40 years ago, fully depreciated it, they die, the real estate's worth $5 million, the kids get to start depreciating the $5 million.

Also, you don't pay social security or medicare taxes on net profits from rental real estate.

chilidog
Joined:
Jul. 31, 2007 3:01 pm

That's called a step-up in basis. Which is short-hand for resetting the cost basis to whatever the appraised value was when the prior owner died (or when it gets transferred to the heir). The Real Estate Lobby used the "loosing the family farm" argument to get, keep and raise the limit for it.

They argued that family farmers shouldn't have to sell out to AgraBusiness just because the parents die. Apparently they felt that family farmers wuz twos tewpid to transfer title to the working generation when the parents turned over running the farm to them.

Of course if that was really the intent, then the law would have been written to only apply to rural tracts that were actively engaged in farming.

Now Depreciation occurs everywhere, but only businesses (rental property is a business) are given the tax deferment tool called depreciation. It is not a solid deduction like say, mortgage interest, because when you sell the property you have to 'recapture' (pay back) all the depreciation you took on that property since day one.

That is why depreciation (albeit on a stepped up value) gets to restart under the new owner. But this new depreciation will also have to be recaptured (repaid) when the property sells.

The value of the land the structure sits on is not included for depreciation and you have to be able to show a lucid path to how much is for the structures and how much is for the land.

Rodger97321's picture
Rodger97321
Joined:
Jul. 31, 2007 3:01 pm

As to the self-employment tax.

Quote chilidog:

Also, you don't pay social security or medicare taxes on net profits from rental real estate.

Too true. Why don't we get Congress to fix that?

This is part of why house "flippers" make more than they should (even without a vulture-penalty). Since they are clearly doing it to make a living it should be subject to self-employment tax (equivalent of Social Security & Medcare for self-employed persons) with no limit, of course.

Part of why the .01% wanted a Crap-It-All Gains category in the first place was so it would sit outside of the income on which they pay self-employment tax (as well as be easier to negotiate different rates from regular income tax).

The battle to do away with the Capital Gains category will be lengthy, but whenever a group wants to pretend that Social Security is in financial trouble (and so needs to cut back on the payouts from those prepaid plans) - respond by saying that if they really believe that then they should be willing to remove the exclusion of Capital Gains from social security & medicare taxation.

Rodger97321's picture
Rodger97321
Joined:
Jul. 31, 2007 3:01 pm
Quote Rodger97321:

Now Depreciation occurs everywhere, but only businesses (rental property is a business) are given the tax deferment tool called depreciation. It is not a solid deduction like say, mortgage interest, because when you sell the property you have to 'recapture' (pay back) all the depreciation you took on that property since day one.

That is why depreciation (albeit on a stepped up value) gets to restart under the new owner. But this new depreciation will also have to be recaptured (repaid) when the property sells.

Yes, depreciation occurs everywhere. My socks will be worth 0 dollars in ten years. Depreciation is a solid expense and therefore a solid deduction. The problem that genuinly cannot be codified is how to measure how much my socks are worth after 1 year, after 2 years, after 3 years, etc.

What the "depreciation recapture" rules do, is disallow you the lower tax rate on capital gains for the depreciation you deducted. You will pay the same higher tax rate as you pay on your wages, salary, business profits, pensions, etc. You bought a house 30 years ago for 100k, rented it out the entire time, you depreciate 70k for the structure, and you sell it for 400k. Your real gain (assuming the structure genuinely has no remaining utility - a big assumption) is $230k (400 - 100 - 70.) Of that $230k gain, 70k will be taxed as high as 39.6% and 160k will be taxed at 25% (or whatever the rate is on real estate.)

I don't like the depreciation recapture rules. They are there because people want to depreciate stuff faster, so it's a little trade-off.

The underlying problem for me is, why should there be a step-up in basis for something that is worth less or worthless? You pay $500k for a 1950's house why do you get to depreciate $400k for the structure? It wouldn't cost you that today to build it new, it wouldn't even cost that if you added in the demolition costs. And it sure as hell didn't cost that to build it 60 years ago. All the relevant info is in the assessors records.

chilidog
Joined:
Jul. 31, 2007 3:01 pm

So what would be the consequences if we changed the laws so that real property structures will be depreciated over 50 years, and so that there's an honest allocation between land and structure?

Prices of existing houses and apartments will decline. Investors will pay less for an investment with higher expenses, and lower depreciation deductions will cause higher taxes and taxes are an expense. The accompanying lower property tax payments will likely not make up for it.

chilidog
Joined:
Jul. 31, 2007 3:01 pm

The better change would be to change property tax law to only tax the value of the land, and not the improvements.

As for depreciation rules the intent is prevent writing off the entire cost of the capital in the first year. Items that have long life, like houses and business jets, get a small amount of depreciation each year. Would you folks end depreciation and allow businesses to write off the full prices in year 1?

Phaedrus76's picture
Phaedrus76
Joined:
Sep. 14, 2010 7:21 pm

Natural price of real estate is 120 months or 10 years rent. If housing whether it be rents or mortgage payments is too high, we are in a bubble.

Dweinstein003's picture
Dweinstein003
Joined:
Nov. 4, 2013 12:50 pm

If you die, you get a step up and the gains are tax free not tax deferred. Rich people can use GRAT's and GRIT's to avoid the estate tax.

Dweinstein003's picture
Dweinstein003
Joined:
Nov. 4, 2013 12:50 pm

Chilidog, the secret in using real estate depreciation laws is by having enough properties being depreciated so lucrative sales of several properties a year aren't taxed. The profitable sales just "lessen your losses" that aren't real in the first place.

Filling your wallet while supposedly "losing money" is the American way. You can live your entire life deferring taxes....never paying any. Set up a "charitable trust" run by your heirs, and the taxes are never paid.

"Taxes are for the little people".

Retired Monk - "Ideology is a disease"

polycarp2
Joined:
Jul. 31, 2007 3:01 pm
Quote Dweinstein003:

It's called debt deflation. The owners of building don't hold the buildings for the rental income. They borrow enough to own the building and pay the mortgage net of depreciation to sell to someone else so they can get a low capital gain and pay the debt off.

Then that person raises the rent to pay the new mortgage and waits for someone else to sell too.

I still don't understand this scheme.

A landlord cannot raise rents above what the market will bear, regardless of his expenses.

chilidog
Joined:
Jul. 31, 2007 3:01 pm
Quote polycarp2:

Chilidog, the secret in using real estate depreciation laws is by having enough properties being depreciated so lucrative sales of several properties a year aren't taxed. The profitable sales just "lessen your losses" that aren't real in the first place.

I'm familiar with the passive activity loss rules. Disallowed PAL's die with the owner, just like capital losses. The PAL rules, like the depreciation recapture rules, stem from the accelerated depreciation rules (Yes those losses aren't real.) Just fix the freaking depreciation rules. Full-employment laws for CPA's.

chilidog
Joined:
Jul. 31, 2007 3:01 pm
Quote Dweinstein003:

Natural price of real estate is 120 months or 10 years rent. If housing whether it be rents or mortgage payments is too high, we are in a bubble.

That's an old rule of thumb before the days of manipulated markets. Even before then, that metric would vary based on whether mortgage rates were 15% or 6%.

Rents cannot become a bubble. Rent must be paid in cash.

The housing bubble started, and still remains today, because mortgage payments are too LOW.

chilidog
Joined:
Jul. 31, 2007 3:01 pm

Go to: MichaelHudson.com or read the tittle the rents are too damn high. Chilidog, some simple correlation. If the price of real estate goes up and it's 70-80% owned by the bank, then the rents to pay the mortgage have to go up too.

Home payments go up when the price goes up becasue increased valuations induce homeowners to sell and trade up (indebt themselves). If they didn't the price of real estate would be stable.

Respecfully, read Robert Shiller before you post about bubbles. Robert Shiller said we are in a new housing bubble on CNBC

Dweinstein003's picture
Dweinstein003
Joined:
Nov. 4, 2013 12:50 pm

I'm trying to separate the pieces to explain the "logic" for the rules.

Quote chilidog: The underlying problem for me is, why should there be a step-up in basis for something that is worth less or worthless? You pay $500k for a 1950's house why do you get to depreciate $400k for the structure? It wouldn't cost you that today to build it new, it wouldn't even cost that if you added in the demolition costs. And it sure as hell didn't cost that to build it 60 years ago. All the relevant info is in the assessors records.

Remember this thread is about rental (business) property. The step-up in basis occurs when the ownership changes. If you buy a house for $500k then the seller had to recognise the gain from their accumulated costs to the $500k selling price. This creates the foundation for your basis and the pool from which depreciation, when appropriate, can be done.

So it is you, the buyer, who has said (by virtue of the price paid) that the value of the property is now $500k. If it were truly worth less or worthless why did you pay $500k (excluding money laundering or other S & L Fraud-type schemes)?

And in your example, you value the land at $100k of that. That is why if it is to be used as an income property the depreciation basis would be $400k because that is what you said it was worth in the condition it is in today when you bought it.

If this house is for you to live in, depreciation (for tax puposes) does not enter the picture, and very likely there will be appreciation in the value as from the 1950s to when you bought it currently which you will need to recognize when you sell it.

Rodger97321's picture
Rodger97321
Joined:
Jul. 31, 2007 3:01 pm

New landlords who buy new buidlings will raise rent. Read about the blackstone securitized rental bond. Blackstone is going batshit nuts with the tenants. Your ontime and they charge you late fee's. You try to argue and they rebuke. Suddenly the tennants are paying early which with 40,000 tenants ups the net present value or conveys the appearance of the net present value disclosed in the bond debenture being relevant.

Passive activity loss rules have very little to do with the bubble. Depreciation of real estate is a fiction, property tax caps, anything that frees up money to pay banking oligarchs.

Dweinstein003's picture
Dweinstein003
Joined:
Nov. 4, 2013 12:50 pm
Quote Rodger97321:
Quote chilidog: The underlying problem for me is, why should there be a step-up in basis for something that is worth less or worthless? You pay $500k for a 1950's house why do you get to depreciate $400k for the structure? It wouldn't cost you that today to build it new, it wouldn't even cost that if you added in the demolition costs. And it sure as hell didn't cost that to build it 60 years ago. All the relevant info is in the assessors records.

Remember this thread is about rental (business) property. The step-up in basis occurs when the ownership changes. If you buy a house for $500k then the seller had to recognise the gain from their accumulated costs to the $500k selling price. This creates the foundation for your basis and the pool from which depreciation, when appropriate, can be done.

So it is you, the buyer, who has said (by virtue of the price paid) that the value of the property is now $500k. If it were truly worth less or worthless why did you pay $500k (excluding money laundering or other S & L Fraud-type schemes)?

And in your example, you value the land at $100k of that. That is why if it is to be used as an income property the depreciation basis would be $400k because that is what you said it was worth in the condition it is in today when you bought it.

If this house is for you to live in, depreciation (for tax puposes) does not enter the picture, and very likely there will be appreciation in the value as from the 1950s to when you bought it currently which you will need to recognize when you sell it.

It's possible that the rules are logical, the language I want might be in the tax code. It is certainly there for new construction. Maybe it's a case of the IRS being told not to investigate these returns, because of the influence of the FIRE industries. No one is ever challenged for what they said it was worth. Even you don't seem to see any problem with declaring a structure built 60 years ago to be worth $400k.

I paid $500k for the property because the LAND is worth more today than in the 1950's. The structure is worth less

chilidog
Joined:
Jul. 31, 2007 3:01 pm

The best source I found for discussing the housing bubble and general economic issues (as well as a lot of political nonsense) is Ben Jones' thehousingbubbleblog dot com. It's been around since 2004. And I've read Robert Schiller thanks to links I found at that blog. You should read it. Respectfully.

chilidog
Joined:
Jul. 31, 2007 3:01 pm

I don't know what Blackstone's business model is. I suspect that it depends heavily on corruption.

How do you securitize future payments on contracts that don't exist today? Do their tenants sign 30-year leases?

Making money in real estate is not easy, And by making money I'm talking about providing housing for tenants and having cash in the bank at the end of the year. It takes a unique person, the hoardingest of the hoarders, to supply this service that an economy requires.

chilidog
Joined:
Jul. 31, 2007 3:01 pm

Your are correct about the economics of Blackstone's securitized bond. It's based on the fact you can make derivative bets with it, including credit default swaps and reverse credit default swaps. The economics of the deal have to do more with repo's and reverse repo's than the economics of rental real estate. Repos and reverse repos allow derivatives to be created.

The article in the Atlantic said they presume a 95% occupancy rate which is unheard of for any lenght of time. Blackstone isn't liable anymore because the risk has been spread to others and new systematic risk has been created via/vis the reverse credit default swaps. New systematic risk is created because there is now a risk of their being 95% occupancy in the rental properties or the tenants paying their rent on time. If the tenants pay on time the reverse credit default swaps have to pay and big investment houses could loses billions, perhaps tens or hundredes of billions of dollars.

At the end of the day, it's just a sick game where oligarchs win or lose take money from the rest of us "little people".

Dweinstein003's picture
Dweinstein003
Joined:
Nov. 4, 2013 12:50 pm

Hopefully, if renters pay on time, the losers of the bets won't go insolvent paying the winners.

Hopefully, the winners won't go insolvent because their bets are made worthlesss....by non-paying losers.

It could be a replay of the housing mortgage derivative collapse that brought about trillions in bailouts. Risks in the Casino Economy effect everyone.

Some Americans handle the high U.S. rents by commutng from Mexico.

http://america.aljazeera.com/watch/shows/live-news/2014/1/finding-the-am...

Retired Monk - "Ideology is a disease"

polycarp2
Joined:
Jul. 31, 2007 3:01 pm
Quote Phaedrus76:

As for depreciation rules the intent is prevent writing off the entire cost of the capital in the first year. Items that have long life, like houses and business jets, get a small amount of depreciation each year. Would you folks end depreciation and allow businesses to write off the full prices in year 1?

I'm fine with allowing 100% deduction in the first year for machines, including the jets and the cars. Not for the real property.

There are two concepts for depreciation in the real world (not tax): matching income with expense and matching expense with cashflow. "Look how fast my profit is growing! Lend me more money/Pay me more for my stock!" - No, you are SHOWING more profit this year because you wrote off a new machine last year. "Why can't I write off this machine, I bought it." Well, you bought it, but you haven't PAID for it if you still have x number of years of financing it left.

chilidog
Joined:
Jul. 31, 2007 3:01 pm

The Thom Hartmann Program - Aug 30th 2018

It seems it's all racism, all the time w/the GOP...Neo-Nazi robocall hits Iowa on Molly Tibbett’s murder: “KILL THEM ALL. ” Richard Wolff drops by about the National Debt. Is it a disaster or an OK thing? Also - Trump & The National Enquirer - Is the Economy Here To Serve Us Or Are We Here to Serve the economy?

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