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A Democratic Victory...and the Costs

Original post made by Property Owner on Apr 22, 2008

Today, I informed someone, who bought a house from me, in Palo Alto, that she will need to pay off the note, according to the original optional terms, becasue I am not willing to risk a rise in the capital gains rates. She seemed to be shocked that I was calling the note. I asked her why, since she had signed the original, and very fair agreement. She said she did not think that capital gains rates should matter. They do. I just called her note. I will protect my family. We built that hosue with our own hands, sweat and risk. We lived there for a decade.

She happens to be a big supporter of Hillary. That is her choice. I am worried that Hillary or Barack will win, so I made my choice, for very logical reasons. I am not happy about this, nor is she, but reality demands realistic action.

Elections have consequences.

Comments (15)

Posted by Ted, a resident of Crescent Park
on Apr 23, 2008 at 10:39 am

We are thinking seriously of doing the same thing. Right now the capital gains are 15% Fed and about 9% state. Both Democratic candidates have mentioned as high as 50% capital gains. United Van lines is going to be busy.


Posted by Costs of a Republican victory, a resident of Another Palo Alto neighborhood
on Apr 23, 2008 at 10:46 am

Remember when Republicans positioned themselves as fiscally responsible? Right now Dubya is engaged in a frenzy of deficit spending, financing a dubious war that we cannot afford. Tax hikes are inevitable, whether or not he and his are willing to be the messenger. I wouldn't lay that so neatly at the Democrats' feet. Elections sure do have consequences.


Posted by Tom, a resident of Professorville
on Apr 23, 2008 at 11:19 am

Ronald Reagan and Bush 41 put through the biggest tax increases in history at their time.


Posted by Property Owner, a resident of Midtown
on Apr 23, 2008 at 11:25 am

For me, it is pretty simple. If I thought McCain would win (I don't), I would not have called the note.


Posted by Mike, a resident of College Terrace
on Apr 23, 2008 at 1:06 pm

[Post removed by Palo Alto Online staff.]


Posted by Property Owner, a resident of Midtown
on Apr 23, 2008 at 1:10 pm

[Post removed by Palo Alto Online staff.]


Posted by Mike, a resident of College Terrace
on Apr 23, 2008 at 1:33 pm

[Post removed by Palo Alto Online staff.]


Posted by Property Owner, a resident of Midtown
on Apr 23, 2008 at 2:14 pm

Mike,

Since you appear to be such a sage about property ownership, building a house, selling a house, etc., I am surprised that you fail to understand the basics.

In this case, she (the current owner of my former house) came to me with an offer. She had previously been leasing the place from me. One of her strong arguments was that Bush was prepared to lower the capital gains rate, and that this should allow me to offer her a lower sales price. I thought about it for a while, then agreed with her. I was not eager to sell, but she was eager to buy. In the end, we wrote up a mutually agreeable note, with various options that would allow either of us to get out of the deal, after several years. I am simply exercising my option to get out with my capital, before it is eaten up by capital gain taxes, which were embedded in the deal at 15% (fed).

I could have just sold the house on the open market, let the bank handle the financing, and go away with my money. Instead, I agreed to a deal that worked for both of us. You call that greedy. I call it a good deal for both sides.

You, Mike, seem to think that business contracts are something that should only work for the weaker of the partners in the agreement. I don't. Such contracts need to be upheld by both sides.

Mike, you seem to think that housing has some special status, in terms of investment. It doesn't. I could have sold out, and bought gold or oil futures or grain futures, etc. Owning property is no picnic, especially houses. Have you ever been a landlord, Mike? Mediated nighbor disputes? Dug out sewer lines? Changed light bulbs late at night? Listen to endless complaints, such as mold spores (never demonstrated, btw), extended the payment period, becasue the renter wants to take a vacation? I seriously doubt it, Mike.

No, Mike, not greedy, on my part. I am just getting out, becasue I do not want to pay for what I have already given.

Indeed, actions do have consequences. An increase in the capital gains rates will have many consequences. My example is just one small effect. There will be many more.







Posted by Sunil, a resident of another community
on May 10, 2008 at 5:33 pm

I just saw this post, becasue a friend in Palo Alto pointed it out to me.

"Property Owner" is right on! I am in a similar situation, and I will also call my note, if the Democratic nominee wins. I would never have agreed to the sale, in the first place, if it were not for the reduction in capital gains taxes. Now, the equation is in the opposite direction, which means I am forced to get my money out of the deal.

I think there will be many similar decisions, based on rational decisions by private note holders.


Posted by Samuel Dritmatter, a resident of Midtown
on May 10, 2008 at 7:08 pm

I am 59. I've lived in PA for 30 years,and have owned my house for 25 of those years. I have a pretty large capital gain in my house - even above the $500,000 exclusion. My wife and I had planned to retire in about 4-5 years and move to a smaller place. Our tax accountant is advising us to sell now before the run up in capital gains rates after Obama's election, and the possiblity that the California state rate will rise as a consequence of the budget crisis.

This will be a major dislocation in our lives, but the prospect of being hit with several hundred thousand of extra Capital Gains taxes right before retirement makes it seem like something we have to consider.

I'm no Republican, but sometimes I find myself secretly hoping McCain wins because it seems like Obama and the Congressional Democrats are too eager to raise a lot of taxes without heed to how it will harm the economy or individuals. THey talk like they're doing it for revenge and spite, not because they think it's good policy.

Just my 2 cents.


Posted by Good!, a resident of Greenmeadow
on May 10, 2008 at 8:44 pm

Good! If returning cap gains rates to historically typical levels induces some movement of schlerotic PA housing stock, that's a good thing. It's too bad for people like the buyer of PO's house, but I guess she got an off-market deal, so this is a consequence.

I'm not sure why PO is going online to brag (?) about his actions and intone that "elections have consequences." Is he implying that people should think twice about voting Democratic because investors might respond to higher cap gain rates?

Don't worry PO, I think we can handle it, even your note maker. You are welcome to call your note "to protect your family" (is your family really at risk due to historically typical cap gains rates? wow!). Of course there will be a rush of asset sales if rates go up - duh. Then life will, more or less, just go on. Certainly no one should feel bad voting democratic because Simon Legree says he'll foreclose if you do.


Posted by Econ 201, a resident of Old Palo Alto
on May 10, 2008 at 9:11 pm

Good!,

One of the consequenes of the reduction in captial gains rates was to unlock assets. It was an anti-sclerotic effect. If capital gains rates go up, again, there will be an intitial downloading of assets, prior to the effective date, as per the "PO" model, but then assets retained will be locked up again, as they were before the reduction in rates. The net effect will be a reduction in wealth buildng opportunities, as well as a reduction in the tax base. The bottom line is a less prosperous society, top to bottom, but especially the bottom/middle.


Posted by Mike, a resident of College Terrace
on May 10, 2008 at 10:06 pm

There will be no changes in the capital gains tax that impacts those making under $200,000. Watch, and learn.


Posted by Good!, a resident of Meadow Park
on May 10, 2008 at 10:07 pm

Sure Econ 201 we could get in a long debate about cap gain taxes vs. other taxes, but the simple fact is that US cap gain rates are at historical lows, and deficits at historical highs. We need to tax something, and cap gains are a good candidate (unless you like the new gilded age stuff and very rich hedge fund managers). By your logic, we should just keep lowering cap gain rates and watch ourselves get richer and richer - is that what you propose?


Posted by reality check, a resident of Midtown
on May 11, 2008 at 8:43 am

Mike,

100,000,000 people own stock. 75% of them make under ..guess...waiting ...75,000 per year.

Ok, try again.

There is not one intelligent person who isn't going to do all he or she can to switch their investments prior to a capital gains tax increase.

The Dems don't get it..most of us are "rich" by their definition. IT is no longer a small "rich" class and a massive underclass. 54% of us pay the ENTIRE federal bill. The top 25% pays 86% of the Fed bill, up from 84% in 2000. ( Why this silly canard that the rich got a bread under Bush?). This means the NEXT 29% pay ..waiting...14% of the Fed bill.

Which means the lowest 46% pays..nothing. And half of THAT group gets money/services back they don't pay for.

The Dem leadership are in for a shock.


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