Monday, March 16, 2009

A majority of economists are so dissatisfied with President Obama‘s handling of the economy that they gave him an “F” grade, a new Wall Street Journal/NBC survey finds. As the Journal noted, this dissatisfaction is across the political spectrum - not just with Republican economists. Treasury Secretary Tim Geithner got even an even lower level of “F” than Mr. Obama.

Compared to just last month’s survey, the economists are more pessimistic and think that the recession will last an additional two months longer - now until October.

President Obama’s plans are making the economy worse. He is destroying the housing market. Housing prices keep falling, and what do we get to solve the problem? A lot more taxes on houses. Take his plans to limit the tax deductions for mortgage interest for high income earners. Or his plan to increase the capital gains tax.

The Tax Foundation estimates that the average taxpayer making over $200,000 had a mortgage interest deduction in 2003 of $14,374. Wouldn’t your willingness to buy a home be affected if you lost a yearly tax deduction worth thousands of dollars? Is there anyone out there who doesn’t believe that these changes will lower house prices?

Whether Mr. Obama’s proposals get adopted (and with Democrats controlling Congress one would have to bet that they stand a good chance), simply having the president advance these tax increase ideas lowers housing prices today. If you think that there will likely be a big tax increase on houses, you don’t wait until it goes into effect. It starts to reduce how much homebuyers will pay today.

Mr. Obama has been talking about some of these proposals since last year and must bear some of the responsibility of forcing down housing prices at that time by simply proposing the capital gains tax increase.

Many economists have advocated getting rid of all deductions as a way of paying for lower marginal tax rates. But Mr. Obama promises the opposite - eliminating deductions and raising marginal rates. Add to that the president’s proposals to let the government rip up mortgage contracts and strong-arm mortgage lenders into accepting lower monthly payments. Who wants to loan money with that threat on the horizon?

The president’s mortgage bailout also won’t fix this fundamental problem. Lowering people’s monthly payment doesn’t deal with the main reason for defaults - the main problem is that value of people’s houses is less than their mortgages. They simply walk away from their homes. The tax proposals Mr. Obama wants will only make this worse by forcing down housing prices and making more homeowners go into foreclosure.

One thing that economists complained the most about is that we keep waiting and waiting for Treasury Secretary Geithner to tell us what will be in the $2 trillion bailout package.

Mr. President, your proposals are doing massive harm to the housing market. Please stop.

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