Thursday, August 26, 2010

Plunging Home Sales is Clarion Call for Economic Change

By Mark J. Donovan

This week’s news reports about plunging existing and new home sales should not come as a big surprise. The unemployment rate still officially stands at 9.5% and the administration says it could get worse before it gets better. We are already seeing signs that their prediction is coming to fruition. Honestly, who’s going to buy a home when they are either unemployed or worried about becoming unemployed? To some it may appear incomprehensible that with recent rising profits businesses would not be hiring. However, if you put yourself in the shoes of either a large or small business owner you might be doing the same – preparing for a business profit ice-age.

With U.S. federal corporate tax rates at 35% they are already nearly twice as high as the international average. Then foist upon them major health care legislation costs and huge increases in tax rates as of January, 2010 and you can’t help but understand their hesitancy in hiring. Capital gains and interest and dividend tax rates, for example, are set to jump from 15% to 39.6% in January. That’s a 165% increase!! Those types of tax increases on business and investors generate a giant sucking sound in profits and market caps. Reduced profitability and lower market capitalizations hurt businesses ability to retain employees let alone hire them.

So no one should be surprised with the latest dismal home sales reports, and quite frankly no one should be surprised to see this trend continue. Until there is a change in direction on federal corporate and personal tax policy, and until there is clarity on health care cost impacts, large and small business alike will continue to be slow in hiring if they hire at all. Simply calling for the federal government to print more fiat money for more make-work “state” jobs won’t cut it. No truly objective observer really believes the trillions that have already been spent in the past couple of years on banks, unions, and poorly run state bailout programs has done anything appreciably positive for the United States. Based on the falling value of the US dollar and U.S. Stock Exchanges, it’s obvious the world doesn’t believe the spending has worked, so why should we.

To conclude, if the administration and congress continue on their current reckless spending, power grab, and corporate regulation course, future United States homebuyers may soon be doing what other citizens have done in other federally run government centralized countries, standing in line for state owned housing and awaiting government issued food and furnishing handouts. So much for the American dream. If change is not imminent, get ready to put a fork in it as we are done as our forefathers new us.

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