Sean Olender

12 Observations on Residential Housing

People who make $200K a year are not rich. People who make more like $1 million a year and up are rich. Remember in the 1980s when people said, "Oh, that job pays $60,000 a year?" Well the constant debasement of the dollar has rendered that a $200,000 job. Cops where I live start at $74,000 a year. That's a job that requires a high school diploma and nothing more.

Part of the reason that there's such a serious debate about tax policy in the United States is that people who aren't rich think they are and people who are poor think they are middle class. Debasement of the currency confuses everyone into thinking they belong to a different socioeconomic class then they actually do.

And it's not just income, it's wealth. There are a lot of people making $175K to $250K with huge student loans, and who bleed under zero down mortgages on $1 million condos that are two bedroom one bath. They have little wealth and their income goes mostly to interest payments. 35 years ago the idea that someone making a salary in the top 10% of income earners would, regardless of actual saved wealth, be able to afford something a little nicer than a two bedroom one bath condo. Debasing the currency causes this sort of confusion.

Debasing the currency causes people to see quite modest acquisitions like small condominiums as a luxury objects reserved to the truly wealthy. If Americans had better math skills, they'd realize that the tax rules should focus on those making $1 million a year and more. Aside from the 1920s and the 1980s and now, the highest earners used to pay close to 50% in income tax. Now it's low 30s.

Capital gains taxes at 15% and not subject to "payroll tax" the capital gains exclusion for real estate and so many other rules have been used to try to bribe people making $200K a year by taxing people who make $75K a year even more! (note the "payroll tax" ending at $100K and that huge 15% tax being spent mostly on general tax fund expenditures with now a $2.3 trillion hole in the trust fund from this regressive tax that essentially was a bribe to those making $150K to $250K a year because if their taxes were a bit higher (and they are the new middle class), then the truly rich would have had political problems maintaining existing tax rules.

The saddest part of all of this is that the average person has used finance and credit in a way that put off for 20 years really understanding what these rules have wrought. That consumer credit expansion and erosion of the savings appears to have reached the end of the road as it doesn't seem mathematically possible for the trend to continue.

Americans will figure out how much prices have risen when they have to pay for things with their income instead of HELOCs, 2nd mortgages, borrowing against rising asset prices, etc. When people try to get by using their incomes to buy thing instead of credit, they'll realize that perhaps 80% of Americans are really poorer than at any time since the 1970s.