More Wealth Redistribution Pain for New York Taxpayers

August 9, 2009 by  
Filed under Taxes

The state of New York loves taxes. It is also following closely in the footsteps of our federal government in using the income tax system to directly transfer wealth from one group of taxpayers to another.

According to this New York Times article, the State of New York Mortgage Agency has decided that the one-time federal first-time home buyer tax credit is not generous enough. So it has decided to extend a permanent state income tax credit to low-income first-time home buyers. (These are the folks who probably should not be purchasing a house anyway, if they need tax credits to afford it.) The amount of the credit is 20% of the annual interest payments.

Unlike the federal credit, the New York tax credit is renewed annually. So if a low-income new home owner owes $10,000 each year in mortgage interest, he or she will get a tax credit each year of $2,000. Note that I said a tax credit, not a deduction. This means that in this example, New York taxpayers who are not first-time home buyers, who rent, or make too much money, will collectively be sending $2000 annually to the lower income home buyers, every year for the life of the mortgage.

By the way, the income limits to participate are not exactly at poverty levels: If you live in New York City, you can qualify for the credit if your combined income in a household with three or more people does not exceed $107,520. The cost of the house cannot exceed $637,640. In Nassau and Suffolk Counties on Long Island the income threshold is $142,520 for homes with three or more people. What?

Here’s an idea – why not give those folks a nice moving incentive credit so that they can relocate to a state with a substantially lower cost of living, starting with no state income tax? Doesn’t that make more sense than further enslaving all state taxpayers to a failed New York economic model?

Oh well – enough hostile sympathy from Mr. ToughMoneyLove. On to the personal finance carnivals for the week that you should take a look at:

Carnival of Personal Finance hosted by Christian Personal Finance.

Carnival of Pecuniary Delights hosted by the FinancialNut.

Carnival of Money Stories hosted by Funny About Money.

Enjoy!


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13 Responses to “More Wealth Redistribution Pain for New York Taxpayers”
  1. Terry Pratt says:

    Au contraire, I believe that low income people, especially lifetime low earners, are in greater need of homeownership than middle class Americans.

    For many in this group, homeownership can mean the difference between being able to enjoy a modest standard of living in retirement, and never being able to retire at all.

    For these people, homeownership is not a ticket to wealth, but a crucial defensive fortress against soaring rents, gentrification, and displacement.

    Currently I pay two-thirds of my meager income to rent a room in a house with nine people. Unless I can change that, I’ll never be able to retire.

  2. MasterPo says:

    “(These are the folks who probably should not be purchasing a house anyway, if they need tax credits to afford it.)”

    BINGO!

  3. kitty says:

    Wow – isn’t it nice to know that my state has so much money; and here I was afraid that with all the Wall Street layoffs we’d be going the way of California. I wonder what the income limit here in Westchester county is. Maybe I qualify with my 110K-something income for one person? Do they have asset limit? What about singles buying a place in NYC? Doesn’t my max 401K contribution and catch-up contribution reduce my income enough to afford a Central Park West apartment I’ve been dreaming about. It’s all relative. I am certainly low income for Central Park West, probably below poverty line.

    Back to earth. I’d probably the one who’d end up paying for it. This is really the choice here: do you take advantage of this or do you pay for it.

    As to relocation — some people actually have jobs in or near NY who cannot find a similar job elsewhere. Not just in terms of salary but in terms of job satisfaction. Plus, there are life style advantages living near NYC like arts.

    “(These are the folks who probably should not be purchasing a house anyway, if they need tax credits to afford it.)”

    Probably, but with these liberal income limits and no asset limit (is there one?), I’d imagine many people who don’t need tax credits to buy a house will get it too. On the other hand, I cannot quite imagine how someone with 100K income can afford a 600K house especially a family with kids. Oh wait, it’s with the credit… Still doesn’t quite add up.

    It is ridiculous really. Yes, the average house here in Northern Westchester is around 600K. But who says one needs to have a house? A two bedroom townhouse condo like mine is around 400K, maybe even less and it is enough for a family of 3 people. My neighbors are a family of 4. A one level two bedroom condo is even cheaper. This is a very nice area, but if we want to live here we need to pay the price including living in a condo or even a co-op instead of a house.

  4. MasterPo says:

    Kitty (and others),

    Paying the mortgage is only one part of owning a home. It can even be said the mortgage is just a small part of home ownership.

    If a person has to cut sooooooo close to the financial bone to pay the mortgage how are they going to pay their property tax? Insurance? Utilities? Up-keep and repairs?

    The latter si of greatest significance. Even with a new build there is ALWAYS repair and maintenance with a home. Something will break or malfunction just when you need it the most or it’s the most expensive to get a repairman there (and be a job you just can’t do yourself).

    If a person can barely cover the mortgage w/o a gov tax credit then I guarantee they don’t have the funds to pay the bills in the long run (because costs always go up!) nor to maintain the house.

  5. My Journey says:

    Wow 4 comments all from NYers. MasterPo is 100% correct, ESPECIALLY in Nassau County. Our property taxes are INSANE. I live in a 2 bed room condo and pay over $4,500 in property taxes. If I needed a credit to buy the place where is the extra $400 for taxes coming in?

    The crazy part about the whole thing, is that NY is in serious financial trouble, and they are still helping those that SHOULD NOT BE OWNING A HOME!

  6. kitty says:

    Master Po — certainly there are other costs. I do own a property, I used to rent out a property, so I know quite a lot about costs. Did you seriously think I can buy a Central Park West apartment? These cost several million. Not only there is no way I could afford a broom closet there, even if I somehow got this money, all these properties are co-ops and there is no way any of these co-op boards would approve anybody who is not super-rich. These boards are much smarter than lenders, they want to make sure the new owner can pay maintenance.

    As to taxes, mine are around $4200 for 2 bedroom town house condo without a garage which is actually low for this area — the one bedroom condo I used to rent out had taxes just under $3000; I sold it in 2004, so my bet is it’s a lot more now. I’ve been dreaming of upgrading to another townhouse condo in the better complex, a little more expensive, but I could pay the difference in cash if I wanted to. Plus I own my condo outright. But the taxes in this other complex are over 10K which is why I’d never move there. The amount is similar to what people pay in mortgage with the difference that you can pay off mortgage, but the taxes will always be there and are only likely to go up.

    But you cannot deny that these definition of “low income” is very liberal – sufficiently so to include people who actually can afford to buy. Maybe not a 600K house, but maybe a 300K condo or a 200K co-op. There are cheaper co-ops in Washington Heights or in Brooklyn or Bronx or Queens. In Westchester county, towns like Peekskill or Croton which are closer to Indian Point nuclear station have cheaper prices as well. No, I don’t think anybody should get this handout – regardless of if they can afford it. I pay enough taxes as is without subsidizing others. I also own NY municipal bonds, and I’d like to hope they are safe….

  7. MasterPo says:

    MJ – I live in Suffolk county. In an incorporated villiage too. You don’t want to know what my property taxes are. :-(

    I have a friend in Merrick that’s been trying to sell his house down by the water. He can’t. The property tax is just too high. No one will pay the price he wants plus having to pay the tax. If he cuts the price so low as to sell it just isn’t worth it.

    Back to the topic – All these costs (insurance, utlities, repairs etc) are also going up. Not down. And never will. So will the tax credit go up too to off set the increases? Probably.

  8. Terry Pratt says:

    MasterPo:

    What do you say to a lifetime low earner when he spends twice as much in old age (and can’t afford to retire) to rent a room in a house than he would be paying to own a home if he has bought a modest home 30 years earlier?

    Do you really believe he shouldn’t have bought the home?

  9. MasterPo says:

    Terry – Your question doesn’t make sense. If he’s renting a room then he obviously didn’t buy a house.

    If you’re saying that he should have bought but didn’t and now has to rent, at the risk of sounding cold, that’s life. A missed opportunity. I have known people who rented all their lives waiting for just the right time to buy and never did. Or had some other reason why renting was better than owning. So they spent a lot of $$$ all their lives and own nothing for it.

    I also think a lot has to do with planning for later years. Even (or perhaps especially because) a low income earner can see they are getting up in the years and eventually will be unable to work or work a productively as when younger. Planning for later stages of life is a very hard thing for many people but that’s no excuse. We all will be getting older one day.

  10. MasterPo says:

    BTW, is this tax credit retoractive? I think I qualify! :-)

  11. Terry Pratt says:

    MasterPo:

    I’m using an example where someone LISTENS TO YOU* and doesn’t buy a house, then 40 years later he’s paying more to rent a room (which also renders him unable to afford to retire) than he would have been paying to own the house he would have bought if he hadn’t listened to you.

    Planning for later years is PRECISELY why he should buy a house early in life.

    * refer to your above BINGO! reply

  12. MasterPo says:

    Terry,

    The point of this article is that if someone can not otherwise afford to buy and own a house on their own w/o tax credits they probably aren’t in good enough financial shape to operate and maintain it too. See my post on 8/9 above.

    So then what? Tax credits for insurance? Utilities? Maintenance?

    More of may hard earned money taken from me to give to someone else so they can afford something they couldn’t otherwise?

    I was NOT saying someone should “listen to” me and not buy a house. Buy a house. Buy a dozen houses. Just be sure as best you can that you can afford to buy, operate and maintain each home. And if you miscalculated, played it too close to the financial bone, and can’t afford the costs of a house it isn’t my responsibility to pay to keep you in your misjudgement. I guarantee no one would pay to keep me and my family in our home if something happened and I couldn’t make the mortgage payments anymore.

  13. Rick Beagle says:

    “I guarantee no one would pay to keep me and my family in our home if something happened and I couldn’t make the mortgage payments anymore.”

    What?! Your neighbors don’t like you either? 😉

    When they start putting a “for sale” sign in your front yard, be worried!

    Peace.
    Rick Beagle

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