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How we got here ... Debt & Save incentives

So, how do you think we've gotten into this fine mess? Why would otherwise intelligent investors carry so much more debt than they do savings? It's not that people just don't bother to find out what an ARM means. There are strong tax incentives to do the wrong things!  

You'll pay ME to borrow?

It seems almost absurd that you get a government subsidy to mortgage a home. I'm not talking about the numerous incentives for first-time buyers and other gifts. Why in the world should the IRS provide a tax deduction for your home's mortgage? Worse yet, why would a second mortgage on your home qualify for a tax deduction?    

For people in higher tax brackets especially, these government incentives severely punish anyone who refuses them. A 5.00% mortgage looks more like a 3.00% mortgage after tax. When you're offered money at rates like that, it's almost like a free loan.

You're taking away my meager savings interest!? 

No, I'm determined to be a good citizen of the world, and not borrow unnecessarily. I'm going to do something "rainy-day" crazy and put my money in a savings account! Now, the IRS is right there again to discourage any kind of caution. Even though the most I can get for saving my money is something around 1.00%, they are going to step in and tax my meager return at my marginal rate. So, if I'm careful enough to amass $10 worth of interest for the year, Uncle Sam would like to take around a third of that away from me. So much for savings!

No good deed goes unpunished.

So, is it any wonder that millions of us have huge mortgages, and almost no savings?  Hardly. We've simply done what we were incented to do. We have tried to take advantage of the tax laws as we understand them. And now that housing prices have decreased to the point where most of us owe more than our homes are worth, it doesn't take much of a crisis to make us want to walk away from that home. The banks are caught holding the bag, the government steps in to save "too big to fail" banks, and we can look forward to funding the whole bailout for the next few generations.

Where is that recovery again??? 



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The Small Investor's Guide
New ideas for small investors