KeNo's Housing and Economic Portal: Saturday October 17 Housing and Economic stories

TOP STORIES:

47% will pay no federal income tax - (money.cnn.com) 53% of the working-age population is paying for all the government taxes, programs, and other non-profit special-interest groups funded by our government (i.e., ACORN). An increasing number of households end up owing nothing in major federal taxes, but the situation may not be sustainable over the long run. Most people think they pay too much to Uncle Sam, but for some people it simply is not true. In 2009, roughly 47% of households, or 71 million, will not owe any federal income tax, according to estimates by the nonpartisan Tax Policy Center. Some in that group will even get additional money from the government because they qualify for refundable tax breaks. The ranks of those whose major federal tax burdens net out at zero -- or less -- is on the rise. The center's original 2009 estimate was 38%. That was before enactment in February of the $787 billion economic recovery package, which included a host of new or expanded tax breaks. The issue doesn't get a lot of attention even as lawmakers debate how to pay for policy initiatives like health reform, whether to extend the Bush tax cuts and how to reduce the deficit. The vast majority of households making up to $30,000 fall into the category, as do nearly half of all households making between $30,000 and $40,000. As you move up the income scale the percentages drop. Nearly 22% of those making between $50,000 and $75,000 end up with no federal income tax liability or negative liability as do 9% of households with incomes between $75,000 and $100,000. Of course, income taxes don't tell the whole story. Workers are also subject to payroll taxes, which support Social Security and Medicare. When considering federal income taxes in combination with payroll taxes, the percent of households with a net liability of zero or less is estimated to be 24% this year, according to the Tax Policy Center's estimates. A key reason why there is a zero-liability group at all is because the U.S. tax system is progressive. Those who bring in more money pay more than those lower down the income scale to support government functions such as national defense and social safety nets like Medicaid for those in need. That progressivity can be dialed up or down. "Some think it's too progressive. Some don't think it's progressive enough," said Roberton Williams, a senior fellow at the center. President Obama falls into the latter camp. He has proposed increasing the income tax burden on families making more than $250,000 and individuals making more than $200,000, while offering new measures to reduce the tax bite for most Americans making less. One of Obama's proposals is to extend the 2001 and 2003 Bush tax cuts for everyone except high-income tax filers, which was the group that derived the most benefit from those cuts. As a result, under Obama's budget, he would keep the ranks of the non-payers higher than they would otherwise be. Why the tax-free matter: The question of who pays and who doesn't is not a trivial matter. But Washington policymakers are not dealing with it in an explicit way. And that's a problem, given the country's fiscal outlook. If asked to vote up or down on whether they are comfortable with such a large group of voters contributing no federal income tax or payroll tax revenue, the majority may well decide it is appropriate given the means of the households involved. Or they may decide that it's not. Either way, that decision should inform the debate about the many costly policies and deficit-reduction strategies that lawmakers will be grappling with for years to come. "As the number [of nonpayers] becomes larger, we have to question whether we'll make good decisions about how to allocate resources," economist George Zodrow, a professor at Rice University. "Most people don't understand how skewed the tax distribution is." Experts say that to pay for all the things on the country's growing tab, the money can't just come from a shrunken pool of taxpayers.

Man who lost house in foreclosure shot by police - (hosted.ap.org) A man who lost his home to foreclosure has been shot and killed after Phoenix police say he fired a gun at them. Officers went to the home near 35th Avenue and west Union Hills Drive on Tuesday evening on reports that a man shot at two people who recently purchased the home and wanted to see inside. The homeowner, 64-year-old Kurt Aho, allegedly fired four shots at them as they attempted to flee. Phoenix police spokesman James Holmes said Aho was intoxicated and kept retreating inside the home for more beer while police tried to negotiate. Holmes said the man became aggressive after Special Assignment Unit officers arrived with an armored vehicle. Holmes said officers attempted to subdue the man with rubber bullets. That's when police say Aho fired at least two shots toward officers. One officer fired one shot from his rifle at Aho, who was struck and killed.

GM to shut down Saturn after Penske walks away - (news.yahoo.com/s/ap) For those who expected General Motors' once-funky Saturn brand to live on with a new owner, Wednesday brought a sad twist. Saturn, once billed as a different kind of car company, appears as dead as Pontiac and Oldsmobile. At the brand's 350 remaining dealers around the country, there were high hopes that a deal would be announced for GM to sell the brand to former race car driver and auto industry magnate Roger Penske. Instead, Penske Automotive Group Inc. announced it is walking away from the deal, unable to find a manufacturer to make Saturn cars when GM stops producing models sometime after the end of 2011. GM then announced it would stop making Saturns and soon would close down the brand, just like it did with Oldsmobile in 2004 and soon will do with Pontiac. The day's events mean an almost certain end to Saturn, a brand that was set up in 1990 to fight growing Japanese imports. Instead of celebrating a rebirth, the announcements sent dealers scrambling for ways to stay open and preserve about 13,000 jobs. "I find this hard to believe," said Carl Galeana, owner of two Saturn dealerships in suburban Detroit. "Everyone's been saying we're right at the goal line." Although GM and Penske reached a tentative agreement to sell the brand in June, the deal collapsed Wednesday after Penske was told by an unidentified manufacturer that its board had rejected a deal to make cars for the new Saturn. "It was a stunning turn of events," said GM spokesman Tom Pyden, who added that most of the details between GM and Penske had been worked out and both sides expected to announce this week that the deal had been closed. GM had agreed to keep building three Saturn models even beyond 2011, but after that, Penske had to come up with its own products made by another manufacturer. Penske spokesman Anthony Pordon said there is little if any chance that the talks could be reopened. Without another supplier in place before the deal was signed, Penske couldn't run the risk of taking on Saturn, Pordon said. It takes several years to design new vehicles or engineer foreign vehicles to meet U.S. standards. Penske would risk having no products to sell once the GM contract expired. Dealers speculated that Penske was talking with French automaker Renault or a Chinese automaker, but Pordon wouldn't confirm either. Penske's purchase price was never disclosed, and he will not have to pay a termination fee, Pyden said. GM will stop making Saturns as soon as possible, but no layoffs are expected, said spokeswoman Sherrie Childers Arb. Saturns are made at plants in Kansas City, Kan.; Delta Township, Mich., near Lansing and Ramos Arizpe, Mexico.

Korea shipbuilders sinking - (www.marketwatch.com) South Korean shipbuilder shares sank for a second day Thursday as financial difficulties at a large French shipping company are sparking fresh concerns of order cancellations. The stocks have suffered since Wednesday on news France's CMA CGM, the world's third largest container shipping company, could seek a moratorium on debt repayments as it attempts to ride out the weak global economy's impact on marine freight rates. In a press release issued Wednesday, CMA CGM said it will "continue with the initiatives started during the course of 2009, including notably with respect to the renegotiation, and in some cases the cancellation, of certain ship deliveries." Analysts say most South Korean shipbuilders have an exposure of less than 8% to orders from CMA CGM, but the event may signal persistent, wider problems for the industry. "If the world's third-largest container liner is in so deep, investors may question the quality of the remaining container-ship order book placed by the other buyers facing similar problems," Nomura International analysts Mark Yoon wrote in a report. "We also fear that further freezing of the ship finance market could ensue, as lenders become spooked by a global top-five shipper threatening a debt moratorium. A resulting squeeze in access to financing may delay new order recovery even further," he said. Yoon said that, unlike other industries that benefit immediately from improvements in the global economy, shipbuilding orders lag current conditions significantly. "Some have argued that expected order flows from offshore could re-rate the sector. Based on industry data points, however, we do not believe sustainable order momentum is visible at the current juncture," he wrote. In Thursday's trading, shares of Hyundai Heavy Industries Co. dropped 2.5%, STX Offshore & Shipbuilding Co. gave up 1%, Daewoo Shipbuilding & Marine Engineering Co. lost 2.9% and Hanjin Heavy Industries & Construction shed 6.3%. The losses extended Wednesday's dives, in which Hyundai Heavy sank 9.6% and Daewoo Shipbuilding skidded 9.5%, while STX Offshore lost 7.9%. Still, UBS Investment Research analyst Yong-Suk Son said that successfully canceling ship orders is "difficult in reality," adding that what limited exposure to CMA CGM cancellations the Korean firm have could always be solved by selling the ordered ships elsewhere. But Son also said that the delay or cancellation of orders will need to be resolved in some manner and that the price of the ships will have to fall, facts that Korean shipbuilding yards have not yet accepted.

Half of loan modifications made in first 6 months of 2008 fell into trouble again in a year - (finance.yahoo.com) More than 50 percent of homeowners with loans modified in the first half of last year had missed at least two months of payments a year later, the federal Office of the Comptroller of the Currency and the Office of Thrift Supervision said Wednesday. But the results were better among those who saw their payments drop substantially. About one in three borrowers whose monthly payments were reduced by 20 percent or more had fallen behind again within a year. That compares with more than 60 percent for borrowers whose loan payments were left unchanged or increased. The report by highlights a significant challenge for the Obama administration's plan to tackle the foreclosure crisis, backed by $50 billion in money from the financial industry bailout fund. The administration's effort got off to a slow start, but has picked up speed in recent months. As of last month, about 360,000 borrowers, or 12 percent of those eligible, have signed up for three-month trial modifications. They are supposed to be extended for five years if the homeowners make their payments on time. There is currently no data on redefaults within the plan. Traditionally, most lenders have offered payment plans that allowed borrowers to catch up on missed payments. But those modifications often do not involve an interest rate reduction and result in a higher monthly payment. All that does is set the borrower up for failure, said Kristi Cahoon, an attorney and housing counselor with Legal Services of Northern Virginia. "A lot of them aren't true modifications," she said. By contrast, under the Obama plan, she believes the loans will be sustainable for the homeowners she counsels. Borrowers' interest rates, for example, can go as low as 2 percent for five years under the Obama plan. Bank regulators say they have pressed lenders to shift their focus to modifications that reduced borrowers' payments. They made up nearly 80 percent of new modifications in the April-June quarter, up from about half in the first three months of the year. The report covers 34 million loans, representing more than 60 percent of primary home mortgages. Consistent with other reports, it showed borrowers are continuing to fall behind as job losses mount. More than 11 percent of borrowers covered by the report had missed at least one payment as of June 30, up from 10 percent in April. It also highlighted mounting problems with an especially troubling category of loans -- "pick-a-payment" or option ARM loans, which allowed borrowers to defer some of their interest payments and add them to the principal. At the end of June, 10 percent of these loans were in foreclosure, more than triple the rate for all mortgages in the survey. The lenders included in the report offered help to about 440,000 borrowers in the April-June period, they started foreclosure on about 370,000 homes, unchanged from the January-March period.

Krugman and the pied pipers of debt - (blogs.reuters.com) Investors are celebrating an incipient “recovery,” but the interventions that were responsible for it are sowing the seeds of a more violent contraction down the road. The problem, quite simply, is debt. We’ve accumulated record amounts, yet many economists tell us we need more. Leading the charge is Paul Krugman. He exhorts us to borrow our way back to prosperity, but he doesn’t acknowledge that his brand of Keynesian economics ignores the consequences of debt. If you look at a chart of America’s total debt burden, he’s leading us over a cliff. The problem begins with the flawed way Krugman and other economists measure well-being. Primarily, they look at measures of activity, like GDP. These tell us how much people spend, but say nothing about where we get the money. Every so often, we overextend ourselves, buying too much useless stuff with too much borrowed money. So we cut back, dumping the third family car and swapping the McMansion for a townhome. But this is problematic for Krugman and other economists. Less spending means falling GDP. It means “recession.” They ride to the rescue with two blunt instruments — monetary and fiscal policy — that encourage more borrowing and thus more spending. More spending equals “growth” so economists congratulate themselves for engineering “recovery.” But if recessions never happen, bad businesses and unpayable debts are never washed away. They grow like cancer inside the system. Since the mid-1980s, we’ve intervened whenever the economy hiccuped, so sectors that should have shrunk sharply — like housing and finance — never did. Feasting on easy credit, these sectors have exploded as a percentage of the economy. Now, since individuals and corporations refuse to borrow more, the only way to grow spending is for the government to borrow. According to George Cooper, author of The Origin of Financial Crises, “what is missing from today’s debate is recognition that previous growth rates were artificially supported by an unsustainable credit binge, itself the result of the misapplication of Keynesian policy.” Cooper counts himself a Keynesian but says Keynesian policy has become “dangerously distorted.”