Tax Fairness Proposed to the Senate By President Obama – Understanding the “Buffett Rule”

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The primary focus on the newly proposed tax fairness proposal is that the middle class should not be penalized by way of the wealthy benefitting from lower tax brackets.  In other words, just like progressive tax systems amount to a somewhat higher tax bracket for higher income earnings for Americans earning below $1 million annually – the same should apply for wealthy individuals.  The Buffett Rule encompasses the simple principle that any household with annual earnings of $1 million or more should not pay a smaller share of their income taxes than as compared to middle class family earners.  In short:  everyone should pay his or her fair share of income taxes.

As reported on the official White House website, approximately 55,000 millionaires are paying a lower tax rate than millions of Americans with average middle class incomes.   In fact, the tax bracket of about 18% has hovered for the last fifty plus years with no change whatsoever in the income tax required by average earners in the nation.  Conversely, wealthy individuals have seen a steady decline on the amount owed on income taxes, with a starting average percentage of about 50% in 1960 to about 25% in the present day.  The numbers are even more staggeringly low for mega-millionaires.

Present-Day Tax System

As reported by the IRS, there were 22,000 taxpayer households that earned at least a million dollars in the 2009 tax year, all of whom paid below 15% of their income in federal taxes. What’s more, nearly 1,500 of these people enjoyed having no income taxes at all on those incomes. Recently the number two person on Forbes’ list of wealthiest persons, Warren Buffett, realized that his was a lower tax bracket than that of his secretary!  This is the current tax system but according to President Obama it must be changed to reflect a more balanced and fair tax system.

Little change has occurred over the past 50 years for middle class earners, with an average increase in 2010 to 16% versus the 14% average income tax paid by the same in 1960.  The insignificant change in wealthier Americans’ income tax has sparked growing awareness of the possibilities should there be more balance and fairness across the board.

Proposed Changes to Current System With Buffett Rule

The single biggest change that is proposed with the Buffett Rule is that anyone earning more than $1 million in a given tax year should not be allowed to pay a smaller share of their income – especially as compared to middle-class households.  Furthermore, taxes should not be increased at all for the 98% of American households that earn under $250,000 per year.

By limiting how much the wealthy and extremely wealthy are able to tap into tax loopholes that make it easy for them to pay far less in income tax than their middle-class counterparts, the Buffett Rule would engage all earners to pay according to their earnings level. The benefits of this new system would immediately be felt throughout the country, reverberating positivity in the economy and the chance for a return to strong economic growth.  The money saved by tax breaks currently received by the county’s most well-off households would serve to improve education, health care systems, defense departments, social security administration and more.  Not only that, Americans could expect to see a reduction in our national deficit rather than increasing debt.
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There is much controversy on the Buffett Rule.  What do you think?  Do you feel that Americans earning more should continue to be allowed tax breaks on that income?  Or do you feel that it depends on whether or not earnings are used for basic survival versus personal gains?  I invite you to weigh in on this topic with your comments below.

The Ten Commandments of Mortgage Applications

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Follow these Ten Commandments and you will be viewed as an “angel” in the eyes of your loan officer and underwriter (the real mortgage decision maker). So what are those ten things to be absolutely devoutly good about?  Read on, because if you can follow them there is hardly any reason for your loan officer to condemn you to the “other side”.

I. Thou Shall Not Change Jobs or Become Self-Employed

One of the most important aspects of securing a mortgage is demonstrating somewhat long term and stable employment.  Lenders look for at least two years of working with the same company before considering the application.  While being self-employed does not mean a person is unstable it is a factor that makes loan officers shy away from a mortgage loan commitment with you.  If at all possible, avoid self-employment but if that is your only source of employment there are ways to obtain a mortgage regardless.

II. Thou Shall Not Buy A Car, Truck, Van or SUV Unless You Plan To Live In It

The last thing lenders want to see is you taking on more debt – especially debt as significant as what is needed for a vehicle.  If you need a car try exploring alternatives like waiting until after closing, buying through a close family member or friend or using other forms of transport until the dust settles in your home purchase process.

III. Thou Shall Not Use Your Credit Cards or Let Your Payments Fall Behind

Falling behind on your payments or doing anything that demonstrates a lack of control on your part – especially in terms of being financially responsible – is just about the worst thing you can do to your chances of getting a mortgage.  Stay in control.  Once you have closed on the house you can go nuts but until then, hold off on any spending that will rack up your credit cards.

IV. Thou Shall Not Spend The Money You Have Saved For Your Down Payment

Every dollar you have saved for your down payment is absolutely critical to your home purchase.  The more you put down the better off you are in many ways; you’ll get a better interest rate, you will obviously have less amount owed on your mortgage and if you put at least 20% down you can even avoid costly private mortgage insurance fees.  Spend it and you’ll be sorry.

V. Thou Shall Not Buy Furniture Before You Buy Your House

There are so many reasons why buying anything for a home you don’t have yet is wrong.  The most obvious is that it shows your lender that you are cutting into resources that would otherwise be counted toward your creditworthiness during the application process.  The other thing is the risk of not getting your home puts you in the awkward position of having spent all that money on furniture you no longer need for that home.  By exercising just a little patience the positives will go a long way and it will all be worth it in the end.

VI. Thou Shall Originate Any New Inquiries On Your Credit Report

So many mortgage applicants unknowingly walk out of their loan officer’s office and straight into a store to apply for a credit card.  The last thing you want to do is change anything from the way it was presented to the lender.  Adding new inquiries not only reduces your credit score but if you are approved for more credit it throws off your credit and debt to income ratio.

VII. Thou Shall Not Make Any Large Deposits Into Your Bank Account

Just like in a church, synagogue or other religious environment – sometimes you have a lot of explaining to do if you do something wrong.  Well if you make large deposits to your bank account you may find yourself doing just that.  All sources of income must be reported and properly sourced in order for your loan application to run smoothly.  The easiest way to handle this is to avoid making large deposits in the first place.

VIII. Thou Shall Not Change Bank Accounts

Keeping with the tradition of not changing anything that doesn’t really need to be changed, bank accounts are no different.  Let as much of your financial life remain as transparent as possible, leaving very little to the loan officer’s imagination and having everything on paper and clearly discernable.  You may not realize it but a simple thing like changing a bank account can be a deal breaker on your loan app.

IX. Thou Shall No Cosign For Anyone

As many financial experts will tell you, cosigning for anyone anyway is a bad idea let alone while you are vying for a mortgage.  Not only does it add to your existing debt load but it also has the potential to wreak havoc on your financial standing if the person defaults or even makes late payments on the loan.

X. Thou Shall Not Purchase ANYTHING Until After The Closing

This is probably the most important thing to remember of them all – do not spend anything until after you have closed on the home.  One little purchase can set off a chain of negative reaction events that can end up in rejection and your losing the home of your dreams.  It’s just not worth it.
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Sounds pretty simple, doesn’t it?  But seriously – trust me when I tell you that now is not the time to be taking risks with your mortgage application.  You want to present a pristine financial history and do all the right things.  It starts with these Ten Commandments, which I’m sure will be your key to get to homeownership heaven.