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Posts Tagged ‘mortgage’

I was in a number of discussions this week and find that I continually run into similar [false] concepts that people hold. People, when faced with government wrongs, will do little or nothing (other than complain) because they feel they can’t. Or more specifically, they are unwilling to face the consequences of doing anything differently.

An example of this came to mind in regards to taxes. Most people think taxes are too high. Last year, I hinted at an idea in this blog about a ‘tax revolt’. Or at least questioned why people don’t do more while claiming to support things such as Rand’s “Galt’s oath” while participating with and enabling the very system that makes it impossible to uphold said oath – at least if you willfully play along with that system.

It was the responses I got to the concept of ‘tax evasion’ in that post that inspired my thoughts on the matter tonight. I decided to do a little math on mortgages. I started by looking at what the average house costs today ($172,600), what the average interest rate was (around 5%), what the average home mortgage term is (30 years),  and the average annual income ($50,233.00).  Based on the average house cost, on a 30 year loan at 5% interest, this equates to a monthy payment of about 926.55 fully amortized out over the term of the loan. Using the recommended income-to-payment ratio (from 28-30% of gross income) this would equate to a salary of about $40,000 a year so it falls well below the average annual income.

Wikipedia has a break down of federal tax brackets as well as information on state tax rates.  Using either the average income above or the front-end ratio from the average home loan cost, this would place any income ranging from $40-50k per year into the 25% federal tax bracket.  Meanwhile, the average state income tax is 6.7%. This is not counting fees, embedded costs of government in every day products like gasoline, from tariffs or other sources, does not include sales tax, excise and use taxes, estate taxes, property taxes, local, city or county taxes. This does not include FICA (social security withholding) or Medicare and Medicaid, costs of regulation, mandatory insurance, licenses, certifications costs of permits or any other costs of government. And most importantly, this does not include the state and federal deficit and all of the growing entitlement liabilities being accrued by government in all of our names.

Just using the state and federal income tax averages, this means that the average tax per person is going to be around 31.7%.

What made me think of doing this research and the corresponding math is the fact that many of the people responding to my tax post said they ‘couldn’t afford’ to take such a stand. Many even were more specific to say things like “I couldn’t afford to lose my home”.

Now consider, as stated above, the average income-to-payment ratio is 28-30%. JUST the income tax rate on the average homeowner is almost 32%. This means you are paying more, on average, over the term of your mortgage in JUST income tax than you are paying on your home.

In short, you already ARE losing your (potential second) home.

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