Friday, December 5, 2008

The Income Tax Hike of 2008

I wrote about it today in the Chicago Tribune.

1 comment:

Atul said...

I also posted this on the Trib site.

I wonder if you ran any numbers for your fictional family for whom "Your best course of action may be to fail to find a new job"?

lets say that in 2005 their monthly income was $4000 and the mortgage was $1000. After loss of half their income, they would make $2000 and still be paying the $1000 in mortgage.

Per your argument, they would be better off not finding a new job so they could have their mortgage payments limited to 38% of their income, or $760, leaving them with $1240 to live off of per month.

However, if they did find that job and returned to the $4000 per month, sure they would have to pay the original $1000 a month in mortgage, but they would have $3000 a month to live on.

I'm not an economist, so maybe you can explain to this to me: how is it better to have $1240 for living expenses than $3000? Even if the bank renegotiated the principal on the mortgage somewhat, would it really make up for a more than 50% reduction in disposable income?