FOR the past three years America’s leaders have looked on Europe’s management of the euro crisis with barely disguised contempt. In the White House and on Capitol Hill there has been incredulity that Europe’s politicians could be so incompetent at handling an economic problem; so addicted to last-minute, short-term fixes; and so incapable of agreeing on a long-term strategy for the single currency.
Those criticisms were all valid, but now those who made them should take the planks from their own eyes. America’s economy may not be in as bad a state as Europe’s, but the failures of its politicians—epitomised by this week’s 11th-hour deal to avoid the calamity of the “fiscal cliff”—suggest that Washington’s pattern of dysfunction is disturbingly similar to the euro zone’s in three depressing ways.
Can-kicking is a transatlantic sport
The first is an inability to get beyond patching up. The euro crisis deepened because Europe’s politicians serially failed to solve the single currency’s structural weaknesses, resorting instead to a succession of temporary fixes, usually negotiated well after midnight. America’s problems are different. Rather than facing an imminent debt crisis, as many European countries do, it needs to deal with the huge long-term gap between tax revenue and spending promises, particularly on health care, while not squeezing the economy too much in the short term. But its politicians now show themselves similarly addicted to kicking the can down the road at the last minute.
This week’s agreement, hammered out between Republican senators and the White House on New Year’s Eve, passed by the Senate in the early hours of New Year’s Day and by the House of Representatives later the same day, averted the spectre of recession. It eliminated most of the sweeping tax increases that were otherwise due to take effect from January 1st, except for those on the very wealthy, and temporarily put off all the threatened spending cuts (see article). Like many of Europe’s crisis summits, that staved off complete disaster: rather than squeezing 5% out of the economy (as the fiscal cliff implied) there will now be a more manageable fiscal squeeze of just over 1% of GDP in 2013. Markets rallied in relief.
But for how long? The automatic spending cuts have merely been postponed for two months, by which time Congress must also vote to increase the country’s debt ceiling if the Treasury is to be able to go on paying its bills. So more budgetary brinkmanship will be on display in the coming weeks.
And the temporary fix ignored America’s underlying fiscal problems. It did nothing to control the unsustainable path of “entitlement” spending on pensions and health care (the latter is on track to double as a share of GDP over the next 25 years); nothing to rationalise America’s hideously complex and distorting tax code, which includes more than $1 trillion of deductions; and virtually nothing to close America’s big structural budget deficit. (Putting up tax rates at the very top simply does not raise much money.) Viewed through anything other than a two-month prism, it was an abject failure. The final deal raised less tax revenue than John Boehner, the Republican speaker in the House of Representatives, once offered during the negotiations, and it included none of the entitlement reforms that President Barack Obama was once prepared to contemplate.
The reason behind this lamentable outcome is the outsize influence of narrow interest groups—which marks a second, unhappy parallel with Europe. The inability of Europeans to rise above petty national concerns, whether over who pays for bail-outs or who controls bank supervision, has prevented them from making the big compromises necessary to secure the single currency’s future. America’s Democrats and Republicans have proved similarly incapable of reaching a grand bargain; both are far too driven by their parties’ extremists and too focused on winning concessions from the other side to work steadily together to secure the country’s fiscal future.
The third parallel is that politicians have failed to be honest with voters. Just as Chancellor Angela Merkel and President François Hollande have avoided coming clean to the Germans and the French about what it will take to save the single currency, so neither Mr Obama nor the Republican leaders have been brave enough to tell Americans what it will really take to fix the fiscal mess. Democrats pretend that no changes are necessary to Medicare (health care for the elderly) or Social Security (pensions). Republican solutions always involve unspecified spending cuts, and they regard any tax rise as socialism. Each side prefers to denounce the other, reinforcing the very polarisation that is preventing progress.
Fixed today, hobbled tomorrow
Optimists will point out that America is unlikely to face a European-style debt crisis in the near future, but the slow-burning fuse is itself a problem. One positive side-effect of Europe’s crisis is that it has forced euro-zone countries to raise their retirement ages and rationalise pensions and health-care promises. America, which has the biggest structural budget deficit in the rich world bar Japan, will become an outlier in its failure to deal with the fiscal consequences of an ageing population. Its ageing is slower than Europe’s but, as its debt piles up and business and consumer confidence is dampened, the eventual crunch will be more painful.
The saddest thing about this week’s deal is how unaware Messrs Obama and Boehner seem to be of the wider damage their petty partisanship is doing to their country. National security is not just about the number of tanks or rockets you have. As it has failed to deal with the single currency, Europe’s standing has crumbled in the world. Why should developing countries trust American leadership, when it seems incapable of solving anything at home? And while the West’s foremost democracy stays paralysed, China is making decisions and forging ahead.
This week Mr Obama boasted that he had fulfilled his mandate by raising taxes on the rich. In fact, by failing once again to clear up America’s fundamental fiscal trouble, he and Republican leaders are building Brussels on the Potomac.
What’s Happening at Teatown
Registration is required for all events by calling
Tuesday-Sunday, (914) 762-2912, x110
Admission is FREE for Teatown members.
$5.00 fee for non-members, unless noted.
Family & All Welcome – more Sunday, January 6: Animal Adventures: Whooo’s Out There? 1:00pm-2:00pm. Meet a few of Teatown’s ambassador animals in this program featuring owls. Please note this program is for families with children ages 4 and over.
Children’s Events – more December 26, 27, 28 & 31: Holi-Daze Fun-Daze Mini-Camp
Get out from under all the wrapping paper and enjoy the gift of nature in winter. Days are filled with games, animals, hikes and seasonal activities to end the year on a natural note. Register by the day (fees prorated) or for the entire session.4-5 year olds: 9:00am-12:00pm
Full Session Fees: Members $120; Nonmembers $150
6-12 year olds: 9:00am-3:00pm
Full Session Fees: Members $240; Nonmembers $270
Adults – more
Saturday, December 29: Last Hike of the Year, 10:00am-12:00pm. Let’s put the old year to rest with a vigorous hike to Teatown Hill. Dress appropriately for the weather and trail conditions. Please note this hike is for adults and children ages 8 and over.Saturday, January 5: First Hike of the Year, 1:30pm-3:30pm. Kick off the New Year with a hearty hike up Teatown Hill to enjoy the view, and then around Teatown Lake looking for winter wildlife. On our return, we’ll toast the New Year with a hot beverage. Please note this program is for adults only.
Recent news of oil spills, climate change, and drinking water shortages reminds us of the great environmental challenges that our children will face as adults. Teatown’s teachers are shaping the next generation to meet these challenges with both knowledge and optimism.
We reach nearly 10,000 children each year with our placed-based programs and with our staff’s model enthusiasm to build a sustainable, healthy world.
Teatown’s environmental education programs bring our children into direct contact with nature. This kind of in-your-face experience is not provided in school classrooms, by watching television, or surfing the Internet. Immersed in the relative wildness of Teatown, all of the children’s senses are awakened as they explore and discover the natural world.
We make sure that our students not only learn the traditional skill of recognizing local plants and animals, but they see first hand the connections between and among species, the web of life. Most important, however, is that our students fully realize that they are an essential part of nature and that their behavior and choices matter. Their actions affect the health and well-being of the Earth’s ecological system, on which both people and all species depend. We aim for every student at Teatown to truly believe that their generation can build a sustainable, healthy world.
The key to our education success is both our nature preserve and our extraordinarily enthusiastic and positive-minded Teatown faculty. Their academic qualifications include two doctorates, three master’s degrees and two baccalaureates. Our educators are building the future by keeping hope alive through our students’ optimism and informed empowerment to change the world.
Please know that our education programs are only possible because their costs are subsidized largely by your membership fees and donations. We know we are changing the future for the better. Together we are making a difference, one student at a time!
The Teatown Team
from the top:
We have just released the “Elliman Report: Manhattan Sales 4Q 2012,” the leading resource on the state of the Manhattan co-op and condo market. Our market reports are produced in conjunction with Miller Samuel to provide you and your clients with the most comprehensive and neutral market insight available.
Manhattan closed out 2012 with the most fourth quarter sales in 25 years and the lowest level of inventory in more than a decade. Tax planning in advance of the “fiscal cliff,” rising rents, an improving regional economy and record low mortgage rates were some of the key reasons for increased sales in the quarter. Although housing prices remained stable through the year, the shortage of inventory could bring pressure to them in the new year. We continue to be impressed with the depth and strength of the market and look forward to an active 2013.
Below is the press release from the National Association of Realtors regarding the new bill that has been passed. Please note the highlighted areas as they pertain to the ramifications for the housing industry.
The U.S. House of Representatives late Tuesday passed the Senate legislation to avert the “fiscal cliff,” paving the way for enactment by President Barack Obama. “[T]his agreement is the right thing to do for our country,” the president said on Monday. The House vote was 257 for and 167 against.
Under the agreement, tax rates would remain the same for most households and mortgage cancellation relief is extended. The “American Taxpayer Relief Act of 2012’’ extends current tax rates for all households earning less than $450,000, and $400,000 for individual filers. For households earning above these limits, tax rates would revert to where they were in 2003, when taxes were reduced across the board. That means taxpayers in the highest bracket would pay taxes on ordinary income at a rate of 39.6 percent, up from 35 percent.
The tax rate on capital gains would also remain the same, at 15 percent, for most households, but for those earning above the $400,000-$450,000 threshold, the rate would rise to 20 percent.
Importantly from NAR’s perspective, the exclusion from taxes for gains on the sale of a principal residence of up to $500,000 ($250,000 for individuals) remains in effect, so only home sellers whose income is $450,000 or above and the gain on the sale of their house is above $500,000 would pay taxes on the excess capital gains at the higher rate (with corresponding numbers for individual filers). For the vast majority of home sellers, there is no change.
The bill also reinstates provisions that phase out personal exemptions and deductions for incomes over $250,000 for singles and $300,000 for couples.
A number of what lawmakers call extenders are in the bill. Extenders keep in place expiring tax provisions. Of most interest to real estate, the bill would extend mortgage cancellation relief for home owners or sellers who have a portion of their mortgage debt forgiven by their lender, typically in a short sale or foreclosure sale for sellers and in a modification for owners. Without the extension, any debt forgiven would be taxable, which, for underwater households, represents a financial burden.
Also extended are deductions for mortgage insurance premiums and for state and local property taxes, which, along with the mortgage interest deduction, are important tax considerations for home owners and buyers.
In two other important provisions, the alternative minimum tax (AMT) is permanently adjusted for inflation, making it unnecessary for Congress to adjust it each year. The AMT was enacted in 1969 to help ensure a minimum tax bill for high-income households that would otherwise minimize their taxes by shielding much of their income in deductions and using other tax strategies. Because it was never indexed to inflation, AMT threatens to catch middle-income households in the tax, so Congress each year adjusts it. Now the adjustment would be permanent.
The other key provision is a change in the estate tax so that estates would be taxed at a top rate of 40 percent, with the first $5 million in value exempted for individual estates and $10 million for family estates. Currently, the top rate is 35 percent.
The other side of the fiscal cliff is hundreds of billions of dollars in automatic, across-the-board federal spending cuts, with a disproportionate share of the cuts affecting defense spending. The Senate bill would push back the deadline for the cuts for two months.
Excerpt from a White House summary of the agreement:
- Restores the 39.6 percent rate for high-income households, as in the 1990s: The top rate would return to 39.6 percent for singles with incomes above $400,000 and married couples with incomes above $450,000.
- Capital gains rates for high-income households return to Clinton-era levels: The capital gains rate would return to what it was under President Clinton, 20 percent. Counting the 3.8 percent surcharge from the Affordable Care Act, dividends and capital gains would be taxed at a rate of 23.8 percent for high-income households. These tax rates would apply to singles above $400,000 and couples above $450,000.
- Reduced tax benefits for households making over $250,000 (for singles) and $300,000 (for couples): The agreement reinstates the Clinton-era limits on high-income tax benefits, the phaseout of itemized deductions (“Pease”) and the Personal Exemption Phaseout (“PEP”), for couples with incomes over $300,000 and singles with incomes over $250,000. These two provisions reduce tax benefits for high-income households. This sets the stage for future balanced approaches to deficit reduction, which could include additional revenue through tax reforms that reduce tax benefits for Americans making over $250,000.
- Raises tax rates on the wealthiest estates: The agreement raises the tax rate on the wealthiest estates – worth upwards of $5 million per person – from 35 percent to 40 percent, in contrast to Republican proposals to continue the current estate tax levels.
- The agreement’s $620 billion in revenue is 85 percent of the amount raised by the Senate-passed bill, if that bill had been enacted and made permanent: The agreement locks in $620 billion in high-income revenue over the next ten years. In contrast, the bill passed by Democrats in the Senate achieved approximately $70 billion through one-year provisions; these same provisions could have raised a total of $715 billion over ten years if Congress acted again to extend it permanently. However, the Senate bill itself locked in only one year’s worth of savings so would have required additional extensions to achieve those savings.
Kenneth R. Trepeta Esq.
Director – Real Estate Services
National Association of Realtors®
500 New Jersey Ave, NW
Washington, DC 20001
from the Town Supervisor:
On December 12th the North Castle Town Board approved our 2013 Town Budget. Despite a very challenging economic environment, North Castle has approved a budget of $28,901,328 – well below the NY State 2% tax cap and $250,000 less in overall expenses than the 2012 budget. We were able to achieve an overall 1% reduction in expenses notwithstanding the fact that employee pension and health care contributions alone increased $659,517 over 2012 levels.
What does this mean for you? The budgeted tax rate is $155.57 per $1000 in assessed value or a 2.22% increase from 2012. For the owner of a home in North Castle priced at the median market value (approximately $900,000) this represents an increase in your town taxes of $63.86. We believe this to be among the smallest if not the smallest tax increase of any town in Westchester.
I am particularly gratified that we ended the year with a budget surplus of $800,000. These savings will go first towards much-needed infrastructure projects – road repairs, building repairs, a new generator…projects put off in previous years. Second, we will look to rebuild our fund balance, the goal being to restore the Town’s credit rating which was downgraded in 2009 from Aaa to Aa1.
The 2012 surplus did not happen by accident. As I promised, I have managed North Castle like a business. This included bidding out all contracts, holding the line on hiring, passing an employee Compensation and Benefits Manual, reducing departmental costs and initiating financial best business practices. One of my major goals has been to increase our real estate values by restoring North Castle’s property tax advantage over other Westchester Towns. We made good progress this year and I am optimistic about 2013.
I want to thank all our dedicated Town employees. They are truly doing more with less. We should all applaud their efforts.
Thank you all for your support in 2012 and I wish you and your families a healthy and peaceful holiday season.
Howard B. Arden