What is a “stealth tax”? I use this term to describe any cost incurred by a taxpayer because of stupid government policies.
Unlike a direct tax such as the tax on our income, a stealth tax isn’t visible on the surface. You don’t get to vote on it, either. But it is biting in its effect, nonetheless. So how do we incur stealth taxes and who pays them?
If you are one of the unlucky people who have had to sell your home in the past few years, you have likely paid a very large stealth tax without being aware of it. You see, you’ve probably had to sell your property for a price well below the price you paid for it — in many cases, even below what you owed on the remaining mortgage. Many people have even had to bring cash — perhaps their life savings — to the closing meeting of the sale just to get out. So why did your home’s value plummet so far so fast?
Reasons for the crash in the real estate market (and discussed in an earlier blog message) included: cheap money driven by Federal Reserve policy for many years; weak lending standards set by Fannie Mae and Freddie Mac (government sponsored entities) for purchasing mortgages originated by banks and brokers; banks providing loans to people who could not possibly make the payments, driven by government policy requiring the making of these loans to meet “fair lending” quotas; and other reasons such as greed and corruption. For all these reasons and more, many bad loans were made. When the economy began to slide, people defaulted on their mortgages. As the number of “for sale” increased and the prices dropped, more mortgages went “under water”. This led to even more defaults, etc.
So if you got caught in this mess, you likely paid a huge “stealth tax” – – the loss in value of your property due to stupid policies.
How do I know all of this? The stealth tax I incurred when I sold my home just over a year ago was about 1/3 of what we had invested. That was a huge chunk of change I wish we had for our child’s wedding, our future retirement, or other things. How about you?