Tax Freedom Day and Subprime Bailouts

So today is Tax Freedom Day, the day where most Americans have worked off their tax burden for the year. In other words, because the "average American" falls in the 25% tax bracket and assuming you receive relatively equal check payments across the year, all the money that you've made up to this point is about the amount you owe the government. For the remainder of the year, all the money you make is "yours." (A quick note--Tax Freedom Day varies by state because some states have state taxes as well, so in some areas it's later than April 30, in others its earlier, but generally it falls about 1-2 weeks before or after April 30.)

Of course the government already knows that if cannot send you a bill for three-month's salary. The reason is because the government knows that most Americans cannot budget. (Most of us don't know how much money we spent last week, let alone how much we spent in the past month). So, the government gets its cut upfront by taking three months worth of pay from you but they spread it over the whole year.

In other news, some words on the "subprime meltdown." There is word that US Senator Chuck Schumer (one of my Senators, no less) is out to craft a bill that would "bail out" those who received bad loans from subprime lenders. Luckily, it appears not to be gaining traction. From the Washington Post:

"I'm not interested in (a bailout) at this point. I think this problem can be addressed without going down that route," said Sen. Chris Dodd, the Democratic chairman of the committee.

Sen. Richard Shelby, the most senior Republican on the panel, said he would be "unalterably opposed" to a costly federal program to rescue troubled mortgage borrowers and lenders.

"I believe the subprime problem will go on for several years," Shelby said, but added that market forces would be corrective.

Perhaps the spirit of bipartisanship in government isn't completely over. Personally, I think there is too much emotion wrapped up in the debate here. Some feel that they were "tricked" or "teased" into an introductory rate (from adjustable rate mortgages) that went up too high, but I also think it's the responsibility of the person receiving the loan to know what they're getting into. I'm sure the emotion of owning your own home is great—however, as home buyers we should jump into home ownership with caution—saving a couple years for a down payment and buying a home within you means is still the best way to go. Don't be in a rush to buy a home, otherwise you can end up in over your head. They'll still be making homes in the years ahead—I promise.

I also don't think the government should bail out the businesses who made these loans either. Lenders who lent to people with bad credit at teaser rates probably knew exactly what they were getting into. Bailing out either the lenders or the borrower is a bad idea because it sends a message that its OK to buy a house out of your range or to extend loans to those who most likely can't pay it back. It's a tough lesson for many, but it's necessary.

What are your feelings on bailing out those who chose sub prime loans? What about the lenders who issued them? And do you think our tax system is fair? Speak your mind!