Entries Tagged 'Stupid' ↓

It is already July, and the ludicrous budget plan I wrote about  a week ago did not end up passing.  Now California is starting to issue IOUs for many of its obligations.  These IOUs are actually called “registered warrants”, and they will yield a 3.75% annual interest rate.  The state plans to repay them in October.  So what happens if you receive one?

Apparently many IOUs would be sent to residents who are still owed a tax refund.  Many small businesses that sell to the state will also receive them.  A full list of the various agencies and groups that will be paid with IOUs is here. Right now the large banks such as Bank of America, Chase, and Wells Fargo are willing to cash the IOUs for customers.  However, this only lasts until July 10th, so this means that if you need the money now you better hope that you receive your IOU before then and get it to the bank.

It is also possible to sell the IOU to other lenders and investors.  Afterall, whoever holds the IOU at the time of maturity will collect the interest accrued. There is a risk of default from the state, but I can see some people getting into the business of buying up IOUs from people who need the cash.  Most likely these folks will pay less than the value of the IOU since they want to make a profit.

If you do not need the cash right away it might be best just to hold on to the IOU because the interest accrued is not taxable.  3.75% tax free is a lot better than any CDs and bank accounts out there now, but it really means nothing if you need to pay your bills right now.

I hope that the state gets its act together by July 10th because otherwise many people may have to resort to less safe venues to cashing their IOUs.   Small businesses may not even be able to survive without the ability to keep the lights on and making payroll.  Needless to say, this is a complete debacle, and I hope it does not cause too much damage.  Additionally, this round of IOUs for those who have a tax refund is further proof that it is better to owe the government money.  If you are in this group it is probably a good idea to withhold less from your checks.

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I have found that I like the LA Times’ reporting a lot more than the SF Chronicle’s.  Today an article gave some details on Sacramento’s plan on how to balance the state budget, and some of it is truly hilarious.  Here is a short summary.

• State workers’ June paycheck would be paid on July 1st, thus pushing $1.2 billion of expenses into the next fiscal year.  Umm… this saves money how?
• $1.7 billion of school funding would be delayed until the next fiscal year.  Once again, this is another paper fix
• Withhold 10% more taxes from every working Californian starting Jan 1st 2010.  This is essentially an attempt to collect almost $2 billion in taxes in advance.  What prevents people from changing their withholdings and owe the state money even with a 10% increase?
• 3% tax withholding on payments to independent contractors.  This is another gimmick to advance tax payments, but the independent contractors could get the money back if they don’t owe 3%.
• $1 billion proposed money grab on local gasoline tax revenues.  This is already being fought by the League of California Cities with a lawsuit.
• $1.50 per pack extra taxes on cigarettes.  When New York imposed a huge hike of taxes on each pack of cigarettes some New Jerseyan “entrepreneurs” simply bought cigarettes with lower taxes from other states and imported them to New York and made a profit by selling them at the tax inclusive rate.  I’m guessing some Nevadans or Oregonians will be into this business in California now.
• Illegal immigrants in prisons are being sent to immigration to be deported.  They really should have done this years ago.  Isn’t this really common sense?

A lot of these attempts to delay or advance payments really add nothing to the bottom line.  In fact, I think some of them would backfire.  For example, if you usually get a state tax refund now, perhaps it is time to change your withholdings so that you end up owing money at the end of the year because the state is trying to milk more money out of you this year anyway.  Also we all know that the state delayed refund payments for months and months this year so why should they receive your money early?  Chances are this would happen again if they do not change the fundamentals of how they are operating.    If enough people change their withholding strategy then this advance grab of tax dollars would not work at all.  If you calculate your withholdings correctly it is possible to owe just enough to not have to pay a penalty.

I’m kind of annoyed to see that a lot of the original proposed cuts on some social programs are gone and all of these gimmicks are going on.  So they are pushing one month’s salary into the next year, what will they do the next year?  Push the salaries again?  Soon enough state worker’s will be getting their pay budgeted for years into the future.  That’s pretty pointless.

I really do not mind paying taxes if it is being used responsibly, but it does not seem like the government knows how to manage money properly.  Add that to the fact that Californians themselves control the law making proposition system you just get a complete mess.   Of course noone wants to cut education, healthcare, and freebies, and of course noone wants to increase taxes.  So what you have left over is a very dysfunctional state and another reason to hate California.

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The Golden States is not so glittery right now.  It seems that the special election yesterday went just as I expected, the propositions to extend taxes, borrow from the lottery, and divert funds were all rejected.  The only thing that passed was 1F, which restricts raises on state legislators, and this would not save much money at all.  So now what?  Many are saying that California will need a federal bailout since the state is facing a $21 billion deficit.  Here are some of my thoughts on the issue.

My feelings on a federal bailout is somewhat mixed.  First of all, I feel that Californians deserve some payback from the federal government because for years we have been paying more taxes than what we get back.  As I have written before, the Tax Foundation estimates that California gets 79 cents for every dollar we ship to the Feds.  This has been going on for many years, and California’s GDP is by far the largest in the Union, so perhaps California deserves to be bailed out due to its contributions to this nation.

Of course, if the bailout happens due to the reason I cited above, then other states like New York, Massachusetts, and New Jersey may just line up for a bailout as well since they have also been getting a lot less federal money back than what they put in.  All the other states would of course be quite furious.  The bailout may also make California more dependent on the federal government, and that
is never a good thing.

One big reason why I would be against such a bailout is that California’s main problem comes down to the simple fact that the entire system is living beyond its means and throwing more money at it is not the solution.  The legislators do not seem to know how to budget for the future.  It seems that the budgets are based on an assumption that things are always going up, and as a result programs are established in the boom years and never cut in the lean years.  Californian voters also hate to cut any services they already have and also hate taxes so the balance between income and spending becomes out of whack.

Someone at the top has to look at the state programs right now line by line and
cut anything that looks redundant and useless. The state’s credit ratings are not exactly stellar so the only choice is to cut things as soon as possible.  I actually support Governor Schwartzenegger’s effort to cut services and state employees right now because there is really no other choice.  In lean times like these individual families live without luxuries such as eating out or even birthday presents, and the state needs to do the same.
~

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I know, I’m a bit late in posting this, but the Wise Bread book is officially out.   Wise Bread is running a contest for everyone who is interested in the book here.   You could win a Flip camera!  I actually have one of these Flips that was given to me by my company, and it is pretty neat.  When I first got it I taped my husband play an real time strategy game and caught the most hilarious expression on his face as he lost horribly.

Currently the book is doing pretty well in some categories on Amazon.  It is currently #2 in Personal Finance and #1 in Money Management and Budgeting.  The Wise Bread admins are doing a really good job in promoting it.  I have been too busy lately so I haven’t done much in terms of blog related things.

Anyway, I was going to write a really long post about the special election coming up tomorrow morning in California, but I didn’t have time.  If you want to read about it here is a really great article.  I am hoping that all the voting citizens realize that a pretty much all the measures on the ballot are tax hikes in disguise.   I am not a citizen, so I can’t vote, but as a taxpayer I think I have the right to say that they really just need to figure out how to cut a bunch of useless things and learn to budget better.  Most of my friends who are voting are voting yes on 1F, which limits pay hikes on legislators, and no on everything else.  That probably will be the end result of this election.

Have a great week everyone!

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The Silicon Valley is a fairly liberal place that has generally supported many of the Obama Administration’s moves, but yesterday  many in the tech industry do not seem happy about Obama’s proposal to effectively raise taxes on foreign income by billions of dollars.

Currently, U.S. based companies can defer corporate taxes on foreign income as long as they keep the income in another country.  Additionally, U.S. companies can deduct the foreign taxes and costs  they already paid against their income.  The Obama administration argues that this ships jobs overseas.  The problem with that argument  is that many U.S. based companies actually make more than 50% of their income from citizens of other countries.  Imagine if you are selling 1000000 units of something here in the United States, and you are selling 1000000 units of the same thing to the rest of the world, then you would absolutely need staff and offices in the rest of the world.  There is a Walmart in my hometown in China, and sure, it is staffed by Chinese people, but it also earns money from Chinese people.  Does the Obama administration think that taxing this Walmart more will bring those jobs to America?  That is absolutely ridiculous.  What it will do is that it would cut the profit margin of the Walmart in China, and the Chinese will have to suffer higher prices and they will probably just shop elsewhere.  This will reduce the competitiveness of American companies in other countries because other stores have to pay only the local taxes.

I really think this plan to enact protectionism via the tax code is really short sighted.  America has 5% of the world’s population, and a lot of the large multinational corporations have little room to expand in this country.  Just think of how many iPods and McDonalds you see everyday and you would understand that the United States is absolutely saturated with a lot of products and services and the growth rate for a company that stayed exclusively in the United States would not be as large as a company that sells to the rest of the world.  So why would the United States government punish corporations for making money from the rest of the 95% of the world?

Another consequence of this initiative that was not mentioned by the administration is that this will affect the stock prices of the bluest blue chips.  When you see those earnings per share numbers, they do include foreign earnings.  For example, Johnson and Johnson is a company that gets more than 50% of its earnings from foreign countries.  So imagine that half of its earnings suddenly had a tax of 30% compared to 2% the year before.  This will cut into the earnings per share significantly.  The result would be lower stock prices, and the further erosion of 401ks and pension funds.  What a great way to destroy more retirements.

The worst consequence is that large corporations could just pack up and leave the United States completely.  Just imagine all of the Silicon Valley greats like Oracle, Google, and Cisco reincorporating in another country with more favorable corporate tax systems and taking away tens of thousands of jobs permanently.  That would be a huge blow to the United States economy, and it may be irreparable.

So far, the reception to this plan has been somewhat hostile from many industry groups and foreign nations.  The Register in the UK states that “Obama declares war on Ireland” for its low business taxes.  In some ways, that is true.  U.S. based companies employ millions of people in foreign countries, and if the administration specifically targets foreign taxes, it is essentially targeting the livelihoods of these people.  It is also ridiculous to think that laying off foreign workers is good for America, because as the living standards of everyone else improves, they also purchase American goods.  If you take away those good paying jobs around the world, it is really worse for everyone.  The plan will supposedly raise $210 billion for the Treasury in the next decade, but at what cost to the global economy and America?

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