If you do not know by now, the in funding since it burned through $1 billion in less than a week.  Legislators are touting this program as the most successful program of the stimulus package and that is rather scary because how much waste it actually produces.

This program .  A good illustration of .   The sad thing about it is that the cars being traded in have to be in working condition, and none of their parts can be reused or resold.  So the result is that hundreds of thousands of perfectly good used cars are taken off the market completely to be turned into garbage.  The gas mileage requirement for the new cars are also quite low.  In some cases consumers only have to find a car that gets 1 or 2 miles per gallon to get the voucher so I am not quite sure how big of an environment benefit this would be considering that it costs quite a bit of  energy to scrap the old cars and produce new cars.  It may be much less wasteful if the old cars that got just 1 mile less per gallon were allowed to survive a bit longer.

If this is indeed the most successful part of the stimulus package then perhaps the legislators should apply the same principles of Cash for Clunkers to the housing problem.  In order to promote new home sales, perhaps home buyers should be given a credit for “trading in” their existing homes with home builders.  The old home will have to be owned for at least a year, and in habitable condition and cannot be more than 15 years old.   The new homes have to be green and use appliances that cut down on energy use by 5%.  The government will then give a voucher for  $100,000 for the old home, and then the old home has to be burned down to the ground and none of its parts can be reused.  Lets just throw $75 billion (this is the price of the ) at this hypothetical program and sell 750,000 new homes and decrease the supply of used houses by 750,000!  Sure, some neighborhoods will get uglier due to the piles of ashes, but I am sure that will stimulate new construction and create jobs!

I know that burning down homes to stimulate new home sales sounds ridiculous, but the fictional housing program I outlined above directly parallels Cash for Clunkers. If it is implemented it would probably be deemed a “success” as hundreds of thousands of people with homes worth less than $100,000 start razing their properties and buy new homes.  The government is essentially encouraging people to destroy something perfectly usable to buy something new.  Also I am sure many of these new car purchases came with new loans so once again we have government policy that encourages people to spend and get into debt.  Cash for Clunkers  certainly is stimulative for the auto industry, but it is definitely not stimulative for the environment or prudent tax payers.

It is already July, and 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. 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.

I have found that I like the LA Times’ reporting a lot more than the SF Chronicle’s.  Today 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 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.

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   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 is officially out.   Wise Bread is running a contest for everyone who.   You could win a Flip camera!  I actually have one of 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 .  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!