Month: August 2018

Today I read that Rep. Louie Gohmert (R, TX) was going to sponsor a bill called The United Nations Accountability Act that is awaiting a vote in the House Foreign Affairs Committee. This is a common sense measure that seeks to punish those countries that vote against us in the United Nations by withholding their aid. Apparently of the 14 nations that received the most aid money in 2016, only one voted with the USA more than 50% of the time a the United Nations: Israel.

This is crazy! On the surface it appears that we are being very generous to those who, in essence, oppose us most of the time. Now we all know that there will be those who will say that if we withhold our aid to these countries that disagree with us more than half the time that their behavior, especially with regard to human rights, will deteriorate. While that may be true, the fault does not lie with us. That’s like saying that if I don’t give the bully my lunch, he will beat up on and steal the lunch from someone else. If the bully does do that, it’s his fault, not mine.  After all it is my lunch.

With the U.S. being trillions of dollars in debt, perhaps we should not be giving any aid at all, or at least giving aid in a sensible and judicious manner.

While I agree in principle with Rep. Gohmert, I would approach this issue from a different angle. I would make all foreign aid renewable, individual country by individual country, every two years before the summer recess, in election years. Every two years, make all of the members of the House and the Senate take a position on the aid we are giving to each individual country. The American people deserve to know, for instance, if their tax money is being well allocated, or is being given willy-nilly to those countries that are really not our friends. This would not be punishing anybody, but rather would be rewarding our friends as they have earned it. Would any parents continue to give an allowance to a child who was constantly disagreeing with them. Of course not! An allowance must be earned.

Apparently in one of his speeches President Trump said something similar to what I just said, but he did not have a detailed plan like the one I just spelled out. In essence, he has agreed with me again! I wonder if and when he will be calling me for advice? Like I said in the beginning he and I agree most of the time, because we think alike!

To review from the prior essay, housing affordability is a major problem and it’s getting worse. Among California cities, San Diego’s home prices showed the smallest increase at 7.3 % in a year. In Los Angeles the prices increased 7.6% in a year and in San Francisco the yearly increase was a whopping 10.9% gain. As noted before those who are already in the market can more easily move up because of the increased equity in their present home. However for those not already in the market the chance of being able to afford a house is steadily going down. If wages go up commensurate with inflation, then the increased income should be able to keep pace with the increasing monthly mortgage payment, however, remember that with the increased sales price of a house, the down payment is also increasing. This increasing down payment is what kills potential first time home buyers, as they cannot save enough for that initial down payment.

 A dilemma. What to do? Keeping middle class workers in the state will be crucial to California’s future economy

Like I said, I have an idea . . . a plan!

What I propose is a state-tax free house down payment savings plan.

Before you say, “Not another government plan,” hear me out.

This plan would only be for the middle class, arbitrarily defined as those making between $50,000 – $100,000 per year. The money that they owed each year in income tax to the state could instead be put into a “first house, down payment account”. This money would be before tax money, similar to an IRA, and would grow tax free for up to ten years. Unlike a traditional IRA, however, this money would not be taxed when it was removed from this account if it was used to make a down payment on a first house. As long as people remained in the middle class, they could continue to contribute to this account for a maximum of ten years.

Some caveats:

– Participants in this plan would have to be residents of California.

– The house purchased with the money saved in this special “house down payment

    account” would have to be the primary residence of the purchaser of the house.

– The individual beneficiary of this account would have to reside in California for at

     least ten years after the house had been purchased.

– If perchance any of the rules were broken,  e.g. the house purchaser moved out

  of state after two years or the money was withdrawn from this account, but not used

   to purchase a first house, there would be a significant penalty (?25%) in addition to

   the California tax owed on the money withdrawn.

The big caveat, however, would be for the state. The shortfall in the California tax revenue because of this plan would have to be accompanied by an equal decrease in state spending for the following year. In other words, giving a small proportion of the middle class a tax break could not be accompanied by an increase in taxes for others in order to make up the shortfall.

Even though in the long run this plan has multiple benefits for individuals as well as for the state, my guess is that the state of California would not be able to fulfill its part of the bargain!

I realize that many of my readers, especially in California, are going to scream, “Of course there are ways to better use my tax money. In fact there are many ways!” However, instead of ranting and screaming . . . “focus” . . . focus on just the following.

In California one of the major problems is housing. Here, there are multiple issues including the basic economic one of supply and demand. For a variety of different reasons, the housing supply has not kept up with the demand, and so the natural consequence is a rise in the price of that which is in short supply, in this case, housing. This is a basic economic principle, and lately there are multiple ideas on how to increase the supply of homes. Again according to the same economic principle, the price of housing will not go down until there is an over supply or at least a competitive abundance of places to live, and unless there is a major recession, I do not seen the price of housing coming down in California for decades.

However, let’s assume for a second that the price of housing in California stabilizes sometime in the future because there is an increased supply. Who is going to buy these houses? Perhaps this question would be better phrased . . . “Who will be able to afford to buy these houses?” These days if one is not already in the market and thus has some equity, it is extremely difficult for that person or family to be able to save enough to afford a down payment on a house. A lot of those who are presently renting would like to buy a house in the future, but because of the high cost of living and the high taxes in California, they are lucky if they are able to stay afloat.

Switching gears, in general which general economic group are we talking about? Which class of people are we talking about that would like to own a house, but just cannot afford it? Many in the upper class already have a house, and for most the cost of housing is not even in the top ten on their problem list. Likewise those that are in the lower economic group are usually swimming upstream just trying to survive. Again for the most part their inability to purchase a house is not in the top ten on their problem list. So who are we talking about? No surprise here. Those that want to, but just cannot save the down payment to purchase a house are those in the middle class.

Recently my tree guy said that he may not be coming back to take care of my trees because he might be moving. “Moving? Why, Francisco? Where to,? I asked him. He replied, “Probably back to Mexico. My wife wants her own house, and even though we are both working, we cannot afford to buy a house here”!

His moving to Mexico is bad for me, as he is a nice guy, as well as a great tree guy, but more significantly it is not good for California, as he is a hardworking, responsible member of the middle class. The real problem for the state is that he is not alone. At present the exodus from California is mainly a middle class exodus, and unless something can be done to improve the standard of living of the middle class, they are going to continue to leave, and this will lead to the economic downfall of California.

Here in San Diego County in 2016 there was a net exodus of 17,194 people with 2,478 in the 18-34 age group, and 3,953 in the 35-54 age group. The main reason that those interviewed gave for leaving was the lack of affordable housing, and for many specifically the inability to ever own their own house.

What to do? Is there any way to improve the chance that those in the middle class will be able to buy a house in the near future, and thus remain in the state?

Does anybody have an idea?

Of course, I have an idea! See the next essay to see an example of thinking out of the box to solve an apparently unsolvable problem.