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The American Dream Act

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So there is a voters initiative going around in Arizona, called the American Dream Act.  This act would remove property taxes off of any citizen over the age of 65.  On the face of it, you may be willing to support this effort, as I was, but after just a little thought about it, it is clear that this must be defeated.  Being a Realtor, I have a high degree of interest and knowledge in this subject.

First we must look at how property tax is calculated in Arizona.  First the county accessor figures out how much every property in that county is worth.  It can only go up at a small rate each year, so properties that have not changed hands in a long time are valued much less than they should be.  The amount the county says a property is worth is the Full Cash Value, then we have the Limited Property Value.  The property can go up any amount but the LPV can only go up 5% per year.  So in the last 8 years most property has gone up much more than 5% per year, but the LPV is a benefit for people who still own the same house.  The LPV gets reset to the FCV when the property is sold.  On an owner occupied single family residence the tax is based on 10% of the LPV Value this is called the assessed LPV.   Most commercial buildings are assessed at 18% of the LPV Value.  Empty land and investment property is 15%, Senior living centers are also 15%.  Schools and churches are even 15% though churches can apply to be exempt. 

So if you are a taxing body you send the amount you need to raise to the assessor’s office.  They then add up the Assessed LPV of all the properties in your jurisdiction and divide that by the amount you need to raise, and those properties are assessed that amount.  So lets say you are school district, you need $10 million to run your school.  Your district has $2 billion in Assessed LPV then that would mean for each $100 in Assessed property value a property has they will have a property tax obligation of 50 cents.  So if the home in that district is worth $200,000 and has an LPV of $120,000, then an assessed LPV of $12,000 that person will owe $60 to that school district.   Then we have layers and layers of different taxing bodies, each with different borders and different amounts.  This is a large task, mostly done by computers now, but after figuring out everything a bill is sent out for each property with a list of each taxing body they are paying tax to and how much.  All of this data is public record for every property.     For example a home in Sun City that is worth $173k has an assessed LPV of $10,376.  They have a tax obligation to three taxing districts, $102 to pay for Maricopa County Community Colleges, $342 to pay for Fire service in Sun City, and $70 to pay for Street Lighting improvements.  This is only $5 per $100 in Assessed LPV.

So lets say we make all senior citizen property owners tax exempt then they won’t pay these taxes any longer, BUT they still we be paid, the assessor will just have the remaining properties pay a higher amount.  So lets say this bill passed, and in sun city about 70% of the properties are owned by someone over the age of 65.  The rest are churches, businesses, property that is rented and such.  So in order for those 70% to pay nothing the rest must pay over 3 times as much as they are paying now because the tax base has shrunk. 

Imagine you are a business in Sun City, you already are assessed at 18% instead of 10% on the value of your property, but now that amount will go way up due to a smaller base.  If you own a building worth $500,000 which would be a small business, you already are paying on an assessed LPV of $90,000, about 9 times as much as the average home. If we use the same amount of $5 per 100 in LPV we would expect a tax of $4,500 for this small business per year.  If the base is shrunk by 70% this business will see a tax INCREASE of OVER $10,000 to over $15,000 per year.  This sort of thing can make the difference of that business staying in business or failing. 

Imagine you are renter in Sun City, you live in a nice home, or senior living and you rent from a landlord.  This property is also not exempt.  You may not directly pay property tax, but it is part of your rent, and if it goes up your landlord will surly pass it on to you eventually.  Lets say it is an average house with a $700 a year tax obligation, and lets say that 70% of the property value in sun city becomes non taxable, your new tax is over $2300 per year, about $135 more per month.   Let’s think about who rents, usually these are the most fragile, and poorest among us, the people who can least afford a tax increase. 

Because this new law is not means tested that means you will get the benefit no matter how much you make or are worth, but a renter, or someone who is just out of college struggling to pay their bills, or that small business will pay for your benefit.  You lived a good life, you are reaping the rewards of home ownership and now you want more benefits on the backs of those that can least afford it. 

If you are for this still for this, and your reasoning is that taxes are bad and that taxes are theft, I am with you.  But this will just shift the taxes to people who have a hard time already.  Furthermore, the senior population is with us on this cause to lower taxes, and once their taxes are gone they will no longer care about lowering property taxes, this will lead to even higher taxes.

If you are still for this because it will put money in your pocket, have a heart and care about the rest of the population, you had a good life, you own a home, you are ahead of most people, the generation that is coming up has it much harder than you had it.  

Luckily for me I live in Peoria, where the senior population is much lower than sun city, but if this was to pass it would still be a fairly large impact because I own a business also that pays a lot in property taxes but I have never minded them because I see where the money goes and those are things that I support.  But I don’t want to pay more than my fair share. 

When the Founders said “democracy is two wolves and a sheep deciding what’s for dinner” this is EXACTLY what they had in mind.

So I implore you to not sign petitions for this, and if it makes it on the ballot vote against it.   Unless of course you only care about yourself and are greedy then do what you want.  

Do you respect your money?

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The other day Adrian posted a great blog entry that really got me thinking.  His idea is that the number one most important lesson to be learned by people who want to be rich or be better off is not delayed gratification, not saving, and not any of those other things that all the books tell you.  Instead it is the concept of actually respecting your money.

moneyPlease read his blog, it is good, but I want to take it even farther.  I think that you respect for money is based mostly on what you learned from your parents.  When I say respect I mean that you value money, you value the stuff that you own that you bought with your money.  I have found that most rich people I know have a deep respect for money.  Some of the richest people I know watch where they spend.  They almost never throw anything away, they will have a sale first.  This is not being frugal, these people will invest in very expensive quality items that will give them long term enjoyment and even have a residual value.  They will buy things, but when they do they make sure that they get the best value.  They also think long term, and they look at the total cost of something, including the financing cost.

For years I have been in retail sales, owning my own computer company.  I have always had the hardest negotiation with those that were rich.  They would fight for every dollar to get the best deal, and I would give it to them.  But the people who could barely afford my services would never ask for a discount.  I have had friends who are always out of money, but they would ask me to go out to a restaurant with me and they would spend 2-3 times as much as I did.  I value my money, so I look for the best value when I spend it, at a restaurant that means usually having a coupon and usually I order one large item that will fill me up.  But most people order a smaller item, then the add on the salad, an appetizer and then if that is still not enough they add on dessert.  This same guy also had his car break down, it was going to be 400 to fix it, so he decided that it was time to get a newer car.  He found a car that was worth about $7000 and he bought it from a dealership that caters to people like him, he paid over $11,000 after he traded in his old one, and he agreed to 24% interest.  He did not need this car now, and I had connections he could had used to get it much cheaper BUT he needed it THAT DAY, he could not wait, and he paid the price for it.

Needing gratification now is the KEY that keeps most poor people poor.  Companies know this.  Car dealerships are told to get people to fall in love with the car then tell them that they need to buy it now to get that one.  One of the most profitable segments in our economy right now are the rent to own stores, just pay a bit now and you can take these new items home.  The typical price is about 350% the price you would pay if you just bought it at walmart today.

But the other most common trend among these people is that they never would think of starting their own business.  They usually don’t think about selling their old stuff, they simply give it away.  A friend of mine is in charge of cleaning up houses after they give their keys to the bank, and it is astounding how much stuff of great value they leave behind.  They leave furniture, toys, TV’s, computers, clothes lighting, and boxes and boxes of stuff.  Why did they not sell this stuff, and pay their mortgage…we will never know.

People that respect and value their money are able to live much much longer with out money.  A lot of people who own businesses now are also hurting, they have lost their business, they have lost their credit, yet almost all of them that I know are doing quite well, they manage to find money to pay the bills each month, they sell things, they dabble in freelancing for other companies, they do consulting, but the bottom line is that they do what they need to to keep afloat.  Then I know other people, who have never had that drive, and they sit at home all day playing video games, and they do nothing other than look for handouts.

This fundimental view of money does a lot more than effect our personal lives, it also shapes our nation.  Because the rich and poor spend money so differently they often scratch their head when they look at eachother.  When I had a lot of money, yet I would still buy things on sale, and I drove a modest SUV and such, many people wondered why I did not spend more, why I was also so “cheap”, it was not logical to them.  And then I look at them, and how much they spend when they have nothing and I can’t understand it, it is not logical to me.

To me and others the most frustrating part of people not respecting money is when it is your money that they are not respecting.  At this time our governments are spending money at record levels, our money, and they are doing it with very little respect.  They give money away, they waste money all over the place.  Right now they are spending our kids money, but soon they will start spending ours.  The plan to start taxing energy soon, and many other things.

So think about how much you respect you money.  I would love to hear what you think, please leave a comment.

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Very interesting article from a counterpoint. The Lottery Class

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I have always believed in counterpoint, or whatever the proper name is. I define it as reading from someone or something that is totally opposite of what I believe in. I do this for a few reasons, first to see where their point has logic so that I don’t become completely one sides. Also to see what is in the mind of the person I may one day debate.

This year, as you know, is a presidential election. I am a republican, I have always voted republican, and I plan to do so. I simply don’t believe that the government should be in our personal lives as much as they are. And every democrat I have ever heard wants the government to have more control, more rules, more of my money, and do more things that I disagree with.

Now that all of this has been said democrats OFTEN come up with interesting points. I have been a subscriber to the MoveOn.org newsletter for over 4 years now, but recently I have have been reading and writing blogs, one that I found early on, and is full of good info is one by Jon Taplin. I will say that most of the time I totally disagree with him. But when he is just stating facts, his facts are very interesting. Today he posted an article about ‘The Lottery Class” You will notice something VERY interesting. The poorest people spend over 5% of their money on the lottery. These people also spend at least 5% of their income on transaction costs that the rest of us usually get for free. I mean, they pay to cash checks, then they pay to buy cashiers checks. Also many of them pay a huge amount of their income to very high, and often abusive fees for borrowing very small amounts of money.

I have never been able to understand the logic that many of these people have. I had a good friend that was like this. Was always borrowing at 20% per month interest rates and such, he never had money and over 10% of his income was going to these things.

About a week ago YouTube featured a video that was made by and about this subject. It was crazy, but so real in the subject matter. Please watch this video. It helped me understand this underbelly of our economy a bit more.

[youtube=http://www.youtube.com/watch?v=iAKJKBCyPUY]

Now what should be done about this. Well first off even if rates were lower these money loaning companies would be still highly profitable. Here in Arizona they are getting ready to regulate these much more. I am PRO government regulation that protects people, I am against government regulation that makes the burden on all of us higher, such as having to file a Tax Return.

Lottery’s are almost always ran by the government and the profits go to the government at the expense of the poor. State and local government have gotten very used to the money they receive from this. (Not to mention the 8% or so that the place selling the ticket gets) Now you should not totally get rid of the lottery because a certain amount of our society will resort to illegal betting to get their fix, but you CAN have the government stop promoting it. They can stop all forms of advertising, they can stop listing the numbers on the news broadcasts. You could also limit the number of places sell it, to say only places that have a liquor license. That would remove the kiosks in the malls. And of course they should remove the automated vending machines that people under 18 use to buy the tickets.

I have not played the lottery in a decade or so, and in my whole life I have spent under $50 on tickets. But the lottery is such a rip off, they only pay back 45% or so of the money to the winners. And even when they do that the government takes 40% of the winnings of major winners in taxes. Basically half of all money spent on lottery tickets is a donation to the government, and comming from the people who can least afford it.

That being said I am not so strict on gambling. Games of skill such as poker are much more fair, you can have a positive expected return based on your skill. And games that payback almost all of what they take in are better, they are more like entertainment. For example craps, if you play the passline, pays back about 98%. So if you bet $10, and do it 100 times (Which would take HOURS), on average you will only lose $20. Sounds like a lot of fun for a small cost. Black jack is about the same if you play correctly. Even slots are MANY times better than the lottery, though MUCH more boring.

In the end people need to think a lot more, keep their eyes and mind open. Too many people walk around, close minded, they do things in the old ways and get the old results. Poverty and being out of control of their life.

Our world is too complex and getting worse…please help.

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Many people have jobs, where your job is to make something better.  In order to keep your job you need to show results.  Now a problem happens, many companies make their product just about as good as it can get.  In the real world of products they just move on to the next thing, but in software they keep adding features well beyond what is useful.

There are many examples of this. Winamp was perfect 8 years ago, it played music well, it had good skins and an equalizer.  Then they started adding stuff, and adding and adding.  They put in a video player, but it sucks.  They put in a browser, what is the point in that?  Adobe Acrobat is a program that never really worked well.  And every update just makes it slower.  There are third party ones that are much faster and better.  There are many other examples.

So companies that make programs have figured out that most people don’t need their updates, but if people don’t get their updates they can’t push future changes on them, that may include more advertising, or toolbars on your browser, and these companies love to do that.  So they have made their programs “phone home” each time they load, and if the company decided they want to send an update they will do so.  This makes these programs slower, and many of them gripe if you are not online when you load the software.  At least 20 programs I know of now try to push the Yahoo toolbar on their customers each time you update and unless you are very careful and unselect a box hidden somewhere you get it.  And it is hard to remove and almost totally useless.  There is really a battle going on for your attention, and these companies are trying more and more intrusive things to make you use their software, even though most of it is free.  The other day I noticed that if you update java, it tries to install download and install open office, a almost 180MB download.  Java is just a programming language, why should they push an entire office suite on users.  Most users are not smart enough to catch this stuff, then they call me when they see stuff they don’t understand, and these calls are increasing.  (As a note I love open office, I suggest it to many people and install it on all systems we sell.)

Now in the world of software this is a minor annoyance. You can run older versions, or usually disable all updates. But this is also done in many other areas, it is human nature that once something is very good you will keep changing it, even if the change is bad, simply to look like you are doing something.  One area where this is VERY costly and actually dangerous is in the area of Government.  The government keeps adding rules, and regulations in areas where none really is needed.  Many people running for office brag about the number of bills they introduced, and the number of laws they passed.  All of this makes life more complex.  Do we really need such a complex tax system that you have to call an expert for help and even the experts don’t know half the time.  Do we really need over 20,000 classifications for imported items.  Do we really need to have so many regulations on hiring employees, increasing complexity and costs so much that companies get fed up with it and simply hire people in other nations.  Should it really take over a year for a citizen to bring his wife to the US legally?  Do we really need the government to tell us what food is safe, to tell us that we need to give our babies over 20 shots, many of which cause more harm than good?  Should it be so complex to get a Federal grant that Matthew Lesko has become famous for his awesome 3000+ page book with over 15,000 DIFFERENT programs listed (BTW read his blog).  Do we really need a government with 1000’s of different divisions?

This has cost our country a huge price.  Our power has allowed us to survive for a while but now a crisis is coming. It is so hard to appease the government regulations that no nuclear power plant or oil refinery has been built here in over 30 years.  Most factories are built overseas simply because lack of regulations make them much more profitable.  Why would you want to build you widget here, and deal with the EPA the IRS and OSHA when you can built it overseas and import it for less.  This is why our balance of trade is so bad, this is why are money is flowing out of this country and we are all in debt, as a nation we are living well beyond our means.  This has been a problem for many years, but just recently it has gotten so bad that people have stopped lending to us, whole nations are writing down our debt, and this is causing problems for millions of Americans.  This is a problem, created by our own government decades ago, the symptoms were hidden for years, the official government report showed almost no inflation from 1997 until 2005 while the average person saw huge inflation.  Now it is all catching up, and millions of people are SHOCKED by it.  It will ruin the lives of millions, it will also improve the lives of millions.  I have written many times about this subject, see here or here.

Anyway this was suppose to be a simple post about how everything is getting more complex simply because people want to keep their job and have nothing better to do.  Please comment on what you think about all of this.

Freedom in the modern age.

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Well I have never talked on here about entertainment before but here is one that is good.  If you do or do not know there was a show called Jericho.  Last night was the last episode of it.  It was a really great, well written show.  It lost some people because for a while it went a bit slow, and most shows with arc don’t last once you miss a episode or too and the network changed it’s time slot at a very critical time in the development of the show.  (Arc is when a show is a story from one episode to the next so you have to watch them in order to understand fully what is going on.)  Basically they did not give it the chance they should have and it failed.   It was canceled after the first season, but the largest fan outcry in TV history made them bring it back.  They did so with little advertising and fanfare, and had a second season of only 7 episodes that mostly concluded the entire story.

The reason this show was special is because it touched on subject that are almost never talked about on TV in this way.  Maybe it made some of the corporate people unhappy with the direction it was going.

WHAT FOLLOWS IS A SPOILER.

Basically the story goes like this.  There are bombs that go off and destroy the 23 largest cities in the US except New York.  Communication and power stop.  Food runs out and people in rural Kansas start fighting to survive.  Well equipped mercenaries raid towns and take all the resources and kill many people.  At some point a goverment is put in place.  The old US has the east, TX is independent and the west forms a new nation.  The nation formed in the west is totally controled and financed by a huge mega corporation, the same one that ran the war in Iraq for the US and hired all the mercanires that the US used worldwide before the attack.  The corporation quickly takes part of everything.  They take away freedom, they surround each town with checkpoints so that only products that say can get in or out.  They rush a new constitution that takes away all the power of the people and gives it to the corporation.  Everything is unfair but they have all the resources and power.  Soon the people start to revolt, and by the end of the show all the viewers are calling for revolution.  The last episode is the start of this revolution with Texas shooting down airplanes from this new western nation.

Much of the show focused on the trap of giving corporations too much control of the government, which in turn takes rights away from the people.  This is something that is happening right now in the United States.  There are so many ways that our freedom has been taken.  The government is fairly corrupt.  They spend way too much, and take way too much.  They also spend so much more than they take in.   Who said the federal goverment should secure travel?  Who said they should put so much control on what we eat?  Who said that the government should run the school system in such a poor way?  We tax people so unevenly but yet the government mails out billions of dollars in checks.  The show Jericho showed how this line of thinking will only result in loss of freedom, and at some point the people will revolt.

If you told anyone 20 years ago the things that are going on in this nation right now they would have said you are crazy, that could never happen.  That is way overstepping the role of government.  I guess they are doing it just slow enough that most people don’t notice.   The education system has failed the public by creating the dumbest population this nation has ever had.

People in our nation now expect to carry ID everywhere, go through government checkpoints to travel.  It took me over a year to have our federal government allow my wife to enter the nation, they have no right to say who I can and can’t marry.  People expect to give a personal ID number every time they talk business on the phone.  People expect their information, privacy, and rights to be disrespected.   Most of them are so miseducated that they simply believe what they are told by the media, they have no idea how to think for themselves.

If it goes much farther down this path I will really start to fear for the future success of my country, the United States of America.  Most of the nation and the decisions are totally out of the control of the people, and most of the people disagree with many of the decisions.  Most people think we are not to be the world police, they think we spend way too much and should not carry debt.  Everyone I know thinks the tax system is crazy and needs to be replaced, but yet every year it gets more complex.  When will the craziness end.   Maybe only with revolution.

The dollar is so weak, and we are paying for it, GREAT!

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For years now we have been borrowers.  We spend way more than we make.  I am not just talking about the government but also the people.  You can see this in our balance of trade.  Because of this the dollar is falling like a rock.  People don’t want to lend money because it will probably devalue more than the interest gained.

Imagine that I would lend you $1 million dollars and you need to pay me $1.1 million a year from now, well if the dollar goes down 20% I am only getting paid back (In present dollars) $880,000.  So why on earth would I lend you the money.  This is the problem that we are having now.  Up until recently most of the money being lent to Americans was coming for foreign investment.  These foreign investors as a whole are hesitant to lend us money.

So what is the solution that the government thought up.  Well they offered to lend money, billions of it, to the banks so that they can lend it back out.  But where did the fed get this money to do this, they simply typed it into a computer and created it.  This makes more dollars in existence, and will further sink the dollar down.  This cycle will keep repeating and soon our dollar will be worth very little.

What will this do for us.  Well it will make the dollar cost of most things go up.  Even real estate will soon start to go up with all of this.  Gold is now over 1000, silver is over $20 and oil is at record highs over $110.  This has been coming for YEARS now, I have been talking about it for about 3 years.  This just that start, until we start exporting much more than we import, and we stop spending so much this will keep happening.

So what is the best position to be in?  Well you want to have as little dollars as you can, you even would want to be short on dollars.  This means to borrow them.  I have debt for my house, and for other things, and when I saw this coming I took out as much as I could and invested it in things overseas, and in physical things such as real estate, and I think that in a few months, the value of these assets will be much larger than the debt.  The banks have figured this out and stopped lending to most people.

So what will happen to people who were not ready?  Well it will not be good.  If you have a job, and save money and have no debt you are in the worst position. The money you have saved will be worth less than it should be.  The

What can you do not?  Well as I said before the people who see it first are the ones that are in the best shape, they can prepare for the change.  Now it is too late, there is very little that can be done.  Right now I think it would be good to move money overseas, invest in companies with a large amount of foreign exposure.  Pay off only the minimum on debt.  Don’t keep cash, go turn it into silver.  But MOST important, if you can afford it GO BUY REAL ESTATE.  The prices will never be this low again, you can still usually borrow money to buy real estate and pay back later with money that is worth less.  Prices will go UP much faster than your pay will go up, so be ready for that.  Food cost will go up, and fuel costs will go way up.  Your pay will probably stay flat.  Consider a side business if you need more money.

What should the government do?  Well they were the ones that created this, they were lending money out so cheaply, and printing money like crazy to keep us afloat.  You got to remember that the government is over 9 trillion in DEBT.  They also have over 30 TRILLION in obligations to people in the form of social security and government retirements.  This is a huge debt.  So what they did is they tied this to CPI, the fake, government created index of inflation.  Today it was released and it was 0%.  The people on CNBC just laughed at how fake it is.  But because it is 0% that means that the social security debt does not go up this month.  Now, by any measure dollar is worth MUCH less now than 5 years ago, I would say it is worth half as much or so.  So basically the government just CUT their debt in half because of the weak dollar, and this is very smart.  But they can’t let people know this is going on, they have to spin this so that foreign investors and the general population don’t know what is going on.  For all the people who are not watching are going to be hurt, but for the government, the big investors and all the people who see the signs and act on it, this will be a great time of huge wealth creation.

Jason Dragon
http://www.jasondragon.com/
http://www.capitalactive.com/