[ExI] lotta splainin to do

[spike at rainier66.com]

-----Original Message-----
From: spike at rainier66.com <spike at rainier66.com> ...

>...BillK et al, this thread has important implications for USians and another interesting twist for Californians such as Adrian and me.

>...Now there is a bill being debated which would take the power to control the debt (through the debt ceiling) completely out of the hands of congress.  Then, if congress cannot control the debt, it is not responsible for it.  Then, there is no incentive to control spending.  The incentive is to spend as fast as possible, for under that theory, congress gets power without accountability.  spike





BillK, here's the interesting California twist.

California is home to about 1/8 of USians and (according to some estimates) as much as a quarter of US wealth.  So what happens in California matters.

The US can continue to calculate phony inflation numbers by carefully choosing which products to consider for any particular year's inflation calculation.  Currently it does not consider food and fuel, which makes a huge difference in some years, such as this one when those items went up steeply.  But we can continue to play the game carefully and continue to produce inflation numbers far below the number needed to estimate the cost of living.  If the US continues to do this, it inflates away its growing debt while giving seniors cost of living adjustments which really do not cover the increased cost.

The state of California relies primarily on four taxes: income, property, sales and fuel.  It is said that California is a terrible place to retire because taxes are so high, but... it depends.  If one is retired, income tax isn't as high, and a person on that end of life has fewer major acquisitions.  We don't have a regular commute to work, so fuel taxes are not as big a deal as they once were.  Under those conditions, one soon sees that the biggest tax is property, but here's the twist: that is limited by the state constitution at 1% of the initial sales price plus 2% maximum forever and ever amen, so long as one owns that property.

OK so... under those conditions, and if one has one's assets in something that is inflation resistant such as stocks, the inflation isn't such a bad deal.  Reason: regardless of how high it goes, the biggest tax can only go up 2% a year, forever.  The assessed value of my house has increase more than a factor of 5 in the 28 years I have owned it, but the tax bill has not yet doubled (that takes about 35 years to double.)

Sales tax doesn't apply to food.  Property tax is (in a sense) going down.  If one paid attention during one's career and bought Roth IRAs, then income tax isn't such a burden, and gas taxes, well, I don't drive nearly as much as I once did, so... given all that... California is a good place to retire.  It has high taxes, but they mostly apply to others.  So... given all that, California is much more attractive.

However... there is yet another twist to this story, given that other retirees are doing the same math the same way I did and coming to a similar conclusion: retirees decide this is a good place to stay and run out the clock here.  Result: the state government doesn't have enough money.

spike