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Archive for January, 2012

Moving Lips

There’s the saying:

How do you know when a politician is lying?

His or her lips are moving.

That’s not quite true. 

It’s a lie when the politician’s lips are moving and forming the words tax reform or tax relief.

Legislators or candidates who promise either are pandering for votes. 

The Internal Revenue Code is beyond reform; it is foolish to make an attempt given the barriers created by the sheer complexity of the code and the influence of interest groups from almost every sector of society and industry.

It is easy to promise fairness and relief through reform when relatively few are familiar with the content of the Code.  

To paraphrase a few lines from one of  Les Miserable’s most popular scenes:

Rules beyond compare,

rules beyond belief!

Put them altogether

and call it tax relief!

We are as bamboozled as Thenardier’s guests when it comes to taxes.

It was pure chutzpah that the Congressional action which created the current version of the Internal Revenue Code was named the Tax Reform Act of 1986.  Maybe it was reform in the Bizarro world.

In my view, about the only good that came out of it was the consolidation of tax brackets from fifteen to five.  That much made it a little easier for the average person to plan what they might owe to the federal government, but many people still couldn’t tell if they were measurably better off or worse than in prior years. Comparing your taxes from one year to next is an apples to oranges affair under stable conditions; attempting it when the rules have been overhauled is more like water to dirt, unless you want to pay a professional to figure it out.

Taxpayers were still left with a Byzantine system after 1986 and unsure if the changes offered any relief….and there was certainly no relief when it came to preparing returns. 

Changes have been made since 1986, some of them substantial (such as the Bush tax cuts) but the structure has been virtually untouched….and that feeds the rage people have expressed over the fairness of the system.

Arguments over who is or is not shouldering a fair share are based more on emotion than facts. It is not anywhere near as simple as the 99% versus 1% as the Occupy Everything movement insists .

It’s not that there isn’t unfairness – indeed there is – but unfairness transcends most income levels.  Two households with the same income can have tax liabilities that are as different as night and day within any bracket.

The alternative minimum tax (AMT) is one of the best examples of the Code’s obfuscation. Originally designed to reel in 155 wealthy Americans who did not pay a dime of tax, it has now grown to where 27% of households earning under $200,000 paid it. The AMT is a parallel tax system that most taxpayers must calculate, even those with average incomes, to assure they are in compliance with the law.

Fortunately, readily available tax software does the calculation for you, but it does not prevent a nasty surprise when you learn you owe more than anticipated.  Taxpayers who made all the right decisions throughout the year to minimize taxes may discover that many deductions they were counting on are wiped out in the other universe of the AMT. 

Yet, we put up with this chicanery. People just roll over and allow their federal legislators to perpetuate it, allowing themselves to be strung along with false promises of tax reform.

Do you know what kind of “tax reform” is on the table?

The elimination of the mortgage interest deduction, for one thing! 

Now, I could support that if it were part of a wholesale conversion to a flat tax system along the lines of what Steve Forbes suggested years ago.

Unfortunately, Forbes also got excited over Texas Governor Rick Perry’s flat tax plan. If something like it were implemented, it would mean suffering through three methods of tax calculations: regular, AMT and a flat tax. I would hardly call that tax reform.

Herman Cain made some noise with his 999 concept, but one component – a 9% national sales tax – would have been grossly regressive. If you turn 999 upside down, you get 666. If you ever watched The Omen, you know what that means.

Fortunately, both Cain and Perry are out of the picture as far as the Presidency is concerned.

But they succeeded in giving the concept of a flat tax a black eye.  Many people are not going to think beyond the flawed ideas they proposed.

Let’s clarify one thing before going further – all flat tax proposals, including Forbes’, is at least moderately progressive. What makes it so is setting an income level below which nothing is taxed – a zero tax bracket.

Say every penny of income up through $35,000 were not taxed; everything above it taxed at 15%. A filer earning 35,000 would owe nothing; an income of $50,000 would pay an effective rate of 4.5%; $500,000 would bear a 13.95% effective rate. 

There would also be no deductions, credits, personal exemptions nor preferences in the purest flat tax plan – and no AMT.

Notice I said “in the purest flat tax plan.”

We are not going to see that until pigs fly, the cows come home and hell freezes over.  There are compromises that will have to be made , but we could still have a Code that would take less space than a chapter in a Dan Brown novel….and a tax return on a 5×7 postcard for almost everyone.

Only individuals who never made it past third grade math would require preparation assistance.  Even those people would be able to avail themselves of free help from the IRS.

The simplicity would offer a number of benefits: almost no preparation time; no anxiety; no preparation fees; easy tax planning.

The government would benefit as well: more reliable revenue projections; less costly administration; more time for Congress to address meaningful issues.

Potentially, a flat tax could translate to more revenue for the government.  IRS agents would be far more productive chasing down the individuals responsible for the annual tax gap instead of enforcing arcane rules that they themselves may not understand (the confusion over whether airline miles are taxable is a recent example of the limbo facing many citizens).

The latest estimate for the tax gap – the difference between the aggregate tax liability and the actual revenue collected – grew to $385 billion in 2006, up from $290 billion in 2001 (the data used for these estimates lag, which is why 2006 is the latest year evaluated). By the way, those amounts are per year.  Just do the math to estimate the cumulative impact, if you dare, and imagine what it means to the federal deficit.

Instead, IRS agents are spending too much time determining if a taxpayer was using the right depreciation method or was eligible for the earned income tax credit, or enforcing other useless rules with questionable economic value.

It won’t be an easy task to close the tax gap in any event, but the odds would be much better if the IRS could focus on the population segments with the greatest risk of non compliance. There are data riches to be mined that would give clues to whether some people were playing  fast and loose with revenue reporting, but the resources needed to do perform the analysis are inadequate and preoccupied with enforcing the current Code.

Congress would have to change its mindset on the objectives of a tax system before we could move forward with a flat tax system. 

Rather than using the code as a means of social engineering, economic stimulation and revenue generation, drop the first two (they have failed us) and focus on a system that raises adequate revenue in a fair and understandable manner.

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David Zahniser’s article in Friday’s Los Angeles Times was buried on page 3 of the LATEXTRA section, but the insight it provided as to the mindset of City Hall was worthy of above the fold material.

The subject was how last year’s robust pension earnings for civilian and sworn employee pension funds will lower the projected deficit for the fiscal year 2013 budget by $100 million.  A nice improvement, but it still leaves the city short by almost $150 million, not counting the projected deficit for the current year of $70 million. It is interesting that the good results have been known for months, yet they were not factored into the original $250 million deficit projection.  Too bad Zahniser did not question CAO Miguel Santana about that.

Zahniser also points out the bad news – fund earnings have been flat since the end of the last fiscal year.  Please note that Calpers’ return rate since June has been an anemic 1.1%, so the drop in earnings at the city is not an anomaly.

It is likely that 2013’s pension contribution will exceed $1 billion. That’s over 20% of the general fund – let’s not even think about the cost of healthcare – and it will continue to absorb a growing piece of the budget pie as the years progress, which means less money available for services.

In what has to be the understatement of the year, the article quoted Santana as saying, “If we ever want to get out of crisis mode, we have to address our ongoing deficit – the gap between revenue and expenditures.”

You don’t have to be a Harvard MBA to figure that out. Homer Simpson could have surmised that much.

The city’s structural deficit problem is nothing new.  Santana’s advice is more than a day late and a dollar short.  The Neighborhood Council Budget Advocates have been harping about this for years – and they are not compensated as the CAO is. Perhaps the mayor should cut Santana’s salary in this next round of budgets before slicing the neighborhood councils’ funding again.

The bottom line is that city officials remain fixated on one year at a time, especially when it comes to pension costs.  There is no plan to address the long-term cost impact of retirement benefits and healthcare, only talk and wishful thinking.

You cannot depend on consistently strong investment earnings to cover future core services, but the mayor and his allies think they can.

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The California state auditor further exposed the fiction behind the business plan for the proposed high-speed rail system.  A state legislator was quoted as saying, “How many unfavorable reports are needed before Governor Brown realizes that this project will destroy state funding for schools and public safety?” 

That’s a good question and there are no answers from Governor Brown – the cat must have his tongue.

We should think twice before allowing the state to put its paws on our money for this political catnip.

This exclusive video shows a scale model of the planned first leg of the bullet train through the San Joaquin Valley.

As far as I can tell, no cats were harmed in the filming of this video.

An alternate route might also face problems.

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I was saddened, but not surprised, at Jorge Posada’s retirement from MLB.

The all-star catcher spent his entire career with the New York Yankees, my favorite team of all sports.  My loyalty is due in part to growing up relatively close to Yankee Stadium.  My years as a fan have spanned from the tail end of Yogi Berra’s career to Posada’s….and will continue.

He will always be a favorite among the Yankee Nation, but will he eventually end up in the Hall of Fame?  

A Yankee fan site has expressed some doubt, but I disagree.

His career stats fall comfortably within those posted by other Hall of Fame catchers.  There is no doubt he was a key component in the Yankee’s core quintet – which included Jeter, Rivera, Williams and Pettite – that produced a string of World Series Championships in the late nineties.

In an era that produced scandals regarding the use of performance enhancement drugs, Posada was a model exception. 

I hope I can write a post about his entry in the Hall of Fame in five years.

I also hope Rivera sticks it out for at least another ten years.

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Valley Plaza on Ice

A recent article in the Toluca Lake-North Hollywood Patch brought back fond memories of a local neighborhood shopping center that once attracted the middle class of the San Fernando Valley.

I am not an old-timer as far as direct experience with Los Angeles history is concerned, but I do remember Valley Plaza and adjacent Laurel Plaza as at least moderately thriving centers. Sears, Robinsons-May, the United Artist movie theaters, along with assorted small retail outlets, were convenient alternatives to schlepping to the mega malls cropping up across the region.

There was recreation, too.  The Ice Capades Chalet was a place to cool off and hold birthday parties for kids.

There is little evidence of the district’s golden years today.  Macy’s is the only business worth mentioning in what has become the armpit of  Council District 2.

It is ironic that it took an outsider to shine the light on blight that has overtaken the former mall and its surroundings.  Mitt Romney used it as a backdrop to criticize President Obama’s economic policies.  Romney was off base on the target of his criticism – the White House played no role in the demise of the shopping center, or any other – but at least he reminded us that there has been no progress on addressing what has to be the most notorious example of failed local government in CD2. 

It is noteworthy that Council Member Paul Krekorian was upset by Romney’s visit, but it took the Republican candidate’s visit to get CD 2’s representative to publicly comment on the embarrassment that is right outside his office near Victory and Laurel Canyon.

Krekorian was upset by Romney’s upstaging him on this most local of local issues; so upset that he retreated to the inner sanctum of his office afterwards and has since been silent on the matter. It is ironic that he accused Chris Essel of being an outsider in their bitter contest for the council seat (by the way, so did I and I am glad she lost), because it took an outsider to get Krekorian to even talk about what might be happening with Laurel Plaza.

Will it take a visit by Newt Gingrich to make Krekorian come out again and update us? 

Heaven help us if it gets to that.

Krekorian talks of a developer turning the shopping area around.  Talk – we’ve heard that before.

We don’t really know what deal is in the works because he is not involving the neighborhood councils who would have a vested  interest in the plans – Valley Glen, Valley Village and, especially, all of the North Hollywood councils.  The residents of CD2’s southern portion do not want to be left in the dark on such an important land use decision as it appears Sunland-Tujunga was on an SB1818 project in the north.

Mayoral candidate Austin Beutner had an interesting suggestion, not specifically about Valley Plaza, but about rebuilding in general. He favors dumping the bullet train and instead plowing funds into the crumbling infrastructure and blight spreading throughout the city and state. $100 billion of investment in local business, roads and regional transportation over thirty years  just might make a difference, more so than on a rail system whose finances definitely do not pan out.

There is no discussion of alternative uses for the property other than mixed use retail/residential, a tired, quick fix formula that depends on consumerism and housing, two segments of the economy that helped drag the nation into recession and are making it difficult for it to recover.

We have enough malls in the region offering jobs that pay retail wages. If you want mixed use development, the nearby NoHo Arts community already offers it. 

We need to  take a different path, even if it takes a long time, or we will simply produce another failure that can only survive by cannibalizing business from other areas. That’s a no-win strategy for the region.

There is no quick fix to this mess, but that’s what career politicians always chase because it helps them in their next campaigns.

Let’s agree to attract manufacturing and even transportation to the solution.  Imagine a short extension of the Red and Orange Lines to Victory and Laurel Canyon offering more than ample parking for commuters currently limited by the inadequate lot at Lankershim and Chandler.

Centers for education could play a role in a comeback – for example, extensions for UCLA, USC and Cal State Northridge could attract desirable businesses. 

How about local sports and recreation? Not just outdoor playing fields, but indoor facilities, too.

That thought brings back memories.

I recall one evening when my daughter was at the Ice Capades Chalet practicing for a figure skating competition .  It was a private session for coaches and their skaters scheduled right before the public entry time.  I watched as Jeni took the ice and was relieved there was only one other skater present.  She could then practice her moves without dodging others doing the same.
 
It was then I recognized the coach of the other skater. She was none other than Tai Babilonia, a former Olympic pairs competitor whose dream of an Olympic medal was dashed when her partner, Randy Gardner, injured himself in practice.
 
I then noticed a man standing at the edge of the rink videotaping the practice session.  He was obviously focusing on Tai’s very young student. Perhaps it was the little girl’s first lesson and he was a proud dad who wanted to capture the milestone for posterity.
 
He lowered the recorder and stared out at the girl. He displayed a wide grin and offered a few words of encouragement to the tot.  It was Jack Nicholson.
 
We exchanged greetings and both of us went back to the business of watching our young daughters practice.
 
It is reasonable to assume that my daughter is included in one of Mr. Nicholson’s home videos.
 
Ice Capades Chalet was a treasure and provided an accessible and affordable form of recreation for the community. It was torn down to make way for a proposed retail center, the first of a few failed plans for the property. Another strike against quality of life.
 
It is time we learn from our mistakes and demand that our elected representatives involve their constituents in the redevelopment process. They are doomed to repeat past mistakes without our input.
 
We are the people who will have to live with the land use decisions of our officials long after they start drawing their public pensions.
 
We deserve a say.

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The Mayor’s Budget Survey is upon us.

As with any survey, my general advice is to be wary of the objective questions.  Multiple choice answers can be manipulated to support almost any angle. 

Read the questionnaire thoroughly and think about it as a whole before recording a single response . For your convenience, here’s a PDF version – it is more difficult to access on the survey website. I plan on using the alternate open responses to express my views and recommendations and will not confine my remarks to the limited space.

Regardless of how you approach the survey, remember at least one thing:  the finished products – approved budgets – have not been balanced in years, otherwise the city would not be facing yet another significant deficit.

Consider the following:

Wendy Greuel’s e-mail blasts claim how her department’s audits have identified over $100 million in wasteful spending and fraud. 

The mayor and City Council have taken credit for cuts amounting to hundreds of millions in spending over the last few years – $336 million from the 2011-12 fiscal year budget alone; $492 million the year before

General Fund revenues (excluding fund transfers) have been fairly flat since 2007, when the recession made its presence felt, floating between $4 billion to $4.4 billion. Certainly not as severe as one would expect under the circumstances.

So why is the projected deficit for the current year $70 million and next year’s at $250 million?

It is because the budget numbers do not add up. 

If the city is as lean and mean in budgeting as officials claim, and if we believe in Greuel’s puffery concerning the elimination of waste and fraud, we should not be facing a shortfall anywhere close to the over $300 million projected for this year and the next.

Mayoral candidate Austin Beutner, who had the benefit of an inside look at how the city operates, has described the city’s accounting and budget process as a fraud. If I were the mayor, City Controller, Chief Administrative Officer or Chair of the City Council’s Budget Committee, I would take his remarks seriously and refute them if untrue. Beutner is not some fringe pundit to be ignored. Silence by our elected officials, in this case, amounts to affirmation.

Enron appeared to be profitable, but was hiding losses in undisclosed special purpose entities. The City of Los Angeles hides its costs by deferring cash payouts to subsequent years, pushing pension costs out as far as possible, and delaying maintenance of streets and sidewalks.

Pushing $100 million of current personnel expenses to subsequent years is the most recent example of the fraud foisted by the mayor and his allies in other elected offices.  $75 million in capital improvements have also been deferred in order to “balance” the budget over the last two fiscal years – just wait until you see the capital spending plug in the upcoming budget if the City Council approves sticking $1.5 billion in sidewalk repairs to property owners.

One-time revenue increases were used to plug gaps but, even if they had materialized, would have been fleeting and done nothing to deal with the ongoing, structural issues the city faces.

Missed opportunities, such as the recent audit disclosure of unrealized potential revenue for street furniture advertising, are indicative of serious management problems….or it could simply mean that the Public Works Board, who oversees the contract, does not have the resources or wherewithal to administer such activities.  Even the best contracts will fail to yield expected results if managers and staff lack skills. Greuel’s reports rarely, if ever, evaluate the competence of the persons in charge. 

Therein lies part of the problem.  What do you expect of City Hall’s attempt at producing a balanced budget if the people running the process are not cut out for the job?

Remember that in the 2013 citywide elections.

For now, tell the mayor what’s really in your heart and what is wrong with his administration. 

It will take more than selecting one response from 5 or 6 choices as an answer to a question.

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This is a rebuilding season for the Richmond Spiders.  Having had four starters graduate from last year’s Sweet Sixteen team, everyone knew this year’s edition would be a work in process.

Prior to tonight’s game, Richmond alternated between very good and downright miserable – very often in the same game. About the only solid game the team played from start to finish was against a weak William and Mary squad.

Tonight’s game against Temple marked the first time Richmond (now 11-7) controlled an entire game against a tough opponent.  The Owls knocked off #5 Duke earlier in the month and outlasted a tough St. Louis team on the road. They were 11-4 going into tonight’s contest at the Robins Center.

Derrick Williams, a 6-6, 275 pound power forward coupled with Darius Garrett, the nation’s leading shot blocker, to control the glass on both sides of the court.  Williams, a sophomore with a bright future, was also productive on offense, scoring 18 points. Although only 6-6, he has the wingspan of a seven-footer and shoots fouls with the touch of an experienced guard.

Power Forward Derrick Williams stands out against the crowd. I refer to him as Airbus.

It would be hasty to assume we’ve turned the corner, but tonight put us on the right path.

Photo credit: Mark Gormus of the Richmond Times Dispatch. He captures the mood of a contest as well as the action.

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