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Archive for November, 2017

As much as the California High Speed Rail Authority would like to hold its own version of the Golden Spike ceremony that marked the completion of the first transcontinental railroad, it is more likely to experience rusty nails driven into its already beleaguered and overly-optimistic business plan.

The latest derailment affecting the timeline – and undoubtedly the cost – is a two-year delay in completing environmental reviews of the project.

This news comes on top of growing concerns about tunneling, not just in the San Gabriel Mountains,  but the Pacheco Pass connecting San Jose with the San Joaquin Valley. Even if the almost 14 miles of tunnel is bored, it could be a budget-buster and throw the project even further behind. In view of this challenge, attracting bond investors will be difficult for this segment; yields would have to be enhanced to generate investment, diminishing the already slim prospects of the system operating in the black.

When voters approved $9 billion in bonds in 2008 to start the project, the measure stated that operating subsidies from public funds would not be permitted.  But we are on the fast track to just such support.  The costs, which will most certainly blow through the current estimate of $64 billion, could easily triple.  Although large overruns are common on major projects (i.e., Boston’s Big Dig was over five-times the original estimate), the public was misled as to this possibility with HSR.

So far, nothing has been delivered according to promises made in selling the concept to the voters – not even close.  Even the train speed has been downgraded.

I happen to be a fan of rail travel.  I used Amtrak and Metrolink to commute from LA to Irvine.  I often thought how much more comfortable and reliable the trip could have been had the trains been able to run on dedicated tracks, free from freight traffic delays.  The current engines can run at 100 miles per hour.  While not high speed, there would be no reason why most commuters from the far suburbs of Los Angeles couldn’t reach downtown in about an hour.

Instead of pouring billions into HSR, a system which will serve a relatively very thin segment of the traveling public, we can relieve much traffic from our clogged freeways in Southern California by investing in the region’s rail infrastructure – far more than could be reduced on I-5 through the San Joaquin Valley by the bullet train.

A similar investment could be made in the Bay Area with the same results.

There would be no costly tunneling in either market.

Our next governor should kill this vanity project.  Candidate Newsom was once on record as opposing  the project.…maybe he will come back to his senses.  His key opponent, former mayor Villaraigosa, has always been for it.

The voters should demand that both candidates explain just how they plan to fund it.

 

 

 

 

 

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There is no such thing as tax reform, at least when it is framed within the same Byzantine template that has bedeviled taxpayers for generations.

The primary objectives of any tax system should be to raise revenue, allow for efficient enforcement and encourage public compliance through simplicity. These goals have alluded the government at least since the passage of the Internal Revenue Code of 1954 and its 24 brackets.

If you are counting on Congress to get it right this time around, start recounting.

In my view, the only true reform would be something resembling a flat tax system.  See this earlier article of mine on the subject.

However, there are two chances of a flat tax system becoming law:  slim and none; I won’t waste time, then, on discussing it again.

As one would expect, the current package under consideration has become a partisan battle, with both sides playing to their loyal bases…. and too little weight given to economic and practical considerations.

There are many moving parts in play, but I will focus on just one – the mortgage interest deduction since it is the most complex of any.  It is as American as apple pie, but some developed countries have dropped it, including Canada, UK and France. There are limitations in others.  There has been no sustained impact on the real estate prices where it is not allowed.  Hey, just watch HGTV’s Househunters International for anecdotal evidence, assuming you can overlook the naivety of the buyers featured on the program!

We already have a limitation (also a topic I’ve covered in the past). It allows for the deduction of interest on $1M in mortgage debt used to construct, purchase or improve your home, and $100K for general purposes – basically cash draws to cover vacations, cars, boats or just plain, everyday self-indulgences.

The new proposal cuts the $1M in half to $500K and does not allow any interest deduction on second homes.  All existing mortgages would be grandfathered in at the $1.1M cap.

Presently, there are many people who are probably unaware of the current limitation, and many of them are equally unaware they are over the limit because they have not kept track of what their cash-out refinances or HELOC advances were for.

Don’t lose any sleep, unless your overall mortgage debt is high enough to appear on the IRS’s radar screen. It is at least as difficult to audit as it is for taxpayers to keep records and make the necessary adjustments.  The calculations are not a fun exercise, especially if there have been multiple borrowings.

One thing is for certain, by halving the cap more new borrowers, along with those who subsequently refinance, will fall under the new limitation. The IRS will be challenged to adequately deal with the increased load.  Taxpayer compliance will likely fall short of targets; accordingly, the projected deficit will be higher than expected, all other things being equal.

I would gladly trade all the deductions in the world for a much lower tax rate and an uncomplicated tax return. But the rate cuts for this package are no where near an incentive enough for me to get on board, especially if the loss of the state income tax deduction is also part of the deal.

Until there is real tax reform, America will continue to spend 6 billion hours per year on preparing their tax returns. I believe our personal time is worth more than a few dollars per hour, not to mention $2 billion we pay for individual tax software.

I think we have better things to do.

 

 

 

 

 

 

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