Mario Burgos

Clear thinking and straight talk from the top of a mountain.

Monday, April 26, 2010

What Constitutes a War?

It's kind of interesting to watch the unfolding union created drama in Albuquerque as Mayor Berry makes the difficult decision to cut spending:

Union representatives, ticked off by Albuquerque Mayor R.J. Berry's plan to cut city workers salaries, have come out swinging, calling the fight against the budget plan, war.

“Are we not at war?” Andrew Padilla asked.

So, help me understand this Mr. Padilla...

Mayor Berry proposes to keep union workers employed, but with a modest 3% pay cut, and you issue a battle cry.  However, nearly one out of ten people in Albuquerque are unemployed and a great many more are underemployed, and neither you nor your union leader brethren screamed and hollered when the legislature proposed one broad based tax increase on top of another.

How's that work?

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Thursday, April 15, 2010

The Big Against the Small Continued

I've noted time and time again that a change has occurred in America that is quite unsettling.  The dynamic shift that concerns me is the alignment of big business and big government interests against those of small businesses and individuals. Now, maybe this has always existed, but I don't think so - at least not to the level that is currently evident.

It used to be that government interests (tax collection and regulation) were contrary to the majority of business and individual interests, but this has now changed.  What has emerged is a return to days of old (i.e. landed aristocracy and ruling monarchs indenturing the masses and suppressing entrepreneurship).  Consider that "too big to fail" businesses are now encouraging increased taxation and regulation that will:

  1. stifle competition from upstarts with regulatory barriers to entry
  2. burden potential challengers with profit draining regulation
  3. create new revenue streams by artificially increasing costs of individuals (think cap and trade)

The latest evidence of this trend is the new compliance focus of the IRS:


A new study by the Transactional Records Access Clearinghouse (TRAC) shows that despite a growing federal deficit, IRS audit efforts aimed at the nation's largest corporations have precipitously declined in the last few years and now are at an all time low.

According to Dean Zerbe, alliantgroup National Managing Director and former Tax Counsel on the Senate Finance Committee, "As if April 15th isn't frightening enough for small business owners, now comes news that the IRS has increased audit hours for small and medium businesses by 30% over the last five years, while at the same time decreasing the number of hours spent auditing large corporations by 33%."

Keep in mind, that taxpayer bailouts went to the largest of corporations.  Those same corporations are now reaping the rewards of free money:

For 2009, the Fortune 500 lifted earnings 335%, to $391 billion, a $301 billion jump that's the second largest in the list's 56-year history, approaching the increase in the robust recovery of 2003. 

Yet, this taxpayer investment into corporate profits has nothing to do with creating jobs for Mr. and Mrs. Taxpaying America.  In fact, the opposite has held true:


The number of Americans filing for unemployment insurance for the first time jumped for the second week in a row, according to government data released Thursday.

There were 484,000 initial jobless claims filed in the week ended April 10, up 24,000 from an unrevised 460,000 the previous week, according to the Labor Department's weekly report. 

 And, it's not just jobs that continue to disappear. Those losing their homes also continues to increase:

In the first three months of 2010 foreclosure filings rose 7%, to more than 930,000, compared with the previous quarter, according to the online foreclosure marketing firm RealtyTrac. That is a 16% jump over the first three months of 2009.

Foreclosures started off the first quarter with modest gains but spiked in March to a record 367,000 filings. Plus, nearly 258,000 of those filings were for bank repossessions, the highest quarterly total RealtyTrac has ever reported.

This is not good for America.

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Thursday, March 25, 2010

That's Gonna Hurt

Individual Democratic legislators who caved to pressure from their leadership and voted to increase food taxes on struggling New Mexico families despite an overwhelming public outcry against it are rightfully starting to worry about their chances for re-election:
New Mexico legislators chafed at Gov. Bill Richardson's veto Wednesday of a renewed tax on food, which averts a controversial tax hike but also eliminates $68 million meant to help balance the state's $5.6 billion budget.
Legislators, who approved the food tax as part of a more than $230 million tax increase and budget plan during a special session earlier this month, complained that the second-term Democratic governor simply delayed tough decisions on fixing state finances until after he leaves office at the end of the year.

Hmm, that's an interesting take from the legislators. Blame their unwillingness to cut unnecessary fat from government on the Governor.  Yeah, I don't think that's going to fly in November. Especially, when the campaign mailers uses quotes from Democrats saying that food tax should have never been sent to the Governor anyway.

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Thursday, March 04, 2010

They Went Ahead and Did It

It took three days of meetings behind closed doors for the Democratic leadership to make a monumental mistake and push through regressive tax increases on New Mexico's working and non-working families:
The tax hike legislation included an increase in the statewide gross receipts tax, or sales tax, as well as a partial reimposition of the sales tax on food.
        

Members of the Republican minority harshly criticized the omnibus bill (SB10,12,13), arguing that the largest tax increase in recent history had been hatched without their input and that the tax changes should be considered separately.
        

The proposal would impose "a serious tax burden on New Mexico working families," said Rep. Dennis Roch, R-Tucumcari.
        

House Speaker Ben Lujan, D-Santa Fe, said the tax increases were needed to avoid deep cuts to public schools in the 2011 budget year, which begins July 1. 
Of course, the Speaker's excuse is total and complete nonsense. The tax increases pushed exclusively by the Democrats on everyday New Mexicans struggling to get through this economy that has left so many unemployed and struggling to pay for the basics, like FOOD, could not come at a worse time. More than half of the $200 million tax increases introduced are regressive in nature. Yet, we all know that almost an identical amount could have been easily cut from government:
The committee to improve government efficiency has delivered its final report to Gov. Bill Richardson, recommending cuts and consolidations that total $129 million.

The committee said there are too many state government employees. New Mexico has nearly 25 state employees for every 1,000 people. That ratio is higher than any state in the region and twice the national average.
So, please excuse us Mr. Speaker while we take umbrage with your attempt to pretend your putting our children first.  It is clear to everyone that patronage is the first priority of your caucus, and to heck with taxpaying New Mexicans.

Of course, you've got to love the irony of the fact that one Lujan expresses outrage at increases in healthcare premiums at the same time his father pushes tax increases on food for the same struggling families:
One New Mexico congressional representative expressed outrage at the increases in a statement.
“At a time when families throughout New Mexico are struggling to make ends meet, these rate increases are outrageous,” Rep. Ben Ray Luján, CD-3, said.
Maybe this family of politicians needs to caucus.

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Wednesday, March 03, 2010

What's That You Feel in Your Pocket

Near as I can tell that hand you feel in your back pocket belongs to the NM Senate:
The Senate-passed tax increase package would raise the statewide gross receipts tax rate — now 5 percent — by one-eighth percentage point, yielding almost $60 million a year.
        

The bill also would reimpose part of the gross receipts tax, or sales tax, on food. The rate would vary, depending on the local gross receipts tax rate of the city or county in which the food was bought, but average about 2 percent. The change would bring in an estimated $68 million.
        

Another $66 million would be gained from eliminating the deductions that some New Mexicans can now take on their state tax returns for the state and local taxes they've paid. That would increase their taxable income.
        

And the state would get $11.6 million from a newly imposed compensating tax on out-of-state companies that sell products to New Mexico businesses but have no physical presence in the state.

Oh, I know that some you will say that the legislature has no choice.  They have to raise taxes to get us out of this pickle. But, that's not true.  There are other options:

The numbers are big and the money bigger, but the bottom line is New Mexico could find $280 million to help fix its budget.  Rep. Dennis Roch, R-Tucumcari will try to bring an amendment to the state budget bill that will simply cut those state positions which are currently vacant.


Roch points to a report he requested from the Legislative Council Service (LCS) outlining the job vacancies in state government. The report says as of January 4th, there were 4369 vacancies in state government. The problem according to Roch is that the proposed budget lawmakers are trying to tackle would fund 3396 of those positions. Roch argues if the state can function now without those positions filled, then it can function by eliminating them altogether.
But hey, that makes too much sense, right? Cut non-existent jobs over increasing taxes on struggling families.

I've got to run, but you can catch me today at 3:00 pm on Jim Villannucci's show on 700 KKOB discussing this and other issues with Carter Bundy.

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Monday, March 01, 2010

New Mexico Democrats Have a Problem

Last week, I attended an event that had, among others, Lt. Governor Diane Denish as a speaker. To the delight of myself and the small business audience in attendance, the Lt Governor said, and I paraphrase, "Now is not the time to raise taxes. It is time for the government to do what the private sector has been forced to do and control spending."

Now considering that Lt. Governor Denish is usually considerably to the left of me, and that her campaign for Governor is well-funded, it can only be concluded that her internal polling is telling her that supporting tax increase, any tax increases, right now would be the equivalent to political suicide.

And, herein lies the problem...
More details on tax hikes and spending cuts in a new state budget plan emerged Sunday as New Mexico lawmakers prepared to return to the Capitol today for a special session on the budget.
        

The plan, hammered out behind closed doors by top-ranking House and Senate Democrats, would increase the state's gross receipts tax, raise the tax on cigarettes and have New Mexico cities reinstate a portion of the gross receipts tax on food items that was repealed six years ago. 
Yup, leave it to the Democrats to propose a slew of new taxes as families are struggling to survive. If these tax increases are passed, they are going to hurt campaign efforts of every Democrat running for office during this election cycle. Mind you, that's not something that's particularly upsetting to me, but for a strategic standpoint its interesting to watch how this is playing out. 

As a limited government guy, I wouldn't mind seeing some taxes cut for a variety of reasons I've outlined over the years.  But, in the current economy, I would be willing to settle for no new taxes. The Democrats seem to be operating as though it is business as usual (i.e. let's find another incremental tax to pass).  But, there is nothing usual about the situation in which we all find ourselves.


Right now, Lt. Governor Denish is trying to emerge from Governor Richardson's shadow and define herself as a leader in her own right. Of course, taking a stand against new taxes when her Democratic colleagues are pushing for them is setting her up to appear either:


a) Lacking in leadership and the ability to influence policy.


OR


b) Saying what the people want to hear in public and privately supporting the taxation of the masses.

Either way, New Mexico Democrats, from the Lt. Governor on down, have a big problem.

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Wednesday, February 10, 2010

Explaining it Another Way

Some of you, actually just one person, likes to take me to task time and time again for standing up for small business and insisting that the proposed gross receipts tax and income tax increase negatively impact those most likely to actually help the economy rebound by creating new jobs. This individual argues that a couple of hundred dollars more in taxes really shouldn't be a big deal to a business making $200,000 in profit. But, nothing could be further from the truth.

First, let's consider the environment in which these tax increases are being pushed:
Please note that no efficiencies to government bills have been adopted and no true cuts to the budget have yet to be made, however tax increases on the private sector are being considered.  Unemployment in our state is at a 22 year high, and our focus must be on job retention and creation. 
That's the current reality spelled out in a recent communication from the Association of Commerce and Industry (ACI).  Mind you, no efficiencies or true cuts are being made even though we know at a bare minimum there are $129 million in cuts that could be easily made. We also know that the despite all of the hype, government stimulus money did not create new jobs.  At best, it may have saved some public sector jobs.

We also know that big business isn't adding to their employee roles. So, that leaves small business to come to the rescue. Only someone who has never run a business could argue, "What's $500 in additional taxes?" They'll smugly try to make the case that $500 is not enough to put someone on the payroll. But, that's because they think jobs are added in the private sector in the same manner as they are in the public sector.  They are not.

In the government arena, if you want to add a $40K a year employee, you have to raise $40,000 a year in addition taxes. In the small business sector, a $500 investment could very easily result in a $120,000 to $240,000 in new salaries.

Let's explore this a little further with a real life example.  Last week, I spent $500 in travel expenses to meet potential customers for a new and innovative technology.  The meeting went very well. If the deal is closed it will result in a contract that could easily be worth $1M or more.

New people will be added to the payroll to fulfill the contract. They will have paid benefits and won't need to be supported by the state. The $500 that was not collected in taxes will likely save the state (i.e. taxpayers), tens of thousands of dollars in the form of unemployment benefits that will not have to be paid.  In fact, these wage earners will pay state income and gross receipts tax far in excess of the $500 in additional taxes on my business. If they get to keep their house because they are once again gainfully employed, they will also pay property taxes.

Now, let's go back to the scenario being pushed in the legislature. They want to take another $500 (or more) away from small businesses. This is a zero sum game. My business has a budget. If you pull $500 from it in the form of additional taxes that money has to come from somewhere. Due to the tight credit market, it can't come from my retained earnings.  Nor, can it come from any line item that will keep me from fulfilling my current obligations.

So, that means it will come from marketing dollars. It might be one less trip I can take to market my business. Or, maybe ten or more marketing lunches that can never be scheduled. Or, a critical conference that has to be passed up.

Those are all possibilities. The one undeniable fact is that it it will be four, five or a dozen jobs that will never happen because elected officials refused to do the right thing and cut unnecessary spending.

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Monday, February 08, 2010

Complement Higher Taxes with Increased Energy Costs

Are you feeling the economic pinch? Well, when the dust settles from the current legislative session, that pinch is likely to feel more like a bone-shattering squeeze. We've got tax after tax after tax being proposed and pushed through, and that's only the beginning. 

There are other initiatives out there which will be equally successful at separating you from your hard earned dollars:

The greenhouse gas reduction sought by the advocacy group New Energy Economy would apply to oil and gas producers, refineries, manufacturers, coal-fired power plants and others in New Mexico that emit 10,000 tons or more a year of carbon dioxide.

Public Service Company of New Mexico estimates it would have to reduce current carbon emissions from its fleet of power plants by 36 percent to meet the proposed cap.

And the company says that would mean a big jump in electric bills.
In fact, if you follow the money trail, you'll see that big government lobbyists are behind all of the major wine and dining going on right now in Santa Fe:

However, the latest batch of lobbyist reports that trickled into the Secretary of State's Office last week showed that the lobbyists who were throwing the biggest parties for the senators and representatives were not from commercial interests. Instead, they represented state employees, community colleges and an environmentalist group. 
As legislators continue to take on the role of the Sheriff of Nottingham, they would be wise to take note of recent elections around the country. Continuously trying to take more from those making less inevitably has consequences.

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Thursday, February 04, 2010

Wall Street Versus Main Street Continues

I've wondered aloud on more than one occasion why the vast majority of stimulus efforts on the federal level were given to Wall Street versus Main Street. Of course, we all know the reason.  Democrats are providing special favors to their favorite campaign donors and making sure that big inefficient businesses with powerful unions can keep their doors open regardless of the lack of demand for their product.

Well, as near as I can tell, the same thing is happening in the New Mexico legislature - the interests of large business at the expense of small business. Only instead of giveaways of taxpayer money, we're talking about who the Democrats in the legislature are opting to tax.  Mind you, I say Democrats because the Republicans have made it clear that reining in the size of government should happen before increasing taxes:
Republicans in both the House and Senate are expected to take a hard-line approach against tax hikes, although they bristle at suggestions they're merely trying to block the Democratic agenda.
    

"They've never asked us to be part of the solution," said Rep. Jimmie Hall, R-Albuquerque.
    

Hall said he thinks there are still ways to trim the budget — by targeting administrative and vacant positions — without hurting core services.
    

"I can't support any tax increases until we shrink state government down to a level that a populist can support," he said. 
So, back to the tax, tax, tax enamored House Democrats. Let's take a look at their proposed solution:
Gov. Bill Richardson said Wednesday he supports the House's budget approach, which includes temporarily raising the gross receipts tax rate and imposing a personal income surtax on high-earning New Mexicans. 
I've explained in a previous post that what is really being proposed is a tax increase on the profitable retained earnings of remaining small businesses.  In other words, the money they need to weather the storm and keep key employees at work is the target of the tax increase. Now, yes, I'm of the mind that significant spending cuts should be made before even considering any tax increase, but I can't help but wonder if the Democrats are so bent on raising taxes, why they are targeting small New Mexico businesses instead of large Wall Street firms.


Think about it.  The general consensus is that small, not large businesses are the key to a true economic recovery. The irresponsible stimulus spending may have helped keep the doors open of those who are "too big to fail," but it did nothing to keep your neighbors, family and friends employed:
Unemployment rates were higher in December than a year earlier in 371 of the 372 metropolitan areas and lower in 1 area, the U.S. Bureau of Labor Statistics reported today. 
President Obama is finally awakening to the fact that America (and his popularity) is hurting because he has put the interests of Wall Street and unions before that of Main Street families:
Faced with a national 10 percent unemployment rate and a corresponding erosion in his popularity, President Obama delivered his first State of the Union address tonight and offered up a laundry list of proposals aimed directly at the small businesses who do 60 percent of the hiring in America.
So, you've got to wonder why House Democrats in the legislature have targeted small businesses and left big businesses alone. Sure some big business tax bills were introduced, but bills like HB 62, which would could raise taxes on large out of state corporations, got a pass in favor of taking more money away from job creating small New Mexico businesses.

Come Election Day 2010 the House Democrats, all of whom are up for re-election, are going to find that it is the Main Street business owners, employees and their families that are going to vote.  You know, the ones that actually live in the state.

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Monday, February 01, 2010

Before You Raise Our Taxes

Legislators who are interested in continuing to serve past November 2010 would be wise to consider cleaning up the mess that is state government before further increasing our taxes. A good place to start might be with the people put on the government payroll that do little more than collect a check:

One of them is Charles Lipski Sr., who was hired at the Department of Transportation two months before the freeze, at $65K a year, with a resume that had his last job ending in 1994. He was given a state job that had no title and no description. Lucky for Lipski and others like him that these temp jobs don't have to be advertised to the public.
        

Getting that information wasn't easy — NMDOT tried to make a reporter go to Santa Fe to "sign in" to see Lipski in Bernalillo. Asked about what he did, Lipski would only say he was very "excited" about doing a job on the public payroll that he couldn't talk about publicly. 

You see, when the House Revenue and Taxation Committee votes today on passing a 1% tax increase on Main Street small business owners throughout the state (see this post), they will be removing $44 million from the economy that could be used to save or create real jobs in order to continue do nothing patronage jobs as noted above:

Consideration of a bill that would impose a 1 percent surtax on the taxable income of high-earning New Mexicans was delayed Friday by a House committee.
        

However, Rep. Edward Sandoval, D-Albuquerque, the chairman of the House Revenue and Taxation Committee, said House Bill 9 will be debated by the committee on Monday.
        

If enacted, the measure would generate an estimated $44 million in the coming year.  

When you consider that we're still losing jobs, now is not the time to force higher taxes on small businesses throughout the state that are trying their hardest to help rebuild the economy:


New Mexico’s seasonally adjusted unemployment rate was 8.3 percent in December 2009, a sharp increase from 7.8 percent in November and 4.7 percent a year ago. The national unemployment rate stayed at 10.0 percent.

The rate of over-the-year job growth, comparing December 2009 with December 2008, was negative 3.1 percent, representing a loss of 25,900 jobs. New Mexico’s ranking among the states was twenty-eighth highest at a time when all 50 states reported declining year-over-year employment.

December was not a good month for employment in New Mexico, with the seasonally adjusted series showing a decline of 4,800 jobs. This may be an indication of reduced seasonal hiring, compared to what is normal. However, we still believe that we are several months into a slow recovery. There are typically a number of setbacks in any recovery, as we take two steps forward and one step back. December appears to one of those steps back.

A tax increase on top of all of the other economic pressures would be yet another step back. There are an awful lot of qualified New Mexicans who are out of work because of the downturn in the economy, and they're not going to take kindly to being kept out of work because our elected officials refuse to supress job creation so that they can keep dole out political favors at taxpayer expense.

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Monday, January 25, 2010

Only One Committee Referral

You can tell a lot about the future of a bill introduced in a legislative session by the number of committees it is referred to before it sees the light of day on the floor for a vote. If a bill has three committee referrals, you can expect it's got a long uphill battle that will see the session end before the bill makes it to the the floor. When it comes to tax raising legislation, that is what those of us prefer to spend our own money want to see.

On the other hand, if a bill has only one committee referral, then it's pretty clear that someone with power wants to see it passed.  Last week, we noted that HB 9 INCOME TAX SURTAX bill, had quickly collected a lot of signatures by those who believe in taxing more before spending less. Now, we observe that it has only one committee referral.  If you find yourself in the group that currently pays 59% of the state's income tax revenue, and you don't want to pay even more, you better start lighting up those phone lines and filling those inboxes.


 

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Friday, January 22, 2010

It Only Took Three Days

So, who wants to raise our taxes? If you're a legislator in Santa Fe eager to raise taxes on small businesses in New Mexico, raise your hand.  No, better yet, just scribble your name on top of the proposed new tax bill.


Oh, sure I understand how some readers might think that this is a tax on the rich, but that's because they don't understand how most small businesses are set up.  They are usually limited liability companies or sub chapter S corporations.  That means that the profit from their company ends up on their personal income tax filings.

Now with banks being tight on lending (despite bailouts from taxpayers), most profitable small businesses are keeping those retained earnings in their company to keep their doors open and hold onto their key employees. But, that last lifeline is about to be raided by legislators and the administration in Santa Fe because it's easier to force more layoffs in the private sector than to cut unnecessary spending in public sector.

After all, who is going to notice if one more small business is forced to close their doors? Well, the answer is I will, and I sure hope you feel the same.  If you find your legislator's signature on this additional tax on small business, I hope you'll give them a call and ask them to get their priorities straight. If you don't know what your legislator's signature looks like, no problem, you can download this PDF of the entire bill along with the document they signed to kick off the session.

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Thursday, January 21, 2010

What's Important to Voters

On the national level, elected Democrats just received a wake-up call that their agenda is not our agenda. And, by our, I mean the majority of voting Americans whose number one concern is housing and feeding their families:
Shorn by Massachusetts voters of their pivotal 60th Senate vote and much of their political momentum, the White House and congressional leaders are considering a more modest version of Obama's top legislative priority. It could focus on curbing insurance company practices like denying coverage to sick people and on helping low-earning people and small businesses afford coverage, officials said.

Also fueling the Democratic search for a fresh health care strategy is a conviction by many in the party that it's time for an election-year focus on jobs and the economy, which polls show are easily the public's top concerns.

Of course, they're kind of missing the mark. Jobs and the economy are NOT an election-year focus.  They are an EVERY year focus.  Think about it. If we have a strong economy and jobs, the vast majority of Americans can take care of meeting their own healthcare needs.  I know.  What a concept!

I'll also let you in on a little secret. The more government taxes and regulates, the less likely we're going to see jobs and a strong economy. The bigger government gets, the smaller the private sector gets. 

Don't believe me? Well, look for a state with a really big government footprint. A state like, hmm, well, a state like New Mexico. We've got lots of big government and very little industry.  The result? We've got a very poor populations per capita.  Are we seeing how this works?

Our state legislators would be wise to consider this as they wrangle with how to save all of those "very important" government programs. If we want to see jobs and growth, we need to shrink the size of government.  Of course, the easiest way to do that is stop feeding the beast.  In other words, make do with the revenue we have as opposed to taking away more jobs by increasing taxes even more.

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Thursday, December 31, 2009

2010 The Year of the Tax Increase

Every year Governor Richardson gives a name to the upcoming legislative session. Well, if even a small part of the proposals made by Governor Richardson's Budget Balancing Task Force come to pass, the 2010 legislative session will be known as The Year of the Tax Increase. Actually, we should probably make that plural. This 400+ page document has tax upon tax upon tax proposed as the solution to our supposed budget woes.

Some of these tax increases, if passed, would take effect TOMORROW. I kid you not. Proposed income tax increases would begin tomorrow and are designed to take $327,971,000 out of our pockets over the next five years and give it to elected officials to make up for their spending spree over the last seven years. Now, while the economy, at least temporarily, does not seem to be getting worse, it also doesn't seem to be getting any better.  Unemployment numbers are holding steady at levels not seen since the 1940's:

New Mexico's jobless rate remained steady at 7.8 percent in November, the same as the previous month but much higher than the 4.6 percent rate in November 2008.
    

The national unemployment rate in November decreased to 10 percent.
    

The state's labor department, the Department of Workforce Solutions, says the state lost 25,400 jobs over the past year.
    

The department says the decline in the number of jobs is the worst New Mexico has seen in modern times and it will be a number of years until employment reaches pre-recession levels. 

That's right, it will be many more years until we get back to healthy rates of employment and a growing economy.  Yet, for those of you lucky enough to be holding a job, you're going to find yourself, not only working harder because you're doing the work that used to be done by two or more people, but also working for less, because state government is going to be taking hundreds of millions of dollars out of your pocket.


Remember all tax increases are permanent. It's just the nature of the beast. Consider this from the report:


The gross receipts tax was first levied in 1934 (as the emergency school tax) as a temporary measure to keep the schools open; it was made permanent in 1935. The tax applied to almost all business sectors, including services. This contrasted markedly with other early-adopter states, like Mississippi, which taxed only sales of tangible goods. In 1966, the tax was reorganized and renamed as the gross receipts tax.


Government  always uses some sort of "emergency" to rationalize its takings, be they individual freedoms or financial. However, long after the "emergency" has subsided, what was supposed to be a temporary measure becomes permanent.  There are those who think it is time to raise these GRT taxes even higher. Yet, consider that:

The table following the map shows that New Mexico’s average tax rate is the 28th highest out of the 46 states with a sales tax. However, New Mexico ranks fifth highest in terms of sales tax revenue as a percent of personal income, a result of both the relatively low level of personal income in New Mexico and the broad base of New Mexico’s gross receipts tax.

What, fifth highest in terms of sales tax revenue is not high enough? We want to be number one? I really don't see how being at the top of this list would be a good thing. Let me put this in another perspective, total GRT collected from us, the taxpaying public, in 2004 was $2.3 BILLION.  Five years later, the economic crisis has resulted in only $3.2 BILLION taken from our bank accounts.

Wait a second! That's not a decline in GRT.  That's an increase in GRT revenue ! In fact, that's a 38% increase in taxes in collected.  Now, ask yourself, am I making 38% more today than I was five years ago?  If the answer is yes, well, you're lucky. But, the truth is that as a whole we're only making about 22% more today than we were in 2004.  If the government thinks they are in a crisis, then the taxpaying public must be beyond crisis. Yet, they want to raise our taxes even more.

I could go on, but I think you get the point.  State government IS NOT in a revenue crisis situation.  The problem is that spending has been out of step with reality for many years now.  At the very least, we should be cutting expenses back to 2004 levels. If you doubt me, then ask yourself, are my neighbors, family and friends better off today that they were in 2004? I'd be very surprised if you could answer that with a "yes".

If you're the type to make New Year's Resolutions, I've got easy one for you to make.  Resolve to call your legislators and the Governor, assuming you can locate him, and let them know if they like elected office, they will cut spending to bring it in line with our income growth before considering a single additional tax.

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Friday, December 11, 2009

Tax Increases Only Inevitable in Governor's Mind

Governor Bill Richardson is all about raising taxes in the upcoming 2010 legislative session. In his mind, a tax increase is inevitable. But, thankfully sounder minds may prevail:

Sen. John Arthur Smith, D-Deming, the Finance Committee chairman, said many lawmakers from rural parts of the state — both Democratic and Republican — remain wary of raising taxes during tough economic times, despite the state's budget deficit.

"There's no guarantee there's going to be revenue enhancements," Smith said Thursday. "I just don't see an overwhelming vote."

Lawmakers already have reduced general fund spending by about $700 million, from $6 billion to about $5.3 billion, because of steady declines in state tax revenues. Some legislators say there's room for more cuts in the state budget, which grew by 50 percent during Richardson's first six years in office.

First, a word of advice to those that oppose tax increases. Let's call them what they are - tax increases. The presumably poll tested and less offensive positioning of tax increases as "revenue enhancements" isn't fooling anyone. The voting public in New Mexico is not as naive as some elected officials would like you to think. If you raise our taxes, we'll know it. And, we'll hold it against you. We get enough "enhancement" junk mail in our inboxes to know political spam when we hear it.

With that said, let's talk about the resistance to cutting the bloated budget - a budget that increased 50% since the current administration took control. Exactly what has this recurring explosion in spending bought us?

  • Is your life better today than it was in 2002?
  • Are schools performing better than they were in 2002?
  • Do you feel safer in your homes today than in 2002?
  • Do you feel more optimistic about your future today than you did in 2002?

My guess is that the vast majority of New Mexicans would answer all of these questions with a resounding, "No!" So, let's stop talking about tax increases and let's get back to a time when life was enhanced and government was smaller. It would be a small step back to make a huge step forward.

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Wednesday, December 09, 2009

New Legal Industry Niche Grows

In Monday's post, I noted that a new industry would result while the State tried to hold onto their unconstitutionally imposed property produced lightning tax revenue, and sure enough the lawsuits have started:

The owners of about 30 homes sued the Bernalillo County assessor on Tuesday to recover more than $42,000 in overpaid property taxes — the latest twist in the debate over "tax lightning."

The plaintiffs, 50 in all, argue they paid too much in taxes because of the state's unconstitutional property tax law, which two state district judges have already ruled against.

More litigation could be on the way. Clinton Marrs, the plaintiffs' attorney, said he is working on another suit that would involve about 100 homes.

"This is just the first wave," Marrs said of Tuesday's suit.

So, let's consider this for a moment. Bernalillo County Assessor Karen Montoya indicated that tens of thousands of taxpayers have been unjustly impacted by tax lightning. With just 30 homes suing, the remuneration potentially owed is $42,000. Imagine what it will be when everyone starts suing.

Did I mention that the biggest jump in keyword activity on this site in the last two days came as a result of words associated with tax lightning? Hmm, I've never sold ads on this website, but considering the size of this market, maybe I should make an exception this once and sell a top and side banner ad to a legal firm for the month of December and January at $2500 a pop? After all, tis the season to need a little extra spending money.

Any takers?

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Monday, December 07, 2009

State Prepared to Fight County Tax Lightning Correction

A law from 2001 put a 3% cap on the amount our property taxes could increase year over year. However, the law allowed the property tax to be reassessed upon sale of the property. The result has been an unconstitutional tax lightening effect. In other words, two neighbors in the same size house could find themselves paying hugely different annual tax bills.

After two judges have found this unequal taxation to be unconstitutional, Bernalillo County Assessor Karen Montoya has opted to do the right thing and put everything back in balance by 2010. But, it appears she is going to get a fight from State Secretary of Taxation Rick Homans:

Rick Homans, secretary of the state Taxation and Revenue Department, said Montoya's decision could have serious consequences.

"A massive rollback in property taxes, as suggested by the county assessor, raises several complex legal questions and has potentially serious fiscal implications that need to be studied more closely in the weeks ahead," he said.

Leave it to a state bureaucrat from the Richardson administration to twist the facts into a new reality. The truth of the matter is that it was the law that was passed in 2001 that raised the complex legal issues. Complex legal issues that impact tens of thousands of voters in Bernalillo County alone. Complex legal issues that have been determined by the courts to be unconstitutional, not once but twice.

Now, it is refreshing to see an elected official like Bernalillo County Assessor Karen Montoya decide to take a corrective course of action on behalf of taxpayers. Compare that action to the current administration's fallback position to delay justice for those unfairly penalized. The Richardson administration would rather push off taking any action, and instead create a new industry and over burden the court system by forcing tens of thousands of taxpayers unjustly impacted by tax lightning to sue for equitable treatment under the law.

Considering that many of those homeowners are probably struggling to keep a roof over their families heads in these times of increasing unemployment and home foreclosures, it is clear that this administration puts protecting their revenue streams ahead of the needs of working New Mexican families.

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Monday, November 30, 2009

Escape From New Mexico Costs $100 Extra

One of the things I've always liked about living in New Mexico is how convenient it is for business travel. I can hop on a plane and get to many of our nation's largest metros within three hours. Well, shortly after the New Year, it looks like it is going to cost me an extra $100 if I want to avoid being quarantined to New Mexico:

"The way it is right now, come Jan. 1st, residents of New Mexico and residents of about 25 other states wouldn't be allowed to board airplanes unless they had a valid passport."

And, why is this?

The biggest issue is that New Mexico gives driver's licenses to foreign nationals and illegal immigrants, which under the new law, would be illegal.

So, because our state government thinks it is important to make New Mexico a sanctuary state for illegal immigrants, I have to pay $100 extra if I want to travel freely in my own country. Yeah, that makes sense. Oh, I know some of you want to blame it on the Bush Administration for pushing the Real ID Law. For the record, I was not a fan of the expansion of a police state then any more than I am now. But, they've been gone for almost a year, so the new administration is just as much to blame for pushing this expansion of government and the resulting new tax on citizens.



And, that is exactly what it is - a new tax. Any time a government decision requires you to fork over more money to comply, it is a new tax. What really irks me is that no one at the state or federal level seems to care that this is going to cost me both a significant amount of time and money:

"Right now it's a game of chicken, between the federal government and the state governments," [New Mexico Taxation and Revenue Secretary Rick] Homans said.

A game of chicken? That's the game where two people in moving vehicles come right at one another and see which one swerves out of the way first, right? Well, it's really easy for state and federal government to play chicken with one another when the taxpayer/traveler is the one driving both cars. Nothing like taxpayer pain for bureaucratic amusement.

So, the states and the feds can't get on the same page to allow law-abiding citizens to travel freely within our national borders. Now, what do you think is going to happen when we have nationalized healthcare?

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Monday, November 23, 2009

Duplication is Really Unneccessary

When times are tough, it is important to start taking a hard look at the various government commissions funded by taxpayers and ask, "Do we really need this?" For example, the Albuquerque Journal has an article today announcing that the New Mexico Commission on the Status of Women is helping Clovis area homemakers head back into the work force. How are they doing this?

The commission's Displaced Homemakers office is offering a free workshop called Effective Work Search Skills.

Lorraine Bantista, coordinator of the Displaced Homemakers Office, said the four-part workshop aimed at women will cover self-assessment, types of job search techniques, tapping into the hidden job market and preparing for the interview.

Let's deal with the obvious first. Every single one of these topic areas can be found online with a quick Google search. This is just another example of one of those government agencies that would be politically unpopular to defund, but is absolutely unnecessary. If you don't believe me, take a look around the NM Commission on the Status of Women website, and then tell me with a straight face this is a needed agency. Do you really think a single woman's life in New Mexico is improved by the work of this commission?

Politicians like to play games and talk about putting prisoners on the street, hurting education or letting people starve, but the truth is that until they start cutting these unnecessary commissions and agencies, they have no case to increase taxes.

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Friday, November 20, 2009

Taxes Before Responsibility

There's a war brewing for the 2010 Legislative Session. The battle lines have been drawn, and on one side are those that believe government excess should be pared down, and on the other side are those that want to see the tax and spend party to continue by raising even more taxes. The spend, spend, spend people have formed the organization, Better Choices New Mexico, to make their case, which basically boils down to:

This alliance of small businesses, faith-based groups, working families, and nonprofit organizations believes cutting critical services and programs would be a terrible mistake. Instead, the Legislature needs to open the books on tax expenditures, close the loopholes for out-of-state corporations, and rollback the tax breaks for the wealthy.

What's amazing to me is that essentially what they are defending is the spending gone wild policies that have left us in an economic crisis that should not have occurred. Any organization that wants to be taken seriously about seeing better choices in New Mexico had better address the severe mismanagement of taxpayer funds by the state before asking for more money. Their one-pager makes the case over and over again for increasing revenue, but not once does it talk about cutting expenses. The closest it comes is to suggest shifting dollars from one area of waste to another.

And, mind you there is a lot of waste in government spending in this state. There are the obvious signs of waste that are uncovered everyday:

Nemazee and others connected to Carret Asset Management gave campaign contributions to Gov. Bill Richardson before and after receiving the contract, according to the magazine. “The contract with the State Investment Council, which oversees $12 billion in trust funds from oil and gas leasing fees, has so far yielded $1.7 million in fees for Carret,” the author of the article, Nathan Vardi, reports.

Of course, no one wants to take responsibility for this kind of waste:

Richardson’s spokesman says the governor, who is chairman of the New Mexico State Investment Council, played no role whatsoever in the hiring of Carret.
Only in New Mexico could the Chairman get away with full denial of accountability. Then again, this is the same Governor who can hand out multi-million dollar favors like candy on Halloween
without the least bit of economic restraint, no matter how bad out budget situation may be:

I'm positively shocked that Governor Richardson has been a long time friend of the Hool brothers who are behind the Santa Fe Studios. The project, which I wrote about a few months ago, is being subsidized to the tune of $10 million by state taxpayers with taxpayers in Santa Fe County chipping in another $6 million. The whole thing stinks.

Of course, at the same time as he is pushing for additional subsidies for an already-subsidized industry, Richardson is pushing for tax hikes on the rest of us.

Then, there is the wasteful spending that is not so obvious unless you're a government insider:

I am a state employee who is faced with trying to determine where to cut groceries, utilities, Christmas spending...I can accept the furlough...However, I looked at the salaries at executive agencies and must ask how did the agency on aging become a full Department? Military affairs? Where did some of these commissions come from? Do we need them or should we place higher expectations on persons employed in these areas? For example, why isn't the Department of Homeland Security part of the Department of Public Safety?

Why not consolidate programs and eliminate some high salaried executives? Why are we paying outlandish rents for private buildings when there are vacant government buildings? I am not placing the blame on any branch of government, just venting.

Well, someone better start blaming a branch of government. It's called accountability. But, then again, its easier to push for tax increases than to actually try to make a better choices in New Mexico. After all, it's all about our children, right?

Three sport utility vehicles purchased for school administrators from an out-of-state dealer. A $91,000 tow truck. Thousands of dollars for iPods for students. Paying athletes and cheerleaders to pull weeds. Lunches, including a $110 tab at the Rio Chama Steakhouse paid for by federal funds intended for low-income students.

These are just some of the questionable expenditures uncovered by audits of five medium-sized school districts that were discussed Thursday at a meeting of the Legislative Finance Committee. One LFC staffer said these audits "barely scratch the surface" of waste and abuse in some school districts.

Yeah, it's all about the children. Now, you tell me something. Do better choices start with putting more money in state coffers, or does it start by saying enough is enough? Until the people taking and spending our money are held accountable for their fiscal mismanagement, corruption and fraud, I say they don't get to increase taxes by even one tenth of one percent.

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Friday, November 06, 2009

Ripe for Cuts

When the government needs more money, it does two things. It goes into compliance enforcement overdrive, and it looks to raise taxes. I've always asserted we have a spending problem versus a revenue problem. The government, by contrast, believes it has a revenue problem and not a spending problem.

My position gets me labeled as a right-winger .

I've never quite understood why that is the case. I care about my community. I volunteer my time. I donate my money. I work very hard to take care of my family. Every time the government increases my taxes, it means that more of my time has to be spent to fill government coffers. It means less of my time can be spent giving back in ways I feel make a difference. In other words, it infringes on my personal freedom.

The government will come after people and companies with a vengeance if they fail to fulfill their tax liability. They will tack on penalties and interest to an unpaid amount that would make the most aggressive payday lenders salivate with envy. And, they've got their own way of "kneecapping" those that owe them money regardless of the excuse:

The department has obtained a court order to force the 38-year-old restaurant chain to pay up or close down. Homans said his department can take up to 60 months to pay off the tab, but the restaurant better do something quick."I would say it's a matter of days for the process to be completed and the order is finalized for them to shut down," Homans said.

Late Wednesday, afternoon founder Dave Garduno released a statement blaming a former employee for embezzling $2 million and creating the tax problem.


In the end, the heavy hand of government will always prevail. Yet, what happens when the government entities that empty your pockets fail to follow their own rules? Nothing. Absolutely, nothing.

There are no sanctions, however, for agencies that skip audits, something Balderas said he'd like to change. He'd also like to see lawmakers start withholding the budgets of groups with outstanding audits.

"These agencies are using taxpayer dollars and they should be accountable," he said. "These dollars have been spent and they are not accounting for it ... that's egregious and unacceptable."

So, you think the government has your best interests in mind? Think again. There are double standards in play here. If you fail to file your government mandated paperwork, they will do everything they can to make you comply. If a government agency fails to file their paperwork, well, nothing happens.

If we're looking for a place to start making budget cuts, I suggest cutting the budgets of all those who refuse to be held accountable as a great place to start.

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Tuesday, October 06, 2009

Making the Rich Evil and Taxing the Poor

Talk about killing two birds with one stone, that's exactly what State Representative Brian Egolf attempts to do in a guest commentary over at Heath Haussamen's blog:

Prepare to be shocked: Did you know that in New Mexico a family of four with taxable income of just $16,001 pays the same personal income tax rate as a family making $100,000, $250,000 or even $1 million?

Under our state’s tax structure, the highest tax rate kicks in at $16,001. This means that a family of four living at or near the federal poverty level pays income tax at the highest New Mexico rate. This must change, for reasons of both fairness and fiscal soundness.

In New Mexico, our tax system is extremely regressive, which means that it requires low-income earners to pay a higher percentage of their disposable income than high-income earners. The effect of a regressive system is that low-income earners feel the pinch of a tax bill far more than high-income earners, and low-income earners have far less money available for savings as a percentage of their income.


The two birds in this case are the "evil rich people" and making the case for a tax increase. Of course, there are more than a couple of problems with Representative Egolf's positions. First, let's look at the basic premise that the "rich" don't pay enough of their income in taxes. Representative Egolf is right that anyone making over $16,001 is in the same tax bracket.

How New Mexico State income tax rates are structured
The tax table below will show in detail the New Mexico state income tax rates by income tax bracket(s). There are 4 income tax brackets for New Mexico.
If your income range is between $0 and $5,500, your tax rate on every dollar of income earned is 1.7%.
If your income range is between $5,501 and $11,000, your tax rate on every dollar of income earned is 3.2%.
If your income range is between $11,001 and $16,000, your tax rate on every dollar of income earned is 4.7%.
If your income range is $16,001 and over, your tax rate on every dollar of income earned is 4.9%.
Income tax brackets data last updated March 3rd, 2009.


That sounds terrible, right. Wrong. Let's look at the hard numbers. What does this really mean? Well, let's say you define someone as being a member of "evil rich" if they make over $250,000 per year. Under the current state tax system, a person would be paying $12,250 per year in state income taxes if they are at the bottom of the rich class. Whereas, a family of four making $16,001 would be paying $784.05. In other words, the rich person would be paying $11,465.95 more in taxes. How is that not enough? The disposable income part of the argument is moot. A family of four living on $16K has no disposable income.

Ok, back to the rich person. Remember that this rich person is also likely paying property tax; whereas, it is unlikely that the family of four living on $16,001 is paying property tax. The rich person is also likely purchasing more, and therefore paying more dollars in gross receipts tax than their lower income counterparts. The rich are also paying higher federal income taxes, which in turn comes back to the poor in New Mexico since the state historically receives about two dollars in federal spending for every dollar paid in taxes.

The low income family in this example doesn't pay federal tax, they most likely qualify for the Earned Income Tax Credit (EITC) and actually get over $5,000 paid to them (money that comes from those rich folks). I could go on, but I think you get the idea. The bottom line, when the rich are done paying all of their taxes, they're not really all that rich after all. Of course, they will have more money than the poor, but the alternative is a communist society.

Of course, that's not the only fallacy in Representative Egolf's argument. He makes the case that the $450 million budget shortfall is because the top income tax rate was cut. This is ridiculous. The year after the tax cut went into effect, the total dollars brought into the state went up, not down. The problem is that the state kept increasing spending like there was no tomorrow.

Well, tomorrow is here. Spending needs to be cut. Taxes do not need to be raised.

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Wednesday, August 12, 2009

Balancing State Budget Without Taxes or Cuts

A special session of the New Mexico legislature will be called to address an expected budget shortfall. Governor Richardson had this to say:
Richardson blamed the shortfalls on the national recession, and he urged lawmakers to avoid layoffs, repealing tax cuts or "drastically cutting services."
Ok, we're going to balance the budget without increasing revenue, and without cutting spending. Hmmm... I guess that leaves... um... magic?

And, for Governor Richardson's next trick, he will attempt to hypnotize the entire state (or at least the voting population and media) into forgetting that a spending spree on steroids is what caused our financial budget crisis in New Mexico.

"Because our budget deficit is directly related to the national recession, I want to make sure that we don't take any action that might cost jobs or adversely affect the state economy," Richardson said in the release.
Wow. What an act!

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Tuesday, July 21, 2009

Here Come the Taxes

Remember all of that nonsense about how the government was going to expand health care coverage while cutting costs? Yeah, well, it looks like they are going to try and expand health care coverage the old fashioned way:
President Barack Obama is declining to take a surtax off the table in the escalating debate over how to pay for a new health care system that would cover millions of uninsured people.
That's right, here comes the tax increases. Remember, taxation is a zero sum game. When you start taxing for ever larger government programs, you are removing dollars that would otherwise be invested in the economy. Think about that as you read about the next increase in unemployment numbers and business closures.

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Tuesday, June 30, 2009

Slowing of the Deepening Recession

A slowing of the deepening recession is not the same as coming out of the recession. It's important to remember that simple fact. I'm kind of harping on this in recent posts, because it appears that the media and administration are at times trying to spin us into believing that everything is getting better. It's not. It is just not getting worse as fast as it was before:

U.S. home prices continued their multiyear tumble in April, according to the S&P Case-Shiller home-price indexes, which showed their third-straight month of slightly smaller declines.

Meanwhile, U.S. consumer confidence retreated in June, especially regarding expectations for the economy six months from now, a report released Tuesday said.

Remember that when consumers are not feeling confident, they don't go out and buy. We have only two months left until the holiday buying season starts (back to school followed by holiday shopping). With consumer confidence continuing to fall, we can expect more people to sit on their money.

I wouldn't be surprised if, on top of everything else, this leads to more declines in gross receipts taxes at the state and local level in New Mexico. If that happens, we can expect a special session where tax increases are pushed. I wouldn't be surprised to learn that polling is already being conducted to determine the type of tax increases New Mexicans might support.

Let me just say now, if anyone calls you, the answer should be, "No, tax increase."

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Monday, June 29, 2009

Just Checked - The Recession is Not Over

So, I went outside and looked around. As near as I can tell, the recession is not over. People are still losing jobs and fighting for their homes. Now, what is the absolute worse thing the government could do right now? That's simple. Pass tax raising regulation that drives more jobs overseas:
Microsoft Corp. Chief Executive Officer Steven Ballmer said the world’s largest software company would move some employees offshore if Congress enacts President Barack Obama’s plans to impose higher taxes on U.S. companies’ foreign profits.

“It makes U.S. jobs more expensive,” Ballmer said in an interview. “We’re better off taking lots of people and moving them out of the U.S. as opposed to keeping them inside the U.S.”

Obama on May 4 proposed outlawing or restricting about $190 billion in tax breaks for offshore companies over the next decade. Such business groups as the National Foreign Trade Council, the U.S. Chamber of Commerce and the Business Roundtable have denounced the proposed overhaul.

There is a coalition out there fighting hard against this latest hairbrain scheme. And, less you think this won't affect New Mexico, because after all we don't have any large corporations headquartered in our own backyard, think again. Just look what former New Mexico Governor Jerry Apodaca, a strong President Obama support, warns:

The new U.S. tax proposal would eliminate the policies that were put in place to protect our global companies from these differences in tax burden and make us less competitive. The U.S. would stand alone with one of the highest burdens in the world.

The end of these traditional tax policies would essentially amount to a $200 billion new tax on U.S. companies operating overseas. This new expenditure would mean less money to invest in expansion, less money for research and development, and less money for new jobs.

Is now really the time to pass policies that eliminate jobs? Yeah, I don't think so either.

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Wednesday, June 17, 2009

What's Another Trillion?

We've already accumulated $1.5 trillion in taxpayer debt, now here comes the trillion dollar healthcare proposals:
A leading health care bill under consideration in Congress would cost the government an estimated $1 trillion over the next decade and reduce the ranks of the uninsured by about one-third, or 16 million individuals, congressional budget officials said Monday in a preliminary estimate.
I want to make sure you read that passage carefully. A trillion dollars will reduce uninsured by one-third. Therefore, it is not to far off to assume that it would take $3 trillion to insure everyone. And, make no mistake, there is not such thing as bills that "cost the government" money. It costs the taxpayers money. The only money the government has comes from you or me.
The three advocate a mix of tax increases, spending cuts and new mandates guaranteed to annoy nearly every major player in the health-care debate, including a mandate on businesses to contribute to health insurance costs and a tax on some benefits provided through the workplace.
Funny how they like to call it "tax increases" and "new mandates" as if they are two different things. A tax increase takes money out of your pocket and gives it to the government to spend as it sees fit. A mandate, as described above, takes money away from businesses and forces them to spend it on government programs. If you ask me, that's the exact same thing.

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Thursday, May 07, 2009

Small Businesses to be Hurt by Cap and Trade

Despite intense pressure from Governor Richardson, the regional cap and trade legislation was not passed. At the time I wrote:
Make no mistake this is an additional fee that will ultimately be passed on to you and me - the consumer - at the pump. Whenever government seeks to impose fees to help with some grand scheme, we are the ones who find ourselves squeezed. This time will be no exception. What makes this flawed policy even worse is that the negative impact of this misguided legislation will be felt not once, but twice by hard-working New Mexicans.
Well, it looks like at least one Democratic Congresswoman realizes this will not only hurt consumers, but negatively impact small businesses throughout the nation if the Democratic controlled Congress and President are successful in this misguided effort:
Small businesses need rebates to ease the higher energy costs that may result from capping carbon dioxide emissions, the chairwoman of House Small Business Committee wrote today to the Democratic sponsors of the legislation.

Some businesses “will not be able to insulate themselves from such rapid energy price increases and could experience serious economic disruption,” Democratic Representative Nydia Velazquez of New York wrote to Representatives Henry Waxman and Edward Markey.

The federal government keeps bailing out big businesses to the detriment of taxpayers and small businesses. When is enough, enough?

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Monday, May 04, 2009

Stimulus and the Albuquerque New Home Market

It's rare that I post someone's article here in full. Actually, I don't think it has ever happened before now. But, today that is precisely what I'm going to do. This weekend I received an e-newsletter from David Murphy, Publisher of SALESTRAQ™ of New Mexico, regarding the impact of the stimulus of package on the local home market. I found it very enlightening and asked his permission to reprint it in its entirety here. If you send David an email, I'm sure he'll send you a copy of SalesTraq of New Mexico’s current May 2009 “Fast Facts” spreadsheet....

An element of common wisdom shared among parents for many generations is that they shouldn’t allow their children to eat too much candy. If their children eat too much candy, they’ll get a tummy ache, and eventually, vomit. In like manner, as adults we should intuitively know that we shouldn’t indulge ourselves with too much personal debt, including the mortgage variety. Of course, it will feel good at first to have our hands on whatever it is the debt has acquired for us. But in the end the debt will give us adults a different form of tummy ache, known as an ulcer. The Federal Government of the United States of America on the whole, however, hasn’t seemed to grasp this simple concept of “too much debt is bad”. Perhaps the growing economic bellyache our Country is experiencing is a necessary evil – a lesson we need to learn that too much debt may be sweet at first, but becomes sour later on.

We’ll get to some housing data shortly, but think about this with me for a moment; any city / municipal or state governments that have debt obligations exceeding their projected income must choose between two courses of action (or utilize a combination of the two). The first course is to cut expenses. This may mean downsizing programs or even eliminating some of them. They might require lay offs of local government workers. The second course of action is to increase the revenue stream via higher taxes, either on public services or privately generated incomes. (Recent American “tea parties” bear witness to the lack of popularity that the second option affords). How is it, then, that in recent memory the Federal Government of the United States generally promises to take neither route and still manages to substantially grow itself? How can it promise to increase public services and public sector employment, while simultaneously decreasing taxes? What magic does the U.S. Federal Government possess that makes this paradox possible, and can such magic charm us indefinitely?

To ascertain the answer, let’s first consider that the U.S. Federal Government acquires its spending power through three primary channels. 1) Selling U.S. debt to foreign countries. 2) Taxes; on goods, services, and personal and corporate incomes. 3) Inflation / Currency Devaluation. “Huh?” . . . what’s that? That, is the magic which the Federal Government possesses which lesser forms of government do not – the ability to print U.S. dollars out of thin air. Let’s just call it by a sweeter, candy-like name . . . “Stimulus”.

What may come to mind when we see that word “Stimulus” is the so-called “Stimulus Package”, or ARRA (American Recovery and Re-Investment Act) that recently passed the U.S. House and Senate and was signed into law by President Obama. In truth, Government “stimulus” also includes all the prior and subsequent bailouts for various banks and businesses, home foreclosure moratoriums, as well as millions of “stimulus checks” sent to the Americans deemed most likely to go out and blow them right away on candy, flat-screen TV’s and a plethora of other consumables. (God forbid anyone should actually save it or pay bills with it - that would be counter productive to the Government’s efforts). Even write offs of mortgage interest on your personal income tax is a form of Stimulus. In sum, it’s ALL “Stimulus”. Remember the financial “bazooka ” that then U.S. Treasury Secretary Hank Paulson boasted could be used to salvage Fannie Mae and Freddie Mac back in July of 2008? He was simply referring to yet another form of “Stimulus”. (Of note, that bazooka theory didn't work out so well.)

But I digress.

How does the Government Stimulus impact the local housing market? In the most tangible way, there is currently an $8,000 first-time home buyer tax credit being offered (to anyone able to qualify for a loan that is). In typical fashion, the government defines “first-time” home buyers as anyone who hasn’t owned a home in the 3 years prior to purchasing this "first" home. (This is similar to saying that an individual busted for DWI just over 3 years ago can be caught now and regarded as a “first-time” offender.) Consequently, the government is able to deliver on its promise to essentially “lower taxes” by luring someone to buy a home that they otherwise would not, or could not, in exchange for some Stimulus candy. In the process, the U.S. Government must accordingly “print the difference” which has been lost in tax revenue. Will such Stimulus measures for luring home buyers ultimately succeed to pull housing out of its depression anytime soon? The answer to that, I believe, is no. It’s not for lack of trying on the part of the Government, but it’s something deeper and more profound. The country is simply piling up debt, ad infinitum, to the point where paying it back will become impossible. “We the People” are waking up to this dreadful fact.

In turn, the U.S. homebuyer psyche is in uncharted territory, as the local housing market is inextricably linked to the national economy right now in a way never before experienced by human society. There’s something fundamentally different about this recession/depression than those which have preceded it, and that fundamental difference is our modern day access to macro-economic information and its powerful effect on us. When, during all of prior human history, have we had such instantaneous access to such vast swaths of information about the economy? Economic news has now even become a form of entertainment, bearing a stronger resemblance to an NFL football game than to the academic and boring information outlets of old. It’s become popular and hip to talk about the economy, housing statistics, and investing, with the media utilizing fast-paced background music and high-velocity camera motions on shows to try to convince us why we should hold on to Bear Stearns’ stock when it really should have been dropped like a hot potato. The local housing market breathes and exists largely on the choices of men and women whose minds are being shaped as never before by what they daily see, read and hear about the broader U.S. economy. There is so much information out there today, and trying to digest it all can make one feel overwhelmed.

I hope that my assessment of the local housing market is more refreshing that that. My hope is that my evaluations are honest, fair and accurate. I am certain that I don’t always get the details perfect, but I hope that you can look with me at the local housing data with one eye, while keeping your other eye on the “big picture” which invariably drives the local housing market. Moreover, remember that numbers can be interpreted in a variety of ways. Let’s look at some important local data, and I’ll give you my interpretation of it.

I want to begin by taking a fresh look at where local New Home Base Prices are at, especially for the “entry level” buyer right now. Several months ago we looked at the increasing trend of smaller, less expensive floor plan options entering the local new home market. It’s time to look at that once again with updated information. The following data shows the number of local new home floor plans in the greater Albuquerque metropolitan area that have been available to be built for less than $150,000 – going back over the course of several years:

Quantity of local new home floor plans available to be built under $150K in the greater Albuquerque metropolitan area. (includes Single Family Homes, Condos, Town Homes and Apartment Conversions):

May 2003 = 570 plans
May 2004 = 437 plans
May 2005 = 227 plans
May 2006 = 46 plans
May 2007 = 49 plans
May 2008 = 37 plans
May 2009 = 65 plans

Only 5 years ago back in May of 2004 there were 437 different options for buyers to get in a new home for under $150,000 in the greater Albuquerque metropolitan area. Today, there are only 65. That’s an 85% decrease over the last 5 years. Having said that, there has been a 76% increase compared to just last year. Notice how the terms “85% decrease” and “76% increase” sound close to each other numerically. It seems like it might be close to a “wash” in terms of percentage, right? The reality behind the actual numbers, however, can become lost in the translation. Going from 437 to 65 is a huge decline that shows how out-of-whack local new housing has been over the last several years. What we are seeing, then, is a sharp correction of the supply side heading in the right direction of demand. This is a “good sign”, in one sense. It’s “good” because we need more affordable new housing, and it’s beginning to show up more in the market. In another sense, this is a “bad sign”. It is “bad” in the sense that these smaller, less expensive homes will generate less revenue. In other words, the sales agent makes less money on the smaller house because the price is obviously lower. The subcontractors who built the smaller home make less for the same reason. The local and state government makes less in tax revenue on the smaller home for the same reason. The primary beneficiary is then the homebuyer, who (assuming s/he keeps their job), has a smaller monthly mortgage payment to deal with. No matter how you slice it though, the majority of people with ties to the home end up making less money, which means less disposable income, which means local businesses begin to suffer, which means layoffs for some, which all feeds back into the recession cycle.

As the housing bubble deflates in real terms due to a change in home buyer demand for smaller, less expensive new housing, it also continues to deflate in subsidiary terms as previously built, price-inflated bubble era homes are foreclosed on, walked away from, or in some cases pillaged like a vulture cleaning the carcass of a dead animal. All of these realities combine to spell less tax revenue for governments of all shapes and sizes, and sends any true “bottom” of the housing market further off into the hazy future.

This “big picture” of what’s happening to the housing market and its effects on Government is difficult to analyze. It’s very similar to watching the formation of storm clouds. You just look up one moment and say to yourself, “Whoa! Look at those storm clouds! It was clear just an hour ago!” If you have ever seen a time-lapse film of gathering storm clouds, it becomes much more apparent how the storm actually formed. In general observation, the process is very slow, almost totally imperceptible. But if you speed up the film, the mind grasps how it all came together and happened in the first place. The same is true when looking at the U.S. economy and its ties to housing. In hind sight it’s easy to see what went wrong, but during the moment it was happening it was almost impossible to notice, even for our illustrious politicians.

But I’ve digressed, again.

Let’s focus briefly on the other end of the housing spectrum; the local luxury resale market. When home prices were inflating during the early and mid part of this decade, many luxury custom homes were built. I want to look specifically at homes which today are listed on the local MLS at or above $1,000,000. A search earlier today showed there were 150 properties on the local market that fall into this price category. So, how many sales in this price range happened during the first quarter of this year? The answer is, 1. There was only one resale home sold for over $1,000,000 during the 1st quarter of 2009. If even 3 such properties could sell during each coming quarter from here on out, and not a single new listing entered the market for over $1,000,000, then it would still take over 12 years to absorb the current supply. Ouch! In terms of housing bottoms, the luxury market has the farthest to go without question.

So, what’s yet to come?

In my opinion, we are near a bottom in housing in some ways, but that bottom will likely be with us for quite a few years. The recession/depression we’re in will likely appear to wane in coming quarters, partially through the effects of “Stimulus” and Government redefinitions of economic indicators, but in reality I believe that price inflation is right around the corner and will have significant negative effects. I say that because anything of real value has at its core, scarcity. If something is rare, its value is naturally higher. When the U.S. Government prints up hundreds of billions more U.S. dollars via “Stimulus”, it is by definition devaluing the currency. The rarity of U.S. dollars, and thus the value of U.S. dollars, is eroded away when trillions more come rapidly into existence. Combined with dwindling inventories due to lack of credit availability, rising prices are inevitable. The benefits of inflation are reaped by those who receive the newly created money up front. Expect to see over the next two years some companies (with government contracts of course) do exceedingly well, including producers of solar cells, wind turbines, and other renewable energy manufacturing companies. Expect also to see over the next two years, further suffering in the private sector, especially in chain retail stores, the auto sector, and yes, new housing. Going forward it will be a mixed bag to say the least.

The famous investor Warren Buffet placed his bets on See's candy back in 1972. His investment strategy has had a great return so far, because he knew that even in economic downturns, candy sales would remain intact. That's because candy is relatively cheap, it’s legal, and it’s a strong vice for those who might be feeling down and need a quick pick-me-up. Just remember, too much of it isn’t good, but you probably won’t hear that from Mr. Buffet. In like manner, too much debt isn’t good . . . but you probably won’t see or hear that from Uncle Sam either.

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New Communities for May 2009:

(No new communities opened in the last 30 days)
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Closed Out* Communities this month: (Floor Plans still available in the SalesTraq floor plan archive file)

(No new communities closed out in the last 30 days)

*Builder either no longer has lots available, or development has ceased for the time being
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More New Subdivisions and Developments COMING SOON:
CASA VERDE VILLAGE by Jenco Custom Homes (Far Northeast Albuquerque)
MESA DEL SOL Master Planned Community (Southeast Mesa)
VENTANA DEL BOSQUE by Aspire Homes (Downtown Albuquerque area)
VILLA LOMA TOWNHOMES by Points West Homes (Northeast Heights)

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