Our New State Budget: The Feds Giveth as California Taketh Away

Easy come, easy go.  Last Tuesday, the 17th, we heard the latest economic stimulus will bring $800 in Federal tax savings this year for married couples ($400 for single).  Three days later the California budget stalement was settled, bringing with it a variety of "temporary" tax increases.

California's budget has grown by $50 billion in 10 years (from Gray Davis' first budget in 1999-2000 to Arnold's budget today).  But revenues haven't kept up, to the tune of $42 billion.  Part of the plan to make up this difference is to 1) raise income taxes, 2) raise sales taxes, 3) reduce dependent tax credits, and 4) raise vehicle license fees.  OUCH x 4!

Let's see how much this is gonna cost us:

1. Income Taxes:  Increases .25% immediately. But if the state gets $10 billion in Federal stimulus funds, the increase halves to .125%.  The median household income in Ventura County is $85K...which translates into a tax increase of $106 to $212 per year.

2. Sales Taxes: Effective April Fool's Day (no joke), sales taxes increase by 1 percentage point, from 7.25% to 8.25% in Ventura County (our friends in the L.A. County portion of Westlake Village, Agoura, etc. will chew on a meaty 9.25% sales tax).  For a typical family spending $20K/year on taxable products, say buh bye to another $200 per year.

3. Dependent Tax Credits:  This one hurts families and single parents.   The Dependent Tax Credit on your California tax return has been sliced from $300 to $100 per dependent.  Thus a family of 5 like Conejo Joe's clan is nailed for another $600/year in damage.  Heck, I guess I shouldn't feel so bad...the OctoMom, with her 14 kids, is down $2800 in tax credits!

4. Vehicle License Fees (VLF):  Effective 5/19/09, the VLF increases from .65% to 1.15% of your car's value.  So let's say you have 2 cars with a value of $20K apiece.  There goes another $200 down the drain.

So overall a California family of five with $85K in taxable income will be down by $300 to $400 per year, even with the one-time Federal stimulus.  This is not stimulating.

But hey, what about that new Federal New Car Sales Tax Deduction!  Buy a new car by 12/31/09, you get to deduct sales taxes on the car.  So let's say you buy a new car for $25K.  If you buy it before 4/1/09, you owe $1812.50 in taxes in Ventura County.  At a 25% income tax rate you will save $453 in Federal taxes.  That's not too shabby.  But if you wait until after 5/19/09, your sales taxes increase by $250 and your VLF increases by $125, rendering the Federal new car stimulus pretty meaningless.  Bottom Line: If you buy a new car this year, consider buying it on 3/31, the last day of the 1st quarter...when dealers are hungriest to sell AND you avert the coming tax increase(s).

California Home Buyer Tax Credit: California did come out last week with an interesting home buying incentive.  Buy a brand new, never occupied home between 3/1/09 and 3/1/10, take a 5% income tax credit, up to $10K!  There are NO income limits and you DO NOT need to be a 1st time homebuyer!  There is some fine print on this however: 1) the tax credit is spread out over 3 years from the date of purchase, 2) the house must be your primary residence for 2 years, and 3) the state has allocated $100 million towards the credit.  First come, first served, once the $100 million (or roughly 10,000 new homes costing $200K or more) is used up, the credit is gone.

Brief Overview of How the Latest Stimulus Package Can Help You and Me

The $787 billion American Recovery and Reinvestment Act (ARRA) of 2009 was signed into law by President Obama today, February 17th. For full details about this 1100 page act, visit www.recovery.gov.  I'm impressed that this website was up and running so quickly.  The site indicates it will provide detailed, transparent information about where the stimulus funding goes.

So we've seen how the bank bigwigs got their fat bonuses from previous stimulus packages.  How will this latest stimulus impact us regular guys, gals and bunnies?

Some Money Back in Our Pockets

Well those of us who still have jobs will be eligible for the cleverly named "Making Work Pay" tax credit, which will give us Federal money back of 6.2% of our 2009 wages up to a maximum of $400 (single) and $800 (married).  The credit phases out if your earnings are between $75K and $95K (single) and $150K to $190K (married).  You get the money back either by reducing your tax withholdings or by taking a credit on your tax return.  Seemed odd that the unemployed don't get this credit, but they get their own stimulus (below).

THE CALIFORNIA 2009-2010 BUDGET HAS BEEN SIGNED, WHICH EFFECTIVELY RENDERS THE FEDERAL "MAKING WORK PAY" TAX CREDIT FUTILE AS MOST OF US WILL SPEND OUR TAX SAVINGS ON CALIFORNIA TAX INCREASES.  BUMMER!  CLICK HERE TO READ MORE.

Helping the Unemployed

The unemployed will receive some help from ARRA.  Unemployment benefits will temporarily increase by $25 per week.  The first $2400 of unemployment payments will be free from Federal taxes in 2009.  Unemployment benefits will be extended for longer periods for many people (I don't have the details on this as of yet). 

Lastly, anyone who has been canned from their job between 9/1/08 and 12/31/09 is eligible for a subsidy of 65% of the cost of up to 9 months' COBRA medical insurance premiums.  It phases out if your income is $125K to $145K (single) and $250K to $290K (married).  This is a nice benefit but, with all due respect, does a family earning $250K a year really need this subsidy?  Our tax dollars hard at work.

First-Time Home Buyer's Credit

Well this is quite a nice incentive to buy a house!  $8000 refundable tax credit if you buy a house between 1/1/09 and 11/30/09.  Technically the credit is 10% of the purchase price of the house, up to $8,000.  CLARIFICATION; This credit is for anyone who has not owned their own home for 3 years up to the purchase date of the new home.  This is an outstanding incentive to buy a home this year and basically get most of your closing costs covered by a tax refund!  The credit phases out when your income reaches $75K to $95K (single) and $150K to $170K (married).

Last year's 1st timer tax credit was $7500 and it has to be paid back like a loan over a 15 year period.  Oddly, the period for that program (4/9/08 to 6/30/09) overlaps the new credit.  So any of you who took advantage of the "old" credit last year, you're out of luck and will not be eligible for the new credit.  That's the breaks I guess.

Help With Education

The American Opportunity Education Tax Credit is a tax credit of up to $2500 a year for tuition and other college expenses in 2009 and 2010.  You claim 100% of the first $2000 spent and 25% of the next $2000 to receive the full credit.  This phases out for incomes over $80K (single) and $160K (married). This tax credit replaces the Hope Credit for the next 2 years unless it is extended past 2010.

Tax Preparers' Economic Stimulus

I've just covered some of the key aspects of ARRA above...there's a lot more!  Probably the biggest recipients of this latest economic stimulus package are professional tax preparers, who no doubt will be busier than ever interpreting and implementing the new tax laws.  Any of you watch the stock market today?  It was down 4% but H&R Block was only down 2%...hmmmm...maybe a safe haven stock for these Stimul-laden times.

$250 One-Time Payment to Social Security and Other Federal Benefits Recipients:  CLICK HERE

The Economy and its Impact on Us

All right, folks, Conejo Joe here.  I've been on a week long trip to San Diego with my family and am back in action. 

The economy has been a major concern and drag on all of us.  What a year.  Gas prices rising to over $4 a gallon and now we're seeing prices below $2.  The stock market has been hammered over 50% from its highs and it has hit all of us hard in our retirement savings.  We've seen dozens of companies filing bankruptcy or scaling back.  Foreclosures all over the place.  Real estate prices are way way down.  Unemployment rates are sky high.  It has certainly been a stressful year.

But you know what?  We are resilient and we will come back.  We are all in this together and we have seen this cycle before.  We have a broad, diversified economy and somehow, some way, we will all make it through these economic doldrums.

Our trip gave me hope.  We visited Legoland, Sea World, Downtown San Diego and we saw lots and lots of people out there, experiencing life, enjoying themselves, spending money, regardless of the bad economy.  Heck, we even had to stand in lines!!  There are too many things in life to live for and enjoy.  Why let a little recession ruin the fun!? 

If you are unemployed, there are still plenty of jobs out there!  They may not pay exactly what you want, but sometimes we need to step back to move forward.  Check out Monster.com, Craig's List, the local newspapers.  Network in LinkedIn and other social networking sites.  Make something happen.  Our country needs each and every one of you.  There are jobs out there for everyone.  They don't always hit you in the face.  You need to take action and FIND them!

OK, OK, Mervyns went bankrupt, Linens & Things went bankrupt, Sharper Image went bankrupt, Circuit City just filed for bankruptcy and the banking industry changed so much that we hardly recognize it.  But ya know what, I HATED Mervyns, Linens & Things, Sharper Image and Circuit City.  Last time I visited Circuit City I waited 20 minutes for help and there were no customers in the store.  Mervyns was never exactly enjoyable.  Times change and some businesses can't keep up with change.  (I do like the Janss Marketplace very much and hope that the void left by the loss of Mervyns and Linens & Things is filled quickly).

In the meantime, The Oaks mall has been through a major upgrade and a large new Nordstrom store opened in September.  And a high-end Muvico movie theatre is slated to open at The Oaks in early 2009.  The U.S. Government has stepped in and provided a backstop for large financial institutions like Citigroup, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley and JP Morgan Chase by investing in these companies.

So bottom line is this.  We live in a very cyclical, dynamic and changing world.  Don't overreact.  Don't not act.  Now is the time to start investing in your future.  Make things happen.  Everything is a two-edged sword.  Real estate and stock prices have tumbled.   But perhaps that gives us the buying opportunity of a lifetime.  Your company went bankrupt and you are out of a job.  Well maybe you hated that job and this gives you the opportunity to find what you enjoy.  Or become a consultant.  Or start your own business!

We have seen how quickly things can change.  TAKE ACTION!  Don't just sit there!  Don't wait for the "perfect" opportunity or situation.  Now is the time.  If you snooze, you lose!  Try something new!  Don't rely on others to make it happen for you.

There is too much to enjoy in life to sweat the current economic situation we face.  As the Resident Rabbit of this website of local goings on, I can tell you that hundreds of hundreds of events and activities take place locally each year and thousands upon thousands of us participate.  Yeah, yeah,  Conejo Valley Days may be history, but you know what, there are dozens upon dozens of other events that have taken its place.

So in this holiday season, enjoy yourselves, have FUN and remember...we are all in this together.  After all is said and done, our goals are all similar.  We want to live happy, healthy, loving lives.  Let's work together and make it happen!

Mortgage Meltdown Musical Chairs

As I type this post on a windy Columbus Day holiday in Ventura County, the stock market is up over 11%, thanks in part to an announcement that the U.S. Treasury may buy some bank stocks!  Talk about a volatile market!  Stocks were down 18% last week, 24% over the last 2 weeks and 40% over the last year! 

What prompted me to write this was that my wife mentioned we have a savings account at Washington Mutual.  There have been so many banking changes that I couldn't even remember who now owns WaMu (it is now JP Morgan Chase)!  So here's a high level compilation of some of the major events of the year...so far!

10/13/08 (today):  The Federal Reserve approved Wells Fargo's purchase of Wachovia.  This deal is expected to close by the end of the year.  Wachovia is (soon to be was) the 4th largest bank in America.  Originally Citigroup tried to buy Wachovia but Wells Fargo offered more $$.

10/3/08:  FDIC deposit insurance limits are temporarily raised from $100K to $250K per account until 12/31/09.  Now if they could just tell me where I can get this much money fso I can utilize these limits.

9/25/08:  Washington Mutual is shut down by the Office of Thrift Supervision and FDIC (the largest bank failure in U.S. history), only to be immediately sold to JP Morgan Chase that same day.  JP Morgan Chase now claims to be the largest U.S. bank.

9/16/08:  Bank of America bought Merrill Lynch for $50 billion (way to go, B of A!).  The deal will close sometime in Q1 2009.

9/15/08:  Lehman Brothers files Chapter 11.  Sorry guys, no bailout for you!  But the next day, Barclay's Bank bought Lehman's businesses and assets.  So Lehman is still around.

9/7/08:  The Government takes over Fannie Mae and Freddie Mac.  Maybe they should upgrade their names to something like Angelina and Brad or other more popular names.

9/6/08:  The Government steps in and saves AIG from its liquidity issues by taking the equivalent of an 80% stake in the company.

7/11/08:  IndyMac, with local branches in Thousand Oaks, Camarillo and Ventura, is the 2nd largest bank failure in history (now the 3rd largest, thanks to WaMu).  But that's o.k., they are now owned and operated by the Feds and all's fine.  Anyone wanna buy a bank?  How about McDonald's?  Rename it BigMac bank and pay interest in french fries??

7/1/08:  Countrywide officially becomes owned by Bank of America.  So now the big question is...when are they gonna change it to the Thousand Oaks Civic Arts Plaza's "Bank of America Performing Arts Plaza"??

5/31/08:  JP Morgan Chase bought Bear Stearns.  They opted against calling the new entity JP Morgan Chases Bears.

Well let's all hope that we are headed in the right direction!

Misleading Property Tax Reassessment Mailings

Many of us homeowners received solicitations in the mail last month from "Property Tax Reassessment."  These looked like "official" documents from the assessor's office although the return address was a PO Box in Los Angeles.  Initially it appeared that I needed to respond with a $171 processing fee to reduce my property taxes by $1,973 per year.  And pay a $67 late fee if not returned by 9/5/08.

It didn't seem right.  I read the form more carefully and soon realized this was a very cleverly and carefully worded advertisement.  I did some searching and discovered the Ventura County Assessor's Office issued a "Scam Alert" for these types of solicitations and there was also a Ventura County Star article on the issue a few weeks ago.

They were offering a service to file a form to claim your property value has declined below its Prop 13 value.  It costs you nothing to do so yourself (visit the Assessor's Office website above for more info).

The Assessor's office does its own reassessment of local properties and sent out 30,000 decline in value notices this summer.  The office goes on to say that most houses purchased before 2004 have not declined in value below Prop 13 increases (which are limited to 2% per year).

I carefully read the front and back of the solicitation.  Nowhere does it "guarantee" you a tax reduction.  (They can't of course.)  So don't get ripped off!  If it looks too good to be true, do some research!

Let Conejo Joe know if you come across more scams like this so we can all stay aware!

Time to Carpool (or at least start thinking about it!)

Last week we explored ways to save money on skyrocketing gas costs.  Let's take a closer look at carpooling options. The best approach is to find others at work who live in your vicinity.  But if this doesn't pan out, how about trying to connect with people online?

There are many carpooling websites but most of them are not worthwhile for the Conejo Valley.  These include:  www.NuRide.com (not available yet in our area), www.ridecheck.com (mostly for 1-time rides, not regular carpools), www.carpoolworld.com (just didn't seem very user friendly nor helpful), www.ridesearch.com (was useless to me) and www.ridester.com (mostly 1-time rides).  And ride-sharing social network sites www.zimride.com and www.goloco.org were too much effort to figure out.  I prefer something immediately USEFUL!

The one website that seemed to have a decent selection of potential carpoolers in the Conejo Valley area was www.eRideshare.com.  The site is geared towards daily commuters and did not take long to figure out.  I quickly found 50 possible carpools originating within a 10 mile radius of Thousand Oaks.  Type in your zip code and see what is available. You still must register (for free) to contact other users.  This one is worth checking out.

You can also try the Ventura County craigslist rideshare link (http://ventura.craigslist.org/rid/).  This turned up a few possibilities but is mostly geared towards 1-time rideshares.

I had high hopes for www.ridematch.info as it is sponsored by various local transportation authorities.  They make you register before searching for carpools which I did not like.  After that somewhat painful process I found very few options.  The site has potential but was not user friendly.  I would not recommend it.

Another alternative is the Amtrak Pacific Surfliner train, which runs from San Luis Obispo to San Diego.  With local stations in Ventura, Oxnard, Camarillo, Moorpark and Simi, you can take the train to Glendale, Los Angeles, Santa Barbara and other destinations.  Amtrak can be pricey for a 1-time commute (currently $32 round-trip Moorpark/Los Angeles) but if you buy a monthly pass ($302) and use it all the time you can really save a lot of money and wear and tear (both you and your car).  Visit www.AmtrakCalifornia.com for more information.

So good luck and let me know if you have other carpooling ideas!