EDH Voters Hold Elected Officials Responsible

As a concerned EDH resident, I do not have the slightest idea of who to believe or what to believe in this standoff with the CSD Board and John Skeel, the recently hired CSD general manager, now on paid administrative leave going on close to five-months.  I do believe that John came here with good intentions of performing a job that he has lots of experience in doing and that the CSD Board initially believed he could do.

Therefore, to make sense of all of this, I need to evaluate this from the thirty thousand foot level because it’s not likely that I or the citizens of EDH will ever know the full story.  Accordingly, I have to look to where “the buck stops” and to me that is with the CSD Board of Directors.  Either the CSD Board FAILED miserably in developing the “right” criteria and traits that are needed for the GM job and hired the wrong person for the position OR they FAILED to hire the right candidate for the right criteria and traits they sought OR they FAILED to support the right candidate with the right criteria and traits OR they FAILED to follow appropriate employment practices for performance problems; either way, the CSD Board FAILED the public in their handling of the general manager hiring.  They should be held accountable for this embarrassing and costly debacle for El Dorado Hills and I believe EDH voters will take heed at upcoming elections.

If they don’t get this situation cleared up quickly and, most likely even if they do, they will likely suffer a similar fate like our local EID elected official.  The citizens of El Dorado Hills spoke loudly with an overwhelming majority voting in a new candidate to replace a two-term board member at this last election.  The citizens of EDH may be too busy to understand who’s right and who’s wrong but in the end they speak volumes about who’s ultimately responsible.

Good Time to Get Real Estate Tax Laws Right

All this election talk about changing Federal tax laws to make them simplier and fairer got me thinking about the major ones that involve real estate. Seems this is a great time to rethink the laws and right-size them to simplify them and to make them fair for all given the current economic climate.  I would delete some, modify others and add some new ones as follows:

Primary Residence Purchase Tax Credit (new) - Provide a 5% tax credit based solely on the purchase price of the property that gets amortized straightline over seven years while occupying the home.  Forget the one time tax credit used to motivate buyers a few years ago, let's make it based on the price of the home and require them to stay there to earn it.

Mortgage Interest Deduction (eliminate) - With interest rates as low as they are and the national median home price having declined significantly to $169,500 this law really doesn't provide much benefit to most homeowners.  It should be eliminated in favor of the one above.  Even those with higher mortgages see those deductions get limited currently.

Capital Gain Exlusion on Primary Residence (modify) - Never understood why those that buy a primary residence and sell it in the future for a gain have the luxury of getting a huge tax benefit by excluding up to $250,000 (individual) and $500,000 (married) of the gain at sale but those that suffer a loss get nothing.  Come on, who needs the help the most in a situation like this!  I'm not talking about rewarding anyone for a "paper loss" from escalating home values that then plummet.  No, but anyone that loses their hard earned cash used to buy a primary residence (reduced by any refi-cash out) should receive some assistance up to the same thresholds on the gain side.

Rental Property Rent Reporting Credit (new) - Renters should be allowed a 2% tax credit for reporting rent or lease payments made to the owner.  The reporting is without sharing of taxpayer ids but through property address.  This renter tax credit will be more than offset by the under reported rental/lease income received by owners.

Primary Residence Property Tax Credit (modify) - This is an itemized deduction like the mortgage interest deduction that needs to exceed a certain threshold before it provides any benefit to the taxpayer.  Forget that, this is a tax that has already been paid and should be a straight offset to computing taxable income.

Not being a tax law wizard myself, I'm sure there are many others that could receive a similar overhaul with the following objectives in mind: 1) meet reasonable tax revenue objectives; 2) match taxable event with the economic benefit/loss to the taxpayer; 3) stimulate the real estate market with a long-term approach; 4) eliminate loopholes; 5) create more transparency by better reporting and cross-checking.

Or we could go with the 9/9/9 plan or whatever simple plan our next presidential candidate dreams up!

We're Sliding Fast and No End in Sight

Deflation, high unemployment, steep global austerity, unsustainable debt, rising borrowing costs and you have a recipe for significant financial disaster and major social unrest.  Not surprisingly, it is happening in many parts of the world and eventually it will engulf America.  What is happening in Greece is a microcosm of what many other developed countries will be facing in the very near future.  Nearly all developed countries inflated their economic growth over the past 30 years by borrowing excessively on the good faith and promise of their people.

In the U.S., by 2015 our federal debt load is projected to approach $20 trillion dollars and be 133% of GDP.  By comparison, Greece's debt is already above the 120% threshold of GDP, considered by most economists to be unsustainable, and that is after factoring in a 50% "haircut" that current Greek bondholders will need to take to avoid a bankruptcy type failure.  Today, Italian bond yields exceeded the 7% benchmark many consider too high to be sustainable.  The same held true for Ireland, Portugal and others.

Fast forward to the U.S. in 2015 and what will high borrowing costs due to this country:  because Mr. Bernanke's attempt to print money substantially pales in comparison to the deflationary impact upon all asset classes worldwide, we will see a period of high interest rates in the U.S. with NO inflationary pressure to offset some of the financial pain yet to be endured.  Yes, interest rates can rise without inflation and it's called credit risk.  Credit risk is an investors required incremental rate of return to compensate for the fear of default or being repaid in an amount less than the original principal.  Credit risk is what is driving those bond yields up in Greece, Italy, Ireland and the like to unsustainable levels. 

This is not the 1970's again when interest rates shot to 18% and housing prices followed suit because of the oil embargo and the inflationary aftermath.  Quite the contrary, this will be the time when housing prices continue to decline worldwide as this massive deleveraging takes place and homebuyers find it even more difficult to qualify for purchases with higher loan rates.  The world is not going to keep lending America cheap money forever especially if we continue on our path of debt overload, which we are and there is no end in sight.