PSA: The System in the USA is Rigged
I am middle class, 27, and worked B4 in California and have many acquaintances in high finance and other respected careers. Mostly all of them and their friends working (long hours) in major metros are not on track to marry, have children, or own homes to meet the timeline of our parents' generation who grew up in simpler times. Quarantine has given me and my friend (banking) the time to model out the economic reasons as to exactly why. The numbers are daunting and from it, I summarized a list of simple points and personal thoughts as to ways the system is rigged against us from achieving a happy future. Keep in mind, this is just my opinion with flair and is based on free-market (non-Keynesian) political ideology. Feel free to critique.
TLDR: The government has rigged the economy through overregulation (and probably cronyism) against all working people and poor people.
Millenials can't afford homes or children in CA:
⦁ The system is dysfunctional. It advantages politicians and ultra-wealthy, overtaxes the middle & upper classes, and prices-out the lower class through overregulation by government.
⦁ Taxes are so high that millenials in most careers can't build the savings to start a family without depending on subsidy from parents. We modeled all the #'s as proof.
⦁ The effective tax rate in CA is ~32%+. Why is noone protesting for their own life? The USSA is bankrupt so it can bankrupt you?
⦁ Misspending taxes cripples a nation's standard of living & social mobility.
87% of taxes finance highly unproductive & insolvent programs (war, FICA, ZIRP, interest from deficit spending)
13% of taxes only finance direct public goods (food, infrastructure, transport, energy)
25% of GDP is taxed (i.e. US is 25% socialist). This # is likely understated like U3 unemployment
⦁ Personal income tax deductions are too low and fail to match one's expenses with the income they generate.
⦁ Paying one's debts before income tax in a debt-based monetary system should be legal.
⦁ Progressive tax disincentivizes career success. You're taxed higher on each marginal $ you produce. This punishes career achievement in your 30s-50s with 150K+ salaries.
⦁ Why are homeowners taxed on the full assessed property value when having partial equity? Property tax crushes homeowner's liquidity & solvency. There should be a tax-break proportional to the equity built. Stop nationalizing real estate.
⦁ Welfare or wealth redistribution by the IRS to bailout others' insolvency exactly is extortion.
⦁ Welfare mismanages risk in society. It transfers the risk to and the wealth from the taxpayer enabling speculative behavior of the receipient. It's called "moral hazard." Google it.
⦁ Raising a family is an opportunity to be earned through responsible decision-making and building of savings, not an entitlement to be financed through welfare by the taxpayer. The middle-class pays by delaying childrearing into 30s or foregoing altogether.
⦁ Why does the onus of immigration always fall on the US and not on the the country from where the immigrant fled? Or on the 193 countries of the UN?
⦁ There needs to be a baseline level of competence required to vote and be elected. The law should require a license earned by answering a one question exam: "What are the only two ways the government generates capital?"
⦁ Having worked a long-term job in the private sector should be a legal requisite for becoming a politician.
⦁ Pelosi/McConnell are 80 years-old from the Silent Generation. They can't Excel a shopping list yet manage our country's finances. Gen X, get your ass in Congress before we enter the Dark Ages.
⦁ FCPA should apply to politicians. How are Pelosi/McConnell worth $20M+ and salaried $170K+? They don't produce anything. They manage insolvent programs. Cronyism and special interest.
⦁ Why do we pay billions to force children to sit silently in school for 17 years so they can overleverage on $50K+ of subprime federal student loans to work at Starbucks? If everyone's in higher education, then it's not "higher" education. Credential inflation.
⦁ Why are education & student loans socialized? They should be privatized to synchronize the job market.
⦁ The economy needs car mechanics, welders, & plumbers too. School should not be a socialized legal mandate.
⦁ Public school and prison are the only institutions with a forced performance obligation and no consideration in return. Most humans cannot effectively learn with misaligned incentive.
⦁ How do kids go 13 years of public school and twerk but not be taught a credit score?
⦁ College tuition is in a bubble bc the government issues subprime federal student loans. No private bank is stupid enough to lend at this level of risk. Colleges are laughing to the bank.
⦁ How do politicians not know that minimum wage is bad? It's the textbook definition of a price floor that causes a massive surplus of unemployment, homelessness, and inflation. This is a 9th grade basic concept. They don't teach this in public school?
⦁ Most CA taxpayers can't distinguish capitalist vs. socialist. For example, the wealth gap is blamed on capitalism but is caused by zero interest rate policy, a government price control, which is socialist.
⦁ Rent and housing are expensive and in a bubble bc of ZIRP. Price ceilings on interest rates also fueled the Roaring Twenties, dot-com, and 08 housing bubbles.
⦁ We live in a debt-based monetary system. Literally called "fixed-income markets." How does a country that's shutdown pay fixed payments on bonds when it's not generating revenue? The Fed will just buy the bonds with printed money to prevent economic collapse?
⦁ Why do we let banks lend money that they printed out of thin air only for them to ultimately repossess our assets upon inevitable default? This exactly is counterfeit.
⦁ People have bills to pay and mouths to feed. Long-term shutdowns force people into unemployment, poverty, homelessness, drugs, & suicide.
⦁ Quarantines at this point should be mandated only for at-risk people and their coinhabitants.
⦁ Government requires the doctors, dentists, & pharmacists to indebt themselves $300K+ and sacrifice their youth to practice. And we wonder why health care premiums are so high?
This is actually pretty good
Thank you, glad you liked it
I think most of your points by themselves are fairly valid, but your thesis: "Millennials cannot afford homes in CA," seems wrong as it is but one issue. Additionally I would add a caveat that yes the system is rigged and it has been rigged through government, not really by the government, which implies that politicians are anything more than pawns in a US political system awash with cash and special interest (which they are not). The greatest danger to our current system is the excesses of crony capitalism. Interestingly this is a point that populists from both sides agree on.
I agree it could have been more politically clarified. But if you zoom out and see the forest amongst the trees, the point is that it is mathematically near impossible to finance a house and children under most career paths as a financial independent in major metros because of fiscal and monetary policy in this country. 90% of people who work these long hours and pick these careers do it to ultimately finance a future family (house + children).
I am fully onboard with paying less property tax. But if we implemented what you said, doesn't it imply that the lender has a right of ownership?
I'm not sure if I'm answering your question. But the government imposing property tax implies that the government has ownership over the house (the homeowner is, in a sense, renting from the government when paying property tax annuities).
The lender (bank) has a right of ownership to the house only by repossessing if the homeowner defaults on the mortgage that the lender issued. If the government abolished property tax, it would mean the homeowner is now free to use that money to pay off his mortgage. Which the bank would be happy about bc it is not in the business of owning houses... it's in the business of lending money and profiting off the interest. The bank therefore is more profitable when the homeowner's liquidity and solvency improve which would happen if the government abolished property tax.
But the problem is, is that the government for the past 100 years has accumulated so much debt that if it stopped taxes, it would default on its own debt (i.e. US Treasury market collapses). And if the USA did that then the USD would collapse which would spark a global economic depression. It by definition is a Ponzi Scheme.
Eh. Property tax is basically what you pay so that a government doesn't use military force to take it away from you, and also to protect you from someone else taking it by force.
You said homeowners only have partial equity. Who owns the rest of the land? The Lender (Bank). I assumed you were making the case that the Bank should be paying for a % of the property taxes.
IMO, the ability to impose a tax doesn't equate to ownership.
Also, the bank isn't more profitable if the individuals it lends money to have more cash on hand. If you get a mortgage with the bank at 3%, the bank fully expects to receive that 3% yield. If the person who received the loan wants to pay back the loan quicker than scheduled, the bank typically will not accept unless there are some pre-negotiated prepayment terms. Those prepayment terms are specifically in the contract so that the bank can achieve as much yield as possible (or as close to the 3% in this case).
Also, why do you think that this is solely a problem for the US? I'd wager almost every nation & company have debts that rely on revenue streams. Are you saying that the government's dependence on revenue streams (taxes) to pay off its debt is a Ponzi scheme?
I liked it.
Mortgage lending would be destroyed if the banks were on the hook for the remainder of the property taxes if it was equity based. But that’s also somewhat iterative / relative to everything else you said but that was one thing that immediately jumped out to me
I never said banks should take on the property tax bill. I said it doesn't make sense that a homeowner is taxed on their debt portion of their house. Like in terms of their personal finances like their debt:equity ratio on their home. I am saying the government should be on the hook, not the bank.
Fair. Good post overall.
It's easier than ever to make money without having money. Many of your points are valid, but it really has never been easier.
Evidenced by? Even if that statement is true, it is moot when the cost of living has severely outpaced the rate of inflation for the largest expenses in most Americans budget (tuition costs to be employable, rent and housing, health care, insurance, and taxes) and in a zero percent interest rate environment for the past 10 years (your savings have no time value of money).
What an uninformed budget Ayn Rand take...
“I'm OP I'm here to ask you a question. Is a man not entitled to the sweat of his brow? 'No!' says the man in Washington, 'It belongs to the poor.' 'No!' says the man in the Vatican, 'It belongs to God.' 'No!' says the man in Moscow, 'It belongs to everyone.' I rejected those answers; instead, I chose something different. I chose the impossible."
Nice username.... Andrew Ryan
Why do we pay billions to force children to sit silently in school for 17 years so they can overleverage on $50K+ of subprime federal student loans to work at Starbucks? If everyone's in higher education, then it's not "higher" education. Credential inflation.
There's so many cliches here I don't even want to begin to address them all. But let me take the above an an example. Society is getting more advanced and jobs are becoming more difficult as easy jobs get automated away. Would you expect the rate of higher education to stay the same as in the 80s? You can make an argument that higher education is too expensive but look at any recent study and it will still tell you the average LTV of a college degree is far more than it's cost . If you actually want to stimulate any kind of meaningful discussion pick one point and build an actual argument. You're just pointing at the sky and yelling here.
Distilled my thoughts here exactly, particularly the last two sentences.
Why would the government be on the hook for the indebted portion of the property tax, that makes no sense. The government doesn't own the right to the cash flows that represent the indebted % of the property. This makes absolutely no sense. If the owner rented the property they would still be taking the income from 100% of the property despite it being 75% levered for example, so why would the government pay tax on a portion of use it has no right to.
The government shouldn't be entitled to property taxes in the first place when they're spending it on highly insolvent Ponzi programs and overtaxing the average American to the point of bankruptcy. You work hard as an Investment Analyst, right? Well let's tax you at 60% and spend it on war. See what I'm saying? I believe in some taxes, but there needs to be a limit otherwise it becomes literally slavery. The government has already crossed that point.
I don't think the gov should be nationalizing real estate through property tax at all in the first place. But I was saying at the very least, it would make more sense if homeowner's were taxed on their equity built (in terms of their personal finances like they're debt to equity ratio). I'm not following you but even if the property is rented out then the landlord would still be making fixed payments on the mortgage. This wouldn't give him a loophole in this situation.
I'm basically saying that if the goverment is going to tax someone's property, then the homeowner should be given a deduction based on their debt portion. Personal debts should be prioritized over income tax in a debt based monetary system.
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