By now you’ve probably heard about California’s budget fiasco. If not, here’s a snippet from a recent piece:

California faces its day of fiscal reckoning – Yahoo! News
SACRAMENTO, Calif. – The day of reckoning that California has been warned about for years has arrived. The longest recession in generations and the defeat this week of a package of budget-balancing ballot measures are expected to lead to state spending cuts so deep and so painful that they could rewrite the social contract between California and its citizens. They could also force a fundamental rethinking of the proper role of government in the Golden State.

…

California is looking at a budget deficit projected at more than $24 billion when the new fiscal year starts in July. That is more than one-quarter of the state’s general fund.

…

The gap has two primary causes: The state has been living beyond its means for years by spending generously on all sorts of programs that the voters, the politicians and the special interests wanted. And the recession has hammered California’s economy.

One of my pet peeves are the people (in other states) who say that this is due to California’s liberal-socialist-inept-Democratic politicians. Well… sort of. But it’s the fault of Republicans too (after all California legislature needs 2/3rds vote on things.)

I think what would surprise most people is that huge swaths of California’s budget is out of the control of politicians. It’s decided on by The People through propositions. Having moved to California, it amazes me how frequently I’m asked to make budgetary decisions for the state. Actually, it appalls me.

One budget decision that The People made in1978 is widely cited as the root cause of many of California’s budgetary woes. Here’s one of the unusual side effects of this decision – the following is a real street in Los Altos:

That’s right… there’s one house that pays 19x as much in property tax as his neighbor.

No this is not a mistake. These are real numbers from Zillow and PropertyShark. These are the actual taxes the different neighbors are paying. This is because of Proposition 13, passed in 1978.

Under Prop 13, property can be taxed at 1% of the assessed value. And the assessed value can only grow at 2% per year – despite what the real world value will be. So… if you bought a $100,000 house in 1978, and it is worth $1,000,000 today – you pay $1,847 per year in property tax, while your new neighbor pays $10,000. Surprise surprise, the numbers in the graphic above demonstrate this!

Oh, and you can pass this tax rate onto your children. So in 2078, the grand child of the person who bought the house will be paying $7,244 per year in property tax to live there. A neighbor who buys in next door (at $174M assuming 7.75% annual appreciation) will be paying $1,744,728. Oh… and this scheme applies to corporations, which can live forever.

Does this tax scheme make any sense to you?

I highly encourage you to read this great piece on how it came to be – how many corporations and politicians warned that it would lead to disaster, and how The People voted for it anyway. The Wikipedia entry has some good documentation on the disastrous consequences of this public decision.

I for one look forwards to a Constitutional Convention to end the State’s proposition happy ways.

UPDATE: Paul Krugman wrote an op-ed piece on this same topic today. Read it here.

Apparently the current administration’s tax plan will raise taxes for families that make more than $250,000 a year.

I thought this quote was pretty interesting:

Wealth-Less Effect: Earning Well, Feeling Otherwise – WSJ.com
San Jose, Calif., Mayor Chuck Reed calls a family living in Silicon Valley earning $250,000 “upper working class.” That is about what two engineers working at a technology firm can expect to make, but “a family earning $250,000 a year can’t buy a home in Silicon Valley,” he said.

James Duran owns a human-resources company in Silicon Valley and is president of the Hispanic Chamber of Commerce in California. He supported Mr. Obama, but is worried about the tax proposals. He has laid off some employees in recent months and has been wondering how he can fund an extension of those workers’ health-care benefits.

Mr. Duran said he and his wife earn about $400,000 annually, but “I’m barely getting by.” They have high property and state taxes, as well as college tuition and savings to cover. “I’m an Obama man, but this side of him is a difficult pill for me,” he said.

To put things in further perspective, here are the guidelines from the City of Mountain View (a fairly “middle class” city) on who qualifies for Below Market Rate housing assistance:

Affordable Housing

BMR ownership housing is targeted to median income households earning between 80 percent and 100 percent of the median household income. BMR rental housing is targeted to low income households earning between 50 percent and 80 percent of the median household income. In 2008, the median household income for a one-person household was $73,850 annually and, for a four-person household, it was $105,500 annually.

Yep… so if your family of 4 makes $84,400, you could still qualify for housing assistance.

It seems that perhaps the tax code should take into account local conditions, but that would only make things even more complicated. But then again, since most people in Silicon Valley spend 40% of their gross income on mortgage interest, their actual taxable income is dramatically lowered. Perhaps an optimal solution would be to repeal the mortgage interest tax deduction, and move the tax bar back to $300,000.

Complicated stuff!

Ever since I went to Hopkins, I’ve had an interest in issues surrounding healthcare policies. Although I never took any courses in those topics, I became familiar through coverage in local publications. Lately, the topic of healthcare has become even more important, more personal to me.

This is not an April Fool’s Day joke, though the healthcare systems, policies, and frameworks in our nation might be considered to be one. Every election cycle, I hear a lot of silly “silver bullets” – For example: “If only we got rid of trial lawyers! Healthcare would be cheap and affordable!” (not really) or “Let’s copy France!” (wouldn’t work for us)

I’ll probably blog about this a bit more in the next few months, but I’d like to start by recommending this episode of Frontline. Personally I think it’s best viewed online.

Sick Around America
As the worsening economy leads to massive job losses—potentially forcing millions more Americans to go without health insurance—FRONTLINE travels the country examining the nation’s broken health care system and explores the need for a fundamental overhaul. Veteran FRONTLINE producer Jon Palfreman dissects the private insurance system, a system that not only fails to cover 46 million Americans but also leaves millions more underinsured and at risk of bankruptcy.

The first act (out of 5) features something I can relate to:

At its best, American health care can be very good. For Microsoft employee Mark Murray and his wife, Melinda, their employee health plan paid for eight years of fertility treatments and covered all the costs of a very complicated pregnancy. "If it wasn’t for our health insurance," Murray says, "we wouldn’t have a baby boy right now." The Murrays’ medical bills totaled between $500,000 and $1 million, and their plan covered every penny.

But beyond large, high-wage employers like Microsoft, FRONTLINE learns that available, affordable, adequate insurance is becoming hard to find. Small businesses face a very bleak outlook for finding and keeping coverage. Coverage is becoming more expensive and less comprehensive, with high deductibles, co-pays and coverage limits. Georgetown University Research Professor Karen Pollitz explains that for many people, the current system is "like having an airbag in your car that’s made out of tissue paper: I’m so glad that it’s there, but if I ever get in a crash, it’s not going to protect me."

The first act covers the best possible scenario – working for Microsoft. Where there are practically never any co-pays. (Pharmacies tend to do a double-take.) I call the Microsoft health Insurance plan, the “gold plated, c-level exec plan”. I feel very fortunate that my family receives coverage through this plan.

From there, the episode goes downhill. Fast.

Let’s be clear – there are no easy or cheap answers to solving our nation’s healthcare woes. There’s no silver bullet. And I hope we as a nation have the will and resolve to make improvements. But there’s not a lot of hope:

But consultant Laszewski wonders if Americans have the will to make it happen. "Every doctor I meet says he’s underpaid. I’ve yet to meet a hospital executive who thinks he or she can operate on less. I have yet to meet a patient who is willing to sacrifice care. So we have this $2.2 trillion system, and I haven’t met anybody in any of the stakeholders that’s willing to take less. And until we’re willing to have that conversation, we’re just sort of nibbling around the edges."

I was doing my taxes in TurboTax Premier 2008 (with all the updates) tonight, when I noticed something unusual. Ever since the IRS “helped” me find a bug in TurboTax a few years ago, I’ve been very cautious – double, triple checking my work.

What I noticed tonight is that TurboTax seems to change the number of shares behind the scenes in the Original Purchase Lots of the Capital Gains Worksheet.

Here’s an example. Let’s say you sell 1000 shares of Test.

Now, let’s say you enter the purchase information as such:

You enter the purchase transaction using the “price per share” method, entering 500 shares at 10 each. If you click continue, then view the Capital Gains Worksheet, you will see this:

Ok. That makes sense. But let’s say you go and enter your purchase information in a different way:

You enter the purchase transaction using the “total purchase price” method, entering 500 shares for a total of 5000. If you click continue, then view the Capital Gains Worksheet, you will see this:

Observe that the number of shares is now 1,000. Why is that the case?

You might say “Big deal! The Total Cost” is the same!”

Unfortunately, because the number of shares purchased is the same as the number of shares sold, any information you add about reinvested dividends will be ignore, leading to an incorrect cost basis – both in dollar amount, and in break down of Long Term vs Short Term.

Perhaps I’m mistaken – I’m just bleary eyed from doing too much lately. That said, I was able to repro this using a clean TurboTax 2008 return – twice. Could someone double check my work?

One of my favorite travel accessories is this:

Eagle Creek UnderCoverTM Leg Stash

Usually people wear money belts, but it gets somewhat uncomfortable after a while – especially if you end up working up a sweat. Plus, it’s kind of awkward taking things out of there as you need to lift up your shirt.

The UnderCover Leg Stash has 2 elastic bands that velcro’s around your leg. Nothing around your middle. Hurray! It’s very discrete and retreiving things isn’t a big deal.

There are two downsides though:

1. If you don’t secure the velcro properly and tightly, it tends to slide down. But that’s easily remedial.

2. It only works if you travel to places that are cold – after all, you need to wear long pants to cover it.

To me, hands down this is the far better choice.

Holy cow – I just realized I never finished and posted this. Here it is in a brain dump format:

Spain

• Why Spain in January? First of all, It wouldn’t be 100 degrees. The thought of schlepping around in such heat is not much fun in my book – I remember struggling to see the reclining Buddha and other sites in Bangkok because of the weather. Also, it’s off peak – it’s great never having to make reservations, wait in lines, or be stuck in crowds. Finally, prices for hotels were pretty awesome.
• Bring an Ethernet cable. At our hotel in Barcelona, my PC wouldn’t work with the wireless. At the Madrid Iberia Lounge, they have a lot of stations for you to plug an ethernet cable into.
• High speed train from Barcelona to Madrid was great – but here’s a tip, don’t try booking your tickets on http://www.renfe.es/. It’s great to find information about trains and their schedule, but it is impossible to book a ticket from America. Just look for the phone number there and call them directly. You’ll even get the fares that are on sale.

Barcelona

• Did you know that they speak/write/read Catalan first, then Spanish, in Barcelona? Some signs can be confusing – “Why can’t I understand what it is saying? Oh! It’s in Catalan, not Spanish.”
• We purchased the 4 day Barcelona Tourism Card. I would not recommend it as it’s incredibly hard to get the maximum benefit from it – though I suppose if we had picked it up at the airport and used it on the bush that would’ve helped recover some value. But with luggage that’s no fun either.
• Most guide books warn about crime and sketchiness in La Rambla. A few people I spoke to were victims of crime in Spain. Maybe it was because it was January, but things weren’t particularly sketchy to me. But then again I grew up walking by 1980’s Columbus Park in Chinatown (it was a lot like today’s SF Tenderloin.)
• http://www.calpep.com/ is a great restaurant.

Figueres

• As a side trip from Barcelona, we went to Figueres to the Dali museum. A pretty surreal place. It was very easy to go there by train, and following the street signs through the town to the museum was manageable. We did not bring a map. Note that there are no signs that tell you how to get back to the train station – so pay attention as you go to the museum. It’s about a mile walk, and rather pleasant.
• The Dali museum is rather surreal.

Madrid

• A great guide for Madrid that’s free: Mariblel’s Guide to Madrid.
• Learning from Barcelona, we wisely did not purchase the Madrid Tourism card.
• We did purchase 5 day unlimited ride metro tickets, and I’m not sure that was a great value either. Actually, I’m not sure we even cleared 10 rides per person in the time we were there, as things in central Madrid are fairly compact! In retrospect, I would’ve just purchased 10 ride tickets and refilled as necessary.
• We stayed at the Best Western Atlantico. Great location – very convenient to the Metro. We were able to walk to the various museums, Plaza Major, the Royal Palace, and more. (Hence the above bullet point about buying a 10 ride metro card instead!) The hotel offers free transfer from MAD airport (we did not take them up on this as we came via train) and charges 6€ per person for rides to the airport, which was handy.
• Note that this hotel may not be for everyone. There’s two things I can think of: it is basically on Broadway (NY)/Market St (SF) – so if you’re not into the “when I step out of my hotel, I step into a giant crowd of people walking” this may not be for you. Also, the first room we got (416) had two beds and was very small. So small that you really couldn’t lay open two 26” suitcases. I managed to do it by balancing one on top of the minifridge. Personally, I don’t have a problem with small hotel rooms since after all this is a European city. But that some Americans go to the supermarket in vehicles larger than this room – again, not for everyone. That’s an exaggeration, but now that I think about it, the only time I had stayed in a room smaller than this was at the Sheraton NY (or was it the Sheraton Manhattan? I always get them mixed up). Other Manhattan hotels had larger rooms. Eventually we were able to switch to another room, which turned out to be accessible and was far larger. Note that noise was not a problem in either room as the windows opened up into interior areas. Also, perhaps this was just because it was Winter – but in both rooms the air conditioning system was pretty much inoperative. (It got really warm.)
• Botin restaurant, which is the World’s Oldest Restaurant was great. I would strongly recommend their suckling pig. The skin was amazingly crunchy. We also ate at a chain called Museo de Jamon – which roughly translates to “Museum of Ham”. It’s actually a deli with an restaurant area – so you can watch the action. Fun.
• We had a churro with hot chocolate at Chocolateria San Gines near Puerta del Sol. I think the place opened in 1894. You go, pay 3.50, get a receipt, give the receipt, then get this a small stack of churros and hot chocolate. The hot chocolate is basically molten chocolate – kind of like the goo inside a chocolate lava cake if you’ve ever had one. The churros are very greasy. Together, it’s a great combination:

• I enjoyed the Reina Sofia art museum the most, followed by the Thyssen, and then the Prado. Personally, I felt that the Prado had one too many instances of different takes of “La Sagrada Familia” (The Sacred Family).
• Restaurants at the museums are very, very good. We were quite shocked and surprised.
• The locations of the El Cortes Ingles are surprisingly close together.

Ok, there’s plenty more, but I’ve gotta go back to work and school.

I think I’m probably last person in the Valley to get a Dyson or a Roomba vacuum. Well, finally recently we got a Dyson DC-17 Asthma and Allergy Vacuum Cleaner from Bed Bath and Beyond with gift cards we received over the last two years. (Did you know those 20% off coupons never expire? That really helps!)

For the last 8 years, I had been using a Eureka that was kind of like a Dyson in that it didn’t use a bag and had a visible dirt compartment that can be emptied out. I thought it was doing a pretty good job based on the stuff I saw it collecting. I vacuum about once a month, so I thought our apartment was pretty clean.

Well, like everyone else, and like all those cliche stories, I was thoroughly surprised when I used the Dyson for the first time and saw how much it collected. What was most significant was the fact that it was sucking up some of the new carpet fuzz that I thought I was done vacuuming up about a year and a half ago. Wowsers!

So why did I pick the DC-17 versus the DC-14? Mostly because it came with a few more attachments, and the price delta wasn’t all that large (especially after the coupon!). Also, I had heard it does a better job of scrubbing carpets.

The things I like the best about the Dyson?

• It empties a lot cleaner than the Eureka I had.
• There are no filters to replace.
• It vacuums a lot better.

I highly recommend it!

The Year in Review

By Dave Barry Sunday, December 28, 2008; W10

In case you haven’t read it already, you should. It truly is the best summary of 2008.

Have a happy new year!