Inflation without growth – my remedies

http://www.bloomberg.com/news/2011-05-30/rising-rents-risk-higher-u-s-inflation-as-fed-s-rate-restraint-questioned.html

The report comes at the same time as the new housing index which shows a new low in home prices. The reason why those who can afford purchasing a home choose not too is not a sudden change in mentality but the insecurity in the job market. The new fluidity in jobs, outsourcing, technology replacement, and business failures are taking their toll in confidence.

New Jersey is behind the rest of the nation in a number of economic indicators. We are worse off than most.

As we stand today, these are the counter-measures I intend to seek implementation of:

1. Phasing out property taxes for primary homes of New Jersey residents who:  a) Work in the state of New Jersey; b) Are retired; c) Serve in the armed forces of the United States.

2. Phasing out property taxes for farms and businesses.

3. New Jersey minimum wage will rise to $18 per hour without health coverage benefits or $15 with HCB.

4. All dividends from S corporations will be tax-exempt.

5. Profits from C corporations operating with a significant presence in New Jersey will be also tax-exempt.

6. Direct dividends from corporations that do not have a presence in New Jersey will be taxed at a rate of 50%  of margin after federal taxes. Owners of stock of those corporations will be liable for 50% of their profits after federal tax. NOTE: Retirement accounts such as IRA and 401-K are excluded from this provision.

As an example of 5 and 6: Swiss corporation Hoffman-La-Roche has a significant operation in New Jersey. It will pay no corporate taxes and it will pay no property taxes for its facilities in Nutley. The dividends it pays to investors will be un-affected by this provision. On the other hand, dividends from General Motors, nominally a U.S. corporation but which is absent from New Jersey and has shown a marked tendency to outsource its production outside the United States, will be taxed at 50% after U.S. tax.

7. Personal income taxes will increase.

This is an economical platform which is accompanied by a number of other measures (see political program page)

This program could change due to economical events, legal prohibitions, and other unforeseen factors.

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Recovery without jobs but shortage of science workers

http://management.fortune.cnn.com/2011/05/20/confronting-the-coming-american-worker-shortage/?iid=HP_LN

All seem to point to the fact that we are failing from the bottom up. We are losing the science race in primary school. But at the same time, we must create more technical and vocational schools or enrich the programs of those already in place. Not all teens want to go on to college.

My son graduated from Lehigh university yesterday. I watched the commencement ceremony and listened to Ellen Kullman, Chair and CEO of DuPont, give the principal speech to the graduates. She used the word “American” once, referring to American universities, but she used “global” so many times that I lost the count. I sensed a complete abdication of national allegiance from her part and instead a vision of the corporate rooms transcending borders. It was a very unabashed promotion of globalization and cut-throat capitalism.

In her speech, the students were relegated to instruments of the infernal machinery. Her advise to them was: You are mere parts of a total. Stay sharp and oiled; you won’t find pity.

The old call to American individualism which once served to destroy American labor unions is gone. The new call is to belong to the global corporate team.

I have nothing against capitalism except that when it gets out of control it can trigger a backlash. It is the backlash that I am the most fearful of. We already have created a two-tier economy in this country and the gap between rich and everybody else is rapidly widening. We are no longer the land of opportunity. Instead, most of the social classes, perhaps between 80% and 90% of the population,  are stagnated in the lower rungs of a flaccid Main Street.

http://www.project-syndicate.org/commentary/stiglitz138/English

We may have more inequality in the U.S. today than at any time before that Great Depression of the 1930’s, and possibly to find a comparable accumulation of wealth at the top, we must go back to the Roaring 20″s. The practical implications of this is that the rich, such a small percentage of the total population, can not sustain a growing national economy.  This morass has inevitable social and political consequences.

http://www.time.com/time/nation/article/0,8599,2072381,00.html

This last article prescribes a number of solutions and priorities. There is nothing that Mr Zakaria writes here that I disagree with. I find the idea of increasing the national debt somewhat lacking. But overall he is correct. The issue is that a lot of people have good ideas but those currently with the ability to implementing them are deaf.

Posted in All New Jersey 2013 | Comments Off on Recovery without jobs but shortage of science workers

New Jersey: Political corruption

http://www.nj.com/news/index.ssf/2011/05/investigation_finds_elizabeth.html

This is not an isolated case. To a greater or lesser degree, this occurs in most if not all local and independent subdivisions of government in New Jersey. This one is indeed a very vivid example of New Jersey politics in its routine operation, and in most cases with impunity. The amount of transparency in local and independent governments is very limited. It happens at the state level too but there is much more focusing on state affairs.

It is important to recall that, between municipalities, counties, boards of education, and independent authorities and commissions, there are about 2 thousand political nests of abuse.

Obviously one of the most fundamental forms to bring this under control is by reducing the number of agencies, boards, and government subdivisions. I have proposed that in my political platform.

Another method, of which I already wrote, is to strengthen civil service laws so that every public job has to be made available to the general public through a system of examinations and not just to a political clique. I have proposed that as well.

It is the public commonwealth that is squandered while maintaining a monopoly on power.

New Jersey housing crisis

http://blog.nj.com/njv_editorial_page/2011/05/housing_still_out_of_reach_for.html#incart_hbx

This is one issue to which – for different reasons – I have given a great deal of thought. The initial problem for me was when I formulated the plan to phase out property taxes for principal residences of New Jersey taxpayers, farms, and businesses. Obviously the elimination of property tax would mean that there would be an increase in income tax. The latter would affect renters but the renters would not benefit at all from phasing out property taxes because they do not pay them directly; they are a part of the rent but it is an undefined part, and it is more than doubtful that rents would go down if rental properties were declared tax free.

Accordingly, I decided that it would be fairer to renters to leave property taxes for residential rental properties in effect and use that revenue to give a tax credit to renters, approximately compensating for the income tax increase, which of course would be universal.

I have debated to have an option for rental property owners where they could join a property tax-free plan, they would reduce their rents proportionally, and they would agree to a system of rent control thereafter. But I did not get to the point of studying details and numbers; it was just an idea and still is.

But this article presents a new problem: There is more demand for affordable housing than there is housing. Too many people are paying a disproportionate portion of their total income toward rents, and in some cases, mortgages. Yes, there are also homeowners who are house-rich, cash-poor.

I see 3 factors in this equation detailed in the article: The first and probably the most widespread one is that wages have been stagnant for more than a decade. I believe it is appropriate to say that wages have not kept up with prices in any relevant area: Food, healthcare, or housing. So while landlords have been able to increase rents due to greater demand, wages have stayed flat. As the recession has taken hold and thousands have lost their homes, the pressures on the rental market have increased significantly, pushing rents up.

The second factor is that builders do prefer big houses because they generate more profit when sold. There was also greater demand for large houses before the recession. Government regulations forced builders to include a percentage of moderately priced housing in all developments but that clearly has not been sufficient. A large percentage of the developments in New Jersey have consisted of one-family homes; precisely the type of housing destined to homeownership and not rental. But homeownership becomes impossible when one is unemployed or underemployed.

The third factor is the cases of homeowners who either overextended when buying a home or bought a home within their ability to pay and then became unemployed in the recession.

Governor Christie has not been responsive to this crisis. One in 7  residents of New Jersey, according to the article, put 50% or more of their income toward housing. That is a shocking figure and it is certainly a contributor to the decline in consumer spending.

There are three solutions to the problem presented in the article: Either wages go up, or rents go down, or both. I am inclined to look at the third one as the most plausible one. But I would be misleading you if I wrote that I have a concrete solution today. This crisis is ingrained into the economic decline of New Jersey. Our economic decline, in turn, is connected to the current political structure, its size, and the way taxes are collected. Everything has an effect on everything. Everything interrelates. We need a general reform and not a piece-meal approach to our difficulties.

One possible scenario I can contemplate is what I wrote in paragraph 3 of this piece. But I did debate that option before becoming aware of the affordability issue. Another possible step would be the re-introduction of the legislation Christie vetoed, allowing towns to set up a minimum of affordable housing in any new development.

I may get back to this topic at a future date. I need more time to think. And I do know I will need knowledgeable help with this issue.

Education failure causing outsourcing

http://money.cnn.com/video/news/2011/05/12/n_xerox3_servernation.fortune/?iid=HP_LN

Xerox CEO Ursula Burns returns with CNN Soledad O”Brien for another portion of her interview. Her rationale, which I entirely share, is that we will not be able to maintain out standard of living unless we reverse our decline in science fields. Not mentioned in this interview but I have the figure impressed indelibly in my mind: China graduates 100 engineers for every one that graduates in American universities. And it is good to keep in mind that a significant number of engineering students in American universities were not born in the U.S. but are foreigners who enter with a student visa. Furthermore, many of the latter are Chinese.

Ms. Burns mentions in this piece that 106,000 engineering jobs were outsourced overseas in 2006 alone because companies had to fill then but there were unable to find qualified candidates in the United States. That is a staggering figure with should make us sound the alarm.

So we have a challenge on our hands and the response both in Washington and Trenton has been to accuse the teachers’ union of protecting bad teachers and clamor for reforms in teachers’ evaluations and tenure.

My position is that the government has taken that approach because it is the easiest and cheapest one to take. 90% of the solution consists in rhetoric.  It is simple to translate to the voters; “we have an enemy (the labor union) and we must clamp down on those who are taking advantage of the system.”

The quote above is a fallacy, a myth. Yes, there may be some bad teachers and yes may be tenure can use some reforms (I am not as familiar with tenure as I am with civil service.) But there are also huge problem regarding poverty, family breakdown (which often occurs as a result of poverty), and a form of cultural decadence which does not stimulate dedication to studies and hard work.

Most parents, I believe, care for their children and would do almost anything to see them grown with knowledge and opportunities. But we can not force those few parents who do not fit the earlier description to become better parents. We can not force people to care if they don’t. We must recreate the custom of hard work where it has faded. That is why I am proposing to increase the amount of time that children spend in schools, from the earliest grades, to raise a new generation of super-students. Even if homework has to be done on school time, it must be done. We must attract good teachers, in all fields but more notably in the science fields, and for that we will have to pay good wages and make the teaching profession a rewarding one, both economically and intellectually. Finally, the executive branch of the state government must learn to respect teachers again.

Due to the feeble state economy – a situation I do not expect will change significantly during the next 2 or 3 years – New Jersey will not be able to enhance the school year on a state-wide scope. We will have to start with pilot programs in some of the most troubled districts and expand as we move into the political and structural reforms of  government I have presented in my program.

I would start the expanded school plan in Newark.

New Jersey’s revenue up; economy down

http://www.nj.com/news/index.ssf/2011/05/boost_in_nj_tax_revenue_comes.html

If the wealthier residents have seen an increase in their incomes at the stock market but the New Jersey business tax revenue is down, that is indicative that the investments of those New Jersey residents are not taking place in the state but somewhere else in the United States or overseas.

This is not a healthy situation. The problem starts with the fact that it makes the fiscal situation of New Jersey more and more dependent on Wall Street and not on real wealth created in our state. Then, we can add the widening economic and social gap between this relatively small group of people and the majority of the population; a lack of equilibrium which will hamper any future real growth in the state. The minority will live very well but more and more of our citizens will face hardship. It is just a matter of time before that economic imbalance becomes social unrest.

The remedies for this exist in the state tax code. I have a number of measures proposed in the Tax Reform page which seek to put a premium tax on overseas earnings, at the dividend level, even though I will seek lower corporate taxes and exemptions for dividends earned in S corporations in the state.

But I am not going to sound like a slippery politician on this issue. Make no mistake: If an investor, who is a resident of New Jersey, decides to place his chips on a foreign spot, he or she will pay a higher tax on those dividends. There will be a price to pay in real money for being oblivious to the fate of the state economy and to the state itself. 

On the other hand, investing in New Jersey will pay off.

New Jersey Civil Service Law

I propose to strengthen civil service law. I will explain why here. This is one area which does not require a constitutional change so, technically, the executive branch of government can present a revised law to the legislature. I expect considerable resistance to the changes and I will attempt to explain why.

New Jersey has the New Jersey Statutes Annotated or NJSA and the New Jersey Administrative Code or NJAC. The first is the actual laws passed by the legislature. The latter is the set of laws and rules which implement the laws of NJSA. Thus, when we talk about civil service, the pertaining title in NJSA is 11A and the corresponding title in NJAC is 4A. NJAC4A enforces NJSA11A.

http://www.nj.gov/csc/nj_title4a/index.htm

Civil service was created in New Jersey to shield the state government employees of political pressures and influences. At the core of the system, the rationale followed the principles of the British civil service throughout the empire – notably India – where servants would perform their functions honestly and efficiently without fear of retribution because of local influences or after a change of government in Simla or London.

Our civil service has three categories of servants: 1. Senior executive service; 2. Career service; and 3. Unclassified service.

Furthermore, civil service is divided into state and local services. Local service includes counties, municipalities, and independent authorities and commissions. For the purpose of labeling, I will use SS and LS to denote state and local services hereon.

1. The senior executive service is limited to 1200 persons in the State service and 85% of those must be from the career service.

2. The career service included all the positions (positions have and are known by their titles, i.e. Senior Maintenance Worker) for which applicant must take examinations and are rated according to score. This is the category which I intend to expand, at the expense of the last one:

3. Unclassified service. It is here where the bulk of the political patronage and nepotism occurs. Individuals are hired at the discretion of the employer, without even advertising the job opening in any form. Often there is no need for a position but someone needs a job and knows a politician who then asks an agency to create a position for that person. No one else has a shot at that job even though it is a public position. Often, the appointees lack the qualifications for the positions or worse, the positions have no job attached to it. Appointees may show up every day on time and still do nothing. Of course, this person is an unconditional political supporter and often a donor to his “benefactor.”

Political patronage is a powerful instrument of political control which the two political parties will loathe to give up.

It is this category which I intend to reduce to a bare minimum. Governor Christie has put up a show in a few instances, firing some political appointees here and there. But for everyone fired there are 100 who remain. He knows it very well. To close this bleeding of the fiscal resources in both SS and LS, we must tighten the law. That is what I plan to do.

Governor Christie has also proposed in his tool kit to allow LS municipalities to opt out of civil service. This, undoubtedly, would increase the abuses.