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Minimum Wage vs “Maximum Wage” in the USA May 26, 2006

During his presidency, Bill Clinton gave states the power to set their minimum wages above the federal level. Since then, 18 states have raised the minimum wage above the federal level of $5.15. On Tuesday, January 17th, 2006, Maryland became the 18th state in the nation to enact a law that will make Maryland’s minimum wage higher than the federal. Santa Fe’s $9.50-per-hour minimum wage is the highest in the nation, and there are plans to increase this wage to $10.50 in 2008.

$5.15 x 40 hours = $206/week x 4 = $824/month x 12 = $9,888 per year.
$5.15 x 60 hours = $309/week x 4 = $1,236/month x 12 = $14,832 per year.

$9.50 x 40 hours = $380/week x 4 = $1,520/month x 12 = $18,240 per year.
$9.50 x 60 hours = $570/week x 4 = $2,280/month x 12 = $27,360 per year.

For comparison, let’s compare that with a first year lawyer associates at a law firm or a physician who makes $150,000 (assume a typical 60 hour work week):

$52 x 60 hours = $3,125/week x 4 = $12,500/month x 12 = $150,000 per year.

And let’s compare that with a Fortune 100 CEO median compensation of $17.9 million (”maximum wage”):

$6,215 x 60 hours = $372,916/week x 4 = $1,491,666/month x 12 = $17,900,000 per year.

That’s over 1200 times more than someone making minimum wage working a 60 hour week and 120 times more than a lawyer or doctor making $150,000/year!

Ref:
- Wikipedia, US State minimum wages
- CEO pay soars in 2005 as a select group break the $100 million mark, USA Today

More Real Estate Agents than Doctors in the US May 24, 2006

Just thought this was an interesting factoid…What does it say about the priorities of the US population when there are more real estate agents per person than there are doctors per person?

There are currently 298,815,342 people in the USA, according to the US Census Bureau. The Real Estate Bloggers writes that there’s a new report from the California Department of Real Estate that says there is a real estate agent for every 52 adults in the state. Let’s take a look at the number of people in the US divided by the number of active physicians (approximately 800,000) and compare that with the population in California divided by the number of real estate agents.

It’s a chicken-or-egg question, but maybe the number of licenses is related to the huge run up in housing prices in the US, especially in CA and the surrounding states?
Sorry this post has nothing to do about personal finance or tax, but I had to point that out. So to relate this to personal finance, I wonder how many financial advisors there are per person in the US? Apparantly Warren Buffett thinks there are too many of them. (see his famous 2005 letter to his shareholders, titled “How to Minimize Investment Returns” (pdf) on page 17.

From The Real Estate Bloggers
Medical miscalculation creates doctor shortage, USA Today

Taxes Triple for Teenagers May 22, 2006

Tripling tax rates for teenagers with college savings funds is outrageous:

Under the new law, teenagers age 14 to 17 with investment income will now be taxed at the same rate as their parents, not at their own rates. Long-term capital gains and dividends that had been taxed at 5 percent will now be taxed at 15 percent. Interest that had been taxed at 10 percent will now be taxed at as much as 35 percent.

Because I believe savings for college is becoming more and more difficult because of increasing education costs and tuition, and higher interest rates for borrowing, I’d be willing to pay higher taxes either with a consumption tax, gas tax, or income tax. I think this country has enough obstacles for young Americans to go to college for a higher education. How are we to compete with other countries that are educating more PhDs, MDs, and MBAs than in the US? We don’t need taxes on teens to reduce money that would otherwise have gone to pay for tuition.

Add Taxes to the Teen Triple Threat:

According to the NY Times article, Mr. Bush pledged in 1999 to veto any bill that raised taxes. I hope Mr. Bush rescinds his tax increase for teens so we can feel more secure about this country’s future.

Source:
Despite Pledge, Taxes Increase for Teenagers
By DAVID CAY JOHNSTON
Published: May 21, 2006

You’d Think This Person Could’ve Lived Off of His Royalties Forever May 19, 2006

Imagine this scenario:

Assets:
A) $15million per year revenue from royalty fees ($300 million total royalty fees (from a $47.5 million purchase of asset (nice return!))
B) $20million per year revenue from business ($400 million total revenue)

Liabilities:
1) $300 million bank loan (to pay off spending sprees that includes upkeep for a California home) - $4.5million monthly payments

Expenses:
- Spend $9000 per night at hotels in Dubai
- $20million lawsuit settlement
- $8million annually on plane charters, artwork, hotel, and travel expenses.
- $4million on home upkeep
- had to sell a 50% stake in asset A for $100 million to pay debt burden.

“If you want to take a trip to London, that’s one thing. If you want to continue that trip and have your entourage of 15 or 20 people go with you, it gets expensive.”

He “became fixated on obtaining expensive possessions and feeding his ego by listening to the advice of hucksters and imposters.” If he read any of our personal finance blogs (or pfblogs.org), he might not be in this situation. But then again, who’d think he would be on the brink of bankrupcy? Who am I talking about? It’s…Michael Jackson. I feel bad for him, but do you think he could cut down on the hotel and travel bills? Maybe he could sell some real estate? He can save on phone bills too if he signed up for Vonage like I did. He can even call Europe unlimited minutes! Or he can cut down on charter flights to Europe and use Kayak.com to compare flights. Ha, I’m being facetious, but I’m sure there’s a lot of cash flowing out where he can save. Live below your means and you won’t have these problems! What else do you think Michael Jackson could’ve done to prevent his financial situation?

Source:
What Happened to the Fortune Michael Jackson Made?
By TIMOTHY L. O’BRIEN, NY Times
Published: May 14, 2006

“Smooth Transition to Normal” for Westchester County Real Estate May 18, 2006

Because I live in NYC area, I watch the market in Manhattan, Brooklyn, North NJ, Bronx, Queens, LI, and Westchester County. I received a market report from a broker of mine in Westchester County and thought I’d share with you.

The latest statistics from the Board of Realtors in Westchester County in New York State show that real estate sales reported in the first quarter of 2006 were 9% fewer than the number reported a year ago and announced that “the boom is over, and our area has made a relatively gentle descent to a more sustainable level of sales volume and prices increases.” Single-family house sales in Westchester were down by 14% from a year ago.

Inventory has been steadily increasing as well:

That build-up accelerated in 2006 with 38% more units on the market at the end of the quarter than in 2005. Putnam County’s stock increased by 23%.

The number of available Westchester condominiums increased by a hefty 81% to 860 units. As has been noted in previous reports, the spate of new condominium construction in White Plains and elsewhere in Westchester has added new and resale units to inventory in this market sector.

…
Another indicator of a return to a “normal” market is that first-quarter average prices increased by less than double-digit percentages on an annual basis, confirming the trend to price moderation of the past several quarters. The median sale price of a Westchester single family house increased by 5.7% from $615,000 last year to $650,000 in this first quarter of 2006. In Putnam County the $375,000 median sale price was 8.5% below last year’s median.

The report mentions that although the Westchester county housing market is not immune to potentially serious slowdown of the national economy, the “local eight-year run has been founded on classic principles of supply and demand, not on speculative building or speculative investment by buyers, we are experiencing a relatively smooth transition to a slower, even “normal” real estate market.”

Source:
Westchester MLS Report (pdf)
(home image courtesy of Southeby’s International Realty. Thanks!)

Lazy Spendthrift Generation Y? But Who Spends All of the Gov’t Revenue? May 15, 2006

A day after Hillary Clinton lashed out on Generation Y’s work ethic, her daughter, Chelsea, called to complain. Clinton apologized and didn’t mean to convey the impression that they don’t work hard.

Backing away from her assertion that the current generation is lazy, Senator Hillary Rodham Clinton said on Sunday that she simply wanted to “set the bar high” when she told an audience last week that young people today “think work is a four-letter word.”

Flexo of Consumerism Commentary mentioned that Chelsea is a Gen Y’er that worked hard for that money, just like every other child of super-popular people. Maybe not the super-popular (Paris and Nicole come to mind), but there seem to be plenty of Generation Y of the super-rich that work hard. Both Bill Gates and Warren Buffett (number 1 and 2 richest people in the world) vow that their children will not receive an inheritance to encourage them to make their own way in the world as are Gen Y’ers like Chelsea Clinton, Jamie Johnson and Nicole Buffett. It’s good to see that there are rich people who want to raise hard working, responsible citizens of the world.

‘IRA’ of Inchoate Random Abstractions, also posted about Gen Y’ers working hard. Although some Gen Y’ers have a sense of entitlement, but I have to agree that we (Gen X and Y) will have to pay for the boomer genration’s over-spending habits. Who’s going to end up paying for the $9trillion National Debt?

Source:
Chided by Daughter, Clinton Says Youth Are Not Lazy
By ANNE E. KORNBLUT and RAYMOND HERNANDEZ, NY Times

Generation Y Entitled To $50,000 Per Year Jobs? May 13, 2006

Saw this article in the New York Post about how Sen. Hillary Rodham Clinton lashed out at the instant-gratification generation, saying young adults “think work is a four-letter word.”

“Kids, for whatever reason, think they’re entitled to go right to the top with $50,000 or $75,000 jobs when they have not done anything to earn their way up,” the Dems’ 2008 White House front-runner said.
…
“A lot of kids don’t know what work is. They think work is a four-letter word,”
…
“We’ve got to send a different message to our young people. America didn’t happen by accident. A lot of people worked really hard. They’ve got to do their part, too.”

Gen Y’ers (born between 1978 and 1986), are in a culture that has a premium on instant gratification. Instant consumerism is said to be part of the Gen Y life. Is this generation raised to treat debt as a normal part of life? Rob Frankel, author of The Revenge of Brand X stated:

“Boomers bought stuff because they needed it; X’ers buy because they want it. Gen Y is less rooted in traditional social mores and ethics. They are easier targets, because they have grown up in a culture of pure consumerism. They’re more likely to buy because they see buying as a part of life.”

Generation X (born between 1965 and 1978) may be the ones who started feeling entitled to certain standard of living, but I think it’s unfair to label all Gen Y feeling entitled to $50,000 jobs right out of college. But seeing shows like My Super Sweet 16 makes me wonder about the Millenial generation (or whatever the generation after Generation Y is called). Is our society doomed to debt?

Source:
HILL SCOLDS LAZY GEN. Y
By IAN BISHOP, New York Post

Info: Tax Bracket and Marginal Tax Rate May 11, 2006

I’ve mentioned before that in some cases the added tax you pay when your income goes up isn’t the same as your tax bracket. Some don’t realize that your tax bracket is the rate you pay on the “last dollar” you earn. As a percentage of your income, your tax rate is generally less than that.

For example, suppose your taxable income (after deductions and exemptions) was exactly $100,000 in 2005 and your status was Married filing separately; then your tax would be calculated like this:

( $ 7,300   -   0 )   x .10 :       $   730
( 29,700   -   7,300 )   x .15 : 3,360
( 59,975   -   29,700 )   x .25 : 7,568.75
( 91,400   -   59,975 )   x .28 : 8,799
( 100,000   -   91,400 )   x .33 : 2,838
    Total:   $ 23,295.75

This puts you in the 33% tax bracket; but as a percentage of your income, your tax is about 23.3%.

Yesterday’s announcement on the tax cuts in the US extends to 2010 the 15% tax rate on most dividends and capital gains, which benefits the wealthier tax payers, who would otherwise pay the 35%, which is the tax bracket for married earners of over $168,275 or single earner making over $336,550.

Related:
Common Tax Bracket Mistakes

Tax Bill Agreement Possible - Will It Help Us? May 10, 2006

Tax writers in Washington D.C. reached an agreement that would extend lower rates for investors and shield middle class (see entry on economic classes) taxpayers from the alternative minimum tax (AMT) for another year.

Here are the highlights:

With high earning taxpayers being allowed to convert their IRAs to Roth IRAs, the gains earned in those accounts would grow tax free, whereas in a traditional IRA they would have been taxed as income upon withdrawal. This will probably create some initial revenue for the government as people convert IRAs to Roth IRAs.

Source:
House GOP ready with $70B tax cut
By William L. Watts, MarketWatch

Rich People Love Mortgages May 9, 2006


You’ve seen all the media attention about how mortgage rates are rising and homeowners are either locking in rates before they go up or refinancing mortgages from adjustible to a fixed rate. A quick check of mortgages shows that a standard 30 year fixed rate is only 8 basis points (0.08%) higher than last month’s rate.

But with mortgage rates around 6.19%, someone in the top 35% tax bracket would be paying closer to 4% on the borrowed money. The very rich are more comfortable with debt and they seek out loans for things they could pay for outright. Interest Only loans used to be for wealthy clients who will invest the savings on the difference between an interest-only mortgage and an amortizing mortgage, and who is confident that the investments will make money and beat the 4% they pay on the mortgage.

The reasons for taking on more debt range from buying artwork, yachts, airplanes, or investing in funds. A very rich person may easily be able to pay $20million cash for art but the opportunity cost of selling something else and paying tax on it is far higher than borrowing money from their private banker. As for mortgages, with the tax deductions they can take up to the $1million cap, the wealthy can make up the interest rate they pay by investing in taxable securities by leverage their real estate holdings.

Sources:
(mortgage chart courtesy of Bankrate.com, as of 5/9/06)

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