Wednesday, March 9, 2011



I am more convinced than ever that our elected officials have no interest in solving the financial problems we're in. Or, they're just incompetent. Or they lie. Maybe all three.

On the national stage, (one of many examples) we find that the "savings" promised under Obamacare is really spending money twice. They've promised to cut Medicare by $500,000 in order to pay for the millions of uninsured people. Then, in another Bill, they've provided $500,000 to support those cuts that they've made in Medicare. I suppose they had to pass the law so we can find out what's in it.

Another thing that was just discovered under the healthcare law is that they quietly snuck in $100+ billion in funding to administer Obamacare. No debate was done on the funding even though it was a spending issue which required debate. That $100 billion funding was only discovered in the past couple of weeks.

Locally, our elected officials are wrestling with the $700 million operational budget for the next two years. Yet, we have an unfunded Employee Retirement System liability of between $6.2 to $7 billion and another estimated $10 billion unfunded liability for the retirees' medical insurance reserves. That's $16 - $17 billion, which, when amortized over 10 years amounts to $1.6 - $1.7 billion a year. Adding in one year of the budget shortfall, we're talking about a shortage of $2 billion a year. And states can't print money the way the Federal Government does.

Will the government employees agree to give up their benefits? I don't think they will.  Wisconsin's budget shortage is only about $3.6 billion and they have a much larger population than we do. How are we going to pay off a $17 billion liability?

Politicians often pass laws and don't score the cost of such laws, so we don't know how much each law will cost. Laws must have staffing to administer and to enforce them. It takes manpower, record keeping as well as staffing to enforce noncompliance of such laws. So the government gets bigger and bigger. That traditionally suits the elected official because it feeds the public sector employees/unions who in turn funds and votes for certain politicians.

If the union assesses $20 a month to each public sector employee and there are 65,000 of them, they have $1.3 million a month to elect or defeat any elected official. So everyone plays along. If, however, the government is not allowed to collect the $20 from the employees' paycheck and pass it on to the union, then membership and the service fees would drop substantially because many would not voluntarily mail in their $20 to the union. So, it'll be business as usual even though we hope for a different outcome.

We've suggested that in order to plan for a possible chaotic situtaion, people should consider growing their own food. And consider becoming a taxpayer in another state.

Hawaii has a general excise tax that punishes all investors and entrepreneurs because it is a tax on gross income and is assessed at all levels of transactions a product or service goes through. That includes rental income. If the situation presents itself, selling your rental property and buying (or doing a 1031 tax-free exchange) in another state ought to be considered. If possible, also consider a move to a state that doesn't have a tax on personal income. These states are Alaska, Nevada, S. Dakota, Texas, Washington, Florida and Wyoming. Two states don't have a tax on earned income but do tax your dividends and interest. These states are Tennessee and New Hampshire.

One might consider incorporating in a state that doesn't tax corporate income. These states are Texas, Nevada and Wyoming. Your holdings in rental property (non-Hawaii real estate) can be put into these corporate structures. See your CPA or tax/financial advisor. Not taking action may cost you dearly.

Hawaii's elected officials show no propensity for cutting down the size of the government and in fact, have already indicated that they will be looking to those who are productive for additional taxes. I suspect they'll try to increase the general excise tax.

Government does not create a product. The services that government provides are limited to compliance and administration of laws and regulations that they create. Like in transfering wealth. Whatever the cost of the administration of rules and regulations is, they must consfiscate from the private sector which produces products and services. The government has no source of wealth.

The public sector employees will not give up their benefits. Street violence, in my mind, is a possibility. They can also readily shut down our ports if they don't get their way. Thus, being able to grow your own food is essential to your survival.

Meanwhile, if things get chaotic, our kupunas would be left to fend for themselves. Says a lot about our society.

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