Apparently many IOUs would be sent to residents who are still owed a tax refund.  Many small businesses that sell to the state will also receive them.  A full list of the various agencies and groups that will be paid with IOUs is here. Right now the large banks such as Bank of America, Chase, and Wells Fargo are willing to cash the IOUs for customers.  However, this only lasts until July 10th, so this means that if you need the money now you better hope that you receive your IOU before then and get it to the bank.

It is also possible to sell the IOU to other lenders and investors.  Afterall, whoever holds the IOU at the time of maturity will collect the interest accrued. There is a risk of default from the state, but I can see some people getting into the business of buying up IOUs from people who need the cash.  Most likely these folks will pay less than the value of the IOU since they want to make a profit.

If you do not need the cash right away it might be best just to hold on to the IOU because the interest accrued is not taxable.  3.75% tax free is a lot better than any CDs and bank accounts out there now, but it really means nothing if you need to pay your bills right now.

I hope that the state gets its act together by July 10th because otherwise many people may have to resort to less safe venues to cashing their IOUs.   Small businesses may not even be able to survive without the ability to keep the lights on and making payroll.  Needless to say, this is a complete debacle, and I hope it does not cause too much damage.  Additionally, this round of IOUs for those who have a tax refund is further proof that it is better to owe the government money.  If you are in this group it is probably a good idea to withhold less from your checks.

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First of all, most Chinese immigrants I know are pretty frugal about everything except for their homes, cars, and their kids’ education.  Amongst the adults in my parents generation I think most do not go on expensive vacations, eat out  a lot, or buy very expensive clothes.  As a result, their idea of home affordability is a lot higher than 38% of their incomes.  Several people have said to me that Chinese people do not really care about spending more than 50% of their incomes on a mortgage, and I have found that to be true in many instances.  As  a result many people buy a lot more than they probably should have.  I have also  heard the same logic from some first generation  Asian Indian coworkers in the past.  Basically, they can afford the expensive house because they save on everything else.  Usually for married couples this is usually fine until one person loses his or her job.

Another cultural dynamic  that skews how affordable a home is for many immigrants is that many adult children , parents, and other family members are expected to pool their money together towards buying a house.  I know many people my age who own homes due to parental contribution, or some are living with their parents and helping to pay for the mortgage.  In the case of the strawberry pickers it seems that several families pooled together to afford the ridiculously high mortgage.  I think this arrangement is a lot less common in non-immigrant Caucasian American families.  Again, this could work if all family members are committed to paying for the debt and they keep their jobs, but otherwise it could be disastrous.

Next, Chinese culture has a big thing with something we call “face” or mianzi.  It essentially means that you have to project how successful you are to others.  In America I guess it is called “keeping up with the Joneses”.  Having a big beautiful house in a nice school district is a big part of having face.  It is something you can take pictures of and send back home to China and it is also something you can show off to friends and family via dinner parties.  Having face also includes having successful kids, and sometimes a nice car, too.  The value of face is priceless for a lot of Chinese people, and they are willing to sacrifice financially for what is essentially bragging rights. I remember a friend telling me once that all her parents spends on is their house and their expensive car, and they do not seem to enjoy life at all because they have no money left over to take vacations.  However, having that house and car seems to add to their self worth even though she thinks it is pretty superficial.

Finally, I think homeownership is so ridiculously appealing to all immigrants because it is a form of assimilation.  It is saying to the world that you own a little piece of America and you are part of something bigger.  Most  immigrants I know do work really hard for what they have, and it is pretty sad when they lose it all, but ultimately those who are in foreclosure now are responsible for their own decisions.  There were definitely shady real estate agents and mortgage brokers that targeted immigrant populations in this crisis, but I think many immigrants lost their usual conservatism and frugality when they were mesmerized with the idea of owning a home.  I know many immigrant families are still plodding away by pooling their incomes for huge mortgages these days, and I applaud them for being responsible, but for those who are draining their savings perhaps it is better to walk away and  start over again.

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• State workers’ June paycheck would be paid on July 1st, thus pushing $1.2 billion of expenses into the next fiscal year.  Umm… this saves money how?
• $1.7 billion of school funding would be delayed until the next fiscal year.  Once again, this is another paper fix
• Withhold 10% more taxes from every working Californian starting Jan 1st 2010.  This is essentially an attempt to collect almost $2 billion in taxes in advance.  What prevents people from changing their withholdings and owe the state money even with a 10% increase?
• 3% tax withholding on payments to independent contractors.  This is another gimmick to advance tax payments, but the independent contractors could get the money back if they don’t owe 3%.
• $1 billion proposed money grab on local gasoline tax revenues.  This is already being fought by the League of California Cities with a lawsuit.
• $1.50 per pack extra taxes on cigarettes.  When New York imposed a huge hike of taxes on each pack of cigarettes some New Jerseyan “entrepreneurs” simply bought cigarettes with lower taxes from other states and imported them to New York and made a profit by selling them at the tax inclusive rate.  I’m guessing some Nevadans or Oregonians will be into this business in California now.
• Illegal immigrants in prisons are being sent to immigration to be deported.  They really should have done this years ago.  Isn’t this really common sense?

A lot of these attempts to delay or advance payments really add nothing to the bottom line.  In fact, I think some of them would backfire.  For example, if you usually get a state tax refund now, perhaps it is time to change your withholdings so that you end up owing money at the end of the year because the state is trying to milk more money out of you this year anyway.  Also we all know that the state delayed refund payments for months and months this year so why should they receive your money early?  Chances are this would happen again if they do not change the fundamentals of how they are operating.    If enough people change their withholding strategy then this advance grab of tax dollars would not work at all.  If you calculate your withholdings correctly it is possible to owe just enough to not have to pay a penalty.

I’m kind of annoyed to see that a lot of the original proposed cuts on some social programs are gone and all of these gimmicks are going on.  So they are pushing one month’s salary into the next year, what will they do the next year?  Push the salaries again?  Soon enough state worker’s will be getting their pay budgeted for years into the future.  That’s pretty pointless.

I really do not mind paying taxes if it is being used responsibly, but it does not seem like the government knows how to manage money properly.  Add that to the fact that Californians themselves control the law making proposition system you just get a complete mess.   Of course noone wants to cut education, healthcare, and freebies, and of course noone wants to increase taxes.  So what you have left over is a very dysfunctional state and another reason to hate California.

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So the gist of the article is that a Harvard study said that  my generation is entering  a stage of peak home consumption and will shore up the housing market.   The problem with this conclusion is that they did not account for how many people in the “echo boom” generation already own homes, and how many already lost homes to foreclosure and cannot recover for seven years.  However, the study did acknowledge that the real income of my generation is much lower than the prior generation so the affordability of homes is much lower.  Additionally, younger workers are suffering more in the midst of high unemployment, so buying a home is even more out of reach due to the lack of jobs.

However, I agree that eventually our generation will be the ones that soak up the excess housing inventory on the market now, but that is almost the same as saying “the sun rises in the east”.    It will take time for homes to be affordable enough for my generation to buy en masse.  Some of my friends have an attitude of, “I am not going to be stupid like my parents and rush into home buying”, and even those who have parents with huge capital gains on their homes believe that it is still too expensive to buy a home at the current valuations.  Also I have seen a trend of frugality as being the “in” thing to do now so many are seeking a deal or just staying put.  Some are just saving money by living with their parents.

Anyway, I wouldn’t say that we as a generation is  a lifeline for the current horrible housing situation, but I think it is a good thing that this crisis is happening now while we are still young. We still have time to figure stuff out,  learn from our parents’ mistakes, and build up our assets.  Unfortunately,  many baby boomers who were most affected by this economic disaster may be running out of time to rebuild.

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Many of the large tech companies around here already went through rounds of publicized and internally announced layoffs and a good majority has had pay freezes or paycuts starting as early as late last year.  These are all public companies that you probably have heard of.  Basically noone I know in a large company has had a raise this year with the exception of people at Lockheed Martin.  Lockheed is doing fine since is a defense contractor and we are in the midst of war.  The government cut some of their contracts and added others.    The largest organization in California is the state of California itself, and we all know how terrible the state coffers are right now.  Pretty much all public employees I know are  getting paycuts in the form of furloughs and some are being laid off.  Banking is another industry that got hit extremely hard for obvious reasons.  For example, we have a Downey Savings, WaMu, Wachovia, Wells Fargo, and Bank of America all on the same block.  Two of those banks are technically dead.

On the flip side the friends I know that work for smaller corporations still managed to get raises and bonuses this year.  This is not to say that smaller companies are doing better than larger corporations as a whole, but I think that in general smaller companies have less fat to trim than large corporations.  Most startups tend to pay less than large companies, and have a leaner team to operate everything.    For the most part raises are rare this year, and they are also much smaller than previous years.   Many small companies depend on the spending of large corporations so there is really a trickle down effect.   Personally I have no idea if my company is giving out raises, but I am not expecting anything.  I would seriously be happy with a 1% raise just to cover the increase in state taxes.  The hubby got a small 3.75% raise and I am pretty happy about that even though it is smaller than any previous raise.

Anyway, the greater economy is really out of our control, and I am pretty grateful that we still have jobs.  However, I think everyone should try to give themselves a bonus or raise through saving or earning more money.  I have done several things to essentially give ourselves a raise this year such as refinancing our mortgage, renegotiating our rent, and continuing to blog.  Reducing our mortgage and rent is basically saving us 3300 after tax money every year, and that is significant.  My blogging income is also much higher than last year as my articles age and I have a bigger collection of articles.  These changes make me a little less uneasy about the general doom and gloom atmosphere we are in, and I am hopeful that the American economy will recover eventually.

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