Of Humility, Exaltation, and Mercy

(Image from patrickcomerford)

The specific details of the Pharisee-tax collector passage from Luke aren't as well-remembered as the more famous parables, but the theme is very familiar: [bold added]

"Two men went up to the temple to pray, one a Pharisee and the other a tax collector. The Pharisee, standing by himself, was praying thus, `God, I thank you that I am not like other people: thieves, rogues, adulterers, or even like this tax collector. I fast twice a week; I give a tenth of all my income.' But the tax collector, standing far off, would not even look up to heaven, but was beating his breast and saying, `God, be merciful to me, a sinner!' I tell you, this man went down to his home justified rather than the other; for all who exalt themselves will be humbled, but all who humble themselves will be exalted."----Luke 18:10-14

When we plead our case before earthly tribunals, we are allowed to make the case for ourselves. Just like the Pharisee touted his good deeds, we can cite ours, how we have never run afoul before, etc. But it is all for nought with the implacable Judge, whose Law is immutable and who has perfect knowledge of both our deeds and what is in our hearts.

If we are lucky enough to be granted time to ready ourselves for the next world, we must forsake what makes us virtuous in the eyes of our fellow man and ask for God's mercy.

Number One Yet Again

(Photo by Tama/Getty/WSJ)

California is first in the nation in categories good and bad (e.g., wealth, business startups, agriculture, homelessness, technology, air pollution), but few people are probably aware that it is the leader in cigarette smuggling:

More than half of cigarettes smoked in California—53%, to be exact—evaded or avoided the state’s cigarette mandates and levies. That’s a stunning rise from a decade ago, when 28% of cigarettes were smuggled into the Golden State. It also takes California past New York, where we estimate that 52% of cigarettes are smuggled.

What changed? A 2017 California law raised the cigarette tax from 87 cents to $2.87, which gave smokers an incentive to find cheaper options—which out-of-state and transnational smugglers were more than happy to provide. California then banned menthol cigarettes, which make up roughly a third of the nation’s cigarette sales, along with other flavored tobacco products, in late 2022.

...The Golden State’s policies also encourage public corruption. Last year a former prison guard was indicted for his role smuggling tobacco into Solano State Prison, near Sacramento. The state struggles to keep tobacco, narcotics and cellphones out of prisons. What makes its leaders think they can keep a tidal wave of illicit cigarettes and other nicotine products out of the hands of nonincarcerated Californians? California has many major ports, bonded warehouses, the Mexican border, and nearby states with lower tax rates, all of which can be exploited by smugglers to save or make a buck at California’s expense.

Lower-taxed states are a major source of cigarettes to high-taxed ones. Wyoming’s smuggling export rate is 55%. Idaho’s is 28%. In other words, for every 100 cigarettes consumed in those states, an additional 55 and 28, respectively, are bought there and smuggled into other states. It doesn’t strain credulity to suggest that many of these lower-taxed smokes end up in California.

California politicians and their staff don't seem to have much knowledge about how incentives influence behavior. Until we elect more people who have spent time earning a living in the real world--and I don't mean lawyers and educators--our state and local governments will keep passing well-intentioned laws that have no chance of success.

Mind that DSUE (Deceased Spouse Unused Exclusion)

The estate tax exclusion for this year is $13.99 million and will rise to $15 million next year. If an individual's estate is worth less than that amount, his estate tax is zero; if more, then the tax is 40% on the amount over the exclusion.

Married couples can bequeath estates worth double the exclusion on a tax-free basis, but they must be careful to file an estate-tax return for the first spouse that dies. [bold added]

The U.S. tax code is generous when it comes to passing down money to heirs tax-free, and it has only become more so under the new tax law. But for married couples to obtain the full benefit, there is a strict set of rules. Messing up can be disastrous.

In the case of Billy Rowland, it cost his heirs $1.5 million in extra estate taxes.

Rowland expanded his many small businesses in Lorain, Ohio, over decades, with his hand in trucking, used cars, commercial real estate and banking. He served on local charity boards and wore a “World’s Greatest Grandpa” cap.

After he died, his executor filed an estate-tax return, and the Internal Revenue Service came calling in 2021, asking about the estate return of his late wife, Fay, filed years earlier. The tax agency said it believed her return was incomplete, and that disqualified his estate from getting a share of her exclusion.

The Rowland case has lawyers and accountants who prepare estate-tax returns on edge. The Tax Court sided with the IRS last month, disallowing the estate from using the common planning technique known as portability.

That lets a surviving spouse use any leftover exclusion amount from the first spouse to die—as long as the estate filed a return and filled it out properly. The trouble is, often no one checks the work until the second spouse dies. At that point, it can be too late to fix any mistakes.

The Tax Court said Rowland’s estate couldn’t take Fay’s unused exclusion amount of $3.7 million because of the error. Hence the extra taxes. The message to wealthy families is that obtaining the doubled estate tax shelter for married couples isn’t automatic...

For most surviving spouses, a $15 million exclusion is enough to shelter their estates from taxes. They don’t need the combined $30 million available to a married couple. Yet nearly 500,000 Americans have a net worth of $15 million or more, according to the global wealth tracker Altrata.

For those with estates worth $15 million to $30 million, it generally makes sense to file an estate-tax return when the first spouse dies to elect portability. “It would be a disaster if they fouled up,” said Ed Zollars, a Phoenix-based CPA.

Even those with less than $15 million today might need the first spouse’s extra exclusion amount later on. Their investments could grow, or they could get an unexpected inheritance or win the lottery...

IRS rules allow nontaxable estates to leave off specific values on the estate-tax return if the assets are left to a spouse or charity. Fay named children, grandchildren and friends among her heirs, so her estate wasn’t allowed to use those rules, the Tax Court said.

The rules may seem convoluted to people who are not tax accountants or lawyers, but the solution is relatively straightforward after 2025:

If there's a chance the combined estate will be worth more than $15 million after the death of the surviving spouse, file an estate-tax return upon the death of the first spouse--though there may be no tax due at the time. Be sure that the return assigns values to specific assets--I personally would use $10,000 as a threshold--and that the "DSUE amount portable to surviving spouse" (Form 706, Section 6, Part C, Line 10) is filled out.

Bay Area: Last Stop?

(Image from first for women)

I bought Steve Martin's album A Wild and Crazy Guy in 1978 and found this bit to be hilarious:

You.. can be a millionaire.. and never pay taxes! You can be a millionaire.. and never pay taxes! You say.. “Steve.. how can I be a millionaire.. and never pay taxes?”

First.. get a million dollars.

Now.. you say, “Steve.. what do I say to the tax man when he comes to my door and says, ‘You.. have never paid taxes’?” Two simple words. Two simple words in the English language: “I forgot!”

The transcript does not do justice to his delivery, which was replete with pregnant pauses, shrugged shoulders, and goofy expressions. Plus, the two-part answer to "how can I be a millionaire and pay no taxes?" that began with "first get a million dollars" struck me as funny, and if you don't agree, dear reader, well, we laugh at different things.

I thought of Steve Martin's routine when I came across an article in the Chronicle about why many of us choose to live out our final years here: How to financially prepare to spend the rest of your life in the Bay Area . Certainly the drawbacks of staying in the Bay Area--or California in general--have been well publicized:

there’s plenty of talk about the bad. You don’t have to look far on the internet to find people blasting California for its high taxes, housing costs and homelessness. California has the top marginal state individual income tax rate at 13.3%, according to the Tax Foundation.

"But that’s not the whole story."

[Estate planning, trust and probate law attorney James] Cunningham broke down the hidden benefits in a post on his firm’s website titled “Why Retiring in California May Actually Be a Smart Idea.” For instance, though marginal rates are high, you’ll pay a lot less on your presumably diminished retirement income compared to some states with flat tax rates. California is one of the states that doesn’t tax Social Security benefits, and doesn’t tax capital gains when a spouse dies. And you’ll dearly miss that Prop. 13 property tax cap if you move somewhere like Texas.

Bay Area retired acquaintances have told me that the primary factor that caused them to stay or leave was the state of their finances. Those who have a paid-up house and enough savings and retirement income to live on (daunting prerequisites, like "first get a million dollars") consider other factors, such as where their children and friends live, the quality of medical care, and, last but far from least, the temperate weather all year long.

If I had to bet, the Bay Area is our last stop, but circumstances can easily change.

Summer, winter, or fall the Foster City weather is nearly the same.

Simplicity and Certainty

(Image from berkshiremm)

Last year we engaged a lawyer to update our estate documents, which had been executed in 2002. The most confounding obstacle was the uncertainty surrounding the estate-tax exemption:

Under the current rules laid out in the 2017 tax law, today’s nearly $14 million exemption would expire at year-end and drop by about half.

To get ahead of that cliff, Americans have been making lifetime gifts to use up the higher exemption amount before it sunsets.

If Congress does not act to extend the $13.99 million-per-person exemption, it will fall to about $7 million next year.

Bay Area homes that originally cost several hundreds of thousands of dollars now sell for $2 million or even double that amount. The switch from employer defined-benefit plans to 401(K) and IRA investment accounts makes visible the present value of pension benefits and inflates estates. While $7 million has always been a princely sum to most Americans, that threshold is now attainable by many homeowners who live in the Bay Area.

The new tax bill wending its way through Congress not only will increase the current exemption slightly but makes it more likely to be "permanent" in that it will require the Democrats to control both Congress and the Presidency to change.

Under the bill, an individual could die in 2026 with $15 million, and a married couple with $30 million, without owing estate tax. These amounts rise annually alongside inflation. The proposed changes have no expiration date...

The certainty of a new, higher exemption is a game changer for estate planning, estate lawyers said. “The permanence is a big deal for our family businesses, so they can do more long-term succession planning,” said Palmer Schoening, chair of the Family Business Coalition, which lobbies for estate tax repeal.

If the new, higher exemption amount is permanent, most individuals with estates under $15 million probably don’t have to worry much about estate taxes or do estate tax planning.

I do appreciate the certainty, which allows us to simplify our new estate documents. Don't under-estimate the virtue of financial simplicity in allowing one to sleep more easily at night.

Climate Change: Let's See if They'll Buy That Reason for Higher Taxes

My 2016 rented condo would have been subject to the tax.

Hawaii raised its hotel tax from the current 9.25% to 11% "to combat climate change."

The hotel tax is slated to jump from 9.25% to 11% beginning January 2026, specifically to combat climate change, according to the bill. Lawmakers say the increase will generate between $85 million and $100 million a year. Funding from the tax will be used to prevent effects from climate change like coastal erosion, flooding and wildfires, factors that many regions across Hawaii are vulnerable to, [state Rep. Adrian K.] Tam said at Friday’s meeting. The tax would also apply to tourists visiting the islands via cruise ships.

[Gov. Josh] Green has long been in favor of charging a $50 fee from tourists to enter the state, but various versions of the bill that have included a flat fee have died, since some lawmakers said it would violate the constitution’s protections for free travel, according to the Associated Press. Increasing the lodging tax was a compromise.

It sure is lucky that the science of global warming climate change came around to justify increasing the tax on beleagured tourists. After all, "coastal erosion, flooding and wildfires" had been occurring long before Captain Cook dropped anchor in 1778, but maybe the rubes will believe that driving their SUVs made the problems worse.

Meanwhile, thank goodness I have relatives that let me crash on their couch.

California: Not Entirely Hopeless

Gov. Newsom and Pres. Trump on 1/24/25 (Politico)

California is still doing some things right.

SF Chronicle: California is now 4th largest economy in world, surpassing Japan

The International Monetary Fund’s World Economic Outlook data for 2024 found that California had a nominal gross domestic product of $4.1 trillion, behind only the United States, China and Germany when compared with nations worldwide...

[Gov. Gavin] Newsom said, while announcing the lawsuit [against Trump tariffs], that more than 36,000 manufacturing companies in California employ more than 1.1 million people and are “disproportionately going to be hurt by this.”

The recent data also found that California had an economic growth rate of 6%, higher than the 5.3% rate for the United States, 2.6% rate for China or 2.9% rate for Germany.

India, which currently has a gross domestic product of $3.9 trillion, is projected to overtake California’s standing as fourth by 2026, according to preliminary data, Newsom’s office said.

We've posted how large companies like Oracle, Hewlett Packard, Tesla, and most recently Chevron have fled because California's taxes, regulations, and housing costs are inimical to the welfare of businesses and their employees.

For the time being the growth in businesses that have remained. e.g., Apple, Google, Facebook, Nvidia, Netflix, plus the formation of startups, have offset the losses. But once it goes negative--like the downtowns of San Francisco and Los Angeles--the turnaround will be extremely difficult.

Antiparochi

A train between Polikatoikies in Athens

It sounds like an Italian dish, but antiparochi is a financial device used in post-war Greece to spur the construction of millions of homes. A variant of this device could kick-start homebuilding in San Francisco and other high-cost American cities.

Antiparochi emerged in Athens from the wreckage of two world wars, after successive invasions by fascist Italy and Nazi Germany left Greece devastated. The idea involved homeowners in postwar Athens trading their land with apartment builders in exchange for a few condos in a new building, in lieu of cash. These buildings, typically four-story to six-story structures called polykatoikía, came to symbolize middle-class Athens.

Most new city housing in modern-day America involves the developer buying high priced land from a homeowner, who pays large capital-gain taxes and typically moves away. The developer earns a profit by building two or more houses, condominiums, or even an apartment building; none of these structures is low-cost because of the high-priced land.

As your humble blogger understands antiparochi, the homeowner exchanges his property to the developer in return for one or more new units. The developer, who no longer pays a high price for the land, doesn't need to sell the other new units for as high a price. Under Greek tax law, apparently, antiparochi did not result in taxes to the original landowner.

Key to making the structure work in the U.S. is the non-recognition of capital gains by the homeowner for tax purposes. Under current law only investment properties can be exchanged for other investment properties (under IRC Section 1031) without triggering capital gains taxes. A homeowner who gives up his personal residence experiences a taxable transaction, whether he receives back cash or another real estate property. (It may be true that clever tax lawyers can come up with solutions using partnerships or other entities, just as they did with a limited number of high-income individuals to work around the $10,000 SALT limitation.)

Antiparochi would only constitute part of the solution in California, however, who still would have its notorious red-tape problem. Nevertheless, kudos for creativity.

Guidebook to California Taxes

I often buy the U.S. Master Guide together with the Guidebook to California Taxes.

California tax preparers need such a guide because it's almost impossible to remember all the differences between U.S. and California tax laws.

If you would like a sample of what I'm talking about, dear reader, pictured on the right is a data input sheet for a professional tax service. It lists the various items by which Federal Adjusted Gross Income differs from California's. (There are similar input sheets for itemized deductions and tax credits.)

California has the highest marginal tax rate (14.4%, including the 1.1% surtax on wages over $1 million) of all the States in the Union. What is not often noted are all the adjustments to Federal taxable income that generally increase California income. To be sure, there are adjustments that go the other way, such as Social Security benefits and U.S. Treasury interest, both of which are not taxable in any state.

Such complexity is why tax preparers need the Guidebook to California Taxes, and why it is 1,024 pages long compared to the U.S. Master Guide's 944 pages.

Very Old School

100 y.o. tax preparer Else Rike (Hagerty/WSJ)

The WSJ features nonagenerian and even centenarian tax preparers: [bold added]

After more than 70 years as an independent tax preparer, [100 y.o. Else M.] Rike knows how to pace herself. She aims to finish at least three returns a day in the weeks before April 15.

Unlike other tax preparers, she doesn’t rely on software to guide her choice of deductions and exemptions or to do the sums. Instead, she punches keys on a Sharp desktop calculator, setting a tiny roll of printing paper atwirl, and then uses an electric typewriter to enter the numbers onto Internal Revenue Service forms.

“I’m not that tech-oriented,” she says. “I don’t have the computer figure it out. I do my own figuring.” Ever since childhood, she says, “math was always sort of my thing.”

Rike (pronounced Ricky) does have a computer, but she uses it only to print out forms. She doesn’t use email but does answer her cellphone or landline. To keep up with tax law, she relies heavily on a fat paperback, “U.S. Master Tax Guide.”

Mrs. Rike, like I do, subscribes to the Master Tax Guide. The MTG is sufficient for basic technical needs, and any problems it can't answer probably means the taxpayer needs to hire a specialist (e.g., closely held companies, foreign income, oil and gas) in that particular area. Specialists can be very expensive, and Mrs. Rike's price is right for her retired clientele:

“I don’t charge like others. I kind of try to do it by the hours that I put in or the number of pages of their returns,” she says. Most clients pay between $50 and $150. That includes a set of envelopes for estimated taxes, with the address labels neatly affixed.

At one point, Rike had around 300 customers. Now she has outlived most of them and serves about 80, including the children of former clients. “I don’t do too many difficult ones anymore,” she says. “I do mostly retired people.”

Her customers are loyal, and she enjoys her work. She has found what we are all searching for...life's purpose.

U.S. Master Tax Guide

I have ordered a copy of the U.S. Master Tax Guide nearly every year. It's a handy one-volume guide to tax law; on the back cover publisher Wolters Kluwer calls the 944-page tome "the tax professional's quick reference."

Real tax professionals disdain the MTG. Their libraries contain the Internal Revenue Code, the Regulations, revenue rulings, revenue procedures, and court cases. Combined with a research service or two, a full set of publications would cover an entire wall. All the information is available through online subscriptions, so an extra wall is no longer required.

As for me, I like riffling through pages to look up stuff, so I will continue to get a hard copy of the U.S. Master Tax Guide. It reminds me of how it used to be in the old days, and yes, I am no longer a "real" tax professional.

California's High Home Prices in the 1970's

California home prices achieved separation
from the rest of the U.S. in the 1970's (psmag)

One aspect of Jimmy Carter's Presidency of which I was unaware:

Carter’s presidency was No. 1 for California home-price gains

During Carter’s four years in the Oval Office, California home prices jumped 90%, as measured by the Federal Housing Finance Agency. No presidential term since Carter’s has produced a larger California home-price surge.

High housing prices are not unequivocally good; they benefit sellers but hurt buyers, and with sizable numbers on both sides politicians should try to cater to both (e.g., lower taxes on capital gains, faster permitting).

In California during Jimmy Carter's term, the State government was a huge beneficiary of the runup in home prices. Property taxes were ad valorem, i.e. based on the market value of homes, and had increased dramatically. There were numerous widely accepted anecdotes (though extrapolation would be unreliable because sellers did not have to disclose their motivation) of fixed-income seniors who were forced to sell their homes due to property tax increases. State legislators made no move either to lower taxes or rebate surpluses. The stage was set for Proposition 13.

From the State Board of Equalization's 2018 California Property Tax - An Overview:

On June 6, 1978, California voters overwhelmingly approved Proposition 13, a property tax limitation initiative. This amendment to California’s Constitution was the taxpayers’ collective response to dramatic increases in property taxes and a growing state revenue surplus of nearly $5 billion. Proposition 13 rolled back most local real property, or real estate, assessments to 1975 market value levels, limited the property tax rate to 1 percent plus the rate necessary to fund local voter-approved bonded indebtedness, and limited future property tax increases.

The home-price increases during the term of President Carter are an interesting phenomenon but are historically important because they spawned a nationwide taxpayer revolt that still echoes in the politics of today.

Warren Buffett Thinks Taxes are Going Up, and So Should You

The Berkshire Hathaway shareholders' meeting in Omaha last May.

Continuing its liquidation of Apple stock, Berkshire Hathaway sold a lot more in the third quarter: [bold added]

The Omaha, Neb., company ended September with $69.9 billion of the iPhone maker’s shares, according to a quarterly report released Saturday. That means Berkshire sold about 25% of the 400 million Apple shares it brought into the third quarter. Berkshire held slightly more than 900 million Apple shares at the end of last year.

Even after the sales, Apple was Berkshire’s largest stockholding at the end of September. Apple has been a major bet for Berkshire, and one that paid off big time as tech-hungry investors drove the stock ever higher in recent years.

This year, Berkshire has slashed the position, though Buffett has continued to praise the company. He told an arena of shareholders at Berkshire’s annual meeting in May that Apple was “an even better business” than American Express and Coca-Cola, two other big holdings, and hinted that tax considerations might have played a role in the decision to sell some shares.

Apple shares are up 16% this year and trading near records.

Market commentators generally have explained Berkshire's actions to be the result of portfolio-risk reduction (overconcentration in one stock) and the perceived over-valuation of Apple stock according to several metrics. However, the impact of higher corporate income tax rates after 2025 should not be underestimated in Warren Buffett's decision-making. Higher tax rates have a direct, immediate negative impact on cash flow, while portfolio diversification increases portfolio returns probabilistically but are not guaranteed.

Unless the Republicans make a clean sweep of the Presidency and Congress, tax rates are likely to go up. And even if the Republicans do win, the Grand Old Party still has traditionalists who are fiscally conservative. Higher-income taxpayers would be foolish not to take into consideration the likelihood of higher tax rates after 2025, and some are taking action now.

Among the moves investors might want to make if they are convinced taxes are headed higher is to sell stocks. Selling now would lock in capital gains at the current 20% top rate.

Kamala Harris proposes a new top capital-gains rate of 28% for high earners. She is also proposing to increase the investment income surtax. Although Donald Trump has campaigned on extending the 2017 law, taxpayers are also worried taxes could move higher if he wins, because of the nation’s finances and economy...

Potential changes to capital-gains taxes, more likely with a Democratic sweep, are prompting some taxpayers to sell stock or shares in a business. In addition to the higher capital-gains rate for those earning $1 million or more, Harris proposes increasing the 3.8% investment income surtax to 5% for taxpayers with income above $400,000.

Your humble taxpaying blogger may make some income-accelerating moves, such as converting traditional IRA moneys to a Roth IRA before year-end, but will wait till next year to take action after the election smoke clears.

The Subtlety of Politics

For the past month I've been watching the candidates for national office give speeches and interviews. I've been impressed with the ability of J.D. Vance to respond to questions, hostile or otherwise, and show that he has more than a surface knowledge of the issues. Of the four candidates I think he is the most skilled at dealing with the press.

Below is an example, albeit during a friendly interview with Fox News' Dana Perino:



At the 1:25 mark he says "You can't just walk into a McDonald's and sign a W-9 and actually go onto the payroll." (The W-9 is the IRS form in which a new employee declares his Social Security Number to his employer.) The fact that Mr. Vance knew the correct form number and stated it when he didn't have to was impressive to this career accountant.

Additional comment on McDonald's: there's a ridiculous controversy about whether Kamala Harris worked at McDonald's. She claims that she did, and her detractors say that she didn't; neither side has produced evidence to support their position, and McDonald's has no record of her employment. (The Harris campaign believes that she worked during the summer of 1983 at the McDonald's on Central Avenue in Alameda, California.)

There's an easy way to check. Just ask the Social Security Administration:

We can give you copies or printouts of your Forms W-2 for any year from 1978 to the present. You can get free copies if you need them for a Social Security-related reason. But there is a fee of $62 per request if you need them for an unrelated reason. You can also get a transcript or copy of your Form W-2 from the Internal Revenue Service. However, state and local tax information isn’t available if you e-filed your tax return.

How tough would it be for Kamala Harris to request a copy of her 1983 W-2 from the SSA or IRS and put the matter to rest? The fact that she hasn't done so is a strong indicator that she did not work at McDonald's, but of course yours truly is just a simple accountant who knows nothing about the subtlety of politics.

Saving One Dollar at 99 Ranch

This year I've started to look my age. I've lost hair, and what I have remaining has turned white. Which is background to the following:

We've been shopping at the local 99 Ranch Market for 20 years. As I was checking out, the middle-aged Chinese man at the register said, "I'll get you a senior discount." I didn't even know 99 Ranch had one. Sure, I shrugged.

He put his hands on his hips and bellowed, "Senior....senior!" Several customers turned their heads. Apparently the senior discount had to be approved by the manager. She came over in less than a minute and scanned her cellphone over a reader, authorizing the transaction. So 99 Ranch does use current technology, except for the part where cashiers yell for the manager.

I studied the receipt. The vegetables, ramen, and pastries cost $23.59, and the 5% senior discount saved $1.18. After writing the check to the U.S, Treasury for our 2023 income taxes, every penny counts.

Procrastination Hits the Immovable Deadline

Your humble blogger spent most of Sunday night and Monday morning working on his 2023 income taxes. While there are some justifiable reasons for his procrastination, it's hard to utter with a straight face that he couldn't have spared some time in the six months since April 15th to finish the task. October 15th is the drop-dead due date for filing.

But that's water under the bridge. I completed the input forms and submitted them to the processor. The preliminary run came back this afternoon, and there was a $10,000 error that should be easily fixable. Tomorrow I'll phone in the correction, get back the final run in the afternoon and drop it off at the Post Office by 5 p.m. Easy as pie.

California Gas Prices: the Answer Always is More Regulation

The Phillips 66 refinery in Rodeo (Merc)

We've posted before about why California gasoline prices are higher than the rest of the country (gas taxes, "boutique" gas formula, banning new Internal Combustion Engine cars after 2035, etc.).

As refineries close down, the ones that remain have been accused of price gouging--any person capable of critical thought might ask herself why refiners are abandoning such a profitable business--but critical thinking about Progressive governance has been sorely lacking for decades.

The long-term supply outlook has become so dire that last week the Progressive government floated trial balloons about California seizing control of the refineries. Realizing that running refineries (and bearing responsibility for the inevitable debacles) was a step too far, Governor Newsom proposed a bill that he thinks will stabilize fuel prices. [bold added]

California Gov. Gavin Newsom on Thursday announced a first-in-the-nation plan to require petroleum refiners to maintain minimum fuel reserves to avoid supply shortages he says create higher prices at the gas pump.

The proposal would authorize the California Energy Commission to require state refiners to maintain a minimum supply, which would help prevent gas price spikes and save Californians hundreds of millions of dollars every year. Newsom said profit spikes for oil companies are overwhelmingly caused by refiners not backfilling supplies when they go down for maintenance.

The industry is likely to have to build storage facilities in order to hold the gasoline reserves. Also, the gasoline reserves themselves have a cost. As students learn in Finance 101, all assets on the balance sheet are financed through debt or equity (for analytical purposes debt is assumed). Adding storage and gas-reserve assets will increase interest expense which the companies will try to recover through higher prices.

Higher prices are what Governor Newsom was trying to avoid, but if the regulator doesn't allow the expense to be passed through to the customer, the exodus of refiners will accelerate. In the one-Party state, the answer to unforeseen consequences of regulation is always more regulation that will make the problems worse.

Those Vagabond Shoes

(WSJ Illustration)

The ex-New York-now-Florida uber-rich are back in NYC for the summer. Conversations with their wealthy friends who stayed behind are laced with one-upmanship (one-up-personship?):

It’s summertime, and wealthy New Yorkers who moved to Florida are back North. From East Hampton to Kennebunkport, everyone’s in the same sandbox now. It’s time to compare who has the shiniest bucket: those who decamped or those who stayed.

Palm Beach: the best decision ever? Yep, or so they claim. They golf before work and take a dip on Billionaires’ Row beachfront after work. It’s only two hours by speedboat to go bonefishing in the Bahamas.

But for true Manhattanites, moving somewhere for fishing ease seems positively boneheaded. Asked if he’d ditch New York for enduring sunshine, mega-developer Aby Rosen prefers the big-boy pond. “Wow, gee whiz, how great I’m so free, swimming with kids in the middle of a workweek,” he responded facetiously. “I mean, who does that? I don’t want to putz around. Midweek, I’d rather go to Carnegie Hall, Lincoln Center or hear good jazz downtown. Kill me if I have to jump on a boat on a Wednesday evening!”

F. Scott Fitzgerald said the rich "are different from you and me." Nothing distinguishes a person more than language, and what the rich talk about is very different from normal people, too.

Its Demise is not in Question

In an expected development, the Governor and Legislature closed the upcoming year's California budget deficit by agreeing to a $297.9 billion spending plan.

(Image from the Economist)

In parallel news the slavery reparations bill ("Fund for Reparations and Reparative Justice"), estimated to cost $800 billion, was approved by the Judiciary Committee and moves to the State Assembly for consideration.

When I have an instinctive negative reaction to policies--in this case to pay big penalties for actions that neither I nor my ancestors had anything to do with--I like to turn to guidance from spiritual leaders to gauge whether I'm off base. This article (What the Bible Says About Reparations for Slavery) is helpful: [bold added]

Any examination of the question must begin with the notion of time and its relation to evil acts. The Bible, in Exodus 34:7 and elsewhere, tells us that God will “visit the iniquity of the fathers upon the children unto the third and fourth generation.”

These passages acknowledge that bad acts frequently have consequences that ripple beyond the temporal space of the perpetrator and can create a sphere of responsibility that far exceeds the individual actor. Importantly, the text also indicates that the ripples dissipate after three or four generations. The adverse consequences of nefarious acts don’t continue indefinitely—and, similarly, the desire for vengeance and the right to compensation for such acts can’t endure forever.

Why only three or four generations? This limitation is tied to the duration of emotional memory, including the transmitted personal sense of suffering and injustice. Most people have a vivid awareness of and emotional ties to parents and grandparents—perhaps even to a great-grandparent. Yet no such bonds can plausibly exist beyond that. The Bible is thus establishing a statute of limitations that is tied to the strength of personal memory and, therefore, to a limitation on the personalized rectification of historic wrongs.

Our legal system echoes this biblical teaching. Civil and criminal statutes of limitation generally bring to an end the pursuit of perpetrators for acts that are too distant in time to warrant subjection to judicial processes. Implicitly they also recognize that witnesses, tangible evidence, and raw emotions engendered by wrongful acts have disappeared—no matter how heinous the offenses.

While American slavery remains a powerful and tragic historical event, there are no individuals alive today who have direct personal links to it or even to those who suffered directly as a consequence of it. For all its evil and injustice, slavery is no longer a personal reality in the U.S. It is still a wrong to be righted, but in a collective manner, through national efforts—civil-rights legislation, improvements in education, public services, quality-of-life enhancements for the descendants of slaves, and the like. To its credit, our nation has vigorously pursued such efforts for decades.

The notion that direct compensation should be paid to sixth-, seventh- or eighth-generation descendants of slavery’s victims by similarly distant descendants of those who may have been complicit with slavery is simply unjust. The original actors, perpetrators and victims, are too far removed in time to merit punishment or retribution.

It is appropriate to punish a perpetrator or exact restitution from an individual who may have benefited directly from the acts of the perpetrator. Yet more than 1½ centuries’ distance makes such punishment for slavery incompatible with justice. Similarly, individuals separated by many generations from a vile act suffered by distant ancestors can’t have a justiciable claim for suffering they didn’t endure directly or indirectly.

The above interpretation of Biblical justice doesn't relieve me of my moral responsibility to help the poor and downtrodden. However, it's quite different to use the State's taxing authority to take from Peter to pay Paul --by force, if necessary--when both Peter and Paul and no one they know have any first-hand experience with the injustices perpetrated.

However, there is no point in getting too worked up about reparations. There is zero probability that California can come up with $800 billion, so it's just the timing and manner of reparations' demise that's in question.

Amusing While it Lasted

Assoc. Justice Goodwin Liu wrote the 7-0 ruling.

As expected, the Governor, the Legislature, the labor unions, and all the powers that run our one-party State were successful in having the California Supreme Court disqualify the tax initiative from the November ballot. If passed, it would have required higher taxes to be approved by two-thirds of the voters in addition to the two-thirds majority already required of the Legislature.The measure

must be removed from the November ballot because it is so far-reaching that it would be a “revision” of the state Constitution, the California Supreme Court ruled unanimously Thursday.

Initiatives can amend but not "revise" the Constitution, went the Court's reasoning.

Well, it was amusing while it lasted. As I posted last month

To be frank (and a little childish), I like seeing the single-party State squirm a little and, after denouncing Republicans as a threat to democracy, argue that the people should not have the ability to decide.