COLLEGE TUITION: NOBODY PAYS RETAIL, EXCEPT YOU

The increasing cost of college has been a headline topic for over twenty years.  It basically goes something like this: annual college costs have risen x% a year, while the rate of inflation is only y% a year.  For the sake of numbers let’s use 3% and 9%.  While that 6% differential may seem inconsequential, the power of compounding over the decades has yielded a number like this one cherry-picked from an article linked to below: Since 1985, the overall consumer price index has risen 115% while the college education inflation rate has risen nearly 500%.  

All of the above is pretty much undisputed: college costs have risen much faster than inflation.  What is in contention, is the reason “why?” Some articles take the angle that college presidents and senior staff are paid outlandishly, others about how big capital projects like luxury dorms, lounges, and athletic facilities have added to costs.  Of course these type of stories have been overshadowed since 2008 by the ramifications of the higher tuition costs: the huge increase in student debt and defaults.

Lost in the haze of this outrage and vitriol, is the real reason for college costs gapping inflation: few students pay the full sticker price.  All this talk about college costing 50, 60, or 80 thousand a year is applicable to very few.  Unfortunately, if you are reading this website, you are probably one of that few.  Furthermore, you are probably not a member of the uber-wealthy, for whom this is a trivial amount.

What you are though, is a subsidizer of all those who do not pay full price. Continue reading

TAXES: “A SPECIAL PLACE IN HELL”

A little over a decade ago, I decided to take a very close look at the personal tax return that my accountant prepared for me.  After scrutinizing it very thoroughly, what stuck out most in my mind was the recalculated dividend and capital gain rates after they went through the Alternative Minimum Tax (AMT) meat grinder.  Having worked in money management for many years, and incorporating the trade off between selling a security or not based on its being classified as a short term versus long term gain, as well as stressing to individuals the importance of the latter in their total net returns, I was disheartened to see that the “advertised” number of 20% or 15%, really did not apply to many individuals previously categorized as High-Net-Worth(HNW).  Back in the early 90′s, if you had a million dollars in liquid net worth, you were considered wealthy.  Though that number is laughable today, security sale decisions were based on the assumption that an individual was in the highest income tax bracket of 39%.  Thus having to pay only a 20% rate, or even better 15%, was a huge incentive to wait it out.  But the reality is that the advertised and politically trumpeted number of 15 or 20, is only applicable to the extremely wealthy.  At the lower end, the poor and middle class have minimal savings outside of their pensions and 401k’s.  Let’s be realistic: how much is a family of four making $100,000 a year, or even $150,000, going to save after taxes???  Thus they are not really subject to capital gains/dividend taxes, whatever they be.1  At the lowest income levels, there are no cap gains taxes, nor are there likely any cap gains, or capital for that matter.  But just when you squeeze into the upper middle class, and finally are able to accumulate some discretionary income, that is when the government throws you a curve ball to keep you in line. Continue reading

  1. One of the great things about being a blog, as opposed to a reporter, is one doesn’t have to hunt down the data on a statement like this.  It’s kinda like porn, when you see it you know it.  I know and you know there’s no way a family of four making $150,000 a year is going to sock away more than 5 to 10 grand after taxes …a pittance. []

THE CRUSHING OF THE UPPER MIDDLE CLASS

Hunters Point South is thirty acres of prime waterfront property directly across the East River from Manhattan in Queens, New York.  Until a year ago, it arguably could have been considered the most valuable piece of land in America1.  In addition to unparallelled views of all five boroughs, especially the iconic Manhattan skyline, it provides easier access to Midtown(New York’s largest central business district, the busiest single commercial district in the United States, and among the most intensely used pieces of real estate in the world)2 than most places within Manhattan, whether by car or subway.  When combined with the ability to create new construction containing all the features desired by Chinese tycoons, Russian oligarchs, private equity titans, and others of that uber-wealthy ilk; this extraordinary once in a lifetime property could demand top dollar.  Instead, it is owned by the City of New York, which has decided to use this choice parcel to develop something they have  termed “affordable housing.”

‘Hmm,’ you’re thinking, ‘that seems to be a very benevolent thing to do, maybe the politicians finally got it right?’  They did not.  They completely missed, or intentionally utilized, the sleight of hand that takes from one middle class strata and gives to another. Continue reading

  1. Here’s the math and thesis: http://bit.ly/1dilVay []
  2. http://en.wikipedia.org/wiki/Midtown_Manhattan []