Just an example of irresponsible politics – New Jersey style.

Did you ever wonder what motivates politicians? In many cases the assumed motivation is social justice, helping the poor and working American families.

I wonder

This post is about New Jersey, but I suspect it’s reflective of other states and even the federal government.

During this year’s New Jersey budget process the Governor proposed everyone born in New Jersey should get 1,000 dollars. Fortunately it was rejected by the legislature.🤑🤑🤑 but in view of the following why would anyone make such a proposal?

Consider such a proposal in light of the following facts about New Jersey. ⬇️ Would you handle your household finances this way? Not for long.

✔️ Garden State Parkway tolls will rise by 27%, increasing the cost of an average trip by 30 cents from $1.11. Atlantic City Expressway tolls will increase an average of 57 cents.

✔️ New Jersey’s pension fund has just 38.4% of the assets promised to about 800,000 members, according to S&P Global Ratings, making it the least-funded of its kind among U.S state governments.

✔️ New Jersey officials on Thursday approved a budget that hinges on borrowing $4.5 billion to cover basic operating costs, making the state one of the first to take on debt to plug a gaping financial hole during the pandemic. Gov. Philip D. Murphy and his fellow Democrats who control the Legislature argued that the step was needed to avoid deep cuts to essential services, including education, transit and health care, in the absence of a deal in Washington on a stimulus bill.

NYTs September 24, 2020

✔️ NJ is among the highest taxed states in the US including the highest property taxes in the Country.

✔️ But even as the new rating actions by the Big 3 firms have all come during the pandemic, they’ve also highlighted how New Jersey policymakers left the state in a precarious position heading into the health crisis, including by running up significant debt, regularly underfunding the public-worker pension system, and maintaining only meager budget reserves.

https://www.njspotlight.com/2020/05/downgrading-njs-credit-rating-or-outlook-wall-street-firms-highlight-poor-fiscal-history/

4 comments

  1. Don’t forget the state has another huge unfunded liability…they pay for the health insurance of all those pensioners…This is probably bigger than the pension, but it doesn’t show on the “books”.

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  2. Posted for Benefits Jack

    Sorry about the length of this post. I wanted to share my experience of creating a “baby bond” account – with my own money. I call them Ben Franklin accounts. Today, I am using a Roth IRA as the vehicle.

    The “baby bond” concept is a savvy opportunity. However, it is the government influence that screws this up – creating another entitlement to be funded by someone else.

    Ever hear of a guy named Ben Franklin? There are a myriad of definitions of what constitutes a long term investment that can be anything from 1 year to more than 10 years – see Investopedia, the Investor Dictionary, and perhaps the Business Dictionary. Ben Franklin, however, had a different view.

    I have long been fascinated by our Founding Fathers – particularly Ben Franklin and Thomas Jefferson. My brother-in-law and sister, residents of Philadelphia, PA, know of my interest and shared the following story of Ben Franklin’s will and legacy. In 1785, French mathematician Charles-Joseph Mathon de la Cour wrote a parody of Franklin’s Poor Richard’s Almanack suggesting a person could leave a small amount of money in his will to collect interest over 1 – 5 centuries with the resulting astronomical sums to be spent on impossibly elaborate utopian projects. Franklin, who was 79 years old at the time, wrote back to thank him for a great idea and to tell him he had left just such a bequest to both his native Boston and his adopted Philadelphia – £1,000 each (1,000 pounds sterling) in 1790 to be invested in a specific manner for 200 years! Others have estimated that £1,000 in 1790 would be the equivalent of $1,000,000 in 1990 (even more today). The money was to be invested in loans to start-up businesses and tradesmen, ultimately achieving a value of $4,061,000,000 ($4+ Billion) in each city’s trust at the end of the 200 year period in 1990. It didn’t quite work out that way (see Chris Carosa’s post at: http://fiduciarynews.com/2017/08/true-legacy-ben-franklins-last-will-testament/) As you will see, Chris noted that the politicians in both cities mismanaged Ben’s investment in their future.

    Anyway, for Ben to take such action, he had to believe in America’s future. If you are a parent, obviously, you too believe in a future – for America and for your son or daughter. Some of you may even believe your child will achieve one version of the “American dream” where a child is better off than her parents.

    What do Ben Franklin and I share? Long ago, way before I heard of Ben Franklin’s will and legacy, I became enamored with the power of doubling. As a pre-teen, I would silently recite, to myself, 2, 4, 8, 16, 32, 64, 128, 256, 512, 1,024, 2,048 4,096, etc. That’s as far as I could get without having to think. Then, 15 years later in the 1970’s, I learned about the Rule of 72 in more than one course during my business economics degree program. Divide the interest rate into 72 and you get the number of years it will take money to double.

    So, when my children were born in the 1980’s, I recognized that I would have 18 or so years to save for their college educational expenses. Giving it more thought, I decided to also make a long-term investment in their future. So, my wife and I set aside $1,000 for each child through the Uniform Gift to Minor’s Act, placing the money in tax deferred variable annuities. We invested the money in large cap equity funds. Historical annual returns for the S&P 500 index in the years after WWII through the mid-1980’s were about 12%.

    Rule of 72, at 12%, money doubles every 6 years. $1,000 at birth becomes $2,000 at age 6, $4,000 at 12 … $512,000 at 54, $1,024,000 at age 60!

    Sure, a 12% return is not likely achievable on a consistent basis over 60 years, and recent stock market average returns have been significantly lower. Sequence of returns risk or a different rate of return for this unique 60 year rolling period of investment may defeat these projections. And inflation may erode the value of $1,000,000 in the 2040’s so that it has minimal value. But, just in case history repeats itself, my children will be middle-class millionaires as a result of a modest investment made long ago. And, even if middle-class millionaire status is widespread among Americans, even if it more than doubles compared to today so one in every five Americans is a millionaire, I know which group I want them to be in.

    Today, you have access to a Roth Individual Retirement Account (Roth IRA). Directly or indirectly (“back door”), every wage earner in America can contribute to a Roth IRA. So, to engage in “long term investing” to benefit your (grand)child, an option to consider is opening a Roth IRA with the intent of providing a financial legacy (or perhaps mentally segregating money in your 401(k) or 403(b) plan). The maximum annual contribution to a Roth IRA is $6,000 in 2020, $7,000 if you are age 50 or older. The maximum annual contribution to a Roth 401(k) or Roth 403(b) is $19,500 in 2020, $6,500 more in catch-up.

    So, if your (grand)child was born today, and if you wanted to set up a “Ben Franklin” account with a goal of ensuring she would be a middle-class millionaire … someday … you may want to consider using the Roth IRA as the vehicle. It would be your Roth IRA with your (grand)child as the sole beneficiary. You might adopt a goal of contributing $5,500 a year for her first seven years. With that large of a contribution, even if the account averages only a 6% rate of return over the 60 year period, she would be a Middle-Class Millionaire upon inheriting the account – $1,012,824 at age 60. If you have accumulated Roth IRA or Roth 401(k) monies, the lump sum investment amount at birth (assuming a 6% return) would be $32,134 (my calculations).

    Why use a Roth IRA where you are the owner? First, because your child probably has no earned income, the IRA could not be hers. Second, the IRA accumulates earnings tax deferred. Third, you would want to let assets accumulate until earnings qualify for Roth IRA tax-free treatment – generally, when you reach age 59 1/2. At that point, your child might be age 30 or so. Then, you would have a choice – take distributions and pass them to the child so she can invest them in funding her own Roth IRA, or continue to accrue earnings in your Roth IRA which she can later inherit.

    At your death, any remaining Roth IRA monies could become an Inherited IRA. Here is where Roth used to have a unique value (prior to the SECURE Act of 2019). Keep in mind that Congress can always change the tax rules, again. prior to 2020, an adult child could open an inherited IRA using the Life Expectancy Payout method – where payments are spread over her life expectancy. So, if you died soon after the child’s birth (or if the account were established by a grandparent or great grandparent) the payout for the child would be over ~82 years using today’s life expectancy. If you died when the child was age 30, the payout would be over ~53 years. This is “long term investing” – Ben Franklin style! Of course, if you survive to the point where your (grand)child has earned income, you could pass along those Roth assets to help her fund her own Roth IRA or Roth 401(k).

    Wanted to point out that New Jersey is not the first to suggest this. For example, see: https://csd.wustl.edu/20-15/

    However, given our annual federal and state budget deficits the money may not be there for taxpayers to fund your child’s Ben Franklin account. So, you may not want to wait for the government to act.

    Your (grand)child, born today, will reach age 60 in 2077. If you take action today to create a financial legacy, perhaps you’ll create a family legacy that she, herself might pass on and repeat for generations to come.

    Liked by 1 person

  3. I was outraged and let my legislators know about the Baby Bonds. If it was for higher education, expand the STAR program and expand it to vocational schools. Make another tax credit or something. But giving 18-yr-olds money later for just being born is just BS. (Like the state would fund that like they fund the pensions).

    The state is borrowing away the newborn’s future now. Stop borrowing and maybe the kids would have an extra $1000 instead of being taxed for it. The governor is trying to raise taxes and buy votes at the same time.

    Covid-19 is real. But his illogical shutdown orders make no sense and have crippled our economy. Why can one store be open and not another? Why can I stand in line at a Walmart 7 months ago but not in a a polling place next month? If he didn’t crippled the economy for so long, maybe the state could have earned more tax money. Covid-19 is causing $0.10 fuel tax increase tomorrow because nobody drove to work for 4 months, and some people are still not back to work.

    I think that all the property owners should appeal their property taxes. I am paying for school buildings that have not been used in 7 months. Restaurants have been unable to use their indoor dinning areas for 6 months and can only now use 50% of that space. If they can only use 50% of the dining area then it should be taxed at 50% less since it is less valuable.

    New Jersey just banned plastic AND paper bags. Yet during covid-19, store clerks were not allowed to touch reusables bags. So which is it? Covid-19 worse than a plastic bag or not? What are stores and people to do if they don’t have the right size reusable bag with them? Buy more reusable bags and throw them out or not make the sale because you can’t take it home. Or order from the internet and throw out the boxes and plastic air pillows that it is packed in? I am for reasonable government policies, but this is another issue that was not thought out. It is buying votes with feel good legislation for very small groups.

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