The rich are facing hard times; their prospects for the future are bleak. Asset deflation, taxation and future inflation are going to continue to eat away at their wealth.
Today’s featured property is a very high-end property being offered for 20% off.
Asking Price: $2,750,000
Address: 12 Prairie Grass, Irvine, CA 92603
Rich Girl — Gwen Stefani
Think what that money could bring
I’d buy everything
Clean out Vivienne Westwood
In my Galliano gown
No, wouldn’t just have one hood
A Hollywood mansion if I could
Please book me first class to my fancy house in London town
The wealthy prospered since 1980 and particularly since 2000. Just like populist cries caused the government to confiscate the AIG bonuses, the wealthy are going to suffer at the hands of a populist mob over the next several years. Much of the wealth will be taken either directly by taxation or indirectly by inflation. It is not a good time to be rich.
During our Ponzi Scheme economy of the last 25 years, taxes on the wealthiest Americans declined from over 50% to less than 35%. One of the biggest tax breaks given to the wealthy was the elimination of the inheritance tax. Rich people who die in 2010 will pay no inheritance tax; those that die in 2011 will face a 45% tax rate on amounts over $3.5 million. It seems very unlikely that the tax breaks for the wealthy passed under the previous presidential administration will survive. The inheritance tax will come back, and income tax rates will go up.
The more pernicious tax the rich will likely face is the erosion in the value of their wealth through inflation. As I mentioned in yesterday’s post, it seems likely that the FED will allow inflation to remain at elevated levels once this crisis has past. The wealthy are made less wealthy by inflation.
The affluent are out-of-favor politically, and it appears tax policy and monetary policy will not be in their favor. We can debate the wisdom and morality of these policies in the comments if you wish, but the reality is inescapable.
Asking Price: $2,750,000
Income Requirement: $687,500
Downpayment Needed: $550,000
Monthly Equity Burn: $22,916
Purchase Price: $3,200,000
Purchase Date: 5/3/2006
Address: 12 Prairie Grass, Irvine, CA 92603
| Beds: | 3 |
| Baths: | 4 |
| Sq. Ft.: | 4,097 |
| $/Sq. Ft.: | $671 |
| Lot Size: | 0.35
Acres |
| Property Type: | Single Family Residence |
| Style: | Mediterranean, Spanish |
| Year Built: | 2003 |
| Stories: | 1 |
| Area: | Turtle Rock |
| County: | Orange |
| MLS#: | U8003594 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 223 days |
 Unsold in 90+ days
|
|
nestled in the exclusive Shady Canyon enclave. Understated elegance
throughout. Secluded master suite has its own retreat with fireplace,
his and her lavatories and walk-in closets. Spacious office with French
doors open to the interior courtyard with fireplace and fountain.
Bright and airy great room and chef’s kitchen opens onto a covered
loggia. Bonus butlers kitchen is equipped with a 2nd sink, 2nd
dishwasher, pantry, and door opening to the outdoor BBQ area.
Exquisitely landscaped backyard ($750,000 of upgrades) with salt water
pool, spa, waterfalls, fountains, and ice firepits. Perfect setting for
entertaining.
nestled–this word grates on my nerves when I see it in a property description.
This property was purchased on 5/3/2006 for $3,200,000. The owner used a $2,240,000 first mortgage, a $750,000 second mortgage, and a $210,000 downpayment… It still amazes me when I see tiny downpayments on houses in this price range. Prices are going to crash hard because of all this debt.
If this property sells for its asking price, and if a 6% commission is paid, the total loss on the property will be $615,000.
Most wealthy people have already lost half or more of their fortunes with the collapse of asset prices across the investment spectrum. When house prices cut in half, those who are leveraged will lose much more.
It is not a great time to be rich.
{book4}
If I was a Rich Girl
See, I’d have all the money in the world, if I was a wealthy girl
No man could test me, impress me, my cash flow would never ever end
Cause I’d have all the money in the world, if I was a wealthy girl
Think what that money could bring
I’d buy everything
Clean out Vivienne Westwood
In my Galliano gown
No, wouldn’t just have one hood
A Hollywood mansion if I could
Please book me first class to my fancy house in London town
Rich Girl — Gwen Stefani
Just doing a quick, rough estimate, using the sold price-per-square foot for the zip code, it looks like the asking price is still a half million too high (and I’m including a premium because it is a nice house).
Looks like the owner is trying to absorbe the additional loss bisides downpayment at the moment.
It is not listed as a short sale – not yet.
I agree that it is still asking at least 1/2 m too high at which point this might turn into a short sale and then foreclosure.
Look at this on the comps:
Nearby Similar Listings
Closest listings similar to 12 Prairie Grass:
(10 listings, including two on the same street)
Nearby Similar Sales
No similar recent past sales could be found.
That’s got to hurt. These are all going to go into foreclosure eventually, and the bank might take a 30-40% haircut when all is said and done.
For a real WTF listing, check out the one at 21 Prairie Grass, where the seller is trying to get $3.5 million for a house which he paid $2.3 million in 2003, a $/sq ft at $153 more than this (already overpriced) listing. He’ll be lucky to get what he paid for it, IMHO.
“It is not a great time to be rich.” –IrvineRenter
While it may not be a good time to be rich, I believe it a great time to be young and earning money. My wife and I are in our early 30s and we are counting on asset prices dropping below fundamental valuation levels sometime within the next decade. This should give us time to invest a reasonable amount in different equity classes to help weather the inflation that will occur shortly.
Low levels of inflation would do nothing to erode this country’s future pension/healthcare liabilities, while hyper-inflation tends to destroy capital intensive industries and can do serious damage to this country’s infrastructure. But just the right amount of inflation (3-5% annually), can be a great boon to young people. You would be able to buy into companies and houses below their intrinsic net worth and hopefully live long enough to garner not only inflation appreciation, but also price multiple appreciation.
Of course this is only possible if current events unfold similarly to the Great Depression and the Japanese real estate crash…
My bet is on 2011 being the stock market/real estate market low and becoming a favorable buying
moment.
Dejnov.
IrvineRenter,
Have you seen this one?
6 Cedar Rdg Irvine CA 92603
Listing a high-end property is like playing the lottery; your odds against selling are high, but if you find that one in a thousand buyer, you hit the jackpot.
“nestled” is right. Big house, postage stamp lot, yuck.
That said, if I could plop it down on my 22.6 acres it would be just peachy. Of course it would be hell to heat the bloody place in the Indiana winters.
.35 acres is not a “postage stamp lot”-especially in Irvine.
…then again, looking at the overhead shot, there sure seems to be a lot of the lot taken up by the building. I think it’s due to the floorplan, which is kind of stretched out with little open areas between different parts of the house.
So, I’ll say big lot, bigger house.
I second that. I think the days of cramming a 4,000 sq ft home on less than 1/2 an acre are over.
At this price, the owner is competing for someone who either loves his house and has to have it or is going to buy dirt and build custom. Considering that you can build a beautiful house for 1 mil – 1 1/2 mil and these lots will probably drop to $250-$350k I see a long way to fall.
Oh, and I hate the “$750k in upgrades”. Whatever, you never recover dollar for dollar on improvements, maybe 50 cents.
Lots in Shady Canyon will never drop to that level. Especially considering that I don’t think we will get to 2001 levels and at that time new lots were selling for $550 – $600K for approx half acre so $250 – $350 is a really far stretch.
IRVINE IS SPECIAL 😆
Oh, we’ll get to 2001 levels. I am watching land in some pretty desirable places already rolling back to 2003. Won’t take long to get to 2001 prices.
Land prices are twice as volatile as home prices. However, land takes longer to fall. It’s cycle is typically about 6 months behind home prices.
“will never drop to that level.”
Every person who has come to the IHB and made a statement like that has later been proven wrong…
“will never drop to that level.”
There are lots of people with that same believe and mentality. A few friends of mine said that I’ll miss the boat if I don’t buy in the next 2 to 6 months. I’ll start to collect my winning bet in 2011…but then again by that time they won’t have any money to pay.
Anything is possible. The same euphoria, that drove prices to insane levels in the past, could work in the opposite direction; it will take some time but we’ll see to what levels prices will fall…
If by “nestled” they mean “your neighbor’s house towers over your backyard” then I’ll believe it. $3mil and you can’t even have a little privacy in your backyard. How are you supposed to have your coke-and-naked-hookers parties with your Nosy Nelly neighbors leering over you?
Oh, and nice Photoshopping, dick.
I missed the photoshopping — can you point it out?
All the fires and maybe the grass.
LOL! OMFG! It IS Photoshop’d!
Even the water in the fountain with the really bad grass not even in the correct perspective..nice!
The Sky’s are also PS’d.
Did AZ Dave do these??
This is a joke right??
I don’t think it was photoshopped. I have used the program for over 10 years and don’t think the photos have been manipulated.
You can tell from the way the shadows drop naturally around the grass. It’s just a really nice house that millions of people would love to live in.
More likely MS Paint.
Natural shadows? Like the ones from the light source that hit the stonework near the fireplace but not the grass (or the bushes or the path to the right)? Or the light source that cast shadows across the door but doesn’t shine on the grass? Maybe the grass next to the pool is real, not the grass in the courtyard.
I guess the ‘whore turned on the Donkey Kong flames for the pool shoot along with the fountain streams. But then for the last two pool pics (when the perspective was high and close) El Douche’o decided to turn off the flames but not the streams. I guess the ‘whore was afraid of barrels being thrown at It and didn’t want to risk it.
I would love to live here. I also love to call the agent a douche bag.
You mean a cheap douche bag.
These agents would rather be cheap with their photographers than talk some sense into their sellers.
It is a postage stamp sized lot for everywhere but Irvine.
The OC seems to be a little like South Florida in that developers take open natural spaces – canyons in OC, and wetlands in FL – and put somewhat out of place mansions there. In SoFL those areas have become places where the only jobs to have there are work from home type jobs, which limits the buyer pool. The further out suburbs in FL have been crushed, and I wouldn’t be surprised to see the same happen in the OC.
This area isn’t so remote like your description of SoFL. There are many office towers within 10 miles of Turtle Rock.
Irvine contains more than half of the ‘downtown’ of orange county, and the other half is across the freeway in Costa Mesa.
The total office space is equivalent to a large downtown like Seattle or Pittsburgh although it lacks any kind of memorable skyline.
You can commute from this house in 10 to 15 minutes to most of the office towers, not to mention all of the low rise industry in Irvine which is substantial.
More great work from IR.
I must say, I crack a smile when I see houses like this on the market. 2 million (+) in Irvine … who the hell have we been kidding!
The future holds major changes for The OC~
IN ~ Saving, Timex, Toyota, 2k to 2.5k sq feet.
OUT ~ Borrowing, Rolex, MBZ, McMansions.
I think it’s the Jaguars, Hummers, and Ferraris that will be out, along with the high end Mercedes.
When I bought my last car, I chose a Mercedes over an Acura with similar characteristics. Got a great deal and probably paid less than if I’d bought the Acura.
On your in list, don’t forget Walmart, Target, Sears, and other places people from OC either didn’t shop in 2006, or didn’t admit to shopping. On the out list Macy’s, Tiffany, and those clothing shops with about one item for sale per ten square feet of retail space.
I would have thought Nordstrom, Sacks, Versaci – but not Macy’s 🙂 Almost eberybody can afford Macy’s on sale – seriously. I do agree that there’s a switch to “survival mode” so to speak which is far different from years past when “show off” was in.
I always bust a smile when I see the posers driving their low-end MBZs and BMWs. Don’t fool yourself – You’re driving a MerSentra. If you can’t afford the decent higer-series cars, don’t embarrass yourself withe a MerSentra or 3xx series BMW. Although we do enjoy laughing at your lame attempt at vanity!
Isn’t this a perfect example of the bizarre CA elitism I hear about? Someone’s driving a Mercedes, but it’s not the “good” Mercedes, and is therefore embarrassing.
I wouldn’t consider a 335i a “low-end” Bimmer. In fact, (JMHO) it’s probably the best German car ever built for less than $70,000. The engine in the 335i is a beast … twin turbo, 29mpg highway, and 300 lbs of torque. Trust me, it’s not a “low-end” automobile.
lee, maybe not the 335i but the posers driving in the 328’s or maybe even that new little 1-series are the real tools. Same with the little MB C-class…at least get the C350 with the nice engine.
However, if I was going to get a nice luxury car it definitely wouldn’t be the smallest on the lot. Do it right baby!
Once in a great while someone compliments my Mercedes. My other car is a 1993 Honda Civic Si, stock, with over 300,000 miles.
I run into people who offer to buy it about once a month. A wild variety of people, from homeboys to modifiers, from mountain bikers to apparently well-off retirees.
I love those Hondas. 300k is pretty damn good.
My sister had a CRX in college and I couldn’t believe how much leg room that little car had.
I have a Civic Hybrid but I really like the new Civic Si that came out. Lots of bang for the buck and reliability to match.
Not a good time to be rich? I rather take a total hit of $100 million hit on my $200 million investment than take a $200,000 hit on my $400,000 401k at 65 years old. Rather have $100 million than $100 thousand for retirement.
It’s a good time to start in the game.
Inflation effect everybody because the inflation tax is on all money (rich to poor). The rich may be less effected because they can get better interest rates and get better investment choices (buy RE with cash purchase) and have a greater percentage of income as disposable income.
The house is way to expensive for regular people, but the rich can afford it and more. The stone patio looks very nice.
If the rich are so out of favor, why are most of the money from the bailouts going to the banks? Lots of talk and hot air by both parties but the same old game. Latest bailout is to have the banks create a house of card with the toxin loan. It looks like the FED are using taxpayer money to limit the lose for “private investors” to about 6% of the face value of the note and have a govt subsidy of 6%. Is that correct or is 6% only on the govt’s subsidy?
If you look closely, you’ll see that policies and anger are targeted toward certain types of rich people, not the rich generally.
Warren Buffet isn’t suddenly hated. Larry Ellison isn’t getting slapped by the women he tries to pick up.
However, Dick Fuld of Lehman got punched. He was perceived to be a major part of the problem. Still there haven’t been many stories of that type. It may be an indication of the level of security, or the lack of face and name recognition. Could you pick out a picture of the former head of Washington Mutual? IndyMac? Most people couldn’t. You might have had dinner next to them, or walked right past them at an airport.
According to Redfin there are 48 properties for sale with listing prices of $2,750,000 or greater and 43 of those are in Shady Canyon.
According to Steve Thomas, the monthly inventory for homes in the $2mil to $4mil range is 32 months worth. Since this home has been on the market for 18 months, averages say it only has 14 more months before it sells.
When doing a search in Redfin for homes in Irvine, $2,750,000 and above, the featured property did not appear in the list. What does that mean?
Hi IR,
The estimates on house value at Zillow, Cyberhome, Eppraisal seem all over the place to me. Sometimes the difference between highs and lows as well as between these 3 sites is $500,000 or more.
I’d like to know what’s your oppinion on these sites.
I use realquest.com, the site you recommended, and think it’s more accurate. It’s also tend to give lower estimates than the other 3 sites.
In your opinion, what site is most accurate and which one are you using.
Thank you in advance for your answer!
I don’t like or use any of these sites. They all do a decent job in stable markets, but they do a very poor job in a market as volatile as ours.
For the areas where I’ve been looking at homes, Cyberhomes has been somewhat better. Still, in this kind of market the automatic estimates can have great difficulty anywhere with high volatility or low transaction volume.
Well, it seems to me that it will always be good to be rich….as long as the social order can be maintained. As Louis XIV found out, it is not ALWAYS good to be king.
Shady canyon is ridiculous. The tract homes there, and this is one, were never worth what they originally sold for. It seems that at one time or another all the houses on Prairie Grass have been for sale. There is no beach within walking distance and no ocean to look at. It is not convenient to transportation and the HOA and Mello roos would bankrupt small countries. All it can offer is ‘exclusivity.’ Just like a gated trailer park. A house this size would make a fine location for the ‘Goot School for Wayward Girls.’
Actually, it was Louis XVI who found out that it wasn’t always good to be rich. For Louis XIV, it was always good to be rich. Especially since his wealth came from taxing the peasants’ salt and not from, you know, labor of any kind.
Louis XIV: Apres moi le deluge
Bush: When I’m gone, when I’m not president any more, and another guy is in the office, or a woman maybe, heh heh, you never know with the kids these days, after me, then um this sucker could go down.
Great article on the collapse of multimillion dollar home prices in the Hamptons
http://www.nytimes.com/2009/03/15/realestate/keymagazine/15Key-Hamptons-t.html?_r=1&ref=keymagazine
Money quote:
“All of these Wall Street guys who are being let off right now — the effect isn’t going to take place for months.”
I’m surprised nobody mentioned this gem that showed up over the past week. It almost strikes me as BULL, but if it is true then man is this guy a waste of space. BOO HOO HOO! I love reading about these rich trouser stains blowing all their money and then crying hardship when they fall off the gravy train.
http://abclocal.go.com/wpvi/story?section=news/national_world&id=6721411
From hedge funds to pizza delivery
Friday, March 20, 2009
Ken Karpman, shown here with his family, said his financial downfall has been a lesson in humility. The family is now on food stamps and a friend is paying the kids’ school tuition.
Ken Karpman Plummeted From a Six-Figure Salary to Earning $7.29 an Hour
For the first 45 years of Ken Karpman’s life, everything was close to perfect.
He graduated from UCLA with a bachelor’s degree and M.B.A., then got a high-paying job as an institutional equity sales trader. He married his dream girl, had two children and traveled the world on expensive vacations.
Over the span of Karpman’s impressive 20-year career as a trader, he climbed the company ladder, reaching a salary of $750,000 a year.
“Life was good, we were making a lot of money — and why wouldn’t this just continue on?” Karpman said.
From all appearances, Ken and Stephanie Karpman were living the American dream in Tampa, Fla., nestled in their 4,000-square-foot home that sits on a golf course. “I had no idea what anything cost in a store,” he said. “I’d just put it in the cart and buy.”
Karpman was so confident in his good fortune and the strong economy that he left his job in 2005 to start his own hedge fund. To pay for the new business and their standard of living, Karpman quickly burned through $500,000 in savings and, like so many Americans, took a line of credit against his house.
But in the reversal of fortune that followed, Karpman was unable to attract investors and was forced to dissolve his hedge fund. He found himself jobless in a job market that had collapsed.
In the past, Karpman had found it easy to get a job. It wasn’t so this time around.
“When I used to go into a job interview, I probably came across as a jerk because I was like interviewing him to see whether this firm was worthy of me,” he said. “Now it’s kind of like you almost feel like you’re coming in with your hat in your hand.”
After a lengthy and fruitless job search, the Karpmans were shocked to find themselves in financial dire straits, with zero savings, hundreds of thousands of dollars in debt and their home in foreclosure.
Desperate for quick cash, Karpman tried to find a job bartending but came up empty. Finally, he drove his Mercedes to Mike’s Pizza & Deli Station in Clearwater and applied for a job.
Karpman’s salary plummeted from six figures to $7.29 an hour — plus tips — but it’s money that he’s grateful to earn, even when it means delivering to neighbors or his old office building.
The stress has also taken a toll on their marriage. Stephanie Karpman said she didn’t want her husband to leave his trader job in the first place and wishes he would have put more in savings.
The Karpmans are now on food stamps and a tight budget that doesn’t nearly cover their children’s $30,000 private school tuition. But thanks to an anonymous donor, the Karpmans children’s tuition has been covered through next year and they are deeply appreciative
“It’s just something that kind of makes you a little misty every time you think about it, that somebody would do this for our kids,” he said. “But we’ll have a chance at some point to do that for another family.”
The family’s jet skis now collect dust in the garage near the Mercedes, with its broken transmission they cannot fix. The home they will soon lose has fallen into disrepair.
As Karpman counts every penny he earns, he still hopes he can come back from the financial brink and reclaim a lifestyle he, like so many Americans, never imagined he could lose.
“I need a couple of wins,” he said, “and I think that, hopefully, it’ll mushroom up like it caved in.”
http://www.crackthecode.us/images/birdflip.jpg
$750k a year and he had only $500k in savings. I would like to say I’m surprised, but I worked with people like this. On a lower income, and for a shorter period of time, I have more savings.
These people were blowing money left and right. Even if you figure the 35% income tax rate, this guy was netting 487,500K after taxes.
He may have to take his kids out of private school now. GASP!
The wife may have to get off her ass and work too! GASP!
Looks like that M.B.A was worthless too.
I work for a financial company in trust administration. My sister-in-law is an adjustor for AAA. We get together on weekends and discuss ways to keep our families afloat in this economy.
This Saturday, the Arizona Republic covered a guy I see on my way home from work every day, standing beside his office chair with a sign reading, “Executive Needs Work.” On seeing the story, SIL remarked, “He can come to AAA. The call center’s hiring, and if he really needs work, a job’s a job.”
Then she saw the story about this guy, and ranted for five minutes. I wish I’d taped it. It was hilarious to hear her snort, “Three-quarters of a million PER YEAR for 20 years, and this idiot only saved $500,000?” And so on.
What really cracked me up was realizing that this guy was one of the class busy telling the rest of us that WE had to save, invest smartly, and not do anything stupid lest we jeopardize our futures. When Karpman goes for his next interview, I hope that he’s more humble in his presentation.
I read his story. A story like his is inevitable in today’s circumstances – still amazing nonetheless…
As I first started reading this story, I was feeling a bit of schadenfreude, but after I got to the end, I just sorry for how pathetic and stupid this guy was. Do you think he learned anything?
NAW I’m not happy with MAH 750K JAWB. The man is totally rippin MEH AWFF! AHM goin solo and startin up MAH-own hedgefund and then AWLL really be BIG LEAGUE!
Love that finger!
Part of me says he’s learning his lesson delivering pizzas…on the other hand, I could see this guy doing it all over again if he had the chance.
That’s the entreprenuerial spirit! It’ll be blowin’ up anytime!
And how much do you want to bet that he will still continue to vote Republican just incase he manages to get his lifestyle back?
What the hell does that have to do with anything?
Schadenfreude Schadenfreude Schadenfreude!!! Hahahahaha this guy is such a bag of rusty plummer tools. Great find AZ.
What pisses me off the most about this story (even more than his stupidity in saving or planning) is the fact that this slimeball was taking food stamp money directly from the rest of us taxpayers. Wouldn’t a $30,000 gift contribution for his spoiled brat kid’s private education be considered income? Shouldn’t that alone disqualify him from receiving governmental welfare? Wow…
Wow. That furniture really puts the nouveau in nouveau riche. What did these people do–go to the nearest Thomasville and say, “We’ll take the lot”?
At that price level, they’re probably better off taking it all out and leaving the canvas blank to the buyer’s imagination. Then again, it is Irvine.
I thought you always posted the kitchen. I had to look 3 times to see that the picture WAS of the kitchen. Crummy kitchen layout. I would hate to clean that house. Which shows you I am not rich. I would like the pool, though.
Newbie2008 — I second everything you said. And emphasize: high inflation is toxic for everyone, but esp. poor and middle class. Rich, not so much.
Right you are pic, and for once I have to disagree on another point with IH; it’s never a bad time to be rich. It’s so much easier to do good and make the world a better place when you have $ to spare. Why the truly wealthy don’t seem to get this escapes me.
Is this like “There are no bad beers, only good beers and better beers”?
Careful using the words “rich”, “wealth” and “income”. Most people don’t realize the differences. For example, “taxes on the wealthiest Americans declined from over 50% to less than 35%” Not true. There is no tax on the wealth of the wealthiest Americans. Their incomes, yes, but when they do it right, their wealth increases while they show no income tax payable. And if they do it right no capital gains get paid either.
High income earners pay 35 percent, but really, how does a million a year income compare with being a billionaire?
On the other hand, the wealth of the middle class IS taxed. It is called property tax. You pay total tax on your home, get back enough deductions to offset the fraction the bank owns, and the end result is about a one percent tax on middle class wealth.
What you say is true, and I thought to make those distinctions when I wrote the post; however, since the general public does not make those distinctions, and since the anger of the populist mop is what is driving tax policy, I blurred the distinction just like everyone else does.
Fermi,
I agree, but please let me know how I would not have to pay any tax the day I have millions to invest…
I suggest investing in a startup company, holding stock for decades as it doubles and redoubles. Do it right and you have 60 billion and have paid no taxes on this increase in wealth. Your name is Bill Gates. Consult accountants for other ways.
What a duffus response by Fermi.
Warren Buffett has a famous quote about this.
“Speaking at a $4,600-a-seat fundraiser in New York for Senator Hillary Clinton, Mr Buffett, who is worth an estimated $52 billion (£26 billion), said: “The 400 of us [here] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.”
Mr Buffett said that he was taxed at 17.7 per cent on the $46 million he made last year, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 per cent.” http://www.timesonline.co.uk/tol/money/tax/article1996735.ece
It’s really pretty, but three bedrooms?
I give up…. what are “ice fire pits”???? The only 2 ideas I could come up with were pits that could be used for fire pits, and also filled with ice to cool beverages during a party, or some sort of fire pit using chemical reaction instead of firewood.
I built one of those. It’s clear crushed glass with a gas flame hidden under it. Looks pretty cool. It seems like the glass should be melting.
Ah, that must be what those thingies are on the patio at J.T. Schmid’s at The District. I always wondered whether that was piles of rock salt or what…
Young kids love ’em.
I think that house is an ice fire pit.
It amazes me that somebody with this much money (or willing to take on this much debt) would rather live in a giant lot-less McMansion in Irvine rather than *anywhere* else.
Perhaps the owner confused price with value. My wife and I once had a conversation with a very difficult jeweler about mounting a diamond on a titanium band instead or gold or platinum. By any standard we could come up with, the titanium was better. Almost impossible to scratch, very strong, less expensive, easy to clean, etc.
The jeweler asserted it could not be valuable because the metal was not expensive. I suspect he also was opposed because it takes very different techniques and machinery to handle titanium, and he specialized in gold and platinum.
Buffett does not pay a lower tax rate than his secretary – though I heard him say that. Instead, he promotes the mythology that rich pay lower taxes. As provided by illustration below, his combined tax rate is actually 45% on business income (70% if estate tax is considered), while her rate on salary income is 15%.
As Irvine Renter notes, inflation damages savers, regardless of income levels. Government policies reward borrowers (mortgage interest deduction, cheap mortgage money) and punish savers (low interest rates, inflation, double taxation of business income) – thereby promoting bubbles and diminishing economic growth.
Details:
Top bracket business income earner is subject to triple taxation on business income (assume top bracket rates below):
(1) Corporate tax rate = 35%
(2) Dividend or capital gains tax to shareholder on distribution or accumulation of corporate income, rate = 15%
(3) Estate tax – to transfer saved income to children = 45%
“Owner” retention after income taxes: (.65)(.85) = .55. Combined tax rate is 45%.
“Owner” retention after income and estate taxes: (.65)(.85)(.55) = .30. Combined tax rate is 70%.
Meanwhile, the secretary who earns $60,000 has exemption of $3500 and standard deduction of $5450 for net income of $51,050 and tax -per tax table – of $9100. Her tax rate is 15%.
This excludes social security (Ponzi pension) contribution/tax which is, in theory, the responsibility of each individual and not the community. This also excludes state income taxes which are typically graduated and would further favor the secretary.
David
(3) Combined after-tax result of (1) and (2): (.65)(.85) = .55
Hence, combined corporate and dividend/CG tax on corporate income is 45%
(5) After-tax net on business income including estate tax:
(.65)(.85)(.55) = .30
It all depends on if the fat cat can expense thing to the company. Regular working folks can not expense thing out. Everything is on the W-2. Even a minor reimbursement for a security clearance process (fingerprinting)was include on my W2.
I’ve read where corp. jets, 6 houses/condo/apts., $10K per day in food allowance are part of the package and likely not taxed because the company was to pays directly to the vendor. Regular folk get paid as regular income. Hollywood folk’s pay is a capital gain rates and lots of stuff is corporate expenses — limo, food on the set, promotion parties, promotion clothing that’s returned to the company after usage, etc. High exec. can also take income as delayed compensation or structure it as options to reduce the tax rate, almost unlimited retirement plans. I’ve even read financial where the company paid the taxes on their bonus, which is most of the pay.
Financial rags have reported that WB pays only $10,000 per year property tax on his CA mansion because of prop. 13 and the above 65 year old rule. He also won a long legal battle to with the IRS on lowering his taxes or for his MF.
As for inheritance tax, any good tax lawyer can get around it with good planning and forming a trust. Have a good laugh or cry by looking up what your elected officials pay in taxes.
Corporate income – expense = near zero to tax at 35%
“This also excludes state income taxes which are typically graduated and would further favor the secretary.”
For CA, almost everybody above an income of $45,000 is at the max. marginal rate of 9.5% state income tax.
David, thank you for giving us the corporate statutory tax rate, but I suggest the 2008 GAO report where in 2005 67% of American corporations reported no tax liability. An effective tax rate of zero.
Meanwhile, you pretend the hourly wage person isn’t required to pay 15% Social Security on their compensation. Your agenda is too transparent.
And what’s with the blank lines, anyway?
Uh, Fermi… contrary to your assertion, employee wage earners do NOT pay 15% Social Security taxes. They only pay half that amount through withholding, and their employer pays the other half. Which in the secretary’s case is Mr. Buffett. He, and you fail to mention that. Be intellectually honest now…
Fermi,
I didn’t “pretend” the Social Security tax does not exist, I noted that it is the responsibility of each individual. In making a fair comparison, we should consider that the person paying the Social Security tax RECEIVES a pension in return, so there is zero net tax if the pension is paid as promised. Thus, it was appropriate to exclude the pension contribution/tax from the computations.
It is likely future benefits will be cut, though means testing is less likely to hit those in the lower income levels such as the secretary in Buffett’s example.
David
Is that house on the market again? It was just sold six months ago. It was a nice house with a great view, but I remember the bathrooms looked like they had never been updated and needed a lot of work.
http://www.trulia.com/homes/California/Irvine/sold/5416435-6-CEDAR-RDG-IRVINE-CA-92603
“Shady canyon is ridiculous.”
Sigh…..
Making broad statements like the one you just made is what is ridiculous.
Shady Canyon isn’t the beach. If you want to live in an older home in Corona Del Mar, packed in neighborhoods like so many sardines – with a “birds eye view” of the ocean, then go for it.
Not everyone wants that. Shady offers about 1% of the density factor of the rest of this area. Take a drive through there on a Sunday afternoon right about now. Wildflowers are everywhere. Almost no traffic. Wide open spaces. Beautiful homes.
Yeah, paying too much for a home on Prairie Grass is ridiculous. But if you think prices in Shady are ever going to drop to the level of the rest of the area, you are in or a long wait. Privacy and open space anywhere near Irvine will always come at a premium.
The estate tax reverts to 55% in 2011 and the exclusion reverts to 1 million…TomB