Category: Taxes

Economics Update

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Commercial Real Estate Prices


Home Builder Confidence Graph Pron Courtesy Calculated Risk

Ummm…If you think that the real estate implosion is done, then you haven’t been following commercial real estate (CRE), where prices fell 3% in August, about a 42% annual rate,* though the year over year decline was “just” 32%, and it’s down 41% from its peak in 2007.

Remember, commercial mortgages typically come due after 5 years, so we are going to see a lot of folks defaulting on CRE mortgages as their time comes up, because they will be under water.

It’s no wonder that the National Association of Home Builders’ Confidence Index has fallen, particularly when juxtaposed with the expiration of the let’s reinflate the bubble first time home buyer’s tax credit at the end of November.

Note that to qualify for the credit, you must close before November 30, which means that if you buy now, you are starting to cut it close.

Still investors seem to be sanguine about economic prospects, as they are pulling out of US Treasuries and the dollar while crude oil hit a 1-year high.

*The joys of compound interest. 3% a month over 12 months is not 36%, it’s 1.0312=1.42=42%.

If You Want to Have an Opinion On Spending, Pay Some Damn Taxes

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So, the Conference of Catholic Bishops is saying that it would be , since they don’t like them, but somehow or other they don’t say a single word on the millions of dollars spent every year on capital punishment that the Pope also says is immoral, or the bank bailout, when the Pope condemns the excesses of capitalism, or the fact that our current system of healthcare victimizes the weak and helpless and kills them.

How about calming down, and drinking a nice warm glass of shut the F%$# up?

Looks Like the Tobin tax is Gaining Currency*

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The Tobin tax, basically a small tax (typically less than ¼%) on financial transactions to discourage rampant speculation and high frequency trading, is moving into the Overton window, and leaving the realm of “you’re nuts,” and entering the realm of “serious people can discuss this.”

2 Weeks ago, Peer Steinbrück, Germany’s finance minister, called for just such a tax, and today an OP/Ed he wrote calling for an 0.05% tax to, noting that German Foreign Minister Frank-Walter Steinmeier also supports this policy.

Personally, I’d much rather see the tax rate closer to ¼% than his proposal of 1/20%, but it’s a good start.

According to his numbers, revenues would amount to, “$690bn a year, or about 1.4 per cent of world GDP,” which, while nowhere near covering the bailout by taxpayers to the banks, AIG alone has sucked about 1/3 of that out of taxpayers, and total spending on the just the TARP is over $700 billion, does have the effect of making bankers feel the pain, and it also makes risky high frequency trading operations economically nonviable.

BTW, it’s not just the Krauts who are beginning to look at this seriously. Adair Turner, chair of the Financial Services Authority in the UK, is calling for the same thing:

So Mr. Turner is proposing a few changes, none of which would make the bankers very happy. Tax financial transactions. Increase capital requirements. Shrink the financial industry, which, at its peak, accounted for roughly 11 percent of the British economy. Only then, he argues, can banks’ excessive profits — and bankers’ pay — be curtailed.

I would also note that Turner has also explicitly stated that the size of the financial industry needs to be reduced because, “The City [the London equivalent of Wall Street] takes too much from British society and gives back too little. It has grown too big and too powerful.”

It’s interesting that this discussion has moved from “crazy people” like Dean Baker, who, we should note, was 100% correct on spotting the real estate bubble, and put his money where his mouth was, selling his condo and going to renting in 2004, though he has recently purchased a detached house to movers and shakers.

And not a moment too soon.

*Pun not intended.

They Can’t Do Any Worse Than the Banks

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Noted bond blogger Accrued Interest has penned an analysis where he says that, “Having the Govt. Mandate Pay Packages is a Stomach Churning Concept.”

While I agree that the idea of the government determining pay rates in a private industry is worrisome, there are a couple of important things to note:

  • It ain’t a private industry, it’s owned by the government. With the amount of money that the taxpayer has shoveled into the banking system, both through direct payments, Federal Reserve facilities, and the bailout of AIG, these institutions are as free market as the Tennessee Valley Authority.
  • How could the government do any worse than the banks?

Yes, there is that first sphincter tightening moment when you read the lede, but then you realize that the alternative is handing those chimpanzees in the banking industry an M-2 .50 caliber machine gun and a couple of belts of ammunition.

BTW, I would note that having a government office mandade pay is not my preferred solution.

My preferred solution would be through the tax code, because the government collects taxes pretty well, just ask Al Capone, along with some changes in shareholder rights laws:

  • Higher marginal tax rate, which makes the mega payouts less valuable
    • I’d like this additional money to go to an insurance fund to cover future bubbles, but if someone believes that this would happen, they have the political acumen of Little Orphan Annie.
  • Eliminate the deductiblity of wages above those of the President, plus an equal bonus
    • This also has the effect of taxing overpaying for prima donna athletes, which is a plus in my book
  • It is currently illegal for shareholders to hold binding votes on executive remuneration. Make it legal for shareholders to do so if they choose. I’d use the above Presidential wage line as a limit, since having shareholders voting on the salary of Willie the mail boy is nuts.
    • Note that I am not requiring requiring a binding shareholder vote, just allowing it.
  • I would also add a Tobin Tax on financial transactions on the order of ¼% on all financial transactions, which would serve to damp down some of the more destructive speculation and the massive front-running masquerading as “high frequency trading”.
    • I’d like to see this go to the above mentioned insurance fund, but the Little Orphan Annie comment still applies.

Note that, except for eliminating a specific prohibition on shareholder’s rights, these are all tax changes, and their administration, though not the politics of their being enacted, are simple and straightforward.

Don’t Let the Door Hit Your Ass on the Way Out

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So, we are now hearing the inevitable stories about how rich hedge fund type folks are fleeing the UK because they don’t like the plans to raise the marginal tax rate. (paid subscription required)

Seriously, let them go.

When all is said and done, when the people at the very top of the pyramid leave, and stop bidding up the prices of essential commodities, like shelter, you end up with a more livable city with a real middle class.

If you have concerns about the tax base, just implement a Tobin tax on financial transactions, and you get the money, with the bonus that you reduce speculative arbitrage.

The financial “masters of the world” do not create wealth, they extract it from the rest of us through fees on our 401(k)s and retirement funds.

The expansion of financial services in the past 30+ years have been parasitism, not improved productivity.

Here’s Hoping for Some Real Gail Time

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I’ve been following the tussle between the Swiss Bank UBS and the IRS over account for information for some time, and the fact that there is now a settlement which involves handing over account information for about 4500 people, and that prosecutors are working on over 150 criminal tax evasion cases is a very good thing.

Even better is the fact that there is an amnesty deadline in September, and neither UBS nor the Feds are revealing which accounts have turned over, which is having the rich pig tax evaders running around like chickens with their heads cut off, wondering whether or not they are among those accounts turned over.

One of the effects of the tax amnesty program is that about a dozen more banks have now been fingered as having aided clients in evading taxes.

Let’s be clear, for this to have a meaningful effect, there need to be dozens of prosecutions, and a significant number of people both imprisoned and made paupers by this process.

That is the only way that repeat fraud will be deterred.

How About Just Dropping the Maximum Payroll Tax Limit

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You know, when the Wall Street Journal is discussing how the the increasingly excessive pay for executives is endangering Social Security, it’s time to do something.

We are not talking about the Workers’ Daily World here, or even the New York Times. We are talking about the daily voice of “rich pig capitalism”, and they are talking about how much this is damaging to society:

…

Executives and other highly compensated employees now receive more than one-third of all pay in the U.S., according to a Wall Street Journal analysis of Social Security Administration data — without counting billions of dollars more in pay that remains off federal radar screens that measure wages and salaries.

…

The growing portion of pay that exceeds the maximum amount subject to payroll taxes has contributed to the weakening of the Social Security trust fund. In May, the government said the Social Security fund would be exhausted in 2037, four years earlier than was predicted in 2008.

(emphasis mine)

Here’s a solution, have the employers portion of social security apply to all forms of remuneration that could be construed as wages, with out a top end to be taxed, and have the employee portion kick in above $1 million a year.

You could call it the They Who Must Not Be Named, Terell Owens, or Bernie Madoff tax.

Seriously, wages in this case are zero sum. When these guys get more, the rest of us get less.

Now This is Good Policy

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The House Ways and Means Committee is considering generating additional $37 billion in additional revenue by removing the deductiblity of direct to consumer advertising for prescription drugs.

The Chairman, Charles Rengel is talking about it favorably, and I think it does good on a number of levels:

  • It generates more taxes.
  • It reduces the artificial demand for the new under patent prescription drugs that are frequently not much better than their predecessors.
  • It redirects sales efforts to the doctors, who are better equipped to weigh the merits.
  • It would likely make drug companies more amenable to moving their drugs to over-the-counter, where they could deduct the ads, saving everyone money.

I am so (NOT) Shocked: Social Security and the Sky is Falling Edition

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Reductions in employment have reduced receipts for Social Security, which has pushed up the theoretical insolvency date, to 2037, and of course, everyone is running like chickens with their heads cut off trying to figure out how to hand everything to the Wall Streeters who completely f$#@ed the nation as a result.

It is true that Medicare is in trouble, but Social security, not so much.

Economics Update

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The US trade deficit rose in March, to 27.6 billion, on falling exports and the recent increases in oil prices.

Imports fell by $1.6 billion, but exports fell by $3 billion.

We will not be, as the Japanese did, exporting our way out of this trade deficit.

This is one reason why the American Express/CFO Research Services survey has 59% of CFOs seeing more layoffs.

Of course, the fact that nationwide, US home prices fell the most on record, 14% year over year, and the only markets where home sales are rising are where vultures are sweeping in to buy cheap foreclosure properties.

On the bright side, the National Federation of Independent Business’ monthly index of small business sentiment was up for the first time in 4 months.

It appears, however, that credit card company Advanta is not so optimistic. The company, which specializes in credit cards for small businesses, is shutting down its lending operations on June 10, after uncollectible debt exceeded 20%.

They are not shutting down, they are just shutting down all their credit lines, and just taking payments, which is awfully close to shutting down, so the credit cards just become so much plastic.

The deficit is not looking good either, with tax receipts so low that the federal government ran its first April deficit since 1983.

In energy, oil was up today, briefly breaking $60/bbl for the first time since November, before settling at $58.85/bbl.

This, along with banking changes and interest rate increases, is why the ruble is on a tear right now, and the US dollar fell to a 4 month low on comments by a number of experts that the recession is bottoming….Yeah….sure…

Credit Where Credit is Due

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In response to Rush Limbaugh saying that he would sell his condo and leave New York because of the income tax increase, Governor David Paterson has told him Don’t let the door hit your butt on the way out:

If I knew that would be the resultI would’ve thought about the taxes earlier.

I still think that David Paterson is a tool, but I have to give him credit for the perfect response.

Good riddance to bad rubbish.

New York State to Institute “Temporary” Millionaire’s Tax

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Governor Paterson had been opposed to such taxes, suggesting that it would lead the wealthy to leave the state, but has not capitulated to progressives in the state, who were opposed to the draconian cuts in services that a “no-tax” solution would have required.

Even with this increase, 8.97% from 6.85% for income over $½ million, the top tax rate in New Jersey, is higher, and in any case, if people want to leave New York because it’s too expensive, they already have.

Nice to know that the political forces in New York State who work for the other 99% of the population can actually get meaningful change….for 3 years at least, as the tax is temporary….for now.

Why Cap and Trade Sucks

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Because if there is a sign that a regulatory strategy is ill conceived, it is when you end up paying farmers not to grow crops, and this appears to be one of the new cash crops for the American farmers.

This is a fraud foisted on the American consumer and the environment, much like the construction of unneeded hydroelectric plants in China for carbon credits on the European cap and trade system is a fraud on the European consumer and the environment.

The solution, which is cheaper for the consumer, and keeps the Wall Street types from gaming the system, is the straight carbon tax.

Governor Paterson Gets Clue

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So, we now have a New York Post reporter breathlessly reporting that he is planning a “secret” tax hike on the rich.

Well, considering the fact that the Wall Street masters of the universe upon whom he hoped to fund his reelection bid are now less popular than either Dick Cheney or a case of the clap,* this is not surprising, though according to Dicker, Paterson wants to appear to be against the tax hikes while pushing them through, which indicates once again that he has the political instincts of Kathleen Kennedy Townsend, or a packet of Fleishmann’s active dry yeast.*

My guess is that he’s flailing around because the polls show him being crushed by Andrew Cuomo in the primary, and by Rudolph Guiliani in the general by numbers that exceed what a banker can supply to him by the way of campaign funds.

*For some reason, I always confuse the two.†
†I love it when I get to “twofer” footnotes.

Economics Update

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Not unexpected, but the budget deficit jumped 10% because taxes have fallen to a 14 year low.

Like I said, the solution here is inflation to wipe out bad debts, and the deficits are going to do that sooner rather than later, because we’re not going to see a this resolve itself in the US, or overseas in the near future, as evidence by the cratering confidence numbers globally.

With Chinese exports falling sharply, 25.7% year over year, and the rest of the world seeing similar numbers, they are in no position to drive a recovery either.

Consumers are vanishing worldwide, and there is no sign of a recovery in the US, particularly in real estate, where S&P is warning of downgrades of, “9,430 classes from 1,077 U.S. first-lien Alt-A RMBS transactions issued in 2005, 2006, and 2007”, and builder loans threatening to take down banks that weren’t playing with funky financial instruments.

On the brighter side, it looks like the SEC might reinstitute the ‘Uptick Rule’ on short selling.

I’d like to see aggressive prosecution of market manipulation techniques like “naked” short selling too, but I am not holding my breath.

If Wall Street were investigated by Patrick Fitzgerald, I’m pretty sure that you would see tens of thousands of prosecutions.

In energy, the week economy has driven oil down.

Also, it appears that there are more stupid people than I thought, because the dollar fell as people left its safe haven, it appears that this was largely a result of Pandit’s delusional memo saying that Citi is going to rake in the bucks this quarter.