Tag: taxes

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I’m generally unimpressed with Krysten Sinema, whose failure to support Democratic initiatives has generally been harmful. However, I kinda like the tax changes she’s forced into the climate package.

Fundamentally, I like dividends and I hate stock buybacks. So a tax on stock buybacks—even a small one—makes things better.

Now, most economists would have you believe that the two are equivalent. This is false.

Economists can gin up a model that suggests that owning a slightly larger share of a slightly smaller company is “equivalent” to getting paid a share of the company’s profits. Or that getting cashed out completely (by taking the buyback), and then finding a place to invest almost all of that cash in some new company is somehow equivalent. I don’t think either of those things is true even in an economic sense, but I think both are clearly false in a larger societal sense.

New York Stock Exchange

The way things used to work was that a company earned a profit, reinvested an appropriate amount of that profit in growing the business, and then paid out the balance to shareholders to do with as they pleased. (They could reinvest the money by buying more stock, they could spend it on luxuries—or necessities, they could invest it in some other company, they could donate it to charity—the possibilities are literally endless.)

This situation produces a sort of virtuous circle. A company that earns a reliable profit—and shares it with its stockholders—becomes more valuable, because people will pay more for a company that pays a reliable dividend. It’s good for the owners (their stock is worth more), it’s good for the employees (both line workers and managers), it’s good for the community (a profitable company pays taxes, their employees have money to spend, their shareholders have money to spend, etc.).

The non-dividend situation lacks all these dynamics. Instead of wanting to produce a profit, the company has all sorts of weird incentives—to maximize “growth” or “revenue” or “earnings” according to whatever weird metric appeals to Wall Street that week. Owners don’t get cash that they can spend. Instead they get the option to cash out at random intervals. The weird incentive structure encourages companies to make weird decisions regarding investing in growth (or dumping cash into buybacks). Shareholders who would otherwise be living on dividends are constantly having to make difficult decisions about selling small amounts of shares in this or that company for money to live on.

Maybe there’s some technical economic sense in which buybacks and dividends are equivalent, but they are very much not equivalent in a societal sense, producing very different results for ordinary investors and their communities.

The only reason any ordinary person would think a stock buyback was even close to equivalent is because capital gains have been tax-advantaged over dividends. So, something that reduces that tax advantage is all to the good.

Details: Krysten Sinema Agrees to Climate and Tax Deal – The New York Times

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Do municipal taxes bring in enough money to maintain our urban and suburban infrastructure? In the densest urban areas, probably yes. Otherwise, generally no.

It might shock most people to learn that in many American cities, the poorest neighborhoods subsidize the wealthiest.

Source: This ‘Ponzi scheme’ surrounding development leaves most cities and towns functionally insolvent

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The Carle Clinic I use will be in the bus district, hopefully in time for the new bus schedules set to come out sometime in mid-August. Very handy for me.

More than 460 acres of land in southwest Champaign officially will become part of the Champaign-Urbana Mass Transit District, perhaps as soon as today, the transit district’s board decided Wednesday.

Source: MTD board unanimously approves annexing swath of southwest Champaign

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The tea-party right was willing to risk the hard stop in spending that would have resulted from running up against the debt limit—a game of chicken that neither the Democrats nor the sane fraction of the Republicans could take the risk of losing.

The fiscal cliff looks a little similar, but it’s much less dangerous. It’s a game that lends itself to playing through to the end, because the risk of losing isn’t nearly so bad.

Suppose we did go over the fiscal cliff. What would happen?

First, tax rates would go up for everybody. That’s bad, but it’s not terrible. Actually, taxes at those rates would produce revenue roughly equal to the amount of government people seem to want.

Second, spending would be cut, with the cuts falling on almost everything except Social Security. A lot of good stuff would be cut, but that might not be such a stiff price to pay, considering that a lot of the things that ought to be cut (such as defense spending far beyond our needs) would otherwise be very hard to cut.

The result would be a rough year or two, hard on everybody from working-class folks to defense contractors, but all those problems would be fixable. In fact, Congress would love to fix those problems! Congress could cut taxes! (Just not as much as Bush did.) Congress could boost spending! (Just not to current levels.) Really, there’s nothing congressmen like better than cutting taxes and spending money on stuff.

The other details are similar. The AMT would strike middle-class folks hard, but that could be fixed, too. In fact, having to fix it would be an opportunity to improve it—turn it back into what it was supposed to be, a minimum tax rate that applies to everyone, no matter how many tax shelters they have or how many special preferences they qualify for. The end of the “doc fix” would hurt health care providers, but that could be pretty easily fixed too. (We’ll no doubt have to make a lot of small changes to healthcare stuff, once health care reform goes into effect and we run into the inevitable glitches.)

It’s always hard to raise taxes and cut spending, so it’s hard to do what needs to be done. But that’s why the fiscal cliff is so perfect. Once we go over the edge, we won’t need to raise taxes and cut spending—we’ll need to cut taxes and raise spending, and that’s dead easy.

Dive over the fiscal cliff, then fix things. It’s not perfect, but it wouldn’t be nearly as bad as what we’ve got now.

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The town of Savoy, just south of Champaign, makes a point of having lower taxes. They do so by not providing many of the amenities that Champaign and Urbana provide—no bus service, no public library, etc. Residents, since they can be free riders on Champaign and Urbana services, like the situation just fine.

A few years back, the Champaign-Urbana Mass Transit District was looking to expand its service area into Savoy. Property owners in Savoy didn’t like that idea.

There are rules allowing taxing districts to annex adjacent areas and begin providing services—and assessing the tax. The rules make it pretty tough for an area to opt out; just about the only way is to already be in the taxing district of another service provider. With that in mind, Savoy created its own mass transit district a few years ago (the Champaign Southwest Mass Transit District). The idea was that it wouldn’t provide any mass transit service and wouldn’t levy any tax.

All very sad, of course, for anyone like me who uses the bus service, along with anyone who thinks that public services are a good idea. Which meant there was a bit of schadenfreude when, as anyone with any sense had foreseen, Savoy’s transit district promptly levied a small tax (to pay the legal cost of fighting CUMTD’s attempt to annex areas within the district anyway). Taxing districts levy taxes. It’s what they do.

Now we’re getting a bit more schadenfreude: People within Savoy’s transit district (the new YMCA and an apartment complex) are asking the district to provide transit services.

It’s funny, but it’s also kind of sad. I mean, the people who built the apartment complex and the YMCA surely knew that they were building in a place where there was no transit service. I’m sure they picked those locations because the land was cheap. Didn’t they stop to think that the reason the land was cheap was because of the lack of services?

On the one hand, I’m glad to see the Savoy transit district getting pressured to provide transit services. Providing transit services are what transit districts are supposed to do. And I have no sympathy for the residents who created the district in the hopes of dodging a tax—only a moron creates a taxing district while expecting not to be taxed.

But I’m still kind of sad. If transit service to the YMCA is important (and the YMCA says the lack of it is their visitor’s number one complaint), wouldn’t it have made more sense to build the new YMCA within the CUMTD service area? Instead, they build where they know there’s no service, and then complain about it: More sprawl and more bickering.

Of course, those are just more reasons why the Champaign Southwest Mass Transit District was a bad idea. I mean, really! Who’s so stupid as to create a taxing district hoping not to be taxed?