Failed Tax Incentives

 Boston Globe letter

They cut it way back.
This was my original:

I rarely agree with Mr. Jacoby, but his column today was right on the money (The bitter pill of failed state tax incentives. Boston Globe, November 6, 2013: A15).

Giving tax breaks to big business (like BioTech firms, Theatrical Producers, Movie Makers, Insurance Companies, etc.) to encourage them to locate in a given area is a beggar-thy-neighbor proposition. Often, as in New London, CT, the jobs never materialize, or they last only a short time as in Devens, MA and Providence, RI.

Some years back, the legislature passed an inter-state compact (National Popular Vote) to bypass the Electoral College to ensure that the President is elected by all the people. We urgently need an inter-state, inter-city, inter-town compact that will disallow these ridiculous handouts to the wealthy top managers of corporations seeking tax breaks.

Alternatively, perhaps the Federal Government could ban the practice nationwide by invoking the Commerce Cause.

It is past time to say "No" to the corporate welfare bums (Quote from former Canadian New Democratic Party leader, David Lewis).

Soundbite: a Bit player with Paul Krugman and Paul Solman

My soundbite after 45 seconds

States Want More in Pension Contributions

It is unfortunate that Steven Greenhouse perpetuates the myth that employees are not responsible for paying 100% of their pension contributions (States want more in pension contributions, New York Times, June 16, 2011:B1, B8).

A pension is merely cash compensation that has been deferred. Instead of an employee taking all the compensation in cash and then saving some proportion and managing those savings, it is cheaper and more effective for the employer to make those savings and manage the assets -- financial services are cheaper wholesale than retail.

The proportion set aside for pensions is negotiated through collective bargaining -- but all of it comes from the employees' pockets. here is a negotiated trade-off between cash pay and benefits. The proportion of the pension contribution that is formally deducted from the paycheck versus the proportion that the employer holds back (and supposedly sets aside) is merely a book-keeping convention.

The reason that citizens are balking at the compensation enjoyed by public sector employees is that their wages have been stagnant over the past 25 years (except for the top 1 percent of wage earners); while corporations have failed to compensate employees in line with productivity increases, they have also fed them a story about the excesses of the public sector.

These attacks on public sector workers are appealing to the rest of us who have lost our good pensions and health benefits, but they miss the target of restoring fiscal balance.

Lower levels of government need additional support from the Federal government. This should be paid for by a new tax on financial transactions. That is where the money is, that is where a tiny tax on each transaction would result in a flow of funds to the treasury without crimping normal economic activity on main street.

It is only right that Wall Street should help out at this time.

Sent to New York Times

Right back at those Republicans, Sir

Letter about Obama's Economic Appointees in the Boston Globe.

Article on how to negotiate with the recalcitrant which provides theoretical support for the views in the letter.

Broke Town USA

There is of course a simple solution for the financial crises facing
states, cities, and towns (Broke Town, USA, New York Times Magazine,
March 6, 2011: 26-29). They desperately need Federal aid.

When New Orleans was devastated by Katrina, we had no difficulty with
pouring federal aid into Louisiana to restore and improve that city.
Today the States are facing the financial tsunami unleashed by Wall
Street. Most of them are facing budget deficits. Part of their
response is to cut aid to counties, towns and cities which put their
precarious finances in jeopardy - would that Watson could come up with
a costless solution!

What is needed is federal funding equivalent to about 25% of each
jurisdiction's 2007 budget. That money would remove the dangers of
drastic cuts to public services, to unemployment payments, to
medicare, and to the alleviation of poverty in a world in which 18% of
the working population is unemployed or underemployed.

Sadly, there is no political will to pour such necessary federal aid
into the states. A century from now, we will look back with regret on
that missed opportunity to stoke the recovery; just as today we regret
Roosevelt's attempts at budget balancing in 1937.

Earmarks: Bay State’s loss of funding would be country’s gain

Letter in Boston Globe

A time to Spend and A Time to Save

OpEd in Cambridge chronicle

Special Report on Austerity

Your special report fails to emphasize where the money really is (Recovery, Not Austerity, American Prospect, November 2010: A1).

The money is not in Social Security it is in the financial sector.

The real need in this Century is for a Tobin tax levied on every financial transaction.

This would give us the resources to bring alive the American dream for us all.

Sent to American Prospect

The Foreclosure Mess

There is much to agree with in Professor Peiser's Op-Ed (The foreclosure mess, Boston Globe, October 20, 2010: A13).

However his suggestion that those people have suffered from improper foreclosure forego litigation against their mortgage servers is absurd. People need to be able to redress the wrongs committed against them.

One suggestion for cleaning up the mess is for Institutions (banks, state government, federal government) enter into Shared Appreciation mortgages with the distressed homeowner. The homeowners pay what they can, the institution picks up the rest. Both share in any appreciation of the home when it is finally sold.

This has multiple benefits. Only the institution and the homeowner have to agree on a contract. The multiple, often unknown, holders of the mortgage do not need to agree as their cash flow will be unchanged. Homeowners stay in the houses; property taxes continue to be paid; neighborhoods will be stabilized; and school classes will not be disrupted as pupils move as a result of foreclosure.

There are not many solutions with so many beneficiaries.


Sent to Boston Globe

Foreclosure Crisis

A recent news story (US Plans more aid for jobless homeowners, August 11, 2010) and John Carney's Op-Ed on Fannie Mae and Freddie Mac (Too big not to fail, August 11, 2010) contain the seeds of a good idea for the solution to the foreclosure crisis. Mr. Carney notes that overlooked suggestions for reform include encouraging banks to partner with homeowners in shared appreciation mortgages. Included in the additional aid are funds to enable "local aid groups to provide [interest free] bridge loans of up to $50,000 to eligible borrowers to help them pay mortgage principal, interest, insurance, and taxes for up to 24 months.

Let us combine these two ideas into a government financed and administered program. Our experience going through middle men for the government guaranteed student loan program was an expensive mistake.

Let the government absorb Fannie Mae and Freddie MAc and give them a new role. Entering into shared appreciation mortgages with distressed homeowners. With this version of a shared appreciation mortgage, the homeowner would pay what he or she could, the government would pay the rest.

With such a scheme there would be multiple winners:
* mortgage holders would get their promised stream of payments,
*government would finally get some traction in reducing the rate of foreclosures -- nothing has worked so far because getting multiple mortgage holders to agree on modifying the terms of a mortgage is virtually impossible; over time government might even build up some positive equity in the houses it co-owned,
* homeowners would continue to live in their homes,
*towns and cities would continue to enjoy vibrant neighborhoods.

All around it seems a sensible way to go.

More on the Euro

The constraints that the Euro places on European policy described and decried by your editorial writer yesterday (Greece's troubles reveal fatal flaws in the Euro, Boston Globe, May 6, 2010)are exactly the same as the constraints placed upon the regions and states of the United States by our acceptance of the US dollar as a common currency.

Without the dollar, Massachusetts could try to solve it's budget problems by devaluing its currency thereby reducing imports from other states and increasing exports to those states.

Alas, other states would probably reciprocate or add tariff barriers thereby making both Massachusetts and the rest of the country less well off. This is what would happen in Europe absent the Euro's constraints.

We should be glad that the Euro provides those constraints and hope that the unified currency will survive the current stresses and strains and survive, like the dollar, for many centuries.


Sent to the Boston Globe

Greek Wealth Is Everywhere But Tax Forms

Before we sneer too much at those Greeks who, to avoid taxes, failed to report that their homes had swimming pools, we should look at our own behavior (New York Times, May 2, 2010: A1).

I do not volunteer to pay the Massachusetts Tax at the 5.85% instead of 5.3%. Many companies have moved their headquarters as well as their production facilities offshore in order to reduce their taxes.

I almost wrote "tax burden" because that is the way we see taxes rather than, what they really are, the cost of civilization.

Sent to New York Times

The Euro Trap

The constraints that the Euro places on European policy described and decried by Paul Krugman (The Euro Trap, New York Times, April 30, 2010) are exactly the same as the constraints placed upon the regions and states of the United States by our acceptance of the US dollar as a common currency.

Without the dollar, Massachusetts could solve it's budget problems by devaluing its currency thereby reducing imports from other states and increasing exports to those states.

Alas other states would probably reciprocate or add tariff barriers thereby making both Massachusetts and the rest of the country less well off.

We should be glad that the Euro provides those constraints and hope that the unified currency will survive the current stresses and strains and survive, like the dollar, for many centuries.

Sent to New York Times

The coming catastrophe

Neither Scot Lehigh, nor Penner and Reischauer whose work he reports, seem aware of the most sensible form for future taxation: a Tobin tax on financial transactions (The coming catastrophe, Boston Globe, April 30, 2010: A9).

This has many advantages:

It can be harmonized with similar taxes at the international level, to avoid firms' jurisdiction shopping.

It taxes activities that represent the bulk of the US economy: 61% at the latest count.

By increasing transaction costs it will reduce the kind of speculative activity that brought our economy to its knees, but if set at a low rate will not inhibit normal business transactions.

Part of the proceeds from the tax can be used to pay the Credit Rating Agencies and thus remove the horrendous conflicts of interest they currently experience.

Multiple wins, I'd have thought.


Sent to Boston Globe

Ben Schott Credit Ratings

You can believe those ratings if you like (Op-Chart, February 3, 2010: A23).

But remember these were the rating agencies that brought you AAA ratings on derivatives based on sub-prime mortgages.

Sent to New York Times

This Year's Housing Crisis

Your editorial continues to propose inside the box remedies that are proving unsuccessful (This Year's Housing Crisis, New York Times, January 5, 2010: A16). We need a more radical approach.

The truth is that it is very difficult to modify the terms (principal or interest rate) of a mortgage loan in a world in which mortgages have been diced and sliced into many derivative products. It is impossible or at least very difficult to identify the owners who will have to agree to the terms of any modifications.

There is a simple, albeit expensive, alternative: the Shared Appreciation Mortgage. With these, government could partner with homeowners having trouble paying the full mortgage: the homeowners would pay what they can, the government would pick up the rest. Each would build up equity in the home in proportion to their contribution. Over time, as housing prices recovered, the government might even make money in the deal.

This is solution that only requires agreement between the government and the homeowner; the mortgage servicers and the mortgage holders continue to get the original earnings stream; the homeowners keep their homes; neighborhoods are not devastated by multiple foreclosures; towns and ciites continue to receive a stream of property taxes.

It is sad to think that if this strategy had been followed when the housing markets began to collapse, SAMs would have sustained the value of the derivatives so big banks would not have needed direct bailouts. Wall Street and Main Street would have both been helped with the same money.


Sent to New York Times

Lax Oversight

Mr. Bernanke may be correct that lax oversight was responsible for the housing bubble (Lax Oversight Caused Bubble, Bernanke Says, New York Times, January 4, 2010: A1, A11).

But what caused the lax oversight? It was a lack of political will. The Clinton and Bush administrations were uninterested in regulation and did not ensure that the regulators did their jobs properly. As a result we have had economic collapse and the destruction of several asset classes.

Given the shilly-shallying going on in Congress with respect to developing a better regulatory regime and the presence of two former deregulators in high level economic positions in the Obama administration (Geithner and Summers), I despair that we will find the necessary political will any time soon.


Sent to New York Times

Meltown causes are still in place

I agree with your op-ed writer, Frank Porter, that the rating agencies cannot continue to go on as they have in the past (Meltdown causes are still in place, Boston Globe, December 9, 2009: A19).

My solution would be a bit different, let the agenies' paymasters be the investors. Each financial transaction would have a small fee attached to it, like a Tobin tax. These fees would be used to pay the rating agencies; to keep them honest, a portion of the pay would be tied to achievement, that is the medium and long term accuracy of their ratings.

Such a system would eliminate the current conflict of interest faced by the rating agencies who are paid by the very firms/issuers they rate.

Sent to the Boston Globe (also sent a similar letter to the NYTimes)

Albany Idles as State Nears Its Last Dollar

Albany is not alone. In States across the nation from California to Massachusetts, state revenues are dropping and state expenses for social services are rising (Albany Idles As State Nears Its Last Dollar, New York Times, November 27, 2009: A1, A27).

What we need is another federal stimulus. This should have two major thrusts. First each State should receive funding equivalent to about 20% of its 2007 budget. This would enable states to meet their responsibilities with minimal cuts in vital social programs and would also enable them to maintain state aid to the cities and towns in their jurisdictions.

The second thrust would be to help homeowners. Current efforts to avert foreclosures are not working. A powerful alternative would be for the Federal Government to partner with distressed homeowners by entering in to a Shared Appreciation Mortgage with the homeowner. The homeowner would pay what she/he could; the government would pick up the rest. Both homeowner and government would, over time, build up equity in the property and share, in proportion to their contributions, when the housed was sold. That would be a win-win-win: for the government as it would underpin the mortgage derivative market; for the homeowners as they could stay in their houses; for communities as the blight of foreclosure would recede.


Sent to New York Times

Op Ed: Which is the biggest bang for the buck?

Which is the biggest bang for the buck?