Donald Trump's Taxes, And Yours (And Mine)

The progressive media establishment has now moved into the long-anticipated full attack mode against Trump in the final run-up to the election, and the official big story of the moment is the revelation in Sunday's New York Times of a few pages of Trump's state tax returns for 1995.  It seems that in that year he declared a loss of some $916 million.  That in turn might mean that he went for many years thereafter paying little or no income tax.  Cue the outrage!

My favorite part is the terminology with which Pravda chooses to discuss this tax situation.  In Monday's front page article, the lead headline is "Trump, the Tax Code and a Loophole for the Rich."  The headline in the online version of the same article is "How Donald Trump Turned The Tax Code Into a Giant Tax Shelter."  Quotes in the articles from the Times's chosen sources repeatedly use the terms "loophole" or "tax shelter" or some other comparable words of opprobrium.  For example, we have Steven Rosenthal of the Urban-Brookings Tax Policy Center:

“If it wasn’t clear before, it is now: The tax code is tilted toward the rich in its statutory framework, its exceptions, and in how it is enforced and administered,” said Steven M. Rosenthal, a real estate tax specialist and senior fellow at the Urban-Brookings Tax Policy Center.

Meanwhile, even at sources like Fox News -- where several talking heads have stepped up to defend what Trump apparently did -- the defense has been that his tax position was "legal" and essentially "if you don't like what he did, change the tax law."  It's hard to find anyone to articulate the obviously right view, which is that this is how the tax code should work, and indeed has to work, and there is little to nothing that can or should be done about it.  For a lonely example of a very brief and not fully articulated defense of the current tax code on this point, see Warren Meyer at CoyoteBlog here ("Yes, Let's Make Entrepreneurship and Business Formation Even Harder").

Here's the fundamental problem: The tax we are talking about is a tax on "income."  An "income" tax just doesn't fit very well with those people who live, not off "income," but rather off of assets.  The concept of "income" is very easy to define in the context of wages and salaries.  You worked during the year, and you were paid in cash during the year.  That's income to you for that year, and you must pay the stated proportion of it in tax.  Easy.  But there are many people who do not earn income in this way.  Millions of people, including many who are not at all "rich" or "wealthy," live primarily off assets.  As one example, very large numbers of retirees -- many tens of millions -- live wholly or largely off assets accumulated during a lifetime of savings.  Many, maybe even most, businesses are involved in some way in realizing revenue by dealing in assets.  Real estate businesspeople are a large category of those who live by extracting revenue from assets.

So if you own assets, and derive revenue from them, what part of that is "income" subject to the income tax, and what part is not?  It turns out that the answer to this question is almost entirely arbitrary.  The tax code defines some extractions of income from assets as "income," and some not.  It's whatever the tax code says.  Dividends?  Income!  Interest?  Income!  Withdrawal from savings?  Not income!  Except if the withdrawal is from a 401(k) -- then it's income!  Depreciation?  A subtraction from income!  Sell an asset?  Income -- but only to the extent of the excess of sale price over purchase price!  Borrow money against your assets?  Not income!  Why?  Because those are the rules we have established!  It's not that there is no logic to it, but the rules could easily be very different, and there are huge elements of arbitrariness.  If the rules were different, they would still be just as arbitrary. 

Every election cycle one or more candidates comes forward to propose revisions to the tax code supposedly to make it so simple that you can file your taxes on a post card.  In the recent primary season, Ted Cruz was one such candidate.  That proposition makes sense as to wage and salary income.  But, if you want to have a regime that deems some part of revenue derived from assets to be "income," there is nothing you can do to make it simple.  It will always be inherently arbitrary.  And because it is arbitrary, it will be subject to gaming. 

Here's an obvious illustration of the problem.  Say Warren Buffett owns $10 billion of Berkshire Hathaway stock and its value goes up in a year by $1 billion to $11 billion.  Does Buffett owe income tax on the billion dollar increment?  This is in fact how Buffett makes most of his money.  The answer under our tax system is that increase in value of assets, unless they are sold, is not a taxable event; so Buffett owes nothing on the incremental billion.  And when Buffett writes op-eds about how high a tax rate his secretary pays compared to his own, he completely leaves out that most of his "income" is defined by the tax code as "non-income" and not subject to tax.  Does that sound fair to you?  So, should we make it such that increase in the value of assets is taxable each year?

Good luck with that.   You've caught Buffett, and forced him to pay maybe $350 million on his incremental billion; but meanwhile, does every homeowner in the country (there are about 87 million of them) need to get an appraisal of the house every year and pay income tax if the value went up?  Unfortunately, the large majority of those 87 million people won't sell their house this year and are simply not going to have the money to pay the tax on an increase in value.  Should they all be sent to jail?  This is not going to work.  The reason we don't tax increase in value of assets except on sale is the simple practicality that if we try that it will mostly be impossible to collect the tax.

So we tax assets only on sale.  On all of the value?  No, on the difference between the purchase price of the asset and the sale price.  Why?  There is a logic, but at heart it's another arbitrary rule.  And what if the sale price of the asset is less than the purchase price?  For example, suppose a taxpayer has some assets that have increased in value and others that have decreased.  Should it really be that he must pay tax on the increases and get no offset for the decreases?  If you have that rule, then people who in fact have seen massive decreases in net worth will still face big tax bills.  Your business went broke and lost $500,000, but you made $100,000 in the stock market -- do you really need to pay tax on the $100,000 with no offset for the loss?  Many heartrending cases will come forward -- and among not-wealthy people.  So again, that won't work; and the rule is, you can offset.  

And once the rule is that you can offset losses against gains, you find that, since tax is only due on sale, people have discretion as to when to sell.  They sell the assets where they have had losses, and sit on the gains.  Why voluntarily incur tax when you don't have to?  As I said earlier, whatever rules you set up as to taxation of income from assets, those rules will be subject to gaming.  There is no way around it.

So is there any sense in which what Trump did was to use a "loophole" or a "tax shelter," or was it just an application of the established tax code definition of "income"?  I would say the latter.  And if you propose "closing the loophole," what exactly is the proposed fix?  End the carryforward of losses?  That would just mean that Trump would be forced to sell some assets with gains in 1995 to offset within the year, or alternatively hold on to some of the losses for whatever years necessary until he had offsetting gains to use within one year.  The result would be no more tax revenue for the government, but would it somehow be good for the economy?  Not that I can see.

Meanwhile, fast forward to today.  The likelihood is that the $916 million loss carryforward has been used up.  The real estate assets that Trump bought in the 80s cratered in the early 90s and led to the 1995 loss.  But the assets that he acquired more recently, particularly those in New York, have likely performed very well.  I strongly suspect that today Trump funds his lifestyle and even his presidential campaign in that time-tested game of the real estate entrepreneur, borrowing against the appreciated assets.  In the real estate game, they call it "taking some money out of the property."  Usually, if the rent coverage of the debt service is sufficient, you can borrow "non-recourse" -- you don't even owe the money back personally!  Oh, and the borrowing is not a taxable event.  You don't even need to mention it on your tax return.   Hey, it's just how the system works.  Did you report it as taxable "income" when you took out a mortgage to buy your house?  Neither did I!      

The Fuzzy Math Of Renewable Energy

I often think that the allure of progressivism mostly turns on inability to do basic arithmetic.  My Exhibit A is affordable housing in Manhattan, where we spend in many cases $100,000 per year to subsidize a family to live in a premium location, only to have the family remaining in "poverty" or near-poverty.  How can this possibly make sense?  But here's something that might make even less sense:  the fuzzy math of renewable energy; or, more precisely, the fuzzy math of how much it will cost to try to make a fully-functioning electricity system run primarily on intermittent sources of power like solar and wind.

You probably missed it, back in September 2014, when then-new Mayor Bill de Blasio made the big announcement that New York City would be reducing its "greenhouse gas" emissions 80% by 2050.  (You always have to love those non-binding commitments by politicians for years long after they will have left office and when most of us will be long dead.)  Here is a picture of de Blasio on the day of that announcement, marching arm-in-arm with the likes of Al Gore and Ban Ki-Moon.      

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So, how to get from here to an 80% cut in CO2 emissions?  The big idea, if you want to call it that, is to use lots more solar and wind power.  But those things only work part-time, and not on demand; so to turn them into a fully-functioning electricity system you need some combination of back-up power from dispatchable sources, and/or storage.  And if it's only the back-up from dispatchable sources, without the storage, then you're probably going to find the dispatchable sources supplying most of the power most of the time.  If you want well upwards of 50% of your power to come from solar and wind, you are going to need storage.  A lot of storage.

And that brings us to the latest:  Last week New York City announced that it would become the first municipality in the U.S. to have a target for energy storage deployment as part of its commitment to cut CO2 emissions.  From Green Tech Media:

Only two U.S. states, California and Massachusetts, have set targets for energy storage deployments. Now New York City has joined them.  The city government unveiled a storage goal of 100 megawatt-hours by 2020 last week. . . .  

And over at Solar Industry Mag, you can feel the excitement:

According to the mayor, this [100 MWH] target will help reduce reliance on the grid by making variable sources of energy production, such as solar panels, usable for more of the day. Energy storage also helps increase the city’s resiliency by providing backup energy when the grid is offline.  “New York City’s new solar and energy storage goals will bring even more clean energy jobs, cleaner air, and electric system benefits to the Big Apple and will help us get the most out of our solar resources,” commented Donna De Costanzo, director of Northeast energy and sustainable communities at the Natural Resources Defense Council.

One hundred megawatt-hours of storage capacity -- that sounds like a lot!  Or does it?  To put it in a little context, a Tesla comes with a battery pack with about 85 kilowatt-hours of capacity.  So New York City's 100 megawatt-hours would represent the storage capacity of around 1200 Teslas.    Cost?  Tesla says it can now produce the battery packs for around $12,000 each.  (Industry critics think it is really double that or more, but let's give them the lower number for these purposes.)  That means that the 100 MWH of storage capacity will cost around $14.4 million.  That's kind of a rounding error in New York City's budget, currently running over $80 billion annually.  And we have all the way to 2020 to accomplish this.  No problem!

But perhaps we should ask, about how long will the 100 MWH of power last our fair city when the wind stops blowing in the middle of the night?  To make that calculation you need to know our ongoing level of usage of electricity, which as far as I can find runs around 10,000 to 12,000 MW.  A little simple arithmetic, and you calculate that when the sun and wind go blank the 100 MWH will carry the City for about -- 30 seconds!  

So maybe we had better buy, say, a full day's worth of storage capacity, just in case we're dealing with a heavily-overcast calm day in the middle of the winter.  Multiply the $14.4 million by 120 (to get an hour) and another 24 (to get a day) and you get a total cost for the storage capacity of $41.472 billion.  This is no longer a rounding error.  And by the way, nothing says that we can't have two, or even three, consecutive fully-calm heavily-overcast days in the middle of the winter around here.  Are we really going to try to deal with this in any meaningful way with batteries?  For a full three days' storage capacity, we'd need the equivalent of over 10 million Teslas worth of batteries.  Is there even that much lithium available in the world?

Of course, we could always deal with this problem by having a full set of back-up dispatchable power plants at the ready for the calm nights and cloudy days.  At around $3.5 billion per 1000 MW capacity, that will be another $50 billion or so for back-up capacity you may use say, three to five days per year.  No problem!  I could try to criticize de Blasio for not playing straight with the citizenry when he makes big announcements that he is wasting some millions of dollars on totally meaningless amounts of storage capacity, but why bother?  I really don't think he is capable of doing this level of arithmetic.

Meanwhile, pay attention to the news out of South Australia.  That's the large Australian state covering the middle-southern section of the country, with the main city being Adelaide.  On September 25 something called the Grattan Institute put out a Report on the situation of electricity supply in South Australia, and warning of problems to come.  It seems that South Australia has set out to make itself the world leader in generating electricity from renewables, mostly wind.  According to the Grattan Report, wind now supplies about 40% of the electricity in South Australia.  Is that any problem?  The Report discusses two big issues:  (1) the intermittency of the wind power is leading to wild price swings in the wholesale electricity market when the wind suddenly stops blowing and there is a shortage of back-up, and (2) the intermittency also affects the reliability of supply.  From the Report:

On the night of 7 July, the wind was hardly blowing in South Australia and the sun had gone down. Two coal plants had closed earlier that year, and an electricity connection that provides power from Victoria was effectively closed for upgrades. As a result, gas was supplying nearly all the state’s power needs. At 7.30pm, the wholesale price of electricity shot up to $8900 per megawatt hour, a staggering sum when wholesale prices in the eastern states average about $50 per megawatt hour.  Price spikes are a fact of life in the electricity market. Far more troubling was South Australia’s average wholesale price for the month of July - $229 per megawatt hour, more than three and a half times that of the eastern states. . . .   [T]here must be a separate review of the market to ensure that power flows reliably and affordably. . . .  The events of July in one state were a canary in the coalmine, warning of the risks in Australia’s power future. It is time to listen. 

Very prescient on their part!  On September 28 there was a big storm in South Australia, and the entire state was plunged into a blackout.  Was the heavy reliance on wind power and shortage of back-up the cause of the blackout?  That issue is currently subject to big dispute between backers of wind power on the one hand, and skeptics on the other.  An investigation is under way.  The precipitating cause of the blackout seems to be that the storm knocked over 20 or so big transmission towers.  But would that be enough to throw the whole state into blackout absent the problems cause by reliance on wind power?  Here is a round-up from Australian blogger Joanne Nova.  Judge for yourself.

Why Do They Use Those Private Email Accounts?

In my rather limited law practice these days, one of the things I am doing is helping the Energy & Environment Legal Institute in its cases against New York Attorney General Eric Schneiderman seeking disclosure of public records information as to his communications with other AGs and environmental activists relating to his supposed investigation of ExxonMobil.  Today we got his response in one of the cases.  The response contains a paragraph that will give you some insights into how this FOIA game works, and also why people like Hillary Clinton like to use private email accounts and servers.

In our case, the requesting entities were very alert to the private email game, and therefore they specifically requested that private email accounts be searched for requested documents.  But the New York AG's office simply ignored that specific request, and said they were just not going to do it.  Here is the response of the New York AG on that issue:

Although the Request had specified that it sought communications of Attorney General Schneiderman "using either his official or non-official email and text messaging accounts (e.g., Gmail, private cell phone as well as State-provided accounts)," the OAG does not search personal accounts of its employees in the ordinary course of fulfilling the nearly three thousand FOIL requests it expects to receive in 2016 . . . , unless the Records Access Officer has reason to believe that a personal account includes responsive records that are not also on the OAG's network. . . .  Here, the Records Access Officer had no reason to believe that the Attorney General's personal email account was the exclusive custodian of any potentially responsive OAG records.  All OAG employees, including the Attorney General, have been instructed to refrain from using personal accounts for OAG business. . . .  

(This is from page 5-6 of the AG's Memorandum of Law in Opposition to Petitioner's Article 78 Proceeding.  The document is publicly available from the court's website, but unfortunately you need an account and a password to get access.  If you have such an account, the case number is 101181/2016.)

A couple of things there are of interest.  First, they say that they don't search for private emails, even though specifically requested, unless they "ha[ve] reason to believe that a personal account includes responsive records . . . ."  Well, did they take the trouble to ask?  And the answer is, they completely fail to address that obvious question.   What's your guess as to the answer? 

And then there's that great line "All OAG employees, including the Attorney General, have been instructed to refrain from using personal accounts for OAG business . . . ."  Great!  Oh wait -- weren't all State Department employees, including the Secretary of State, instructed to refrain from using personal accounts for official business?  Of course they were!  But then, we know that at least if you rank high enough, even when caught red-handed you will not be punished for ignoring that instruction -- not even a slap on the wrist.

And just in case you don't recall from earlier this year, here is an article from the Daily Caller back in March on the systematic use by officials at EPA of private emails in their communications with environmental lobbyists.  That scandal was broken largely through persistent FOIA requests from the same Energy & Environment Legal Institute (although I did not represent them in those matters.)  Daily Caller quotes E&E Executive Director Craig Richardson as follows:

EPA has essentially outsourced it’s rule-making function to ‘green’ activists and rent-seeking lobbies hell-bent on destroying traditional energy sources in an effort to replace [them] with renewables, an industry that their wealthy benefactors are already making a killing at the taxpayer and ratepayer expense,” Richardson said.

How our government works.  And the public is not to be allowed to find out about it.  Lovely, isn't it?

How Much Is Income Underreported In Census Figures?

Further to yesterday's post, I thought it would be useful to reprise this post from last November.  The post is titled "Literally Everybody Gets Taken In By The Poverty Scam."  It discusses an op-ed in the Wall Street Journal by Robert Doar of AEI, and a study that Doar cited by Bruce Meyer of the University of Chicago and Nikolas Mittag of Charles University.  

The Meyer/Mittag study is really quite breathtaking in its findings of the extent to which Census figures, derived from their population surveys, underreport income and receipt of government benefits.  How much in the way of government benefit payments do you think the Census Bureau misses when they send out survey forms and just take whatever answer people give without any kind of verification or double check?  Five percent?  Ten percent?  Get real:

The Meyer/Mittag study implies that the CPS survey is capturing at best half of government benefit payments. 

And what chance is there that the reporting is any better of off-the-books income, illegal income, and income from sporadic and gig work (day laborer, handyman, landscaping, musician, etc., etc., etc.)?  This income very largely goes to the lower two quintiles of the income distribution, and substantially drives the official (fake) statistics on "income inequality."  Of course people don't tell the Census Bureau about income they don't report to the tax man!  Would you?  How can you be sure that Census is not sending your response over to the IRS to catch you?  

This known underreporting gives Census an enormous reservoir of known unreported income to play with when they have some political reason to tweak their numbers.  The underreported income is likely at least 10% of all income, maybe even 15 - 20%.  (This 2011 study estimates 18-19% of income is not reported to the IRS.  Why would Census be any different?)

Funny, but Census gets very worked up when it thinks its decennial population survey might be missing around 3 or 4 percent of the people.  But when its income surveys miss around 15% of income (approximately $3 trillion), nobody raises a peep.  Hey, it's politically convenient -- for the "main project" of government, which is further growing the government.

Fraudulent Advocacy For Government Growth

I have already had two posts (here and here) on the preposterous new Census report on incomes and poverty released two weeks ago.  And then yesterday the New York Times has again given the lead position in its print edition (upper right hand corner of the front page) to a story substantially relying on figures from this same Census report.  I'll give you all three tiers of headlines:  "WITH PAY RISING, MILLIONS CLIMB OUT OF POVERTY / ECONOMIC TIPPING POINT / More and Better Jobs -- Blacks and Hispanics Gain the Most."  That's certainly good news for Hillary on the day of the first presidential debate!  And just in case you don't think that this Census report is planned as the linchpin of Hillary's campaign on issues relating to the economy, I remind you that some of its key "findings" were front and center in her personally-signed op-ed in Pravda on September 21 ("My Plan For Helping America's Poor").  

So is there any reality to the numbers in this Report, or is it all just a scam put out by the government and regurgitated by Pravda to put their collective thumb on the scale of the election?

The answer as to the government is that it is clearly a scam.  With Pravda, as usual, you are left scratching your head as to whether they are part of the fraud, or have been taken in by the government's fraud.  I'll let you decide that -- not that either alternative is good for them.

How do we know that this is a scam as respects the government?  Easy -- we just compare what they say to what we can prove that they know.  What they say is the list of principal statistics appearing at the top of the Summary in the Report:

• Real median household income increased 5.2 percent between 2014 and 2015.1 This is the first annual increase in median house- hold income since 2007.

• The number of full-time, year- round workers increased by 2.4 million in 2015.

• The official poverty rate decreased by 1.2 percentage points between 2014 and 2015.

• The number of people in poverty fell by 3.5 million between 2014 and 2015. 

Now, do you detect any hint there that the lion's share of these favorable year-over-year changes may have resulted from a methodological change rather from real increases in incomes or declines in poverty?  I've done my best to look through the Report itself to find some disclosure of that.  Admittedly, there are lots of links in the Report for those interested in learning more about the methodology, and life is not long enough for me to follow all of those.  Believe me, they are also relying on most to all journalists having constraints on their time that will prevent them from getting to the bottom of this.  But then there's John Crudele of the New York Post, who had an article on September 20 titled "Census income figures are a joke -- if not fraud."  Crudele's article then had a link to this 2015 Census paper describing the details of changes to methodology that they planned to implement fully in their next report on incomes and poverty.

So let's take a look at that paper.  This is what they know.  The paper's subject is proposed changes to methodology in the surveys that generate Census's main reports on income and poverty.  And why are they undertaking these changes?

Previous research shows the ASEC [Annual Social and Economic Supplement to the Current Population Survey] suffers from misclassification of certain types of income, general underreporting of income, and historically under-reported enrollment in means-tested government programs (Meyer et al., 2009) 

Yes, the whole idea is to correct for prior "general underreporting of income."  And by the way, there's no doubt that there is massive underreporting of income on these surveys.  For starters, there's almost no chance that anybody gives them much if any honest information on underground economic activity, which is estimated at around 10% of the economy (and far more than that among those reported to be in the lower quintiles of the income distribution).  So what are they now going to do about it?  The answer is, they propose a modest re-design of the survey, with about half a dozen changes that include follow up questions for people who refuse to answer or leave blank the answers to questions about their income, and specific follow-up questions designed to elicit more information about income from retirement accounts and from government programs.  (By the way, even with those changes, it's abundantly clear that incomes are still massively underreported, but probably a little less so.)

Now, will all of those things make a quantitative difference?  Actually, as part of this paper, they report on results of a quantitive evaluation of giving the new and old surveys to a large sample to see what difference it makes.  And the answer?  It's in Table 1!  Using the new survey form causes reported "real median income" to increase by 3.0%.

Wait a minute!  Does this mean that they absolutely know that the supposed 5.2% increase in real median incomes reported in the most recent report is actually 2.2% in real change and 3.0% in methodology change?  That's sure the way that I read it.  Of course, the difference between 5.2% growth in incomes and 2.2% is the difference between robust growth on the one hand and barely-above-stagnation on the other.

And clearly the purpose of this game is to create an appearance that disastrous government programs that in fact keep incomes down and poverty up have now suddenly worked, just in time to elect Hillary.  Don't believe me?  Let's go back to the Pravda article from yesterday:  

Government programs — like Social Security, the earned-income tax credit and food stamps — have kept tens of millions from sinking into poverty year after year. But a main driver behind the impressive 1.2 percentage point decline in the poverty rate, the largest annual drop since 1999, was that the economy finally hit a tipping point after years of steady, if lukewarm, improvement. . . .  About 43 million Americans, more than 14 million of them children, are still officially classified as poor, and countless others up and down the income ladder remain worried about their families’ financial security. But the Census Bureau’s report found that 2015 was the first year since 2008, when the economic downturn began, that the poverty rate fell significantly and incomes for most American households rose. 

Really, is it even possible to be this appallingly ignorant?  If you know anything at all about government statistics on "poverty," you know that the earned-income tax credit and food stamps do not count in the measure of poverty.  With one hundred percent certainty, those two programs have not kept one single person out of poverty, at least as measured and reported by the Census Bureau.  Pravda thinks these programs have kept "tens of millions from sinking into poverty."  Good grief!

And then, of course, Pravda takes the methodological change to mean that suddenly "pay [is] rising" and "millions [are] climb[ing] out of poverty."  All fake.  The closest thing we have to a real number (not in this report) is that GDP rose in 2015 by 2.4%.  It's above total stagnation, but barely.

More generally, we can see that we have a bureaucracy that understands its core mission to be producing numbers that support the continuation of woefully failed government programs and the ongoing growth of useless bureaucracies to run those programs.  In the off years they produce wildly underreported income numbers and inflated poverty numbers to guilt the people into supporting bigger budgets to address the problems; and then in the election years they tweak the methodology in secret to generate numbers that falsely show some sudden progress against the problems so that the candidates known to support the bureaucracy can have talking points for their campaigns.  Is it any wonder that most Americans have complete disgust with their government?

A Brief Tour Of Current New York "Economic Development" Initiatives

It's anybody's guess as to whether the subject of the economy's performance will even come up at tonight's debate.  My guess is that it will come up minimally if at all -- because the moderator will not view the subject as casting a sufficiently favorable light upon the preferred candidate.  But if it does come up, we already know that the preferred candidate is ready with her "economic development" plans, all of which involve lots more government spending to "rebuild infrastructure" and "create jobs."

To put this in context, I thought you readers might be interested in what passes for "economic development" by the state and local governments in New York.  After all, Hillary's agenda is nothing more than a nationalized version of the New York groupthink, so observing New York will give you perfect insight into what you are in for in a Hillary presidency.  The summary of the experience with New York's "economic development" efforts is (1) very large spending for minuscule (or negative) results, and (2) pervasive corruption.  Indeed, New York's experience underscores the ever-present question of whether it is even possible to engage in economic-development-through-government-handout without ending up with pervasive corruption.  You be the judge!

Affordable Housing

In New York City, the signature economic development program is "affordable housing."  I have covered this many times before (see this tag for more details than you can bear), but the summary is the highest possible government giveaway for the smallest number of beneficiaries.  For example, many thousands of residents of New York City public housing projects live in waterfront developments where apartments would have values of easily $2 million each, and up to $5 million, if they were only allowed to become part of a free market -- yet the residents are still deemed to be poor!  

In this affordable housing game, the government mostly got out of pure socialist-model government development and ownership a couple of decades ago.  Instead, in more recent years, the affordable housing has been "incentivized" by two principal methods:  (1) free handouts of the land, and (2) the so-called 421-a tax abatement program.  In the free-handout-of-land category, we have for example the now-under-construction Essex Crossing (formerly called Seward Park) on Delancey Street at the foot of the Williamsburg Bridge, and the new La Central project in the South Bronx.  In this model, government starts out owning the land; and instead of just selling it to the highest bidder, they request "proposals" from developers, and award the development rights based on some political criteria.  Is there any chance that this process can be free from corruption?  I wouldn't think so, although I haven't seen any recent indictments.

And then there is the 421-a tax exemption.  The basic idea is that a developer can get reduced property taxes by committing to build housing that meets criteria for "affordability."  This program actually expired at the end of 2015, and since then there has been an ongoing negotiation about its renewal, participants including the governor, legislative leaders, representatives of developers, and representatives of labor unions.  Why labor unions, you ask?  Because in New York, labor unions, by reason of political contributions, hold sufficient sway over politicians to demand that government housing subsidies only go to developments that somehow favor union labor.  The latest on these "negotiation" came to light last month.  As reported in The Real Deal on August 23:

According to a one-page proposal sent to developers and seen by the New York Times, developers would not be required to hire union contractors or pay prevailing wages in return for the tax break. But they would have to pay workers a minimum of $65 in wages and benefits for 300-unit-plus projects south of 96th Street in Manhattan and $50 in Brooklyn and Queens – $15 of which would be paid by New York State. Developers would also be required to set aside 25 or 30 percent of the units for below-market rents, the Times reported. It wasn’t immediately clear how the state would finance the wage subsidy.

You read that right -- our genius governor thinks it's a good idea for the state government to subsidize the wages of construction workers, who are making $50 to $65 per hour, to the tune of $15 per hour of taxpayer funds.  Rumor has it that he also believes in perpetual motion machines. Anyway, as of this writing, 421-a remains expired.  But the betting is that it will be revived, with a generous helping of taxpayer money to people already well in the top half of the income distribution.

The Buffalo Billion

Upstate cities like Buffalo, Rochester, Syracuse, Utica and Binghamton have been hemorrhaging jobs and population for decades; and of course the "solution" proposed by our state government is not lower taxes or fewer regulations, but rather massive subsidies for favored businesses.  The governor's current baby is the "Buffalo Billion," a taxpayer "investment" of a billion dollars or so supposedly to revive that moribund town.  It turns out that $750 million of the billion got claimed by just one project, a massive factory on the site of a former steel plant, for the use of Elon Musk's Solar City venture to build solar panels.  I last wrote about this giveaway back in July, when it emerged that Musk was going to temporarily "save" the near-bankruptcy Solar City by merging it into the somewhat-less-near-bankruptcy Tesla.  I would say that there is next to zero chance of the taxpayers ever recovering any of the $750 million.

But wait -- it gets worse!  Last week came down a complaint from Preet Bharara's Southern District of New York prosecutor's office alleging pervasive bribery and kickbacks in connection with the Buffalo factory.  Here is a copy of the Criminal Complaint.  The basic allegations are that would-be contractors on the project paid large sums (in the range of hundreds of thousands of dollars) to people in the governor's office and/or state-connected economic development corporations to direct the construction business their way.  Really, was there any chance that this was not going on? 

Hurricane Sandy Relief

Hurricane Sandy -- wasn't that in 2012, now almost four years ago?  Yes, but this is New York, and therefore the state is still passing out taxpayer money to "rebuild."  And to whom?  Why, to waterfront homeowners whose homes were damaged or destroyed by the storm.  Nicole Gelinas has a piece in today's New York Post.  Example, please:

It’s bad luck, sure, to buy a house on the coast and then learn it’s vulnerable to flooding. That’s what happened to one Broad Channel resident, who told the Wall Street Journal he paid $365,000 in 2008 for his home, which the city is paying $600,000 to elevate.

As Gelinas rightly points out, two-thirds of New York City residents do not own their homes at all, much less waterfront homes.  

When the state gets the idea that it can create economic development through government handouts, this is what you get.  Can it really be any other way?