Archive for the ‘Government gone wild’ Category

Who Owns Silicon Valley?

View of Silicon Valley in 2012, showing major employers

Vintage 2012 view of Silicon Valley showing major employers. “Silicon Valley IT Company Topography” by Wayan Vota is licensed under CC BY-NC-SA 2.0

Or more precisely, who owns Santa Clara County? With the cooperation of local officials including the County Assessor, a consortium including the Mercury News has determined who owns the greatest value of real estate in the County.  Tech giants Alphabet and Apple are second and third, but the number one owner turns out to be Stanford University.

Some other important information:

Proposition 13 is mentioned, but the incentive which keeps old people in their homes which become unaffordable to most families is not explored.

Local opposition to development, preventing housing construction which might otherwise occur, is discussed.

Stanford’s existing holdings include commercial property, but their current acquisitions seem mainly to provide housing for some of their elite employees.  These people are able to buy houses at favorable prices (relative to the area), however Stanford retains the land and retains the right to buy the house back eventually. Local non-Stanford people complain, of course, but do not offer to sell their properties at a discount.

Apparently California practice is to assess all real estate, even that which is exempt.  This enables meaningful estimates of ownership even tho $13.3 billion of Stanford’s $19.7 billion in real estate is exempt.

Several local officials were interviewed.  They don’t discuss how it feels to know that your opposition, Apple and/or Google, has control of much of your communications and might be monitoring them.

Well worth a read for those interested.

 

Costs of medical services still out of control– and some ideas for improvement

book coverIt’s pretty well-known that medical care is absorbing an increasing proportion of GDP, and putting many Americans into financial (and, in many cases, medical) distress.  One source of the problem is poverty– people whose incomes are too low to afford decent housing, food etc. are unlikely to have much left over to pay for medical treatments.  And another cause might be an aging population who demand advanced treatments to further extend their lives.  Both important issues, but this post focuses on another, probably more important one: The medical system is full of rentiers and other thieves, who, pretending to improve health or efficiency, impose tolls or promote unnecessary treatment, resulting in higher and rising costs.  That’s the book Marty Makary (MD) has written.

Using a conversational style, well-organized, packed with personal anecdotes, Makary, a cancer surgeon at Johns Hopkins, works his way thru some of the reasons medical care costs so much.  Sources are meticulously cited in endnotes.  I think his findings can be pretty well summarized:

  • Some medical professionals offer screenings and other promotions to entice folks to get treatment they really don’t need.
  • Hospital charges are, not quite random, but pretty much void of any relationship to actual costs or what other customers pay for the same service.
  • Some hospitals take advantage of their quasi-monopoly status to charge excessive prices, and aggressively sue customers who don’t pay promptly.  On the other hand, at least a few hospitals in similar circumstances find they can prosper while charging more reasonable prices.
  • Air ambulance (and, to some extent, surface ambulances) have been largely taken over by private equity firms, and impose excessive (mostly unregulated) charges on people who are in no position to bargain.
  • Some doctors are outliers in terms of types of birth delivery and various surgeries, meaning that they perform invasive and/or expensive procedures at a much higher rate than the norm.  This may be because they’re selfish and inconsiderate, or maybe they just haven’t thought about it and, when shown the data, mend their ways.
  • The opioid problem, as reported elsewhere, is partly due to some doctors prescribing more pills than really necessary.
  • Overtreatment is a problem; often a more conservative approach is more effective (as well as less expensive).
  • A few organizations have managed to rethink how medical care is provided, giving more autonomy to practitioners as well as more support to patients. Also, a few payers (meaning, typically, employers who pay for insurance) are managing to learn the charges imposed by various providers, and incentivizing their insureds to choose less costly providers.
  • “Health insurance,” which is really a care financing arrangement and not insurance in the conventional sense, is an even sleazier business than I thought, and insurance brokers are incentivized to maximize costs.
  • Pharmacy benefit managers may have seemed like a good idea at one time, but basically are toll collectors between the payer and the drug provider.  Similarly, “group purchasing organizations” charge a toll on hospital purchases of equipment and supplies.  In both cases it’s rarely possible to get accurate data on who is paying who how much for what.
  • Then there’s the “wellness” industry. Of course sensible diets and some exercise are good things, but “wellness” seems to have evolved to divert attention from the main causes of escalating costs.

The book concludes with a few recommendations, mostly for providers and legislators, but also for consumers, who are encouraged shop around, and ask for prices before agreeing to treatment.

A few important concepts are missed.

  • The scandal of “Certificate of Need” laws, which protect hospital monopolies and still exist in several backward states, isn’t mentioned.
  • While the cost of drugs receives attention, no mention is made of the patent games by which the U S Government enables drug manufacturers to extend protection, and collect rents, far beyond the statutory period.
  • Little attention is given to the history of medical care in America, including lodge practice and the role of wealthy foundations in choosing how medicine developed.

Finally, I hope the next edition will avoid doubling the populations of Missouri and Wisconsin (page 79).

 

Some effects of high and misconfigured real estate taxes

Delinquent taxes soaring in Cook County

Reportedly, taxes of 163,036 parcels in Cook County were not paid on time. This comprises 2018 taxes which should have been paid in 2019. and amounts to 8.7% of all parcels in the County. For a dozen south Cook County municipalities, this amounts to 20% or more of total parcels.  Counts by municipality are posted separately for south, west, and north Cook.  All sources show the percentage of parcels with unpaid taxes within the City of Chicago as 9.9%.

Separately, the reports show that only 7.8% of the delinquent taxes offered for auction in 2018 were bought by investors, which might imply that the remaining parcels are considered worth less than the taxes owed.

Unfortunately the source doesn’t tell us  how many of the parcels are vacant, residential, commercial, or other uses, and gives no historical context, so we don’t really know how any of these figures compare to prior years. But regardless, the current numbers are alarming.

Suppose that the real estate tax system was changed, so that improvements would be tax-free while the value of land as vacant would be heavily taxed to make up the difference.  For vacant parcels, construction of houses or other structures would not increase the tax.  For parcels which contain improvements, taxes likely would be lower than now, and improvements would again be tax free.  Just a thought.

Maybe expanding tax-exempt institutions raise land prices?

Crains tells us that a strikingly-designed two flat, less than 30 years old, is worthless.  Well, they didn’t say it quite that way, but it was sold for $1.9 million to a buyer who will demolish it. So the $1.9 million was for the land.  I don’t know whether any developer of housing or anything else taxable would have paid nearly that much for the site, but the buyer was tax-exempt Illinois Masonic Medical Center.  Their exempt status of course made the land more valuable to them. Which raises the interesting question of whether buying land in the path of such an institution’s expansion might be a profitable strategy.  Of course, a fair-minded community might decide to tax land used for hospitals at the same rate as land used for housing and other useful things.  But we’re not there yet.

“Taxes – De Standaard” by Stijn Felix is licensed under CC BY-NC-ND 4.0

 

Putting government pension costs into perspective

Wirepoints recently issued a helpful report showing state and local government pension debt per Chicago household.  They estimate the burden at $144,000 per household.  This is a big number, but one could suppose that a prosperous household, over decades, could bear such a burden.  Some could, but probably not those below poverty level.  Take them out of the picture and the per household amount rises to $172,000.  Excluding households with incomes below $75,000, or below $200,000, and the per-household amount rises further, to $393,000 and $2,022,000 respectively.

Here’s their chart: pension debt chart

Of course this doesn’t consider land values, nor businesses.  If prime Chicago land is worth $1,000/sq ft, that’s 5.38 sq miles.  But more typical land value is much less, probably no more than $25/sq ft. (it seems that nobody has tried to estimate citywide values). That would be 112 square miles.  Once we subtract land owned by governments, churches and other exempt nonprofits, we might be approaching the total value of all land in Chicago. And that’s just for pensions, not bonded debt, nor needed capital improvements.  Real estate buyers know, or certainly should know, about these encumbrances.

Of course money can be raised from business taxes, but that’s hardly a way to grow economic opportunity for Chicagoans. I would consider any tax revenue from “gaming” as a kind of business tax.

The lesson Wirepoints draws from this is that pensions have to be downsized somehow, which required amending the state constitution.  And they go further, comparing government salaries to those of the private sector:

some local gov't salaries compared to average workers

So it looks like we’re going to have to confront a large number of people with guns and firehoses and control over our children, who have been getting a lot of money from us for years and may prefer not to moderate their demands.

Tho I don’t know how, this problem will be solved. Maybe MMT will yield a continuing stream of funds to bail us out.  Maybe inflation will accelerate such that the fixed 3% compounded pension increase isn’t a burden.  Maybe Chicagoans will decide that they just don’t want so many government “services.”  Maybe politicians will decide to remove all taxes from productive economic activity, taxing only the value of land and other privileges (such as the private monopoly over street parking fees), which will grow the economy (while reducing the need for emergency services) sufficient to make pensions a non-issue.

And when it is solved, those who own land and other privileges will benefit most.

Tribune clarifies how TIF’s work

 Great story by Hal Dardick in today’s Tribune explaining the real reason the Lincoln Yards TIF had to be Rahm’d thru the City Council before the new Mayor took office. The area just barely qualified as a TIF, and pending new assessments were going to rise enough that it would no longer be eligible. According to the story, it’s uncertain whether the new Mayor could have stopped the project, but she settled for what appear to be minor concessions.

Of course, the whole idea behind TIF’s is that money can be pulled from general revenue into giant slush funds, which the Mayor (and others) can manipulate with little oversight. Meanwhile, there’s little left for routine maintenance, replacement of infrastructure and funding of government schools and other services.   Which increases the “need” for TIF’s.

Dardick’s article goes into considerable detail, includes a link to a recent report by Lincoln Institute (no relation to Lincoln Yards, afaik). He does say “land” when I think he means “land + improvements.”

One counterfactual that Dardick doesn’t bother with: What would have happened if Joe Berrios was still Assessor? Would he have nudged down some values to keep the area eligible?  Or, to look at it the other way, suppose the current Assessor, who appears to be more conscientious, had been in office since 2013. Perhaps the earlier figures would have been higher, so the increase would be less?

We’ll never know, and it shouldn’t matter. In a well-run city, TIF’s wouldn’t be needed, and a well-informed electorate wouldn’t tolerate them.

 

Wealth tax would require even more government monitoring

Not the paper, but the book cited below

Here’s a brief paper (pdf) by two Berkeley economists suggesting how a “progressive wealth tax” could work. They assume a 2% rate would be applied to wealth in excess of $50 million per household, or maybe $25 million per individual.  Most of us, then wouldn’t need to pay anything.  The only question for the authors is the practicality of such a tax.

I was surprised to discover that, according to the paper, wealth taxes already exist in Switzerland, Spain, Denmark, and Sweden.  References are cited indicating pretty good compliance, the lowest being in Switzerland (where the authors find the estimated 23%-34% evasion rate “not as compellingly identified as the other estimates.”)   I didn’t review the cited papers to learn the details of how the compliance was estimated.

They note that wealthy people can hide their assets abroad, but imply that they could be caught if the government had more resources.  While it’s possible for the wealthy to avoid some taxes by leaving the US and renouncing citizenship, the proposal includes a 40% tax on the wealth of the departers. They praise FATCA and recommend it be more vigorously enforced, without considering the disruptions it’s already caused (pdf) for many Americans who live or work abroad.

They aren’t concerned about the wealth tax reducing the availability of capital goods for productive use in the US, because they assume any decline in investment by Americans could be made up by foreigners, by the less-wealthy, or by government expenditures funded by the wealth tax.  They don’t address the issue of what percentage of “investment” is actually productive.

They also don’t worry that the wealth tax would reduce innovation, pointing out that most innovation is done by people with less than $50 million, that innovation is enhanced by providing children with exposure to it, and that the wealth tax might encourage the rich to invest in more productive ways. Again, they aren’t concerned about the extent to which “innovation” is a good thing.

They don’t believe the wealth tax would discourage talented people from immigrating, pointing out that the government imposes lots of barriers to immigration which it could adjust if needed.

As for the impact on charitable giving, they curiously suggest that “foundations used to shelter wealth (i.e., controlled by wealthy individuals and not used for charitable purposes) should be subject to the wealth tax.” They don’t explain how such foundations could be identified, and why they are currently tax exempt.

The scariest part of the paper regards “information reporting.” They point out that the IRS already requires extensive reporting of income and, to some extent, assets. These would just need to be modified to better report wealth.  Of course this means that everyone’s assets and liabilities needs to be reported, if only so the rest of us can “prove” that we don’t have enough net assets to be subject to the tax. For real estate, by the way, they assume that local assessor records would be an adequate source. They don’t address the problem of offshore secret trusts.  They indicate no interest in counting “intellectual property”

Many years ago, an anonymous former IRS agent wrote a book advocating a “Doomsday Machine,” which would record every financial transaction by anyone in the US (and presumably by Americans abroad, I don’t recall.) He thought this was the only way that the income tax, as it existed then, could be enforced. Of course, since that time, this kind of surveillance has been facilitated by the digitization of much of the economy.  It the book were updated,  he’d now have to expand his machine to include all kinds of assets and liabilities.

Just in case anybody read this far and missed the point:  A tax on the value of land, other natural resources, and government-protected privileges would avoid nearly all of the above problems, while still falling mainly on the wealthy.

update February 26 2019– NPR reports more poor results from wealth taxes, tho they don’t completely write them off.

City of Chicago exacerbates impact of lousy transit as a cause of poverty

image credit: Josh Koonce https://flic.kr/p/7HrANR

Good reporting from Wirepoints, based on articles from Reason and Pro Publica, about the City of Chicago pushing low-income motorists into bankruptcy. These sources focus on the twin injustices of punitive ticketing and fines, and aggressive impoundment of innocent motorists’ cars. Of course parking restrictions, liability insurance requirements, and traffic rules need to be enforced, but it’s pretty clear that Chicago Police and other municipal actors see this as a source of revenue to pay their salaries and pensions, more than as an enforcement mechanism. The statistics imply a racist motive as well.

But that’s not the point.  The point is, why do people with low incomes need to own cars? Why can’t they get where they need to go by transit? The answer, of course, is that in most affordable neighborhoods transit is sparse:  Buses run slowly and infrequently, and quit early. Rail is only a bit faster, and most lines also lack 24-hour service.  Relatively few jobs are reliably accessible within an hour, or even two hours travel time. And with the demise of neighborhood retail, cars are almost essential for shopping.  Schools, libraries, other government facilities have large free parking lots even it they’re poorly-located for transit and pedestrian access. So of course people who can’t afford to own and operate automobiles find they’re compelled to have them.

This doesn’t justify the municipality stealing money and property from residents already living on the economic edge.  It just makes it worse.

Fictitious people and their imaginary taxes

Credit: Mike Licht (CC BY 2.0)

Matt Levine has an illuminating post about why the recent reduction in corporate tax rates results in a reduction in some corporations’ reported profits.  It seems that past losses can be saved as a “deferred tax asset,” permitting a reduction in taxes to be paid in future years.  But the ratio of losses to tax reduction declines when the tax rate declines, so the deferred tax asset is reduced.   Levine notes that such tax rate reduction can cause a corporation to appear less well capitalized, since it reduces assets, even tho it increases expected after-tax income.

Just another illustration of the absurdity of a corporate income tax (or perhaps of corporations in general).  Of course corporations should pay taxes – based on the land (including spectrum and other natural resources) that they claim.  And they should pay additional taxes reflecting the limited liability granted by the state.  But the accounting concept of corporate income has little to do with this.

I don’t understand GovCare Part 2

image credit: Paul Narvaez via flickr (cc)

image credit: Paul Narvaez via flickr (cc)

Over at New City, Tony Fitzpatrick tells us how he survived a heart attack.  The good news, of course, is that he did, and it seems to have been due to an aware spouse, responsive ambulance, and nearby hospital with skilled and dedicated staff.  Except for the first, those are advantages of living in a more-or-less functional and prosperous city, with pretty decent emergency services, all of which is reflected in the cost of land.

But somehow, because before “ObamaCare” Tony’s pre-existing condition prevented him from getting insurance for medical expenses, he credits O’Care with his survival.  As if, five years ago, there were no ambulances, no hospitals, or no medical staff. In 2010 an ambulance still would have come, he still would have been taken to the closest available hospital, and the staff still would have done their best for him.  The only difference is that, afterwards, he would have gotten a big bill, even bigger than the bill he probably did (or will) get.  He might have paid the bill, or worked out some payment plan, or had to sign up for some kind of public assistance.  And very possibly the hospital would have written off part of the bill.  (Either way, before or after O’Care, the hospital would have a considerable staff who spent their time negotiating payments, filling out forms, etc.)

It wasn’t Obamacare, Tony.  It was living in a city with helpful people and pretty good medical services. Either way, we’re all paying for it.

And, yeah, somebody ought to make this comment on Tony’s article, but I can’t seem to get thru New City’s spam protection.  Maybe someone else can.

Storytelling can be patented

typewriter

credit: mpclemens via flickr(cc)

We already knew that computers, equipped with proper algorithms, could write stories pretty much indistinguishable from the work of professional journalists working under deadline pressure. And had I been paying attention, I’d know that the company behind this, a “spinout” from Northwestern University, is also moving into other “turn data into a story” tasks, which from the examples here seem to mainly focus on financial reporting, tho it also appears that buyers of used cars can be exposed to “automated and individualized vehicle stories” (pdf) about their cars, which presumably helps sales. And it’s no secret that In Q Tel, an affiliate of your Central Intelligence Agency, is one of several investors behind the company.

So, it’s technology, it’s government, it’s marketing– why am I surprised that it’s protected by a bunch of patents on different variations on “automatic generation of a story?” Here I am, using a computer with many automatic functions to generate a sort of story about this company, and I really haven’t time to read and try to understand all their patents. I guess I better stop before I get in more trouble.

h/t Crain’s.