By Christopher Briem, on March 21st, 2012
So remember when the headlines about property assessments in Allegheny County were near apogee not very long ago? I thought the clear message was that all the local real estate deals were being canceled because the owners didn’t like their assessment values. The end is nigh was the talking point all around. Remember specifically when the headline was the assessments were so egregious that the planned sale of the former former Alcoa Building was not going to go through? Trib on Jan 2012: Regional Enterprise Tower deal canceled. The clear message was in this quote:
That will hinder a sale of the building, Allegheny County Executive Rich Fitzgerald said this week.
“You can’t give it away because no one wants to buy it and face the higher assessment on it as well as the major improvements the building needs,” he said.
Yet, miraculously the Trib over this last weekend: Building conversion to uproot agencies from Downtown. That article says:
Novick said PMC will close its purchase of the Regional Enterprise Tower at 425 Sixth Ave. on Friday. His company, which specializes in restoring older commercial buildings for residential use, will convert the tower into a combination of half office space and half residential, he said.”
So the deal was not canceled for long. Not even any mention that there was angst over this not much more than a month ago. It was slated to happen early in the year, and it happened by mid-March. Was the deal even delayed? Any other non-cancellations of Downtown real estate deals out there?
Anyway. Given the headline last week that still has me in a bit of cognitive dissonance with all past reporting on the subject of assessments (see the PG last week: “Higher assessment could mean lower bill for many“), I thought the angst level over all the assessment news had subsided.
But where did that headline come from? I mean, what was January all about?? Nothing at all has changed in how the assessment will impact property owners from the first release of numbers in December?? Nothing has changed in the process and that headline could have been dropped in December for all we have learned since then. Has anything really changed since January?
In fact, legally speaking, the actual assessment process looks to be about as contentious as ever at least. For example, Judge Wettick has a proposed ruling in the case that has some awfully curious language. I will leave it to the leagle beagles whether this is normal verbiage in court orders, not that there is anything normal in the case, but parse the wording of the following proposed ruling he will be holding hearings on. So this is not from January, this is recent:
By Doug Gentry, on March 15th, 2012
University of California (Berkeley) economist Brad DeLong took my late-in-life education on economic issues to a new level. I’ve plenty more to learn, of course, but I enjoyed his discussion.
Here’s a snippet from his article in the Seeking Alpha web site:
In such a setup, the conclusion of Mankiw and Weinzerl that monetary policy has the exclusive role to play is straightforward: One stabilization policy tool–monetary policy–is non-distortionary. The other stabilization policy tool–fiscal policy–is distortionary. If monetary policy can do the job, there is then no need for fiscal policy. And if you do resort to fiscal policy, use the fiscal policy that is most effective at getting people to spend money on the things they were at the tipping point of buying anyway–use the investment tax credit rather than direct government purchases or tax cuts which might well not be spent. End of argument.
Well, actually it wasn’t the end of his argument. He goes on to assert that well-designed fiscal policy is as important and powerful as monetary policy during unusual times like we are experiencing right now.
Prof. DeLong’s discussion is a bit tough going for Principles students. Let me see if I can translate.
In normal times, when short term interest rates are noticeably above zero, monetary policy is often the best tool for government to use to correct the economy. In class we talk about correcting for either a recessionary gap or an inflationary gap. DeLong agrees with Mankiw and Weinzerl that monetary policy is sufficient and does less to distort the marketplace. What does he mean by distortion? In a perfect economic world individuals make decisions on whether to save or spend and if they spend, on what kind of things. When government decides to spend additional money (i.e. uses fiscal policy) then that means it must raise taxes to pay for that spending. Those taxes change, or distort the decisions that rational individuals would make. This moves us away from our theoretically perfect model of allocating resources.
 Potential vs. Actual (Real) GDP As a side note, much government spending is valued by the public and helps correct problems in the market or helps society meet other goals – such as caring for the disadvantaged. So spending and taxes aren’t necessarily bad for those kinds of goals, but spending to stimulate an economy does potentially distort how we would use our funds. In my classes I also point out that fiscal policy is usually a pretty blunt instrument, wielded by not very expert politicians. There are all sorts of time delays, political compromises, and imperfect implementation. So, monetary policy is often the best way to solve short term, mild-to-moderate problems in the economy.
Back to DeLong. He agrees with Mankiw and Weinzerl, but goes on to argue that monetary policy has a hard time working during a liquidity trap – when short term interest rates, and the interest rate target set by the Federal Reserve are so close to zero that pumping more money into the economy just gives it bloat, rather than relief. In these tough times, monetary policy can possibly work if the Fed promises to keep interest rates lower and inflation higher in the future. However, DeLong points out that future Fed committees are not bound by the promises of today’s leaders. If investors think there will be a change of heart, and interest rates will rise in order to force inflation lower, then those investors will delay their spending plans.
On the other hand DeLong argues that an aggressive fiscal policy – i.e. more spending now, backed by printing more money, can have a strong impact, and the government will be less likely to back down from its policies in the future.
DeLong also argues that monetary policy can introduce distortion – by changing the relative amount we invest in projects with short term benefits versus those with long term benefits.
Here’s the last summation:
It is important to get the overall level of production right–to match total spending to potential output. It is also presumably important to direct spending toward high-value commodities. It is important to get the balance between private and public purchases right. And it is important to get the balance between short-duration and long-duration assets right.
Thus fiscal and monetary policy are likely to both have proper stabilization policy roles to play.
By Christopher Briem, on March 9th, 2012
So folks in the north and west of Allegheny County getting their new assessment values in the mail. Like most everyone else in the county there is likely a lot of confusion by what the letter is telling them since it says so little. All it has are new and old assessment values and likely some verbiage that this is all not their fault, that the whole assessment is ‘court ordered’.
Per the Allentown Morning Call, here is what Lehigh County in NW Pennsylvania is sending out right now… and remember, they started Lehigh County started their assessment process years after Allegheny County started… so it isn’t the case Allegheny County has not had time. Anyway, per the MC:
The assessment letter should tell you that your taxes are projected to increase or decrease. For estimates based on current tax rates, you should go to mylehighcountyproperty.com and enter the control ID listed in the upper right corner of the letter. You can also call the assessment office and provide your control ID. While they won’t tell you over the phone, they will mail a tax estimate to you.
and so.. if you want Allegheny county do do the same for you, maybe you want to contact your county council representative. It would be a fairly simple thing for the county to do here. No reason they still can’t do it.
For the City of Pittsburgh my colleagues made the map below showing the valuation changes per parcel for the city of Pittsburgh. You can get a high resolution version of that via this post or access an interactive map to zoom in ever further via this post. Note the map is not showing tax changes, but just the changes in property values. No adjustment is made for the millage changes which will be mandatory.
By Christopher Briem, on March 8th, 2012
So am I misperceiving things, or is angst over reassessments pretty quiet? A decade ago the surge against assessments was virtually nonstop for over a year.
Anyway. In the news today is a note that a Downtown office building, Penn Avenue Place. sold for $54 million. It’s current assessed value: $35.9 million. It’s 2012 assessed value: $50.9 million.
Just saying is all.
Actually what is kind of remarkable is that the news item, albeit a short real estate note, does not mention even in passing that the property is that which was once Horne’s Department Store. Memories.
apologies: Sam caught this days ago, and of course connected the dots with Hornes.
By Christopher Briem, on March 5th, 2012
I was going to label this ‘Beyond grad school public finance’, but I thought that would make folks’ eyes glaze over. So this is one of those convoluted policy things in Pennsylvania that make it too hard to figure out what side you are even on. The angles and implications of this are so wound up that the public can’t make sense of it, nor even notice. Yet the $ implications for city, state and taxpayer are huge…. and according to this piece the world should notice when it comes to investing in Pennsylvania I guess.
So, I get ahead of myself. First try and get through this from Forbes last week: The Tax Shelter from Hell – U.S. Steel Tower in Pittsburgh
So remember the Steel Building’s recent sheriff sale/transfer that generated no transfer tax revenue for the City of Pittsburgh? We’ve addressed that a bunch here in the past. Some are trying to plug this particular loophole I read, though there are others to address as well. Any progress there??? Becoming a bigger and bigger issue since by all accounts the commercial real estate market is heating up.
So what I get out of this begins with the observation that the state may in fact have a real incentive to not fix the tax loopholes that prevented the city and school district from getting the transfer tax they could get from a real estate transaction like this. Structuring this as a sheriff sale transaction prevented the city and school district from getting transfer tax revenue, but may have resulted in the state being able to collect real tax $$ that they would not have otherwise been able to get. Or so I think, I have to admit this is all a bit beyond me as well. What I think it is saying is basically everyone loses on the sheriff sale tax loophole in the transfer tax… everyone except for the state itself. And along the way they may provide a disincentive to investment across PA along the way. But to be clear, I am not sure on any of that. Sounds like even the tax lawyers don’t quite agree on any of this. Still a multi-million dollar a year issue for the city of Pittsburgh that gets far less attention than things worth orders of magnitude less.
Anyway… lots of stuff in that worth reading. Thought I guess it is only for a certain jaded reader. Note that the original Forbes article there which came almost a week ago has had zero tweets.
By Simon Grey, on March 1st, 2012
But there’s more to this than meets the eye. What we don’t see are the hidden costs of protectionism. The first is the waste from using costly production methods. Protectionism changes manufacturers’ incentives, and they use capital and labor that could have been better-used elsewhere to produce (say) cars. The economic imagination is useful here. If people weren’t making cars, they could be making medical devices. Or tacos. Or automotive repair services (it stands to reason that if you can build cars, you can probably also fix them). Or any of a number of other things. As Russell Roberts points out in The Choice, there might be some short-run costs for workers who have trouble retooling; however, free trade leads to new opportunities for the next generation.
Replace the word “protectionism” with the word “regulation,” and note that the resulting paragraph makes a compelling case against government regulation. The altered paragraph also explains why free trade is terrible idea at this point in time: there are a massive number of regulations imposed on businesses by the federal government. Allowing for free trade, then, will not make the country wealthier. Rather, all it will do is decrease the cost of consumable goods while simultaneously transferring wealth to foreign businesses. As such, supporting free trade during a time of high domestic economic regulation is akin to supporting government-based foreign aid.
The second cost comes from the fact that tariffs increase the price of cars. When prices rise, people demand less of something. Consumers are worse off because they have fewer cars, and the cars they are no longer buying are cars that would cost less than consumers are willing to pay in the absence of tariffs. Interventions like tariffs raise the incomes of some workers by impoverishing others.
As mentioned before, there are a large number of governmental regulations that hinder the domestic economy. If tariffs were enacted to enforce regulatory parity, prices would naturally go up (or the quality of products would go down) as a response because consumers would have to bear the costs of their government’s regulatory interference. In a democratic country like the US, citizens would have to live with the consequences of the choices their elected representatives make. Thus, by simultaneously desiring free trade and a high degree of regulatory “protection,” Americans are essentially saying that they want societal luxury goods (like minimum wage, reduced pollution, worker safety, etc.) without having to actually pay for them. Unfortunately, nothing is free in this world, and the cost of regulation will be paid for, either in the form of higher prices, in the form of diminished capital, or in the form of increased debt.
The third cost comes from the change in incentives when it is discovered that people can raise their incomes by getting favors from the government. At best, favors from the government are a zero-sum transfer from one group of people to another. In reality, however, people use scarce resources to effect these transfers. Consider just one cost: the cost of flying to and from Washington, DC. The plane that is flying auto executives and union representatives from Detroit to DC could be used for something else, like flying people from Detroit to New York for business or from Detroit to Los Angeles for a vacation. The prospect of subsidies, tariffs, and other benefits from the government means that people will take valuable resources that could have been used to create wealth (planes, the time and energy of flight attendants and pilots, bags of roasted peanuts) and instead use them to transfer wealth. On net, we’re all worse off.
It is true that one government intervention usually begets another. What’s ignored is that not all second-order governmental interventions are irrational or illogical. While the initial tinkering in the economy usually leads to unintended and undesirable consequences, it does not follow that further interventions will do the same. And thus, while it is better for the government to not tinker in the first place, it is ludicrous to suggest that further tinkering will always be a net negative. Furthermore, if we take Carden’s argument at face value, the most appropriate response would be to focus our energy on deregulating the domestic economy instead pursuing free trade, since the domestic economy plays a much larger role in consumers’ lives than foreign trade.
Incidentally, coupling a highly-regulated domestic economy with free foreign trade is economic suicide in the long run because the domestic producers will their ability to innovate to be quite stifled (what with regulation and all), and so they will outsource their innovation to freer countries that offer comparable labor markets. And since production usually initially occurs at the same place as the innovation that leads to said production, it stands to reason that the innovative industries of the future will begin outside of the highly regulated economy that has encouraged outsourcing via free trade.
As should be clear, Art Carden’s argument suffers from the same flaws as all the others made by free traders: it’s shallow, ignores economic complexity, and is based on highly idealistic economic theories instead of actual reality. As such, his policy prescriptions should be ignored.
By Simon Grey, on February 28th, 2012
CFRB compares the candidates’ plans to a “realistic” baseline that assumes the Bush tax cuts are made permanent and the automatic sequesters required by the Budget Control Act of 2011 are waived, among other things. Relative to that extremely pessimistic baseline, Santorum and Gingrich still want huge increases to the national debt; only Paul’s proposals would reduce it. Romney’s proposals would have little impact, but that was before his latest attempt to pander to the base: an across-the-board, 20 percent reduction in income tax rates. [Emphasis added.]
How is this possible, since all of them have promised to cut spending? Huge tax cuts, on top of the Bush tax cuts. Romney, as mentioned above, would reduce all rates by 20 percent, repeal the AMT, and repeal the estate tax. Santorum would cut taxes by $6 trillion over the next decade. Gingrich would cut taxes by $7 trillion. Paul, the responsible one, would only cut taxes by $5 trillion.
Of course, these projections need to be taken with a grain of salt since they are nothing more than an attempt to apply static analysis to a dynamic system. Nonetheless, it should be quite telling that the two most nominally conservative candidates have the most fiscally irresponsible budgets. (The penultimate paragraph of this post deals briefly with this subject). The moderate businessman has an essentially balanced budget, and the libertarian is the only one of the lot that actually attempts to decrease the national debt. The reason why the “conservative” candidates’ budgets aren’t fiscally responsible is because they simply do not understand the simple reality that government spending is essentially the same as taxation. Every dollar that government spends must come from taxes. This can happen directly, indirectly (e.g. inflation), or it can be deferred (e.g. borrowing). However, at some point, government spending must come from tax revenue of some form. As such, it is downright irresponsible to cut taxes without also cutting an equal or greater amount of spending. Therefore, both Gingrich and Santorum are nothing more than political parlor magicians who are using sleight of lower taxes to distract from the insufficient budgetary cuts. Sadly, there are too many conservatives who will fall for this, and ignore the plain and simple fact that government dollars must first come from citizens’ pockets.
This is not to say that taxes should not be cut. To the contrary, the relatively high-rate of federal taxes are undoubtedly stifling the economy. Ultimately, though, these tax rates are nothing other than a reflection of the high rate of government spending. Thus, it is government spending that is stifling the economy, and therefore the federal budget must be cut if the United States are going to recover. At this point, it should be clear that there is only one candidate who grasps this underlying reality. We all know who he is.
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By Christopher Briem, on February 27th, 2012
News accounts say that Allegheny County has today posted online its new assessment values for southern municipalities. For all those folks, and everyone else in the county, my colleagues have made up a useful interactive map with all recent real estate transactions across Allegheny county. It might be helpful for example for those looking to appeal their assessments and are looking for the comparable values near their home.
You know what is even stranger than the fact that Lehigh County in NE PA is also completing their mass reassessment a lot faster and cheaper (by far) than here.. they are also finishing it all with far less news about the whole process along the way. Strange. But here is a story of their process up there from a few days ago and an unfortunate property owner only now discovering he has been overpaying property taxes for a decade.
By Simon Grey, on February 22nd, 2012
In addition Mr. Krugman cites evidence suggesting large percentages of Social Security and Medicare beneficiaries are confused about their use of these government programs. They don’t seem to think they’re getting handouts.
Maybe that’s because they’re in fact not getting handouts. As they were reminded every time they looked at their paycheck stub and saw the Social Security and Medicare tax deductions, they were forced to sacrifice part of their income for these programs through their working lives. The programs are compulsory; there is no opting out of them; the taxes come out of your paycheck whether you like it or not.
Therefore the notion that people who don’t like big government should not get Social Security and Medicare is utter nonsense. What are they supposed to do? Refuse the benefits that they already paid for? You’d have to be rich to do that. But one can see why left-liberals keep bringing up this humbug. People who don’t share their love of big government are labeled inconsistent for doing what by law they are coerced to do, mocked for complaining about a government apparatus from which they can’t escape.
But why do regions that rely on the safety net elect politicians who want to tear it down? I’ve seen three main explanations.
First, there is Thomas Frank’s thesis in his book “What’s the Matter With Kansas?”: working-class Americans are induced to vote against their own interests by the G.O.P.’s exploitation of social issues. And it’s true that, for example, Americans who regularly attend church are much more likely to vote Republican, at any given level of income, than those who don’t.
Alternatively, as I proposed before, they may simply see this as sunk costs to be recovered. They can’t avoid paying taxes, so they might as well try to recover as much as they can. Furthermore, opposing the political program one uses makes sense because political programs tend to be monopolies for the poor. If the government offers medical care for poor people, they are going to have an impossible time trying to refuse it, especially since taxes (both direct and indirect) eat up a decent portion of their budget. In a sense, the only people who can refuse government programs are the sufficiently wealthy because they can afford to bite the bullet on taxes while also avoiding government programs. The poor cannot do this. The only way a poor person can opt out of a suboptimal government program is vote against it. Thus, it should make sense that some poor people oppose the government programs from which they receive benefits because they would much prefer to simply not go through the government to get their benefits.
By Simon Grey, on February 20th, 2012
Many liberals like to point out the apparent hypocrisy of the people featured in the article, who rail against big government, demand lower spending, and simultaneously rake in benefits from the federal government that they hate. The central figure in the article, Ki Gulbranson, works hard yet has barely enough money to support his family, even with the earned income tax credit* and reduced-price school lunches for his kids. His conclusion: the country is going bankrupt, but people don’t make enough money to pay more taxes, so we should have smaller government. He would rather go without his current benefits—but he can’t imagine retiring without Medicare and Social Security. [Ed.—the rest of the article is worth reading as well.]
I have no opposition to people pursuing or receiving government benefits if they’ve paid into the system, even if they oppose the offering of those benefits. There are two reasons for this.
First, if you’ve paid taxes, you should be able to recoup them because the government is supposed to act in your interests. Some benefits will be indirect (military spending, e.g.), some are indirect (highway construction, e.g.), and some are direct (welfare, e.g.). The problem with government is that all benefits are part of the same basket; you can’t opt out of paying for any of the benefits. As such, there is little reason to opt out of receiving any benefits because you’ve already paid for them and, as is the case in a democracy, they belong to you (what with it being a government of the people, by the people, for the people and all).
Second, the government does things that incentivize the receipt of direct benefits. Taxation is one example, in that taxation prevents you from taking care of things for yourself. More people would be able to afford their own health care if the government cut health spending and the corresponding taxes. Another example is regulation (which is in many cases not enacted democratically), which also makes many things more expensive. More people could more easily afford the things they need if regulatory compliance costs were reduced.
Now, political principles are indeed wonderful things, as they give us some idea of where we want to go. But we should never mistake political principles for political reality. It would be great if there weren’t any unconstitutional government programs and their corresponding taxes. But that is currently not the case, and our ethical considerations need to account for the various distortions that come at the hands of the government. If the government is going to force you to make bricks, there’s no principled reason to refuse their straw.
* Caveat 1: while I argue that people shouldn’t be considered hypocrites for receiving government benefits that they argue against, they should also be aware that there are costs to qualifying for government benefits, and that they should be prepared to comply with them.
Caveat 2: this ethical analysis only applies to people who have paid taxes. Those who haven’t paid a dime in taxes should not receive a dime in benefits.
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