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.


NIU campus scene. Credit: EarlRShumaker via flickr (cc)
NIU campus scene. Credit: EarlRShumaker via flickr (cc)









Storytelling can be patented

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.

Words, including a new one, about money




Transaction taxes

photo credit: AutisticPsycho2 via Wikimedia (cc)

Proposals for a small tax on investment transactions seem to make some sense.  Ordinary investors, small or large, are likely to buy or sell a small percentage of their holdings each month or year, while high-frequency traders could turn over theirs dozens of times per day.  A tax of, say, 0.1% would hardly be noticed by investors, but could make high-frequency trading (HFT) unworkable.  If HFT helps destabilize financial markets, then taxing trades this way would raise some revenue while improving economic stability.

Though I don’t see such a tax as consistent with geoist principles, it seems a lot less damaging than many of the taxes we already face.  The problem is that it cannot be enforced.  Trades can always be done in some way “off the books,” probably legally but otherwise if necessary.  Since those who benefit from HFT also have resources to control relevant regulatory decisions, any such tax will have loopholes or other means to prevent effective enforcement.

Sure enough,

most investment banks offer significant UK traders “contracts-for-difference” which are contracts that precisely simulate equity ownership while circumventing UK taxes on transactions (“Stamp Duty”).

— J Doyne Farmer and Spyros Skouras
“An ecological perspective on the future of computer trading” (pdf)

 So what to do about HFT? If we consider what HFT deals in, which is largely securities issued by corporations, it may be appropriate to modify the privileges that government grants to corporations, in ways that would make HFT less damaging.

Why do cab medallions go up?

image:Mister-E via flickr (cc)
image credit:Mister-E via flickr (cc)


4/27/12    6601    $325,000
4/27/12    5594    $345,000
4/30/12    6182    $348,000
5/3/12      1839     $360,000
5/4/12      2297     $370,000




2014 Business Report

image credit: Ged Carroll via Flickr (cc)

I used to be in the forecasting business; still am in a way.  So here’s a forecast:  Look for financial difficulties in the next few years at Sandisk, Yankees Entertainment and Sports (YES) Network, Louisville Arena Authority, and Harmony Oaks housing development in New Orleans. What kind of difficulties and when?

I don’t exactly know.  Sandisk has apparently survived sixteen years of Goldman Sachs help, and the smart parasite does not kill its host too quickly. Maybe not all four; in fact maybe these four have been selected for survival.

Cuba gets it half-wrong

What kind of financial crisis could America have had without private collection of land rent?  If homebuyers were able to purchase a house, but the land came practically free with an obligation to pay a land value tax, how bad could the mortgage mess have been?  Not very bad, evidently, since mortgages would have been much smaller and quite unlikely to go under water (because the price of houses can’t decline nearly as much as that of the land under them).

Veranda in CubaWhich is why I’m not pleased to learn that Cuba will allow the private purchase and sale of homes (including, apparently, both structure and land).  There will be limits (only Cuban citizens and permanent residents, and only two homes per person) “to prevent speculative buying and the accumulation of large real estate holdings,” tho one wonders how long-lived and how effective they’ll be.

There’s no question that Cuba’s struggling economy needs freer trade, and moves to allow buying and selling of cars, and an increase in the permitted size of private businesses, tend in that direction.   It’s unfortunate that the Cuban powers that be don’t seem to recognize that land is different, since by definition it will never be produced no matter how free or prosperous the economy.

“The new law requires that all real estate transactions be made through Cuban bank accounts so that they can be better regulated, and it sets a tax rate of 8 per cent of the assessed value.”  The need for more government revenue is one possible explanation for this change.  Another is that Cuban elites anticipate, after further easing of land ownership restrictions, the ability to accumulate at low prices sites which will become valuable in the future.  The least likely is that Cuban authorities just haven’t thought about what land is and its role in political economy.


With enough assumptions, you don’t have to be correct

Does anyone pay any attention to the “retirement” investment advice that financial institutions provide? I do, once in a great while. Of necessity, these comparisons assume stable tax laws and regulations, and ignore state income taxes. That’s two unrealistic assumptions right there. So why should we worry if the rest of the example is wrong, too?

What brings this to mind is an article in the Fall, 2011 issue of a publication from a major  stockbroker. The story centers on Jane, the daughter of William Smith, who died in 2010. William left her a $900,000 IRA. What should she do? Three options are presented:

  1.  Transfer the IRA into her own name immediately. According to the article, this would yield $620,100, after taxes, all received in 2011.
  2.  Inherit the IRA thru the estate. Apparently IRS regulations provide that you can sit on it for five years, then must withdraw the entire thing. Assuming 6% annual returns (another assumption that we know cannot be correct), Jane would in 2015 then inherit $782,862, after taxes.
  3.  Be the IRA’s designated beneficiary. (This would require that William had made the designation, which seems to be the point of the article.) Under this scenario, Jane withdraws minimum annual distributions, with the result that, in 2036 when she is 65 years old, she will have withdrawn $1,221,117 plus she will have an IRA worth $1,652,117.

But, if Jane took options (1) or (2), what would she have done with the money? We have assumed she is in the 35% tax bracket, so plausibly she doesn’t need the money right away, but would prefer to pile up more. So she would invest it. And we can assume she’ll get the same 6% annual return that we assumed for everything else. Further, we will assume that she pays 35% tax on this income (whereas in reality she will probably pay a lower rate on at least some dividends and capital gains, and might be able to hide some). So, netting 3.9% what is her pile worth in 2036? For option (1), I calculate $1,613,803. And she had complete control of this money, she could invest it in things prohibited to IRA’s, she could use it to flee the country, anything she wanted not effectively criminalized. That’s over twice as much as our friendly discount brokerage firm asserted.

So did the broker make a mistake here? No, because at the bottom of the chart it says:

Source: Ed Slott & Co, LLC. [the broker] is not responsible for information, opinions or services provided by third parties.

Just remember this if you are tempted to spend time reading,  or worse yet taking, “investment” advice provided without charge by financial firms. It’s worth every penny, almost.

I really shouldn’t be spending time on this, I have serious responsibilities in the world, but one does what one is compelled to do.

Does Accurate Forecasting Get Attention?

No, not particularly.  CXO Advisory Group did a little study, comparing the accuracy of forecasts made by a number of investment  “gurus” who they monitor, to the magnitude of google searches.  Based on a couple of different formulations, there was basically no relationship. Of course google searches would be only one measure of fame, and CXO’s way of measuring accuracy isn’t the only reasonable one, but still it is not a surprise.  If I made accurate forecasts, I could prosper with only a few subscribers, who I might charge a high price and ask not to talk about me much.  But if my forecasting record is mediocre, I would want to get as much publicity as possible, because I would need to constantly attract new subscribers.

Tho no surprise, this is not good news for geoists.  At least investment advice can be measured in a more-or-less objective way.  But geoist reforms are in an arena where there are always extraneous factors.  You might get your local tax policy exactly right, for instance, but this could be overwhelmed by an unwise investment in, say, an incinerator.