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Democrats Want to Tax the Wealthy. Many Voters Agree.

As leading Democrats roll out proposals to increase taxes on the rich, the American people are largely behind them.

A majority of people support Democratic proposals to raise taxes on the wealthiest Americans, according to a poll conducted this month for The New York Times by the online research platform SurveyMonkey, though their opinions vary between specific plans. Voters overwhelmingly see income inequality as a problem the government should be trying to address.

Support for taxing the rich cuts across party lines: A majority of Republicans support a proposal from Senator Elizabeth Warren of Massachusetts, a Democratic presidential candidate, to tax a group of the wealthiest Americans on their net worth. Views on raising the top income-tax rate are more sharply split.

The tax-the-rich sentiment is strongest by far among Democrats, who see it as a moral issue. Subscribing to a view expressed recently by Representative Alexandria Ocasio-Cortez, the first-term New York Democrat, nearly two-thirds of Democrats say it is immoral to have an economic system where some people have billions of dollars while others have very little.

“They’re not paying their fair share,” said one Democrat, Fred Wood, a retired teacher in Williamsport, Pa. “It’s just not right when folks cannot afford health care.”

Polling support is by no means a guarantee that Americans would elect a tax-the-rich challenger to President Trump — who mused as a candidate about raising taxes on the rich but as president signed a $1.5 trillion tax cut that reduced the top marginal income tax rate and primarily benefits high earners. Polls by Gallup and other organizations over the decades have regularly found that a majority of Americans believe that corporations and the wealthy pay too little in taxes, but voters have frequently elected presidents who cut those taxes, instead.

What appears different this time, analysts say, is the emphasis that leading Democratic candidates are placing on taxing the rich. “This is about politicians catching up to where Americans have been,” said Leslie McCall, a political scientist at the CUNY Graduate Center.

As a result, progressive policy hands say they are increasingly confident that if a Democrat wins the White House and the party gains full control of Congress, taxes on the rich will go up. That is partly because of the “finally dawning realization among Democrats that taxing the rich is good politics along with good policy,” said Michael Linden, a fellow at the liberal Roosevelt Institute.

“My bet is that it won’t be one big thing” that ends up raising taxes on the rich, Mr. Linden said. “I bet it will be a lot of medium-sized things. A higher top rate, for sure. Rooting out or limiting some of the tax expenditures that disproportionately benefit the rich. I think the corporate rate will start to creep back up. And I think new taxes like a wealth tax, or some other form of capital taxation, are very likely.”

Rising inequality and policies to fight it have emerged as a central theme in the Democratic primary campaign. Senator Bernie Sanders, the Vermont independent who three years ago railed against “millionaires and billionaires” in an insurgent bid for the Democratic nomination, said on Tuesday that he would again seek the nomination on a platform of free public college and “Medicare for all.” This time around, he will face competition for the left flank of his party, including from Ms. Warren, who has proposed taxing the assets — not just the annual income — of the richest Americans to pay for universal child care.

“Across party lines, Americans want the very wealthiest families to pay their fair share so we can have an economy that works for everyone,” Ms. Warren said in a statement in response to the polling for The Times.

Such proposals are likely to draw strong support from a Democratic electorate that has shifted sharply to the left since Mr. Sanders’s last run. Eighty-seven percent of Democrats in the Times poll said the government should seek to reduce the wealth gap.

But it isn’t just Democrats who are concerned by inequality. A majority of independents, and substantial minorities of Republicans, want the government to tackle the issue. And a slim majority of Republicans support a wealth tax like the one Ms. Warren has proposed.

Virginia Connolly is a conservative Republican who supports President Trump and wants to build a wall on the Mexican border. But she says she wants to tax wealthy Americans to pay for programs for veterans, children and the homeless.

“I think that raising taxes on the rich should have happened a long time ago,” she said. “The rich, what are they going to do with all that money?”

Ms. Connolly, 47, runs a business cleaning homes in DeLand, Fla., north of Orlando. When that work failed to pay her bills, she took a part-time job at Winn-Dixie, a grocery store chain where she earns $14 an hour. Even so, she barely makes enough to feed herself and her three children.

The Times poll found strong support for a wealth tax akin to Ms. Warren’s plan. Sixty-one percent of Americans said they approved of imposing a 2 percent tax on the wealth of households with a net worth of more than $50 million. (Under Ms. Warren’s plan, the rate would rise to 3 percent on wealth over $1 billion, but the Times survey didn’t ask about that provision.) An earlier Morning Consult poll found similar results.

“We pay taxes on our property, why not on your wealth?” said Gary Montoya, a school safety officer in Panama City, Fla.

Mr. Montoya, 39, is a registered Republican and a supporter of Mr. Trump. But he said taxes on the rich must rise to reduce the federal budget deficit, among other priorities.

The idea of a wealth tax, however, is newly prominent in American politics, and it isn’t clear whether support will hold up. Republicans haven’t had time to attack the policy, as they have with the estate tax, and it would face legal challenges if enacted. Moreover, voters used to hearing about income-tax rates might not fully understand the idea of a wealth tax, said Vanessa Williamson, a political scientist at the Brookings Institution who has studied public opinion on taxation.

The wealth tax also raises practical challenges that could turn off some voters. Kris Stallard, a data analyst in Tulsa, Okla., says he wants to raise taxes on the rich, and has no problem with a wealth tax in principle. But he questions how it would work in practice.

“You might own houses, businesses, that sort of thing,” said Mr. Stallard, a Democrat. “Is the government going to take parts of businesses from people?”

Other Democrats are taking a more traditional approach to taxing the rich: raising income taxes on the highest earners. Ms. Ocasio-Cortez has proposed a marginal rate as high as 70 percent on annual income over $10 million. The top rate today is 37 percent, down from 39.6 percent before the Republican tax law that passed in late 2017.

Ms. Ocasio-Cortez’s proposal avoids the legal and logistical challenges of Ms. Warren’s plan. And it is just as popular with Democrats, 75 percent of whom support the idea. But it is less popular over all. Only a narrow majority of Americans, 51 percent, support the idea. Republicans oppose it by a ratio of more than two to one.

A self-described “left-leaning independent,” Kathy Holmes could be the sort of voter Democrats need to win to defeat Mr. Trump. A small-business owner in Kansas City, Mo., Ms. Holmes once voted for Ross Perot, the Texas billionaire who sought the presidency twice in the 1990s, but these days mostly supports Democrats. Still, she says she has been disappointed by both parties, and is intrigued by the possible candidacy of the former Starbucks chief executive Howard Schultz.

Ms. Holmes, 54, said she would like to see the rich pay more in taxes. But she said a 70 percent rate “could get a little too out of control.” She said higher taxes on the rich should be a means to an end, not an end unto themselves.

“I don’t think that they should be incredibly penalized for being wealthy,” she said. “It’s a tough balance between free enterprise and ‘go for it and be a gazillionaire.’”


About the survey: The data in this article came from an online survey of 9,974 adults conducted by the polling firm SurveyMonkey from Feb. 4 to Feb. 10. The company selected respondents at random from the nearly three million people who take surveys on its platform each day. Responses were weighted to match the demographic profile of the population of the United States. The survey has a modeled error estimate (similar to a margin of error in a standard telephone poll) of plus or minus 1.5 percentage points, so differences of less than that amount are statistically insignificant.

Source:

NYT > Economy


Author: BEN CASSELMAN and JIM TANKERSLEY

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Housing Is Already in a Slump. So It (Probably) Can’t Cause a Recession.

The United States has had 11 recessions since the end of World War II. All but two were preceded by a big decline in the housing market.

Inside that bit of trivia lie some fundamental insights into housing’s outsize role in the business cycle, along with clues to suggest that the economy is on firmer footing than the increasingly pessimistic forecasts make it seem. The gist is this: The United States may or may not enter a recession this year, but if it does, housing is unlikely to be the cause, because it never really recovered in the first place.

“Housing is not in a position to lead this thing down,” said Edward Leamer, an economics professor at the University of California, Los Angeles.

How much it can help prolong the overall recovery is another matter. Home sales and prices have been sluggish in the face of rising interest rates. Still, the pace of construction, combined with pent-up demand from young adults, suggests that the sector should at least remain stable in the face of uncertainty elsewhere.

Why is housing so often a focus of anxiety as economic expansions run their course? Here are a few reasons.

Even though housing does not account for all that much of the economy, its role in recessions is huge, because it is highly cyclical and sensitive to interest rates. Think of expansions and recessions as the cycle of things that go up and down a lot. Housing is a big determinant of where that cycle is headed because, unlike many other sectors, it has wide swings.

The housing sector accounts for as little as 3 percent of economic output during recessions and about twice that during booms. Other pieces of the economy are much bigger, but they don’t change nearly as much from boom to bust. Government spending, for instance, has hovered between 17 percent and 20 percent of the economy for decades. The three-percentage-point swing is about the same in each case, but government accounts for much more of the economy. Translation: Housing punches way above its weight.

As a result, while housing has never accounted for more than 7 percent of total output, it has on average accounted for about a quarter of the weakness in recessions since World War II, according to a 2007 paper by Mr. Leamer titled “Housing IS the Business Cycle.”

After housing, the sector that has historically been second most important to recessions is consumer durables, or expensive purchases like cars, furniture and appliances. Those are often connected to the housing market’s prosperity because people usually buy other things when they purchase a home.

Housing Isn’t Driving the Economy This Time Around

Housing ordinarily accounts for a big piece of the quarterly swings in G.D.P. But lately it has played less of a role.



Contributions to quarterly G.D.P. change

Housing

Other

+

10

%

quarterly change

+

8

+

6

+

4

+

2

0

2

4

6

RECESSIONS

8

’80

’82

’84

’86

’88

’90

’92

’94

’96

’98

’00

’02

’04

’06

’08

’10

’12

’14

’16

’18

Contributions to quarterly G.D.P. change

Housing

Other

+

10

%

quarterly change

+

8

+

6

+

4

+

2

0

2

4

6

Recessions

8

’80

’90

’00

’10

’18


By The New York Times | Source: Bureau of Economic Analysis

Sometimes downturns have other causes, but they only underscore housing’s role in economic cycles. The 1953 recession followed a decline in government spending after the Korean War, and the 2001 recession was driven by a decline in business spending after the dot-com bubble popped. Both were relatively brief and shallow — the 2001 recession was the least severe since World War II — in part because housing investment remained stable.

The most recent recession, from 2007 to 2009, offered one of the more exaggerated examples of housing’s guiding role in downturns. A recent report from the Federal Reserve Bank of St. Louis found that the construction sector accounted for a little over a third of the decline in output in the past recession, and about half of the job losses (a figure that includes laid-off construction workers and job losses in connected industries).

How does housing look now? Mixed, but mixed in such a way that the things most important to economic growth are the most stable.

Image
Escalating prices, along with rising interest rates, deterred many home shoppers late last year. Prices in the Dallas area, which includes this neighborhood in Plano, are 76 percent higher than in 2012.CreditBrandon Thibodeaux for The New York Times

Measured in sales and prices, the housing sector appears to be in a precarious position. Existing-home sales were down about 10 percent in December from a year earlier, according to the National Association of Realtors. The group blamed rising prices and interest rates, and a lack of supply that has left buyers underwhelmed by their choices.

Much of the problem is that while job growth has been strong, home prices have gone up faster than incomes.

Prices have gone up so far so fast that even markets previously considered affordable are beyond the reach of many buyers. Home prices have risen by about 50 percent since 2012, according to Zillow, and many of the more affordable markets have shot up even faster. In Phoenix, home values have doubled since 2012, not adjusted for inflation. The Denver market is up 90 percent, Atlanta 84 percent, Nashville 78 percent and Dallas 76 percent. If people can’t afford a home in Texas, where can they?

The sticker shock of rising prices, combined with rising interest rates that make monthly payments more expensive, scared off many buyers toward the end of last year. Some of that demand seemed to come back at the start of the year, after interest rates fell to roughly where they were a year ago.

More on Housing

Housing Market Slows, as Rising Prices Outpace Wages

Piece by Piece, a Factory-Made Answer for a Housing Squeeze

Nevertheless, homes are sitting on the market longer, price cuts are becoming more common, and a number of homebuilders have had layoffs. Before a recent speech to 1,000 people from the housing industry, John Burns, founder of John Burns Real Estate Consulting, asked the members of the audience to forecast the year ahead. They were evenly split between those seeing sales and price declines and those seeing growth.

“Everybody is being really cautious right now,” Mr. Burns said in an interview.

This all sounds very bad, but for anyone who isn’t trying to sell a home or in the business of selling homes, it’s not as bad as it seems.

Image

A suburban neighborhood in Dublin, Ohio. Total housing starts grew in January at more than double the recession-era low, but still were far behind the long-run average.CreditAndrew Spear for The New York Times

When economists talk about a recession in housing, they largely refer to construction, not home prices. Most of the industry’s contribution to annual gross domestic product lies in residential fixed investment, a category composed almost entirely of the building of single-family homes and apartment and condominium buildings (along with a small amount of home improvements and renovations).

Rising home prices help the economy in small but important ways, like making people feel richer and building up home equity that owners can tap and spend elsewhere. But increased spending from people feeling richer is not nearly as important as the pace of home sales and the volume of construction, since both of those create many jobs — for people like real estate agents and mortgage brokers on the sales side, and the architects, construction workers, electricians, plumbers and others who design and build new homes.

What Recovery?

Construction of single-family homes has not returned to its prerecession level. Apartment and condominium construction hasn’t made up the gap.



Monthly housing starts

2.0

million

1.5

Single-family

1.0

RECESSIONS

0.5

Multi-family

0

’00

’02

’04

’06

’08

’10

’12

’14

’16

’18

Monthly housing starts

2.0

million

Single-family

1.5

1.0

RECESSIONS

0.5

Multi-family

0

’00

’02

’04

’06

’08

’10

’12

’14

’16

’18


By The New York Times | Source: Census Bureau

Home buying is weak and getting weaker, so that could be a concern. But construction is bordering on moribund. Total housing starts grew at an annual rate of 1.2 million a year in January, more than double the recession-era low of less than 500,000, but still well below an average of 1.5 million from 1990 to the start of the housing bust — despite an expanding population.

Clearly the need for housing is there, so why aren’t builders building more? That is a confounding question.

During conference calls to announce their earnings, publicly traded builders like D.R. Horton and PulteGroup have said much the same thing as real estate agents, which is that buyers are put off by higher prices and creeping interest rates. Many builders also cite local regulations that make it harder to build homes in denser areas closer to jobs, and higher labor costs in a tight job market.

The overall message is that builders cannot build homes at the prices people want in the places people want them, so they aren’t building much at all.

The largest demand for housing is at the lower end of the market, the hardest to serve profitably, although in conference calls a number of builders said they were shifting some of their building and land buying toward cheaper, smaller homes. This may or may not improve the pace of building.

The result is that the housing sector — the residential construction components of G.D.P., taken together — accounted for only 3.9 percent of the economy in the third quarter, and has helped drag down overall economic output for three quarters.

In other words: Housing is in recession already. It might not get better soon, but it probably won’t get worse.

Source:

NYT > Economy


Author: CONOR DOUGHERTY

Posted on

Elizabeth Warren Wants a Wealth Tax. How Would That Even Work?

When the United States government wants to raise money from individuals, its mode of choice, for more than a century, has been to tax what people earn — the income they receive from work or investments.

But what if instead the government taxed the wealth you had accumulated?

That is the idea behind a policy Senator Elizabeth Warren has embraced in her presidential campaign. It represents a more substantial rethinking of the federal government’s approach to taxation than anything a major presidential candidate has proposed in recent memory — a new wealth tax that would have enormous implications for inequality.

Image
Senator Elizabeth Warren’s plan: a tax on a family’s wealth above $50 million at 2 percent a year, with an additional surcharge of 1 percent on wealth over $1 billion.CreditCharlie Neibergall/Associated Press

It would shift more of the burden of paying for government toward the families that have accumulated fortunes in the hundreds of millions or billions of dollars. And over time, such a tax would make it less likely that such fortunes develop.

It would create big new challenges for the I.R.S. in ensuring compliance. There is a reason many European countries that once had a wealth tax have abandoned it in the last couple of decades.

And that’s before you get to the legal and political challenges. There is an open debate around whether a wealth tax is constitutional. And some of the most powerful families in the country would certainly deploy their vast resources against a wealth tax, and against any candidate who embraces it.

The comedian Chris Rock had a routine in the early 2000s in which he expounded on the distinction between those who are rich and those who are wealthy.

Shaquille O’Neal, the star basketball player, was rich, Mr. Rock said. The team owner who signed his paycheck was wealthy. And that, in a nutshell, gets at the conceptual difference between trying to tax people’s income, as the tax code does today, versus their wealth.

Image
Lakers center Shaquille O’Neal in 2002: Rich, but perhaps not wealthy.CreditLucy Nicholson/Agence France-Presse — Getty Images

The C.E.O. of Walmart makes about $22 million a year. He is rich by any definition. But the Walton family, descendants of the company’s founder, are mind-bogglingly wealthy. The Bloomberg Billionaires index estimates that Sam Walton’s three living children are worth around $45 billion each, putting them each among the 20 wealthiest people in the world.

A family that has accumulated enormous wealth can escape with surprisingly low income levels, and therefore tax burdens.

In an extreme example, Warren Buffett owns enough stock in Berkshire Hathaway to put his estimated net worth at $84 billion, but he pays himself $100,000 a year to be its chief executive. Even in years when his wealth rises by billions, he must pay tax only on his comparatively modest income and on the gains from shares that he chooses to sell.

Ms. Warren and other advocates of a wealth tax argue that this accumulation of untaxed or lightly taxed wealth is a bad thing. They say that it enables the creation of democracy-distorting dynasties who accumulate political power, and that tax policy should be used to rein them in more than the current tax code does.

Developed by Emmanuel Saez and Gabriel Zucman, two University of California, Berkeley, economists who are leading scholars of inequality, the proposal is to tax a family’s wealth above $50 million at 2 percent a year, with an additional surcharge of 1 percent on wealth over $1 billion.

Mr. Saez and Mr. Zucman estimate that 75,000 households would owe such a tax, or about one out of 1,700 American families.

A family worth $60 million would owe the federal government $200,000 in wealth tax, over and above what they may owe on income from wages, dividends or interest payments.

If the estimates of his net worth are accurate, Mr. Buffett would owe the I.R.S. about $2.5 billion a year, in addition to income or capital gains taxes. The Waltons would owe about $1.3 billion each.

The tax would therefore chip away at the net worth of the extremely rich, especially if they mainly hold investments with low returns, like bonds, or depreciating assets like yachts.

It would work a little like the property tax that most cities and states impose on real estate, an annual payment tied to the value of assets rather than income. But instead of applying just to homes and land, it would apply to everything: fine art collections, yachts and privately held businesses.

They are both philosophical and practical.

On the philosophical side, you can argue that people who have earned money, and paid appropriate income tax on it, are entitled to the wealth they accumulate.

Moreover, the wealth that individual families accumulate under the current system is arguably likelier to be put to work investing in large-scale projects that make the economy stronger. They can invest in innovative companies, for example, or huge real estate projects, in ways that small investors generally can’t.

It could disincentivize the kinds of moonshot investments that don’t pay steady, predictable returns but can transform society. After all, if wealthy investors are on the hook for a wealth tax every year, they may strongly favor investments that pay a steady, reliable dividend over those that are risky and will take many years to pay off.

Then there are the practical concerns.

Figuring out a person’s total net worth can be a lot of work. Just ask anyone who has had to sort through a large estate after the death of a relative to submit estate taxes.

Image
Warren Buffett owns enough stock in Berkshire Hathaway to put his estimated net worth at $84 billion.CreditRick Wilking/Reuters

If the deceased owned financial assets like stock and bonds, it’s pretty easy to check a brokerage statement and surmise the value. But if the estate consisted of a collection of rare antiques — or interests in various real estate or oil and gas projects, or closely held companies — estimating the value is harder.

It can require an army of appraisers and other experts and an often prolonged period of I.R.S. audits and disputes over valuation.

“Presumably, a wealth tax would apply to the same sort of base, except that it would be annual rather than just when a person dies,” said Beth Shapiro Kaufman, an estates lawyer at Caplin & Drysdale.

The very wealthy would have a permanent, continuing need to tally the value of their assets and defend those valuations to the federal government. The Warren plan includes substantial new funding for I.R.S. staff to enforce the law.

And some people may have their wealth tied up in things not easily converted to cash. An early investor in Uber or another company that has achieved a high valuation without going public might have a high enough net worth to owe a wealth tax, but not the easily accessible funds to pay it.

Mr. Zucman argues that people wealthy enough to owe this tax would generally have ample access to credit, and that the law could even be structured to let people pay their tax obligations with illiquid assets.

Gene Sperling, a former National Economic Council director in the Obama and Clinton administrations who now supports a wealth tax, said: “If we were sitting here in 1932 saying we need to create a Social Security system, it would have seemed very complex, but if it’s important enough, you don’t let some complexity become a reason not to push forward.”

The wealth tax Ms. Warren proposes would also apply to assets that American citizens own overseas. So in theory, a wealthy American citizen would owe tax on his Panamanian bank account and his Swiss ski chalet.

Ensuring payment would be tricky, which is why the proposal includes all those new I.R.S. employees and stronger international coordination to stop tax avoidance and evasion — as well as an “exit fee” that Americans would need to pay if they sought to renounce their citizenship.

There’s an old line attributed to a 17th-century French politician that the art of taxation is to pluck a goose so as to obtain the largest possible quantity of feathers with a minimum amount of hissing. In the recent past, wealth taxes have failed that test.

In the early 2000s, 10 developed countries had a wealth tax, according to the Organization for Economic Cooperation and Development. That is now down to three: Switzerland, Norway and Spain. France recently changed its wealth tax into a tax only on real estate, more akin to the American property tax.

One problem was that some of the wealth tax plans kicked in at a relatively low level, meaning a vast number of upper-middle-class people faced its nuisance and expense. In Europe, especially, it created incentives for people to relocate.

Mr. Zucman says the United States, as a large country, is better positioned than small countries where wealthy citizens are likely to be highly mobile already. The idea is that Americans will be less likely to renounce their citizenship to avoid paying out a couple of percent of their net worth every year.

An income tax is clearly authorized by the 16th Amendment, which states that Congress has the power to “lay and collect taxes on incomes, from whatever source derived.” A wealth tax is more likely to raise constitutional questions, and it’s a near certainty that well-funded opponents would wage a legal battle against it.

(Josh Barro at New York Magazine lays out the legal questions here.)

There is. Some tax experts say changes to existing law would accomplish many of the goals of a wealth tax.

One example that Leonard Burman of Syracuse University and the Urban Institute has suggested is to eliminate a provision of current law in which assets that increase in value can go essentially untaxed across generations.

If you start a company and its value appreciates over your lifetime, then it is transferred to a family member upon your death, no capital gains taxes are collected on those decades of appreciation. The family member gets to start over at its current valuation for capital gains purposes.

This “step-up” provision is one of numerous ways that families can accumulate great wealth with minimal taxation. It could be eliminated. Laws could be changed to make it harder to avoid the estate tax, which currently kicks in at about $11 million for an individual and about $23 million for a married couple.

If you want a tax system that leans more aggressively against dynastic wealth and high inequality, there are, in other words, tools that don’t involve quite the risks and challenges of a wealth tax.

But those are a lot harder to capture in a campaign ad, and in the public imagination.

Source:

NYT > Economy


Author: NEIL IRWIN

Posted on

With Interest: The Week in Business: Amazon Breaks Up With New York, and Warren Buffett Takes Stock

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Do you have Presidents’ Day off? I hope so, and that you’re spending it someplace warm and dry, even if that’s just a nest of pillows your living room. The third week of February is the peak of winter drear, in my opinion, and we could all use a break from the gray skies and interminable drama in Washington. Whether you’re heading into a short workweek or not, here’s what to know when it starts, from the latest on President Trump and the wall to the market outlook from the billionaire investor Warren Buffett, and other business and tech news.


FEB. 10-16

So much for negotiating. Congress passed a spending bill to keep the government open before the deadline on Friday, but the legislation only includes $1.375 billion for 55 miles of steel-post fencing along the southern border. That’s a fraction of the $5.7 billion for more than 200 miles of steel or concrete barriers that President Trump has been demanding for months. Mr. Trump responded by declaring a national emergency to tap into billions of dollars originally earmarked for other government projects. Critics view this action as an attempt to save face on his wall promises. But the move also raises questions about his executive powers, and will most likely be challenged in the courts.

Alexa, we hardly knew thee. Amazon abruptly canceled its plan to build a sprawling corporate campus (also known as HQ2) in New York City, citing backlash from government leaders, unions and residents. Although the company promised to bring 25,000 new jobs to the area, that wasn’t enough to drown out critics who opposed the cushy tax breaks and other financial incentives that New York lawmakers used to lure the tech giant to Long Island City, Queens. “A number of state and local politicians have made it clear that they oppose our presence and will not work with us to build the type of relationships that are required to go forward,’’ Amazon said in a statement on Thursday. It still plans to build another campus in Virginia.

Oh look, the dreaded tax forms in your mailbox: It’s that time again. To make this season even more painful, millions of Americans will get smaller tax refunds this year, or find that they owe money despite no changes in their salaries. Yes, the Trump administration’s tax overhaul was supposed to keep more money in your pocket, but the average refund for early filers was down 8.4 percent. What’s going on? For some taxpayers, it’s that certain deductions no longer apply. For others, it’s that less money was withheld from their pay last year. Either way, this isn’t what you want to hear from your accountant, and it could dampen consumer spending in the coming months.


FEB. 17-23

If you’re in the market for some corny investment jokes, look no further than Warren Buffett’s annual shareholder letter, which he will post on Saturday along with financial results for his company, Berkshire Hathaway. The third-richest man in the world, Mr. Buffett, 88, has used his yearly letters to deliver dad humor, nuggets of financial wisdom and insights into his big-picture view of the economy since 1965. Many people pore over his words for stock tips, but they’re also worth a gander if you’re interested in learning from one of the most successful and experienced private investors in history.

Remember when the Federal Reserve suddenly changed its mind about raising interest rates at its January policy meeting and adopted a more hands-off approach that sent markets into fits of glee? The Fed may offer more clues about its flip-flop when the minutes from that meeting become public on Wednesday. The Fed’s chairman, Jerome H. Powell, has now indicated that the Fed won’t raise rates again until inflation accelerates — a reversal of previous policy. Higher rates are intended to keep the economy steady as it grows, so it’ll be interesting to learn why Fed officials felt compelled to take their hands off the levers.

If you hoped that American and Chinese officials might start making some real progress in resolving their trade war, sorry. Yet another round of talks concluded this past week with no resolution in sight, although they will continue this coming week in Washington. Mr. Trump is supposedly considering a 60-day extension to the looming March 2 deadline for a deal. If the world’s two largest economic powers can’t come to an agreement, the United States has threatened to impose punitive tariffs against Chinese goods, hurting consumers in both countries. The upside to giving negotiators more time is obvious: The tariffs could be avoided, or at least put off. The downside is that it leaves companies — and even entire industries, like soybean farming — in limbo for even longer.


Surprise, surprise: Prime Minister Theresa May hit another setback over Britain’s fraught exit from the European Union when her own party splintered on Thursday. Speaking of hot water, Facebook may have earned itself a multibillion-dollar fine from the Federal Trade Commission over privacy violations. Elsewhere in big money: JPMorgan will be the first major American bank to roll out its own cryptocurrency, even though its chief executive called bitcoin “a fraud” back in 2017. And finally, can’t afford an engagement ring for your loved one? Consider this $1.30 plastic version.

Source:

NYT > Economy


Author: CHARLOTTE COWLES

Posted on

Watch Out. Tax Season Is Even More Stressful Than Usual.

Take a deep breath, a drink, whatever calms you: It’s tax season.

If you have already filed your return and received a satisfying refund, congratulations! You are a lucky person, because many people are having a hard time this year.

Oddly, much of the pain comes from a shift that might seem pleasant: sweeping changes that, while providing a windfall for the rich, still amount to a tax cut for most Americans. But, combined with the longest government shutdown in history, the short-term effects of these changes have been surprisingly disruptive.

Early returns indicate that fewer people than usual have been getting the refunds they expected. That has created an excruciating spectacle: Many people who paid less in taxes every week are discovering that they owe money to the Internal Revenue Service. On top of that, residents of states like New York, New Jersey and California face a new cap on federal deductions for state and local taxes, and won’t know whether their federal tax bill has gone up until they have slogged through their returns. What’s more, many tax preparers aren’t up to speed on all of the new breaks and burdens.

Good luck! It may be a rougher ride than usual. We can’t eliminate glitches, fatten your refund or make tax-filing a total pleasure. But we have covered the tax mayhem extensively, and prepared articles and tax software reviews, all in the hope that with our help, the ordeal will be easier and, at the very least, more comprehensible.

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CreditDelcan & Company

The most important changes to the tax code in decades have taken effect — and filers are confused. Plenty of people who counted on fat tax refunds are disconcerted when they learn that they are not getting them. For some thorny issues, especially those concerning small businesses, professional tax preparers are perplexed as well. We asked certified public accountants and other tax-prep pros to do their best and give taxpayers some clear answers.

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If you’re preparing your own tax return, you may benefit from expert help conveyed by top-notch tax software. The Wirecutter, a division of The New York Times Company that rigorously tests products, surveyed the offerings for this season. The reviewers made several recommendations, depending on factors like whether you run your own business and whether your financial situation is complex or fairly simple. If it’s very simple, they say, try H&R Block Free.

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Phones are fabulous for playing games and reading news apps. But are they effective at filing tax returns? Millions of people think so. Our reporter Tara Siegel Bernard gave phone-filing a test run, but she wasn’t impressed. She found the experience unpleasant, in parts, and had unanswered questions about how to fill out a model return. For her own family’s taxes, she will rely on a human accountant again this year.

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“In this world nothing can be said to be certain, except death and taxes,” Ben Franklin once said. Given those alternatives, the tax man usually looks good. Yet the particular tortures exacted this year may make the choice less obvious.

The wholesale overhaul of the tax law that is in place for people filing their returns would, on its own, have required the I.R.S. and tax experts to make many adjustments and give a great deal of new guidance this year. The partial government shutdown slowed the process considerably. And the early returns are including a larger number of unpleasant surprises for taxpayers — who owe money when they expected to receive refunds — than was the case in the past.

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CreditDelcan & Company + Saad Moosajee

Only a year after sweeping changes took place, proposals to revamp the tax code — yet again — are rampant. From the Democratic side come calls for a more progressive system, requiring wealthy people to pay more, reversing the rise in income inequality that has been underway. Republicans, on the other hand, want to make the current tax rates — which are set to expire at the end of 2025 — permanent. The division of power in place in Washington means that you shouldn’t count on big changes this year. But the heated debates in Congress and on the 2020 campaign trail will give clues about legislation to come.

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CreditDelcan & Company + Saad Moosajee

Wealthy people are reaping the richest benefits from the changes in the tax code, and many of them are rejoicing, as you might expect. But an affluent few are raging against a so-called reform that has put more money — a lot more — in their pockets. They were already doing quite well, they say, and don’t need extra help from the tax system: Poorer people need the money more. Some millionaires and billionaires, however, resent this kind of talk. Friends of the wealthy tax critics call them “traitors to their class.”

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CreditDelcan & Company + Saad Moosajee

The 2017 tax bill provides a 20 percent deduction for “qualified business income,” which is a great boon for those who can get it. But who, exactly, qualifies? The rules are arcane, and I.R.S. guidance has been changing. Health, law, financial services, entertainment and consulting businesses don’t qualify, for example, but architecture and engineering do. In some cases, eligibility hinges on small details. Read on for some pointers.

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CreditDelcan & Company + Saad Moosajee

By enabling affluent investors to postpone paying the tax man, new opportunity zone funds are starting to attract substantial sums. The funds are a tax break that was included in the 2017 tax law as a way of drawing money into distressed communities.

The idea is that investors get tax breaks, while the neighborhoods get new businesses and upgraded apartment buildings, shops and the like. But the areas that have been designated as distressed are not always really needy. The vibrant Long Island City neighborhood where Amazon proposed placing its campus, a plan it has abandoned, was designated an opportunity zone, for example. And even when neighborhoods are truly distressed, providing tax breaks for the rich may be an awkward way of redeveloping them.

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NYT > Economy


Author: JEFF SOMMER

Posted on

Northern Virginia Is Keeping Amazon’s 25,000 Jobs, and Wants You to Know It

WASHINGTON — When Amazon canceled its plans to build an expansive corporate campus in New York City this week, officials more than 200 miles away in Northern Virginia decided to make a statement.

Their message: Their region has its act together, they have been far more prepared, and they were free of drama.

The comments came from those in the area that has branded itself National Landing, an amalgamation of Arlington and Alexandria neighborhoods that was the other winner in Amazon’s sweepstakes last year to award massive new campuses.

But after landing Amazon, National Landing faded from the spotlight as attention focused on New York City. In New York, lawmakers, progressive activists and union leaders began contending that Amazon, one of the world’s biggest tech companies, did not deserve nearly $3 billion in government incentives to open a campus there.

The politicking grew heated. Then came Amazon’s very public breakup with New York on Thursday.

“A number of state and local politicians have made it clear that they oppose our presence and will not work with us to build the type of relationships that are required to go forward,” Amazon said about New York in a statement.

In Northern Virginia, officials wasted little time. Within hours, Christian Dorsey, the chairman of the Arlington County Board, held a call with reporters.

“I can’t speculate what went wrong” in New York, Mr. Dorsey said, “and I don’t really care to think about it much.” But he discussed how his area had done a better job of planning for Amazon, persuading the company to come and then rolling out an infrastructure and development plan to make its arrival possible.

“It highlighted a particular community dynamic in a region that has its act together,” Mr. Dorsey said. He added that Amazon hadn’t changed its plans to bring 25,000 jobs to National Landing by 2030, with the potential to increase that to 38,000 employees later.

Monica Backmon, the executive director of the Northern Virginia Transportation Authority, was even more direct.

“Oh, yes, we are pleased,” she said. “It speaks to certainty that we know what we are doing and put a lot of planning and effort early on into it.”

From the beginning, Virginia officials said, their preparations differed sharply from those of other cities that applied to Amazon. Residents and others were generally welcoming, in contrast to the steady drumbeat of protests in New York.

For years, the region had planned and made improvements to roads, subways, trains and bike lanes to accommodate a major corporation like Amazon, Ms. Backmon said.

A bipartisan state board of legislative leaders that reviews major incentive deals had many hours of discussions on Amazon before an agreement was reached for the new campus, said Stephen Moret, who runs the Virginia Economic Development Partnership.

“The fact that that group exists and was so heavily engaged periodically throughout the 14 months was a major contributor for how well things have rolled out at the state level,” Mr. Moret said in a recent interview. He said Arlington and Alexandria officials had been briefed about Amazon in closed sessions multiple times as well.

Late last month, the Virginia legislature overwhelmingly passed a $750 million incentive package for Amazon, which the governor signed into law. It provides Amazon with $550 million in grants for the first 25,000 jobs it creates, and $200 million more for creating 12,850 additional jobs in subsequent years.

Officials in Nashville, which landed a smaller development project from Amazon, with about 5,000 jobs, also drew distinctions between their approach and New York’s. The city and Tennessee offered a combined $102 million in tax incentives, significantly less per job than New York’s multibillion-dollar promise. And Nashville’s offer didn’t come with some of the attention-grabbing perks that New York’s did.

“We don’t have a helipad,” said Thomas Mulgrew, press secretary for Mayor David Briley, referring to New York’s promise to help Amazon secure access to a helicopter-landing facility near its planned Queens campus. “I read that and thought, ‘Oof, that’s going to be a tough one.’”

Critics of Amazon and its expansion strategy celebrated the company’s withdrawal from New York as a victory and said they were emboldened to turn their sights on Northern Virginia and Nashville.

“Do not come to our cities expecting to ignore the democratic process and hoard the resources that our communities desperately need,” Local Progress, an organization of local officials, said in a statement.

Stand Up Nashville, an activist group that has criticized the Amazon project, and other groups have been working for months to rally opposition to the deal and to push for more community involvement in the process. The news from New York this week injected new energy into the movement — and is likely to increase attendance at a public forum the groups were already planning for Friday evening.

“Since the announcement yesterday, the event has just exploded,” said Anne Barnett, a Stand Up Nashville co-chairwoman. “There’s more interest now than ever.”

Northern Virginia officials said they recognized that there could be similar protests in their area. But they said their relationship with Amazon was strong.

“They have been a completely honest broker,” said Mr. Dorsey of the Arlington County Board. “We feel good about their relations thus far.”

Amazon did not immediately return a call for comment.

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NYT > Economy


Author: CECILIA KANG

Posted on

China and U.S. to Continue Trade Talks Next Week

BEIJING — United States officials said on Friday that they had made “progress” during a week of trade talks with their Chinese counterparts, but big sticking points remain and the two sides plan to continue negotiations next week in Washington to try to end the trade war.

The United States and China are trying to reach an agreement ahead of a March 2 deadline, when President Trump has threatened to raise tariffs on $200 billion worth of Chinese goods to 25 percent from 10 percent. On Friday, Mr. Trump suggested for the second time in a week that he would push the deadline back if the two sides were edging closer to a deal.

“There is a possibility that I will extend the date,” Mr. Trump said during remarks at the White House, noting the complexity of the negotiations. “I will do that at the same tariffs we are at now; I would not increase the tariffs.”

Mr. Trump said the discussions with Beijing were going “extremely well” but added that the only thing that mattered was whether the two sides could reach a deal that resolved his concerns about China’s trade practices.

“We’re a lot closer than we ever were in this country to having a real trade deal,” Mr. Trump said, adding that the agreement with China would cover “theft” and “unfairness.”

But significant differences remain in the trade talks, and it is unclear whether they can be resolved, people briefed on the negotiations said.

“These detailed and intensive discussions led to progress between the two parties,” the White House press secretary said in a statement. “Much work remains, however.”

American officials said the talks focused on so-called structural reforms that the United States wanted China to make, and on China’s purchase of American goods and services. The White House said Friday that any agreement between the two countries would be included in “a memoranda of understanding between the two countries.”

The most difficult and intractable issue involves the Trump administration’s desire to put meaningful restrictions on China’s ability to keep investing enormous sums of money from the government, and from government-affiliated financial institutions, in a wide range of advanced manufacturing sectors that compete with American industries. These include areas like commercial aircraft manufacturing, semiconductors and artificial intelligence.

Another challenge for negotiators is that both sides perceive national security as being at stake in some cases.

China has been reluctant to unblock internet access to its market for some of Silicon Valley’s biggest and most successful businesses, like Facebook and Google. It fears that without stringent censorship, everything from democratic ideas to pornography would be harder to fight.

Mr. Trump said that American tariffs on $250 billion worth of Chinese imports were hurting China “very badly” and that it would be “an honor” to remove them if an agreement could be reached. He acknowledged that a deal of such magnitude could take more than just a few weeks.

The president, speaking from the Rose Garden, added that he would most likely meet with President Xi Jinping of China “at some point” to work out any remaining differences between the two countries.

The prospect of extending the March deadline has divided Mr. Trump’s economic advisers, with hard-liners such as Robert Lighthizer, the administration’s top trade negotiator, increasingly wary that China is trying to run out the clock or clinch an unenforceable deal that it will ultimately break. A delay in the deadline would be viewed internally as a win for Steven Mnuchin, the Treasury secretary, who has been pushing hard to put the trade war to rest and calm markets.

Mr. Mnuchin said that he and Mr. Lighthizer had “productive meetings” with Liu He, China’s economic czar.

Mr. Lighthizer and Mr. Mnuchin also met with Mr. Xi on Friday afternoon at the Great Hall of the People in Beijing. Stocks in the United States were up 1 percent on Friday as optimism about the state of the negotiations calmed jittery investors.

The talks did allow both sides to at least begin hashing out their differences. Both the United States and China began somewhat mechanically combining their lists of offers into a memorandum of understanding that included areas of disagreement in bracketed text, with each side’s separate views listed for each issue, people briefed on the talks said. Compiling the various offers could someday make it possible for the countries’ leaders to go through the options more systematically.

But the broad areas of disagreement still left in the bracketed text mean that an actual, comprehensive understanding between the two sides remains elusive.

The negotiations did not include any big new concessions by China to limit its government-led push to build high-tech industries in competition with the West, said the people, who insisted on anonymity because of the diplomatic and financial sensitivity of the talks.

China Central Television, a state-controlled broadcaster, said early Friday evening on its website that progress had been made. It said the talks would continue in Washington next week.

“New progress has been made on important and difficult issues,” CCTV said, without providing any details. “Although there is still a lot of work to be done, we have hope.”

China is in the middle of a sharp economic slowdown, triggered partly by Beijing’s efforts to rein in debt but also by a sudden faltering in the willingness of consumers to spend and industries to invest. Many business leaders attribute the decline in consumer and investor confidence to the trade war.

That economic backdrop has given Chinese leaders an incentive to emphasize progress in the talks. Mr. Mnuchin has also stressed progress, allaying worries among stock market investors. Mr. Lighthizer has said little in public while pressing for a comprehensive trade deal.

The two sides have been struggling with more than 100 issues raised by the United States in a lengthy statement given to Chinese officials in May. In preparation for this week’s talks, the two sides had been unable to even agree on a draft framework for the broad outlines of a possible deal, so expectations for any comprehensive settlement had been low from the start.

Many of the issues, like how to handle the tech sector, have been festering between the United States and China for a long time. Many high-tech issues are also changing and evolving along with the sector, making it especially difficult to put in place a durable agreement.

“Particularly in the areas of technology regulation and standards, it will be a game of Whac-a-Mole at best,” said James Green, who was the top trade official at the United States Embassy in Beijing until August and is now a senior nonresident fellow at Georgetown University.

The negotiations this week have encompassed some issues on which incremental progress has been made in recent weeks, people briefed on the negotiations said. China has agreed to disclose more of its government subsidies to the World Trade Organization, these people said.

Chinese officials have also expressed a willingness to let foreign companies participate in panels that set standards on important industrial issues, like fuel-economy averages for cars. But while that might give foreign companies a glimpse of upcoming rules, they would be in a minority and might not have much influence.

The Trump administration also sees national security at issue in a long list of products that the United States either already imports from China or might be likely to import in the next few years. These include many products, from nuclear reactor components to aircraft engine parts, from among the $50 billion of annual imports on which the administration imposed 25 percent tariffs in the summer.

China has tried repeatedly over the past year and a half to allay American concerns about its government-subsidized investments in high-tech industries by offering to guarantee very large purchases from the United States of everything from soybeans to helicopters.

In some cases, the purchase offers are being poorly received in the United States because they could distort existing supply chains. This week, China offered to ramp up purchases of American semiconductors, to the industry’s chagrin.

“The reported offer by China to vastly increase its purchases of U.S. semiconductors may look good at first glance, but it’s a mirage, aimed at shuffling U.S. supply chains and driving them deeper into China,” said John Neuffer, president of the Semiconductor Industry Association. “It would also represent a significant departure from the market-driven economics that have long defined our sector and the U.S. economy.”

He added: “We are confident U.S. government negotiators will see through this distraction.”

The Trump administration and the American business community have mostly been leery about an agreement that centers on purchases of goods but does not address long-term issues involving China’s government-backed drive for high-tech competitiveness. Some market-oriented economists in China have also advocated limits on the government’s industrial policies, because they worry about the ever-rising debt associated with them.

“If we don’t address the deeper issues, neither side will be doing itself any favors,” said Tim Stratford, who is the chairman of the American Chamber of Commerce in China and the managing partner of the Beijing office of the Covington and Burling law firm.

Mr. Trump and Mr. Xi agreed in Buenos Aires on Dec. 1 on a stopgap compromise that does not fully satisfy either side but might prove durable. Mr. Trump agreed not to raise tariffs further then but kept in place the tariffs he had already imposed, while China removed most of the retaliation that it had imposed.

That deal has not satisfied trade hawks in the United States, who want broader changes in the bilateral relationship, or the more nationalistic wing of the Chinese Communist Party, which perceived the deal as representing, to some extent, a Chinese retreat.

Source:

NYT > Economy


Author: KEITH BRADSHER and ALAN RAPPEPORT

Posted on

German Growth Stagnates as Trump Trade War Starts to Bite

FRANKFURT — The once seemingly unstoppable German economy had the slowest growth of any eurozone country except Italy at the end of 2018, according to data published on Thursday that brought the impact of President Trump’s trade war into stark relief.

Germany’s economy did not grow at all in the year’s final quarter, and it barely avoided sliding into recession, the government statistics agency said.

One reason for the slowdown was conflict over trade. American tariffs are hurting German steel makers’ sales, and Germany is also experiencing collateral damage caused by a trade war between China and the United States.

The economic data was bad news for the rest of Europe. Germany has the region’s largest economy, and it typically sets the pace for the rest of the eurozone. The country has often helped haul its neighbors through periods of crisis, but it may no longer be able to play that role.

Germany’s position in next-to-last place among European Union countries is also a blow to its prestige. When Greece, Spain and Portugal were in dire straits during the last decade, German leaders scolded them over their economic policies and high debt. The economies of those countries are now growing more quickly than Germany’s, according to separate data published Thursday by the European Union statistics agency.

German carmakers and other companies rely on sales in China, where growth has slowed partly as a result of the Trump administration’s tariffs on Chinese goods. Volkswagen said Wednesday that its sales fell 3.4 percent in January compared with a year earlier in part because of weak demand in China, the carmaker’s largest market.

The fourth-quarter data released Thursday fell short of analysts’ projections, but it was good enough to narrowly avert a recession. In the third quarter, German economic output had dipped 0.2 percent from the previous quarter. Another three months of declining output would have met the common definition of recession.

Many economists expect the slowdown to continue. “It’s probably going to get worse before it gets better,” said Florian Hense, European economist at the German bank Berenberg. “Clearly this is not a two-quarter soft patch. It seems more serious.”

Germany’s woes will add to the grave problems facing Italy, including weak banks, erratic politics and a looming credit crunch. Germany is the biggest customer for Italian exports.

Mr. Trump’s trade war has been weighing on European growth since early last year, but the effect was mostly psychological until recently. The uncertainty created by the administration’s tariffs made manufacturers reluctant to expand factories or add workers.

The tariffs’ impact is becoming more tangible, cutting into the earnings of companies like Salzgitter, a steel maker in the German city of the same name. Salzgitter warned this month that pretax profit in 2019 would be half or less than the 347 million euros, or $391 million, that the company earned in 2018.

American tariffs on steel imports are partly to blame, although mostly indirectly, said Bernhard Kleinermann, a Salzgitter spokesman. The levies caused producers in countries like Russia and Turkey to flood Europe with steel they could no longer sell to customers in the United States, driving down prices.

Trade was not the only dead weight on Germany’s growth. Britain’s looming departure from the European Union, and the prospect that it might happen without an agreement covering future economic relations, was another significant source of anxiety.

German carmakers struggled to comply with tougher emissions standards, which delayed delivery of new vehicles. Even an especially dry summer played a role. The level of the Rhine River fell so low that barge traffic became impossible, holding up shipments of German chemicals that normally travel by water.

Those were temporary problems, though, making some economists optimistic that growth could improve in the coming months. The horizon will seem much brighter if Britain overcomes its political deadlock and works out a deal with Brussels, and if the United States and China can resolve their differences over trade.

Economists also expect the Chinese government to stimulate the country’s economy, which would help revive demand for German products like cars and machine tools.

Although Germany has been flirting with recession, it hardly feels like an economy in crisis. At 3.3 percent, the country’s unemployment rate is still the lowest in the eurozone. Consumers continue to spend, and businesses continue to invest.

“The fundamentals of the economy are still so solid,” Carsten Brzeski, an economist at ING Bank, said in an online video.

Many things could still go wrong. Mr. Trump continues to threaten to impose tariffs on imported European cars, a move that would strike Germany particularly hard because of the outsize role the auto industry plays in the country’s economy.

“An escalation, in relations between the U.S.A. and China as well as between the U.S.A. and the E.U., is still possible,” Gregor Eder, an economist at the insurer Allianz, said in a note to clients. He was among the economists dialing back their expectations for 2019.

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NYT > Economy


Author: JACK EWING