Proposed House Flipping Legislation

[urbie]

Ideally, most people within an economy will be doing things that are productive -- that sustain lives, create happiness, etc. Why do we want to pay people to move money around, when we could pay them to teach, or repair the transit infrastructure, or even paint paintings or do any of a million other things instead? Either scenario yields jobs, spinoff, whatever. But one scenario has immediately productive effects, and the other creates middle-men.

[Divot]

You're not paying them to do anything. People profit by buying and selling things all the time. Have you heard of wall street? People "moving money around" is just as vital (if not more so) then the other jobs you mentioned. Without a well functioning capital and physical marketplace you would not have the economic means to support anything else you want to do. Of course the government can put in place regulations to help the market function better and take care of externalities but what you are suggesting is ridiculous.

Ideally, most people within an economy will be doing things that are productive -- that sustain lives, create happiness, etc. Why do we want to pay people to move money around, when we could pay them to teach, or repair the transit infrastructure, or even paint paintings or do any of a million other things instead? Either scenario yields jobs, spinoff, whatever. But one scenario has immediately productive effects, and the other creates middle-men.

[eltron]

It seems like there might be some reason to prefer credits, but nobody's been able to offer one. I really don't understand why, in the abstract, you'd be against making these more efficient. Why don't we want to get our money's worth, instead of 80% of it? 80% efficiency, when closer to 100% efficiency is possible, means something _is_ broken.

[DavidSegal]

You're not paying them to do anything. People profit by buying and selling things all the time. Have you heard of wall street? People "moving money around" is just as vital (if not more so) then the other jobs you mentioned. Without a well functioning capital and physical marketplace you would not have the economic means to support anything else you want to do. Of course the government can put in place regulations to help the market function better and take care of externalities but what you are suggesting is ridiculous.

[DavidSegal]

Because the tax credit IS efficient. By its very nature, government gets the intended effect of shaping behavior for a public good (fixing up old, rotting, buildings and neighborhoods, preserving open space, environmental benefits, etc.) WITHOUT DOING ANYTHING or really spending a cent, and in reality actually generating revenue. The direct subsidy would just muddy the market.

[Divot]

The state's goal is to rehab historic buildings. I argue that it could be doing it at a much lower cost than it is, and submit evidence to this effect. Do you have reason to believe otherwise? If so, please explain.

[DavidSegal]

Heh... despite having been through business school, I confess to not understanding how the "dollar multiplier effect" works. But They

[DavidSegal]

You're original post wasn't about "rehabing historical buildings". It was about "people who just move money around". They are two diffrent issues.

[Divot]

But this is another argument for spending money on stuff, and not on brokerage. (The first argument being that it's better to spend money on productive investment/vital services than to spend money on moving money.) Poorer people have higher MPCs than richer people, so more spin-off will follow from using state funds to hire janitors and RIPTA drivers than will follow from using it, peripherally, to hire money managers.

[DavidSegal]

You're original post wasn't about "rehabing historical buildings". It was about "people who just move money around". They are two diffrent issues.

[Divot]

Um... my original post re tax credits was about finding a more efficient way to have the same effect on historic buildings, without paying people to move money around and without losing 15-20 cents on the dollar because the market value on these credits is so low. Because it would be better for the state if it got 100 cents of value for every dollar spent, instead of 80 cents of value for every dollar spent.

[DavidSegal]

Don't you understand that you as a government offical should not be deciding for people if they should spend their money on brokerage fees or a plasma tv?

[Divot]

That's not what we're talking about now. Conversation turned circa page 4.

[eltron]

I'm deciding whether or not the state should spend money in a way that saves the taxpayers money, while achieving the same goal. I think we should save this money. Pretty basic concept.

[eltron]

Oh, and by the way,

many developer's do not sell the credits - they use it just like you might use the earned income tax credit - they take it right on their return, thereby bypassing the entire brokering and selling of the credit.

If you've got the money up front, why sell it for 80 cents when you can take a dollar? of course, that is really up to the individual to decide...

(I can't really believe I said that, cause I really am a socialist at heart - I just firmly do believe that private organizations (non-profit or for-profit) working winthin our existing economy (with government assistance) is the most efficient and productive way of doing some things...

[eltron]

Please, read this:

Growsmart RI - Maintain the Historic Tax Credit

Thanks.

[c.a.haynes]

Oh, and by the way,

many developer's do not sell the credits - they use it just like you might use the earned income tax credit - they take it right on their return, thereby bypassing the entire brokering and selling of the credit.

If you've got the money up front, why sell it for 80 cents when you can take a dollar? of course, that is really up to the individual to decide...

(I can't really believe I said that, cause I really am a socialist at heart - I just firmly do believe that private organizations (non-profit or for-profit) working winthin our existing economy (with government assistance) is the most efficient and productive way of doing some things...

[DavidSegal]

Please, read this:

Growsmart RI - Maintain the Historic Tax Credit

Thanks.

[DavidSegal]

In many cases, the tax credit allows development to occur that would not have occured without them. Two examples:

1. The Rau Fastener complex on the corner of Sprague and Bucklin Streets in Providence. The building, having been rehabilitated, is now adding badly needed affordable residences to the market. Given the neighborhood and the condition of the buildings, it is extremely unlikely that the project would have happened without the tax credits, state AND federal.

2. The Royal Mill in West Warwick. Without the Tax Credits, it is extremely likely that this would be a Lowe's / CVS / Walmart blowout by now. Instead, we have a 500,000 SF Mill that is paying property taxes and giving West Warwick an economic boost.

Also, it is important to recognize that the State Credit, while often sold to Corporate buyers, adds significantly to the tax base of the communities in which these buildings sit. Imagine the bump to Providence's tax base once ALCO, Promenade, RAU, etc. are all on line? The real question is: with all that $, what does the CIty propose to do with the increment?

[jencoleslaw]

In many cases, the tax credit allows development to occur that would not have occured without them. Two examples:

Also, it is important to recognize that the State Credit, while often sold to Corporate buyers, adds significantly to the tax base of the communities in which these buildings sit. Imagine the bump to Providence's tax base once ALCO, Promenade, RAU, etc. are all on line? The real question is: with all that $, what does the CIty propose to do with the increment?

[eltron]

I've read their report -- Like I've said, I'm not trying to change the effects of the credit on development. (Except maybe to make it skew more towards affordable housing. But that's a separate point, and not what I'm trying to address here.)

Right now with the credits, we know that credits issued in a given year are generally going to be called within a few years.

I agree that with, say, property tax breaks, for instance, if we don't give a project a given tax break, it might not happen. And so it doesn't make sense to count the taxes that are conceded as "lost revenue" or a straight giveaway, or whatever.

But if the trade-off is between making the project happen one way, vs making it happen another way, and one scenario the state will have more money than under the other, it makes sense to count the difference as lost revenue. (Or gained revenue. Doesn't really matter.)

Not all credits, but a majority of them, are sold on the market. It's largely the smaller guys who are using them themselves. (I'm trying to get more details on all of this stuff, but tax returns are really secretive, with reason.) So it'd be easy to distinguish between the big projects and the smaller ones -- maintain the credits for people who are likely to use them themselves, and subsidize the bigger projects. And then, with fewer credits on the market, we might see the value of those that slip through -- the ones that do need to be sold -- go up to buyers, and be worth more to the people who are doing the work that generated them.

[DavidSegal]

I DO see your point...I am just skeptical that your scenario would net more revenue (or save the state money, whatever.) If you can give me definitive proof, I'm all for it. I guess we'll continue the discussion...

[c.a.haynes]

Again, that's not my point. I'm not talking about whether these projects are good or not. I'm talking about finding a different way to get the developers the same amount of money, that'd be better for the state.

[DavidSegal]

WHether they are good or not is irrelevant... You missed my point... The State absorbs a loss of taxes (albeit the taxes are NEW taxes that did not exist before) while the City, such as Providence or Woonsocket or West Warwick, where the vast majority of the people live, see large gains in tax base. The Tax Credit becomes a vehicle by which high property taxed properties are brought on line due solely to the use of the RI Credit. It's okay for the State to lose "found" revunues while adding cash to municipal coffers.

[Bil]

Uh oh, look what that raging lefty socialist Don Carcieri is proposing in the new budget...

ProJo Link

Carcieri proposes to cap the number of projects in a year that can claim the credit and hopes to restructure the way the credits are taken to save the state money.

...

The credits are given to developers who often don’t have large tax liabilities. So instead, the developers sell their credits at a discount, typically to wealthy individuals who use the credits to reduce their Rhode Island personal income taxes.

A $100,000 credit might be sold to a taxpayer for $90,000. The taxpayer gets a $10,000 tax break and the developer gets cash for a credit they might not have otherwise been able to use.

But the transaction is not quite that simple. In reality, there are a series of brokers, accountants and lawyers involved with selling the credits. The developer might sell the $100,000 credit to them for $72,000. The broker, in turn, sells the credit to the taxpayer for $90,000.

Carcieri proposes to cut out the middlemen. He wants the state to start purchasing back some of these credits at a discount. So instead of a broker buying the credit for $72,000, the state might pay $84,000. The individual taxpayer would never cash in the $100,000 credit, saving the state $16,000 in the end.