Proposed House Flipping Legislation

[TheAnk]

Massachusetts allows renters to deduct their rent up to a certain amount (I haven't paid taxes in Mass.

[Cotuit]

BUT.. I would imagine most people are not as fearful as me..

[DaveRPI]

I'm likely to be introducing legislation that'd put a pretty hefty tax on property flipping. (Quick purchases and sales of investment property, and not owner-occupied.) What do you all think of property flipping as a phenomenon? Are there any upsides to it, for society at large?

(BTW, I'm a State Rep nowadays.)

[DaveRPI]

i dont respond to UP IM's at work, David, but its not that i don't like you

i dont even know you, you may be a fine and decent human being, and i say nothing about your personal character, but if you were naive enough to propose something like that then i wouldn't want you representing me, my town, my county, my state, my country, etc

http://articles.moneycentral.msn.com/Savin...art.aspx?page=2

i get the feeling that you would be like the city councilors in chicago who propose legislation that they know is flawed to appeal to the masses who normally fall into their party lines, knowing full well that the law would never work and in the end would trace back to those who created it and then be blamed for affecting the economy in a such a way, but the publicity of opposing something large and institutional so loudly gets you the press needed to get re-elected w/o ever having to prove if your strategy would have worked even for the people you say you are trying to help...

that said, you may even be a cool guy, but thats what i see when i see a rep propose legislation like that...

ok back to work for me, sorry for the diatribe

[TheAnk]

DaveRPI,

You have to understand where this fellow is coming from. First I don't think transient students should be able to vote where their college is located.. Not at all.. But to quote the great Bill Belichick, "it is what it is"..

Some people do not have to work, instead have the priviledge of doing entertaining, non-paying or low paying interships, while others work with hairnets in the Dining Commons of their respective universities, on Stafford Loans.. This distorts their view of reality, as they do not know the reality of the way of the world..

You see.. The problem with politics as I see it, is you have severely disconnected people with the means to run, and through this disconnect, they float things like this here property flipping penalty..

On the flip side, you have Cotuit suggestion that would certainly detain slumlords from "profiting off the backs of exploited renters" through non-disclosure of income.. By offering rent tax receipts you would force landlords to fully disclose rental income.. And you would directly transfer income from the purported "haves" to the "havenots".. Yet, that solution is far too simple and too grounded in reality for a politician to adopt..

You see, that does not make waves.. Its old hat... Massachusetts has been doing this for years.. That does not get your name in the paper..

I should run for city council next election.. And the slogan would be simple..

"Regular guy like you."

I find it amazing that the middle class, being what 80% or so of total population cannot be rallied and motivated against people like Dave Segal, who have an undying altruistic vision to take money from hard working people and give it to non-working people.. Is this better than those politicians who take from the middle class and give to big business? To me, its all the same..

Rant mode = off.

[Cotuit]

Why didn't we elect Deval Patrick?

Patrick aims to speed building projects. Goal is to lure firms and foster expansion. [The Boston Globe]

[Frankie811]

Why didn't we elect Deval Patrick?

Patrick aims to speed building projects. Goal is to lure firms and foster expansion. [The Boston Globe]

[TheAnk]

I know its beating a dead horse, but isn't it time for a cleaning of house in RI politics? Cicilline and Esserman moved this city ahead a deacade in a few years.. (Yes, I voted Democrat for mayor for those people out there who think I have two right hands..)

For those who know, as I do not.. Who in city council needs to go? Who doe a good job, and who does not?

How is this DeLuca fellow? To me he seems decent from a distance.. I see he owns property in his district, which I think is key, and houses weekly? meetings with residents..

How are the rest of them? I feel they have a bit too much power for their own good..

[Frankie811]

How is this DeLuca fellow? To me he seems decent from a distance.. I see he owns property in his district, which I think is key, and houses weekly? meetings with residents..

[smcbride11]

According to that link, my household income makes me inelligible.

[DavidSegal]

It's amazing to me, Mr Ank, that you think that you represent your average Rhode Islander. Let alone the average voter in my district --which doesn't include very many college students, fyi, human beings that they are. (Noble to suggest that people who disagree with you shouldn't vote.) Your nasty rhetoric, and holier than thou-ness, make it very tough to take your schtick seriously. I've learned my lesson, and won't again request your opinion about policy considerations.

But I do hope you run for office, property-flippin' every-man that you are. You need the reality check.

[DavidSegal]

Anybody who wants to help me find the legislation referenced in the Deval Patrick article -- your assistance would be welcome.

[DavidSegal]

Likewise.

Looking at my '05 return (where I split time between MA and RI), it is indeed 50% of rent up to $2500... I didn't look closely, but I don't believe there's an income limit - if there is, it's well above $100k. I'd have to look at a tax table, but I do believe a credit of $250 would be more beneficial than a deduction of $2500... but I'm not sure that would be the case with extremely low incomes.

<rant> However, a limit of $30k seems artificially low for a credit like this. For instance, my girlfriend's a guidance counselor (required Masters' degree), who squeaks by on just enough to make her ineligible for this credit. But - she's paying a full 33% of her income on school loans... loans that she took out so that she could work in a RI public school. Throw in 28% for rent and 28% for taxes... where's food come from? Yes, I'm exaggerating a touch, but it just doesn't seem right that she'd be ineligible for such a small credit because she "makes too much". </rant>

[DavidSegal]

One more thought, before I get back to sleep. (Cotuit -- this might make sense in another thread, but I don't want to go poking. Also, I should reiterate that I appreciate a lot of the productive feedback I'm getting, and will just ignore the terrible two-year-olds from here on out.)

Historic Tax Credits --

Assuming we like the sorts of projects they're incentivizing, and don't want to change that: Is there any reason why we should be using a tax credit model, rather than giving direct subsidies to the projects that are a making use of the credits?

Over the next 5 years, the state will be giving away $500 million or so in credits. We give those to developers whose projects are in line with the various criteria. They hire brokers, for, say, 5 cents per dollar of credit, to sell those credits to taxpayer X who knows how to make use of them, at a market price of around 85 cents per dollar of credit.

So the developer gets 80 cents of value for every dollar issued, taxpayer X gets 15 cents, and a broker gets 5 cents.

If the point of the credits is to create incentives for developers to redevelop historic properties, why aren't we just giving them the 80 cents directly, and cutting out the middlemen?

Doing so would, more or less, mean we'd be getting the same value we'd get from the $500 million in credits, at a cost of $400 million. We did this with the Masonic, though that project is unique in that it was an EDC project on land that had been state-owned. There's something weird about giving the money directly to developers, rather than obfuscating the matter, but I don't think we should pay $100 million just to not feel weird.

People who've been on the development side especially -- please let me know if there's something I'm not seeing here. (But gently please, as my bleeding heart can't take any more abuse from the likes of the Ank. It hurts me so.)

[eltron]

One more thought, before I get back to sleep. (Cotuit -- this might make sense in another thread, but I don't want to go poking. Also, I should reiterate that I appreciate a lot of the productive feedback I'm getting, and will just ignore the terrible two-year-olds from here on out.)

Historic Tax Credits --

People who've been on the development side especially -- please let me know if there's something I'm not seeing here. (But gently please, as my bleeding heart can't take any more abuse from the likes of the Ank. It hurts me so.)

[lauram]

If im not mistaken, i believe i have also heard arguments against direct subsidy in case a project doesnt actually make it to completion. then the subsidy is completely lost.

often i believe municipal agencies give loans to different projects for one reason or another, and ive always heard arguments where people worry that the municipality will be on the hook for the money if the project goes belly-up.

Quickly -

The concept of the credit is that it is not a giveaway - the dollars are only put into the project after it has been placed in service, thus already started to generate additional economic activity and other benefits (like nice new reuse of rotting buildings). If it was a direct subsidy, the state would have to have an enormous amount of cash on hand to delve out at the beginning, rather than take a potential hit on the revenue side in the future, which isn't even really a hit, because so much other ancillary revenue is generated.

In addition, the very transaction of the credit you described generates many jobs and other tax revenue, the financial transaction itself being an additional economic generator. That credit is about the smartest thing ever implemented in Little Rhody...and it really pains me to see it tinkered and toyed with fees and threats of killing it - instead it should be coupled with things like inclusionary zoning to ensure that more public benefits are included, and stuff like that...

[Divot]

People live in those houses, and so the buying and selling of them has much broader ramifications than the buying and selling of antiques. The former is a necessity, and the latter a luxury. Renters get evicted,property values and taxes in the surrounding area go up, the social fabric of neighborhoods is disrupted, and costs go up as demand for "housing" includes many people who aren't looking to use the "housing" as housing at all. Sometimes infrastructure not only isn't improved, but is actually allowed to decay more readily -- for instance, the anti lead-poisoning advocates see quick flipping as one of the biggest obstacles they face.

[Divot]

So, in large part, this'd be a tax on rich people from outside of Rhode Island, which seems preferable to me than most other potential revenue generators.

[DavidSegal]

Quickly -

The concept of the credit is that it is not a giveaway - the dollars are only put into the project after it has been placed in service, thus already started to generate additional economic activity and other benefits (like nice new reuse of rotting buildings). If it was a direct subsidy, the state would have to have an enormous amount of cash on hand to delve out at the beginning, rather than take a potential hit on the revenue side in the future, which isn't even really a hit, because so much other ancillary revenue is generated.

In addition, the very transaction of the credit you described generates many jobs and other tax revenue, the financial transaction itself being an additional economic generator. That credit is about the smartest thing ever implemented in Little Rhody...and it really pains me to see it tinkered and toyed with fees and threats of killing it - instead it should be coupled with things like inclusionary zoning to ensure that more public benefits are included, and stuff like that...

[eltron]

There has to be some way to structure a direct subsidy so that this isn't an issue. Why couldn't the state just enter into a contract with the developer, that promises the funding upon completion? Or some sort of tax break, rather than credit -- like the state could just pay the relevant municipality for reducing the development's property taxes. If we can get the same amount of money to the developers that they're getting to make use of today, it shouldn't harm the program at all. Would spur further development, if reduced inefficiencies meant lower taxes for everybody.

On the brokerage fees -- if we're calling that economic development, then we can call any expenditure economic development. I'd much rather spend the money in question on public works or schools or any of a million other things. Property tax/income tax relief so people can spend it themselves, etc. It's not like the money goes away or goes unspent if it isn't going to the brokerage houses.

[runawayjim]

I know... Asking the people who actually live in the State and use the services that the State/local government provides to pay for said services... not preferable at all... especially since they are the ones voting, right?

[Divot]

otherwise, those benefiting from the state, while putting nothing back into it are getting off scott free. this would be a mild version of NYC's commuter tax.

[pete11]

I have refrained from posting in this thread and will continue to do so, other than to say Mr Segal, you should read Galbraiths " A Short History of Financial Euphoria" http://www.btinternet.com/~phalperin/Bookshelf/shorthist.htm

His analysis, shows how from low level local politicos, to National and International players jump on the bandwagon once the madness is over, and enter into sobering times. The amount of bad and needless legislation that is born of these hacks is documented.

The reason for my post is the misunderstanding of the HTC's and the accounting, and auditing (or lack there of) that are generated by these credits..

This madness (residential/credit) was one ripe with fraud, and in RI these HTC's are its epicenter.

[DavidSegal]

But why mess with something that is more or less working perfectly? I really do not understand this...

The brokerage, trading, and selling of the tax credits is no different than any other business that deals with financial services. There is an entire industry focuesed around the buying and selling of municipal bonds - essentially investment in public infrastructure and the public good. If that market did not exist, bonds would not raise very much money to pay for high schools and whatnot. Again, I think you are missing the point on this...say five jobs are created just for the buying and selling of tax credits. you get to tax the income made by those individuals, they spend money on things like houses and cars most likely in the state, which generates sales tax, and so on and so forth. Its not like that money is wasted.

I've come to grips with the fact that we live in a capitalist, free-market economy...would I like to see more "socialist" aspects integrated? Sure. But at the same time, it has been proven over and over again that within the market-economy, tax credits for public amenities are win-win. So why are we trying to fix what ain't broken? Because the state is consistently in a deficit despite having enormously high tax burden, while every other state in the nation is running surpluses?

I think there is a reason that tax credits are the preferred way of doing this, both on the federal level and state level. I don't know of a single place that gives a direct subsidy on the order of value and benefit of the tax credits...

[DavidSegal]

Again, I think you are missing the point on this...say five jobs are created just for the buying and selling of tax credits. you get to tax the income made by those individuals, they spend money on things like houses and cars most likely in the state, which generates sales tax, and so on and so forth. Its not like that money is wasted.