Monday, November 26, 2007

Another Bad Justification for Cutting the Estate Tax

I already instructed my readers the previous week about their Arizona tax credit contributions, so this week it was safe to talk about how far real estate prices still have to fall. My suggested headline was "Bubble, Toil, Trouble -- And Estate Taxes" but the editor focused on the real estate angle.

Nobody told me that the Tribune's Perspective section would be given over to tributes to R.C. Hoiles, the extremely libertarian founding publisher of the Orange County Register, which is the current owner of the Tribune. It was like reading the worst of the Arizona Republic about what a really, really swell guy Eugene Pulliam was, because he had only your interests at heart. Sheesh. (Check out this quote from the previous link):

The acquisition [by Gannett of Central Newspapers, publisher of the Republic] is the end of the long reign of the Pulliam family, the descendants of the company founder, Eugene C. Pulliam, a conservative publishing clan whose members include Dan Quayle, the Republican former vice president. The family has long been a political force in Indiana and Arizona -- indeed, one investment banker pointed out that neither state observes daylight time ''because Eugene Pulliam always refused to change his clock.''

Next week: Libertarian sex tips from Ayn Rand!

East Valley Tribune, Nov. 25, 2007

We’ve always had real estate triumphalism in Arizona, and last week it tried to justify a tax cut for the really rich. Last Wednesday, GOP stalwarts Michelle Bolton (of the National Federation of Independent Business) and Alan Langston (of the Arizona Real Estate Investment Association) became exceedingly strange bedfellows of Rep. Harry Mitchell, D-Ariz., praising his support for letting Paris Hilton inherit everything tax-free. After all, Arizona home prices increased 150 percent over the past 10 years!

That’s the latest justification for eliminating the estate tax, even though most people already would pay no taxes on sale of a personal residence. Never let the facts stop arguments in favor of letting billionaires avoid millions in taxes by pretending that regular guys benefit, too.

Sorry, Harry, but if there were actual family farmers or small business owners affected by the estate tax, we’d know their names by now. Opponents of this giveaway can cite Paris Hilton. Proponents have nobody, but it’s not like they haven’t tried. Sen. Jon Kyl, R-Ariz., also a huge fan of the rich paying less, searched in vain for a Katrina victim who faced the estate tax. When a tax cut is being "justified" by lies and fairy tales, maybe it isn’t such a good idea.

However, considering the latest real estate news, maybe using home price appreciation wasn’t such a great idea, either. Two days before the Bolton-Langston column, Goldman Sachs housing analysts turned really, really bearish on Arizona.

Goldman’s chief U.S. economist, Jan Hatzius, raised doubts in 2006, estimating that housing prices were overvalued by 20 percent. In last Monday’s conference call, Goldman predicted that nationally, housing prices still have 13 to 14 percent to fall.

Arizona’s already part of that trend. First American’s Loan Performance index reported Phoenix real estate prices dropping 6.72 percent between August 2006 and August 2007. We’re not used to drops; if growth is under 2 percent, we get cranky. But the declines already have started; the only question is how low it’ll go.

Goldman’s analysts say a lot lower. They see the overall national drop masking even more severe declines in certain markets, predicting 30 percent price depreciation in the 8 states which had the biggest price rises -- including Arizona.

In hindsight, anyone could see that house prices couldn’t race ahead of increases gains in income forever; that speculators and extraordinarily low mortgage rates and lending standards would leave after bad news arrived. It’s also not the media’s fault for that bad news; nobody credited the media for the good market. Those good times were, of course, due to the brilliance of people who, in reality, were only bobbing like corks on a wave.

Current national estimates of losses, both private and public, from the real estate bubble have risen past $400 billion. To put that in perspective, adjusting for inflation, the S&L crisis was $240 billion. Really pessimistic economists who track real estate prices against historical benchmarks think the bubble is much bigger yet. Research by Yale’s Robert Shiller shows house prices tracking inflation for 100 years prior to 1995, at which point prices rose by more than 70 percent after adjusting for inflation. If Shiller’s model is correct and house prices revert to historic norms, the bubble is larger than $8 trillion.

That’s a big, big number. What happens to property tax collections? How many jobs will be lost in the finance-insurance-real-estate sector? Is Maricopa County ready for thousands of assessment appeals and drops in valuations? Will builders keep selling at a loss to liquidate land inventories and avoid greater losses? How will outer-ring suburbs expand services to half-built subdivisions? Were permanent state tax cuts based on statistics distorted by the dot-com and real estate bubbles?

For people who obsess about this sort of thing, it’s time to start quoting Margo Channing and figuring you won’t sell the house for 3-5 years. And the next time Alan Greenspan says you really should get an adjustable-rate mortgage? Don’t.

Monday, November 19, 2007

Helping Others At No Cost To Yourself

My annual Arizona tax credit column came out a week earlier than usual this year. It’s no joke about 45 people at our home for Thanksgiving this year, though. Our wedding present to the parents of the bride, who are having the wedding at their house two days later, is having their family, and the groom’s, at our house for Thanksgiving.

East Valley Tribune, Nov. 18, 2007

Thanksgiving comes slightly early this year, and so does my annual explanation-and-exhortation regarding Arizona income tax credits. The state tax code has at least as many credits buried inside as we’ll have guests for Thanksgiving -- so I’ve got to finish this column now to start making stuffing.

Most people understand deductions, which reduce taxable income and therefore lower your taxes, saving you a portion of the donation based on your marginal tax rate. But tax credits are straight-out reductions in your taxes -- below the line, if you will -- and Arizona has several that allow you to reduce you taxes by the amount of your charitable donation. It’s generosity that costs you nothing, provided you’ve got the cash, itemize deductions, and don’t have Alternative Minimum Tax issues.

First, contribute to a "private school tuition organization" for a matching Arizona income tax credit. PSTOs offer scholarships to private schools. Individuals can get a credit of $500; married couples, $1,000.

If you don’t know a PSTO, please consider Schools With Heart, 1131 E. Highland, Phoenix, AZ 85014; designate your check for the Family School, a unique, progressive school serving children from diverse backgrounds. You report your contribution on Form 323 when you file your Arizona taxes and get a full credit up to the cap; you also report the donation as a charitable contribution on your federal return. (Make sure you track the contribution both ways; I forgot to include some Arizona tax credit donations as charitable contributions on my 2005 federal return. Oops.)

Second, there’s a similar-but-smaller tax credit for donations to public schools. (Heaven forbid Arizona should be too generous with public schools!) If single, you can give and get back up to $200; if married, $400. You write the check directly to the school, not to a PTO or foundation, and report this credit on Form 322.

Naturally, better-off school districts seem to get much more tax credit donations; those are the folks with the money to play this game. To help even things out, consider a contribution to the Isaac School District, 3348 W. McDowell Road, Phoenix, AZ 85009, or call (602) 455-6700. Inner-city Isaac, with over 90 percent of its students at or below poverty and about two-thirds from non-English-speaking homes, needs your help more than wealthier suburban schools.

Third, giving to charities assisting low-income residents qualifies for another tax credit if you’re giving above your "baseline" (basically, your charitable contributions in 1996, or the first year you itemized). The credit is $200 for single taxpayers, $400 for couples, and you use Form 321 in April.

I’m on the board, so of course I’d like you to contribute to the behavioral health programs at Devereux Arizona. Some kids in Devereux’s foster care and residential programs won’t get holiday gifts unless you contribute. Please donate to Devereux’s "My Little Stocking" fund; children who otherwise wouldn’t can have a memorable holiday, and you get your contribution refunded on your state taxes. Send your check to Devereux Arizona, 11000 N. Scottsdale Road, Suite 260, Scottsdale, AZ 85254, or call (480) 889-0576.

Fourth, help fund Arizona’s pioneering publicly-financed election system. This tax credit is surprisingly generous, $610 for individuals and $1,220 for couples, or up to 20% of your total state tax liability, whichever is greater. Send your contribution to Citizens Clean Election Fund, 1616 W. Adams, Suite 110, Phoenix, AZ 85007.

Finally, there’s another cost-free donation you can make, and you don’t even have to file a tax form. Give blood. Call United Blood Services at (602) 431-9500, or make an appointment online at Put all those calories you’ll eat this week to good use.

So write some checks by Dec. 31, which reduce your state taxes on April 15. It’s bad public policy and benefits the better-off at the expense of those below the median, and only works for those with the money to spare for 4 months. But who knows? Maybe making "free" contributions will teach you the importance of charity -- even when it isn’t reimbursed.

Tuesday, November 13, 2007

If Only One Party's Extreme, It's Not a Mutual Problem

I worried that another wonky column on health care policy would be a bit much for my readers, so this time it's the U.N. Convention on Law of the Sea (UNCLOS). Excited? The only topic less enthralling than tax policy--international law! Hey, but it's my column.

You'll notice that I share the Tribune Sunday op-ed page with someone all upset over some weird plan to create a unified North American currency. Of course, with what's happened to the US dollar recently, maybe we should want to get paid in loonies. This week, Linda's column is a salute to a proposal from a Chandler locksmith that government should require a 4-month boot camp for new fathers of boys. That's your limited government for you! As the late Charles Black used to say, there's no such thing as a principled strict constructionist; sooner or later, they all want to do something.

East Valley Tribune, Nov. 11, 2007

Last week on this page, Linda Turley-Hansen demanded that we absolutely must come together to defend our freedoms, to stay together on key issues while agreeing to disagree on the rest! We need unity, never mind labels!

Yeah, sure, fine. But you first, Linda -- if you want unity, agree with me.

All this "I hate partisanship" and "unity" talk really means "shut up and obey me." So forgive me if I find Linda's terror of an imminent unified North American currency to be black-helicopter-and-tinfoil-on-windows stuff.

Linda's call for unity, on threats only she and fellow travelers see, is matched only by pundits who decry the "increasingly partisan" nature of politics. If only politicians could see past party labels and recognize that the real answers to our problems are "centrist" ones!

But as Ezra Klein noted, "centrist" means not opinions near the center of the American public's opinions, but rather opinions similar to those of well-paid Washington pundits, with occasional breaks with one's party on high-profile issues. These folks use "centrist" the same way Linda calls for "unity": Agree with me, for your own good!

There's a fundamental historical illiteracy in these complaints. It makes Americans uncomfortable to remember that for a century after the Civil War, the organizing principle of American politics was race. As Mark Schmitt wrote, it was an accident of history that one political party became home to both Southern conservatives and northern immigrants, and the other to merchants, manufacturers, and minorities. Over the past 50 years, those unwieldy coalitions have drifted apart, yielding us two far more ideologically consistent parties. You may yearn for the bygone days of the Southern white Democrat and the New England Republican, but they only existed because we didn't let blacks enjoy full participation in American life.

It's also historically illiterate to decry "special interests" as a source of partisanship, because those groups generally still operate in a bipartisan fashion. The sugar growers, the pro-Israel lobby AIPAC, automakers -- all the truly professional players cultivate support in both parties. Even abortion; the top Senate Democrat is pro-life Harry Reid. If you think the problem is too much partisanship, you want more "special interests."

But the final false trope is the "plague on both their houses" argument, that both parties are equally to blame for the widening ideological gulf. This argument usually requires trotting out some left-wing Democrat and some right-wing Republican who are equally far from the speaker's "centrist" position. The problem is that the Democratic wacko is usually some anonymous blogger, while the Republican wacko is a powerful public official.

The latest example comes from Arizona Sen. Jon Kyl, who has made it his cause to oppose the U.N. Convention on Law of the Sea. UNCLOS is supported by the Bush administration, the US military, and by environmental and business groups. About 150 other nations already have ratified. Even treaty critics like Sen. Jim Inhofe, R-Global Warming Denial, admit that the Navy supports UNCLOS because of the treaty's rules of navigation and exemption of military activities, and that treaty would not require the U.S. to appear in any international court. (But Inhofe opposes the treaty anyway because we might violate it, which could cause our international standing to suffer. It's better our international standing suffers because we hold out on something supported by basically every other country.)

In the Senate Foreign Relations Committee, the vote to approve was 17-4, with 11 Democrats and six Republicans in favor, and with four Republicans and no Democrats opposed. So a majority of committee Republicans support the treaty. Even the oil industry supports UNCLOS.

This isn't just being partisan, although Kyl does seem more interested in the Republican Senate leadership's position, not what's best for the country. This isn't just being hypocritical, because Republicans who told everybody to obey Gen. David Petraeus on Iraq are ignoring what the same military says about UNCLOS.

This really is about how these days, "mainstream conservatism" is really the black-helicopter-and-tinfoil-on-windows crowd. It's pretty much all they've got left. Unconvinced? Just ask Jon Kyl why he and Trent Lott oppose UNCLOS.

Wednesday, November 07, 2007

When People Ask If I'm Thinking Of Running Again, This Isn't What They Usually Mean

New York City Marathon 2007! NYC for me was a terrible time and a wonderful day. It wasn’t going to be my day, for a large number of reasons, and early on I realized my sole goal had to be to finish. So while I’ve run better and faster, I’m as satisfied with what I did (4:54) on Sunday as any previous marathon (and I still made the newspaper the next day, 5 hours was the cutoff for the Times). And New York is a great race, with an amazing number of people both running and watching; it took 27 minutes to reach the starting line. Lots of marathons have people clapping, or clanging cowbells; only in New York do they also cheer on the runners with Purim groggers.

UPDATE: Photos!
How Not To Manage An Agency

It's more Andrew Thomas this week. My suggested headline was above, but the editor thought something else would invoke the "heckuva job, Brownie" style of executive leadership more directly.

East Valley Tribune, Nov. 4, 2007

In my day job, I run a law firm. So I also have a professional interest in Maricopa County Attorney Andrew Thomas and his "leadership style." What Thomas’s "special assistant" Barnett Lotstein this past week called "decisive leadership" ("Thomas deserves credit for decisive leadership," Opinion 2, Tuesday) I call "trashing a public agency."

Thomas and Lotstein will be spinning away the news that use of outside attorneys has soared under the Thomas regime. Now, it’s of course true that all county attorneys in Arizona use outside attorneys. Lots of cases require specialized expertise, like defamation or AHCCCS reimbursement cases, and it doesn’t make sense to develop expensive and infrequently-used expertise in-house, and then only use it infrequently.

But because something makes sense sometimes in some cases doesn’t mean it makes sense all the time in all places. First, it’s highly deceptive to compare the Maricopa County Attorney’s office to others in the state, because Maricopa is so much bigger. Thomas’s office has over 300 attorneys, and that’s with 10 percent of his positions vacant. Pinal County or Gila County has maybe one-tenth or one-fifth as many, so it’s a lot harder to have a range of specialized expertise. If you’ve got 313 attorneys, you’ve got much more ability to do things in-house.

Second, use of outside counsel simply exploded under Thomas. Since taking office in 2005, Thomas has increased his office’s contract spending from $5.7 million to $9.58 million to $15.97 million. With those numbers, it’s not just the high-profile cases, like the New Times grand jury investigation (and we sure got our money’s worth there!) The county has grown in population, and attorney hourly rates have increased, but not nearly by those percentages. With numbers like that, these contracts simply have to include lots of stuff that used to be handled in-house.

Under past county attorneys, Maricopa County found a way to develop a small, but cost-effective, group of experienced civil attorneys to handle liability claims. The county is a huge employer, landowner, and facility operator, and any business that size is going to have a steady stream of liability lawsuits. Some claims may be covered by insurance and the carriers’ outside counsel, but in a lot of cases, the county had to pay for the defense -- and found it a lot cheaper to develop a small group of seasoned civil trial lawyers who could handle these cases, leaving only the truly exceptional ones for outside counsel.

Thomas, however, thought it was more important to manage his office to get maximum airplay on talk radio, not the best value for county taxpayer’s money. Part of the deal with seasoned, senior civil litigators is that they tend to look down on junior, inexperienced, and there-because-of-politics-not-merit attorneys -- like Andrew Thomas. The senior guys had little use for Thomas’s wackier management policies, like sending 20- or 30-year attorneys to handle weekend or night court.

Thomas proudly announced that he expects every attorney in his office to handle all different types of cases. The senior guys say this is nonsense, you don’t send an expert to handle routine first-year stuff, and they start leaving. Then Thomas suddenly notices, gosh! His office lacks specialized expertise! His solution? Explode the number of contracts for outside counsel, including contracts to friends and former employers like Dennis Wilenchik.

It’s the FEMA style of management. You trash the agency, stock it with political hacks, run off seasoned professionals, and then are deeply saddened at the lack of expertise. You have simply no choice but to give large numbers of contracts to cronies and campaign contributors. It’s what the Bush administration has done to FEMA and to the Justice Department, and what they’re going to do to the State Department, too.

It’s bad management and bad public policy, and it only raises costs and reduces the quality of government. But the thing I resent most about Andrew Thomas is that just as Alberto Gonzales managed to make people look back fondly on Attorney General John Ashcroft, Andy Thomas is making us nostalgic for Rick Romley.