Category Archives: nevada taxation

Taxscam 101: A Look At Deductions Lost by Individuals and Families (Part 2)

In general, the Republican tax plan makes tax cuts for corporations and businesses permanent while making those for individuals and joint filers temporary.  Further, those closed loopholes are YOURS.  Those special interests are homeowners, students, and employees.  The short version is: The loopholes being closed are those which benefit working Americans and not those which benefit the 1% or corporate America.

Here are a few: (pdf)

Section 1204: Under the provision, the deduction for interest on education loans and the deduction for qualified tuition and related expenses would be repealed. The exclusion for interest on United States savings bonds used to pay qualified higher education expenses, the exclusion for qualified tuition reduction programs, and the exclusion for employer-provided education assistance programs would also be repealed.

One of the ways the tax code can be used to encourage people to do certain things is by giving people a deduction for it — like deductions for the interest paid on student loans.  It really makes no sense to pontificate on the jobs/education mismatch if one isn’t going to help people retrain for new positions.  Nor does it help people wanting to enter STEM jobs to tell them, go ahead but we aren’t going to offer any assistance like a tax deduction for the student loan interest you’re paying.  And you can’t even deduct the interest paid by your US Savings Bonds used to pay educational expenses!

Section 1303: Under the provision, individuals would not be allowed an itemized deduction for State and local income or sales taxes, but would continue to be entitled to a deduction for State and local income or sales taxes paid or accrued in carrying on a trade or business or producing income. Individuals would continue to be allowed to claim an itemized deduction for real property taxes paid up to $10,000.

This provision doesn’t hit Nevada (with no income taxes) all that hard, but it does hurt states that do have an income tax — like the other 43 of them.  Notice the phrase “or producing income?”  if your tax liabilities come from (1) carrying on a trade, or (2) running a business, or (3) producing income — you get to deduct them.   Now, what produces “income” without trade or business activities?  If you guessed “investments” you’d be correct.

Section 1304: Under the provision, the deduction for personal casualty losses would generally be repealed. The provision would be effective for tax years beginning after 2017. The deduction for personal casualty losses associated with special disaster relief legislation would not be affected.

We’ve highlighted this one previously, and no matter how you cut it, unless Congress votes to declare your area a national disaster (like Texas after Hurricane Harvey) your personal casualty losses aren’t deductible.  Thus, if everything you own is pretty much gone after the earthquake, wildland fire, blizzard, or whatever… unless you get the Special Nod from Congress, YOYO.

Section 1307: Under the provision, an individual would not be allowed an itemized deduction for tax preparation expenses. The provision would be effective for tax years beginning after 2017.

Remember the Republicans are touting this bill as a Job Creator — a notion as fictional as the “job creators” who sit around exchanging hybrid and artificial financial products — but consider for a moment the jobs this section eliminates.  About 43% of Americans file their taxes from home (using some tax software or the plastic brains calculator and some pencil sharpening) the rest use a tax preparation service — an industry sector with about 109,000 firms in 2012, and a 2% growth rate to 2015.  Further, “The vast majority of tax preparers are small businesses – 37% are run by a single person, while 53% employ less than ten people.”   And, yet we hear the Republicans claim to be all about “small businesses.”  The big accounting firms are going to do quite well under the GOP plan, those Mom & Pop bookkeeping services or small local accounting firms/franchises are the ones to worry about.

Section 1308: Current law: Under current law, a taxpayer may claim an itemized deduction for out-of-pocket medical expenses of the taxpayer, a spouse, or a dependent. This deduction is allowed only to the extent the expenses exceed ten percent of the taxpayer’s adjusted gross income. Provision: Under the provision, the itemized deduction for medical expenses would be repealed. The provision would be effective for tax years beginning after 2017.

Again, this one! Of all the egregious provisions in the Republican plan this has to be the very worst.

Section 1310: Under current law, a taxpayer may claim a deduction for moving expenses incurred in connection with starting a new job, regardless of whether or not the taxpayer itemizes his deductions. To qualify, the new workplace generally must be at least 50 miles farther from the former residence than the former place of work or, if the taxpayer had no former workplace, at least 50 miles from the former residence.
Provision: Under the provision, the deduction for moving expenses would be repealed. The provision would be effective for tax years beginning after 2017.

And this one again. Notice it’s all on the individual employee — the JCT expects this will put about $10.6 billion in the Treasury from 2018 to 2027. ($1.06 billion each year)  For about a billion bucks a person could buy a couple of Airbus 380s.  Not exactly a major revenue stream for the government in comparison to what employees would face in a major career move or reassignment.

Why are we discussing these items? Because the Republicans want a plan of which 80% of the benefits go to the top 1% of the population.  But, how about those ads on TV about how much money we’ll get back to put in our own pockets?  A bit of unsolicited advice: (1) the numbers are fudgy — too much of it depends on the Growth Fairy waving her magic wand; (2) the numbers are fudgy — the studies from which the numbers are selected aren’t very well tested; and (3) the numbers are fudgy — the numbers actually show us that what the Republicans are proposing is a deficit financed tax cut.  And, here we we’re thinking they were “deficit hawks” and all for “fiscal responsibility” and “lower national indebtedness.”  Maybe not. so. much.

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Filed under Nevada politics, nevada taxation, Politics, tax revenue, Taxation

Real Nevadans Real Numbers Real Income

The big push of the week appears to be that the Republicans have in mind a “middle class tax cut.”  Notice please that we’re not getting all that much in the way of “tax reform” but we are poised to get a deficit financed tax cut.  And, that WE part doesn’t actually include all that many people who file tax returns from Nevada.

Nevada by the Numbers:  2,940,058 Nevadans filed tax returns in 2015 (the last year for which statistics are available from the IRS.) 655,530 were individual tax returns and 440,130 were filed as joint returns.  There were 233,730 filed as Head of Household. 713,530 filers used paid preparers.  The number in that last category ranges from those who have extremely complicated filings to those of us who simply find it convenient to have someone else fill in the forms, or those who take advantage of tax prep companies who offer free filing services to those who don’t actually owe taxes or have small refunds due from the taxes they’ve already paid.

When we look at the adjusted gross incomes reported by Nevadans it may be useful to put the numbers in some context.  For example, the median income in Nevada is $51,847 and the per capita income is $26,541. The median value of a housing unit owned by the occupant is $173,700 and the median selected mortgage cost is $1,442 per month.  The median gross rent is reported as $973.00.  This gives us a preliminary picture of the 1,016,709 households in Nevada, and our population of 2,940,058.

1,350,730 Nevadans filed income tax returns in 2015.   27.21% of the Nevada filers reported adjusted gross income between $25,000 and $50,000.  13.5% of filers reported AGI between $50,000 and $75,000. 8.15% reported AGI between $75,000 and $100,000.  Another 10.22% reported an AGI between $100,000 and $200,000.  From this point on the percentage of filers by category drops, those reporting AGI between $200,000 and $500,000 were 2.48% of the filers; those reporting AGI between $500,000 and $1 million were 0.43%, and those reporting over $1 million AGI made up 0.26%.

The current (2017) tax brackets and explanations can be found compliments of the Tax Foundation in a convenient table form for single and joint filers. To make a long story a bit shorter, a person would have to have an AGI (adjusted gross income) of at least $191,650 if filing a single return to hit the 33% bracket, and $233,350 if filing a joint return.

The numbers indicate that 48.95% of those filing Federal income tax returns from Nevada are reporting below $100,000 in annual adjusted gross income.  Some of the 138,000 Nevada filings between $100,000 and $200,000 AGI may have been included in the bracket in which there is a $18,735.75 liability plus 28% of an excess over $91,900.  Fewer still would be in the 33% bracket with a liability of $46,643.75 plus 33% over $191,650.  Indeed, only 3.17% of Nevada returns reported AGI over $200,000 annually (35% and 39.6% brackets.)

Where’s the middle? Numbers are objective and instructive, but tax policy can get pretty emotional.   By the numbers a person earning about $52,000 per year in this state is in the “middle.”  Pew Research provides one of the more commonly accepted definitions of Middle Class, “2/3rds to 2 times the national median income for household size.”  In current parlance this would be in a range of $46,960 to $140,900.  If we compare this to the Nevadans filing tax returns in 2015 then 21.74% are in the $50,000 to $100,000 AGI range; some others will be in the $100,000 to $200,000 AGI range (10.22%.) Undifferentiated reporting with two sets of categorization make this a difficult call without being able to drill down into that latter classification of filers)  However, what these numbers do tell us is that to be considered a Middle Class Tax Cut the benefits should accrue to those earning between $46,960 (a little below the Nevada median earnings) and $140,900.

So, how does the current edition of the Republican tax plan fit into “the Middle.”

“Despite repeated promises from Republican lawmakers that the plan is designed to provide relief to the middle class, nearly 30 percent of taxpayers with incomes between $50,000 and $150,000 would see a tax increase, according to the study by the Urban-Brookings Tax Policy Center. The majority of households that made between $150,000 and $300,000 would see a tax increase.” [WaPo]

The report from which the Washington Post article is derived is more specific.

“In 2018, the average tax bill for all income groups would decline. Taxpayers in the bottom 95 percent of the income distribution would see average after-tax incomes increase between 0.5 and 1.2 percent. Taxpayers in the top 1 percent (incomes above $730,000), would receive about 50 percent of the total tax benefit; their after-tax income would increase an average of 8.5 percent. Between 2018 and 2027, the average tax cut as a share of after-tax income would fall for all income groups other than the top 1 percent. In 2027, taxpayers between the 80th and 95th percentiles of income (between about $150,000 and $300,000) would experience a slight tax increase on average.”

There’s something about an analysis from the Tax Foundation reporting that 50% of the total tax benefit going to the top 1% that doesn’t sound precisely like a “middle class tax break.”  In short, the analysis makes it seem much more likely that the plan would be far more beneficial for the Nevada income earners who report AGIs over $500,000 per year, a total of 9,290 filers out of 1,350,730 who filed tax returns.  This really isn’t a “middle class tax cut.” At least not in terms of the real Nevadans, who report their real incomes.

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Filed under Economy, income tax, Nevada economy, Nevada politics, nevada taxation, Politics, Taxation

While We’re Ducking and Dodging

While we’re ducking, dodging, and otherwise attempting to avoid damage from the GOP, they’re still busy with legislation to make our lives just a bit more difficult.  Cases in point:

The House leadership has delayed, but hasn’t promised to discard, a bill, HR 367, to allow the general sale of silencers — which the proponents tell us will mitigate hearing loss for gun owners.  Pro Tip: A nice pair of headset style ear protectors will set you back about $30.00 (if the foamies will do you can buy’em for about 12 cents each in a bucket of 200) as opposed to spending $1300.00 on a suppressor for your AK/AR-some number or another.

The GOP tax cut legislation, which somehow is being titled “reform,” is a walloping giveaway to the top income earners in the U.S.  Not sure about this? See the Institute on Taxation and Economic Policy, that tells us those in the bottom 20% will see 1.3% of the tax benefits while the top 1% will enjoy 67.4%. Bringing this closer to home, the top 1% of income earners (which amounts to about 0.4% of our population) will get a 70.7% share of the tax cuts. For all that chatter about the Middle Class, the plan doesn’t really help middle class Nevadans:

“The middle fifth of households in Nevada, people who are literally the state’s “middle-class” would not fare as well. Despite being 20 percent of the population, this group would receive just 4.6 percent of the tax cuts that go to Nevada under the framework. In 2018 this group is projected to earn between $38,900 and $60,600. The framework would cut their taxes by an average of $380, which would increase their income by an average of 0.8 percent.”

Just to put this in context, a family in Nevada’s middle income range would see a tax cut of about $380…meanwhile back at the home mortgage, if that family is in Reno where the average home loan is about $187,000, the monthly payments are about $855 per month.  Congratulations Middle Class Nevadans, you may receive an annual prize of 44% of one month’s mortgage payment.  Color me unimpressed.

The GOP passed its version of the FY 2018 budget on a 219-206 vote.  Representative Mark Amodei (R-NV2) voted in favor of the bill; Representatives Kihuen, Titus, and Rosen were in Las Vegas attending to their constituents in the wake of the massacre at the music concert.   The AARP was quick to notice that the Republican plan calls for $473 BILLION to be cut from Medicare over the next 10 years.   Expect a cap on the Medicaid program funding; it wouldn’t be too far off to estimate cuts of about $1 TRILLION in that category.   Beware when Republicans speak of “entitlement reform,” that simply means cutting Social Security benefits and Medicare.  When they say “welfare reform,” they often mean cutting Food Stamps, Housing Assistance, and Medicaid.   Representative Amodei might want to explain why he supports cutting Medicare by $473 billion over the next decade?

Those in Nevada’s 2nd Congressional District can reach Representative Mark Amodei at 202-225-6155 (Washington DC) 775-686-5760 (Reno), or 775-777-7705 (Elko);  the office addresses are — 332 Cannon Building, Washington, DC 20515; 5310 Kietzke Lane #103, Reno, NV 89511; 905 Railroad Street, Ste 104D, Elko, NV 89801.

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Filed under Amodei, Economy, Federal budget, Health Care, health insurance, housing, Medicaid, Medicare, Nevada, Nevada economy, nevada health, nevada taxation, Politics, Republicans, Taxation

Deflection, Distraction, and Destruction: Trump & the GOP

“…this is exactly what Trump does when he’s in trouble. He finds an enemy and punches as hard as he can.”  [WaPo]

Now, why is he in trouble? And,  what will happen today in Reno at the American Legion convention?  Additionally, who will be standing with the President at the closed to the public event?  The Nevada Independent, which if you’ve not already bookmarked you should, reports: (1) Adam Laxalt, Tea Party Darling will gleefully meet the President and has wrangled radical right wing VP Pence to his Basque food-fest; (2) Dean Heller, maybe not so much but then he won’t say — so what is new about the Heller rope-a-dope strategy? (3) Mark Amodei (R-NV2) showed up Tuesday and may have skedaddled? “A spokeswoman for Amodei did not respond to a follow up question as to whether or not the congressman would meet with Trump while the president is in Reno.” (4) Governor Sandoval appears to be adopting the Republican Gubernatorial Avoidance Strategy — meet him at the airport and then scamper off out of sight thereafter.  If the crowd is thinning, then why the Great Counter Punch?

What makes the President go into full attack mode?  What sends him off on tangents about white supremacy, statues of CSA ‘heroes,’ and “the Media?”  There’s a pattern, the deflection and distraction flare as the investigation of his connections to the Russians progress.

Why did he fire former FBI Director James Comey? Why was he upset with A.G. Jeff Sessions?  Why did he hammer Sen. Mitch McConnell? — Why the “profane shouting match?

“During the call, which Mr. Trump initiated on Aug. 9 from his New Jersey golf club, the president accused Mr. McConnell of bungling the health care issue. He was even more animated about what he intimated was the Senate leader’s refusal to protect him from investigations of Russian interference in the 2016 election, according to Republicans briefed on the conversation.”

What happened prior to August 9, 2017 that’s increased the need for deflection and distraction?

On August 1, 2017 PBS reported that the President dictated the message delivered by his son concerning the meeting at Trump Tower during the campaign with a small host of Russians who were very interested in “adoptions” (read: getting rid of the Magnitsky Act sanctions.)  The President’s assertions that the investigation is fake news and a witch hunt cracks a bit when it’s known that HE was aware of the trouble his son was in for taking and arranging that meeting.  On August 3, 2017 the President grudgingly signed the new Russian sanctions bill dictated by Congress. No fanfare, no ceremony, and two explanations or signing statements.  That was the same day the Wall Street Journal reported that Special Counsel Robert Mueller had impaneled a grand jury in the District of Columbia.

Senator Richard Blumenthal (D-CT) spoke out in support of the Grand Jury, and Mr. Mueller’s continuing investigation of all matters related to Russian interference, and thereafter was rewarded by a “tweet storm” of abuse from the President, reported on August 7th.  The Special Counsel investigators raided the home of former Trump Campaign manager Paul Manafort on August 9.  They were looking for tax documents and foreign banking records, and since they didn’t merely ask Manafort’s legal team for them we can safely assume Mr. Manafort was (a) not as cooperative as his press comments made him out to be, and (b) in possession of things he might very well want to destroy before they landed in Mr. Mueller’s hands.

Events in Charlottesville, VA on August 12 and 13, 2017 intervened to capture public attention as Neo-Nazis and white supremacists took center stage, and as the President waffled about who might have been “responsible.”  Presidential commentary about “history” and “heritage” as if they are synonymous deflected and distracted from the continuing Russia probe.

Fast forward to August 22, 2017 on which it is revealed that the “Trump Dossier” re-emerges into the public consciousness.  Spokespersons for the President have tagged the dossier as “unsubstantiated,” “debunked,” or “unproven” as a general matter, without noting that individual contentions within the document are still under investigation.  The president of the company underwriting the dossier has now spent an entire working day with the staff of the Senate Judiciary Committee.    Interestingly enough, the President chose to spend a significant amount of his time during a campaign rally in Phoenix on August 22nd railing about “fake news” and the “unfair media.”

Those dismissing the dossier as “debunked” may be a bit premature.  The origin of the dossier investigation lies within the “never Trump” wing of the GOP, and after Trump secured the GOP nomination the Clinton Campaign was interested in the contents.  For a “debunked” piece of investigation it’s certainly had an impact, and the FBI now has information from the author about his sources, again as of August 22nd.  If some of the allegations in the Steele Dossier can be sourced, investigated, and substantiated, then the generalized “debunking” portion of the President’s defense can start to crack.  And, we wonder why he spent an inordinate amount of time denouncing the media on the evening of August 22, 2017?  Deflection and Distraction?

Perhaps now this paragraph concerning the cracks reported by the New York Times in the McConnell/Trump relationship makes more sense:

“During the call, which Mr. Trump initiated on Aug. 9 from his New Jersey golf club, the president accused Mr. McConnell of bungling the health care issue. He was even more animated about what he intimated was the Senate leader’s refusal to protect him from investigations of Russian interference in the 2016 election, according to Republicans briefed on the conversation.”

Why would the President become “more animated” about Senator McConnell’s purported failure to “protect” him?  Does the President demand Senator McConnell “protect” the President from the Senate Judiciary and the Senate Select Committee on Intelligence?

Protect him from What?  Destruction?  The gamble for Republicans — from reluctant Senator Heller to enthusiastic Adam Laxalt — is whether to hitch their political futures to the distraction/deflection tactics of the current administration or cut loose and hope he doesn’t lead them to destruction.

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Filed under Amodei, Heller, nevada taxation, Politics, Republicans

Nevada Ballot Questions 2016: The Marijuana Initiative

Marijuana revenue Thus far two ballot questions in the 2016 general election have reached the qualifying status to be assigned numbers by the Secretary of State’s Office. [RGJ]  This means that they have achieved at least 55,234 valid signatures from registered Nevada voters, including at least 13,809 signatures from each of the four petition districts. (pdf )

The initiative to regulate and tax marijuana (Question 1) (pdf) isn’t quite a Fun for All blanket permission slip.  Marijuana may only be purchased from a licensed business; business owners are subject to state review confirming the business owners and business location are suitable; cultivation, manufacturing, testing, transporting, and selling marijuana is to be controlled by state licensing and regulation; selling or supplying marijuana to someone under 21 years of age remains illegal; and, individuals will have to be 21 or older to purchase marijuana. Additionally, driving under the influence remains illegal, and all marijuana sold in the state must be tested and labeled. If this sounds similar to the restrictions on the sale of alcohol, that’s because it is.   And, if this sounds like Nevada wants to emulate the statutes in Colorado, you’re probably right.  The revenue numbers for last October in Colorado were impressive:

“There are three types of state taxes on recreational marijuana: the standard 2.9 percent sales tax, a 10 percent special marijuana sales tax and a 15 percent excise tax on wholesale marijuana transfers. For August, Colorado collected $11.2 million in recreational taxes and fees and $2.0 million in medical taxes and fees, bringing the 2015 cumulative revenue total to nearly $86.7 million. In 2014, total marijuana revenue was $76.2 million.” [DenverPost]

Total taxes, licenses, and fees for Colorado were $61,372,376 in FY 2014-2015, increasing to $97,741,988 in FY 2015-2016. [CO rev dwnld]

Nevada would collect a marijuana excise tax (15%) in addition to sales taxes, and use taxes that apply to retail sales of tangible property. Tax revenues are to be used to pay for administration and regulation (state and local) with the excess remitted to the State Treasurer to be deposited in the State Distributive School Account.  There is a one time application fee of $5,000, an initial license fee of $20,000 and renewal fee of $6,600. Cultivation facilities would pay $30,000 for an initial license and $10,000 for renewal.  Other fees are listed in Section 12 (fee schedule) (pdf) of the initiative.  There’s nothing cheap or easy about setting up cultivation, transport, or sales of marijuana in this ballot initiative.  Before getting too enthusiastic about immediate effects and potential revenue, it’s probably time for a reminder that Nevada really doesn’t have statutory direct initiative:

“Citizens of Nevada may initiate statutes through the process of indirect initiative and constitutional amendments through the process of direct initiative. Once sufficient signatures have been collected, statutory initiatives are first presented to the Nevada State Legislature. If approved by the legislature and signed by the Governor, the proposed statute becomes law. If not, the law is submitted to voters at the next general election. However, upon the Governor’s recommendation (and approval), the legislature may propose an alternative statute to voters. Proposed amendments proceed directly to a vote of the people, but must be approved at two consecutive elections.” [Ballotpd]

This initiative is interesting not only as a revenue enhancement project for a state strapped by Constitutional prohibitions on income taxation, but also as something of a “reverse” wedge issue. Fiscal conservatives may find it an acceptable alternative to increases in business, sales, or property taxation.   Social conservatives may see in it the harbinger of doom, gloom, and social degeneration.   It will be interesting to see how this plays out in the 2016 Nevada general election.

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Filed under Nevada economy, Nevada news, Nevada politics, nevada taxation

The Big Catch: Pay Us and We’ll Do The Right Thing

Banker Sorry A small group of ultra-wealthy individuals are getting alarmed by the widening income gap in America. [NYT]  Their cries hit some major news outlets and were analyzed in others. [Salon] [NationalMemo] And, as we might expect there’s a catch:  Corporate Welfare.

“There is a way to start. Government can provide tax incentives to business to pay more to employees making $80,000 or less. The program would exist for three to five years and then be evaluated for effectiveness.

The benefits would be huge. People would have more money to spend, and many would no longer need government help. That would mean a reduction in entitlements.” Peter Georgescu, CEO Young & Rubicam

Yes, you and many others read this correctly – CEO’s like Ken Langone (Home Depot founder) and Georgescu and Paul Tudor Jones are worried about the possibilities of either peasants with pitch forks or declining sales.  And, no, there is nothing new here. Nothing that ventures too far from the business model calling for tax breaks, cuts, incentives, etc. for corporations to locate in beautiful downtown West Buffalo Fart. 

If the suggestion weren’t so demonstrably callous it would be ludicrous and risible.  First, there’s nothing preventing companies from doing this without benefit of yet more tax cuts for the already wealthy corporations – or, is there.  Welcome back to the world of Shareholder Value!

Wal-Mart recently announced plans to increase company-wide minimum wage to $9 per hour, and to increase pay to $10 per hour for many employees by February.  And, then it bowed to the First Law of Staffing:

The company has also increased store staffing at peak hours so shoppers move quickly through checkout lines and see stocked shelves, said executives during the company’s quarterly earnings call earlier in August. [MarketWatch]

The old First Law is that you have enough employees if you can satisfy customer demand and maintain acceptable levels of client or customer service.  This should have been good news all around – except it wasn’t.

Those efforts contributed to a 15% drop in second-quarter net income compared with a year earlier, said executives. [MarketWatch]

What did Wall Street do?  The Street didn’t like that drop and punished Wal-Mart accordingly.

walmart stock

That’s right… it didn’t matter to investors if there were happier employees at the giant retailer; it didn’t matter that customers didn’t have to wait in the cashier’s line so long.  It mattered that the second quarter net income report was down on a YOY basis.

This is one of the more egregious contemporary examples of the Shareholder Value Monster trampling on any corporate plans to do what businesses should do best – meet customer demand with an acceptable level of customer/client service.

As long as the Financialists continue to steer the corporate ships details like customer service and employee retention – which used to inform management policy – will take a back seat to the quarterly earnings reports. So, Wal-Mart caved to the financial side and announced to its +/- 4,600 store managers that it would return to “pre-determined” staffing levels (back to the old levels), and cut employee hours to trim expenses.

CEO’s, of such organizations like Wal-Mart, are now trapped in a device of their own creation. If they attempt to offer higher wages (or improve the quality of customer service), both of which have long term benefits;  they are punished by the Shareholder Value oriented short term investors and their stock prices drop. If the stock prices drop so does executive compensation.  Should the stock prices drop too far in the estimation of investors the CEO can be gliding off on his or her Golden Parachute into the corporate sunset.

Thus, it isn’t surprising that the CEOs are anxious to have some taxpayer assistance “doing the right thing” (increasing wages) in the long term because the short-sightedness of the Shareholder Value Theory of Management has translated into a situation in which long term benefits are sacrificed on the altar of short term profitability.

The paycheck pinch: One of the CEO’s angling for government (read: taxpayer) assistance in decreasing the widening income gap is Ken Langone (Home Depot founder). Sales and revenue for Home Depot in 2011 was $68 billion, increasing to $83.1 billion in 2015. 2011 gross income was reported as $21.69 billion, increasing to $27.3 billion in 2015. Its current domestic income tax liability is $3.26 billion, it has a deferred domestic tax liability of $116 million. [Marketwatch]  And, Mr. Langone agrees that corporations should be given tax breaks in order to pay more to the employees of concerns like Home Depot.

There are some 20 Home Depot stores in Nevada, most in the Las Vegas area, some in Reno/Sparks, and a couple in what is understood as rural Nevada, Elko and Pahrump.  There are plenty earning less than $80,000 per year in these operations.  The wages for a sales associate range from $8.67 to $13.95; cashiers earn from $7.93 to $10.83; department supervisors earn between $12.01 to $18.91; and, retail sales associations can make from $8.68 to $17.16.  (See Payscale.com as information updates)

These salaries have tax implications in Nevada as a result of 2015 legislation:

The Modified Business Tax (MBT) is currently imposed on businesses other than financial institutions in the amount of 1.17 percent of wages paid above an exemption level of $85,000 per quarter. Financial institutions pay a higher rate of 2 percent. The MBT rate had been scheduled to decline to 0.63 percent for nonfinancial institutions beginning July 1, 2015. The MBT base has been narrowed significantly since the tax’s introduction in 2003, with exemption level increases in 2011 and 2013.

After significant debate over whether to expand the MBT or adopt a new gross receipts tax, the final plan includes elements of both options. The MBT will increase from 1.17 percent to 1.475 percent for most businesses, effective July 1, 2015. Mining companies will join financial institutions in paying the higher 2 percent tax rate. The MBT base is broadened by reducing the exemption to $50,000 per quarter, increasing the estimated number of MBT taxpayers to 18,607, up from the 13,492 paying the tax at present.[2] An earlier proposal to remove the MBT exemption for employer-provided health care costs was dropped.

After the first year, taxpayers may deduct up to 50 percent of their Commerce Tax payments over the previous four quarters from their MBT liability. Moreover, should total revenue from all business taxes exceed projections by more than four percent, the MBT rate will be adjusted downward, though to a rate no lower than 1.17 percent. [TaxFoundation]

Note the last paragraph, even with a compromise between larger and smaller corporations in Nevada, there’s still a bit of a tax break allowed on the Commerce Tax depending on the “previous four quarters.”  We’re probably not looking at any massive tax breaks in the 2015 legislation, but we need to add these to the $88 million in breaks given to Apple [MJ]  and the state’s generosity to Tesla in the form of $1.25 billion. [RGJ] In the latter deal the understanding was that Tesla would pay an average of $25/hr.

Not to put too fine a point to it, but corporations are quite used to having government entities, be they Apple in Nevada and North Carolina, Tesla in Nevada, or the bargaining in the 2015 Nevada legislature over how to maintain tax revenues, engage in tax-payer subsidies for corporate operations.  Thus, it’s not the least bit surprising the CEOs would ask for tax-payer subsidization for payroll increases.

It would be a reasonable conjecture to conclude that Home Depot and other Big Box firms like Wal-Mart might be willing to adopt staffing policies which increase employee wages and provide for better customer service –IF and ONLY IF there are further tax breaks associated with those policies which will please the short-term oriented Shareholder Value financialists who pull on the purse strings.

Hanging the Wash? Consider what the CEOs are proposing – it’s all good: “The benefits would be huge. People would have more money to spend, and many would no longer need government help. That would mean a reduction in entitlements.”  But wait, there’s some loaded language herein.  Programs like SNAP, and subsidized housing, or similar assistance to low wage earners are NOT entitlements. These are situational support programs for people in need.  Social Security/Medicare, into which people have paid for decades are entitlements – you get what you paid for.

Loaded language aside,  What happens when the corporations raise wages, projected to reduce the number of people receiving social assistance, but the revenues for that social assistance are reduced by the tax breaks given to the corporations in order to support those very same wage increases? The tax payers are on the hook either way – they either pay for the social assistance programs which subsidize low wages,  or they subsidize the tax breaks to corporations to reduce the need for the social programs?  It’s a win-win for the corporations, and a lose-lose for the average American.

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Cluck, Cluck, AB 394 comes home to roost?

Chickens Roosting

A quick review:  Nine Republican members* of the Nevada Assembly introduced AB 394 in the last session, the bill would create a process for breaking up the Clark County School District into smaller, separate, districts because – “…Reconfiguring the structure of the Clark County School District into local school precincts will offer an educational system that is responsive to the needs and concerns of the residents of that school district;..”   (*Gardner, Fiore, Jones, Silberkraus, Hickey, Dickman, O’Neill, Seaman, and Trowbridge)

The bill passed in the Assembly on a 35-5 vote, and the Senate on a 13 to 7 vote, with one excused.  It was signed into law by Governor Sandoval on June 11, 2015.

The Numbers Game

For a party, the members of  which take umbrage at any suggestion they aren’t the party of fiscal responsibility, fiduciary trust, and conservative financial values, AB 394 demonstrates a level of financial naïveté that could easily be categorized as sophomoric. 

There is a inkling in AB 394, during its preliminary discussion of rural district consolidation in which there’s a hint that the Assembled Wisdom understood the principle of Economies of Scale.  However, the venerated Assemblage turned right around in the same bill and pretended these didn’t exist for the one district in the state actually large enough to benefit from those economies of scale.  For the uninitiated, here are some of the babes pitched out with the bath water in the interest of creating “responsive” little districts:

(1) The larger the operation (business) the more individual employees are able to specialize in various tasks creating technical expertise which in turn creates greater efficiency.  For example, a larger school district might be able to finance a specific office that focuses on testing and the administration of examinations.  In a smaller district these tasks might be assigned to a ‘curriculum director’ whose office is also responsible for the development of course content, the in-service training of teachers in that content, and the mapping of the curricular content throughout the district.  In the business domain, larger firms can separate tasks in the offices or on the shop floors that allows specialists to develop proficiencies in technical or production tasks.  

(2) Bulk purchasing.  Think of the difference in pricing between supermarket chain stores and the local corner bodega.  Volume, plus reduction in packaging and transportation costs, mean lower per unit expenses. There are approximately 24,286 first graders in the Clark County School District.  There are approximately 4,869 first graders  in the Washoe County School District.  [CCSD and Washoe SD]  Which has the better capacity to buy in bulk?  Which can negotiate for more discounts?

(3) Spreading overhead expenses.   Republicans, often supportive of mergers and acquisitions, note that the mergers of private sector firms allow for the rationalization of operation centers. or to put in more simply – it’s better (more efficient) to have one main office than two.   Again, the schizoid nature of AB 394 says that the rationalization of overhead expenses is fine for the rural districts, but CCSD is “just too big?”  By this logic, Goldman Sachs, Chevron, and JP Morgan Chase would have been broken up long ago.

(4) Let’s get to one economies of scale factors that’s extremely important for a large metropolitan population, the concept of Risk Bearing Capacity.  Again, the larger the enterprise the higher its risk bearing capacity.  The most common example of this factor is in the pharmaceutical industry wherein large corporate firms are able to finance (borrow for) research because profit lines in popular products provide investors with the assurance that the debts incurred can be paid off at the agreed interest rate.  Now, take a look at the Debt Service reported in the CCSD financials:

CCSD debt service

What we’re looking at above are all the bonds issued by the Clark County School District on which the district is paying off principal and interest.  Nor it is too difficult in a rapidly expanding population to have to issue bonds for school construction or renovation.  Schools aren’t  cheap to build and equip.  Constructing an elementary school for about 600 youngsters, at $190 per square foot will cost about $14,800,000.  A middle school for just over 900 students costs $215.14 per square foot, with a total cost of approximately $30,000,000.  High schools are even more expensive.  The total cost: $54,900,000 (1600 students) [NCEFAt this point one of the largest AB 394 egg layers  comes back to her nest.

“Moody’s Investors Services hasn’t downgraded the Clark County School District’s construction bond rating — yet.

But the credit rating firm late Monday issued a report warning a bill Nevada Gov. Brian Sandoval recently signed that could lead to the breakup of the nation’s fifth-largest public school system “poses uncertainty” and “a credit negative” to the district’s ability to repay debt.”  [LVRJ]

Investors who buy bonds (lend public & private institutions money) want their money back + interest.  The greater the risk the higher the interest rate on the bonds.   The ratings agencies, no saints themselves as we witnessed during the financial sector collapse of 2007-2008, are in the business of telling investors how much risk is involved – the lower the rating the higher the risk, therefore the higher the interest rate demanded for the loan.

The Clark County School District currently has an A1 rating from Moody’s.  The outlook was “stable” as of February 17, 2015.   What has “de-stabilized” this projection is – AB 394 – which creates “uncertainty.” Without spending the usual $150 Moody’s charges for smaller reports, let’s guess the nature of that “uncertainty.”   The Clark County School District’s report on its financials assures bond holders:

“Maintenance of the current property tax rate will be sufficient through fiscal 2015 to retire the existing bonded debt since the District issued previous bonds based upon the factors of growth in assessed valuation in addition to increases in student population. The Capital Improvement Program provided authority to issue general obligation bonds until June 2008 and will be repaid from a fixed tax rate of 55.34 cents per $100 of net taxable property. [CCSD pdf

Translation: The Clark County School District – as it is currently functioning – has the financial capacity to retire (pay off) existing debt, and the ability to repay Capital Improvement bonds from its property tax base. A property tax base of the present 8,012 square miles comprising Clark County, which according to the Nevada Department of Taxation has a final assessed value (property) of $69,258,468,466.  A number large enough to assure investors in CCSD bonds that they’ll get their money plus interest, since the ad valorem revenue is calculated at $495,059,633 for the county.   We can use the old reliable Red Book to determine what the Clark County School district can expect from its share of the property tax revenue: $819,903, 015 from a total 2014-15 assessed valuation of $62,904,942,089.

By now it should be getting obvious why Moody’s is getting nervous.  Under the terms of AB 394, there must be a plan in place to chop up the school district by the 2018-2019 school year.  Thus, we’d have an advisory committee and a technical advisory committee contracting with a consultant for the grand purpose of carving up the district – but how?

If the notion is to create “neighborhood schools” then would we amalgamate current high school attendance zones? [map]  However, a quick look at the obvious north/south or east/west divisions compared to the assessed valuations of the areas involved quickly demonstrates that not all school districts would be “created equally.”

Perhaps the “Performance Zones” could be used as a basis?  Where do we put the rural schools, from Moapa Valley to Laughlin?  Again, how does the dissolution of the district help any of these financially?  

Unfortunately for those who would be new map makers, Clark County, like so many other major metropolitan areas is comprised of various zones – residential, industrial, and commercial.  As long as the financial foundation of a school district is based on property taxation, then we have to live with the fact that while upscale residential property comes with high tax bills, there isn’t all that much of it.    A district carved out of a major commercial zone with a rather smaller number of residential properties in that zone might have resources in abundance compared to an area of high residential properties – and therefore higher numbers of students, but a lower total assessed valuation.  Geography can often be a real pain in the derrière and in this instance it’s going to be.

At the risk of petulantly pounding the dais – there appear to be only 12 members of the Assembled Wisdom in the last session who understood the gravity of separating school districts within a diversified metropolitan area, one with an overall assessed valuation currently capable of keeping investors optimistic about bonding capacity and bond retirement.  The remaining 48 – not so much – maybe one more round of Econ. 101 is in order?

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