Category: Public Finance

On Social Spending, the Question Isn’t “Can We Afford It?” but “Who Will Pay?”

Mary Pat Campbell

Link:https://jacobinmag.com/2021/11/social-spending-biden-reconciliation-bill-build-back-better

Excerpt:

There are three possible answers to the question of who pays for social expenses. First, governments can pay by taxing their citizens to fund social programs. Second, employers can pay by using corporate revenues to provide employment-related benefits. Third, individuals and families can pay out of pocket, rely on unpaid labor from friends and relatives, or make do without.

For much of the twentieth century, the United States had a workable answer to the “Who pays?” question that drew on a mix of all three sources. Government provided certain social benefits like Social Security, Medicare, and public education. Aided by government tax incentives, many employers offered a wide range of benefits like health insurance and pensions, creating what political scientist Jacob Hacker refers to as a “public-private welfare regime.” And with one-third of the labor force unionized, and even nonunion employers pressured to match union-scale wages and benefits, many workers earned enough to support their families and handle the social expenses not covered by government- and employer-based programs.

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For its part, government social spending has been uneven. Large universal programs like Medicare and Social Security have proven resistant to most retrenchment efforts, and Obamacare included a major expansion of Medicaid — though this was blocked in some Republican-dominated states. Meanwhile, more means-tested programs targeting low-income Americans have proven more vulnerable. In a context where employers have sharply cut back their commitment to providing social benefits, and individuals and their families are faced with stagnating wages, government’s response has proven inadequate.

Author(s):Barry Eidlin

Publication Date:28 Nov 2021

Publication Site: Jacobin

Corporate Tax Rates around the World, 2021

Mary Pat Campbell

Link:https://taxfoundation.org/corporate-tax-rates-by-country-2021/?

Graphic:

Excerpt:

In 2021, 20 countries made changes to their statutory corporate income tax rates. Three countries—Bangladesh, Argentina, and Gibraltar—increased their top corporate tax rates, while 17 countries—including Chile, Tunisia, and France—reduced their corporate tax rates.

Comoros (50 percent), Puerto Rico (37.5 percent), and Suriname (36 percent) are the jurisdictions with the highest corporate tax rates in the world, while Barbados (5.5 percent), Uzbekistan (7.5 percent), and Turkmenistan (8 percent) levy the lowest corporate rates. Fifteen jurisdictions do not impose corporate tax.

The worldwide average statutory corporate income tax rate, measured across 180 jurisdictions, is 23.54 percent. When weighted by GDP, the average statutory rate is 25.44 percent.

Asia has the lowest regional average rate, at 19.62 percent, while Africa has the highest regional average statutory rate, at 27.97 percent. However, when weighted for GDP, Europe has the lowest regional average rate at 23.97 percent and South America has the highest at 31.03 percent.

The average top corporate rate among EU27 countries is 21.30 percent, 23.04 percent among OECD countries, and 69 percent in the G7.

The worldwide average statutory corporate tax rate has consistently decreased since 1980, with the largest decline occurring in the early 2000s.

The average statutory corporate tax rate has declined in every region since 1980.

Author(s): Sean Bray

Publication Date: 9 Dec 2021

Publication Site: Tax Foundation

Do We Really Need States to Be Bankers?

Mary Pat Campbell

Link:https://www.governing.com/finance/do-we-really-need-states-to-be-bankers

Excerpt:

In 1919, the state of North Dakota established its own bank as a public institution. It’s the only one of its kind in the nation, having operated successfully for a full century through the Great Depression and a dozen recessions. Nine other states tried to follow suit in the following decades, only to fail and close their banks’ doors. Founded to provide capital in a farm-centric economy that was underserved by large regional financial institutions that charged double-digit interest rates for ag loans, the Bank of North Dakota has served as an inspiration and touchstone to political populists, anti-bank politicians and easy-money advocates.

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Even beyond what we call the “global superabundance of capital,” however, what the advocates and professional literature overlook is the spectacular disruptive growth of “fintech” — financial technology — that is bringing capital to previously underserved communities and businesses. It turns out that the capital markets, big data, artificial intelligence and techno-wizardry are filling in many of the niches that supposedly cry out for public banks. But first, there are two other strategic public policy alternatives of note: “linked deposits” and using pension-fund capital for nonbank lending, or “shadow banking” as it’s termed by its critics.

As a young municipal finance officer, while moonlighting in grad econ classes in the late 1970s, I became enamored of the concept of linked deposits. The idea was that municipalities should invest in time deposits with banks that pledge to make local loans promoting economic development. I’ll never forget speaking on a panel at the state finance officers’ conference and watching the state’s most prominent public funds banker scowl and shake his head in disgust at what struck him as a pie-in-the-sky concept. At the time, that idea went nowhere.

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Meanwhile, with interest rates at record low levels, public pension funds have been searching everywhere for ways to get a better return on their fixed-income capital allocations. One of the vehicles that emerged in the past decade has been direct lending through professionally managed portfolios that provide loans to businesses at attractive interest rates.

Author(s): Girard Miller

Publication Date: 7 Dec 2021

Publication Site: Governing

The muni market: How two big changes could impact government borrowing

Mary Pat Campbell

Link:https://lizfarmer.substack.com/p/municipal-market-trends-outlook

Excerpt:

The pandemic created a lot of uncertainty around state and local government revenues for much of 2020. That was a big reason for the dramatic boost in the rate of bonds issued with insurance that year: In total, $34.45 billion in new bonds carried insurance — the highest since the Great Recession ended in 2009. Even with the economic stabilization this year, insurance is still going strong. Through October 2021, wrapped municipal bond issuance totaled $31.5 billion, according to RBC Capital Markets.

Looking ahead, the chatter about municipal climate risk has been increasing in recent years. Extreme weather events linked to climate change have called into question the preparedness and resiliency of utilities and other government issuers, while studies point to the potential long-term economic effect. One BlackRock Investment Institute report estimated that some vulnerable cities could see economic losses of up to 10% of GDP without decisive action.

The bottom line: Insurance provided safety for muni market investors during the pandemic and its continued use indicates that investors and issuers are both finding it attractive in situations where there might be a little more long-term uncertainty. Climate risk plays right into this notion. While no one expects bond insurance to dominate the market as it once did, it’s likely that the pandemic spike in usage is here to stay.

Author(s): Liz Farmer

Publication Date: 8 Dec 2021

Publication Site: Long Story Short at substack

McConnell Won’t Block Debt Ceiling Increase, Says He Wants Democrats To ‘Proudly Own It’

Mary Pat Campbell

Link:https://reason.com/2021/12/08/mcconnell-wont-block-debt-ceiling-increase-says-he-wants-democrats-to-proudly-own-it/

Excerpt:

Congressional showdowns over the debt limit are nothing new, but this time around there’s a unique wrinkle. The House approved a bill on Tuesday night with what was essentially a party-line vote that paves the way for Congress to avoid a possible default on the national debt in the coming weeks. Here’s the tricky part: “The measure would create a special pathway—to be used only once, before mid-January—for the Senate to raise the debt limit by a specific amount with a simple majority vote, allowing Democrats to steer clear of a filibuster or other procedural hurdles so that Republicans would have no means to block it,” The New York Times reports.

The upshot, assuming this deal holds up long enough to avert the December 15 deadline for raising the debt limit, is that there won’t be another showdown like this before the midterm elections next November.

Author(s):Eric Boehm

Publication Date:8 Dec 2021

Publication Site:Reason

New Jersey Taxpayers ‘On the Hook’ for Massive Debt: Report

Mary Pat Campbell

Link:https://www.theepochtimes.com/new-jersey-taxpayers-on-the-hook-for-massive-debt-report_4139948.html

Excerpt:

New Jersey has amassed a huge, and possibly dangerous, level of debt, according to a new report that reviews the financial health of state governments across the country.

Each Garden State taxpayer owes tens of thousands of dollars and the state is a tax “sinkhole,” according to the nonprofit organization Truth in Accounting (TIA), because state lawmakers of both parties have overspent and used accounting “gimmicks” for decades. The organization defines “sinkholes” as states that lack the necessary funds to pay their bills.

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The S&P report also gives New Jersey a low grade on debt practices.

“On our scale of ‘1.0’ to ‘4.0’, where ‘1.0’ is the strongest score and ‘4.0’ the weakest, we have assigned a composite score of ‘3.7’ to New Jersey’s debt and liability profile,” according to S&P.

Moody’s, in its July 14 report, gave New Jersey an A3 rating on its general obligation (GO) bonds, a low rating. But it praised recent efforts by  Murphy to solve the problems of long-term debt.

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Fitch Ratings, in its April 13 report, gives New Jersey an A- grade. It said its rating reflects New Jersey’s “adequate financial resilience.” But it also said that its condition isn’t as good as that of most states, and stirs up some troublesome ghosts.

Author(s): Gregory Bresiger

Publication Date: 8 Dec 2021

Publication Site: Epoch Times

Stress Testing in Sacramento

Mary Pat Campbell

Link:https://mailchi.mp/5ac903164813/stress-testing-in-sacramento-6602594

Graphic:

Excerpt:

In January the Department Of Finance will issue the Governor’s Budget for 2022-23. No section will be more important than the Stress Test, which forecasts revenue losses in the event of a stock market decline such as in 2001-3 and 2008-9.

Last January, the Governor’s Budget forecast revenue losses of $100 billion. Just two years earlier, the 2019-20 Governor’s Budget forecast losses of $50 billion. That makes sense because, as DOF explains, “the higher levels and valuations in the stock market increase the risk of a large stock market drop leading to a large decline in capital gains revenues” on which California is extraordinarily dependent.

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Schools and other services need predictable annual funding. You should build reserves to the levels predicted by stress tests.

Author(s): David Crane

Publication Date: 5 Dec 2021

Publication Site: Govern for California (Mail Chimp)

States Are Seeing Steep Income Tax Revenue Growth. Will It Last?

Mary Pat Campbell

Link:https://www.forbes.com/sites/lizfarmer/2021/12/01/states-are-seeing-steep-income-tax-revenue-growth-will-it-last/

Excerpt:

States collected nearly $455 billion in total income tax revenue in fiscal 2021—an astounding 14.7% increase over the prior year. That’s according to the latest report from the National Association of State Budget Officers (NASBO), which covers spending through June 2021. Over two years, income tax revenue is up 15%.

However, these numbers are highly influenced by unusual economic times. For starters, states delayed their tax filing deadline by several months when the pandemic began. For most, this pushed their 2020 income tax revenue into the next fiscal year. This artificially deflated 2020’s numbers while inflating 2021 collections.

The federal stimulus has also played a role. Since March 2020, the feds have doled out $867 billion in cash to households via three Economic Impact Payments. While those payments weren’t taxable, they could indirectly increase state tax liability for some. (The New York Times NYT +1% has a good explainer on that.) Plus, unemployment insurance — which most states do tax — received a massive boost for about 15 months.

Author(s): Liz Farmer

Publication Date: 1 Dec 2021

Publication Site: Forbes

NYC should bolster rainy-day fund, DiNapoli urges

Mary Pat Campbell

Link:https://www.bondbuyer.com/news/nyc-should-bolster-rainy-day-fund-dinapoli-urges

Excerpt:

Incoming New York Mayor Eric Adams has already heard calls from watchdog groups to boost New York’s new rainy-day account and fine-tune the policies controlling deposits and withdrawals.

New York’s mechanisms are less defined than other U.S. cities’, state Comptroller Thomas DiNapoli said in a report Wednesday. DiNapoli urged city officials to tap recent changes in state and local laws enabling accumulation and use.

Following voter approval of a charter revision in November 2019 and state legislative signoff, city officials established a rainy-day fund — formally the revenue stabilization fund — in February 2021. That made available $499 million in resources that the city could not use to balance its fiscal 2020 budget.

Author(s): Paul Burton

Publication Date: 10 Nov 101`

Publication Site: Bond Buyer

15 States Threaten To Pull $600 Billion From Banks That Won’t Give Equal Service To Energy Industry

Mary Pat Campbell

Link:https://thefederalist.com/2021/11/30/15-states-threaten-to-pull-600-billion-from-banks-that-wont-give-equal-service-to-energy-industry/

Excerpt:

Fifteen state financial officers sent a letter to U.S. banks last week noting $600 billion in assets they pledge to take elsewhere if the financial institutions embrace corporate wokeism and prohibit financing to the fossil fuel industry.

Led by West Virginia Republican Treasurer Riley Moore, the group promised “collective action” in the form of an “economic boycott.”

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Signatories to the letter putting banks on notice include chief financial officers from Arizona, Arkansas, Idaho, Louisiana, Missouri, Nebraska, North Dakota, South Carolina, South Dakota, Utah, Wyoming, Alabama, Texas and Kentucky, in addition to West Virginia.

Author(s): Tristan Justice

Publication Date: 30 Nov 2021

Publication Site: The Federalist

Undermining Pension Reform

Mary Pat Campbell

Link:https://www.city-journal.org/undermining-pension-reform

Excerpt:

The Biden administration is trying to prohibit California from receiving billions of dollars in new federal aid because, the administration claims, the state’s 2013 Public Employee Pension Reform Act (PEPRA) denied workers the right to bargain for changes to their retirement benefits. The move could undermine state-worker pension reforms passed over the last decade.

In a letter to the state, the Department of Labor says that the 2013 pension-reform act “significantly interferes” with the collective bargaining rights of public employees, including transit workers. As a result, California risks losing some $12 billion in transportation money, most of it from the recently passed federal infrastructure bill. The administration is strong-arming the state and its municipalities to choose between tens of billions of dollars in savings for a deeply indebted pension system and grants from Washington. And its move raises serious questions about similar reforms enacted by other states that allow collective bargaining by public employees, including New York and New Jersey.

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The Labor Department’s ruling, California governor Gavin Newsom said in a letter to Walsh, “deprives financially beleaguered California public transit agencies that serve essential workers and our most vulnerable residents of critical support, including American Rescue Plan Act funds that those agencies need to survive through the pandemic.” Newsom called the decision a “complete reversal” from a 2019 ruling by the Labor Department, which held that the state’s pension reforms did not represent a violation of federal law.

Author(s): Steven Malanga

Publication Date: 23 Nov 2021

Publication Site: City Journal