March 28, 2024

As Renters Move In, Some Homeowners Fret

Across the street, Carl Osborne and his family have been tenants for two years, moving in after the previous owner lost the house in a foreclosure. They are happy to have a decent place to call home but, like many renters, they have not done much to improve the appearance or join the community.

They are not alone: the family behind Ms. Holcomb, the one two doors down, and several in the cul-de-sac across the way are among the renters who have been supplanting homeowners in this blue-collar, suburban neighborhood as investors buy single-family homes and convert them to rentals.

“Used to, we knew our neighbors,” Ms. Holcomb said. Then she gestured toward the few remaining owner-occupied houses nearby. “Except for the two that have been here, I don’t know any of my neighbors.”

Across the country, a growing number of single-family rentals provide an option for many who lost their homes in the housing crash through foreclosure and for those who cannot obtain a mortgage under today’s tougher credit conditions. But the decline in homeownership is also changing many neighborhoods in profound ways, including reduced home values, lower voter turnout and political influence, less social stability and higher crime.

“When there are fewer homeowners, there is less ‘self-help,’ like park and neighborhood cleanup, neighborhood watch,” said William M. Rohe, a professor at the University of North Carolina at Chapel Hill who has just completed a review of current research on homeownership’s effects.

Even conscientious landlords and tenants invest less in their property than owner-occupants, he said. “Who’s going to paint the outside of a rental house? You’d almost have to be crazy.”

Despite signs of a recovery in the housing market, the country’s homeownership rate is still on the decline. In Memphis, it has fallen from roughly 65 percent of families in 2005 to about 55 percent now, according to the Census Bureau.

In hundreds of neighborhoods that once attracted first-time home buyers, investors have stepped in, buying up tens of thousands of homes for the rental market.

That has helped put paying tenants in a number of homes that were vacant or becoming eyesores. And many of the new tenants say they are eager to buy a home at the first opportunity and share the same concerns as homeowners about maintaining a safe and healthy neighborhood for their families and children.

But it has also raised the ire of some homeowners whose tidy subdivisions have changed, seemingly overnight, into a parade of strangers.

Hillshire was built in the late 1970s, its single-story, three-bedroom homes designed with no particular architectural pedigree, but not ticky-tacky identical. As a young mother of two, Ms. Holcomb, a medical practice administrator, chose the neighborhood because of its school district, paying $73,000 for her home in 1996.

The homeowners interviewed for this article tended to have steady middle-class incomes; several were retired military and police officers. Among the renters, who pay about $900 to $1,000 a month, were several construction and restaurant workers, with lower, less reliable earnings.

On a recent evening, parents pushed strollers and lawn mowers droned, children played on a tire swing and in one driveway, a longtime resident and his grandson tinkered with the fat tire of a slick red drag racer.

But there was a seedy underside. Jimmy Fumich, a homeowner and air-conditioner repairman, said he had been in court that day as a witness in an animal cruelty case against a neighbor, a renter, who had left a dog chained to a stop sign in the heat. She was already in trouble, he said, for breaking into an empty house on the block.

Mr. Fumich, who is Ms. Holcomb’s brother, mentioned a couple of meth houses and one that had been used as a brothel. All were rentals. Police department records show that major crime in the area, which does not include drug offenses, has actually gone down since spiking in 2010.

Still, Lea Ann Braswell, the captain of the neighborhood watch, recounted a recent episode in which a teenage girl, whose throat police said was cut by a young man carrying a sword, sought refuge on Ms. Braswell’s doorstep.

“We used to have hardly anything happen,” she said.

Asked how many renters were active with the neighborhood watch, Mr. Fumich said, “Zero.”

What is watchful to some, however, can feel intrusive to others. In the Osbornes’ home, one resident who keeps a close eye on things is referred to as “Nosy Neighbor.”

Article source: http://www.nytimes.com/2013/08/29/business/economy/as-renters-move-in-and-neighborhoods-change-homeowners-grumble.html?partner=rss&emc=rss

Economix Blog: Untangling What Companies Pay in Taxes

The tax filings of companies, like those of individuals, are confidential. When individual companies want to make the case that they pay large amounts of tax – as many do – they often point to complex calculations from their financial statements that portray the companies in the best light. For an outsider, it can be hard to know how many accounting assumptions go into these calculations and how accurately they reflect the company’s actual tax payments.

But there is one standardized measure of corporate taxes that allows for meaningful comparisons among companies and industries. It is known as Cash Taxes Paid and appears in the public reports that companies are required to file for investors. The category reflects the combined amount of corporate income tax that a company pays in a given year, to foreign governments, the United States government and state and local governments.

This number often varies significantly from year to year, depending on a company’s accounting strategy and on how many tax breaks it qualifies for that year. As a result, a single year’s Cash Taxes Paid number can be misleading. But in a 2008 academic paper, three accounting professors — Scott Dyreng of Duke, Michelle Hanlon of M.I.T. and Edward Maydew of the University of North Carolina — suggested that looking at several years, at least, could offer insight into corporate taxes.

For a column for the Sunday Review this week, I asked SP Capital IQ, a financial research group, to collect the last six fiscal years of Cash Taxes Paid for the companies in the Standard Poor’s 500-stock index. Capital IQ then compared these numbers to the companies’ pretax earnings, including unusual items, for the same six years. Together, the two statistics create an effective tax rate for each company, as well for various industries.

The numbers show that oil companies and retailers pay relatively high tax rates, as you can see in this chart. Technology companies, pharmaceutical companies and utilities have lower-than-average tax rates. In all, the average rate for the S.P. 500 was 29.1 percent over last six years.

The number helps make clear that despite a relatively high official corporate income-tax rate of 35 percent in the United States, most companies do not pay nearly that much, thanks to loopholes. Remember: the 29.1 percent includes not only federal corporate income taxes but also foreign, state and local.

Soft-drink companies are among those paying taxes well below average, partly because of their ability to locate the manufacturing plants for soda concentrate in low-tax countries, as I discuss in the column. Coca-Cola paid a combined tax rate of 15.25 percent between 2007 and 2012, while PepsiCo paid 21.31 percent.

The companies chose not to discuss their tax strategies in detail with me, but each did issue a statement in response to my questions.

From Amanda Rosseter, a Coca-Cola spokeswoman:

The Coca-Cola Company is a compliant taxpayer globally, paying all legally required income taxes in the U.S. and every country in which our subsidiaries operate.

As a global company with products sold in more than 200 countries, more than 80% of our unit case volume is sold outside the United States. The fact that our effective tax rate is lower than some other companies in the S.P. 500 is reflective of the fact that less than 20% of our volume comes from sales in the U.S., which has one of the highest corporate tax rates in the world.

From Aurora Gonzalez, a PepsiCo spokeswoman:

We cannot comment on the tax rates of other companies or industries. PepsiCo’s tax rate is driven by the tax laws and regulations of the approximately 200 countries and territories in which we do business, and we pay all of our tax obligations in full.

Article source: http://economix.blogs.nytimes.com/2013/05/25/untangling-what-companies-pay-in-taxes/?partner=rss&emc=rss

A Wealth Tax Would Look Beyond Income

INCOME tax rates have recently been raised slightly for some affluent people, and there is pressure for additional increases. But some economists say raising marginal income tax rates on high earners may miss the mark.

One reason is that the truly wealthy employ all kinds of legal means to minimize their tax liability, including shifting income around the world, deferring gains on their assets and many other sophisticated strategies. Another, though, is that taxes on ordinary income simply don’t apply to inheritance or investment, principal sources of wealth.

Under legislation that Congress approved on New Year’s Day the top marginal income tax rate for 2013 has risen to 39.6 percent from 35 percent for individuals on ordinary income over $400,000 and for couples on income over $450,000, while tax deductions and credits start phasing out on income as low as $250,000. But what is being taxed is often just a small portion of the income and wealth of the very richest Americans; unearned income, including unrealized gains and gains on investments, is either not taxed or taxed at a fraction of the top rate on wages.

Taxing wealth in addition to income is one way to make sure that the rich contribute more to government coffers. That would essentially be a tax on household assets like property, stocks, bonds, unincorporated businesses, trusts, art and yachts.

The idea is to aim at the wealthiest part of the population, perhaps the top 1 percent, a group that has seen the most significant and consistent accumulation of wealth over the last few decades.

“A wealth tax is an attempt to fill the holes in income tax,” said Douglas A. Shackelford, a tax expert at the University of North Carolina. “The primary hole is unrealized capital gains. That’s behind the big buildup of dynastic wealth.”

COUNTRIES like Canada have a tax on asset appreciation, based on the value of the assets at the time of the owner’s death. The United States does not, and the tax code contains a huge loophole through which to pass wealth to one’s heirs.

Here is how that can work in practice:

A billionaire can borrow against his stocks, art and real estate, and spend that borrowed money without paying tax. All he has to do is pay interest on the loan. When he dies, his heirs can sell the assets to pay off the debt. Under an existing rule known as the “step-up in basis,” no matter how much the assets have appreciated in value, no one will owe income tax on that gain. And the rest of his fortune goes to his heirs without anyone ever paying income taxes on the appreciation in the assets.

Partly to close loopholes like this, Ronald I. McKinnon, an economist at Stanford, advocates a wealth tax in addition to income tax. He outlined his proposal in a recent op-ed article in The Wall Street Journal titled “The Conservative Case for a Wealth Tax.”

Professor McKinnon’s plan would require households to list all domestic and foreign assets annually. There would be a $3 million wealth exemption, which, in his estimation, would exclude more than 95 percent of the population. The remainder would be subject to a flat tax of about 3 percent of household wealth.

In Europe, in addition to a wealth tax, many countries have a value-added, or consumption tax. Because the idea of a consumption tax is politically unpopular in the United States, he said in an interview, “I think the case is even stronger in the U.S.”

“Plus,” he added, “the income tax is a poor vehicle for hitting the wealthy.”

Other economists say that a wealth tax would also address other problems.

“Wealth inequality and lack of access to opportunity is destroying the meritocratic aspects of our economy,” said Daniel Altman, an economist at New York University and a former member of the editorial board of The New York Times. “That will cost us growth in the long run.”

Mr. Altman proposes replacing the income tax with a wealth tax. He estimates that a flat wealth tax of 1.5 percent would be more than enough to replace the revenue from current income, estate and gift taxes. But he proposes establishing tax brackets according to wealth levels. For instance, no tax might be imposed for a household’s first $500,000 in wealth, 1 percent for the next $500,000 and 2 percent for wealth above $1 million.

Proponents of a wealth tax also say it would encourage innovation and risk-taking because it wouldn’t tax wealth in its early phases, but only after it has been amassed.

There are several main criticisms. For one, valuing unfamiliar assets — say, private businesses or art collections — would not be easy. A related issue is liquidity, as an owner may not be able to readily obtain cash based on the value of the assets in question. And some fear a negative effect on capital formation.

There are also possible legal roadblocks. Matthew J. Franck, writing for National Review Online, said instituting a wealth tax might require a constitutional amendment. A similar concern haunted proponents of the income tax until ratification of the 16th Amendment in 1913.

IT is unclear whether the idea of a wealth tax will ever gain traction in the United States. But longtime deficit problems remain, and tax increases of some type may well be part of the solution. According to the Organization for Economic Cooperation and Development, the United States raised less tax revenue in 2010 as a proportion of gross domestic product than any other industrialized nation, aside from Chile and Mexico.

“Should we reform the income tax, the estate tax or bring in a third tax like the wealth tax?” asked Professor Shackleford at the University of North Carolina. “We have to do something. There’s a tremendous amount of tax escaping because we don’t tax the deceased and we don’t tax the heirs.”

Article source: http://www.nytimes.com/2013/02/10/business/yourtaxes/a-wealth-tax-would-look-beyond-income.html?partner=rss&emc=rss

Some Economists Doubt Dire Effects From Tax Increases

Mr. Kass, the founder of Seabreeze Partners Management, thinks much of the investing world has overestimated how hard the markets and investors would be hit if tax rates on dividends and capital gains rise at the end of the year, as the White House has proposed.

Mr. Kass can look for support to several economists who have studied past changes in tax rates and found that the shifts had less of an impact on investor behavior than was initially expected.

That’s largely because a dwindling number of investors are subject to the taxes on investment gains that are set to rise at the end of the year, with most stocks held in accounts that are exempt from taxes.

For example, only 14.7 percent of American households have mutual funds in taxable accounts, down from as high as 23.9 percent in 2001, according to data from the Investment Company Institute.

Douglas A. Shackelford, an economist who has examined the 2003 legislation that lowered the tax rates on capital gains and dividends, said that when those changes were being put in place “people thought this would be revolutionary,” setting off a wave of changes in the way companies rewarded their investors, and how investors evaluated companies.

In the end, “it made a difference, but it certainly was not revolutionary,” said Mr. Shackelford, a professor of taxation at the University of North Carolina’s business school. The limited number of investors who were subject to the changes in 2003 has grown even smaller today, he said.

While data on the tax status of all stockholders is hard to come by, many economists agree than an increasing proportion of the entire equities market is now held by retirement investors whose holdings are not subject to current tax law; by foreign investors who don’t pay American taxes, or by institutional investors like insurance companies and pension funds that are exempt from taxes.

Sam Stovall, the chief investment strategist at SP Capital IQ, said that even among individual investors who do pay the taxes, many have incomes under $250,000 and would not be subject to the increased rates on investment income proposed by the White House. The result Mr. Stovall is anticipating is that the coming changes will cause “a lot less of a hit than most people are making it out to be.”

Mr. Stovall and others who share his views are not discounting the potential disruption to the financial markets if the White House and Congress fail to reach any agreement on the broad set of tax increases and spending cuts scheduled to hit at the start of the year. The largest of these changes are not on investment income. An increase in the payroll tax, for example, could remove $95 billion from the take-home pay of Americans.

But even if a broad agreement is reached, many strategists are expecting that taxes will rise on investment income, with the White House proposing that for households earning over $250,000 the rate on dividends rise to a peak of 39.6 percent from the current 15 percent, and the rate on capital gains increasing to 20 percent from 15 percent.

Wealthy households will face an additional 3.8 percent charge on most investment income to help pay for the recent health care legislation.

Neil J. Hennessy, the founder of Hennessy Funds, said at a year-end investing event last week that if politicians allow the rates to rise as much as the White House has proposed, dividends will become much less attractive and there could have a “disastrous effect” on the willingness of investors to put money into stocks.

Some companies have already acted ahead of the changes, with Costco and Las Vegas Sands leading the way in issuing special dividends before the end of the year so their shareholders can take advantage of current tax rates. Some investors have sold off stocks that issue regular dividends expecting the companies to become less valuable once a greater proportion of dividend income is lost to taxes.

Andrew Garthwaite, an analyst at Credit Suisse, has predicted that if the White House’s view on investment taxes prevails, it could lead to a long-term reduction in the value of the Standard Poor’s 500-stock index of as much as 5 percent. Mr. Garthwaite cautioned that the figure is likely to be lower, and that investors have already incorporated some of those losses into the market by selling stocks.

Mr. Kass disputed Mr. Garthwaite’s estimates in a note to clients, and said he was looking at market losses of at most 1.6 percent and more likely closer to 0.8 percent. Part of the disagreement arises from Mr. Kass’s contention that many people who are subject to tax are either uninformed about tax law — and unlikely to respond to changes — or more focused on the long-term performance of their portfolio than on short-term tax payments.

Mr. Kass said that even the losses he has predicted assume that wealthy people will be willing to cash out of their stock positions and stay out, something that he said is unlikely given the small returns available in other financial investments.

But an even larger source of misunderstanding has come from the difficulty of ascertaining the amount of all United States stocks held by people who will have to pay the new, higher tax rates. Foreign investors controlled 12.4 percent of American stocks in 2011, up from 8.8 percent in 2004, Treasury Department data shows.

Among the stocks that are held in the United States, 48 percent are held directly by households, down from 65 percent in 1988, according to Federal Reserve figures. And 40.7 percent of households have mutual funds in tax-exempt accounts.

But only some of these have income over $250,000 a year, and a portion of those people have their money in accounts protected from taxes. Eric Toder, a co-director of the Tax Policy Center, said as a result market prices should have little to do with the taxes paid on gains because prices are largely “being determined by tax-exempt investors and by foreign investors.”

Article source: http://www.nytimes.com/2012/12/03/business/some-economists-doubt-dire-effects-from-tax-increases.html?partner=rss&emc=rss

Preoccupations: Bridging the Hiring Gap for College Graduates

So, this fall, I talked to about a dozen C.E.O.’s in a variety of industries, along with more than 135 graduates, to try to get to the bottom of this paradox.

Instead of finding shared interests linking those who need work and those who need workers, I uncovered a serious divide that limits the success of both.

Every C.E.O. I met described recent graduates as lacking the skills and discipline required in today’s workplace. They complained that young employees deemed themselves entitled to promotion before mastering their assigned tasks. All concluded, in effect, “Let them grow up on someone else’s payroll.”

I replied that my interviews with young people showed that many had records of part-time jobs and excellent grades at selective schools that seemed to make them promising candidates. But executives countered that recent graduates had emerged from universities whose weakened requirements didn’t prepare them for the complex jobs that companies must now fill.

Recent graduates say they are equipped to add value to any employer who hires them. An economics graduate from the University of North Carolina told me: “I’m sick of the bashing our generation gets. I had a 3.6 G.P.A. in a demanding major. Everyone in my dorm knew it would be difficult to land a job, so we held study groups where people in different disciplines shared information. We invited alumni to tutor us in skills and office protocol employers value. All I ask is a chance to prove I’m as good as the best of any generation.”

It’s true that companies are actively seeking petroleum engineers, systems designers, supply-chain analysts and other graduates armed with “hard” skills. But those who majored in English, philosophy, history and other liberal arts subjects are far less likely to be offered an interview, much less a job.

At one time, employers recruited liberal arts graduates whose broad education shaped an inquiring mind and the ability to evaluate conflicting points of view. Their education also brought a freshness of vision that saw alternatives to outdated practices. Graduates entered corporate training programs armed mainly with potential, but soon absorbed business disciplines. Veteran employees seeing that growth didn’t laugh when a trainee suggested a different approach to a chronic problem.

Rotating through departments let young people showcase their abilities; the most promising were selected by managers eager to mentor them. Several C.E.O.’s I spoke with, including those most critical of recent graduates, had this type of training. Today, such programs are more likely to recruit those with immediately applicable skills that can be honed on the job. As one hiring manager told me: “We no longer have the luxury to hire bench strength. If an applicant isn’t ready to step into an open job we don’t hire them.”

But I’ve found many broadly educated employees to be quicker than technical staff members to develop the intuition that’s crucial on a work floor where gray — not black or white — is the dominant color. Many of the best general managers with whom I work as a consultant entered the workplace with broad educations and not with technical degrees. It was their intuition that helped them ascend — their ability to suspect a flaw even when data appeared correct, to read the mood of customers and employees, and to sense potential in a product others disdained.

EVEN the most technologically innovative companies benefit from having a balance of employees — most with technical degrees, others with broader educations. Valuable products and services emerge from the clash of ideas between analytical professionals and managers whose greatest strength is their intuitiveness.

Can’t someone who can conjugate French verbs, write statistically dense research papers and explicate the poetry of William Blake be trained in computer programming, supply-chain management and other skills valued by hiring managers? An entire generation hopes that C.E.O.’s somewhere believe that giving them an opportunity is the right — and the smart — thing to do.

Robert W. Goldfarb is a management consultant and author of “What’s Stopping Me From Getting Ahead?”

Article source: http://www.nytimes.com/2012/11/11/jobs/bridging-the-hiring-gap-for-college-graduates.html?partner=rss&emc=rss