This page has been archived and commenting is disabled.
America Fast Forward - In Reverse
The following is a wonkish discussion of one aspect of the White House budget. The President's budget will never see the light of day, but I think it is instructive to look at this component of the plan, and expose it for what it is - A fraud.
One element of the White House budget is a new form of financing for States and Municipalities. The White House has dubbed this new debt as America Fast Forward Bonds (AFF). This financing tool is very similar to the Build America Bonds (BABs) that were created in 2009 as part of the economic stimulus.
The proposal is to allow Munis to issue taxable debt. The objective is increase the number of investors who would invest in Muni debt. Traditionally, Munis have financed themselves by issuing tax free bonds. As no tax is levied against this form of interest income, the cost of the debt has been lower than taxable debt. The problem is that in order to benefit from the tax free status, the holder of debt must be taxable in the US.
Assume that an individual is in the 28% federal tax bracket and is making a bond investment. They have two alternatives:
1) Invest in a AA corporate taxable bond that yields 5%.
2) Invest in a AA Tax Free Muni bond at 3.6%.
Assuming that the credits are equivalent risks, then the investor is indifferent as to which bond they chose. The after tax yield is identical (5% minus 28% tax = 3.6%). As a result, only US taxable investors can buy Munis. (That or they are stupid..)
The President's proposal is to widen the audience of potential investors for Munis. If the AFF proposal were implemented, it would be extremely successful. The investment demand for taxable Munis is huge. This fact was proven with the BABs bonds. Everyone loved them - Wall Street sold the hell out of them, investors snatched them up. AFF bonds would be no different.
The problem with AFF bonds is what they will cost taxpayers. The lie from the White House is that AFFs will be revenue neutral. This is the same lie that was told about the BABs bonds. I'm amazed that the Administration is continuing with this charade. It must believe that Congress and the American people are stupid to have re-introduced this idea.
Buried deep in the hundreds of pages of budget information the White House lie is presented. On page 194 of the "Analytical Perspectives - Government Receipts" there is a discussion of the AFF bonds. This is the key language:
The Administration proposes to create a new permanent America Fast Forward Bond program, which would be an optional alternative to traditional tax exempt bonds. Like Build America Bonds, America Fast Forward Bonds would be conventional taxable bonds issued by State and local governments in which the Federal government makes direct payments to State and local governmental issuers . The subsidy rate would be 28 percent, which is approximately revenue neutral.
Here's the White House math:
- Muni issues taxable bonds at 5%
- Treasury pays the Muni 28% of the interest expense. (1.4% federal rebate).
- Investors earn 5% and pay (on average) 28% in federal taxes, the government collects the full 1.4% it has paid to the States.
As a result, this is "revenue neutral" to the Federal Government.
The White House provided specifics of the net cost of issuing the new AFF bonds on page 211. As you can see, the claim is that AFFs won't cost a dime:
Let's look at those footnotes:
As presented by the White House, this all makes sense. The Treasury will pay out $53B, but the IRS will collect taxes from bond holders at the 28% rate and receive the $53B back in income taxes. Therefore there is no net cost (slide #1), at least that is how the information is presented.
Who will buy the AFF bonds? All sorts of investors. Pension plans will love them. Folks with IRAs and 401Ks will lap them up, but by far, the biggest buyers will be foreigners.
When the Treasury Department first introduced the concept of AFF bonds it described the potential investors as:
AFF bonds would attract new sources of capital for infrastructure investment—including from public pension funds and foreign investors.
The problem is that none of these buyers are paying US taxes. So very little of the tax revenue the White House is including in its analysis is going to be realized. AFFs are going to cost the taxpayers a bundle.
I went through the same arguments about BAB bonds. The Treasury Department sold the BABS proposal back in 2009 as being tax neutral. It wasn't true then for BABs, it is equally untrue for AFFs today. As part of my proof that that this was not budget neutral I provided an email response from the IRS I received on the tax collections related to BABs. That response (LINK):
In response to your request for the percentage of tax collections from bonds associated with Build America Bonds, we will not be able to answer your request. Unlike tax-exempt bonds build America bonds are taxable, but the IRS Tax-Exempt area collects no data on the tax obligations associated with them.
The IRS has no ideal what the tax receipts were regarding BABS, yet the White House is making exact forecasts of what the revenues will be for AFF bonds. The Treasury department has flat out said the bonds are likely to go to tax exempt hands, the White House assumes that all the AFF bond holders will pay US tax at the 28% rate. The reality is that BABS were not revenue neutral, and the facts are that AFF bonds will not be revenue neutral either. But the President's budget says they will be, and that is a flat out lie.
Republicans hated BABS, they will hate AFF bonds too, so this part of the President's budget will never be enacted. But there is a lie in the White House proposal for AFF bonds. One can safely assume that there are many other lies in the President's plan. What bothers me is that so called "Economists" like Alan Blinder of Princeton make OpEd statements in the Wall Street Journal supporting the White House budget. Blinder went out of his way to defend the "credible numbers", I doubt Blinder even looked at the numbers, that or he's just a shill for the Administration.
»
- advertisements -
So the logical solution would be to open up tax-free munis to all by dropping the taxable base requirement. Then there would be no pre-bates by the feds and the munis could compete on their own credit ratings.
somebody drop a ....... this world is bullshit! fuck the money changers or they will fuck you!
Just One?
lmao
What HASN'T the Obowel movement lied about?
Ya' know what they say about war, huh...The first casualty is the truth...well, guess what...the progressives have been at war with the individual white straight male in particular for a long long time...and the truth is no where to be found in their thought process...and worst of all, most of us didn't have a clue because we were too busy working out asses off to support our offspring, while the non-breeders were fighting like hell to corrupt and collapse the system at the proper time to take over the system completely..."men, it's time to step up, I say, and drink from the cup, I pray, but not in one gulp, nay, nay...."
The Dancer
Started off your comment with a correct observation about war and truth. The lies surrounding US militarism are rivaled only by the lies about TBTF banksters.
But then you began nonsense about "straight white males" being the "particular" victims of "progressives". Tell that to the Afghans and Iraqis. Tell that to the millions in the US prison system.
Fact is, Obama and Hillary are not "progressive" in the original meaning. Originally "progressives" wanted to employ government to curtail the abuses of the private sector (contaminated foods, fraudulent banks, unsafe mining, etc.).
Those who now wish to employ government to advantage an economic elite are not "progressives" in intent or policies.
In more modern verbiage, they are NEOliberals. And, just as NEOconservatives no longer adhere to traditional conservative policies, NEOliberals are no longer liberal. Both NEOcons and NEOlibs share the vision of using militarism and policing to uphold a secretive, deceitful, and autocratic government beholden to corporate and financial institutions and those who head them.
Here, here! Anyone paying just the remotest of attention the past 10 to13 years would know that according to the US government, EVERYONE is their enemy. And it's true because the US government is a corrupt criminal gang of thieves and thugs that is quickly going formally bankrupt so EVERYONE is their enemy.
They, the US government, are a paper tiger of debt and lies that is now retreating to its "homeland" where they are actively at war against the American people as we speak. That is the reason for NDAA--legal cover for their escalating civil war. And Sandy Hoax is the manufactured impetus for grabbing our only tools to remove these criminals.
If the Constitution is the law of the land and the US government is not obeying the Constitution then the US government and all those involved with them are criminals and need to be removed and the Constitution restored.
Reject these criminals, Revolt against these criminals, Retribute these criminals and Restore the Constitutional republic.
hujel
Reject, Revolution, Retribution and Restoration
Ya but, WE GOT BABS.
No proposal to tax foreigners US interest? Easy to do. Other countries collect it directly from the bank or broker.
Bruce, we are in a Deflationary Death Spiral now and I am not sure if these bonds would "help" municipalities but it seems they would help maintain the fat benefits some are handing out at taxpayers' expense.
Thanks for the great article and info, but this would have been a shorter article if you had written.
US government is buying local and state governments via subsidy that will, suprise, surpirse, also funnel billions more toward Wall St. and the banksters.
And "taxpayers" pay nothing, as they are robbed via extortion. So your sentence should have said that the American people will be further fleeced for the gain of the banksters, streeters and those in the US gov.
Or put another way, AFF bonds are the stink, the government is the shit. hujel
The President is a sham, in fact, the Executive Branch is a sham.
As is the Legislative Branch, the Judicial Branch, the whole Kit and Caboodle of Government, and Wall Street.
SHAM.
Insurrectionist !! you will be flogged /sarc
On point!
you would be surprised how much of socalled municipal budget is aactually corporate welfare, or subsidies of small business (mostly the former because if you sell shares on wall street you are a GSE backed by the full guarantee of Bernanke and sons) the gov of CA put an end to redevelopment, but the war goes on in other ways to capture dollars from government (state and federal) and funnel it down to the cities, after all no one can print money except obama, states cant cities cant, so they have to figure out a way to get the funny money down to the bottom, (which is bernankes problem too much liquidity and none of it getting to the people who are the economy, if only he could throw it out of helicopters.. forget the taxpayers think about QE forever, and destruction of the currency.
Bruce, if the president speaks in a room full of people, does anyone give a fuck?
The US federal government is no longer operating with the country's best interests in mind. It used to be that it was just incompetent (and widely understood to be incompetent), but now it's actually maliciously doing damage. The politicians are happy to keep the music going for their own self interests, but the ideologues in power seem to be trying to crash the system in order that something more... collectivist will rise up from the ashes of the republic.
Obama only cares about one thing - recapturing the House in the Midterms so he can implement his socialist agenda. This is intensely personal to him, and he is devoting everything to this goal. He doesn't give a DC gray rat's ass about anything else. Everything he does or proposes has to be viewed in light of this clear agenda. And remember - Obama does not expect most of his proposals to see the legislative light of day. He proposes things so he can blame the GOP House for refusing to enact them. He has his gaze fixed upon a singular goal, and I'm sure he will game the coming market crash so he can blame the House. He will probably go on TV and demand a stimulus/bailout package that he knows the House GOP must unanimously reject. Obama is so good that he operates at least 6 moves ahead of his opponents. Everything is proceeding according to Obama's grand designs - just like Emperor Palpatine in Star Wars.
you see obama as someone with a vision, totally brilliant, socialist and forward thinking with a socialist objective being a totally corrupt agenda. I see him as a corrupt fascist/corporatist lying coward just like the last 7 presidents who have stepped foot in that office following orders from the money power players who we never see.
Yeah, right? The guys a fuckin tool and you make him out to be a genuis.
Trying to get the House Negro lovers all riled up?
He is following his mastas orders like the dumb fuck before him, like the guy on his knees now that is sucking our masters dick who will replace him. Their all just highly paid and compensated slaves.
Wake up or keep your dreams to yourself.
The Pol Pot method to mke sure the survivors are dumb enough to accept
the collective.
Handy those FEMA camps having crematoria .
Pol Pot had the right idea, a city full of parasites and scared of the Khymer Rouge, his idea was to send them back to subsistence farming, but it all went terribly wrong, thanks in great part to the US role in bombing cambodia and giving life to the commie rebel groups. america is heading for that soylent green moment, where the leader says get the hell off these streets and back into the country where you either make a living for yourself or you starve to death. just the way it is and the way of the future.
Wrong, the entire fucking president is a goddamn sham. Just like Bushdipshit2 was, just like ClintonNafta was, just like all the other bought off motherfuckers.
Rest assured........the net has made us too smart. It won't be around for much longer. I don't know where the elite are gona hide out the war but rest assured they will try. TRY is the key word. Die in your fucking tunnel u POS.
Those elites' tunnels... that's why God invented concrete... lots and lots of concrete.
Bruce: I think you picked up on the short term problem at the expense of identifying the long term. Muni bonds are Federal tax free...and the Feds hate that. So, they're looking to introduce muni bonds that ARE taxable, with the cooperation of the states and municipalities. They get the Federal money subsidy....for awhile. Then sooner or later the courts decide that voila, muni bonds really ARE taxable at the Federal level (all of them) and there disappears that source of Federally tax exempt income. It's the camels nose and shoulders under the tent.
And that Federal subsidy to the municipailities and states? Well, so sorry. Those go away. Budget cuts dontchaknow.
Blinder is aptly named.
Beat me to it!
I’m guessing it was no accident they put the full disclosure on page 194. How many Congressmen or their staff are going to read that far into the budget proposal? How many are going to read it at all before just following the party line? Hell, Representative Doug Lamborn didn’t even read the seven page DIA report on North Korean nuclear capability before he started blabbing about it in a public hearing.
Why should Dougie read seven pages when his party allready told him what's best?
I suppose it would make too much sense to just offer 5% on tax free bonds.
What Bruce didn't write about Municipal Bonds is that they are only tax-free to the TAX BASE of the municipality. The very tax base that they have destroyed, through over-taxation, over-regulation, and exemptions for political cronies. As a citizen of Virginia I derive no tax benefit from financing the profligacy of the ass-clowns in Sacramento,
Since the ass-clowns in Sacramento are hell-bent on regulating and taxing productive industry and agriculture out of existence (or at least the People's Republic ) that only leaves increasingly impoverished sheeple and political cronies (such as Calpers and Hollywood) to subsidize the profligate State- which is unacceptable to TPTB in Sacramento. They have reached the bottom of the barrel, and they are now looking desperately for another barrel, because the self-proclaimed tree-fuckers don't actually know what sustainability is.
Ditto for IL & NY...
But but but! It will help the bankrupt cities go into even MORE debt!! The debt bubble must continue and grow bigger!
someone on ZH from MN said they are now placing a direct surcharge on car and home insurance in that state that pays the cop and firefighter pensions- derp-a-derp. that should go a long way towards fostering goodwill to the civil servants.
How far behind can a breathing tax be?
We here in California East ( MD) have been paying a septic tax and starting July 1 a SWM tax. $15/500sf of impervious! Death by a thousand taxes. It never ends as the only answer to gov't is more money.
Ever hear of the Carbon tax?
Ever hear of Obamacare? Or is that a penalty? I'm so confused.
It's a "levy".
Dammit, we're just not beating these people hard enough to make them understand!
Give them approximately a few billion lashes more!
The beatings will improve until the morale continues!
how long until Uncle Sam has you invested in this garbage w/ your IRAs at the end of a gun
I figure as soon as they can't keep the real value of gold and silver below realistic value.
Then watch your 401K's get "nationalized". For the children.
Thanks for the heads-up, Bruce.
One element? You need to pay attention.
Brilliant journalism....Bruce. Hats off to you for educating me on this issue.
"This is the same lie that was told about the BABs bonds. I'm amazed that the Administration is continuing with this charade. It must believe that Congress and the American people are stupid to have re-introduced this idea."
I'm amazed you're amazed, Bruce. Do you really think that Obama has the welfare of the USA in his heart? That he might be wrong but means well? Really? Obama is out to totally destroy this country and is gloating that Amercians are so stupid they will help him. He hates America and its ideals.
What would you expect from the Marxist con man? If you think he's lying about the budget and he is you might want to stay awake on his other policy demands.
Name one Marxist thing this scumbag has done. He is a fascist through and through.
Look at ObamaCare--written by the insurance companies and others to benefit themselves. Why do you think that that cunt Pelosi said, "we'll have to pass the bill to see what's in it?!"
If you can't see that, then you need to realize that they still have you fooled.
hujel
One thing: 1. Signed the NDAA into law. So that a US citizen can now be picked up and never given the right to a trial if the president decides. 2. Domestic drones flying over our country for what purpose no one will say. 3. IRS can read your email without a search warrant. 4. Gun control for what purpose? Supposedly to stop the lone psychopaths terrorizing our children.
I understand the fascist corporate benefit system this president has in place. I believe it is utilized as a reelection funding operation. Absolutely fascist in that regard but that misses a lot about this president.
But underlying all of this is a very left of center socialist communist. But you can call it anything you want. His daddy was a undeniable Marxist though and the president's inner circle surrounding him are as well. The guy believes in distribution of wealth and where have we heard that before.
Maybe just maybe you are the one being fooled.
Sir,
The president is just the stink on the shit that is the US government which is at war against the American people and the rest of the entire world as we speak. hujel
Everybodys All...
BO's step-father evidently participated in, and his Mother apparently assisted complicitly with the CIA,
in the massacre of a million or more alleged "communists", "leftists" and trade unionists in Indonesia.
Maybe just maybe you are the one being fooled.
http://www.thesecrettruth.com/obama.htm