patrick.net

SFWoman said:

The arts receive next to no funding in the US outside of DC museums. Without write offs to arts institutions many, if not most, would cease to exist.
...I guess it depends on if you value having cultural institutions. I do, I contribute to them, and I consider them to be a vital and important part of life.

I'm not saying the arts are not important. I just don't want contributions to opera houses (or Harvard or MIT, for that matter) to be tax deductible. I seriously doubt that eliminating the charitable deduction would cause these institutions to wither and die. Many people would continue to support these institutions even if they couldn't get a write-off. (Or at least they would if they value the arts as much as you do.)

If your combined state and federal tax rate is 40%, then a $600 nondeductible contribution is equivalent to a $1000 deductible contribution. You are free to give the $600 to the opera house (or more if you want). I just don't think you should be able to deduct the contribution. Make all the nondeductible contributions if you want.

An allowed deduction is just the flip side of a subsidy. In the above example, if the deduction is allowed then the opera house gets $400 dollars which would otherwise go to the treasury (if there were no charitable deductions allowed). This $400 could be used to lower the overall tax rate, or to balance the budget, or to pay for *democratically* selected priorities (via gov't spending).

If it is really true that the opera houses would go under without the charitable deduction then I have to ask why should taxpayers subsidize opera houses who can't make it without deductible contributions?

I have been picking on the arts, but I am even more annoyed by the deduction for religious contributions. No wonder we have megachurches. What a racket!

Randy, I'm not sure I agree with your view on price stickiness. You of all people know to disconnect seller emotion from the equation. Of course people who don't have to take an immediate loss will hold out on the hope of a change. Willpower, and high hopes are irrelevant to market forces. A change in the equation like no loans above $450K, and people having to show they can repay a loan will far outweigh someone in denial who holds out while foreclosed neighbors' homes either go on the auction block, or go the short sale route.

BTW a quick update on my area: I have literally seen 3 Uhauls these last couple of weeks either driving out under cover of darkness or at first daybreak. Out of 22 homes being built across the street from my planned development, they have sold 2 and construction is off more than it is on. It is a bumpy hill but prices are definitely tumbling down here. I'd say my neighborhood now has a 5% bank owned ratio of homes.

I have not considered one thing though. You may in effect be concluding that Bay area prices are not overpriced, but I don't think you have ever stated that thought.

Nothing against Allah (really) but I gotta weigh in on Randy's side here. I don't live in an area that's even close to being as moneyed as the B.A. and we're seeing price stickiness here that defies all logic.

There's a house down the street from me that's been on the market a year. It started at almost $600k (waaay too high) and the guy dropped it to $490k over time. He has obstinately stuck at $490k even though it finally went into foreclosure. He didn't get it approved for short sale or anything. Baffles the heck out of me.

It would be easy to write that off as an aberration, but I'm seeing tons of this going on. People still think that homes are worth what they were appraised at two years ago and they are not realistic at all about current value. Most homes I see still go on the market priced way too high. My parents did this and I think they're going to lose the house.

I'm not saying the arts are not important. I just don't want contributions to opera houses (or Harvard or MIT for that matter) to be tax deductible."

That would place officialdom in a position of doing essentially nothing in support of visual and performing arts. The NEA budget is risible. Must we make our indifference quite so clear as that?

The sellers who refuse to lower their prices are irrelevant.

Homebuilders continue to slash prices. And more and more "bank owned" properties are showing up on craigslist. Also, as the inventory builds, probate estates and trusts will continue to reduce prices in order to liquidate estates. These kinds of sellers are in a race to the bottom.

The guy who is holding at $490K can continue to hold. But if you are in the market for a house, you don't need to buy from him.

In a few more years, there will deals a-plenty. Banks and homebuilders will not stick with their wishing prices--they will liquidate for whatever the market will bear. Hang in there. The reset wave is still accelerating. We aren't even close to the bottom yet.

Bruce says: That would place officialdom in a position of doing essentially nothing in support of visual and performing arts. The NEA budget is risible. Must we make our indifference quite so clear as that?

My objection to the charitable deduction is that it is a hidden subsidy. If the voters, through their representatives, decide to support the visual and performing arts, then so be it--I have no objection. But let them do it through a direct government subsidy, not a backdoor subsidy known as the charitable deduction.

When taxpayer money is spent, it is exposed to vigorous debate (ie: NEA, for example, is a political football). This, in my opinion, is entirely appropriate. However, when the government allows a charitable deduction (which also has the effect of depleting the treasury) no one seems to care how the money is spent. It is no longer seen as "our" money. Therefore, we do not criticize the rich if they decide to give money only to support rich people causes (like the opera house or the art museum). Nor do we criticize those who tithe in order to support Pat Robertson or Jimmy Swaggert. But why should this be the case? The effect is the same as if the government collected the taxes, then wrote a direct check to the opera house or the televangelist (or whatever).

If the voters, through their representatives, decide to support the visual and performing arts, then so be it-I have no objection.

In what way is passing such decisions through a legislature superior? As it stands, giving or not giving (and giving how much and to whom) is controlled by the donor. And the donation is not impaired by administrative costs.

When taxpayer money is spent, it is exposed to vigorous debate (ie: NEA, for example, is a political football).

Zut! I agree. If the NEA and some congressional windbag hadn't been involved, Mapplethorpe might never have become famous.

Glen, you will think I am not serious. But let me be clear for a moment.

Can you not see that your objection lies in seeing funds going to things you don't like much, or that you consider elitist, or that you just personally don't appreciate? And can you also not see that you propose that government decision and administration of such things is superior to individual choice?

I'd be the last person on earth to equate the contributions of Jussi Bjorling and Tammy Faye, but I don't resent a single dime the Bakkers received. Because it wasn't my dime.

Glen,

The arts do not only exist for the rich. In SF the museums have rather amazing outreach programs for children at little or no cost. Children can do studio arts, and the museums even have outreach programs in impoverished neighborhood latchkey programs. School children can visit the Fine Arts Museums for free. Can I donate twice as much to support these programs because of the tax write off? Yes. The Symphony also has an outreach program, Adventures in Music, that plays in public schools (and my children's private school walks over to the public school to see these wonderful performances).

When I lived in Europe, where the arts are highly government subsidized, nobody considered them as something only for the rich, they were part of what made up life, even in smaller towns.

I don't want all of our arts government funded here because I don't trust our government to properly vet them or to not politicize every little decision. We'd probably never see another performance of 'Tartuffe', let alone something that actually challenges the status quo.

I do agree that megachurch donations are annoying (actually I'd consider many of them predatory in their quest for donations). Any church that tells its parishoners how to vote should have their tax status yanked immediately.

Seller psychology, for *existing homes*, means pretty much _everything_ to how aggressively they are willing to drop their prices. What's happening is the sellers believe their losses from selling at a price are higher than they really are (they are miscalculating their marginal costs). This leads, in turn, to many more sellers riding all the way down to foreclosure in a spiraling escalation of commitment than would otherwise be necessary. And foreclosures are sticky by definition.

New homes sales have even been much more price sticky than even I had predicted a couple years ago. I argued that homebuilders were rational, sophisticated financial businesses, and as such would aggressively drop prices to clear inventory (and maximize marginal revenues). I don't pretend to understand the complex land-option nature of new home builders, but aside from that they have also been engaging in non-optimal stickiness, mostly with incentives in lieu of price cuts. My only rational explanation for this is that their marketing believes that they somehow need to mimic the (ir)rationalization of their customers, who don't want to think prices can go down. Of course, now home builders are cutting prices, so things have finally loosened up there.

Keep in mind that stickiness actually predicts there should be a buildup followed by a rapid breaking loose in price action.

Finally, as to the Bay Area, it turns out this area does have a particular "uniqueness" (abnormality?) which makes it even more sticky than almost everywhere else in the US. The BA has dramatically higher savings rates than pretty much everywhere else. 4 of the top 5 highest savings rate large cities are in the Bay Area (the other in Connecticut if I recall). I don't know why this is so; perhaps because of the high percentage of Asian immigrants with a savings bias, but the fact remains that the BA has in aggregate a much larger savings reserve to blow through than everywhere else.

This does *not* mean prices will stay high. I don't believe that. But it means price corrections will continue to trail other areas, and the scale of corrections might well be smaller.

Any church that tells its parishoners how to vote should have their tax status yanked immediately.

All churches should pay taxes at the same rate as taxable non profit organizations. Similarly, they should lose their non profit status if they, well, become de facto for profit organizations.

As I reason, this should result in (a) a reduction of hucksters and (b) a reduction in taxes as churches start telling their parishoners to demand lower taxes.

Yes - let's open up the discussion of tax deductions. . . Perhaps a new thread?

One of the things that bothers me about the new loan products is that you can front end load the interest payments. This has the effect of maximizing your tax deduction today. The national average length of time for owning a home is 7 years. An astutue buyer would think, "I will sell this home in 5 years- let me take an interest only loan for those 5 years to maximize my public subsidy." So every tax payer chips on the heavy interest years. In the years where it would balance out in the publics favor, the house is long since sold.
I think we could see much more affordable housing if we simply did away with the mortgage deduction.

On a similar note, don't mid-Westerners ever get sick of chipping in on Bay Area housing? When your mortgage deduction is for a $200k home and you pay X in taxes a BA person has an 800K loan and pays X-alot in taxes.

Randy H.,

Could people like me who won't move, somewhat in part because of Prop 13, be scewing the savings rate?

Bap33,

Totally OT.

"Surfin' Bird" was actually recorded by "The Trashmen" a "Surf Band" from of all places Minneapolis, MN! For those that appreciate "Pre-Beatles" music www.sundazed.com is an absolute treasure trove of "B-side" material.

*Not a paid endorser

Duke,

What's worse is that most people don't amoritize their loan points correctly either. Since we can get away with blue murder pretty much wherever RE is concerned I try not to get too worked up about it. And no, mid-westerners will never tire of that.

Duke,

There is still a net transfer of taxes from California to the southern and midwestern states. We had a thread on that a year or so ago when WW from Alameda was posting.

I am annoyed by the tax write off of second mortgages (provided you stay below the $1.1 million cap) for boats, plastic surgery, etc. I also think I could use my pretax medical savings account for cosmetic stuff. If that's actually true, tax free funbags or nose jobs are pretty offensive to me when a good chunk of people in the US can't afford basic healthcare. Now, if people would actually start taking care of their health...

I talked with a guy yesterday that owned up to having to do a short sale on an inv. prop. in PHX in 2006. He said what made it almost impossible to sell was that builders were offering TEN % comm! Times (for realtors) were tough enough as is so why attempt selling an overpriced existing home for a 3% comm. when you can sell a NEW lower priced POS for 10 (and in some cases TWELVE %) as George so astutely predictaed over a year ago?

Even in defeat, it looks like builders are still calling the shots.

Actually, George "predicted" it. :(

Glen said:
if the deduction is allowed then the opera house gets $400 dollars which would otherwise go to the treasury (if there were no charitable deductions allowed). This $400 could be used to lower the overall tax rate, or to balance the budget, or to pay for *democratically* selected priorities (via gov’t spending).

Firstly, I don't share your faith in the government as an effective steward of those $400. The overall tax rate could be lowered far more effectively by shrinking the government and getting it out of places it does not belong. Ditto for balancing the budget. The majority of government officials I have dealt with have struck me as singularly inept, indifferent and undeserving of their paycheck - so while I agree that your idea sounds noble on the surface, I don't believe it works in practice.

Secondly, "democratically selected spending priorities", directed by corrupt politicians is hardly going to improve matters. Forcing citizens to cough up more taxes so the government can decide where to spend it is just an extortion racket. No, thank you.

SP

Glen said:
My objection to the charitable deduction is that it is a hidden subsidy.

One could describe most social programs (section 8, welfare, food-stamps) run by the government as open subsidies.

You're really advocating increased government confiscation of private earnings to fund social programs. This reduces the incentive to work, and increases the incentive to hide private assets rather than put them to effective use. I have witnessed first hand _exactly_ this outcome in several countries.

SP

Glen said:
when the government allows a charitable deduction (which also has the effect of depleting the treasury) no one seems to care how the money is spent. It is no longer seen as “our” money.

And very rightly so. It is not "our" money, and "we" cannot presume authority on where it should be donated.

SP

The Portland Opera has been on life support for years. If it weren't for Harry Merlo (Pavoratti's drinking buddy here in town) it would've have died a quiet death long ago. I constantly get hit up to "support" it. I say, if there is THAT little demand... let it go. There are many dead arts, with P's passing this may be just one more. Sorry.

SFWoman,

I have to disagree to some extent on the arts and accessibility to "the masses" wrt performing arts in particular. Museums and the like are easy enough - waive admission for children or those without means to pay. On the other hand, in the US, symphonies, dance and opera have had a horrible track record of providing cheap venues for those who can't afford $200/ticket for nosebleed seats where you can't even make out the fat face on some large soprano pretending to be a dainty Cho-Cho San. This is changing slowly (NYC Opera free concerts, concerts in the park type affairs), but it's mostly just lip service. A big part of the problem is operating budgets. Not only are there production costs, costs of maintaining the venue, but an orchestra of 108 players in a major city averages over $100k/year salary each (they're unionized). I think they deserve it, but it does add up.

Europe is a totally different animal. Not only are the arts more or less completely state-funded, but every little podunk village has a symphony of their own. They offer very cheap student seats (if you travel as an American student you can take advantage of this), and it's much more ingrained into the fabric of their society. In the US, performing arts have become an almost irrelevant subculture that caters to the wealthy who like to use concerts, performances and especially fundraising galas as socializing events/tax deductions.

I say this from personal observation, as someone who would like to go more often if it didn't require a MEW every time I wanted to see a concert.

That and you can see the Blue Oyster Cult for $25.

@Randy H,

I'll add one theory for why the HBs have been surprisingly sticky with lowering prices. They can't afford to piss off current owners, especially ones who bought recently. Imagine buying your nice cookie cutter tract home in some mega Centex development, only to find out 2 months after painting the walls and splurging on Pottery Barn that the "next phase" in the development is selling identical units to yours, less $50K. There are already stories of lawsuits from pissed off owners about this very fact. The added vulnerability of the HBs, as opposed to re-sellers, is that they invariably keep building the exact same house over and over again in each development, so comps are REALLY easy to make. There's no getting around that comparison.

Hence, all the efforts to cut everything BUT the price (free swimming pools, free third garage, free pergraniteel, closing costs covered, pay your taxes and HOA fees for a year, blah blah blah). But the sucker knife catcher doesn't realize how financially it's a losing proposition, as you still have to pay the mortgage on a still too high basis.

skibum said:
seats where you can’t even make out the fat face on some large soprano

I know an opera singer very well and have seen her face up close, and trust me, you're better off sitting further back. :-)

In the US, performing arts have become an almost irrelevant subculture that caters to the wealthy who like to use concerts, performances and especially fundraising galas as socializing events/tax deductions.

This is true only of the big-name performances. There are still community-supported (i.e. private contributions) events in the parks in many cities. The problem is that while the middle-class aren't willing to pony up the measly $10-20 per month to support a local arts group that runs a public theater for free in the local park. Instead, they post nonsense on blogs about how great it would be if the government could take "our" money from the rich to pay for it. :-)

SP

That and you can see the Blue Oyster Cult for $25.

Did I mention that a few years back, a friend was driving across country, stopped for dinner at a strip mall somewhere in Nebraska, and randomly saw BOC playing at the roadhouse venue there?

Hey man, "Don't fear the reaper."

In the US, performing arts have become an almost irrelevant subculture that caters to the wealthy who like to use concerts, performances and especially fundraising galas as socializing events/tax deductions.

Agreed. My wife and I long ago stopped attending opera, theater and such not because of the costs, even though the price seemed to rise by the hour. We quit because the folks in attendance weren't our type of people. We don't mix with the "cultured elite" very well, which suits me just fine. I cannot imagine living my life concerned about the minutia they'd carry on about.

It seems that in the early 90s the scene was different, in Chicago at least. Since we don't have cultured backgrounds, that's where we started attending performing arts. And I remember then that most in attendance weren't socialites, save for a few older folks sitting in the best seats.

I'm all for the in-the-park concerts, but the truth is, acoustically the symphony and opera is a vastly superior experience in an acoustically good concert hall (Davies is NOT one of them).

My concert going and CD buying dollars goes to indie music outfits. That's were the creativity is. I don't think many common people would willingly sit through a dance performance or opera performance, even if the ticket was $5/each.

"On a similar note, don’t mid-Westerners ever get sick of chipping in on Bay Area housing?"

O puh-lease! Take another look at who pays the taxes in this country - yep, it's the "working rich", people with high incomes that live in places like the B.A. I think California gets back 70 cents on every dollar we send to the Feds...

Morning.

Randy,

I'm going to make this one post to put this whole sticky argument to rest.

When I said that prices would lose their stickiness, the argument is that while they may be sticky for a while (because of their own internal logic), they will eventually break and prices will collapse. Once some of the sellers decide to cut their price, driving comps down in the area, I believe others will panic and cut as well.

This is my prediction; you can disagree with it if you want (that's what these discussion forums are here for), but don't call it childish or retarded and threaten to kick me out accusing me of being a troll just because YOU don't agree with it. When it happens in your area; like it is already starting to happen in my area RIGHT NOW, make sure you have a good apology for me.

On a side note, just the fact that you modified Shiller's chart to reflect prices falling sharply, doesn't reflect stickiness at all; it's a total contradiction on your part.

I'm all for supporting creative endeavors, but I agree with Glen. I think they should flourish or die without IRS involvement. I'm in favor of direct government grants to artists and writers, but the charity donation racket is mostly about the middle class subsidizing the tastes of the rich. Most middle class people can't afford to donate enough to justify a charitable donation writeoff, why should the rich get that?

SFWoman & SP:

My point was not to criticize the performing arts (or even televangelists for that matter). My point is simply that a deduction is the flip side of a subsidy. Just as the government subsidizes homeowners by allowing a mortgage interest deduction, the government subsidizes televangelists and performing arts by permitting a tax deduction for contributions to their organizations.

Again, I am not saying that people shouldn't contribute. Give all you want! But why should I pay more taxes so that you can give *extra* money to the "Hour of Power"? If you itemize deductions and you are in the 40% bracket, then your $600 after tax contribution becomes a $1000 contribution. If I do not itemize (because I rent) then my $600 contribution remains a $600 contribution. Does this make any sense? Why should only itemizers get this benefit of directing their charitable money?

How is this any different than the government takes my money to pay for your opera house? The one way that it is different is that it is hidden from view.

There is a federal bureacracy tasked with figuring out what constitutes a "religious, scientific or educational organization." As Randy points out, there are a lot of hucksters calling themselves religious organizations who seem to pass muster under But this is hidden from view.

The charitable deduction makes people feel good. But it is bad tax policy. It is indirect, attenuated, available only to itemizers and not subject to public scrutiny.

As with the mortgage interest deduction, it is sold to voters because it doesn't *seem* like it is causing everyone else to pay more taxes. But the truth is that it inevitably does. (Unless you believe in free lunches.)

And by the way, this has nothing to do with my personal charitable preferences. I feel the same way whether we are talking about the opera, the "hour of power," the Red Cross, or whatever else. My wife works for a nonprofit and if the charitable deduction were eliminated she might not have a job. But this does not change my views on this issue.

I've posted before, but in case anyone is interested in learning about the real economics behind price stickiness in real estate markets, a reasonably thorough piece of analysis exists on the subject. Warning, it's a technical read with stochastic and GARCH quantitative discussions.

LookSmart's FindArticles - Asymmetry in Regional Real House Prices
Journal of Real Estate Portfolio Management, Sep-Dec 2006, by Guirguis, Hany,
Vogel, Richard

Glen,

I think if ALL tax deductions were eliminated I'd be OK, but only the arts seems to be cherry picking to me. Who gets to decide what is a worthwhile charity?

There is a fascinating discussion on KQED right now about the study of people and their brain activity related to their ability to handle ambiguity.

Randy H Says:
September 13th, 2007 at 7:06 am
"Keep in mind that stickiness actually predicts there should be a buildup followed by a rapid breaking loose in price action. "

I think this states it best. I have generally disagreed with the notion of some sort of orderly decline. It never seemed like it would work out that way. I used to roll my eyes when I'd hear someone saying, well I'll just sell when prices start to turn. In a downturn, holding out just compounds the problem for the seller.

SFWoman Says:
September 13th, 2007 at 9:20 am
"I think if ALL tax deductions were eliminated I’d be OK, but only the arts seems to be cherry picking to me. Who gets to decide what is a worthwhile charity?"

Like everything else, it is the free market that decides. The tax code is written in way that it is fairly easy to establish a charitable organization. The government (wisely) doesn't judge them, it leaves that to the general population to determine who gets funding and who doesn't according to individual causes.