Puerto Rico’s April tax collections suffered a big collapse. The projections were missed by 27 percent, or $442 million. The data was released last Friday. The April shortfall, caused mostly by reduced corporate income taxes, imperils year-end budget figures. It also jeopardizes the recently proposed fiscal year 2015 budget that was proposed by Puerto Rico Governor Alejandro García Padilla.
California’s real estate market experienced some wild swings that pushed housing prices up faster than anywhere in the nation before plummeting in response to the financial crisis. Local government revenues rode the same boom-bust cycle.
The Government Accountability Office published a report estimating the economic advantages and costs Puerto Rico would have if it enters statehood. The biggest cost would be that Puerto Rico citizens would be required to pay federal income tax on their domestic earnings. Currently they pay federal income tax on income they earn outside of Puerto Rico.
Although there are people, like Bond Dealers of America CEO Mike Nicholas, who have predicted that federal tax reform will not happen until 2017, the Senate Finance Committee has kick-started the process. Law firm KL Gates sent out a primer about the Senate Finance Committee plans:
The debate surrounding the sacred cow of municipal bond tax exemption is reaching new heights. In a recent report from the National League of Cities, estimates by SIFMA (the dealer trade group) show that municipal governments would have paid an additional $173 billion in interest over 10 years with a 28 percent cap on municipal bond tax exemption. And if Congress had fully repealed the municipal bond tax exemption, municipal issuers would have paid an additional $495 billion in interest costs over the last 10 years. These amounts would be on top of the $1.09 trillion in interest paid on municipal bonds in the last 10 years under the current law.
Last month, Puerto Rico Governor Luis Fortuño delivered a speech at the libertarian Reason Foundation on “how Puerto Rico avoided becoming “America’s Greece.” In his talk, the governor espoused the anti-government ethos of Grover Norquist, whom he cited as a friend in the first minute of his remarks. Fortuño has been a staunch advocate of “right-sizing” government: Soon after taking office, he laid off a substantial number of the commonwealth’s employees and reduced the island’s personal, corporate and property taxes.
Chris Mauro, head of U.S. municipal strategy at RBC Capital Markets, sent around a comment note suggesting that the media coverage of the Senate Finance Committee hearing Wednesday that included discussion of possible changes to the taxation of municipal bonds was overheated:
In addition to federal taxes, Americans are responsible for paying state and local sales, personal income and property taxes, and a variety of fees for the use of their cars, sewer systems and water systems. Although approximately 47 percent of the population pays no federal income tax, those people do contribute to public safety, education and welfare through their state and local taxes (and, it should be noted, also pay federal payroll taxes). Across the nation, sales taxes bring in about one-third of state revenues, personal income tax revenues bring in another third, and a variety of other taxes and fees make up the balance.
There are shale gas fields covering more than half of the United States, but Pennsylvania has emerged as the rising star of domestic energy production with its “Mighty Marcellus” fields. This is a great resource for Pennsylvania, but I’ve been confused about legislation that would impose an “impact fee” on shale gas producers instead of the traditional volume-based royalty structure used by other states. The loss of revenues to the state over the next 20 years using the “impact fee” could be approximately $24 billion using current gas prices. If gas prices doubled (they are currently at 10-year lows), losses to the state could exceed $48 billion or more.