Sign of Progress: Good NYT Article on Property Taxes

Sadly, I have to be quick as my work-week starts this lovely Sunday.

There are many accurate and persuasive points in Josh Barro’s, “The Inevitable, Indispensable Property Tax.” Notably, the author discusses the stability of the property tax base as opposed to the income or sales tax bases, which diminish more rapidly in economic downturns. But there are a few points deserving criticism.

But economists like property taxes for the same reason taxpayers hate them: They’re hard to avoid.

I’ve never seen a survey of economists asking them which taxes they like and why. Technically, their opinions only matter due to the weight we’d give them as experts. It’s the arguments for or against them that are more important, but I’d wager they prefer income taxes because like everyone else their minds have been poisoned by income tax ideology. Additionally, I believe taxpayers hate taxes other people can evade rather than ones they can’t evade themselves.

Indeed, despite pointing out that property taxes fall in part on land, which doesn’t disappear when taxed, Barro writes:

Sales tax, which falls disproportionately on the poor, is what economists call regressive. Property tax is often perceived as regressive, but because wealthy people own much more property than poor people do, it is more progressive than sales tax, though not as progressive as income tax.

See what I mean? No reason is given.

Why should a tax on wealth be seen as more regressive than a tax on incomes? Most people’s “incomes” are their labor earnings, and taxes on those discourag work, as the author observes. Another portion of “income” is capital gains, but much of that is land values that are baked into financial assets. (Buildings almost never appreciate.) To the extent that’s progressive, it’s because it’s a circuitous property tax.

Meanwhile, as the earlier quote on which taxes economists like suggests, property taxes are often characterized as a tax only homeowners pay. Far from it: landowning businesses large and small (but not nonprofits) pay them too. The most valuable real estate is in urban centers, often large buildings. This explains why corporations so enthusiastically invert themselves to Ireland or other countries with low corporate income tax rates. Most homeowners can’t get away with that.

It’s dicta, but if you don’t believe me read the article’s comments: income taxism gone rabid.

Finally, in passing, Barro adds:

In rare cases, property taxes can get so high that they encourage people to abandon their property (see Detroit).

I’ve never seen evidence that property taxes destroyed Detroit, implying landowners deeded their properties to the city rather than pay the tax. I doubt this is true.

What If The Gainful Employment Rule Were Applied to All Law Schools?

The first draft of my latest article on The American Lawyer about the gainful employment rule asked that question, but I realized that reporting on the for-profits alone was more important. The broader question is much more appropriate for a blog post, and since another federal court upheld the rule, it appears it’ll stick around. So, here you go.

To recap, the Department of Education’s gainful employment rule applies two debt-to-earnings tests to a college’s debtors: one based on their total annual incomes and the other their annual discretionary incomes. The tests create three results: passing, falling “in the zone,” or failing. Passing either test gives the school an overall passing grade for that year, not passing either test but not failing puts them “in the zone,” but failing is failing. Sorry if there’s some equivocation among these terms; I blame the rule.

Failing in a given year won’t kill a school’s access to federal loans, but certainly four years of failing or being in the zone will do the trick.

So:

  • Passing either debt-to-earnings test means debt payments are less than or equal to
    • 8 percent of total annual income, or
    • 20 percent of annual discretionary income.
  • The “zone” means debt payments are greater than
    • 8 percent of total annual income but less than or equal to 12 percent of annual income, or
    • 20 percent of annual discretionary income but less than or equal to 30 percent of discretionary income.
  • Failing occurs when debt payments are greater than
    • 12 percent of total annual income, or
    • 30 percent of annual discretionary income.

Got it? Good. If not, reread the article. I hate explaining this rule.

Rather than giving the numbers for both tests, I’m going to display the class of 2014’s mean debt (weighted with non-debtors (because I’m fair)), the minimum income (discretionary or total) needed to pass either test or at least stay in the zone, and the unemployment rate (“seeking” and “not seeking” employment, but excluding “deferred start dates”). The numbers will differ slightly from what I published in the article last week.

As for which test you’re seeing, since it’s somewhat important, the annual income test is the lesser test until about $43,000. After that, you are seeing the minimum discretionary income graduates need to be earning for the school to pass the test. That means they need to be earning even more money than what’s stated.

CLASS OF 2014 ON GAINFUL EMPLOYMENT
SCHOOL WTD AVG DEBT MIN PASS MIN ZONE TOT UNEMP
Howard $23,060 $20,178 $13,452 12.4%
Brigham Young $39,026 $34,148 $22,765 7.2%
Hawaii $39,949 $34,955 $23,304 15.5%
Alabama $45,830 $40,102 $26,734 3.5%
Lewis and Clark $47,014 $41,137 $27,425 15.4%
Arkansas (Fayetteville) $48,927 $42,811 $28,540 7.0%
Nebraska $49,758 $43,538 $29,026 6.0%
North Carolina Central $49,932 $43,691 $29,127 14.1%
District of Columbia $51,954 $44,434 $30,307 25.2%
Tennessee $52,961 $44,786 $30,894 14.6%
Wyoming $52,999 $44,800 $30,916 23.9%
North Dakota $55,743 $45,760 $32,517 13.2%
Connecticut $56,813 $46,134 $33,141 9.1%
Arkansas (Little Rock) $58,407 $46,692 $34,071 12.8%
Missouri (Columbia) $58,541 $46,740 $34,149 8.9%
Georgia State $58,650 $46,778 $34,213 5.6%
Mississippi $59,132 $46,946 $34,494 12.3%
Kentucky $60,629 $47,470 $35,367 5.6%
Wisconsin $61,117 $47,641 $35,652 7.6%
Kansas $61,410 $47,743 $35,822 8.4%
SUNY Buffalo $61,568 $47,799 $35,915 9.9%
New Mexico $61,795 $47,878 $36,047 3.6%
Liberty $63,917 $48,621 $37,285 25.0%
Georgia $63,954 $48,634 $37,307 13.6%
Texas Tech $64,047 $48,666 $37,361 18.8%
Northern Illinois $64,061 $48,671 $37,369 9.1%
Montana $64,094 $48,683 $37,388 11.3%
City University $64,284 $48,749 $37,499 20.7%
Oklahoma $64,613 $48,865 $37,691 7.7%
Florida $65,104 $49,036 $37,977 9.4%
Memphis $66,326 $49,464 $38,690 18.3%
Akron $66,681 $49,588 $38,897 8.7%
Cincinnati $66,697 $49,594 $38,906 10.4%
South Carolina $66,826 $49,639 $38,982 7.4%
Northern Kentucky $67,221 $49,777 $39,212 9.6%
Arizona State $67,227 $49,780 $39,216 1.5%
Florida State $68,319 $50,162 $39,853 6.0%
Wayne State $68,698 $50,294 $40,074 11.2%
Michigan State $69,711 $50,649 $40,665 1.2%
Houston $70,931 $51,076 $41,377 7.4%
South Dakota $71,067 $51,123 $41,456 6.2%
Boston University $71,181 $51,163 $41,522 6.5%
California-Davis $71,993 $51,448 $41,996 10.1%
Temple $72,019 $51,457 $42,011 9.1%
Washburn $72,555 $51,644 $42,323 8.9%
Indiana (Bloomington) $72,726 $51,704 $42,423 6.8%
Southern University $73,214 $51,875 $42,708 23.0%
Louisiana State $73,366 $51,928 $42,797 3.1%
Texas A&M [Wesleyan] $73,485 $51,970 $42,866 18.5%
West Virginia $73,712 $52,049 $42,999 8.5%
Utah $74,002 $52,151 $43,168 8.1%
Duquesne $74,172 $52,210 $43,267 13.5%
Arizona $74,516 $52,331 $43,468 4.9%
Texas $74,642 $52,375 $43,541 6.8%
Boston College $74,695 $52,393 $43,572 6.6%
North Carolina $74,905 $52,467 $43,694 11.9%
Maryland $75,615 $52,715 $43,894 8.8%
Illinois $76,374 $52,981 $44,071 5.9%
Campbell $76,555 $53,044 $44,113 13.6%
Iowa $76,670 $53,084 $44,140 2.3%
Washington University $76,828 $53,140 $44,177 1.2%
Drexel $77,209 $53,273 $44,265 11.3%
William and Mary $77,805 $53,482 $44,404 8.4%
Indiana (Indianapolis) $78,287 $53,651 $44,517 7.9%
Florida International $79,037 $53,913 $44,692 6.5%
Villanova $79,097 $53,934 $44,706 9.5%
Nevada $79,742 $54,160 $44,857 10.1%
Ohio State $80,527 $54,435 $45,040 1.4%
Pittsburgh $80,700 $54,495 $45,080 12.7%
Cleveland State $80,891 $54,562 $45,125 13.9%
Rutgers-Newark $81,451 $54,758 $45,255 8.4%
Idaho $81,604 $54,811 $45,291 8.1%
Louisville $82,077 $54,977 $45,401 7.1%
Baylor $82,833 $55,242 $45,578 11.8%
California-Irvine $83,342 $55,420 $45,696 10.8%
Tulsa $83,416 $55,446 $45,714 5.1%
Washington $83,732 $55,556 $45,787 14.0%
Maine $84,452 $55,808 $45,955 14.7%
Minnesota $84,834 $55,942 $46,045 6.9%
Cardozo, Yeshiva $85,151 $56,053 $46,119 15.3%
Toledo $87,232 $56,781 $46,604 17.9%
St. Thomas (MN) $87,349 $56,822 $46,631 8.4%
Washington and Lee $87,538 $56,888 $46,675 12.6%
Richmond $88,304 $57,156 $46,854 7.4%
Detroit Mercy $88,604 $57,261 $46,924 16.9%
St. John’s $89,567 $57,599 $47,149 8.9%
Yale $90,162 $57,807 $47,288 3.9%
Brooklyn $90,813 $58,035 $47,440 9.9%
Notre Dame $91,274 $58,196 $47,547 3.9%
Oregon $92,133 $58,497 $47,748 14.1%
Chicago-Kent, IIT $92,311 $58,559 $47,789 8.9%
Vanderbilt $92,969 $58,789 $47,943 2.6%
California-Los Angeles $93,221 $58,877 $48,002 6.3%
Emory $93,473 $58,966 $48,060 2.6%
Massachusetts — Dartmouth $93,819 $59,087 $48,141 16.0%
Fordham $94,187 $59,215 $48,227 9.8%
Baltimore $95,222 $59,578 $48,468 11.5%
Wake Forest $95,703 $59,746 $48,581 7.0%
St. Mary’s $95,761 $59,766 $48,594 17.9%
Southern Methodist $95,955 $59,834 $48,640 6.7%
Seton Hall $96,075 $59,876 $48,668 6.3%
Case Western Reserve $96,159 $59,905 $48,687 9.5%
Pennsylvania $96,201 $59,921 $48,697 0.4%
South Texas $96,686 $60,090 $48,810 9.2%
Dayton $97,598 $60,409 $49,023 11.4%
Colorado $97,675 $60,436 $49,041 4.2%
Quinnipiac $99,563 $61,097 $49,481 14.2%
Stanford $99,947 $61,231 $49,571 2.7%
Duke $100,325 $61,364 $49,659 2.8%
Samford $100,526 $61,434 $49,706 13.2%
Oklahoma City $100,825 $61,539 $49,776 5.6%
Mississippi College $101,946 $61,931 $50,037 21.1%
Syracuse $102,107 $61,987 $50,075 11.4%
Drake $102,326 $62,064 $50,126 9.2%
Suffolk $102,844 $62,245 $50,247 14.4%
Southern California $102,872 $62,255 $50,254 5.1%
William Mitchell $102,986 $62,295 $50,280 7.3%
Virginia $103,102 $62,336 $50,307 2.3%
Ohio Northern $104,531 $62,836 $50,641 18.1%
Loyola (LA) $104,924 $62,973 $50,732 19.3%
Pace $105,075 $63,026 $50,767 14.3%
San Diego $105,351 $63,123 $50,832 18.3%
Harvard $105,951 $63,333 $50,972 2.4%
Michigan $105,978 $63,342 $50,978 2.6%
Mercer $106,506 $63,527 $51,101 13.3%
Capital $106,628 $63,570 $51,130 31.3%
Tulane $107,133 $63,747 $51,248 9.7%
Hamline $107,514 $63,880 $51,337 8.7%
George Mason $107,715 $63,950 $51,383 2.7%
Gonzaga $107,940 $64,029 $51,436 16.0%
Chicago $108,521 $64,232 $51,572 1.9%
Penn State (Dickinson) $108,981 $64,393 $51,679 14.8%
New Hampshire $109,322 $64,513 $51,758 10.3%
New York University $109,331 $64,516 $51,760 1.3%
Western State $109,519 $64,581 $51,804 11.6%
DePaul $109,529 $64,585 $51,807 18.9%
George Washington $110,250 $64,837 $51,975 5.3%
Roger Williams $110,547 $64,941 $52,044 17.9%
Pepperdine $110,599 $64,960 $52,056 18.2%
Albany $110,656 $64,980 $52,070 14.2%
St. Louis $110,737 $65,008 $52,089 10.1%
Miami $110,761 $65,016 $52,094 7.7%
California-Berkeley $111,966 $65,438 $52,375 2.4%
Cornell $112,050 $65,468 $52,395 1.0%
Loyola (IL) $113,373 $65,931 $52,704 8.0%
Santa Clara $113,702 $66,046 $52,780 33.0%
Elon $113,902 $66,116 $52,827 27.9%
Denver $114,912 $66,469 $53,063 8.3%
Hofstra $114,917 $66,471 $53,064 7.9%
Ave Maria $115,045 $66,516 $53,094 33.6%
California-Hastings $116,260 $66,941 $53,377 22.1%
Regent $116,397 $66,989 $53,409 12.3%
Creighton $116,459 $67,011 $53,424 9.0%
Columbia $117,098 $67,234 $53,573 2.1%
Chapman $117,259 $67,291 $53,610 19.6%
Nova Southeastern $117,347 $67,321 $53,631 11.1%
Northeastern $117,379 $67,333 $53,638 14.4%
Marquette $118,389 $67,686 $53,874 9.8%
Georgetown $118,918 $67,871 $53,998 5.0%
Western New England $119,714 $68,150 $54,183 20.4%
John Marshall (Chicago) $121,990 $68,947 $54,714 8.8%
Valparaiso $122,769 $69,219 $54,896 20.9%
Catholic $123,026 $69,309 $54,956 13.4%
Stetson $123,167 $69,358 $54,989 7.2%
Widener $123,914 $69,620 $55,163 8.1%
Charleston $124,976 $69,992 $55,411 24.0%
Pacific, McGeorge $125,060 $70,021 $55,431 22.5%
Loyola (CA) $125,546 $70,191 $55,544 17.9%
Seattle $126,157 $70,405 $55,687 18.0%
Willamette $126,572 $70,550 $55,783 13.9%
St. Thomas (FL) $128,135 $71,097 $56,148 17.6%
Golden Gate $128,733 $71,307 $56,288 33.3%
Northwestern $130,452 $71,908 $56,689 7.2%
Touro $131,627 $72,319 $56,963 19.9%
Vermont $131,639 $72,324 $56,966 16.9%
American $132,232 $72,531 $57,104 15.2%
San Francisco $135,802 $73,781 $57,937 32.5%
California Western $137,589 $74,406 $58,354 23.7%
Whittier $137,958 $74,535 $58,440 24.2%
New York Law School $138,296 $74,654 $58,519 13.3%
Barry $141,716 $75,851 $59,317 17.7%
Florida Coastal $151,390 $79,237 $61,574 14.9%
Thomas Jefferson $156,925 $81,174 $62,866 29.0%

Note: Howard almost certainly published its graduates’ annual debt and not their total debts as it was asked, and this table excludes law schools that reported debt levels but not the percent of their graduates with debt.

I reckon that any law school whose graduates would need make $50,000 in discretionary annual income would probably fail the gainful employment rule in short order unless they were elite law schools with low unemployment rates. That’s about $100,000 in mean weighted debt, coincidentally—before interest. That’s at least 50 schools.

Kicking these law schools out of the federal loan program would be in keeping with the Department of Education’s stated goals for crafting the rule—accountability for student outcomes—but Congress won’t let it, which is why I found the comments to the department so galling. Some people claimed that graduate programs should be excluded from the rule because they didn’t face the same “employment challenges and return-on-investment considerations” compared to lower levels of higher education.

Looking at the above table … Right.

New Rule Spells Trouble for For-Profit Law Schools

…Is up on The American Lawyer.

Doomed! DOOMED I TELL YOU! Mwahahahaha!

I’d wanted to comment on the ABA Task Force on the Financing of Legal Education’s report, but alas my trusty computer that I’d been working on to write this blog all these years ran its last clock cycle over the weekend. Naturally, everything was backed up and has been transferred to my new machine. The show will continue—albeit with a delay.

In the meantime, here’s some Cloud Cult, which I saw at Minneapolis’ Northern Spark a couple weekends ago.

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Graduate Student Loan ‘Horror Stories’ Are the Point

Most of what Jordan Weissmann writes in “A Sign That Washington Might Be Charging Too Much Interest on Their Student Loans,” is correct. Okay, the title should use “Its Student Loans,” but that’s trivial.

Weissmann argues that startups targeting high-income graduate student debtors for student loan refinancing probably aren’t much of a threat to the federal loan program’s profitability (assuming there is any). The example he cites from a Bloomberg article isn’t very inspiring. The debtor has an MBA earns $140,000 per year, and has a scant $45,000 of debt. A 31 year old, the debtor’s 6.55 percent interest rate indicates that he probably has only unsubsidized Stafford loans from back when the interest rates were fixed rather than Grad PLUS loans at a floating rate. He is totally ineligible for income-based repayment. Rhetorically speaking, so far so good.

As for that assumption about that the federal loan program’s profitablity, we’ve already been down that road. (In a related article, Weissmann implies that anyone who disagrees with accrual accounting is a conservative—ha.) The government may have lower borrowing costs, but that doesn’t mean it always lends money wisely. Anyone who disagrees is free to argue why we shouldn’t socialize the entire credit system—and not just postal banking, I mean everything.

Where Weissmann gets tangled up is when he writes, “[W]hile there are certainly plenty of horror stories out there from underemployed and overindebted law grads and Ph.D.s, advanced degree holders are generally high earners who rarely default. Their reliable payments help subsidize lending to low-income undergrads, who are generally far less of a solid bet for the government.”

First of all, graduate debtors’ low default rates are probably due to selection bias, not high incomes. Presumably, highly educated people are savvier, more conscientious, and therefore more likely to contact lenders when they start running into financial problems, so they sign up for hardship deferments rather than default. Now they have IBR. In short, not being in default isn’t the same thing as being in full repayment.

More importantly, however, is that the characterization of law debtors and others as “horror stories” is misleading. In the past I’ve estimated that about 30 percent of Grad PLUS loan dollars go to students at private law schools. More go to public law school debtors. Weissmann should know that a sizeable proportion of these debtors will never repay their loans in full. Even if they’re a minority of graduate debtors, they still owe more than the average, but that’s where the profits are supposed to come from! Consequently, that minority matters quite a bit.

What’s needed is a cross-section of Grad PLUS dollars (not debtors) by degree, then repayment status, and then repayment type. If a minority of debtors owes a greater proportion of the debt and is on IBR because it has a low income, then startups poaching a few MBAs will be the least of ED’s problems.

A Day at the Races

Many of my posts focus on what I consider horse-racing in the law school context (LSAT tea-leaf reading, applicant counts, etc). Because I’m a fair-weather fan of thoroughbred racing, I figured it’s time to indulge myself and write about it for real in deference to American Pharoah’s Triple Crown victory at the Belmont on Saturday.

Personally, I didn’t think I’d see a Triple Crown winner in my lifetime given the disappointing losses I’ve witnessed, like Real Quiet in 1998 and Charismatic in 1999. Maybe it’s changes in breeding practices, increased frequency of fresher horses challenging the leader at the Belmont, or bad luck.

Nevertheless, I thought it’d be fun to look at the winners since 1931, when the track distances and the spacing between the three races were finally standardized. Years with vertical black lines denote Triple Crown winners.

Winners' Fastest Times

(Forgot to mention, the units are minutes, the source is Wikipedia.)

Observations:

(1) Each of the races took longer on average before 1950. The phenomenon is especially pronounced for the Kentucky Derby and the Preakness. For example, American Pharoah’s 2015 Preakness victory was about one second faster than the pre-1950 average but three seconds slower than 1950-forward average. The difference: There was a rain storm before the race this year, softening the track and dampening the atmosphere.

(2) Secretariat (1973) was a monster. It helps visually that the 1970 Belmont was also dumped on. I have no idea how often a horse like that comes along, but it’s rare.

(3) Consequently, it’s surprising that Seattle Slew (1977, and also a beast in his own right) and Affirmed (1978) occurred back to back, much less at all.

I’d need to look at the dispersions of the results for each year and each race and figure out how to account for weather, which I don’t feel like doing, so the results here suffer from substantial sample bias. Three races per year with different horses running them in different conditions can’t really tell you much. (Bad) luck factors heavily in these races, and assuming that something unobvious changed in 1950, there aren’t many good predictors for which horse will go three for three.

I guess that’s why people bet on it.

Site Update 2015-06-01: Law School Cost Data Page

If you want to know why I haven’t been posting so often, it’s that I’ve been procrastinating! Woo!

I did, however, find time to update the comprehensive Law School Cost Data (1996-) page. Most of the effort is just revisiting law schools’ Web sites to ensure I have their full names correctly. As usual I forgot that law schools have a tendency to place images of attractive women on their main pages, so that wasn’t a total exercise in tediousness.

One thing to note that readers might not know is that even though Lincoln Memorial was accredited after the data submission deadline for 2014, it does have a 509 Information Report (pdf). However, its data are not included in the ABA’s required disclosures Web site, so if you’re into law school data, you’ll need to get that file separately and incorporate it into your spreadsheets.

Peace.

No Bubble, Just ROCK!!! Vol. 13

Mellow is the Bubble
Seldom is the season when I have nothing to say for a fortnight. I’m going to be nitro-busy this week too, but I certainly can’t deny you readers some music.

The biggest development in my wanna-be audiophilic journey is my long-deferred binge on some decent speakers, but rather than tediously plug wires into a receiver I went with a pair of SONOS PLAY:5s—I told you it was a binge. These things are awesome. Since last year, the manufacturer caved and changed the controller app to allow them to work over a generic wireless network instead of its own dedicated network. That means no need to buy a bridge and plug your music player or NAS drive into your router.

So what have I been listening to with all this hi-fi consumer electronics? … The radio!

Internet radio to be precise, but living too close to the University of Minnesota has rotted my mind into listening to the college radio station, Radio K. This, it turns out, is a genius idea because I can now monitor what all the young hipsters are listening to even though I’m approaching middle age.

So here’s Alabama’s Waxahatchee:

…And now Australia’s King Gizzard and the Lizard Wizard:

Kinda reminds me of Mr. Bill from Saturday Night Live.

Peace out folks.

**********

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