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Our Corporate Tax System Is a Mess. Republicans Might Just Make It Worse.

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At the moment, Republicans still insist that they want to pass a tax reform bill by the end of the year. Not just a tax cut, mind you, but a full-fledged reform package that will clear out the countless deductions, loopholes, and special-interest carve-outs that have turned our corporate tax code into a sieve.

In theory, this is a completely unobjectionable goal. The United States could use a more rational tax system that leaves businesses on more even footing with one another, regardless of how many pricey lawyers and accountants they hire. Unfortunately, it’s not clear the GOP’s plans will move the country in that direction. In some respects, it could make the problems with our current tax code even worse.

Republicans often complain that the United States has the rich world’s highest corporate tax rate, topping out at 35 percent, which they argue drives business investment and jobs overseas. But that figure is largely an illusion, thanks largely to the vast array of deductions that companies can claim and the ability of multinationals to shelter their profits offshore. Analysts typically find that, when all is said and done, U.S. corporations pay an average rate somewhere between 22 and 29 percent which, depending on whose estimates you rely on, may or may not be in line with our peer nations.

The fact that few companies actually pay the top corporate rate isn’t something to celebrate, however. It’s a sign that our tax code is a bit of a farce. The joke gets worse once you look at how tax rates vary across  businesses and industries.

Earlier this year, the left-leaning Institute on Taxation and Economic Policy released a report in which it analyzed the tax rates paid by members of the Fortune 500 between 2008 and 2015. The authors selected the 258 corporations that were profitable in all eight years to avoid dragging down the average with companies that paid no taxes because they lost money. They found 100 different companies that, despite being consistently profitable, paid zero federal taxes in at least one year, and 18 that paid no taxes in any of the years surveyed. Meanwhile, there were vast differences in average rates between industry. Utility companies paid an average rate of just 3.1 percent; tech companies paid around 20 percent; retailers and wholesalers paid more than 30 percent, as did health-care providers.

A good tax code doesn’t have to treat every single industry identically. Nobody but a lobbyist, however, would purposely design one in which some knds of businesses consistently hand over a third of their profits to the IRS while others pay next to nothing. And in case you’re skeptical about the findings of a liberal think tank, the U.S. Treasury Department found similar, if slightly less pronounced, disparities when it ran its own analysis on the taxes paid by all profitable corporations with more than $10 million in assets.

It can be hard to pinpoint how specific companies minimize their tax bills, because corporations aren’t required to disclose the nitty-gritty of their returns. But ITEP notes a few broad issues. Multinationals are able to park profits in offshore tax havens. This disproportionately benefits large tech firms that earn profits from their intellectual property, since it’s relatively easy for them to shift profits overseas. Meanwhile, companies that regularly make large capital investments in machinery and other equipment benefit from rules that let them quickly write off the cost of those purchases. Its not a coincidence that most of the companies ITEP found that paid nothing in federal taxes over all eight years were utilities, which are typically required to make major upgrades each year.

Because Republicans don’t have an official tax plan yet, it’s impossible to say how many holes in the tax code they’ll try to plug. But the indicators so far aren’t promising. House Republicans have identified some deductions they want to repeal, which are worth about $171 billion over their first 10 years—not a great deal in the scheme of a corporate tax that’s expected to bring in more than $400 billion this year alone. On the big-picture issues, they seem intent on wrenching even bigger gaps in the tax code. Take the issue of tax havens. Right now, the GOP seems intent on moving the U.S. to what’s known as a territorial system, where the government wouldn’t tax corporations at all on profits earned abroad. This will of course eliminate the need for companies to stash profits in Ireland and the Cayman Islands. But if anything, that will only encourage companies to make like Apple and use accounting gimmicks to shift their U.S. profits overseas. It’s like trying to fight shoplifting by making it legal.

Or, consider the advantages those utilities seemingly enjoy. Right now, many Republicans want to make it possible for companies to write off major capital investments even faster by moving to a system of immediate expensing. There may be some economic reasons to favor of that idea—it could possibly lead to a bump in corporate investment—but it essentially doubles down on the system that now lets some companies shield their profits from taxes entirely.

“I think it’s fair to say that the Trump plan as we understand it would actually increase the gap between the haves and the have-nots,” ITEP’s Matthew Gardner told me. “It would accentuate the preferential treatment that certain sectors of the business world and certain high-income Americans get.”

There is at least one way Republicans are trying to even out the corporate tax code. As of now, they’re talking about lowering the top rate by 10 or 15 percentage points. That will at least ensure that companies on the high end of the tax spectrum will pay a bit less. But that’s not really a tax reform. It’s a plain old cut.

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Harvey Is an Equal-Opportunity Disaster. The Poor Won’t Be Left Behind Until the Recovery.

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One of the bewildering things about Hurricane Harvey, for observers and especially for Houstonians themselves, has been the lack of a comprehensive sense of the extent of the flooding. We don’t quite know, quite yet, who has been hit the worst.

Storm surges come from the sea; a swollen river envelops a downtown along a predictable route. But the Houston metro area is nearly the size of Massachusetts. Harris County, which includes most of Houston, has 2,500 miles of channels. Everyone in Houston lives near a bayou; there is no “railroad track” stigma to these waterways. They are simply everywhere. And because the variance in rainfall totals from one part of the region to the next are running in the feet, it’s hard to anticipate which blocks will flood.

There is an assumption, forged by the experience of Hurricane Katrina, that natural disasters will do their worst to low-income neighborhoods of color.

At City Lab, Tanvi Misra writes: "Within cities, poor communities of color often live in segregated neighborhoods that are most vulnerable to flooding, or near petrochemical plants and Superfund sites that can overflow during the storm. This is especially true for Houston.”

But actually, Houston’s floods have proven to be great equalizers. On the one hand, there are very poor neighborhoods in Harris County that have been hit hard, repeatedly, by flooding. Greens Bayou in Greenspoint has overflowed its banks three times in the past two decades, and nearly half the housing there is in the 100-year-flood zone after FEMA revised its Harris County flood maps in September. More than one in three residents lives below the poverty line. Some of them are among the nearly 1,000 Houston families who live in HUD-subsidized housing in the flood zone. This weekend, Greens Bayou overflowed again, causing mass evacuations and sweeping a family of six downstream as they tried to escape the swirling river.

At the same time, underwater houses in the flood zones adjacent to the two great Houston reservoirs whose dams protect downtown can go for over $750,000. Some of the worst damage during the 2015 Memorial Day floods came in the sliver of high-income neighborhoods south of I-10 on Houston’s west side; among the worst-hit areas were the neighborhoods adjacent to Brays Bayou, where houses routinely sell for more than $1 million. The 2016 floods shut down the Exxon-Mobil corporate headquarters in the Woodlands.

We don’t yet have a good sense of which parts of the city are flooded this time around. We know that this storm, strengthened to new heights by an overheated atmosphere, has taken out the country’s second-largest refinery, the Exxon-Mobil facility at Baytown. That’s ironic. But in the end, the consequences will be the same as they always are.

"The pain is greater in low income neighborhoods because they don’t have insurance and have no place to go,” says David Crossley, the founder of Houston Tomorrow, a nonprofit focused on Houston’s growth. He described seeing a neighbor, an artist with a flooded studio adjacent to a nice house, ripping out carpets and making repairs before the storm had even ended. “Someone who’s got a $600,000 house out in the suburbs can probably recover.”

Look over the Harvey rescue map and you start to see how, even if their houses are flooding at the same rate, the poor are less resilient. A diabetic out of medicine. An elderly woman with no spare oxygen tanks. A man in need of a dialysis treatment. The list of needs goes on. Seizure meds. Food.

It’s just easier for some people to get help.

That’s true now, and it will be even more true when the time comes to rebuild.

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Right Before Harvey, Trump Nixed a Rule Designed to Protect Cities From Flood Risks

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Ten days before Hurricane Harvey made landfall on the Texas coast, President Donald Trump signed an executive order to speed up the pipeline for federal infrastructure projects.

One component of that Aug. 15 order? Eliminating an Obama-era rule called the federal flood risk management standard that asked agencies to account for climate change projections when they approved projects.

That drew condemnation from an odd coalition of scientists, civil engineers, and fiscal conservatives concerned about reversion to the old ways: pouring money into projects that would soon be washed away. “This Executive Order is not fiscally conservative,” said Florida Republican Rep. Carlos Curbelo in a press release. “It’s irresponsible, and it will lead to taxpayer dollars being wasted on projects that may not be built to endure the flooding we are already seeing and know is only going to get worse.” FEMA floodplain managers were “aghast,” E&E News reported.

On the other side was the National Association of Home Builders. The NAHB argued the law’s requirement for raising homes after disasters, “could make many projects infeasible, due to increased construction costs and the inability to offset these costs through higher rents.” Developers do tend to like unfettered waterfront construction.

The rule, born out of the Hurricane Sandy recovery effort, gave agencies three options to address flood risk in construction, Kriston Capps explains at City Lab: “using methods informed by climate science, building two feet above the 100-year flood elevation, or building to the 500-year flood elevation.”

“If we make a modest investment in building higher in advance of floods, we can reduce the amount of future federal disaster bailouts,” Alice Hill, a former special assistant to Obama who helped draft it, wrote last week. “The Standard not only saves money, it saves lives. Elevated structures provide more protection to the people inside them as floodwaters rise.”

Rep. Ralph Abraham, a Louisiana Republican who tried to undo Obama’s regulation in Congress, was thrilled with the president’s order. He told the New York Times that the state’s 2016 catastrophic flooding was an isolated event—and that regulations were the greater risk to the state’s wellbeing. Meanwhile, on Monday, New Orleans Mayor Mitch Landrieu asked residents to shelter in place on Tuesday as the remnants of Harvey bear down on the city.

But Abraham did have a point when he observed that the rule would make construction in his state more expensive. “We had more than our share of tragedy down here with the water, but we already have problems meeting requirements,” he told the paper. “The new plan would make it so costly for my Louisiana residents.”

The truth is that lawmakers from Brownsville to Boston represent constituents whose homes can only be insured thanks to federal flood insurance policies that no private company will provide. If rebuilding infrastructure with proper flood-ready design is more expensive, that’s because it accurately accounts for the uncomfortable level of risk in many low-lying coastal towns.

Including many of the places that Hurricane Harvey blew through this weekend—and will continue to devastate in the coming days.

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Flashback: 20 Texas GOP Representatives and Both Senators Voted Against the Sandy Relief Act

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Senators-Leave-Capitol-Hill-For-Summer-Break “The irony … it burns my eyes …”

Mark Wilson/Getty Images

Hurricane Harvey is on pace to produce the greatest single-storm rainfall in the United States in at least a century and may wind up being one of the costliest natural disasters in U.S. history. To make matters worse, since much of the damage is occurring inland and outside of the 100-year floodplain, insurance coverage will be low.

Henry Grabar
Henry Grabar

Henry Grabar is a staff writer for Slate’s Moneybox.

Naturally, a congressional relief package will be forthcoming. Which means it’s time to turn to another round of Southern Republicans Who Voted Against the Hurricane Sandy Relief Package but Will Soon Want Federal Disaster Money for Their Flooded Homes. (Previous contestants included the congressional delegations of Florida and Louisiana.)

This time the spotlight is on Texas, where 20 sitting Republican congressmen and both of the states senators, John Cornyn and Ted Cruz, voted against the 2013 Sandy Relief Act. (Ironically, in the 2011–2012 fiscal year, Texas received more federal disaster relief money than any other state.)

Republicans hate the comparison, arguing that the Sandy relief package contained spending for unrelated items. (This is true of virtually every single-issue spending bill that passes Congress; even a vice president of Taxpayers for Common Sense said the 2013 package was “better than business as usual.”) Cornyn communications director Drew Brandewie essentially argued that Cornyn was for it before he was against it, voting for a pared-down version of the legislation.

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At the time, conservatives also insisted on cuts to federal spending elsewhere to justify Sandy expenses, an unusual and onerous requirement for a disaster aid bill. (This was during the pre-“Mexico Will Pay for It” era, when the national debt was still a serious GOP conceit.) “Emergency bills like this should not come to the floor without offsets to pay for it or structural reforms,” Rep. Jeb Hensarling of Texas said.

Rep. Peter King from Long Island, one of the Republicans who voted for the final bill, doesn’t buy the argument that his Southern colleagues were making a good-faith effort to help New York and New Jersey recover. But, he said, Texas has nothing to worry about. “I won’t abandon Texas the way Ted Cruz did New York,” he wrote on Twitter on Sunday.

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The U.S. Might Not Have Enough Construction Workers to Rebuild Houston After Harvey

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The disaster that is Tropical Storm Harvey is still ongoing. It will be some time before the waters recede and effect on Houston can be fully assessed. But it is already clear the damage to property will be immense. Tens of thousands of structures were impacted by floodwaters. Eventually, Houston will require massive the cleanup, demolition, and reconstruction of individual homes, large buildings, and infrastructure.

The first concern will be the financial resources necessary: Will insurance companies cover all the losses, and how much of them? How will the federal government’s heavily indebted flood insurance program come up with the cash to pay claims? And how much additional assistance will the federal government provide?

There’s another problem: a lack of human resources. It takes a lot of labor to remove debris after a storm and then reinstall sheetrock and drywall, rebuild floors, and fix electrical and plumbing systems. The work is resistant to automation. And it is but one way in which Houston, which was poorly situated to deal with a hurricane, may also be poorly situated to recover from it.

The issue is that the United States is suffering from a shortage of workers generally, and specifically from a shortage of workers with some of the necessary skills to assist in disaster recovery.

Let’s review. With the U.S. economy having created jobs for a record 82 months, there are 146.6 million people with payroll jobs. The unemployment rate is 4.3 percent. At the end of June, the Labor Department reports, there were a record 6.16 million jobs open in the U.S. (That compares with about 4 million in August 2005, when Katrina hit.) Put another way, it’s harder to find labor in the U.S. right than at any point in recent history.

But that’s not the whole story. There are particular shortages in the types of trades that get called into action after a disaster. America’s construction labor force has undergone a sea change in the past decade. When the housing bust came, hundreds of thousands of roofers and other skilled and unskilled tradespeople were laid off. Because the recovery was remarkably slow, many went on to find work in different industries. Many construction workers had come to the United States (legally and illegally) from Mexico and Central America to work in the boom years, and in the bust years some of them went home. Others were deported. And in recent years, the flow of new potential workers has slowed down significantly. The result: As the U.S. housing and construction recovery has chugged on, it has become more difficult to hire construction workers. In June 2017, there were some 225,000 open construction jobs in the U.S., up 31 percent from June 2016.

All over the United States, in Colorado, in Nebraska, and elsewhere, construction companies have been complaining that they can’t find enough labor to do their job. The National Association of Home Builders reports that 77 percent of builders are facing a shortage of framing crews, while 61 percent are grappling with a shortage of drywall installation workers and 45 percent report a shortage of weatherization workers. The problem is particularly acute in Texas, where the housing industry has been powered by consistent population and job growth and whose service industries are disproportionately reliant on immigrant labor. Last fall, as the Wall Street Journal reported, “In Dallas, the King of Texas Roofing Co. says it has turned down $20 million worth of projects in the past two years because it doesn’t have enough workers.”

In the aftermath of natural disasters, first responders and recovery crews flood the zone on a temporary basis. But reconstruction, cleanup, and recovery requires many thousands of workers who can stay for many months or more. FEMA Administrator Brock Long told CNN that “FEMA is going to be there for years.” Houston will require a surge of employment—tens of thousands of people. It will have to find places for them to live, since so much of the housing stock is damaged. And it will likely have to pay them above-market wages, because it will need to lure them away from existing jobs.

And given the Trump administration’s hostility to Latinos and desire to ramp up deportations, it’s unlikely that what worked in previous disasters will work again. Back in 2007, the Washington Post reported on a Tulane and University of California, Berkeley study that found some 100,000 Hispanic workers thronged into the Gulf Coast region in the wake of Katrina, many of them undocumented.

Houston will need a similar migration for it to recover. In 2017, from where will those workers come?

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What Happened to the Two Reservoirs That Were Supposed to Protect Downtown Houston?

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If you look at a satellite image of Harris County, Texas, where subdivisions cascading west into the Katy Prairie have helped make the Houston area the country’s fastest growing metropolitan region since 1980, you can see two large green splotches on either side of the Katy Freeway. These are the Addicks and Barker reservoirs, evidence of how Houston’s planning has been overwhelmed by unregulated urban growth and a storm no one thought possible.

On Sunday night, as Houston sank beneath record rainfall, the Army Corps of Engineers, which runs the reservoirs, announced it would begin releasing water from the dams. That means more water heading into Buffalo Bayou, the river that drains much of Harris County watershed into the sea.

You may have seen photos of Buffalo Bayou: Normally it’s a small creek that winds through a lovely park in central Houston, running toward the Houston Ship Channel on the city’s eastern edge. On Sunday it was a sprawling mass of brown water, swallowing highways and neighborhoods in its tide. The bayou was expected to crest at 14 feet above its previous record high.

Addicks and Barker were built to protect Downtown Houston and keep water out of Buffalo Bayou. So why in the world is the Army Corps opening the gates?

In part because even as Buffalo Bayou surges downtown, the back ends of the reservoirs have begun to push into residential neighborhoods upstream. The reservoirs are filling faster than they can empty, so despite the Corps releasing more water downstream, the pool is expanding upstream. The flooding is increasing on either side of the dams. There are three places for the water to go: through the dam gates, down the emergency spillways along the sides of the dams, and upstream into the neighborhoods. Officials think the water will likely go in all three directions, though ultimately it all ends up in Buffalo Bayou. It’s a balancing act to make sure this happens in the most controlled way possible.

When Addicks and Barker were completed, just after the second world war, Houston had recently endured two cataclysmic downtown floods, in 1929 and 1935. The reservoirs—mostly dry, wooded areas with creeks running through them—could be plugged up to stall whole swaths of the watershed from reaching Buffalo Bayou.

But as development has sprawled west along the Katy Freeway, more and more water is being funneled into the region’s creeks, filling the reservoirs faster. "Of the 10 largest pools that have accumulated in the reservoirs, nine have occurred since 1990 and six of those were since 2000,” ProPublica wrote last year.

Meanwhile, developers swooped in and built tract houses up to the very brink of the reservoirs, which appear in dry times to be forests. It’s probably a very pleasant place to live, except when it isn’t. During last year’s Tax Day floods, those subdivisions on the reservoirs’ western edges flooded. Now they are flooding again. None are in the 100-year floodplain. Most are in the 500-year floodplain, areas that FEMA predicts will flood once every 500 years. They are not obligated to have flood insurance. They have flooded two years in a row.

Those homes should probably never have been built. Now they’ll be flooded for quite some time: “Homes upstream will be impacted for an extended period of time while water is released from the reservoirs,” the Corps wrote in a press release. The reservoirs will take between one to three months to drain.

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The Housing Industry Still Hasn’t Realized It’s Building Too Many Homes for Rich People

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thinkstockphotos506903162 Fewer of these, please.

iStock/Thinkstock

It’s possible to get rich if your business only caters to rich people. But it’s hard to have a massive and really successful industry in the United States today if you only cater to rich people. There are only so many people in the country with good credit and lots of cash sitting around. And this week, we got evidence that one of America’s largest industries may be running into trouble because its products appeal only to the upper crust. I’m not talking about jewelry or apparel. I’m talking about housing.

On Tuesday, luxury homebuilder Toll Brothers reported a blow-out quarter, noting that contracts and sales were up 20 percent from the year before, and said it might sell more than 2,500 homes in the upcoming quarter.

On Wednesday, the Census Bureau announced that new home sales in July were down 9.4 percent from June, and down 8.9 percent from July 2016.

On Thursday, the National Association of Realtors reported that existing home sales in July fell 1.3 percent in July from June—to an annual rate of 5.44 million. While the rate of sales in July was still up 2.1 percent from July 2016, this was the lowest reading of 2017 to date.

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It amounts to a fairly neat summation of the American economy right now. Toll Brothers builds McMansions and expensive condos in and around wealthy urban areas. It caters to a distinctly high-end crowd, and would be psyched if it could sell 10,000 homes in a year. At the company’s Pierhouse at Brooklyn Bridge Park building in New York, condos start at $1.5 million. In the most recent quarter, the average price for a Toll Brothers home that went into contract was $837,300. But yuppies, foreigners, millennials with cash, and baby boomers are lining up. In the first nine months of this fiscal year, Toll Brothers sold 22 percent more homes than it did the in the first nine months of the previous fiscal year.

Toll Brothers may not be a typical new homebuilder, but it is clear that the building industry writ large is aiming to pitch its product toward more affluent buyers. Look at the Census’ new home sales release. The median sales price of a newly constructed home sold in July was $313,700, up 7 percent from July 2016. That may not sound like much, especially if you live in an expensive coastal region. But that’s 21 percent higher than the typical price of an existing home. And over the last several years, the building industry has raised prices on its offerings at a pace that has exceeded both the rate of inflation and income growth. In July 2012, the median price of a new home sold was just $232,600. In five years, the price of a median new home has risen by 35 percent. All of which is to say that, with each passing month, the homebuilding industry is pitching its products at a smaller, wealthier demographic slice.

There’s also evidence that existing homes (about 10 times more existing homes are sold each year than new homes) are getting too expensive for buyers. For 65 straight months, the National Association of Realtors notes, the price of existing homes has notched year-over-year gains. In July, the median existing-home price for all housing types, the group says, was $258,300, up 6.2 percent from $243,200 in July 2016. Four years ago, the median existing home price was a mere $213,000. Which means that prices of existing homes have risen 21 percent in the past four years. Because income growth for typical Americans—the type of people who buy typical homes—has been stagnant, this means that as the market continues to rise, fewer and fewer people can afford to bid on and purchase existing homes.

To their credit, in this expansion, the mortgage industry has not responded to the rising challenge of affordability by massively lowering its standards or by offering no-money down mortgages and other exotic lending instruments. By and large, if you want to buy a house today, you’ve got to come up with a meaningful down payment and show good credit. Of course, there are a limited number of people in the U.S. who have $40,000 or $50,000 in cash lying around to make a down payment.

Clearly, there is something of a housing shortage in the United States. One of the reasons that the price of existing homes is rising so rapidly is that there isn’t much supply. The number of existing homes for sale fell 9 percent from July 2016 to July 2017, and, at 1.92 million, represents a meager 4.2 months of supply.

The solution to the problem is for developers to increase the supply of affordable homes, and to bring large numbers of homes to the market that are closer in price to existing homes. But there’s no evidence that is happening. In July, 9,000 new homes worth more than $500,000 were sold in the U.S.—only 8,000 homes worth less than $200,000 were.

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