I’m this guy professionally, this guy on Twitter, and this guy at Bloomberg Tax. I have an ongoing series, as well as a few other pieces, over at Baseball Prospectus, as well. The latter two is also available on the righthand sidebar. I make various videos with my family at our cabin, mostly revolving around our adventures and trailcams. I’m a “tax technologist,” which means I’m a tax attorney with a background in tech. My research interests are at that intersection and tax policy/tax justice — as well as baseball.
Why, why, why “the money’s not here …. Your money’s in Joe’s house! Right next to yours!” But, that isn’t how money works – George Bailey owes us an explanation if that is his real name. In lieu of George showing up and explaining it to us, we can take a high level look at how money is created. This examination is timely, as commentators and some policy makers seem to imagine the Federal Reserve can simply step in and curtail the amount of money in circulation effectively pressing the big red “Stop Inflation” button – but the truth is much more nuanced. The Federal Reserve doesn’t so much control the flow of money as it controls the interest rate one bank must pay another to borrow money; in sum, it controls the cost of money.
You were probably taught the same basic lesson Jimmy Stewart delivers to mid-bank-run Bedford Falls residents. The bank gives you interest on money you keep in your savings account because they aggregate all the savings accounts together and use those to issue mortgages so folks can buy homes, auto loans for cars, and the like. Your interest is a portion of the interest they receive on your lent out money, and the cycle continues.
Except that’s almost exactly backwards.
Deposit accounts don’t create lending opportunities, lending creates deposit accounts. The It’s a Wonderful Life version of banking would cast banks as being little more than entities that connect people with extra money to lend with people looking for money to borrow. The reality is banks do most of the money creation in the modern economy. If you’re wondering why, then, you’ve never seen a giant minting machine churning out bills in the lobby of your local Wells Fargo, then perhaps we should begin at the beginning.
What is “money?”
The above-referenced cash is but one type of three: currency, central bank reserves and bank deposits. They all represent, in physical or abstract form, an amount owed from one individual or entity to another. So the very first thing we need to do in order to get our arms around how money actually works is dispense with the notion that “adding money” to the economy necessitates printing cash – it can, but needn’t, and usually doesn’t. The creation of a bank deposit, for instance, can be every bit the creation of money as printing a greenback.
The important takeaway is an understanding that, for every dollar in a deposit account somewhere, there needn’t be a physical dollar bill in the real world. “Money” in the economy includes currency, central bank reserves and bank deposits.
How is money “created?”
Now that we have decoupled the idea of “money” from physical bills and coins, we can explore how money can be created.
The Federal Reserve is the central bank of the United States and it is tasked with controlling the monetary system. By way of explaining its role, a quick earth science lesson digression: do you know … Read the rest
It’s been all anyone that lives on Twitter can talk about – that is, in between frank discussions of the continued social relevance of the Cheesecake Factory and the ongoing saga that is “Ye”—Elon Musk has now “acquired” Twitter. What does this mean for extremist voices? Naysayers of Tesla or The Boring Project? Or that Trump fella with the suspended account?
And what exactly does it mean that he is acquiring the publicly traded company?
Before we answer that question, it is worth first laying out the “why” – why did he want to acquire Twitter and thereby bring it private? To hear him tell it, he seeks to return Twitter to a former glory where, unencumbered by the vagaries of the market, it was free to flourish as a utopian free speech public square. He might still be angry about the fines he had to pay when he tweeted about his intention to take Tesla private (he never did, more on that in a minute) or the lawsuit he faced when he called a British caver a “pedo.” In sum, he wishes to free Twitter from influence by outside forces – other than his own, presumably.
That being the goal, Elon will front the money to buy Twitter and then he can set any rules he wants – right? Wrong. In order to finance the purchase he needed to undertake what is known as a leveraged buyout (“LBO”) which is not at all uncommon, but is somewhat antithetical to Musk’s stated purpose.
In an LBO, at least a portion of the purchase price is fronted by new debt held by the company itself. Think of it like walking up to a pet store and saying you’d like to buy the Golden Retriever in the window, and part of the bill should go on the dog’s tab. Like much of our financial system, when you lay it all out it sounds rather absurd, but it is a common method of securing financing for acquisition. The ceiling on how much of the bill the dog, or Twitter, can pay is how much debt service it can afford – that is, how big of a regular payment on debt the company can support with its current revenue. If reports on the financing mechanism are correct, Twitter will be taking on about $13 billion.
The rest of the tab for Twitter will be jointly shouldered by Musk himself and whatever deep pocket friends he can round up to kick in a couple of ducats. The total for the Musk wing of the acquisition comes to $33.5 billion, with at least $7.1 billion coming from finance friends – Prince Alwaleed bin Talal Al Saud, Larry Ellison, and the likes.
Early indications were that most of the rest of the price would be paid by margin loans on Musk’s interest in Tesla. In other words, Musk would put up his stock in Tesla as collateral to obtain loans, maybe for as much as $12.5 billion. … Read the rest
The Upfront Ask: I need help operationalizing data released by the IRS outlining where there are unclaimed Child Tax Credits. They are organized by ZIP code. I would like to assemble dossiers on as many of the ZIP codes, in clusters, as possible, including: demographic information on the area, major media outlets, community leaders and any other potentially useful bits of information that might aid in outreach to communities in those ZIP codes and connecting same with tools to help taxpayers file for and received the CTC (such as GetCTC.org).
The Child Tax Credit (“CTC”)
I wrote at greater length on the Child Tax Credit and its (now expired) expansion here, at Bloomberg Tax.
The CTC is a refundable credit that … well, the IRS says it better than I can:
The Child Tax Credit is a fully refundable tax credit for families with qualifying children. The American Rescue Plan expanded the Child Tax Credit for 2021 to get more help to more families. The credit increased from $2,000 per child in 2020 to $3,600 in 2021 for each child under age 6. Similarly, for each child age 6 to 16, it’s increased from $2,000 to $3,000. It also provides the $3,000 credit for 17-year-olds. Under the American Rescue Plan, the IRS disbursed half of the 2021 Child Tax Credit in monthly payments during the second half of 2021.from: https://www.irs.gov/credits-deductions/tax-year-2021-filing-season-2022-child-tax-credit-frequently-asked-questions-topic-a-2021-child-tax-credit-basics
There are a substantial number of children with social security numbers that have not been claimed for purposes of the CTC — which means there are likely a substantial number of families that are unaware they may qualify for the CTC. That’s where we come in.
The Unclaimed Credits
The ZIP code data released by the IRS is a good starting point for finding where help is most needed, but visuals are useful too.
As you can see, by count they broadly cluster in the major metropolitan areas — as you would expect. Areas with a higher population are going to have more total “unclaimed” CTC credits even if the percentage of children claimed by someone on their tax return remains constant.
The plan, then, is to drill down in to these metropolitan areas and collect potential media outlets and community leaders that can be reached out to for advocacy purposes. The example in the above-linked Bloomberg article is Lakewood, NJ — which counts among its residents many Orthodox Jewish folks. Outreach might then be tailored to the local radio station, WMDI-LP, which is owned by the American Institute for Jewish Education and carries substantial community-interest information for Lakewood.
I’m looking for folks willing to grab a ZIP code, or set of ZIP codes, and begin researching a local outreach plan. The deliverable at that phase would be a memorandum for that region. The next phase would then begin which would be comprised of … Read the rest