Mish's Global Economic Trend Analysis

Evolution of Taxes: Italy Taxes "Shadows", Tax on Breathing Next?
Yield Curve, Futures, Suggest No Rate Hike Until December; GDP Forecast Halved Again to 0.3%
Proposed Illinois Tax Hikes: Financial Transactions, Millionaires, Guns, Sweetened Beverages, Satellite Providers, Fireworks, Progressive Income
Bitcoin vs. Uber: Bitcoin Lovers Respond to Mish

Evolution of Taxes: Italy Taxes "Shadows", Tax on Breathing Next?

Posted: 20 Mar 2015 08:12 PM PDT

Zero Hedge had an interesting article today called In Italy, They're Now Taxing Shadows.

This is one of those stories where you expect the headline to be a bit of an exaggeration. It wasn't.

As Italian newspaper Leggo reports, store owners in Conegliano are now faced with the unfortunate (albeit comically absurd) proposition of paying taxes on shadows.

The rationale appears to go something like this: an awning casts a shadow on public property and therefore you must pay to use that property.

Tax on Breathing Next?

I pinged that article off Pater Tenebrarum at Acting Man. He lives in Austria. Pater responded ...

They actually got that idea from Austria, where we have the so-called (put down the coffee) "air tax". No, it's not a tax on breathing just yet. But if you have a shop sign that "occupies airspace", you must pay a tax for it!

In Vienna this is garnished additionally with the "subway levy", which has to be paid regardless of whether one uses the subway or not. In fact, I think there is no government on the planet more inventive with regard to taxes, levies and imposts of all sorts.

Illinois Tax Proposals

Earlier today I noted Proposed Illinois Tax Hikes: Financial Transactions, Millionaires, Guns, Sweetened Beverages, Satellite Providers, Fireworks, Progressive Income

Additional tax-hike proposals are being thrown around without any idea of how much they might raise. State Rep. Rita Mayfield, D-Waukegan, proposed a 3.75% tax on guns and gun parts.

When asked how much revenue it would raise, she said she didn't know but thought "if we can get a good million or so, I'll take it.

State Rep. Lou Lang, D-Skokie, recently said that "creative lawmakers can come up with many options for new revenue."

Creative Options

Let's hope Lou Lang does not look at what's happening in Italy or Austria, or proposed tax on shadows or even breathing will soon be on the way.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Yield Curve, Futures, Suggest No Rate Hike Until December; GDP Forecast Halved Again to 0.3%

Posted: 20 Mar 2015 12:42 PM PDT

Curve Watcher's Anonymous is investigating the yield curve following Janet Yellen's exceptionally dovish FOMC announcement on Wednesday.

Yield Curve 2-yr, 3-yr, 5-yr, 10-yr, 30-yr

click on chart for sharper image

30-year in black and red
10-year in orange
5-year in blue
3-year in green
2-year in purple

Change From Year Ago

Above rate table from Bloomberg.

Futures Suggest No Rate Hike Until December

Please consider Yellen Sends Odds of Any Rate Increase Below 50% Until December

"The likelihood that policy makers will lift their benchmark rate from near zero in September fell to 39 percent from 55 percent on Tuesday, according to calculations by Bloomberg using federal fund futures contracts. Futures traders have wiped out the chance of an increase in June, assigning it an 11 percent probability."

Door Open

On Wednesday, Bloomberg took the stance Fed Drops Patient Stance, Opening Door to June Rate Increase.

I found that rather amusing and responded Fed Drops Word "Patient"; Door Open, But For What?

Although the Fed removed the word "patient", the rest of Yellen's yap could not possibly have been any more dovish.

The panel said it will be appropriate to tighten "when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term."

That statement can mean virtually anything, prompting me to ask "How much more improvement does the Fed want? Or does the Fed not believe all these glowing labor reports either?"

And of course no one has any clues about the true meaning of "medium term".

Weak Data

For four months nearly all data except lagging jobs data has been weak.

That's just a sampling. Nearly every economic report except for jobs has been weaker than expected.

GDP Forecast Halved Again

On March 13 I noted Atlanta Fed Halves GDP Forecast to 0.6%; Blue Chip Consensus Eight Miles High

Today we see the Atlanta Fed's GDPNow Forecast has been halved again.

The forecast for GDP growth is now down to 0.3%.

I doubt the Fed will hike in a recession, and I do think a recession is on the way. If the Fed does hike, it will be to prick the asset bubble in stocks.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Proposed Illinois Tax Hikes: Financial Transactions, Millionaires, Guns, Sweetened Beverages, Satellite Providers, Fireworks, Progressive Income

Posted: 20 Mar 2015 11:22 AM PDT

Illinois pension plans are in extremely dire shape even with the huge stock market returns over the past few years. Illinois Spendaholics have proposed a huge array of tax hikes to make up the shortfall.

Ben VanMetre at the Illinois Policy Institute explains in this guest post.

Illinois politicians propose $100B in tax hikes over next 5 years

More than $100 billion in tax hikes over five years may sound like a joke. But to many Illinois lawmakers, it sounds like a solution.

State Rep. Lou Lang, D-Skokie, recently said that "creative lawmakers can come up with many options for new revenue." Unfortunately, Illinois lawmakers have outdone themselves in the creativity department this year.

The array of six tax hikes proposed by Illinois lawmakers this legislative session adds up to more than $100 billion over the next five years. That's more than the state's total projected general-fund spending in fiscal years 2016, 2017 and 2018 – combined.

And the tax-hike proposals don't stop there.

Additional tax-hike proposals are being thrown around without any idea of how much they might raise. State Rep. Rita Mayfield, D-Waukegan, proposed a 3.75% tax on guns and gun parts. When asked how much revenue it would raise, she said she didn't know but thought "if we can get a good million or so, I'll take it."

Enough is enough. How can taxpayers take their legislators seriously when they've put more than $100 billion in tax hikes on the table in a state that is on the brink of financial and economic collapse?

Rather than trying to build a "creative" revenue plan based on how much lawmakers want to spend over the next few years, they should instead focus on building a spending plan based on the amount of revenue the state will have under its current tax structure.

Ben VanMetre
Director of Pension Reform

Tax Madness

Had Pat Quinn won reelection, most or all of those proposals would have passed. And more people would have fled the state in response.

I have a far better set of ideas.

Immediately switch from a defined benefit system to a contribution system.
Allow municipalities to go bankrupt so they can shed pension obligations
Allow municipalities to create their own pension systems instead of setting everything at the state level.
Enact a progressive tax on pension benefits.
Tax at a 90% rate, all benefits above a certain level.

The one tax worth instituting is a progressive tax on pension benefits, big enough to make the state system solvent. Let those who want a "progressive tax" have it. Just put it on something that makes sense.

Should the Illinois Supreme Court strike down a tax on pension benefits, I would take the case to the US Supreme court where I would expect it to win.

For a look at the sorry state of affairs of the Illinois pension system, please see Illinois Pension Plans 39% Funded; Taxpayers On the Hook for $105 Billion in Liabilities; It Will Get Worse!

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Bitcoin vs. Uber: Bitcoin Lovers Respond to Mish

Posted: 20 Mar 2015 12:39 AM PDT

I recently commented that it would not surprise me if bitcoin plunged to $1.00. That was not a prediction, it was a comment.

Still, I still feel a collapse in bitcoin is likely.

For discussion, please see Cash Dinosaur: France Limits Cash Transactions to €1,000, Puts Restrictions on Gold; Bitcoin End Coming?

In response, reader Creighton writes ...

Hello Mish

While I'm not going to argue the point about the possibility that Bitcoin drops to $1, or less, (that could happen yet, but not for the reasons you propose) I felt it necessary to point out something you seem to have overlooked.

While it's likely that the US government watching Bitcoin in order to get some pointers about releasing it's own version of the US$, they would also have noticed that Canada attempted to do that exact thing two years ago.

It went nowhere. And it went nowhere for the same reason that the US, or China, or any other nation, couldn't expect to succeed in the same market.

Bitcoin was first to market in the, previously non-existent, field of non-state Internet currencies. Precious metals don't work, because there has to be a vault somewhere. The Liberty Dollar & Egold both tried that, and both got raided. There is a real market for a working non-state currency, that can't be screwed with by state actors. Bitcoin isn't perfect, as I have stated before, but if it's going to zero, it will be because one of the many start--up cryptocurrencies that have arrived since Bitcoin turns out to be substantially better at doing the same things.

I understand that you are not a crypto-geek like myself, and that I'm biased because I understand how Bitcoin actually does what it does, but I can honestly say that it does some things in completely novel ways; and has features that no fiat currency, digital or otherwise, has been able to do internally. There are entire financial institutions in the finance industry founded upon solving many transaction problems that Bitcoin handles just fine internally, for the cost of about a nickel per transaction. Bitcoin is actually capable of taking over all the functions of notary publics & most of the functions of county clerks, everywhere.

Western Union's cash transfer business model is walking dead. Keep an open mind, because there is a fair chance that you will eventually use Bitcoin, or its successor, in some capacity within a decade. Perhaps only as a cash transfer method, with the intent of switching back to cash immediately, but that day shall come.

Governments can no longer just suppress these new crypto-currencies and expect them to go away. The last chance to crush Bitcoin was several years ago, before the hashing rate (the cryptographic support of its security model) shot past the capability of the largest non-classified supercomputer on Earth.

Today (I just checked bitcoinwatch.com) it is over 4 million petaflops. The largest (unclassified) supercomputer on Earth is only 33 petaflops. It would cost more than the market capitalization of all of Bitcoin to build a computer cluster capable of matching that, and it would take years; by which time it would take still much more.

Someday, you too will be a convert, if never a fan.

Mish Response to Creighton

Hello Creighton. I fully understand that bitcoin is innovative and disruptive. Yet, all it takes is government action to make it illegal.

It does not even take action by the US to do bitcoin in. China could do it in given that 80% of bitcoin transactions are from China, most likely fraudulent as I have pointed out.

Bitcoin vs. Uber

The car service Uber survives even though it has been banned nearly everywhere.

I started accumulating all sorts of links many months ago. I collected well over 20. Here are a few of them.

Germany: Car sharing service Uber banned in Germany
France: France Bans Uber As Taxi Drivers Stage Protest In Paris
New York City: Uber faces limited suspension in NYC for noncompliance
Belgium: Uber prospers in Belgian capital despite ban
Everywhere: Uber Is Apparently Illegal Almost Everywhere

In spite of the fact Uber is banned nearly everywhere, the company survives!

Why?

Because Uber is what the masses want.

Uber Cars Outnumber Yellow Taxis in New York City

Please consider Uber Cars Outnumber Yellow Taxis in New York City.

For the first time, there are more black Uber cars on the streets of New York City than traditional yellow taxis, figures have revealed.

The New York Taxi and Limousine Commission said there were 14,088 registered Uber cars compared with 13,587 yellow cabs.

However, the number of trips taken in yellow cabs far outpaces Uber rides. That is because many Uber drivers work part-time, whereas taxis often operate all day.

Do the Masses Want Bitcoin?

I do not believe the masses want bitcoin. Heck, do the masses even know what bitcoin is?

Bitcoin has a legitimate model. Yet, it is not a model the masses care about. As such, it is heavily dependent on the graces of governments and alternative models.

Governments can easily create (and demand usage of their own digital currencies). Governments cannot easily disrupt Uber.

Question of Sentiment

If I am wrong, then bitcoin will survive (just as Uber has survived numerous bans everywhere). In the end, it all boils down to sentiment.

I question whether or not public sentiment on bitcoin will be sufficient to overcome government restrictions.

In contrast, Uber has fared phenomenally in spite of governmental attacks everywhere.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Mish's Global Economic Trend Analysis

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