the project would be too expensive for the developers if they couldn’t borrow at the low rate–they would deploy their capital elsewhere.

True, but if the tax on the investment return alone is enough to make the deal infeasible, then all it says is that taxes distort economic calculations in real and concrete ways. I’m not assuming that’s not the case, I’m expressing my opinion that not paying taxes is good, and if this deal allows capital to be put into tax-free vehicles rather than second-best taxed vehicles, then it’s a good thing.

John Moore:

municipal bonds shift tax burdens from localities to the federal government

Your unstated premise here is that you take some currently extant level of tax burden as a given that must remain constant and has to be satisfied in some way. Given current political realities, that’s not entirely unfounded, but it skews one’s evaluation of the practical and moral consequences of this kind of deal. It puts the blame for your high tax burden on those who do not shoulder “their part” of it. I implied, and here state plainly, that no-one’s current tax burden is properly their share (aside from perhaps that miniscule part that funds legitimate functions of government), and the fault for your being saddled with it lies squarely with those who impose it on you (who could instead choose to actually forego the taxes they declined to take from that other guy), not with those who escape it in some part.

I’d go through the example of the neighbor whose house doesn’t get robbed after yours does, or the thief who steals your good silverware but deigns to “subsidize” you by letting you keep your wide-screen TV, but I’m sure you’ve heard them before.

The S&L example is more of the same. You apparently meant it to demonstrate the market distortions that taxes create, and it succeeds at that. But is there a larger point? How does it speak to your argument about the shifting of tax burdens?

http://www.nationalsummary.com/Articles/Science_Tech/science_tech__ecological_conservatives.htm

For a strong example of how after-tax vs before-tax economics works, just look at the late ’80s S&L collapse. Without going into all the government action that set up the ridiculous S&L system, let me point out that when the 1986 Democrats insisted on removing the “tax shelter” from “passive investments” (real estate limited partnerships, movies, etc), they guaranteed the collapse of the S&L’s. Changing the earnings from before to after tax knocked about 30% off the asset value of commercial real estate, making the S&L’s insolvent. Naturally, GHW Bush, who wasn’t on the scene, took the political blame.

Remember, there is only an “avoidance” of tax payments if, in the absence of the tax-exempt deal, there would be tax payments. Then the tax exemption thwarts the tax payments. But why do you assume that would be the case? More likely, the project would be too expensive for the developers if they couldn’t borrow at the low rate–they would deploy their capital elsewhere.

I sometimes wish I had a button that could send a painful but non-harmful electrical jolt to the seat of anyone saying this.

In this case, it is the buyers of the bonds who are not subsidizing the public tit by paying taxes on their investments. Oh, I’m sure the developer is well-connected and that there’s all kinds of ancillary benefits that will accrue to the connectees who put this together, and to their legislative co-conspirators, but the foregoance of taxes is, in and of itself, purely a good thing. The travesty is that the rest of us who are not so well connected will continue subsidizing everything else, regardless of whatever sordid details of the park we were deemed unauthorized or too incompetent to be informed of by the state news organs.

And John, I’m (mostly) kidding about the electrocution. No malice or ill-will is seriously intended.

Tax-free bonds means the public is subsidizing the interest rate by foregoing taxes on the higher interest rate that would be otherwise charged. True, AZ gets to push the subsidy off on other states (where there are bondholders), but it’s still a subsildy.

You are right that we don’t really have the details on this from the link, but I don’t think the state is “out” any tax dollars–to assume that is to assume that the project could go forward with taxable bonds, which appears not to be the case (but who knows), and, moreover, that the bondholders receiving the taxable interest live in AZ. If they don’t, AZ wouldn’t get any income tax from them anyway.

Moreover, the only thing the government is giving up here is that it is lending its tax exempt status to a developer. No government cash is at risk.

You could make an economic argument of some sort that if the developers couldn’t make a go of the project with non-tax exempt bonds, then maybe the whole thing is wasteful, but that seems to me something of a reach.

I reiterate, however, that if these are to be classic revenue bonds, the bondholders take the risk that the project will or won’t be able to pay them off–the state is not on the hook, by guarantee or otherwise.

What in heck do they mean by, “The park would tax visitors to repay the bonds.”? I think this means that a portion of the ticket sales will go to bond repayment. IF the project is successful and draws as many customers as expected, no tax money is involved, but what happens if it fails to draw enough business to pay off? I’m thinking that this is just a roundabout way of financing a private business with loans guaranteed by the government. I hope you all understand that this saves the business from paying a risk premium in higher interest rates, while the risk becomes the taxpayers’ problem.

And depending on how the contract is drawn up, the operators might even wind up with a profitable business – from the rides and concessions – while low gate revenue leaves the taxpayers holding the bag for part of the bonds. Why should politicians care about details like this when it’s not their money, and their role in creating the mess will have been forgotten by the time the cost becomes clear?

There cannot be a good reason for this.