FISCAL FARCE, FAILURE, FANTASY & FORNICATION

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Posted on 18th January 2013 by Administrator in Economy |Politics |Social Issues

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I’ve put off writing an article about what is likely to happen in 2013 so I could peruse the thousands of other articles by reputable bloggers, paid pundits, Wall Street shills and captured charlatans to gather their wisdom. It’s essential that I make predictions for 2013 so I can write another article in December rationalizing why 90% of my predictions failed to materialize. Reading all of these 2013 prediction articles made things much clearer for me. I now know for sure:

  • The stock market will reach an all-time high.
  • The stock market will fall 42%.
  • The economy will strengthen as the year progresses.
  • The economy will descend into a depression.
  • The USD will strengthen.
  • The USD will collapse.
  • Gas prices will set new highs.
  • Gas prices will fall below 2012 levels.
  • Gold will rise to $10,000 per ounce.
  • Gold will drop below $1,000 per ounce.
  • We will experience hyperinflation.
  • We will experience horrific deflation.
  • Obama will compromise with the Republicans and put the country on a path to prosperity.
  • Obama will create a debt ceiling crisis and assume dictatorial powers as a result.
  • Snooki will be a better mother than Kim Kardashian.
  • Honey Boo Boo will beat I Didn’t Know I Was Pregnant in the Neilson ratings.

The majority of 2013 prediction articles are written to support the agenda of the writer. Many are trying to sell newsletter subscriptions or investment services. Their predictions will match the theme of their newsletter. Others are Wall Street paid shills who will predict what they are paid to predict by their owners. Then there are the political hacks who tow the party line with their predictions. But no one can top the predictive powers of the CBO. They just put out their ten year updated forecast reflecting the fabulous fiscal cliff deal that saved the country. According to the CBO, the “compromise” to reduce our deficits will add a mere $4 trillion to the national debt over the next ten years. I’m sure this will prove to be accurate. Just take a look at their 2002 projection, after passage of the Bush tax cuts:

The CBO predicted the FY2012 surplus would be $641 billion, the national debt would total $3.5 trillion, the debt held by the public would total $1.273 trillion, and GDP would total $17.2 trillion. They missed by that much.

The actual FY12 results were:

  • The true deficit was $1.37 trillion (amount national debt increased – not the phony deficit number reported by the mainstream media).
  • The national debt was $16.1 trillion.
  • The debt held by the public was $11.3 trillion.
  • GDP was $15.8 trillion.

Based on these results, I won’t be asking the CBO for help with my Super Bowl bet. Making ten year predictions is beyond worthless, but public policy in Washington DC is based on these useless CBO projections. The entire fiscal cliff kabuki theater fictitious crisis reveals the politicians and mainstream media pundits to be liars, fools and frauds. The tax the rich to cut the deficit storyline was sold to the public and won the day. Of course, the highly accurate CBO immediately revealed that the Orwellian named American Taxpayer Relief Act of 2012 adds $4 trillion to the national debt over the next ten years. Based on the accuracy of their previous predictions, it’s a guarantee the national debt goes up by $8 trillion, as the rich take advantage of the thousands of loopholes in the IRS code they paid for to avoid paying the taxes expected by the CBO.

Hypocrisy abounds on both sides of the aisle in Washington DC and on the media company propaganda channels. As the national debt soared from $10.6 trillion on the day Obama took office to $16.4 trillion today, I heard shrieking liberal talking heads on MSNBC, CNN, and the rest of the liberal media blame the debt on the Bush tax cuts and the Bush wars. If the Bush tax cuts were so horrific, why did Obama and his minions just make 98% of these tax cuts permanent? Liberals held protest marches across the country against Bush’s wars and burned him in effigy. Obama’s defense budgets have been larger than Bush’s and he doubled down on our miserable failure in Afghanistan. You don’t hear a peep from the liberals about the warmongering Barack Obama who has kill lists and unleashes predator drones, killing women and children across the globe. Liberals pretend to be concerned about the welfare of the citizens, but continue to support a President that uses executive orders to imprison citizens indefinitely without charges, has expanded surveillance on citizens, has kept Guantanamo open, signs the continuation of the Patriot Act, and proposes overturning the Second Amendment by executive order. Liberals shriek about the evils of an unregulated Wall Street, while remaining silent as Obama hasn’t prosecuted a single banker for the greatest financial fraud in world history. You don’t hear a peep about Jon Corzine, who stole $1.2 billion from the accounts of farmers and ranchers. Liberals talk about regulation and then stand idly by while Wall Street lobbyists wrote the Dodd Frank law and insurance and drug company lobbyists wrote the Obamacare law. Liberal hypocrisy knows no bounds and is only matched by Neo-Con hypocrisy.

The Neo-Con controlled Republican Party is a pathetic joke. They have the guts to declare themselves the party of fiscal responsibility, after Bush’s eight year reign of error. He and his fiscally responsible party were handed a budget in surplus and managed to add $4.9 trillion to the national debt by waging undeclared wars, encouraging Wall Street to create the biggest fraudulent financial bubble in history, creating a new $16 trillion unfunded entitlement (Medicare Part D), cutting taxes without paying for them, and creating a massive new government agency (DHS) to take away our liberties and freedom. Federal government spending grew from $1.9 trillion to $3.0 trillion under Bush and the Republicans. Does that sound fiscally responsible?

Does anyone believe the Republican Party is serious about cutting anything? Tough guy Republicans like Big Chris Christie preach fiscal responsibility when going to war with teachers’ unions, but he squeals  like a stuck pig when a $60 billion pork filled, unpaid for, Sandy Relief bill is held up in Congress. The courageous fiscally responsible Congress critters passed the entire pork filled, unfunded, bloated, vote buying joke. It included $28 billion to mitigate future disasters, $3 billion to repair or replace Federal assets, and $6 billion for transportation projects completely unrelated to Sandy damage.   The hypocrisy of politicians who proclaim the $50 billion of 2013 fiscal cliff tax revenue as deficit cutting, and then immediately piss it away by paying people to rebuild their houses yards from the Atlantic Ocean while funding billions of non-disaster related projects is disgusting to behold. There is nothing like compromise to add another $60 billion to the national debt.

Our entire economic and political system is a farce. The American people are being played by the powerful interests that provide them with an illusion of choice. Both parties serve the interests of their masters and the fiscal cliff show and debt ceiling show are a form of reality TV to keep the masses alarmed, fearful, and believing there is actually a difference between the policies of the ruling class. The charade has played out in its full glory in the last few weeks with Obama convincing the masses he had stuck it to the rich, while in reality the working middle class got it good and hard when they got their January paychecks. This chart details the tax changes that went into effect on January 1.

taxbill

The funniest part this fiscal fiasco farce is watching the reaction of the sheep who believed Obama and the mainstream media storyline. Obama was able to raise the published top rate on people making over $400,000. The newly defined “rich” laughed heartily as they know only fools pay anywhere near the top rate. The rich just call their tax advisor and instruct them to use one of the thousands of tax loopholes in the 75,000 page IRS tax code to “legally” avoid the new Obama rates. Meanwhile, both parties and their mainstream media mouthpieces downplayed the 2% payroll tax increase on every working American. This tax increase has been a complete surprise to the reality TV zombies and Facebook aficionados. Even college educated professionals in my office had no idea their next monthly paycheck was going to be $150 to $200 lighter. This will wipe out most, or all, of the annual raise they received. The tax will fall heavily on the 75% of households that make less than the $113,700 Social Security cutoff. For a struggling family of four earning the median income of $50,000, the $1,000 less in their paychecks will mean less food, putting off trips to the doctor, driving on bald tires, or not taking the family on a vacation to the Jersey shore. The $2,274 increase in taxes (.57%) for the Wall Street banker making $400,000 probably won’t put too much of a crimp in his Hamptons lifestyle.

The joke is on the American people as the rich will ante up maybe $50 billion of taxes in 2013, while the working middle class will be skewered for $125 billion. How’s that “Tax the Rich” slogan working out for you?

Only in the Orwellian capital of Washington DC would a bill that was supposed to provide tax relief to the middle class and spending cuts to reduce the deficit, actually increase the tax burden of a median household by $1,000 and perpetuate the pork spending payoffs to campaign contributors and friends of the slimy politicians that slither through the halls of Congress. The list of pork and bribes should be nauseating to hard working Americans across the country:

$30 billion extension of the 99 weeks of unemployment benefits, even though we are supposedly in the 3rd year of economic recovery. Continuing to pay people to not work for two years will surely boost employment.

$14.3 billion for a two-year extension of the corporate research credit benefiting large technology companies like IBM and Hewlett Packard.

$12.2 billion one-year extension of the production tax credit for wind power.

$11.2 billion two- year extension of the active financing exception, which lets GE, Caterpillar Inc. (CAT) and Citigroup Inc. (C), among others, defer taxes on financing income they earn outside the U.S.

$1.9 billion extension of the Work Opportunity Tax Credit for hiring workers from disadvantaged groups, benefitting mega-restaurant chains like McDonalds.

$1.8 billion extension of the New Markets Tax Credit for investments in low- income areas, benefitting JP Morgan and other Wall Street shyster banks.

$650 million tax credit for manufacturing energy-efficient appliances, benefitting mega-corps like Whirlpool.

$430 million for Hollywood through “special expensing rules” to encourage TV and film production in the United States. Producers can expense up to $15 million of costs for their projects. NBC thanks you.

$331 million for railroads by allowing short-line and regional operators to claim a tax credit up to 50% of the cost to maintain tracks that they own or lease.

$248 million in special expensing rules for films and television programs.

$222 million for Puerto Rico and the Virgin Islands through returned excise taxes collected by the federal government on rum produced in the islands and imported to the mainland.

$78 million for NASCAR by extending a “7-year cost recovery period for certain motorsports racing track facilities.”

$59 million for algae growers through tax credits to encourage production of “cellulosic biofuel” at up to $1.01 per gallon.

$4 million for electric motorcycle makers by expanding an existing green-energy tax credit for buyers of plug-in vehicles to include electric motorbikes.

So when you see the cut in your take home pay, just comfort yourself knowing that JP Morgan, Citigroup, GE and hundreds of mega-corporations were able to retain their tax breaks. As they have done for decades, Congress and the President agreed to address spending cuts at a future date. Of course, a government spending cut isn’t actually a cut. It’s a lower increase than their previous projection. Nothing is ever cut in Washington DC. The austerity storyline is a lie. Not a dime has been cut from the Federal budget. Intellectually dishonest ideologues try to peddle the wind down of the Obama $800 billion porkulus program as a cut in Federal spending. They sold this Keynesian “shovel ready” crap to a gullible public as stimulus to jumpstart the economy. Federal spending was $3.0 trillion before the Obama stimulus. After the two year stimulus was pissed away without helping the economy one iota, the baseline should have been back in the $3.2 trillion range. Instead, FY13 Federal spending will be $3.8 trillion. This hasn’t kept liberal ideologues like Krugman and his minions in the mainstream media from blaming crazy Tea Party Republicans for inflicting horrendous austerity measures on the poor and disadvantaged.

The chart above reveals a few truths:

  • The country has been blessed with two of the worst presidents in U.S. history over the last twelve years.
  • When Federal spending as a percentage of GDP is beyond two standard deviations over the normal range during the last sixty years, your problem is not lack of tax revenue.
  • Obama and the current Congress are spending at a level of 24% of GDP versus the 18% of GDP when Clinton left office. This amounts to a nose bleed altitude $950 billion higher than the level Clinton was spending in his final year in office.

The Op-eds in liberal rags across the land decry the lack of civility in Washington DC and plead for politicians on both sides of the aisle to come together and compromise for the good of the country. This line of bullshit would be laughable if it wasn’t so wretched in its falsity. Compromise is what has left this country with a $16.4 trillion national debt, $200 trillion of unfunded liabilities, and $1 trillion deficits as far as the eye can see. Democrats have compromised and let the Republicans create a warfare state. Republicans have compromised and let Democrats create a welfare state. The two headed monster living in the swamps of Washington DC just voted to increase taxes on all Americans. They voted to hand criminal Wall Street banks $700 billion. They voted to pass the Patriot Act. They voted to pass the NDAA. They’ve allowed the President to wage undeclared wars in Iraq, Afghanistan, Libya, and now Iran. They voted for a $663 billion Defense bill that includes tens of billions the Secretary of Defense doesn’t even want. They will vote to raise the debt ceiling in the next two months. The last thing this country needs is more compromise. We can’t afford any more compromise. The chart above proves what can happen when gridlock ensues, spending restrictions are enforced, and confrontation displaces compromise. After the 1994 Republican takeover of Congress, gridlock ensued for the next six years. PAYGO restrictions in the Omnibus Budget Reconciliation Act of 1990 didn’t allow unfettered spending increases. The result was Federal spending falling from 22% of GDP to 18% of GDP and a budget surplus. The Pay-Go restrictions expired in 2002 and Democrats and Republicans have compromised to the tune of a $10.2 trillion increase in the national debt in ten years. The hypocrisy of pandering deceitful politicians is boundless and shows utter contempt for the intelligence of the American populace.

“Raising the debt ceiling does not authorize more spending. It simply allows the country to pay for spending that Congress has already committed to. If congressional Republicans refuse to pay America’s bills on time, Social Security checks, and veterans benefits will be delayed. We might not be able to pay our troops, or honor our contracts with small business owners. Food inspectors, air traffic controllers, specialist who track down loose nuclear materials wouldn’t get their paychecks. Investors around the world will ask if the United States of America is in fact a safe bet. Markets could go haywire, interest rates would spike for anybody who borrows money – Every homeowner with a mortgage, every student with a college loan, every small business owner who wants to grow and hire. We are not a deadbeat nation.

It would be a self-inflicted wound on the economy. It would slow down our growth, might tip us into recession. And ironically it would probably increase our deficit. So to even entertain the idea of this happening, of the United States of America not paying its bills, is irresponsible. It’s absurd. Republicans in Congress have two choices here. They can act responsibly, and pay America’s bills, or they can act irresponsibly and put America through another economic crisis. But they will not collect a ransom in exchange for not crashing the American economy.” – President Barack Obama – January 14, 2013

“The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. The Senate continues to reject a return to the common sense Pay-go rules that used to apply. Previously, Pay-go rules applied both to increases in mandatory spending and to tax cuts.

The Senate had to abide by the common sense budgeting principle of balancing expenses and revenues. But we must remember that the more we depend on foreign nations to lend us money, the more our economic security is tied to the whims of foreign leaders whose interests might not be aligned with ours. Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘‘the buck stops here.’’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better. I therefore intend to oppose the effort to increase America’s debt limit.” – Senator Barack Obama – March 16, 2006

I could have shown quotes from George W. Bush during the 2000 Presidential campaign talking about a non-interventionist foreign policy and no need for the U.S. to get involved in nation building and then proceeding to pre-emptively attack sovereign countries while wasting trillions and impoverishing unborn generations trying to create “democracy” in the Middle East at the point of a gun as a cover to protect “our” oil. The point is that we are being given the illusion of choice. Everyone knows the debt ceiling will be raised after another episode of Washington DC Kabuki Theater, presented by the corporate mainstream media in breathtaking detail, because the politicians are beholden to their owners and those owners want more of our money. That is why spending will never be willingly cut by the spineless puppet congressmen, as their strings are pulled by the corporate puppet masters and they dance to the tune of the banking oligarchs that own this country.

After witnessing the fighting of undeclared never ending wars, passage of freedom destroying legislation like the Patriot Act & NDAA, approval of pork barrel spending to the tune of hundreds of billions, rule by Executive Order, using ZIRP to extract hundreds of billions from senior citizen savers and give it to criminal Wall Street banks, forcing the American people at gunpoint to replenish the Wall Street banks with $700 billion after they had committed the greatest financial fraud in history, and a continuing trampling of the U.S. Constitution, the American people continue to remain willfully ignorant of the truth. The American Dream is dead. We’ve allowed a rich, privileged, elite few to achieve hegemony over our economic and political system with their control of the media and manipulation of our financial markets. They will collapse the country because they will never be satisfied with the amount of wealth and power they’ve accumulated. Their voracious greed will be their downfall. The sooner we can channel the anger of George Carlin, the sooner we can put an end to this corporate fascist reign of terror.

“Politicians are put there to give you that idea that you have freedom of choice. You don’t. You have no choice. You have owners. They own you. They own everything. They own all the important land, they own and control the corporations, and they’ve long since bought and paid for the Senate, the Congress, the State Houses, and the City Halls. They’ve got the judges in their back pockets. And they own all the big media companies so they control just about all the news and information you get to hear. They’ve got you by the balls.

They spend billions of dollars every year lobbying to get what they want. Well, we know what they want; they want more for themselves and less for everybody else. But I’ll tell you what they don’t want—they don’t want a population of citizens capable of critical thinking. They don’t want well informed, well educated people capable of critical thinking. They’re not interested in that. That doesn’t help them. That’s against their interest. You know something, they don’t want people that are smart enough to sit around their kitchen table and figure out how badly they’re getting fucked by a system that threw them overboard 30 fucking years ago.

It’s a big club and you ain’t in it! You and I are not in the Big Club. By the way, it’s the same big club they use to beat you in the head with all day long when they tell you what to believe. All day long beating you over the head with their media telling you what to believe, what to think and what to buy. The table is tilted folks, the game is rigged. And nobody seems to notice, nobody seems to care. That’s what the owners count on, the fact that Americans are and will probably remain willfully ignorant of the big red, white, and blue dick that’s being jammed up their assholes every day. Because the owners of this country know the truth, it’s called the American Dream, because you have to be asleep to believe it.” – George Carlin

I never did get around to making my 2013 predictions. I’ll give it a stab in my next article: Apparitions in the Fog.

YOUR TAX DOLLARS AT WORK

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Posted on 8th February 2011 by Administrator in Economy |Politics |Social Issues

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Nothing like good old Washington DC bipartisanship between Republican congressmen and a Democratic president to funnel $10 billion of your tax dollars into the pockets of the lowly tired and poor – Prudential Financial, Goldman Sachs and JP Morgan.

Rich Take From Poor as U.S. Subsidy Law Funds Luxury Hotels

The landmark Blackstone Hotel in downtown Chicago, which has hosted 12 U.S. presidents, opened in 2008 after a two-year, $116 million renovation. Inside the Beaux Arts structure, built in 1910, buffed marble staircases greet guests spending up to $699 a night for rooms with views of Lake Michigan.

What’s surprising isn’t the opulent makeover: It’s how the project was financed. The work was subsidized by a federal development program intended to help poor communities.

The biggest beneficiary of taxpayer help for the Blackstone revamp was Prudential Financial Inc., the second-largest U.S. life insurer. The company got $15.6 million in tax credits from the U.S. Department of the Treasury for helping to fund the project, according to Chicago city records, Bloomberg Markets magazine reports in its March issue.

JPMorgan Chase & Co., the second-largest U.S. bank by assets, also took in money by serving as a lender and the monitor of Blackstone construction financing, city records show.

Since 2003, some of the world’s biggest financial companies, including Goldman Sachs Group Inc., U.S. Bancorp, JPMorgan Chase and Prudential, have taken advantage of a federal subsidy that will cost taxpayers $10.1 billion — and most of the public has never heard of it.

Investors have used the program, called New Markets Tax Credits, to help build more than 300 upscale projects, including hotels, condominiums, office buildings and a car museum, on streets far from poverty, according to Treasury Department records released through a federal Freedom of Information Act request.

Against Intent

Money spent on high-end development could have been used to build more than 1,000 job-training centers, medical clinics and schools. The program, endorsed by Republican Senator Rick Santorum and House Speaker Dennis Hastert and adopted by Congress, was signed into law by President Bill Clinton in 2000.

Building high-end commercial projects goes against the intent of the New Markets program, says Cliff Kellogg, a former senior policy adviser at the Treasury Department who helped design New Markets.

“Things like luxury hotels are entirely contrary to what we set out to do,” says Kellogg, who’s now a bank consultant. “Some hotels may create jobs and spur other nearby investment, but you have to ask if these projects prevent worthwhile ones from getting done.”

Some of the subsidized luxury projects may not have required federal aid at all, the Government Accountability Office found in a 2010 study.

‘Severe Pressure’

“This underscores the need to ensure the program is operating as efficiently as possible at a time when the government is under severe pressure to address the growing federal budget deficit,” says Michael Brostek, GAO’s tax issues director.

The Blackstone adjoins Chicago’s cultural hub, one of the most vibrant in the nation, and is miles from the city’s neediest neighborhoods. Prudential invested $9.3 million and made $30.4 million in loans, according to Chicago records.

Under New Markets rules, firms get a credit of 39 cents on the dollar, paid over seven years, for cash or loans they put in. For its contribution, Prudential collected $15.6 million in credits, according to a July 2008 JPMorgan project oversight report filed with Chicago.

Prudential spokesman Simon Locke declines to answer specific questions about the Blackstone project.

‘Help the Community’

“We do not comment on individual transactions or discuss our clients,” Locke says.

JPMorgan spokesman Tom Kelly also declines to discuss specifics.

“We think these projects help the community,” Kelly says. The Blackstone says it hired more than 200 workers when it opened in 2008.

Clinton regarded New Markets as a way to spur development and create jobs in communities held back by high unemployment and lagging business growth. He touted the program on a six- state tour in 1999.

“This is a good business opportunity here,” he said at a cabinet factory in Clarksdale, a Mississippi Delta town with a per capita income of $12,611. “If we can’t fully develop the Delta now, with the strongest economy, when will we get around to it?”

Clarksdale has received no benefit from the tax credit program, Treasury Department records show.

President Barack Obama has endorsed New Markets to help ease the effects of the longest recession since the Great Depression and proposes increasing the tax credits. In December, Congress extended the program for two more years.

How It Works

The Treasury controls who gets tax credits money and how the subsidies can be used.

The agency bases decisions on census tracts, which are supposed to have common economic standards. Only tracts with at least a 20 percent poverty rate or with a population earning 20 percent less than the median family income of the surrounding metropolitan area qualify for subsidized projects.

The numbers are from the 2000 census. The 2010 count hasn’t yet been used.

The 15-block tract that’s home to the renovated Blackstone — census No. 3206 — qualifies because it had an individual poverty rate of 26 percent in 2000. A closer look at the demographics tells a different story and shows how investors can game the system, says Janet Smith, who lives in the Blackstone tract and teaches urban planning at the University of Illinois at Chicago.

Student Population

The tract’s New Markets poverty qualifications don’t reflect gentrification that has been going on in the neighborhood and the broader South Loop region since the 1980s, Smith says.

The poverty profile reflects the large number of students who attend two schools — Columbia College Chicago and Roosevelt University — in the area, she says. Among families, the poverty rate is just 3.9 percent, according to the census.

The tract already had a major hotel — the Hilton Chicago across the street — before the Blackstone reopened. It also had a high-rise condominium, with units selling this year for up to $1.3 million. And it includes a chunk of Grant Park — designed by celebrated urban architect Daniel Burnham — where Obama celebrated his 2008 election victory.

“I wouldn’t say this is a needy tract by any means,” Smith says. “You have to make a distinction between family- level poverty and individual-level poverty. The problem with a subsidy program like this is that we give away money where we don’t really need to and usually in markets where development is already there.”

Truer Picture

It’s common for a tract to have diverging poverty rates for individuals and families, Smith says. Accounting for both measurements yields a truer picture of whether a tract needs New Markets help, she says.

The program’s standards open up some of the nation’s wealthiest areas to development, according to Treasury records. Taxpayers have subsidized projects in tracts with median family incomes as high as $200,000, records show.

A total of $7.4 billion of the $16 billion already spent under New Markets, or 46 percent, has gone to tracts with family poverty levels ranging from zero to 19 percent, Treasury and census data show. Those communities include areas of California’s technology-rich Silicon Valley.

The program’s definition of poverty tracts –which include just individual rates — show that $3.6 billion, or 23 percent, went to areas with less than a 20 percent rate. Those tracts qualify under other eligibility criteria, primarily low median family incomes, says New Markets spokesman William Luecht.

‘Cherry-Picking’

“The way the rules are written, it’s allowing a kind of cherry-picking by financial institutions to find favorable census tracts,” says Virginia Parks, a social services professor at the University of Chicago. “It’s so easy to qualify that all you need to do is hire a good demographer. It’s not rocket science.”

Scores of New Markets projects have benefited poor communities. The program has helped develop job-training centers, charter schools and housing in severely impoverished locations stretching from the Watts section of Los Angeles to Appalachia in Kentucky and other states.

From 2003 to 2008, 25 percent of project investments, or $3.9 billion, went to tracts with family poverty rates above 30 percent, according to Treasury and census records. Using individual rates alone, Treasury calculates that figure as 49 percent, Luecht says.

‘Feel Good’

“Many desperately needy communities for the first time have gotten access to capital and technical advice,” says University of Michigan law professor Michael Barr, a former assistant Treasury secretary who was the program’s chief developer. “We feel good about that.”

Goldman has used New Markets to build an affordable-housing project with shops and a community center in what had been Brooklyn’s run-down Bedford-Stuyvesant neighborhood.

U.S. Bancorp helped create 1,300 jobs in financially distressed Dubuque, Iowa, by converting a former department store into a service center for International Business Machines Corp.

Goldman targeted tracts on the upswing in Pittsburgh and Portland, Oregon, when the firm got its first New Markets investment authorizations in 2002. In Pittsburgh, $30.5 million of a $75 million Goldman investment authorization went to a shopping center in the East Liberty neighborhood.

The mall’s tract was in the midst of recovery with city renewal efforts that had already helped lure a Whole Foods Market Inc. grocery store.

Fees: $9 Million

Goldman brought in PNC Financial Services Group Inc., the sixth-largest U.S. bank by deposits, to help finance the project. PNC invested $30.5 million in equity and loans to receive $11.9 million in tax credits. The subsidy was $1.3 million more than PNC’s cash investment of $10.6 million.

Banks, lawyers and consultants took fees totaling $9 million — 28 percent of the total project cost of $32.7 million, according to city records. Goldman’s share, for overseeing the project’s finances, will be $1.6 million over eight years, according to Goldman spokesman Stephen Cohen.

The tract had an individual poverty rate of 20 percent as of 2000, just enough to qualify. Family poverty was at 10 percent.

Cathy Niederberger, PNC managing director of community development banking, says the shopping center boosted the neighborhood’s economy.

‘Created Employment’

“The nature of the development has attracted shoppers and created employment,” she says.

Goldman’s Cohen says the project was among the few that seemed suitable to the firm at a time when New Markets had just begun. Now, he says, Goldman is putting hundreds of millions of dollars of its own money into New Markets developments in what it calls highly distressed neighborhoods.

Prudential has used the New Markets program to finance two luxury hotels. Along with the Blackstone, the company in 2008 helped build the Nines in Portland, Oregon, bringing the firm $27.3 million in tax credits, according to Portland records. A Travel & Leisure magazine guide ranked the Nines 25th among North American hotels in 2010.

Prudential spokesman Locke declines to comment on the Nines. He says his firm no longer owns the Portland tax credits. He declines to elaborate.

Prudential first invested in the 17-story Blackstone in 2005. The building sits on South Michigan Avenue, four blocks from the Art Institute of Chicago, which is the largest fine art U.S. museum after New York’s Metropolitan Museum of Art, and Symphony Center, home to the Chicago Symphony Orchestra.

‘Hard To Say’

The Art Institute, located just outside Blackstone’s census tract, draws nearly 2 million visitors a year.

“It’d be hard to say that a luxury hotel in downtown Chicago is in an impoverished community,” says U.S. Representative Jan Schakowsky, an Illinois Democrat. “Lots and lots of public dollars have gone into a project that I’m assuming can make companies a lot of money.”

Prudential collected the Blackstone tax credits through a deal with hotel developer Sage Hospitality Resources Co. of Denver. Sage, which had partnered with Prudential in the Nines project, bought the Blackstone, which had been vacant, in 2005.

The developer put a $42 million New Markets award toward reopening the landmark. Sage, Prudential, JPMorgan and the city of Chicago provided $134.5 million for the purchase and renovation.

JPMorgan Oversight

JPMorgan lent the hotel $26.1 million, according to city records. The firm also oversaw project finances and shared in $5 million in fees paid from project funds, records show.

Sage Senior Vice President Kenneth Geist declined to comment.

Three miles (5 kilometers) west of the Blackstone, there are no hotels, banks or supermarkets in a census tract in the Kendrie Avenue neighborhood on Chicago’s West Side. Area unemployment there was 35 percent in 2000. The neighborhood, dotted with abandoned homes and trash-strewn lots, languishes without money from New Markets.

“Yes, I’m angry,” says Larry Dowling, pastor at St. Agatha, a Roman Catholic parish in the neighborhood. “It was very disturbing to hear that the Blackstone was benefiting from this program. There’s a great need in this community for economic development and jobs.”

In Tacoma, Washington, investors found a way to get New Markets handouts in an area with just a 1 percent family poverty rate. U.S. Bancorp and two other investors used a $34 million Treasury authorization in 2010 to finance construction of an antique car museum.

Around the Rules

The museum, which will house the private collection of Harold E. LeMay, a deceased trash-hauling tycoon, needed creative financing to fit New Markets rules.

Companies that operate mostly by exhibiting art or other items don’t qualify for New Markets. So the car museum, which was backed by the city of Tacoma and the LeMay family, wouldn’t have been allowed.

To get around the restriction, Minneapolis-based U.S. Bancorp and its partners set up a related company in 2010 to acquire the assets from the museum and then lease back the property. The new company, America’s Car Museum, qualified because a loophole in the rules allows galleries to get New Markets money by using affiliated corporations.

The maneuver allowed U.S. Bancorp, which invested a total of $34 million in cash or loans with development partners, to win $13.3 million in tax credits.

‘Bunch of Garbage’

As a result of the deal, federal taxpayers will pick up 39 percent of the cost of erecting a $34 million shrine housing 500 of LeMay’s cars in a mostly commercial tract with a 24 percent individual poverty rate.

Michael Engel, who manages a Veterans of Foreign Wars hall six blocks from the proposed museum, says the federal subsidy is a wasteful public gift to a wealthy family that can afford to finance most of the development.

“It’s a bunch of garbage,” he says. “I don’t think it’s right.”

New York-based nonprofit National Development Council; Trammel Crow Co., a subsidiary of CB Richard Ellis Group Inc. of Los Angeles, the world’s biggest real-estate-services firm; and U.S. Bancorp put the deal together, project records show.

Those investors collected a total of $1.5 million in fees from the project, according to the records. In addition, Trammel Crow and the council are scheduled to get $665,400 in future fees for monitoring finances.

‘Skimming Off the Top’

Museum booster Karl Anderson, chairman of Concrete Technology Corp. of Tacoma, says the facility, when it opens later in 2011, will aid the city’s economy by creating 90 permanent jobs and drawing 450,000 visitors a year. Still, he says, he believes the project got shortchanged because investors such as Trammel Crow charged too much.

“I’ve been upset about the skimming off the top,” he says. “The investors have been able to rake off these big fees.”

U.S. Bancorp spokeswoman Lisa Clark says the museum will bring $34 million in spending to Tacoma. Trammel Crow spokeswoman Cynthia Langhorst declines to comment. John Finke, senior Western region director for the National Development Council, says Tacoma needs the museum for the tax revenue.

“As someone who has spent 30 years working in Tacoma, I can tell you that the city has struggled to attract and retain businesses,” he says.

Historic Armory

In Portland, Oregon, Goldman and U.S. Bancorp partnered with city government on another cultural development helped by New Markets. In 2004, the Portland Development Commission was advocating conversion of a historic armory into a nonprofit theater, and the project caught Goldman’s eye, according to city records.

The armory, which housed horses and cannons in the 19th century, sat in the city’s Pearl District, a former industrial area enjoying a resurgence with upscale stores and housing. The tract qualified with a 41 percent individual poverty rate because it included one poor neighborhood on its fringe. The family poverty rate was 11 percent.

Goldman arranged $28 million in New Markets financing for the theater. U.S. Bancorp put $8.4 million into construction and loaned an additional $11 million. That allowed it to win $10.9 million in tax credits, city records show.

Goldman will collect a fee of $1.4 million for tracking finances for the government, according to Goldman spokesman Cohen.

‘It’s Ludicrous’

The 599-seat Gerding Theater opened in 2006. The League of Women Voters in Portland assails the use of federal tax subsidies.

“It’s ludicrous,” says Shelley Lorenzen, a former League of Women Voters board member who has studied Portland urban renewal. “The area has become kind of the hottest real-estate market in town, with the best restaurants, art galleries and very high-end condos.”

Kellogg, the former Treasury official who helped structure the subsidy plan, says New Markets needs changes. It should divert money away from projects such as high-end hotels and exhibit halls, he says. New Markets should target small-business development in regions that truly need a lift, Kellogg says. After all, he says, that was the point from the start.