I Was a Flight Attendant, and I Also Thought SkyMall Was Incredibly Weird
I don’t think SkyMall really cared about selling you all of that stuff.
I never received a SkyMall memo or went to a Skymall training hour. In the three years I spent working as a flight attendant on Delta Airlines regional flights from 2011 through 2013, no one ever told me how to help customers who wanted to make a SkyMall purchase. In the rare instance in which a passenger asked, I said something like, “I think you need to go online or something.”
I was the closest thing SkyMall could have had to a sales associate, and I knew nothing about the company. This seemed to me like no way to run a business that’s focused on direct retailing. And perhaps it wasn’t, particularly in light of Friday’s news that SkyMall and its parent company Xhibit Corp. had filed for Chapter 11 bankruptcy.
Several bogeyman feature in the story of SkyMall’s decline, according to Xhibit’s filing: More planes with Wi-Fi. More passengers with electronic devices. Amazon and eBay. “The direct marketing retail industry is crowded, rapidly evolving and intensely competitive,” said chief financial officer Scott Wiley in the filing.
But this makes it sound like the SkyMall catalog was the problem, when the truth is that SkyMall (the business) had long since moved on from SkyMall (the catalog). In other words, Skymall had ceased to even be a direct retailing company.
According to Xhibit’s annual report from 2013, the year it acquired SkyMall, 66 percent of SkyMall’s consolidated revenue came from its “loyalty business,” mainly from 3 partners: Caesars Entertainment, Capital One, and Marriott Rewards. Skymall wasn’t making most of its money from its catalogs. By 2013, it earned more money by acting as a middle man for credit card companies and other partners: When a credit card holder spends enough money on a card, these reward programs allow you to redeem reward points for magazine subscriptions, cheap electronics, and other junk. SkyMall handled the fulfillment.
The proximate cause of Skymall’s bankruptcy? Xhibit Corp. is a strange, spammy-seeming company with a history of financial losses. In September 2014, it sold the loyalty business for reasons I can’t easily ascertain from its financial documents. The company used the proceeds to pay down debt.
SkyMall began its loyalty business in 1999. From a 2001 filing by SkyMall, Inc, we know that the loyalty business accounted for no more than 15 percent of SkyMall's revenue in 2000. We don’t know exactly what happened to SkyMall from 2001 through 2013, a period during which it was privately held. But what’s happened since the millennium, it seems, is that SkyMall depended less and less on the revenue it made from the catalogs in your seatback, and more and more on revenue from its credit card partnerships.
Maybe that explains why no one trained me to support your SkyMall purchase.
Uber Study Finds Driving for Uber Is Great. Uber Study Is Flawed.
As 2014 wound down, Uber chief executive Travis Kalanick laid out an ambitious vision for the coming year. “In 2015 alone,” he wrote on the company’s blog, “Uber will generate over 1 million jobs in cities around the world.” Less than one month down along road, Uber has settled on its message to potential workers for achieving the ambitious 1 million target: Driving for Uber is a fun, flexible, and reliable way to earn a living.
On Thursday, Uber released a comprehensive new study on driver earnings and satisfaction in support of that narrative. The report, co-authored under contract by Princeton economist and former Obama administration adviser Alan Krueger, and Jonathan Hall, the company’s head of policy research, contains a lot of fresh information. For example: Uber paid out $656.8 million to its U.S. drivers in the last quarter of 2014. The number of active drivers on its low-cost UberX platform (those giving at least four rides a month) is growing exponentially. Half a year after joining Uber, 70 percent of drivers are still actively using its system.
The points that are really vital to Uber’s storyline, though, come from a survey conducted on its behalf by the Benenson Strategy Group in December 2014. It’s good to take what follows with a grain of salt. Just 11 percent of those surveyed, or 601 drivers, actually responded, and they were financially incentivized to do so. Still, the results were impressive. Seventy-eight percent of Uber drivers are “satisfied” with their experience driving for Uber. Seventy-one percent report their income has improved. And 73 percent say they would rather have “a job where you choose your own schedule and be your own boss” than “a steady 9-to-5 job with some benefits and a set salary.” Now combine that with Uber’s own data, which show that 81 percent of drivers work part-time (51 percent work between one and 15 hours per week; 30 percent work 16 to 34 hours). The picture emerging is clear: People driving for Uber like setting their own schedules and working hours convenient to them, and overwhelmingly, they do that.
But here’s the single most important insight Uber has to offer: On a city-by-city basis, UberX drivers seem to earn about the same amount per hour, on average, no matter how many hours they choose to work.
This is a big deal. The concept of a “part-time pay penalty”—that people, especially women and those in low wage jobs, get paid disproportionately less when they work below 40 hours a week—is well documented. Uber’s data on average hourly earnings suggest that the penalty just isn’t there. Or, as the study puts it, “The finding that hourly earnings for Uber’s driver-partners are essentially invariant to hours worked during the week... makes Uber an attractive option to those who want to work part-time or intermittently, as other part-time or intermittent jobs in the labor market typically entail a wage penalty.” It’s the point that ties everything Uber is promising prospective drivers—a flexible, empowering, and reliable job—together.
So it’s kind of a shame that those figures on average hourly earnings might also be some of the most misleading in the entire report. Here’s why I think that. About two months ago now, Uber released some data on several thousands of its drivers in New York City. As part of that, the company created a scatter plot showing how the average net hourly earnings of drivers varied with the total number of hours they worked each week. For full-timers the average hourly earnings were fairly consistent. But for part-timers, and especially for those working between one and 15, the data looked like a shotgun blast (imagine the shooter standing to the right):
When I first spoke with Krueger about the study, I mentioned this. After all, the fact that the average of drivers’ hourly earnings in the same city is the same doesn’t mean that there isn’t also a great deal of variation. As the graph above shows pretty well, trend lines and averages can mask a lot. Krueger’s response was that “the requirements in New York City are different than in many other areas.” This is true. To drive for Uber in the city, you have to be licensed with the Taxi and Limousine Commission. But that alone doesn’t seem to explain why the earnings data for part-time drivers in other cities might not follow the same pattern. (Side note: It would help if the study included standard deviations for these averages, but it doesn’t, and when I asked Krueger for that he said he didn’t have it.)
This isn’t to say the study should be discounted entirely. As Danny Vinik points out at the New Republic, “whatever their actual net income, drivers are, on average, happy with their employment situation.” That’s good news for Uber and good news for the people it’s putting to work. Moreover, Uber’s driver base has continued to grow even as the economy has strengthened in recent months, suggesting that the supply of contract workers for Uber and other “on-demand” economy companies like it might not dwindle as we head back to full employment. Working for Uber is flexible. It pays pretty well. And at least based on one Uber-commissioned survey, drivers are happy. But are the earnings always reliable? That we still can’t say.
Can This One Weird Trick Save Europe’s Economy?
This morning, Mario Draghi finally fired his bazooka. At least, that was the somewhat phallic metaphor finance Twitter and the press settled on to describe the new and aggressive bond-buying program, known as quantitative easing, that the European Central Bank president hopes will help salvage the eurozone's broken economy. Starting in March, Draghi announced at a news conference, the bank will effectively print money to buy €60 billion worth of public and private assets per month through at least September 2016, spending more than €1 trillion.1 The plan is bigger and bolder than many expected. Which is why it's inspiring bang-up Photoshop jobs like this.
Mario Draghi and his Big Bazooka aka €1 trillion QE programme. It begs the question: is his bazooka big enough? pic.twitter.com/I7SQBpBDfM— Jin Shern (James) (@JamesJSChai) January 22, 2015
Anti-tank imagery aside, though, don't expect to see too many explosive effects from this effort.
The eurozone's economy has been in such awful shape for so long that it has become easy to forget just how dire the situation really is. Although it climbed out of a recession in 2013, the region's gross domestic product is barely growing. Overall unemployment is stuck above 11 percent, while in Greece and Spain, more than a quarter of workers are out of a job.
To make matters worse, the common currency area is now staring at deflation, which can suck an economy into a destructive downward spiral. When prices fall, families tend to put off spending (why buy today when that washing machine will be cheaper tomorrow?), debts become harder to repay as the relative value of old loans grows, and companies tend to hold off on raises for their workers. Last month, prices declined 0.2 percent. Part of that was due to the collapsing cost of oil—which is generally a good thing—but if they tumble further, it could spell more long-term trouble.
The imminent threat of falling prices seems to be what finally allowed the ECB to overcome objections by inflation-phobic Germany and launch its stimulus program. By purchasing government bonds in bulk, it hopes to drive down their interest rates and encourage investors to buy riskier assets like corporate debt and stocks. Convincing more people to get in the market for corporate bonds could theoretically lower the cost of borrowing for companies that want to invest while rising stock prices might make everybody feel wealthier, and spend. By metaphorically turning on the presses, the ECB will also push down the value of the euro, which should help countries sell more exports, and stimulate their economies.
The end goal: Nudge inflation back toward the central bank's target of slightly less than 2 percent.
Importantly, the ECB has said it will keep on buying bonds for as long as it takes to get the job done, or "until we see a sustained adjustment in the path of inflation," as Draghi put it. That open-ended commitment is a signal that Super Mario (as he's affectionately referred to) & Co. are dead serious about this effort. The more serious the ECB seems, the more likely inflation expectations will rise, and the more likely actual inflation will follow.
With that said, it's not clear how much good bond-buying can do for Europe at this point. The United States Federal Reserve and the Bank of England both resorted to quantitative easing, or QE, back in 2009 (the Fed just finished its third and final round in November). And while the policy is often credited as one reason the U.S. recovery has been far stronger than Europe's, nobody knows for sure exactly how much good it did. On the one hand, our economy managed to continue expanding despite cuts to state spending and sequestration. On the other, the early years of the recovery weren't exactly a period of torrid growth, and inflation has stayed low. Crafty central bank intervention wasn't necessarily a cure-all. And nobody should expect it to single-handedly fix Europe's far, far deeper economic troubles.
There are also reasons to think that the eurozone version of QE will be less potent than the U.S. edition. One, as the Financial Times highlights, has to do with the way European companies finance themselves. In the U.S., corporations largely borrow by tapping debt markets, which is why lowering bond rates is helpful for them. In Europe, companies borrow directly from banks that, even with easing, might not be interested in lending to them (they could, for instance, just buy U.S. treasuries). Beyond that, government interest rates in much of the eurozone are already quite low—in Germany, they've been at record lows, in fact. But that hasn't stopped investors from piling into them, and it's not obvious that pushing them down a bit further will dissuade them in the future. Meanwhile, whereas the Federal Reserve took investors by surprise when it began easing, the markets have been anticipating some sort of move from the ECB for a while, and may have priced much of its effects in.
There are also some arcane-sounding details of the program that could blunt its effect. For instance, rather than purchase government bonds from the most troubled economies, the ECB will buy bonds from each country in proportion to the amount of capital they hold at the central bank. The upshot of that completely numbing sentence (I apologize) is that it will be buying a lot of German debt, with its already low interest rates, and may simply convince banks to look for alternative investments in Germany rather than, say, Italy.
The ECB's program is still a worthwhile effort. The bank needs to do something to revive the eurozone, and quantitative easing is the biggest untried tool in its arsenal. But as Larry Summers put it at Davos, "necessity should not be confused with sufficiency"—monetary policy alone isn't going to save countries like Italy, Spain, and Portugal. Unfortunately, Europe is still largely focused on reducing debt, rather than using fiscal stimulus, and reforms that would fix its calcified, uncompetitive labor markets in the most troubled countries are slow coming.
Point being, nobody ever won a war with a single bazooka. Nobody should expect Draghi to, either.
Footnote1: Despite its popularity, some people object to the phrase "printing money" to describe QE, because in real life it involves creating electronic bank reserves, which isn't the same as just pouring a bunch of euros into the real economy. That actually has some meaningful policy implications, but for our purposes today, it's not exceedingly important.
Delta Way Oversold Two Flights of People Heading to the Sundance Film Festival
It’s pretty common for airlines to oversell their flights as a hedge against last-minute no-shows. But sometimes, that usually savvy plan backfires. Like on Thursday morning, when Delta found itself looking at a pair of extremely overbooked flights from New York’s John F. Kennedy International Airport to Salt Lake City—presumably carrying passengers headed to the Sundance Film Festival—and began scrambling to find people willing to accept “Delta dollar” vouchers in exchange for switching to later travel options.
Sundance sh*tshow at JFK after Delta oversells its flight to Salt Lake City by a ton. pic.twitter.com/M2i97sYe0O--Cara Buckley (@caraNYT) January 22, 2015
Enjoying watching New Yorkers scramble to get on the flight to Salt Lake City for Sundance while Delta offers them $1200 vouchers not to.-- molly (@MTF) January 22, 2015
This flight to #Sundance is oversold, Delta is offering $900 ("Delta dollars") for people to change to a later one.--Barbara Chai (@barbarachai) January 22, 2015
Ultimately, Delta ended up getting more than a dozen people from the two flights to agree to push back their trips in exchange for several hundred dollars in compensation per person, Delta spokesman Anthony Black says. Twelve might not sound like a lot, but in fact it’s an extraordinarily high number of denied boardings for just two flights. To give this some context, between January and September of 2014, overbookings kept Delta from boarding about 84,000 passengers compared with 87 million that successfully enplaned. Across U.S. airlines, less than 0.09 percent of passengers were unable to board during the same period, of which an even tinier fraction were involuntary (people forced to move to a different flight as opposed to volunteers who agreed to change for some amount of compensation).
So, in the case of the Sundance flights, was it smart for travelers to accept Delta’s vouchers? Well, it depends. In its consumer guide to air travel, the U.S. Department of Transportation notes that overbooking is not illegal but that the consequences for “bumping” passengers depend on whether it is voluntary or involuntary. In the first case, the airline seeks out customers who are willing to give up their seats on one flight in exchange for some sort of compensation. If people volunteer, it’s left to the airline and passenger to negotiate what that compensation will be.
In the second, involuntary case, on the other hand, the DOT does set strict rules for how the airline must compensate affected passengers. The rules, which are based on the length of the delay passengers suffer and the price they paid for their ticket, are summarized below. For situations where compensation is required, the DOT specifies that customers are entitled to receive it “in the form of a check or cash”:
- If the airline forces a passenger off one flight but arranges substitute transportation that reaches the final destination within one hour of the originally scheduled time, then the airline isn’t required to provide compensation.
- If the alternate transportation is scheduled to get the passenger to his or her destination one to two hours later than originally planned (or one to four hours on international flights) then the airline has to pay that person 200 percent of the initial one-way fare, with a maximum of $650.
- If the alternate transportation should get the passenger to their destination more than two hours later than initially planned (or more than four hours for international travel), or if the airline declines to provide alternate travel arrangements, then passengers are entitled to 400 percent of their one-way fare, with a maximum of $1,300.
Delta had five flights today out from JFK to Salt Lake City; three have already left and the next two are at 4 p.m. and 9 p.m. It’s tough to know what customers originally paid for their flights to Salt Lake City, but if they’d been forced to switch to another time slot and had arrived several hours late, it’s certainly possible that each one would have cost Delta more than several hundred dollars in compensation. On the other hand, Black says Delta doesn’t just worry about how much it’ll have to pay up when dealing with oversold flights. The goal, he said, is to both compensate customers fairly for their inconvenience and keep the flight queue moving along. Black added that it wasn’t immediately clear why those two flights out of JFK were so oversold this morning. But for next year, Delta might want to keep Sundance in the back of its head when it's seriously overselling flights to Salt Lake City.
Uber Raises Another $1.6 Billion in Funding, Because Why Not Have More Money
Fresh off a $1.2 billion funding round, Uber has apparently added another $1.6 billion in convertible debt through Goldman Sachs to its stockpile. Bloomberg, citing “people with knowledge of the matter,” reports that Uber has arranged a six-year bond with Goldman Sachs’ private clients that, if Uber were to go public, could be changed into stock at a discount of 20 to 30 percent from the IPO price. All in all, Uber’s funding in both convertible debt and cash now easily tops $4 billion, and it might not end there—Uber is still in discussions to raise another $600 million in stock from hedge funds and strategic international investors.
What will Uber do with all this money? Well, a lot of things. As I recapped at the end of December, Uber is fighting regulatory battles and outright bans across the globe and no doubt pouring funds into what is effectively a huge political campaign for ride-hailing apps. Uber is also (hopefully) beefing up its public relations staff and local management teams to avoid more of the embarrassing blunders that dogged it in 2014. Uber’s ambitions also extend far beyond providing on-demand rides and even making car ownership obsolete. As Uber chief executive Travis Kalanick has said, “If we can get you a car in five minutes, we can get you anything in five minutes.” If services like UberRush and UberFresh take off, Uber could become an all-encompassing instantaneous delivery platform, one to possibly rival Amazon.
Meanwhile, this new round of funding hands Uber an even bigger cash advantage over its current crop of competitors. Lyft, arguably the company's biggest rival, has just $332.5 million in six rounds from 15 investors, according to CrunchBase. That imbalance might make it easier for Uber to build a virtual monopoly over ride-sharing apps.
And if that's the case, we should probably be worried. After all, one major concern with Uber, as econ blogger Steve Randy Waldman astutely noted in late December, should be “ensuring that no single price-coordinating ‘platform’ dominates the nascent on-demand transportation industry.” As Uber deepens its already-deep pockets, preventing that outcome looks increasingly difficult.
Tootsie Roll CEO’s Death Shines Wall Street Spotlight on Secretive Candy Empire
The candy world lost one of its king confectioners on Tuesday when Melvin Gordon, the longtime chief executive of Tootsie Roll, died at the age of 95 after a brief illness. Gordon’s death was announced by the company on Wednesday. His wife, Ellen, who previously served as Tootsie Roll’s chief operating officer and president and is in her 80s, will assume the roles of chairman and CEO in accordance with the company’s succession plan.
Tootsie Roll under Gordon’s leadership, like much of the notoriously secretive and exclusive candy-making world, was a real-life Willy Wonka factory. In a 2012 profile of the company, Wall Street Journal reporter Ben Kesling wrote that at Tootsie Roll’s Chicago headquarters, “massive puffs of steam billow out of humming machines on the roofs of the gray cinder block and red buildings, which sit surrounded by off-kilter 'no trespassing' signs.” The Gordons, he added, “haven't granted an interview in years,” and declined to comment for his piece.
Though Tootsie Roll is a publicly traded company, a few members of the Gordon family control more than 50 percent of its shares. Melvin and Ellen Gordon also reportedly made every effort to keep Tootsie Roll in closely held hands. “We‘ve worked hard to keep suitors away,” she told Joël Glenn Brenner in The Emperors of Chocolate: Inside the Secret World of Hershey and Mars. “We want Tootsie to remain independent. Hopefully, our children, or the employees working in the company, will be able to run it someday.”
Now that Melvin Gordon has passed away, though, Wall Street seems to think Ellen might change her mind. Trading of Tootsie Roll was temporarily halted to make the announcement around noon, after which its stock popped 7 percent on apparent hopes that it might soon be the target of a takeover bid. In addition to owning the eponymous Tootsie Roll brands, the company sells Dots, Junior Mints, Charleston Chews, Sugar Daddies, and several other confections. “People have felt for some time that the company was a good sell-out candidate,” Elliott Schlang, managing director at Great Lakes Review and a former Tootsie Roll analyst, told Bloomberg.*
Perhaps the most famous bit of Tootsie Roll branding—the “how many licks?” commercial—came out eight years into Melvin Gordon’s stewardship as CEO. The ad, which features a boy asking a cow, a Peter Lorre–esque fox, a turtle, and an owl, “How many licks does it take to get to the Tootsie Roll center of a Tootsie Pop?,” debuted in 1970 and became an instant classic. (You can watch it for yourself up top.) Since then, the company says it has received more than 20,000 letters from children claiming to have found the elusive answer to that quandary. Estimates range from a low of 100 licks to a high of 5,800—children are dedicated counters.
The real answer, the company writes on its website, “depends on a variety of factors such as the size of your mouth, the amount of saliva, etc. Basically, the world may never know.” Presumably that’s Tootsie Roll being facetious. But if Melvin Gordon did have any sort of answer (even a joking one), hopefully he passed it down to the rest of the family, along with all the other Tootsie Roll secrets.
*Correction, Jan. 21, 2015: This post originally misspelled Elliott Schlang’s first name.
Motivated, Passionate, Creative: Meet the 2014 LinkedIn Everyman
LinkedIn has hundreds of millions of members around the globe, and they are motivated. And passionate. And creative. Yes, LinkedIn’s users are so motivated and passionate and creative that they are driven to describe themselves over and over again in exactly those terms. The LinkedIn Everyman also has extensive experience at being responsible and a strategic track record as an organizational expert.
Now, surely it is not for lack of originality that these 10 terms also happened to top LinkedIn’s list of most overused buzzwords in 2014, because, as previously mentioned, these people are creative. And they are motivated and driven to set themselves apart from the rest of the LinkedIn résumé-building masses. Such strategic individuals wouldn’t toss around buzzwords in a heedless and irresponsible manner. That would be a novice move—not an expert one.
How much do LinkedIn users rely on buzzwords? Over the past three years, the company’s annual lists of the 10 most overused words have included a total of just 15 different terms. Creative, responsible, and organizational appeared in 2014, 2013, and 2012. Motivated, driven, extensive experience, strategic, track record, expert, effective, innovative, and analytical made the cut twice. The only words or phrases that are unique to a given year are passionate (2014), patient (2013), and problem solving (2012).
Maybe 2015 is the year LinkedIn should build in a thesaurus.
Why Does Obama Want to Help Families Pay for Child Care? Because It’s Insanely Expensive.
President Obama dedicated a decent chunk of Tuesday night’s State of the Union to the subject of child care, calling it a “must-have” for working families and plugging his plan to create a $3,000 tax credit to alleviate its rising expense. As Jessica Grose wrote for Slate earlier, “This is an extremely important rhetorical shift—the move from child care as a mushy, emotional, frivolous extra, to a serious imperative.”*
How expensive is child care today? It can vary enormously state to state but looks an awful lot like a year of public college tuition. According to Child Care Aware, the average cost of enrolling an infant in a full-time day care center ranges from $5,496 in Mississippi to $16,459 in Massachusetts. For a 4-year-old, the price goes from $4,515 in Tennessee up to $12,320 in Massachusetts. Families can save a bit by sending their children to smaller child care homes, rather than the larger centers, but the quality of care also suffers a bit. Also, keep in mind, these are averages. Pop onto Twitter, and you’ll find plenty of parents volunteering horror stories of $20,000 annual fees.
There is some good news about child care expenses. Adjusted for inflation, the average cost of care for families with working mothers grew from $84.30 a week in 1985, or about $4,300 a year, to $143 in 2011, or about $7,400 annually. However, earnings have risen as well—so the expense has remained roughly equal to 7 percent of family income.
That said, there are also signs that families are getting priced out of professional care. In the boom times of the late 1990s, for instance, 42 percent of families were paying for someone to watch their children while they worked. Today it’s down to 32 percent.
So, why is child care so pricy? It’s fairly simple. You have to pay human beings to watch over kids. And while child care workers aren’t paid especially well, they do have to be paid. If you look at sample budgets for day care centers, or talk to people in the industry, they’ll tell you that, aside from real estate, most of the costs boil down to labor. You might think that looser regulations on the amount of space required per child or how many infants a single worker is allowed to care for might shave some expenses. But studies on the subject have found that, surprisingly, state regulations don't affect costs much.
“Wages really drive child care costs,” David Blau, an economist at Ohio State University, told me a while back. In high-pay cities and states, child care centers and homes have to pay more, or they won’t be able to lure qualified employees. And that raises costs for parents. Hence the suffering of Massachusetts mothers and fathers, who happen to live in an exceptionally high-wage state.
Unfortunately, there isn’t really a way to make child care workers much more efficient. (There are only so many infants one person can watch, after all.) Which brings us to a sort of unavoidable choice: If we want affordable child care in this country for all families, somebody is probably going to have to subsidize it. A solution isn’t going to magically materialize from the free market.
*Correction, Jan. 21, 2015: This post originally misspelled Jessica Grose’s last name.
Obama Wants to Tax College Savings Accounts (and It’s a Great Idea)
President Obama's State of the Union tax plan is all about taking from the rich and giving to pretty much everybody else. But conservatives have stumbled on a piece of it they think the middle class will hate: The White House, you see, wants to increase taxes on 529 college-savings accounts. The anti-IRS fundamentalists at Americans for Tax Reform are crowing: "This middle class income tax increase is a clear violation of President Obama's 'firm pledge' against 'any form of tax increase' on any family making less than $250,000."
Strictly speaking, they are correct. Obama's proposal would hit some families that earn below the quarter-million-dollar mark. It's also still a great idea. Unless, that is, you're really determined to subsidize college tuition for families with six-figure incomes so they can send their kids to Amherst or Brown.
First a little background: 529 college savings plans are tax-deferred accounts in which parents can stow away up to $14,000 per year for their child's education (any more, and they have to worry about the gift tax). Unlike a 401(k) retirement plan, families can only save post-tax dollars in them. But once the money is in the account, it can be invested in stock or bond funds, and grow tax-free. Then, when Mom and Dad withdraw their cash to pay for Junior's school, the gains aren't taxed.
Obama wants to change that slightly. Under his proposal, investments could still grow tax-free. But when families retrieve their money, the gains will be taxed as ordinary income. As the Wall Street Journal notes, this is how 529 plans worked in the 1990s, until the Bush tax cuts made them even more generous.
So, yes, Obama wants to tax college savers. But, by and large, they're wealthy college savers. When the Government Accountability Office looked at 529 plans and their less popular cousins, Coverdell accounts, it found that 47 percent of families that had them earned more than $150,000 per year. (Depending on who's measuring, that puts them in at least the top 10 percent of U.S. households.) By comparison, it noted, the median income of families with a student in college is $47,747.
I don't know about you, but I generally don't think that our higher education policy should be geared toward helping families that earned $150,000 or more send their kid to the most expensive possible school. Meanwhile, the White House says that revenue brought in from taxing gains in 529 plans would go toward expanding other higher education tax breaks, such as the American Opportunity Tax Credit, which is available to families earning up to $180,000. So it seems like the middle class makes out just fine in this deal.
The Police Slowdown Has Cost New York City Millions in Lost Parking-Ticket Revenue
New York City police have finally resumed making arrests and issuing tickets after an unofficial slowdown that began in late December and lingered into this month. Last week, police made 6,910 arrests citywide and issued 14,399 parking tickets and 14,367 moving violations, according to the New York Times. Those figures still aren’t on par with statistics from the same period in 2014, but they’re a big improvement over previous weeks, as you can see from the chart below:
How much has that monthlong drop-off in police activity cost the city? Well, from the week of Christmas through Jan. 11, city officials estimated New York’s lost revenue at just under $5 million from all fines, compared with the same period a year before. Parking tickets accounted for a shortfall of about $3 million—they reportedly average $69.13 per ticket and declined by about 44,000 in the slowdown’s first three weeks. At the same time, the Times noted that the less-than-$5-million figure did not include “the additional loss of revenue from speeding tickets, other moving violations, and petty crimes that were not cited, totals that are more difficult to calculate, given the varying penalties for different offenses.”
So it’s hard to know exactly what New York City missed out on while police lowered their enforcement activities. We can loosely update the estimate from Jan. 11 by noting that even in the latest week parking tickets remained down nearly 40 percent, or roughly 8,638, from the same period in 2014. Multiplying that out by $69.13 per ticket, you get that the city lost another nearly $600,000 in the most recent week from the ongoing shortfall of parking tickets alone.* The New York City Comptroller’s Office on Tuesday was not able to provide an updated estimate of how much the city has lost to the slowdown.
While a loss of several million dollars isn’t a terrible hit for a city with a $77 billion budget for fiscal year 2015, it’s also a not-insignificant amount of money. Police Commissioner William Bratton has countered that New York may in fact be saving money from reduced overtime pay for officers. But it’s really anyone’s guess how the slowdown will appear in the budget when the final tallies are in.
*Correction, Jan. 20, 2015: This post originally misstated the approximate amount of money the city lost a shortfall in parking tickets in the latest week. It is $600,000, not $600 million.