MONDAY, AUGUST 5, 2019 The Boston Globe Business D3
TALKING POINTSMEALS
SORRY, DINERS:
NOSTATE
TAX HOLIDAY
FOR RESTAURANTS
If you dine out during the state’s sales tax holiday later this month, you’ll still have to
pay the 6.25 percent Massachusetts meals tax. That’s how it worked on prior tax holi-
days, but for a time it wasn’t clear if restaurants mightbe included this year during the
two-day break that consumers enjoy from sales taxes. A 2018 law establishing the tax
holiday as a permanentannualfixture did not specifically exempt meals at restaurants.
So Governor Charlie Baker asked the Legislature to make it clear meals were not in-
cluded, which it did last week. The tax holiday is Aug. 17-18. — ASSOCIATED PRESSFINANCE
BONDMARKET
ANOMALY
CREEPING
INTO JAPAN
The bond market’s economic canary in the coal mine looks
poised to hit Japan. The country’s benchmark10-year yield
is on track to fall below its two-year equivalent for the first
time since the collapse of the Japanese economic bubble in- Known as an inverted yield curve, longer-term yields
below shorter ones are unusual in developedmarkets and
often interpreted as a harbinger of recession. The phenom-
enon is much talked about in the US market, especially
since the yield curve between 3-month and 10-year Trea-
suries inverted in March. Japan’s 10-year yield fell 4 basis points to minus0.175 per-
cent Friday, while the 2-year dropped 1.5 basis points to minus 0.205 percent. The
longer-dated yield is close to the bottom of the trading range tolerated by the BOJ that
spans20 basis points either side of zero. “There is a great chance that the yield inver-
sion between two-year and 10-year could occur anytime soon,” said Eiichiro Miura, at
Nissay Asset Management Corp. in Tokyo. “Bondmarkets around the world are becom-
ing more concerned about the fate of the global economy.” — BLOOMBERG NEWS
ENERGY
BLACKJEWEL’S
COALASSETS SOLD
ATAUCTION;
HEARINGMONDAY
Contura Energy has madea successful bid of $33.75 million for the assets of three
Blackjewel LLC mines in Wyoming and West Virginia. The auction’s results,
announced Sunday, are subject to a bankruptcy judge’s approval. Tennessee-based
Contura’s bid was an increasefrom its originaloffer of $20.6 million as the stalking
horse bidder for the Eagle Butte and Belle Ayr mines in Wyoming and the Pax Surface
Mine in Scarbro, W.Va. They have been closed since Blackjewel filed for Chapter 11
bankruptcy protection on July 1. It was not clear whether any mines would reopen;
hundreds of miners have been idled. Contura did not immediately reply to an e-mail
seeking comment. — ASSOCIATED PRESSbog” for OceanSpray. And Full
Contact recruited the actor
David Hasselhoff to hawk
Cumberland Farms coffee on
store signs (hashtag
#icedhoffee) and in a goofy,
beach-themed music video
(“Thirsty for Love”).
All of thoseaccounts have
since movedto out-of-town
agencies.
Even Saucony, whichused
to workwith Mechanica, an ad
agency in Newburyport, has
since used agenciesfrom
outside Massachusetts.
It’s a sensitive issue in
Boston ad circles. None of the
city’s three big traditional
agencies — Hill Holliday,
Arnold, and MullenLowe —
would providean executiveto
comment for this story.
There have beenjob cuts
along the way. But based on
data compiled by the Boston
Business Journal, Arnold was
the only one amongthe Big
Three with a substantial
declinein Massachusetts
employment over the past
decade: Local jobs there
droppedto 300 in 2018,from
525 in 2009.
Meanwhile, the local head
count at Hill Holliday wentup
by nearly 100, to 559, and at
Mullen, which reported 500
workers, compared with 421 a
decadeearlier. (Digitas, a
digital-focused agency,
outranked themall last year,
with 605, but the company was
not included in the BBJ
rankings in 2009.)
Being localstill helps
sometimes. For example, the
new owners of the Papa Gino’s
and D’Angelo chains decidedto
useFullContact,whichhad
donecampaignsfor the two
chainsin the past. The chains’
new chief marketing officer
thought it was crucialto have a
nearbypartner to help design
the latest campaignsthat
launchedthis spring.
Meghan McDonnell,
president of the consultancy
Pile and Co. in Boston, said she
has noticed a shift away from
local preference in othercities,
too.
“There weretimeswhen
clients reallylooked at the
geography of an agency as
being an important factor,” said
McDonnell, whosefirm helps
companiespick ad agencies.
“That’s less important to
clients thesedays. It’s not that
they don’t wanta close
relationshipor require face-to-
face meetings. But with
technology, there are a lot of
ways to have meetingsface-to-
face without beingacrossthe
street.”
Locally, Steve Connelly has
beensoundingthe alarm. The
headof Connelly Partners said
Boston agencies should do a
better job promoting their
work,and the city.
He hangssomeof the blame
on corporate consolidation, as
many well-knownBoston
brands have beenacquired by
out-of-state companies:
Reebok, John Hancock,
Gillette.
“We have fewer brands that
are based here to make
marketing decisions,” Connelly
said.“The ones that are here
don’t hire here anymore.”
Connelly said his firm
sought to bid on a new ad
campaign by a prominentlocal
company last year, but was told
not to bother because that
business wanted to go outside
the Boston area for a change.
He declined to identify the
brand.
“I’m fine swinging and
missing,” Connelly said.“I’muADAGENCIES
ContinuedfromPageD1not fine with not playing.”
Other ad executives aren’t
as concerned.
Andrew Graff, cochair of the
Ad Club’s executive committee,
said Boston agenciesare still
competing on a national level.
And each of the Big Three are
known for clientsthat aren’t
based here:Arnold with its
Progressive ads featuringFlo,
Hill Holliday for Bank of
America, and Mullen for
JetBlue.Moreover, Graff said, the
moveaway from traditional TV
airtime to socialmediaand
events has had a bigger impact
on the industry.
Graff citedthe Red Bull
CrashedIce event in February,
whichpitted skaters against
each otheron a downhill track
in Fenway Park as an example
of the new wave of marketing.
“Branding is still very much
alive,” said Graff, who runs the
Allen & Gerritsenagency in
Boston. “But it requires you to
be way morecreative than
simplydoingthe big campaign
and running it on TV.”
The makeup of Boston’s
business community mightbe
playing a role, though. Biotech
companies, for example, don’t
tend to be heavy marketers.
And local consumertech firms,
such as Wayfair and
DraftKings,have in-house
operations to handlemuchof
their ad work.
Fred Bertino, president of
the local ad agency MMB,
doesn’t think being basedin
Boston is “holding us back.”
Somechief marketing officers
might wantto chase certain
agenciesthat happen to be hot
at a particular moment. But, he
said,that’s always beenthe
case.
“If they couldfind what they
wantin Boston, they would
hire in Boston,” Bertino said.Jon Chestocanbe reached at
[email protected]. Follow
himon Twitter@jonchesto.In a new era,advertisers feellittle need for alocal ad agencyPROGRESSIVE
Flo,Progressive’s fictional
saleswoman,wascreatedby
theBostonfirmArnold.‘Thereweretimeswhenclientsreallylookedat thegeography of anagency as beinganimportantfactor... therearea lot
of ways to havemeetingsface-to-facewithoutbeingacrossthestreet.’MEGHAN MCDONNELL
PileandCo.in Bostonhousing professionals, home-
buyers and sellers — and de-
tailed statistics about the
housingmarket — showno
signs that the drop in the use
of the tax breakis weighingon
pricesor activity.
“From the perspective of
sellingand tryingto buy, I
don’t see any evidenceof that,”
said Paul Forsythe, who teach-
es physicaleducationand
coachesfootballat a high
school.
Forsytheandhis wife,
Kylie, are selling theirfour-
bedroom, two-bath home on a
quarter-acrelot in one of
Plainfield’s olderdevelop-
ments, which dates to 1997.
They are moving withtheir
two daughters to a nearby sub-
urb, closer to the schools
wherethey work.They have
owned homes through the ups
and downs of the local hous-
ing market, which boomedin
the early 2000s and crashed in
the midst of the financialcri-
sis.
“Right now,” said Forsythe,
a fourth-grade teacher, “peo-
ple are excited that the market
is finallygood again.”
Suchreactionschallenge a
longstandingpoliticalconsen-
sus. For decades,the mort-
gage-interest deductionhas
beenalternately hailed as a
linchpinof support for home-
ownership (by the real estate
industry) and reviled as a sym-
bol of tax policy gone awry (by
economists). What pretty
much everyone agreed on,
though, was that it was politi-
cally untouchable.
Nearly 30 milliontax filers
wroteoff a collective $273bil-
lion in mortgage interest in
2018.Repealingthe deduc-
tion, the conventional wisdom
presumed,wouldeffectively
meanraisingtaxeson millions
of middle-classfamiliesin ev-
ery congressionaldistrict. And
if anyoneweretemptedto try,
an army of real estate brokers,
homebuildersand developers
— and theirlobbyists — were
ready to rush to the deduc-
tion’s defense.
Now, criticsof the deduc-
tion feel emboldened.
“The rejoinderwas always,
‘Oh, but you’d never be able to
get rid of the mortgage-inter-
est deduction,’ but I certainly
wouldn’t say never now,” said
William G. Gale, an economist
at the Brookings Institution
and a formeradviserto Presi-
dent George H.W. Bush.
“It usedto be that this was
a middle-class birthright or
something like that — but it’s
kindof hard to argue that
whenonly 8 percentof house-
holds are takingthe deduc-
uMORTGAGES
ContinuedfromPageD1
tion,” he said.
Gale,like most economists
on the left and the right, has
long argued the deduction vio-
lated every rule of good policy
making. It was regressive, ben-
efitingwealthy families— who
are more likely to own homes,
and to have bigger mortgages
— more than poorerones. It
distorted the housing market,
encouragingAmericans to buy
the biggest homepossible to
take maximumadvantage of
the deduction.Studiesrepeat-
edly foundthe deduction actu-
ally reduced ownership rates
by helpingto inflate home
prices,making homesless af-
fordable to first-time buyers.
But the real estate industry
said that scrapping the deduc-
tion couldundermine the val-
ue of what is, for most Ameri-
can families,their most impor-
tant asset. In the debate over
the tax law in 2017, the indus-
try warned that the legislation
could cause house prices to fall
10 percent or morein some
parts of the country.
Price growth has cooledin
many markets, includingNew
York and Seattle, but not near-
ly as much as the most alarm-
ing estimates suggested and
not in a pattern that suggests
the loss of the deduction was a
primary factor.
Places where a large share
of middle-classtaxpayers took
the mortgage-interest deduc-
tion,for example, have not
seenany meaningful differ-
ence in price increases from
less-affected areas, according
to a New York Timesanalysis
of data from the real estate site
Zillow.
Skylar Olsen,an economist
at Zillow, said the slowdown in
the housing market probably
had little to do withthe tax
law. Home priceshave risen
muchfaster thanwages in re-
cent years, creating an afford-
ability crisisin many cities
that probablymadeslower
growthin prices inevitable.
“Housing markets wereburning so hot at an unsus-
tainable paceand they had to
comedown,” Olsensaid.
The tax law may have had
another impact: It capped de-
ductions for state and local
taxesat $10,000,whichhad a
particularly large effect in
coastal cities and other places
where property taxes and real
estate values are both high.
Those placesdid see a slow-
downin the growthof home
prices after the law took effect,
thoughit is not clearwhether
the two werelinked.
The national real estate in-
dustry argues that the two tax
changes have together played
a role in weakening the hous-
ing market. “Clearly, the hous-
ing market is underperform-
ing in relationto economic
fundamentals of job growth,
wage growth, and mortgage
rates,” said Lawrence Yun,
chief economist for the Na-
tionalAssociation of Realtors.
Economists like Yun and
Olsen will probably debatethe
law’s impact for years. It is
possible, and even likely, that
sophisticated analyses will
eventuallyconcludethat limit-
ing the mortgage-interest de-
duction did lead to somewhat
slowerprice growth.
But for most buyersand
sellers,those subtle effects will
be washed away by forcesthat
have a muchbigger impact:
changes in mortgage rates,
construction costs, and supply
and demand trends that vary
fromcity to city and neighbor-
hood to neighborhood.
The tax law also rolled back
the mortgage-interest deduc-
tion in a way that minimized
the chance taxpayers would
notice its absence. Congress
did not take away the tax
break;it just changed the law
in a way that meantfewer peo-
ple wouldbenefit from it, and
buried the change in a much
broader tax-codeoverhaul.
ButwhileWashington
think tanks plot the deduc-
tion’s demise,the real estateindustry is still hopingto re-
store it in someform.
Yun said that as the hous-
ing market weakened, pres-
sure would mountfor Con-
gressto restore some of the tax
advantages that homeowner-
ship has historicallyenjoyed,
althoughnot necessarilyin the
sameform.
For now, though, real estate
agents and developers do not
see the erosionof the mort-
gage deduction playing much
of a role.
Plainfield’s housing market
has been shapedby abrupt
changes over the past 30 years.
In 1990, a tornado leveled
parts of town, killingmore
than two dozenpeople and
forcing a huge rebuilding ef-
fort. At the turn of the millen-
nium,the townhad fewer
than 10,000 residents.It has
since quadrupled, withmore
growthon the way.
During the housing craze of
the mid-2000s, developers lev-
eled cornfields and sod farms
to make way for cul-de-sacs.
Whenthe crisis hit, activity in
many of the new subdivisions
froze,said Ellen Williams,a
real estate agent with Coldwell
Banker in Plainfield who has
soldhomesin the areafor
nearly two decades. Only in
the past few yearshas con-
struction restarted in earnest.
Williams helped the For-
sythesbuy theirhomeseveral
yearsago, whenthe housing
crash still weighed on the mar-
ket and the couplewas under-
water on a townhousethat
had become too smallfor their
growingfamily. They rent out
the townhousenow, which
means that they still itemize
theirdeductions,includingfor
mortgage interest.
They saidthe deduction
was not a factor in the sale of
theirhomethis summeror in
theirpurchaseof a new one.
Williamssaid that has been
the case across the market. “I
don’t knowthat it’s beena
huge enough change yet,” she
said.“Peopleworry aboutIlli-
nois taxes more.”
In the Forsythes’ZIP code,
housingpricesare up 2 per-
cent fromthe last year, accord-
ing to data from the online
real estate brokerage Redfin.
Homes are selling quickly,
Williams said, as she gave a
quicktour of a recently listed
four-bedroomhousebacking
up to a pondin a nearby com-
munity. The hardwood floors
were well-kept, the kitchen
hardwaredated to the mid-
1990 s, and the homewas list-
ed for $267,000.
“There’s not a lot available
in this subdivision,” Williams
said,“so I anticipate it selling
quickly.”Mortgage deduction fading away quietly
ALYSSA SCHUKAR/NEW YORK TIMES
KylieandPaul Forsytheof Plainfield,Ill,say themortgage
deductionwasnota factorin theirrealestate decisions.