Category: Politics

Inside the Tax Shelter Mess

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Some very useful questions and answers from Business Week:

Are the deals illegal?
The IRS says so, but the courts have not yet ruled on the matter. The IRS has a mixed record in shuttering such transactions. Under what is known as the economic-substance test, the IRS has claimed that shelter deals done solely to reduce taxes are improper. But federal courts have sometimes ruled that such transactions are O.K., even if they carry no economic risk or opportunity for reward beyond their tax savings.

Shadid: Night Draws Near: Iraq’s People in the Shadow of America’s War

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The Economist reviews UW Madison grad and Pulitzer Prize winner Anthony Shadid’s (“who speaks Arabic like a native and writes English like an angel”) new book: Night Draws Near: Iraq’s People in the Shadow of America’s War

Much more than these bold facts, however, the average western newspaper reader will not know. It is not easy to understand fully what is going on; still less so to make any accurate predictions about how it will end. Targeted by head-chopping Muslim fanatics, most foreign journalists do not leave the generous, if inevitably jaundiced, embrace of American and British troops. And even those who do must rely heavily on official sources—mostly Americans who are out of touch with the complex and changing world outside their fortress compounds, and who, like their government, have tended also to invent good news where there is none.
Thank goodness, then, for those reporters, both western and Iraqi, who are prepared to take risks in search of a more nuanced reality, among them Anthony Shadid, a correspondent for the Washington Post, whose words begin this article. Mr Shadid, an American of Lebanese descent, who speaks Arabic like a native and writes English like an angel, has put his best reporting into this book. Even-handed and keenly observed, containing just enough (and no more) of the author to suggest a decent man worthy of our trust, it is written for the inexpert but has fresh material for scholars. Mr Shadid calls his work story-telling rather than serious criticism, and so it is. But stories this insightful—of dead Iraqi insurgents and their motivations; of a 14-year-old Iraqi Anne Frank, with extracts from her wartime diary—are more than journalism; they are valuable chronicles.

More on Shadid.

States Expand Push for Internet Taxes

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In yet another example of our confused tax system:

Going online to buy the latest bestseller or those photos from summer vacation may be tax free for most people today, but it won’t last forever. Come this fall, 13 states will start encouraging – though not demanding – that online businesses collect sales taxes just as Main Street stores are required to do, and more states are considering joining the effort

Lind: Swiss Model of Defense

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William S. Lind publishes some interesting thinking on the next model of US Defense Forces:

Two readers, Marion and Herbert, asked whether the Swiss militia model might be relevant. The answer is clearly yes. Switzerland’s defense has been based on a militia for a very long time, and it has enabled Switzerland to preserve its neutrality, maintain its liberties and decentralized political system (real power lies at the cantonal, not the federal level of government) and keep its defense expenditures down. The Swiss militia is an ideal basis for defending Switzerland from 4GW. In fact, Switzerland already has an arrangement other countries will need to move to in a 4GW world: the regular armed services support the militia, instead of the other way around.

More on the Tax System Mess: KPMG Indictments

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Quite a bit of news Monday on the ongoing US Government Tax Shelter Investigations:

  • TaxProf links to statements, resolutions and indictments.
  • Jonathan D. Glater discusses the Southern District of New York’s Indictments and notes that:

    As part of its agreement with the government, KPMG issued a strongly worded acknowledgment of wrongdoing, which can be used by prosecutors in their criminal case against the individual partners, as well as against the firm in the event it violates the terms of the deferred- prosecution agreement. Lawyers for the former partners criticized the firm’s statement as meaningless.
    “The government held a gun to KPMG’s head and said, ‘Say what we want or we will put you out of business,” said Robert H. Hotz Jr., a lawyer at Akin Gump Strauss Hauer & Feld who is representing Mr. Lanning. “KPMG’s statements in court were the product of extreme duress and are not worth the paper they are printed on.”
    So far, no court has ruled that the shelter transactions themselves were improper – a fact that lawyers for the accused former KPMG partners were quick to emphasize.

  • Carrie Johnson on the Indictments
  • Attorney General Alberto Gonzales’ statement
  • Michigan’s Senator Carl Levin commented:

    Senator Carl Levin of Michigan, the senior Democrat on that committee, said in a statement that KPMG’s agreement and the indictments “send a powerful message to the promoters, aiders and abettors of abusive tax shelters that they can no longer expect to be let off the hook.”

    I find Levin’s statement somewhat ironic, given the recent evidently unintended huge SUV tax subsidies that provided a significant benefit to Michigan manufacturers at the cost of national fuel efficiency and lost tax income.

Ironically, the Supreme Court overturned the US Department of Justice’s indictment of Andersen, which cost thousands of people their jobs:

While hearing arguments in Andersen’s appeal, Justice Antonin Scalia at one point described the government’s theory of the case as “weird,” according to The New York Times.
What’s more, the justices “were so clearly sympathetic” to the former Big Five accounting firm, that the only question remaining at the end of the session was how quickly the Court would overturn the conviction, the paper added.
Of course, even if the conviction is overturned, it would not be much help to the thousands of former employees who lost their jobs and the former partners who lost their equity.

Real tax reform is long overdue. Will we see it from our politicians? Unlikely, when both Feingold and Kohl are supporting bills like this very large, multinational corporation tax giveaway.

I’ve known Bob Pfaff, indicted today, for 20 years and have always found him to be a great friend and honorable man. I’ve posted a few items on this previously here. The recent Kelo Case is also worth watching in this context.

Identity Thief Steals House

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Plastic:

James Cook left on a business trip to Florida, and his wife Paula went to Oklahoma to care for her sick mother. When the two returned to Frisco, Texas, several days later, their keys didn’t work. The locks on the house had been changed.

They spent their first night back sleeping in a walk-in closet, with a steel pipe ready to cold-cock any intruders. The next day, they met the man who thought he owned their house, because he had put a US$12,000 down payment to someone named Carlos Ramirez. The Cooks went to the Denton County Courthouse and checked their title. Someone had forged Paula Cook’s maiden name, Paula Smart, and transferred the deed to Carlos Ramirez. Paula’s identity was not only stolen, but the thief also stole her house. Even the police said they’ve never seen a case like this one, but suspect the criminal was able to steal the identity and the house with just Mrs. Cook’s Social Security number, driver’s license number and a copy of her signature.

Via Bruce Schneier who points out that the National ID card (supported by our good Senators Feingold & Kohl) won’t solve this problem:

This is a perfect example of the sort of fraud issue that a national ID card won’t solve. The problem is not that identity credentials are too easy to forge. The problem is that the criminal needed nothing more than “Mrs. Cook’s Social Security number, driver’s license number and a copy of her signature.” And the solution isn’t a harder-to-forge card; the solution is to make the procedure for transferring real-estate ownership more onerous. If the Denton County Courthouse had better transaction authentication procedures, the particulars of identity authentication — a national ID, a state driver’s license, biometrics, or whatever — wouldn’t matter.
If we are ever going to solve identity theft, we need to think about it properly. The problem isn’t misused identity information; the problem is fraudulent transactions.

Small Town USA may be an alternative to Offshore Outsourcing

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ABC News:

The rural town of Sebeka, population 710, is not exactly Silicon Valley. It’s hardly the place computer programmer Dave La Reau expected to find employment.

La Reau, who had been job hunting for years, answered a help wanted ad from CrossUSA — one of a half dozen companies actively recruiting workers to small towns in at least eight states.

He traded his suburban home for a 7-acre farm at a fraction of the price. But La Reau is making half of what he earned in Chicago — before outsourcing put his small company out of business.

“I’m hooked up to the computer in Baltimore,” La Reau said while working. “I’ve got the same screen they have.”

All the more reason for Madison to get serious about true broadband service. We’re behind the curve… Slashdot discussion.

Senator Herb Kohl’s Re-Election Website Debut

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We can hope for competition in the 2006 Senate race. Kohl has cast a number of anti-Wisconsin votes recently. Ideally, his opponent(s) will ask some questions. The usually reliable (for Herb Kohl) Capital Times recently criticized his support of the latest energy bill disaster. Joel McNally earlier asked why the Wisconsin Press gives Kohl a pass?

My own view is that after three terms, it is time for the good Senator to move on. He’s clearly become part of the club, with all of the trappings and required votes.

My favorite Kohl vote? “Present” on a large corporation tax giveaway. Why can’t the rest of us have a 5% tax rate?

www.herbkohl.com. WisPolitics announcement (PDF).

Gladwell on our Healthcare System

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Malcolm Gladwell:

One of the great mysteries of political life i the United States is why Americans are s devoted to their health-care system. Six times i the past century—during the First World War during the Depression, during the Truman an Johnson Administrations, in the Senate in th nineteen-seventies, and during the Clinton years—efforts have been made to introduce som kind of universal health insurance, and eac time the efforts have been rejected. Instead, th United States has opted for a makeshift syste of increasing complexity and dysfunction Americans spend $5,267 per capita on healt care every year, almost two and half times th industrialized world’s median of $2,193; th extra spending comes to hundreds of billions o dollars a year.

Tyler Cowen offers a number of counterpoints, links really, to Gladwell’s words.