June 21, 2011

US doctors braced for deep cuts in spending

Matt Kennard:

Doctors treating the poor in the US are braced for significant reductions to their services amid increased pressure from both the Obama administration and Republicans for deep cuts in health spending.

Twenty-nine Republican governors have called for greater flexibility in how states administer Medicaid programmes for the poor, a move which coincides with the Obama administration's withdrawal of stimulus funds used to pay for treatment.

Nearly 49m people in the US, or one in six Americans, were covered by Medicaid in 2009. The figure is thought to be higher today.

The federal government increased its subsidies to the states under the stimulus programme, spending $2.68 for every dollar a state spent on Medicaid, nearly twice as much as before the stimulus.

Posted by jez at 9:20 PM

June 4, 2011

The Dilemma

Ed Wallace:

If there is one most frightening thing that war always exposes, even if one is on the winning side, it's weakness in the supply logistics. While most never consider it, official policy often changes during a war because supplies that are critical to the war effort seem in danger of being disrupted. Such jeopardy, moreover, forces the accountants, economists and politicians waging the conflict to start thinking about how the world will be changed once the fighting has ended.

Few today appreciate the fact that our foreign policy, particularly as it is tied to the Middle East, came about because of just such concerns in the first years of the Second World War. As one might expect, that official policy was based on real fears that America would one day run out of oil.

"The European War"
It was the summer of 1941 and the State Department had requested that the White House include Saudi Arabia in our Lend Lease program. It wasn't because the Saudis were going to become a direct ally against the European Axis Powers, but because we were about to embargo U.S. oil shipments to Japan. Many believed - correctly, as it turned out - that this would probably lead to hostilities with Japan that would draw us into the war.

Standard Oil of California, which had been drilling for oil in Bahrain for over a decade, now had oil concessions granted by King ibn Saudi. The first six wells Standard drilled into the Arabian desert were nothing to write home about, but when Well No. 7 came in on March 4, 1938, the engineers and wildcatters all knew that Saudi Arabia was going to be an oil bonanza.

Yet on July 18, 1941, Roosevelt refused the request for Lend Lease for Saudi Arabia. He saw no immediate benefit to diverting U.S. dollars overseas simply because Standard had oil concessions there. In any case, the outbreak of the European War in 1939 had reduced oil production in the Kingdom to an insignificant volume -- a trickle, considering that American oil amounted to 60 percent of the world's crude at the time. Instead Roosevelt asked Federal Loan Administrator Jesse Jones to look into the possibility of having England deal with the Saudi King's pressing needs.

Posted by jez at 8:04 PM

June 3, 2011

Stupid IT Tricks: Medical Records, or Why a Federal Subsidy Makes No Sense (I Agree)


A reader asked me to write tonight about the Health Information Technology for Economic and Clinical Health Act, which is about as far from something I would like to write about as I can imagine, but this is a full service blog so what the heck. The idea behind the law is laudable -- standardized and accessible electronic health records to allow any doctor to know what they need to know in order to treat you. There's even money to pay for it -- $30 billion from the 2009 economic stimulus that you'd think would have been spent back in 2009, right? Silly us. Now here's the problem: we're going to go through that $30 billion and end up with nothing useful. There has to be a better way. And I'm going to tell you what it is.
But first a word from my reader:

Posted by jez at 9:31 AM

May 21, 2011

Investing, Risk, Politics & Taxes: Global Central Bank Leverage

Source: Grant's Interest Rate Observer, 5/20/2011 edition. Worth considering for financial & risk planning.

Related: Britannica: Central Banks and currency.

Basell III details: Clusty.com and Blekko.

Posted by jez at 7:31 PM

April 22, 2011

Oil: We're Being Had Again

Ed Wallace:

No matter how many of his Fed presidents claim they are not to blame for the high price of oil, the real problem starts with Ben Bernanke. The fact is that when you flood the market with far too much liquidity and at virtually no interest, funny things happen in commodities and equities. It was true in the 1920s, it was true in the last decade, and it's still true today.

Richard Fisher, president of the Dallas Federal Reserve, spoke in Germany in late March. Reuters quoted him as saying, "We are seeing speculative activity that may be exacerbating price rises in commodities such as oil." He added that he was seeing the signs of the same speculative trading that fueled the first financial meltdown reappearing.
Here Fisher is in good company. Kansas City Fed President Thomas Hoening, who has been a vocal critic of the current Fed policy of zero interest and high liquidity, has suggested that markets don't function correctly under those circumstances. And David Stockman, Ronald Reagan's Budget Director, recently wrote a scathing article for MarketWatch, titled "Federal Reserve's Path of Destruction," in which he criticizes current Fed policy even more pointedly. Stockman wrote, "This destruction is, namely, the exploitation of middle class savers; the current severe food and energy squeeze on lower income households ... and the next round of bursting bubbles building up among the risk asset classes."

Posted by jez at 9:53 PM

April 18, 2011

The 30-Cent Tax Premium: Tax compliance employs more workers than Wal-Mart, UPS, McDonald's, IBM and Citigroup combined.

There is a lot more to taxes than simply paying the bill. Taxpayers must spend significantly more than $1 in order to provide $1 of income-tax revenue to the federal government.

To start with, individuals and businesses must pay the government the $1 in revenue plus the costs of their own time spent filing and complying with the tax code; plus the tax collection costs of the IRS; plus the tax compliance outlays that individuals and businesses pay to help them file their taxes.

In a study published last week by the Laffer Center, my colleagues Wayne Winegarden, John Childs and I estimate that these costs alone are a staggering $431 billion annually. This is a cost markup of 30 cents on every dollar paid in taxes. And this is not even a complete accounting of the costs of tax complexity.

Like taxes themselves, tax-compliance costs change people's behavior. Taxpayers, whether individuals or businesses, respond to taxes and tax-compliance costs by changing the composition of their income, the location of their income, the timing of their income, and the volume of their income. So long as the cost of changing one's income is lower than the taxes saved, the taxpayer will engage in these types of tax-avoidance activities.

Posted by jez at 4:10 AM

April 15, 2011

The Real Housewives of Wall Street: Why is the Federal Reserve forking over $220 million in bailout money to the wives of two Morgan Stanley bigwigs?

America has two national budgets, one official, one unofficial. The official budget is public record and hotly debated: Money comes in as taxes and goes out as jet fighters, DEA agents, wheat subsidies and Medicare, plus pensions and bennies for that great untamed socialist menace called a unionized public-sector workforce that Republicans are always complaining about. According to popular legend, we're broke and in so much debt that 40 years from now our granddaughters will still be hooking on weekends to pay the medical bills of this year's retirees from the IRS, the SEC and the Department of Energy.

Why Isn't Wall Street in Jail?

Most Americans know about that budget. What they don't know is that there is another budget of roughly equal heft, traditionally maintained in complete secrecy. After the financial crash of 2008, it grew to monstrous dimensions, as the government attempted to unfreeze the credit markets by handing out trillions to banks and hedge funds. And thanks to a whole galaxy of obscure, acronym-laden bailout programs, it eventually rivaled the "official" budget in size -- a huge roaring river of cash flowing out of the Federal Reserve to destinations neither chosen by the president nor reviewed by Congress, but instead handed out by fiat by unelected Fed officials using a seemingly nonsensical and apparently unknowable methodology.

Now, following an act of Congress that has forced the Fed to open its books from the bailout era, this unofficial budget is for the first time becoming at least partially a matter of public record. Staffers in the Senate and the House, whose queries about Fed spending have been rebuffed for nearly a century, are now poring over 21,000 transactions and discovering a host of outrages and lunacies in the "other" budget. It is as though someone sat down and made a list of every individual on earth who actually did not need emergency financial assistance from the United States government, and then handed them the keys to the public treasure. The Fed sent billions in bailout aid to banks in places like Mexico, Bahrain and Bavaria, billions more to a spate of Japanese car companies, more than $2 trillion in loans each to Citigroup and Morgan Stanley, and billions more to a string of lesser millionaires and billionaires with Cayman Islands addresses. "Our jaws are literally dropping as we're reading this," says Warren Gunnels, an aide to Sen. Bernie Sanders of Vermont. "Every one of these transactions is outrageous."

Posted by jez at 9:35 AM

April 13, 2011

On The US Budget Deficit & Debt

Obama adds fuel to confusion but no resolution, Mohamed El-Erian:

A friend and former colleague of mine, Paul McCulley, once made the distinction between those who were "responsibly irresponsible" and those who were "irresponsibly irresponsible". The two notions explain why more unsatisfactory last-minute policy compromises are now likely, despite President Barack Obama's impressive speech on how America must move forward to tackle its debt ceiling, and its wider problem of budgetary reform.

Mr Obama proposed cutting $4,000bn from deficits over the next 12 years, reducing government outlays to Medicare and Medicaid healthcare programmes, and even considered tax increases. His speech therefore provides an important opportunity to advance this debate, but a much broader context is still needed if it is to succeed in overcoming both domestic political stalemates and growing concerns abroad.

Back in the final quarter of 2008 and the beginning of 2009, it was right for the US to behave responsibly irresponsible. At that moment every available part of the public sector balance sheet, from the Federal Reserve's to the Federal budget, had to be used to avoid an economic depression. And it worked.

The radical right and the US state by Martin Wolf:
What does the rise of libertarianism portend for the future of the US? This is not a question of interest to Americans alone. It matters almost as much to the rest of the world. A part of the answer came with the publication of a fiscal plan, entitled "Path to Prosperity", by Paul Ryan, Republican chairman of the house budget committee. The conclusion I draw is the opposite of its author's: a higher tax burden is coming. But that leads to another conclusion: much conflict lies ahead, with huge implications for politics, federal finance and the US ability to play its historic role.

An analysis of the Ryan plan by the Congressional Budget Office makes the point. Its "extended-baseline scenario" assumes that current law remains unchanged. Under that assumption, revenue would rise from 15 per cent of gross domestic product to 21 per cent in 2022 and on to 26 per cent in 2050. Spending would rise substantially, too, from 23¾ per cent of GDP in 2010 to 30¼ per cent in 2050. As a result, the deficit would fall from today's levels while debt held by the public would rise to 90 per cent of GDP in 2050.

As the CBO makes plain, this is an optimistic scenario. Current law includes, most notably, the assumption that the 2001 and 2003 tax cuts will expire, as legislated. Together with the impact of fiscal drag from economic growth and inflation, this generates the rising share of revenue in GDP. On the side of spending, the share of social security in GDP rises modestly, from 4¾ per cent of GDP in 2010 to 6 per cent in 2050. The share of all other spending (including defence), apart from that on health, is assumed to fall to close to its long-run average of 8 per cent of GDP. But health spending explodes, from 5½ per cent of GDP in 2010 to 12¼ in 2050.

Posted by jez at 7:49 PM

April 8, 2011

You Call This Global Leadership?

Suddent Debt:

The US government is about to be shut down in the next 24 hours over the federal budget impasse. Here are the only numbers you need:

Federal spending is approx. $3.7 trillion, the deficit this year alone is projected at $1.4 trillion - and the politicians are squabbling over spending cuts amounting to $33-40 billion; that's 1% of spending and 2.9% of the deficit. You gotta be joking, right?


Posted by jez at 9:29 AM

Reforming the Banks

Michael Pettis:

just got back from a very interesting but hectic week in New York and Washington, followed by two days at a conference in Hangzhou. During my meetings I noticed that much of the discussion, and many of the questions I was asked by both government officials and investors, focused on debt levels and reforms in the Chinese financial system. I have written a lot about rising debt in China and am glad that analysts and policymakers seem to be spending a lot more time thinking about balance sheet issues. Every case of rapid, investment-driven growth in the past century, as far as I can make out, has at some point reached a stage in which debt levels rose to unsustainable levels and precipitated either a debt crisis or a long grinding adjustment period.

The reason debt levels always seem to grow unsustainably, I suspect, is that in the initial stages of the growth model much if not all of the investment is economically viable as it pours into building necessary infrastructure whose profits and externalities exceed the cost of the investment. The result is real growth. At some point, however, the combination of subsidies, distorted incentives (in which investment benefits accrue to those making the investment while costs are shared broadly through the banking system), and very cheap financing costs leads inexorably to wasted investment and debt rising faster than asset values. This is when the debt burden begins to rise in an unsustainable way.

Posted by jez at 9:27 AM

March 28, 2011

Consumers have a beef with Fed over inflation

Food riots, deposed Middle Eastern despots and now this? Last week, a Texas man brandishing an assault rifle was involved in a three-hour shoot-out with police and had to be subdued with tear gas after ordering seven Beefy Crunch Burritos at a Taco Bell drive-through and being informed that their price had risen from 99 cents to $1.49.

Late night comedians and serious pundits alike had a field day with the story, opining on issues like fast-food culture, obesity (the seven burritos contain 3,600 calories, double the recommended daily intake) and gun control.

With his petty gripe, the gunman, Ricardo Jones, is no Muhammad al Bouazizi, the self-immolating Tunisian fruit seller who inspired millions across the region to throw off the yoke of tyranny, but 50 per cent is 50 per cent in San'a or San Antonio. Food inflation is a global phenomenon.

Posted by jez at 10:41 AM

March 24, 2011

G.E.'s Strategies Let It Avoid Taxes Altogether

David Kocieniewski:

Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.

That may be hard to fathom for the millions of American business owners and households now preparing their own returns, but low taxes are nothing new for G.E. The company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years, resulting in a far lower rate than at most multinational companies.

Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. G.E.'s giant tax department, led by a bespectacled, bow-tied former Treasury official named John Samuels, is often referred to as the world's best tax law firm. Indeed, the company's slogan "Imagination at Work" fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.

Posted by jez at 10:03 PM

March 13, 2011

Bond king's Lear-like Treasuries renunciation

Michael Mackenzie

At the end of June, the Federal Reserve will no longer be the biggest buyer of US Treasuries. But one notable investor has already said Hasta la vista.

Pimco's flagship $237bn total return fund, managed by Bill Gross, whose status as bond king has been synonymous with the 25-year bull market in Treasury debt, pulled the plug on holding US government related securities in February, it emerged this week. Last month his fund eschewed holding US government related debt, having had 12 per cent of the fund's portfolio in Treasuries in January.

Given the record of Mr Gross, one cannot ignore the decision. Since the total return fund began in 1987, it has generated an average annual return of 8.42 per cent versus the 7.27 per cent gain in its benchmark, the Barclays Capital US Aggregate index.

The move is a bold one. Given that the Barclays Aggregate has a Treasury weighting of 40 per cent, the decision by Mr Gross to exclude government holdings means he is seriously underweight his benchmark, or "bogey".

Posted by jez at 9:01 AM

February 28, 2011

Dollar's haven status hangs in the balance

Peter Garnham

Long seen as a place of safety in times of turmoil, the dollar may be losing its haven appeal.

Soaring oil prices, driven by upheaval in the Middle East, falling equities and elevated volatility have all made investors uneasy. A flight to the dollar usually accompanies increased risk aversion.

This time, though, while the traditional havens of the Swiss franc and the yen have benefited, the US currency has suffered.

"It seems the dollar's haven status has vanished," says Steve Barrow at Standard Bank. "And, even for long-term dollar bears like ourselves, this is a worry."

The main reason for the dollar's underperformance, say analysts, is concern about the effect of rising oil prices.

The dollar has dropped to a record low against the Swiss franc and fallen 2 per cent to Y81.82 against the yen in the past two weeks, just shy of the all-time low of Y79.7 it hit against the Japanese currency in 1995. It has also lost ground against the euro and sterling.

The fear is that higher oil prices will lead to a transfer of funds from oil-importing countries to the sovereign wealth funds of oil-exporting nations.

Posted by jez at 9:40 PM

February 21, 2011

Why Isn't Wall Street in Jail?

Matt Tabi:

Over drinks at a bar on a dreary, snowy night in Washington this past month, a former Senate investigator laughed as he polished off his beer.

"Everything's _______ up, and nobody goes to jail," he said. "That's your whole story right there. Hell, you don't even have to write the rest of it. Just write that."

I put down my notebook. "Just that?"

"That's right," he said, signaling to the waitress for the check. "Everything's ______ up, and nobody goes to jail. You can end the piece right there."

Nobody goes to jail. This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world's wealth -- and nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant and pathological celebrity con artist, whose victims happened to be other rich and famous people.

Posted by jez at 9:27 PM

February 20, 2011

Saturday Afternoon Ice Fishing Panorama: Madison

Panoramas and photos from Saturday's Pro-union & Tea Party rallies at the Capitol can be seen here.

Posted by jez at 8:21 PM

February 12, 2011

The "National Insecurity" of Imported Oil

Ed Wallace:

Getting America off imported oil is always urged in the context of national security. No matter how often that refrain is repeated, however, it always points toward how much imported oil American motorists use.

It's never about the amount of oil imported into the United States, refined into numerous products and shipped back out of the country. Nor are people arguing that we need to quit using imported oil for manufacturing concerns - like making fertilizers to grow corn, to make into ethanol to put into our gas, so we can quit importing oil. (That's the most comical circular argument currently making the rounds.) But we also use oil for things like asphalt for our roads, and in the plastics industry, and even the most ardent "get America off imported oil" advocates don't talk about constraining those industries.
In reality, the country from which we import the most oil is Canada. And I'm fairly certain that we aren't too worried about the national security aspect of bringing that oil into America, now or in the future. Yet we're still hearing the constant mantra that this is a national security issue, and that's what troubles me most. And, if you own one of the nation's 240 million vehicles, the "national insecurity of imported oil" refrain should trouble you, too.

Posted by jez at 4:18 PM

January 30, 2011

GOP pushing for ISPs to record user data

Declan McCullagh:

he House Republicans' first major technology initiative is about to be unveiled: a push to force Internet companies to keep track of what their users are doing.

A House panel chaired by Rep. F. James Sensenbrenner of Wisconsin is scheduled to hold a hearing tomorrow morning to discuss forcing Internet providers, and perhaps Web companies as well, to store records of their users' activities for later review by police.

One focus will be on reviving a dormant proposal for data retention that would require companies to store Internet Protocol (IP) addresses for two years, CNET has learned.

Tomorrow's data retention hearing is juxtaposed against the recent trend to protect Internet users' privacy by storing less data. Last month, the Federal Trade Commission called for "limited retention" of user data on privacy grounds, and in the last 24 hours, both Mozilla and Google have announced do-not-track technology.

Amazing. I thought the economy was job #1 for the Republicans.

Posted by jez at 8:18 PM

January 13, 2011

Goldman's pieties go too far

Sebastian Mallaby:

For sheer, toe-curling embarrassment, it's hard to choose between last year's populist attack on Goldman Sachs by the US Securities and Exchange Commission and this week's cringe-worthy response from the investment bank.

Last April, when the SEC filed suit against Goldman, the bank could have fought back. The suit complained it had sold fancy mortgage securities without disclosing that a hedge-fund manager, John Paulson, was betting that those same securities would blow up. To which Goldman could have answered: so what? Any time an investment bank sells any derivative, it should be obvious to the buyer that somebody somewhere must be taking the other side. The SEC's assertion that Goldman had misled customers about the nature of Paulson's involvement was potentially more damaging, except that the SEC produced no evidence to make this charge stick.

It was surely not beyond the wit of Goldman's publicists to communicate these simple points. Banks cannot be held responsible for the profits or losses of their clients, since middle-men necessarily have customers who lose as others win. But after one vain attempt to explain market making at a belligerent Senate hearing, Goldman's boss, Lloyd Blankfein, gave up. He settled with the SEC, even though most lawyers think he could have beaten the charges. Then he ordered up an elaborate cleansing ritual to relaunch the firm of Goldman Sachs.

Several months later, the fruits of Goldman's sun salutations are out. A 67-page manifesto of self-purification proclaims that "our clients' interests always come first," and that "if we serve our clients, our own success will follow." But these pieties misrepresent the true nature of an investment bank just as surely as the SEC did.

Posted by jez at 8:01 AM

Study: We've Got Plenty of Land for Biofuels

Chuck Squatriglia:

One of the great arguments against biofuels is the wisdom, if not the morality, of using land to produce fuel instead of food. But research out of Illinois suggests it doesn't have to be an either-or proposition.

Researchers at University of Illinois Urbana-Champaign have found that biofuel crops cultivated on land unsuitable for food crops could produce as much as half the world's current fuel consumption without adverse impact on food crops or pastureland.

The study, published in Environmental Science and Technology, identifies land around the world that is unsuitable for food production but could be used to raise biofuel feedstocks like switchgrass.

According to the researchers, many studies examining biofuel crop viability focus on yield -- how productive the crop can be. They wanted to examine land availability to determine whether it is possible to produce sufficient biofuel to meet demand without sacrificing food production.

Posted by jez at 7:53 AM

December 27, 2010

Lessons in Scroogenomics

Martin Wolf:

Ebenezer Scrooge came into the room slowly. He was, to my surprise, much as Charles Dickens had described him. How, I wondered, could he have changed so little over 170 years? It must be the benefit of being a literary character, I decided.

"Good morning, Mr Scrooge," I remarked politely. "I have come to interview you about your best-selling new book Scroogenomics - or How to Do Well out of Doing Good."

Scrooge smiled. "Yes," he responded, "I had to show that Joel Waldfogel's Scroogenomics, cleverly reviewed by your John Kay, merely portrayed my unenlightened self. But Dickens, albeit a talented writer, was just a sentimental fool. He never understood what my change over that Christmas was about. I learnt, above all, to appear benevolent. That, with my business acumen, turned Marley & Scrooge into a global enterprise. Fortunately, that philanthropy has become less painful, since my charities are tax deductible. What can be less painful for a miser than state-subsidised charity?"

I was shocked by his candour. He must have drunk too much at the book party earlier. After the abstinence described by Dickens, one drink would have a big effect.

Posted by jez at 4:06 PM

December 23, 2010

On Net Nuetrality

Steve Wozniak:

To whom it may concern:

I have always loved humor and laughter. As a young engineer I got an impulse to start a Dial-a-Joke in the San Jose/San Francisco area. I was aware of such humor services in other countries, such as Australia. This idea came from my belief in laughter. I could scarcely believe that I was the first person to create such a simple service in my region. Why was I the first? This was 1972 and it was illegal in the U.S. to use your own telephone. It was illegal in the U.S. to use your own answering machine. Hence it also virtually impossible to buy or own such devices. We had a monopoly phone system in our country then.

The major expense for a young engineer is the rent of an apartment. The only answering machine I could legally use, by leasing (not purchasing) it from our phone company, the Codaphone 700, was designed for businesses like theaters. It was out of the price range of creative individuals wanting to try something new like dial-a-joke. This machine leased for more than a typical car payment each month. Despite my great passion and success with Dial-a-Joke, I could not afford it and eventually had to stop after a couple of years. By then, a San Francisco radio station had also started such a service. I believe that my Dial-a-Joke was the most called single line (no extensions) number in the country at that time due to the shortness of my jokes and the high popularity of the service.

Posted by jez at 2:46 PM

2011: And Still No Energy Policy

Ed Wallace:

"First generation [corn] ethanol I think was a mistake. The energy conversion ratios are at best very small."

- Al Gore, speaking at a Green Energy Conference on November 22, 2010

"Ethanol is not an ideal transportation fuel. The future of transportation fuels shouldn't involve ethanol."

- Secretary of Energy Steven Chu, November 29, 2010

No one knows what brought on the blast of political honesty in the last eight days of November. Having been a rabid ethanol booster for most of his political career, there was former Vice President Al Gore reversing course and apologizing for supporting ethanol. Of course Gore's reason for taking that position was perfectly understandable -- for a politician. As he told the Athens energy conference attendees, "One of the reasons I made that mistake is that I paid particular attention to the farmers in my home state of Tennessee, and I had a certain fondness for the farmers of Iowa because I was about to run for President."

Translated from politics-speak into English, pandering to farmers gets votes. But if your claimed position is to plan some sort of energy policy for everyone else, then getting farmers' votes shouldn't determine what's the right thing to do for the nation's fuel supplies.

Posted by jez at 5:55 AM

December 2, 2010

Wall Street owes its survival to the Fed

Sebastian Mallaby

For a brief, surreal moment, the prevailing narrative in Washington was that the 2008-09 bail-outs were not really so bad. In September, Treasury secretary Tim Geithner called the government's troubled asset relief programme "one of the most effective emergency programmes in financial history", claiming that the final cost to taxpayers would be less than $50bn.

Steven Rattner, the Wall Street banker who oversaw the Obama administration's rescue of the auto sector, wrote in the Financial Times in October that "without exaggeration, this legislation [establishing Tarp] did more to keep America's financial system - and therefore its economy - functioning than any passed since the 1930s".

But Wednesday's document dump from the Federal Reserve - a congressionally ordered "WikiLeak moment" - puts this bargain-bail-out patter in a new perspective. The post-Lehman rescues were far broader than Tarp, and far riskier for taxpayers, even if the alternative of a systemic meltdown would have been worse.

Posted by jez at 7:47 PM

December 1, 2010

Moral Hazard, Thy Price Is $3.3 Trillion

David Reilly & Rolfe Winkler

Sunshine doesn't hurt after all. Bank shares leapt Wednesday despite the Federal Reserve's detailed disclosure of who got $3.3 trillion of emergency lending during the crisis. That is hardly what investors might have envisaged, given dark warnings from the Fed that such disclosure could endanger financial institutions. The central bank released the data only because of a provision in the Dodd-Frank financial-overhaul bill.

True, it will take time for investors to comb through all the gory details of about 21,000 transactions by multiple emergency Fed lending facilities. And some details may leave firms with egg on their face: Goldman Sachs, which insisted it would have survived the crisis without government assistance, tapped one special Fed facility 84 times to borrow nearly $600 billion in overnight money. Morgan Stanley tapped the facilities more than 200 times.

Even if individual details of the programs aren't that surprising, the breadth of companies that accessed them is notable. The disclosure shows how far the Fed went in attempting to prop up just about every part of the financial markets, with users ranging from the biggest U.S. and international banks to small firms that peddled complex and often toxic securities, as well as industrial companies such as General Electric, Harley-Davidson and Verizon.

Posted by jez at 10:23 PM

In search of a lightning bolt of rational thought.

Peter M. De Lorenzo

In the midst of the biggest green car push in automotive history - what with Chevrolet touting its extended-range electric Volt as the greatest thing since sliced bread while crossing green swords with Nissan, which is shouting similar missives from the rooftops about its all-electric Leaf - it has become readily apparent that the vast majority of the American consumer public couldn't be bothered. As in they couldn't care less. That is unless someone - i.e., Washington - is throwing money at them to care.

Hybrid sales in this market are going to finish the year down again, which will mark three straight years of decline, and this includes the $4.00+ per gallon spike in the late spring-summer of 2008, when fuel economy hysteria took hold in the U.S. for four solid months. It seems that the Shiny Happy Green Sensibilities Act - or whatever you want to call the ongoing "shove-it-down-the-American-consumer-public's-throats-and-they-will-learn-to-lilke-it" mentality that pollutes the political brainiacs/stumblebums in Washington and Northern California - is going nowhere.

As a matter of fact our illustrious leaders in Washington used a considerable chunk of money from the 2009 economic stimulus package to buy up hybrids from various auto manufacturers to prop-up hybrid vehicle sales, couching it as a noble attempt at improving the overall fuel-efficiency of the government fleet, when in fact the real reason was to not only - hopefully - jump-start American consumer thinking into accepting these vehicles as being mainstream choices, but to help the vehicle manufacturers who were battered and bullied to build the vehicles in the first place to keep the production lines going.

But alas, this is the pattern we find ourselves in as a nation at the moment. A minority of the citizenry in an absolute lather about climate change - aided and abetted by maliciously clueless politicos with an axe to grind and an agenda that has more to do with their personal ambitions than it does with such quaint ideas as "being good for the country" - dictating to the majority of the American public how it's going to be.

Posted by jez at 8:29 AM

November 23, 2010

Congressional Members' Personal Wealth Expands Despite Sour National Economy


Despite a stubbornly sour national economy congressional members' personal wealth collectively increased by more than 16 percent between 2008 and 2009, according to a new study by the Center for Responsive Politics of federal financial disclosures released earlier this year.

And while some members' financial portfolios lost value, no need to bemoan most lawmakers' financial lot: Nearly half of them -- 261 -- are millionaires, a slight increase from the previous year, the Center's study finds. That compares to about 1 percent of Americans who lay claim to the same lofty fiscal status.

And of these congressional millionaires, 55 have an average calculated wealth in 2009 of $10 million or more, with eight in the $100 million-plus range.

Posted by jez at 10:01 AM

November 17, 2010

US muni bonds see biggest drop since 2008

The Financial Times

Municipal bonds had their biggest one-day sell-off yesterday since the height of the financial crisis, prompting some borrowers to delay financing plans.

The yields on triple A 10-year bonds rose 18 bps to 2.93 per cent, the largest one-day rise since October of 2008, according the MMD index, which is owned by Thomson Reuters.

Absolute yields, however, remain well below crisis-era levels.

The $2,800bn "muni" bond market where states and municipalities raise money has been under pressure over the past week amid a rise in the yields of benchmark US Treasury bonds, heavy bond sales and uncertainty about federal support for the market.

The market declines have made investors, who are mostly wealthy individuals benefiting from tax breaks on muni debt, nervous about an uptick in defaults. Munis historically have been a relatively safe place to invest, but budget deficits and underfunded public pensions have created widespread concern that local entities could struggle to pay their debts.

Posted by jez at 9:31 AM

November 7, 2010

Germany Criticizes Fed Move Finance Minister Says Policy 'Doesn't Add Up,' Sees U.S. Model in 'Deep Crisis'

Patrick McGroarty

German officials, concerned that Washington could be pushing the global economy into a downward spiral, have launched an unusually open critique of U.S. economic policy and vowed to make their frustration known at this week's Group of 20 summit.

Leading the attack is Finance Minister Wolfgang Schäuble, who said the U.S. Federal Reserve's decision last week to pump an additional $600 billion into government securities won't help the U.S. economy or its global partners.

The Fed's decisions are "undermining the credibility of U.S. financial policy," Mr. Schäuble said in an interview with Der Spiegel magazine published over the weekend, referring to the Fed's move, known as "quantitative easing" and designed to spur demand and keep interest rates low. "It doesn't add up when the Americans accuse the Chinese of currency manipulation and then, with the help of their central bank's printing presses, artificially lower the value of the dollar."

At an economics conference in Berlin Friday, Mr. Schäuble said the Fed's action shows U.S. policy makers are "at a loss about what to do."

Mr. Schäuble hit back at critics in the Der Spiegel interview. "Germany's exporting success is based on the increased competitiveness of our companies, not on some sort of currency sleight-of-hand. The American growth model, by comparison, is stuck in a deep crisis," he said. "The USA lived off credit for too long, inflated its financial sector massively and neglected its industrial base. There are many reasons for America's problems--German export surpluses aren't one of them."

Posted by jez at 9:22 PM

Wisconsin Evokes Democrats' Dilemma

Douglas Belkin & Neil King, Jr.

Last week's election rout did more than put Republicans in charge of the U.S. House of Representatives. It upended the electoral map that propelled President Barack Obama to the White House.

Mr. Obama bagged traditionally liberal Wisconsin and its ten electoral votes two years ago, part of a sweep that also included states that hadn't tilted Democratic for decades. That went into reverse Tuesday. The party suffered heavy losses in Ohio and Pennsylvania, two big states that had backed Mr. Obama in 2008, as independent voters swung to the right. Other presidential territory--Virginia, Indiana and North Carolina--swung back to the GOP.

The depth of the party's losses outside Washington, in state-level-contests, can be seen in this working-class city. The president won handily here in 2008 along with surrounding Brown County. Last week, Republicans carried all 18 races on the county's ballots, right down to the clerk of the court. The GOP took control of the governor's office, the state assembly and the state senate--the first time the state has reverted so abruptly to one side since 1938.

Posted by jez at 9:16 PM

November 4, 2010

Brazil ready to retaliate for US move in 'currency war'

John Paul Rathbone & Jonathan Wheatley

Brazil, the country that fired the gun on the so-called "currency wars", is girding itself for further battle.

Brazilian officials from the president down have slammed the Federal Reserve's decision to depress US interest rates by buying billions of dollars of government bonds, warning that it could lead to retaliatory measures.

"It's no use throwing dollars out of a helicopter," Guido Mantega, the finance minister, said on Thursday. "The only result is to devalue the dollar to achieve greater competitiveness on international markets."

At a joint press conference with president-elect Dilma Rousseff, outgoing president Luiz Inácio Lula da Silva said on Wednesday he would travel to the G20 summit in Seoul with Ms Rousseff, ready to take "all the necessary measures to not allow our currency to become overvalued" and to "fight for Brazil's interests". "They'll have to face two of us this time!" he said.

Posted by jez at 5:00 PM

October 25, 2010

The Subprime Debacle: Act 2, Part 2

John Mauldin
At the end of last week's letter on the whole mortgage foreclosure mess, I wrote:

"All those subprime and Alt-A mortgages written in the middle of the last decade? They were packaged and sold in securities. They have had huge losses. But those securities had representations and warranties about what was in them. And guess what, the investment banks may have stretched credibility about those warranties. There is the real probability that the investment banks that sold them are going to have to buy them back. We are talking the potential for multiple hundreds of billions of dollars in losses that will have to be eaten by the large investment banks. We will get into details, but it could create the potential for some banks to have real problems."

Real problems indeed. Seems the Fed, PIMCO, and others are suing Countrywide over this very topic. We will go into detail later in this week's letter, covering the massive fraud involved in the sale of mortgage-backed securities. Frankly, this is scandalous. It is almost too much to contemplate, but I will make an effort.
Posted by James Zellmer at 9:57 PM

October 13, 2010

Why America is going to win the global currency battle

Martin Wolf:
The US is going to win this war, one way or the other: it will either inflate the rest of the world or force their nominal exchange rates up against the dollar. Unfortunately, the impact will also be higgledy piggledy, with the less protected economies (such as Brazil or South Africa) forced to adjust and others, protected by exchange controls (such as China), able to manage the adjustment better.

It would be far better for everybody to seek a co-operative outcome. Maybe the leaders of the group of 20 will even be able to use their “mutual assessment process” to achieve just that. Their November summit in Seoul is the opportunity. Of the need there can be no doubt. Of the will, the doubts are many. In the worst of the crisis, leaders hung together. Now, the Fed is about to hang them all separately.
Moahmed El-Erian has more.
Posted by James Zellmer at 8:59 AM

October 7, 2010

Currency Wars

Alan Beattie:
If the world is on the brink of an out-and-out currency war, a variety of battalions has been out on manoeuvres in the past few weeks. The Bank of Japan, after six years off the battlefield, has launched a fusillade of intervention to hold down the yen in foreign exchange markets. Brazil used the guerrilla tactic of doubling taxes on capital inflows to stop the real surging. India and Thailand warned that they too might bring heavy ordnance into play.

The main combatants, the US and China, continued to exchange rhetorical salvos. Washington (and Brussels) identified undervalued currencies such as the renminbi as a prime cause of global macroeconomic imbalances. Beijing retorted that such aggression risked bringing mutual destruction upon the great economic powers.

On Monday Dominique Strauss-Kahn, managing director of the International Monetary Fund, voiced his concern. “There is clearly the idea beginning to circulate that currencies can be used as a policy weapon,” he said. “Translated into action, such an idea would represent a very serious risk to the global recovery.”
Posted by James Zellmer at 9:57 PM

September 28, 2010

Currencies clash in new age of beggar-my-neighbour

Martin Wolf
“We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness.” This complaint by Guido Mantega, Brazil’s finance minister, is entirely understandable. In an era of deficient demand, issuers of reserve currencies adopt monetary expansion and non-issuers respond with currency intervention. Those, like Brazil, who are not among the former and prefer not to copy the latter, find their currencies soaring. They fear the results.

This is not the first time for such currency conflicts. In September 1985, now 25 years ago, the governments of France, West Germany, Japan, the US and the UK met at the Plaza Hotel in New York and agreed to push for depreciation of the US dollar. Earlier still, in August 1971, the US president Richard Nixon imposed the “Nixon shock”, levying a 10 per cent import surcharge and ending dollar convertibility into gold. Both events reflected the US desire to depreciate the dollar. It has the same desire today. But this time is different: the focus of attention is not a compliant ally, such as Japan, but the world’s next superpower: China. When such elephants fight, bystanders are likely to be trampled.

Here there are three facts, relevant to today’s currency wars.
Posted by James Zellmer at 10:05 PM

September 9, 2010

US Tax Reform: How about this for a tax plan: cut most people’s taxes by half, eliminate the need to file returns, and provide the Treasury with a better way to reduce the deficit. Sound impossible? It’s not. Here’s how to get it done.

Keith Libbey & Evan Thomas:
Most Americans spend dozens, if not hundreds, of hours attempting, not always successfully, to do their tax returns. We spend almost $30 billion paying accountants to fill out the complicated forms, and by some estimates we devote $110 billion of our own labor just keeping track of all the necessary records and paperwork. Americans pay about 85 percent of the taxes they owe, better than in most countries, but the shortfall is still a drain on the Treasury (and the rich seem to find a way to avoid taxes legally). Is this costly, demoralizing struggle between the IRS and the rest of us really necessary?

The short answer is no. There is a way to relieve almost all Americans of the annual April 15 nightmare. What’s more, it’s a necessary first step toward a plan to cut the looming federal deficit. The time is right for thoroughgoing tax reform—a true clean slate—that will bring in more revenue while giving the public a greater sense of fairness. The reforms we propose will even allow most people to take home more pay than they do now.

The place to start is to cut almost everyone’s payroll and income taxes by half. Yes, you read that right. Cut most tax rates, which now run from 10 to 39 percent, by half. All individual taxes would be collected through company withholding taxes on compensation (salary, bonus, deferred payments, etc.) and investment income (dividends, interest, capital gains, rents) to individuals. The very rich—those making more than $2 million a year—would still pay a top tax rate of 30 percent on earned income. The rate on investment income would be 15 percent. The result: individuals would not have to file tax returns, most Americans would take home more pay than they do now, the tax base would be broadened, and the AMT—the alternative minimum tax, which sweeps up more taxpayers every year—would be eliminated.

Too good to be true? There’s no free lunch. The revenue lost to the government—roughly half of all personal federal taxes—has to come from someplace else. The best fix is to eliminate all deductions and exemptions for individual taxpayers—all those tax breaks that were intended to promote economic activity or serve worthy social goals but have ended up creating myriad unfair outcomes. It’s true that the wealthiest 1 percent currently pays about 18 percent of all taxes. Still, thanks to clever tax dodges, the top 400 income earners pay an average tax rate of 16.6 percent; megabillionaire Warren Buffett notes that his secretary pays a higher tax rate than he does.
Posted by James Zellmer at 8:58 AM

July 30, 2010

The GM $50,000,000,000 Taxpayer Bailout and The $41,000 Volt

Edward Niedermeyer:
By taking a loss on the first several years of Prius production, Toyota was able to hold its price steady, and then sell the gas-sippers in huge numbers when oil prices soared. Today a Prius costs roughly the same in inflation-adjusted dollars as those 1997 models did, and it has become the best-selling Toyota in the United States after the evergreen Camry and Corolla.

Instead of following Toyota’s model, G.M. decided to make the Volt more affordable by offering a $350-a-month lease over 36 months. But that offer allows only 12,000 miles per year, or about 33 miles per day. Assuming you charged your Volt every evening, giving you 40 miles of battery power, and wanted to keep below the mileage limit, you would rarely use its expensive range-extending gas engine. No wonder the Volt’s main competition, the Nissan Leaf, forgoes the additional combustion engine — and ends up costing $8,000 less as a result.

In the industry, some suspect that G.M. and the Obama administration decided against selling the Volt at a loss because they want the company to appear profitable before its long-awaited initial stock offering, which is likely to take place next month. For taxpayers, that approach might have made sense if the government planned on selling its entire 61 percent stake in G.M. But the administration has said it will sell only enough equity in the public offering to relinquish its controlling stake in G.M. Thus the government will remain exposed to the company’s (and the Volt’s) long-term fate.
Posted by James Zellmer at 11:59 AM

June 30, 2010

RBS tells clients to prepare for 'monster' money-printing by the Federal Reserve

Ambrose Evans-Pritchard:
As recovery starts to stall in the US and Europe with echoes of mid-1931, bond experts are once again dusting off a speech by Ben Bernanke given eight years ago as a freshman governor at the Federal Reserve.

Entitled "Deflation: Making Sure It Doesn’t Happen Here", it is a warfare manual for defeating economic slumps by use of extreme monetary stimulus once interest rates have dropped to zero, and implicitly once governments have spent themselves to near bankruptcy. The speech is best known for its irreverent one-liner: "The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost."

Bernanke began putting the script into action after the credit system seized up in 2008, purchasing $1.75 trillion of Treasuries, mortgage securities, and agency bonds to shore up the US credit system. He stopped far short of the $5 trillion balance sheet quietly pencilled in by the Fed Board as the upper limit for quantitative easing (QE).

Investors basking in Wall Street's V-shaped rally had assumed that this bizarre episode was over. So did the Fed, which has been shutting liquidity spigots one by one. But the latest batch of data is disturbing.
Posted by James Zellmer at 9:51 AM

June 28, 2010

Three privacy initiatives from the Office of Management and Budget The U.S. government has a new take on federated identity, storage and social networks.

Andy Oram:
Last Friday was a scramble for government security personnel and independent privacy advocates, and should also have stood out to anyone concerned with the growth of online commerce, civic action, and social networking. The U.S. government's Office of Management and Budget, which is the locus of President Obama's drive toward transparency and open government, popped out three major initiatives that combine to potentially change the landscape for online identity and privacy, not only within government but across the Internet.

In this blog I'll summarize the impacts of all three documents, as well as the next steps that I see necessary in these areas. The documents (all distributed as PDFs, which is not the easiest format to draw commentary) are:
  • A discussion draft of the National Strategy for Trusted Identities in Cyberspace. Comments can be viewed and entered on a feedback site.
  • An OMB Memorandum on Guidance for Online Use of Web Measurement and Customization Technologies.
  • An OMB Memorandum on Guidance for Agency Use of Third-Party Websites and Applications.
These documents are not long, but the complexity of the policy areas they address ensure that no blog could cover everything of importance, nor could a single commentator like me provide a well-rounded view. I'll focus on the changes they make to policies that are known to require change, with a "job well done" pat on the back. In highlighting gaps and omissions, I'll deliberately swim around the shoals that others have loudly pointed to already, focusing instead on problems that I believe deserve more attention.
Posted by James Zellmer at 10:43 PM

June 22, 2010

"The Time We Have is Growing Short"

Paul Volcker:
If we need any further illustration of the potential threats to our own economy from uncontrolled borrowing, we have only to look to the struggle to maintain the common European currency, to rebalance the European economy, and to sustain the political cohesion of Europe. Amounts approaching a trillion dollars have been marshaled from national and international resources to deal with those challenges. Financing can buy time, but not indefinite time. The underlying hard fiscal and economic adjustments are necessary.

As we look to that European experience, let’s consider our own situation. We are not a small country highly vulnerable to speculative attack. In an uncertain world, our currency and credit are well established. But there are serious questions, most immediately about the sustainability of our commitment to growing entitlement programs. Looking only a little further ahead, there are even larger questions of critical importance for those of less advanced age than I. The need to achieve a consensus for effective action against global warming, for energy independence, and for protecting the environment is not going to go away. Are we really prepared to meet those problems, and the related fiscal implications? If not, today’s concerns may soon become tomorrow’s existential crises.

I referred at the start of these remarks to my sense five years ago of intractable problems, resisting solutions. Little has happened to allay my concerns. But, of course, it is not true that our economic problems are intractable beyond our ability to react, to make the necessary adjustments to more fully realize the enormous potential for improving our well-being. Permit me a note of optimism.

A few days ago, I spent a little time in Ireland. It’s a small country, with few resources and, to put it mildly, a troubled history. In the last twenty years, it took a great leap forward, escaping from its economic lethargy and its internal conflicts. Responding to the potential of free and open markets and the stable European currency, standards of living have bounded higher, close to the general European level. Instead of emigration, there has been an influx of workers from abroad.
Posted by James Zellmer at 9:49 AM

June 6, 2010

Wall Street's War

Matt Taibbi:
Congress looked serious about finance reform – until America's biggest banks unleashed an army of 2,000 paid lobbyists.

t's early May in Washington, and something very weird is in the air. As Chris Dodd, Harry Reid and the rest of the compulsive dealmakers in the Senate barrel toward the finish line of the Restoring American Financial Stability Act – the massive, year-in-the-making effort to clean up the Wall Street crime swamp – word starts to spread on Capitol Hill that somebody forgot to kill the important reforms in the bill. As of the first week in May, the legislation still contains aggressive measures that could cost once- indomitable behemoths like Goldman Sachs and JP Morgan Chase tens of billions of dollars. Somehow, the bill has escaped the usual Senate-whorehouse orgy of mutual back-scratching, fine-print compromises and freeway-wide loopholes that screw any chance of meaningful change.

The real shocker is a thing known among Senate insiders as "716." This section of an amendment would force America's banking giants to either forgo their access to the public teat they receive through the Federal Reserve's discount window, or give up the insanely risky, casino-style bets they've been making on derivatives. That means no more pawning off predatory interest-rate swaps on suckers in Greece, no more gathering balls of subprime shit into incomprehensible debt deals, no more getting idiot bookies like AIG to wrap the crappy mortgages in phony insurance. In short, 716 would take a chain saw to one of Wall Street's most lucrative profit centers: Five of America's biggest banks (Goldman, JP Morgan, Bank of America, Morgan Stanley and Citigroup) raked in some $30 billion in over-the-counter derivatives last year. By some estimates, more than half of JP Morgan's trading revenue between 2006 and 2008 came from such derivatives. If 716 goes through, it would be a veritable Hiroshima to the era of greed.
Posted by James Zellmer at 3:16 PM

May 5, 2010

This Time Its Different

Financial Times:
800 years of financial crises - Carmen Reinhart, co-author of This Time is Different, talks about the history of financial crises and their patterns
Posted by James Zellmer at 9:40 PM

April 10, 2010

Energy Secretary Chu provides an optimistic view of our energy future at EIA conference

Gail The Actuary:
Energy Secretary Chu gave a talk at the EIA/SAIS Energy Conference on April 6-7. I want to share a few highlights of it, and give my impression. Both the Powerpoint slides and audio can be accessed at this link.

My general view of the talk is that Chu is extremely optimistic, in terms of what he thinks can be done. He also fails to tell listeners what our real problems are.

Wow! Slide 2 indicates that Chu thinks America has the opportunity to lead the world in a new industrial revolution. How does he think that is going to be done?

The first industrial revolution was during a time of increasingly available energy, because of the new use of coal. That is very unlikely in the future, both because of peak oil, and because of hoped-for constraints on fossil fuel use because of climate change issues. Net energy available to society is likely to be going down, not up! It is hard to understand an industrial revolution under those circumstances, unless it is a retooling to a much lower level--but later slides make it clear that is not what he is thinking of.
Posted by James Zellmer at 4:03 PM

April 7, 2010

The Europe roundup: Iceland, from the financial crisis to open data

Antonella Napolitino:
Iceland | From the financial crisis to open data
In 2008 in Iceland the financial system imploded. "Not surprisingly, this has led to a demand for more transparency, more access to public data and more effective communication by the government. All of a sudden Open Data is seen as a high priority among various lobby groups, branches of government and in restoration planning" says Hjalmar Gislason, an open data activist and member of the Open Knowledge Foundation’s Working Group on EU Open Data. In a long and detailed post, Gislason explains how this is not just part of the "momentum" open data is gaining in Europe, but a further step in a path that started in late '90s.
The Icelandic Modern Media Initiative and the presence of Wikileaks surely have a positive impact on the whole scenario and there is no doubt they will help boosting any future open data bill. The effects will be seen soon: "In December a rare cross-party parliamentary proposal (the first step in passing new legislation) was made, proposing a “default open” strategy for any public sector data. The Prime Minister’s Office has formed a committee that is to propose changes and improvements in legislation and suggest how to define the boundaries between data that is to be open and data that shall remain closed."
Posted by James Zellmer at 10:06 AM

March 30, 2010

What Does Greece Mean to You?

John Mauldin:
“To trace something unknown back to something known is alleviating, soothing, gratifying and gives moreover a feeling of power. Danger, disquiet, anxiety attend the unknown – the first instinct is to eliminate these distressing states. First principle: any explanation is better than none… The cause-creating drive is thus conditioned and excited by the feeling of fear…” Friedrich Nietzsche

“Any explanation is better than none.” And the simpler, it seems in the investment game, the better. “The markets went up because oil went down,” we are told, except when it went up there was another reason for the movement of the markets. We all intuitively know that things are far more complicated than that. But as Nietzsche noted, dealing with the unknown can be disturbing, so we look for the simple explanation.

“Ah,” we tell ourselves, “I know why that happened.” With an explanation firmly in hand, we now feel we know something. And the behavioral psychologists note that this state actually releases chemicals in our brains that make us feel good. We become literally addicted to the simple explanation. The fact that what we “know” (the explanation for the unknowable) is irrelevant or even wrong is not important to the chemical release. And thus we look for reasons.

How does an event like a problem in Greece (or elsewhere) affect you, gentle reader? And I mean, affect you down where the rubber hits your road. Not some formula or theory about the velocity of money or the effect of taxes on GDP. That is the question I was posed this week. “I want to understand why you think this is so important,” said a friend of Tiffani. So that is what I will attempt to answer in this week’s missive, as I write a letter to my kids trying to explain the nearly inexplicable.
Posted by James Zellmer at 3:44 PM

February 25, 2010

Fabulous: Health Care Video Stream with Campaign Contributions...

The Sunlight Foundation provides a great service here.
Posted by James Zellmer at 1:42 PM

February 19, 2010

If Our Grandparents Could See Us Now

Ed Wallace:
"The OECD rates Canada's banks as the safest in the world - the United States comes in fortieth, two places behind Botswana."

-- From I.O.U., by John Lanchester

There's always a pile of new books near my desk; currently, most of them deal with the history of the financial crisis. When time allows I open a couple more, read them and mark key points with highlighters for easier reference. It's always gratifying to find a passage in which a well-regarded economics writer makes the same points I have in my work, but I like books even better when they teach me things I did not already know.

An example: Barry Rithholtz, a market commentator, put the total cost of the current bailout in terms that most anyone can understand. It is now more than the nation spent for "The Marshall Plan, the Louisiana Purchase, the Apollo moon landings (and all costs of NASA's space flights), the Korean War, the Vietnam War, FDR's New Deal, the Invasion of Iraq and the 1980s Savings and Loan Scandal, combined and adjusted for inflation."

That statement alone should have the public up in arms, demanding smart actions that will make sure it never happens again.

The books I've been reading lately also cover the fundamental economic theories of both John Maynard Keynes and Milton Friedman. Keynes is known for promoting government deficit spending in hard times, while Friedman believes in deregulating and privatizing everything. What I now find interesting is that nobody carrying the banner of either of these two economic giants seems to get Keynes' or Friedman's fundamental economic viewpoints entirely right.
Posted by James Zellmer at 5:08 PM

February 12, 2010

Iceland aims to become an offshore haven for journalists and leakers

Jonathan Stray:
On Tuesday, the Icelandic parliament is expected to introduce a measure aimed at making the country an international center for investigative journalism publishing, by passing the strongest combination of source protection, freedom of speech, and libel-tourism prevention laws in the world.

Supporters of the proposal say the move would make Iceland an “offshore publishing center” for free speech, analogous to the offshore financial havens that allow corporations to hide capital from authorities. Could global news organizations with a home office in Reykjavík soon be as common as Delaware corporations or Cayman Islands assets?

“This is a legislative package to create a haven for freedom of expression,” Icelandic member of parliament Birgitta Jónsdóttir confirmed to me, saying that a proposal for comprehensive media law reform will be filed in parliament on Tuesday, and that whistle-blowing specialists Wikileaks has been involved in drafting it. There have been persistent hints of an Icelandic media move in recent weeks, including tweets from Wikileaks and a cryptic message from the newly created @icelandmedia Twitter account.

The text of the proposal, called the Icelandic Modern Media Initiative, is not yet public, but the most detailed evidence comes from a video of a talk by Julian Assange and Daniel Schmitt of Wikileaks, given at the Chaos Communications Congress hacker conference in Berlin on Dec. 27:
Posted by James Zellmer at 9:00 PM

The Legacy of Billy Tauzin: The White House-PhRMA Deal

Paul Blumenthal:
More than a million spectators gathered before the Capitol on a frosty January afternoon to witness the inauguration of Barack Obama, who promised in his campaign to change Washington’s mercenary culture of lobbyists, special interest influence and backroom deals. But within a few months of being sworn in, the President and his top aides were sitting down with leaders from the pharmaceutical industry to hash out a deal that they thought would make health care reform possible.

Over the following months, pharmaceutical industry lobbyists and executives met with top White House aides dozens of times to hammer out a deal that would secure industry support for the administration’s health care reform agenda in exchange for the White House abandoning key elements of the president’s promises to reform the pharmaceutical industry. They flooded Congress with campaign contributions, and hired dozens of former Capitol Hill insiders to push their case. How they did it—pieced together from news accounts, disclosure forms including lobbying reports and Federal Election Commission records, White House visitor logs and the schedule Sen. Max Baucus releases voluntarily—is a testament to how ingrained the grip of special interests remains in Washington.
Posted by James Zellmer at 3:30 PM

February 5, 2010

How to Get Our Democracy Back: If You Want Change, You Have to Change Congress

Larry Lessig:
We should remember what it felt like one year ago, as the ability to recall it emotionally will pass and it is an emotional memory as much as anything else. It was a moment rare in a democracy's history. The feeling was palpable--to supporters and opponents alike--that something important had happened. America had elected, the young candidate promised, a transformational president. And wrapped in a campaign that had produced the biggest influx of new voters and small-dollar contributions in a generation, the claim seemed credible, almost intoxicating, and just in time.

Yet a year into the presidency of Barack Obama, it is already clear that this administration is an opportunity missed. Not because it is too conservative. Not because it is too liberal. But because it is too conventional. Obama has given up the rhetoric of his early campaign--a campaign that promised to "challenge the broken system in Washington" and to "fundamentally change the way Washington works." Indeed, "fundamental change" is no longer even a hint.

Instead, we are now seeing the consequences of a decision made at the most vulnerable point of Obama's campaign--just when it seemed that he might really have beaten the party's presumed nominee. For at that moment, Obama handed the architecture of his new administration over to a team that thought what America needed most was another Bill Clinton. A team chosen by the brother of one of DC's most powerful lobbyists, and a White House headed by the quintessential DC politician. A team that could envision nothing more than the ordinary politics of Washington--the kind of politics Obama had called "small." A team whose imagination--politically--is tiny.

These tiny minds--brilliant though they may be in the conventional game of DC--have given up what distinguished Obama's extraordinary campaign. Not the promise of healthcare reform or global warming legislation--Hillary Clinton had embraced both of those ideas, and every other substantive proposal that Obama advanced. Instead, the passion that Obama inspired grew from the recognition that something fundamental had gone wrong in the way our government functions, and his commitment to reform it.

For Obama once spoke for the anger that has now boiled over in even the blue state Massachusetts--that our government is corrupt; that fundamental change is needed. As he told us, both parties had allowed "lobbyists and campaign contributions to rig the system." And "unless we're willing to challenge [that] broken system...nothing else is going to change." "The reason" Obama said he was "running for president [was] to challenge that system." For "if we're not willing to take up that fight, then real change--change that will make a lasting difference in the lives of ordinary Americans--will keep getting blocked by the defenders of the status quo."
"Meet the new boss, same as the old boss"....
Posted by James Zellmer at 11:39 AM

January 7, 2010

Bill Gross Puts US On Notice over Debt Binge

Tom Petruno:
If the bond vigilantes are ready to ride again, there should be little doubt who will be leading the charge.

Bond guru Bill Gross at Pimco in Newport Beach this week has ramped up his warnings to the Obama administration and the Federal Reserve about the perils of unfettered government borrowing.

In an interview in Time magazine on Tuesday, Gross suggested that Pimco, which manages nearly $1 trillion in mostly fixed-income assets, now feels more comfortable owning German government debt than U.S. Treasury debt:

"There are a number of reasons to have doubts about Treasuries, not just because of America's sovereign risk but also from the standpoint of an over-owned currency [the dollar]. . . . At Pimco we would probably try and substitute for our Treasuries with sovereign bonds of potentially higher quality. Germany looks interesting to us. Germany has problems, but it's in a much better budget situation than the U.S. because of a constitutional amendment three months ago that forces a balanced budget in four years."
Posted by James Zellmer at 8:32 AM

January 1, 2010

Double Bubble & Built on Sand

The Financial Times - Cartoon.
Posted by James Zellmer at 11:05 AM

Banking after the kindness of strangers

Francesco Guerrera:
”Whoever you are, I have always depended on the kindness of strangers”. The last line of Tennessee Williams’ A Streetcar Named Desire – uttered by its desperate heroine to the doctor taking her to a mental asylum – is an apt summary of the US financial sector in 2009.

As the crisis abated, banks took maximum advantage of the kindness of taxpayers and regulators to return to their core business: making money for shareholders and employees.

Ultra-low interest rates, dwindling competition and pent-up demand for their services sparked a renaissance in profits and share prices of the financial institutions that emerged from the turmoil in reasonable shape.

The question is whether history will repeat itself, or even just rhyme, this year. Here are my ten, utterly personal and non-exhaustive, predictions for the year ahead in US finance.

1) Strangers will be a lot less kind. With banks boasting about their new-found health, regulators will pull the plug on most of the measures they introduced to drag the financial industry back from the brink. A host of acronyms (Tarp, Talf, PPIP, TLGP) will be forgotten but not missed.
Posted by James Zellmer at 10:56 AM

December 28, 2009

"Person of the Year" - Goldman Sachs' Lloyd Blankfein: "Doing God's Work"

John Gapper:
Under other circumstances, this would have been a year to savour in the long, rapid ascent of Lloyd Blankfein. Goldman Sachs, the investment bank he has led for three years, not only navigated the 2008 global financial crisis better than others on Wall Street but is set to make record profits, and pay up to $23bn (€16bn, £14bn) in bonuses to its 31,700 staff.

For Mr Blankfein, a scholarship boy from the Bronx whose first financial job at Goldman was selling gold coins in its commodities trading arm, has prospered to an extent that was implausible even 10 years ago, when it became a public company. Its influence has spread throughout the world, from New York and London to Shanghai and São Paulo.

A good slice of its success is attributable to Mr Blankfein, a tough, bright, funny (everyone remarks upon his unpretentious, wisecracking manner) financier who reoriented Goldman. Under his leadership, trading and risk-taking have pushed to the fore, reducing the influence of its investment banking advisers.

In 2009, however, Wall Street faced a wave of public anger at how banks that survived only with the assistance of taxpayers seemed unchanged and unrepentant. Goldman’s profitability, and suspicions that its deep links with governments around the world give it unfair advantages, made it a symbol of Wall Street greed and excess. It was described by the Rolling Stone writer Matt Taibbi as “a great vampire squid wrapped around the face of humanity”.
Posted by James Zellmer at 1:25 AM

December 16, 2009

Congress Travels, The Public Pays

Brody Mullins & TW Farnam:
The expenses racked up by U.S. lawmakers traveling here for a conference last month included one for the "control room."

Besides rooms for sleeping, the 12 members of the House of Representatives rented their hotel's fireplace-equipped presidential suite and two adjacent rooms. The hotel cleared out the beds and in their place set up a bar, a snack room and office space. The three extra rooms -- stocked with liquor, Coors beer, chips and salsa, sandwiches, Mrs. Fields cookies and York Peppermint Patties -- cost a total of about $1,500 a night. They were rented for five nights.

While in Scotland, the House members toured historic buildings. Some shopped for Scotch whisky and visited the hotel spa. They capped the trip with a dinner at one of the region's finest restaurants, paid for by the legislators, who got $118 daily stipends for meals and incidentals.

Eleven of the 12 legislators then left the five-day conference two days early.

The tour provides a glimpse of the mixture of business and pleasure involved in legislators' overseas trips, which are growing in number and mostly financed by the taxpayer. Lawmakers travel with military liaisons who carry luggage, help them through customs, escort them on sightseeing trips and stock their hotel rooms with food and liquor. Typically, spouses come along, flying free on jets operated by the Air Force. Legislative aides come too. On the ground, all travel in chauffeured vehicles.
Posted by James Zellmer at 8:27 AM

December 14, 2009

Goldman's Collateral Damage

Tracy Alloway:

Cast your mind back to that SigTarp report, published last month.

Readers will recall there’s been a persistent stink over whether the efforts of the Federal Reserve and the US Treasury to prop up AIG had the effect of bailing out Goldman Sachs — its largest trading partner. Goldman Sachs always denied that idea, saying its exposure to AIG was collateralised and hedged against the mega-insurers’ fall. Others, were not so sure.

Last week the Wall Street Journal continued that particular line of thought with an article titled “Goldman fueled AIG gambles“, which examined GS’s role in acting as a middleman between the insurer and other banks. In short, Goldman offered banks protection on some of their investments (for instance on CDOs of home loans), which it in turn hedged with AIG in the form of CDS.

Posted by James Zellmer at 9:49 AM

December 1, 2009

Throwing Computers At Healthcare

Nicholas Carr:
Computerworld reports on an extensive new Harvard Medical School study, appearing in the American Journal of Medicine, that paints a stark and troubling picture of the essential worthlessness of many of the computer systems that hospitals have invested in over the last few years. The researchers, led by Harvard's David Himmelstein, begin their report by sketching out the hype that now surrounds health care automation:
Enthusiasm for health information technology spans the political spectrum, from Barack Obama to Newt Gingrich. Congress is pouring $19 billion into it. Health reformers of many stripes see computerization as a painless solution to the most vexing health policy problems, allowing simultaneous quality improvement and cost reduction ...

In 2005, one team of analysts projected annual savings of $77.8 billion, whereas another foresaw more than $81 billion in savings plus substantial health gains from the nationwide adoption of optimal computerization. Today, the federal government’s health information technology website states (without reference) that “Broad use of health IT will: improve health care quality; prevent medical errors; reduce health care costs; increase administrative efficiencies; decrease paperwork; and expand access to affordable care.
Posted by James Zellmer at 8:22 PM

November 27, 2009

Dubai's Debt Default

James Mackintosh:

Asking to delay repayment on your debt - or defaulting, as the world’s press is carefully not calling it - has turned out not to be a good way for Dubai’s Sheikh Makhtoum to win friends and influence lenders to Nakheel, the property arm of the state-owned conglomerate Dubai World. Markets have tumbled worldwide; investors, reminded that governments can be subprime too, have dumped the debt of other dodgy-looking economies (including Greece); and in Dubai… everyone is on holiday.

What is surprising here is not that Dubai is on the verge of default. It is that anyone was willing to lend them ludicrous sums of money in the first place. Calculated Risk points out that Sir Win Bischoff, then at the (US) state-controlled Citi and now, appropriately enough, at the (British) state-controlled Lloyds Banking Group, was raving about raising $8bn of loans for Dubai last year and as recently as December chose to go public with a “positive outlook on Dubai”. Another non-surprise: state-controlled Royal Bank of Scotland was Dubai World’s biggest loan arranger. In the UK, Dubai World has been buying up a long list of property, according to Anita Likus at The Source; the assumption is it will shortly be selling.

More here.
Posted by James Zellmer at 8:21 AM

November 26, 2009

Asia Trip Financial News

David Kotok:
Now to the regional takeaway from our trip

We believe that few trust the United States. This is obvious in private conversation. And it is clear to all that confidence in the dollar is low. This is mostly mentioned only in private.

In public there is quiet response when the Treasury Secretary of the United States utters words about a strong dollar. Asians have heard that for years and with the many different accents of the various Treasury Secretaries. Geithner would serve the country better by ceasing to mouth the same words that his predecessor Snow and others used. He is not believed. Frankly, in some circles he is actually seen as an incompetent political hack. He is blamed by some for the insufficiency of the New York Fed under his presidency to supervise the primary dealers that failed – Countrywide, Bear Stearns, and Lehman. And the ethics issues surrounding the NY Fed under his tenure are viewed as appalling; this continues to surface in private conversations. Some folks are puzzled about why Obama maintains his support for Geithner. Some just attribute it to the President’s inexperience as a leader.

My takeaway is that our present Secretary of the Treasury is seriously and sustainably injuring the image of the United States. He has lost credibility. His actions are real and they impact markets. My conversations with those who are attempting to market GSE securities to Asians and getting rebuffed are validation enough for me on this point. When the Fed stops buying GSE mortgage backed securities, this reality will hit the markets in a re-pricing of that asset class. Spreads are going to widen.

The American federal budget deficits are worrisome everywhere. Policy promises from Washington to reduce them are greeted with great skepticism. Often they are privately described as American arrogance. Publicly, Asians are very polite and do not often subject their guests to embarrassing criticism. Privately they are quite candid. In my view they are correct: America is arrogant and seems to pretend that it is still the best and most trustworthy financial and capital market in the world. There is no basis for the US to have such a view of itself. We have squandered our reputational capital as a financial center leader.
Posted by James Zellmer at 10:11 PM

November 25, 2009


Madison is truly blessed to have such a fine facility, courtesy of Jerry Frautschi's landmark $200M+ gift. However and unfortunately, the financial spaghetti behind its birth is complicated and controversial, particularly at this moment when Overture's parent lacks liquidity to fund the project's remaining debt.

Yet, the facility is simply stunning. Have a look at these panoramic views.

Overture Hall Lobby:


In an effort to preserve the pre-Overture scene, we shot panoramic images in 1999 and again, after construction in 2006.

I do have one financing suggestion. Give Goldman Sachs Lloyd Blankfein a call. After all, Goldman Sachs' record bonuses are a direct result of massive taxpayer intervention to prop up certain banks and other "too big to fail" entities such as AIG. GS is well connected at the very top of our Government.
Posted by James Zellmer at 10:06 AM

Presidential Cabinet Appointments: Private Sector Experience 1900-2009

Nick Schultz:
A friend sends along the following chart. It examines the prior private sector experience of the cabinet officials since 1900 that one might expect a president to turn to in seeking advice about helping the economy. It includes Secretaries of State; Commerce; Treasury; Agriculture; Interior; Labor; Transportation; Energy; and Housing & Urban Development and excludes Postmaster General; Navy; War; Health, Education & Welfare; Veterans Affairs; and Homeland Security — 432 cabinet members in all.
Posted by James Zellmer at 9:37 AM

Auditing the central bank: a jolly good thing!

Willem Buiter:
What is so important about H.R. 1207: the Federal Reserve Transparency Act of 2009 aka the ‘Audit the Fed’ bill? This bill “To amend title 31, United States Code, to reform the manner in which the Board of Governors of the Federal Reserve System is audited by the Comptroller General of the United States and the manner in which such audits are reported, and for other purposes.” may not sound terribly exciting, but in addition to making the Fed accountable for its quasi-fiscal activities, it could well set an important precedent for the enhanced accountability of operationally independent central banks everywhere.

The Finance Committee of the US House of Representatives has just passed this bill, which is an amendment sponsored by Representatives Ron Paul (Republican) and Alan Grayson (Democrat) to Representative Barney Frank’s HR 3996, the “Financial Stability Improvement Act of 2009″. The amendment allows the US Government Accountability Office to conduct a wide-ranging audit of the financial activities of the Federal Reserve Board. Specifically (and quoting from the RonPaul.com website):

The Paul/Grayson amendment:
Posted by James Zellmer at 9:20 AM

Investigating The Card Game: Consumer Lending

As credit card companies face rising public anger, new regulation from Washington and staggering new rates of default and bankruptcy, FRONTLINE correspondent Lowell Bergman investigates the future of the massive consumer loan industry and its impact on a fragile national economy.

In The Card Game, a follow-up to the Secret History of the Credit Card and a joint project with The New York Times, Bergman and the Times talk to industry insiders, lobbyists, politicians and consumer advocates as they square off over attempts to reform the way the industry has done business for decades.

"The card issuers could do anything they want," Robert McKinley, CEO of CardWeb.com, tells FRONTLINE of the industry's unchecked power over consumers. "They could change your interest rate. They could impose an annual fee. They could close your account." High interest rates along with more and more penalty fees drove up profits for the industry, Bergman finds, as the banks followed the lead of an aggressive upstart: Providian Bank. In an exclusive interview with FRONTLINE, former Providian CEO Shailesh Mehta tells Bergman how his company successfully targeted vulnerable low-income customers whom Providian called "the unbanked."

"They're lower-income people-bad credits, bankrupts, young credits, no credits," Mehta says. Providian also innovated by offering "free" credit cards that carried heavy hidden fees. "I used to use the word 'penalty pricing' or 'stealth pricing,'" Mehta tells FRONTLINE. "When people make the buying decision, they don't look at the penalty fees because they never believe they'll be late. They never believe they'll be over limit, right? ... Our business took off. ... We were making a billion dollars a year."
Posted by James Zellmer at 9:12 AM

Playing with fire Forget China, the US Federal Reserve is the world's biggest currency manipulator

Andy Xie:
As US President Barack Obama glided through China, a chorus erupted in New York and Washington: the problem with the global economy is China's exchange-rate policy, and Obama's No 1 job is to slay it. It's sad that these people actually believe what they are saying: the same "logic" got the world into the current mess. In the feverish hallucination of salvation, they think that moving China's currency policy would right all wrongs.

The US Federal Reserve is the biggest currency manipulator in the world. Not only does it keep the short-term interest rate at zero through its vast purchase programme for mortgage-backed securities, it also keeps credit spreads and bond yields artificially low. Its manipulation stops money, bond and credit markets from pricing either the Fed's policy or the US economic plight. All the firepower is packed into the currency market, giving speculators a sure bet on a weaker dollar and everything else rising. Here comes the biggest carry trade ever: the Fed is promising no downside for shorting the dollar.

The US Treasury writes an annual report, judging if other countries are manipulating their exchange rates. It should look in the mirror. Even though the Fed is not directly intervening in the currency market per se, its manipulation is equivalent to pushing down the dollar by non-market means.
Posted by James Zellmer at 9:08 AM

November 19, 2009

Playing with fire Forget China, the US Federal Reserve is the world's biggest currency manipulator

Andy Xie:
As US President Barack Obama glided through China, a chorus erupted in New York and Washington: the problem with the global economy is China's exchange-rate policy, and Obama's No 1 job is to slay it. It's sad that these people actually believe what they are saying: the same "logic" got the world into the current mess. In the feverish hallucination of salvation, they think that moving China's currency policy would right all wrongs.

The US Federal Reserve is the biggest currency manipulator in the world. Not only does it keep the short-term interest rate at zero through its vast purchase programme for mortgage-backed securities, it also keeps credit spreads and bond yields artificially low. Its manipulation stops money, bond and credit markets from pricing either the Fed's policy or the US economic plight. All the firepower is packed into the currency market, giving speculators a sure bet on a weaker dollar and everything else rising. Here comes the biggest carry trade ever: the Fed is promising no downside for shorting the dollar.

The US Treasury writes an annual report, judging if other countries are manipulating their exchange rates. It should look in the mirror. Even though the Fed is not directly intervening in the currency market per se, its manipulation is equivalent to pushing down the dollar by non-market means.
Posted by James Zellmer at 7:00 PM

November 17, 2009

Goldman apologises for role in crisis

Francesco Guerrera, Justin Baer and Tom Braithwaite :
Goldman Sachs apologised for its role in the financial crisis on Tuesday and pledged $500m over five years – or about 2.3 per cent of its estimated bonus and salary pool for 2009 – to help 10,000 US small businesses recover from the ­recession. The moves come as the bank tries to defuse a political and public backlash over its plans to share billions of dollars among top dealmakers after rebounding sharply from the turmoil and earning record profits in the first nine months of the year.

Lloyd Blankfein, Goldman’s chief executive, told a corporate conference in New York that the bank regretted taking part in the cheap credit boom that had fuelled the pre-crisis bubble. “We participated in things that were clearly wrong and have reason to regret,” said Mr Blankfein. “We apologise.”

Mr Blankfein also told the conference he wished he had not told the UK’s Sunday Times newspaper that Goldman did “God’s work” – a remark that was seized upon by the bank’s critics – and said it had been meant as a joke.

Mr Blankfein spoke hours before Goldman revealed plans to invest $500m over five years in business education, technical assistance and venture capital to help 10,000 small businesses across the US. The yearly amount of about $100m to be spent on the initiative – which will be overseen by a panel co-chaired by Warren Buffett, a Goldman investor – is equivalent to a good trading day at Goldman. In the third quarter, the bank had 36 days in which traders made more than $100m.

Mr Buffett told the Financial Times that the small business programme was not a response by the bank to recent criticism. “This is a big initiative,” he said. “This is not a one-day or one-year wonder. It’s a continuous programme.”
Posted by James Zellmer at 7:57 PM

November 15, 2009

GE Pursues "Stimulus Pot of Gold"

Elizabeth Williamson & Paul Glader:
The financial crisis hasn't been kind to General Electric Co. Its stock has lost almost half its value, the government has stepped in to prop up its enormous financial arm, and sales have slumped in core industrial businesses.

But Chief Executive Jeffrey Immelt now has his eye on a huge new pool of potential revenue: Uncle Sam's stimulus dollars. Mr. Immelt, a registered Republican, quips about the shift in thinking in the nation's corner offices: "We're all Democrats now."

GE has high hopes for the strategy. It says that over the next three years or so it could bring in as much as $192 billion from projects funded by governments around the globe, such as electric-grid modernization, renewable-energy generation and health-care technology upgrades.

The company is just starting to see a payoff. Last month, for example, President Barack Obama announced $3.4 billion in government-stimulus grants for power-grid projects. About one-third of the recipients are GE customers. GE expects them to use a good chunk of that money to buy its equipment.

The government has taken on a giant role in the U.S. economy over the past year, penetrating further into the private sector than anytime since the 1930s. Some companies are treating the government's growing reach -- and ample purse -- as a giant opportunity, and are tailoring their strategies accordingly. For GE, once a symbol of boom-time capitalism, the changed landscape has left it trawling for government dollars on four continents.
Posted by James Zellmer at 7:48 PM

November 7, 2009

Buffett's Betrayal....

Rolfe Winkler:
When I was 14, Warren Buffett wrote me a letter.

It was a response to one I’d sent him, pitching an investment idea. For a kid interested in learning stocks, Buffett was a great role model. His investing style — diligent security analysis, finding competent management, patience — was immediately appealing.

Buffett was kind enough to respond to my letter, thanking me for it and inviting me to his company’s annual meeting. I was hooked. Today, Buffett remains famous for investing The Right Way. He even has a television cartoon in the works, which will groom the next generation of acolytes.

But it turns out much of the story is fiction. A good chunk of his fortune is dependent on taxpayer largess. Were it not for government bailouts, for which Buffett lobbied hard, many of his company’s stock holdings would have been wiped out.

Berkshire Hathaway, in which Buffett owns 27 percent, according to a recent proxy filing, has more than $26 billion invested in eight financial companies that have received bailout money. The TARP at one point had nearly $100 billion invested in these companies and, according to new data released by Thomson Reuters, FDIC backs more than $130 billion of their debt.

To put that in perspective, 75 percent of the debt these companies have issued since late November has come with a federal guarantee. (Click chart to enlarge in new window)

Posted by James Zellmer at 2:03 PM

October 27, 2009

The Best Summary (to date) of Taxpayer Funded Events that Lead to Goldman Sachs' Survival and Recent Large Payouts

Joe Nocera:
A few weeks ago, shortly after Goldman Sachs reported its latest blowout quarter, the firm’s chief executive, Lloyd Blankfein, spoke at a Fortune magazine breakfast.

In normal times, Mr. Blankfein might have been forgiven for bragging a bit about the just-reported quarter — over $3 billion in profit on $12 billion in revenue. It had generated some $6 billion just in one division: fixed income. It had more than $160 billion in cash or cash equivalents on its balance sheet. And of course it had long since repaid, with interest, the $10 billion it had accepted from the Treasury Department during the darkest days of the crisis.

But of course those weren’t the numbers the media and the public had focused on in the wake of Goldman’s earnings. Instead, people were fixated on the $5.3 billion the firm had set aside for its executives’ year-end bonuses. Added to first and second quarter set-asides of $4.6 billion and $6.6 billion, the firm had put aside $16 billion so far this year for employee bonuses. Nearly 50 percent of the firm’s revenue was going toward compensation. And there was still one more quarter to go!

Was it fair, commentators kept asking, that barely a year after the taxpayers had essentially saved the financial system, this firm that took government capital should now be paying multimillion-dollar bonuses? Was it right? Which, not surprisingly, is what Fortune’s managing editor, Andrew Serwer, asked Mr. Blankfein within minutes of taking the stage.

In private, Goldman executives are scornful of the sentiment behind this question. Their view, in essence, is that they should be applauded for being able to pay such big bonuses, because it means their business is successful. People who want them to pay less, they believe, want them to fail.

But Mr. Blankfein, a charming, funny man who has been Goldman’s boss since 2006, is far too smart to say that out loud. Nonetheless, what he did say was revealing. Treasury’s original decision to use the Troubled Asset Relief Program to shore up the banks’ capital, Mr. Blankfein said, “was a sensible thing to do at the time.”
Posted by James Zellmer at 9:45 AM

October 14, 2009

A credibility problem for Goldman

John Gapper:
It will be business as usual for Goldman Sachs this morning. The bank will annoy a lot of people.

Goldman, the institution that came through last year’s financial crisis best – arguably the only pure investment bank left standing – will say how much money it made in the third quarter (a lot) and how many billions it has stored for bonuses (about $5.5bn towards a likely 2009 bonus pool of $23bn).

For believers in Goldman’s ethical standards and way of doing business, these are difficult times. Although it avoided the mistakes that brought down Bear Stearns and Lehman Brothers, forced Merrill Lynch into Bank of America’s arms, and prodded Morgan Stanley further into lower-risk retail broking, Goldman has become a whipping boy.

There is outrage that, having taken government money to survive the crash, Goldman is in such rude health that it will hand out billions in bonuses. Matt Taibbi, a Rolling Stone writer, caught the mood memorably by describing Goldman as “a giant vampire squid wrapped around the face of humanity”.

Such is Goldman’s importance to Wall Street and regulation that I am devoting a pair of columns to it. Today, I will discuss the Goldman problem (different and less egregious to what Mr Taibbi believes, but still a problem). Next week, I will suggest what should be done about it by regulators and the bank itself.

Goldman executives were wounded by how seriously Mr Taibbi’s piece was taken despite their riposte that vampire squids are small creatures that present no danger to humanity. He accused it of profiting from bubbles such as the US internet and housing booms, and of repeatedly “selling investments they know are crap” to retail investors.
Posted by James Zellmer at 10:35 PM

October 10, 2009

How banks will get customers to cover a round of big losses

John Dizard:
This, they toss off with the certainty of wine-fuelled genius, also explains the rise in the gold price.

Actually, I do not think that is how the bank risk paradox will play out.

There are going to be much larger write-offs and reserves taken at all the big banks, with the peak in reported bad news probably coming next year. However, the taxpayer will not be asked for more capital, and the Federal Reserve and Treasury will gradually dismantle the temporary support structures, just as they say.

How is this possible? Because the public will pay through usury, not taxation. There is a big difference, of course. Usury is less visible, and you cannot effectively vote against it.

Blood will flow, but it will do so not as a catastrophic bath for the banks, but as a gradual transfusion to them from their customers.

There will be headline risk for the banks' management and public securities, which is why I think that their CDS protection is too cheap at the moment.

One source of headline risk is the spectre of Federal Government reform of the financial system. God knows there is a good case to be made for de-cartelising the industry, but that is not going to happen.
Bank spreads are at record levels. Their cost of funds is nearly 0, while they lend it out at 4.99% or (much) greater. Plus, the fees.
Posted by James Zellmer at 10:09 PM

October 3, 2009

One Year Later, Little Has Changed

Ed Wallace:
"By buying U.S. Treasuries and mortgages to increase the monetary base by $1 trillion, Fed Chairman Ben Bernanke didn’t put money directly into the stock market, but he didn’t have to. With nowhere else to go, except maybe commodities, inflows into the stock market have been on a tear. The dollars he cranked out didn’t go into the hard economy, but instead into tradable assets."

— "The Bernanke Market," Wall Street Journal, July 15, 2009

"In the last week alone, the European Central Bank allocated the record sum of $619 billion to 1,1,00 financial institutions – at a paltry 1 percent interest rate. And yet the money is not going where the central banks want it to go, namely into the pockets of businesses and consumers – at least not at reasonable interest rates."

— "How German Banks are Cashing In on the Financial Crisis," Der Spiegel, July 1, 2009

Two weeks ago, in meetings with their North Texas dealers, both Toyota and Honda voiced concern about how the economic recovery was going to hold up over the next few quarters. It wasn’t public news yet in the States, but Japanese executives already knew that their imports and exports had fallen sharply through the summer. And, while our business media were cheerleading because the Dow Jones was once again flirting with 10,000, in Japan their exports had just fallen 36 percent; metal shipments to the U.S. were down by more than 80 percent, automobile shipments by 50 percent. This was a problem here, too: In August America’s dealers seriously needed Japanese vehicles to restock their depleted inventories.

Toyota and Honda took different tacks for the fourth quarter. Toyota said it will spend $1 billion in advertising to move the retail market. Honda, always more cautious in difficult times, said it would spend nothing during the same period. Honda added that it will keep dealer inventories at a 30-day supply of unsold vehicles, half the inventory considered normal.
Posted by James Zellmer at 10:50 PM

October 2, 2009

Madison Unified Fiber Network, Madison Broadband Initiative

Details appear on the next Madison School Board meeting agenda [PDF].

Good news, if it happens. The Madison lags other parts of the country and world in fiber deployment.
Posted by James Zellmer at 4:29 PM

August 21, 2009

Britain's National Medical Records Project - "No money spent on training"...

Nicholas Timmins:
“If you live in Birmingham,” declared Tony Blair when he was UK prime minister, “and you have an accident while you are, for example, in Bradford, it should be possible for your records to be instantly available to the doctors treating you.”

Not any more. Or not, at least, if the Conservatives win the next general election. For the Tories have pledged to scrap the country-wide version of the National Health Service’s electronic patient record.

Back in 2002, the idea of a full patient record, available anywhere in an emergency, was the principal political selling point for what was billed as “the biggest civilian computer project in the world”: the drive to give all 50m or so patients in England (the rest of the UK has its own arrangements) an all-singing, all-dancing electronic record. Roll-out was meant to start in 2005 and be completed by 2010.

Under a Conservative government, development of the local record – exchangeable between primary care physicians and their local hospitals – would continue. Nationally, clinicians would still be able to seek access to it when needed from the doctors who would hold it locally. But the idea of a national database of patients’ records, instantly available in an emergency from anywhere in the country, would disappear.

This may or may not matter, depending on your point of view. For many clinicians, the idea of an instantly available national record was always something of a diversion. It is access to a comprehensive record locally that is crucial for day-to-day care.

Nonetheless, the Conservatives’ decision to scrap the central database is a symbolic moment for a £12bn ($20bn, €14bn) programme that has struggled to deliver from day one. It is currently running at least four years late – and there looks to be no chance in the foreseeable future of its delivering quite what was promised.


On top of that, while there was a £6bn budget for the 10-year central contracts, no money was earmarked for training, in spite of the lesson, from the relatively few successful installations of electronic records in US hospitals, that at least as much has to be spent on changing the way staff work as is spent on the systems themselves.
Posted by James Zellmer at 9:33 AM

August 14, 2009

On Locational Privacy, and How to Avoid Losing it Forever

Over the next decade, systems which create and store digital records of people's movements through public space will be woven inextricably into the fabric of everyday life. We are already starting to see such systems now, and there will be many more in the near future.

Here are some examples you might already have used or read about:
  • Monthly transit swipe-cards
  • Electronic tolling devices (FastTrak, EZpass, congestion pricing)
  • Cellphones
  • Services telling you when your friends are nearby
  • Searches on your PDA for services and businesses near your current location
  • Free Wi-Fi with ads for businesses near the network access point you're using
  • Electronic swipe cards for doors
  • Parking meters you can call to add money to, and which send you a text message when your time is running out
These systems are marvellously innovative, and they promise benefits ranging from increased convenience to transformative new kinds of social interaction.

Unfortunately, these systems pose a dramatic threat to locational privacy.
Posted by James Zellmer at 2:47 PM

August 10, 2009

A runaway deficit may soon test Obama’s luck

Niall Ferguson:
President Barack Obama reminds me of Felix the Cat. One of the best-loved cartoon characters of the 1920s, Felix was not only black. He was also very, very lucky. And that pretty much sums up the 44th president of the US as he takes a well-earned summer break after just over six months in the world’s biggest and toughest job.

His stimulus bill has clearly made a significant contribution to stabilising the US economy since its passage in February. His cap-and-trade bill to reduce carbon dioxide emissions passed the House of Representatives in June. He has set in motion significant overhauls of financial regulation and healthcare. Considering the magnitude of the economic crisis he inherited, his popularity is holding up well. His current 56 per cent approval rating is significantly better than Bill Clinton’s (44 per cent) at the same stage in his first term and about the same as George W. Bush’s.

Consider the evidence that the economy has passed the nadir of the “great recession”. Second-quarter gross domestic product declined by only 1 per cent, compared with a drop of 6.4 per cent in the first quarter. House prices have stopped falling and in some cities are rising; sales of new single-family homes jumped 11 per cent from May to June. Credit spreads have narrowed significantly and the big banks are recovering, some even making enough money to pay back Tarp bail-out funds. The S&P 500 index is up nearly 48 per cent from its low in early March. Best of all, the economy lost fewer jobs in July than most pundits were expecting. Non-farm payrolls declined by just 247,000, half the number that were disappearing each month in the spring. The unemployment rate has actually declined slightly to 9.4 per cent.
Posted by James Zellmer at 8:18 PM

July 19, 2009

The Devil is in The Retail

Edwin Heathcote:
The only way these big developments have been able to get planning permission is for a local authority to parcel together a big tract of land (usually formerly industrial or railway land, often formerly publicly owned) and to give over the whole thing to a developer who is charged with driving the “regeneration” that the public sector has largely lost the ability to conceive. Consequently, rather than the network of public streets interspersed with public spaces, private blocks and semi-private but accessible courtyards that forms the fabric of the traditionally complex city centre, we get the pseudo-civic space of the mall without walls. Protest in these spaces is banned, as is public gathering, distribution of leaflets, drinking, sleeping and, of course, photography. Yet there has been no outcry.

Particularly in the UK, we have become so inured to the smooth transition of public assets into private ownership that even the loss of our public spaces seems to us quite natural. I have been asked to stop taking photos of new office buildings from the public street outside, I have been stopped in malls, in piazzas and by canals. I have even been asked to stop taking notes. What Debord was calling for was a city in which what was important was not the way it looked or how many new shops it had but the multiplicity of ways in which it could be used. His way of subverting the structure of a Paris that had been conceived by Baron Haussmann, with wide avenues to enable an army swiftly to quell a revolution, was to walk across it on an aimless walk – the famous dérive – in which the flâneur concentrates on the mundane and the banal and does not allow his gaze to be directed to the formal or the ceremonial.

. . .

The Guatamalan architect Teddy Cruz, who works in the strange hinterlands between the wealth of San Diego and the poverty of Tijuana just across the border in Mexico, has called for a new system of measuring the success of a city – one based not on density of population or on the value of turnover and rent but on the frequency of social transactions. It represents a radical departure. The idea of regeneration that has emerged over the past couple of decades has been based solely on the generation of money. Big, retail-led and commercial schemes are encouraged, even subsidised, planning controls are loosened to accommodate them and civic democracy and local objections are overridden as the objectives of rising property prices, increased local taxes and the presence of “flagship” and “anchor” stores and brands becomes a planning Xanadu.
Posted by James Zellmer at 1:41 PM

July 12, 2009

Global Banking Economist Warned of Coming Crisis

Beat Balzli and Michaela Schiessl:
William White predicted the approaching financial crisis years before 2007's subprime meltdown. But central bankers preferred to listen to his great rival Alan Greenspan instead, with devastating consequences for the global economy.

William White had a pretty clear idea of what he wanted to do with his life after shedding his pinstriped suit and entering retirement.

White, a Canadian, worked for various central banks for 39 years, most recently serving as chief economist for the central bank for all central bankers, the Bank for International Settlements (BIS), headquartered in Basel, Switzerland.

Then, after 15 years in the world's most secretive gentlemen's club, White decided it was time to step down. The 66-year-old approached retirement in his adopted country the way a true Swiss national would. He took his money to the local bank, bought a piece of property in the Bernese Highlands and began building a chalet. There, in the mountains between cow pastures and ski resorts, he and his wife planned to relax and enjoy their retirement, and to live a peaceful existence punctuated only by the occasional vacation trip. That was the plan in June 2008.
Posted by James Zellmer at 6:13 PM

July 2, 2009

Washington Post Sells Access to Lobbyists

For $25,000 to $250,000, The Washington Post is offering lobbyists and association executives off-the-record, nonconfrontational access to "those powerful few" — Obama administration officials, members of Congress, and the paper’s own reporters and editors.

The astonishing offer is detailed in a flier circulated Wednesday to a health care lobbyist, who provided it to a reporter because the lobbyist said he feels it’s a conflict for the paper to charge for access to, as the flier says, its “health care reporting and editorial staff."

The offer — which essentially turns a news organization into a facilitator for private lobbyist-official encounters — is a new sign of the lengths to which news organizations will go to find revenue at a time when most newspapers are struggling for survival.

And it's a turn of the times that a lobbyist is scolding The Washington Post for its ethical practices.

"Underwriting Opportunity: An evening with the right people can alter the debate," says the one-page flier. "Underwrite and participate in this intimate and exclusive Washington Post Salon, an off-the-record dinner and discussion at the home of CEO and Publisher Katharine Weymouth. ... Bring your organization’s CEO or executive director literally to the table. Interact with key Obama administration and congressional leaders …

“Spirited? Yes. Confrontational? No. The relaxed setting in the home of Katharine Weymouth assures it. What is guaranteed is a collegial evening, with Obama administration officials, Congress members, business leaders, advocacy leaders and other select minds typically on the guest list of 20 or less. …

Read more: http://www.politico.com/news/stories/0709/24441.html#ixzz0K6yNKyHp&C
Related: Helen Thomas.
Posted by James Zellmer at 9:16 AM

June 30, 2009

US vs. Japan: Residential Internet Service Pricing

Chiehyu Li:
The following chart lists the price, download and upload speeds of residential Internet services in the U.S. and Japan.
NTT (Nippon Telegraph and Telephone) is the major incumbent telephone operator in Japan. NTT has focused on fiber-optic business while Yahoo! BB (a subsidiary of SoftBank Telecom Corp.) has had first-mover advantage for DSL Internet. Due to unbundling requirements, Yahoo! BB and @nifty provide DSL service by renting NTT’s telephone lines at low prices.

Cable/DSL service In the U.S., the price for cable or DSL (1Mbps-7 Mbps) ranges from roughly $20-45/month. Comcast has higher speed Internet, 15Mbps-50Mbps, and costs $43-$140 per month.
In Japan, the typical Internet speed is higher than the U.S. (8Mbps-50Mbps), and costs $30-60 per month. J:COM, a large cable Internet provider, has cable Internet up to 160Mbps, costs $63 ($0.4 per megabit).
Posted by James Zellmer at 8:29 AM

June 17, 2009

Who Switched the Playbooks

Jack Perkowski:
When I was starting up in China, many experts cautioned me on what I would encounter. “It’s not a free market and there’s no rule of law, they told me. “The government controls the courts, the companies and the banks. Central planners in Beijing, not the marketplace, decide what goods to produce and which companies should produce them.”

“Decisions are made for political, not economic reasons,” they went on to explain. “The heads of China’s state-owned enterprises serve at the pleasure of the Party, the banks are told what loans to make, and making a profit is secondary to ensuring employment. That’s the reason why China’s banks are a mess and full of non-performing loans.”

Occasionally, I would push back, noting the economic progress that China had made since Deng Xiaoping opened the economy in 1978. “You don’t believe the government’s numbers, do you?” they would ask incredulously. “Everyone knows they’re manufactured to convey whatever message the government wants. And, when it comes to financial statements, forget it. Chinese companies have at least three sets of books, and you can’t believe any of them.”
Posted by James Zellmer at 10:17 AM

June 16, 2009

Peter Bernstein's Lasting Lessons

Julia Kirby:
The news came to us at HBR just after our newest issue went to the printer; that issue contains, sadly, the last article he wrote for our pages. Because it is the July-August issue, and will arrive on newsstands two weeks hence, it will seem strange to many readers that the byline makes no note of his passing -- and worse, that the editor's letter is mute on the many accomplishments of his rich and long life. Such are the perils of print publishing, and for that we apologize.

But here let it be said that, when work began last January on envisioning the July-August issue -- a special, double-sized issue devoted wholly to exploring how the business landscape would be transformed by the financial crisis and recession -- Peter Bernstein's voice was the first we sought to include. He was the master at explaining issues of financial risk, and there has scarcely been a time when the world needed his kind of clear analysis more.

In response to a vaguely worded invitation from us (deliberately so, in the interests of giving Peter full license to address what he felt needed to be addressed), he came back with a tightly crafted essay called "The Moral Hazard Economy."
Posted by James Zellmer at 4:42 PM

May 30, 2009

The End of the Affair

PJ O'Rourke:

The phrase "bankrupt General Motors," which we expect to hear uttered on Monday, leaves Americans my age in economic shock. The words are as melodramatic as "Mom's nude photos." And, indeed, if we want to understand what doomed the American automobile, we should give up on economics and turn to melodrama.

Politicians, journalists, financial analysts and other purveyors of banality have been looking at cars as if a convertible were a business. Fire the MBAs and hire a poet. The fate of Detroit isn't a matter of financial crisis, foreign competition, corporate greed, union intransigence, energy costs or measuring the shoe size of the footprints in the carbon. It's a tragic romance--unleashed passions, titanic clashes, lost love and wild horses.

Foremost are the horses. Cars can't be comprehended without them. A hundred and some years ago Rudyard Kipling wrote "The Ballad of the King's Jest," in which an Afghan tribesman avers: Four things greater than all things are,--Women and Horses and Power and War.

Posted by jimz at 1:43 AM

May 21, 2009

A Letter to America from a Dodge Dealer

George C. Joseph:
My name is George C. Joseph. I am the sole owner of Sunshine Dodge-Isuzu, a family owned and operated business in Melbourne, Florida. My family bought and paid for this automobile franchise 35 years ago in 1974. I am the second generation to manage this business.

We currently employ 50+ people and before the economic slowdown we employed over 70 local people. We are active in the community and the local chamber of commerce. We deal with several dozen local vendors on a day to day basis and many more during a month. All depend on our business for part of their livelihood.

We are financially strong with great respect in the market place and community. We have strong local presence and stability. I work every day the store is open, nine to ten hours a day. I know most of our customers and all our employees. Sunshine Dodge is my life.

On Thursday, May 14, 2009 I was notified that my Dodge franchise, that we purchased, will be taken away from my family on June 9, 2009 without compensation and given to another dealer at no cost to them.
Posted by James Zellmer at 10:22 PM

May 17, 2009

U.S. Blues

Andrew Bary:
The bear market in Treasuries will worsen, because of a glut of government bonds. Instead, consider high-yielding mortgage securities and certain munis. (Video)

We're talking about U.S. Treasury securities, not housing. At the end of 2008, risk-averse investors poured into Treasuries, driving down yields to the lowest levels in decades. The 30-year Treasury bond fetched less than 3%, and short-term T-bills carried yields of zero.

Since then, the economy has shown signs of bottoming, the credit markets are functioning more normally, and the stock market has roared back from its March lows. Treasuries now are in a bear market, while bullish enthusiasm has taken hold in other parts of the credit market, including corporate bonds, municipals and mortgage securities, all of which had fallen from favor late last year. The 30-year Treasury, for instance, has risen to a yield of 4.10% from 2.82% at the end of 2008, cutting its price by 20%.

Barron's called a top in Treasuries and a bottom in the rest of the bond market in an early 2009 cover story ("Get Out Now!" Jan. 5). We weren't alone in recognizing some of the nutty year-end developments. Warren Buffett highlighted the sale in late 2008 by his Berkshire Hathaway of a Treasury bill for a negative yield. Buffett wrote in Berkshire's annual letter in February that when "the financial history of this decade is written...the Treasury-bond bubble of late 2008" may rank up there with the housing bubble of the early to middle part of the decade. - How does the market look now? Treasuries still look unappealing for several reasons. Yields are very low by historical standards, the government is issuing huge amounts of debt to fund record budget deficits, and the massive federal stimulus program ultimately may lead to much higher inflation.
Posted by James Zellmer at 10:10 PM

Finance It Again Tim Geihtner

Ed Wallace:
They say you don’t recognize history while you’re living through it, but it won’t be long before there’s no doubt about the historic character of what’s happening now. In the not too distant future, everyone will look back on this period and shake their heads, at both the disruption to our economy and many of our solutions to it. And when that day comes and today’s events can be seen with real clarity, we will all turn to each other and ask, "What were we thinking?"

Oh, well. There is at least one man today whose mind is already focused on where he will be standing many years from now. He has coolly witnessed the turmoil inflicted on our financial system and is dispassionately observing the panic that has overtaken us all in its wake. And, knowing that foolish decisions almost always follow emotional trauma, he alone is standing out front, gladly waiting to receive the fruits of the outrageous decisions we seem ready to make. He is Sergio Marchionne, the CEO of Fiat, and he is undoubtedly a genius without peer.

Encouraging Words

Consider if you will what is happening in the automobile industry today: A near catastrophic collapse in new car sales in most countries of the world. One might think that this signals consumers’ inability to purchase new cars, either for lack of a job or — as we have been told since last September — because they can’t get a loan for their transportation needs. But those issues are not really the problem. Many of the jobs lost were low paying jobs and therefore not new car buyers, for the rest, loans are readily available.
Posted by James Zellmer at 12:40 PM

May 16, 2009

The Machinery Behind Health-Care Reform How an Industry Lobby Scored a Swift, Unexpected Victory by Channeling Billions to Electronic Records

Robert O'Harrow, Jr:
When President Obama won approval for his $787 billion stimulus package in February, large sections of the 407-page bill focused on a push for new technology that would not stimulate the economy for years.

The inclusion of as much as $36.5 billion in spending to create a nationwide network of electronic health records fulfilled one of Obama's key campaign promises -- to launch the reform of America's costly health-care system.

But it was more than a political victory for the new administration. It also represented a triumph for an influential trade group whose members now stand to gain billions in taxpayer dollars.

A Washington Post review found that the trade group, the Healthcare Information and Management Systems Society, had worked closely with technology vendors, researchers and other allies in a sophisticated, decade-long campaign to shape public opinion and win over Washington's political machinery.
Automation certainly makes sense, but we taxpayers should not be subsidizing it....
Posted by James Zellmer at 6:58 AM

May 13, 2009

America's Triple A Credit Rating at Risk

David Walker:
Long before the current financial crisis, nearly two years ago, a little-noticed cloud darkened the horizon for the US government. It was ignored. But now that shadow, in the form of a warning from a top credit rating agency that the nation risked losing its triple A rating if it did not start putting its finances in order, is coming back to haunt us.

That warning from Moody’s focused on the exploding healthcare and Social Security costs that threaten to engulf the federal government in debt over coming decades. The facts show we’re in even worse shape now, and there are signs that confidence in America’s ability to control its finances is eroding.

Prices have risen on credit default insurance on US government bonds, meaning it costs investors more to protect their investment in Treasury bonds against default than before the crisis hit. It even, briefly, cost more to buy protection on US government debt than on debt issued by McDonald’s. Another warning sign has come from across the Pacific, where the Chinese premier and the head of the People’s Bank of China have expressed concern about America’s longer-term credit worthiness and the value of the dollar.

The US, despite the downturn, has the resources, expertise and resilience to restore its economy and meet its obligations. Moreover, many of the trillions of dollars recently funnelled into the financial system will hopefully rescue it and stimulate our economy.
Posted by James Zellmer at 3:43 PM

April 14, 2009

What I Learned in My 16 Years on the Tax Beat What I Learned in My 16 Years on the Tax Beat

Tom Herman:
Nearly 40 years ago, as a recent college graduate, I made a painful discovery: I couldn't figure out how to do my own federal income-tax return.

That was embarrassing, and it made me wonder what other Americans do. So I wrote my first major tax story: I asked five different tax-preparation services in the Atlanta area to prepare returns for a family of four with fairly typical finances. The results: At one extreme, a tax expert said the family was entitled to a federal income-tax refund of $652.04. But another said the family owed $141 -- a difference of $793.04.

That experience made me feel somewhat less dumb, but the article didn't have much impact: Since then, our tax system has evolved from a mess to a nightmare. The pace of change has accelerated in recent decades as lawmakers increasingly have tried to use tax laws to reward or punish conduct. The number of pages in the CCH Standard Federal Tax Reporter, which records tax law, regulations and related material, has soared to 70,320 from 26,300 in 1984.

More than 60% of all individual returns are signed by professional preparers, up from 46% in the mid-1980s. Joel Slemrod, an economics professor at the University of Michigan, estimates that the time and money individuals spend on tax compliance now comes to about $90 billion a year.
Posted by James Zellmer at 11:23 PM

March 31, 2009

How Bailouts Can Butcher Capitlism

Rick Newman:
One unhappy hallmark of the Great Recession is a dramatic spike in financial distress. Moody's predicts that the default rate on corporate debt--which helps foretell bankruptcies--will be three times higher this year than in 2008. Home foreclosures are already at record highs, and going higher. Defaults on credit cards and other consumer debt will crest right behind mortgages.

The Obama administration is on the case, bailing out banks and homeowners and aiding dozens of industries either directly, through a financial-rescue scheme that could top $2 trillion, or indirectly, through the $787 billion stimulus bill. Automakers, furniture companies, real estate developers, and even porn magnates have their hands out.

[See a tally of the bailout efforts so far.]

Those efforts ought to help soften a sharp recession. But the unprecedented aid to the private sector may also unleash new problems, the way antibiotics have generated stronger strains of bacteria. "There's something fundamental about the need for failure," says Syd Finkelstein, a professor at Dartmouth's Tuck School of Business and author of Think Again: Why Good Leaders Make Bad Decisions and How to Keep It From Happening to You. "We're tinkering with the genetic DNA of a capitalist society."
Posted by James Zellmer at 11:31 AM

March 27, 2009

The Quiet Coup

Simon Johnson:
The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF's staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we're running out of time.
Posted by James Zellmer at 7:32 AM

March 24, 2009

Fed & Treasury: Putting off Hard Choices with Easy Money (and Probable Chaos)

John Hussman:
Brief remark - from early reports regarding the toxic assets plan, it appears that the Treasury envisions allowing private investors to bid for toxic mortgage securities, but only to put up about 7% of the purchase price, with the TARP matching that amount - the remainder being "non-recourse" financing from the Fed and FDIC. This essentially implies that the government would grant bidders a put option against 86% of whatever price is bid. This is not only an invitation for rampant moral hazard, as it would allow the financing of largely speculative and inefficently priced bids with the public bearing the cost of losses, but of much greater concern, it is a likely recipe for the insolvency of the Federal Deposit Insurance Corporation, and represents a major end-run around Congress by unelected bureaucrats.


Last week, the Federal Reserve announced its intention to purchase a trillion dollars worth of Treasury debt by creating the little pieces of paper in your pocket that have “Federal Reserve Note” inscribed at the top. In effect, the Fed intends to monetize the Treasury debt in an amount that exceeds the entire pre-2008 monetary base of the United States.

Apparently, the Fed believes that absorbing part of the massively expanding government debt and maybe lowering long-term rates by a fraction of a percentage point will increase the capacity and incentive of the markets to purchase risky and toxic debt. Bernanke evidently believes that the choice between a default-free investment and one that is entirely open to principal loss comes down to a few basis points in interest. Even now, the expansion of federal spending as a fraction of GDP has clear inflationary implications looking a few years out, so any expectation that long-term Treasury yields will fall in response to the Fed's buying must be coupled with the belief that investors will ignore those inflation risks.
Posted by James Zellmer at 8:56 AM

March 23, 2009

The Political Class & Taxes, More

Andrew Malcolm:
Oh-oh, looks like more tax troubles for another Democrat in Washington.

California's Rep. Pete Stark, a senior House Democrat who helps write the nation's tax laws, has been claiming a $1.7 million Maryland home as his principal residence in recent years, although he represents the Golden State's 13th District on the east side of San Francisco Bay.

The 77-year-old Stark has saved himself nearly $3,900 in state and county taxes by claiming the six-acre waterfront estate as his principal residence, according to an investigation by Bloomberg News.

Maryland law allows the tax break only to those residences used "for the legal purposes of voting, obtaining a driver's license, and filing income tax returns."

Notified of the discovery, a state official said an investigation would be launched.
Posted by James Zellmer at 5:04 PM

March 18, 2009

How Rich Countries Die

Philip Greenspun:
This is a book report on The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities, by Mancur Olson. There isn’t a whole lot about how nations pulled themselves out of their medieval stagnation (see A Farewell to Alms for that), so a better title for this still-in-print book from 1982 would be “How Rich Countries Die.”

Table 1.1 shows annual rates of growth in per-capita GDP for each of three decades, the 1950s, 60s, and 70s, in a range of rich countries. Contrary to our perception of the U.S. as a growth dynamo and the Europeans as sclerotic, France and Germany tremendously outperformed the U.S., as did most of the other countries. If we have grown larger it is because our population has expanded much faster than the European countries.

Chapter 2 summarizes Olson’s groundbreaking work on how interest groups work to reduce a society’s efficiency and GDP. Some of this work seems obvious in retrospect and indeed Adam Smith noted that businessmen rarely met without conspiring against the public interest. There are a handful of automobile producers and millions of automobile consumers. It makes sense for an automobile company, acting individually, to lobby Congress for tariffs. The company will reap 20-40 percent of the benefits of the tariff. It doesn’t make sense for an individual consumer, however, to lobby Congress. It will cost him millions of dollars to lobby against Congress and preventing the tariff will save him only a few thousand dollars on his next car purchase. The economy suffers because some resources that would have been put to productive use are instead hanging around Washington and because cars are more expensive than they should be.
Posted by James Zellmer at 2:27 PM

Slaughtering sacred cows: it's the turn of the unsecured creditors now

Willem Buiter:
Why are the unsecured creditors of banks and quasi-banks like AIG deemed too precious to take a hit or a haircut since Lehman Brothers went down? From the point of view of fairness they ought to have their heads on the block. It was they who funded the excessive leverage and risk-taking of banks and shadow banks. From the point of view of minimizing moral hazard - incentives for future excessive risk taking - it is essential that they pay the price for their past bad lending and investment decisions. We are playing a repeated game. Reputation matters.

Three arguments for saving the unworthy hides of the unsecured creditors are commonly presented:
Posted by James Zellmer at 2:18 PM

March 16, 2009

Wisconsin: No Fiber to the Home Activity.....

Scott Wilkinson & Benoit Felton:
I have been collaborating with Benoit Felton, a Yankee Group analyst based in Paris, and others on a map of FTTP (fiber to the premises) sites worldwide. For now, I'm doing most of the U.S. sites as time permits. There are still quite a few to add, since the U.S. FTTP deployments tend to be local municipal or utility networks, with the notable exception of Verizon's successful FiOS service.

It’s pretty impressive, and is something to think about when your local telecommunications provider claims that you should be happy with your 1Mbps DSL connection.
The "video competition bill" - largely pushed by AT&T was a major miss for Wisconsin.
Posted by James Zellmer at 8:22 AM

March 15, 2009

The Shaming of John Thain

Greg Farrell & Henny Sender:
John Thain is giving us a tour of what is soon to become America’s most infamous office, with its $87,000 rug, $68,000 sideboard, $28,000 curtains – all part of a $1.2m redecoration scheme. This was early December, a little under two months before Thain would be fired in the same room by his new boss, Ken Lewis, chief executive of Bank of America.

For now, before a price tag had been placed on every item in his office, the 53-year-old chief executive of Merrill Lynch was in high spirits. The worst year on Wall Street in nearly a century was coming to an end, and Thain could rightfully claim to have saved his bank from ruin. Over a weekend in mid-September, as Lehman Brothers collapsed into bankruptcy, Thain pulled off a coup: he persuaded BofA, one of the few financial giants in the US that didn’t need government money to survive, to pay $29 per share for his own firm, even though Merrill was days away from following Lehman into bankruptcy.

Thain had taken over as Merrill chief executive nine months before that weekend deal. Now, he appeared to be one of the few Wall Street leaders who grasped the enormity of the credit crisis. Thanks to his analytical approach to the marketplace, it seemed, Merrill shareholders could look forward to a stake in Bank of America. “I have received thousands of e-mails saying, ‘Thank you for saving our company’,” Thain told us that day. And yet he admitted that the decision to sell Merrill Lynch – a 94-year-old institution that was always “bullish on America” – had been painful. “This was a great job. This was a great franchise. Emotionally, it was a huge responsibility.”
Posted by James Zellmer at 10:08 PM

March 10, 2009

Buffett Speaks Against the Obama Splurge

Mickey Kaus:
BUFFETT: ...And, Joe, it--if you're in a war, and we really are on an economic war, there's a obligation to the majority to behave in ways that don't go around inflaming the minority. If on December 8th when--maybe it's December 7th, when Roosevelt convened Congress to have a vote on the war, he didn't say, `I'm throwing in about 10 of my pet projects ... [snip] ... JOE: Yeah, but you might--might not have fixed...
BUFFETT: But I say...

JOE: You might not--you might not have fixed global warming the day after--the day after D-Day, Warren.
BUFFETT: Absolutely. And I think that the--I think that the Republicans have an obligation to regard this as an economic war and to realize you need one leader and, in general, support of that. But I think that the--I think that the Democrats--and I voted for Obama and I strongly support him, and I think he's the right guy--but I think they should not use this--when they're calling for unity on a question this important, they should not use it to roll the Republicans all.
More from Shailagh Murray.
Posted by James Zellmer at 9:19 AM

March 7, 2009

The Fed's moral hazard maximising strategy

Willem Buiter:
The reports on the evidence given by the Vice Chairman of the Federal Reserve Board, Don Kohn, to the Senate Banking Committee about the Fed's role in the government's rescue of AIG, have left me speechless and weak with rage. AIG wrote CDS, that is, it sold credit default swaps that provided the buyer of the CDS (including some of the world's largest banks) with insurance against default on bonds and other credit instruments they held. Of course the insurance was only as good as the creditworthiness of the party writing the CDS. When it was uncovered during the late summer of 2008, that AIG had nurtured a little rogue, unregulated investment banking unit in its bosom, and that the level of the credit risk it had insured was well beyond its means, the AIG counterparties, that is, the buyers of the CDS, were caught with their pants down.

Instead of saying, "how sad, too bad" to these counterparties, the Fed decided (in the words of the Wall Street Journal), to unwind ".. some AIG contracts that were weighing down the insurance giant by paying off the trading partners at the full value they expected to realize in the long term, even though short-term values had tumbled."

An LSE colleague has shown me an earlier report in the Wall Street Journal (in December 2008), citing a confidential document and people familiar with the matter, which estimated that about $19 billion of the payouts went to two dozen counterparties between the government bailout of AIG in mid-September and early November 2008. According to this Wall Street Journal report, nearly three-quarters was reported to have gone to a group of banks, including Société Générale SA ($4.8 billion), Goldman Sachs Group ($2.9 billion), Deutsche Bank AG ($2.9 billion), Credit Agricole SA's Calyon investment-banking unit ($1.8 billion), and Merrill Lynch & Co. ($1.3 billion). With the US government (Fed, FDIC and Treasury) now at risk for about $160 bn in AIG, a mere $19 bn may seem like small beer. But it is outrageous. It is unfair, deeply distortionary and unnecessary for the maintenance of financial stability.

Don Kohn ackowledged that the aid contributed to "moral hazard" - incentives for future reckless lending by AIG's counterparties - it "will reduce their incentive to be careful in the future." But, here as in all instances were the weak-kneed guardians of the common wealth (or what's left of it) cave in to the special pleadings of the captains of finance, this bail-out of the undeserving was painted as the unavoidable price of maintaining, defending or restoring financial stability. What would have happened if the Fed had decided to leave the AIG counterparties with their near-worthless CDS protection?

The organised lobbying bulldozer of Wall Street sweeps the floor with the US tax payer anytime. The modalities of the bailout by the Fed of the AIG counterparties is a textbook example of the logic of collective action at work. It is scandalous: unfair, inefficient, expensive and unnecessary.
Posted by James Zellmer at 6:33 PM

March 4, 2009

Wall Street on the Tundra

Michael Lewis:
celand’s de facto bankruptcy—its currency (the krona) is kaput, its debt is 850 percent of G.D.P., its people are hoarding food and cash and blowing up their new Range Rovers for the insurance—resulted from a stunning collective madness. What led a tiny fishing nation, population 300,000, to decide, around 2003, to re-invent itself as a global financial power? In Reykjavík, where men are men, and the women seem to have completely given up on them, the author follows the peculiarly Icelandic logic behind the meltdown. by MICHAEL LEWIS April 2009

Just after October 6, 2008, when Iceland effectively went bust, I spoke to a man at the International Monetary Fund who had been flown in to Reykjavík to determine if money might responsibly be lent to such a spectacularly bankrupt nation. He’d never been to Iceland, knew nothing about the place, and said he needed a map to find it. He has spent his life dealing with famously distressed countries, usually in Africa, perpetually in one kind of financial trouble or another. Iceland was entirely new to his experience: a nation of extremely well-to-do (No. 1 in the United Nations’ 2008 Human Development Index), well-educated, historically rational human beings who had organized themselves to commit one of the single greatest acts of madness in financial history. “You have to understand,” he told me, “Iceland is no longer a country. It is a hedge fund.”
Posted by James Zellmer at 9:12 AM

March 3, 2009

Uwe Reinhardt on the health of the economy and the economics of health

Willem Buiter:
My friend professor Uwe E. Reinhardt of Princeton University presented ECONOMIC TRENDS IN U.S HEALTH CARE: Implications for Investors, at J.P. Morgan's annual healthcare conference on Tuesday, January 13 2009. The first half of the presentation (46 slides!) deals with macroeconomic and financial issues in Uwe's inimitable style - equal portions of wit and insight. The second half deals with the embarrassing mess known as health care in the US.
Posted by James Zellmer at 9:27 PM

March 2, 2009

The banking crisis as a foreign policy issue

Tyler Cowen:
Here is some simple background:
If we let A.I.G. fail, said Seamus P. McMahon, a banking expert at Booz & Company, other institutions, including pension funds and American and European banks “will face their own capital and liquidity crisis, and we could have a domino effect.” A bailout of A.I.G. is really a bailout of its trading partners — which essentially constitutes the entire Western banking system.
No one wants to say it, but essentially the Fed has been bailing out European banks.

The inflation-adjusted cost of the Marshall plan has been estimated at about $115 billion in current dollars. If we end up spending $250 billion on AIG, how much of that sum will go to European financial institutions and might it someday exceed the scope of the Marshall plan? (I do not, by the way, think that central banks ought to treat foreign creditors differently.)
More from the Economist.
Posted by James Zellmer at 7:22 AM

March 1, 2009

Visualization of the Credit Crisis

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.
Posted by James Zellmer at 5:14 PM

February 25, 2009

An Email to Congresswoman Tammy Baldwin and Senators Russ Feingold and Herb Kohl

Dear [ ]: I hope this message finds you well.

I am writing to express my great concern over this information. Please investigate and determine if it is true.

DoD Officials Vow Secrecy on Budget


If so, this is very disappointing and wrong.

I also would like you to investigate the amount of private jet use by elected officials (both government aircraft and those provided by campaigns and lobbyists). Dilbert has it right:


Website and contact information: Tammy Baldwin, Russ Feingold and Herb Kohl.
Posted by James Zellmer at 9:23 AM

February 24, 2009

Barack Obama Tells Germany Not To Abandon Their Auto Industry

Robert Farago quoting President Obama:
“As for our auto industry, everyone recognizes that years of bad decision-making and a global recession have pushed our automakers to the brink. We should not, and will not, protect them from their own bad practices.

“But we are committed to the goal of a re-tooled, re-imagined auto industry that can compete and win. Millions of jobs depend on it. Scores of communities depend on it. And I believe the nation that invented the automobile cannot walk away from it.”
Posted by James Zellmer at 9:45 PM

February 22, 2009

An Interview with FedEx CEO Fred Smith

SF Chronicle:
Frederick W. Smith, the founder, president, chairman and CEO of FedEx, built the first overnight express delivery company in the world, starting in 1971. Today, FedEx, based in Memphis, has service in more than 220 countries and territories.

Like most other businesses, FedEx is encountering economic turmoil and is operating by Smith's belt-tightening orders. He cut his own salary by 20 percent.

Legend has it that Smith, 64, outlined his concept for FedEx in a paper in an economics class at Yale University for which he earned a C. (He corrects the record in this interview.) At Yale, he was a friend and fraternity brother of former President George W. Bush, to whom he believes history ultimately will be more kind.

In the Marine Corps in Vietnam, Smith received the Silver Star, the Bronze Star and two Purple Hearts as a platoon leader and forward air controller. It was there that he observed military procurement and delivery procedures and thought he could improve on them.

Smith is unwavering in his belief that U.S. corporate tax policy must change, but practical enough to know that the new administration and Congress will not go along with the idea. He still believes one aspect could be enacted - accelerating the expensing of capital investment that would put money into corporate hands sooner.
Posted by James Zellmer at 8:21 PM

Recovery.gov is Web 1.0; Stimuluswatch.org is Web 2.0

President has signed The American Recovery and Reinvestment Act of 2009, which includes $7.2 billion for broadband access. You can see a brief summary of the bill here.

As we have seen, the Obama administration hopes to use the Internet for transparent, two-way communication with the public. To this end, they have launched the Recovery.gov Web site, which will be continuously updated, telling us "how, when and where" the recovery funds are spent.

As of today, Recovery.gov is definitely a Web 1.0 site -- it summarizes the Recovery Act, requests comments using an email form, and asks us to check back frequently for data on spending. They don't even have RSS feeds.

Contrast that with Stimuluswatch.org, a Web 2.0 site. Stimuluswatch began by importing a database of "shovel ready" projects that was posted by the US Conference of Mayors. Users can search the database by city, keyword and project type, and view the project descriptions and estimated cost and number of jobs created.
Posted by James Zellmer at 7:49 PM

February 20, 2009

Just the Tip of the Iceberg...

The Peter Peterson Foundation. Video
Posted by James Zellmer at 8:40 AM

February 16, 2009

Federal Government Contracts: Wisconsin's 2nd Congressional District

Top 5 Contractors
Wisconsin Physicians Service Insurance Corporation $161,241,933
Didion Milling, Inc. $28,254,732
University of Wisconsin System $21,021,695
Facility Leaders In Architectural/Engineering Design, P.C. $20,405,886
Metastar Inc $19,600,777

Complete list of 2nd Congressional District contractors.
Top 5 contractors: State of Wisconsin:
Top 5 Contractors
Oshkosh Corporation $1,481,203,487
General Electric Company $248,269,326
The Manitowoc Company Inc $178,329,866
Wisconsin Physicians Service Insurance Corporation $161,241,933
National Presto Industries, Inc. $125,773,563

Complete list of 2008 Wisconsin contractors.
Posted by James Zellmer at 8:55 AM

February 11, 2009

February 10, 2009

A Comparison of the House & Senate Stimulus/Splurge Bills

Josh Tauberer @ Govtrack.us:
One of the concrete benefits of open government data is that third parties can use the data to do something useful that no one in government has the mandate, resources, or insight to do. If you think what I am about to tell you below is cool, and helpful, then you are a supporter of open government data.

On my site GovTrack, you can now find comparisons of the text of H.R. 1, the stimulus bill, at different stages in its legislative life --- including the House version (as passed) and the current Senate version (amendment 570).

The main page on GovTrack for HR 1 is: http://www.govtrack.us/congress/bill.xpd?bill=h111-1 Here's a direct link to the comparison: http://www.govtrack.us/congress/billtext.xpd?bill=h111-1&version=as2&compareto=eh&view=side:

Comparisons are possible between any two versions of the bill posted by GPO. Comparisons are available for any bill.

If you find this useful, please take a moment to consider that something like this is possible only when Congress takes data openness seriously. When GPO went online and THOMAS was created in the early 90s, they chose good data formats and access policies (mostly). But the work on open government data didn't end 15 years ago. As "what's hot" shifts to video and Twitter, the choices made today are going to impact whether or not these sources of data empower us in the future, whether or not we miss exciting opportunities such as having tools like the one above.

(Thanks to John Wonderlich and Peggy Garvin for some side discussion about this before my post. GovTrack wasn't initially picking up the latest Senate versions because GPO seems to have gone out of its way to accommodate posting the latest versions before they were passed by the Senate, which is great, but caught GovTrack by surprise.)

Josh Tauberer
Posted by James Zellmer at 10:10 AM

February 1, 2009

A Guide To Bailout Transparency Sites

Elinore Longobardi:
It is no secret that bailout transparency is a problem.

Now that taxpayers have become financiers, we have a right to know where the money is going. In search of organizations with the curiosity and resources to help figure that out, we trolled the Internet for good, easily available bailout information and came up with several sites worth looking at.

You can get charts describing the allocation of bailout money from a variety of sources. Some are easier to find than others, and we’ll leave it up to the reader to figure out what it means that the WSJ has a quick link for the Super Bowl but not the bailout.

But even after you find them, charts will only get you so far.

If you are looking to understand the big picture, you should go first to organizations that focus specifically on tracking the bailout. Not only do they piece together information from a variety of sources, saving you the trouble, but a few also do their own snooping around.

A good place to start is Open the Government, an organization devoted to greater government transparency in general, and with a specific page on the bailout. The page is a good launching pad because it compiles a lot of information—from government organizations, news outlets and watchdogs—as well as providing a calendar of relevant dates. In the spirit of common cause, Open the Government also links to other bailout watchdog groups.
Posted by James Zellmer at 8:40 PM

January 22, 2009

"Government Checks for Consumer Spending?"

Philip Geier's 232K PDF advertisement in today's fishwrap edition of the New York Times. Use the grandkids credit cards to spend now.....
Posted by James Zellmer at 9:51 PM

Our Tax Dollars Supporting Goldman Sach's Latest Acquisition

Bill Perkins is at it again in the New York Times. More Bill Perkins activism on the bailout/splurge, here.
Posted by James Zellmer at 9:44 PM

TARP Funds: State by State Analysis

Wall Street Journal:
In unveiling its bank-share purchase program, the Treasury Department required nine of the nation's largest financial-services companies to sell a total of $125 billion in preferred stock to the government, and said an additional $125 billion in stock could be bought from other firms on a voluntary basis. Below, see a list of participating companies.
Posted by James Zellmer at 10:56 AM

January 13, 2009

The Case for Overhauling a U.S. Tax System Even Congress Doesn't Understand

Sam Dealey:
"The monopoly on good ideas does not belong to a single party," President-elect Obama reportedly told congressional leaders Monday during a private meeting about an economic stimulus package. "If it's a good idea, we will consider it."

When it comes to taxpayer money—raising, spending, and occasionally deigning to return it—neither party in Congress has demonstrated particularly good ideas lately. The majority of lawmakers seem to believe that stimulating the economy means expanding recurring welfare programs, plowing money into pet projects of only limited or short-term use, and bestowing inadequate, selective tax cuts.

But if Obama is looking for ideas, he might consult with Nina Olson, the national taxpayer advocate at the IRS. In her annual report to Congress, released yesterday, Olson makes a persuasive case for overhauling the U.S. tax system.
Posted by James Zellmer at 9:43 AM

January 11, 2009

Doctor Side Pay from Drug Companies

John Fauber:
Barry Fox is in big demand. The UW infectious disease specialist had lucrative side jobs working for seven different drug companies in just one year, including one that paid an undisclosed sum of $20,000 or more, records show.

Fox is one of dozens of University of Wisconsin-Madison physicians who also work for drug companies. Some sit on advisory boards; others do promotional or educational work. Fox, for example, did promotional work involving an antibiotic for one company in 2007, working five days for what appears to be at least $2,000 a day, his disclosure form says.

Doctors' moonlighting for drug companies - though legal - is coming under increased scrutiny, both at UW and across the country. This month, the trade group Pharmaceutical Research and Manufacturers of America enacted a voluntary ban on company gifts of branded pens, sticky notes and other items and dinners for doctors. Also of special concern are university physicians who are sought by drug companies because of the influence and respect they wield with colleagues practicing in communities.

Most patients have no knowledge of the side work. Even the university is not aware of exactly how much its doctors earn from drug and medical device companies; they are required to disclose only ranges of income received, and no range beyond $20,000.

More than 30 UW physicians exceeded the $20,000 threshold in 2006 and 2007, records show. At least one of those doctors made at least 20 times that amount in previous years - more than $400,000, paid by a maker of orthopedic implants. But that became known in 2006 only because of records filed in a lawsuit.

Last week, for the first time, signs went up in a handful of UW Health clinics alerting patients about doctors' drug company ties. In addition, the dean of the medical school said the university's policies need to be shored up. Among other things, the medical school might begin requiring doctors to specify how much they are paid, said Robert Golden, head of the UW School of Medicine and Public Health.

Further, U.S. Sens. Herb Kohl (D-Wis.) and Chuck Grassley (R-Iowa) have introduced a bill that would require drug and medical device companies to disclose payments made to physicians. Kohl said it would be best to ban the practice, noting that the medical industry spends $20 billion a year in payments and gifts to doctors.

"The relationship between the doctor and patient is frayed," Kohl said.
Posted by James Zellmer at 1:32 PM

December 27, 2008

The Marshfield Clinic's Electronic Medical Records System in the News

Steve Lohr:
Joseph Calderaro, 67, is one of health care’s quiet success stories. Over the last four years, he has carefully managed his diabetes by lowering his blood sugar, blood pressure and cholesterol with diet, exercise and medication.

To keep on track, Mr. Calderaro visits his doctor, attends meetings for diabetes patients and gets frequent calls from a health counselor. It is a team effort, orchestrated by the Marshfield Clinic here. And it is animated by technology, starting with Mr. Calderaro’s computerized patient record — a continuously updated document that includes his health history, medications, lab tests, treatment guidelines and doctors’ and nurses’ notes.

To visit the Marshfield Clinic, a longtime innovator in health information technology, is to glimpse medicine’s digital future. Across the national spectrum of health care politics there is broad agreement that moving patient records into the computer age, the way Marshfield and some other health systems have already done, is essential to improving care and curbing costs.
There has been some loose talk about the Obama administration providing "incentives" for health care automation. These investments should be made on their merits, rather than funded by yet another taxpayer give-away.

Marshfield apparently built their own system, a competitor to Verona based Epic Systems.

Might this article be part of their initial marketing efforts to other health care organizations?
Posted by James Zellmer at 7:45 AM

December 22, 2008

On the Fed Printing Money

James Grant:
It is a sorry place at which we Americans find ourselves this none-too-festive holiday season. The biggest names on Wall Street have gone to their rewards or into partnership with the U.S. Treasury. Foreigners stare wide-eyed from across the waters. A $50 billion Ponzi scheme (baited with, of all things in this age of excess, the promise of low, spuriously predictable returns)? Interest rates over which tiny Japanese rates fairly tower? Regulatory policy seemingly set by a weather vane? A Federal Reserve that can't make up its mind: Is it in the business of central banking or of central planning? And to think -- our disappointed foreign friends mutter -- all of these enormities taking place under a Republican administration.

Trust itself entered a bear market in 2008, complementing and perhaps surpassing the selloffs in stocks, mortgages and commodities. Never to be confused with angels, we humans seem to outdo ourselves when money is on the line. So it is that Bernard Madoff, supposed pillar of the community, stands accused of perpetrating one of the greatest hoaxes since John Law discovered the inflationary possibilities of paper money in the early 18th cent
Posted by James Zellmer at 10:29 PM

December 13, 2008

Campaign Contributions & Congressional Votes for the "Auto Bailout"


BERKELEY, CA, Dec. 11 —Members of the U.S. House of Representatives voted to pass the Auto Industry Financing and Restructuring Act last night. MAPLight.org's research department revealed that over the past five years (January 2003 - October 2008), auto manufacturers, auto dealers and labor unions gave an average of $74,100 in campaign contributions to each Representative voting in favor of the auto bailout, compared with an average of $45,015 to each Representative voting against the bailout--65% more money, on average, given to those who voted Yes. The final vote: 237 Representatives voted Yes and 170 voted No, with 26 Not Voting and 1 voting “Present.”

MAPLight.org's analysis included contributions from auto manufacturers, auto dealers, auto-related industries and labor unions, groups that have expressed support for this bill's passage.
Related: Lessig is moving back to Harvard:
As faculty director of the Center, Lessig will expand on the center’s work to encourage teaching and research about ethical issues in public and professional life. He will also launch a major five-year project examining what happens when public institutions depend on money from sources that may be affected by the work of those institutions — for example, medical research programs that receive funding from pharmaceutical companies whose drugs they review, or academics whose policy analyses are underwritten by special interest groups.
Posted by James Zellmer at 8:20 PM

November 25, 2008

America’s Debt to Income Ratio as Compared with Other Countries

Credit Loan Blog:
Seven of the top ten debtor nations are included in the world’s top ten economies. Not surprising. This is largely a result of widespread availability of affordable credit, and relatively large middle classes in these countries, and consequently a large ratio of home/property owners. Most popular rhetoric on the topic would claim that wealthy countries have grown accustomed to being wealthy and they are enthralled by consumerism – it could be argued that this high level of debt could be a result of a culture that is used to and willing to buy now, and pay later…even if it means with interest.

According to our data, Japan has the highest positive income (in gross terms) at US $2,892 Billion. Similarly, the US economy is $1,594 Billion. At the other side of the spectrum, Great Britain’s income to debt ratio is a US -$7,677 Billion, and that of France is -$1,890 Billion. But what do these statistics mean on an individual level? Well, if you were to boil down what each person in this country contributed to the nation’s income vs. debt ratio, the results would be startling. We would have to take into consideration the nation’s population to better understand this. And some may be surprised to see that the US does not fare quite as bad as imagined, comparatively:
Posted by James Zellmer at 10:39 AM

November 23, 2008

2008 Wisconsin Public Records Audit: 3 in 10 public-records requests not properly fulfilled, new study finds

Bill Lueders & Jason Shephard:
A statewide public records audit found that one in 10 requests for basic documents were denied or ignored by local governments.

Another two in 10 requests were fulfilled only after records custodians required the requesters to identify themselves or explain why they wanted the documents, in violation of state law.

The audit, conducted by the Wisconsin Freedom of Information Council and the University of Wisconsin-Madison School of Journalism and Mass Communication, involved 318 public records requests filed in 65 counties.

“We were not trying to trick anyone," says Bill Lueders, the Council's elected president and news editor of Isthmus newspaper. "We asked for basic information that no one should have any problems getting. And yet there were problems."
Posted by James Zellmer at 3:46 PM

Has the Fed Mortgaged Its Own Future?

Jack Willoughby:
The Fed's highly leveraged balance sheet will make it hard to fight inflation.

IF THE FEDERAL RESERVE BANK WERE A COMMERCIAL LENDER, it would be a candidate for receivership, based on its capital ratios. Bank examiners generally view any lender with a ratio below 2% to be dangerously undercapitalized. The Fed's current capital ratio, or capital as a percentage of assets, is 1.9%.

The Fed has provided so many loans and emergency credits -- to banks, brokers, money funds and foreign countries -- that its balance sheet, viewed one way, is as leveraged as any hedge fund's: Its consolidated assets amount to 53 times capital. Only 11 months ago, its leverage on this basis was a more modest 25 times, and its capital ratio 4%. A caveat: Many of the loans are self-liquidating facilities that will disappear in a few months if the financial crisis eases.

Although the Fed's role as a central bank is much different from the role of a private-sector operation, the drastic changes in the size and shape of its balance sheet worry even some long-time Fed officials. Its consolidated assets have swelled to $2.2 trillion from $915 billion in about 11 months, and contain at least a half-dozen items that weren't there before. Some, like a loan to backstop the purchase of a brokerage, Bear Stearns, are unprecedented. (See table for highlights.)
Posted by James Zellmer at 3:33 PM

November 17, 2008

Memorandum to US Treasury Secretary Hank Paulson

Michael Lewis:
A former chief executive officer of Goldman Sachs Group Inc. does not mingle with boat dealers; he mingles with investment bankers; and the first rule, before handing out taxpayer money, is to have mingled with the people you want to hand it to.(That way they know whom they owe). I admire your ability to recognize your “circle of competence” and live within it.

Still, I do feel that in me, and my little literary business, there is opportunity for you, and your $700 billion. Allow me to explain why.

Be Fair

1) By giving the money to me, instead of someone less deserving, you will make the world a fairer place.

As much as I admire all of your decisions I can’t help but notice that the main qualification of the bankers to whom you have been giving money, so that they might make smart loans, is that they have gone almost bankrupt by making stupid loans.

As your mind is subtle, I can only assume that you secretly believe that the American economy right now needs not smart loans, but more stupid ones -- and thus that you have targeted the bankers who have proven they can make them.

I, unfortunately, have not flirted with bankruptcy, or made any stupid loans. But here’s my point: I haven’t been given the chance! Allow me to prove my financial ineptitude to you. I swear to you that when I return for my second round of assistance I will have proven myself fully qualified to receive it.
Posted by James Zellmer at 8:11 AM

November 12, 2008

The End of Wall Street's Boom

Michael Lewis:

To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. The essential function of Wall Street is to allocate capital--to decide who should get it and who should not. Believe me when I tell you that I hadn't the first clue.

I'd never taken an accounting course, never run a business, never even had savings of my own to manage. I stumbled into a job at Salomon Brothers in 1985 and stumbled out much richer three years later, and even though I wrote a book about the experience, the whole thing still strikes me as preposterous--which is one of the reasons the money was so easy to walk away from. I figured the situation was unsustainable. Sooner rather than later, someone was going to identify me, along with a lot of people more or less like me, as a fraud. Sooner rather than later, there would come a Great Reckoning when Wall Street would wake up and hundreds if not thousands of young people like me, who had no business making huge bets with other people's money, would be expelled from finance.

When I sat down to write my account of the experience in 1989--Liar's Poker, it was called--it was in the spirit of a young man who thought he was getting out while the getting was good. I was merely scribbling down a message on my way out and stuffing it into a bottle for those who would pass through these parts in the far distant future.

Posted by jez at 9:18 AM

October 10, 2008

Judge Tosses TDS Lawsuit Against Minnesota Municipal Fiber Optic Project

Nate Anderson:

When the 12,000 person city of Monticello, Minnesota voted overwhelmingly to put in a city-owned and -operated fiber-optic network that would link up all homes and business to a fast Internet pipe, the local telco sued to stop them. Wednesday, District Court Judge Jonathan Jasper dismissed the suit with prejudice after finding that the city was well within its rights to build the network by issuing municipal bonds. In this case, however, a total loss for the telco might actually turn out to be a perverse sort of victory.

The judge's ruling, a copy of which was seen by Ars Technica, is noteworthy for two things: (1) the judge's complete dismissal of Bridgewater Telephone Company's complaint and (2) his obvious anger at the underfunding of Minnesota's state courts. Indeed, the longest footnote in the opinion is an extended jeremiad about how much work judges are under and why it took so long to decide this case, even going so far as to cite approvingly a newspaper editorial backing more funds for the court.

Bridgewater's basic complaint was that cities in Minnesota are not allowed to use bonds in order to offer data services to residents, because they lack the necessary authority. State statute says that such bonds may be issued for a host of projects (sewers, stadia, playgrounds, and "homes for aged," among others), and they can more generally be used to fund "other public conveniences." But is Internet access a "public convenience"?

More here.

Posted by jez at 3:26 PM

October 7, 2008

Wisconsin Senator Russ Feingold on the $700,000,000,000 bailout, or Splurge

Via email:

Thank you for contacting me to share your thoughts on the administration's proposal to purchase up to $700 billion of bad mortgage debt. I very much appreciated hearing from you.

I opposed the bailout plan passed by Congress, because though well intentioned, and certainly much improved over the administration's original proposal, it remained deeply flawed. It failed to offset the cost of the plan, leaving taxpayers to bear the burden of serious lapses of judgment by private financial institutions, their regulators, and the enablers in Washington who paved the way for this catastrophe by removing the safeguards that had protected consumers and the economy since the great depression. Second, this bill did not include meaningful provisions to help families facing foreclosure. This is more than just a matter of fairness - the housing crisis is the root cause of the credit market collapse, and unless we address it, any rescue package is far less likely to work. Finally, the measure failed to address the deeply flawed regulatory structure that paved the way for this crisis. Taxpayers deserve a plan that puts their concerns ahead of those who got us into this mess.

Again, thank you for contacting me. Please feel free to do so again in the future.

Much more on the splurge, here.

Posted by jez at 11:07 AM

October 5, 2008

Bill Perkins Bailout Cartoon

Appeared recently in the New York Times print edition. More here.

Declan McCullagh notes the large amount of pork in the bill that passed Friday.

Posted by jez at 12:30 PM

September 28, 2008

Updates on the $700,000,000,000 Fed / Wall Street / Mortgage Bailout

Lori Montgomery & Paul Kane:

The proposed legislation would authorize Treasury Secretary Henry M. Paulson Jr. to initiate what is likely to become the biggest government bailout in U.S. history, allowing him to spend up to $700 billion to relieve faltering banks and other firms of bad assets backed by home mortgages, which are falling into foreclosure at record rates.

The plan would give Paulson broad latitude to purchase any assets from any firms at any price and to assemble a team of individuals and institutions to manage them. In wielding those powers, Paulson and others hope to contain a crisis that already has caused the failure or forced the rescue of a half-dozen major Wall Street firms and unnerved markets around the world.

  • Draft Bailout bill (200K PDF)
  • Letter to Paulson & Bernanke
  • Larry Summers:
    Congressional negotiators have now completed action on a $700bn authorisation for the bail-out of the financial sector. This step was as necessary as the need for it was regrettable. There are hugely important tactical issues regarding the deployment of these funds that the authorities will need to consider in the weeks and months ahead if the chance of containing the damage is to be maximised. I expect to return to these issues once the legislation is passed.

    In the meantime, it is necessary to consider the impact of the bail-out and the conditions necessitating it on federal budget policy. The idea seems to have taken hold in recent days that because of the unfortunate need to bail out the financial sector, the nation will have to scale back its aspirations in other areas such as healthcare, energy, education and tax relief. This is more wrong than right. We have here the unusual case where economic analysis actually suggests that dismal conclusions are unwarranted and the events of the last weeks suggest that for the near term, government should do more, not less.

  • Tom Wolfe's latest is worth a read.
  • My email to our Washington delegation.

Posted by jez at 10:22 PM

September 26, 2008

My Thoughts on the Proposed $700,000,000,000 Fed/Wall Street / MortgageBailout

My email to Wisconsin Senators Russ Feingold and Herb Kohl. I also sent this to Congresswoman Tammy Baldwin:

Dear Senator Feingold:

I am writing to express my opposition to the proposed $700,000,000,000 toxic debt instrument bailout.

I believe it is wrong for us to continue the practice of spending beyond our means and simply passing more debt to our children and grandchildren. It is also wrong to stoke the fires of inflation.

If you believe these funds are necessary, then I suggest the following:

  1. Mandatory across the board spending cuts that pay for at least 50% of this initiative. They must be across the board.
  2. A slight change in tax policy so that every American pays some taxes. The annual base tax cost should follow spending changes. Choose a small number. Think of this as a "co-pay". We have a real problem with the perception that federal (and state) dollars somehow fall out of the sky.
  3. You might be able to insert the beginning of a consumption tax. I would be in favor of such a tax on luxury vehicles, large boats and private aircraft over $1M.
  4. Restore the estate tax rate to early 1990's levels.
  5. Gas tax. Add a provision to raise the gas tax annually. We need to do this for economic and national security reasons.
In other words, if necessary, support the initiative, but not on the backs of our children and grandchildren.

Best wishes,



Posted by jez at 8:19 PM

Financial Sector Fetes Lawmakers Making Bailout Decisions

Sunlight Foundation:

Some 258 parties, a number of them hosted by lobbyists for the finance, insurance, and real estate industries, have been thrown for members of the U.S. House Financial Services Committee this year, according to an investigation by the Sunlight Foundation's Party Time project. Members of the House committee, along with the Senate Banking Committee, are considering the $700 billion bailout legislation for the financial sector proposed by the administration.

A sampling of parties include:

Posted by jez at 7:59 PM

September 24, 2008

America Must Rescue the Bonuses at Goldman Sachs: Michael Lewis

Michael Lewis:

Anyone who caught even a sliver of yesterday's hearings in the U.S. Senate on the proposed Treasury bailout of the mortgage-backed securities market knows that the current financial crisis is far from over. Suddenly all sorts of previously unthinkable catastrophes seem possible.

The total collapse of the global financial system is one thing -- everyone at Davos in January saw that coming. But the shrinkage of the Goldman Sachs Group Inc. bonus pool is another. Whatever else the Treasury achieves it must know that if the employees of Goldman suffer any sort of pay cut, it will be judged to have failed. And our country may never recover.

Last year Goldman paid its employees $20 billion, 44 percent of the firm's revenue. Chief Executive Officer Lloyd Blankfein took home $68.5 million, and many otherwise ordinary human beings took home $10 million or mor

Posted by jez at 1:44 PM

September 23, 2008

The Power of One

A few years ago, I had an opportunity to hear "her deepness" Sylvia Earle speak. She included this short video in her presentation - "the Power of One".

Earle emphasized the opportunities we all have to change the world. I recalled her talk while visiting with Hal Herron recently. Herron, of Riverton, Wyoming has been adding outdoor art to his home town in an interesting way.

Museums often create large banners to promote an exhibit. Herron sought out these banners after a showing is complete. He pays for shipping to Riverton and places them around the community for all to enjoy. Fascinating. He forwarded two photos, seen below:

Bill Perkin's full page New York Times ad in today's paper is another illustration of the "Power of One".

Perkins approach requires a certain size checkbook, of course :)

All of which reminds me of the "two greatest commandments".

Posted by jez at 8:38 AM

September 22, 2008

Five Reasons to Give Thanks for the Financial Collapse of the Decade

Michael Lewis:

One of life's rules is that there's bad in good and good in bad. The total collapse of the U.S. financial system is no exception. Even in the midst of the current financial despair we can look around and identify many collateral benefits.

A lot of attractive office space seems to be opening up in midtown Manhattan, for instance, and the U.S. government is now getting paid to borrow money. (And with T-bills yielding 0 percent, they really ought to borrow a lot more of it, and quickly.)

And so as Morgan Stanley Chief Executive Officer John Mack blasts short sellers for his problems, and Goldman Sachs CEO Lloyd Blankfein swans around pretending to be above this little panic, we ought to step back and enjoy the positives.

Posted by jez at 11:47 AM

September 18, 2008

The Presidential Contest in Wisconsin

The Economist:

TAMMY WYNEN stands near the back of a crowd outside a paper mill in Kimberly, Wisconsin. At a bank of microphones, speakers rail against Adam Smith; one, from the United Steel Workers, literally blames "The Wealth of Nations" for the mill's impending closure. Many also hint that the soon-to-be unemployed mill workers should vote for Barack Obama in November.

But Mrs Wynen, a 27-year veteran of the paper mill, is not so sure. She cannot remember the last time she saw Mr Obama recite the pledge of allegiance. And her family loves Sarah Palin, John McCain's new running-mate. Her children have lines from Mrs Palin's convention speech off pat. Still, Mrs Wynen says she doesn't know who she will vote for. The candidates look poised to spend a lot of time and money in Wisconsin wooing her.

Posted by jez at 8:59 AM

September 4, 2008

Privatizing What the Public Paid For

Ed Wallace:

"Right. It takes unconventional and courageous thinking to come up with a plan that clears a highway lane for the well off, while the middle class and working poor are left to inhale each other's $5-a-gallon exhaust fumes. The worst thing about this ill-conceived decision ... is it allocates freedom of movement according to income."

-- From "Diamond Lanes for the Rich," by Tim Rutten (Los Angeles Times, April 26, 2008)

Few think of it this way, but America already has a major flat tax that we all pay equally: the 18.4-cent federal tax that is applied to each and every gallon of gasoline we purchase, or the 24.4 cents on every gallon of diesel. Say a young person, who just lost his job at McDonald's, buys a gallon of gas to get to an interview at Burger King at the same time Warren Buffet buys a gallon of gas to get to the airport in Omaha to board his personal jet: Both the unemployed, below-minimum-wage worker and America's richest billionaire contribute the exact same amount toward the nation's highway system on that day.

Now, however, we are being told - to an increasingly urgent drumbeat - that America can no longer afford the luxury of building new infrastructure or even maintaining our current road system, because there's just no funding for these programs. It's here that the complete absence of critical thinking about America's future should astonish and dismay anyone who looks at the facts even casually.

Posted by jez at 10:46 PM

August 22, 2008

Dangerously in Debt
Former U.S. Comptroller General David Walker speaks out on the perils of the rising federal deficit in the new film "I.O.U.S.A.

Anthony Kaufman:

If "An Inconvenient Truth" sounded the alarm on global warming, "I.O.U.S.A.," a new documentary opening in theaters Friday, hopes to do the same for the rising federal deficit.

Backed by Blackstone Group Chairman Peter Peterson, "I.O.U.S.A." follows former U.S. Comptroller General David Walker and the Concord Coalition's Robert Bixby on a "fiscal wake-up tour" across America. In the movie, which is co-written by "Empire of Debt" co-author Addison Wiggin and directed by "Wordplay" filmmaker Patrick Creadon, Messrs. Walker and Bixby argue that unless the government alters its policies and spending habits, the U.S. will be in for a serious financial meltdown.

Mr. Walker, who headed the Government Accountability Office from 1998-2008, exited his official U.S. post five years early in order to head the Peter G. Peterson Foundation and dedicate himself fulltime to fiscal education before, as he says, "we face a real economic crisis." Mr. Walker spoke with The Wall Street Journal about the dangers of the debt and what needs to be done to prevent what he foresees to be an economic catastrophe.>

Posted by jez at 9:32 PM

August 19, 2008

Big Box Retail 2008: Costco Arrives in (Madison) Middleton

Costco held a very well attended party this evening celebrating the opening of their new Middleton warehouse club [Map].

I did not see a stand to purchase law degrees.

Middleton provided a TIF (Tax Incremental Financing) agreement to the site developer. A related Isthmus article can be found here.

A few additional photos:

Clusty search: Costco.

Posted by jez at 8:58 PM

Lessig on John McCain's Technology "Platform"

Larry Lessig

I have my doubts - unfortunately - that Obama will be much better on the crucial broadband issue for two reasons:

  • AT&T, very good at spreading the love money, or the king of telco lobbying is sponsoring the Democratic convention
  • Our own Democratic Governor - Jim Doyle, recently signed a AT&T supported "Video competition bill" into law - maybe useful for AT&T, but hardly good for citizens.

Posted by jez at 12:54 PM

August 16, 2008

California Declares Free Market Broken, Recommends Price Controls For Phone Services

The Consumerist:

Verizon, AT&T, and their regulated cohorts love to blab how the "free market" and "competition" will keep prices low for consumers. According to California, it's a big fat expensive lie. The cost of basic phone service has soared since the Public Utilities Commission lifted price controls in 2006, leading the agency to conclude:

"There is no indication of any change in the near future regarding the current state of competition. Market forces have not yet met the challenge of controlling price increases."

Posted by jez at 6:40 PM

July 20, 2008

Why No Outrage?

James Grant:

Raise less corn and more hell," Mary Elizabeth Lease harangued Kansas farmers during America's Populist era, but no such voice cries out today. America's 21st-century financial victims make no protest against the Federal Reserve's policy of showering dollars on the people who would seem to need them least.

Long ago and far away, a brilliant man of letters floated an idea. To stop a financial panic cold, he proposed, a central bank should lend freely, though at a high rate of interest. Nonsense, countered a certain hard-headed commercial banker. Such a policy would only instigate more crises by egging on lenders and borrowers to take more risks. The commercial banker wrote clumsily, the man of letters fluently. It was no contest.

The doctrine of activist central banking owes much to its progenitor, the Victorian genius Walter Bagehot. But Bagehot might not recognize his own idea in practice today. Late in the spring of 2007, American banks paid an average of 4.35% on three-month certificates of deposit. Then came the mortgage mess, and the Fed's crash program of interest-rate therapy. Today, a three-month CD yields just 2.65%, or little more than half the measured rate of inflation. It wasn't the nation's small savers who brought down Bear Stearns, or tried to fob off subprime mortgages as "triple-A." Yet it's the savers who took a pay cut -- and the savers who, today, in the heat of a presidential election year, are holding their tongues.

Posted by jez at 9:32 AM

July 18, 2008

Biofuels Deathwatch Map

Craig Rubens:

Biofuel plants have been put on hold faster than your phone company’s tech support line. With corn and soy prices hitting record high prices and an ethanol glut flooding the market, ethanol’s profit margin per gallon has dropped to a meager 25 cents from $2. That’s causing numerous ethanol and biodiesel plants to get put on hold or downright canceled. Hundreds of millions of gallons of production capacity and hundreds of millions of dollars in biofuel investments are now hanging in limbo, as investors hope prices will level out.

That’s not to say that ethanol is dead in the water. There’s a variety of positive reports coming out on the future of the industry — there’s reports that see a meaningful future for ethanol , as well reports saying ethanol could be deliver a better-than-expected energy return. Add in a healthy merger and acquisition market and biofuels will play a role in the future of weaning the U.S. off oil.

Posted by jez at 10:43 AM

June 19, 2008

Tammy Baldwin's Office on the Farm Bill

Dear Mr. Zellmer:

Thank you for contacting me about the 2007 Farm Bill (the Farm, Nutrition, and Bioenergy Act, H.R. 2419). It is good to hear from you, and I apologize for the delay in my response.

As you know, the U.S. House of Representatives recently considered the 2007 Farm Bill. The Farm Bill is a comprehensive piece of legislation which touches on a number of agriculture-related issues, including commodity price support programs, nutrition programs, alternative energy, and rural development.

After a considerable amount of deliberation in a conference committee, the House and Senate each passed a conference report that represented the resulting policy compromises. You may be interested to know that I joined my colleagues in the House of Representatives to pass this conference report by a vote of 318 to 106.

While I believe that the U.S. House of Representatives should have taken this opportunity to implement expansive agricultural policy reforms, I supported the conference report because it does contain some noteworthy improvements in the Farm Bill programs. The alternatives to reauthorizing the Farm Bill this year were to extend the previous version of the farm bill or to revert to regulations dating to the 1940s. In my view, neither of these alternatives are desirable or acceptable.

The aspects of the conference report that I strongly support include expanding and updating the Milk Income Loss Contract (MILC) program, and investments in nutrition programs that help 38 million American families afford healthy food. For the first time, the MILC program will include the cost of feeding dairy cows as a factor for triggering program payments, a relief for Wisconsin dairy farmers who face increasing costs of inputs. The nutrition title includes an additional $10 billion to expand food stamp eligibility and increase the minimum weekly benefit, as increase funding for many worthy programs such as food banks, food pantries, soup kitchens, and schools providing healthy snacks to students.

I am pleased that the legislation makes progress in lowering the income limits for wealthy farmers to qualify for federal farm payments, although I believe these limits should be made even lower to ensure payments go to those farmers who need the aid the most. Under the conference report, individuals making over $500,000 in non-farm income, or $750,000 in farm income, would become ineligible for federal payments. This report ceases Conservation payment eligibility at incomes of $1 million. In contrast, the 2002 Farm Bill discontinued federal farm payments to individuals earning over $2.5 million.

The conference report also makes progress on several issues I have long-supported. These reforms include levying the Dairy Import Assessment against companies that import dairy products into the U.S., and implementing mandatory Country Of Origin Labeling (COOL) for all meats. I am also very pleased it contains a farm flexibility pilot program that will allow farmers receiving direct payments for commodities to opt out of these payments on a year-by-year basis, and grow fruits and vegetables for processing. This program is especially meaningful for the Upper Midwest, and I am hopeful the program will prove successful and be expanded in coming agricultural authorizations. Additionally, the 2007 Farm Bill conference report:

Increases the Wetland Reserve Program's (WRP) enrollment ceiling to more than 3 million acres;

Reestablishes the WRP's budget authority at $1.3 billion over five years, through 2012;

Authorizes the Conservation Reserve Program (CRP) to enroll 32 million acres from 2010-2012, a 7.2 million acre decrease from the 2002 Farm Bill;

Provides a one-time $84 million mandatory funding for the McGovern-Dole International Food for Education and Child Nutrition Program during fiscal year 2009, $24 million over previous discretionary funding levels;

Rejects Farm Credit Service proposals to expand their lending authority and deviate from their stated mission;

Directs the Department of Agriculture (USDA) to review studies on the use of random source animals for research, and consider the recommendations in those studies to end the black market trade in stolen pets;

Provides for penalties for animal fighting ventures, increases penalties for violations of the Animal Welfare Act, and prohibits the importation of puppies under the age of 6 months.

You may be interested to know that shortly after the House vote the Senate also passed the conference report by a vote of 81 to 15. I am disappointed that the President vetoed this bill, but I am pleased that both the House and Senate voted to override the President's veto. However, due to an administrative error the bill vetoed by the President and passed into law by a veto override was only part of the conference report Farm Bill. As a result, I joined my colleagues in the House in passing the same version of the Farm Bill as new legislation. This identical copy is still pending in the U.S. Senate, and will likely be passed. It is my hope that in light of the veto override the President will acknowledge widespread support for this Farm Bill and sign it instead of forcing a second veto override vote.

In a country as vast as ours, crafting legislation that addresses vastly different regional and industrial priorities is painstaking, and often contentious, work. I believe the 2007 Farm Bill conference report does represent some positive changes in our agricultural policy, and it is my hope that a consensus will exist for far greater reforms in the future. Please know that I will keep your thoughts in mind as the U.S. Congress continues to consider the 2007 Farm Bill.

Again, thank you for sharing your views. Your opinion matters to me. If I can be of service to you in any other way, please do not hesitate to let me know. As a security precaution, all mail sent to Congress is first irradiated. This process causes significant delays. To ensure the fastest response, I encourage all constituents who have access to the internet to contact me through my website at http://tammybaldwin.house.gov.


Tammy Baldwin
Member of Congress

P.S. I regularly send out email updates on federal issues and opportunities. These reports also include regular surveys through which you can express your opinion. If you would like to receive these email updates, you may sign up by visiting my website at: http://www.house.gov/formbaldwin/IMA/get_address_news.htm

Posted by jez at 9:30 PM

June 11, 2008

Russ Feingold's Office on the Farm Bill & Special Interest Legislation from Herb Kohl

via email, in response to my message:

Dear Mr. Zellmer,

Thank you for contacting me to share you concerns about the Farm Bill. I appreciate hearing from you. While I was disappointed by the lack of reform to the commodity programs in the Farm Bill, significant improvements were made in other areas of the bill to assist small and medium farmers.

As you may know, the House approved the final version of the Farm Bill on May 14, 2008, by a vote of 318-106. The Senate passed it the following day by a vote of 85-15. The President vetoed the Farm Bill on May 21, 2008. The House voted to override the veto the same day, and the Senate the next day. I was pleased to support both the Farm Bill itself and the motion to override the President's veto. The bill became law on May 22, 2008, although an enrollment error meant that the Trade and Food Aid Title was not included. The House and Senate have passed a new version of the bill to correct the error.

For instance, the bill restores the payment rate for the Milk Income Loss Contract (MILC) program and, for the first time, factors in the cost of production for farmers. MILC is vital for Wisconsin's dairy farmers, and is an extremely responsible program as it kicks in when times are tough and covers only a certain amount of milk. Thus, it targets small and medium farms rather than subsidizing the expansion of large farms.

The bill also makes significant improvements to nutrition programs, including Food Stamps and the Emergency Food Assistance Program, totaling more than $10 billion over the five-year life of the bill and accounting for about three-quarters of total spending in the bill. Other positive provisions of the Farm Bill include a new livestock title, which contains important competition provisions and over $4 billion for agriculture conservation programs. The bill also provides more funding for smaller-scale programs such as the Community Food Program, Value-Added Producer Grants, and the Beginning Farmer and Rancher Program.

I was also able to have several amendments accepted to the bill on a range of issues important to Wisconsin farmers. I was particularly pleased to have an amendment accepted to strengthen the office for small farmers at USDA.

I share the disappointment I have heard from some Wisconsinites that the reforms in the Farm Bill don't go far enough. I supported a number of amendments to reform the bill when the Senate considered it in December 2007, including an amendment offered by Senators Byron Dorgan (ND) and Chuck Grassley (R-IA) to cap subsidy payments to the largest producers. I also filed an amendment with Senator Robert Menendez (D-NJ) to trim direct payments. In addition, I supported and cosponsored an amendment offered by Senators Sherrod Brown (D-OH) and John Sununu (R-NH) to trim government subsidies to crop insurance companies, and voted in favor of an amendment offered by Senator Amy Klobuchar (D-MN) that would have prohibited farm support payments to wealthy individuals. I was disappointed that these amendments failed. The final bill does reform the commodity support programs by modestly trimming direct payments and reducing the adjusted gross income eligibility cap, but more reforms are needed.

To read my full statement on the bill, please visit here. While we may not always agree, I look forward to hearing from you in the future.

Speaking of our politicians, Bruce Murphy notes some special interest assistance from Senator Kohl and link to this New York Times article:
Senator Herb Kohl, Democrat of Wisconsin, persuaded the Appropriations Committee and the full Senate to accept legislative language benefiting Aurora BayCare Medical Center in Green Bay.

The hospital’s lobbyists include Theodore H. Bornstein, a former chief of staff for Mr. Kohl, and Bill Broydrick, whose Web site quotes a description of him as “the state’s No. 1 super lobbyist.”

The Kohl provision would allow the Green Bay hospital to expand by building a new cardiac catheterization laboratory.

The issue often puts lawmakers in the awkward position of having to choose between doctors and hospitals.

Critics say that when doctors have a financial stake in a hospital, they have an incentive to send patients there because they not only receive professional fees for their services, but also can share in hospital profits and see the value of their investment increase. Such arrangements can lead to greater use of hospital services and higher costs for Medicare and other insurers, say the critics, including many in Congress.

My email to Senator Kohl:
Dear Senator Kohl:

I hope this message finds you well.

I am writing to express my disappointment at your support for the "Aurora BayCare Medical Center in Green Bay" carve out in what I believe to be upcoming health care legislation.


Such narrow special interest treatment is at odds with your "Nobody's Senator but Yours" mantra.

These carve outs simply increase costs for middle America.

I am disappointed.

Best wishes,

Jim Zellmer

Posted by jez at 1:19 PM

June 4, 2008

Message to Tammy Baldwin, Russ Feingold and Herb Kohl Regarding the Farm Bill Vote

I sent this email to Representative Tammy Baldwin along with Senators Russ Feingold and Herb Kohl regarding their support for the pork laden farm bill:

Dear ___________:

I am writing to express my disappointment in your vote for the pork laden farm bill.

Similar to the support given for a 5% large corporation offshore tax rate a few years ago, this legislation benefits only the rich on the backs of middle class taxpayers.

I am surprised and disappointed.

Jim Zellmer

Much more on the farm bill here.

Wisconsin Democrat Ron Kind, to his credit, voted against the farm bill:

“Today Congress squandered the best opportunity in decades to reform our wasteful, outdated subsidy system.

“We need a Farm Bill, but we need the right kind of farm bill. Let me be clear: This bill is not a reform bill. It is not even the illusion of reform. Continuing to send unlimited subsidies to millionaires is not reform. Creating a new disaster entitlement program is not reform. And setting ourselves up for billions in unaccounted spending is not reform. The president was right to veto it.

“As families kick off their summer vacations this weekend facing the highest gas prices ever, skyrocketing food costs, stagnant paychecks and a lagging economy, I urge them to ask their member of Congress how they could justify sending unlimited taxpayer subsidies to agribusinesses and wealthy landowners making up to $2.5 million a year in profit.

Related: Wisconsin Radio Network notes that Green Bay Democrat Steve Kagen and Wausau Democrat David Obey also voted for the farm bill.

2007 Farm Subsidy Database by Congressional District.

Posted by jez at 8:50 AM

May 28, 2008

A Tear: Vietnam Approves a $4.5 Billion Dollar Coastal Casino Project. Atlantic City on the South China Sea?

Bruce Stanley:

Communist Vietnam is set to become the latest country in Asia to embrace Las Vegas-style casinos, with a Canadian property developer planning to break ground Saturday on the first phase of a $4.5 billion casino-resort project on the nation's southern coast.

The project, called Ho Tram, will be the biggest foreign investment to date in Vietnam, said Michael Aymong, chairman of Toronto-based Asian Coast Development Ltd., the project's lead investor, with a 30% stake. Its main partner in the project is New York hedge fund Harbinger Capital LLC, which has a 25% share.

The initial phase will cost $1.3 billion and consist of two five-star hotels with a combined 2,300 rooms and a casino with approximately 90 gambling tables, 500 slot machines and an area for VIP customers. When completed in 2015, the resort will comprise five hotels with 9,000 rooms and a second casino, Mr. Aymong said.

Ho Tram also will target vacationing families, with features including an 18-hole golf course designed by Greg Norman, a Cirque du Soleil theater, and a site for guests to swim with dolphins.

"It's a needed project in Vietnam" that, in spite of the country's poor infrastructure, will be able to "effectively compete" with integrated resorts in neighboring China, Malaysia and Singapore, Mr. Aymong said

Susan Spano offers another perspective after a recent visit.

The photo was taken on Highway 1 several hundred kilometers northeast of Ho Chi Minh City (Saigon).

Posted by jez at 8:30 AM

March 24, 2008

Gasoline Tax Comparison

Via The Economist.

Posted by jez at 4:57 PM

March 5, 2008

Kill the Farm Bill

Alex Tabarrok:

Farm subsidies in the United States go to just a handful of crops, corn, wheat, cotton, soybeans, and rice. Most fruits and vegetables are not subsidized, at least not directly but don't forget opportunity cost!

David Zetland has the dirt.

Posted by jez at 9:22 AM

February 24, 2008

2007 Farm Subsidy Database by Congressional District and a Wisconsin Earmark Update

Environmental Working Group. Wisconsin's Ron Kind ranks 37th @ 264,820,105 and Tammy Baldwin ranks 61st @ $140,993,229.

Audrey Hoffer takes a useful look at Wisconsin politician's use of earmarks to further redistribute federal income taxes - otherwise known as pork:

Earmark is a dirty word.

That's the tacit message of Taxpayers for Common Sense, which describes itself as a progressive nonpartisan budget watchdog.

An earmark is a project in their district for which members of Congress designate funds. Earmarks often are awarded without public hearings or other congressional debate over their merits. Congress inserted 12,881 earmarks worth $18.3 billion into this year's spending bills, according to the watchdog group.

While some taxpayers and their representatives decry earmarks as boondoggles and wasteful government spending, others defend them as a way to accomplish important objectives while bringing jobs and benefits to their constituents.

Taxpayers for Common Sense 2008 Earmark Database.

Wisconsin political earmark (deficit) spending:

Herb Kohl $153,438,700

Russ Feingold: $0

Dave Obey: $102,137,950

Steve Kagen: $24,547,700

Tammy Baldwin: $16,443,500

Tom Petri: $12,999,000

Ron Kind: $11,433,000

Gwen Moore: $7,482,300

Paul Ryan: $5,396,000

Jim Sensenbrenner: $932,000

It would be interesting to compare campaign contributions to earmark recipients.

Hoffer closes with these quotes:

Steve Ellis, vice president of Taxpayers for Common Sense, said: "It's really easy to isolate an earmark and say it's a good thing, but if we do that, we miss the overall context. It's a zero-sum game. We need to make sure we spend every penny wisely."

Obey has his own reservations about the system and said last summer on the "Bill Moyers Journal" television show:

"The reason I hate earmarks is because they suck everybody in. They suck them into the idea that we have to be ATM machines for our districts, and so they focus on the tiny portion of most bills that are earmarks instead of focusing on the policy that is represented by the legislation that we produce.

Posted by jez at 7:12 PM

February 4, 2008

Fixing US broadband: $100 billion for fiber to every home

Nate Anderson:

The US is in desperate need of 100Mbps "big broadband." That's the conclusion of a new report from EDUCAUSE (PDF), a group that represents IT managers at over 2,200 colleges and universities. But these 100Mbps connections are coming slowly; in the meantime, countries like Japan already have them. To avoid falling further behind, the report calls for a national broadband policy to be passed this year, one that includes $100 billion for a fiber-to-the-home infrastructure that will connect every household and business in the country.

The report opens by citing the familiar, dreary facts: US broadband might now be widely available, but it's slow and relatively expensive. Between 1999 and 2006, the US fell from third place to 20th in the International Telecommunications Union's broadband usage measurements. When it comes to average connection speeds, the US isn't beaten just by Japan but also by France, Korea, Sweden, New Zealand, Italy, Finland, Portugal, Australia, Norway, Luxembourg, the United Kingdom, and Germany. And it's not about population size or density, either; Finland, Sweden, and Canada beat us on most broadband metrics despite having lower population density. Finally, we're getting beat on price, coming in 18th worldwide when it comes to cost per megabyte.

Posted by jez at 12:01 AM

January 8, 2008

David Cay Johnston on How the Rich Get Richer

Fresh Air:

Investigative reporter David Cay Johnston explores in his new book how in recent years, government subsidies and new regulations have quietly funneled money from the poor and the middle class to the rich and politically connected.

Posted by James Zellmer at 9:10 AM

December 10, 2007

Rolling Over for AT&T: "Video Competition" Bill is a Major Missed Opportunity for Wisconsin

A reader forwarded this full page, color advertisement paid for by large telco (AT&T, etc.) front group TV4us. The advertisement appeared in this morning's Wisconsin State Journal. The State Journal supports the AT&T "video competition bill".
Click to view a larger version

Brian Clark has more:

Vergin said he's pleased he'll only have to get one state franchise, instead of having to deal with the 33 different municipalities in his service area.

“That’s a big benefit for us and what I think the bill is all about,” he said.

Vergin said his company’s prices won’t be any lower than Charter’s. But he's convinced his firm will be able to offer better service and options to bundle cable, phone and wireless service.

He said he was opposed to proposed rules that would have required his company to serve entire communities. He also rejected suggestions telecommunications firms should be ordered to run fiber optic to homes and businesses.

“The 100 requirement would limit us,” he said. “And we are running fiber optic to new construction, but not existing buildings. I just don’t think the government should tell us what technology we should use. The market should decide that. I also think have 50 percent of any area covered is better than none.”


(Charles) Higley (Citizen's Utility Board Executive Director) said he, too, would have liked to have seen a requirement that companies build fiber optic cable.

“We’ve had promises to build it before and it didn’t come,” he said. “In the future, if not already, broadband is an essential service like telephone and electricity. We think government should require essential services.”

The Governor and Legislature appear to have obtained nothing while giving away significant regulatory changes. A disaster for Wisconsin business, schools residents and public agencies. What a deal for the large telcos: spend money on lobbying and advertising but not fiber to the home. Classic rentier approach: milk the slow copper network that we've paid for many times over as long as possible.

Keep in mind Verizon's FIOS, a fiber to the home product installed in many communities [Service Map] - none in Wisconsin.

I recently had the opportunity to use basic FIOS service while on travel. The service was symmetrical - that is, upload and download speeds are the same. Local dsl services are not symmetrical - AT&T and TDS limit upload speeds to a very slow 768kpbs.

This archaic approach is awful for those of us creating, uploading and backing up media (photos, videos and music, not to mention data heavy scientific applications). FIOS provides at least 5 to 50X the speeds of the fastest dsl service generally available in the Madison area. Slow networks limit entrepreneurial opportunities, particularly emerging home based businesses.

Finally, I spoke briefly some years ago with then Gubernatorial candidate Jim Doyle at a campaign event. I mentioned Wisconsin's very poor broadband infrastructure. He said he understood these issues but could not address them in his first term but hoped to in a second. Will Doyle leave a legacy of aging, slow copper networks? I put a call into Susan Goodwin, Chief of Staff, for an update.


A bit of sugar for AT&T. This giant organization is fully capable of implementing a modern, high quality, fast fiber network. They simply need to make the strategic decision, as Verizon has, to upgrade their network. How much longer must we pay for the old, old copper lines? I've received excellent, economical service from AT&T's cell network.


Posted by James Zellmer at 6:52 PM

December 9, 2007

Mayor Dave's 2007 Property Tax Letter

Madison Mayor Dave Cieslewicz:[72K PDF]

Enclosed you will find your 2007 property tax bill. While the City of Madison processes your taxes, the property tax bill is actually made up of five parts. The Madison Metropolitan School District has the largest share, followed by the City, Dane County, and Madison Area Technical College. A small amount is also levied for the state forestry tax.

The primary concern in our community today is the quality of life and safety in our neighborhoods. This summer and fall, I attended eight listening sessions across the City on these issues. People told me they wanted their City government to make sure their neighborhoods are safe and healthy. In response, the City budget makes the following investments:

  • Increasing Police Resources. In addition to 30 new officers, the City budget includes two additional crime analysts to make sure we' re not j ust stronger, but also smarter, in use of our resources.
  • Targeting Bad Landlords. The addition of three new building inspectors and our new nuisance abat ement ordinance give us the tools we need to get after landlords who don't maintain their properties or adequatel y screen their tenants.
  • Strengthening Neighborhoods. We doubled the Emerging Nei ghborhoods Fund to $200,000, giving us quick-access resources to prevent small problems from becoming bigger, more expensi ve ones. We' re launching a Neighborhood Indicators Project to give us statistical early warning signs of neighborhood decline. The budget also funds another graffiti elimination crew to keep our neighborhoods free of gang-related messages.
  • Programs for Young People. We are increasing Communi ty Service programs by over 7%, funding initiatives for after school and youth programs, and doubling the number of youth conservation corps crews.
The City budget also includes park improvements, expanded library hours at some branches, road
projects, energy efficiency initiatives, a new effort to clean our beaches, and other programs to maintain and improve Madi son' s quality of life.
These words are a useful look at the Mayor's perspective on local taxpayers.

Posted by James Zellmer at 3:21 PM

October 26, 2007

Owe The IRS? No Problem!

Lloyd Garver:

"If you owe the IRS lots of money, forget about it. We'll take care of it. We'll get them off your back. You won't have to pay all of what you owe. So, why should you pay what you really owe when our expert former IRS agents can negotiate a low settlement for you?"

The above is a paraphrase of the many commercials that I've been seeing on television lately. The premise is that through no fault of your own, you have failed to pay the taxes that you owe, and the mean and nasty IRS wants its money. There is no reason for you to despair, because there are companies who can help you negotiate a settlement with the government.

Posted by James Zellmer at 10:19 AM

October 23, 2007

Inside Wal-Mart's Bid to Slash State Taxes - Our Political Class at Work

&Jesse Drucker:

About a decade ago, Wal-Mart adopted another approach, following advice from Ernst & Young. Wal-Mart transferred ownership of its stores to various in-house real-estate investment trusts. REITs pay no corporate income tax as long as they pay out at least 90% of their income to shareholders as dividends, which are usually taxed. Wal-Mart paid tax-deductible rent to those REITs. For one four-year period, the setup saved the retailer an estimated $230 million on its tax bill, even though the rent payments never left the company.

That strategy was the focus of a Wall Street Journal article in February. Since then, at least six states, including New York, Illinois, Maryland and Rhode Island, have passed laws attempting to prohibit the maneuver, which also has been used by banks and other retailers such as AutoZone Inc. The practice is being challenged by tax authorities in at least four other states, court records show.

Legislative sausage supported by our elected officials only makes these "loopholes" worse. Here's an example that both Russ Feingold and Herb Kohl supported - a 5.25% offshore earnings tax rate for major corporations. More here. Another example of special interest legislation.

Posted by James Zellmer at 4:25 PM

October 18, 2007

The Subprime Collapse Didn't Start Bothering the Bush Administration until Wall Street Bankers Started Whimpering

Daniel Gross:

When individual borrowers began to suffer, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson didn't seem overly concerned. The market would clear out the problem through the foreclosure process. Loans would get written off; properties would change hands and be resold. When upstart subprime mortgage lenders ran into trouble, Bernanke and Paulson shrugged again. The market would clear out the problem through the bankruptcy process. Subprime companies like New Century Financial filed for Chapter 11, others liquidated or restructured, and loans made to the lenders were written down. Meanwhile, Paulson and Bernanke assured us that the subprime mess was contained.

But as the summer turned to fall, and the next several shoes dropped, their attitude changed. And that is because the next group of unfortunates to fall victim to subprime woes were massive banks. In recent years, banks in New York, London, and other financial capitals set up off-balance-sheet funding vehicles called SIVs, or conduits. The entities borrow money at low interest rates for short periods, say 30 to 90 days, and use the funds to buy longer-term debt that pays higher interest rates. To stay in business, the conduits must continually roll over the short-term debt. But as they searched for higher yields, some conduits stuffed themselves with subprime-mortgage-backed securities. And when lenders became alarmed at the declining value of those holdings, they were reluctant to roll over the debt. Banks thus faced a choice. They could either raise cash by dumping the already-depressed subprime junk onto the market, or bring the conduits onto their balance sheets and assure short-term lenders they'd get paid back.

Related: Credit Risk is Rising Again.

Posted by James Zellmer at 8:17 AM

October 17, 2007

Morning Workout Zeitgeist, or "Let's turn the Capitol into a Casino/Waterpark"

Props to the early morning workout group for this inspiration.

Posted by James Zellmer at 9:38 AM

October 15, 2007

Average US Income Tax Rates

Greg Mankiw. It would be interesting to see a more detailed analysis of this.

Posted by James Zellmer at 5:58 AM

October 12, 2007

Obama's Earmarks

Washington Post.com

Senator Barack Obama (D-Ill.) requested federal funding for several projects as part of this year's annual appropriations process. The projects, with the amounts designated by his constituents and several national organizations were released by the senator.

Posted by James Zellmer at 2:33 PM

October 9, 2007

Random Tax Audits Return to the IRS

Wendy Kaufman:

The Internal Revenue Service began this month selecting thousands of taxpayers for audits — even though the IRS has no reason to think they've underpaid their taxes. It's part of the IRS' National Research Program.

Posted by James Zellmer at 9:00 AM

September 9, 2007

State of Wisconsin Federal Spending Profile

Eagle Eye:

The following tables show aggregated prime contract dollar totals for the state of Wisconsin. Key data elements (agencies, companies, metropolitan areas) are ranked by their FY2006 - FY2007 YTD Totals. All aggregated data is copyrighted by Eagle Eye Publishers, Inc. Tables may not be reproduced without written permission from Eagle Eye.

Posted by James Zellmer at 10:20 PM

Parsing Earmarks with Our Entrenched Political Class: David Obey....

John Solomon & Jeffrey Birnbaum:

Rep. Jeff Flake (R-Ariz.) confronted David R. Obey (D-Wis.), chairman of the House Appropriations Committee, on the House floor in March over this practice, noting that a spending bill then under debate contained $35 million for a risk-mitigation program at a federal space-exploration facility, even though the measure had been certified to contain no earmarks.

"We have passed some good rules with regard to earmark reform and transparency," Flake said. "But we have found a way around them already." Obey said that the provision was not an earmark under the rules. "An earmark is something that is requested by an individual member," Obey said. "This item was not requested by any individual member; it was put in the bill by me."

Two months later, Obey again rebuffed Flake when Flake pointed out that a supposedly earmark-free bill on the House floor contained an allocation of $8.7 million to ward off floods in New York. The provision was not called an earmark, Flake noted, but Rep. Nita M. Lowey (D-N.Y.) put out a news release applauding the provision and its potential benefit to her district.

Much more on earmarks, here.

Posted by James Zellmer at 7:07 AM

August 31, 2007

Taxes & The Closing of Foreign Car Specialists

Marv Balousek:

Beebe bought the business after working there a year and Lucey sold the building to the family of President Kennedy. Beebe said the Kennedys bought the building because they wanted a business reason to visit Wisconsin where the former president's sister, Rosemary Kennedy, who was mentally retarded and lobotomized at age 23, spent decades at St. Coletta's in Jefferson until her 2005 death at age 86.

Beebe bought the building from the Kennedy family in 1979 and recently paid off the mortgage

Posted by James Zellmer at 11:38 AM

August 30, 2007

Hearing on Fair and Equitable Tax Policy for America’s Working Families

House Ways & Means Committee. Submit your statement to this useful event:

Chairman Rangel Announces Hearing on Fair and Equitable Tax Policy for America’s Working Families

House Ways and Means Committee Chairman Charles B. Rangel (D-NY) today announced the Committee on Ways and Means will hold a hearing on fairness and equity in the tax code. The hearing will focus on a number of tax fairness issues, including the tax treatment of investment fund managers and the impact of the alternative minimum tax on working families. It will also examine the reasons why investment funds are being organized offshore. The hearing will take place on Thursday, September 6, 2007, in 1100 Longworth House Office Building, beginning at 10:00 a.m.

In view of the limited time available to hear witnesses, oral testimony at this hearing will be from invited witnesses only. However, any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing. A list of invited witnesses will follow.

Posted by James Zellmer at 3:36 PM

August 18, 2007

IRS Taxpayer's Advocacy Panel 2006 Report

Taxpayer Advocacy Panel: [PDF]
Posted by James Zellmer at 5:41 AM

August 5, 2007

On Earmark Reform

Tyler Cowen:

Maybe not:
Eight months after Democrats vowed to shine light on the dark art of “earmarking” money for pet projects, many lawmakers say the new visibility has only intensified the competition for projects by letting each member see exactly how many everyone else is receiving...

The earmark frenzy hit fever pitch in recent days, even as the Senate passed new rules that allow more public scrutiny of them.

Far from causing embarrassment, the new transparency has raised the value of earmarks as a measure of members’ clout. Indeed, lawmakers have often competed to have their names attached to individual earmarks and rushed to put out press releases claiming credit for the money they bring home.

Posted by James Zellmer at 11:59 AM

August 4, 2007

Community Broadband Act would overturn bans on municipal broadband

Eric Bangeman:

A bill introduced into the House of Representatives this week will attempt to spur broadband development in the US by overturning existing state bans on municipal broadband deployments. Titled the Community Broadband Act of 2007, the bill (PDF) is cosponsored by Rep. Rick Boucher (D-VA) and Rep. Fred Upton (R-MI).

Currently, laws in Arkansas, Florida, Missouri, Texas, and a handful of other states prevent cities and towns from installing and operating their own broadband networks. Most of those laws were enacted in the wake of heavy lobbying from the telecommunications industry, which doesn't want to see competition coming from local governments.

Last year's attempted rewrite of the Telecommunications Act contained a similar provision but never made it to the floor of the Senate for a vote. With the state of broadband in the US a hot topic of discussion lately, both on Capitol Hill and around the country, Reps. Boucher and Upton may be able to find allies in Congress a bit more easily this time around. The congressmen are hopeful that, should it be passed, the Act would lead to more—and better—broadband options for US citizens.

Posted by James Zellmer at 3:54 PM

August 3, 2007

Wisconsin Congressional Earmarks: Spending our Children's Money via a Bloated Defense Bill

Taxpayers for Common Sense posted a very useful and in some ways surprising look at $3,000,000,000 in Congressional Earmarks attached to a $459,600,000,000 defense appropriation bill (not the entire defense budget). This amount is $40,000,000,000 more than last year's authorization (nice). Wisconsin congressional earmarks are lead by long time incumbent David Obey with $42,000,000, who also conveniently serves as Chair of the House Appropriations Committee. Obey's earmark methods have been criticized recently: John Solomon & Jeffrey Birnbaum writing in the Washington Post:

Democrats had complained bitterly in recent years that Republicans routinely slipped multimillion-dollar pet projects into spending bills at the end of the legislative process, preventing any chance for serious public scrutiny. Now Democrats are poised to do the same.

"I don't give a damn if people criticize me or not," Obey said.

Obey's spokeswoman, Kirstin Brost, said his intention is not to keep the projects secret. Rather, she said, so many requests for spending were made to the appropriations panel -- more than 30,000 this year -- that its staff has been unable to study them and decide their validity.

Here's a list of all earmarks (.xls file) attached to this defense bill. Wisconsin delegation earmarks:
  1. David Obey 42,000,000 (Unique ID Column 837, 854, 874, 921, 947, 1053, 1093, 1165)
  2. Tammy Baldwin $7,500,000 (Unique Id Column 56, 740, 1334)
  3. Steve Kagen $5,000,000 (Unique ID 496, 561, 562)
  4. Ron Kind $4,000,000 (Unique Id 1033 and 1083)
  5. Tom Petri $4,000,000 (Unique Id 782)
  6. Gwen Moore $2,000,000 (Unique Id 575, 898, 978 and 1151)
  7. Paul Ryan $0.00
  8. Jim Sensenbrenner $0.00 (shocking)
HouseDefenseEarmarks.xls. Congress's approval ratings (3%) are far below the President's (24%), which isn't saying much (Zogby Poll)

Much more on local earmarks, here [RSS Feed on earmarks]

Posted by James Zellmer at 11:00 PM

July 25, 2007

Tax Code Sausage Making - for the Rentier Class

NY Times Editorial:

The corrosive effects of that trend were detailed in The Times yesterday by Alex Berenson, who examined the fallout of the Orwellian-named American Jobs Creation Act of 2004. Pitched by tax-axing lawmakers as a way to generate cash for new hiring, it allowed American companies to bring foreign-held profits back to the United States in 2005 at a discount of up to 85 percent off the normal tax rate. Some 100 companies repatriated about $300 billion, avoiding about $90 billion in taxes.

But instead of hiring more workers, many of the participating multinationals had mass layoffs, especially drug companies. Pfizer, the world’s largest drug company, repatriated $36 billion at the discounted rate, while laying off 8,000 employees in 2006 and announcing layoffs of 10,000 more. Eli Lilly and Schering-Plough also repatriated billions while laying off thousands. Technology companies did the same. Hewlett-Packard, for example, repatriated $14.5 billion in 2005 and laid off 14,500 workers. In some instances, the corporate tax savings were more than enough to cover the severance costs and other expenses of the layoffs.

Our good Senators, Russ Feingold and Herb Kohl supported this massive giveaway. Rentier

Posted by James Zellmer at 9:59 PM

May 24, 2007

Earmarks, "Phonemarking", Congressional Excesses and Wisconsin Representative David Obey

John Solomon & Jeffrey Birnbaum:

But the new majority is already skirting its own reforms.

Perhaps the biggest retreat from that pledge came this week, when House Appropriations Committee Chairman David R. Obey (D-Wis.) told fellow lawmakers that he intends to keep requests for earmarks out of pending spending bills, at least for now. Obey said the committee will deal with them at the end of the appropriations process in the closed-door meetings between House and Senate negotiators known as conference committees.

Democrats had complained bitterly in recent years that Republicans routinely slipped multimillion-dollar pet projects into spending bills at the end of the legislative process, preventing any chance for serious public scrutiny. Now Democrats are poised to do the same.

"I don't give a damn if people criticize me or not," Obey said.

Obey's spokeswoman, Kirstin Brost, said his intention is not to keep the projects secret. Rather, she said, so many requests for spending were made to the appropriations panel -- more than 30,000 this year -- that its staff has been unable to study them and decide their validity.

For instance, a new emergency spending bill for the Iraq war passed by the House this month had no specific earmarks, but it included a clause declaring that all the projects lawmakers had included in a previously vetoed bill were, in effect, included.

Likewise, the House Appropriations Committee report accompanying the Iraq supplemental spending bill vetoed by President Bush boldly declared: "This bill, as reported, contains no congressional earmarks, limited tax benefits, or limited tariff benefits." But it set aside money for pet projects including $25 million for spinach, $60 million for salmon fisheries and $5 million for aquaculture.

"Absolutely nothing has changed," said the Center for Defense Information's Winslow T. Wheeler, a Senate appropriations and national security aide who worked for both Democrats and Republicans over three decades before stepping down in 2002. "The rhetoric has changed but not the behavior, and the behavior has gotten worse in the sense that while they are pretending to reform things, they are still groveling in the trough."

A 2006 spending bill included $6.9M for Obey's Northern Wisconsin District. Much more on earmarks, including those spread around Madison, here.

More from the Examiner here.

Posted by James Zellmer at 2:46 PM

May 13, 2007

True Broadband: Vermont vs. Wisconsin

Tom Evslin:

An hour or so ago the Vermont House and Senate both gave final approval to a bill designed to make Vermont the nation’s first e-state. As defined in Vermont, e-stateness means cellular and adequate broadband coverage – fixed and mobile – everywhere in the state by 2010. The initial definition of adequate fixed broadband is 3 megabits per second service in at least one direction; but the bill contains a mechanism for ratcheting that up as requirements escalate. It is estimated that this requirement may be as high as 20 megabits in both directions by 2013.

Although the bill passed the Vermont House with an overwhelming 132-2 vote more than a month ago, it was by no means assured of passage. Vermont’s citizen legislature is hoping to adjourn for the year sometime tonight. There was a danger that the Senate would not have the time it needed to consider all aspects of this very large bill. But they did!

Quite a contrast to Wisconsin's process, where AT&T's stagnant infrastructure (and more importantly, their lobbying prowess) carries the day. Gotta love our forward thinking politicians.

Posted by James Zellmer at 11:30 AM

May 2, 2007

Big Political Donors are also Tax Shelter Players

Walter F. Roche Jr. and Michael A. Hiltzik:

What's a politician to do upon discovery that a generous billionaire donor turns out to be a major tax dodger? It's a dilemma already encountered by the Republican and Democratic parties in this season of unprecedented political fundraising.

At a time when newly powerful Democrats, including presidential hopeful Sen. Hillary Clinton of New York, are pressing for aggressive pursuit of unpaid tax bills to boost federal revenue, the party's biggest financier and prominent Clinton backer is tied to one of the largest individual tax avoidance schemes on record.

And two Republican billionaires — Texas brothers who have poured a small fortune into supporting the presidential bids of two George Bushes and, more recently, Sen. John McCain (R-Ariz.) — were accused last year of exploiting offshore havens to escape taxes on nearly $200 million in gains.

Amid predictions that the 2008 presidential campaign will be the most expensive in history, with spending possibly topping $1 billion, pressure to raise huge sums of cash is a certainty. For candidates, the question is whether the headlong pursuit of deep pockets may also risk embarrassment over their donors' financial baggage.

Sheila Krumholz, executive director of the Washington-based Center for Responsive Politics, said that candidates sometimes have to make their own "cost-benefit analysis."

Posted by James Zellmer at 12:43 PM

April 23, 2007

A few Suggestions for Governor Doyle Regarding the AT&T "Video Competition" Bill

AT&T's lobbying efforts to change Wisconsin's cable TV regulations has generated a refreshing amount of commentary. 5 years ago, during Governor Doyle's first Gubernatorial campaign, I had a chance to briefly talk with him after a debate with Scott McCallum. I mentioned Wisconsin's poor broadband infrastructure (we continue to stand still, which means we're falling further behind) and how AT&T had failed to invest in fiber networks. Doyle mentioned that he was aware of this, but could not do anything about it in a first term.....

Fast forward to 2007. This map, via broadbandreports.com displays the communities that have Verizon's fiber to the home available. Fiber networks provide much higher speeds and more citizen choice than our aging and long since paid for copper networks (we continue to pay and pay and pay for the old stuff).

Perhaps, Governor Doyle might put citizen's interests first and sign the bill only if:
  • Those who provide service via this bill must do so via symmetrical fiber to the home, and,
  • Customers may purchase the symmetrical fiber to the home service for internet use only (ie, without phone or video service). Such "naked" internet service shall be available at speeds equal or greater to those offered via phone/video bundles.. Cost and terms shall not penalize naked internet buyers vis a vis bundled phone/video purchases
  • Customers shall have complete access to all internet services. Vendors will not restrict any IP services.
What are the odds? UPDATE: A friend emailed simply: "Lotsa luck". Interestingly, this type of an initiative would be quite a legacy for the Governor. The fiber will be connected to our homes for many, many years.
Posted by James Zellmer at 4:41 PM

April 16, 2007

I.R.S. Audits Middle Class More Often, More Quickly

David Cay Johnston:
Middle-class Americans, listen up: the I.R.S. is much more likely to audit you this year. Those caught cheating can expect to pay about $4,100 more on average in income taxes.

Since 2000, authorities at the Internal Revenue Service have nearly tripled audits of tax returns filed by people making $25,000 to $100,000 as part of a broad change in audit strategy.

Audits of these middle-class taxpayers rose to nearly 436,000 last year, up from about 147,000 returns in 2000. For these 61 million individuals and married couples, who make up nearly half of all taxpayers, the odds of being audited rose from 1 in 377 to 1 in 140.

Kevin Brown, the I.R.S. deputy commissioner for services and enforcement, said the audits “were out of whack” in 2000, with far too little attention paid to the middle class and to the very highest income generators, those making $1 million or more. “We try to run a balanced audit program,” Mr. Brown said.
Posted by James Zellmer at 7:22 PM

March 24, 2007

AT&T's Rhetoric on Competition

Mark Pitsch:
Wisconsin residents would lose their rights to cable television repairs within 72 hours, credit for service interruptions and advance notice of rate increases, under a bill on the fast track in the state Legislature.

The proposal, designed to increase competition in an industry dominated by cable companies, is supported by the lobbying muscle of telecommunications giant AT&T.

It's part of AT&T's challenge to cable companies such as Charter Communications, which are licensed by local governments.

There is little agreement on whether the proposal would help consumers or hurt them.
Pitsch mentions this:
But proponents say the bill would lower costs for telecast delivery - whether by cable or AT&T's fiber optic lines - by up to 23 percent by introducing competition and deregulating the industry.
What fiber optic lines would that be? AT&T has done nothing to upgrade it's copper based network to the home (other than spend money on lobbying and advertisements regarding the ongoing resale of the old network, something we've paid for over and over and over...), unlike Verizon in other parts of the country. Nice to see our politicians continue to "stick it to us". `
Posted by James Zellmer at 9:38 AM

February 27, 2007

Some Good Reasons for Governments NOT to invest Taxpayer Money in Schemes

Richard Aboulafia:
Finding Two. If a state plays this game it quickly reaches an absurd level. Just after the LoPresti micro-triumph New Mexico announced a $100 million investment to build…a spaceport (I really wish I was making this up). This will service Richard Branson’s Virgin Galactic and is obviously a necessary subsidy, because Branson, for some reason, has no cash. (See the December 2005 press release at http://ww1.edd.state.nm.us. Title: Richardson Announces $100 Million Commitment to Build World’s First Spaceport. Implicit subtitles: “Private Sector Baulks At Risky Project; We’re enlisting New Mexico Taxpayers To Provide Generous Help” and “Hooray! We’re Morons!”). Today, Kansas and Florida. Tomorrow, Low Earth Orbit. Who can stop New Mexico from operating like an aerospace banana republic? In search of good government I asked my friend Jeff Schwartz what could be done. Jeff is one of the smartest government guys I know, and he works for the Appalachian Regional Commission, which funds development work in states in their jurisdiction. “We’re on it,” he reassured me, referring me to their code (http://www.arc.gov/index.do?nodeId=1242#chap8). The ARC prohibits its money from going to “(A) Any form of assistance to relocating industries; (B) recruitment activities that place a state in competition with another state or states; and (C) projects that promote unfair competition between businesses within the same immediate service area.”
Brenda Konkel recently wondered about the City of Madison's $700K loan to Tomo Therapy. Generally, I think governments should stay out of this. We're all better off if they spend time simplifying processes, taxes and paperwork.
Posted by James Zellmer at 4:54 PM

February 11, 2007

Google's Arrogance in North Carolina: Learning from AT&T?

Ed Cone:
But it turns out that there was a lot more to the story. Google leaned hard on North Carolina lawmakers and officials, not just to get the fattest deal possible but to choke off the flow of information along the way.

According to documents obtained by The News & Observer of Raleigh, the company went beyond reasonable expectations of confidentiality to demand absolute secrecy while negotiations were under way, even asking participants to sign nondisclosure agreements; some legislators and local officials did so, but Department of Commerce officials did not. Google executive Rhett Weiss badgered Commerce Secretary Jim Fain about the state's adherence to process, complaining, for example, when lawmakers wanted an estimate of the cost to North Carolina in lost tax revenue, and threatening to kill the whole thing if Google didn't get its way.

Businesses need some measure of confidentiality when putting together this kind of transaction. Fair enough. But this is the people's business, and Google's high-handedness is an affront to the people of this state.

And then there's that whole "Don't be evil" thing. Google spokesman Barry Schnitt told me that the company's negotiations with the state were "very standard." If that's the case, and this is standard operating procedure for the company, then something has gone wrong in Silicon Valley.
Barry Orton keeps up with AT&T's Wisconsin Lobbying.

Yet another reason to use the excellent Clusty search engine.
Posted by James Zellmer at 10:56 AM

February 1, 2007

Gasoline and the American People

Cambridge Energy Research Associates:
America's "love affair with the automobile" is being transformed -- but not broken up -- by forces that are redrawing the global gasoline and oil market, including higher gasoline prices, tightening environmental requirements, changing demographics, growing world oil demand and expanding fuel options, according to the new 2007 edition of Gasoline and the American People, by Cambridge Energy Research Associates (CERA).

Americans have been driving further -- 40% more than 25 years ago -- and using more gasoline in bigger, more powerful cars and other light duty vehicles. But higher gasoline prices have had a significant impact. The rate of growth in gasoline demand slowed sharply from its 1.6% per year pace (1990-2004) to 0.3% in 2005, and continued to grow slowly in 2006, at 1.0%. And for the first time in 25 years, motorists' average mileage went down. Overall, though, according to the CERA report, improved automotive efficiencies and one of the lowest fuel tax rates among Western countries have kept gasoline and oil's share of average U.S. household budgets at 3.8% in 2006, slightly above the 1960s' 3.4% to 3.6% level despite rising world oil prices.
Media coverage.

Ed Wallace has more.
Posted by James Zellmer at 11:12 AM

January 27, 2007

Ethanol: Very, Very Big Corn

Opinion Journal:
President Bush made a big push for alternative fuels in his State of the Union speech Tuesday night, calling on Americans to reduce gasoline consumption by 20% over 10 years. And as soon as the sun rose on Wednesday, he set out to tour a DuPont facility in Delaware to tout the virtues of "cellulosic ethanol" and propose $2 billion in loans to promote the stuff. For a man who famously hasn't taken a drink for 20 years, that's a considerable intake of alcohol. A bit of sobriety would go a long way in discussing this moonshine of the energy world, however. Cellulosic ethanol--which is derived from plants like switchgrass--will require a big technological breakthrough to have any impact on the fuel supply. That leaves corn- and sugar-based ethanol, which have been around long enough to understand their significant limitations. What we have here is a classic political stampede rooted more in hope and self-interest than science or logic.
Posted by James Zellmer at 6:49 AM

January 26, 2007

I'm Opposed to a $30M Wisconsin Medical Records Subsidy

Sandy Cullen:
A proposal by Gov. Jim Doyle to spend $30 million to help fund electronic medical records systems is just a "drop in the bucket" of what it would take to enable all of the state's health-care providers to access patients' histories at the push of a button, medical experts said.

Doyle said Thursday that he wants to create a $20 million grant program to help nonprofit organizations transition from paper documents to technology he says will reduce medical errors and improve quality.

Another $10 million in tax credits would go to for-profit hospitals and doctors to help cover the cost of their transition.
Cullen's article rightly points out that the "$30M is a drop in the bucket" in a system with billions flowing through it (I don't think they need a subsidy). Creating another layer of tax redistribution (from payroll and income taxes and fees) for state incentives and health care system funding, given the many other state spending priorities, not to mention the $1.6B structural deficit, is misquided. I wonder who is behind this?

Link Hoewing discusses electronic medical records from Verizon's perspective (Verizon is installing Fiber broadband to the home in many markets, unlike AT&T).
Posted by James Zellmer at 8:25 AM

January 18, 2007

The Utility of Asking Questions

Ed Wallace finds some answers:
It seems to me that we might actually be standing at a crossroads of history, and 50 years from now historians will either be writing about the genius of our current plans or bemoaning our utter foolishness. But one thing is for sure. Hoping that things calm down in Iraq, wondering if they are going to get that oil law on the books and praying that the government holds and favors Western oil firms does not sound like a realistic energy policy for the United States.

Everything could go right for us; and the Chinese and Russians could still get back their Iraqi oil contracts, which were abrogated after we invaded that country.

Or we can develop a new energy policy for America. Raise the fuel efficiency standards for automobiles (mid to long-term positive results). Slow down the traffic on our Interstates (immediate impact on the amount of oil we use). Quit using so much oil for fertilizers and plastics and so trim all the waste those industries produce. Tune up our vehicles to maximize fuel economy. And determine whether General Motors’ series hybrid electric is credible, and figure the odds of Detroit’s inventing the lithium-ion batteries that would make the Chevrolet Volt feasible. The subsequent fall in the price of oil would deprive many who detest us of the funding their anti-American plans would require.

If GM’s 150-mpg Chevrolet Volt were coming to market this spring, would that breakthrough stop the 21,500 troops headed for Iraq? Probably not. But it would stop 500,000 American troops from heading to the Middle East a decade from now.
Posted by James Zellmer at 2:15 PM

January 15, 2007

Wisconsin's GDP = South Africa's

Interesting. A map that equates a US State with a similar Country's GDP.
Posted by James Zellmer at 4:54 PM

January 5, 2007

Hype & the Denver International Airport

I heard the hype while living in Denver nearly 20 years ago. $2.5 billion (turned into $5 billion) was necessary to avoid all of the current airport's problems during snowstorms. Mayer Federico Pena lead the charge with his reward coming later - the highway to the new airport (DIA) is named "Pena Boulevard".

Mike Boyd tells the "rest of the story" in the Grinch Comes Clean:
"All Weather Airport? Oh, That Was Just 'Hype'..." ...Along With Most Of The Other Stuff DIA PromisThis Christmas, it wasn't just chestnuts that got roasted on an open fire. Denver's "all-weather" airport, the one that was built to unclog the Western skies, the one that was going to be the glorious technological beacon for all future airports, got roasted big-time in the national media. Justifiably.

Denver International got cooked on something called "the truth."

For almost two days before Christmas, the airport was shut down due to snow. At most times of the year, and at most other airports, this would have been not much more than a page three human interest story, with interviews of passengers stranded like refugees in a big terminal, being asked really deep questions, like, "How long have you been standing in line?" or "When do you think you'll get home?" Or, "Gee, you gotta lot of luggage there." Anything to fill a 90-second piece that's been done dozens of times before.
But this wasn't just any time of the year. And it wasn't at just any airport. First, it was an event that messed up the Holidays to some degree for perhaps as many as 100,000 people. That meant there were interviews with stranded soldiers from Iraq, their precious leave daysdia2.JPG (13614 bytes) being consumed by a closed airport. Then there were the perfunctory pictures of bewildered young families stuck in the terminal, surrounded by despondent little kids fearful of missing Santa Claus, holding the package containing the ThighMaster they were going to give Grandma for Christmas. High profile, newsworthy stuff.

Second, it took place at an airport that was built on the promise that it would never happen. DIA had repeatedly told the world that it would free mankind once and for all of the scourge of flight delays. Mystical DIA, they promised, would handle any - that's right - any weather. No exceptions. Any weather. And when they said all this, they were dead serious and took condescending shots at any infidel who would question it.

A couple of notable quotes from the days when the City was building DIA. These from 1992, for example:

"It's the world's first all-weather airport. We will be able to operate as well in a in a blizzard as Stapleton does on a sunny day..."

or, how about this:

"...We can still land 90 planes per hour in a blizzard..."

In fact, these wonderous promises were made by DIA officials and City politicians as the foundational reason to build this magic new $2.5 billion - now, over $5 billion - airport for the Mile-High City. "Weather delays will be a thing of the past," one of the breathless promo pieces said. Another, aimed at the bond houses that were to finance this thing, claimed, "An all-weather airport, capable of landing three streams of aircraft, no matter how bad the weather..."

In a blizzard? Since there are no arrest records indicating these people were smokingsnakeoil2.JPG (11535 bytes) funny cigarettes or having Timothy O'Leary parties, it's clear that they were saying this stuff with a straight, sober face in an attempt to claim something that they knew wasn't possible nor true. In English, it's called a lie.

At the time, The Boyd Group and a few others went on record, pointing out that, unless they could get Jesus to be a sub on the engineering contract, the chances of DIA being "all-weather" were zero to none.

Aviation Cognoscenti: The Emperor's New Runways. But this was a billion-dollar project, and there was lot of money to be made. So, virtually nobody else in the aviation industry - not the alphabet groups, not the FAA, not even the aviation media, dared say anything. They wanted to remain politically correct.

They all knew, or should have known, that the "all-weather" claims, as well as many others concocted to support the project, were simply not true. But they said nothing.

Perfect Storm: Snow. No Santa. Four Networks. And A Dumb DIA PR Stunt. Of course, DIA has closed on many occasions due to weather. A couple of times, "officially" closed, and on a lot more occasions, functionally closed when airlines simply couldn't operate, yet the bureaucrats would claim DIA was "open" - it was just those silly airlines who refused to land on runways covered with snow, or where they couldn't taxi to the gates. Or in dangerous wind-shear conditions. Or not operating because of those dumb consumers who couldn't get to the airport because the meandering 12-mile access road was impassible and unplowed.

In those instances, nobody much noticed. But then came The Nightmare Before Christmas. From a public relations standpoint, it was DIA's Perfect Storm.

As would be expected, when DIA shut down, the national media descended to do the usual perfunctory Grandma-got-run-over-by-a-flight-delay stories. But then they noticed three things that didn't make sense.

The first was the actual amount of snow that it took to close the airport in relation to it's all weather, better-than-any-other-airport-in-bad-weather claims. Unlike the rest of the region, which saw in some cases almost four feet of white stuff, DIA got 19 to 22 inches, depending on the source. Even with wind, it was neither a 100-year storm, nor of a size particularly unheard of in Colorado. The second thing that got their attention was DIA's announcement that it would not open for almost 24 hours after the last flake had fallen and the bright Rocky Mountain sun came out. Almost a full day. This at America's supposedly most technologically-advanced airport. Red flags went up.

But the third thing that got the media's investigative juices into hyper-drive was when DIA's PR staff opened their mouths and started spitting absurd excuses in all directions. The reasons for the delay in re-opening, they explained confidently and condescendingly, were the huge snow drifts - at first, claimed to be seven feet high, and later the drifts grew in the press statements like Pinocchio's nose to a whopping 12 feet. With a straight face, they told this to network reporters who had just easily traversed the all-four-lanes-open access road, with little or no evidence of such Himalayan-like snow drifts.

Adding to the intrigue, DIA's PR staff arrogantly claimed that the airport had done everything perfectly - in fact, they said they had no reason to change anything in the future. The PR stunts became more silly when they couldn't answer repeated questions regarding why the 12-mile access freeway was clear and open and free of 12-foot drifts, yet all six of DIA's runways were still closed, its ramp areas were clogged with snow, and it couldn't operate for nearly a day after the weather had cleared.pino2.JPG (26150 bytes)

Looking around the terminal, seeing hundreds of people stranded, soldiers from Iraq spending their holiday leave sitting on the floor in their desert fatigues, and passengers around the country messed up due to 20 inches of snow at a $5 billion facility that was supposedly going to do away with weather delays, and things just didn't add up.

The media smelled a cover-up, which is like waving a t-bone steak in front of a hungry Rottweiler.

If They'd Just Told The Truth Right Off... The truth was that, as humans do sometimes, somebody dropped the ball and DIA found itself without a plan to handle a 20-inch snowstorm. A screw-up. But instead of simply coming out with the hard facts, the airport PR hacks went into their usual tell 'em anything mode, a technique that's worked well in the past, but backfired badly this time. By the time the airport finally opened, DIA's PR department had less credibility than Saddam Hussein as a candidate for term life insurance.

But finally, the intense national coverage led the airport to come clean. They announced at a press conference that indeed, they didn't have an adequate snow-management plan, and - countering their original contentions of operational perfection - they were even going to hire a "snow consultant" to fix things, as opposed to relying on the snow job its PR people were providing.

But the damage was done - Denver was splattered all over the national news as an airport to avoid if there is any chance of bad weather.

A Murder-Suicide Pact In The Works?. And that brings us back to the all-weather claim made by DIA and tacitly supported by a host of financial hangers-on, in order to prove the need for the new airport.

After being repeatedly badgered by reporters on the all-weather claim, including the two quotes above, the Airport's long-time chief spokesperson finally blurted out:

"... I'd like to choke the person who came up with that (all-weather) term..."

Within hours, the Denver media dug up the intended strangle victim. Oops. Guess who was behind those all-encompassing quotes? Put it this way - we now have Denver's first pre-announced murder-suicide. Grab your trachea, guy, and squeeze vigorously.

But it gets better.

All Those Great Promises? Oh, Never Mind. The real story was when this same chief DIA PR official was questioned on a radio talk show on December 28th about the original promises and claims made by the City of Denver, its officials, and DIA supporters in order to "prove" a new airport was needed.

The host asked why DIA and the City had made claims for the airport that they knew not to be within several zip codes of being accurate. The PR guy's response was clear.

Yes, of course, he admitted, the airport and the City used what he termed as "hype" and "hyperbole" to sell the need for a new airport. They did so, he noted, to get public support. Basically, he admitted that DIA put out outlandish projections, including the all-weather jive, to mislead the public.

Cutting to the chase, he admitted that they lied.

When asked why public officials would say things they knew not to be true, he took the Nuremberg defense. The public officials were just following orders. At the time of construction, those would be coming from none other than Federico Pena, who went on to greater heights of hyperbole, being responsible as DOT Secretary for the ValuJet FAA cover-up that killed 110 people.

Lots of "Hype" & "Hyperbole" Behind DIA. We could get into the other jive-lie claims - like how the new airport would win new nonstops to Asia (topographic, operational and demographic issues essentially preclude it) or how it would increase service for smaller airports in the region (ask the smaller communities in the area that lost service from one of two hubbing carriers) or the ridiculous concocted nonsense that DIA would attract new service from points all over Europe. (Today, DIA has nonstops to three European points, far from the dozen or so, with over 50 weekly departures, that the airport was supposed to magically attract by 1993.) Or the "hyperbole" that Stapleton couldn't be expanded to handle future growth. (The airport's 1988 EIS outlined growth potential to over 70 million passengers.) No, it didn't default on its bonds, at least not yet, but it has been re-financed a number of times, and, according to the former head of the SEC, it loses money. And the delay stuff? Check out the first three years of operations. Even since then, it's nothing spectacular. Weather delays are not a thing of the past.

There's lots more, but now, they've admitted that we can't trust any of the claims on which $5 billion's been spent to date.

But It Exists. So They Need To Be Honest Going Forward. DIA is here. It's operating. And it needs to be supported.

But that doesn't change the fact that it was built on lies and doctored data that were obvious at the time, but conveniently ignored by a lot of aviation sectors who knew better. Now that they've come clean, it's a lesson that needs to be learned.

We're proud that The Boyd Group was among the few in the consulting field that pointed out these things from the start. Too bad some of our colleagues in the business were afraid to stand up lest they offend a politician or lose out on some business.

The nation needs more airport capacity. But when snake oil is needed to support a given project, it's a political boondoggle, not a capacity project.

(c) 2007, The Boyd Group/ASRC, Inc. All Rights Reserved
Posted by James Zellmer at 7:00 PM

January 3, 2007

TSA's Latest: Sponsored X-Ray Bins

John Croft:
The US Transportation Security Administration (TSA) is launching a one-year pilot programme to allow companies to place advertisements in bins at passenger screening checkpoints at “select” US airports in return for equipment donations.

The effort follows a 3-month test programme at Los Angeles International Airport (LAX) security checkpoints that started in July.

TSA is looking for commercial advertising companies who will team with an airport to provide divestiture bins (the plastic bins used to transport passenger carry-on items through the X-ray machine); divestiture and composure tables; and bin return carts free-of-charge to the TSA. In return, the companies will be allowed to place airport-approved ads “on the bottom of the inside of the bins,” says a TSA spokeswoman. Airports partnered with ad companies will ultimately be required to screen the materials for “offensive, obtrusive, political or controversial” content, she adds.
Not a bad idea, actually. How about a free bottle of water with the ad?
Posted by James Zellmer at 4:51 PM

December 31, 2006

On Earmarks & Lobbyists

Doonesbury. Much more on earmarks, including local activity, here.
Posted by James Zellmer at 9:03 AM

December 25, 2006

Earmarks' Declining Political Utility?

Timothy Egan:
Until this year, Richard W. Pombo, the seven-term Republican congressman from the Central Valley, had never caused much fanfare about bringing home earmarks, the special local projects that circumvent the normal budgeting process. He was far better known for his work fighting environmental regulations.

All that changed in the closing months of this year’s surprisingly tight re-election campaign, when Mr. Pombo began trumpeting the money he had directed to his car-bound district — particularly $75 million for highway expansion, a gift for one of the most congested areas of California.

But it was not enough to persuade voters like Alex Aldenhuysen, a self-described independent, just out of the Navy and voting for the first time in two years. He said he was turned off by Mr. Pombo’s earmark talk. And in the end, Mr. Pombo lost his seat to a Democrat in one of the year’s most significant upsets.
Much more on earmarks, including local politicians use and views of them, here.
Posted by James Zellmer at 10:18 PM

December 23, 2006

Sales Taxes & Online Shopping

Opinion Journal:
But even Christmas stories, from Dickens to Seuss, need a villain. We'd like to nominate your friendly neighborhood state governments, which for years now have been predicting dire declines in state finances because untaxed online shopping would erode the revenue-raising ability of sales taxes.

As usual, the political gloom proved to be overwrought. State tax revenues took a header in 2002 along with the rest of the economy, but they've been growing smartly ever since. The third quarter of this year saw state tax revenues up 4.6% over last year, and that was a deceleration from growth that has bumped along at close to 10% at times in recent years. State sales-tax receipts grew at 4% in the third quarter--and that was the slowest growth in three years. The biggest news about the sales-tax apocalypse is that it isn't happening.

But the strong trend lines for overall tax receipts and sales-tax revenue in particular haven't slowed the move among states to grab a piece of the online-sales pie. In the 14 years since the Supreme Court ruled that the myriad state and local taxes were too complex for mail-order retailers to be expected to master, there's been a movement to obviate that argument by "streamlining" the country's many sales-tax regimes.
Posted by James Zellmer at 8:16 AM

December 20, 2006

Federal Subsidies Turn Farms into Big Business

Gilbert Gaul, Sarah Cohen & Dan Morgan:
The cornerstone of the multibillion-dollar system of federal farm subsidies is an iconic image of the struggling family farmer: small, powerless against Mother Nature, tied to the land by blood.

Without generous government help, farm-state politicians say, thousands of these hardworking families would fail, threatening the nation's abundant food supply.

"In today's fast-paced, interconnected world, there are few industries where sons and daughters can work side-by-side with moms and dads, grandmas and grandpas," Rep. Jerry Moran (R-Kan.) said last year. "But we still find that today in agriculture. . . . It is a celebration of what too many in our country have forgotten, an endangered way of life that we must work each and every day to preserve."

This imagery secures billions annually in what one grower called "empathy payments" for farmers. But it is misleading.
Posted by James Zellmer at 10:11 PM

December 10, 2006

Dairy Industry Crushes Innovator Who Bested Price-Control System

Fascinating, by Dan Morgan, Sarah Cohen and Gilbert Gaul:
In the summer of 2003, shopers in Southern California began getting a break on the price of milk.

A maverick dairyman named Hein Hettinga started bottling his own milk and selling it for as much as 20 cents a gallon less than the competition, exercising his right to work outside the rigid system that has controlled U.S. milk production for almost 70 years. Soon the effects were rippling through the state, helping to hold down retail prices at supermarkets and warehouse stores.

That was when a coalition of giant milk companies and dairies, along with their congressional allies, decided to crush Hettinga's initiative. For three years, the milk lobby spent millions of dollars on lobbying and campaign contributions and made deals with lawmakers, including incoming Senate Majority Leader Harry M. Reid (D-Nev.).

Last March, Congress passed a law reshaping the Western milk market and essentially ending Hettinga's experiment -- all without a single congressional hearing.

"They wanted to make sure there would be no more Heins," said Mary Keough Ledman, a dairy economist who observed the battle.

At the end, participants said, Reid was plainly exasperated. "I'm not listening to any more of this," he said. "I'm out of here."

Reid made his move on Dec. 16, with the Senate chamber nearly empty. He brought up the milk bill, which passed a few minutes later by "unanimous consent," a procedure that requires no debate or roll call vote if both political parties agree. Reid and Kyl said in recent statements that their goal was to level the playing field for milk producers.
Our elected officials at work.
Posted by James Zellmer at 10:33 PM

December 3, 2006

Revenge of the Garlic Farmers, or More Feeding at the Public Till

Alexei Barrionuevo:
For decades, the fiercely independent fruit and vegetable growers of California, Florida and other states have been the only farmers in America who shunned federal subsidies, delivering produce to the tables of millions of Americans on their own.

But now, in the face of tough new competition primarily from China, even these proud groups are buckling. Produce farmers, their hands newly outstretched, have joined forces for the first time, forming a lobby group intended to pressure politicians over the farm bill to be debated in Congress in January.

Nobody disputes that competitive pressures from abroad are squeezing fruit and vegetable growers, whose garlic, broccoli, lettuce, strawberries and other products are a mainstay of world kitchens. But the issue of whether the United States ought to broaden farm subsidies beyond the commodity crops like corn and cotton, which have historically been protected, is a big flashpoint.
Posted by James Zellmer at 7:10 PM

November 27, 2006

Two Senators Stop Late 2006 Earmark Stuffed Spending Bills

John Fund:
Sens. Tom Coburn of Oklahoma and Jim DeMint of South Carolina have decided to take a stand against overspending by objecting to the nearly 10,000 earmarks, or member-sponsored pork projects, larded throughout the spending bills Congress is currently considering.

Their obstinacy has convinced the leadership of the departing Republican Congress that they probably won't be able to pass spending bills in next month's short lame-duck session. Instead, they are likely to pass a stopgap "continuing resolution," which will continue funding all programs at last year's level until the new Democratic Congress passes its own versions of the funding bills.

ass earmark-stuffed catchall spending bills could save taxpayers a cool $17 billion. All 10,000 earmarks in the pending bills will expire if they aren't passed by the end of the year.

Overall federal spending has gone up by 49% since 2001, but you wouldn't know it from the anguished cries of those who regard ever-higher spending as some sort of birthright.
Useful timing, given the upcoming Treasury/Fed trip to China to talk about exchange rates and China's extensive dollar reserves (movement away from dollar reserves could be a real problem for the United States). Much more on earmarks, including local commentary.
Posted by James Zellmer at 1:27 PM

November 26, 2006

"As Power Shifts in New Congress, Pork May Linger"

David Kirkpatrick:
Mr. Stevens, an 83-year-old Republican, and Mr. Inouye, an 82-year-old Democrat, routinely deliver to their states more money per capita in earmarks — the pet projects lawmakers insert into major spending bills — than any other state gets. This year, Alaska received $1.05 billion in earmarks, or $1,677.27 per resident, while Hawaii got $903.9 million, or $746.05 per resident, according to Taxpayers for Common Sense, a nonpartisan group that tracks such figures.

Representative Nancy Pelosi, the Democratic leader, and many Democratic candidates have railed for months against wasteful “special interest earmarks” inserted into bills “in the dark of night.” Now their party’s electoral victories mean that Mr. Stevens will hand Mr. Inouye the gavel of the Senate defense appropriations subcommittee, which presides over the largest pool of discretionary spending and earmarks. But if the Democratic leaders are talking about “earmark reform,” that may be news to Mr. Inouye.

“I don’t see any monumental changes,” Mr. Inouye said in a recent interview. He plans to continue his subcommittee’s approach to earmarks, he said. “If something is wrong we should clean house,” he said, “but if they can explain it and justify it, I will look at it.”
business as usual.

Much more on earmarks, including significant Wisconsin activity here.

Wikipedia on earmarks.

Wisconsin Senator Herb Kohl and Congressman David Obey (among others) continue to bring home the bacon - cha ching on our kid's charge cards - :
  • 4.7M for military battery technology, mostly for Madison's Rayovac (Kohl).
  • 2.4M for improvements to the Rice Lake Airport (Obey)
  • $260K for UW-Madison agricultural grazing research (Obey).
Wisconsin per capita "pork" spending is $47 (Massachusetts is 45) while Robert Byrd's ongoing efforts to pave over West Virginia requires $327/resident.

Tammy Baldwin's comments regarding earmarks.
Posted by James Zellmer at 7:04 PM

November 24, 2006

Government Spending Via a Credit Card Due from our Future Generations

Italian Minister of Economy & Finance Tommaso Padoa-Schioppa [120K PDF]:

I now come to the last and conclusive theme of my argument. Controlling expenditure always has to balance technical arguments and constraints, with the legitimate and competing claims (often drawing on very different ideological Weltanschauungen) on the resources managed, directly and indirectly, through the political processes. Balancing the two elements is a difficult exercise, as I experience on a daily basis.

Political economists have blamed the difficulty on the fact that the time-horizon of a typical political cycle is shorter than the one relevant on average for the society as a whole, in turn leading the legislature to attribute a smaller weight to the long-run implications of public expenditure policies than it would be socially desirable. Empirical evidence shows that discretionary public expenditure tends to rise before the elections irrespective of the political orientation of the incumbent government, and also in spite of the weak evidence of a relation between the size of pre-election spending and the election outcomes. The politicians’ short horizons and the long lag between reforms and their beneficial effects gives rise to a pervasive tension in expenditure control.

For Faust, the lure of Mephistopheles’ services is greatly enhanced by the fact that the price – albeit a terrible one – is to be paid later. For politicians, the lure of the support obtained through public expenditure is similarly enhanced by the fact that public debt will be paid (o reneged) by next generations, often well after the end of one’s political career. As to myself, having inherited a public debt larger than GDP, and having committed myself and my government to comply with sound fiscal principles, I scarcely can afford even to contemplate the possibility of accepting Mephistopheles’ services.

Fascinating and powerful!

Posted by James Zellmer at 10:07 PM

Ingredients of a 2007 Grand Bargain on Social Security?

The Economist:
So Washington is full of rumours that 2007 will bring a Grand Bargain on social security reform (see Mark Thoma's take here and Vox Baby here). The Bush team's plan is to sound sufficiently conciliatory and open-minded that it becomes impossible for the Democrats not to sit down and talk. That strategy just might succeed. Stonewalling is a plausible political tactic when you are in opposition (though still shamefully shortsighted). It doesn't work so well if you are actually in charge on Capitol Hill, particularly when you announce that retirement security is one of your top legislative priorities.
Posted by James Zellmer at 10:03 PM

November 15, 2006

Wisconsin 27th in "Entrepreneur Friendliness"

Small Business & Entrepreneurship Council [PDF]:
The Small Business Survival Index ranks the 50 states and District of Columbia according to some of the major government-imposed or government-related costs affecting investment, entrepreneurship, and business.

This eleventh annual Small Business Survival Index ties together 29 major government-imposed or government-related costs impacting small businesses and entrepreneurs across a broad spectrum of industries and types of businesses:
  • Personal Income Tax. State personal income tax rates affect individual economic decision-making in important ways. A high personal income tax rate raises the costs of working, saving, investing, and risk taking. Personal income tax rates vary among states, therefore impacting crucial economic decisions and activities. In fact, the personal income tax impacts business far more than generally assumed because roughly 90 percent of businesses file taxes as individuals (e.g., sole proprietorship, partnerships and S-Corps.), and therefore pay personal income taxes rather than corporate income taxes. Measurement in the Small Business Survival Index: state’s top personal income tax rate.1
  • Capital Gains Tax. One of the biggest obstacles that start-ups or expanding businesses face is access to capital. State capital gains taxes, therefore, affect the economy by directly impacting the rate of return on investment and entrepreneurship. Indeed, capital gains taxes are direct levies on risk taking, or the sources of growth in the economy. High capital gains taxes restrict access to capital, and help to restrain or redirect risk taking. Measurement in the Small Business Survival Index: state’s top capital gains tax rate on individuals.2
Posted by James Zellmer at 7:03 AM

November 10, 2006

AMT Overhaul on the Way?

Lori Montgomery:
The focus on the AMT is hardly surprising, given that victims of the tax have been concentrated in high-cost urban areas such as Washington, New York and San Francisco -- places that tend to vote Democratic. Rangel, Hoyer and Nancy Pelosi (D-Calif.), the presumptive House speaker, all represent states hit hard by the AMT, which is sometimes called the "blue-state tax." To map states with the highest concentrations of AMT taxpayers is to draw bull's-eyes over California and the Northeastern seaboard.
Posted by James Zellmer at 10:45 PM

Kinsley on the Dem's Tax Plans

Michael Kinsley:
Democrats call for ending the "Disabled Veterans Tax" and the "Military Families Tax." The what? There cannot be any such thing as a Disabled Veterans Tax. It is a label dreamed up by people wanting special treatment, like the Republicans' brilliant "Death Tax" for the estate tax. Maybe they deserve it, maybe they don't. But why can't we leave this bullying by terminology to Newt Gingrich?

The problem with tax credits in general is that they never appear in the budget, so they never get the same scrutiny as direct spending, although their impact on the deficit is exactly the same. By definition, they cost more than whatever benefit they are intended to achieve, since no one is going to be induced to spend an extra dollar on, say, dance lessons (because some member of Congress has decided that it would be good for the country if more people knew how to dance) unless the subsidy is worth more than a dollar.
The Economist:
Tax credits are the worst possible tax policy from the standpoint of economic growth. They are distortionary: they cause consumers to divert spending from higher-valued to lower-valued uses. They are a clumsy way to solve externality problems: if you want less of something, tax it. They are not transparent, so people have a very hard time finding out how much the government is spending on, say, dance lessons. And they may actually discourage work.

For almost everyone except rock stars, leisure and work are basically perfect substitutes: a decision to work less is a decision to consume more leisure. The basic intuition of supply-side economics was that if you cut the taxes on people's labour, they would work more, since to them, the tax cut would essentially be the same as a wage increase. This intuition is simple, easy to grasp, and widely accepted. Unfortunately, it is also wrong.
Posted by James Zellmer at 9:19 AM

October 27, 2006

Political MoneyLine: Congressional & Senator's Private Gifts of Travel

Interesting data compiled by Congressional Quarterly's Political Moneyline. As always, paper heir Jim Sensenbrenner is #1 in these goodies receiving $203,175 in travel over the past six years. David Obey escaped Wisconsin Winters a number of times, coming in 70th at $79,153. Tammy Baldwin was #147 @ $48,173 while Paul Ryan was #142 @ $48,866. Ryan and Baldwin both travelled to Israel and Jordan courtesy of the American Israel Education Foundation. Russ Feingold was #597 @ $1,078. Scot Paltrow has more.
Posted by James Zellmer at 7:45 AM

October 25, 2006

Tammy Baldwin on Earmarks

I received an email recently from Tammy Baldwin regarding my post on the excesses of congressional earmarks - using our checkbooks:
Dear Mr. Zellmer,

Thank you for contacting me regarding earmark reform. It is good to hear from you, and I apologize for the delay in my response.

Like you, I am concerned about unnecessary government spending. In recent years, government spending has increased dramatically, creating unprecedented national debt. Continued, large-scale deficit spending is unquestionably poor public policy. Many have suggested that one of the ways to cut spending is to reform the practice of "earmarks", which are appropriation amendments that fund specific projects. In the current climate of excessive spending, reforming this amendment process will not go far enough. The government is spending billions of dollars a day on the Iraq War while simultaneously lowering tax revenue by cutting taxes for corporations and wealthy individuals. This shifts the burden onto the middle and lower-income earners who are unable to support such extensive spending.

At the current rate, the United States is adding one trillion dollars to our national debt every eighteen months. According to the Congressional Budget Office (CBO), if the President's current tax and spending polices are continued over the next ten years, the yearly deficit will increase to $439 billion as soon as 2014. The national debt will skyrocket to $14.5 trillion, almost double today's level. Clearly, this course of fiscal irresponsibility cannot be sustained. I believe Congress must return to fiscal discipline, such as in the late 1990s when we turned annual federal deficits into surpluses. Rest assured that I will keep your views in mind regarding earmark reform as the debate over fiscal responsibility and the federal budget continues.

Again, thank you for sharing your views. Your opinion matters to me. If I can be of service to you in any other way, please do not hesitate to let me know. As a result of the anthrax incidents, all mail sent to Congress is first irradiated. This process causes significant delays. To ensure the fastest response, I encourage all constituents who have access to the internet to contact me through my website at http://tammybaldwin.house.gov.


Tammy Baldwin
Member of Congress
I appreciate the email. Baldwin gets points (or her office) for emailing responses whereas our Senators continue to send dead tree responses to electronic inquiries. Tammy's House & Campaign websites. Her opponent in this falls race is Dave Magnum.
Posted by James Zellmer at 4:08 PM

October 11, 2006

Bringing it Home: Earmarks

John Wilke:
Charles Taylor, wealthy businessman and banker, owns at least 14,000 acres of prime land in western North Carolina. He's also the local congressman. So when he steers federal dollars to his district, sometimes he helps himself, too.

Last year, Mr. Taylor added $11.4 million to a big federal transportation bill to widen U.S. Highway 19, the main road through Maggie Valley, a rural resort town in the Great Smoky Mountains. His companies own thousands of acres near the highway there and had already developed a subdivision called Maggie Valley Leisure Estates.

Mr. Taylor also got $3.8 million in federal funds for a park now being built in downtown Asheville with fountains, tree-shaded terraces and an open-air stage. It's directly in front of the Blue Ridge Savings Bank, flagship of his financial empire. He is among the richest congressmen with assets of at least $72 million, records show.

The Republican lawmaker is one of at least a half-dozen House members whose public actions in directing special-interest spending known as earmarks have also benefited their private interests or those of business partners, according to congressional, corporate and real-estate records. Among them is a senior Democrat, Rep. Alan Mollohan of West Virginia.
More on earmarks.
Posted by James Zellmer at 10:31 PM

October 10, 2006

Tammy Baldwin Ranks #22 (out of 435) in Congressional District "Grants"

$28.8B over the past 6 years.

Fedspending.org. Recipient Details:I never heard from Tammy's office regarding her Dane County earmarks.

Kudos to the "Sunlight Foundation" for making this information available to taxpayers. I'm wondering if some of these are SBA or other government loans/grants?
Posted by James Zellmer at 7:56 PM

October 7, 2006

Our Federal Tax Dollars (and politicians) at Work: Intrastate Internet Gambling OK, but other Internet Gambling is Not

Last Saturday the United States Congress passed a port security bill that carried an amendment banning Internet gambling. This was a huge mistake, not because Internet gambling is a good thing (it was already illegal, in fact), but because the new law is either unenforceable or -- if it can be enforced -- will tear away the last shreds of financial privacy enjoyed by U.S. citizens. The stocks of Internet gambling companies, primarily traded in the UK, went into free-fall as their largest market was effectively taken away. I don't own any of those shares, but I guarantee you they will fully recover, which is part of what makes this situation so pathetically stupid.

Ironically, many of the senators who voted for this legislation may not have even known the gambling bill was attached, since it didn't appear in the officially published version of the port bill. But such ignorance is common in Congress, along with a smug confidence that people and institutions can be compelled to comply with laws, no matter how complex and arcane. The amendment was a surprise late addition, pushed by Senate Majority Leader Bill Frist, who has presidential ambitions and reportedly sees this battle against Internet gambling as part of his eventual campaign platform.

Only the new law isn't really against Internet gambling at all, since it specifically authorizes intrastate Internet gambling, imposing on the net the artificial constraint of state boundaries. So the law that is supposed to end Internet gambling for good will actually make the practice more common, though evidently out of the hands of foreigners, which in this case includes not just operators from the UK but, if you live in South Carolina as I do, it also includes people from Florida and New York. Let a million local poker hands be dealt.

What the new law actually tries to control is the payment of gambling debts through the U.S. banking system, making such practices illegal (except, of course, for intrastate gambling, which probably means your state lottery). Once President Bush signs the bill, your bank and credit card companies will have 270 days to come up with a way to prohibit you from using your own money to pay for gambling debts or -- though far less likely-- to keep you from receiving your gambling profits. The law covers not just credit card payments but also checks and electronic funds transfers.
Congressional and Senate votes here. Tammy Baldwin voted yes as did Russ Feingold and Herb Kohl. It would be interesting to know if any of them were aware of what was in this bill.
Posted by James Zellmer at 6:37 AM

Miller Park Economics, or Your Tax Dollars at Work

Tom Haudricourt and Don Walker:
In the three years after moving into Miller Park in 2001, the Milwaukee Brewers made a yearly economic impact of $327.3 million on the five-county area that was taxed to build the ballpark, according to a study by the Institute for Survey and Policy Research at the University of Wisconsin-Milwaukee.

The director of the UWM Center for Economic Development offered a different view, saying the study was a "standard nonsensical sports study that inflates the impact of spending on baseball."

The study, which local public relations firm Mueller Communications Inc. commissioned on behalf of Major League Baseball and the Brewers, was completed in January 2005. It is to be made public for the first time Monday, when baseball Commissioner Bud Selig addresses a meeting of the Greater Milwaukee Committee at Miller Park.
Much more on Miller Park and Bud Selig here. The mosting interesting link is a June, 2004 article in the Washington Post of all places where Bud Selig's hardball tactics were discussed and we learned that former Wisconsin Governor Tommy Thompson won't set foot in the place. Clearly, the opportunity to place the park downtown was a major miss.
Posted by James Zellmer at 6:29 AM

September 14, 2006

Earmark Reform: Baldwin Votes No

Interesting spin on this vote:
We are blowing away the fog of anonymity," said Rep. David Dreier (R-Calif.), chairman of the House Rules Committee. "The goal is to pull back the curtain on earmarks to the public."

The rule change shelves a wider ethics bill, however, at least until next year. That bill became bogged down amid disagreements between the House and the Senate, and the reluctance of lawmakers from both parties to limit their interactions with lobbyists. The earmarks measure was brought up as a passable way to address voter unrest over the scandals, aides said.

"This bill represents the death of lobby reform," said Rep. David R. Obey (D-Wis.), a former chairman of the House Appropriations Committee.
Madison's representative Tammy Baldwin voted No. Obey's comments are ironic, given his prolific use of earmarks. Lots more on earmarks here.

I don't think there's much to be proud of from either party's perspective. Applying some "sunshine" to the earmark process is a good thing.
Posted by James Zellmer at 11:54 PM

September 13, 2006

Drunk on Earmarks: Obey's $6.9M in ONE Bill!

Wall Street Journal:
A case in point is the HHS-Education spending bill, which so far contains 1,867 earmarks at a cost of just under $500 million. Members tell us the bill has caused a mini-rebellion because two of the three largest earmarkers are Democrat Nancy Pelosi, who walks away with $7.9 million worth of goodies, and David Obey, the ranking Democrat on Appropriations who receives $6.8 million for his Wisconsin district. This is the same Ms. Pelosi who earlier this session pledged to give up her pork to help balance the budget.

The House GOP leadership finally seems to comprehend the stakes in this pre-election budget fight. Majority Leader John Boehner calls the anti-earmarking bill "must-pass legislation," and has agreed to separate it from a bottled-up lobbying-reform bill. All that can block this from passing now are the spend-happy Republicans on Appropriations. If they succeed, they will have inflicted a far greater wound on their majority than the Democrats ever could.
I've not heard back from Tammy Baldwin regarding her views on earmarks [see "Spreading the Love"].

Robert Reich says earmarks must go:
The number of registered lobbyists in Washington has ballooned to the point there are over 60 of them for every single member of Congress. And they spent $2.4 billion last year. What do you think the lobbyists bought with that money?

A lot of it's called "earmarks" — special spending that's stuck into pieces of legislation to benefit particular constituents, like that Alaskan bridge to nowhere in last year's highway bill, and the special casino licenses that got lobbyist Jack Abramoff into trouble.

Ten years ago there were about 3,000 earmarks. Last year there were over 14,000, costing taxpayers over $47 billion according to the Congressional Research Service.

Last January, after the Jack Abramoff scandal had spread to staffers of former House Whip Tom DeLay and Ohio Republican Bob Ney, and after FBI agents found an unexplained $90,000 cash in the freezer of Louisiana Democrat William Jefferson, and after former California Republican Duke Cunningham pleaded guilty to bribery — after all that — it seemed like the House was so embarrassed it would clean itself up. At least that's what Speaker Dennis Hastert promised.
Posted by James Zellmer at 10:10 AM

September 3, 2006

Byrd / Stevens Guilty of the "Hold" on S.2590

Jeff Jarvis adds some useful comments to the outing of Robert Byrd and Ted Stevens regarding Senate Bill S.2590:Federal Funding Accountability and Transparency Act of 2006 introduced by Mr. COBURN (for himself, Mr. OBAMA, Mr. CARPER, and Mr. MCCAIN).
Posted by James Zellmer at 12:22 PM

August 24, 2006

Where do Your Tax Dollars Go?

National Priorities Project:
The median income family in Madison, Wisconsin paid $6,020 in federal income taxes in 2005. Here is how that amount was spent:
Related: Local congressional earmark data.
Posted by James Zellmer at 8:53 PM

August 17, 2006

Spreading the Love (Pork): Local Federal Earmark Map - Our Politician's Deficit Spending (and Payback?)

Sunlight Labs:
There are over 1,800 earmarks in the upcoming Labor HHS Bill, and we don't know where they came from. Help figure it out, by researching and posting in the comment section on this blog post.

1) Who secured the earmark? What district is it in? Call the office of the congressperson you think might have secured the earmark and ask them if they are indeed responsible for it. Record whatever answer they give.
Check out Wisconsin's earmarks from this single congressional bill here. (Enter Wisconsin in the search field and click go). St. Mary's Hospital will receive $350,000 for "facilities and equipment" while Baraboo's St. Claire Health Care Foundation will also receive $350,000.00 for "facilities and equipment". The Boscobel Area Health Center will receive $455,000.00 for facilities and equipment. The Beloit Regional Hospice will receive $100,000 for computerization of medical records while the UW-Whitewater will receive $150,000 for "equipment and technology" for its Living and Learning Center. David Obey's Wausau area Aspirus Wausau Hospital gets $1.2M for for facilities and equipment.

There are many more. Tammy Baldwin represents the Madison area. Earmarks are a heck of a way to increase deficit spending. I hope we see more "sunlight" on this matter. Sunlight's National Director is Zephyr Teachout - who directed online organizing for Howard Dean in 2004. Judy Sarasohn has more.

It would be interesting to compare earmarks over time with contributions. Finally, I sent an email to Tammy Baldwin and Dave Magnum seeking comments on earmarks generally and these items specifically.

UPDATE: Michael Byrne (Research Director - Magnum for Congress) responded:
Our view here exactly. Especially things tacked on in the shadows which is why we liked Paul Ryan's efforts to force this stuff out in the open. Dave will be speaking about pork through the coming days and will be referencing the record of his opponent who has quite a string of earmarks she's walked through Congress. Some were completely unnecessary and certainly not well publicized. Others were just vote trolling things that won't help our district keep itself competitive economically... Thanks for checking in and keep coming back. Mike ============= Michael E. Byrne Research Director, Magnum for Congress www.davemagnum.com email: byrnex4 _at_ tds.net Cell: 608.712.5340 FAX: 608.767.2187e On Aug 17, 2006, at 9:22 AM, Jim Zellmer wrote: I'm surprised and disappointed in the number and amount of earmarks: http://www.zmetro.com/archives/005931.php The projects may or may not have merit, but earmarks are clearly an abuse of the system and simply add to the debt we burden our children with.... Any comments? I've sent the same email to Tammy Baldwin Best wishes, Jim
I'll post Tammy's response as soon as I receive it.

Marketplace (now wonderfully available on Wisconsin Public Radio - Finally!) has more.

Keep in mind this is "one" bill!
Posted by James Zellmer at 7:00 AM

August 8, 2006

The Politics of High Fructose Corn Syrup and Does it Make You Fat?

Alex Tabarrok:
I don't know whether High Fructose Corn Syrup (HFCS) acts more like fat than does sugar (compare here and here) but it's worthwhile pointing out that HFCS is a child of the sugar quota. The import quotas raise the US price of sugar well above the world price (~24 cents per pound compared to ~9 cents per pound) and encourage consumption of HFCS. Reflecting this fact, the main defenders of the sugar quota are no longer Florida sugar growers but rather mid-West corn growers.
The HFCS business is a cartel - prices are the same, change quarterly on the same day and enjoy, as Tabarrok points out, subsidies. Years ago, working in the water and juice industry, I sent a letter to the anti-trust division complaining about this. A lawyer deep in the bowels of the justice department phoned me and said that "as long as Bob Dole is active on this issue, nothing will change". I assume someone has replaced Dole as a friend to the corn processors.
Posted by James Zellmer at 8:47 AM

August 3, 2006


New Perspectives Quarterly:

Milken: A number of countries around the world -- the United Arab Emirates, Singapore, Norway, Taiwan -- have built up tremendous reserves relative to the size of their country. Most of them have not made the mistake of Japan, where deploying that surplus within the country through, for example superfluous road or bridge construction, caused massive increases in prices in the 1980s.

All in all, there is at least $25 trillion worth of surpluses in the world today that is invested short-term. It is pretty hard to find anything to put a trillion dollars into except U.S. government and private bonds or mortgage-backed securities.

Where do you see this capital being deployed? Do you see it just compounding away, or do you see them following the mode maybe of Singapore where the government is creating its own industrial companies?
Posted by James Zellmer at 8:28 AM

July 27, 2006

What Does $7 Billion in Telco Subsidies Buy?

Thomas Hazlett:
The “universal service” regime ostensibly extends local phone service to consumers who could not otherwise afford it. To achieve this goal, some $7 billion annually is raised – up from less than $4 billion in 1998 – by taxing telecommunications users. Yet, benefits are largely distributed to shareholders of rural telephone companies, not consumers, and fail – on net – to extend network access. Rather, the incentives created by these subsidies encourage widespread inefficiency and block adoption of advanced technologies – such as wireless, satellite, and Internet-based services – that could provide superior voice and data links at a fraction of the cost of traditional fixed-line networks. Ironically, subsidy payments are rising even as fixed-line phone subscribership falls, and as the emergence of competitive wireless and broadband networks make traditional universal service concepts obsolete. Unless policies are reformed to reflect current market realities, tax increases will continue to undermine the very goals “universal service” is said to advance.
Alex Tabarrok adds:
Guess how much would it cost a farmer to get telephone service in a small rural county far from a major city? Let's say $800 for satellite service.

Now guess how much the government subsidizes rural phone carriers to provide this service. The answer? As much as $13,000 per line per year.
Posted by James Zellmer at 8:28 AM

July 23, 2006

How Big is the Federal Deficit - Really?

Citizens for Tax Justice:
n July, the Bush administration estimated that the fiscal 2006 budget deficit, including $174 billion borrowed from the Social Security Trust Fund, will be $470 billion. That will bring total federal borrowing over the past five years to $2,449 billion.

That $2.4 trillion in borrowing means that from fiscal 2002 through fiscal 2006, a quarter of non-Social Security federal spending will be financed with borrowed money. In contrast, in fiscal 1999 through 2001, the federal government did not borrow a penny from the Social Security Trust Fund.

Indeed, the government saved all of Social Security’s $434 billion in surpluses, and actually ran surpluses in its regular budget, too, thus paying down the national debt by $120 billion.
Posted by James Zellmer at 9:53 AM

July 21, 2006

Judge Rules a Tax Shelter in KPMG Case Is Legitimate

Lynnley Browning:
The heart of Judge Ward’s ruling was that the I.R.S.’s retroactive use of tougher Treasury Department rules in 2003 on liabilities like those in Blips was “ineffective” and “not enforceable” because it was retroactive. The Internal Revenue Code generally prohibits retroactive regulations. The I.R.S. said in 2000 that it would formally challenge Blips deductions claimed by taxpayers.

Jerrold Cohen, a lawyer in Atlanta for Mr. Nix and Mr. Patterson, said yesterday that Judge Ward’s ruling showed that “the government isn’t allowed to change the rules just because it doesn’t like the result.”
Great example of the mess that is our tax system. The Opinion (PDF).
Posted by James Zellmer at 9:09 AM

July 19, 2006

Teletruth Letter to the Judge Regarding the SBC/AT&T and Verizon/MCI Mergers

Teletruth believes there exists an inherent contradiction in representations of the SBC-AT&T and Verizon-MCI mergers in the complaints and consent decrees filed by the DOJ October 27, 2005.

The complaints note broad competition. For example - "SBC and AT&T compete in the sale of wireline telecommunications services to retail and wholesale customers in the United States." The complaints note particular concern about Local Private Lines. For example – "the proposed merger is likely to substantially reduce competition for Local Private Lines and telecommunications services that rely on Local Private Lines to those buildings." The DOJ believes the magnitude of these concerns provides sufficient justification to block the mergers. For example – "that Defendants be permanently enjoined and restrained from carrying out the Agreement and Plan of Merger dated January 30, 2005."
Posted by James Zellmer at 8:37 AM

July 17, 2006

The Future of America Forecasts, Part 2

"Fabius Maximus":
orecast #3: the death of the US Constitution.

The Constitution was originally designed to specify the duties for each of America’s three branches and to limit their powers. Its ability to do the latter function has faded rapidly since the New Deal. Already most of the Bill of Rights remain de jure in force but are de facto void, as can be seen by a Lexis search of successful attempts to use them in litigation – you’ll find almost none.

At some point soon the Constitution will become a purely procedural document, much like that of the former Soviet Union, and equally effective at preserving our liberties. Our rights will exist only on the sufferance of our government and our ruling elites. This is already true in the UK, as the “unwritten constitution” protecting the “rights of Englishmen” has blown away like smoke in the wind.
Posted by James Zellmer at 10:20 PM

July 3, 2006

Freedom to Farm: Program Pays $1.3B to People Who Don't Farm

Dan Morgan, Gilbert Gaul and Sarah Cohen:
Even though Donald R. Matthews put his sprawling new residence in the heart of rice country, he is no farmer. He is a 67-year-old asphalt contractor who wanted to build a dream house for his wife of 40 years.

Yet under a federal agriculture program approved by Congress, his 18-acre suburban lot receives about $1,300 in annual "direct payments," because years ago the land was used to grow rice.

Matthews is not alone. Nationwide, the federal government has paid at least $1.3 billion in subsidies for rice and other crops since 2000 to individuals who do no farming at all, according to an analysis of government records by The Washington Post.

Some of them collect hundreds of thousands of dollars without planting a seed. Mary Anna Hudson, 87, from the River Oaks neighborhood in Houston, has received $191,000 over the past decade. For Houston surgeon Jimmy Frank Howell, the total was $490,709.
Posted by James Zellmer at 9:27 AM

June 27, 2006

Judge Rules That Prosecutors Violated the rights of 16 KPMG Partners

Peter Lattman:
Those who commit crimes - regardless of whether they wear white or blue collars - must be brought to justice. The government, however, has let its zeal get in the way of its judgment. It has violated the Constitution it is sworn to defend.

That’s the money quote in Judge Kaplan’s stunning 88-page opinion, in which he found that prosecutors violated the constitutional rights of a group of former KPMG partners by pressuring the firm not to pay their legal bills. We’re going to take the liberty of reprinting the opinion’s entire preamble, which contains remarkably clear, riveting writing:
More here, here and here.

Lattman further posts his views on the winners and losers via this ruling along with a roundup of other commentary.

Law Professor Linda Beale has a few words as well.
Posted by James Zellmer at 10:46 AM

June 20, 2006

Cities Shop for Free WiFi Services

Bobby White:
Under the agreement, Sacramento residents would pay monthly subscription fees of about $20 to use MobilePro's wireless service, local businesses would pay $90 to $250, and Sacramento's city agencies would be able to use the service free. The agreement resembled that of many other municipal wireless deals across the country. For MobilePro, based in Bethesda, Md., a full year of service would bring in $2 million to $4 million in revenue, analysts estimate.

But earlier this month, the deal fell apart. The reason: Sacramento city officials had noticed new municipal wireless deals inked in San Francisco and Portland, Ore. The Portland rollout, sponsored by Silicon Valley startup MetroFi Inc., and the San Francisco deployment from Google Inc. and Earthlink Inc., both offered wireless service to those cities with expanded free access for some businesses and residents. Instead of relying on user subscription fees, MetroFi, Google and Earthlink planned to make money off local advertising that would be embedded in their wireless service.
Posted by James Zellmer at 6:44 AM

June 2, 2006

The Key Ingredients for a "Great City"

Paul Graham ruminates on the essence of a technology hub:
I think you only need two kinds of people to create a technology hub: rich people and nerds. They're the limiting reagents in the reaction that produces startups, because they're the only ones present when startups get started. Everyone else will move.

Do you really need the rich people? Wouldn't it work to have the government invest in the nerds? No, it would not. Startup investors are a distinct type of rich people. They tend to have a lot of experience themselves in the technology business. This (a) helps them pick the right startups, and (b) means they can supply advice and connections as well as money. And the fact that they have a personal stake in the outcome makes them really pay attention.

Bureaucrats by their nature are the exact opposite sort of people from startup investors. The idea of them making startup investments is comic. It would be like mathematicians running Vogue-- or perhaps more accurately, Vogue editors running a math journal.
Grahams words are a must read for local politicians. Madison's (Wisconsin) biggest challenge with respect to new business development is it's parochialism. Living in San Francisco years ago, I was impressed by the general willingness to try new things and take risks. We have a world class University, lots of bright citizens but not so many people willing to take financial and career risks.
Posted by James Zellmer at 8:35 AM

May 30, 2006

State Business Filing Data

Larry Ribstein has posted some fascinating state-by-state business filing data from the International Association of Commercial Administrators. Of the 35 states with filing data for the past four years, 32 reported increases in LLC filings and 21 reported decreases in corporation filings. In the six largest states. the growth in LLC filings from 2002 to 2005 ranged from 60.3% to 237.9%, while three of the states experienced declines in the number of corporate filings ranging from (11.4%) to (27.3%) and the three states with growth in the number of corporate filings ranged from 4.6% to 23.7%:
Wisconsin's data:
  • Business & Professional Corporations: 12/31/2004: 5,571 ($1,8M); 12/31/2005: 5,104
  • Nonprofits: 12/31/2004: 1,927 ($73K)
  • Limited Liability Copmanies (LLC): 12/31/2004: 25,268 ($3,484,515); 12/31/2005: 26,653
  • Limited Partnerships: 12/31/2004: 203 ($20K); 12/31/2005: 203
Minnesota had more than twice as many corporate filings and about 1/3 less LLC formations than Wisconsin. Illinois has a significantly larger annual number of corporate filings than Minnesota or Wisconsin.

It would be interesting to see what the numbers look like over time, attrition rates and the correlation to taxes and jobs.
Posted by James Zellmer at 10:54 AM

May 16, 2006

Touching the Surface of Our Tax System: Think Warren Buffett is paying $4 billion for Iscar? Think again.

Avishay Ovadia:
This brings us to the investment in Iscar. On the face of it, Buffet paid $4 billion for 80% of the Israeli metal cutting toolmaker company. Why only on the face of it? Because in actual fact, the sum was a great deal lower.

While the structure of the deal is not known, it seems that Buffett has set up a local company that will acquire 80% of the activity of Iscar from the Iscar group, controlled by the Wertheimer family. The family will retain control over the old Iscar, which will own 20% of the activity. In the next stage, a company will be formed, into which Iscar's activity will be transferred (by both sides), leaving Buffett with an 80% stake in the new company, which will take in all Iscar’s activity.

Buffett, therefore, is buying activity, rather than company stock. The significance for tax is a benefit of around $1 billion over a 10 year period. Why? Because income tax regulations allow the recognition of amortization of goodwill on deals for acquisition of current activity at an annual rate of 10% of the goodwill. Almost all the sum paid for Iscar’s activity will be attributed to goodwill, resulting in an annual tax-deductible expense of $400 million. This expense will generate a tax saving of $100 million, assuming an effective tax rate of 25% for Iscar (for which it qualifies as a company with approved enterprise status). $100 million over 10 years is the expected saving, amounting to $1 billion.
Posted by James Zellmer at 10:16 PM

May 14, 2006

Short Term Fix for the AMT

David Lazarus updates us on the most recent tax bill, including its short term fix for the very large AMT (Alternative Minimum Tax) problem.

Meanwhile, the Nashville Songwriters Association International lobbied for and won a special tax break that will give songwriters a lower rate when they sell their catalog, or body of work. "Our lawyers here in town wrote the legislation," says Debi Cochran, the association's legislative director.

Perhaps we should organize some sort of parents or bloggers special tax break initiative.
Posted by James Zellmer at 9:15 AM

May 2, 2006

Modern Joint Operating Agreements

Dan Gillmor looks at Hearst's deal with MediaNews Group to acquire four newspapers. Madison has had one of these for years - a $120M annual arrangement that has kept the Cap Times going despite its very small circulation. Joint operating agreements were protected by congress years ago, as a way to "preserve daily newspapers". The time has long since arrived to eliminate this relic.

Dave Zweifel passes along his experience at the American Society of Newspaper Editors' convention recently.
Posted by James Zellmer at 7:00 AM

May 1, 2006

A Word for Governor Doyle on the Broadband Expansion Tax Credit

Gov. Jim Doyle plans to sign the broadband bill passed by both the state Senate and Assembly on Tuesday, a top aide said Wednesday afternoon.

“The governor supports it,” said spokesman Matthew Canter. “In fact, he helped lead the way for it. It’s part of his Grow Wisconsin plan.”

The legislation will give telecommunications companies tax exemptions if they provide high-speed Internet service to parts of Wisconsin that lack it or are underserved – mostly in the rural and northern areas of the state.
I hope that Governor Doyle will insert some language into this bill that requires the recipients of this subsidy - local Telco's - to provide symmetrical internet access, not the odd services they largely provide today where the downstream and upstream services run at different speeds. The internet is not TV. Our generally poor broadband service significantly limits the opportunities for emerging home based internet businesses and services. This is a trivial change and should be a no brainer for the Governor. Learn much more on these issues, including why the US is so far behind countries like Japan and Korea in true broadband (100mbps symmetrical speeds), here. Om Malik tells us why this is important.
Posted by James Zellmer at 12:57 PM

April 28, 2006

Reckoning on the "Right"

Ed Wallace:
Worse, ethanol is not being sold to us because it will make America energy independent. It is being forced on the nation, even with all the problems that have already become apparent, because the party in power is locking in the lobbyist monies and farm state votes. And that’s not just my opinion; it’s also the opinion of David G. Victor, director of the Program on Energy and Sustainable Development at Stanford and an adjunct senior fellow of the Council on Foreign Relations, as published in the Houston Chronicle on April 15 of this year.

In fact, the corruption of our legislative body is so pervasive that, when Reuters Business discussed how we could immediately get more ethanol just by dropping the 54-cents-per-gallon import tax on Brazil’s ethanol, the person quoted as saying that “Congress has a backlog of important bills” and “won’t have time in this legislative year to deal with controversial legislation” (such as reducing tariffs on ethanol from Brazil), was nobody we elected. No, it was Jon Doggett, vice president of the National Corn Growers Association. Now tell me: Who is really calling the shots?
Posted by James Zellmer at 9:45 PM

April 24, 2006


Bob Gritzinger:
E85 is the designation for a fuel that combines 85 percent ethanol with 15 percent gasoline. E85-compatible—or flex-fuel—vehicles can run on E85 or regular unleaded gasoline. Because the alcohol in E85 can break down rubbers and plastics used in typical internal-combustion engine fuel systems, vehicles must be specially modified to allow its use. And to obtain maximum power from higher-octane E85, engines must be tuned to run on it, or be able to adjust timing and the air-to-fuel ratio when running on E85.

Supporters say the alternative fuel is environmentally friendly, reduces dependence on fossil fuels and imported oil, and takes advantage of America’s surplus of agricultural crops, like corn, that can be readily converted to ethanol for use in E85.

Critics note insufficient ethanol production facilities exist to significantly offset the nation’s appetite for fuel, that refineries aren’t adapted to producing E85, and that E85 is harder to transport because its corrosiveness means it cannot flow through existing gasoline pipelines. In addition, in most states E85 costs about the same as unleaded regular while costing the driver up to 15 percent in fuel-economy penalties because it does not pack the same explosive punch as gasoline.
Posted by James Zellmer at 8:31 AM

April 19, 2006

The Ghost of Tax Day Future

R. Glenn Hubbard:
Closing the spending gap shown us by the Ghost of Tax Day Future with tax increases would eventually require all taxes on average to increase by more than 50%. Such a tax increase is not simply a larger check made out to "U.S. Treasury." Economic research suggests that larger governments are associated, all else equal, with slower economic growth because of the tax and regulatory burdens associated with a larger state. Using the estimate of Eric Engen of the Federal Reserve Board and Jonathan Skinner of Dartmouth College, meeting our entitlement spending wave through tax increases would ultimately depress our annual rate of economic growth by about a full percentage point.

That such tax increases would build up over many years does not dull the observation that tax increases of this magnitude would carry serious consequences for our future living standards. Their sheer size would restrain incentives for innovation and flexibility, and the entrepreneurship and productivity growth that have characterized relatively strong U.S. economic performance. Indeed, the "tax increase" shadow could ultimately crowd out about as much of the rate of growth as the productivity growth boom of the past decade has contributed.
Posted by James Zellmer at 8:30 PM

April 18, 2006

Judge Presses Companies that Cut Off Legal Fees

Lynnley Browning:
Federal judges are beginning to question why companies are cutting off legal fees to their executives when they become caught up in criminal investigations.

The judge in the tax-shelter trial of former tax professionals at KPMG last week ordered a hearing to determine whether prosecutors had improperly put pressure on the accounting firm to stop paying the defendants' legal bills. Last month, a federal judge in New Hampshire granted five former executives of Enterasys Networks a three-month reprieve in their trial after he questioned whether there was undue influence to cut off their legal payments. (The company has since restored them.)

The questions have emerged as other companies, including Symbol Technologies and HealthSouth, have stopped paying former executives' bills for lawyers.
Posted by James Zellmer at 9:48 PM

April 13, 2006

The AMT Shell Game: Why Bush's Tax "Cuts" Aren't

Scott Rosenberg:
Over at Slate, Daniel Gross is explaining, once more, the role the Alternative Minimum Tax continues to play in the Bush administration's deceptive tax policies.

The AMT is a bizarre parallel-universe of taxation with its own set of complex rules that differ from the normal IRS system. It was passed decades ago as an effort to prevent gazillionaires from using elaborate tax shelters to reduce their tax bills to zero. For many years it was easily ignored by the vast majority of Americans, and as recently as a few years ago the only non-super-rich people who worried about it were tech-industry types who'd hit the stock-option jackpot but played their cards wrong.

But the AMT was designed with its very own time-bomb: It was never indexed for inflation, and so each year the rising tide of inflation -- even the slow, relatively benign inflation the U.S. has experienced in the last decade -- lifts more and more middle-class Americans into its maw. The obvious answer is to fix it, either by repeal or by indexing it for inflation so it continues to apply only to the gazillionaires who were its original target. Shouldn't be so hard, right?
Posted by James Zellmer at 4:37 PM

April 11, 2006

IRS Examines Paypals Records to Uncover Tax Fraud

Paul Carron:
Interesting article this afternoon on Bloomberg: IRS Reviews PayPal Purchase Records to Find Offshore Accounts, by Ryan J. Donmoyer: The IRS is examining some electronic-payment transactions processed by EBay's PayPal unit to find U.S. taxpayers who keep unreported income...
Posted by James Zellmer at 1:21 PM

April 5, 2006

When the Little Guy Helped the Wealthy Keep Their Tax Secret

Cynthia Crossen:
The problem came to light during a Senate investigation of the 1929 stock-market crash: Some of America's wealthiest citizens, including the banker J.P. Morgan and his partners, were legally paying nothing in federal income taxes.

The solution, endorsed by majorities of both parties in Congress: Make individuals' income-tax information public, and shame the evaders into paying their fair share.

Under the Revenue Act of 1934, anyone who filed a federal tax return would also complete another -- pink -- form, with his or her name, address, income, deductions and total taxes paid. Everything on the pink slips was public information, available to reporters, nosy neighbors or former spouses alike.
Posted by James Zellmer at 10:18 PM

March 31, 2006

KPMG Tax Shelters: Judge Criticizes Prosecutors Case

Yesterday's hearing in the complex KPMG tax shelter case brought about some interesting discussions:
  • Reuters:
    A federal judge accused prosecutors Thursday of overreaching in their attempt to show that former KPMG executives sold questionable tax shelters to wealthy clients.

    Lawyers involved in the case expect U.S. District Judge Lewis Kaplan to reject defendants' calls to dismiss the case.

    The New York judge, however, faulted what he called the government's "shameful" activity that led the accounting firm not to pay defendants' legal bills, contrary to past practice. He also suggested that prosecutors drop some lesser counts.
  • Lynnley Browning:
    A federal judge raised questions yesterday about the prosecution of 16 former KPMG employees over aggressive tax shelters, criticizing prosecutors for what he called murky definitions of fraud and evasion.

    The judge, Lewis A. Kaplan of Federal District Court in Manhattan, said he was confused by what prosecutors said was a conspiracy by the defendants to make and sell aggressive shelters that allowed hundreds of wealthy investors to evade $2.5 billion in taxes from 1996 to 2002.

    "Frankly, I'm very bothered by it," the judge said, saying the document "puts the government's thumb on the scales" and raises questions about the Sixth Amendment constitutional right to legal representation.

    No court has ruled the shelters illegal, but the I.R.S. has never considered them valid for deductions.

    Nonetheless, Steven Bauer, a lawyer who represents John Larson, a former KPMG partner who is one of the 18 defendants, said prosecutors had withheld important information detailing, among other things, debate inside the I.R.S. over whether the shelters were legitimate.

    Judge Kaplan ordered the prosecution to turn over any withheld information.
Posted by James Zellmer at 9:25 AM

March 30, 2006

10 States Hardest Hit by the AMT

Citizens for Tax Justice:
has released Who Pays The Individual AMT: State-by-State Estimates for 2006. Wisconsin ranks #6 - ouch!
Posted by James Zellmer at 6:40 AM

March 28, 2006

Our Tax System: Higher Audit Rates for Lower Income Taxpayers

Paul Caron:
The Transactional Records Access Clearinghouse (TRAC) of Syracuse University reports  today that only 30 of the nation's 180,000 plus millionaires were subject to face-to-face audits in FY 2005. When only traditional face-to-face audits are considered, those reporting less than $25,000 in total positive income were six times more likely to be audited than all those reporting $200,000 or more in income. IRS continues to withhold from TRAC statistical data it has made public in the past that might explain the aberration.

Posted by James Zellmer at 6:17 PM

March 25, 2006

IRS Permits Tax Preparers to Sell Our Data

Jeanne Sahadi:
Would you ever agree to work overtime for free, indefinitely, creating profits for someone else?

I didn't think so.

But that's often what we do when we buy a product or service from companies. That's because they can continue to make money off us by selling whatever personal information we give them in the course of the transaction. Your payback: more junk mail and greater risk of identity theft.

And now it looks very likely that tax preparers will be able to profit off clients in ways having nothing to do with taxes.

Thanks to proposed changes to the IRS' privacy regulation of tax preparers, everyone from H&R Block to your local tax-prep shop may be allowed to sell their clients' tax return information to any third party, including marketers and data brokers.

Mind you, they would need to get your consent, according to the proposed regulations.
Posted by James Zellmer at 4:39 PM

March 23, 2006

The Case for a Consumption Tax

David Weisbach:
The debate over the choice between income and consumption taxation has been ongoing since the beginning of the modern economy, seemingly without end. Those who argue for an income tax usually claim that taxing capital income is central to a fair tax system because those with capital income appear to have a higher ability to pay. Moreover, reducing taxes on investment income would seem to reduce the progressivity of our tax system, a result that is particularly worrisome at a time of growing inequality.
Posted by James Zellmer at 6:56 AM

March 19, 2006

AMT: Without a Fix, A Time Bomb

Avram Lank updates us on the latest Washington machinations over the Alternative Minimum Tax:
Inflation is the basic reason the AMT is spreading.

Many parts of the tax code are indexed for inflation, including brackets and personal exemptions. However, the AMT exemption is not. So over the years, as everyday people had larger, inflation-driven exemptions under the regular tax code, the gap narrowed between what they owed under it vs. what they owed under the AMT.

Congress addressed the narrowing gap by temporarily raising the AMT exemption in 2001 and 2003. But the last temporary fix expired in 2005, so many more people will feel its sting this year.
Posted by James Zellmer at 7:36 AM

March 18, 2006

Fight Against Farm Subsidies

Scott Kilman and Roger Thurow:
A movement to uproot crop subsidies, which have been worth nearly $600 billion to U.S. farmers over the decades, is gaining ground in some unlikely places -- including down on the farm.

In Iowa, one of the most heavily subsidized states, a Republican running to be state agriculture secretary is telling big farmers they should get smaller checks. Mark W. Leonard, who collects subsidies himself and campaigns in a white cowboy hat, told a room full of farmers recently that federal payments spur overproduction, which depresses prices for poor growers overseas.

"From a Christian standpoint, what it is doing to Africa tugs at your heartstrings," Mr. Leonard told them. Last year, he helped humanitarian group Oxfam International in its anti-subsidy campaign by escorting a cotton farmer from Mali to church gatherings near his farm in Holstein.
Posted by James Zellmer at 8:37 AM

March 3, 2006

A Magic Way to Make Billions

Donald Barlett and James B. Steele:
The wording is so bland and buried so deep within a 324-page budget document that almost no one would notice that a multibillion-dollar scam is going on. Not the members of Congress voting for it and certainly not the taxpayers who will get fleeced by it. And that is exactly the idea.

With Washington reeling from the Abramoff lobbying scandal and Republicans and Democrats alike pledging to crack down on influence peddling, with one lawmaker already gone from Capitol Hill because he traded favors for cash, you're probably guessing this isn't the best time for members of Congress to dispense a fortune in favors to their friends.

Guess again.
Posted by James Zellmer at 5:21 PM

February 28, 2006

Do Americans Support a Gas Tax?

Barry Ritholtz:
"A significant number would go along with an increase if it reduced global warming or made the United States less dependent on foreign oil, according to the latest New York Times/CBS News poll.

The nationwide telephone poll, conducted Wednesday through Sunday, suggested that a gasoline tax increase that brought measurable results would be acceptable to a majority of Americans.

Neither the Bush administration nor Democratic Party leaders make that distinction. Both are opposed to increasing the gasoline tax as a means of discouraging consumption, although President Bush, in recent speeches, has called for the development of alternative energy to reduce dependence on foreign oil."
Posted by James Zellmer at 7:04 AM

February 18, 2006

The Energy Outlook Changes

Ed Wallace:
Posted by James Zellmer at 3:28 PM

Muni WiFi Updates

Kristian Knutsen notes that Madison's embryonic wifi service is planning to include a "walled garden" of free sites. I'd rather they not do this. The service should either be on or off, frankly. Rone Sege argues that we should not tax municipal wifi.
Posted by James Zellmer at 6:46 AM

February 8, 2006

Consumer Debt Growth

Barry Ritholtz:
The facts are indisputable - the consumer has grown increasingly levered just when interest rates are rising and the large amount of mortgages based on teaser rates are about to be reset.

The facts speak for themselves:
  • Non-discretionary consumer spending (for items like food, energy, medical expenses and interest payments) which vacillated in the 44% to 47% range until 2000 has now risen to 54%.
  • Household debt/household assets is at an all-time record high (up from 14% six years ago to nearly 19% today).
Posted by James Zellmer at 9:27 AM

January 29, 2006

Paying Taxes: Sport or Folly?

J. Craig Williams:

Forgive me here if I take a position against taxes, but as you may know, it's a bit of a favorite American pastime.  It's OK for everyone else to pay taxes, just don't raise mine, and just don't ask me to pay any more than my fair share.  By the way, if I can figure out a way to avoid paying some of those taxes, don't begrudge my deduction.

It's admittedly a tough position to take knowing that lower tax dollars may mean that our men and women in green may not have enough armor, that the shuttle is built by the lowest bidder, our school teachers aren't paid sufficiently, and on and on, all the way down to the pothole across the street that is now big enough to swallow my left front end if I don't swerve in time to avoid it.

But I better stop before I talk myself out of complaining about taxes.  Who hasn't heard of the $400 hammer, after all?

This article about the IRS prosecuting lawyers who come up with tax shelters did more than strike me.  It's just plain wrong.  Think about it.  Congress passes laws that require us to pay taxes.  Once you establish the rules and write them down, it's up to the lawyers to figure out the loopholes and the way around them.  The tax code fills up 24 megabytes of space on my hard drive, which on my iPod leaves only enough room for Stairway to Heaven and The Long and Winding Road.  There really isn't much difference between the songs and the code anyway, but I digress.

So, when enterprising lawyers go out there and successfully figure out how to shelter money from taxes, the IRS takes aim and prosecutes the lawyers for being smart enough to figure out what they did wrong when they wrote the code.  I'm not sure if the lawyers are being prosecuted because they showed the ________ (fill in your own word) of the IRS and Congress to the rest of us or because the result of their work actually means less dollars in the government's hands and more money in our hands.

Sure, there's another way to look at it:  the lawyers actually did something illegal that was precluded by the code, and they should be punished.  As you can see just from these paragraphs, however, there's no such thing as black and white in the Internal Revenue Service code.  To prove that, all you have to do is look up section 61 that defines income and see what a mess the whole thing starts with.

If the IRS wants to collect money from us, how about making it simple?  You know, just like it was when we were kids and dividing up the spoils from the lemonade stand:  "One for you and two for me, one for you and two for me..."

Posted by James Zellmer at 2:39 PM

January 17, 2006

Governor Doyle's State of the State Coverage

WisPolitics has a useful roundup of Doyle's speech and reaction around the state.
Posted by James Zellmer at 9:41 PM

January 13, 2006

More on the KPMG Tax Shelter Case

Yet more examples of the spaghetti that is our tax law:
  • Lynnley Browning:
    Former KPMG tax professionals who are facing criminal charges over questionable tax shelters challenged the government yesterday to prove that they had broken the law.

    The defendants filed more than two dozen motions in United States District Court in Manhattan yesterday, asking among other things that charges be dropped because no court had ever ruled the shelters in question illegal.
  • David Reilly and Paul Davies:
    One defense filing, submitted to the U.S. District Court in New York, accused prosecutors of "distorting" the facts and "obfuscating the truth-finding process" in order to win the case. By threatening KPMG with criminal indictment, the motion said, the government forced the firm to accept a "draconian" deferred prosecution agreement in which it admitted the tax strategies were fraudulent and agreed to waive attorney-client privilege.

    "The goal is obviously not justice, nor truth, but instead the unsavory desire to tack another skin to the wall," the filing said.
Posted by James Zellmer at 2:34 PM

January 9, 2006

IRS Sued on Failure to Release Tax Data

David Cay Johnston:

Records showing how thoroughly the Internal Revenue Service audits big corporations and the rich, and how much it discounts the additional taxes assessed after audits, are being withheld from the public despite a 1976 court order requiring their disclosure, according to a legal motion filed last week in federal court in Seattle.

For decades, the information was given at no charge to a professor at Syracuse University, Susan B. Long, who made it available on the Internet at trac.syr.edu, with tools for people to conduct their own analyses.

Among other findings, Professor Long's information has shown that in 1999 the poor were more likely than the rich to be audited.

David Burnham, co-director with Professor Long of the Transactional Records Access Clearinghouse, which collects raw government data, said the withheld information made it impossible to evaluate the intensity of audits. Mr. Burnham noted that the withheld data included figures that indicated how much auditors say is owed in extra taxes, but that the tax agency lets taxpayers negotiate down.

"It is simply impossible to evaluate the I.R.S. without this data," Mr. Burnham said, "and they know it."
Posted by James Zellmer at 9:18 PM

January 6, 2006

What Worries Bill Gross

PIMCO's Bill Gross:
This recovery is different because it was spawned and subsequently nurtured on the back of asset appreciation alone. Greenspan and company have high hopes that investment and then employment will ultimately kick in and work their self-sustaining magic one more time, but jobs and investment these days go to Asia at the margin, and domestic animal spirits have been squelched by the looming inevitability of reduced returns on risk capital in a low interest rate world. I’ll leave the Asian story for another day or let you turn on CNN at 11:00pm EST to get your fill of Lou Dobbs - the Dobbsian spectre of foreign competition on the march is undeniably real. My point in this Outlook will be an extension of the thoughts expressed over the past few months that this recovery is on fragile legs because it is asset-appreciation-based and that future asset appreciation is vulnerable based on the weakening stimulative power of interest rates. Therein lies the potential for a white hot speculative blaze turning into a destructive recessionary fire. Such an analogy inevitably suggests that in future years, Rome, Georgia, may not be on fire, but burning.
Posted by James Zellmer at 5:39 PM

December 28, 2005

Tax Shelter Case Details

Jonathan Weil continues to dig into the ongoing KPMG tax shelter saga, this time, discussing several large investors who took advantage of the shelters to save millions in taxes.

Posted by James Zellmer at 9:59 PM

December 14, 2005

City of Madison Comprehensive Plan

Kristian Knutsen:
A couple of hours before the council meeting in the same room, they attended a presentation about the City of Madison Comprehensive Plan. This plan, mandated by state law, and a work in progress over the last couple of years, will serve as a long-term roadmap for the city's infrastructural future. It is also up for a vote on Tuesday, Dec. 13 by the full council, though it is likely to be referred to a subsequent meeting in early January.
Posted by James Zellmer at 9:01 AM

December 4, 2005

Automakers Lining Up for Aid

Jeffrey H. Birnbaum and Sholnn Freeman:

Troubled U.S. automakers and their allies on Capitol Hill are seeking billions of dollars in aid from the federal government ranging from health coverage for their workers to extra tax write-offs for themselves.

They're also asking for one rhetorical favor: Please don't call the requests a bailout.

I don't view it as a bailout," Sen. Carl M. Levin (D-Mich.) said.

"We're not looking for a bailout," agreed William C. Ford Jr., chairman of Ford Motor Co.

Posted by James Zellmer at 1:52 PM

December 3, 2005

Tax Cuts for the Very Rich, AMT for the Rest of Us

Edmund L. Andrews:

DO House Republicans harbor some sort of deep rage against moderately affluent families with lots of children?

Maybe not, but take a close look at the $56 billion package of tax cuts that House leaders hope to pass before Christmas, and you have to wonder.

If it were to become law, any family with two or more children and an income of $100,000 ought to run for the hills.

Sift out dozens of nickel-and-dime provisions, and the essence of the House bill comes down to one provision that it includes and one that it omits.

Posted by James Zellmer at 10:23 PM

November 24, 2005

Citizens for Tax Justice Reports Released

Via Paul Caron:

Citizens for Tax Justice has published several tax position papers:

For further analysis, see Stuart Levine's Tax Law & Business Commentary

Posted by James Zellmer at 6:55 AM

November 23, 2005

Local Taxes: Accounting Rule Changes on Retiree Health Care Costs

Deborah Solomon:
A looming accounting change is forcing state and local governments to fess up to something that's been lurking on their books for years: Many have made costly retirement health-care promises without planning how to pay for them.

Under a new accounting rule, governments soon must start recognizing their long-term obligations to pay for retirees' health benefits -- and, for the first time, publicly disclose what it would cost each year to fund that liability.

For many governments, the promised amount is likely to be sizeable enough to prompt big changes such as cutting retiree benefits, borrowing money and diverting tax dollars from other spending priorities -- or risk a credit-rating downgrade that could significantly boost borrowing costs. Estimates of obligations for some states range from $500 million to as much as $40 billion.
Posted by James Zellmer at 7:42 AM

November 18, 2005

City Spending up 5.5%, Property Taxes to Rise 4.35%

Two interesting perspectives on Wednesday night's Madison City Council Budget votes:

  • Kristian Knutsen (Posted Thursday @ 10:52p.m.):
    Coming from another perspective, Brandon urges a no vote against this budget since it has a 4.35% increase, stating that no cuts were made "This isn't the mayor's budget. The mayor set a clear challenge to us, 4.1," Brandon states. "We are playing into the state government's perception, what they portray about us, is that we are big spenders," he continues. "All we are doing is inviting more levy limits, and at worst, TABOR."

    Konkel says "we could have done this if we really wanted to," referring to the failure of the hotel room tax hike, which she states would have brought the levy down to 4.03, also lamenting the failure of several amendments to provide services to the indigent. "I know how I'm going to vote," Webber says, while Bruer commends the council for the tenor of this year's budget process. "This administration unlike others in the past did more truth in budgeting," he says of the mayors role, continuing by pointing out cost-cutting measures undertaken by city departments in his defense of the budget and its process. "To go through all those hours and all that energy," Bruer says, "I have no problem going out to my constituency and defending this increase" due to its "balance" of attention.

    Knutsen also live-blogged the meetings (which is fabulous)
  • Dean Mosiman (posted 01:10 a.m. 11/18/2005)
    The tax hike, Cieslewicz said, is the third lowest in the past two decades.

    It's now time for the state to back away from tax caps, let cities make budget decisions based on their own values, and for the state to try to fix how it funds municipalities, the mayor said.

    Ald. Zach Brandon, 7th District, who led the group that made the 4.1 percent tax cap pledge, offered the lone harsh words about the budget.

    "Do you know what this is saying to the rest of the state?" he said, adding that Madison will become a "poster child" for its inability to contain spending and taxes."

Posted by James Zellmer at 8:47 AM

November 16, 2005

Tax Burden in America's Largest Cities

Natwar M. Gandhi:
The reports contain information about the rates and burdens of major taxes in the District of Columbia compared with states and other large cities in the United States. This publication contains two reports: (I) Tax burdens in Washington, D.C., Compared with Those in the Largest City in Each State, 2004 and (II) A Comparison of Selected Tax Rates in the District of Columbia with Those in the 50 States: A Compendium of Tables. This information is requested annually by committees of the U.S. Congress and the District of Columbia Council and is provided pursuant to Public Law 93-407.
Posted by James Zellmer at 7:42 AM

November 9, 2005

Knutsen's City Council Coverage

Kristian Knutsen continues to impress with his City Council commentary and live blogging.
Posted by James Zellmer at 6:24 AM

November 7, 2005

Microsoft's Irish Tax Shelter

Glenn Simpson:
The citizens of other nations where Microsoft sells its products are less fortunate. Round Island One provides a structure for Microsoft to radically reduce its corporate taxes in much of Europe, and similarly shields billions of dollars from U.S. taxation.

Giant U.S. companies whose products are heavily based on their innovations, such as technology and pharmaceutical firms, increasingly are setting up units in Ireland that route intellectual property and its financial fruits to the low-tax haven -- at the expense of the U.S. Treasury.

Much of Round Island's income is licensing fees from copyrighted software code that originates in the U.S. Some of the rights to these lucrative assets end up in Ireland via complex accounting rules on intellectual property that the Treasury is now seeking to overhaul. The Internal Revenue Service said it is also looking closely at how companies account for such transactions.

In a statement, Microsoft said its European units "report and pay significant amounts of taxes" and that Microsoft "is fully compliant with the tax laws of the United States and all other countries."

Through a key holding, dubbed Flat Island Co., Round Island licenses rights to Microsoft software throughout Europe, the Middle East and Africa. Thus, Microsoft routes the license sales through Ireland and Round Island pays a total of just under $17 million in taxes to about 20 other governments that represent more than 300 million people.
Microosft is not unique. Many firms route their IP through tax havens such as Ireland, Puerto Rico, Cyprus and others.

This tax saving process occurs in everyday products (for some) as well, such as Pepsi & Coke. Both beverage giants locate their flavor facilities in tax havens.
Posted by James Zellmer at 6:41 AM

November 4, 2005

Comments on Tax Reform Panel Report

Paul Caron has a great roundup of comments on the Federal Tax Reform Panel's Report.

Posted by James Zellmer at 12:03 AM

October 23, 2005

Number of Pork Projects in Federal Spending Bills

Andrew Roth:
From Chris Edwards’ new book, Downsizing the Federal Government (which cited CAGW):

2005 - 13,997
2004 - 10,656
2003 - 9,362
2002 - 8,341
2001 - 6,333
2000 - 4,326
1999 - 2,838
1998 - 2100
1997 - 1,596
1996 - 958
1995 - 1439

Using 2005 numbers, by voting down the “Bridges” amendment, the Senate let the country know that it was unwilling to defund 2 out of 13,997 pork projects today. That’s 0.0142887762 percent.
Posted by James Zellmer at 12:43 PM

Our Tax Dollars at Work: Congress's $3B TV Subsidy!

Jennifer Kerr:
Lawmakers want to spend $3 billion to make sure millions of Americans won't wake up to blank TV screens when the country makes the switch to all-digital broadcasts.

The subsidy was approved Thursday by the Senate Commerce Committee as part of legislation that would set April 7, 2009, as the firm date for television broadcasters to end their traditional analog transmissions and send their broadcasts via digital signals.
Meanwhile, we lag behind the world in deploying the future, broadband internet.
Posted by James Zellmer at 8:54 AM

October 15, 2005

Tax Shelters: Miers to the Supreme Court While KPMG, etc. are Indicted?

A rather amazing paradox: Harriet Mier's Dallas law firm: Locke, Liddell & Sapp provided legal opinions for Ernst & Young's tax shelters. The firm, unlike KPMG and it's former partners, has not been indicted.

Allen Kenney has more (PDF):

"Ms. Miers was obviously not directly involved in the CDS opinions. Most otherwise sophisticated non-tax lawyers inside law firms wouldn't be able to decipher what is or isn't accurate in a lengthy tax opinion," said Chuck Rettig, a tax litigator in the Beverly Hills, Calif., firm of Hochman, Salkin, Rettig, Toscher & Perez. "If [E&Y] approved something like CDS, it was historically unlikely to be significantly questioned by other professionals."

However, members of the Senate Judiciary Committee might be forced to consider whether Locke's involvement with the opinion letters affects Miers's fitness to serve on the country's highest court. President Bush has emphasized her experience managing a major law firm in defending her nomination.

"She had the opportunity to have her ethical antennas tweaked here," said Paul Caron, a tax law professor at the University of Cincinnati and the operator of the popular "TaxProf Blog" Web site. "Those ethical antennas were, perhaps, not as sensitive that they should have been."

One item on the Judiciary Committee's questionnaire for Miers asks her to disclose if her firm has been subject to any investigations: "State whether, to your knowledge, you or any organization of which you were or are an officer, director, or active participant has ever been under federal, state, or local investigation for a possible violation of any civil or criminal statute or administrative agency regulation." Another item asks Miers to provide the committee with any "unfavorable information that may affect your nomination."

Posted by James Zellmer at 4:52 PM

October 12, 2005

KPMG Tax Shelters: A Very Strange Indictment

Robert Weisberg and David Mills:
The recent indictment of some KPMG partners makes for very interesting reading. In the months leading up to it (and the now-rumored indictment of other tax advisors on similar grounds), numerous news stories suggested the KPMG accountants had somehow knowingly participated in tax fraud by creating fake losses for wealthy clients. Whether or not this proves true, the indictment makes no such allegation. While the accountants and their clients may have done some bad things, the notion that their behavior is criminal, and even sufficiently criminal to threaten the very existence of this major firm and its thousands of jobs, casts doubt on the fairness and judgment with which the federal prosecutors have exercised their discretion.

Why did they do so in this case? Probably for the simple reason that they are -- quite properly -- offended by the proliferation of newfangled and economically questionable tax shelters, yet at the same time exasperated that Congress shows no interest in legislating these shelters out of existence or enacting a clear "business purpose" requirement, in spite of repeated requests from the Internal Revenue Service. The prosecutors seem to be venting their frustration over this failure to act by fashioning felony charges out of ethereal legal material.
Posted by James Zellmer at 8:23 AM

October 7, 2005

Tax Shelters: KPMG and Legal Issues

Jonathan D. Glater takes a fascinating look at the "Wonderworld" of the Tax Law, the US DOJ and the KPMG Tax Shelter Cases:

Eight former executives of the accounting firm KPMG and one outside lawyer have been indicted on charges stemming from their role in designing and selling questionable tax shelters. Yet so far, no court has decided that the shelters were improper.

One tax shelter promoter has asked a federal judge in San Francisco to tackle that very question: the legality of the shelters. And federal prosecutors in Manhattan appear to be worried that the judge might do that. Lawyers for the government have twice argued that the judge should wait for the criminal case to conclude.

More here.

Posted by James Zellmer at 7:31 AM

October 6, 2005

Our Tax System's "Wonderland"

The Wall Street Journal:

Contrary to what has been reported in the media, however, the IRS does not "ban" tax shelters. Whether a shelter qualifies as a tax deduction is, like any other point of law, adjudicated in court. But BLIPS, FLIP, OPIS and the other tax shelters in this case have never been brought before a judge, so their legality and legitimacy has never been settled as a point of law.

Never. The way tax law has usually developed in this country is that the IRS issues its point of view on a shelter, putting taxpayers who use it on notice. If the IRS then takes the taxpayer to court over the shelter, he has the chance to respond before a judge, who makes a ruling and precedents are thus established. In this case, the IRS has called in the prosecutors first.

This in itself is striking. Despite some recent legal setbacks, the IRS has an excellent track record of obtaining favorable rulings on tax shelters it dislikes. Yet no taxpayer has been brought to court over these shelters, and no judge has ruled on whether they "work," in the jargon of the tax-shelter business. In America, last we checked, the accused are innocent until proven guilty. That gives this KPMG trial an Alice-in-Wonderland quality; the accused are on trial for promoting a fraudulent tax shelter that has never been proved to be fraudulent in the first place.

This is not the first time the Justice Department has taken this route, and recent history suggests it may have a tough road ahead. Last November, Justice froze $500 million in assets at Xelan, a charitable trust set up for doctors in California, alleging that the trust was a vehicle for tax fraud. Six weeks later, the Federal Court for the Southern District of California threw out the case, noting, among other shortcomings, that the prosecutors could not show that any court had ever ruled that Xelan's activities were illegal under the tax code.

Posted by James Zellmer at 6:50 AM

Massive Offshore Tax Giveaway

As mentioned here, I, too, would like the 5.25% tax rate that our good Senators Russ Feingold and Herb Kohl supported (to repatriate foreign profits via a one year tax break). Timothy Aeppel looks at the results:

But it's far from clear whether the spending has spurred the job growth that backers of the break touted.

A law signed by President Bush shortly before the 2004 election allows companies to transfer profit from overseas operations back to the U.S. this year at a special low tax rate of 5.25%. Businesses often keep such funds outside the country in part to avoid paying taxes in the U.S., where the effective rate on repatriated profit for many companies is normally closer to 25%. Backers said the measure would provide an incentive to companies to invest those funds in U.S. operations.

Most companies using the break have offered only broad outlines for how they intend to use their windfall. For the most part, they say they are using the bulk of the money for tasks such as paying down debt and meeting payrolls. Direct job creation rarely appears on the list.

Some companies are even bringing home piles of cash while continuing to downsize. Colgate-Palmolive Co., of New York, said in July that it planned to repatriate $800 million, at a time when the company also is pursuing plans to shut a third of its factories and eliminate roughly 12% of its work force, or 4,450 people, over four years.

Posted by James Zellmer at 12:01 AM

September 24, 2005

Bush Tax Cuts = Tax Increase for Some

David Cay Johnston:
Over the next 10 years, Americans will not receive nearly $750 billion in tax cuts sponsored by President Bush because the cuts will be offset by the alternative minimum tax, a new report by Congressional tax specialists shows. The report, prepared by the staff of the Congressional Joint Committee on Taxation, said that from 2006 to 2015, Americans would pay as much as $1.1 trillion more under the alternative minimum tax, partly as a result of the Bush tax cuts. The Bush tax cuts reduced the bill for millions of taxpayers to a level that will subject them to the alternative minimum tax instead of the standard tax rate. As a result, the report said, their tax savings would be reduced by a total of $739.2 billion over the 10 years. Congress has passed a modest adjustment to the alternative minimum tax to allow more taxpayers to take advantage of the Bush tax cuts, but that expires at the year-end. Even if it is extended, the report said, the alternative minimum tax would take away $628.5 million in tax savings, with $416.5 billion of that attributable to the Bush tax cuts over the 10 years. George K. Yin, the joint committee's chief of staff, wrote that the Bush tax cuts of 2001 and 2003 account for just under two-thirds of the increase in collections under the alternative tax. The report was prepared in response to a request from John Buckley, chief tax lawyer for Democrats on the House Ways and Means Committee. Families with children who own their homes will be hit hardest by the increased alternative tax.
Posted by James Zellmer at 1:03 PM

September 7, 2005

Tax Shelter Proceedings Begin in NY

Jonathan D. Glater:

Judge Kaplan also showed a hint of testiness about the pace of the government's case, commenting that if prosecutors could spend a year and a half investigating before bringing one criminal charge, they should not need another three months to add any new charges or new defendants. He also warned prosecutors against lengthy proceedings. Prosecutors said they anticipated a three-month trial.

A complex case would confuse jurors and make it harder for them to convict, Judge Kaplan said. "The idea of a three- or four-month tax trial, well, it's a daunting prospect" for potential jurors, he added.

Posted by James Zellmer at 12:00 AM

September 1, 2005

Inside the Tax Shelter Mess

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.
Posted by James Zellmer at 1:26 PM

States Expand Push for Internet Taxes

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
Posted by James Zellmer at 7:09 AM

August 31, 2005

Congress and KPMG

Wall Street Journal:

The IRS's standard in evaluating tax shelters is whether the transaction serves a "legitimate economic purpose," or is crafted entirely to avoid taxes. Senators Carl Levin (D., Mich.) and Norm Coleman (R., Minn.) have proposed legislation that would enshrine that doctrine in law.

Speaking on the Senate floor last month, Mr. Levin described the distinction: "Abusive tax shelters are very different from legitimate tax shelters, such as deducting the interest paid on home mortgage or Congressionally approved tax deductions for building affordable housing. Abusive tax shelters are complicated transactions promoted to provide large tax benefits unintended by the tax code" (our emphasis). In other words, it's OK to avoid taxes in any of the myriad ways Congress approves of. It's abusive if Congress didn't intend it -- assuming anyone can ever figure out what Congress really intends.

Take the scheme known as SC2, one of those KPMG has come under fire for marketing. As reported in the Los Angeles Times, SC2 involved donating nonvoting shares in a Subchapter S corporation to a nonprofit entity; KPMG's nonprofit of choice was the Los Angeles Fire and Police Pension System. The pension system would accept the shares, making them 90% owners of an S Corporation that would then retain the Corporation's profits for several years. At that point, the pension fund would sell the shares back to the original owners. The pension plan pockets the proceeds while the S Corporation owners have converted the firm's profits from regular income into long-term capital gains, taxed at a lower rate.

Does SC2 serve an "economic interest"? Well, the participant in the scheme does pay the pension system for the shares when he buys them back, benefiting the firemen and policemen's pension fund. The fund adds money to its coffers, and the taxpayer lowers his tax bill. Whether that's abuse is for a judge or jury to decide, but Mr. Levin's test -- that Congress didn't intend S corporations to be used that way -- doesn't seem adequate here.

KPMG avoided the fate of Arthur Andersen yesterday when it announced a deal with federal prosecutors over the marketing and sale of "abusive" tax shelters. But the price of survival was high. The accounting firm will pay $456 million in fines and restitution and has agreed to let a federal monitor look over its shoulder. At the same time, no fewer than eight former KPMG executives and an outside lawyer were indicted on conspiracy charges for designing and selling the shelters.

That KPMG avoided indictment as a firm shows that the Justice Department has learned something from its 2002 indictment of Arthur Andersen over its involvement with Enron. That conviction was thrown out earlier this year by the Supreme Court, but its vindication came too late for its 28,000 mostly innocent employees. Not to mention for the broader U.S. economy, which was reduced to only four major accounting firms just when Sarbanes-Oxley was gaining momentum.

KPMG will survive this "deferred prosecution" by admitting wrongdoing. But it's easy to forget amid the righteous indignation over tax shelters with names like FLIP, BLIP, OPIS and SC2 that the legality of these tax-avoidance techniques has never really been tested. The IRS banned each of them in the late 1990s or early 2000s, but no court has ruled on their propriety.

KPMG maintained for years that the shelters were legitimate, and yesterday's plea is as much the product of a legal strategy designed to avoid the corporate death sentence of an indictment as a calculation about the firm's chance of prevailing at trial. Arthur Andersen's fate amply demonstrated that such a victory could easily prove Pyrrhic.

The IRS's standard in evaluating tax shelters is whether the transaction serves a "legitimate economic purpose," or is crafted entirely to avoid taxes. Senators Carl Levin (D., Mich.) and Norm Coleman (R., Minn.) have proposed legislation that would enshrine that doctrine in law.

Speaking on the Senate floor last month, Mr. Levin described the distinction: "Abusive tax shelters are very different from legitimate tax shelters, such as deducting the interest paid on home mortgage or Congressionally approved tax deductions for building affordable housing. Abusive tax shelters are complicated transactions promoted to provide large tax benefits unintended by the tax code" (our emphasis). In other words, it's OK to avoid taxes in any of the myriad ways Congress approves of. It's abusive if Congress didn't intend it -- assuming anyone can ever figure out what Congress really intends.

Take the scheme known as SC2, one of those KPMG has come under fire for marketing. As reported in the Los Angeles Times, SC2 involved donating nonvoting shares in a Subchapter S corporation to a nonprofit entity; KPMG's nonprofit of choice was the Los Angeles Fire and Police Pension System. The pension system would accept the shares, making them 90% owners of an S Corporation that would then retain the Corporation's profits for several years. At that point, the pension fund would sell the shares back to the original owners. The pension plan pockets the proceeds while the S Corporation owners have converted the firm's profits from regular income into long-term capital gains, taxed at a lower rate.

Does SC2 serve an "economic interest"? Well, the participant in the scheme does pay the pension system for the shares when he buys them back, benefiting the firemen and policemen's pension fund. The fund adds money to its coffers, and the taxpayer lowers his tax bill. Whether that's abuse is for a judge or jury to decide, but Mr. Levin's test -- that Congress didn't intend S corporations to be used that way -- doesn't seem adequate here.

Some of the other schemes involved deliberately taking a capital loss on bonds structured to lose value over time, although presumably without putting capital at (much) real risk. But buying bonds at a premium with the intention of writing off their depreciation on one's taxes is a time-honored investment tactic, so the legal question of where to draw the line is hardly clear-cut.

KPMG admitted to wrongdoing in marketing the shelters, but the individual trials to come would do a public service if they clarified when tax avoidance becomes tax evasion. The accused individuals who spoke up yesterday claimed to be innocent and said they'd fight the charges in court.

In the meantime, the finger-waggers in Congress might acknowledge their role in creating the 6,000-page, 2.8-million-word, tax code Frankenstein that facilitates the tax-avoidance industry. President Bush's tax-reform commission is due to report at the end of September. Here's hoping that a simple system with a low rate that encourages voluntary compliance will lead its list of recommendations.

Posted by James Zellmer at 9:40 PM

August 30, 2005

More on the Tax System Mess: KPMG Indictments

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.

Posted by James Zellmer at 12:01 AM

August 20, 2005

IRS: 4.6 Billion Disclosures of Tax Return Information in 2004

The report reveals that the IRS made 4.6 billion disclosures of tax return information to federal and state agencies. Here are the Top 5 recipients of taxpayer information:
Posted by James Zellmer at 10:41 AM

August 18, 2005

More on the Tax Shelter Controversy

TaxProf summarizes a number of recent articles and documents regarding the ongoing IRS battle with the major accounting firms over 1990's Tax Shelters. Perhaps most interesting is this 6MB PDF memo sent by several current and former KPMG partners to the US DOJ and the media. This is a fascinating look at the internal politics of a large organization. Lynnley Browning has more:
The accounting firm KPMG is quietly putting the boxing gloves back on. Even as KPMG is in discussions with federal prosecutors to settle a criminal investigation over its sale of what the Internal Revenue Service says are bogus tax shelters, the firm has been taking on former clients who have sued it over those same shelters.
Posted by James Zellmer at 8:59 AM

August 17, 2005

LFB: Allowable Changes in Madison Property Tax Levies

Legislative Fiscal Bureau (via WisPolitics): Madison's levy can increase (and therefore will) by 3.3% this year according to the Wisconsin Legislative Fiscal Bureau. This cap is the result of Governor Doyle and the Legislature's Property Tax "Freeze".

Posted by James Zellmer at 12:01 AM

August 8, 2005

WISTAX: Wisconsin Income Taxes are in the top 10 for Mid/High Income Filers

Via WisPolitics:
n 2003, Wisconsin state income taxes paid by filers with incomes in the $35,000-$75,000 range were higher than in many other states. For single filers with incomes in this range, Wisconsin’s income taxes were among the top 10 nationally. For married, joint filers, Wisconsin ranked from 11th to 15th, depending on income. These are several of the findings in a detailed new study of income taxes nationwide published by the Wisconsin Taxpayers Alliance (WISTAX).
Posted by James Zellmer at 8:47 AM

August 4, 2005

More on the Tax System Mess

Carrie Johnson writes a well done article on a variety of 1990's tax shelter schemes that reduced or eliminated capital gains taxes. The interesting thing, in all of this, is the transparency these activites give to the mess that is our tax system. Johnson takes a look at many points of view, not just the IRS's:

Many of the KPMG partners denied they had engaged in a conspiracy to break the law, arguing instead that they had exploited long-standing loopholes in the arcane tax code. Lawyers and tax experts analyze shelters to determine whether they will pass IRS review on a "more likely than not" basis -- a standard that amounts to a slightly more than 50 percent chance.

There are ongoing questions about whether the shelters themselves were lawful. A civil case filed in San Francisco by an investment firm that devised one of the structures is challenging the IRS interpretation that the tax shelter lacks economic justification.

Separately, individual taxpayers who used some of the structures have been able to settle their claims with the IRS through an amnesty program.

Moreover, many of the shelters were vetted by lawyers and other tax advisers, giving former KPMG officials another possible defense if they can show they relied on those professional experts and thus lacked the intent to break the law.

Former KPMG Partners May Be Charged

By Carrie Johnson

Federal prosecutors have notified as many as 20 former partners at the accounting firm KPMG LLP, including some who were members of its senior management team, that they could face criminal charges for their role in selling tax shelters in the 1990s, according to people familiar with the case.

Government lawyers have not yet decided whether to bring criminal charges against the firm, but they are asking for tough concessions from KPMG as the price of any potential settlement. At the same time they also are focusing on individual executives involved in the tax shelters, according to sources, who spoke on condition of anonymity because of the delicate stage of the investigation.

Earlier this year, federal prosecutors in New York had recommended that KPMG face criminal charges, but senior Justice Department officials in Washington expressed concerns about the prospect of another accounting firm collapse after the 2002 demise of Arthur Andersen LLP and the Supreme Court's reversal in May of Andersen's criminal conviction, according to the sources. Instead, both prosecutors and the firm continue to negotiate.

The KPMG probe, which dates back several years, could be the next major case in a string of business fraud prosecutions that surfaced after the collapses of Enron Corp. and WorldCom Inc. KPMG was one of several firms that sold questionable tax shelters to wealthy clients, creating lucrative sources of revenue.

After reports of possible criminal charges against KPMG appeared in June, the firm issued a statement apologizing for "unlawful" activity by former partners and pledged to cooperate with investigators. The firm turned over batches of documents, pressured dozens of tax executives to resign, and imposed caps on their attorney fees.

Analysts say those moves could help persuade regulators to forgo an indictment and instead impose lesser sanctions, such as requiring the firm to pay millions of dollars in financial penalties and admitting facts that could implicate former employees. Negotiations between prosecutors and the firm continue and a resolution could be weeks away. The talks are taking place as several key Justice Department figures are in transition, including the U.S. attorney in the Southern District of New York and the head of Justice's criminal division. The assistant attorney general for tax issues has recused herself from the case, sources said.

The final agreement could be similar to Merrill Lynch & Co.'s pact with the Justice Department over its dealings with Enron, in which the firm agreed to increased monitoring and other business changes.

That gives little solace to the former partners, several of whom testified at a 2003 Senate hearing -- which cited internal KPMG correspondence about whether the shelters would pass muster with the Internal Revenue Service. Some of the officials speculated in memos released at the Senate hearing that the firm should roll the dice and approve the deals, since it was likely to make more in fees than any penalties the government would impose.

KPMG sold the shelters to 350 people and reaped about $124 million in fees between 1997 and 2001, the report said.

"The only possible way to have made these people behave -- they were so far below professional standards -- is in fact that some people have to go to jail," said Calvin H. Johnson, a tax law professor at the University of Texas at Austin who has written about the KPMG case.

Unlike in the Andersen investigation, in which only one mid-level audit partner pleaded guilty to obstruction of justice, prosecutors are scrutinizing senior people at KPMG, one of the four big remaining audit firms in the nation.

Among those at KPMG who are facing government scrutiny are such high-ranking officials as its former deputy chairman, the onetime head of the firm's tax services unit and the former leader of the District-based national tax practice.

The shelters, called names such as OPIS, FLIPS and BLIPS, generally helped wealthy clients to create large paper losses, offsetting big gains that otherwise would have produced steep tax bills. Senate investigators estimated the shelters reduced federal tax revenue by $1.4 billion.

Many of the KPMG partners denied they had engaged in a conspiracy to break the law, arguing instead that they had exploited long-standing loopholes in the arcane tax code. Lawyers and tax experts analyze shelters to determine whether they will pass IRS review on a "more likely than not" basis -- a standard that amounts to a slightly more than 50 percent chance.

There are ongoing questions about whether the shelters themselves were lawful. A civil case filed in San Francisco by an investment firm that devised one of the structures is challenging the IRS interpretation that the tax shelter lacks economic justification.

Separately, individual taxpayers who used some of the structures have been able to settle their claims with the IRS through an amnesty program.

Moreover, many of the shelters were vetted by lawyers and other tax advisers, giving former KPMG officials another possible defense if they can show they relied on those professional experts and thus lacked the intent to break the law.

The KPMG investigation is intensifying at the same time federal authorities are vowing to take enforcement of tax cases more seriously. In recent years, the IRS has struggled with such efforts as the agency has experienced repeated staffing cuts. But Commissioner Mark W. Everson has made enforcement a renewed priority, referring 3,000 cases to the Justice Department last year for possible criminal prosecution.

"Our system of tax administration depends upon the integrity of practitioners," Everson said in a March speech at the National Press Club.

KPMG first drew the ire of regulators by refusing to turn over documents related to the shelters. It also took a hard-nosed approach to dealing with the IRS, while rivals at Ernst & Young LLP and PricewaterhouseCoopers LLP settled and paid multimillion-dollar fines over their tax marketing efforts. Ernst has said that it, too, faces a criminal investigation into its tax shelter dealings.

Posted by James Zellmer at 12:00 AM

August 2, 2005

Madison City Budget: Lisa Does the Math

Lisa S takes a look at the local Police Department's budget communications vis a vis a 3% reduction (is this an actual reducation or a reducation in the increase?):
Personnel salaries and related expenses make up about 89% of the police department's operating budget. The remaining 11% of the operating budget consists of minor objects and capital assets. Apparently, Chief Wray was either unable or unwilling to find any significant cuts within this other 11% of the budget.

Another interesting item in the 2005 budget is $1.6 million worth of overtime pay. When asked about the possibility of cutting overtime, one alderperson explained that this expense is hard to change because it is part of the negotiated union contracts. Chief Wray shares this sentiment
Posted by James Zellmer at 7:02 AM

July 30, 2005

Washington's Use of Our Tax Dollars, the Transportation Bill

Larry Sandler:

And Madison's Central Park, being developed on former railroad land, would get $3.5 million.
Interesting use of new transportation funds. I get the former railroad yard approach, but it does seem, at least to me, sort of strange that we're funding a local park in the new Federal transportation bill.

Posted by James Zellmer at 12:04 AM

July 28, 2005

Energy Bill Offers Tax Breaks

Homa Zaryouni:

After five years of trying, Congress is expected to clear an energy bill this week that provides a range of incentives for consumers to rein in energy use.

Here's how the energy bill could affect what we buy:

• Incentives to buy fuel-efficient appliances

• Incentives to buy hybrid vehicles

• The extension of daylight-saving time

• Expanded use of ethanol as a gasoline additive

• Reliability standards for power grid (aimed at preventing blackouts)

• Incentives for installing solar power at home

Posted by Erika Frederick at 8:21 AM

July 27, 2005

Madison's Spending Challenge

Phil Brinkman summarizes the implications of the recently signed State budget on the City of Madison:

Dane County Executive Kathleen Falk said the limit on counties is "very comparable" to one she has insisted Dane County abide by in its budget. She predicted it wouldn't affect county operations.

But Madison Mayor Dave Cieslewicz said the budget will force hard choices in Madison, which will be limited to increasing its levy to no more than 4 percent next year, below the 5.7 percent average of the last 15 years (emphasis added).

The city faces $9.5 million in increased costs to continue existing services next year, Cieslewicz said, but will be limited under the cap to collecting about $6 million more in property taxes.

Although the city is growing, police, fire, streets and other agencies would have to cut their budgets 2.1 percent from what it would cost to maintain the same level of services, Cieslewicz spokesman George Twigg said. The city could also raise fees and fines, as it has done before, or dip more deeply than usual into its "rainy day fund" to help cover the gap.

Madison's 5.7% average levy increase over the past 15 years is not sustainable, given the State's generally slow economy. City leaders need to start thinking different, rather than continuing with a "same service" approach.

Posted by James Zellmer at 12:05 AM

July 26, 2005

Joy Cardin & Jeff Mayers Discuss The Governor's Budget

Wisconsin Public Radio's Joy Cardin and WisPolitics' Jeff Mayers discussed the final state budget this morning audio

Posted by James Zellmer at 7:46 PM

July 25, 2005

The Coming AMT Explosion

John Buckley, Chief Tax Counsel - House Ways & Means Committee Democratic Staff published "The Tangled Web of the Individual AMT" (PDF). All taxpayers should become familiar with this stealth tax increase.
Posted by James Zellmer at 8:20 AM

July 18, 2005

Fast Growing Companies Prefer a Flat Tax

Matthew Phan discusses the obvious benefits of a simplified tax system. We waste hours and hours on our current tax morass:

Of the 341 executives interviewed, 48% preferred a flat corporate rate over the current tax system for businesses like their own, compared to 16% who supported the current system. 13% preferred a value-added consumption tax and 23% indicated that they were uncertain which was better.

The complexity of the current system could be one reason owners prefer a flat tax, at least from the CEOs that Inc. interviewed separately. "The simpler the tax structure and the more visibility you give it, the better," said David Steinberg, founder and CEO of InPhonix, the No. 1 company on the Inc. 500 list in 2004. "The more complex a system, the more accountants you need to hire."

Posted by James Zellmer at 12:01 AM

July 14, 2005

Tax law Lobbying: A Powerful Look at the Details

Brody Mullins:
On Monday, Accenture lobbyists Richard Grafmeyer and John Talisman met top tax counsels for Rep. Charlie Rangel of New York, the ranking Democrat on the House Ways and Means Committee, and Republican Sen. Charles Grassley of Iowa, chairman of the Senate Finance Committee. Accenture lobbyists spoke yesterday with Montana Sen. Max Baucus, the top Democrat on the Finance panel. The two have also met with aides to Ways and Means Chairman Bill Thomas, Republican of California.

Mr. Grafmeyer, who once worked as a top Republican tax counsel on Capitol Hill, and Mr. Talisman, a former senior Democratic tax advisor at the Treasury, have met success: All but Mr. Rangel have agreed to include new language for Accenture in the technical-corrections bill that could be introduced by week's end. "Clearly, this is not considered fair...in a time of war for people to be looking to avoid taxes," Mr. Rangel said. Mr. Rangel and his staff have refused to participate in discussions on the provision.

Once introduced, the technical-corrections bill is expected to sail through Congress. That would represent a victory for a company that was portrayed as a corporate bad-boy on Capitol Hill as recently as last year.
I wonder who, if anyone speaks for the taxpayers in these closed door meetings! Mullins did an excellent job digging up the details on this.
Posted by James Zellmer at 6:39 AM

July 13, 2005

Secret History of IRS Criminal Investigations Published

Via TaxProf: The Memory Hole; 75 Years of IRS Criminal Investigation History, 1919-1994 (PDF)

Posted by James Zellmer at 12:02 AM

July 12, 2005

Recent US System Tax Articles

The ongoing mess that is our tax code (the third link is fascinating from a taxpayer perspective):
  • Lynnley Browning:
    In late 1999, the Keeters put $188 million into an account at Deutsche Bank. The money, used in tandem with a $500 million loan from the bank, would be used to trade derivatives and options. The Keeters say they thought that they would make an unspecified return on their investment, pay back the loan, as well as generate $188 million in tax savings that could then be legitimately used to offset other gains. But family members said that they discovered their shelter was not legal only when the I.R.S. began auditing some of their federal tax returns - prepared by KPMG, with the Blips deductions written in - for 2000 and 2001.
  • Tanina Rostain:
    From the late 1990s into the next decade, KPMG devoted significant resources to developing and mass marketing hundreds of abusive tax shelters. These products were designed to enable their purchasers - typically high wealth individuals and Fortune 500 companies - to avoid paying taxes on the huge financial gains they enjoyed during the stock market boom. 135K PDF
  • Louise Story:
    "The tax court is seen as a place that a taxpayer ought to be able to go and get a fair shake, and the secrecy here, and the outcome in these cases, does raise the question as to whether they're getting a fair shake," said Alan B. Morrison, a senior lecturer at Stanford Law School, who wrote a supporting brief for the three taxpayers in the Supreme Court case.

    The court's secrecy, "confirmed now by a major change in a decision, is a big deal, and it's not right," he said.

    One of Mr. Kanter's lawyers, Richard H. Pildes, a professor at NYU School of Law, said the case reminded him of Jarndyce and Jarndyce, the never-ending lawsuit in Charles Dickens's novel "Bleak House."
Posted by James Zellmer at 7:34 AM

July 6, 2005

Konkel Deconstructs the City Budget

Very useful reading:
So, lets take a look at the $44 million police department budget. (Hey – I’ve already burned this bridge, I might as well just go with it.) At this point your eyes have probably glazed over, but don’t worry, it’s all of three pages long with lots of white space. Clicking on the link is an illuminating experience. You will find that for 2005 we have two programs in the police department. Field Operations which are $39,373,690 and Support Operations which are $4,718,020. There is a one paragraph description of these services. Additionally, in this case there are 6 “budget highlights” to further inform you about changes from last year’s budget. Then, on page 3 there is the break down into the 9 budget line items. Are you hungry for more information? Permanent Salary Detail will show you each of the positions in the department along with Workers Comp, Premium Pay and Vacation/Comp time accrued. This accounts for $26 million of the budget. You can also look at Minor Objects to find out that purchased services is $1.4 million, supplies are $750,000, there is $2.6 million in inter-departmental charges and $6,000 for debt/other financing. On the bottom you can see that they charge $1.1 million to grants and other departments. Finally, you can see that they are spending $18,000 in Capital Objects. If you were following along only a little, you now realize that the detail doesn’t add up to $44 million. Where’d the rest of the money go? The "details" only add up to about $31 million.
The growing tax squeeze facing Madison residents (taxes growing at a faster rate than incomes) makes budget transparency a necessity. The current local spending increases, given sluggish economic growth are simply not sustainable. I applaud the folks at dane101 for getting this rolling.
Posted by James Zellmer at 11:44 AM

July 2, 2005

Property Taxes Biggest Share of Income in Milwaukee and Madison Areas


The other part of the state where the property tax burden was high was Dane county, according to WISTAX. The city and town of Madison led the area with property taxes at 8.8% and 8.2% of income, respectively. Five suburbs surrounding Madison also made the top-50 list: McFarland and Mt. Horeb (both 7.4%); Sun Prairie (7.3%); and DeForest and Stoughton (both 7.1%).


In a separate part of the report, WISTAX notes that the property tax-to-income ratio is much like a political "heart monitor." When property taxes relative to income climb above 4%, discontent begins to grow. The study cited several periods in the postwar era when property taxes were unusually high and led to a major change, either in politics or in policy-making. Most recently, this occurred in 1993-94, when property taxes completed a 14-year rise, hitting 4.8% of income. Then, a bipartisan majority in state government imposed school revenue limits and first committed the state to providing two-thirds of local schools’ revenues.

Posted by James Zellmer at 12:02 AM

June 30, 2005

Wisconsin Property Tax Hikes Outpacing Wages

Aids to local governments increased dramatically since 1955, according to the study. Local school aids rose 10.8% per year, while shared revenues to local governments increased 4.9% annually. However, WISTAX researchers point out that there are questions about the long-term effectiveness of local aids for reducing property taxes. Economic research in Wisconsin and elsewhere finds that state and federal aids to local governments only partially offset local property taxes, as a portion of that aid funds new spending.

The study finds that some limits on local governments have been effective at relieving property taxes and some have not. During the 1970’s, the state imposed cost controls on schools and levy limits on counties and municipalities. Due to an increasing number of "loopholes," they were deemed ineffective and eliminated in 1983. Recent revenue limits on schools have been more effective, because they do not have similar loopholes. Counties and technical colleges have limits on the tax rates they can impose. However, large increases in property values have limited their effectiveness.
Posted by James Zellmer at 7:03 AM

June 28, 2005

Tax Deductions for Hybrid car/SUV purchases

Paul Caron has the list. Note that 1 out of 7 vehicles is a domestic (the Ford Escape Hybrid - which uses Toyota hybrid components). The deduction is $2000 in 2005 and $500 in 2006 (not a whole lot for vehicles that can cost north of $40K in some cases).
Posted by James Zellmer at 7:46 AM

June 27, 2005

Tax Policy to Help Working People in Cities

Paul Caron:
This paper (pdf) examines ways that federal tax policy could improve the economic prospects of low- and middle-income working families in cities. We show how existing federal tax rules affect these families, and that a variety of public policies are available to provide better economic opportunities and incentives for these households. In particular, policies that expand and modify the child care and dependent care tax credit, the saver's credit, and subsidies for health insurance, or that alter the structure of homeownership subsidies away from deductions and toward capped credits for homeownership, have the potential to improve economic prospects for millions of working families who live in urban areas. The significant link between federal tax policies and the welfare of households in cities is an area of growing awareness and increasing importance and should receive the attention of both urban leaders and federal policy makers in the future.
Posted by James Zellmer at 5:13 PM

June 26, 2005

Unauthorized Access to IRS Records

This problem will likely get worse, particularly with the recently passed gift to data thieves - the national ID act (Both Wisconsin Senators, Kohl & Feingold supported the National ID Act!). Caroline Drees has more:
The Internal Revenue Service is investigating whether unauthorized people gained access to sensitive taxpayer and bank account information but has not yet exposed any privacy breaches, an official said on Friday.

The U.S. tax agency -- whose databases include suspicious activity reports from banks about possible terrorist or criminal transactions -- launched the probe after the Government Accountability Office said in April that the IRS "routinely permitted excessive access" to the computer files.

The GAO team was able to tap into the data without authorization, and gleaned information such as bank account holders' names, social security numbers, transaction values, and any suspected terrorist activity. It said the data was at serious risk of disclosure, modification or destruction.
Posted by James Zellmer at 8:05 AM

June 22, 2005

Our Tax System....

Zelenak & Chirelstein on Tax Shelters:
This article describes the ongoing legislative and administrative efforts to curtail tax shelters. It concludes that these efforts, which rely largely on disclosure requirements and penalties, cannot succeed as long as taxpayers continue to win many of the litigated shelter cases.
Amazing... Yet, we continue to generate more tax law spaghetti.
Posted by James Zellmer at 7:38 AM

Great Example of a Tax Loophole/Giveaway

Lee A Shepphard: Massive Giveaway in Partnership Compensatory Options Regs.
Posted by James Zellmer at 7:32 AM

June 20, 2005

Americans Outside the Tax System

Patrick Fleenor and Scott A. Hodge:

One of the biggest obstacles facing President Bush’s Advisory Panel on Federal Tax Reform is the fact that America has become divided between a growing class of people who pay no income taxes and a shrinking class of people who are bearing the lion’s share of the burden.

Despite the charges of critics that the tax cuts enacted in 2001, 2003 and 2004 favored the “rich,” these cuts actually reduced the tax burden of low- and middle-income taxpayers and shifted the tax burden onto wealthier taxpayers. Tax Foundation economists estimate that for tax year 2004, a record 42.5 million Americans who filed a tax return (one-third of the 131 million returns filed last year) had no tax liability after they took advantage of their credits and deductions. Millions more paid next to nothing.

Posted by James Zellmer at 7:01 AM

Should Milwaukee Suburbs Pay for City Services?


A new study shows Milwaukee residents are way behind their neighbors when it comes to taxable property values, prompting some officials to urge wealthy suburbs to share their tax revenues in exchange for their use of city services.

The Southeastern Wisconsin Regional Planning Commission ordered the study from consulting firm Ruekert & Mielke Inc. to analyze 147 cities, towns and villages in the counties of Milwaukee, Waukesha, Ozaukee, Washington, Racine, Kenosha and Walworth.

The study released last week shows that Chenequa in Waukesha County boasts the top "fiscal capacity" rate, a measure of property value per resident, of $600,570, while Milwaukee ranks at the bottom with a rate of $36,507.

Former Madison Mayor Paul Soglin mentioned this strategy as well - tax 'em while they are driving in.

Posted by James Zellmer at 12:02 AM

June 14, 2005

Fifty States, A Thousand New Tax Laws = Decoupling

Amy Feldman:
For most of the 92 years since the federal income tax was established, the states followed Washington's lead concerning how to tax people and businesses. That ended in 1981, when 21 states adopted their own rules on depreciation in response to a Reagan tax cut. Many of these renegades -- California being a notable exception -- later went back to a more uniform tax code. But the precedent was set. When Congress began slashing federal rates in 2001, many cash-strapped state legislatures opted to go their own way once again. Tax experts call this "decoupling." That's a jargony name for a practice that can -- and most likely will -- cause you to run screaming to your accountant. "It is a zoo," says Jere Doyle, an estate-planning and tax expert in Mellon Financial's Boston office. "Everybody thinks 'federal, federal, federal,' and assumes that the same rules will apply at the state levels. But they do not
Posted by James Zellmer at 2:31 PM

June 11, 2005

The Tax Mess: Sticking It To Us. Presidio Fires Back

Lynnley Browning sort of misses the point of Presidio's lawsuit against the US Government. Browning focuses on the personalities, rather than the larger constitutional question.

Presidio's suit is an attempt to test how the tax code's ambiguities and complexity stand up in a federal court.

It's easy to find zero sympathy for the wealthy, however, recent tax law changes, including large corporate giveaways supported by our "populist" US Senators Russ Feingold and Herb Kohl demonstrate the problems (and opportunities) that our tax law spaghetti creates.

Growing tax code complexity simply means more opportunities for the wealthy and growing hassle for the rest of us..... Disclosure: One of Presidio's principals is a good friend of mine.

UPDATE: Andrew Ross Sorkin takes an interesting look at a Wall Street case that NY Attorney General Eliot Spitzer lost. Sorkin digs up quite a quote from a juror:
The jury was split 11 to 1 - with all but one juror prepared to acquit Mr. Sihpol of all charges. The lone juror told reporters that she was convinced of Mr. Sihpol's guilt because she just could not believe the government would bring a case if there wasn't something to it.
Having said all that, if Presidio did break the law, then they will deal with the consequences. It's difficult for me, a laymen, to understand all the nuances of our tax system. Time to start over, I think.
Posted by James Zellmer at 9:02 AM

May 29, 2005

America Runs on AMT

Albert B. Crenshaw:

The AMT, as it is widely known, was created to catch up with the clever rich. Now, though, it has little impact on those folks and instead is whacking millions of fairly ordinary Americans. In fact, according to the Treasury Department, next year a typical family with two children will have to pay the AMT if its income exceeds $67,890. And by 2015, as many as 50 million taxpayers will have to pay it.

The AMT has, however, been very, very good to the Treasury. It is pulling in $18 billion in tax revenue this year, and by 2015 the AMT could be pouring $210 billion annually into the government's coffers. Washington insiders for some time now have been laughing that it would be cheaper for the government to repeal the regular income tax and keep the AMT.

This may be funny, but it's not a joke. The crossover point, when the AMT begins to produce more revenue than the regular tax, is now projected to be 2013.

Meanwhile, our Senators Kohl & Feingold recently voted for a massive big business tax giveaway on overseas earnings.

Posted by James Zellmer at 12:00 AM

May 20, 2005

Bush Seeks Tax Reform Input

Hmmm. I wonder what the odds of "public input" ending up in final tax legislation... Here's the site.
Posted by James Zellmer at 8:25 PM

IRS Income Statistics

Tax Stats
Posted by James Zellmer at 7:52 PM

New York Telecommuter Tax

Taxprof takes a look at New York's Telecommuter tax efforts.
Posted by James Zellmer at 5:23 PM

May 9, 2005

Feingold's Big Business Tax Cut

Russ Feingold voted for this giveaway (I'd like a 5.25% tax rate, please). Alex Berenson looks at one of the windfalls: Large drug companies:

A new tax break for corporations is allowing the biggest American drug makers to return as much as $75 billion in profits from international havens to the United States while paying a fraction of the normal tax rate.

The break is part of the American Jobs Creation Act, signed into law by President Bush in October, which allows companies a one-year window to return foreign profits to the United States at a 5.25 percent tax rate, compared with the standard 35 percent rate.


Though the companies stand behind their accounting, financial analysts and tax lawyers say that the drug makers' claim defies reality and that their profits come mostly from sales in the United States.

Posted by James Zellmer at 12:00 AM

April 30, 2005

Madison Area Income Growth

Lynn Welch on Madison's 3.9% per capita personal income growth (2002 to 2003), which ranks it 30th among the 360 metropolitan areas measured by the US Bureau of Economic Analysis. (interestingly, Appleton's personal income growth rate was 4.1%) Here's the BEA's data (.xls file - 4.27.2005 BEA news release)

Welch credits the high tech economy for these results - perhaps so. Epic Systems has grown substantially as has Promega (mentioned in the article). Of course, Epic is moving to Verona and Promega is in Fitchburg.


Wisconsin ranks 12th in per capita tax collections, according to the US Census Bureau. More on state tax comparisons from Kathleen Murphy.
Posted by James Zellmer at 9:59 AM

April 29, 2005

Cullen Pushes Temporary Gas Tax Reduction

David Cullen (D-Milwaukee) plans to introduce legislation that would lower the state gas tax by 0.05 per gallon for the summer.

This seems unwise...

Posted by James Zellmer at 12:00 AM

April 26, 2005

Rutherford County, TN: Fastest growth in jobs

Kasey Wehrum:
The Bureau of Labor Statistics released its figures for the fastest-growing large counties in terms of job growth last week, and Rutherford County, Tennessee came in on top at 9.2 percent.

Small businesses' hiring habits played no small role in the number of jobs created and lost, according to Brian Headd, economist at the Small Business Administration.

“"hen a large company lays off thousands of employees it is national news, but in fact, the rise and fall of small businesses has a much greater effect on job growth than most people realize," said Headd.
Posted by James Zellmer at 7:41 AM

April 18, 2005

The Economist: The Flat Tax Revolution

The Economist provides several useful tax simplification pointers. I wonder if I'll live to see the day that we have a rational, sensible tax system...

The United States, which last simplified its tax code in 1986, and which spent the next two decades feverishly unsimplifying it, may soon be coming to a point of renewed fiscal catharsis. Other rich countries, with a tolerance for tax-code sclerosis even greater than America's, may not be so far behind. Revenue must be raised, of course. But is there no realistic alternative to tax codes which, as they discharge that sad but necessary function, squander resources on an epic scale and grind the spirit of the helpless taxpayer as well?
more here

Posted by James Zellmer at 12:00 AM

April 17, 2005

PDF Copies of President Bush & VP Cheney's Tax Returns

From Taxprof.

Posted by James Zellmer at 12:00 AM

April 15, 2005

AMT Snaring More Taxpayers

Avrum Lank takes a look at the AMT - extensively discussed here:
"It's just another example of smoke and mirrors," said Paul S. Wickert, owner of Acc-U-Rite Tax & Financial Services Inc., a tax preparation firm on Milwaukee's south side. "They show you a 20 percent rate with one hand while their other hand is in your back pocket" grabbing more. The AMT tax rate varies from 26% to 28% of earned income, while regular tax brackets go from 10% to 35%.

The impact is especially great for large, middle-class families in states with high income and property taxes, such as Wisconsin. The AMT disallows deductions for local taxes, and does not take into account all of the personal exemptions allowed under the regular tax law.
Posted by James Zellmer at 7:32 AM

April 14, 2005

Our Tax Morass: PBS Newshour

Nina Olson:

And then you ultimately come up with the 1.5 million-word Internal Revenue Code that we have today, with six volumes of regulations.
Lots more - check this out. There's also a useful discussion on the dreaded AMT. This is great:
Kathryn Keane: In the industry, we call tax simplification the tax professionals' retirement plan, because every attempt to simplify it has just made it more and more deadly.

Posted by James Zellmer at 12:00 AM

April 13, 2005

Local & State Taxes in 51 American Cities

Data compiled by the District of Columbia. Milwaukee is 8th (I wonder where Madison would fall?).
Posted by James Zellmer at 9:19 AM

April 12, 2005

Property Owners Burden Rising

Peter Whoriskey:
"What is all the money going for?" the 60-year-old translator wondered last week. "I'm not seeing it in better services. Homeowners are becoming cash cows."

The spectacular boom in Washington area real estate prices over the last five years has been accompanied by staggering increases in home tax bills as many local governments have spurned significant tax cuts in favor of reaping billions more from homeowners.
Judging by the number of "Madison Property Taxes" inbound searches recently, this is a topic on many local homeowner's minds.
Posted by James Zellmer at 8:34 AM

April 10, 2005

A Tax Increase that President Bush Didn't Mention

Edmund Andrews:

CYNICS have long predicted that the Bush administration, plagued by budget deficits, will eventually start raising taxes. But now it is becoming clear how it would do so: the alternative minimum tax.

Baffling in its complexity and often bizarre in its impact, the alternative minimum tax is a giant undeclared tax increase that will ensnare tens of millions of moderate-income families in the next several years.

Posted by James Zellmer at 12:00 AM

April 9, 2005

Wispolitics Budget Blog

Useful links & commentary on the state budget "process"....

"$310 million - we could buy a boat for everyone in the state to get across the river.
-- JFC Co-Chair Scott Fitzgerald on the cost of the proposed Stillwater Bridge spanning the St. Croix River between Wisconsin and Minnesota in northwest Wisconsin.

This is a very technical Web site. This is not just Mapquest.
-- DOT Secretary Frank Busalacchi defending the cost of a $650,000 interactive site for the Marquette Interchange.

Posted by James Zellmer at 12:00 AM

April 8, 2005

Time for a Value Added Tax (VAT)?

Bruce Bartlett:

GROWING numbers of policy analysts and politicians are saying that it may finally be time to consider a value-added tax as part of our federal revenue system. In years past, I would have been in the forefront of those denouncing the idea. But now, reluctantly, I have joined the pro-V.A.T. side. Here's why.

There are many arguments against a value-added tax, which is essentially a sales tax that applies at each stage of production. It is costly to put into effect, and it hits the poor and the elderly hardest because they spend a higher percentage of their income.

Posted by James Zellmer at 12:01 AM

April 6, 2005

Why is Tommy Thompson Sad?

Michael F. Cannon:
Finally, Thompson voiced his regret just one day after Medicare's trustees announced that the drug benefit by itself has an unfunded liability 60 percent larger than that of the entire Social Security program. (The unfunded liability for all of Medicare is nearly six times that of Social Security.) Medicare's financial outlook has grown so dire that its two public trustees broke with the trustees who are members of Bush's Cabinet to say that it is in far worse shape that Social Security.
Posted by James Zellmer at 8:19 AM

March 30, 2005

Therese Berceau: 2cents for Alcohol Abuse

Madison State Representative Therese Berceau introduced 2cents for Alcohol Abuse Treatment Legislation. (pdf)
Posted by James Zellmer at 7:09 AM

March 29, 2005

Tax Foundation on Colorado's TABOR

The Tax Foundation:

The state of Colorado is under assault. Opponents of Colorados Taxpayer Bill of Rights (TABOR) are waging a well coordinated but misleading attack on Colorados reputation. This attack takes the form of a number of rankings and statistics that purport to show that the Taxpayer Bill of Rights has decimated Colorado. These rankings and statistics are based on the assumption that if Colorado ranks poorly on things like the adequacy of prenatal care and education spending, then Colorado is failing to adequately care for and educate its citizens, and that the Taxpayer Bill of Rights must be to blame. A closer look at the attacks shows that they fail to prove that the amount a state spends on health care and education determines quality, and they also fail to tell the whole truth about the rankings and statistics of the state of Colorado.

Posted by James Zellmer at 10:16 PM

March 23, 2005

Wisconsin TABOR Blog

Frank Lasee launched a blog dedicated to TABOR. Flaw: no RSS feed....

Posted by James Zellmer at 12:01 AM

March 16, 2005

Cowen & Sawicky on Tax Reform

Tyler Cowen & Max Sawicky:

Alan Greenspan has called for a consumption tax and President Bush has toyed with the related idea of a national sales tax. These proposals have some ideal economic properties but the politics don't work. Consumption taxes are largely invisible; you don't see what you pay on a yearly tax return but, rather, it is absorbed in the price of goods. Not surprisingly, Western European countries have both consumption taxes and high rates of overall taxation. Flat taxes bring some benefits but wouldn't drastically lower the costs of our tax code; the biggest difficulty in filing your return is calculating your income.

I recommend starting on the expenditure side. Let's gradually freeze Social Security benefits in real terms, introduce more market incentives to health care, redo the Medicare prescription-drug bill, and cut discretionary government spending. We should admit more revenue-positive immigrants as well and stop subsidizing the defense of Western Europeans.

Posted by James Zellmer at 12:01 AM

March 11, 2005

BootFinder & Carjacking

New Haven city marshals, armed with a new tool that photographs auto license plates and instantly matches them against a tax scofflaw database, had towed Byers' car right out of his driveway.
Posted by James Zellmer at 10:50 AM

March 8, 2005

Doyle's iPod Tax

Steven Walters on Governor Doyle's proposed sales tax on electronic downloads. Taxing certain internet activities and giving others a pass is simply absurd. We should apply the sales tax to all transactions, including newspapers and services....
Posted by James Zellmer at 7:40 AM

March 5, 2005

Milwaukee's Income Growth Lags Region, Nation

Avram Lank:
Household income in the Milwaukee area remained below national and regional averages through 2003, according to figures released Thursday, the result of an economy battered by recession and changes in how the nation does business.
Posted by James Zellmer at 12:00 AM

March 4, 2005

Greenspan Backs a Consumption Tax

Edmund L. Andrews:

"Many economists believe that a consumption tax would be best from the perspective of promoting economic growth - particularly if one were designing a system from scratch - because a consumption tax is likely to favor saving and capital formation," Mr. Greenspan said.

But the Fed chairman warned that shifting to a new system would raise difficult "transition issues," and he cautioned against "going for purity" in any kind of tax overhaul.

Posted by James Zellmer at 6:41 AM

February 25, 2005

Paul Ryan and Social Security Reform

Mike Allen follows Wisconsin Congressman Paul Ryan around his district as he advocates for Social Security reform:
Ryan, who will help write the legislation as a member of the Ways and Means subcommittee on Social Security and is a longtime proponent of changing the popular government retirement program, is pushing the White House idea to farmers and factory workers throughout his district in the southeastern corner of the dairy state, with 35 "listening sessions" in 12 days.
Posted by James Zellmer at 12:00 AM

February 21, 2005

Federal Income Taxes: The Vanishing State & Local Tax Deducation

David Leonhardt:
The culprit is a once-obscure federal tax provision known as the alternative minimum tax, which was created in 1969 to ensure that a relatively small number of wealthy people did not use loopholes to avoid paying taxes.

But it is increasingly being applied to families with incomes of $75,000 to $250,000 a year who claim relatively high deductions - like the ones for property taxes, state and local income taxes - and the exemption for children. When it does apply, it cancels some of those deductions..

The impact is about to mushroom. Barring a change in the law, almost 19 million taxpayers will be subject next year to the alternative minimum tax, or A.M.T., up from roughly 3.4 million this year and 1.3 million in 2000, according to the Tax Policy Center, a Washington research group whose calculations on this issue are widely accepted.
The non-indexing of the Alternative Minimum Tax will cause more problems over the next few years for Wisconsin residents.
Posted by James Zellmer at 7:58 AM

February 10, 2005

Wisconsin Property Taxes: Doyle Plan vs. Republicans

Patrick Marley, Steven Walters & Scott Williams on the two "freeze" (not really) proposals:
But the two proposals are difficult to compare because the approaches are so different, Berry said.

"From the perspective of local government, they would probably prefer Doyle; from the perspective of a fiscally strapped property owner, the Republican plan would probably be preferable," Berry said.
Posted by James Zellmer at 6:57 AM

February 7, 2005

Extensive Discussion on Wisconsin Taxes

There's been no shortage of articles on Wisconsin's tax climate recently.
Posted by James Zellmer at 9:34 PM

February 6, 2005

Controlling Madison Property Taxes?

Rob Zaleski wonders why we cannot control property taxes:
Though they don't get much media attention, there are, in fact, some ideas out there worth pursuing, Reschovsky says. Among the most promising, he says, is a recent proposal by his colleague Don Nichols, director of the La Follette School of Public Affairs, that would freeze the rate of property taxes on all farms and homes to the rate of income growth of the average Wisconsin resident. The result, Reschovsky says, is that low-income people wouldn't be driven from their homes. (For more details, see info@lafollette.wisc.edu) Beyond that, some states have tried assessment caps, with mixed results, Reschovsky says. The best example, of course, is California's controversial Proposition 13, which was passed in 1978 and limits increases in assessed value to 2 percent a year. A house gets reassessed at full value only when it's sold.
Posted by James Zellmer at 5:14 PM

January 4, 2005

Tax Issues on the April Ballot?

The Wisconsin Counties Association wants all 72 counties to ask voters in April whether the state - instead of counties - should pay for the judicial and human services systems it mandates, according to Jennie Tunkieicz. Interesting, but I'm not sure that this intramural government battle is money well spent for the taxpayers.

Posted by James Zellmer at 9:16 AM

January 2, 2005

Taxpayer Bill of Rights [TABOR], A Look at Colorado's Experience

Wisconsin's legislature continues to consider a Taxpayer Bill of Rights. Colorado passed a taxpayer bill of rights in 1992. Steven Walters visits the front range to talk with locals about their version of TABOR. Why did TABOR happen in Colorado? The numbers tell the story:

  • The problem: From 1983 to '92, spending by Colorado state government rose by 97%, while inflation rose 29.7% and the state's population increased by 10.4%. We have a similar problem, unfortunately, Wisconsin's economy is not the powerhouse it once was.
  • The solution: In 1992, Colorado voters - by a 54% to 46% margin - passed a Taxpayer's Bill of Rights that limited state spending and required excess tax funds to be refunded the next year, unless voters let governments keep the surplus.
Much more here:

alltheweb | Clusty | Google | MSN Search | Teoma | Yahoo Search

Posted by James Zellmer at 9:10 AM

December 23, 2004

Local Tax Deductions Going Away?

There's been some discussion recently about eliminating the deductability of state & local taxes on our federal returns. Naturally, this would really pinch taxpayers in relatively high tax states, like Wisconsin. Check out the discussions, here: alltheweb | Clusty | google | msn | teoma | yahoo search |

Posted by James Zellmer at 12:01 AM

December 22, 2004

Wisconsin, Madison Property Taxes

Several recent articles highlight the ongoing problem of state & local taxes growing faster than Wisconsin personal income:

  • Wisconsin Taxpayer's Alliance released a study that forecasts 2005 property taxes will go up more than 6 percent. They also forecast that the local school portion of property taxes will go up 7.3%. They also found that property taxes will account for 4.1% of Wisconsin taxpayer's personal income. (via JR Ross)

  • Unsurprisingly, The Taxpayer Bill of Rights continues to be discussed in Madison. This will continue to be a hot button issue as long as state and local spending continues to rise faster than personal incomes (there will be a reckoning unless the economy grows faster...., here's an example: Judy Wagner, 65, a Milwaukee substitute teacher, said her property taxes were forcing her to postpone her retirement. Her property tax bill had risen from about $3,000 in 2000 to just under $4,700 now, she said.

    "My options are to work until I'm 75 or 80 or sell my home and move south like three of my friends have," she said.) Via Patrick Marley & Steven Walters.

  • This will help, to some degree, though we must create a more robust environment for tax paying entrepreneurs. True statewide, 2 way broadband (not the current slow DSL and cable modem services) and a much simplified tax/paperwork process would be a great start.

Posted by James Zellmer at 7:18 AM

December 17, 2004

Local Property Taxes Generate the Most Government Cash

As 2004 draws to a close, the the State Department of Revenue and local media has published several interesting tax articles:

  • Wisconsin Department of Revenue Tax Incidence Study - PDF full Study.
  • Matt Pommer discussed the DOR's study:
    The biggest bite to Wisconsin taxpayers comes from the property tax, which generates 41.7 percent of all tax collections, a new state study finds.

    But many lower-income property taxpayers are not using the credits available to save them money, the Department of Revenue report said.

    "Property taxes were regressive across all household groups," the study says. The poorest 20 percent paid an average 5.3 percent of their incomes in property taxes, while the highest income groups spent an average of 4 percent of their incomes on property taxes.

  • Avrum Lank & Steve Walters do the same:
    The state Department of Revenue report, released today, calls the system that collected $15.1 billion in state and local taxes in 2001 "mildly progressive across households." Officials said the 2001 tax burden was studied because the tax code hasn't been rewritten since and complete data was available for that year.

    Overall, property and sales taxes tend to hit low-income households hardest but are "offset" by deductions, graduated tax rates and breaks built into the state income tax system, the report adds. It defined a "progressive" tax system as one in which "households with greater income pay a larger share of their income in taxes than poorer households."

Posted by James Zellmer at 1:16 AM

December 15, 2004

TABOR changes (Taxpayer Bill of Rights)

Kira Sparks has an update on the proposed TABOR legislation.

Posted by James Zellmer at 12:09 PM

December 8, 2004

The Coming Tax Increase

Bruce Bartlett:

For more than a year, I have been predictingnot advocating, just predictinga significant tax increase to deal with the budget deficit. My hypothesis has been that sooner or later financial markets would put pressure on Congress to act on the budget deficit, and that the magnitude of the problem would be too great to deal with on the spending side alone.

I was unsure where, when or how this financial market pressure would arise. But it now seems clear that it will come through the foreign exchange market. The dollar has been dropping rapidly and this is setting in motion forces that eventually will impact on domestic stock and bond markets. The possibility of a major crash cannot be ignored.

The root of the problem is the U.S. current account deficit, which includes the trade balance for goods and services, plus receipts on U.S. investments broad minus payments to foreigners on their investments here. There is also a large negative figure for unilateral transfers abroad, such as those for military programs and foreign aid.

Posted by James Zellmer at 12:01 AM

December 5, 2004

Property Tax Bills: Reading the Tea Leaves?

Perhaps my mind fails me, but in years past, I recall receiving a pleasant marketing letter from the Mayor extolling the hard work that went into limiting the annual increases in our property tax bills. This year, I found only the bill. I've emailed the Mayor's office asking for comments on this.

Perhaps, given the size of this year's increases, they did not want to be that closely identified with the tax bills? (OTOH, eliminating the letter does save a few dollars).

Posted by James Zellmer at 8:49 AM

Schools, Quality of Life, Jobs, Economic Growth and Globalization

Yesterday's property tax bill (including not small increases in local and school taxes) along with recent articles on the China Price and Milwaukee's loss of unskilled labor jobs serve to remind Wisconsin residents of the real issues facing our state:

  • Encouraging the formation of more new businesses. I don't believe the formation of yet another quasi-government organization is the answer. Rather, let's simplify (and reduce) the paperwork that any organization must support to operate in Wisconsin.

  • Broadband: Wisconsin is stuck with SBC, a telco that has done nothing to offer true, 2 way broadband (100X the speed of today's rather slow DSL/cable services) to Wisconsin residents. I have not seen any indication that our state's political leadership has boarded the cluetrain on this one.

  • Biotech certainly has great promise for Wisconsin, however, historically the benefits have generally gone to out of state firms. Perhaps this will change somewhat over time.
Without a strong, growing tax base, we'll continue to see substantial increases in local property taxes. I don't believe this is a sustainable strategy.

Posted by James Zellmer at 8:15 AM

December 3, 2004

State School Tax Levies rise 7.3%

I noticed a number of "property tax" searches in my logs today. I imagine it has something to do with the increases we're all seeing this year. Alan Borsuk reviews the data, and provides a useful chart on school spending around the state. It's interesting to see Madison's total tax receipts compared to other areas.

Posted by James Zellmer at 8:09 PM

December 2, 2004

Wisconsin Banks & Tax Shelters

The Wisconsin Department of Revenue continues to pursue local banks that have setup subsidiaries in Nevada to avoid Wisconsin's 7.9% state corporate tax rate. More power to the DOR, but the $26M in settlements seems rather small. I wonder if this is done for effect? Paul Gores has more.

Posted by James Zellmer at 12:00 AM

November 26, 2004

Another Approach to Local Taxes

Ken Thomas discusses Beaver Dam's plans to reduce spending by 1% and keep net property taxes flat (a reduction in mill rates is balanced by the usual increased property valuation.

Posted by James Zellmer at 10:51 AM

November 22, 2004


Josh Marshall on the congressional republican's hubris:

This weekend Congress was working on a massive $388 billion omnibus spending bill that will cover all manner of federal spending. But at the request of Rep. Ernest Istook of Oklahoma, chairman of the House Appropriations Transportation Subcommittee, a special provision was inserted into the bill which allows the Chairmen of the House and Senate Appropriations Committees or their "agents" to review any American's tax return with no restrictions whatsoever.

Posted by James Zellmer at 12:04 AM

November 21, 2004

Tax by the Mile

Robert Salladay on the California DMV's plans to replace the gas tax with a mileage tax based on miles driven:

Gov. Arnold Schwarzenegger on Monday appointed a new Department of Motor Vehicles director who has advocated taxing motorists for every mile they drive by placing tracking devices in their cars.

The idea would mean a significant overhaul of how California collects taxes to maintain its often-crumbling roads. Under the plan, the state gas tax now 18 cents a gallon would be replaced with a tax on every mile traveled by each car and truck.

Interesting privacy issues here...

Posted by James Zellmer at 12:00 AM

November 19, 2004

Marquette Symposium on Wisconsin Tax Policy

Taxprof summarizes the Marquette Law Review's symposium on Wisconsin Tax Policy.

Posted by James Zellmer at 9:34 AM

November 16, 2004

Floating Loopholes

Eric Nalder has written a fascinating series on boating tax loopholes. Via taxprof.

Posted by James Zellmer at 12:01 AM

October 25, 2004

PWC Summary of the Recent Tax Cut Bill/Giveaway

Price Waterhouse Cooper (PWC) recently published a 14 page pdf summary of the recent big corporation tax cut/giveaway. 170K PDF

Posted by James Zellmer at 12:00 AM

October 21, 2004

WSJ on City Spending Growth

The Wisconsin State Journal Editorial Page on Alder Zach Brandon's view of the Mayor's proposed 3.6% spending increase:

It's the spirit that counts: Madison Ald. Zach Brandon wants his City Council colleagues to break with their time-honored tradition of soaking the taxpayers for a few dollars more.

Brandon is developing a list of spending items that could be cut from the Madison city budget, saving taxpayers more than $2 million. But what he proposes isn't as important as the underlying goal: Reversing the council's longstandin g profligacy.

Brandon, who pushed a package of cuts last year along with a spending cap that went nowhere, this time believes he can strong-arm council members with a political pledge to put a lid on city spending. He has dropped his red "tax cap" baseball- hat publicity gimmick for a modest pledge he's circulating to council members. Brandon, of the Southwest Side's 7th District, wants each council member to promise not to increase city spending beyond the $192.5 million that Mayor Dave Cieslewicz has already proposed. If they want to add a few dollars for a pet project, they need to subtract the money from another item in the budget.

Judith Davidoff has more...

Posted by James Zellmer at 12:01 AM

October 19, 2004

Nobelist Edward Prescott's views on Tax Cuts

An intresting yin to the professor's yang on the Bush Tax Cuts:

Russ Wiles:

Prescott, speaking from Minnesota, where he advises the Federal Reserve Bank of Minneapolis, described Kerry's plan to roll back tax cuts for top wage-earners as counterproductive.

"The idea that you can increase taxes and stimulate the economy is pretty damn stupid," he said.

Bush's campaign on Monday released a letter signed by Prescott and five other Nobel laureates critical of Kerry's proposal to roll back tax reductions for families earning $200,000 or more.

In The Republic interview, he said such a policy would discourage people from working.

"It's easy to get over $200,000 in income with two wage earners in a household," Prescott said. "We want those highly educated, talented people to work."

Prescott also gave Bush the nod on another controversial campaign issue, dismissing Kerry's claims that outsourcing of jobs is damaging the economy. . . . Prescott also backed the idea, espoused by Bush, to reform Social Security by allowing some workers to place a portion of their payroll taxes into private savings accounts.

Personally, I'd rather see a more straightforward approach to taxes, than the ongoing deals with special interest groups that Senators Russ Feingold and Herb Kohl supported recently. via instapundit

Posted by James Zellmer at 12:57 PM

2 Shipbuilders Get Big Breaks in New Tax Bill

As always, the rest of us get to pay. Evidently our senators, Russ Feingold (Yes) and Herb Kohl ("Present") support these very narrow non populist measures. Edmund Andrews:

Under the bill, Navy shipbuilders would be allowed to once again defer paying most federal income taxes on a project until the contract was completed. Because it takes about five years to build an aircraft carrier and three years to build a destroyer, the shipyards would be able to delay their tax bills for years, allowing more opportunity to offset taxes against future losses.


"This provision takes dramatic steps to remedy the inequity of how naval shipbuilders pay their taxes," Ms. Snowe said in a statement last week, just after House and Senate negotiators agreed to include the provision in a broader bill that would shower $140 billion in tax cuts across almost every segment of industry.

But critics said the provision would not create jobs, the stated intention of the tax bill, because employment at naval shipyards is determined almost entirely by federal spending on ships and submarines rather than by tax incentives.

"We're not going to buy any more war boats if we give them a tax incentive," said Robert S. McIntyre, director of Citizens for Tax Justice, a liberal research group here that has long scrutinized corporate tax practices. "We're going to buy more boats if the government decides we need more boats."

Posted by James Zellmer at 12:55 AM

October 18, 2004

Business School Professors "Pen" a note on the Economy to President Bush

An Open Letter to the President

These folks raise some useful points. The problem is not only with Bush. Interestingly, last week, Russ Feingold voted FOR one of the biggest tax giveaways.... (Kohl voted present).

The tax system is a complete mess and ripe for reform. Thinking of a solution, go read Mitch Kapor's recent piece on our current political situation.

Posted by James Zellmer at 4:25 PM

Fred Mohs on Property Tax Exemptions

Fred Mohs:

The local papers have been full of troubling news about the budgets for the city, county and public schools. The sheriff needs more deputies, drug and alcohol treatment centers are left unfunded, park and sanitation workers are cut, West High School does not have money to put on its fall play, fourth grade strings are in jeopardy and fees for doing everything are up across the board.

At the same time, a growing number of Madisonians have managed to live in properties that are tax exempt. A report produced by the Madison Assessor's Office indicates that the self-reported value of retirement home parcels is $25.1 million and that other tax exempt housing has a value of $64.3 million, for a total self-reported value of $89.4 million.

The reported values are probably less than half of actual value. Madison, Dane County and the Madison School District are probably giving up $4 million to $5 million in property taxes annually.

The developers, managers and owners of tax- exempt housing have pulled out all the stops to maintain their privilege. They have garnered six of nine citizen positions on a legislative council study on this matter. The only hope for the average taxpayer is that they become aware of this unfair situation and will contact their legislator, encouraging them to buck the pressure that they are now under from the tax-exempt lobby.

If a reader of this letter is an elderly person living on Social Security in a modest apartment who cannot afford the deposit necessary to live in "luxury senior housing for active adults over 55," ask yourself: Why am I paying to run the city, county and school district while people far more capable than I am are escaping? How do I feel about a situation that permits citizens who are immune from property taxation to vote for officials who spend our money or for school board referendums that increase spending? How do I feel about permanently giving up the right to tax residential property based on some vague and unaccountable claim that somehow good in some amount will be done?

We ask for accountability and everything government does. How stupid and guileless are we if we do not encourage our elected officials in state government to seriously attend to the shortcomings of the current situation.

Mohs is a Madison attorney.

Posted by James Zellmer at 12:00 AM

October 13, 2004

Mayor's Comments on Tax Increase

Mayor Dave sent a letter in response to my recent post on his proposed budget that would raise property taxes 5.4%:

Dear Mr. Zellmer:

Thank you for your recent letter regarding the City budget. I, too, am concerned about the rising pressure on property taxes.

In my 2005 budget, I am proposing City spending increases of 3.6 percent, which is comparable to inflation plus City growth. In fact, the increase would be only 1.8 percent if we excluded four major items over which we have little or no control: rising fuel costs, health insurance for our employees, pension fund payments, and debt services.

Yet despite our responsible approach to spending, taxes go up at a much greaterrate than spending increases. The reason is declining and stagnant state aid programs. If state aids had just kept pace with inflation over the past two years, taxes on the average home would be $66.00 lower. Ultimately, the solution to high property taxes is not to gut City services, but to convince the Legislature to
fully fund state aid programs.

State and federal funds ultimately originate in the same pocketbook as property taxes.......

Posted by James Zellmer at 4:07 PM

Tax Bill helped Chinese Ceiling Fan Manufacturers

Russ Feingold voted Yes and Herb Kohl voted "present"!
The recent tax giveaway also helped Chinese Ceiling Fan Manufacturers according to Edmund Andrews.

I remain puzzled as to why Russ Feingold would support this. Herb Kohl's vote is simply amazing. I think we should all pay taxes at the 5.25% rate major corporations won in this legislation.

Posted by James Zellmer at 1:27 PM

Winners & Losers in Monday's Tax Bill

Taxprof parses the winners (professional sports team owners) and losers (hollywood, to some degree). I'm still mystified as to our Senators votes: Feingold: Yes and Kohl "Present".

Posted by James Zellmer at 12:31 AM

October 12, 2004

Senate Passes Big Corporate Giveaway: Feingold Yes; Kohl "Present"

Tax law sausage making for the donor class. Wouldn't we all like a 5.25% tax rate! Jonathan Weisman takes a look:

The Senate gave final approval today to the most significant corporate tax legislation in nearly 20 years, sending President Bush a sprawling, 650-page measure that closes egregious tax loopholes, reduces taxes for domestic producers and doles out scores of tax breaks for interests ranging from tackle box makers to Native Alaskan whaling captains.

The Senate vote of 69 to 17, taken in a rare holiday session, belied the acrimony underlying the measure, which includes almost $140 billion in tax breaks over 10 years, offset by loophole closures and other revenue raisers. The House passed it Thursday night by a similarly comfortable margin, 280 to 141, and Bush is expected to sign it into law.

HR 4520 Roll Call Vote

I frankly am amazed that Senator Feingold voted for this. Senator Kohl took an interesting path voting present (?)..... Politics. Send your comments to campaign@russfeingold.org or Senator Kohl

Interestingly and appropriately, Tammy Baldwin voted against this bill.

All the web | Clusty | Google | Teoma | Yahoo | David Welna Audio

Posted by James Zellmer at 12:00 AM

October 6, 2004

Interesting Spin on City Tax Hike....

Judith Davidoff:

City taxes on an average house in Madison would increase $82 under Mayor Dave Cieslewicz's proposed 2005 executive budget.

That means the owner of an average $205,359 home would contribute about $1,597 to city operations, exclusive of county, MATC or school taxes.

Overall spending under Cieslewicz's budget would increase 3.6 percent, though the property tax levy is going up 5.4 percent.

Brasser said that was due to the reductions in state aids and other revenue sources, as well as having less in reserves to plug the budget hole.

Last year the city had $4.7 million in reserves from the mayor's hiring freeze.

"When all other revenue sources don't keep pace with the inflation in our expenditures, the property tax is what has to make up the difference," Brasser said.

Ideally, this article would include some history - spending and tax increases over the past decade vis a vis population growth, inflation and city employment, among others. If find this obfuscation disingenuous....

If you have views on this, send them to mayor@cityofmadison.com (keep in mind that our total property tax increase will include school and county increases as well).

UPDATE: Dean Mosiman summarizes the Mayor's tax increase plans.

My email to Mayor Dave:

hi Mayor Dave:

I am writing to suggest that you limit your tax increases to no more than the rate of inflation.

The current plan, which evidently includes a 5.4% increase, continues the trend of significant property tax increases.

I have to say that I'm disappointed that you've chosen obfuscation vis a vis the $82 approach vs. the true 5.4% increase.

This spin plays into the statewide property tax control initiatives.

I've posted links and notes here


I'll post your response as well.

Note that this blog generates 180K to 350K page views per month.

Best wishes -


Posted by James Zellmer at 12:08 AM

September 24, 2004

Wisconsin: Squeezing the taxpayer....

Steven Walters summarizes a variety of viewpoints on the Wisconsin Policy Research Institute's recent study on state government spending (7.7% above the national average). The real crunch (and why the spending battles continue at the local and state level): Wisconsin's income is 2.8% below the national average. [75K PDF]

This problem will not improve until our economy is increasingly based on high growth, valued added businesses. Wisconsin's above average government spending was supported for decades by the state's now declining manufacturing base. This change, which will take many years, requires an open mind, a willingness to avoid coddling and subsidizing declining industries, rethinking government spending (consolidating services and making sure the services we provide make sense in the 21st century) and doing everything we can to encourage business formation. It also requires economic and political leadership, which is, in my view, is generally lacking. (see this national example where the NAB has successfully kept public spectrum for TV stations). Note that TV viewer numbers are declining.....

Milwaukee Mayor Tom Barrett's latest budget caps the property tax increase @ 2%

Posted by James Zellmer at 12:01 AM

September 14, 2004

Banks & State Taxes

Paul Gores:

Twenty-six banks have agreed to pay a total of $23 million in back taxes stemming from their use of Nevada tax shelters, and state tax officials said more settlements are imminent.

The back-tax total announced Monday was the first released by the Wisconsin Department of Revenue since it began a crackdown this year on the practice by many banks of shifting some of their income-earning assets, such as loans and bonds, to subsidiaries in Nevada.

This doesn't seem like a whole lot of money given the size of the banks, perhaps it's more of a PR deal.

Posted by James Zellmer at 12:52 AM

September 13, 2004

National Taxpayer's Union Wisconsin Candidate Survey

The NTU publishes their 2004 Candidate Survey Results (quite a few Wisconsin incumbents and challengers did not respond...)

Here's the questionnaire that was sent to each candidate.

Posted by James Zellmer at 12:02 AM

September 9, 2004

Tommy Thompson, Bud Selig & The Brewers, Still Sticking it to the Taxpayers

Don Walker on the $8M repairs needed for Miller Park's 3.5 year old roof. We should not forget Tommy Thompson's infamous quote: (made in reference to an excise tax to help finance the Brewers' new stadium) Let Milwaukee and nearby counties pay for it, not his northern constituents. "Stick it to 'em." And he did. Shepherd Express | Wispolitics

This article by Steve Fainaru (created not in Wisconsin, but in Washington, DC) tells the story.

Posted by James Zellmer at 8:05 AM

August 21, 2004

Chiemsee (or Bavarian Lake)

Backpacking around Europe in 1985 (!), I spent some time in the region featured in the Sunday Times Travel Section: Bavaria's Chiemsee. I remember the beauty, serenity and history. The Prien hostel I stayed in was pleasant enough. One of the highlights is Herrenchiemsee, one of "mad" King Ludwig's enourmous castles. Eric Pfanner takes us there.

Posted by James Zellmer at 10:43 AM

August 15, 2004

Inc on a flat tax

From Inc Magazine online: Notes and comments on a potential flat tax.

After his tax breaks, President Bush is toying with the idea of eliminating the IRS and income tax altogether. In lieu of this, a flat federal sales tax would be instituted
Our tax system is a mess and in dire need of a complete re-think. Let's start the process.

Posted by James Zellmer at 12:37 AM

August 11, 2004

Using the Tax Code to Fix Health Care

Interesting ideas, certainly worth discussion:

We propose a simple change that will fundamentally alter the way people buy health care. All individually purchased insurance and out-of-pocket expenses would become tax deductible for persons who have at least catastrophic insurance coverage. The tax deduction could be taken by persons who claim the standard deduction on their tax returns and those who itemize deductions. All purchases of health care would receive the same income tax treatment.

With a level playing field, workers will no longer have a tax incentive to take their compensation in the form of expensive health insurance with low copayments and will shift to health plans with higher deductibles and higher coinsurance rates. Market forces will ensure that the insurance premium savings will be passed on to workers in the form of higher money wages. Just as workers have borne the burden of rising health care costs, so will they reap the benefits when costs are brought under control.

Posted by James Zellmer at 12:43 AM

August 1, 2004

Dark Age Ahead?

Jane Jacobs has published Dark Age Ahead (Random House, 2004), in which she targets "five crucial weaknnesses in the foundation of contemporary life in the West" -- one of which is "dumbed down taxes."

Author, activitist, social theorist and renowned urban planner, Jane Jacobs defined an increasingly influential way of looking at cities by opposing "slum" clearance and "suburban sprawl," and advocating the "restoration" of urban centers. Still in print 40-plus years after publication, her classic The Death and Life of Great American Cities (1961) revolutionized urban planning.

Jacob's later works explored her fundament ideas for different perspectives: urban economics in The Economy of Cities (1969) and Cities and the Wealth of Nations (1984), and political philosophy in Systems of Survival (1992). More recently Ms. Jacobs argued that economic life obeys the same rules as those governing the systems in nature in The Nature of Economies (2000).

About her latest work, Publisher's Weekly wrote "Witty, beautifully written--the culmination of Jacobs' previous thinking, and a step forward that deftly invokes a broader philosophical, even metaphysical, context." Via Taxprof.

Posted by James Zellmer at 9:10 AM

June 30, 2004

Forsaking Privacy

If the government had access to the communications between a client and his lawyer, the lawyer would be nothing but a government agent, like Soviet defense attorneys, whose official role was to serve as adjuncts to the prosecution.
Paul Craig Roberts and Lawrence M. Stratton, "The Tyranny of Good Intentions"

Once upon a time, the U.S. Justice Department respected the legal rights that make law a shield of the innocent rather than a weapon of government. No more. What the great English jurist William Blackstone called "the Rights of Englishmen" have been eroded beyond recognition.

The last remaining right the attorney-client privilege is under full-scale assault by Justice Department prosecutors in the tax shelter case involving the accounting firm KPMG. The Justice Department has demanded, and the accounting firm has agreed to, a waiver of the attorney-client privilege for communications between lawyers and KPMG employees involved in marketing tax shelters the Internal Revenue Service has challenged.

The attorney-client privilege was long championed by jurists because they realized the privilege promoted equality under the law. Convictions can result from lack of access to legal knowledge as well as from actual wrongdoing. To ensure defendants would avail themselves of legal counsel, their communications with attorneys were made confidential, outside the reach of prosecutors.

I've written about tax issues before, including this article on our very odd SUV subsidies.

In recent years, the Justice Department has taken the position that winning its cases is more important than historic rights centuries in the making. Arguing that the innocent have nothing to fear from their attorneys' disclosures of their confidences, department has employed various means of subverting the attorney-client privilege.

Sentencing guidelines from the White House-appointed U.S. Sentencing Commission have greatly strengthened prosecutors' ability to attack the attorney-client privilege. Indictment of a company and the severity of punishment depends on its "cooperation" with the investigation.

A January 2003 memo by Deputy Attorney General Larry D. Thompson, now a fellow at the Brookings Institution, defines "cooperation" in a way that drives a wedge between a company and its employees. A company that pays its employees' legal fees is defined as uncooperative.

Faced with the threat of being declared uncooperative, KPMG announced it would pay its employees legal fees only if they waived the attorney-client privilege and "cooperated" with the investigation. Invariably, "cooperation" requires self-incrimination and negotiation of a guilty plea. By making it impossible for a defendant to defend himself, the government need never have a real case.

Americans must think seriously about the quality of "justice" coming from the Justice Department. Prosecutors have defined "cooperation" as aid in convicting oneself or a fellow employee, as waiving all constitutional rights and privileges, as betrayal of fellow employees and as helping prosecutors create the appearance of guilt even when no crime has been committed.

Among the pending victims in the KPMG case, Jeffrey Eischeid faces 20 years in prison for marketing KPMG tax shelters that experts said were legal.

The IRS has the right to challenge the tax shelters, and the accounting firm has stopped marketing them. But for the Justice Department to retroactively declare them illegal illustrates the precarious position of a defendant today. Whatever he has done can be declared illegal after the fact.

The Justice Department also has disposed of the legal principle there can be no crime without intent. Neither Jeffrey Eischeid nor other KPMG employees knowingly or intentionally sold illegal tax shelters. The products were approved by KPMG's professional responsibility committee, and the IRS' challenge does not mean a crime was committed.

However, Justice prosecutors have become experts at creating the impression crimes have been committed. By stripping away a defendant's rights, prosecutors can coerce a guilty plea, crime or no crime.

Conservatives who prattle about Americans living under a rule of law are speaking of a bygone era. The rule of law ended during the New Deal, when President Franklin Roosevelt turned congressional statutes into authorization bills for federal bureaucrats to legislate via regulations.

Today, there is even less accountability. Appointed officials make criminal law without even a congressional authorization bill. The Sentencing Commission's "proposals" become law unless Congress vetoes them. What we are witnessing is the emergence of a fascist legal order in which law and legal procedure are whatever unelected officials decide serves the interest of government.

How else can we explain how the four foundations of our legal system no retroactive law, no crime without intent, no self-incrimination, and the attorney-client privilege have been swept aside in the federal case against KPMG?

Paul Craig Roberts is a columnist for The Washington Times and is nationally syndicated.

Posted by James Zellmer at 8:57 PM

June 9, 2004

Tax Legislation for the Trash Heap

Steven Pearlstein updates us on the 930 pages in the recently passed Senate tax bill and the 398-page draft released last week by the chairman of the House Ways and Means Committee, Bill Thomas (R-Calif.).

With a few exceptions, both bills are grab bags of special-interest provisions designed to reward the well-connected at everyone else's expense. They reward companies that have played cynical tax games and open up new vistas for the tax shelter industry. And while claiming that the purpose of the exercise was to create jobs in the United States, they will only enhance existing incentives for U.S. companies to earn their profits overseas.

Worse still, they are almost certain to add billions each year to a federal deficit that is already too high.

Posted by James Zellmer at 12:33 PM

June 5, 2004

The "Seamy Side" of State Tax Incentives

TaxProf points to a "brazen" Powerpoint (!) presentation by Big 4 Accounting firm Ernst & Young: Turning Your State Government Relations Department from a Money Pit into a Cash Cow.

Ernst & Young delivered the PowerPoint presentation at a recent meeting of the State Government Affairs Council, which bills itself as "the premier national association for multi-state government affairs professionals of over 120 major US corporations, trade associations and service providers." Ernst & Young made the pitch to a who's who of leading companies -- Alcoa, Anheuser-Busch, Bank of America, Bayer, BellSouth, Best Buy, Capital One, Coors, Goodyear, Home Depot, MBNA, Microsoft, Nextel, Nissan, Pfizer, Toyota, Verizon, and Wal-Mart.

Ernst & Young acknowledges that taxpayers don't like corporate welfare but suggests ways to "provide government with justification" for giving tax incentives to businesses. A key strategy is to identify "public benefits" while making a threat of dire consequences if the deal is not made. At the same time, the PowerPoint presentation suggests techniques to prevent states from rescinding the tax incentives if the promised public benefits do not materialize.

Posted by James Zellmer at 4:53 PM

June 2, 2004

Wisconsin School Finance Reform Proposal

The Governor's Task Force on Educational Excellence is evidently poised to suggest that the state fund schools by:

  • Increase the state sales tax to 6% (from 5%) and reduce property taxes by 20% (I'll believe that when I see it)
  • Eliminate the QEO (Qualified Economic Offer)
  • Increase Class size reduction funding to $2,500 per child
  • Reimburse school districts at a higher rate for educating high-cost special education students.
Amy Hetzner summarizes the proposal.

I think that school funding should include:

  • Sales tax reform (newspapers, advertising - are currently not taxed)
  • Increase in annual vehicle fees, reflecting the cost of a auto and the fuel efficiency
  • Increased Federal Funding via reform of the Social Security tax so that all wage income is taxed, not just the first $87,600.

Posted by James Zellmer at 9:12 PM

May 24, 2004

May 20, 2004

Tax Avoidance & Intellectual Property

Dave writes about Amazon's controversial one-click purchase patent (many business process patents, are I believe an abuse of the patent process). Evidently, Amazon assigned their patent(s) to Deutsche Bank as part of a credit agreement between 1995 and 1997.

I wonder if there might be a tax shelter angle to this (amazon was generating huge losses at the time, and other firms might wish to do a deal for the tax benefits of those losses)? Years ago, I worked for a major international beverage firm. One of their (this firm was not unique) tax reduction/avoidance strategies was to create the flavors in tax havens (Puerto Rico, Cyprus, Ireland among other places) and sell that essential component back to US entities at high prices (this is of course a rather simplistic analysis). The US entities then generated small margins or losses while the offshore unit generated the large margins. This tax strategy, among many others is discussed in the very enlightening book by NY Times reporter David Cay Johnston: Perfectly Legal.

Deutsche Bank, like many others, has been part of a number of tax shelter strategies.

This abusive patent process is the major reason I do not link to amazon (barnes & noble online is a fine alternative).

Posted by James Zellmer at 7:53 AM

April 15, 2004

Tax Day

Tyler Cowen writes a very useful article on where the federal government's $21,671 spending per household (2004) goes - up $3,500 from 2001!

Dan Gillmor has some additional comments relating to the emerging AMT (alternative minimum tax) problem, a subject I discussed some weeks ago.

Posted by James Zellmer at 9:29 PM

April 10, 2004

Madison Property Taxes: "Everybody's Richer"

According to city assessor Ray Fisher Friday when 2004 property assessments were released. "My house went up 10 percent this year. I look at it as money in my pocket." - Beth Williams writes. Interesting perspective.... Can't say that I agree with Ray on that one. Bill Novak writes:

"Last year, assessments went up 8.6 percent and the local real estate tax was up 7.1 percent, according to the Assessor's Office. In 2002, assessments were up 8.1 percent and taxes went up 3.2 percent. In 1997 and 1999, assessments went up and taxes went down." What about 1998, 2000 and 2001?

There has been talk in the state legislature of completely shifting school taxes from the property tax to other sources, such as the sales tax. Wayne Wood, a retiring representative from Janesville and Rep Mickey Lehman (R-Hartford) developed a proposal that would have used a sales tax increase to reduce property taxes for schools.

Michigan dramatically changed their school finance system a few years ago, substantially reducing property taxes, in return for an increase in sales taxes.

My view is that the time is long past to remove school spending from Wisconsin's high property taxes. Every Wisconsin property owner should reasonably expect:

  • Actual property taxes (not mill rate or assessed value) should increase at a rate not to exceed the past 12 month's Consumer Price Index (CPI)
  • Increases beyond the CPI would only occur if one or more of the following occur
    • Property is sold
    • Building Permit is issued, increasing the value of the home

How should we replace some of the property tax revenues?

  • Sales Tax
  • Gas Tax
  • Vehicle License Fees (tied to value as well as fuel economy - am I dreaming?)

Political paralysis on this issue can only lead to drastic measures in the not too distant future.

Related Links: Assessor's office | Wis Taxpayer's Alliance (lots of useful information)

Posted by James Zellmer at 8:56 PM

February 22, 2004

Frontline: Tax Me if You Can

PBS's Frontline has an interview with Robert McIntyre, Director of the Institute on Taxation and Economic Policy regarding Federal Tax Policy.

Our current tax system is a mess, with many special interests (ethanol, SUV's) feeding at the trough.

Business Week had an interesting article recently on the "fairness" of the current tax system (including the controversial Alternative Minimum Tax (AMT) implications on middle income Americans).

A friend thinks we're better off taxing everything at the cash source....

Posted by James Zellmer at 2:47 PM