Tidbits Quotations
To Accompany the September 27, 2011 edition of Tidbits
http://www.trinity.edu/rjensen/tidbits/2011/tidbits092711.htm                   
Bob Jensen at Trinity University




Video on "Capitalism at Risk," by Dutch Leonard and Lynn Paine, Harvard Business Review Blog, September 2011 --- Click Here
http://blogs.hbr.org/video/2011/09/capitalism-at-risk.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date


The nation cannot continue to sustain the spending programs and policies of the past with the tax revenues it has been accustomed to paying," testified Douglas Elmendorf, director of the nonpartisan Congressional Budget Office. "Citizens will either have to pay more for their government, accept less in government services and benefits, or both.
Douglas Elmendorf. Director of the nonpartisan Congressional Budget Office --- http://accounting.smartpros.com/x72662.xml .

Video
"Debt: The First 5,000 Years," by Paul Kedrosky , Kedrosky.com, September 10, 2011 --- Click Here
http://paul.kedrosky.com/archives/2011/09/debt-the-first-5000-years.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+InfectiousGreed+%28Paul+Kedrosky%27s+Infectious+Greed%29

Jensen Questions
How did the accounting system account for debt 5,000 years ago?
Does care and nurturing human children create debt to parents?

"When Debt Gets in the Way of Growth," Harvard Business Review Blog, September 13, 2011 --- Click Here
http://blogs.hbr.org/hbr/hbreditors/2011/09/when_debt_gets_in_the_way_of_g.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

Bob Jensen's threads on accounting history ---
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory


"Million-Dollar Mascot And other ways to cut $1.4 trillion," The Wall Street Journal, September 21, 2011 ---
http://online.wsj.com/article/SB10001424053111904060604576572980844849252.html#mod=djemEditorialPage_t

ESPN college football analyst Lee Corso likes to dress up as a school mascot to show which team he's picking to win. Perhaps he'd be willing to serve his country in a similar way by choosing a mascot for the federal Department of Homeland Security. Turns out the feds have been creating various animated characters for materials intended to "prepare" kids for disasters, and Senator Ron Johnson (R., Wis.) reports that Washington could save $2.6 million over 10 years if the bureaucrats could simply settle on one mascot.

We trust Mr. Corso's impeccable judgment in selecting among Herman the Crab, Jett the Turtle and other worthies, and we also find compelling Mr. Johnson's new catalog of potential federal cost savings.

Going way beyond mascots, the Senator has identified $1.4 trillion in savings over 10 years for any Congressional "Super Committee" members looking to make sensible cuts on behalf of taxpayers. Reasonable people can argue over the details, but what's encouraging about the plan is that it shows how much leaner the federal government could be without even cutting back on services that many voters demand.

Relying heavily on the work of Oklahoma Senator Tom Coburn as well as independent groups like Third Way, Mr. Johnson has found impressive savings across federal operations. The biggest item takes $248 billion out of salaries for most federal workers, but no one gets fired or suffers a pay cut. The cuts are achieved through attrition and a pay freeze for civilians through 2015. Mr. Johnson reports that federal workers are now making 30% to 40% more in combined wages and benefits than comparable workers in the real economy. His plan therefore gives taxpayers a fighting chance to catch up with the public servants they're supporting.

The Johnson plan also has at least one element that President Obama should love: eliminating federal reviews on transportation projects whenever state and local rules meet or exceed federal standards. Cutting this duplicative red tape and streamlining approvals would save $50 billion. Mr. Obama should sign this—if we may borrow a phrase—right away.


"The Five Million Dollar Man How government unions rip off the taxpayer," by James Taranto, The Wall Street Journal, September 22, 2011 ---
http://online.wsj.com/article/SB10001424053111903703604576584881282113572.html?mod=djemEditorialPage_t

From the president's hometown comes an example of what he is actually supporting. The Chicago Tribune reports that an investigation it conducted with WGN-TV found "23 retired union officials from Chicago stand to collect about $56 million from two ailing city pension funds."

That's an average of $2.4 million each, and some will rake in even more. Dennis Gannon, a former president of the Chicago Federation of Labor, stands to collect some $5 million. In line for $4 million apiece are Liberato "Al" Naimoli, president of the Cement Workers Union Local 76, and James McNally, vice president of the International Union of Operating Engineers Local 150.

"Since the 1950s," the Trib explains, "city workers who take leaves of absence to work full time for unions have been able to remain in city pension funds if they choose. The time they spend at their union jobs counts toward their city pensions."

Union jobs, however, are far more lucrative than city jobs. Gannon's city salary was $56,000 a year; his union salary, $200,000. But he retired from his city job in 2004--at age 50, and 13 years after beginning a leave of absence. Between then and 2010, when he retired from the union, he collected both the $200,000 union salary and a $150,000 city pension.

How did the city end up paying him a pension nearly three times his salary? That's where things get interesting. Few labor leaders took city pensions, the Tribune reports, "until the law was changed in 1991 to base those workers' city pensions on their union salaries instead of their old city paychecks, dramatically boosting the amount they could receive"--a provision that "became law with no public debate among state legislators and, more importantly, no cost analysis."

And no accountability: "No one from either the state Legislature or city government will take credit for the law, which passed in 1991, and the process of drafting pension legislation in Springfield is so shrouded in secrecy that there's no way of knowing exactly whom to hold responsible."

And no possibility of reversal: "The state constitution says pension benefits cannot be diminished once they are earned."

"Gannon told the Tribune that he was only following the law in filing for a city pension," the paper reports. The scandal isn't that what they're doing is illegal but that it is legal.

This particular provision is unique to Obama's home state, the Tribune reports: "Pension experts from around the country say they've never heard of such a perk for union leaders." But unions have any number of perfectly legal ways to rip off the taxpayers. As we noted in July, the Wisconsin teachers union runs its own insurance company, the WEA Trust. Until Gov. Scott Walker's reforms took effect earlier this year, the union negotiated "collective bargaining" agreements obliging local school districts to pay above-market premiums for its health benefits.

And as The Daily's Jillian Melchior reported last month, state pension funds frequently make risky investments, knowing that if they don't pan out, taxpayers will have to make up the losses. What's more, the boards that manage these funds are stacked with union representatives and political appointees: "Because public unions are an influential constituency, they're inclined toward union priorities."

That is the system President Obama defended on Labor Day. And his support for it is not merely rhetorical. Both the 2009 stimulus and the recently proposed Stimulus Jr. include vast payments to states and localities--in effect, a federal taxpayer bailout for governments that have been so profligate with their own taxpayers' dollars. Some of that money, of course, gets kicked back as campaign contributions and independent expenditures to support the campaigns of Obama and other Democrats. It's all legal, but that doesn't mean it isn't a scam.

Continued in article


"How to Fight Black Unemployment: The tragedy of the failed stimulus is felt hard in minority communities. There's a better way," by Arthur Laffer, The Wall Street Journal, September 12, 2011 ---
http://online.wsj.com/article/SB10001424053111904836104576558590149858436.html?mod=djemEditorialPage_t

. . .

African-Americans are suffering inordinately in the Obama aftermath of the Bush Great Recession. While overall U.S. unemployment stands at 9.1%, black unemployment has jumped to 16.7%. Black teenage unemployment is bordering on 50%, and that figure doesn't even take into account "discouraged" workers, "involuntary" part-time workers and "underemployed" workers. But even these numbers don't tell the real story. They represent real people who are suffering deeply and have been suffering for a long, long time.

Behind these numbers are millions of lives discouraged and despondent. People who've lost their self-esteem and pride. The young who have given up on America and some of whom have even turned to crime. Scars are being made across a whole ethnic subset of America. Unemployment, underemployment and involuntary part-time employment represent the loss of a precious natural resource that can never be recouped. No one can feel good about himself if he's living on handouts from Uncle Sam. We as a nation can't wait until 2013 to address this issue.

Whether President Obama's base finds supply-side economics appealing or not, he should immediately join with all members of Congress from both parties to develop a full program for enterprise zones. And while enterprise zones are desperately needed in our inner cities, there are lots of areas in the hollows of Kentucky and West Virginia that need enterprise zones as well, not to mention barrios in California and New Mexico.

Enterprise zones should be areas that are geographically defined with exceptionally high concentrations of poverty, underachievement and unemployment. The policies applicable to enterprise zones should include:

A) For all employment within the enterprise zone of people whose principal residence is also the enterprise zone, there should be no payroll tax whatsoever, neither employer nor employee portions. The employer need not be headquartered in the enterprise zone to take advantage of the elimination of the employer's portion of the payroll tax. The locus of employment does have to be in the enterprise zone.

Don't for a moment think that this will be a budget buster. Right now there aren't many jobs in our inner cities anyway and the few dollars of tax revenues lost will be more than offset by reductions in welfare spending because people will have jobs and won't need welfare. The best form of welfare is still a good job.

B) Federal and state minimum wages must be suspended in the enterprise zone. If not for all employees, then at least for employees under 30. These young people need on-the-job training, and at the present minimum wage many of them aren't worth hiring. That is why they are unemployed.

Continued in article

Jensen Comment
These are not exactly untried programs. Some of the things Laffer proposes are failures from the start. A shiny factory in Camden is not going to do much for the rural unemployment in Mississippi and other parts of the deep south. Building a jet engine plant in Newark is not going to do a great deal for the surrounding tens of thousands of totally unskilled minorities having no skills to add more than janitorial and cafeteria services for the factory requiring machinists and engineers.

Planting urban ghettos with assembly factories paying wages lower than minimum wage is not going to do a whole lot for these workers who cannot lift themselves out of poverty at less than minimum wages.

The failed Renaissance Center in Detroit in a classic example where building luxury hotels in Detroit is not going to make them compete with tourist alternatives in Florida, California, the Caribbean, and Europe. Remember the scenes of the failed Flint Motor City Theme Center in the film Roger and Me.

It's probably too late to move Las Vegas to Detroit and not worth the cost since Las Vegas now has one of the highest unemployment rates in the United States.

We've found out that giving relatively nice and sturdy houses away for nothing does not do a whole lot for employment and real estate values in the ashes of Detroit. Few people want to live next to crack houses, gang centers, and whore houses. Who wants to send their children to inner Detroit schools?

The revival of luxury casinos in Atlantic City made poverty worse instead of better in the surrounding ghettos. San Antonio has a wonderful River Walk and downtown hotels and restaurants. It is very safe for tourists as long as they don't venture after dark outside the safety zone of the river's edge.

Building a red-brick and walled-in branch of Harvard University in East St. Louis won't do a whole lot for the surrounding illiterates who cannot pass admission tests.

We could probably move Lackland Air Force base to South Los Angeles, but this won't mean recruiting of more cadets from the tattooed, drug-invested surrounding gangs.

Of course this begs the question about what are better solutions to those solutions posed above by Laffer. If there were easy answers we would've had them in place long ago. Firstly, we have to face the fact that solving unemployment in rural Mississippi is different than solving unemployment in Camden, New Jersey.

Secondly we have to admit that what holds minorities back in modern times is less a problem of skin color than it is of ignorance and some cultural legacies such as the legacy of teen pregnancy in black and Latin cultures. Affirmative action schooling programs do little if the minority graduates are not genuinely equal in knowledge and skills because grading standards were lowered to let them graduate into a world where they can't compete.

More than half of the black and Latino students who take the state teacher licensing exam in Massachusetts fail, at rates that are high enough that many minority college students are starting to avoid teacher training programs, The Boston Globe reported. The failure rates are 54 percent (black), 52 percent (Latino) and 23 percent (white).
Inside Higher Ed, August 20, 2007 --- http://www.insidehighered.com/news/2007/08/20/qt

It might be better to build residential schools in poverty areas where private sector teachers and students from surrounding homes live in residence together at the schools.  The private sector education and teaching businesses would then profit handsomely for each graduate that can pass color-blind admission tests and skilled certification examinations such as examinations for plumbers, electricians, machinists, fire fighters, etc. Graduates can then go anywhere in the world to seek employment and higher education.

The above solution, however, fails with regards to students who do not have the aptitude, motivation, talent and good health (e.g. no drug addictions or gross obesity) needed to graduate from schools mentioned above. It does not solve the problem of teenage parents with three babies that have no care-giving grandparents. For these common hurdles in life I have no suggested solutions that have not already failed. I'm a strong believer in free birth control alternatives, but these alone are not enough in cultures where males control females with continuous pregnancies.

In any case, I think that public and private sector solutions to minority unemployment will do better with competency-based output criteria rather than simply throwing money at solutions that have failed time and time again. It will also help to toughen fraud prevention measures so that alternatives for getting though life without work (e.g., phony lifetime Social Security disability living). People that are able to work need incentives to work.


"Marx to Market:  The economic crisis has made the philosopher’s ideas relevant again, but the world shouldn’t forget what Marx got wrong," by Peter Coy, Business Week, September 14, 2011 ---
http://www.businessweek.com/magazine/marx-to-market-09142011.html 

. . .

Here’s the surprising thing, though: You don’t have to sleep in a Che Guevara T-shirt or throw rocks at McDonald’s to acknowledge that Marx’s thought is worth studying, grappling with, and possibly even applying to our current challenges. Many of the great capitalist thinkers did so, after all. Joseph Schumpeter, the guru of “creative destruction” who is a hero to many free-marketeers, devoted the first four chapters of his 1942 book, Capitalism, Socialism and Democracy, to explorations of Marx the Prophet, Marx the Sociologist, Marx the Economist, and Marx the Teacher. He went on to say Marx was wrong, but he couldn’t ignore the man.

As misguided as Marx was about many things, and as pernicious as his influence was in places like the U.S.S.R. and China, there are pieces of his (voluminous) writings that are shockingly perceptive. One of Marx’s most important contentions was that capitalism was inherently unstable. One only has to look at the headlines out of Europe—which is haunted by the specter of a possible Greek default, a banking disaster, and the collapse of the single-currency euro zone—to see that he was right. Marx diagnosed capitalism’s instability at a time when his contemporaries and predecessors, such as Adam Smith and John Stuart Mill, were mostly enthralled by its ability to serve human wants.

Marx has gotten an attentive reading recently from the likes of New York University economist Nouriel Roubini and George Magnus, the London-based senior economic adviser to UBS Investment Bank. Magnus’s employer, Switzerland-based UBS, is a pillar of the financial establishment, with offices in more than 50 countries and over $2 trillion in assets. Yet in an Aug. 28 essay for Bloomberg View, Magnus wrote that “today’s global economy bears some uncanny resemblances” to what Marx foresaw. (Personal opinion only, he noted.)

Consider the particulars. As Magnus notes, Marx predicted that companies would need fewer workers as they improved productivity, creating an “industrial reserve army” of the unemployed whose existence would keep downward pressure on wages for the employed. It’s hard to argue with that these days, given that the U.S. unemployment rate is still more than 9 percent. On Sept. 13 the U.S. Census Bureau released data showing that median income fell from 1973 through 2010 for full-time, year-round male workers aged 15 and up, adjusted for inflation. The condition of blue-collar workers in the U.S. is still a far cry from the subsistence wage and “accumulation of misery” that Marx conjured. But it’s not morning in America, either.

Marx loved to bash French economist Jean-Baptiste Say, who argued that general gluts cannot exist because the market will always match supply and demand. Marx argued that overproduction was in fact endemic to capitalism because the proletariat isn’t paid enough to buy the stuff that the capitalists produce. Again, that theory has lately been hard to dispute. The only way blue-collar Americans managed to maintain consumption in the last decade was by overborrowing. When the housing market collapsed, many were left with crippling debt. The resulting default nightmare is still playing itself out.

Admirers of Marx view all this with a rueful I-told-you-so. The radical geographer David Harvey, 75, has taught Marx’s Capital for 40 years at schools including Oxford University, Johns Hopkins University, and now the City University of New York Graduate Center. Harvey’s office, a block from the Empire State Building, is decorated with a silk-screen portrait of Marx, glowering from a bookcase. Harvey believes, as Marx did, that capitalists tend to sow the seeds of their own destruction. Unbridled capitalism tends toward wild excess, so complete deregulation is actually disastrous for it in the long run, the professor argues. “The Republican Party is en route to destroy capitalism,” Harvey says in a pleasant tone, “and they may do a better job of it than the working class could.”

But wait. What Marx and his acolytes underappreciated was capitalism’s power to heal itself. It may have been his fatal intellectual mistake. The Communist Manifesto said that when the workers’ revolution came, it would bring free public education for children and the abolition of “children’s factory labor in its present form.” And yet, as it turned out, the world didn’t require a proletarian revolution for those social reforms to occur; all it took was enlightened capitalism.

Doctrinaire Marxists love to say that the economic “base” determines and controls the sociopolitical “superstructure,” but the reverse can be true as well. Political leaders have corrected capitalism’s excesses again and again, as in President Teddy Roosevelt’s trustbusting campaign, President Franklin Roosevelt’s New Deal, and President Lyndon Johnson’s Great Society.

Now, once again, unbridled capitalism is threatening to undermine itself. The world’s biggest banks, financially weak but politically powerful, are putting the screws on borrowers in an attempt to rescue their own balance sheets. Likewise, creditor nations such as China and Germany are attempting to shift the pain of rebalancing onto debtor nations, even though squeezing them too hard threatens to cause an economic and financial disaster.

It’s time for another burst of enlightenment. In years past, Britain’s John Maynard Keynes and America’s Hyman P. Minsky (author of Stabilizing an Unstable Economy) did capitalism a service by diagnosing its tendency toward crisis and advising on ways to make things better. The sooner policymakers today “recognize we’re facing a once-in-a-lifetime crisis of capitalism,” as Magnus writes, “the better equipped they will be to manage a way out of it.” Grasping the ways in which Marx was right is the first step toward making sure that his predictions of capitalism’s downfall remain wrong.


"Obama’s Cap on Tax Deductions: Not What It Seems," by Howard Gleckman, Tax Policy Center, September 13, 2011 ---
http://taxvox.taxpolicycenter.org/2011/09/13/obama%E2%80%99s-cap-on-tax-deductions-not-what-it-seems/ 

It turns out that President Obama’s plan to limit the benefit of itemized deductions is much more than that. Not only would it reduce tax savings for mortgages, charitable gifts, high medical costs, and the like, it would also curb tax breaks for owners of municipal bonds, workers who buy health insurance, and those who earn money overseas. 

The $400 billion plan is the centerpiece of Obama’s $467 billion package of tax increases aimed at paying for the stimulus package he announced on Sept. 8. It would limit to 28 percent the value of many tax preferences for those whose adjusted gross income is more than $200,000 ($250,000 for couples). Today, these tax breaks are worth 35 cents on the dollar for someone in the top tax bracket. Under Obama’s plan they would be worth just 28 cents.  

The plan is often described as a cap on itemized deductions but in fact aims at a number of other politically popular tax breaks as well, including several exclusions that reduce the amount of income subject to tax.        

An across-the-board cap on the benefit of deductions and the like is often seen as rough justicea way to tackle the Revenue Code’s trillion dollars in tax expenditures without  fighting over each one. The theory: It is an easier political lift to curb such popular breaks as the mortgage interest deduction through a broad reduction of  all subsidies than to fight the powerful housing industry head-on.

But Obama does pick and choose the preferences he wants to target. He nails all itemized deductions, all right, but he also goes after some–but not all–above the line deductions. Of the roughly two dozen write-offs available to those who take the standard deduction, Obama targets just eight, including health insurance for the self-employed, medical savings accounts, health savings accounts, and some higher education expenses.

He also reduces the benefit of two other hot-button breaks—the tax exclusions for municipal bond interest and the value of employer-sponsored health insurance. In other words, for those making more than $200,000, some muni bond interest and some of the value of their medical coverage would be taxed.     

However, Obama would protect other exclusions, including those for retirement savings. Picking winners and losers this way is likely to defeat any claims of rough justice and make passing the plan that much tougher.

And on the merits, some of his choices are dubious. For instance, nearly all mainstream economists believe Congress should fix the tax treatment of health insurance costs. Today, the income tax exclusion perversely gives the biggest benefit to those who make the most money and the smallest to those who earn the least and need the most help paying for insurance.

Continued in article

Jensen Comment
Since higher income taxpayers buy a larger share of tax exempt bonds, this Obama plan could significantly raise the cost of capital for  towns, cities, counties states and school districts. Thus some of the added Federal revenue in reality is taken from towns, cities, counties states and school districts where poor and middle class pay sales taxes and property taxes directly or indirectly when they pay for rental housing. It's naive to think that increases in income taxes of the rich do not, in least in part, come out of the incomes of the poor and the middle class.

Sneaky isn't it!
For example, nearly half the taxpayers in the United States pay no Federal income tax. But they do pay sales and property taxes in one way or another such that creating less demand for tax exempt bonds is a way to transfer part of incomes of the poor to the Federal government even if the poor still pay zero amounts on their Federal tax returns. The outflow is buried in their increased rents and cash register sales taxes. Sneaky isn't it!

Investors who make slightly less than $200,000 but have substantial portions of their portfolios in in long-term tax exempt bonds may benefit from the annual higher returns on rolled-over of matured bonds resulting from this Obama tax-the-rich proposal. Sneaky isn't it! 

Although I favor raising taxes at all income levels with much higher marginal rates for the wealthy, keep in mind that there are limits. A close friend in Sweden argued that at one point for certain wealthy Swedes like him the marginal tax rate exceeded 100% --- which has to really discourage both working and investing risk capital.


In the 1970s and 1980s economic growth in Sweden was very low compared to other Western European nations, and much of this is attributed to high marginal tax rates (80+%) on workers in general and even higher for wealthy Swedes, many of whom shifted their wealth and even themselves out of Sweden ---
http://en.wikipedia.org/wiki/Sweden

 
A bursting real estate bubble caused by inadequate controls on lending combined with an international recession and a policy switch from anti-unemployment policies to anti-inflationary policies resulted in a fiscal crisis in the early 1990s.] Sweden's GDP declined by around 5%. In 1992, there was a run on the currency, with the central bank briefly jacking up interest to 500%.


The response of the government was to cut spending and institute a multitude of reforms to improve Sweden's competitiveness, among them reducing the
welfare state and privatising public services and goods. Much of the political establishment promoted EU membership, and the Swedish referendum passed with 52% in favour of joining the EU on 13 November 1994. Sweden joined the European Union on 1 January 1995.


Marginal
Tax Rates by Country ---
http://www.nationmaster.com/graph/tax_hig_mar_tax_rat_ind_rat-highest-marginal-tax-rate-individual


By 2009, Sweden had dropped its marginal tax rate of well over 80% to 57%. This still leaves Sweden with the third-highest marginal tax rate. At a marginal tax rate of 35%, the United States is tied with many nations at Rank 37. The reason almost half of U.S. taxpayers, many of whom are well above the poverty level, pay zero or very low income tax is that there are so many ways to avoid or defer income taxes, especially with all the newer types of credits available in the revised U.S. Tax Code.


For example, I live quite well and am able to save a great deal of income taxes with energy credits and by having a substantial portion of my life savings in tax exempt bonds that over the past few years have earned a surprisingly high return in a Vanguard Insured Tax Exempt Mutual Fund that also offers instant liquidity (by check) if I need to withdraw funds.


Naive liberals want to eliminate tax exempt interest altogether or greatly increase the alternative minimum tax. However, this gets tricky if these actions clobber the cost of capital of school districts, towns, cities, counties, and states.


Keep in mind that wealthy people (who have much more savings than me) and some comfortable middle class taxpayers (like me) are achieving tax breaks by providing lower cost of capital to school districts, towns, cities, counties, and states by investing in somewhat risky and lower yielding tax exempt bonds.. It's not so simple to eliminate some income tax breaks without severe social and economic, actually dire, consequences on poor and middle class people in the U.S.


Sometimes what appears to be a raising of income taxes is merely a shifting of taxes such as when huge and painful increases on a state's cost of capital are passed to its more regressive sales and property taxes and apartment rentals.It will be very tough if school districts, towns, cities, counties, and states must compete head-to-head in bond markets with corporations.



The problem with tax exempt bonds is that there are gazillions of dollars invested in these bonds such that even small increases in tax-exempt cost of capital can clobber citizens in need of schools, road repairs, welfare, etc.

"The Preferential Treatment of Employer-Provided Health Care," by Paul Caron, TaxProf Blog, September 17, 2011 ---
http://taxprof.typepad.com/

Benjamin D. Gehlbach (J.D. 2011, Catholic), Note, The Preferential Treatment of Employer-Provided Health Care: Time for a Change?, 27 J. Contemp. Health L. & Pol'y:

This Note argues that the current treatment of employer-provided health insurance is inequitable and needs reform in order to drive down overall health care costs and to provide revenue for other provisions of the ACA (or for a replacement, should repeal be successful), or alternatively, to help bring down the budget deficit. Part II examines the history and scope of the exclusion, as well as the rationales advanced prior to its adoption. Part III studies criticisms of the exclusion to understand better the weaknesses of the current system, including job lock, excess insurance, and loss of revenue. Part IV evaluates some of the proposals for changing the current exclusion, including those proposed by members of Congress and by outside policy groups. Some of these proposals include repealing the exclusion, capping the exclusion based on income or value of the insurance policy, and providing new tax incentives altogether. Part V argues that the best option for reforming this flawed system is to cap the exclusion based on income and the cost of the insurance plan. A cap on the exclusion would accomplish the dual objectives of bringing overall health care costs down and providing necessary revenue to finance other provisions of the ACA or its replacement, or alternatively, to reduce the deficit. In addition, a cap would not create some of the drawbacks of the other proposals

Bob Jensen's threads on health care are at
http://www.trinity.edu/rjensen/Health.htm


Teaching Case
From The Wall Street Journal Accounting Weekly Review on September 16, 2011

Treasury Weighs New Tax Scheme
by: Damian Paletta and John D. McKinnon
Sep 10, 2011
Click here to view the full article on WSJ.com
 

TOPICS: Corporate Tax, Financial Reporting, Financial Statements, Segment Analysis, Tax Laws, Tax Policy, Taxation

SUMMARY: "The Treasury Department is considering a proposal to eliminate some but not all taxes on the overseas profits of U.S. multinational companies...The Treasury plan under consideration would create what officials refer to as a "tough" territorial system...." The plan is designed to solve the problem stemming form the fact that our current "... system of taxing overseas profits has had the unintended consequence of discouraging companies from bringing earnings back to the U.S." the "tough" version of the territorial system is designed to avoid the problem with "...some versions of 'territorial' that simply incentivize multinationals to create jobs overseas instead of here [in the U.S.]...."

CLASSROOM APPLICATION: The article may be used in a corporate tax class to discuss repatriating overseas profits and the policy reasons for our current system of taxing worldwide profits. It also may be used in a financial reporting class discussing segment and geographic earnings disclosures since the article refers to that information--as quoted by the Business Roundtable that, "in 2009, U.S. firms in the S&P 500 that reported foreign earnings had 55% of their income generated overseas." Finally, the related article brings in the implications for U.S. companies' cash balances.

QUESTIONS: 
1. (Advanced) Summarize how U.S. corporate tax law currently taxes profits earned by U.S. multinational firms. In your answer, compare the treatment of foreign branches versus foreign corporations and include a description of the foreign tax credit.

2. (Introductory) Define the terms "global taxation system" and "territorial taxation system" in relation to corporate tax. Which of these terms summarizes the current U.S. tax system you described in answer to question 1 above?

3. (Introductory) What is the unintended consequence of our U.S. tax law provision for a deferral provision on earnings by foreign corporations? You may refer to the related article to answer this question.

4. (Advanced) How would the U.S. Treasury Department proposal relieve some of this unintended consequence of the current U.S. tax law? How might that relief help with the high unemployment in our current U.S. economy?

5. (Introductory) Will this potential change have an impact on total tax revenues paid by corporations with overseas profits? According to the article, how is the answer to this question being assessed?

6. (Advanced) What is the Business Roundtable? What information about overseas earnings does this group report?

7. (Advanced) From where in U.S. companies' financial statements could the Business Roundtable obtain the information about foreign earnings? What authoritive accounting guidance requires this financial statement disclosure? In your answer, provide a reference to your source.

8. (Advanced) Do you think that the objective of the accounting requirements to disclose foreign earnings information is to assess the impact of potential tax law changes such as this one currently being considered? Support your answer with references to authoritative accounting literature.
 

Reviewed By: Judy Beckman, University of Rhode Island
 

RELATED ARTICLES: 
Why Investors Can't Get More Cash Out of U.S. Companies
by Jason Zweig
Feb 19, 2011
Page: A1

"Treasury Weighs New Tax Scheme," by: Damian Paletta and John D. McKinnon, The Wall Street Journal, September 10, 2011 ---
http://online.wsj.com/article/SB10001424053111904103404576561020226498738.html?KEYWORDS=Treasury+Weighs+New+Tax+Scheme

The Treasury Department is considering a proposal to eliminate some but not all taxes on the overseas profits of U.S. multinational companies, a central element of the administration's broader plans to overhaul the corporate-tax code, according to two people familiar with the deliberations.

U.S. businesses have pushed hard to exempt all overseas earnings from U.S. taxes, claiming the current system puts them at a disadvantage to foreign competitors.

The taxation of overseas income is a political hot potato. Liberals and trade unions have warned that eliminating U.S. taxes on overseas earnings could encourage businesses to shift operations and jobs overseas. Conservatives and businesses, meanwhile, could be disappointed that the proposal from the Obama administration, which is still in the discussion stage, doesn't go far enough.

The U.S. is rare among major industrial powers in maintaining a global taxation system, which often subjects the overseas earnings of companies to U.S. levies after they've been taxed by their overseas hosts. Most large countries primarily tax domestic earnings, in what is known as a territorial taxation system.

The Treasury plan under consideration would create what officials refer to as a "tough" territorial system, which would shield some overseas profits from U.S. taxes. A key issue is what kind of profits would be excluded. The details of the plan couldn't be learned.

The provision is part of a broader Treasury rewrite of the corporate-tax code that has been in the works for months. The rewrite could have a major impact on U.S. corporations. It is expected to include a significant cut from the current 35% corporate-tax rate and changes to various deductions that are a staple of American corporate finance.

The White House had hoped to release its overall proposal in May or June, but shelved it after the debt-ceiling debate consumed Washington. Treasury officials intend to go public with the plan sometime in the fall. Any changes would require congressional approval. The chances of enactment as the 2012 election season heats up are slim.

A Treasury Department spokeswoman declined to comment, saying no final decisions have been made.

The system of taxing overseas profits has had the unintended consequence of discouraging companies from bringing earnings back to the U.S. That is because the U.S. allows companies to postpone federal tax on their overseas earnings indefinitely, as long as the money remains offshore. U.S. multinationals have more than $1 trillion in profits parked overseas, according to some estimates.

The goal of the hybrid approach under consideration is to prevent companies from restructuring their businesses in a way that would shift U.S. jobs to other countries by concentrating assets or businesses in countries with lower tax rates.

"There are some versions of 'territorial' that simply incentivize multinationals to create jobs overseas instead of here, and that's a version we want to avoid," said Jared Bernstein, a former economic adviser to Vice President Joe Biden who is now at the liberal-leaning Center on Budget and Policy Priorities.

A territorial tax system would be a big win for U.S. multinationals. That includes many companies in the high-tech and pharmaceutical sectors, as well as consumer-goods makers. Large domestic companies such as utilities and retailers would prefer that overall tax rates be lowered, setting up a clash of priorities within the world of U.S. business.

Because the White House wants any possible revamp to raise the same amount of money as the current system, domestic companies could see their tax breaks crimped to compensate for reduced revenues from taxing overseas profits. But multinationals could be concerned if a tough territorial system raised their tax burdens instead.

"We would favor a territorial system that brings the U.S. in line with those adopted by other developed countries," said David Lewis, vice president of global tax at Eli Lilly & Co. "However, the inclusion of limits or other restrictions in a U.S. territorial regime that disfavor U.S. companies versus their foreign competitors would be counterproductive."

In 2009, U.S. firms in the S&P 500 that reported foreign earnings had 55% of their income generated overseas, according to the Business Roundtable.

On Aug. 12, Barack Obama summoned chief executives from some large U.S. companies to the White House to sound them out on ideas for his jobs proposal. Xerox Corp. chief executive Ursula Burns pressed him to include corporate-tax simplification and a territorial tax system, according to people familiar with the meeting.

A partial move towards a territorial system could be used by the White House as an olive branch to U.S. corporations, who have battled the administration over a range of regulatory and tax issues.

Continued in article


Sneaky isn't it!
After I wrote Wednesday's module about the (sneaky) harm that limiting tax exempt income for the rich can do to poor people,  towns, cities, counties states and school districts, I found it interesting that the WSJ also picked up on this theme on the very same day although I did not  read the following article about a Harvard University study until Thursday.

"A Blue-State Bailout in Disguise:  Our new study shows that under the Obama jobs bill, debt-ridden states will get another big handout," by Paul E. Peterson and Daniel Nadler, The Wall Street Journal, September 14, 2011 ---
http://online.wsj.com/article/SB10001424053111904353504576568352231645730.html?mod=djemEditorialPage_t

Mr. Peterson, a senior fellow at the Hoover Institution, is the director of Harvard's Program on Education Policy and Governance, where Mr. Nadler is a research fellow. The study mentioned in this op-ed is available at www.ksg.harvard.edu/pepg

Last Thursday, the president urged Congress to pony up roughly $200 billion in taxpayer money to "provide more jobs for teachers [and] more jobs for construction workers" and more money to carry out other state and local activities. He urges Congress to spend this money even after handing out hundreds of billions of dollars for similar purposes as part of the 2009 stimulus package, as well as a score and more billion dollars again in 2010.

These vast contributions to the coffers of state and local governments, though pitched as a jobs bill, are in reality the latest in a series of bailouts for debt-ridden state and local governments. They are of special benefit to states in the blue regions of the country where the president's most fervent supporters reside.

In many blue states, legislators have copied the politicians in Washington by running up state debts to extraordinary levels. Nationwide, state debt is running around $3 trillion. If unfunded pension liabilities are factored in, estimated liabilities leap forward by another $1 trillion to $3 trillion, depending on the optimism of the assumptions made.

The bond market has taken notice. Before the 2008 financial crisis, state sovereign debt was just about the safest place to invest. Because investors did not pay taxes on the interest, states were able to borrow money at rates below those paid for federal securities. With the onset of the financial crisis, not only did borrowing costs rise across the board, but differences in interest rates among states widened dramatically. Bond holders concluded that some states, like Greece, had been extraordinarily profligate and, even worse, lacked the will to rein in their expenditures.

In a new study at Harvard's Program on Education Policy and Governance, we discovered why the Obama administration is so interested in helping out the states. States with a bluish hue—that is, states with legislatures that are heavily Democratic and have a highly unionized public-sector work force—must pay interest rates that are often an extra half a percentage point higher than states with a reddish coloring.

Specifically, a 20 percentage-point increment in either the Democratic share of the state legislature or a comparable increase in the share of the public work force that is unionized drives up interest rates by nearly a half a percentage point on a five-year security note. That amount is nontrivial. In Obama's home state of Illinois, it is costing governments over $700 million annually.

The impact of these political factors on interest rates is in addition to the impact of standard economic factors, such as a state's unemployment rate, its gross domestic product growth, and its debt-to-GDP ratio, all of which are themselves shaped in part by the state's political climate.

In short, the bond market has concluded that the more unionized the state and the bluer its political coloring, the riskier it is to hold bonds marketed by that state.

States will face even higher interest rates if the president's proposed limit on the deductibility of state and municipal bond interest income (to help pay for the jobs plan) is enacted. If the interest is no longer deductible, investors will demand a higher rate of return for buying bonds, and state calls for more federal aid will intensify.

Federal rescue of states is a dramatic departure from past practice. State bankruptcies date back to the 1840s when, amid a financial crisis, Pennsylvania, Michigan, Illinois and five other states discovered they had invested too heavily in infrastructure. The last state bankruptcy was in Arkansas during the 1930s. But overall the instances were few; in each case the federal government refused to come up with a fix.

Bankrupt states paid the price, but for the country as a whole, a system of fiscally sovereign states has proven incredibly beneficial to the nation's economic well-being. Every state is responsible for its own police, fire, schools, transport and much more, and most of the time they do reasonably well. If they manage their affairs so as to attract business, commerce and talented workers, states prosper. If states make a mess of things, citizens and businesses vote with their feet, marching off to a part of the country that works better.

It is this exceptional federalist system that helped drive the rapid growth of the American economy throughout the first two centuries of the country's history. Because state and local governments competed with one another for venture capital, entrepreneurial talent and skilled workers, governments generally had to be attentive to the needs of both citizens and commerce.

When it comes to fiscal sovereignty, U.S. federalism is exceptional. Hardly any other country in the world has anything like it. Only Switzerland and Canada—two nations that aren't doing that badly these days—come close.

But federal fiscal bailouts put our federal system at risk. In essence, the national government is acting as if states are too big to fail. In the next financial crisis, the federal government may decide that states need to be treated like General Motors or, at least, be given ever bigger handouts of the kind the Obama administration seems committed to making.

But if the federal government is going to tacitly assume responsibility for state debts, then those $3 trillion in sovereign state debt must be added to the $14 trillion national debt that has already caused grave concern, pushing the current U.S. debt into the danger zone. Even if pension liabilities are ignored, the combined federal-state-local debt runs in excess of 120% of GDP.

The costs go beyond dollars and cents. The more often the federal government bails out the states, the more Washington bureaucrats will insist on regulating state and local affairs. At some point the United States will see the end of state fiscal sovereignty and the demise our federal system of government.

Continued in article


"Biden, Axelrod Send Conflicting Messages on New Stimulus," by Kyle Olson, Townhall, September 17, 2011 ---
http://townhall.com/columnists/kyleolson/2011/09/17/biden,_axelrod_send_conflicting_messages_on_new_stimulus

. . .

The two national teachers’ unions – the National Education Association and American Federation of Teachers – recently hosted a closed-media conference call with Vice President Biden to rally support for Obama’s “American Jobs Act.”

According to a recording first revealed at PublicSchoolSpending.com, Biden told the audience:

“Nobody is saying this [plan] isn’t positive for the economy. We’re ready to compromise with the Republicans. But only compromise on things if they have a better way. …”

But less than 24 hours later, Campaign Manager David Axelrod appeared on Good Morning America and told host George Stephanopolous that “the package works together.”

“So it’s all or nothing,” Stephanopolous stated, attempting to pin Axelrod down. Not answering the question (shock!), Axelrod responded, “We want them to act now on this package. We’re not in a negotiation to break up the package – it’s not an ala carte menu.”

In other words, no, they’re not willing to compromise. Take it or leave it, America.

So not only is the Obama administration bereft of any fresh ideas about how to fix the economy, it can’t even clearly state its position on compromising with Republicans and skeptical Democrats.

To paraphrase Johnny Paycheck, America should tell Axelrod to take his jobs package and shove it.

Continued in article

 


"When Health Insurance is Free," by John C. Goodman, Townhall, September 10, 2011 ---
http://townhall.com/columnists/johncgoodman/2011/09/10/when_health_insurance_is_free

Did you know that an estimated one of every three uninsured people in this country is eligible for a government program (mainly Medicaid or a state children’s health insurance plan), but has not signed up?

Either they haven’t bothered to sign up or they did bother and found the task too daunting. It’s probably some combination of the two, and if that doesn’t knock your socks off, you must not have been paying attention to the health policy debate over the past year or so.

Put aside everything you’ve heard about Obama Care and focus on this bottom line point: going all the way back to the Democratic presidential primary, Obama Care was always first and foremost about insuring the uninsured. Yet at the end of the day, the new health law is only going to insure about 32 million more people out of more than 50 million uninsured. Half that goal will be achieved by new enrollment in Medicaid. But if you believe the Census Bureau surveys, we could enroll just as many people in Medicaid by merely signing up those who are already eligible!

What brought this to mind was a series of editorials by Paul Krugman and Health Affairs blog and at my blog) asserting that government is so much more efficient than private insurers. Can you imagine Aetna or UnitedHealth Care leaving one-third of its customers without a sale, just because they couldn’t fill out the paperwork properly? Well that’s what Medicaid does, day in and day out.

Put differently, half of everything Obama Care is trying to do is necessary only because the Medicaid bureaucracy does such a poor job — not of selling insurance, but of giving it away for free!

Writing in Health Affairs the other day, health policy guru Alain Enthoven and health care executive Leonard Schaeffer revealed some of the gory details of what people encounter when they do try to sign up for free health insurance from Medi-Cal (California Medicaid) in the San Diego office:

Continued in article

Bob Jensen's threads on health insurance ---
http://www.trinity.edu/rjensen/Health.htm


 

"Groupon, Zynga and Krugman's Frothy Valuations," by Jeff Carter, Townhall, September 2011 ---
http://finance.townhall.com/columnists/jeffcarter/2011/09/13/groupon,_zynga_and_krugmans_frothy_valuations


"Mystery Diagnosis: An Era of Uncertainty for the Health Care Sector," Knowledge@Wharton, September 14, 2011 ---
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2847

The U.S. health care sector is experiencing a time of enormous change and uncertainty. Although President Obama's health care reform plan was signed into law last year, several legal challenges to the legislation are working their way through the courts. Questions also remain about whether the law will deliver on its promises of greater access to care and stricter containment of soaring health care costs.

Meanwhile, the pharmaceutical industry is also dealing with a period of insecurity, with generic markets soon opening up for some of the world's best-selling drugs. And although the health care sector is one of the few employment bright spots in a stagnant job market, questions arise as to whether it is in danger of becoming too bloated. Wharton health care management professors Arnold Rosoff, Patricia Danzon, Lawton Burns and Mark Pauly discussed their research on these issues and others during a recent presentation to incoming health care MBA students.

Politics over Policy?

After decades of debate over national health care reform, Wharton legal studies and health care management professor Arnold Rosoff warned that struggles over the Affordable Care Act (ACA), signed into law by President Obama in March 2010, may be far from over. It is uncertain whether the reform legislation, which was passed in a greatly compromised form after years of "partisan wrangling," can deliver on its promises of cost containment and expanded access to health care for the uninsured, Rosoff noted. "But before we get to that, we have to ask, 'Will ACA even stay on the books?'"

Continued in article

Bob Jensen's threads on health care ---
http://www.trinity.edu/rjensen/Health.htm


"GOP lawmakers seek answers from Sebelius regarding CLASS Act," by Tina Korbe, Hot Air, September 22, 2011 ---
http://hotair.com/archives/2011/09/22/gop-lawmakers-seek-answers-from-sebelius-regarding-class-act/

Last week, a report from a Republican working group revealed that administration officials, in the rush to pass Obamacare, ignored internal warnings from government experts about the fiscal sustainability of a long-term care insurance entitlement program included in the health reform law. Throughout the health care debate, officials within the Centers for Medicare and Medicaid Services, as well as the Health and Human Services Department, repeatedly warned that the CLASS Act would be a fiscal disaster. Yet, the final version of Obamacare not only included the CLASS Act; it even counted CLASS as a cost-saving measure.

Now, the Republicans behind the report want to know how high the warnings reached: Was HHS Secretary Kathleen Sebelius, for example, aware of the concerns about CLASS even before Obamacare passed? Amid rumors the administration might reassign CLASS personnel or close the CLASS office entirely, they also want to know what the administration plans to do moving forward to ensure — if the CLASS program is, in fact, implemented — that the program is sustainable.

To that end, House Oversight Committee Chairman Darrell Issa (R-Calif.) and House Energy and Commerce Committee Chairman Fred Upton (R-Mich.), along with key drivers Sens. Jeff Sessions (R-Ala.), John Thune (R-S.D.) and others, today sent a letter to Sebelius asking her to clarify how many people have been reassigned or asked to leave the CLASS office, to put forward a plan to make CLASS sustainable if the program is going to be implemented and to divulge when concerns about CLASS were first made known to her and what steps she took to address them.

. . .

As Sessions explained in a statement, the central question is “whether a deliberate effort was made by administration officials to conceal CLASS’s true cost in order to advance the president’s agenda. Accountability goes to the top. Lawmakers and the American people deserve to know when internal concerns over CLASS were first communicated to Secretary Sebelius and what, if any, actions she took to address them. Out of control government spending is threatening our nation’s future, making a prompt and thorough explanation all the more imperative.”

Thune said it appears the administration sought to uphold its own agenda with the inclusion of the CLASS Act in the PPACA.

“Our recent Congressional investigation revealed that the Obama Administration ignored repeated warnings about the fiscal insolvency of the CLASS Act in the effort to score a political win with the passage of the new health care law,” he said. “The time is long overdue for Secretary Sebelius to come forward with more details on what the administration knew about the insolvency of the program, when they knew about it, and how they propose to remedy this fiscal disaster for taxpayers. The American people deserve to know more about this massive new entitlement program.”

In the meantime, you can bet that, if Sebelius doesn’t provide adequate answers, the calls for a CLASS Act repeal will grow ever louder. In fact, the Senate Appropriations Committee has already decided not to fund implementation of the Act.

Update: Because of a scheduling error, this post appeared briefly on the HotAir.com homepage at around 11:25 a.m. ET today. At the time, the letter had not yet been sent to Secretary Sebelius. The post above is essentially unchanged, but the second and third paragraphs have been updated to include information that recently emerged that the administration might shuffle CLASS personnel.

Bob Jensen's threads on health care ---
http://www.trinity.edu/rjensen/Health.htm


Dangerous Knowledge: 4 Brilliant Mathematicians & Their Drift to Insanity --- Click Here
http://www.openculture.com/2011/09/dangerous_knowledge_4_brilliant_mathematicians_their_drift_to_insanity.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

John Nash is one of the most famous schizophrenic mathematicians--- http://en.wikipedia.org/wiki/John_Nash_%28mathematician%29

"Paul Krugman is Insane," by John Ransom, Townhall, September 2011 ---
http://finance.townhall.com/columnists/johnransom/2011/09/12/paul_krugman_is_insane

We always knew that Krugman couldn’t add or subtract. As an economist, the guy is a terrific writer. And fantasy is his genre.

But the fact that he thinks that we’ve all been secretly ashamed of our reactions to 9/11 for the last ten years should be enough to place him in observation for indulging in too much fantasy.

“What happened after 9/11 — and I think even people on the right know this, whether they admit it or not,” writes Krugman as his sick 9/11 tribute, “was deeply shameful. The atrocity should have been a unifying event, but instead it became a wedge issue.”

Way to unify us Paul.

“Fake heroes like Bernie Kerik, Rudy Giuliani, and, yes, George W. Bush,” says Krugman “raced to cash in on the horror. And then the attack was used to justify an unrelated war the neocons wanted to fight, for all the wrong reasons.”

This is not a country that has a great fear of expressing itself. We have way too much self-love for that. If we were secretly ashamed, we’d go on Oprah and proclaim our secret shame to the world, as many liberals like Krugman have done. Or we'd write a book about it.

There were no fake heroes, as Krugman has called Rudy Guiliani and George W. Bush, after 9/11. No one was anxious to cash in on the war that was declared by Osama bin Laden in 1996 against the U.S.

Mistakes? Yes. There were many.

As Winston Churchill observed, wars are made of up surprises and disappointments. But that doesn’t mean they aren’t worth waging.

Contrast Bush’s reactions at 9/11 to the “Osama bin Laden is still dead” World Tour that Obama engaged in after he watched Seal Team Six dispatch bin Laden on his TV set.

All that was missing in front of Obama was popcorn and a Snuggie. No fake hero there.

Just a faux one.

The outpouring after the cowardly attack on the Twin Towers and the Pentagon was universal. So was the coalition that went into Afghanistan to kick out Al Qaeda and the Taliban sheltering them.

You had all the elements that liberals love including UN authorization, abuse of women, oppression, blight, gobs of government grant money and Congressional approval to wage war in Afghanistan.

Oh. That’s right. Scratch that last one. Liberals don’t care about Congressional authorization as long as Obama’s doing something to hurt Israel and support jihadists in North Africa.

Certainly the war that we have waged against radical Islam since 9/11, including the war that has still produced the Arab world’s only true democracy in Iraq, has cost America something.

Continued in article


"Growth and Inequality: 2010:  The latest news on spreading the wealth," The Wall Street Journal, September 14, 2011 ---
http://online.wsj.com/article/SB10001424053111904265504576568973957080358.html#mod=djemEditorialPage_t .

An abiding—make that the primary—goal of the Obama Administration has been to reduce income inequality. When the Affordable Care Act finally passed, White House economists and liberal pundits did a victory dance in their favorite publications boasting about how the bill would spread the wealth. So how's that inequality project working out?

One answer came yesterday with the Census Bureau's annual snapshot on living standards. The official poverty rate—defined as a family of four earning less than $22,314—rose to 15.1%. That's up from 14.3% in 2009 and 12.5% in 2007. The official rate significantly overstates poverty by missing government income transfers, but this increase is faster than during any three-year period since the early 1980s.

Meanwhile, the share of Americans without health insurance rose to 49.9 million, or 16.3%, from 48.99 million, or 16.1% in 2009. The share of Americans on private insurance continued to decline while those on Medicare and Medicaid rose. ObamaCare doesn't fully kick in until 2014, but we already know that it isn't reducing the cost of health insurance.

President Obama inherited a recession, and some increase in poverty was inevitable on his watch. But the magnitude of the increase underscores how feeble the current economic recovery has been, and how essential rapid economic growth is to lifting incomes for lower-income Americans in particular.

The lesson we draw is that politicians who support policies that make economic growth their top priority raise everybody's incomes even if some incomes rise more rapidly than others. Politicians who put income redistribution above overall economic growth do worse by everybody, especially the poor.


"Too Much Higher Education," by Walter E. Williams, Townhall, September 14, 2011 ---
http://townhall.com/columnists/walterewilliams/2011/09/14/too_much_higher_education

Too much of anything is just as much a misallocation of resources as it is too little, and that applies to higher education just as it applies to everything else. A recent study from The Center for College Affordability and Productivity titled "From Wall Street to Wal-Mart," by Richard Vedder, Christopher Denhart, Matthew Denhart, Christopher Matgouranis and Jonathan Robe, explains that college education for many is a waste of time and money. More than one-third of currently working college graduates are in jobs that do not require a degree. An essay by Vedder that complements the CCAP study reports that there are "one-third of a million waiters and waitresses with college degrees." The study says Vedder -- distinguished professor of economics at Ohio University, an adjunct scholar at the American Enterprise Institute and director of CCAP -- "was startled a year ago when the person he hired to cut down a tree had a master's degree in history, the fellow who fixed his furnace was a mathematics graduate, and, more recently, a TSA airport inspector (whose job it was to ensure that we took our shoes off while going through security) was a recent college graduate."

The nation's college problem is far deeper than the fact that people simply are overqualified for particular jobs. Citing the research of AEI scholar Charles Murray's book "Real Education" (2008), Vedder says: "The number going to college exceeds the number capable of mastering higher levels of intellectual inquiry. This leads colleges to alter their mission, watering down the intellectual content of what they do." In other words, colleges dumb down courses so that the students they admit can pass them. Murray argues that only a modest proportion of our population has the cognitive skills, work discipline, drive, maturity and integrity to master truly higher education. He says that educated people should be able to read and understand classic works, such as John Locke's "Essay Concerning Human Understanding" or William Shakespeare's "King Lear." These works are "insightful in many ways," he says, but a person of average intelligence "typically lacks both the motivation and ability to do so." Mastering complex forms of mathematics is challenging but necessary to develop rigorous thinking and is critical in some areas of science and engineering.

Continued in article

Jensen Comment
I might add that our UPS driver and good friend has a masters degree in finance. And the woman who just painted our back porch has two degrees in etymology. Both got their degrees over 20 years ago.

I am not making a case that education is not intrinsically valuable to workers in any occupation. However, if the college degrees are increasingly watered down to attract more and more tuition revenue then there are bound to be negative externalities for our nation as a whole. Prosperous nations like Finland and Germany place great value having workers highly skilled from training and apprenticeship in the trades. Why does everybody in the U.S. prefer a B.S. degree (the abbreviation has a double meaning)?

The Case Against College ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#CaseAgainst


"Armed Services chairman: Obama is anti-military," by Shaun Waterman, The Washington Times, September 12, 2011 ---
http://www.washingtontimes.com/news/2011/sep/12/armed-services-buck-mckeon-criticizes-obama/

The chairman of the House Armed Services Committee, in a harsh attack on the Obama administration Monday, accused the president of viewing American military power as a negative force in the world, and planning to “gut” defense spending through the congressional deficit-reduction committee.

“It is my suspicion that the White House and congressional Democrats” designed the supercommittee process “for one purpose: to force Republicans to choose between raising taxes or gutting defense,” said California Rep. Howard P. “Buck” McKeon, the House Armed Services Committee chairman.

Mr. McKeon also lashed out at the administration’s defense and security policies that he asserted are based on a negative view of U.S. power in the world.

“President Obama’s policies often seem reflective of an ideology that treats American power as the principal adversary, not ally, to world peace,” he told an audience at the American Enterprise Institute.

That view “flies in the face of both history and experience. And it resigns us to national decline,” he added.

“Power in benevolent hands is a virtue, not a vice.”

White House officials declined to respond.

Under the deficit reduction act passed by Congress this summer, if the supercommittee cannot agree on a package of measures to reduce the national debt, the Defense Department, already facing spending cuts of $350 billion over 10 years, will face another half trillion or more dollars in automatic cuts — what defense officials have termed a “doomsday trigger.”

“That political gamesmanship is simply unacceptable,” Mr. McKeon said of the deal, which he voted to approve while expressing grave concerns about the potential impact on defense spending.

Even if the supercommittee is able to reach a deal and avoid pulling the defense cut trigger, Mr. McKeon said he remained concerned that the White House planned to make cuts of almost the same half-trillion dollar amount through the supercommittee process.

“Recent statements from the Office of Management and Budget indicate that the administration could be pushing for defense cuts that near the size and scope of the trigger, within the confines of the supercommittee,” he said.

Such cuts would be “beyond what the Defense Department is prepared to absorb,” he added, and would “open the door to aggression, as our ability to deter and respond to an attack would be severely crippled.”

“Folks, it is impossible to pay our entitlement tab with the Pentagon’s credit card,” he stated.

Officials at the Office of Management and Budget had no immediate comment on Mr. McKeon’s remarks.

Concern about cuts to defense spending is widely shared by Republicans conservatives. Some have taken a more optimistic view of the outcome of the supercommittee process.

Continued in article

 




Bob Jensen's universal health care messaging --- http://www.trinity.edu/rjensen/Health.htm

Bob Jensen's Tidbits Archives ---
http://www.trinity.edu/rjensen/tidbitsdirectory.htm 

Bob Jensen's Pictures and Stories
http://www.trinity.edu/rjensen/Pictures.htm

Shielding Against Validity Challenges in Plato's Cave ---
http://www.trinity.edu/rjensen/TheoryTAR.htm

·     With a Rejoinder from the 2010 Senior Editor of The Accounting Review (TAR), Steven J. Kachelmeier

·     With Replies in Appendix 4 to Professor Kachemeier by Professors Jagdish Gangolly and Paul Williams

·     With Added Conjectures in Appendix 1 as to Why the Profession of Accountancy Ignores TAR

·     With Suggestions in Appendix 2 for Incorporating Accounting Research into Undergraduate Accounting Courses

Shielding Against Validity Challenges in Plato's Cave  --- http://www.trinity.edu/rjensen/TheoryTAR.htm
By Bob Jensen

What went wrong in accounting/accountics research?  ---
http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong

The Sad State of Accountancy Doctoral Programs That Do Not Appeal to Most Accountants ---
http://www.trinity.edu/rjensen/theory01.htm#DoctoralPrograms

AN ANALYSIS OF THE EVOLUTION OF RESEARCH CONTRIBUTIONS BY THE ACCOUNTING REVIEW: 1926-2005 ---
http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm#_msocom_1

Bob Jensen's threads on accounting theory ---
http://www.trinity.edu/rjensen/theory01.htm

Tom Lehrer on Mathematical Models and Statistics ---
http://www.youtube.com/watch?v=gfZWyUXn3So

Systemic problems of accountancy (especially the vegetable nutrition paradox) that probably will never be solved ---
http://www.trinity.edu/rjensen/FraudConclusion.htm#BadNews

Bob Jensen's economic crisis messaging http://www.trinity.edu/rjensen/2008Bailout.htm

Bob Jensen's threads --- http://www.trinity.edu/rjensen/threads.htm

Bob Jensen's Home Page --- http://www.trinity.edu/rjensen/