Tidbits Quotations
To Accompany the February 14, 2012 edition of Tidbits
http://www.trinity.edu/rjensen/tidbits/2012/tidbits021412.htm                       
Bob Jensen at Trinity University




To laugh often and much; to win the respect of intelligent people and the affection of children; to earn the appreciation of honest critics and endure the betrayal of false friends; to appreciate beauty, to find the best in others; to leave the world a little better; whether by a healthy child, a garden patch or a redeemed social condition; to know even one life has breathed easier because you have lived. This is the meaning of success.
Ralph Waldo Emerson
Thank you Maureen for the heads up.

Any time you have an opportunity to make a difference in this world and you don't, then you are wasting your time on Earth.
Roberto Clemente, 1972)
Thank you Dennis Bline for the heads up.

Canada's Economic Action Plan --- http://www.actionplan.gc.ca


Visualizing Economics
Comparing Income, Corporate, Capital Gains Tax Rates: 1916-2011 and Other Graphics --- Click Here
http://visualizingeconomics.com/2012/01/24/comparing-tax-rates/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+VisualizingEconomics+%28Visualizing+Economics%29&utm_content=Google+Reader

"U.S. Taxes Really Are Unusually Progressive," by Clive Crook, The Atlantic, February 10, 2012 ---
http://www.theatlantic.com/business/archive/2012/02/us-taxes-really-are-unusually-progressive/252917/

If you ask me, Jonathan Chait, a writer I respect, has made an ass of himself in a fight he picked with Veronique de Rugy over taxes and progressivity. She offended him by saying that America's income taxes are more progressive than those of other rich countries. Chait assailed her "completely idiotic" reasoning, called her an "inequality denier", "a ubiquitous right-wing misinformation recirculator" and asked if it was really any wonder he cast insults now and then at such "lesser lights of the intellectual world". (Paul Krugman said he sympathises. With Chait, obviously. The only danger here is in being too forgiving, Krugman advises. Chait may think the de Rugys of this world are only lazy and incompetent, but we know them to be liars as well.)

Just one problem. On the topic in question, De Rugy is right and Chait is wrong.

Income taxes in America are more progressive than in other rich countries--according to an authoritiative official study which, to my knowledge, has not been contradicted. The OECD's report "Growing Unequal", on poverty and inequality in industrial countries, includes a table that provides two measures of income tax progressivity in 2005. This is evidently the source of de Rugy's numbers. Here they are in an excel file. According to one measure, America's income taxes were the most progressive of the 24 countries in the sample, except for Ireland. According to the other, they were the most progressive full stop. (A more recent OECD report, "Divided We Stand", uses different data, a smaller sample of countries and a different measure of progressivity: the results are similar.)

Before you ask, this ranking takes account of employee-side payroll tax as well as the federal income tax.

Chait first objected to de Rugy's claim about progressivity because he thought she was inferring it from the fact that the US collects the biggest share of income taxes--45 percent of the total, col B1 in the table--from the top income decile. That would be a false inference, as Chait says, because it could be true of a country with a very unequal income distribution even if its taxes were not especially progressive. But look at the table. There was no need for de Rugy to draw any such inference, let alone try to mislead readers. All she needed to do--and all, I'm sure, she did--was glance over to the last column, which actually gives the measure of progressivity, showing the US to have the highest score.

The measure of progressivity is hard to explain, so I can see why de Rugy quoted the tax share instead. But she could have chosen a much more dramatic number if she was seeking merely to bamboozle her readers. Exclude payroll tax, and the top 1 percent of taxpayers, not the top 10 percent, have lately accounted for nearly 40 percent of income tax receipts, the top 5 percent for nearly 60 percent, and the top decile for roughly 70 percent. (Here are the IRS data, excel file.)

For the reason I just gave, this does not prove that the US tax system is more progressive than anybody else's--but it surely has some relevance to the question, "Are the rich paying their fair share of income tax?" If this isn't fair, what would be?

When Chait, with all the authority of a leading light of the intellectual world, says "Rich Americans pay a bigger share of the tax burden because they earn a bigger share of the income, not because the U.S. tax code is more progressive," he is making the same kind of sloppy bias-driven error he falsely accuses de Rugy of making. (I'll refrain from wondering whether he made the mistake deliberately.) According to the OECD, rich Americans bear a bigger share of the tax burden because they earn a bigger share of the income and because the US income tax system is more progressive.

There's a lot more to say on this subject.

Is measuring progressivity straightforward? No. It's difficult, because the underlying data are very complicated and hard to compare across countries. Another problem: expressing progressivity across the whole income range as a single number, so that one can say A is more or less progressive than B, can be misleading. Unfortunately, we all want to be able to say, A is more or less progressive than B.

Why, according to the OECD, is the US system so progressive? Not because the rich face unusually high average tax rates, but because middle-income US households face unusually low tax rates--an important point which de Rugy mentions and Chait ignores.

How does the picture change if you take indirect taxation into account? That would make the US system look even more progressive, because the US doesn't rely on a flat consumption tax like most other governments.

Continued in article

Most developed nations, other than the U.S., provide relief on double taxation
"Corporate Dividend and Capital Gains Taxation: A Comparison of the United States to Other Developed Nations," by Ernst & Young (Drs. Robert Carroll and Gerald Prante), February 2012 ---
http://images.politico.com/global/2012/02/120208_asidividend.html


Graphic:  How Much People Pay for Health Care Around the World ---
http://visual.ly/how-much-people-pay-health-care-around-world


Fairy Tale of the Month
Employees of Notre Dame will never have to fund the "free" contraception "compromise" of the Obama administration. The cost of $600 per year for each worker on birth control in the United States will all be taken out of insurance company profits. Notre Dame's employees will never have to pay whether or not they are on the pill.

"Immaculate Contraception:  An 'accommodation' that makes the birth-control mandate worse," The Wall Street Journal, February 11, 2012 ---
http://online.wsj.com/article/SB10001424052970203646004577215150068215494.html?mod=djemEditorialPage_t

Here's a conundrum: The White House wants to impose its birth-control ideology on all Americans, including those for whom sponsoring or subsidizing such services violates their moral conscience. The White House also wants to avoid a political backlash from this blow to religious freedom. These goals are irreconcilable.

So you almost have to admire the absurdity of the new plan President Obama floated yesterday: The government will now write a rule that says the best things in life are "free," including contraception. Thus a political mandate will be compounded by an uneconomic one—in other words, behold the soul of ObamaCare.

Under the original Health and Human Services regulation, all religious institutions except for houses of worship would be required to cover birth control, including hospitals, schools and charities. Under the new rule, which the White House stresses is "an accommodation" and not a compromise, nonprofit religious organizations won't have to directly cover birth control and can opt out. But the insurers they hire to cover their employees can't opt out. If that sounds like a distinction without a difference, odds are you're a rational person.

Say Notre Dame decides that its health plan won't cover birth control on moral grounds. A faculty member wants such coverage, so Notre Dame's insurer will then be required to offer the benefit as an add-on rider anyway, at no out-of-pocket cost to her, or to any other worker or in higher premiums for the larger group.

But wait. Supposedly the original rule was necessary to ensure "access" to contraceptives, which can cost up to $600 a year as Democratic Senators Jeanne Shaheen, Barbara Boxer and Patty Murray wrote in these pages this week. The true number is far less, but where does that $600 or whatever come from, if not from Notre Dame and not the professor?

Insurance companies won't be making donations. Drug makers will still charge for the pill. Doctors will still bill for reproductive treatment. The reality, as with all mandated benefits, is that these costs will be borne eventually via higher premiums. The balloon may be squeezed differently over time, and insurers may amortize the cost differently over time, but eventually prices will find an equilibrium. Notre Dame will still pay for birth control, even if it is nominally carried by a third-party corporation.

This cut-out may appease a few of the Administration's critics, especially on the Catholic left—but only if they want to be deceived again, having lobbied for the Affordable Care Act that created the problem in the first place. The faithful for whom birth control is a matter of religious conviction haven't been accommodated at all. They'll merely have to keep two sets of accounting books.

The real audience for this non-compromise are the many voters shaken that the White House would so willfully erode the American traditions of religious liberty and pluralism, most of whom don't adhere to anti-contraceptive teachings. On a conference call with reporters yesterday, a senior Administration official not known for his policy chops claimed that the new plan was "our intention all along" and that the furor is nothing more than partisan opportunism. Hmmm.

We couldn't recall any spirit of conciliation when the birth-control mandate was finalized in January, so we went back and checked the transcript of that call with senior Administration officials. Sure enough, back then they said that the rule "reflects careful consideration of the rights of religious organizations" and that a one-year grace period "really just gives those organizations some additional time to sort out how they will be adjusting their plans."

A journalist asked, "Just to be clear, so it's giving them a year to comply rather than giving them a year to in any way change how they feel or the Administration to change how it feels." Another senior official: "That is correct. It gives them a year to comply."

Yesterday's new adventure in damage control and bureaucratic improvisation makes the compliance problem much worse. There is simply no precedent for the government ordering private companies to offer a product for free, even if they recoup the costs indirectly. Why not do that with all health benefits and "bend the cost curve" to zero? The shape of the final rule when the details land in the Federal Register is anyone's guess, including the HHS gnomes who are throwing it together on the fly to meet a political deadline.

One major problem will be how the rule applies to large organizations that self-insure. Arrangements in which an employer pays for care directly and uses insurers to manage benefits and process claims (not to take on insurance risk) account for the majority of the private market. In these cases there isn't even a free lunch to pretend exists.

As reporting by Bloomberg and ABC this week has made clear, the contraception mandate was fiercely opposed within the Administration, including by Vice President Joe Biden. The larger tragedy is that none of them objected to government health care, which will always take choices away from individuals and arrogate them to an infallible higher power in Washington. Who was it again who claimed that if you like your health plan, you can keep your health plan?


Newsweek Magazine is a relative liberal, anti-conservative news magazine. Since Tina Brown became editor the magazine is no less liberal, but it is a much thinner magazine now with mostly shallow articles that rarely excite me at all. However, the January 30, 2012 edition is an exception that appeals to my academic nature. Academics generally like to read about opposing sides of most any issue, especially a political issue. The article below attacks back at a previous edition's cover story where Andrew Sullivan's praises of President Obama's performance to date.

Thank you Tina for being willing to show both sides of this debate.

"David Frum Strikes Back at Andrew Sullivan on Barack Obama," by David Frum, Newsweek Magazine, January 23, 2012 ---
 http://www.thedailybeast.com/newsweek/2012/01/22/david-frum-strikes-back-at-andrew-sullivan-on-barack-obama.html

Now let’s move to the real debate. You don’t have to succumb to ideological fever or paranoid fantasy to see that the Obama administration is dragging America to the wrong future: a future of higher taxes and reduced freedom, a future in which entrepreneurs will innovate less and lobbyists will influence more, a future in which individuals and communities will make fewer choices for themselves and remote bureaucracies will dictate more answers to us all.

The intentions are not malign. But it’s not intentions that matter—it’s results.

You begin to see those results in the small hearing rooms in which Social Security disability cases are decided. In the months since the financial crisis, the Social Security Administration has been awarding more and more disability pensions: almost 100,000 in the last month of 2011, 50 percent more than before the financial crisis.

Not much surprise there. Applications for disability have jumped even more steeply. It’s not very likely that Americans are suddenly suffering a lot more accidents than they used to suffer, back when many more of them were working. More likely: with unemployment higher, more people are seeking help—and with jobs scarce, more judges are saying yes.

It’s easy to sympathize with the thinking of the individual Social Security judges. Here’s a worker who has lost her job as a forklift operator. Five years ago, a judge might have told her: forget the pension, Walmart is hiring. But now Walmart isn’t hiring—or anyway, not hiring enough. So the judge relents. Why not give the applicant just a little something? An extra $12,000 a year (the size of the average award) won’t break the federal budget. The country can figure out later how to pay for it. Which is how it happened that we’re on the verge of enrolling the 9 millionth American on disability—almost double the number of the late 1990s.

Of course, as the federal government manages more and more disability pensions, it must hire more judges and administrators to hear and process those requests. Employment at the Social Security Administration is up by more than 6,000 since 2007, or 10 percent. In fact, hiring is up across the federal government, by 15 percent since 2007. Federal hiring has been more than offset by layoffs at the state and local level. But when the economy recovers, as it will, the states and localities will hire again—and at the rate we’re going, an upswing in state and local hiring won’t be balanced by commensurate reductions in federal staffing.

You don’t have to vilify President Obama as a Kenyan socialist to recognize that his policies are reorienting the country toward more dependence on the federal government. Through most of the past half century, the federal government has spent about one dollar in five of national income. Right now, it’s spending about one in four. If Barack Obama is reelected and his policies are continued, that one-dollar-in-four ratio will harden into permanent reality, on the way to one dollar in three, with state and local spending on top of that.

Every president since the late 1970s has struggled to contain the growth of government, Democrats as well as Republicans. Jimmy Carter battled Democrats in Congress to stop wasteful construction projects. He signed the deregulation of airlines, trucking, and rail. Bill Clinton announced that “the age of big government is over,” signed welfare reform, and accepted budgets that reduced government spending as a share of national income.

Barack Obama is the first president since Lyndon Johnson to push aggressively for bigger and more interventionist government—and not merely as an emergency measure against the recession.

Look at the president’s energy policy, for example. We need to reduce our use of oil; every president since Richard Nixon has agreed to that. We know how to do it, too: raise the price. When oil prices jumped in the late 1970s, American oil use tumbled. As late as 1995, Americans were using less oil than in 1978. Not less per person. Less oil, period.

When oil prices jumped in the 2000s, Americans again changed their behavior. For the first time in a century, they drove fewer miles, year over year.

Want to reduce oil use even more? Tax it, and then let Americans decide for themselves how to conserve: whether to move closer to work, invest in a hybrid car, or buy fewer consumer products shipped from half the world away.

Instead, Obama has resorted to direct intervention in the energy marketplace. Solyndra, the failed solar-energy company that got $500 million–plus in direct government aid, is one example. Maybe a more important one is the Keystone pipeline from Canada, canceled to conciliate the president’s environmental backers. Those backers apparently prefer to change consumption habits by brute force rather than through the mechanisms of the market, as we can see from their thus-far-successful efforts to scuttle oil projects one by one—drilling in Alaska, drilling in the Gulf of Mexico, Keystone.

You see the same reliance on brute force, not market force, in health care. I am one of the few Republicans who will still defend the Heritage Foundation’s idea of regulated insurance exchanges in which customers are mandated to buy pri-vate insurance, with subsidies for those who need subsidies: Romneycare, in a word. Leaving tens of millions of Americans uninsured is both inhumane and inefficient.

But it is striking that the main engine of coverage expansion under the president’s health-care reform is actually not the mandate you hear so much about. The Congressional Budget Office projects that half of all the net gain in insurance coverage under the president’s health-care proposal will be due to higher enrollment in government programs: Medicaid and the CHIP program for poor children.

Even before Obama took office, half of all the health-care dollars spent in the U.S. were spent by government in one way or another. We’re on our way to government spending much more. And that means that health-care cost control—also urgently needed—will not come via market competition. It will come by direct government order.

Why does the president so favor the expansion of government? There’s no need to resort to paranoid theories. In his characteristically lucid way, he has already told us.

In December, Obama traveled to the Kansas town of Osawatomie to deliver one of the most important speeches of his presidency to date. There he poignantly described the dimming prospects of the American middle class—and then offered the following policy response: “The over 1 million construction workers who lost their jobs when the housing market collapsed, they shouldn’t be sitting at home with nothing to do. They should be rebuilding our roads and our bridges, laying down faster railroads and broadband, modernizing our schools—all the things other countries are already doing to attract good jobs and businesses to their shores ... Of course, those productive investments cost money. They’re not free. And so we’ve also paid for these investments by asking everybody to do their fair share.”

In other words, the president is championing a more active government, not as a way to meet social needs but as a permanent and growing source of middle-class employment. Some of us will work directly for the public sector. Others will be contractors. Either way, many more of us will be working in jobs from which it will be difficult to fire us—and where the government sets more of the terms of employment.

Something like this approach was tried in Britain under the Labour governments of Tony Blair and Gordon Brown. Between 1997 and 2008, Blair and his successor Brown used rapidly rising government revenues to finance new public-sector jobs in depressed old industrial areas. Over the decade, the public sector provided more than half of all the net new jobs in three of the four main economic regions of England—and 80 percent of the net new jobs for women.

They piled more and more taxes on a smaller and smaller slice of the economy. Meanwhile, the expanded public sector did not spark the benefits it was supposed to. The depressed areas remained depressed. The gap between rich and poor grew instead of shrinking.

Obama becomes impatient when his policies are compared to Blair’s or Brown’s. But it’s hard to see the basis for that reaction. A reelected President Obama would want to see the Bush tax rates lapse, federal revenues rise, and the proceeds used to fund a permanently higher level of federal spending and government employment.

. . .

Yes, much of the criticism of the Obama administration has been hysterical and deluded. Yes, many of the attacks on the president and his family have been ugly and hateful. But in rejecting the extremism of some critics, we shouldn’t race to the opposite and equally invalid extreme of denying all criticism.

There is much to admire in Barack Obama the man. But his presidency, especially on the domestic front, has been a bitter disappointment to almost everybody—perhaps above all to those who most desperately needed help from the government he led. It’s time for a new way forward.

Jensen Comment
Social Security was intended originally to be an actuarially sound pension system for retired workers where benefits varied depending upon when a person commenced to draw on the trust funds after becoming 62 years of age or older.. Over the years it became damaged when Congress commenced to fund social benefits from Social Security rather fund those benefits from general revenues on a pay-as-you-go plan to set up separate trust funds for those social benefits. By far the biggest disaster was adding monthly payments for disabled persons at any age they are declared disabled. For example, my wife commenced to collect Social Security Disability Payments at age 53 or thereabouts after she had several unsuccessful spine surgeries.

In this great land there should be benefits for disabled persons. But the decision by President Johnson and his Congress at the time to tack disability onto the Social Security system, because the SS system was never actuarially funded for disability. Sure enough over the years the Social Security trust funds are now depleted and Congress adding to trillion dollar deficits to fund both SS retirement entitlements and disability retirement benefits.

But the story gets worse. At Age 65 or older, persons who have paid into the Medicare system while they were working are eligible for Medicare health benefits that are really quite generous compared to many private medical insurance plans. But unlike retired workers, disabled persons do not have to wait until age 65 to begin collecting Medicare benefits. My wife, for example, became eligible for Medicare the instant she was declared disabled and became eligible for social security disability benefits.

And the story gets even worse as alluded to in the article above. Being fraudulently declared disabled and becoming eligible for disability payments and Medicare has been spreading across the United States like wildfire. Doctors and lawyers everywhere are cooperating in frauds to declare perfectly healthy people disabled.

Of course we could have disability fraud if disability was funded in ways other than Social Security and Medicare systems. But other alternatives might be less overwhelmed with fraud. For example, if the disability was funded by state governments or even the private sector perhaps more local level internal controls would be more effective than the total ineffective controls in place at this point in time. Fraud in the system did not begin with President Obama. But delays in economic recovery and reduced unemployment have fanned the fires of disability fraud.

What happens when we have more "disabled persons" on the dole for the rest of their lives than persons admittedly are able to work?

Audit Failure: The GAO Reported No Problems Amidst All This Massive Fraud|
Note that most of these particular workers retire long before age 65 and are fraudulently collecting full Social Security and Medicare benefits intended for truly disabled persons
"The Public-Union Albatross What it means when 90% of an agency's workers (fraudulently)  retire with disability benefits (before age 65)," by Philip K. Howard, The Wall Street Journal, November 9, 2011 ---
http://online.wsj.com/article/SB10001424052970204190704577024321510926692.html?mod=djemEditorialPage_t

The indictment of seven Long Island Rail Road workers for disability fraud last week cast a spotlight on a troubled government agency. Until recently, over 90% of LIRR workers retired with a disability—even those who worked desk jobs—adding about $36,000 to their annual pensions. The cost to New York taxpayers over the past decade was $300 million.

As one investigator put it, fraud of this kind "became a culture of sorts among the LIRR workers, who took to gathering in doctor's waiting rooms bragging to each [other] about their disabilities while simultaneously talking about their golf game." How could almost every employee think fraud was the right thing to do?

The LIRR disability epidemic is hardly unique—82% of senior California state troopers are "disabled" in their last year before retirement. Pension abuses are so common—for example, "spiking" pensions with excess overtime in the last year of employment—that they're taken for granted.

Governors in Wisconsin and Ohio this year have led well-publicized showdowns with public unions. Union leaders argue they are "decimat[ing] the collective bargaining rights of public employees." What are these so-called "rights"? The dispute has focused on rich benefit packages that are drowning public budgets. Far more important is the lack of productivity.

"I've never seen anyone terminated for incompetence," observed a long-time human relations official in New York City. In Cincinnati, police personnel records must be expunged every few years—making periodic misconduct essentially unaccountable. Over the past decade, Los Angeles succeeded in firing five teachers (out of 33,000), at a cost of $3.5 million.

Collective-bargaining rights have made government virtually unmanageable. Promotions, reassignments and layoffs are dictated by rigid rules, without any opportunity for managerial judgment. In 2010, shortly after receiving an award as best first-year teacher in Wisconsin, Megan Sampson had to be let go under "last in, first out" provisions of the union contract.

Even what task someone should do on a given day is subject to detailed rules. Last year, when a virus disabled two computers in a shared federal office in Washington, D.C., the IT technician fixed one but said he was unable to fix the other because it wasn't listed on his form.

Making things work better is an affront to union prerogatives. The refuse-collection union in Toledo sued when the city proposed consolidating garbage collection with the surrounding county. (Toledo ended up making a cash settlement.) In Wisconsin, when budget cuts eliminated funding to mow the grass along the roads, the union sued to stop the county executive from giving the job to inmates.

No decision is too small for union micromanagement. Under the New York City union contract, when new equipment is installed the city must reopen collective bargaining "for the sole purpose of negotiating with the union on the practical impact, if any, such equipment has on the affected employees." Trying to get ideas from public employees can be illegal. A deputy mayor of New York City was "warned not to talk with employees in order to get suggestions" because it might violate the "direct dealing law."

How inefficient is this system? Ten percent? Thirty percent? Pause on the math here. Over 20 million people work for federal, state and local government, or one in seven workers in America. Their salaries and benefits total roughly $1.5 trillion of taxpayer funds each year (about 10% of GDP). They spend another $2 trillion. If government could be run more efficiently by 30%, that would result in annual savings worth $1 trillion.

What's amazing is that anything gets done in government. This is a tribute to countless public employees who render public service, against all odds, by their personal pride and willpower, despite having to wrestle daily choices through a slimy bureaucracy.

One huge hurdle stands in the way of making government manageable: public unions. The head of the American Federation of State, County and Municipal Employees recently bragged that the union had contributed $90 million in the 2010 off-year election alone. Where did the unions get all that money? The power is imbedded in an artificial legal construct—a "collective-bargaining right" that deducts union dues from all public employees, whether or not they want to belong to the union.

Some states, such as Indiana, have succeeded in eliminating this requirement. I would go further: America should ban political contributions by public unions, by constitutional amendment if necessary. Government is supposed to serve the public, not public employees.

America must bulldoze the current system and start over. Only then can we balance budgets and restore competence, dignity and purpose to public service.

Bob Jensen's threads on the entitlements disaster are at
http://www.trinity.edu/rjensen/Entitlements.htm


Question
Can you lower income taxes for people who don't pay any income taxes?
Note that about half the taxpayers in the United States do not pay any income taxes.

Answer
Of course. You can increase their refunds that their already receiving before you "lower" their taxes.

"Can you cut taxes for people who don't pay taxes?" Des Moines Register, February 07, 2012 ---
http://www.rothcpa.com/archives/007655.php

Jensen Comment
It was conservative economist and Nobel Prize winner Milton Friedman who advocated simplifying the welfare system by introducing a negative income tax. We seem to have a negative income tax in place without giving Professor Friedman enough credit .


To help explain what is really going on here I wrote a teaching case:
A Teaching Case:  Professor Tall vs. Professor Short vs. Freddie Mac
http://www.trinity.edu/rjensen/TallVerusShort.htm 

Question
Why won't Freddie Mac provide more relief to homeowners having mortgages that are under water --- meaning the prepayment balance due is more than 80% of the current value of the property?

"Freddie Mac’s big bet against homeowners," by Suzy Khimm, The Washington Post, January 31, 2012 ---
http://www.washingtonpost.com/blogs/ezra-klein/post/freddie-macs-big-bet-against-homeowners/2012/01/30/gIQAQ8tYcQ_blog.html

ProPublica’s Jesse Eisinger and NPR’s Chris Arnold have discovered that Freddie Mac has used a complex derivative transaction to place large bets that rely on millions of American homeowners remaining in overpriced mortgages to pay off. The bets in Freddie’s investment portfolio — which totaled $3.4 billion in 2010 and 2011 — directly contradict the housing giant’s stated mission to provide affordable mortgages to Americans.

Freddie’s bet against refinancing — known as an “inverse floater,” which depends on mortgages interest payments — underscores a central tension between the White House and the Federal Housing Finance Agency, which gained conservatorship of Fannie and Freddie after the crisis. When Freddie and Fannie’s huge investment portfolios profit, it helps reduce the potential burden on taxpayers. That’s been a priority for FHFA under Edward DeMarco’s leadership. At the same time, Fannie and Freddie could, by easing the way for homeowners to lower their payments, help heal the housing market. That’s the priority for the White House. As such, Freddie Mae made “a direct bet against the administration’s public policy effort,” Christopher Mayer, professor of housing finance at Columbia University, tells me.

When it comes to refinancing, “there’s always been this lingering question — why aren’t the GSEs doing more? Everyone says it’s because of their portfolio, ” said Mayer, who’s been a proponent of mass refinancing through Fannie and Freddie. He points out that Freddie, in recent months, had tighter rules for refinancing than its counterpart Freddie. “Now we know why,” Mayer says.

Continued in article

Jensen Comment
To help explain what is really going on here I wrote a teaching case:
A Teaching Case:  Professor Tall vs. Professor Short vs. Freddie Mac
http://www.trinity.edu/rjensen/TallVerusShort.htm 

"Once a Castle, Home is Now a Debtors' Prison," Nicolas P. Retsinas, Harvard Business School, February 2, 2012 ---
http://hbswk.hbs.edu/item/6791.html

We have created a housing hybrid in America, refashioning the single-family home into a mini debtors' prison. Almost 11 million dot the landscape. In Las Vegas and Phoenix, over 50 percent of homeowners live in one.

Forget the notion of the home as "castle," protecting the owner from greedy landlords. Forget too the expectation that a physical nest will morph into a nest egg. For 22 percent of people who hold mortgages, those notions are anachronistic—relics of a long-ago era before unemployment soared, the Dow plummeted, and credit default swaps surfaced. In today's jargon, these owners are underwater—they owe more than the value of their homes.

But underwater is a misnomer. People underwater either swim or drown.

These underwater owners linger, trapped in their very own debtors' prisons. Their task is Sisyphean: they work, pay the monthly debt to the lender, yet see a perpetual gap between payments and value. The payments can seem like an extortion episode from The Sopranos.

Exit strategies are few. If an owner sells the house for less than the mortgage, the owner must pay the lender the difference. Owners will still need to find someplace else to live.

An owner can walk away from the loan and join the "strategic defaulters," who defaulted not because they could not pay but because they did not want to. Their house was a bad investment. The advantage of this maneuver is real: strategic defaulters save money. Sometimes they can rent a comparable home. But they risk a lower credit rating, which could bar them from buying another home for up to seven years.

Understandably, most owners do not grab either of these solutions; instead, they live shackled in what the Chinese call fang nu—slaves to their house.

One owner's misery is personal; when over a fifth of mortgage-holders are shackled, the personal misery becomes national. For the country, these homes are an economic shackle, hobbling the housing market. They also distort the labor market: people offered jobs far afield stay put, reluctant (and unable) to leave their underwater homes. Since the recovery of the housing market will undergird any broader recovery, we must address these debtors' prisons.

Novel solutions

The solutions will force lenders to throw out their textbooks.

First, lenders can recognize the wisdom of short sales, accepting less than the face value of the mortgage. Currently banks do accept short sales but only after protracted negotiations. One advice columnist recently advised sellers eager to unload an underwater house to keep trying—on the third try, a bank might relent. A short sale will put the house on the market, opening it to another buyer, letting the seller move. Lenders could proactively set prices for short sales.

Continued in article

To help explain what is really going on here I wrote a teaching case:
A Teaching Case:  Professor Tall vs. Professor Short vs. Freddie Mac
http://www.trinity.edu/rjensen/TallVerusShort.htm 


How to Mislead With Statistics:  Unemployment Statistics Exclude Worker Wannabes Who Just Gave Up Looking (living on welfare?)

"Unemployment drop still leaves low skill workers behind," by Michael A. Fletcher, The Washington Post, February 6, 2012 --- Click Here
http://www.washingtonpost.com/business/economy/unemployment-drop-still-leaves-low-skill-workers-behind/2012/02/05/gIQA5RSFvQ_story.html?hpid=z6

The nation’s jobless rate has declined to its lowest level in three years, a fact that has left Jamie Bean, an unemployed air-conditioner repairman, feeling more left out than ever.

Bean, 36, lost his job in December. Now he is scrambling to keep up with child-support payments to his wife, who is also unemployed. “As it stands now, I can’t afford to get divorced,” he said, managing a wry smile.

Bean’s predicament is not unlike that of many people who have a high school education or less. Not only were they hit especially hard by the recession but they have continued losing ground in the recovery that has followed.

By disproportionate numbers, these Americans have given up looking for work, making the nation’s recovery appear better than it is. If the unemployment rate counted the 2.8 million people who want jobs but have stopped looking, it would sit at 9.9 percent rather than its current 8.3 percent.

These would-be workers are falling behind as other people are gaining momentum, economists say. Employment prospects are modestly improving for college graduates, for instance, but dimming for those who have a high school diploma or less.

The number of Americans facing this predicament isn’t small. Nearly a third of the nation’s labor market has only a high school diploma. And more than one in 10 of these workers lost their jobs between late 2007 and early 2011, according to the Urban Institute, a nonpartisan think tank. About a third of those job losses occurred since the recovery began in mid-2009.

The news is worse for high school dropouts. One in five of them have lost their jobs since 2007, with about half of those losses occurring after the recession ended, the Urban Institute said. Overall, the unemployment rate for high school dropouts was 13.1 percent last month.

The recovery, economists say, has highlighted the consequences of not earning a college degree.

“There has been a considerable difference in who is getting those jobs,” said Pamela J. Loprest, director of the Urban Institute’s Income and Benefits Policy Center. She added that recent improvements in the jobless rate have not significantly lifted the burden on less-educated workers. “Lower-educated workers got hit harder. And the recovery has been uneven in that it has most benefited those with more skills.”

President Obama hailed the Labor Department’s most recent report that the nation’s unemployment rate had ticked down for the fifth consecutive month as evidence of an accelerating recovery.

Although the latest jobs report showed broad-based gains, the nation has a long way to go to make up for the positions lost during the recession — especially in some traditionally blue-collar occupations that were decimated by the recession.

Manufacturers, led by the auto industry, created 50,000 jobs in January and have added more than 300,000 positions in the past two years. But those gains pale in comparison with the 2 million manufacturing jobs that were lost during the recession. Similarly, construction jobs have grown in recent months, but not nearly enough to offset the 1.5 million that were lost in the recession.

 

More on how to mislead with statistics

It brings to mind the joke about Bill Gates walking into a bar and suddenly everyone in the room becomes a millionaire. Statistically, by averaging the incomes in the room, the statement is true.
Zachary Karabell (see below)

"There Is No 'The Economy'," by Zachary Karabell, The Wall Street Journal, June 30, 2008; Page A13 --- http://online.wsj.com/article/SB121478256977914431.html?mod=djemEditorialPage

Once upon a time, and for most of the 20th century, there was. The data that we use today is a product of the nation-state, and was created in order to give government the tools to gauge the health of the nation. The Bureau of Labor Statistics, which measures the unemployment rate and inflation, was created around the turn of the 20th century, and for much of that century the U.S. was a cohesive unit. It was its own most important market, its own source of consumption, and its own source of credit.

Big-picture statistics form the basis of almost every discussion about "the economy." But these statistics are averages reporting one blended number that is treated as if it applies to all 300 million Americans. It brings to mind the joke about Bill Gates walking into a bar and suddenly everyone in the room becomes a millionaire. Statistically, by averaging the incomes in the room, the statement is true.

Macro data and big-picture statistics like GDP growth, the unemployment rate and consumer spending are all large averages. The fact that the economy is growing or contracting by 1% or 2% is taken as a proxy not just for the economic health of the nation, but for the economic health of the bulk of its citizens. The same goes for consumer spending. If it goes up or down 2%, that is taken as representative not just of the statistical fiction called "the American consumer" but as indicative of the behavior and attitudes of U.S. consumers writ large.

To begin with, someone in the upper-income brackets is living a different life than those in the lower-income brackets. The top 20% of income earners spend more than the lower 60% combined. The wealthiest 400 people have more than $1 trillion in net worth, which exceeds the discretionary spending of the entire federal government. These groups are all American, yet it would be stretching the facts to the breaking point to assert that they share an economic reality. On the upper end, the soaring price of food and fuel hardly matter; on the other end, they matter above all else. The upper end does matter quantitatively, but the group of people on the lower end is vastly larger and therefore has more resonance in our public and electoral debate.

Look at housing, widely regarded as a national calamity. The regional variations depict something different. In Stockton, Calif., one in 75 households are in foreclosure; in Nebraska, the figure is one in every 1,459; and the greater Omaha area is thriving. Similar contrasts could be made between Houston and Tampa, or between Las Vegas and Manhattan. Home prices have plunged in certain regions such as Miami-Dade, and stayed stable in others such as San Francisco and Silicon Valley. Houston, bolstered by soaring oil prices, has a 3.9% unemployment rate; the rate in Detroit, depressed by a collapsing U.S. auto industry, is 6.9%. The notion that these disparate areas share a common housing malaise or similar employment challenges is a fiction.

We hear continual stories of the subprime economy and its fallout on Main Street and Wall Street. All true. Yet there is also an iPhone economy and a Blackberry economy. Ten million iPhones were sold last year at up to $499 a pop, and estimates are for 20 million iPhones sold this year, many at $199 each. That's billions of dollars worth of iPhones. Add in the sales of millions of Blackberrys, GPS devices, game consoles and so on, and you get tens of billions more.

The economy that supports the purchases of these electronic devices is by and large not the same economy that is seeing rampant foreclosures. The economy of the central valley of California is not the same economy of Silicon Valley, any more than the economy of Buffalo is the same as the economy of greater New York City. Yet in our national discussion, it is as if those utterly crucial distinctions simply don't exist. Corn-producing states are doing just fine; car-producing states aren't.

The notion that the U.S. can be viewed as one national economy makes increasingly less sense. More than half the profits of the S&P 500 companies last year came from outside the country, yet in indirect ways those profits did add to the economic growth in the U.S. None of that was captured in our economic statistics, because the way we collect data – sophisticated as it is – has not caught up to the complicated web of capital flows and reimportation of goods by U.S.-listed entities for sale here.

These issues are not confined to the U.S. Every country is responsible for its own national data, and every country is falling victim to a similar fallacy that its national data represent something meaningful called "the economy."

In truth, what used to be "the economy" is just one part of a global chess board, and the data we have is incomplete, misleading, and simultaneously right and wrong. It is right given what it measures, and wrong given what most people conclude on the basis of it.

The world is composed of hundreds of economies that interact with one another in unpredictable and unexpected ways. We cling to the notion of one economy because it creates an illusion of shared experiences. As comforting as that illusion is, it will not restore a simplicity that no longer exists, and clinging to it will not lead to viable solutions for pressing problems.

So let's welcome this new world and discard familiar guideposts, inadequate data and outmoded frameworks. That may be unsettling, but it is a better foundation for wise analysis and sound solutions than clinging to a myth.

 


Our goal is for our economy to look more like Texas, and a lot less like California.
Sam. Brownback, 2012 Governor of Kansas --- http://en.wikipedia.org/wiki/Sam_Brownback

"The Heartland Tax Rebellion:  More states want to repeal their income taxes," The Wall Street Journal, February 7, 2012 ---
http://online.wsj.com/article/SB10001424052970203889904577200872159113492.html#mod=djemEditorialPage_t

Oklahoma Governor Mary Fallin is starting to feel surrounded. On her state's southern border, Texas has no income tax. Now two of its other neighbors, Missouri and Kansas, are considering plans to cut and eventually abolish their income taxes. "Oklahoma doesn't want to end up an income-tax sandwich," she quips.

On Monday she announced her new tax plan, which calls for lowering the state income-tax rate to 3.5% next year from 5.25%, and an ambition to phase out the income tax over 10 years. "We're going to have the most pro-growth tax system in the region," she says.

She's going to have competition. In Kansas, Republican Governor Sam Brownback is also proposing to cut income taxes this year to 4.9% from 6.45%, offset by a slight increase in the sales tax rate and a broadening of the tax base. He also wants a 10-year phase out. In Missouri, a voter initiative that is expected to qualify for the November ballot would abolish the income tax and shift toward greater reliance on sales taxes.

South Carolina Governor Nikki Haley wants to abolish her state's corporate income tax. And in the Midwest, Congressman Mike Pence, who is the front-runner to be the next Republican nominee for Governor, is exploring a plan to reform Indiana's income tax with much lower rates. That policy coupled with the passage last week of a right-to-work law would help Indiana attract more jobs and investment.

That's not all: Idaho, Maine, Nebraska, New Jersey and Ohio are debating income-tax cuts this year.

But it is Oklahoma that may have the best chance in the near term at income-tax abolition. The energy state is rich with oil and gas revenues that have produced a budget surplus and one of the lowest unemployment rates, at 6.1%. Alaska was the last state to abolish its income tax, in 1980, and it used energy production levies to replace the revenue. Ms. Fallin trimmed Oklahoma's income-tax rate last year to 5.25% from 5.5%.

The other state overflowing with new oil and gas revenues is North Dakota thanks to the vast Bakken Shale. But its politicians want to abolish property taxes rather than the income tax.

They might want to reconsider if their goal is long-term growth rather than short-term politics. The American Legislative Exchange Council tracks growth in the economy and employment of states and finds that those without an income tax do better on average than do high-tax states. The nearby table compares the data for the nine states with no personal income tax with that of the nine states with the highest personal income-tax rates. It's not a close contest.

Skeptics point to the recent economic problems of Florida and Nevada as evidence that taxes are irrelevant to growth. But those states were the epicenter of the housing bust, thanks to overbuilding, and for 20 years before the bust they had experienced a rush of new investment and population growth. They'd be worse off now with high income-tax regimes.

The experience of states like Florida, New Hampshire, Tennessee and Texas also refutes the dire forecasts that eliminating income taxes will cause savage cuts in schools, public safety and programs for the poor. These states still fund more than adequate public services and their schools are generally no worse than in high-income tax states like California, New Jersey and New York.

They have also recorded faster revenue growth to pay for government services over the past two decades than states with income taxes. That's because growth in the economy from attracting jobs and capital has meant greater tax collections.

The tax burden isn't the only factor that determines investment flows and growth. But it is a major signal about how a state treats business, investment and risk-taking. States like New York, California, Illinois and Maryland that have high and rising tax rates also tend to be those that have growing welfare states, heavy regulation, dominant public unions, and budgets that are subject to boom and bust because they rely so heavily on a relatively few rich taxpayers.

The tax competition in America's heartland is an encouraging sign that at least some U.S. politicians understand that they can't take prosperity for granted. It must be nurtured with good policy, as they compete for jobs and investment with other states and the rest of the world.

"Our goal is for our economy to look more like Texas, and a lot less like California," says Mr. Brownback, the Kansas Governor. It's the right goal.

 

Continued in article

State Individual Income Tax Rates in the 50 States, 2000-2011 ---
http://www.taxfoundation.org/taxdata/show/228.html
On a per capita basis ---
50-State Table of State and Local Individual Income Tax Collections Per Capita

Comparison of Corporate Income Tax Rates in the 50 States ---
http://www.taxfoundation.org/taxdata/show/230.html
On a per capita basis ---
http://www.taxfoundation.org/taxdata/show/281.html
This is a little misleading since many states like Illinois give their largest corporate employers "Get Out of Tax Free" cards (or offsetting subsidies)

State Sales, Gasoline, Cigarette, and Alcohol Tax Rates by State, 2000-2010 ---
http://www.taxfoundation.org/publications/show/245.html

PBS Video:  What Do Tax Rates' Ups and Downs Mean for Economic Growth?
http://video.pbs.org/video/2176062522
Thank you Paul Caron for the heads up.

Marginal Tax Rates Around the World --- http://www.econlib.org/library/Enc/MarginalTaxRates.html

Tax Foundation --- http://en.wikipedia.org/wiki/Tax_Foundation

Video from the Tax Foundation --- How Much Do U.S. Corporations Really Pay in Taxes? New Video Documents High Effective Rates
http://taxfoundation.org/news/show/27953.html
Thank you Paul Caron for the heads up at the Tax Prof blog

U.S. companies pay among the highest corporate tax rates in the world, even after accounting for all deductions and loopholes, according to a new video produced by the Tax Foundation. This explanation of “effective” tax rates for corporations, based on recent academic studies of tax systems around the globe, is the third in a 5-part series on corporate taxes. “The impression that a large number of U.S. companies are using loopholes and creative accounting to get out of paying taxes could not be more wrong,” said Tax Foundation president Scott Hodge. “American corporations are consistently paying at the highest levels in the world, and that burden impacts their ability to compete both at home and abroad.”

Jensen Comment
The Tax Foundation has been around since 1937, but it has been recently heavily criticized by liberals like Paul Krugman for misleading research.

Note that just because a corporation elects to not transmit profits earned abroad back to the United States, thereby deferring U.S. corporate taxes, does not mean it is not paying taxes on these profits that are often subject to foreign corporate taxes that are usually lower than U.S. corporate taxes on those profits.

 

Bob Jensen's threads on taxation ---
http://www.trinity.edu/rjensen/Bookbob1.htm#Taxation


"The Fed Votes No Confidence The prolonged—'emergency'—near-zero interest rate policy is harming the economy," by Charles Schwab, The Wall Street Journal, February 6, 2012 ---
http://online.wsj.com/article/SB10001424052970204740904577197374292182402.html?mod=djemEditorialPage_t

We're now in the 37th month of central government manipulation of the free-market system through the Federal Reserve's near-zero interest rate policy. Is it working?

Business and consumer loan demand remains modest in part because there's no hurry to borrow at today's super-low rates when the Fed says rates will stay low for years to come. Why take the risk of borrowing today when low-cost money will be there tomorrow?

Federal Reserve Chairman Ben Bernanke told lawmakers last week that fiscal policy should first "do no harm." The same can be said of monetary policy. The Fed's prolonged, "emergency" near-zero interest rate policy is now harming our economy.

The Fed policy has resulted in a huge infusion of capital into the system, creating a massive rise in liquidity but negligible movement of that money. It is sitting there, in banks all across America, unused. The multiplier effect that normally comes with a boost in liquidity remains at rock bottom. Sufficient capital is in the system to spur growth—it simply isn't being put to work fast enough.

Average American savers and investors in or near retirement are being forced by the Fed's zero-rate policy to take greater investment risks. To get even modest interest or earnings on their savings, they move out of safer assets such as money markets, short-term bonds or CDs and into riskier assets such as stocks. Either that or they tie up their assets in longer-term bonds that will backfire on them if inflation returns. They're also dramatically scaling back their consumer spending and living more modestly, thus taking money out of the economy that would otherwise support growth.

We've also seen a destructive run of capital out of Europe and into safe U.S. assets such as Treasury bonds, reflecting a world-wide aversion to risk. New business formation is at record lows, according to Census Bureau data. There is still insufficient confidence among business people and consumers to spark an investment and growth boom.

We're now in the 37th month of central government manipulation of the free-market system through the Federal Reserve's near-zero interest rate policy. Is it working?

Business and consumer loan demand remains modest in part because there's no hurry to borrow at today's super-low rates when the Fed says rates will stay low for years to come. Why take the risk of borrowing today when low-cost money will be there tomorrow?

Federal Reserve Chairman Ben Bernanke told lawmakers last week that fiscal policy should first "do no harm." The same can be said of monetary policy. The Fed's prolonged, "emergency" near-zero interest rate policy is now harming our economy.

The Fed policy has resulted in a huge infusion of capital into the system, creating a massive rise in liquidity but negligible movement of that money. It is sitting there, in banks all across America, unused. The multiplier effect that normally comes with a boost in liquidity remains at rock bottom. Sufficient capital is in the system to spur growth—it simply isn't being put to work fast enough.

Average American savers and investors in or near retirement are being forced by the Fed's zero-rate policy to take greater investment risks. To get even modest interest or earnings on their savings, they move out of safer assets such as money markets, short-term bonds or CDs and into riskier assets such as stocks. Either that or they tie up their assets in longer-term bonds that will backfire on them if inflation returns. They're also dramatically scaling back their consumer spending and living more modestly, thus taking money out of the economy that would otherwise support growth.

We've also seen a destructive run of capital out of Europe and into safe U.S. assets such as Treasury bonds, reflecting a world-wide aversion to risk. New business formation is at record lows, according to Census Bureau data. There is still insufficient confidence among business people and consumers to spark an investment and growth boom.

Jensen Comment

The video is a anti-Bernanke musical performance by the Dean of Columbia Business School ---
http://www.youtube.com/watch?v=3u2qRXb4xCU
Ben Bernanke (Chairman of the Federal Reserve and a great friend of big banks) --- http://en.wikipedia.org/wiki/Ben_Bernanke
R. Glenn Hubbard (Dean of the Columbia Business School) ---
http://en.wikipedia.org/wiki/Glenn_Hubbard_(economics)

 

Bob Jensen's threads on the bailout mess are at
http://www.trinity.edu/rjensen/2008Bailout.htm

Bob Jensen's threads on The Greatest Swindle in the History of the World ---
http://www.trinity.edu/rjensen/2008Bailout.htm#Bailout


"Health Reform Built to Fail How Medicare rigs competitive bidding and hurts patients," The Wall Street Journal, February 6, 2012 ---
http://online.wsj.com/article/SB10001424052970204740904577193224024421442.html#mod=djemEditorialPage_t

Americans may not be familiar with the medical innovation called negative pressure wound therapy, though it has helped hundreds of thousands of patients with complex or chronic injuries like burns or diabetic ulcer complications that could never heal on their own. Now President Obama's Medicare team is about to severely damage this field, and many others too—all in the name of reforming how the entitlement pays for care.

Last week a Medicare competitive-bidding program went live in 91 metro regions—nearly all the U.S. population—for what's known as durable medical equipment. That bureaucratic jargon covers advanced devices like wound therapy, respiratory assist equipment for people who can't breathe, and feeding tube systems for people who can't eat. It also lumps in things like walkers, scooters and "support surfaces." Those would be beds.

The good intentions of this saga date to 2003, when Congress in a fit of sanity ended Medicare's price controls in favor of auctions. Both political parties soon rebelled when oxygen tank suppliers, scooter stores and such in their home districts started whining about being asked to compete on market prices, rather than plod along with the guaranteed revenue of the fee schedule. But the much deeper problem is that Medicare cooked up an auction process that defies all economic sense.

Normally when the government wants to buy something, it asks companies how much they can provide and to name their price. Winners are selected from the lowest bid up until the government has what it needs at the lowest possible cost, and thereby finds competitive equilibrium prices.

Under Medicare's highly unusual version of competitive bidding, it will pay the winners the median price of all the winning bids, rather than using the clearing price. Bids are also for some reason nonbinding.

This matters because it creates incentives for unscrupulous third-party companies to make low-ball "suicide bids." If the median price shakes out high enough, they automatically win the contract, buy the medical products from manufacturers and turn a profit. If it isn't, they can dump the contract since bidding involves no commitment.

Medicare will then offer the contract at the median price to the honest companies that have made bids aligned with their true costs, and they can take it or leave it. Medicare benefits because the median prices will be biased below the clearing price—in other words, the "auction" is merely another way of generating arbitrary below-cost price controls.

The Bush Administration road-tested this scheme in 2008 with pilot projects in nine cities. For illustration let's return to negative pressure wound therapy, a technique that involves a sealed dressing attached to a vacuum pump to prevent infection and improve recovery. Patients can recuperate at home but require 24/7 clinical and safety support, typically provided by the device's maker. Advanced wound treatment is far more complex than, say, a cane.

In 2008, only 17 of the 88 winning bidders bothered to supply wound therapy devices. Only 10 of them had any actual expertise in how the technology is used or in patient support. The supply crisis was so deep that for several weeks no Medicare patients in two of the cities could receive this treatment at home, and the government threw out the entire program and said it would retool competitive bidding.

Yet by one estimate, a 2011 reprise had roughly one-fifth of the bids going to companies that were on credit hold with device manufacturers—i.e., they couldn't buy if they wanted to. Medicare, meanwhile, boasts that it will reduce prices for durable medical equipment by 35% and "save" taxpayers $28 billion. All it is really doing is rewarding the fly-by-night operators while harming innovative companies and ultimately patients.

The current nationwide rollout has no substantive revisions from the failed pilots, despite the objections of 244 economists and auction scientists led by the University of Maryland's Peter Cramton. The consensus of basically everyone who knows anything about auctions is that the no-risk bids and median pricing are idiotic and designed for failure.

At a December meeting, a coalition of device makers and professional clinical groups even accepted these flaws but begged Medicare deputy administrator Jonathan Blum merely to accredit wound therapy bidders. He refused to apply any such basic quality control standards. The Administration does not care.

The larger tragedy is that market methods like auctions are the only way to rationalize the entitlement state. They're at the core of the reform ambitions of Paul Ryan and Ron Wyden—and they're already tough enough to achieve given the resistance of the providers that want more of Medicare's money. This fiasco turns on 1.4% of Medicare's annual spending, yet it risks discrediting competitive bidding for good.

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


From Paul Caron's TaxProf Blog on January 26, 2012 ---
http://taxprof.typepad.com/

The Tax Foundation yesterday released the 2012 State Business Tax Climate Index (9th ed.) which ranks the fifty states according to five indices: corporate tax, individual income tax, sales tax, unemployment insurance tax, and property tax. Here are the ten states with the best and worst business tax climates:

1

Wyoming
 

41

Iowa 

2

South Dakota

42

Maryland

3

Nevada

43

Wisconsin

4

Alaska

44

North Carolina
 

5

Florida

45

Minnesota

6

New Hampshire

46

Rhode Island

7

Washington

47

Vermont

8

Montana

48

California

9

Texas

49

New York

10

Utah

50

New Jersey

Interestingly, all ten of the states with the worst business tax climates voted for Barack Obama in the 2008 presidential election, and five of the ten states with the best business tax climates voted for John McCain (and eight of the ten voted for George Bush in 2004).

"States Where People Pay the Most (and Least) in Taxes," by Charles B. Stockdale, Michael B. Sauter, Douglas A. McIntyre, Yahoo Finance, July 21, 2011 ---
http://finance.yahoo.com/taxes/article/113173/states-pay-most-least-taxes-247wallst

Jensen Comment
But we're only operating in the narrow range of 6.3% (Alaska) to 12.2% (New Jersey) for state and local taxes, including property taxes. One would hope that, by adding to a state's tax burden, the quality of education would be the result of higher taxes. This, however, is not the case for most states. For example, South Dakota comes in at Rank 3 with a very low 7.6% tax burden and manages to have one of the very best K-12 rural and urban education systems among the 50 states. Unfortunately, this does not extend to higher education in South Dakota. New Jersey has the highest taxation rate of 12.2% but does not get a whole lot of K-12 bang for the buck in terms of education compared with the low taxation states of South Dakota, New Hampshire, and Tennessee.

The largest cities in the U.S. face the most daunting problems in K-12 education. Problems with rural versus urban may be greater than problems with high state taxation versus low state taxation. For example, rural New York has some very nice rural K-12 schools that exist apart from troubled NYC schools. On the other hand, rural Texas has some of the worst rural K-12 schools in the nation. Mississippi has some of the worst urban and rural schools in the nation, but Mississippi is neither a high nor a low taxation state total state and local taxation rankings. However, in terms of local property taxation, Mississippi has low property tax burdens. Quality of schools in rural communities correlates highly and negatively with degree of poverty in those communities. Quality of urban schools is more complicated. New York City and Chicago are quite wealthy and prosperous in ways that do not translate in to quality of K-12 inner city public schools. Minneapolis is less prosperous and wealthy but probably has somewhat better public schools. although in every large U.S. city the inner city schools are lower in quality than schools in their suburbs.

Bob Jensen's threads on taxation are at
http://www.trinity.edu/rjensen/BookBob1.htm#010304Taxation


PBS Video:  What Do Tax Rates' Ups and Downs Mean for Economic Growth?
http://video.pbs.org/video/2176062522
Thank you Paul Caron for the heads up.

Marginal Tax Rates Around the World --- http://www.econlib.org/library/Enc/MarginalTaxRates.html

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.


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.

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

One of the problems in comparing marginal tax rates and economic growth by country is the enormous problem of variations in tax enforcement between nations. Countries (read that Greece and Italy) may have relatively high marginal tax rates where enforcement is a sham. Illinois just imposed one of the largest tax rate increases among all 50 states in the United States. But Illinois is handing out "Get Out of Tax Free" cards right and left for large corporations that threaten to pull up stakes in Illinois and move on to states that have lower tax rates.

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

Another problem in comparing marginal tax rates and economic growth by country is that countries vary in terms of what taxpayers receive in return. Many nations provide health care benefits for all citizens in revenues collected from taxes. Others provide less health services from taxation. Some nations can keep taxes lower because they are protected by the military might of neighbors. Canada, for example, has never had to invest heavily in its military because it lives under the powerful military umbrella of the United States. Israel is a high taxation state, but taxes would soar through the roof if the United States did not heavily subsidize military protection of Israel.

 


Harvard alums say tax code, politics drive U.S. decline

"Business execs blame political system for US decline," by Erik Wasson, The Hill, January 18, 2012 ---
http://thehill.com/blogs/on-the-money/801-economy/204901-business-execs-blame-political-system-for-us-decline-


Sometimes random walks are more pleasing than those chosen by your tour guide.

It's well documented that many (most?) of the time a randomly chosen investment portfolio will perform better (by whatever criterion) than the portfolio your so-called professional investor chooses for you.

"On the relationship between partition and random testing," IEE Xplore, December 1994 ---
http://ieeexplore.ieee.org/xpl/freeabs_all.jsp?arnumber=368132

Weyuker and Jeng have argued without proof that the worst case of partition testing will, in most cases, be worse than random testing, based on the following intuition that "in the random testing case, the tester gets n attempts at finding a bug, with each try having a likelihood of ...

Continued in article

"Judging the Quality of Gene Expression-Based Clustering Methods Using Gene Annotation," by Francis D. Gibbons and Frederick P. Roth, Genome Research, July 30, 2002 ---
http://genome.cshlp.org/content/12/10/1574.short

... Clusters of genes derived from single- and average-linkage hierarchical clustering tend to produce worse-than-random results. ... In the Cho data set (Fig. 2a), the performance of single-linkage hierarchical clustering is worse than random, and average linkage fares little better. ...

Continued in article

 

"On the relationship between partition and random testing," IEE Xplore, December 1994 ---
http://ieeexplore.ieee.org/xpl/freeabs_all.jsp?arnumber=368132

Weyuker and Jeng have argued without proof that the worst case of partition testing will, in most cases, be worse than random testing, based on the following intuition that "in the random testing case, the tester gets n attempts at finding a bug, with each try having a likelihood of ...

Continued in article

"Judging the Quality of Gene Expression-Based Clustering Methods Using Gene Annotation," by Francis D. Gibbons and Frederick P. Roth, Genome Research, July 30, 2002 ---
http://genome.cshlp.org/content/12/10/1574.short

... Clusters of genes derived from single- and average-linkage hierarchical clustering tend to produce worse-than-random results. ... In the Cho data set (Fig. 2a), the performance of single-linkage hierarchical clustering is worse than random, and average linkage fares little better. ...

Continued in article

 

 

Polls show that a generic (randomly chosen) GOP candidate has a good chance of beating President Obama in 2012. However, neither of the two leading candidates has a ghost of a chance, which goes to show that electoral selection can be worse than random selection. Of course we've known this for years, especially for candidates in the House and Senate.

"The GOP Deserves to Lose That's what happens when you run with losers," by Bret Stephens, The Wall Street Journal, January 24, 2012 ---
http://online.wsj.com/article/SB10001424052970203806504577178594236642420.html?mod=djemEditorialPage_t

Let's just say right now what voters will be saying in November, once Barack Obama has been re-elected: Republicans deserve to lose.

It doesn't matter that Mr. Obama can't get the economy out of second gear. It doesn't matter that he cynically betrayed his core promise as a candidate to be a unifying president. It doesn't matter that he keeps blaming Bush. It doesn't matter that he thinks ATMs are weapons of employment destruction. It doesn't matter that Tim Geithner remains secretary of Treasury. It doesn't matter that the result of his "reset" with Russia is Moscow selling fighter jets to Damascus. It doesn't matter that the Obama name is synonymous with the most unpopular law in memory. It doesn't matter that his wife thinks America doesn't deserve him. It doesn't matter that the Evel Knievel theory of fiscal stimulus isn't going to make it over the Snake River Canyon of debt.

Above all, it doesn't matter that Americans are generally eager to send Mr. Obama packing. All they need is to be reasonably sure that the alternative won't be another fiasco. But they can't be reasonably sure, so it's going to be four more years of the disappointment you already know.

Continued in article


"The GOP Goes MAD:  The candidates go thermonuclear, but the party itself may get hit," by Daniel Henninger, The Wall Street Journal, January 25, 2012 ---
http://online.wsj.com/article/SB10001424052970203718504577183092873042610.html?mod=djemEditorialPage_t

Whose idea was it to get in the way of the Republican Party's presidential smackdown with a State of the Union speech? Bring back the Grand Old Party Brawlers. Newt Gingrich and Mitt Romney are locked in a death struggle. They'll survive, but will their party?

For nearly three decades, the American and Soviet nuclear arsenals cohabitated uneasily inside a policy of Mutual Assured Destruction without blowing each other up. MAD was insane, but the players were not. Campaigning politicians operate under no such rational constraint. We are hours away from the second Florida primary debate in which Newt Gingrich will give Mitt Romney a lesson in massive retaliation for the governor's Gatling-gun attack on the speaker last Monday night.

Traditionalists will dismiss the idea that the GOP is in the process of blowing itself up. Campaign politics has always been about the rough and tumble, old boy. It was ever thus.

Thus is over. With every turn of the election cycle, it seems the new, ever-expanding universe of modern media takes politics into unchartered hyperspace.

In 2008, it was Barack Obama's discovery that small Internet contributions could grow into a mighty war chest. In 2010, conventional wisdom laughed off the tea party movement until its members, pumped up by social media, powered Republicans at all levels of government to a deep, historic victory.

This year it's the debates. The early "debates" were a clown-car stunt, with pressure to add more clowns. The formats restricted the candidates to 30- or 60-second soundbites. Other than "oops," we learned next to nothing. But the debates drew viewers for the same, weird reasons people feel compelled to watch Tom DeLay on "Dancing With the Stars." But when the field trimmed to four candidates, with more time to talk, the televised debates became the central arena in which campaigns would rise and fall—and rise.

From Jan. 14 to Jan. 18, Mitt Romney's poll numbers rose in South Carolina, reaching an eight-point lead over Mr. Gingrich by the 18th. On Jan. 19, the candidates debated in Charleston. The Romney lead evaporated overnight. He lost the primary two days later by 12 points. A 20-point swing in three days.

Continued in article

Jensen Comment
Life is so strange and unpredictable. Newt Gingrich would be going nowhere without the funding a billionaire Jewish couple (Sheldon and Miriam Adelson) who hint in Newt's ear that they want the U.S. Embassy in Israel moved from Tel Aviv to Jerusalem ---
http://www.vosizneias.com/99463/2012/01/23/new-york-ap-jewish-billionarie-gives-another-5m-to-pro-gingrich-pac
Newt promises that within one hour of being sworn in as President of the United States an order will go out to move the U.S. Embassy to Jerusalem. Michelle Bachman promised the same thing, but she did not have the Adelsons throwing tens of millions of campaign funds her way ---
http://www.jstandard.com/content/item/21493

I don't understand why Newt gets all this support when Jews traditionally make all their political donations to the Democratic Party.

Is the massive Jewish funding of Gingrich a devious plot to nominate a GOP candidate that has no chance against any candidate of the Democratic Party?


"The Myth of Starving Americans:  According to the Census Bureau, 96% of parents classified as poor said their children were never hungry," by Warren Kozak, The Wall Street Journal, January 30, 2012 ---
http://online.wsj.com/article/SB10001424052970204573704577185553258224344.html?mod=djemEditorialPage_t

We take it as a given that hunger stalks America. We hear it in the news, we see a myriad of government and private organizations set up to feed the hungry. And we are often reminded of the greatest of all ironies—in the richest nation on earth, there are still those without enough to eat. But are these media portrayals of hunger in America accurate?

A hungry child is the ultimate third rail in the entitlement debate. Few candidates—Democrat, Republican or independent—would even question conventional wisdom on this particular issue because that would make them look indifferent to hungry children and that, of course, is political death.

The U.S. government spends close to $1 trillion a year providing cash, food, housing, medical care and services to poor and near-poor people. Of that figure, about $111 billion is spent on food in federal and state programs. Yet despite this spending, stories of rampant hunger persist. With all that money going out, how is that possible?

In a report published last September by the Heritage Foundation, researchers Robert Rector and Rachel Sheffield asked that very question. They found that, according to Census Bureau data for 2009 (the most recent year statistics are available), of the almost 50 million Americans classified as poor, 96% of the parents said their children were never hungry. Eighty-three percent of poor families reported having enough food to eat, and 82% of poor adults said they were never hungry at any time in 2009 due to a lack of food or money.

One could deduce that the reason the vast percentage of America's poor say they are never hungry is precisely because of federal and state assistance, but the government offers no way of testing whether this is true or false.

Continued in article

 

 


"OECD Targets Tax Relief on Mortgages," The Wall Street Journal, January 23, 2012 ---
http://online.wsj.com/article/SB10001424052970203806504577179223659194122.html?mod=googlenews_wsj&mg=reno-wsj

Governments should eliminate tax relief on mortgage interest payments and pension contributions, and tax capital gains from the sale of residential property in order to boost growth and reduce inequality, the Organization for Economic Cooperation and Development said Monday.

In a chapter from its annual "Going for Growth" report, the OECD said that while economists don't agree on the link between inequality and growth, there are some policies that are clearly "win-win" options, which both boost growth and reduce income inequality.

"Income inequality has drifted up, and at the same time the recovery is very patchy and the outlook uncertain," said Peter Hoeller, head of the public economics division at the OECD. "But we can find policies that are good for inequality and raise growth."

The Paris-based think tank said a broad range of measures that it described as "tax expenditure," and are more popularly known as "tax breaks," were obvious candidates.

They include tax relief on interest paid on mortgage loans, relief on contributions to private pension funds, and exemptions from capital gains tax on the sale of primary or secondary residences.

The OECD argued that while reducing the gap between rich and poor, the money saved by eliminating breaks that largely benefit the wealthy could be used to cut income tax rates and thereby boost growth.

"Cutting back tax expenditures, which mainly benefit high-income groups, is likely to be beneficial both for long-term GDP per capita, allowing a reduction in marginal tax rates, and for a more equitable distribution of income," the OECD said.

The OECD also questioned the use of some tax relief measures that are justified as encouraging entrepreneurial activity, but show little sign of doing so.

"In particular, there is little justification for tax breaks for stock options and carried interest," it said. "Raising such taxes would increase equity and allow a growth-enhancing cut in marginal labor income tax rates."

The OECD's proposals come at a time of renewed focus on the perceived fairness of developed economies following the financial crisis and more than a decade-and-a-half of rising income inequality.

In the U.K., the junior partner in the government coalition campaigned on a promise to make the tax system fairer in the May 2010 election, and still hopes to introduce a so-called "Mansion Tax" on residential properties with a value of £2 million or more.

Jensen Comment

Economic success stories aren't based on rising tax rates. China's certainly wasn't.
Nial Feguson, Harvard University as quoted in "The Inequality Dodge," Newsweek Magazine, February 6, 2012, Page 258

President Obama's drive to increase tax rates for the wealthy is based more on a political ploy to win another term as President than it is to stimulate jobs and the economy. There are really three issues that should not be bundled into one. Firstly there is the issue of principal residence versus vacation homes. Secondly, there is the issue of whether or not to cap the interest rate deduction. Thirdly, there's the issue of minimum thresholds for deductions from adjusted gross income as is currently built into the U.S. tax rules and is probably hurting lower income tax payers more than its hurting higher income taxpayers when the minimum threshold cannot be reached by lower income taxpayers.

There's also an issue of abruptly hammering down on a real estate market that is already under water. The mortgage interest deduction most certainly impacts demand for and prices paid for real estate. In my opinion the deductibility of home mortgage interest and property taxes has greatly increased both the amount of housing built in the United States and the quality/maintenance of such housing.

There are externalities to consider. Home owners take more pride in maintaining and adding to homes that they own. If there are fewer tax breaks of home ownership more and more potential owners will instead opt for rentals. When Erika and I visit Germany we're amazed by the proportion of the population that appears to us to live in rental housing (although I've not researched this question). It also seems that those big apartment houses are run down relatively to what they would become as condos.


"5% of patients account for half of health care spending," by Kelly Kennedy, USA Today, January 20, 2012 ---
http://www.usatoday.com/news/washington/story/2012-01-11/health-care-costs-11/52505562/1

"Will Employers Undermine Health Care Reform by Dumping Sick Employees?" by Amy Monahan and Daniel Schwarcz, Virginia Law Review 125 (2011) ---
http://www.virginialawreview.org/articles.php?article=321
Thank you Paul Caron for the heads up.

This Article argues that federal health care reform may induce employers to redesign their health plans to encourage high-risk employees to opt out of employer-provided coverage and instead acquire coverage on the individual market. It shows that such a strategy can reduce employer health care expenditures without substantially harming either high-risk or low-risk employees. Although largely overlooked in public policy debates, employer dumping of high-risk employees may threaten the sustainability of health care reform. In particular, it potentially exposes individual insurance markets and insurance exchanges to adverse selection caused by the entrance of a disproportionately high-risk segment of the population. This risk, in turn, threatens to indirectly increase the cost to the federal government of subsidizing coverage for qualified individuals and to exempt more individuals from complying with the so-called individual mandate. The Article concludes by offering several potential solutions to the threat of employer dumping of high-risk employees.

Jensen Comment
Since it's illegal to dump sick employees without justifiable reasons, the impact of Health Care Reform may be to both increase the number of law suits and increase the number of hurdles that employees must surmount to obtain and keep jobs. For example, factory employees and store clerks must be able to stand without a break for x minutes, diabetic and epileptic bus and taxi drivers may be dropped at the first episode of unconsciousness, drug testing may become more common, Mental health patients may be particularly vulnerable to dismissal.

Then there is an even bigger risk that employers will drop health coverage of all employees

"No, You Can't Keep Your Health Insurance:  A new study by McKinsey suggests that as many as 78 million Americans could lose employer health coverage," by Grace-Marie Turner, The Wall Street Journal, June 7, 2011 ---
 http://online.wsj.com/article/SB10001424052702304432304576371252181401600.html?mod=djemEditorialPage_

"'The Flight to the Exchanges':  The Wall Street Journal writes that ObamaCare may cause small businesses to drop insurance coverage," The Wall Street Journal, July 25, 2011 ---
http://online.wsj.com/article/SB10001424053111903554904576462010405702984.html#mod=djemEditorialPage_t

McKinsey & Co. made itself the White House's public enemy number—well, we've lost count—after releasing a survey last month showing that nearly one in three businesses may drop insurance coverage as a result of the new health-care law. The real offense of the management consultants seems to be accurately portraying reality.

Consider a suggestive new survey to be released today by the National Federation of Independent Business, the trade group for small businesses. William Dennis, a senior research fellow who has conducted the study for 35 years, reports that 57% of a cross-section of companies that employ 50 or fewer workers and offer coverage may stop doing so. Look out below.

About two of five small companies sponsor insurance—a share that, according to NFIB, has on net held mostly stable or declined very slightly since the passage of the Affordable Care Act. Yet 12% of these companies—one of eight—have either had their plans cancelled or have been told that they will be in the future. This churn in the private small-group market is a direct result of ObamaCare's new rules and mandates—but a far larger destabilization could be in the offing, what Mr. Dennis calls "the flight to the exchanges."

Those would be the dispensaries of heavily subsidized insurance, and the NFIB finds that 26% of small businesses today sponsoring insurance are "very likely" to drop it should their employees start to flood government coverage. Another 31% of the 750 firms surveyed report they are "somewhat likely."

Small-business workers are eligible for exchange subsidies even if they can get job-based coverage. The incentive is for them to take it—given that the new government payments will be so generous, small-group coverage is generally costly and the insurance tax break for employers usually doesn't go very far when the employer is small.

If enough workers split, in other words, private coverage will soon erode and cease to exist as an option. Meanwhile, start-ups are constantly entering and exiting the market, and the ones with fewer benefits and liabilities will gain a competitive advantage. Businesses with fewer than 50 employees also aren't subject to any "play or pay" penalties. As Mr. Dennis put it in an interview, "Once you pull the string, everything may unravel."

ObamaCare's partisans claim none of this will happen because of the social norm theories of behavioral economics. Businesses offer insurance to attract workers, the thinking goes, and it's the right thing to do. But that assumes utter irrationality—that workers won't take a cheaper deal when they see it and businesses won't try to compete against their rivals.

Continued in article

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


"No Need to Panic About Global Warming:  There's no compelling scientific argument for drastic action to 'decarbonize' the world's economy," The Wall Street Journal 27, 2012 ---
http://online.wsj.com/article/SB10001424052970204301404577171531838421366.html?mod=djemEditorialPage_t

Jensen Comment
There are many other compelling reasons to keep moving ahead as fast as possible to develop alternative forms of energy that are cleaner burning and less carbon based. At the same time we should not destroy the environment for the sake of alternate forms of energy --- down with wind power.


From ACLU Week in Review on January 27. 2012 ---
http://www.aclu.org/blog/organization-news-and-highlights/week-civil-liberties-1272012

ACLU Lens: Google's New Privacy Policy
This week
, Google announced a new privacy policy effective March 1. The new policy is consistent across the vast majority of Google products, and it’s in English; you don’t have to speak legalese to understand it. But, the new privacy policy makes clear that Google will, for the first time, combine the personal data you share with any one of its products or sites across almost all of its products and sites (everything but Google Chrome, Google Books, and Google Wallet) in order to obtain a more comprehensive picture of you. And there’s no opting out.


Jensen Question
Is this doing "no evil?"

"'Lawfare' Loses Big The ACLU loses its nasty suit against former defense officials," The Wall Street Journal, January 28, 2012 ---
http://online.wsj.com/article/SB10001424052970203718504577181191271527180.html#mod=djemEditorialPage_t

. . .

In Lebron v. Rumsfeld et al., the ACLU sued under the Supreme Court's 1971 Bivens decision, which has been interpreted as creating a right of action against the federal government. Their targets included a retinue of Pentagon officials, starting with former Secretary of Defense Donald Rumsfeld and going down to the Navy brig commander where Padilla was held. Mr. Rumsfeld doesn't have to worry about getting another job, but the ACLU wants to make lower-level officials politically radioactive so they have a difficult time getting promoted or working in any influential position.

The good news is that the Fourth Circuit's three-judge panel saw this for what it was and unanimously rejected the claims. In his 39-page opinion, the influential Judge Harvey Wilkinson wrote that the Constitution gives authority over military affairs to Congress and to the President as Commander in Chief, but it never created a similar role for the courts.

"It takes little enough imagination," Judge Wilkinson wrote, "to understand that a judicially devised damages action would expose past executive deliberations . . . [and] would affect future discussions as well, shadowed as they might be by the thought that those involved would face prolonged civil litigation and potential personal liability."

The decision is especially notable because one of the three judges is Clinton appointee Diana Motz, who has been a skeptic of the Bush Administration's detainee policies and has dissented from her colleagues in cases like 2003's Hamdi v. Rumsfeld.

The ACLU may appeal to all of the Fourth Circuit judges, but Judge Wilkinson's ruling is comprehensive enough that an appeal is unlikely to prevail. The judges deserve credit for understanding that the Constitution gave war powers to the political branches, not to courts. The country will be safer for it.

 


"What You Can Learn From Mitt Romney's (203 page) Tax Return," WSJ via Paul Caron's Tax Prof Blog, January 29, 2011 ---
http://taxprof.typepad.com/

Wall Street Journal, What You Can Learn From Mitt's Tax Return, by Laura Saunders:
Watch the Video --- Click Here
http://online.wsj.com/video/heres-what-we-learned-from-romneys-taxes/C6F7C4F0-0431-4D69-90DB-7A6F3472EDCE.html?KEYWORDS=What+You+Can+Learn+From+Mitt+Romney%27s+Tax+Return

[Mitt Romney's tax returns] lift the veil on how the wealthy can use the tax code to their advantage. Here are some lessons the experts have gleaned:

 

Capital Gains Tax History and Debates --- http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States

Jensen Comment
I think the rich should be taxed at possibly higher rates through a tougher alternative minimum tax rather than increases in the capital gains tax. The AMT has a less direct impact on starving the nation's risk and venture capital relative to increases in the capital gains tax. Increases in the capital gains tax simply make it less profitable to risk savings for investments in new startup businesses and expansion of small businesses as well as buying into risky IPOs.

Low capital gains taxes give some relief to investors for holding on to long-term investments over decades of inflation such as selling farm land that has been owned for 50 years. If capital gains rates are increased they should be offset with inflation index adjustments much like we see in certain types of investments like U.S. Treasury Inflation Protected  Securities (TIPS) investments ---
http://www.investopedia.com/terms/t/tips.asp
Also see inflation index bond --- http://en.wikipedia.org/wiki/Inflation-indexed_bond

Current (low?) capital gains tax rates provide some inflation relief but in many instances they are not sufficient to offset declines in the purchasing power of the dollar between when an investment is purchased and when it is sold decades later. There are some inflation protections (exclusions) for primary residence homes but not for most other types of long-term holdings.

The problem is that there are so many loopholes in the U.S. Tax Code that wealthy people will find other avenues to avoid or defer taxes other than investing their capital in risky ventures and long-term ties ups of their capital. Purportedly Warren Buffet has positioned himself so he will not have to pay the Buffet Tax he proposes for other wealthy people. Wealthy people may have many alternatives for shifting funds into better tax deals such as special provisions for urban development and other sweet deals built in to current tax rules.

Taxes need to be reformed, although I do not think the flat tax is the best way to go about tax reform. There are too many externalities to be considered before changing economic behavior in this nation so drastically in one swoop.

Bob Jensen's helpers for taxpayers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation

 


Big Brother's Hawaiian

Natives wanting privacy might return to coconut wireless systems
"Hawaii may keep track of all Web sites visited Declan McCullagh," by Declan McCullagh, C|net, January 26, 2012 ---
http://news.cnet.com/8301-31921_3-57366443-281/hawaii-may-keep-track-of-all-web-sites-visited/

Hawaii's legislature is weighing an unprecedented proposal to curb the privacy of Aloha State residents: requiring Internet providers to keep track of every Web site their customers visit.

Its House of Representatives has scheduled a hearing this morning on a new bill (PDF) requiring the creation of virtual dossiers on state residents. The measure, H.B. 2288, says "Internet destination history information" and "subscriber's information" such as name and address must be saved for two years.

H.B. 2288, which was introduced Friday, says the dossiers must include a list of Internet Protocol addresses and domain names visited. Democratic Rep. John Mizuno of Oahu is the lead sponsor; Mizuno also introduced H.B. 2287, a computer crime bill, at the same time last week.

Last summer, U.S. Rep. Lamar Smith (R-Texas) managed to persuade a divided committee in the U.S. House of Representatives to approve his data retention proposal, which doesn't go nearly as far as Hawaii's. (Smith, currently Hollywood's favorite Republican, has become better known as the author of the controversial Stop Online Piracy Act, or SOPA.)

Democrat Jill Tokuda, the Hawaii Senate's majority whip, who introduced a companion bill, S.B. 2530, in the Senate, told CNET that her legislation was intended to address concerns raised by Rep. Kymberly Pine, the first Republican elected to her Oahu district since statehood and the House minority floor leader.

Continued in article

"Hawaiian politician backs away from Web dossier law," by Declan McCullagh, C|net, January 26, 2012 ---
http://news.cnet.com/8301-31921_3-57367226-281/hawaiian-politician-backs-away-from-web-dossier-law/?tag=mncol;txt

A Hawaii politician who proposed requiring Internet providers to record every Web site their customers visit is now backing away from the controversial legislation.

Rep. Kymberly Pine, an Oahu Republican and the House minority floor leader, told CNET this evening that her intention was to protect "victims of crime," not compile virtual dossiers on every resident of--or visitor to--the Aloha State who uses the Internet.

"We do not want to know where everyone goes on the Internet," Pine said. "That's not our interest. We just want the ability for law enforcement to be able to capture the activities of crime."

Pine acknowledged that civil libertarians and industry representatives have leveled severe criticism of the unprecedented legislation, which even the U.S. Justice Department did not propose when calling for new data retention laws last year. A Hawaii House of Representatives committee met this morning to consider the bill (PDF), which was tabled.

The bill, H.B. 2288, will likely now be revised, Pine said. The idea of compiling dossiers "was a little broad," said Pine, who became interested in the topic after becoming the subject of a political attack Web site last year. "And we deserved what we heard at the committee hearing."

What the House Committee on Economic Revitalization and Business heard from opponents today was that the bill was anti-business and fraught with civil rights issues.

Laurie Temple, a staff attorney at the American Civil Liberties Union of Hawaii, wrote a letter (PDF) calling H.B. 2288 a "direct assault on bedrock privacy principles." Instead of keeping more and more records about users, good privacy practices require deleting data that's no longer needed, the ACLU said.

NetChoice, a trade association in Washington, D.C., that counts eBay, Facebook, and Yahoo as members, sent a letter (PDF) warning that H.B. 2288's data collection requirements "could be misused in lawsuits." And the U.S. Internet Service Provider Association warned in its own letter (PDF) that H.B. 2288 would be incredibly expensive to comply with. "Narrower" national requirements would cost much more than $500 million in just short-term compliance costs, the letter said, and Hawaii's legislation is broader.

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/