Tidbits Quotations
To Accompany the February 12, 2013 edition of Tidbits
Bob Jensen at Trinity University

My Free Speech Political Quotations and Commentaries Directory and Log ---

The 40 Greatest Quotes From Winston Churchill --- Click Here

Scandinavian nations are downsizing government, upsizing the public sector, reducing taxes, balancing their budgets, and encouraging competition in services such as education (including charter schools)  and medical care (including premium services that can be purchased)
Is this in absolute defiance of Paul Krugman?

Special Report in The Economist magazine that the liberal television stations and newspapers are keeping secret
"Northern lights:  The Nordic countries are reinventing their model of capitalism," by Adrian Wooldridge, The Economist, February 2, 2013, pp. 1-6 ---

THIRTY YEARS AGO Margaret Thatcher turned Britain into the world’s leading centre of “thinking the unthinkable”. Today that distinction has passed to Sweden. The streets of Stockholm are awash with the blood of sacred cows. The think-tanks are brimful of new ideas. The erstwhile champion of the “third way” is now pursuing a far more interesting brand of politics.

Sweden has reduced public spending as a proportion of GDP from 67% in 1993 to 49% today. It could soon have a smaller state than Britain. It has also cut the top marginal tax rate by 27 percentage points since 1983, to 57%, and scrapped a mare’s nest of taxes on property, gifts, wealth and inheritance. This year it is cutting the corporate-tax rate from 26.3% to 22%.

Sweden has also donned the golden straitjacket of fiscal orthodoxy with its pledge to produce a fiscal surplus over the economic cycle. Its public debt fell from 70% of GDP in 1993 to 37% in 2010, and its budget moved from an 11% deficit to a surplus of 0.3% over the same period. This allowed a country with a small, open economy to recover quickly from the financial storm of 2007-08. Sweden has also put its pension system on a sound foundation, replacing a defined-benefit system with a defined-contribution one and making automatic adjustments for longer life expectancy.

Most daringly, it has introduced a universal system of school vouchers and invited private schools to compete with public ones. Private companies also vie with each other to provide state-funded health services and care for the elderly. Anders Aslund, a Swedish economist who lives in America, hopes that Sweden is pioneering “a new conservative model”; Brian Palmer, an American anthropologist who lives in Sweden, worries that it is turning into “the United States of Swedeamerica”.

There can be no doubt that Sweden’s quiet revolution has brought about a dramatic change in its economic performance. The two decades from 1970 were a period of decline: the country was demoted from being the world’s fourth-richest in 1970 to 14th-richest in 1993, when the average Swede was poorer than the average Briton or Italian. The two decades from 1990 were a period of recovery: GDP growth between 1993 and 2010 averaged 2.7% a year and productivity 2.1% a year, compared with 1.9% and 1% respectively for the main 15 EU countries.

For most of the 20th century Sweden prided itself on offering what Marquis Childs called, in his 1936 book of that title, a “Middle Way” between capitalism and socialism. Global companies such as Volvo and Ericsson generated wealth while enlightened bureaucrats built the Folkhemmet or “People’s Home”. As the decades rolled by, the middle way veered left. The government kept growing: public spending as a share of GDP nearly doubled from 1960 to 1980 and peaked at 67% in 1993. Taxes kept rising. The Social Democrats (who ruled Sweden for 44 uninterrupted years from 1932 to 1976 and for 21 out of the 24 years from 1982 to 2006) kept squeezing business. “The era of neo-capitalism is drawing to an end,” said Olof Palme, the party’s leader, in 1974. “It is some kind of socialism that is the key to the future.”

The other Nordic countries have been moving in the same direction, if more slowly. Denmark has one of the most liberal labour markets in Europe. It also allows parents to send children to private schools at public expense and make up the difference in cost with their own money. Finland is harnessing the skills of venture capitalists and angel investors to promote innovation and entrepreneurship. Oil-rich Norway is a partial exception to this pattern, but even there the government is preparing for its post-oil future.

This is not to say that the Nordics are shredding their old model. They continue to pride themselves on the generosity of their welfare states. About 30% of their labour force works in the public sector, twice the average in the Organisation for Economic Development and Co-operation, a rich-country think-tank. They continue to believe in combining open economies with public investment in human capital. But the new Nordic model begins with the individual rather than the state. It begins with fiscal responsibility rather than pump-priming: all four Nordic countries have AAA ratings and debt loads significantly below the euro-zone average. It begins with choice and competition rather than paternalism and planning. The economic-freedom index of the Fraser Institute, a Canadian think-tank, shows Sweden and Finland catching up with the United States (see chart). The leftward lurch has been reversed: rather than extending the state into the market, the Nordics are extending the market into the state.

Why are the Nordic countries doing this? The obvious answer is that they have reached the limits of big government. “The welfare state we have is excellent in most ways,” says Gunnar Viby Mogensen, a Danish historian. “We only have this little problem. We can’t afford it.” The economic storms that shook all the Nordic countries in the early 1990s provided a foretaste of what would happen if they failed to get their affairs in order.

There are two less obvious reasons. The old Nordic model depended on the ability of a cadre of big companies to generate enough money to support the state, but these companies are being slimmed by global competition. The old model also depended on people’s willingness to accept direction from above, but Nordic populations are becoming more demanding.

Small is powerful

The Nordic countries have a collective population of only 26m. Finland is the only one of them that is a member of both the European Union and the euro area. Sweden is in the EU but outside the euro and has a freely floating currency. Denmark, too, is in the EU and outside the euro area but pegs its currency to the euro. Norway has remained outside the EU.

But there are compelling reasons for paying attention to these small countries on the edge of Europe. The first is that they have reached the future first. They are grappling with problems that other countries too will have to deal with in due course, such as what to do when you reach the limits of big government and how to organise society when almost all women work. And the Nordics are coming up with highly innovative solutions that reject the tired orthodoxies of left and right.

The second reason to pay attention is that the new Nordic model is proving strikingly successful. The Nordics dominate indices of competitiveness as well as of well-being. Their high scores in both types of league table mark a big change since the 1980s when welfare took precedence over competitiveness.

The Nordics do particularly well in two areas where competitiveness and welfare can reinforce each other most powerfully: innovation and social inclusion. BCG, as the Boston Consulting Group calls itself, gives all of them high scores on its e-intensity index, which measures the internet’s impact on business and society. Booz & Company, another consultancy, points out that big companies often test-market new products on Nordic consumers because of their willingness to try new things. The Nordic countries led the world in introducing the mobile network in the 1980s and the GSM standard in the 1990s. Today they are ahead in the transition to both e-government and the cashless economy. Locals boast that they pay their taxes by SMS. This correspondent gave up changing sterling into local currencies because everything from taxi rides to cups of coffee can be paid for by card.

The Nordics also have a strong record of drawing on the talents of their entire populations, with the possible exception of their immigrants. They have the world’s highest rates of social mobility: in a comparison of social mobility in eight advanced countries by Jo Blanden, Paul Gregg and Stephen Machin, of the London School of Economics, they occupied the first four places. America and Britain came last. The Nordics also have exceptionally high rates of female labour-force participation: in Denmark not far off as many women go out to work (72%) as men (79%).

Flies in the ointment

This special report will examine the way the Nordic governments are updating their version of capitalism to deal with a more difficult world. It will note that in doing so they have unleashed a huge amount of creativity and become world leaders in reform. Nordic entrepreneurs are feeling their oats in a way not seen since the early 20th century. Nordic writers and artists—and indeed Nordic chefs and game designers—are enjoying a creative renaissance.

The report will also add caveats. The growing diversity of Nordic societies is generating social tensions, most horrifically in Norway, where Anders Breivik killed 77 people in a racially motivated attack in 2011, but also on a more mundane level every day. Sweden is finding it particularly hard to integrate its large population of refugees.

The Nordic model is still a work in progress. The three forces that have obliged the Nordic countries to revamp it—limited resources, rampant globalisation and growing diversity—are gathering momentum

Continued in article

Note that on Page 5 there's also a section entitled "More for Less" devoted to Welfare Capitalism.

Jensen Comment
It appears that among the Nordics only Norway will continue to afford socialism, but this is because oil-rich Norway is a leading OPEC nation less concerned with the need for private sector growth.

There are of course serious obstacles to applying the new Nordic capitalism to the USA. Firstly, the USA is not bound by the Arctic Ocean on the north and the North Sea on the south that greatly discourages illegal immigration and narcotics. Secondly, the Nordic countries very have difficult languages that are not studied to a significant degree in other nations. For example, I'm told that if you weren't raised in Finland you can never understand the language. Thirdly, there's no existing infrastructure to absorb and aid illegal immigrants in Scandinavia. Scandinavians like my grandparents, Ole, Sven, and Lena emigrated from these hard and cold countries rather than immigrating to these lands.

Scandinavians have avoided the crippling costs of building up powerful military forces and have not tried to become the police force of the world.

Scandinavians also avoided the horrors in importing millions of slaves and the centuries of social costs and degradations that followed. Nor did they have to go to war, to a serious degree, with indigenous peoples to take over the land by trickery and force.

Bob Jensen's comparisons of the American versus Denmark dreams ---

Bob Jensen's threads on why Vermont is trying to increase its unemployment rate ---

"The Nordic model for unemployment insurance," Sober Look, January 11, 2013 ---

"Why Are Some Sectors (Ahem, Finance) So Scandal-Plagued?" by Ben W. Heineman, Jr., Harvard Business Review Blog,  January 10, 2013 --- Click Here

Greatest Swindle in the History of the World ---

The trouble with crony capitalism isn't capitalism. It's the cronies ---

Subprime: Borne of Greed, Sleaze, Bribery, and Lies (including the credit rating agencies) ---

History of Fraud in America --- 

Rotten to the Core ---

Bob Jensen's Fraud Updates are at

Why does Vermont have nearly the lowest unemployment rate in the nation?
What is Vermont doing to raise its unemployment rate?

As the number one ranked welfare state in the nation, the lifetime welfare system destroys incentives to seek low-income employment ---

Vermont implemented a "Welfare Restructuring Program" that a the beginning of the 21st Century that was deemed pretty much a failure ---

On February 1, 2013 I listened to the Governor of Vermont proposing a negative income tax (called an earned income credit paid for by Vermont taxpayers) for low income wage earners in Vermont. Conservative's academic hero, Milton Friedman, proposed replacing national and state welfare systems with negative income taxes.

Negative Income Tax --- http://en.wikipedia.org/wiki/Negative_income_tax

The idea in Vermont is to create sufficient incentives to work so that Welfare recipients are worse off than if they have jobs.

This would perhaps be a great solution if all 50 states had similar negative income taxes. But the problem is that if only Vermont has both a very generous welfare system plus a generous negative income tax, Vermont will become a magnet for low income workers in surrounding states. This will drive up the unemployment rate in Vermont, and when the new low-income residents of Vermont lose their jobs, they will burden and already over-burdened Vermont State Welfare System.

It's not clear at all that a negative income tax will work in the United States unless virtually all states have a similar negative income taxes in place.

Also it's not clear that it will work well in states that also have the highest state taxes like California, Illinois, Vermont, and Taxachusetts. Adding more taxation to pay for the negative income tax simply puts up more barriers to economic development that will employ low income workers.

"How Government Handouts Create Life-Sapping Dependency," by Daniel J. Mitchell, Town Hall, February 8, 2013 --- Click Here

The earned income tax credit returns cash from the IRS and is a major reason nearly half of all taxpayers receive more back than they pay in for income taxes.
Who benefits the most from this credit --- the employed or the unemployed?

"Earned-Income Ironies," by Casey B. Mulligan, The New York Times, February 6, 2013 ---

The “earned income tax credit” is, ironically, more likely to be received by unemployed people than by workers who do not spend any time unemployed.

The credit was created years ago to reduce tax burdens on the poor and toprovide a genuine incentive for working; a household must have some wage and salary income in order to receive the credit.

However, because the credit is administered on a calendar-year basis and is phased out with calendar-year wages and salaries, it is disproportionately received by people unemployed after a layoff.

As I illustrated in an earlier post, the credit follows a mountain-plateau pattern: an increasing portion for the lowest calendar incomes, a flat portion, a decreasing portion and then a flat portion of zero.

You might think that unemployed people do not receive the credit because they do not have any wage or salary income, but typically people unemployed from layoff do have wages or salary income during the calendar year of their unemployment from their previous job. Their layoff might have occurred after the beginning of the calendar year. Even a layoff occurring in December of the previous year might generate wage and salary income in the current year because of a severance payment or accumulated sick and vacation pay.

Moreover, an unemployed person might have a spouse with wage and salary income, and the spouse’s income counts toward the credit.

Because unemployment compensation is supposed to be reported on the recipient’s federal individual income tax return, I was able to further investigate this issue by examining a large sample of individual income tax returns for the years 2000-7 provided by the Internal Revenue Service to the National Bureau of Economic Research and other institutions for research purposes.

In 2007, 97 percent of the 7.6 million returns showing unemployment-compensation income (that is, the taxpayer or spouse was unemployed and receiving benefits some time during the calendar year) also had wage and salary income during the year. That percentage was essentially the same in each of the years 2000-6.

Of the same 7.6 million returns with unemployment income in 2007, one quarter received the earned income tax credit. By comparison, the credit was received by only one-sixth of the returns with wage and salary income but no unemployment income.

Among returns with unemployment income, the average earned income tax credit was $486, compared with $347 among the returns with wages but not unemployment income.

For most of the returns with both unemployment income and the earned income tax credit, the credit would have been even greater if the taxpayer had been employed fewer weeks than he or she actually was. Still more returns with unemployment income but no earned income tax credit would have received the credit if the unemployment had lasted longer.

Continued in article

Why does Vermont have nearly the lowest unemployment rate in the nation?
What is Vermont doing to intentionally raise its unemployment rate?

U.S. Ranks 28th in Death by Firearms
"Gun homicides and gun ownership listed by country," The Guardian, Februry 2013 ---

"Helping Small Coffee Growers Fatten Up the 'Thin Months':  Fair-trade vendor Green Mountain Coffee Roasters has teamed up with nonprofit Heifer International to help poor farmers to become more self-sufficient," by Susan Sarandon, The Wall Street Journal, February 8, 2013 ---

I buy coffee designated "fair trade" because the higher price contributes to improved living standards for small farmers in Latin America—to a point. Profits from a fair-trade coffee crop can support a family for many months, although not all the way until the next harvest season. Then the farm families live through a period of food insecurity so common it has its own name: "los meses flacos," the thin months.

"Fair trade is a step in the right direction, but small farmers simply cannot rely on coffee alone to sustain their families and farms," says Pierre Ferrari, president and CEO of Heifer International, a nonprofit based in Little Rock, Ark., that focuses on hunger and poverty. Thriving farms are in the best interest of fair-trade vendor Green Mountain Coffee Roasters Inc. GMCR -2.50% as well. The paths of the two organizations converged after a study in 2007 by the Center for Tropical Agriculture near Cali, Colombia, showed that more than two-thirds of coffee farmers interviewed in Nicaragua, Mexico and Guatemala experienced three to eight months of extreme food scarcity every year.

Stories from each country were strikingly similar. The hunger would set in a few months after the harvest, when family earnings from coffee sales had largely been depleted and the price of corn and beans were high. To get by during this time, coffee farmers and their families coped by eating less, and by eating less expensive and less nutritious foods.

Green Mountain invited Heifer International in 2008 to consult with farmers it deals with in the Chiapas state in southern Mexico. Heifer's emphasis is on small farmers—in the case of the Chiapas pilot project, defined as those with three acres of land or less. Its advisers introduced bees, seeds, pigs, turkeys, sheep, chickens and rabbits to 183 families that had, until that point, been dependent on coffee for their livelihoods. Then 366 additional families benefited through the organization's long-standing tenet, "Passing on the Gift." Heifer International refers to animal gifts as "living loans" because the farmers, in exchange for receiving livestock and training, agree to give one of the animal's offspring to another family in need.

Green Mountain Coffee Roasters and Heifer International have since expanded in Chiapas and started four more projects in Nicaragua, Guatemala, Honduras and Peru, which will ultimately touch more than 5,500 coffee-farming families. Heifer's Mr. Ferrari believes that ending world hunger in our lifetime is possible: "That's zero hunger. When we unleash the potential in small farms, we see improvement everywhere. Working solutions to hunger and poverty are right before our eyes."

One way to contribute is by buying fair-trade coffee from suppliers such as Green Mountain Coffee Roasters or Thanksgiving Coffee Co. or Equator Coffees & Teas Inc. Farm families certainly welcome the modest extra income that comes the fair-trade way. But the Heifer example of giving coffee farmers the training, encouragement and tangible resources helps them to thrive year-round. For small, often struggling coffee farmers, a big change may be brewing.

Jensen Comment
If only Green Mountain Coffee could be more truthful in financial accounting.

Where can you get GAAP-uccino?

Hint 1:
Not at Starbucks

Hint 2:
PwC is the taste inspector for creative accounting blends ---

"Bulls and Bears Battle Over Green Mountain Coffee," by Peter Lattman,  The New York Times, October 19, 2011 ---

"Green Mountain Coffee Roasters: Gosh, We Ended Up Having Way More Accounting Errors Than We Thought," by Caleb Newquist, Going Concern, November 22, 2010 ---

Back in September, Vermont-based Green Mountain Coffee Roasters put the world on notice that the SEC was asking some questions about their revenue recognitions policies. Despite the SEC Q&A, analysts we’re cool with the company and the GAAP the crunchy accounting group was putting out.

Also at that time, the company disclosed that there were some immaterial accounting errors that were NDB. That was until they dropped a little 8-K on everyone last Friday!

Turns out, there was a
whole mess of accounting booboos and the company will be restating “previously issued financial statements, including the quarterly data for fiscal years 2009 and 2010 and its selected financial data for the relevant periods.”

Continued in article

From the now infamous 8-K ---

The audit committee and management have discussed the matters disclosed in this current report on Form 8-K with PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm. The Company is working diligently to complete the restatement of its financial statements. The Company expects to file its annual report on Form 10-K, including the restated financial statements, by no later than December 9, 2010, the expiration date of the extension period provided by Rule 12b-25 of the Securities Exchange Act of 1934, as amended. However, there can be no assurance that the filing will be made within this period.

Beginning to look like financial reporting intentional fraud
"GREEN MOUNTAIN COFFEE: A BAD CUP OF JAVA," by Anthony H. Catanach, Jr. and J.Edward Ketz, Grumpy Old Accountants, July 25, 2011 ---

From the now infamous 8-K ---

The audit committee and management have discussed the matters disclosed in this current report on Form 8-K with PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm. The Company is working diligently to complete the restatement of its financial statements. The Company expects to file its annual report on Form 10-K, including the restated financial statements, by no later than December 9, 2010, the expiration date of the extension period provided by Rule 12b-25 of the Securities Exchange Act of 1934, as amended. However, there can be no assurance that the filing will be made within this period.

Restatement --- http://investor.gmcr.com/secfiling.cfm?filingID=1193125-10-277481

"Tax Hikes Backfire, Greece’s Revenues Plummet," by Andy Dabilis, Greek Reporter, February 7, 2013 ---

Jensen Comment
The major economic problem in Greece is its historical propensity not to enforce tax laws. This led to generations of tax cheats, and old habits are hard to break. However, the current crisis seems to additionally be one of reduced VAT tax collections due to lower consumption spending.


A Cleaner Way to Use Coal
"A technology for generating electricity from coal without pollution achieves a milestone.," by Kevin Bullis, MIT's Technology Review, February 7, 2013 ---

Coal is abundant and cheap, but burning it is a dirty business. This week researchers at Ohio State University announced a milestone in the development of a far cleaner way to use the energy in coal—a process called chemical looping that has the potential to reduce or eliminate a wide range of pollutants, including carbon dioxide and smog-forming nitrogen oxides.

One version of the technology ran continuously for over a week in a 25-kilowatt test facility, the researchers reported, the longest any such process has run. The successful test clears the way to ramp up the technology in a one-megawatt demonstration plant that’s being planned in collaboration with the energy company Babcock and Wilcox.

In ordinary coal plants, coal is pulverized to make a fine powder and then burned in air to produce steam to drive turbines. This process makes very hot flames that can create the pollutant nitrogen oxide, and the carbon dioxide generated is difficult to isolate and capture because it makes up only a small fraction of the exhaust gases.

In chemical looping, coal doesn’t react with air. Instead, it’s exposed to oxygen-bearing materials such as iron oxide. The coal reacts with these materials, and the energy bound up in coal breaks the bond between the oxygen and the iron. The reaction produces nearly pure carbon dioxide gas and iron metal (along with the mineral wüstite). Electricity is generated when the iron is moved out of the reaction chamber and is essentially burned—that is, allowed to react with oxygen in air. This releases heat to produce steam.

This rather convoluted process has at least two advantages. It produces a pure stream of carbon dioxide that’s easy to capture and ready to be stored underground. And the burning of iron in air also takes place at lower temperatures that don’t produce nitrogen oxide.

Continued in article

PBS Frontline:  Why don't some of biggest fraudsters in history go to prison?
"The Untouchables," Frontline, January 22, 2013 ---
Thank you Dennis Huber for the heads up.

"Should Some Bankers Be Prosecuted?" by Jeff Madrick and Frank Partnoy, New York Review of Books, November 10, 2011 ---

Bob Jensen's threads on Why White Collar Crime Pays Even If You Know You're Going to Get Caught ---

Bob Jensen's threads on Rotten to the Core ---

Jensen Comment
I highly respect this video, although it tends to not blame the major source of the fraud on Main Street --- that blame that falls on government for pressuring Fannie Mae and Freddy Mack to buy up millions of mortgages generated on Main Street without having any recourse to the banks and mortgages companies who knowingly granted mortgages without to borrowers who could never repay those loans. This was compounded by granting loas way in excess of collateral value such as when Fannie Mae had to buy a fraudulent loan of $103,000 on a shack that Marvene (a woman on welfare and food stamps) purchased for $3,000.
Barney's Rubble --- http://www.trinity.edu/rjensen/2008Bailout.htm#Sleaze

"The Hidden Prosperity of the Poor," by Thomas B. Edsall, The New York Times, January 30, 2013 ---

Jensen Comment
This article makes an argument that nearly half the U.S. population is poor and worse off than in most other developing countries. However, the conclusions follow directly from the definition of being "poor."

.N Commented as follows beneath the article

The charts above are extremely misleading; "poverty" is defined by those under half of the median income in each respective country... The US does not have the highest median income, but it does have one of the highest, so many people living in this (somewhat) arbitrary "poverty" in the US are very likely better off financially (including purchasing power differences) in some of the other countries.

It's not worth my time to pick apart this article, but it essentially just sidesteps the argument of the "hidden prosperity of the poor" by literally just referring to two studies that supposedly found affirming support for the article's point without providing any detail or substantiation from those articles...


An added consideration not mentioned in the article is that, due in part to undocumented workers, has the largest underground economy among developed nations of the world. If it were possible to factor in these underground economy incomes, many of the so-called poor in the United States would be living quite well relative to their "poor" counterparts in other developed nations ---

What large U.S. city won the 2013 Super Bowl and is on the verge of bankruptcy?

"City of Baltimore is on a path to financial ruin, report says," Fox News, February 6, 2013 ---

The Baltimore city government is on a path to financial ruin and must enact major reforms to stave off bankruptcy, according to a 10-year forecast the city commissioned from an outside firm.

The forecast, obtained by The Associated Press ahead of its release to the public and the City Council on Wednesday, shows that the city will accumulate $745 million in budget deficits over the next decade because of a widening gap between projected revenues and expenditures.

If the city's infrastructure needs and its liability for retiree health care benefits are included, the total shortfall reaches $2 billion over 10 years, the report found. Baltimore's annual operating budget is $2.2 billion.

The report was prepared by Philadelphia-based Public Financial Management Inc., a consulting firm that has prepared similar forecasts for Miami, Philadelphia, Pittsburgh and the District of Columbia. Baltimore's decision to commission the forecast differs from those cities because each of them had already ceded financial oversight to the state, or in the district's case, the federal government.

The forecast will provide the basis for financial reforms that Mayor Stephanie Rawlings-Blake plans to propose next week. The city has dealt with budget deficits for the past several years, closing a $121 million gap in 2010. But those deficits have been addressed with one-time fixes that haven't addressed the long-term structural imbalance.

"When you have budget after budget and you know that there are systemic problems, I felt an obligation to do more than what we have done in the past," Rawlings-Blake told the AP. The forecast, she said, shows that the city needs to address its financial woes "before it's too late, and somebody is coming in and making these choices for us."

That's what happened to the District of Columbia, 38 miles to the south, in 1995 after the city reported a budget deficit of $700 million. Congress created a financial control board that instituted tight spending controls and ultimately took over all hiring and firing in nine city agencies. The spending cuts, combined with a robust regional and national economy, drove the nation's capital back into the black.

Not all municipalities have been so fortunate. In late 2011, Jefferson County, Ala., filed the nation's largest-ever local government bankruptcy, citing $4.15 billion in debt, and last year, Stockton, Calif., became the largest American city to declare bankruptcy.

In Baltimore, the erosion of the tax base is easy to see. The city's population has dropped from a peak of 950,000 in 1950 to 619,000 today, and while the decline has slowed, there have been few signs of the trend reversing. The median income is $40,000, and 22 percent of the city's residents live in poverty, according to Census data. The city also has 16,000 vacant properties.

Baltimore already has the highest property taxes in Maryland -- twice as high as in neighboring Baltimore County. The city's local income taxes are the highest allowed under state law. While the city enacted some new taxes to deal with the 2010 deficit -- including taxes on bottled beverages and higher hotel and parking levies -- city officials say they can't tax their way out of the problem without driving away residents and businesses.

"We've got to go from a vicious cycle to a virtuous cycle. That starts with a good, stable fiscal foundation for the city government," said Andrew Kleine, the city's budget director. "When you've lost so much population and the tax base has shrunk, it's very difficult to deal with."

If the city chose to use its reserve fund to cover the deficits, the fund would be empty in three years, the report found. Continued in article

Continued in article


Credit Rating Firms --- http://en.wikipedia.org/wiki/Credit_rating_firms
Credit Rating Firms were rotten to the core --- http://www.trinity.edu/rjensen/FraudRotten.htm#CreditRatingAgencies

In 2008 it became evident that credit rating firms were giving AAA ratings to bonds that they knew were worthless, especially CDO bonds of their big Wall Street clients like Bear Stearns, Merrill Lynch, Lehman Bros., JP Morgan, Goldman, etc. ---

There are two superpowers in the world today in my opinion. There’s the United States and there’s Moody’s Bond Rating Service. The United States can destroy you by dropping bombs, and Moody’s can destroy you by down grading your bonds. And believe me, it’s not clear sometimes who’s more powerful.  The most that we can safely assert about the evolutionary process underlying market equilibrium is that harmful heuristics, like harmful mutations in nature, will die out.
Martin Miller, Debt and Taxes as quoted by Frank Partnoy, "The Siskel and Ebert of Financial Matters:  Two Thumbs Down for Credit Reporting Agencies," Washington University Law Quarterly, Volume 77, No. 3, 1999 --- http://www.trinity.edu/rjensen/FraudCongressPartnoyWULawReview.htm 

Credit rating agencies gave AAA ratings to mortgage-backed securities that didn't deserve them. "These ratings not only gave false comfort to investors, but also skewed the computer risk models and regulatory capital computations," Cox said in written testimony.
SEC Chairman Christopher Cox as quoted on October 23, 2008 at http://www.nytimes.com/external/idg/2008/10/23/23idg-Greenspan-Bad.html

"CREDIT RATING AGENCIES: USELESS TO INVESTORS," by Anthony H. Catanch Jr. and J. Edward Ketz, Grumpy Old Accountants Blog, June 6, 2011 --- http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/113


"DOJ vs. Rating Firms,"  by David Hall, CFO.com Morning Ledger, February 5, 2013

The government is taking its get-tough-on-Wall-Street stance to the next level with the DOJ’s lawsuit against Standard & Poor’s. The suit alleges that S&P from September 2004 through October 2007 “knowingly and with the intent to defraud, devised, participated in, and executed a scheme to defraud investors in” CDOs and securities backed by residential mortgages, the WSJ reports at the top of A1 today. The two sides have been discussing a possible settlement for months, but the penalties the DOJ was targeting – more than $1 billion – made S&P squeamish. The firm was also worried that if it admitted wrongdoing, as the DOJ wanted, that could leave it vulnerable to other lawsuits.

S&P and other rating firms have argued in the past that their opinions are protected by the First Amendment — and judges have thrown out dozens of suits based on that argument, the Journal says. This case will test that argument against the Justice Department’s view that the First Amendment wouldn’t protect a ratings firm if it defrauded investors by ignoring its own standards.

Neil Barofsky, the former inspector general for the Troubled Asset Relief Program, said the DOJ move looks like an effort to get “some measure of accountability” for the financial crisis, which was “something that’s been really lacking across the board.” And Jeffrey Manns, a law professor at George Washington University, tells Reuters that the suit sends a message to “the rating industry at large that the government is serious about holding rating agencies responsible, and that they must be much more careful.”


Jensen Comment
The DOJ actions do not worry the credit rating firms nearly so much as the hundreds of billions of potential tort lawsuits awaiting in the wings, lawsuits by damaged investors who relied on those phony credit ratings.

The credit rating firms, in turn, will blame CPA audit firms who gave clean audit opinions on junk.

Where were the auditors?

"Goodbye, Prius? Japanese carmakers drop battery electric-car development," by Cheryl K. Chumley, The Washington Times, February 4, 2013 ---

Japan is backtracking on battery electric-car development, as even Nissan’s vice chairman, the so-called “father of the Prius,” announced plans to copy Toyota and pursue fuel-cell cars that convert hydrogen to electricity.

“Because of its shortcomings — driving range, cost and recharging time — the electric vehicle is not a viable replacement for most conventional cars,” said Toyota’s vice chairman, Takeshi Uchiyamada, in a Reuters report. “We need something entirely new.”

Toyota Motor Co. — the world’s largest hybrid manufacturer, Reuters reports — recently announced a plan to drop pure electric-car development, also.

The announcement follows a White House decision last week to reduce its goal of 1 million electric cars on U.S. roads by 2015, Reuters said.

Japan has been trying to develop electric cars for 100 years, Reuters said.

What's the underlying assumption in this decision?

That inventions down the road will enable hydrogen to be manufactured much more cheaply.


"This Explains Everything: 192 Thinkers on the Most Elegant Theory of How the World Works," by Maria Popova, Brain Pickings, January 22, 2013 ---
Note in particular the Douglas Coupland contribution.

Every year since 1998, intellectual impresario and Edge editor John Brockman has been posing a single grand question to some of our time’s greatest thinkers across a wide spectrum of disciplines, then collecting the answers in an annual anthology. Last year’s answers to the question “What scientific concept will improve everybody’s cognitive toolkit?” were released in This Will Make You Smarter: New Scientific Concepts to Improve Your Thinking, one of the year’s best psychology and philosophy books.

In 2012, the question Brockman posed, proposed by none other than Steven Pinker, was “What is your favorite deep, elegant, or beautiful explanation?” The answers, representing an eclectic mix of 192 (alas, overwhelmingly male) minds spanning psychology, quantum physics, social science, political theory, philosophy, and more, are collected in the edited compendium This Explains Everything: Deep, Beautiful, and Elegant Theories of How the World Works (UK; public library) and are also available online.

In the introduction preceding the micro-essays, Brockman frames the question and its ultimate objective, adding to history’s most timeless definitions of science:

The ideas presented on Edge are speculative; they represent the frontiers in such areas as evolutionary biology, genetics, computer science, neurophysiology, psychology, cosmology, and physics. Emerging out of these contributions is a new natural philosophy, new ways of understanding physical systems, new ways of thinking that call into question many of our basic assumptions.


Perhaps the greatest pleasure in science comes from theories that derive the solution to some deep puzzle from a small set of simple principles in a surprising way. These explanations are called ‘beautiful’ or ‘elegant.’


The contributions presented here embrace scientific thinking in he broadest sense: as the most reliable way of gaining knowledge about anything — including such fields of inquiry as philosophy, mathematics, economics, history, language, and human behavior. The common thread is that a simple and nonobvious idea is proposed as the explanation of a diverse and complicated set of phenomena.

Stanford neuroscientist Robert Sapolsky, eloquent as ever, marvels at the wisdom of the crowd and the emergence of swarm intelligence:

Observe a single ant, and it doesn’t make much sense, walking in one direction, suddenly careening in another for no obvious reason, doubling back on itself. Thoroughly unpredictable.

The same happens with two ants, a handful of ants. But a colony of ants makes fantastic sense. Specialized jobs, efficient means of exploiting new food sources, complex underground nests with temperature regulated within a few degrees. And critically, there’s no blueprint or central source of command—each individual ants has algorithms for their behaviors. But this is not wisdom of the crowd, where a bunch of reasonably informed individuals outperform a single expert. The ants aren’t reasonably informed about the big picture. Instead, the behavior algorithms of each ant consist of a few simple rules for interacting with the local environment and local ants. And out of this emerges a highly efficient colony.

Ant colonies excel at generating trails that connect locations in the shortest possible way, accomplished with simple rules about when to lay down a pheromone trail and what to do when encountering someone else’s trail—approximations of optimal solutions to the Traveling Salesman problem. This has useful applications. In “ant-based routing,” simulations using virtual ants with similar rules can generate optimal ways of connecting the nodes in a network, something of great interest to telecommunications companies. It applies to the developing brain, which must wire up vast numbers of neurons with vaster numbers of connections without constructing millions of miles of connecting axons. And migrating fetal neurons generate an efficient solution with a different version of ant-based routine.

A wonderful example is how local rules about attraction and repulsion (i.e., positive and negative charges) allow simple molecules in an organic soup to occasionally form more complex ones. Life may have originated this way without the requirement of bolts of lightning to catalyze the formation of complex molecules.

And why is self-organization so beautiful to my atheistic self? Because if complex, adaptive systems don’t require a blue print, they don’t require a blue print maker. If they don’t require lightning bolts, they don’t require Someone hurtling lightning bolts.

Developmental psychologist Howard Gardner, who famously coined the seminal theory of multiple intelligences, echoes Anaïs Nin in advocating for the role of the individual and Susan Sontag in stressing the impact of individual acts on collective fate. His answer, arguing for the importance of human beings, comes as a welcome antidote to a question that suffers the danger of being inherently reductionist:

In a planet occupied now by seven billion inhabitants, I am amazed by the difference that one human being can make. Think of classical music without Mozart or Stravinsky; of painting without Caravaggio, Picasso or Pollock; of drama without Shakespeare or Beckett. Think of the incredible contributions of Michelangelo or Leonardo, or, in recent times, the outpouring of deep feeling at the death of Steve Jobs (or, for that matter, Michael Jackson or Princess Diana). Think of human values in the absence of Moses or Christ.


Despite the laudatory efforts of scientists to ferret out patterns in human behavior, I continue to be struck by the impact of single individuals, or of small groups, working against the odds. As scholars, we cannot and should not sweep these instances under the investigative rug. We should bear in mind anthropologist Margaret Mead’s famous injunction: ‘Never doubt that a small group of thoughtful committed citizens can change the world. It is the only thing that ever has.’

Uber-curator Hans Ulrich Obrist, who also contributed to last year’s volume, considers the parallel role of patterns and chance in the works of iconic composer John Cage and painter Gerhard Richter, and the role of uncertainty in the creative process:

In art, the title of a work can often be its first explanation. And in this context I am thinking especially of the titles of Gerhard Richter. In 2006, when I visited Richter in his studio in Cologne, he had just finished a group of six corresponding abstract paintings which he gave the title Cage.

There are many relations between Richter’s painting and the compositions of John Cage. In a book about the Cage series, Robert Storr has traced them from Richter‘s attendance of a Cage performance at the Festum Fluxorum Fluxus in Düsseldorf 1963 to analogies in their artistic processes. Cage has often applied chance procedures in his compositions, notably with the use of the I Ching. Richter in his abstract paintings also intentionally allows effects of chance. In these paintings, he applies the oil paint on the canvas by means of a large squeegee. He selects the colors on the squeegee, but the factual trace that the paint leaves on the canvas is to a large extent the outcome of chance.


Richter‘s concise title, Cage, can be unfolded into an extensive interpretation of these abstract paintings (and of other works)—but, one can say, the short form already contains everything. The title, like an explanation of a phenomenon, unlocks the works, describing their relation to one of the most important cultural figures of the twentieth century, John Cage, who shares with Richter the great themes of chance and uncertainty.

Writer, artist, and designer Douglas Coupland, whose biography of Marshall McLuhan remains indispensable, offers a lyrical meditation on the peculiar odds behind coincidences and déja vus:

I take comfort in the fact that there are two human moments that seem to be doled out equally and democratically within the human condition—and that there is no satisfying ultimate explanation for either. One is coincidence, the other is déja vu. It doesn’t matter if you’re Queen Elizabeth, one of the thirty-three miners rescued in Chile, a South Korean housewife or a migrant herder in Zimbabwe—in the span of 365 days you will pretty much have two déja vus as well as one coincidence that makes you stop and say, “Wow, that was a coincidence.”

The thing about coincidence is that when you imagine the umpteen trillions of coincidences that can happen at any given moment, the fact is, that in practice, coincidences almost never do occur. Coincidences are actually so rare that when they do occur they are, in fact memorable. This suggests to me that the universe is designed to ward off coincidence whenever possible—the universe hates coincidence—I don’t know why—it just seems to be true. So when a coincidence happens, that coincidence had to work awfully hard to escape the system. There’s a message there. What is it? Look. Look harder. Mathematicians perhaps have a theorem for this, and if they do, it might, by default be a theorem for something larger than what they think it is.

What’s both eerie and interesting to me about déja vus is that they occur almost like metronomes throughout our lives, about one every six months, a poetic timekeeping device that, at the very least, reminds us we are alive. I can safely assume that my thirteen year old niece, Stephen Hawking and someone working in a Beijing luggage-making factory each experience two déja vus a year. Not one. Not three. Two.

The underlying biodynamics of déja vus is probably ascribable to some sort of tingling neurons in a certain part of the brain, yet this doesn’t tell us why they exist. They seem to me to be a signal from larger point of view that wants to remind us that our lives are distinct, that they have meaning, and that they occur throughout a span of time. We are important, and what makes us valuable to the universe is our sentience and our curse and blessing of perpetual self-awareness.

MIT social scientist Sherry Turkle, author of the cyber-dystopian Alone Together: Why We Expect More from Technology and Less from Each Other, considers the role of “transitional objets” in our relationship with technology:

I was a student in psychology in the mid-1970s at Harvard University. The grand experiment that had been “Social Relations” at Harvard had just crumbled. Its ambition had been to bring together the social sciences in one department, indeed, most in one building, William James Hall. Clinical psychology, experimental psychology, physical and cultural anthropology, and sociology, all of these would be in close quarters and intense conversation.

But now, everyone was back in their own department, on their own floor. From my point of view, what was most difficult was that the people who studied thinking were on one floor and the people who studied feeling were on another.

In this Balkanized world, I took a course with George Goethals in which we learned about the passion in thought and the logical structure behind passion. Goethals, a psychologist who specialized in adolescence, was teaching a graduate seminar in psychoanalysis. … Several classes were devoted to the work of David Winnicott and his notion of the transitional object. Winnicott called transitional the objects of childhood—the stuffed animals, the bits of silk from a baby blanket, the favorite pillows—that the child experiences as both part of the self and of external reality. Winnicott writes that such objects mediate between the child’s sense of connection to the body of the mother and a growing recognition that he or she is a separate being. The transitional objects of the nursery—all of these are destined to be abandoned. Yet, says Winnicott, they leave traces that will mark the rest of life. Specifically, they influence how easily an individual develops a capacity for joy, aesthetic experience, and creative playfulness. Transitional objects, with their joint allegiance to self and other, demonstrate to the child that objects in the external world can be loved.


Winnicott believes that during all stages of life we continue to search for objects we experience as both within and outside the self. We give up the baby blanket, but we continue to search for the feeling of oneness it provided. We find them in moments of feeling “at one” with the world, what Freud called the “oceanic feeling.” We find these moments when we are at one with a piece of art, a vista in nature, a sexual experience.

As a scientific proposition, the theory of the transitional object has its limitations. But as a way of thinking about connection, it provides a powerful tool for thought. Most specifically, it offered me a way to begin to understand the new relationships that people were beginning to form with computers, something I began to study in the late 1970s and early 1980s. From the very beginning, as I began to study the nascent digital culture culture, I could see that computers were not “just tools.” They were intimate machines. People experienced them as part of the self, separate but connected to the self.


When in the late 1970s, I began to study the computer’s special evocative power, my time with George Goethals and the small circle of Harvard graduate students immersed in Winnicott came back to me. Computers served as transitional objects. They bring us back to the feelings of being “at one” with the world. Musicians often hear the music in their minds before they play it, experiencing the music from within and without. The computer similarly can be experienced as an object on the border between self and not-self. Just as musical instruments can be extensions of the mind’s construction of sound, computers can be extensions of the mind’s construction of thought.

This way of thinking about the computer as an evocative object puts us on the inside of a new inside joke. For when psychoanalysts talked about object relations, they had always been talking about people. From the beginning, people saw computers as “almost-alive” or “sort of alive.” With the computer, object relations psychoanalysis can be applied to, well, objects. People feel at one with video games, with lines of computer code, with the avatars they play in virtual worlds, with their smartphones. Classical transitional objects are meant to be abandoned, their power recovered in moments of heightened experience. When our current digital devices—our smartphones and cellphones—take on the power of transitional objects, a new psychology comes into play. These digital objects are never meant to be abandoned. We are meant to become cyborg.

Anthropologist Scott Aran considers the role of the absurd in religion and cause-worship, and the Becket-like notion of the “ineffable”:

The notion of a transcendent force that moves the universe or history or determines what is right and good—and whose existence is fundamentally beyond reason and immune to logical or empirical disproof—is the simplest, most elegant, and most scientifically baffling phenomenon I know of. Its power and absurdity perturbs mightily, and merits careful scientific scrutiny. In an age where many of the most volatile and seemingly intractable conflicts stem from sacred causes, scientific understanding of how to best deal with the subject has also never been more critical.

Continued in article

"Extreme Space Weather Triggered Medieval Famines, Say Astrophysicists:  Famines plagued Iceland and food prices spiked in medieval England following extreme space weather events, according to a new study of historical data," MIT's Technology Review, January 31, 2013 --- Click Here

"The Biggest Loser," by Peter Schiff, Townhall, February 2, 2013 --- Click Here

In Switzerland, it's not just the clocks that are cuckoo. Over the past four years Swiss politicians and central bankers have gone on an unprecedented buying spree of foreign exchange reserves. In 2012, their cache swelled to as much as $420 billion worth of various currencies, primarily the euro. This figure is a seven-fold increase since 2008 and equates to 70% of the country's annual GDP.

The sum translates to $200,000 per family of four, enough to keep the Swiss in clocks, chocolates, and fondue for many years to come. The Swiss leadership will claim the money has been "invested" with an eye to the future, but what they've done is impoverished themselves in the present. Although such a decision seems perverse, it makes perfect sense when seen through the lens of today's presiding economic thinking.

For the past few generations Switzerland has enjoyed some of the strongest economic fundamentals in the world. The country boasts a high savings rate, low taxes, strong exports, low debt-to-GDP, balanced government budgets, and prior to a few years ago one of the most responsible monetary policies in the world. These attributes made the Swiss franc one of the world's "safe haven" currencies. But in today's global economy, no good deed goes unpunished.

Central bankers around the world, particularly in Washington, Frankfurt and Tokyo, have been engaged in a massive and coordinated campaign of currency debasement to combat the recession. But for years the Swiss refused to join in the printing parade. As a result, investors around the world wisely decided to park their savings in the reliable Swiss franc. From December of 2008 to August 2011 the franc appreciated an astounding 59% against the U.S. dollar and approximately 30% against the Japanese yen. More importantly, the franc gained 42% against the euro. As the Eurozone completely surrounds Switzerland, its trade with those countries represents the vast majority of its international transactions.

During this massive run up in its currency, the Swiss economy continued to prosper. Wages and purchasing power increased and GDP grew consistently faster than other countries in Western Europe. Despite generally positive export statistics, some Swiss exporters noticed that at times the strong franc put them at a disadvantage against foreign competitors. In addition, the strengthening currency helped keep a lid on consumer prices, giving Switzerland a consistently low inflation rate with occasional bouts of actual deflation. Despite the fact that Switzerland was an island of economic health amidst a sea of problems, the reigning economic orthodoxy convinced Swiss leaders that their strong currency was a burden rather than a blessing. More pointedly, the rise in the franc was seen as a repudiation of the expansionary policies occurring in other countries. And so the Swiss government decided to join the currency killing party.

In early August 2011, the Swiss National Bank took a series of steps to reverse the fortunes of the franc. In the simplest terms, they sold francs and bought foreign currencies, most notably the euro. The announcement included a promise to buy unlimited quantities of foreign exchange to maintain a floor of 1.20 francs per euro. In so doing, the Swiss essentially outsourced their monetary policy to the Eurozone. Any moves taken by the European Central Bank would need to be matched by the Swiss. Ironically, it was fear of this outcome that kept the Swiss from adopting the euro in the first place. Despite the former bias toward independence, the Swiss have de facto adopted the euro anyway. Since that time, the franc has fallen 16% against the dollar, Swiss foreign exchange reserves have skyrocketed, and investors who bought francs as a means to escape debasement have been betrayed.

Productive nations generate excess goods and services that can be sold abroad and their growth and stability attract investment funds from abroad. These conditions will tend to increase demand for the nation's currency, thereby pushing up its price. A strong currency keeps capital and raw materials costs low, enabling more productive workers to earn higher real wages. But according to most economists, a strong currency will bring down an economy because it destroys international competitiveness and can even lead to lower prices (deflation) which they see as economic quicksand. These fears have ignited a "global currency war" in which countries are expending huge amounts of national savings in order to ensure that their currencies stay cheap. In today's economic logic we must fail in order to succeed.

But it is very easy to have a weak currency. All that is needed is an unlimited willingness to print. A strong currency requires real fiscal discipline and actual production. Yet, like the weight loss TV show, economists believe that the winner of a currency war is the biggest loser. You win not by killing your competitors, but by killing yourself! It's like a student convincing his parents that an "F" is a better grade than an "A." And if a straight "F" report card results in parental accolades rather than anger, the students will lack any incentive to improve performance. Similarly, as nations like Switzerland strive to reduce their own grades, the failing nations have a reduced incentive to change their study habits. Without outside support, nations with collapsing currencies would see huge increases in consumer prices. The resulting fall in living stands would force productive reform.

I take the minority position that just as it is better to be rich than poor, a strong currency is better than a weak one. Although much more credentialed economists may try to muddle the arguments, the truth may be seen when a particular position is taken to its logical extreme. If a weaker currency is preferable to a stronger one, then logic would dictate that a currency of no value will be preferable to one with an infinite value. But how would economies with these drastically different currencies operate?

Continued in article

Jensen Comment
The U.S. is still printing trillions in greenbacks under the Fed's program called "Quantitative Easing" which accounts for the much of the decline in the value of the U.S. dollar ---

"Report shows UN admitting solar activity may play significant role in global warming," by Maxim Lott, Fox News, February 1, 2013 ---

The Earth has been getting warmer -- but how much of that heat is due to greenhouse gas emissions and how much is due to natural causes?

A leaked report by a United Nations’ group dedicated to climate studies says that heat from the sun may play a larger role than previously thought.

“[Results] do suggest the possibility of a much larger impact of solar variations on the stratosphere than previously thought, and some studies have suggested that this may lead to significant regional impacts on climate,” reads a draft copy of a major, upcoming report from the U.N.’s Intergovernmental Panel on Climate Change (IPCC).

The man who leaked the report, StopGreenSuicide blogger Alec Rawls, told FoxNews.com that the U.N.’s statements on solar activity were his main motivation for leaking the document.

“The public needs to know now how the main premises and conclusions of the IPCC story line have been undercut by the IPCC itself,” Rawls wrote on his website in December, when he first leaked the report.

Rawls blames the U.N. for burying its point about the effect of the sun in Chapter 11 of the report.

“Even after the IPCC acknowledges extensive evidence for ... solar forcing beyond what they included in their models, they still make no attempt to account for this omission in their predictions. ... It's insane,” he told FoxNews.com.

Some skeptical climatologists say that the statement in the U.N. draft report is important, but not game-changing.

“The solar component is real but not of sufficient magnitude to have driven most of the warming of the late 20th century,” Pat Michaels, the former president of the American Association of State Climatologists, and current director of the Center for the Study of Science at the Cato Institute, told FoxNews.com.

The U.N. report also says that the effect of solar activity will be “much smaller than the warming expected from increases in [man-made] greenhouse gases.”

An estimate from NASA said that solar variations caused 25 percent of the 1.1 degree Fahrenheit warming that has been observed over the past century.

But Michaels said that if the U.N. increases its estimates about how much the sun affects Earth’s temperatures, it might help the U.N. get its prediction models back on track. While the Earth warmed over the last two decades, it did so more slowly than the U.N. had predicted.

Continued in article

"Where Are Jobs Coming From?" Sober Look, February 1, 2013 ---

Jensen Comment
Large companies are more apt to be using more and more robots to replace labor.

"Rise of the Robots," by Paul Krugman, The New York Times, December 8, 2012 ---

"A World Without Work," by Dana Rousmaniere, Harvard Business Review Blog, January 27, 2013 --- Click Here

From Paul Caron's Tax Prof Blog on January 25, 2013

NY Times Debate: What Should Tax Reform Do?

New York Times, Room for Debate:  What Should Tax Reform Do?:

Raising taxes on wealthy Americans, as was agreed upon by Congress earlier this month, won’t be enough to deal with the nation’s budget deficit. Some would argue that we also need to raise taxes on everyone. At the very least, a broader conversation about this country’s tax policy is necessary, and that means asking a simple question: What should tax reform do?

Case Studies in Gaming the Income Tax Laws ---

A new analysis by economist Art Laffer for the American Legislative Exchange Council [Rich States, Poor States] finds that, from 2002 to 2012, 62% of the three million net new jobs in America were created in the nine states without an income tax, though these states account for only about 20% of the national population. ...
Thank you Paul Caron for the heads up.

"The State Tax Reformers More Governors look to repeal their income taxes," The Wall Street Journal, January 29, 2013 ---

Washington may be a tax reform wasteland, but out in the states the action is hot and heavy. Nine states—including such fast-growing places as Florida, Tennessee and Texas—currently have no income tax, and the race is on to see which will be the tenth, and perhaps the 11th and 12th.

Oklahoma and Kansas have lowered their income-tax rates in the last two years with an aim toward eliminating the tax altogether. North Carolina's newly elected Republican Governor Pat McCrory has prioritized tax reform this year and wants to reduce the income tax. Ditto for another newcomer, Mike Pence of Indiana, who has called for a 10% income-tax rate cut. Susana Martinez, New Mexico's Republican Governor, has called for slashing the state corporate tax to 4.9% from 7.6%, and the first Republican-controlled legislature since Reconstruction in Arkansas is considering chopping its tax rates by as much as half.

But those are warm-up acts compared to Nebraska Governor Dave Heineman's announcement this month that he wants to eliminate the state income tax and replace it with a broader sales tax. "How many of you have sons and daughters, grandchildren, brothers and sisters and other family members who no longer live in Nebraska because they couldn't find a job here or they couldn't find the right career here in Nebraska?" he asked. He believes eliminating the income tax—with a top rate of 6.84%—will make the Cornhusker State a new magnet for jobs.

Then there's Louisiana Governor Bobby Jindal, who wants to zero out his state's income tax (top rate 6%) and the 8% corporate tax and replace them by raising the state's current 4% sales tax. He would also eliminate some 150 special interest exemptions from the sales tax, including massage parlors, art work and fishing boats.

As an economic matter, this swap makes sense. Income taxes generally do more economic harm because they are a direct penalty on saving, investment and labor that create new wealth. Sales taxes, by contrast, hit consumption, which is the result of that wealth creation. Governors Jindal, McCrory and Heineman cite the growing evidence that states with low or no income taxes have done better economically in recent decades compared to states with income-tax rates of 10% or more.

A new analysis by economist Art Laffer for the American Legislative Exchange Council finds that, from 2002 to 2012, 62% of the three million net new jobs in America were created in the nine states without an income tax, though these states account for only about 20% of the national population. The no-income tax states have had more stable revenue growth, while states like New York, New Jersey and California that depend on the top 1% of earners for nearly half of their income-tax revenue suffer wide and destabilizing swings in their tax collections.

In the case of North Carolina, a new study by the Civitas Institute concludes that a tax reform that shifts more of the burden to consumption from income would increase average annual personal income growth by 0.38% to 0.66%. That's enormous over time and would lead to much higher state tax revenues. North Carolina's top income tax rate is 7.75%, which is higher than that of most nearby states that it competes with for investment. Virginia's top rate is 5.75% while Tennessee has no personal income tax.

The main challenge for these Governors will be making the political sale. Critics will call the income-for-sales-tax swap regressive because everyone pays it. Mr. Jindal is countering by exempting food, medicine and utilities from his sales tax and providing a rebate for low-income families so their tax bills would not rise. But Governors will have to trump the critics by stressing the larger economic benefits for the state.

States with big energy production, like Louisiana and Oklahoma, also have another reform option: replacing the income tax with revenues from oil and gas extraction taxes, drilling leases and royalty payments. This kind of reform makes everyone in the state a stakeholder in America's energy renaissance from horizontal drilling and hydraulic fracturing. It also helps build a political constituency for more mining and drilling.

Governor John Kasich has proposed using revenues from oil and natural gas drilling to reduce Ohio's income tax rate. He plans to introduce his own larger tax reform soon. North Dakota, which last year became the second largest oil producing state (after Texas), could easily afford to abolish its income tax, much like Alaska did in 1980. Many more states could collect billions of dollars in energy-related revenue if they and the feds allowed more drilling on state and federal lands and offshore.

This state reform trend is a rare bright spot in the current high-tax era, and it will further sharpen the contrast in economic policies between GOP reform Governors and the union-dominated high-tax models of California, Illinois, New York, Massachusetts and now Minnesota, where last week Governor Mark Dayton proposed a huge tax hike. Let the policy competition begin.

Jensen Comment
It's a bit difficult to attribute full causality of new jobs to having no income tax in Florida, Tennessee, and Texas. These are also states where companies go to avoid trouble with labor unions. For example, it may not help states like Maine, Illinois, and Vermont to drop their income taxes since unions still have a lot of clout in Maine, Illinois, and Vermont. The same can be said for Massachusetts where Wal-Mart will never be allowed to build a store in Boston until it is a unionized store. Even if Taxachusetts dropped its income tax, no new Wal-Mart jobs would be forthcoming in Boston.

"Where Do State and Local Governments Get Their Revenue?" by Richard Morrison, Tax Foundation, January 29, 2013 ---

"MBA Gender Pay Gap: An Industry Breakdown," by: Alison Damast, Bloomberg Business Week, January 7, 2013 ---

Ross School (University of Michigan) Nearly Erases MBA Gender Pay Gap -(for graduates) ---

At the University of Texas women MBAs beat out the men ---

Jensen Comment
This does not mean that there were no differences between majors. For example, women finance graduates earned about $6,500 less than men majoring in finance, but they may have been paid more than women in management and marketing. I do not know that this is the case, but as in the case of comparing inequality between nations, it's important to note that the degree of equality is not nearly as important as the level of poverty. For example, the Gini Coefficients of equality are about the same for Canada and North Korea, but the absolute differences in poverty are immense.

Accounting firms probably do not hire many MBA graduates from Michigan since Michigan has a separate Masters of Accounting Program ---
It would surprise me if there were any gender differences in salary offers in this MAC program, although there may be some racial differences where top minority graduates have higher offers than whites.

The one question about all this that I would raise is job location. At Trinity University when I was still teaching we sometimes placed a single graduate from our very small MS in Accounting graduating class at a higher salary in San Francisco or some other city having very high living costs.

The ANOVA statistician in me questions gender comparisons across geographic cells having greatly varying living costs. For example the MBA woman landing a consulting job for $140,000 in San Francisco or Geneva really cannot compare her salary with the woman who gets $140,000 in Detroit. In Detroit some relatively nice houses are being given away free to people who will occupy them full time. The exact same house in San Francisco might sell for $845,000. So much for declaring that both women are being paid the same.

It's also difficult to compare salary offers that are variable. For example, it's common to offer base salary plus commissions for majors in marketing and finance for stock brokers and other sales jobs.

In the 1990s it would've also been difficult to compare some salary offers for graduates in finance and computer science. For example, I know about a Stanford Computer Science graduate who was paid minimum wage plus $1 million in stock options. I think this type of hiring declined when the 1990s technology bubble burst and FAS 126R went into effect. FAS 123R pretty much killed stock option compensation.

Bob Jensen's threads on gender salary differences ---

At the University of Texas MBA women graduates edged out men in terms of compensation offers
At the University of Michigan female and male MBA graduates average about the same compensation offers
Why are women MBA graduates from Stanford not faring as well as their male counterparts?

"Why Stanford MBA Men Make So Much More Than Women?" by Alison Damast, Bloomberg Business Week, December 21, 2012 ---

The gender pay gap at Stanford’s Graduate School of Business has female graduates earning 79¢ on the male dollar, the widest discrepancy in earnings between men and women at any of the top 30 business schools, according to new research from Bloomberg Businessweek.

That disparity may seem large, but it isn’t startling to many of the women in the Stanford Class of 2012, who say the figures largely indicate the wide range of career choices they are making.

Take Shan Riku, who worked as a consultant at McKinsey before business school and is now working as head of new business development at Cookpad, Japan’s largest recipe-sharing website. Riku admits she took a pay cut in accepting the position but says she was more interested in taking on a role that would challenge her. It also didn’t hurt that Cookpad encourages families to cook and spend time together. “Many women at Stanford tend to make choices that are a little bit more focused on ‘how do I want to balance my life,’ rather than ‘how can I earn a lot of money,’” she says.

Pulin Sanghvi, director of the career management center at Stanford’s business school, says most of the pay gap at his school can be “attributed to industry choice.” According to Sanghvi, women and men at Stanford who go into the consulting or Internet technology sectors tend to have average starting salaries that are close or equivalent in size. Those 2012 MBA graduates who headed into the consulting field received a mean base salary of $130,636, while others who went into the technology sector earned $118,050, according to the business school’s most recent employment report.

The wage gap comes about partly because fewer women are heading into some of the more lucrative finance fields. For example, 16 percent of male students took jobs in private equity and leveraged-buyout firms, compared with just 5 percent of women, Sanghvi says. The top four industries that Stanford women went into in 2012 were information technology, management consulting, consumer products, and venture capital.

“I think a part of the story of this generation of students is that they have a much larger playing field in terms of career choices,” Sanghvi says. “I don’t think the level of income in a job is necessarily the primary motivator for why someone makes an empowered choice to pursue a career.”

That’s not to say that women at the school aren’t thinking long and hard about their salary offers and how to best negotiate them.

Continued in article

Jensen Comment
This says very little about graduates wanting to become CPAs since Stanford does not offer a career track for taking the CPA examination. The few graduates who do seek to become auditors or tax accountants most likely were CPAs before entering Stanford's MBA program. After graduating they most likely will no longer seek to work for CPA firms as auditors and tax accountants.

Bob Jensen's threads on the gender pay gap in academe ---

"Women Challenge Male Philosophers to Make Room in Unfriendly Field," by Robin Wilson, Chronicle of Higher Education, January 14, 2013 ---

America's philosophy professors are having a party, the sort of gathering that has become an institution at the annual meeting of the American Philosophical Association. In a ballroom on the lowest level of a sprawling downtown hotel here, clumps of men sit talking, laughing, and drinking beer at big, round tables.

The association calls the gathering a reception, but everyone here knows it as the "smoker," even though no one is allowed to smoke anymore. It caps the first day of sessions at the association's Eastern Division meeting and is not only an occasion for old friends and colleagues to catch up but also a time for young job candidates to talk informally with professors at campuses that have faculty openings.

The smoker is also notorious for making women uncomfortable. Tales abound of how, two decades ago, drunken male faculty members at the event chased young female job candidates and, more recently, of female junior professors getting propositioned by their senior colleagues there.

Some female philosophers who attended the association's meeting here late last month did not even give the reception a chance. They skipped it in favor of their own gathering over Domino's pizza and red wine. "We avoid it at all costs," said Shay Welch, an assistant professor of philosophy at Spelman College who held the "woman friendly" party at her home with a couple of dozen people. "It's almost like there is this tiny parallel universe women have created where women in philosophy hibernate."

The two gatherings in Atlanta are emblematic of what's happening in philosophy, where a small group of female professors is trying to shake up the field. The women want to broaden the discipline to embrace feminist ideas, raise the number of women in the faculty ranks, and put an end to sexist remarks and behavior.

But they have found the field more resistant to change than are many others in academe.

Most philosophy departments and conference meetings are still saturated with men. More than 80 percent of full-time faculty members in philosophy are male, compared with just 60 percent for the professoriate as a whole, according to 2003 data compiled by the U.S. Education Department, the latest available.

Women at the conference here didn't miss opportunities to observe how isolated they felt: One who waited in line at the hotel's Starbucks said she had counted 10 men in the line, plus her. The 16.6 percent of all full-time faculty members in philosophy who are female constitutes the lowest proportion of women in any of the humanities and is lower than the proportion of women in traditionally male fields like mathematics and computer science.

At the meeting in Atlanta, the association's Committee on the Status of Women sold black-and-white buttons that said: "Philosophy: Got Women?" A very explicit blog, "What is it like to be a woman in philosophy?," publishes horror stories by women describing sexual harassment and gender bias on their campuses and at scholarly meetings. A new petition, started by men, encourages senior male philosophers to refuse to speak at philosophy conferences that include few, if any, female presenters; it has about 1,000 signatures.

"There is a groundswell of movement right now," said Linda Martín Alcoff, a professor of philosophy at Hunter College of the City University of New York, who is president of the association's Eastern Division.

'Jerks in Philosophy'

Ms. Alcoff and other women say that despite the overwhelmingly male nature of their discipline, faculty members picked her as president in part because those who vote in the association's elections are more likely than others to endorse change, and because the association's nominating committee assembled a diverse slate of presidential candidates, including a black male and two feminist philosophers. "One of my goals is to increase diversity," Amy Ferrer, the association's new executive director, told The Chronicle.

She is hardly the first to try. The Society for Women in Philosophy has been promoting women's work in the field since 1972, and Hypatia: A Journal of Feminist Philosophy was established in the mid-1980s. In November the philosophy association created a new Ad Hoc Committee on Sexual Harassment to study the problem. The action came exactly 20 years after the organization first issued a statement condemning sexual harassment. While complaints of harassment may have dropped to a trickle in most academic fields, in philosophy the issue remains a major problem.

"Where else but in the U.S. military are women the targets of such regular abuse by their own close colleagues?" Ms. Alcoff wrote in a 2011 issue of the association's Newsletter on Feminism and Philosophy.

While Ms. Alcoff said she doesn't like the way women have historically been treated at the smoker, she has not endorsed abandoning it, because all association meetings have social gatherings. But the harassment, she said, must stop.

Next fall the association's Committee on the Status of Women will begin visiting campuses to evaluate the treatment of women in philosophy departments and recommend changes.

Some prominent men in the field say sexual harassment is real. "There are some jerks in philosophy," said Walter Sinnott-Armstrong, a professor of philosophy at Duke University who sits on the association's Board of Officers and supports the committee to study sexual harassment. "I have seen people hitting on female philosophers where I thought they shouldn't."

Continued in article

Jensen Comment
Philosophy Departments now tend to have the lowest numbers of majors on campus:

"Decline of the Humanities," by Stephen Hsu, MIT's Technology Review, September 25, 2009 ---
From an essay by William Chace, professor of English and former president of Wesleyan and Emory. The American Scholar essay  --- http://www.theamericanscholar.org/the-decline-of-the-english-department/

... Here is how the numbers have changed from 1970/71 to 2003/04 (the last academic year with available figures):

English: from 7.6 percent of the majors to 3.9 percent
Foreign languages and literatures: from 2.5 percent to 1.3 percent
Philosophy and religious studies: from 0.9 percent to 0.7 percent
History: from 18.5 percent to 10.7 percent
Business: from 13.7 percent to 21.9 percent

In one generation, then, the numbers of those majoring in the humanities dropped from a total of 30 percent to a total of less than 16 percent; during that same generation, business majors climbed from 14 percent to 22 percent. Despite last year’s debacle on Wall Street, the humanities have not benefited; students are still wagering that business jobs will be there when the economy recovers.

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Jensen Comment
Since philosophy graduates from undergraduate programs in the past often opted for Law Schools it can only hurt philosophy departments even worse with the decline in opportunities of law graduates ---

Some philosophy departments have experienced such declines in the numbers of majors that those departments are among the first departments in their humanities divisions to offer online degrees:
A Fully Online Philosophy Degree from the University of North Carolina at Greensboro
"Virtual Philosophy," by Steve Kolowich, Inside Higher Ed, May 17, 2012 ---

This begs the question of whether top Ph.D. candidates in general, men and women, are opting for disciplines other than philosophy such as medicine, science, education, and business.  It would be interesting to see research on whether one reason for the miniscule number of female philosophy professors is due in large measure to self selection of other Ph.D. program alternatives for women. Since female graduates on average have higher grade averages than men, it may well be that the proportion of female philosophy professors to male philosophy professors would soar if the student demand for undergraduates in philosophy soared across the USA,

Bob Jensen's threads on gender ---

Bigger Than Enron
"Libor Lies Revealed in Rigging of $300 Trillion Benchmark," by Liam Vaughan & Gavin Finch, Bloomberg News, January 28, 2013 ---

"The LIBOR Mess: How Did It Happen -- and What Lies Ahead?" Knowledge@Wharton, July 18, 2012 ---

"Lies, Damn Lies and Libor:  Call it one more improvisation in 'too big to fail' crisis management," by Holman W. Jenkins Jr., The Wall Street Journal, July 6, 2012 ---

Jensen Comment
Crime Pays:  The good news for banksters is that they rarely, rarely, rarely get sent to prison ---

Bob Jensen's threads on Rotten to the Core ---

"Doubt Is Cast on Firms Hired to Help Banks," by Jessica Silver-Greenberg and Ben Protess, The New York Times, January 31, 2013 ---
Thank you Eliot Kamlet for the heads up.

Federal authorities are scrutinizing private consultants hired to clean up financial misdeeds like money laundering and foreclosure abuses, taking aim at an industry that is paid billions of dollars by the same banks it is expected to police.

The consultants operate with scant supervision and produce mixed results, according to government documents and interviews with prosecutors and regulators. In one case, the consulting firms enabled the wrongdoing. The deficiencies, officials say, can leave consumers vulnerable and allow tainted money to flow through the financial system.

“How can you be independent if you’re hired by the entity you’re reviewing?” Senator Jack Reed, Democrat of Rhode Island, who sits on the Senate Banking Committee, said.

The pitfalls were exposed last month when federal regulators halted a broad effort to help millions of homeowners in foreclosure. The regulators reached an $8.5 billion settlement with banks, scuttling a flawed foreclosure review run by eight consulting firms. In the end, borrowers hurt by shoddy practices are likely to receive less money than they deserve, regulators said.

On Thursday, Senator Elizabeth Warren, Democrat of Massachusetts, and Representative Elijah Cummings, Democrat of Maryland, announced that they would open an investigation into the foreclosure review, seeking “additional information about the scope of the harms found.”

Critics concede that regulators have little choice but to hire outsiders for certain responsibilities after they find problems at the banks. The government does not have the resources to ensure that banks follow the rules. Still, consultants like Deloitte & Touche and the Promontory Financial Group can add to regulators’ headaches, the government documents and interviews indicate. Some banks that work with consultants continue to run afoul of the law. At other times, consultants underestimate the extent of the misdeeds or facilitate them, preventing regulators from holding institutions accountable.

Now, regulators and lawmakers are rethinking their relationship with the consultants. Officials at the Federal Reserve, which oversees many large banks, are questioning the prudence of relying on consultants so heavily, said two people with direct knowledge of the matter.

When the Office of the Comptroller of the Currency penalized JPMorgan Chase last month for breakdowns in money-laundering controls, it imposed stricter requirements, ordering the bank to hire a consultant with “specialized experience” in money laundering and to ensure that the firm “not be subject to any conflict of interest.” In a separate action against the bank related to a $6 billion trading loss last year, the agency opted not to mandate an outside consultant at all.

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Crime Pays:  The good news for banksters is that they rarely, rarely, rarely get sent to prison ---

Bob Jensen's threads on Rotten to the Core ---

"100 banks end reporting to SEC under new law (Jobs Act), by Dina ElBoghdady, The Washington Post, January 30, 2013 --- Click Here

About 100 small banks have stopped reporting financial details about their operations to the Securities and Exchange Commission since April, when a law was enacted that aimed to lower the regulatory burdens for small companies.

For nearly five decades, securities law allowed banks with fewer than 300 shareholders to “deregister” — meaning they could stop reporting to the SEC their revenue, expenses, executive compensation and trends affecting their businesses, among other things.

Now, banks with fewer than 1,200 shareholders can deregister under a provision of the Jumpstart Our Business Startups, or JOBS, Act. Since the threshold rose in April, 101 banks have rushed to take advantage of it — more than the total number of deregistrations for the previous 21 quarters combined, according to an analysis by SNL Financial. Eighteen of the banks are based in Virginia, the highest number of any state.

Most of the firms are small community banks with less than $500 million in assets. The banks say that reporting to the SEC is a time-consuming and expensive process that eats into thin profit margins without any meaningful benefit to the public. The industry remains heavily regulated even without SEC oversight, bankers say.

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"CEOs want to raise the retirement age to 70," by Suzy Khimm, The Washington Post, January 18, 2013 ---

A lot of CEOs have gotten on the deficit-reduction bandwagon, but they’ve often been loath to push for specific proposals, endorsing instead an overall “framework” for fiscal consolidation that’s big and bipartisan.

That’s now starting to change: A group of the country’s leading CEOs from the Business Roundtable has put out an entitlement reform plan that proposes to raise the eligibility age for both Social Security and Medicare to 70.

Leading Republicans have long rallied to raise the eligibility age for Social Security to 70, but the Business Roundtable’s recommendations for Medicare go significantly further than the GOP consensus: During the fiscal cliff negotiations, for instance, Boehner proposed raising the Medicare eligibility age from 65 to 67 years, while the CEOs want to push it three years higher.

The group wants a slew of other changes as well: higher premiums for wealthy beneficiaries, chained CPI and more private competition for Medicare and private retirement programs.

“Even though most of these modernization initiatives would be phased in gradually, the immediate benefits would be enormous. First, they would put Medicare and Social Security on the sound financial footing needed to provide a sustainable retirement safety net. This would represent a major step forward in reducing the growth of government spending,” Gary Loveman, CEO of Caesars Entertainment Corp. and Business Roundtable participant, wrote in the Wall Street Journal.

The Business Roundtable believes its proposals would save the government $300 billion in Medicare spending and extend Social Security’s solvency for 75 years. But the changes would also come with costs to others as well. By eliminating Medicare coverage for those between 65 and 70 years old, the plan would send more individuals into Medicaid and the newly created health-insurance exchanges, as not everyone would continue to work or be covered by their employers’ insurance, explains Tricia Neuman, a vice president at the Kaiser Family Foundation.

That would drive up health-care premiums overall in the exchanges, as there would be older, sicker people getting coverage, says Neuman. In states that don’t elect to participate in the Medicaid expansion under Obamacare, lower-income people in their mid- to late-60s could also become uninsured, particularly those who are in physically demanding jobs they might not be able to continue until they’re 70. Overall, raising the eligibility age “would reduce federal spending but would do so in a way that shifts costs to other payers and raises overall health care costs,” says Neuman, who’s examined the impact of raising the age to 67.

On the flip side, proponents of the changes argue that raising the retirement age makes sense given the rise in life expectancy, and that sacrifices are necessary to ensure the solvency of entitlement programs. “What has happened to Social Security over years is because people are living much more longer, it’s moved more toward a middle-aged retirement system,” says Eugene Steuerle, a senior fellow at the Urban Institute.

Continued in article

World Life Expectancy Map --- http://www.worldlifeexpectancy.com/index.php

Life Expectancy Trend for the United States --- http://www.aging.senate.gov/crs/aging1.pdf


As a result of falling age-specific mortality, life expectancy rose dramatically in the United States over the past century . Final data for 2003 (the most recent available) show that life expectancy at birth for the total population has reached an all-time American high level, 77.5 years, up from 49.2 years at the turn of the 20th century. Record-high life expectancies we re found for white females (80.5 years) and black females (76.1 years), as well as for white males (75.3 year s) and black males (69.0 years). Life expectancy gaps between males and females and between whites and blacks persisted.

In combination with decreasing fertility, the life expectancy gains have led to a rapid aging of the American population, as reflected by an increasing proportion of persons aged 65 and older. This report documents the improvements in longevity that have occurred, analyzing both the underlying factors that contributed to mortality reductions and the continuing longevity differentials by sex and race. In addition, it considers whether life expectancy will continue to increase in future years. Detailed statistics on life expectancy are provided. A brief comparison with other countries is also provided.

While this report focuses on a description of the demographic context of life expectancy change in the United States, these trends have implications for a wide range of social and economic programs and issues that are likely to be considered by Congress.

From the University of Pennsylvania (Wharton):  The U.S. Deficit is Tremendously Understated
"A Proper Accounting: The Real Cost of Government Loans and Credit Guarantees," Knowledge@Wharton, December 5, 2012 ---

Bob Jensen's threads on entitlements ---

How can you get a tour package in China that will give U.S. citizenship to your new babies?

"The Ethics of ‘Birthing Tourism':  U.S. Maternity Hotels Cater to Pregnant Chinese Women," by Accounting Professor Mintz, Ethics Sage, January 21, 2013 ---

His 63% marginal tax rate is a disincentive to carry on as a professional golfer
"Mickelson plans 'drastic changes' in response to tax hikes," by Mike Walker, Sports Illustrated, January 20, 2013 ---
Thank you Paul Caron for the heads up

Jensen Comment
I think Phil needs to sit down for a long chat with Mitt Romney or outgoing Treasury Timothy Geithner ---

"France Proposes an Internet Tax," by Eric Pfanner, The New York Times, January 20, 2013 ---

Is Technological Inequality Exacerbating Income Inequality?

"The Smartphone Have-Nots," by Adam Davidson, The New York Times, January 16, 2013 ---

Earlier this month, Larry Mishel, the president of the Economic Policy Institute, stood at a lectern in a small hotel conference room in San Diego and fiddled with a computer until his PowerPoint presentation flashed on the screen. Mishel then composed himself, paid tribute to his intellectual opponent sitting in the front row and began a speech that, he hopes, will reorient the U.S. economy away from the 1 percent or the 0.1 percent and toward the rest of us.

¶ Mishel’s session at this year’s meeting of the American Economic Association, titled “Inequality in America,” tellingly coincided with other sessions called “Extreme Wage Inequality” and “Taxes, Transfers and Inequality.” As the financial crisis wanes, economists are shifting their attention toward a more subtle, possibly more upsetting crisis in the United States: the significant increase in income inequality.

¶ Much of what we consider the American way of life is rooted in the period of remarkably broad, shared economic growth, from around 1900 to about 1978. Back then, each generation of Americans did better than the one that preceded it. Even those who lived through the Depression made up what was lost. By the 1950s, America had entered an era that economists call the Great Compression, in which workers — through unions and Social Security, among other factors — captured a solid share of the economy’s growth.

¶ These days, there’s a lot of disagreement about what actually happened during these years. Was it a golden age in which the U.S. government guided an economy toward fairness? Or was it a period defined by high taxes (until the early ’60s, the top marginal tax rate was 90 percent) and bureaucratic meddling? Either way, the Great Compression gave way to a Great Divergence. Since 1979, according to the nonpartisan Congressional Budget Office, the bottom 80 percent of American families had their share of the country’s income fall, while the top 20 percent had modest gains. Of course, the top 1 percent — and, more so, the top 0.1 percent — has seen income rise stratospherically. That tiny elite takes in nearly a quarter of the nation’s income and controls nearly half its wealth.

¶ The standard explanation of this unhinging, repeated in graduate-school classrooms and in advice to politicians, is technological change. The rise of networked laptops and smartphones and their countless iterations and spawn have helped highly educated professionals create more and more value just as they have created barriers to entry and rendered irrelevant millions of less-educated workers, in places like factory production lines and typing pools. This explanation, known as skill-biased technical change, is so common that economists just call it S.B.T.C. They use it to explain why everyone from the extremely rich to the just-kind-of rich are doing so much better than everyone else.

¶ For two decades, Mishel has been a critic of the S.B.T.C. theory, and that morning in San Diego, he argued that broad technological innovation has been taking place so steadily for so long that the rise of computers simply can’t explain the recent explosion in inequality. After all, when economists talk about technological innovation, they are thinking beyond smartphones; they’re usually considering innovations that affect production. Business innovations — like the railroads, telegraph, Henry Ford’s conveyor belt and the plastic extruders of the 1960s — have occurred for more than a century. Computers and the Internet, Mishel argued, are just new examples on the continuum and cannot explain a development like extreme inequality, which is so recent. So what happened?

¶ The change came around 1978, Mishel said, when politicians from both parties began to think of America as a nation of consumers, not of workers. President Jimmy Carter deregulated the airline, trucking and railroad industries in order to help lower consumer prices. Congress chose to ignore organized labor’s call for laws strengthening union protections. Ever since, Mishel said, each administration and Congress have made choices — expanding trade, deregulating finance and weakening welfare — that helped the rich and hurt everyone else. Inequality didn’t just happen, Mishel argued. The government created it.

¶ After Mishel finished his presentation, David Autor, one of the country’s most celebrated labor economists, took the stage, fumbled for his own PowerPoint presentation and then explained that there was plenty of evidence showing that technological change explained a great deal about the rise of income inequality. Computers, Autor says, are fundamentally different. Conveyor belts and massive steel furnaces made blue-collar workers comparatively wealthier and hurt more highly skilled crafts­people, like blacksmiths and master carpenters, whose talents were disrupted by mass production. The computer revolution, however, displaced millions of workers from clerical and production occupations, forcing them to compete in lower-paying jobs in the retail, fast-food and home health sectors. Meanwhile, computers and the Internet disproportionately helped people like doctors, engineers and bankers in information-intensive jobs. Inequality was merely a side effect of the digital revolution, Autor said; it didn’t begin and end in Washington.

¶ For all their disagreements, Autor and Mishel are allies of sorts. Both are Democrats who have advised President Barack Obama, and both agree that rampant inequality can undermine democracy and economic growth by fostering despair among workers and corruption among the wealthy. This places them in opposition to some right-leaning economists like Gary Becker, a Nobel Prize-winning professor at the University of Chicago, who told me a few years ago that “inequality in earnings has been mainly the good kind,” meaning it rewards those people with the education and skills most needed, helping the economy.

¶ How are we to make sense of these competing claims? I asked Frank Levy, the M.I.T. labor economist who hasn’t fully committed to any one particular view. Levy suggested seeing how inequality has played out in other countries. In Germany, the average worker might make less than an American, but the government has established an impressive apprenticeship system to keep blue-collar workers’ skills competitive. For decades, the Finnish government has offered free education all the way through college. It may have led to high taxes, but many believe it also turned a fairly poor fishing economy into a high-income, technological nation. On the other hand, Greece, Spain and Portugal have so thoroughly protected their workers that they are increasingly unable to compete in the global economy.

Continued in article

"Rethink Robotics invented a $22,000 humanoid (i.e. trainable) robot that competes with low-wage workers," by Antonio Regalado, MIT's Technology Review, January 16, 2013 --- Click Here

"Rise of the Robots," by Paul Krugman, The New York Times, December 8, 2012 ---

Catherine Rampell and Nick Wingfield write about the growing evidence for “reshoring” of manufacturing to the United States. They cite several reasons: rising wages in Asia; lower energy costs here; higher transportation costs. In a followup piece, however, Rampell cites another factor: robots.

The most valuable part of each computer, a motherboard loaded with microprocessors and memory, is already largely made with robots, according to my colleague Quentin Hardy. People do things like fitting in batteries and snapping on screens.

As more robots are built, largely by other robots, “assembly can be done here as well as anywhere else,” said Rob Enderle, an analyst based in San Jose, Calif., who has been following the computer electronics industry for a quarter-century. “That will replace most of the workers, though you will need a few people to manage the robots.”

Robots mean that labor costs don’t matter much, so you might as well locate in advanced countries with large markets and good infrastructure (which may soon not include us, but that’s another issue). On the other hand, it’s not good news for workers!

This is an old concern in economics; it’s “capital-biased technological change”, which tends to shift the distribution of income away from workers to the owners of capital.

Twenty years ago, when I was writing about globalization and inequality, capital bias didn’t look like a big issue; the major changes in income distribution had been among workers (when you include hedge fund managers and CEOs among the workers), rather than between labor and capital. So the academic literature focused almost exclusively on “skill bias”, supposedly explaining the rising college premium.

But the college premium hasn’t risen for a while. What has happened, on the other hand, is a notable shift in income away from labor:.

"Harley Goes Lean to Build Hogs," by James R. Hagerty, The Wall Street Journal, September 22, 2012 ---

If the global economy slips into a deep slump, American manufacturers including motorcycle maker Harley-Davidson Inc. that have embraced flexible production face less risk of veering into a ditch.

Until recently, the company's sprawling factory here had a lack of automation that made it an industrial museum. Now, production that once was scattered among 41 buildings is consolidated into one brightly lighted facility where robots do more heavy lifting. The number of hourly workers, about 1,000, is half the level of three years ago and more than 100 of those workers are "casual" employees who come and go as needed.

All the jobs are not going to Asia, They're going to Hal --- http://en.wikipedia.org/wiki/2001_Space_Oddessey
"When Machines Do Your Job: Researcher Andrew McAfee says advances in computing and artificial intelligence could create a more unequal society," by Antonio Regalado, MIT's Technology Review, July 11, 2012 ---

Are American workers losing their jobs to machines?

That was the question posed by Race Against the Machine, an influential e-book published last October by MIT business school researchers Erik Brynjolfsson and Andrew McAfee. The pair looked at troubling U.S. employment numbers—which have declined since the recession of 2008-2009 even as economic output has risen—and concluded that computer technology was partly to blame.

Advances in hardware and software mean it's possible to automate more white-collar jobs, and to do so more quickly than in the past. Think of the airline staffers whose job checking in passengers has been taken by self-service kiosks. While more productivity is a positive, wealth is becoming more concentrated, and more middle-class workers are getting left behind.

What does it mean to have "technological unemployment" even amidst apparent digital plenty? Technology Review spoke to McAfee at the Center for Digital Business, part of the MIT Sloan School of Management, where as principal research scientist he studies new employment trends and definitions of the workplace.

Every symphony in the world incurs an operating deficit
"Financial Leadership Required to Fight Symphony Orchestra ‘Cost Disease’," by Stanford University's Robert J Flanagan, Stanford Graduate School of Business, February 8, 2012 ---

 What if you sat down in the concert hall one evening to hear Haydn’s Symphony No. 44 in E Minor and found 5 robots scattered among the human musicians? To get multiple audiences in and out of the concert hall faster, the human musicians and robots are playing the composition in double time.

Today’s orchestras have yet to go down this road. However, their traditional ways of doing business, as economist Robert J. Flanagan explains in his new book on symphony orchestra finances, locks them into limited opportunities for productivity growth and ensures that costs keep rising.

"Patented Book Writing System Creates, Sells Hundreds Of Thousands Of Books On Amazon," by David J. Hull, Security Hub, December 13, 2012 ---

Philip M. Parker, Professor of Marketing at INSEAD Business School, has had a side project for over 10 years. He’s created a computer system that can write books about specific subjects in about 20 minutes. The patented algorithm has so far generated hundreds of thousands of books. In fact, Amazon lists over 100,000 books attributed to Parker, and over 700,000 works listed for his company, ICON Group International, Inc. This doesn’t include the private works, such as internal reports, created for companies or licensing of the system itself through a separate entity called EdgeMaven Media.

Parker is not so much an author as a compiler, but the end result is the same: boatloads of written works.

"Raytheon's Missiles Are Now Made by Robots," by Ashlee Vance, Bloomberg Business Week, December 11, 2012 ---

A World Without Work," by Dana Rousmaniere, Harvard Business Review Blog, January 27, 2013 --- Click Here

Jensen Comment
Historically, graduates who could not find jobs enlisted in the military. Wars of the future, however, will be fought largely by drones, robots, orbiting orbiting satellites. This begs the question of where graduates who cannot find work are going to turn to when the military enlistment offices shut down and Amazon's warehouse robotics replace Wal-Mart in-store workers.

If given a choice, I'm not certain I would want to be born again in the 21st Century.

The Sad State of Economic Theory and Research ---

"Nonprofit Compensation Report: The Most Comprehensive Analysis Available," GuideStar, 2012 --- Click Here

"Feminism Fizzles:  Where is Betty Friedan when we need her?" by Rachel Shteir, Chronicle of Higher Education's Chronicle Review, January 28, 2013 ---

Jensen Comment
Feminism lives on in the feminist academic journals the movement created.  Among other things these journals keep pressuring for shattering of glass ceilings and for improved wages and benefits of women at work.

The accomplishments of the movement are monumental, especially in terms of politics and employment. And in some instances the price has been severe, especially in terms of restraints on rape not keeping pace with the changing times ---

"A Tale of Four Tax Returns," NPR, January , 2013 --- http://video.pbs.org/video/2324404112
These are 2010 tax returns. The examples mention that the Earned Income Tax Credit allows some low and middle-income taxpayers not only avoid income taxes but receive cash refunds in excess of what was withheld from paychecks. The "Tale" seems reasonably well balanced except for its failure to mention how many low, middle, and high income taxpayers avoid taxes by participating in the underground economy ---
Case Studies in Gaming the Income Tax Laws ---
As I've mentioned repeatedly I'm in favor of eliminating lower rates on capital gains tax rates provided capital gains are indexed for inflation losses.

Why do some charities fear elimination of home mortgage and real estate tax deductions even if charitable deductions are retained in the tax code?

Itemized deductions need to exceed a certain threshold to be a tax advantage relative to the standard deduction. If too many itemized deductions are eliminated while the charitable contribution deduction is retained, it may no longer be advantageous for many taxpayers to opt for taking itemized deductions. Incentives to make charitable contributions thereby decline even if charitable contributions are still allowed. Even if itemized deduction minimums are eliminated, the incentives to make charitable contributions for tax purposes may be destroyed unless taxpayers are contemplating enormous contributions to charities. This will not be the case for most taxpayers.

"Charitable groups fear tax victory in ‘fiscal cliff’ deal will prove hollow," by Bernie Becker, The Hill, January 13, 2013 ---

Charitable groups notched a big victory in the year-end tax deal but say the fight to preserve their tax deductions is only beginning.

The “fiscal cliff” agreement preserved the tax deduction structure for charitable contributions, a policy that both Republicans and Democrats have sounded open to changing in recent months.

In fact, the deal signed into law would actually help spur more donations, according to a study by the Tax Policy Center. But charitable groups say they fully expect their deduction to be under threat in the weeks and months to come.

“We are viewing this as an interim victory,” Steve Taylor, senior vice president at United Way Worldwide, said about the fiscal cliff deal. “We recognize that it was really good for us, but we also didn’t spend any time celebrating."

Negotiations over the debt ceiling and looming automatic spending cuts have yet to heat up, nonprofit officials say, and Democrats and Republicans still remain deeply divided over how to proceed on fiscal matters.

“We don’t feel like anything’s secure for this year,” said Alison Hawkins, the director of external affairs for the Philanthropy Roundtable, told The Hill. “The sequester cuts, the debt ceiling — we view all of those as potential threats to the charitable deduction.”

The fiscal cliff deal is just the latest twist in a debate over the charitable deduction that has lasted throughout President Obama’s term in office, with the administration consistently pressing to limit how much of a deduction wealthy taxpayers can take.

At the same time, the White House pressed charitable groups to stand with Obama during last year’s battle over raising tax rates on the highest earners, and charitable groups have been fighting against deduction caps they say would limit donations from the wealthy.

In addition to preserving the charitable deduction, the tax deal raised rates on family income above $450,000 a year to 39.6 percent, and increased the top capital gains rate to 20 percent.

Those changes, the Tax Policy Center says, are projected to increase charitable giving by $3.3 billion, or just over 1 percent, in 2013. Under current law, higher tax rates mean a healthier deduction for taxpayers who itemize.

The Tax Policy Center also said that another provision in the cliff deal that worried some non-profits — the reinstatement of the so-called “Pease” limitation on deductions — would have “negligible effects on the tax incentive for charitable giving.”

The Pease limitation cuts itemized deductions for taxpayers over a certain threshold — $300,000 for couples. Pease was reinstated, along with a reduction of personal exemptions for the wealthy, after being phased out in the 2001 tax deal.

But Hawkins said that her group would seek an exemption for charitable donations from the Pease limitations, and that reinstating Pease could set the stage for further chipping away at deductions.

“Anything that could potentially tinker with or limit deductions, we’re opposed to,” she said.

Taylor said United Way Worldwide had expected Pease to come back, and predicated that the combination of a preserved charitable deduction and higher tax rates would lead to more robust donations this year.

But Taylor also said that local United Ways had already expressed concern about the Pease limitations, and that the mere enactment of a limit on deductions could lead to fewer donations. Local United Way officials are scheduled to come to Washington to discuss tax issues with policymakers next month.

Charitable groups are also concerned that the cliff deal checked off some of the more high-profile proposals, especially on the tax side, with negotiations over the debt ceiling, the sequester cuts and even a government spending agreement still looming.

Almost immediately after the recent deal, Obama started pushing for further tax changes that he said would take away deductions that are available to the rich, yet out of reach for most taxpayers.

“I guess to the extent that Congress may be unwilling to revisit tax rates, that does seem to put limits on deductions even more in the forefront,” Taylor said.

And with both Democrats and Republicans continuing to press for changes to the tax code, albeit in different ways, charitable groups say they have no idea when their fight will be over.

The White House, for instance, has said its proposal to cap deductions at 28 percent, instead of the top marginal tax rate, is about fairness as well as finding new revenues.

“If they continue to put forward the 28 percent proposal, we’re not going to consider this over,” Hawkins said.

Taylor said that he felt more confident about congressional support for the charitable deduction. But he also acknowledged that the deduction could be on the chopping block until the debate over tax reform is done, and Washington’s search for revenue is over.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on January 11, 2013

Deductions Limits Will Affect Many
by: John D. McKinnon
Jan 03, 2013
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com WSJ Video

TOPICS: Cash Flow, Governmental Accounting, Income Tax, Individual Income Taxation, Individual Taxation

SUMMARY: "The bill that cleared Congress Tuesday boosts the tax rate for single filers making more than $400,000 and married couples filing jointly making more than $450,000, or roughly the top 1% of filers. But provisions that reduce the value of personal exemptions as well as most itemized deductions, including those for mortgage interest and state income-tax payments, will affect about twice as many people since they carry a lower income threshold-$250,000 for singles and $300,000 for married couples."

CLASSROOM APPLICATION: The article can be used in a tax class covering individual taxation. One question addresses a graphic that can be used in a governmental accounting class.

1. (Introductory) Based on your reading of the article, list the major changes to individual income taxes coming in 2013, due to the legislation designed to avoid the "fiscal cliff."

2. (Advanced) What is the "fiscal cliff"? Has its economic impact been avoided via the legislation signed into law on January 1, 2013? Explain your answer.

3. (Introductory) Access the graphic entitled 'Cash Flow' in the online version of the article. To whom is the cash identified in the graph flowing? Over what time period will the cash flow occur?

4. (Advanced) Click on the related video in the article. What payroll tax changes will be implemented in 2013 as a result of the legislation implemented on January 1, 2013? In your answer, state the difference between payroll taxes and income taxes from both an individual taxpayer's perspective and from the perspective of the government use of the tax receipts.

5. (Advanced) When will these law changes impact practicing accountants' workloads?

6. (Advanced) One of the goals often stated by U.S. leaders is tax simplification. Based on your understanding of the tax law changes, do you think this goal is being supported or achieved? What factors in the article hinder attempts at tax simplification?

7. (Introductory) Based on statements in the article, when is Congress expected to renew efforts at tax code simplification?

Reviewed By: Judy Beckman, University of Rhode Island

"Deductions Limits Will Affect Many," by: John D. McKinnon, The Wall Street Journal, January 3, 2013 ---

One of the biggest tax increases in the fiscal-cliff bill is also one of the least understood: a set of limits on tax deductions and other breaks that will hit far more households than the bill's rate increases for top earners.

The bill that cleared Congress Tuesday boosts the tax rate for single filers making more than $400,000 and married couples filing jointly making more than $450,000, or roughly the top 1% of filers.

But provisions that reduce the value of personal exemptions as well as most itemized deductions, including those for mortgage interest and state income-tax payments, will affect about twice as many people since they carry a lower income threshold—$250,000 for singles and $300,000 for married couples.

Those new limits drew complaints from some groups that benefit from deductions, particularly charities that depend on tax-deductible donations. They worry that new curbs on deductions, coupled with other taxes on higher-income Americans, will put a damper on giving.

"We are concerned," said Diana Aviv, president of Independent Sector, a coalition of foundations, nonprofits and other charitable groups. "The big question for us now is, if we are [also] increasing rates on folks…does the combination create a greater disincentive for people to give?"

Enlarge Image image image

The debate foreshadows bigger fights in 2013, when Congress likely will try to overhaul the federal tax code, in part by further narrowing tax breaks.

The new limits are "like another cannonball being fired across our bow," said Jerry Howard, chief executive of the National Association of Home Builders. "Clearly, it shows that the notion of limiting deductions is still one that's being considered by policy makers."

But a J.P. Morgan analyst, Michael Feroli, predicted that the new tax-break limits "should not directly affect…giving to charities or taking on more mortgage debt."

The limits—known as PEP and Pease—were originally part of a budget deal passed by Congress in 1990, and were in effect for more than a decade. The Bush-era tax cuts of 2001 gradually got rid of PEP (which stands for "personal exemption phaseout") and Pease (named for a Democratic congressman who pushed for the deduction limit).

Now the fiscal-cliff bill calls for their return, at least for higher-income people.

The PEP and Pease limits work on the same basic principle, limiting the value of exemptions and deductions for households that exceed a threshold. For example, the Pease limitation reduces a household's itemized deductions by 3% of the amount over the threshold. The reduction can't exceed 80% of the total deductions.

A couple with income of $400,000 average about $50,000 in itemized deductions, according to IRS statistics. Because their income would exceed the $300,000 threshold by $100,000, their allowed deductions would be reduced by about $3,000 to $47,000—potentially boosting their tax bill by about $1,000.

The original proponent of the deduction limit, the late Rep. Donald Pease of Ohio, viewed it as "the best available means…to ensure that nobody could game the system," given the growing number of tax breaks that were being passed by Congress, said William Goold, his former chief of staff. The limit might be viewed now as dated, but "the goal remains as valid now as it did then," he added.

From a political standpoint, the limits allow the Obama administration to achieve its long-sought goal of raising taxes on people making more than $250,000. PEP and Pease represent about $150 billion of the tax increase of about $620 billion over 10 years, making them a key element of the deal.

But some groups that benefit from itemized deductions—charities, for example—worry that the Pease provision might cause donors to be less generous.

Continued in article


Bob Jensen's taxation helpers are at

The national taxpayer advocate has recommended that taxpayers be allowed to tell the IRS to accept their return only when filed on paper, thus preventing e-file tax-identity theft. So far the IRS has failed to allow this. Less effective methods are to request an "electronic filing PIN," available at www.irs.gov, and file Form 14039, "Identity Theft Affidavit," so that the IRS might apply additional return-screening procedures. Sadly, conventional credit-monitoring services are useless against income-tax identity theft.
"E-Filing and the Explosion in Tax-Return Fraud Identity-theft cases rocketed to 1.1 million in 2011 from 51,700 in 2008. The IRS has a backlog of 650,000," by Jay Starkman, The Wall Street Journal, January 13, 2013 ---

Now that Americans finally know the tax rate they'll be paying, it's time to start thinking about the annual drudgery of filing their returns. It's also the season when identity thieves begin ripping off those returns and stealing billions in false or misdirected refunds. Tax fraud, amazingly, is now the third-largest theft of federal funds after Medicare/Medicaid and unemployment-insurance fraud.

Tax-identity theft exploded to more than 1.1 million cases in 2011 from 51,700 in 2008. The Treasury Inspector General for Tax Administration last summer reported discovering an additional 1.5 million potentially fraudulent 2011 tax refunds totaling in excess of $5.2 billion.

Why has identity theft rocketed through the Internal Revenue Service? Because American taxpayers, urged on by the IRS, have taken to filing their income-tax returns electronically and arranging for refunds to be directly deposited into bank accounts. E-filing is appealing because it provides an electronic postmark confirmation that the return was filed on time. When it is combined with direct deposit, a refund can arrive in as little as seven days. In 2012, 80% of individual returns were e-filed, fulfilling an initial goal Congress set in 1998. The result is an automated system in which the labor burden is transferred to the taxpayer.

E-filing contributes to tax complexity as the IRS demands ever more data for reporting of wage, interest and brokerage income with more tax forms. A discrepancy may result in a rejection code, a letter from the IRS Automated Underreporting Unit, or a computerized audit out of a centralized IRS office in Ogden, Utah. There's no cost to the IRS for requesting extra information when it's received electronically.

Targeting taxpayers for audit is a major factor behind the IRS's push for e-filing. E-filed returns are available for audit several months sooner than paper returns, allowing more time before the three-year statute of limitations expires. The IRS has even boasted that its e-file database is "a rich and fertile field" for selecting audits and has estimated that if its "screeners could be reallocated to performing audits, they could bring an additional $175 million annually."

Fraudulent tax returns can come in the form of tax-identity theft, refund fraud, or return-preparer fraud and are difficult to prosecute. With e-filing, evidence of fraud is difficult to find. There are no signed tax forms, envelopes or fingerprints, and e-filing promises quick refunds.

It's easy for criminals to e-file using a real name and Social Security number combined with a phony Form W-2 (wages) or fabricated Schedule C (business income). The refund can be posted to an anonymous "Green Dot" prepaid Visa or MasterCard MA +0.20% purchased at a drugstore. Such cards have a routing and account number suitable for direct deposit. The IRS may even correct a fraudulent return to refund the estimated taxes that the real taxpayer already remitted, as happened to one of my victimized clients.

Another form of fraud is when an unscrupulous return preparer modifies the bank-routing information on a return so the direct-deposit refund will wind up in his own bank account. He might increase the deductions so a return will show a larger refund due, with only the increase routed to his bank account. The victim will know nothing unless the IRS sends an audit notice.

Other preparers have abused the return information of former clients to file false refund returns in subsequent years. Criminals have established physical offices and websites displaying names of major tax-preparation franchises in order to gain genuine return documents and signatures from unsuspecting victims.

The IRS will replace a lost or stolen refund check. However, a stolen refund using an altered or erroneous routing number on a tax return will generally not be refunded until the bank returns the funds to the IRS. Otherwise, the taxpayer's sole recourse is a lawsuit against the return preparer.

Millions of Americans now pay the IRS via an Electronic Federal Tax Payment System debit. Unlike ordinary creditors paid electronically, the IRS is in the business of sending refunds but it doesn't compare names on bank records against its own files. So, with just the routing information from a personal check, a skilled criminal can use the electronic tax-payment system to transfer funds from a victim's bank account as an estimated-tax payment to another stolen name and Social Security number, then file a refund claim transferring the stolen funds to his own account. (This can be prevented by having your bank place an "ACH debit block" on your account.)

Fraud is a major problem for states, too. Using TurboTax, a 25-year-old woman e-filed a fraudulent 2011 Oregon return reporting wages of $3 million and claiming a $2.1 million refund—and the Oregon Department of Revenue sent her the refund. In October, a hacker stole 3.8 million unencrypted tax records from the South Carolina Department of Revenue. Georgia reports that 4% of its returns are fraudulent.

If you become a tax-identity theft victim, immediately seek a referral to the IRS Identity Protection Specialized Unit or the Taxpayer Advocate Service using Form 911. Keep in mind that it can take over a year to resolve. The IRS has a backlog of 650,000 cases.

The national taxpayer advocate has recommended that taxpayers be allowed to tell the IRS to accept their return only when filed on paper, thus preventing e-file tax-identity theft. So far the IRS has failed to allow this. Less effective methods are to request an "electronic filing PIN," available at www.irs.gov, and file Form 14039, "Identity Theft Affidavit," so that the IRS might apply additional return-screening procedures. Sadly, conventional credit-monitoring services are useless against income-tax identity theft.

Continued in article

Why do thieves want taxpayer ID numbers?

The most obvious reason is to collect your tax refund before you get around filing for it. They would also like our earned income credits to flow to them in tens of billions of dollars in cash that does not belong to them. The primary reason nearly half the taxpayers collect tax refunds rather than pay any income tax is due to those earned income credits. And the Cliff Prevention and NASCAR Racetrack Construction Bill passed on January 1 restored those earned income credits big time.

This worked wonders in preventing credit card number thieves from sifting through trash containers
"To fight identity theft, IRS proposes rules for truncating identifying numbers," by Sally P. Schreiber, J.D., Journal of Accountancy, January 3, 2013 ---

Bob Jensen's Fraud Updates ---

Bob Jensen's tax helpers ---

Bob Jensen's Fraud Updates ---

Why not also require teachers to wear gang colors and tattoos as a symbol of gang loyalty?

"Gangs are Latest Excuse for Not Closing Failing, Half-Empty Chicago Schools," by Kyle Olson, Townhall, January 14, 2013 --- Click Here

Instead of appropriately dealing with gang-related violence, an independent Chicago school closure commission is recommending no school closures because such a move could force students to cross gang lines.

So in Chicago, gang violence is the “new normal” and instead of combating and gaining some control over the problem, city leaders are simply accommodating it.

Wow. Gangs of street punks are now influencing public policy and million dollar decisions. It looks like they really have won.

Of course the Chicago Teachers Union, which stands to lose money if schools close, agrees with the recommendation.

The CTU has been arguing against school closures for some time, as the union is looking to stave off an increase in the number of non-union charter schools, which serve about 50,000 students. A moratorium on school closures would naturally mean that more union teachers will be needed and their dues money will keep flowing to the CTU.

Chicago Public Schools are facing a $1 billion budget deficit and now that the district has locked in an expensive three-year collective bargaining agreement with the CTU, reducing labor costs is not really an option. But consolidating schools and streamlining operations is.

But now taxpayers might have to continue to pay to operate half-empty schools because city leaders don’t seem to be willing to deal with gangs. The Chicago Tribune reported there are 100,000 empty seats in schools in a district that has 400,000 students.

“CPS built new schools to relieve overcrowding in some communities but failed to close enough of the older, emptier ones, often caving to community pressure,” the newspaper reported.

Those half-empty schools are among the city’s worst performers academically.

The latest excuse shows the CTU will stop at nothing to protect the miserable status quo, regardless of the consequences for Chicago’s children.

"America’s Future? Look to Illinois," by Fritz Pfister, Townhall, January 11, 2013 --- Click Here

Somewhere along the line I remember a song about how you can take the kid out of the country, but you can’t take the country out of the kid. Guess one could write a song, you can take the kid out of Chicago but you can’t take Chicago out of the kid.

In October of 2008 my warnings went unheeded regarding candidate Barack Obama. All one needed do to see America in four years was to look at Blagojevich’s Illinois. It turned out worse than imagined.

Blagojevich’s Illinois was reeling in corruption, political favoritism, extra constitutional mandates, and unfunded pension liabilities growing exponentially due to quid pro quo union contracts.

Blago was a living example of liberal economic illiteracy when he quadrupled fees on trucking companies not realizing trucks have wheels, and 25,000 jobs were lost overnight. The exodus from Illinois was underway.

After getting caught with something ‘golden’ Blago was impeached, tried, and sent to prison leaving behind a state in financial shambles.

Enter Pat Quinn from Chicago. Another graduate of the Chicago School for Liberal Economic Illiteracy Quinn shoved through the biggest tax increase in Illinois history during a lame duck session.

That was in January 2011 with projected revenues that would solve all Illinois’ money woes with $7 billion in new revenue. By the end of 2011 the tax increased revenue by only $6 billion, and Quinn began his version of austerity measures which of course failed.

To see where Obama is taking America look to Illinois at the end of 2012. Here’s the report card; unfunded pension obligations up, budget deficit up, deficit spending up, unpaid bills to state vendors up, credit downgrade probable, talk of more taxes.

You can expect the same results from the economic illiterate in DC as the economic illiterate in Illinois. Obama’s attack on the wealthy with the cliff tax deal, and new Obamacare taxes will kill jobs too, just on a grander scale.

Obama must have at least one liberal adviser with a calculator because the day after raising taxes over $600 billion on the wealthy Obama was calling for a trillion more in revenue by eliminating deductions for the evil rich who are keeping the economy down.

Liberal hopes were dashed during the just concluded lame duck session in Illinois. While the state is bursting into flames of insolvency citizens were aghast that the lame duckers didn’t move on pension reform, gay marriage, and bans on assault weapons.

Continued in article

Bob Jensen's threads on entitlements are at

Spendthrift --- http://en.wikipedia.org/wiki/Profligate

A spendthrift (also called profligate) is someone who spends money prodigiously and who is extravagant and recklessly wasteful, often to a point where the spending climbs well beyond his or her means. The word derives from an obsolete sense of the word "thrift" to mean prosperity rather than frugality,[1] so that a "spendthrift" is one who has spent his prosperity.

"IMF: Yes, America is profligate," by Howard Schneider, Washington Post, January 11, 2013 ---

"The Trillion Dollar Trick," by Peter Schiff, Townhall, January 16, 2013 --- Click Here

. . .

In reality, our government has been creating more than one trillion dollars out of thin air every year for the past five. The only difference is that the blatant dishonesty of a trillion-dollar platinum coin is so easy to understand that the public simply couldn't be expected to swallow it. The American people are more than willing to be fooled, but they won't tolerate so simple a ruse.

People have a long and intimate history with coins. Some of us collected them as kids, and we all touch and see them every day. Unlike currency bills, we know intuitively that a coin's value is supposed to come from its metal content. That's why quarters are bigger than dimes. As a result, most people have viscerally rejected the platinum coin idea. To assign an arbitrary, sky high, valuation to a small piece of metal strikes most people as a deceitful, desperate act. They are right.

However, the same people have no problem with images of thousands of crisp paper notes flying off the printing presses. The acceptance is not impacted by how many zeroes the bills contain. People simply believe that paper money derives value from the numbers, not the paper. This was not always so. Paper money originally entered the public awareness as promissory notes to pay different amounts of gold. Once people got used to the paper, few really cared when the gold backing was finally removed. As a result, the public would likely have been much more accepting of the Fed printing a trillion dollar bill than the government minting a trillion dollar coin. But there was no legal pathway for the Fed to simply give that money to the government.

The government, not the Fed, mints coins, so they did not have to rely on the Fed to create value out of thin air. That is why the platinum coin idea was so seductive, if ultimately unsellable.

Jensen Comment
Peter could have simplified his posting by simply stating that the only problem with the trillion-dollar platinum coin is nobody in the world would/could make change when using it to pay an invoice. The same problem would exist for a trillion dollar bill. The only way to print money out of thin air is to print bills in denominations small enough to easily make change using existing currency.

The way the Fed actually prints money out of thin air is called "Quantitative Easing" ---

Federal Reserve Chairman Bernanke announced this week that he plans to continue printing money out of thin air until the unemployment rate lowers to 6.5%. With the explosion of robots in manufacturing an unemployment rate this low may be unattainable ad infinitum.

Why worry about a debt ceiling if the government is can simply print money to pay its bills?

Welcome to Zimbabwe where there is already a 100 trillion dollar bill. It takes more than two to by one chicken egg ---

As of November 2008, unofficial figures put Zimbabwe's annual inflation rate at 516 quintillion percent, with prices doubling every 1.3 days. Zimbabwe's inflation crisis was in 2009 the second worst inflation spike in history, behind the hyperinflationary crisis of Hungary in 1946, in which prices doubled every 15.6 hours


One day before we know it there will be USA trillion dollar coins or bills that will be used to make change for $100 trillion dollar bills and coins.

"Record Taxpayer Cost Is Seen for Crop Insurance," by Ron Nixon, The New York Times, January 16, 2013 ---

Jensen Comment
Corporate megafarms have it pretty good in the USA. Taxpayers subsidize their profits while, at the same time, also bear the risk of their crop failures. The above article also shows how the crop insurance is a windfall for private sector insurers. If climate change persists with drought disasters it can only get worse for taxpayers. Oops I forgot, the government will simply print new money to pay off the megafarm corporations.

Oops I forgot, the government will simply print new money to pay off the megafarm corporations. Who cares if it rains or shines?

From the Scout Report on January 18, 2013

In an era of declining fortunes, cities and regional authorities look
around for tax revenue

Airlines Accused of Gaming Tax Rules

RTA alleges United, American Airlines using 'sham' office for fuel

Lawsuit: 'Sham' United office dodges sales taxes

The Impact of the Great Recession on Local Property Taxes

Tax Policy Center

The Urban Institute: Economy and Taxes



"Hospital Will Stop Delivering Babies, Thanks to Obamacare," by Steven Ertelt, Life News, January 17, 2013 ---

. . .

A southwestern Pennsylvania hospital will stop delivering babies after March 31 because its obstetricians are either leaving or refocusing their practices, and because hospital officials believe they can’t afford it based on projected reimbursements under looming federal health care reforms.

The Windber Medical Center, about 60 miles southeast of Pittsburgh, is losing two obstetricians and two others are shifting their focus more to gynecology.

Hospital officials say the population of women of child-bearing age is dropping and that the number of births the hospital would be called upon to perform isn’t enough for it to provide the service in the face of lower reimbursements under the federal Affordable Care Act.

The hospital delivered about 200 babies each year since restarting its obstetrics program in 2005.

Officials aren’t sure how many jobs will be lost.

Continued in article

Scholars Propose Tax Reform to Prevent a Healthcare Disaster
"The $86 Billion Fix:  A group of scholars propose a plan that could put a brake on health care spending," Stanford Graduate School of Business, January 7, 2013 ---


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

"Rahm's ObamaCare Brainstorm Chicago may dump its retiree health costs on federal taxpayers," The Wall Street Journal, January 25, 2013 ---

Rahm Emanuel's parting gift to national taxpayers upon leaving Washington two years ago was a $1 trillion bill for ObamaCare. Now the Chicago Mayor may add billions more to the tab by dumping his city's retirees on the federally subsidized state health exchange.

This public service announcement is brought to you by a city commission that the mayor appointed last summer to study the cost of continuing health benefits for retired workers. A 25-year-old legal settlement requiring the city and its pension funds to pay between 40% and 55% of most retirees' health costs conveniently expires this June—convenient because the city can't afford the bill.

The city is running a $370 million budget deficit, which will blow up in 2015 when a $1.2 billion balloon payment for pensions comes due. The bill for retiree health benefits is $194 million this year and will grow to $540 million by 2023. Actuaries have recommended that the city sock away $2 billion this year to finance future benefits and pay down a $23 billion unfunded liability. Meanwhile, Chicago's pension funds, which are projected to run dry by the end of the decade, are scraping the bottoms of their barrels to pay for retiree health benefits as required by the settlement.

Enter the Mayor's commission. The four-member panel issued a report this month suggesting that dumping pre-Medicare retirees onto the state's ObamaCare exchange in 2014 could be fab for retirees and city taxpayers. Nearly 60% of retirees and 94% of those who receive subsidies would pay less for their health care on the exchange. Married retirees with dependents would save an average of $4,300.

Chicago and its pension funds in turn would shed $23 billion in liabilities, assuming supplemental benefits for Medicare recipients are also cancelled. (These calculations are based on models that assume public pensions are retirees' only source of income.)

On the other hand, the cost to national taxpayers would be enormous, especially if other local and state governments joined the party. Federal subsidies for Chicago retirees would amount to $44 million in 2014 and increase as more workers retire in their early to mid-50s and health costs grow. All told, state and local governments are on the hook for between $700 billion and $1.5 trillion for retiree health benefits, and like Chicago most will soon be unable to afford even their minimum annual payments.

Offloading the costs on Uncle Sam will look attractive since retiree health benefits don't enjoy the legal protections that some states have bestowed upon pensions. Stockton, California intends to shed its $400 million unfunded liability for retiree benefits in bankruptcy.

Mr. Emanuel says the city's decision on retiree health benefits will "strike the right balance between meeting the needs of the retirees and providing them health-care choices with protecting the interests of the city's taxpayers." So, let's see. On the one hand, Chicago pays, on the other everyone else does. Which do you think he'll choose?

The Chicago report illustrates once again how ObamaCare provides a convenient mechanism and incentive for employers to transfer health-care liabilities to national taxpayers—and how the costs will explode beyond Washington's phony projections.


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

You know you're getting old when your monthly planner only has entries for doctor, dentist, and medical lab appointments.
Bob Jensen

"Sandwich Generation: What are our Ethical Obligations to Care for our Aged-Parents and Children?" by accounting professor Steven Mintz, Ethics Sage, January 25, 2013 ---


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

Bob Jensen's Tidbits Archives ---

Bob Jensen's Pictures and Stories

Summary of Major Accounting Scandals --- http://en.wikipedia.org/wiki/Accounting_scandals

Bob Jensen's threads on such scandals:

Bob Jensen's threads on audit firm litigation and negligence ---

Current and past editions of my newsletter called Fraud Updates ---

Enron --- http://www.trinity.edu/rjensen/FraudEnron.htm

Rotten to the Core --- http://www.trinity.edu/rjensen/FraudRotten.htm

American History of Fraud --- http://www.trinity.edu/rjensen/FraudAmericanHistory.htm

Bob Jensen's fraud conclusions ---

Bob Jensen's threads on auditor professionalism and independence are at

Bob Jensen's threads on corporate governance are at


Shielding Against Validity Challenges in Plato's Cave ---

·     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?  ---

The Sad State of Accountancy Doctoral Programs That Do Not Appeal to Most Accountants ---


Bob Jensen's threads on accounting theory ---

Tom Lehrer on Mathematical Models and Statistics ---

Systemic problems of accountancy (especially the vegetable nutrition paradox) that probably will never be solved ---

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/