To Accompany the February 27, 2013 edition of Tidbits
Bob Jensen at Trinity University
My Free Speech Political Quotations and Commentaries Directory and Log
The Economist: World in 2013 (Annual summary of world economics trends
from The Economist magazine) ---
The USA's National Debt is Now Over $16 trillion and spinning out of control
Who are the major investors in slightly over $11 trillion of that USA National Debt?
"Who Owns the U.S. Treasury Market?" by Barry Ritholtz,
Ritholtz, February 1, 2013 ---
Note the pie charts.
Rest in Peace Armen Alchian --- http://en.wikipedia.org/wiki/Armen_Alchian
"The Pound Gets Pounded," by Peter Schiff, Townhall, February
20, 2013 ---
"Open Thread: Sequester/Deficit/Spending/Taxes?"
by Barry Ritholtz,
Ritholtz, February 21, 2013 ---
Read the comments for what they're worth.
February 22, 2013 afternoon train reads:
• The 5 biggest lies on Wall Street (MarketWatch)
• A brief history of the Chinese growth model (MPettis)
• A Valuable U.S. Export: Banking Regulations (Bloomberg) see also Too Big to Regulate? The Warren Debut (Credit Slips)
• NBC purchases rights to “Nightly Business Report,” saves show (Talking Biz News)
• Within a decade solar will be cheaper than coal. Within 2 decades, cheaper than gas (Atlantic)
• Watching porn is bad for your smartphone (CNNMoney)
• Marissa Mayer Hints That Yahoo Could Go Social (Wired)
• Curating the Cosmos (Slate)
• The Biggest Financial Asset in Your Portfolio Is You (NYT)
• The Internship: Owen Wilson And Vince Vaughn Put The Goof Into Google (Fast Company)
Labor Force Participation Rate --- http://en.wikipedia.org/wiki/Labor_force_participation_rate
Declines in labor participation rates are more important than increases in
"Civilian Labor Force Participation Rate (CIVPART)," Economic Research from the Federal Reserve Bank in St. Louis, Februay 1, 2013 ---
"There Will Be No Economic Recovery. Prepare Yourself Accordingly," by
Stefan Molyneux ---
Thank you Jim Mahar for the heads up.
To get an F on your term paper, cite Fox News, but CNN and MSNBC are good for an A
"A Professor vs. Fox News," by Scott Jaschik, Inside Higher Ed,
February 15, 2015 ---
I certainly hope this instructor will not get a full-time appointment.
Bob Jensen's threads on the liberal bias of the Academy ---
"Sequester was Obama’s Idea; Make him Own it!" by Crystal Wright,
Townhall, February 21, 2013 ---
"The President Is Raging Against a Budget Crisis He Created: Obama
invented the 'sequester' in the summer of 2011 to avoid facing up to America's
spending," by John Boehner, The Wall Street Journal. February 19,
A week from now, a dramatic new federal policy is set to go into effect that threatens U.S. national security, thousands of jobs and more. In a bit of irony, President Obama stood Tuesday with first responders who could lose their jobs if the policy goes into effect. Most Americans are just hearing about this Washington creation for the first time: the sequester. What they might not realize from Mr. Obama's statements is that it is a product of the president's own failed leadership.
The sequester is a wave of deep spending cuts scheduled to hit on March 1. Unless Congress acts, $85 billion in across-the-board cuts will occur this year, with another $1.1 trillion coming over the next decade. There is nothing wrong with cutting spending that much—we should be cutting even more—but the sequester is an ugly and dangerous way to do it.
By law, the sequester focuses on the narrow portion of the budget that funds the operating accounts for federal agencies and departments, including the Department of Defense. Exempt is most entitlement spending—the large portion of the budget that is driving the nation's looming debt crisis. Should the sequester take effect, America's military budget would be slashed nearly half a trillion dollars over the next 10 years. Border security, law enforcement, aviation safety and many other programs would all have diminished resources.
How did the country find itself in this mess?
During the summer of 2011, as Washington worked toward a plan to reduce the deficit to allow for an increase in the federal debt limit, President Obama and I very nearly came to a historic agreement. Unfortunately our deal fell apart at the last minute when the president demanded an extra $400 billion in new tax revenue—50% more than we had shaken hands on just days before.
It was a disappointing decision by the president, but with just days until a breach of the debt limit, a solution was still required—and fast. I immediately got together with Senate leaders Harry Reid and Mitch McConnell to forge a bipartisan congressional plan. It would be called the Budget Control Act.
The plan called for immediate caps on discretionary spending (to save $917 billion) and the creation of a special House-Senate "super committee" to find an additional $1.2 trillion in savings. The deal also included a simple but powerful mechanism to ensure that the committee met its deficit-reduction target: If it didn't, the debt limit would not be increased again in a few months.
But President Obama was determined not to face another debt-limit increase before his re-election campaign. Having just blown up one deal, the president scuttled this bipartisan, bicameral agreement. His solution? A sequester.
With the debt limit set to be hit in a matter of hours, Republicans and Democrats in Congress reluctantly accepted the president's demand for the sequester, and a revised version of the Budget Control Act was passed on a bipartisan basis.
Ultimately, the super committee failed to find an agreement, despite Republicans offering a balanced mix of spending cuts and new revenue through tax reform. As a result, the president's sequester is now imminent.
Both parties today have a responsibility to find a bipartisan solution to the sequester. Turning it off and erasing its deficit reduction isn't an option. What Congress should do is replace it with other spending cuts that put America on the path to a balanced budget in 10 years, without threatening national security.
Having first proposed and demanded the sequester, it would make sense that the president lead the effort to replace it. Unfortunately, he has put forth no detailed plan that can pass Congress, and the Senate—controlled by his Democratic allies—hasn't even voted on a solution, let alone passed one. By contrast, House Republicans have twice passed plans to replace the sequester with common-sense cuts and reforms that protect national security.
The president has repeatedly called for even more tax revenue, but the American people don't support trading spending cuts for higher taxes. They understand that the tax debate is now closed.
The president got his higher taxes—$600 billion from higher earners, with no spending cuts—at the end of 2012. He also got higher taxes via ObamaCare. Meanwhile, no one should be talking about raising taxes when the government is still paying people to play videogames, giving folks free cellphones, and buying $47,000 cigarette-smoking machines.
Washington must get serious about its spending problem. If it can't reform America's safety net and retirement-security programs, they will no longer be there for those who rely on them. Republicans' willingness to do what is necessary to save these programs is well-known. But after four years, we haven't seen the same type of courage from the president.
The president's sequester is the wrong way to reduce the deficit, but it is here to stay until Washington Democrats get serious about cutting spending. The government simply cannot keep delaying the inevitable and spending money it doesn't have.
So, as the president's outrage about the sequester grows in coming days, Republicans have a simple response: Mr. President, we agree that your sequester is bad policy. What spending are you willing to cut to replace it?
Mr. Boehner, a Republican congressman from Ohio, is speaker of the House.
The Sky is Falling
"President Obama’s Chicken Little Strategy," by Morgan Brittany, Townhall, February 25, 2013 --- Click Here
"The Hollywood Tax Story: They Won't Tell at the Oscars It's easy to
demand higher levies on the 'rich' when your own industry gets $1.5 billion in
government handouts," by Harlan Reynolds, The Wall Street Journal,
February 22, 2013 ---
At the Democratic National Convention last year, actress Eva Longoria called for higher taxes on America's rich. Her take: "The Eva Longoria who worked at Wendy's flipping burgers—she needed a tax break. But the Eva Longoria who works on movie sets does not."
Actually, nowadays an Eva Longoria who flipped burgers would probably qualify for the Earned Income Tax Credit and get a check from the government rather than pay taxes. It's the movie set where she works these days that may well be getting the tax break.
With campaign season over, you're not likely to hear stars bringing up taxes at this weekend's Academy Awards show. But the tax man ought to come out and take a bow anyway. Of the nine "Best Picture" nominees in 2012, for example, five were filmed on location in states where the production company received financial incentives, including "The Help" (in Mississippi) and "Moneyball" (in California). Virginia gave $3.5 million to this year's Oscar-nominated "Lincoln."
Such state incentives are widespread, and often substantial, but they don't do much to attract jobs. About $1.5 billion in tax credits and exemptions, grants, waived fees and other financial inducements went to the film industry in 2010, according to data analyzed by the Center on Budget and Policy Priorities. Politicians like to offer this largess because they get photo-ops with celebrities, but the economic payoff is minuscule. George Mason University's Adam Thierer has called this "a growing cronyism fiasco" and noted that the number of states involved skyrocketed to 45 in 2009 from five in 2002.
In its 2012 study "State Film Studies: Not Much Bang For Too Many Bucks," the Center on Budget and Policy Priorities found that film-related jobs tend to go to out-of-staters who jet in, then leave. "The revenue generated by economic activity induced by film subsidies," the study notes, "falls far short of the subsidies' direct costs to the state. To balance its budget, the state must therefore cut spending or raise revenues elsewhere, dampening the subsidies' positive economic impact."
Sometimes it is even worse, as demonstrated by Michigan's effort, begun under former Gov. Jennifer Granholm, to woo the motion picture industry with an expensive state-of-the-art studio facility built on the site of a former General Motors GM +2.26% factory in Pontiac. State leaders ballyhooed the plan as a way of moving from old-style industry to new.
Despite tens of millions of dollars in state investment, the promised 3,000-plus jobs didn't appear. As the Detroit Free Press reported last year, the studio employed only 15-20 people. That isn't boffo. That's a bust. The studio has defaulted on interest payments on state-issued bonds, and the guarantors—the state's already stressed pension funds—may wind up holding the bag. "In retrospect, it was a mistake," conceded Robert Kleine, the former state treasurer who signed off on the plans in 2010.
Michigan has drastically scaled back its subsidies under Gov. Rick Snyder, who said that he would rather spend the money on schools, police or the successful "Pure Michigan" ad campaign aimed at drawing tourists to the state.
Iowa ended its motion-picture subsidies in 2010, after officials misused $26 million in state money, leading to criminal charges. According to a 2008 investigation by Iowa Auditor David Vaudt, 80% of tax credits issued under the state's film-subsidy program had been issued improperly (to production companies that weren't even spending the money in Iowa, for example). The Council of State Governments reports that other states, from New Jersey to Alaska, are beginning to rethink their subsidies, too.
The $1.5 billion in subsidies that states provide, according to the Center on Budget and Policy Priorities, "would have paid for the salaries of 23,500 middle school teachers, 26,600 firefighters, and 22,800 police patrol officers." Or it could have gone to cut taxes on small businesses, which, as Ms. Longoria noted in her DNC speech, produce two out of three jobs in the economy.
Continued in the article
Why don't they grant an Oscar to the state with the biggest tax breaks for
Hollywood film makers?
. . .
Actually, nowadays an Eva Longoria who flipped burgers would probably qualify for the Earned Income Tax Credit and get a check from the government rather than pay taxes. It's the movie set where she works these days that may well be getting the tax break.
With campaign season over, you're not likely to hear stars bringing up taxes at this weekend's Academy Awards show. But the tax man ought to come out and take a bow anyway. Of the nine "Best Picture" nominees in 2012, for example, five were filmed on location in states where the production company received financial incentives. ...
Such state incentives are widespread, and often substantial, but they don't do much to attract jobs. About $1.5 billion in tax credits and exemptions, grants, waived fees and other financial inducements went to the film industry in 2010, according to data analyzed by the Center on Budget and Policy Priorities [State Film Subsidies: Not Much Bang For Too Many Bucks]. Politicians like to offer this largess because they get photo-ops with celebrities, but the economic payoff is minuscule. George Mason University's Adam Thierer has called this "a growing cronyism fiasco" and noted that the number of states involved skyrocketed to 45 in 2009 from five in 2002.
Case Studies in Gaming the Income Tax Laws ---
"Tax Advice for the Second Obama Administration," by Paul L. Caron,
SSRN, February 18, 2013 ---
Twenty-five of the nation’s leading tax academics, practitioners, journalists, and public intellectuals gathered in Malibu, California on the Friday before President Obama’s second inauguration to plead for tax reform. The papers published in this issue of the Pepperdine Law Review provide very different prescriptions for America’s tax ills. But there is a unanimous diagnosis that the country’s tax system is sick indeed. A re-elected president’s inauguration offers a particularly propitious moment to put politics aside and embark on a treatment plan. If our lawmakers are interested in healing our tax wounds, the ideas presented in these pages offer a good place to begin. They run the gamut from relatively minor procedures to total transplantation. But all would improve the health of our current tax system.
Bob Jensen's tax helpers are at
"The High Burden of State and Federal Capital
Gains Taxes," by Kyle Pomerleau, The Tax Foundation, February 20,
|Long-term Capital Gains Rate|
|Rank||Country/State||Capital Gains Rate|
|19||District of Columbia||29.1%|
It saddens me with all the focus on capital gains rates relative to what should be a more important issue --- price level adjusting long-term capital gains. I would prefer capital gains taxes at ordinary income rates after adjusting for inflation.
Arthur P. Hall, Issues in the Indexation of Capital Gains, Tax Foundation Special Report No. 47 (Apr. 1995), http://taxfoundation.org/sites/taxfoundation.org/files/docs/dafa29992e4cfa82276853f47607c84d.pdf.
"Italy's recession and upcoming elections threaten reforms," Sober
Look, February 21, 2013 ---
The good news for the USA is that deeper recession might be averted now that the President of the USA and the leaders of the House and Senate have once again started talking to each other.
"Half of Detroit Properties Have Not Paid Taxes; Update on Detroit
Bankruptcy," by Mike Shedlock, Townhall, February 25, 2013 ---
All the while bailout money is used to fund automobile factories in Mexico, Brazil, and Finland. Go figure! Why can't Chrysler build its new Fiats in Detroit as opposed to Mexico? And why did $500 million in USA bailout funds go to a failing automobile factory in Finland in which Al Gore is a part owner?
Yeah Right! Citigroup can't buy off Lew
"Citigroup’s Man Goes to the Treasury Department," by Jonathon Wiel, Bloomberg, February 21, 2013 ---
. . .
So I did some digging. I wasn’t able to find someone who would show me an entire copy of Lew’s employment agreement with Citigroup. But I did get a look at the first three pages of it, as well as a related addendum from January 2008. Here goes.
Lew was director of the Office of Management and Budget during President Bill Clinton’s administration, after which he worked at New York University as an executive and a professor. He joined Citigroup in 2006 as chief operating officer of its global wealth-management division. Lew was recommended by former Treasury Secretary Robert Rubin, who at the time was chairman of Citigroup’s executive committee. (There seems to be an unwritten rule that every Treasury secretary must have deep ties to Rubin.) He became chief operating officer of the bank’s alternative-investments unit in January 2008.
Lew’s employment agreement with Citigroup said his “guaranteed incentive and retention award” wouldn’t be paid if he quit his job, with limited exceptions. One was if he left Citigroup “as a result of your acceptance of a full-time high level position with the United States government or regulatory body.” This applied if he left “prior to the payment of any incentive and retention award for performance year 2008 or thereafter.” Such an award wasn’t guaranteed but would be consistent with the company’s practice, the document said.
A similar provision concerned his stock-based compensation. If Lew left in 2008 or afterward to accept a high-level U.S. government position, all of his outstanding equity awards, including restricted stock, would vest immediately, the document said. Alternatively, Citigroup had the option of paying Lew the cash equivalent of any shares he forfeited upon leaving. The terms didn’t mention other kinds of public-service work, such as a midlevel U.S. government job, a position in municipal or state government, or working at a nonprofit organization such as a university.
Lew stood to receive $250,001 to $500,000 worth of accelerated restricted Citigroup stock when he left the company, according to a disclosure report he filed in January 2009. The same document listed $1.1 million of “salary and discretionary cash comp” from Citigroup. Lew said at last week’s hearing that his salary for 2008 was $350,000.
Lew was named a deputy secretary of State in 2009, Office of Management and Budget director again in 2010, and then became President Barack Obama’s chief of staff in 2012. Now he’s up for Treasury secretary, where he would play a critical role in overseeing the U.S.’s financial industry and rescuing it should another crisis ensue. Citigroup couldn’t have planned this better if it tried, which raises the natural question: Did it try?
When I asked Citigroup what its rationale was for including the government-service exception, a spokeswoman, Danielle Romero-Apsilos, said: “Citi routinely accommodates individuals who wish to leave the firm to pursue a position in government or nonprofit sector.” I pointed out that the contract terms I was asking about didn’t mention anything about a nonprofit, but she declined to elaborate on her statement.
Later I asked Romero-Apsilos if Citigroup had a policy of providing financial incentives to senior executives to encourage them to seek high-level federal jobs. She replied: “We have no such incentives, then or now.” I’m not sure I agree with her after reading the part about government service in Lew’s “incentive and retention award.” A Treasury Department spokeswoman, Natalie Earnest, declined to comment.
It makes sense that Lew would have been thinking ahead to his next career move when he joined Citigroup in 2006. It’s also understandable that Citigroup sought to discourage Lew from joining a competitor. Why no mention of other kinds of public service, say a city hall job or returning to teaching? Why reward him for landing only a high-level U.S. government post, but not jobs such as those, which also are of high social importance?
We don’t know the whole story, except that Lew’s agreement clearly attached unique value to the possibility that he might get a top U.S. government position someday. Should that be of concern to the public? It ought to be.
"Now Is the Time for All Good Bankers to Bash the Caymans," by
Jonathan Weil, Bloomberg, February 22, 2013 ---
. . .
For instance, Grassley asked Lew if he was “aware of any of Citigroup’s Cayman subsidiaries,” noting that Citigroup had 121 of them. Grassley also asked: “Did you at any point in your tenure at Citigroup raise opposition to the use of Cayman Islands-based corporations in transacting company business? If so,
Lew replied that he had no role in creating investment funds or deciding where they were located. “I do not recall being aware of any particular Citigroup subsidiaries located in the Cayman Islands,” Lew said.
That got me thinking: Can you imagine the reaction Lew would have gotten from his fellow executives at Citigroup if one day out of the blue he got all high-minded and starting objecting to the bank’s use of Cayman Islands companies? He probably would have been laughed out of the building.
It would be like asking a senator if he or she ever objected to the practice of taking campaign donations from rich people who hoped to get something in return. Wonder what the answer would be.
Jack Lew just does not sound like he should be MSNBC Certified (or is the only test from MSNBC a nomination from MSNBC's real leader?)
Bob Jensen's Rotten to the Core threads ---
some bankers have ended up in prison is not a matter of scandal, but what is
outrageous is the fact that all the others are free.
Honoré de Balzac
Bankers bet with their bank's capital, not their own. If the bet goes right,
they get a huge bonus; if it misfires, that's the shareholders' problem.
Sebastian Mallaby. Council on Foreign Relations, as quoted by Avital Louria Hahn, "Missing: How Poor Risk-Management Techniques Contributed to the Subprime Mess," CFO Magazine, March 2008, Page 53 --- http://www.cfo.com/article.cfm/10755469/c_10788146?f=magazine_featured
Now that the Fed is going to bail out these crooks with taxpayer funds makes it all the worse.
Wall Street Remains
Congress to the Core
The boom in corporate mergers is creating concern that illicit trading ahead of deal announcements is becoming a systemic problem. It is against the law to trade on inside information about an imminent merger, of course. But an analysis of the nation’s biggest mergers over the last 12 months indicates that the securities of 41 percent of the companies receiving buyout bids exhibited abnormal and suspicious trading in the days and weeks before those deals became public. For those who bought shares during these periods of unusual trading, quick gains of as much as 40 percent were possible.
Gretchen Morgenson, "Whispers of Mergers Set Off Suspicious Trading," The New York Times, August 27, 2006 ---
"Why Are Some Sectors (Ahem, Finance) So
Scandal-Plagued?" by Ben W. Heineman, Jr., Harvard Business Review Blog,
January 10, 2013 ---
Greatest Swindle in the History of the World
OECD report highlights ugly increase in profit-shifting trend
"The missing $20 trillion How to stop companies and people dodging tax, in
Delaware as well as Grand Cayman," The Economist, February 16-20, 2013,
Page 13 ---
. . .
Dodgy of Delaware
The archetypal tax haven may be a palm-fringed island, but as our special report this week makes clear, there is nothing small about offshore finance. If you define a tax haven as a place that tries to attract non-resident funds by offering light regulation, low (or zero) taxation and secrecy, then the world has 50-60 such havens. These serve as domiciles for more than 2m companies and thousands of banks, funds and insurers. Nobody really knows how much money is stashed away: estimates vary from way below to way above $20 trillion.
Not all these havens are in sunny climes; indeed not all are technically offshore. Mr Obama likes to cite Ugland House, a building in the Cayman Islands that is officially home to 18,000 companies, as the epitome of a rigged system. But Ugland House is not a patch on Delaware (population 917,092), which is home to 945,000 companies, many of which are dodgy shells. Miami is a massive offshore banking centre, offering depositors from emerging markets the sort of protection from prying eyes that their home countries can no longer get away with. The City of London, which pioneered offshore currency trading in the 1950s, still specialises in helping non-residents get around the rules. British shell companies and limited-liability partnerships regularly crop up in criminal cases. London is no better than the Cayman Islands when it comes to controls against money laundering. Other European Union countries are global hubs for a different sort of tax avoidance: companies divert profits to brass-plate subsidiaries in low-tax Luxembourg, Ireland and the Netherlands.
Reform should thus focus on rich-world financial centres as well as Caribbean islands, and should distinguish between illegal activities (laundering and outright tax evasion) and legal ones (fancy accounting to avoid tax). The best weapon against illegal activities is transparency, which boils down to collecting more information and sharing it better. Thanks in large part to America’s FATCA, small offshore centres are handing over more data to their clients’ home countries—while America remains shamefully reluctant to share information with the Latin American countries whose citizens hold deposits in Miami. That must change. Everyone could do more to crack down on the use of nominee shareholders and directors to hide the provenance of money. And they should make sure that information about the true “beneficial” owners of companies is collected, kept up-to-date and made more readily available to investigators in cases of suspected wrongdoing. There are costs to openness, but they are outweighed by the benefits of shining light on the shady corners of finance.
Want more tax? Lower the tax rate
Transparency will also help curb the more aggressive forms of corporate tax avoidance. As Starbucks’s experience has shown, companies that shift money around to minimise their tax bills endanger their reputations. The more information consumers have about such dodges, the better.
Moral pressure is not the whole answer, though: consumers get bored with campaigns, and governments should not bash companies for trying to reduce their tax bills, if they do so legally. In the end, tax systems must be reformed. Governments need to make it harder for companies to use internal (“transfer”) pricing to avoid tax. Companies should be made to book activity where it actually takes place. Several federal economies, including America, already prevent companies from exploiting the differences between states’ rules. An international agreement along those lines is needed.
Governments also need to lower corporate tax rates. Tapping companies is inefficient: firms pass the burden on to others. Better to tax directly those who ultimately pay—whether owners of capital, workers or consumers. Nor do corporate taxes raise much money: barely more than 2% of GDP (8.5% of tax revenue) in America and 2.7% in Britain. Abolishing corporate tax would create its own problems, as it would encourage rich people to turn themselves into companies. But a lower rate on a broader base, combined with vigilance by the tax authorities, would be more efficient and would probably raise more revenue: America, whose companies face one of the rich world’s highest corporate-tax rates on their worldwide income, also has some of the most energetic tax-avoiders.
These reforms would not be easy. Governments that try to lower corporate tax rates will be accused of caving in to blackmailing capitalists. Financial centres and incorporation hubs, from the City of London to Delaware, will fight any attempt to tighten their rules. But if politicians really want to tax the missing $20 trillion, that’s where they should start.
OECD report highlights ugly increase in profit-shifting trend
"OECD wants corporate tax reform to receive international attention," by
Sally P. Schreiber, CGMA Magazine, February 18, 2013 ---
As G20 finance ministers began meeting in Moscow on Friday, a study the Organisation for Economic Co-operation and Development conducted at their request found that some multinational companies pay as little as 5% in corporate taxes whereas smaller businesses pay up to 30%. The study, Addressing Base Erosion and Profit Shifting, called for more international cooperation to ensure that countries’ tax laws do not favour large enterprises over smaller ones and people.
The corporate tax systems in many countries were originally designed to prevent corporations from being subject to double taxation, but now allow many multinational companies to escape taxation completely, the OECD reported. Part of the problem stems from outdated rules that do not adequately account for the value of intellectual property or new communications technology and do not deal with the increasingly global nature of many businesses.
The report also noted that tax laws in most countries are still based on an economic model characterised by fixed assets and less cross-border economic integration. The report examines how many large corporations shift profits to low- or no-tax jurisdictions and expenses to higher-tax countries. It does not discuss optimal tax rates, leaving those decisions to the taxing jurisdictions.
“As governments and their citizens are struggling to make ends meet, it is critical that all tax payers—private and corporate—pay their fair amount of taxes and trust the international tax system is transparent,” OECD Secretary-General Angel Gurría said in a prepared statement accompanying the report. And the OECD notes that multinationals have recently become more aggressive in pursuing these strategies to lower their overall taxes.
Continued in article
An accounting professor's commentary in the Chronicle of Higher Education
Is it random coincidence that he wrote about the Governor of California and Nuts in separate articles on the same day?
"A Governor's Attack on Academic Freedom," by
Steven Mintz (the Ethics Sage), Chronicle of Higher Education,
February 18, 2013 ---
Bob Jensen's threads on higher education controversies ---
"Accounting for Nuts (Literally): Diamond Foods Fraud Illustrates the
Danger of overly-optimistic Earnings Projections," by
Steven Mintz, Ethics Sage, February 18, 2013 ---
Bob Jensen's threads on Diamond Foods (including a teaching case) ---
Search on the phrase "Diamond Foods"
"Pravda on the Hudson
The New York Times's weird coverage of the president and the pope," by
James Taranto, The Wall Street Journal, February 12, 2013 ---
. . .
My Pet Conservative
The University of Colorado's Boulder campus is trying a bold experiment, the local paper, the Daily Camera, reports. It's going to hire a conservative:CU originally unveiled grand plans in 2007 to establish a visiting chair in conservative thought and policy, which would have required $7 million to $9 million to fund. But school officials have said the sluggish economy caused them to scale back plans and instead run a pilot program to bring visiting scholars to Boulder.CU has raised $1 million in donations for its visiting scholar in conservative thought and policy, a position that is funded for at least three years.As part of the selection process, each finalist will visit the campus for a day and meet privately with the search committee, chancellor, provost and dean of the College of Arts and Sciences. Each will also teach a class.Since last summer, an advisory committee made up of faculty and community members has been searching for candidates. The committee has sought a "highly visible" scholar who is "deeply engaged in either the analytical scholarship or practice of conservative thinking and policymaking or both."
The three finalists, Steven Hayward, Ron Haskins and Linda Chavez, all sound worthy, but the whole enterprise is an excellent example of the exception proving the rule. Such brazen tokenism wouldn't be necessary if CU--and higher education in general--weren't such a leftist monoculture.
Continued in article
Bob Jensen's threads on the liberal
bias in our Academy ---
"The Myth of the Rich Who Flee From Taxes," by James B. Stewart,
The New York Times, February 15, 2013 ---
Although I do not think that hoards of wealthy people are fleeing the U.S, the U.K, France, and other high marginal tax rate nations, the above article is poorly researched. It does not list the sizeable number of wealthy taxpayers who have relocated in nations like Switzerland and Ireland (where wealthy artists and writers pay no income taxes).
Things left out of the above article
More importantly, the article avoids research on businesses that have avoided high income tax states in favor of lower income tax states and the deals high income tax states have made with companies so they will not relocate. The most glaring examples are the tax exemptions given in Hollywood by Governor Brown in California if they make their movies in California and the huge tax exemptions given by Governor Quinn to large companies like Caterpillar and Sears if they did not follow through with tax-induced locations of offices and factories to other states.
A new analysis by economist Art Laffer for the American Legislative Exchange
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.
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 ---
"U.S. Struggles to Nab Visitors Who Overstay," by Laura Meckler,
The Wall Street Journal, February 18, 2013 ---
A long-standing problem in immigration enforcement—identifying foreigners who fail to go home when their visas expire—is emerging as a key question as senators and President Barack Obama chart an overhaul of immigration law.
The Senate is discussing an overhaul that would require the government to track foreigners who overstay their visas. The problem is the U.S. currently doesn't have a reliable system for doing this.
A group of Democratic and Republican senators say that a better visa-tracking system should be in place and that there should be improved U.S. border security before any of the estimated 11 million people now in the U.S. illegally can apply for citizenship under proposed new laws. Mr. Obama wants no such precondition before illegal foreigners can apply for citizenship.
Talk of illegal immigration often conjures images of people sneaking across the U.S. border from Mexico, but an estimated 40% or more of those now illegally in the U.S. entered with a valid visa.
Congress moved to tighten the system after the Sept. 11, 2001, terror attacks. Foreigners now get their fingerprints taken when they enter the country. A similar biometric system to track exits also was mandated. But it proved costly and tricky to set up, and it wasn't put in place. Among other things, airports have no obvious place to do the checks.
Now, as the Senate tackles immigration overhaul, the visa-overstay challenge is gaining new attention. "We need a visa-tracking system,'' Sen. Marco Rubio (R., Fla.), a member of the bipartisan group, told talk show host Rush Limbaugh. "We don't track people when they leave. We only track them when they come in." He added that he wouldn't support a bill unless "enforcement mechanisms are in place."
The Senate group aims to introduce a bill by March and hopes to begin moving it through the legislative process this spring. President Obama has said he would propose his own immigration legislation if progress stalls, though White House officials say they are pleased with the pace so far.
Mr. Obama's potential legislation would allow all people in the country illegally to qualify for a "Lawful Prospective Immigrant" visa right away if they passed a criminal-background check, submitted biometric information and paid fees, according to a person familiar with the bill.
After eight years, people with provisional status could qualify for a green card—legal permanent residence—if they learned English and U.S. history and paid back taxes, under Mr. Obama's approach. That would allow them to apply for citizenship after a further five years. The green cards would be available earlier if the government clears the backlog of people waiting legally before eight years pass. Details of the president's draft legislation were reported earlier by USA Today.
Nobody is sure how many people are in the U.S. on expired visas. The most commonly cited figures equate to some four million to five million people. But that is based on a 2006 study by the Pew Hispanic Center, which relied on a formula that was created using 1990 data.
In 2011, there were 159 million nonimmigrant visits to the U.S., according to the Department of Homeland Security. More than three-quarters were for pleasure. But millions also involved business travelers, temporary workers and students.
A handful of other countries have established systems for monitoring visa overstays, according to the Migration Policy Institute, a nonpartisan think tank that studies immigration issues.
The institute singles out Australia as having a particularly effective system. Information is collected and electronically recorded for all visitors entering Australia, and then checked again on the spot as people depart. People who have overstayed their visas are flagged for a secondary inspection upon departure. The institute also points to Japan, which implemented an entry-exit system in 2007 that includes fingerprinting visitors.
The Senate legislation under discussion wouldn't create any additional enforcement program to track down people who overstayed visas, Senate aides in both parties said. Still, they said it is important to understand the scope of the problem, and that tougher employment-verification systems contemplated by the legislation would deter future visitors from overstaying their visas.
Continued in article
In many instances these international students enroll in questionable colleges (many of which are not accredited) for the main purpose of not having to return to their own countries.
"Should the Minimum Wage Be Raised to $9?" by Judge Richard Posner,
The Becker Posner Blog, February 18. 2013 ---
Also see Nobel Laureate Gary Becker's reply at
"Contrived Inequality and Equality," by Nobel Laureate Gary Becker, The Becker Posner Blog, November 12, 2012 ---
"In Praise of Income Inequality," by Richard A. Epstein, Hoover Institution Journal, February 19, 2013 ---
Large public accounting firms are probably not in favor of simplifying the
February 17, 2013 message from Richard Sansing
This week's issue of The Economist has a special report on
off-shore finance. This article discusses the role of large
public accounting firms.
special-report/21571556- accounting-firms-will-do- nicely-under-any-set-rules- merry-enablers
Congressional Budget Office Study of Alternatives for Taxing Multinational
The CBO denies political bias but agrees that it did not seek a broad enough set of reviewers of technical issues in economics and taxation of multinational companies.
CBO Letter on February 15
To the Honorable Dave Camp
Chairman Committee on Ways and Means
. . .
This letter responds to concerns you raised about the CBO's report, Options for Taxing U.S. Multinational Corporations, which was released on January 8, 2013. We continue to believe that it presents the key issues fairly and objectively and that its findings are well grounded in economic theory and are consistent with empirical studies in this area. Nevertheless, because of the complexity of the subject and the diverse views of experts in the field, we agree that it would have been desirable to seek comments from more outside reviewers. It is always our goal to seek outside reviewers for CBO studies who represent a broad range of views and perspectives. Following is a discussion of the various issues you raised regarding the report.
Continued in letter
"To Limit Corporate Tax Avoidance, Tax Investors," Editors of
Bloomberg News, Bloomberg News, February 14, 2016 ---
Tax avoidance by corporations is on the agenda for this weekend’s meeting in Moscow of finance ministers from the Group of 20 advanced and emerging economies. It is a real problem, and its scale is getting difficult to ignore. The answer, though, isn’t further tax-code complication, as some governments favor, but a shift of taxes from profits to investment income.
To a comical degree, governments are of two minds when it comes to taxing profits. They have to do it, they say, for reasons of fairness and to meet their revenue needs. They deplore the aggressive efforts companies make to lighten the load. At the same time, governments write tax laws to attract multinational companies to their jurisdictions. That promotes the very tax arbitrage they abhor.
This absurdity has reached new heights in countries such as the U.K., where shaming companies for legal tax avoidance has become an instrument of tax policy. Starbucks Corp. recently pledged to make “voluntary” payments to the U.K., after accounting maneuvers resulted in the coffee-shop owner paying little or no tax on its British operations for years. The authorities allege no wrongdoing on Starbucks’s part. After an outcry in which the government joined, the company agreed to write checks to Her Majesty’s Revenue and Customs this year and next.
What’s shocking about that episode isn’t that Starbucks found legal ways to reduce its taxes -- every company does that, and managers would be failing in their duty to shareholders if they didn’t -- but that the government allied itself with a populist campaign to extort money from the company. In a way, it’s a sign of sheer despair: The tax laws don’t work, so governments have to try pleading or blackmail instead.
Governments are right about one thing: Corporate tax avoidance can’t be ignored. The Organization for Economic Co- operation and Development, in a report coinciding with the G-20 meeting, concludes that tax-base erosion is a large and growing problem arising out of a mismatch of anachronistic tax rules and economic realities. Tax codes are still grounded in a closed- economy model that the world has largely abandoned.
What’s the answer? There are two basic approaches. One is harmonization. Governments could aim to coordinate their tax policies so that legal avoidance is harder. The other is competition. Let governments’ rivalries for investment drive corporate taxes ever lower -- until the problem actually disappears -- and make up the revenue some other way.
Tax competition may sound like anarchy, but there’s more to be said for it than you might think. International companies have so much discretion in allocating costs and revenues across their dispersed units that the corporate tax base is unavoidably slippery -- all the more so when governments promote that very slipperiness in an effort to attract investment.
Why fight it? The best strategy to deal with international tax avoidance is what we have recommended: Cut corporate taxes and increase taxes on individual investment income (dividends and capital gains) instead. It’s much harder for individuals to arbitrage away their tax obligations than it is for companies operating across borders. This way, corporate profits are still taxed -- but on a simpler, less distorting basis than the typical corporate tax code provides.
The main problem with the other approach -- harmonization - - is that governments are likely to commit to the principle and then renege. The logic that drives them to attract capital with tax breaks and then deplore the tax arbitrage that follows isn’t going away.
Harmonization, though, appeals strongly to the bureaucratic mind. An extreme variant of this approach is to create a shared international tax base. The European Union is exploring this possibility with its perpetually recycled plan for a “Tobin tax,” or a levy on financial transactions. The practical difficulties are so great that the idea is all but inoperable. The EU is rarely deflected by that consideration.
Continued in article
Reply by finance professor Jim Mahar ---
"International companies have so much discretion in allocating costs and revenues across their dispersed units that the corporate tax base is unavoidably slippery -- all the more so when governments promote that very slipperiness in an effort to attract investment.....Why fight it? The best strategy to deal with international tax avoidance is what we have recommended: Cut corporate taxes and increase taxes on individual investment income (dividends and capital gains) instead. It’s much harder for individuals to arbitrage away their tax obligations than it is for companies operating across borders. This way, corporate profits are still taxed -- but on a simpler, less distorting basis than the typical corporate tax code provides."
Mmm...a great essay for some class. Finance? Econ? Tax? All of the above?
"KRUGMAN: Sweden Has The Answers To Our Taxation Problems," by Kamelia
Angelova, Business Insider, February 12, 2013 ---
The above link is a video of Paul Krugman being interviewed. He seems to be holding an earlier Sweden as having some type of taxation and welfare spending program that's an ideal without mentioning that the current Sweden and other Nordic nations are trying to change all that by:
Either Professor Krugman is ignorant of the changes taking place in Sweden (which I doubt) or he's selectively trying to mislead his audience. He should be more careful in selectively choosing examples he promotes as ideals. This is not, in my viewpoint, the type of selectivity we want in our Academy.
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.
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 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.
February 13, 2013 reply from David Johnstone
Dear Bob, even if tax rates in Sweden have come down, the top marginal rates are still very high in Sweden relative to where they are now in the US (and once were in the US) and surely that makes a very big difference to taxes collected, socially and in other ways. I just watched a program on TV here, showing how previously comfortably albeit not extremely well-off off families in the US were living in cars and barely feeding/clothing/warming themselves, and I must say that this, like the frequency of gun ownership, seems like another planet and species to life in Australia. I have not tried to think it through, or read all the arguments, but it seems to me that people who want to get rich and create businesses and wealth will still have that drive even if at the top end they pay higher tax rates (as they used to in the US). Once these rates are set much lower and spoilt people get used to them and “believe” they are “right”, then it is very hard behaviourally to go back. Similarly with letting people own guns galore.
February 14, 2013 reply from Bob Jensen
It was Krugman's comparisons of the U.S. and Swedish tax rates that started this thread.
In reality it is very hard to compare many macroeconomic measures between nations because they often are not very comparable. Sweden's marginal tax rates are still relatively high because they include paying for nationalized health care and education, including college education. If we had the cost of our health care and education added to the U.S. tax revenues we would be closer to comparability. But there are other enormous problems. In the U.S. we must also add in state taxation to the Federal tax rates to make them more comparable to Sweden. In California, for example, the marginal Federal and State rates before health care costs to 50%,
At the same time, the U.S. tax rates are not comparable with Sweden because of all the tax preferences we build into the system such as tax exemptions of municipal bond interest and deductions medical expenses in excess of 7.5% of AGI, state taxes. mortgage interest, casualty losses, etc. These days there are also enormous credits reducing payments such as the earned income credit, energy credits, etc.
But if economists like Krugman still want to make these international tax rate comparisons in public interviews, I think that it is also important to discuss trends in those tax rates. The tax rates in Nordic countries have been coming down rather dramatically over the decades, and it's important to point this fact out and to examine the reasons why Nordic countries are reducing the size of their governments in favor o building up their private sectors.
Of course there are many other international measures that are not comparable such as unemployment rates, poverty rates (e.g., Gini coefficients), infant mortality, etc.
Even within a nation, statistics are often not comparable over time. For example, inflation rates in the USA used to factor in price changes in food and fuel. Now to make inflation look less severe, the U.S. government no longer includes fuel and food price changes in inflation rates. Dah!
"Defending Cato from the Predictably Inaccurate Ramblings of Paul Krugman,"
Daniel J. Mitchell, Townhall, February 18, 2013 --- Click Here
Writing for the New York Times, Paul Krugman has a new column promoting more government spending and additional government regulation. That’s a dog-bites-man revelation and hardly noteworthy, of course, but in this case he takes a swipe at the Cato Institute.
The financial crisis of 2008 and its painful aftermath…were a huge slap in the face for free-market fundamentalists. …analysts at right-wing think tanks like…the Cato Institute…insisted that deregulated financial markets were doing just fine, and dismissed warnings about a housing bubble as liberal whining. Then the nonexistent bubble burst, and the financial system proved dangerously fragile; only huge government bailouts prevented a total collapse.
Upon reading this, my first reaction was a perverse form of admiration. After all, Krugman explicitly advocated for a housing bubble back in 2002, so it takes a lot of chutzpah to attack other people for the consequences of that bubble.
But let’s set that aside and examine the accusation that folks at Cato had a Pollyanna view of monetary and regulatory policy. In other words, did Cato think that “deregulated markets were doing just fine”?
Hardly. If Krugman had bothered to spend even five minutes perusing the Cato website, he would have found hundreds of items by scholars such as Steve Hanke, Gerald O’Driscoll, Bert Ely, and others about misguided government regulatory and monetary policy. He could have perused the remarks of speakers at Cato’s annual monetary conferences. He could have looked at issues of the Cato Journal. Or our biennial Handbooks on Policy.
"The Nordic model for unemployment insurance," Sober Look,
January 11, 2013 ---
Bob Jensen's comparisons of the American versus Denmark dreams ---
Bob Jensen's threads on why Vermont is trying to increase its unemployment
Affirmative Action Taken to an Extreme
"Should Law Reviews Take Race, Gender, and Sexual Orientation of Authors Into Account When Selecting Articles?" by Paul Caron, TaxProf Blog, December 17, 2013 ---
- Stephen Bainbridge (UCLA), Should Law Review Editors Take Race, Gender, Sexual Preferences, etc.... Into Account When Selecting Articles (Feb. 14, 2013)
- Josh Blackman (South Texas), Journals on Scholastica “Ask Authors To Submit Demographic Information” for “Diversity Initiatives” (Feb. 11, 2013)
- Josh Blackman (South Texas), Should Law Reviews Consider Race When Selecting Articles? (Feb. 13, 2013)
- Josh Blackman (South Texas), Scholastica Updates Demographic Feature – Only California and NYU Request Information (Feb. 14, 2013)
- Dave Hoffman (Temple), Against Scholastica (Feb. 13, 2013)
- Dave Hoffman (Temple), Scholastica & Law Review Selection (Feb. 13, 2013)
- Dave Hoffman (Temple), Affirmative Action for Law Scholarship (Feb. 14, 2013)
- Dave Hoffman (Temple), What is the Point of Symposia? (Feb. 17, 2013)
- Paul Horwitz (Alabama), Disconnects in the Law Review "Affirmative Action" Discussion (Feb. 17, 2013)
- Orin Kerr (George Washington), Do Law Reviews Consider the Race, Gender, and Sexual Orientation of Authors in Selecting Articles For Publication? (Feb. 13, 2013)
- Brian Leiter (Chicago), Racial, Ethnic and Other "Identity" Diversity in Article Selection? (Feb. 19, 2013)
- Michael J.Z. Mannheimer (N. Kentucky), Scholastica’s Diversity Question (Feb. 13, 2013)
- Michelle N. Meyer (Harvard), Affirmative Action (In)Consistency (Obligatory Post on L’Affaire Scholastica) (Feb. 15, 2013)
- Kaimipono D. Wenger (Thomas Jefferson), In Defense of Law Review Affirmative Action (Feb. 16, 2013)
- Kaimipono D. Wenger (Thomas Jefferson), Does Blind Review See Race? (Feb. 18, 2013)
"Fact-checking Obama's State of the Union," by Eugene Kiely, Brooks
Jackson, Lori Robertson and Robert Farley, MSN News, February 13, 2013
President Obama put a rosy spin on several accomplishments of his administration in his 2013 State of the Union address.
- The president claimed that "both parties have worked together to reduce the deficit by more than $2.5 trillion." But that's only an estimate of deficit reduction through fiscal year 2022, and it would be lower if the White House used a different starting point.
- Obama touted the growth of 500,000 manufacturing jobs over the past three years, but there has been a net loss of 600,000 manufacturing jobs since he took office. The recent growth also has stalled since July 2012.
- He claimed that "we have doubled the distance our cars will go on a gallon of gas." Actual mileage is improving, but Obama's "doubled" claim refers to a desired miles-per-gallon average for model year 2025.
- Obama said the Affordable Care Act "is helping to slow the growth of health care costs." It may be helping, but the slower growth for health care spending began in 2009, before the law was enacted, and is due at least partly to the down economy.
The president also made an exaggerated claim of bipartisanship. He said that Republican presidential candidate Mitt Romney agreed with him that the minimum wage should be tied to the cost of living. But Romney backed off that view during the campaign.
President Barack Obama gave his State of the Union address to Congress on Tuesday, laying out his legislative agenda for the coming year and achievements of his time in office. But Obama puffed up his record.
Obama said the administration and Congress "have worked together to reduce the deficit by more than $2.5 trillion." A bipartisan group called the estimate "very reasonable." But it is only an estimate — and a debatable one at that — for deficit reduction from budgets through fiscal year 2022. Exactly how much will be cut will be up to future Congresses.
And, even if Congress meets those deficit-reduction goals, deficit spending will continue and the federal debt will grow larger — unless much more is done.
Obama: Over the last few years, both parties have worked together to reduce the deficit by more than $2.5 trillion — mostly through spending cuts, but also by raising tax rates on the wealthiest 1 percent of Americans. As a result, we are more than halfway towards the goal of $4 trillion in deficit reduction that economists say we need to stabilize our finances.
Obama has cited the $2.5 trillion figure on numerous occasions, including at a Jan. 14 news conference. It is based largely on two pieces of legislation: the Budget Control Act of 2011, which placed caps on discretionary spending beginning in 2012, and the American Taxpayer Relief Act of 2012, which prevented tax hikes on most Americans in 2013 but allowed rates to go up on the top 1 percent of taxpayers. There was some additional savings from reductions in discretionary spending in the fiscal 2011 appropriations bills.
Republicans challenge the $2.5 trillion figure with some justification, because the amount of savings depends heavily on the baseline — that is, the starting point of comparison. The White House told us it used the Office of Management and Budget's January 2011 baseline.
In a recent report, the bipartisan Committee for a Responsible Federal Budget estimated the deficit reduction at $2.7 trillion, using the nonpartisan Congressional Budget Office's August 2010 baseline. But it also acknowledged that "there is no simple answer to the question of how much deficit reduction has been enacted so far." The report says starting a year earlier or later would reduce the estimated savings.
CRFB, Feb. 11: Although $2.7 trillion is a very reasonable estimate of enacted savings, it is by no means the only way to measure past savings. It is worth noting that the discretionary savings in this number are in fact calculated from the high point of discretionary spending. Measuring either from a year later or from a year earlier would result in a smaller savings number because base discretionary spending (excluding the effects of the stimulus) actually increased between 2009 and 2010 due to larger-than-projected appropriations.
As we have written once before, the vast majority of the deficit reduction has yet to materialize. Congress is supposed to comply with the caps on discretionary spending imposed by the Budget Control Act in future appropriations bills. But whether that happens remains to be seen.
And, even if Congress complies, deficit spending will continue, and the federal debt will rise — just not as quickly as it otherwise would have. The latest CBO figures show the public debt — that is, the amount the federal government owes the public — will approach $20 trillion in 2023, an increase of more than $8 trillion from its current level of $11.6 trillion.
For that reason, most budget experts warn that the president understates the scope of the budget problem when he says, as he did in his speech, that "we are more than halfway towards the goal of $4 trillion in deficit reduction that economists say we need to stabilize our finances." The nonpartisan Concord Coalition says the president's goal of accomplishing $4 trillion in deficit reduction "would hardly mean the ‘job is finished.'"
The Committee for a Responsible Federal Budget struck the same cautionary note in its report, saying the progress so far is "notable" but enacting $4 trillion in deficit reduction will not stabilize the debt.
CRFB, Feb. 11: Declaring victory with an additional $1.5 trillion would be dangerous, however, since it would leave no margin for error, would result in slower economic growth, would leave little fiscal flexibility, and would have little chance of stabilizing the debt beyond the ten-year window. For these reasons, we believe the debt must be not only stable, but on a clear downward path by the end of the decade.
The president was correct when he said U.S. "manufacturers have added about 500,000 jobs over the past three" years, but that's not the whole story.
Overall, there has been a net loss of more than 600,000 manufacturing jobs since Obama took office in January 2009, and manufacturing job growth during his tenure has stalled since reaching a peak of nearly 12 million jobs in July 2012.
Obama: After shedding jobs for more than 10 years, our manufacturers have added about 500,000 jobs over the past three.
Over the past three years — since January 2010 — the U.S. economy has added 490,000 manufacturing jobs. According to the Bureau of Labor Statistics, there were 11,950,000 manufacturing jobs in January 2013 — up from the 11,460,000 jobs recorded in January 2010. However, there were 12,556,000 manufacturing jobs in January 2009. So overall, there has been a loss of 606,000 jobs since Obama took office.
More recently, "manufacturing growth has been stuck in neutral," as the National Association of Manufacturers said Tuesday in a press release. During the three-year period cited by Obama, manufacturing jobs peaked at 11,957,000 in July 2012. Since then, the jobs figure has fluctuated, and the economy has lost 7,000 manufacturing jobs.
Invoking Romney on Minimum Wage
Making a pitch to raise the minimum wage to $9 an hour, Obama argued for its bipartisan appeal by invoking his 2012 presidential campaign foe, Republican Mitt Romney, as a kindred spirit when it comes to tying the minimum wage to the cost of living. But Romney actually backpedaled a bit on that position during the campaign.
Obama: Tonight, let's declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty and raise the federal minimum wage to $9.00 an hour. … So here's an idea that Gov. Romney and I actually agreed on last year: Let's tie the minimum wage to the cost of living, so that it finally becomes a wage you can live on.
It's true that during a campaign event on Jan. 7, Romney remarked: "My view has been to allow the minimum wage to rise with the [Consumer Price Index] or with another index so that it adjusts automatically over time."
But just two months later, Romney hedged on that position in an interview with CNBC's Larry Kudlow, saying that in the midst of a recovery, "right now, there's probably not a need to raise the minimum wage.
Mitt Romney: Well, actually, when I was governor the legislature passed a law raising the minimum wage. I vetoed it. … And I said, "Look, the way to deal with the minimum wage is this. On a regular basis," I said in the proposal I made, "every two years we should look at the minimum wage, we should look at what's happened to inflation. We should also look at the jobs level throughout the country, unemployment rate, competitive rates in other states or, in this case, other nations." So, certainly, the level of inflation is something you should look at and you should identify what's the right way to keep America competitive. … Yeah, so that would tell you that right now there's probably not a need to raise the minimum wage.
Car Mileage Double-talk
The president claimed that "we have doubled the distance our cars will go on a gallon of gas" — which isn't remotely close to being true right now.
In fact, according to the University of Michigan's Transportation Research Institute, the average EPA city/highway sticker mileage of light duty vehicles sold last month was 24.5 miles per gallon. That's quite good — a record, in fact. And it's 17 percent better than the 21.0 mpg for vehicles sold four years earlier, in the month Obama took office. That's an impressive gain, but it's a far cry from having "doubled the distance our cars will go on a gallon of gas."
Obama was referring to his administration's actions for raising future federal fuel efficiency standards, which call for cars and light trucks to achieve 54.5 mpg by the model year 2025. But it remains to be seen whether automakers can produce — and consumers will buy — vehicles that achieve such a doubling of average mileage a dozen years from now.
Health Care Costs
Obama said the federal health care law was "helping" to reduce the growth of health care costs. It may be helping, but the slower growth of health care spending began before the law was enacted. And experts say the down economy has played a role. It's not clear how much impact the federal law has had.
Obama: Already, the Affordable Care Act is helping to slow the growth of health care costs.
From 2009 to 2011, the growth in national health care spending was at its lowest rate in 50-plus years, the entire time the National Health Expenditure Accounts reports have been published by the Centers for Medicare & Medicaid Services. Spending grew by 3.9 percent each year for 2009, 2010 and 2011. (The growth in 2008 was 4.7 percent, and 2007′s was 6.2 percent, with higher growth for years previous — see Table 3.)
But the Affordable Care Act wasn't signed into law until 2010, after the recent slowing began. And the bulk of the law, including the individual mandate and federal subsidies to help Americans buy insurance, has yet to take effect. Experts have mainly blamed the economic slowdown for a corresponding reduction in health care spending. Economists and statisticians at the Centers for Medicare & Medicaid Services reported in 2011: "Job losses caused many people to lose employer-sponsored health insurance and, in some cases, to forgo health-care services they could not afford."
The New York Times reported this week that the slower growth meant lower deficits, as federal spending also eased. The Congressional Budget Office reduced its projected Medicare and Medicaid spending for 2020 by 15 percent. The federal health care law may be affecting spending, but it's unclear how much. As the Times said, "Health experts say they do not yet fully understand what is driving the lower spending trajectory."
The economy is part of the reason, said CBO Director Douglas W. Elmendorf. But the way doctors and hospitals deliver care may be another.
New York Times, Feb. 11: Some insurers have moved away from simply paying per procedure by giving health care providers financial incentives to reduce complications and rehospitalizations, for instance. Doctors, nurses and hospitals have also taken steps to reduce wasteful treatments. Many of the changes predate the 2010 health care overhaul, but the law has also contributed to the changes by offering some financial incentives, health care experts say.
So the health care law gets some credit. It's "helping" to slow the growth of costs, as Obama said. But the reduced growth began before the law was enacted and is due to forces — such as the economy — beyond the control of the legislation.
Puffing Up Renewable Energy
Obama said wind and solar energy have doubled. True, but they're still a very small percentage of energy production and consumption in the U.S.
Obama: We have doubled … the amount of renewable energy we generate from sources like wind and solar.
We looked at this claim when Obama made it several times on the presidential campaign trail last fall. We found that wind and solar energy generation had doubled from 2008 to 2011. Consumption for wind also doubled, and it nearly doubled for solar.
But wind and solar were very small portions of energy generated before — and even after — that increase. Wind was 13 percent of all renewable energy generated in 2011. (Renewable includes biomass, such as ethanol, and hydro.) Solar was 1.3 percent of renewable energy generated. Renewable energy altogether accounted for just 9 percent of U.S. energy consumption in 2011.
Frank V. Maisano, an energy expert at the law firm Bracewell & Giuliani, told us: "Making large increases in wind power or solar power is not as big a challenge, let's say, as making a 50 percent increase in natural gas. … You have to put it into context."
White House. "News Conference by the President." Transcript. 14 Jan 2013.
Budget Control Act of 2011. Pub. L. 112-25. 2 Aug 2011.
American Taxpayer Relief Act of 2012. Pub.L. 112–240. 2 Jan 2013.
Press release. "Murray's Deficit Reduction Goal Flawed and Dangerous." Minority staff of the Senate Budget Committee. 1 Feb 2013.
"Our Debt Problems Are Far from Solved." Committee for a Responsible Federal Budget. 11 Feb 2013.
Jackson, Brooks. "Reid Twice Wrong on $2.6 Trillion in ‘Cuts.‘ " FactCheck.org. 6 Feb 2013.
Congressional Budget Office. "Budget Projections — February 2013 Baseline Projections." 5 Feb 2013.
Press release. "For Future Deficit Reduction, Policy Choices More Important Than Amount." Concord Coalition. 18 Jan 2013.
Bureau of Labor Statistics. "Establishment Data. Table B-1. Employees on nonfarm payrolls by industry sector and selected industry detail." Undated, access 12 Feb 2013.
Press release. "NAM Launches Growth Agenda for Manufacturing Resurgence." National Association of Manufacturers. 12 Feb 2013.
Jamieson, Dave. "Mitt Romney: Minimum Wage Should Rise With Inflation." Huffington Post. 11 Jan 2012.
2012 Republican Candidates. Romney Position on the Minimum Wage. Video: The Kudlow Report on March 5, 2012.
University of Michigan, Transportation Research Institute. " Average sales-weighted fuel-economy rating (window sticker) of purchased new vehicles for October 2007 through January 2013." 4 Feb 2013.
U.S. Environmental Protection Administration. "President Obama Announces Historic 54.5 mpg Fuel Efficiency Standard/Consumers will save $1.7 trillion at the pump, $8K per vehicle by 2025." 29 Jul 2011.
Office of the Actuary, Centers for Medicare & Medicaid Services. National Health Expenditures Account. NHE Tables. Accessed 13 Feb 2013.
Lowrey, Annie. "Slower Growth of Health Costs Eases U.S. Deficit." New York Times. 11 Feb 2013.
Goldstein, Amy. "U.S. health-care expenditures up only 4 percent in 2009, suggesting effects of recession." Washington Post. 5 Jan 2011.
U.S. Energy Information Administration. Electric Power Monthly. Table 1.1.A. Net Generation by Other Renewable Sources: Total (All Sectors), 2002-November 2012. 23 Jan 2013.
U.S. Energy Information Administration. "What are the major sources and users of energy in the United States?" 18 May 2012.
FactCheck.org is a nonpartisan, nonprofit "consumer advocate" for voters that aims to reduce the level of deception and confusion in U.S. politics.
Definition of Screwed:
avg mkt return ~12%, avg mutual fund ret ~9%, average investor ret ~ 2.6%. Timing, selection, and costs destroy
Finance Professor Jim Mahar
"Romancing Alpha (α), Breaking Up with Beta (β)," by Barry Ritholtz,
Ritholtz, February 15, 2013 --- |
Since it is a Friday (following Valentine’s Day), I want to step back from the usual market gyrations to discuss a broader topic: The pursuit of Alpha, where it goes wrong, and the actual cost in Beta.
For those of you unfamiliar with the Wall Street’s Greek nomenclature, a quick (and oversimplified) primer: When we refer to Beta (β), we are referencing a portfolio’s correlation to its benchmark returns, both directionally and in terms of magnitude.
We use a scale of 0-1. Let’s say your benchmark is the S&P500 — it has a β = 1. Something uncorrelated does what it does regardless of what the SPX does, and its Beta is = 0. We can also use negative numbers, so a Beta of minus 1 (-1) does the exact opposite of the benchmark.
Beta measures how closely your investments perform relative to your benchmark. If you were to do nothing else but buy that benchmark index (i.e., S&P500), you will have captured Beta (for these purposes, I am ignoring volatility).
The other Greek letter we want to mention is Alpha (α). Alpha is the risk-adjusted return of active management for any investment. The goal of active management is through a combination of stock/sector selection, market timing, hedging, leverage, etc. is to beat the market. This can be described as generating Alpha.
To oversimplify: Alpha is a measure of out-performance over Beta.
Why bring this up today?
Over the past few months, I have been looking at an inordinate number of portfolios and 401(k) plans that have all done pretty poorly. I am not referring to any one quarter of even year, but rather, over the long haul. There is an inherent selection bias built into this group — well performing portfolios don’t have owners considering switching asset managers. But even accounting for that bias, a hefty increase in the sheer number of reviews leads me to wonder about just how widespread the under-performance is.
One of the things that has become so obvious to me over the past few years is how unsuccessful various players in the markets have been in their pursuit of Alpha. We know that 80% or so of mutual fund managers underperform their benchmarks each year. We have seen Morningstar studies that show of the remaining 20%, factor in fees, and that number drops to 1%.
The overall performance of the highest compensated group of managers, the 2%+20% Hedge Fund community, has been similarly awful, as they have underperformed for a decade or more.
Continued in article
Bob Jensen's threads on how brokers and security analysts are rotten to
the core ---
"The (state government) pension black hole," by finance professors
Robert Novy-Marx (University of Rochester) and and Joshua D. Rauh (Stanford) ,
The Providence Journal, January 10, 2013 ---
There are fiscal cliffs, then there are fiscal black holes. The difference? The cliff, you fall over just once. But a black hole increases its pull on you more and more each day.
And that's a disturbingly accurate description of the problem now faced by Rhode Island and virtually every other state: the ever-growing challenge of underfunded pensions for government employees. Regardless of the fate of Rhode Island's pension overhaul as it winds its way through the courts, the problem isn't going away.
Over the last decade or more, many state governments have built budgets on wishful thinking, assuming high rates of return on their investments in order to deliver costly pension benefits. In Rhode Island, an anticipated annual return of 8.25 percent in pension investment has for the past decade come in at about one-third that rate, only 2.4 percent. This means that while the state's pension system already takes 10 cents out of every state tax dollar - and yet remains deep in the red - it's not nearly enough to pay off the promises.
What might be in store for Rhode Island? Let's look at the rest of the nation. With the nationwide total unfunded pension obligation in the trillions of dollars (the precise total depends on accounting, which in turn rests on more overly optimistic judgments), how much would each household have to pay?
The average immediate increase in taxes is $1,385 per household per year. For some states these numbers are much higher. New York taxpayers would need to contribute more than $2,250 per household per year over the next 30 years. In Oregon, the amount is $2,140; in Ohio, it is $2,051; in New Jersey, $2,000. California ($1,994), Minnesota ($1,928) and Illinois ($1,907) are not far behind.
These are not one-time payments. It will take 30 years of these increased taxes just to catch up with what each state will have promised its workers at that point.
These findings come from a recent study we co-authored that quantifies the pension problem. We calculated these figures under the cautious assumption of annual returns of 2 percent above the rate of inflation.
Is there a more hopeful outlook? Let's assume that states invest in the stock market on the hope that growth will bail them out. Even assuming relatively optimistic market performance over the next 30 years, the required per-U.S. household tax increase would still amount to $756 per year. And if the market underperforms by the same amount the average tax increase soars to almost $2,500 per year.
What if we simply put off doing anything at all - simply "kick the can down the road," as they say in Washington? We all know what happens if you skip a mortgage payment or ignore the credit card bill: the bill just goes up faster, as you pay interest on interest.
Can we grow our way out of the problem? Not really. The direct effect of each additional percentage point of growth in gross domestic product (GDP) reduces the required tax increase by a paltry $120 per household per year. The average growth since 1947 has been 3.2 percent, so we're talking a few hundred dollars a year. (Congratulations, Indiana. At $329, the lowest tax increase required of any state, growth would take care of them just fine, especially with an influx of taxpayers fleeing highly-taxed Illinois. One down, 49 to go.)
Can we ask public employees to pay more? Closing the gap would require an increase by employees of 24 percent in their contributions - probably a non-starter, and also a huge tax on younger public workers. Not exactly an ideal way to attract talent to public-sector jobs.
So what can any state do, really? Despite the state's pension shortfall, Rhode Island has implemented at least one innovative idea to help relieve the burden: a mixed defined-benefit and defined-contribution plan for all employees, not just new hires. Most public workers in the state can now make contributions to individual accounts under their own direction, while accepting a smaller defined-benefit component.
Combined with higher retirement ages and a temporary suspension of cost-of-living adjustments - granted these are not trivial sacrifices, but this is not a trivial problem - Rhode Island's reforms reduce the unfunded liability by more than 40 percent, and decrease the required tax increases required to achieve full funding in 30 years from almost $1,600 per year down to $810 per household per year (but only if COLA suspensions become permanent).
That's not everything, but it's a start - a controversial start, but every answer will be.
Continued in article
Bob Jensen's threads on the sad state of pension accounting ---
"Gangster Bankers: Too Big to Jail: How HSBC hooked up with drug
traffickers and terrorists. And got away with it," by Matt Taibbi, Rolling
Stone, February 14, 2013 ---
The deal was announced quietly, just before the holidays, almost like the government was hoping people were too busy hanging stockings by the fireplace to notice. Flooring politicians, lawyers and investigators all over the world, the U.S. Justice Department granted a total walk to executives of the British-based bank HSBC for the largest drug-and-terrorism money-laundering case ever. Yes, they issued a fine – $1.9 billion, or about five weeks' profit – but they didn't extract so much as one dollar or one day in jail from any individual, despite a decade of stupefying abuses.
People may have outrage fatigue about Wall Street, and more stories about billionaire greedheads getting away with more stealing often cease to amaze. But the HSBC case went miles beyond the usual paper-pushing, keypad-punching sort-of crime, committed by geeks in ties, normally associated with Wall Street. In this case, the bank literally got away with murder – well, aiding and abetting it, anyway.
Daily Beast: HSBC Report Should Result in Prosecutions, Not Just Fines, Say Critics
For at least half a decade, the storied British colonial banking power helped to wash hundreds of millions of dollars for drug mobs, including Mexico's Sinaloa drug cartel, suspected in tens of thousands of murders just in the past 10 years – people so totally evil, jokes former New York Attorney General Eliot Spitzer, that "they make the guys on Wall Street look good." The bank also moved money for organizations linked to Al Qaeda and Hezbollah, and for Russian gangsters; helped countries like Iran, the Sudan and North Korea evade sanctions; and, in between helping murderers and terrorists and rogue states, aided countless common tax cheats in hiding their cash.
"They violated every goddamn law in the book," says Jack Blum, an attorney and former Senate investigator who headed a major bribery investigation against Lockheed in the 1970s that led to the passage of the Foreign Corrupt Practices Act. "They took every imaginable form of illegal and illicit business."
That nobody from the bank went to jail or paid a dollar in individual fines is nothing new in this era of financial crisis. What is different about this settlement is that the Justice Department, for the first time, admitted why it decided to go soft on this particular kind of criminal. It was worried that anything more than a wrist slap for HSBC might undermine the world economy. "Had the U.S. authorities decided to press criminal charges," said Assistant Attorney General Lanny Breuer at a press conference to announce the settlement, "HSBC would almost certainly have lost its banking license in the U.S., the future of the institution would have been under threat and the entire banking system would have been destabilized."
It was the dawn of a new era. In the years just after 9/11, even being breathed on by a suspected terrorist could land you in extralegal detention for the rest of your life. But now, when you're Too Big to Jail, you can cop to laundering terrorist cash and violating the Trading With the Enemy Act, and not only will you not be prosecuted for it, but the government will go out of its way to make sure you won't lose your license. Some on the Hill put it to me this way: OK, fine, no jail time, but they can't even pull their charter? Are you kidding?
But the Justice Department wasn't finished handing out Christmas goodies. A little over a week later, Breuer was back in front of the press, giving a cushy deal to another huge international firm, the Swiss bank UBS, which had just admitted to a key role in perhaps the biggest antitrust/price-fixing case in history, the so-called LIBOR scandal, a massive interest-raterigging conspiracy involving hundreds of trillions ("trillions," with a "t") of dollars in financial products. While two minor players did face charges, Breuer and the Justice Department worried aloud about global stability as they explained why no criminal charges were being filed against the parent company.
"Our goal here," Breuer said, "is not to destroy a major financial institution."
A reporter at the UBS presser pointed out to Breuer that UBS had already been busted in 2009 in a major tax-evasion case, and asked a sensible question. "This is a bank that has broken the law before," the reporter said. "So why not be tougher?"
"I don't know what tougher means," answered the assistant attorney general.
Also known as the Hong Kong and Shanghai Banking Corporation, HSBC has always been associated with drugs. Founded in 1865, HSBC became the major commercial bank in colonial China after the conclusion of the Second Opium War. If you're rusty in your history of Britain's various wars of Imperial Rape, the Second Opium War was the one where Britain and other European powers basically slaughtered lots of Chinese people until they agreed to legalize the dope trade (much like they had done in the First Opium War, which ended in 1842).
A century and a half later, it appears not much has changed. With its strong on-the-ground presence in many of the various ex-colonial territories in Asia and Africa, and its rich history of cross-cultural moral flexibility, HSBC has a very different international footprint than other Too Big to Fail banks like Wells Fargo or Bank of America. While the American banking behemoths mainly gorged themselves on the toxic residential-mortgage trade that caused the 2008 financial bubble, HSBC took a slightly different path, turning itself into the destination bank for domestic and international scoundrels of every possible persuasion.
Three-time losers doing life in California prisons for street felonies might be surprised to learn that the no-jail settlement Lanny Breuer worked out for HSBC was already the bank's third strike. In fact, as a mortifying 334-page report issued by the Senate Permanent Subcommittee on Investigations last summer made plain, HSBC ignored a truly awesome quantity of official warnings.
In April 2003, with 9/11 still fresh in the minds of American regulators, the Federal Reserve sent HSBC's American subsidiary a cease-and-desist letter, ordering it to clean up its act and make a better effort to keep criminals and terrorists from opening accounts at its bank. One of the bank's bigger customers, for instance, was Saudi Arabia's Al Rajhi bank, which had been linked by the CIA and other government agencies to terrorism. According to a document cited in a Senate report, one of the bank's founders, Sulaiman bin Abdul Aziz Al Rajhi, was among 20 early financiers of Al Qaeda, a member of what Osama bin Laden himself apparently called the "Golden Chain." In 2003, the CIA wrote a confidential report about the bank, describing Al Rajhi as a "conduit for extremist finance." In the report, details of which leaked to the public by 2007, the agency noted that Sulaiman Al Rajhi consciously worked to help Islamic "charities" hide their true nature, ordering the bank's board to "explore financial instruments that would allow the bank's charitable contributions to avoid official Saudi scrutiny." (The bank has denied any role in financing extremists.)
Continued in a long article
Bob Jensen's Rotten to the Core threads---
Bob Jensen's Fraud Updates ---
"By Any Measure, the Jobs Disaster Continues Twelve million out of work,
48 million on food stamps, 11 million on disability. All that's missing: bread
lines," by Mortimer Zuckerman, The Wall Street Journal, February 15, 2013
"Democrats Heart Medicare Fraudsters," by Michelle Malkin, Townhall,
February 15, 2013 ---
Hey, remember when President Obama crusaded against Medicare fraud and vowed to crack down aggressively on scammers who've bilked the program out of an estimated $90 billion? Like Archie and Edith Bunker used to sing: Those were the daaaays.
While Democrats pretend to protect the elderly and disabled, leaders of the People's Party have pocketed gobs of campaign contributions from fat-cat donors tied to massive Medicare rip-off schemes.
Let's talk some more about Dr. Salomon Melgen, shall we? We now know that the jet-setting Florida eye doctor who flew beleaguered Sen. Bob Menendez, D-N.J., to several alleged sex romps in the Dominican Republic also overbilled the government by $8.9 million for care at his clinic. That's according to Menendez's own aides. They acknowledged last week that their boss met with federal health bureaucrats at least twice to lobby on Melgen's behalf.
"Federal investigators and health-care auditors have had concerns about Melgen's billing practices at various times over the past decade," according to two former federal officials who spoke to The Washington Post. "In part, they have examined the volume of eye injections, surgeries and laser treatments performed at his West Palm Beach clinic."
Now, brace yourselves. A Menendez aide says that while Sen. Sleaze-Bob intervened, he didn't know nuttin' about Melgen being under investigation. Just like he didn't know nuttin' about his longtime aide working for Melgen's port security firm in the Dominican Republic, on whose behalf Sen. Sleaze-Bob also intervened.
And just like he didn't know nuttin' about yet another ride on Melgen's plane in 2008 (exposed this week by the conservative Daily Caller), which he forgot to disclose to the Senate.
Senate Democratic leaders have done nuttin' to prevent Menendez, who also sits on the Senate Finance Committee overseeing Medicare, from playing a prominent role in Medicare reform negotiations while Melgen's Medicare fraud investigation unfolds.
It's all par for the Democrats' conflict-of-interest course, of course. Recently departed Obama health care czar Nancy-Ann DeParle raked in millions from her positions on a handful of corporate boards under fire for various regulatory violations, whistleblower complaints and Medicare fraud.
"The Coming Failure of 'Accountable Care' The Affordable Care Act's
updated versions of HMOs are based on flawed assumptions about doctor and
Clayton Christensen is a professor of business administration at Harvard Business School and co-founder of Innosight Institute, a think tank focusing on disruptive innovation. Jeffrey Flier is dean of the faculty of medicine at Harvard University and professor of medicine at Harvard Medical School.and. Vineeta Vijayaraghavan is a senior research fellow at Innosight Institute.
The Wall Street Journal, February 19, 2013 ---
Spurred by the Affordable Care Act, hundreds of pilot programs called Accountable Care Organizations have been launched over the past year, affecting tens of millions on Medicare and many who have commercial health insurance.
The ACOs are in effect latter-day health-maintenance organizations—doctors, hospitals and other health-care providers grouped together to provide coordinated care. The ACOs assume financial responsibility for the cost and quality of the care they deliver, making them accountable to patients. With President Obama's re-election making it certain that the Affordable Care Act will begin taking full effect next year, the number of ACOs will continue to increase.
We believe that many of them will not succeed. The ACO concept is based on assumptions about personal and economic behavior—by doctors, patients and others—that aren't realistic. Health-care providers are spending hundreds of millions of dollars to build the technology and infrastructure necessary to establish ACOs. But the country isn't likely to get the improvements in cost, quality and access that it so desperately needs.
The first untenable assumption is that ACOs can be successful without major changes in doctors' behavior. Many proponents of ACOs believe that doctors automatically will begin to provide care different from what they have offered in the past. Doctors are expected to adopt new behavior that reduces the cost of care while retaining the ability to do what's medically appropriate. But the behavior of doctors today has been shaped by decades of complicated interdependencies with other medical practices, hospitals and insurance plans. Such a profound behavior shift would likely require re-education and training, and even then the result would be uncertain.
To give one example, if ACOs are to achieve their cost-saving goals and improve medical care, most doctors will need to change some of their approaches to treating patients. They'll need to employ evidence-based protocols more often to determine optimal treatment—for instance, in prescribing medication or deciding whether certain kinds of surgery are necessary. Doctors will also have to find ways to move some care to lower-cost sites of service, such as more surgery in ambulatory clinics instead of a hospital. ACOs aren't designed or equipped to transform physician behaviors on the scale that will be needed.
The second mistaken assumption is that ACOs can succeed without changing patient behavior. In reality, quality-of-care improvements are possible only with increased patient engagement. Managed care, as formulated in the 1990s by the HMO model, left consumers with a bad taste because the HMOs acted as visible gatekeepers to patient access to care. ACOs, seemingly wary of stirring a similar backlash, allow Medicare patients to obtain care anywhere they choose, but there is no preferential pricing, discounting or other way for ACOs to steer patients to the most effective providers.
The Everett Clinic in Washington state has taken steps to plug this hole by deciding not to become a full-fledged ACO. Last year, the clinic told patients that to remain with Everett, they must shift to Medicare Advantage—which encourages preventive care and supports disease-management programs. Those who want to remain on regular Medicare were required to obtain their care elsewhere.
Accountable Care Organizations are also on the hook for patients who don't comply with recommended treatment or lifestyle changes. Patients can even decide not to share their claims data or medical history with the ACO. If a woman from, say, Massachusetts, spends half the year in Florida and receives care there, the Massachusetts ACO is still responsible for managing the patient's medical costs, though it in no way was able to manage the Florida care. The seems to be unfair both to the responsible ACO provider and to the patient, who will likely not receive optimal care in these transitions.
In other words, ACOs hold caregivers accountable without requiring patient accountability. How can this work?
The third and final flawed assumption of the Affordable Care Act is that ACOs will save money. Even if the pilot Medicare Pioneer ACOs—as the 32 most advanced Medicare ACOs are called—achieve their full desired impact, the Congressional Budget Office estimates that the savings would total $1.1 billion over the next five years. This is insignificant in a total annual Medicare budget of $468 billion. As for the commercial and Medicare ACOs that are operating outside these pilot programs, even the most optimistic assumptions come up with relatively small reductions to annual health-care spending nationally.
The architects of the ACO initiative somehow assume that making the existing system more efficient will make health-care affordable. But slowing the rise of health-care costs can't address the challenge of adding 50 million uninsured to the system while keeping expenditures the same or even somewhat lower than the unsustainable percentage of national wealth that they already represent. No dent in costs is possible until the structure of health care is fundamentally changed.
How can that level of change be achieved? We beseech policy makers in Washington to study a range of reform approaches that aren't burdened by as many untenable assumptions as Accountable Care Organizations, and go well beyond them in their aspirations.
• Consider opportunities to shift more care to less-expensive venues, including, for example, "Minute Clinics" where nurse practitioners can deliver excellent care and do limited prescribing. New technology has made sophisticated care possible at various sites other than acute-care, high-overhead hospitals.
• Consider regulatory and payment changes that will enable doctors and all medical providers to do everything that their license allows them to do, rather than passing on patients to more highly trained and expensive specialists.
• Going beyond current licensing, consider changing many anticompetitive regulations and licensure statutes that practitioners have used to protect their guilds. An example can be found in states like California that have revised statutes to enable highly trained nurses to substitute for anesthesiologists to administer anesthesia for some types of procedures.
• Make fuller use of technology to enable more scalable and customized ways to manage patient populations. These include home care with patient self-monitoring of blood pressure and other indexes, and far more widespread use of "telehealth," where, for example, photos of a skin condition could be uploaded to a physician. Some leading U.S. hospitals have created such outreach tools that let them deliver care to Europe. Yet they can't offer this same benefit in adjacent states because of U.S. regulation.
These a ...
Continued in the article
Bob Jensen's universal health care messaging --- http://www.trinity.edu/rjensen/Health.htm
"Which Governments Spend the Most Per Capita on Government Healthcare:
France, Italy, the United States, Sweden, Canada, Greece, or the United Kingdom?"
by Daniel J. Mitchell, Townhall, February 22, 2013
See bar chart at
. . .
There are three big reasons why there’s more government-financed healthcare spending in the United States.
1. Richer nations tend to spend more, regardless of how they structure their healthcare systems.
2. As you can see at the 1:18 mark of this video, the United States is halfway down the road to a single-payer system thanks to programs such as Medicare and Medicaid.
3. America’s pervasive government-created third-party payer system leads to high prices and costly inefficiency.
So what’s the moral of the story? Simple, notwithstanding the shallow rhetoric that dominates much of the debate, the United States does not have anything close to a free-market healthcare system.
That was true before Obamacare and it’s even more true now that Obamacare has been enacted.
Indeed, it’s quite likely that many nations with “guaranteed” health care actually have more market-oriented systems than the United States.
Avik Roy argues, for instance, that Switzerland’s system is the best in the world. And the chart above certainly shows less direct government spending.
And there’s also the example of Singapore, which also is a very rich nation that has far less government spending on healthcare than the United States.
Continued in article
Articles like this are controversial and misleading. Firstly, we may be comparing apples and kangaroos when it comes to the terms "health care" and "cost." Much of the USA health care "cost" gets buried in other accounts like "research" and "education." The many research universities in the USA are contributing tuition and state taxpayer money to fund biomedical science faculty and other science and engineering faculty who are doing medical research and development in one way or another. But these costs are treated as "education" and "research" costs rather than medical costs.
An enormous proportion of what the USA includes in costs of medical care is really the cost of fraud that other nations, especially those with either free market or nationalized coverage, avoid much more efficiently and effectively. The frauds are especially high in Medicare billings for our aged and disabled such as billings for nonexistent medical equipment and $6,384 cost of an aspirin tablet administered inside a hospital.
Much of what gets billed as "medical care" in the USA is the massive cost of malpractice insurance, costs which nations like Canada with national health care cover much more efficiently and effectively by leaving out the lawyers salivating over punitive damages.
In the USA and Mexico much of the cost of geriatric and disability care is borne by patient savings and family earnings that does not pass through governmental or third-party insurance "medical care" accounts.. In nations with nationalized medicine like Norway such costs are more apt to be called "medical costs."
In the USA most patients like me bear their own eye care and dental billings out-of-pocket and are not captured in governmental "medical care" accounts. In many other nations the costs of these services pass through governmental accounts.
The USA spends (usually under Medicare) hundreds of billions on patients that are terminally ill, often extending their lives uselessly for weeks or a few months in intensive care and cardiac care units. Most other nations save this money by letting nature run its course for dying patients and/or facilitating euthanasia. CBS Sixty Minutes ran a module on this under the title "The High Cost of Dying" in the USA.
Similar discrepancies arise for extremely premature and/or underweight new babies that are not saved in most nations outside the USA.
The above comparison of nations by Daniel Mitchell is mostly an example of the many attempts (such as poverty and unemployment) to make international comparisons on variables that are inconsistently defined and subject to enormous measurement error and variation between nations
"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 threads on health care are at
Bob Jensen's universal health care messaging --- http://www.trinity.edu/rjensen/Health.htm
Tidbits Archives ---
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
Bob Jensen's threads on
auditor professionalism and independence are at
Bob Jensen's threads on
corporate governance are at
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
Against Validity Challenges in Plato's Cave ---
By Bob Jensen
wrong in accounting/accountics research? ---
The Sad State of Accountancy Doctoral Programs That Do Not Appeal to Most
AN ANALYSIS OF THE EVOLUTION OF RESEARCH CONTRIBUTIONS BY THE ACCOUNTING REVIEW:
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/