Tidbits Quotations
To Accompany the October 29, 2013 edition of Tidbits
Bob Jensen at Trinity University

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

If everyone is thinking alike, then somebody isn't thinking.
George S. Patton

President Obama won a game of "Chicken." What kind of game is that? When I grew up the game of "Chicken" was when two teenage-driven cars approached each other at 100 mph to see which one, the Chicken, veered off first.
Bob Jensen

Barack Obama beat Mitt Romney in the 2012 elections 65,909,451 Obama to 60,932,176 Romney votes.
Among the 48 million people of food stamps, how many voted for Mitt Romney?
The GOP will never win without gaining half the food stamp votes.
Here Are The States With The Most To Lose From Republican Food Stamp Cuts ---
It would do wonders for farmers if we gave food stamps to the 99%. The GOP would do better with that platform.

If you treat every situation as a life-and-death matter, you'll die a lot of times.
Dean Smith
, American college basketball coach
As quoted in the CPA Newsletter recently

U.S. National Debt Clock (now $17+ trillion booked debt) ---
Also see http://www.brillig.com/debt_clock/

"The Scholars Who Shill for Wall Street: Academics get paid by financial firms to testify against Dodd-Frank regulations. What’s wrong with this picture?" by Lee Fang, The Nation, November 11, 2013 ---

Jensen Comment
I've got mixed feelings about this since top liberal academics drawn from the liberal majority of professors in the Academy also testify for Dodd-Frank regulations. The issue is not one-sidedness in presentations for or against Dodd-Frank as long as all special interest groups get a voice in the hearings.

The first issue is whether the Senators, Representatives, and government agency employees have been bought and paid for such that the committee listening to the expert witnesses is a sham to begin with before the hearings even start.

I think there's a much bigger problem outside the Academy where big bad business buys the agencies that regulate those businesses. Where is there an agency in Washington DC that is not filled with transitional workers salivating over future jobs working for companies they now help regulate. The FDA? The FAA? The FPA? The IRS? The Transportation Department? The SEC? Yeah right!

The second issue in Congressional testimony is which side gets paid more to testify and whether larger payments are also biasing the teaching of our students. If such payments were lending strong bias leading the Academy to teach a biased amount of conservatism to college students then it would signal that professors are being paid to bias students in the classroom. In fact, however, the Academy has to be diligent to prevent the opposite bias from taking over our classrooms ---
Personally, I don't think big bad business is buying college curricula or the majority of college teachers. There are too many liberal faculty pushing the biases in the other direction.

It's important to have full disclosure when professors testify with respect to pending legislation.
All professors should disclose if and how they are being paid by special interest groups in these types of hearings and in their research in general. But if one side presents stronger evidence then it does not concern me how that evidence was paid for as long as the evidence itself meets high standards for evidence that we worship in the Academy. In other words, the evidence harvest should be put to the test rather than the gatherers who harvest the evidence.


U.S. Has Spent $3.7 Trillion On Welfare Over Past 5 Years --- 
There are probably controversial components (over 80 programs)  in this number, but most of the state and federal payments go to parents with children and Medicaid after the Social Security System and Medicare took over the coverage of disabled persons. Non-disabled persons who are not caring for children cannot get welfare but they can get other types of "welfare" assistance including Medicaid ---

. . .

AFDC (originally called Aid to Dependent Children) ADC was created during the Great Depression to alleviate the burden of poverty of families with children and allow widowed mothers to maintain their households. (New Deal employment program such as the Works Progress Administration primarily served men.) Prior to the New Deal, anti-poverty programs were primarily operated by private charities or state or local governments; however, these programs were overwhelmed by the depth of need during the Depression. The United States has no national program of cash assistance for non-disabled poor individuals who are not raising children. The exception to this is permanent alimony, which is still administered in a handful of states including New Jersey, Florida and Oregon. Alimony Reform movements in these states are attempting to end this form of private welfare.

Continued in article

Medicaid takes an enormous cut from state budgets. For example, on television the other night the Governor of Missouri reported that Medicaid takes up a third of the entire budget for the state.

When tariffs hurt rather than help job growth
"Cheaper Sugar Sends Candy Makers AbroadPrice Squeeze in U.S. Is Sticky for Confectioners," by Alexandra Wexler, The Wall Street Journnal, October 20, 2013 ---

. . .

On Friday, the U.S. sugar (futures) contract in the futures market settled at 22.28 cents a pound, or 14% higher than the benchmark global price.

U.S. prices can't fall much lower because of a federal government program that guarantees sugar processors a minimum price. The rest of the world also has a surfeit of sugar, but fewer price restrictions, and big growers like Brazil are expecting a record crop for the current season.

Continued in article

October 245, 2013 message from Scott Bonacker

New Book Dispels Misconceptions about U.S. Tax Code

Washington, D.C., October 23, 2013—Taxpayers spend upwards of 7 billion work hours and $165 billion complying with the increasingly complex income tax code every year. In addition to growing complexity, income tax revenue sources have dramatically changed over the years, with the top 1% now paying double the rate of other taxpayers and about half of all tax filers having no income tax liability, according to a new chart book from the nonpartisan Tax Foundation.

Putting a Face on America’s Tax Returns: A Chart Book illuminates how, despite common misconceptions, the income tax has become more progressive. The top 10 percent of taxpayers now pay more than 70 percent of all income taxes compared to about 55 percent in 1985, while the share paid by the bottom 90 percent of taxpayers has declined by about one third since then.

About half of the nation’s income is reported by taxpayers who make less than $100,000, and half is reported by taxpayers who make more. However, taxpayers who make less than $100,000 collectively pay just 18 percent of all income taxes while those who make more pay over 80 percent of all income taxes.


Scott Bonacker CPA – McCullough and Associates LLC – Springfield, MO

Jensen Comment
An additional change in the tax code are the provisions that let taxpayers, usually low income taxpayers, take more cash from the IRS than they paid into the IRS. In days of old, taxpayers could at best get refunds for all the cash they paid into the IRS during the year, but the cash returns could not exceed what they paid into the system in the form of withholding and payments for estimated taxes. Now they can withdraw more from the IRS than they paid in during the year, largely due to credits such as the earned income credit. In some ways this has become a form of welfare for workers.

Before the earned income tax credit, welfare was pretty much limited to aid to dependent children, disabled persons, and Medicaid. There was not to be added welfare arising from tax refunds exceeding payments. Now there can be added welfare on the theory that earned income tax credits provide added incentives for low income people with families to get a job. In a way this EITC is a way to boost the minimum wage without having to have legislation boosting the minimum wage.


The huge problem with the EITC that currently it is too easy to commit fraud.

Earned Income Tax Credit (EITC) --- http://en.wikipedia.org/wiki/Earned_Income_Tax_Credit

This is the Real IRS Scandal
That's $110.8 Billion with a "B" Mistake (yeah right, supposedly a "mistake"

"IRS mistakenly distributed at least $110.8B in earned income tax credits," by Bernie Becker, The Hill, October 22, 2013 ---

The IRS has failed to clamp down on improper refundable tax credit payments, according to a new federal audit.

In all, the IRS said it wrongly distributed as much as a quarter of Earned Income Tax Credit (EITC) payments, to the tune of between $11.6 billion and $13.6 billion, according to Treasury’s inspector general for tax administration. Between 2003 and 2012, the IRS erroneously paid out at least $110.8 billion and as much as $132.6 billion, the new report says. 

Due to a 2009 executive order, the IRS is supposed to have targets for rolling back those improper payments. But the agency has yet to do so, and the Treasury inspector general says in its audit that the IRS needs to rethink its methods for cutting down on waste in EITC payments.

Russell George, the tax administration inspector general, noted that the IRS had made some strides in stopping inappropriate payments, and in educating taxpayers about EITC eligibility. Still, George said the billions of dollars lost to waste each year was “disturbing.”

“The IRS must do a better job of reining in improper payments in this and in other programs,” George said in a statement.

Sen. Orrin Hatch (Utah), the top Republican on the Finance Committee, called on the IRS to “aggressively crack down on these erroneous payments,” insisting the agency’s issue with the EITC “doesn’t bode well” for its oversight of subsidies for President Obama’s healthcare law.

“Refundable tax credits are a nightmare to administer and lead to far too much of the American people’s money going out to those who aren’t eligible,” Hatch said in a statement.

For its part, the IRS said it is doing its best to balance the need to target mistaken payments and to ensure that eligible taxpayers know to claim the EITC, which is aimed at helping low-income workers. Improper payments have also declined since 2010, the IRS added in a statement.

Democrats successfully fought to extend expanded versions of the EITC and other refundable tax breaks in the fiscal-cliff deal signed early this year. Taxpayers who claim the EITC or other refundable tax breaks receive payments from the government if those credits are worth more than their tax burden.

IRS officials told the inspector general that they were meeting with the Office of Management and Budget to search for ways to supplement their efforts to reduce improper EITC payments. 

The 21 percent to 25 percent figure the IRS uses includes payments that should have never been made and both over- and underpayments.

“The IRS appreciates the Inspector General’s acknowledgment of all our work to implement processes that identify and prevent improper EITC payments,” the agency said in its statement. “The IRS protects nearly $4 billion in improper claims each year and is committed to continuing to work to reduce improper claims.”

Still, the IRS acknowledges that complexities in the tax law, and confusion and high turnover among those claiming the EITC have hampered its efforts to reduce those payments.

Continued in article

Bob Jensen's Fraud Updates are at

It was a question asked by one of 6 New Hampshire independents meeting with Senator Obama at the Loaf and Ladle restaurant, and "it seemed to stump him for a moment." What was the answer?

Answer from University of Wisconsin law professor Ann Althouse who runs the second highest readership blog maintained by law professors ---

In my local Wal-Mart grandmothers and grandfathers now cashier nearly all the customers. They're great except that they are literally standing in the way of opportunities for younger generations.

"Fast-Food Wages Come With a $7 Billion Side of Public Assistance," by Susan Berfield, Bloomberg Businessweek, October 15, 2013 ---

. . .

Two studies released today make some different calculations to determine the total cost to American taxpayers of a large, low-wage workforce. It comes to an average of $7 billion a year. That’s the amount of annual public assistance families of fast-food workers received between 2007 and 2011, according to a new report written by economist Sylvia Allegretto and others, sponsored by the University of California at Berkeley’s Labor Center and the University of Illinois at Urbana-Champaign, and funded by Fast Food Forward, the group that helped organize the summer’s labor strikes. The authors used publicly available data.

The report calls out the fast-food industry for its low wages, citing a median salary of $8.69 an hour and a history of offering part-time work. That might have been fine when those behind the counter were mostly teenagers living at home. These days, though, 68 percent of fast-food workers are single or married adults who aren’t in school—and 26 percent are raising children.

Overall, 52 percent of families of fast-food workers are enrolled in one or more public assistance programs, compared with 25 percent of the workforce as a whole. Medicaid and the Children’s Health Insurance Program accounted for nearly $4 billion of the $7 billion figure. The Earned Income Tax Credit, food stamps, and the Temporary Assistance for Needy Families program accounted for the rest. ”Public benefits receipt is the rule, rather than the exception, for this workforce,” the authors write.

Continued in the article

Jensen Comment
What seems to be the case is that fast-food jobs are picking up the slack left by a down economy, the destruction of senior retirement savings with low interest rate policies of the Federal Reserve, and failure of the public and private sectors to train unskilled workers for the changing economy of factory production and professional services (like plumbing and information technology). Fast food workers used to be transitory on the ladder to preparing for higher earning careers.

Now Grandmother is pushing out her grandchild for a McJob job because virtually zero interest on her retirement savings has forced her to go back to work at age 68.

I'm changing my mind about the minimum wage, but my support is conditioned upon a massive effort in the public and private sectors to train younger people for careers in the changed economy. Germany seems to have the model that I turn to. Germany makes university education highly competitive while, at the same time, affording genuine opportunities for high-paying careers in the skilled trades. My wife's nephew works in an aluminum factory in Germany. His week ends and nights are filled with studying and training for career advancement within his factory. In the process he's become particularly skilled in computers and automation and now has career opportunities outside his factory.

I'm not as down on Wal-Mart as most folks. Among the fringe benefits as Wal-Mart are free opportunities to get more training and education advancements that, if fully utilized, will help workers escape from Wal-Mart. The problem among most Wal-Mart workers is lack of motivation to take advantages of the free opportunities to escape Wal-Mart. The drug culture is real and many of our unskilled workers are held back by their addictions and full-bodied tattoos. Many of the Wal-Mart workers who are single parents of young children that, like it or not, are a physical drain on ambitions for career advancement.

And the excuses for making lifelong careers as cashiers and inventory movers go on and on --- what a waste that in the process closes down opportunities to move on and make new opportunities for younger cashiers and inventory handlers.

In my local Wal-Mart grandmothers and grandfathers now cashier nearly all the customers. They're great except that they are literally standing in the way of opportunities for younger generations.

Is is it Andrew Biggs with the fuzzy math?

"AARP's Fuzzy Math on Social Security The 'economic effect' of benefit payments isn't $1.4 trillion or nine million jobs. It's zero." by Andrew G. Biggs, The Wall Street Journal, October 16, 2013 ---

AARP—formerly known as the American Association of Retired Persons—recently released a report proclaiming that "Social Security Generates Nearly $1.4 Trillion in Economic Activity and Supports More Than Nine Million Jobs." As great as that sounds, AARP's study is fundamentally flawed.

Last year, Social Security paid out almost $715 billion in retirement, survivors and disability benefits. This money supports seniors, but according to AARP the gains don't stop there. Retirees spend their benefits on food, for example, creating incomes for the supermarket owner and employees, who then spend these incomes, and so on. The report concludes: "Because of the multiplier effect, every dollar of Social Security paid out translates to almost two dollars in spending in the United States."

Sounds like magic. But what AARP overlooks is the money pulled out of the economy through Social Security payroll taxes to fund these benefits. These taxes have what we might call a "divisor effect:" For each dollar of taxes levied, workers have less to spend, and that reduction is passed on throughout the economy. If workers spend the same percentage of their incomes as retirees, then the net economic effect of Social Security isn't $1.4 trillion or nine million jobs. It's zero. The AARP report acknowledges that "A net analysis would subtract the economic effects of payroll taxes from those of the benefit payments." But that acknowledgment comes in a footnote.

The best defense AARP could offer for its reasoning is to claim that retirees spend a greater share of their incomes than workers. Therefore, transferring money from workers to retirees raises spending and, through the magic of the multiplier, still boosts the economy.

In the short term that may be true, though the economic boost at any given time would be far smaller than the trillion-dollar figure AARP touts. But over the long term, the economic effects of Social Security are negative. Spending may give the economy a quick fix. Saving drives long-term economic growth.

This point is fundamental. To quote one randomly-chosen macroeconomics textbook, titled "Macroeconomics," by Olivier Blanchard of MIT: "The saving rate determines the level of output per worker in the long run. Other things equal, countries with a higher saving rate will achieve higher output per worker in the long run." In other words, because of Social Security taxes, today's economy is likely smaller than it otherwise would be.

This isn't just theory. In a research paper published by the Brookings Institution in 1996, economists Jagadeesh Gokhale, Larry Kotlikoff and John Sabelhaus traced the decline in saving rates since World War II to the rise of Social Security and Medicare, which transfer income from savers (workers) to spenders (retirees).

Similarly, when the Congressional Budget Office in 2004 modeled the economic effects of proposed Social Security changes, it found that reforms that would cut benefits without raising taxes—such as the so-called price indexing of benefits—would lead to economic growth. Plans that raised taxes to pay promised benefits would reduce work, saving and economic growth. The entire U.S. economy would be roughly 5% larger in the long run if we adopted the cut-benefits approach instead of the raise-taxes approach, the CBO concluded.

Continued in article

Jensen Comment
There are a number of assumptions in the above analysis that are fuzzy. At the present time the corporations are hoarding cash. If they did not spend some of it on the employer contributions to Social Security deductions, the savings would probably sit in some off shore bank. Much of this cash would not flow back into the U.S. economy at the present time.

About 35% of the annual receipts of the Federal Budget is from Social Security and Social Insurance. Outflows for Social Security comprise 22% of the Federal Budget ---

For decades the surplus collections for the Social Security system have been diverted to other obligations of the USA interest payments on over $16 trillion in National Debt. Much of what is collected in Social Security taxes is diverted offshore to stimulate the economies of other nations like China that receives interest on $1 trillion of the USA debt. Billions are spent in Iraq, Afghanistan, and aid to other underdeveloped nations of the world. Some of these offshore expenditures do, however, flow back into the USA economy such as when an underdeveloped country like Egypt buys our fighter jets and rice and timber.

My wife and I collect Social Security payments each month such that I'm not complaining about the system other than to complain that much of SS deductions for our paychecks for over 40 years went Viet Nam, Iraq, and Congressional travel budgets rather than being invested so that we could now be collecting returns on the investments rather than having to tax current workers at McDonalds earning a minimum wage.

Wouldn't it be nice if the number of current workers supporting each of us retired folks was not reduced from over 20 to less than three current workers who are now required to carry old guys like me on their shoulders. The fuzzy math is that the workers of the USA will not be able to carry all of the obligations of the burgeoning numbers of USA people becoming eligible to collect Social Security and Medicare benefits. Thank goodness the Chinese will keep lending trillions to pay us old folks off. I was really sweating that the debt limit would have not been lifted yesterday.

If there had been not Social Security deductions from our paychecks over the past 40 years we might have saved it just so we could now earn a penny on each dollar saved in our Certificates of Deposit.

I think I'm better off with collecting my share of what the poor people working at McDonalds are now contributing to my old age high life.

I'm so grateful that I sometimes leave them a tip.

How to Mislead With Statistics and Graphics

"How U.S. Debt Per Capita Has Changed Under Every President Since JFK," by Giovanni Salzano, Bloomberg Businessweek, October 17, 2013 ---

Jensen Comment
Firstly, it is very misleading to knee-jerk attribute changes in the National Debt to a President of the United States. There are many good and bad factors affecting this debt that are not caused by actions of a president during his (soon to be her) term of office. For example, much of the prosperity in the Clinton years can be attributed to lagged multiplier effects of the tax cuts instigated in the Reagan years. Another example is where President Obama inherited an economic crisis that commenced in the Bush years.  Also much of the blame or credit for changes in the National Debt may be attributed more to USA Congress and global events than the President of the USA.

Secondly there are statistical and graphical deceptions that politicians use all the time. For example, in the above graph President Obama does not look so bad compared with President Regan who looks really bad in the above graph. But the trick being played is what mathematicians call the "denominator effect," The denominator in this case is the population of the United states that increased from 227 million in the 1980 Reagan year to 309 million in 2010. This is an 82 million or 27% population growth denominator effect. I don't think we should attribute a 27% growth in USA population to President Obama. I'm not so certain about Bill Clinton however (just kidding).

Different denominators can lead to a possibly misleading appearance of a USA President's performance in terms of a denominator effect. For example, President Obama looks a bit worse than Reagan in terms of having no denominator or having a GDP denominator ---

Jensen Comment
The moral of the story is that relatively accurate "figures don't lie but liars figure," and cherry picked tables and graphs can serve biased purposes. Academics are usually more cautious about such cherry picking because other academics are trained to critically evaluate evidence.

This is an example of where we would like to instill more "critical thinking" into the learning curriculum for students.


Assets of the USA Federal Reserve 1915-2012 ---
The enormous spike commenced in 2007 and was exacerbated when U.S. Treasury bonds were purchased at an exponential rate in the Quantitative Easing program of the Fed.

Quantitative Easing --- http://en.wikipedia.org/wiki/Quantitative_easing

Quantitative easing (QE) is an unconventional monetary policy used by central banks to prevent the money supply falling when standard monetary policy has become ineffective.[1] [2][3] A central bank implements quantitative easing by buying specified amounts of financial assets from commercial banks and other private institutions, thus increasing the monetary base.[4] This is distinguished from the more usual policy of buying or selling government bonds in order to keep market interest rates at a specified target value.[5][6][7][8]

Expansionary monetary policy typically involves the central bank buying short-term government bonds in order to lower short-term market interest rates.[9][10][11][12] However, when short-term interest rates are at or close to zero, normal monetary policy can no longer lower interest rates.[13] Quantitative easing may then be used by monetary authorities to further stimulate the economy by purchasing assets of longer maturity than short-term government bonds, and thereby lowering longer-term interest rates further out on the yield curve.[14][15] Quantitative easing raises the prices of the financial assets bought, which lowers their yield.[16]

Quantitative easing can be used to help ensure that inflation does not fall below target.[8] Risks include the policy being more effective than intended in acting against deflation (leading to higher inflation in the longer term, due to increased money supply),[17] or not being effective enough if banks do not lend out the additional reserves.[18] According to the IMF and various other economists, quantitative easing undertaken since the global financial crisis has mitigated some of the adverse effects of the crisis.[19][20][21]

. . .

5 Risks

5.1 Savings and pensions --- http://en.wikipedia.org/wiki/Quantitative_easing#Savings_and_pensions
5.2 Housing market over-supply and QE3 --- http://en.wikipedia.org/wiki/Quantitative_easing#Housing_market_over-supply_and_QE3
5.3 Capital flight --- http://en.wikipedia.org/wiki/Quantitative_easing#Capital_flight
5.4 Increase income and wealth inequality --- http://en.wikipedia.org/wiki/Quantitative_easing#Increase_income_and_wealth_inequality
5.5 Criticism by BRIC countries --- http://en.wikipedia.org/wiki/Quantitative_easing#Criticism_by_BRIC_countries

BRIC countries have criticized the QE carried out by the central banks of developed nations. They share the argument that such actions amount to protectionism and competitive devaluation. As net exporters whose currencies are partially pegged to the dollar, they protest that QE causes inflation to rise in their countries and penalizes their industries.


"Federal Reserve Balance Sheet Soon To Hit $4 Trillion in Assets," by Jon C. Ogg," 24/7 Wall Street, October 14, 2013 ---

. . .

The Federal reserve even admits on its weekly balance sheet analysis, “Since the beginning of the financial market turmoil in August 2007, the Federal Reserve’s balance sheet has grown in size and has changed in composition. Total assets of the Federal Reserve have increased significantly from $869 billion on August 8, 2007, to well over $2 trillion.” That is an old figure because it is now over $3.75 trillion.

The full figure as of October 9, 2013 was $3.7586 trillion. The $85 billion per month plus the rollover maturities is adding to this each and every month. At some point this will be real money to someone. By the way, of that $3.7586 trillion in assets some $3.4895 trillion are listed as securities held.

Question for Your Students
What is meant by this phrase? 
"At some point this will be real money to someone"

Jensen Comment
Firstly students should understand how money is created in the USA. The money supply is not increased by the printing of money needed fro liquidity preferences of the populace. When Ole Knutson chooses to write a check and withdraw $500 a checking account money is not created and the money supply is not changed. Ole has simply expressed a liquidity preference.

Money was created, however, if Ole's checking account was increased by a loan from his bank for $500. That money did not exist in the nation's money supply until the bank made the loan. In the USA money is created by commercial bank loans.

Money was not created, however, if Ole increased his checking account balance by borrowing from his friend Sven. That was simply a transfer of funds in the USA money supply from Sven to Ole.

When the USA Government sells a treasury bond to the Fed  (a central bank) it does not directly create money and increase the USA Money Supply.

Printing Money Versus Monetization of the Debt---  http://en.wikipedia.org/wiki/Quantitative_easing

Quantitative easing has been nicknamed "printing money" by some members of the media,[89][90][91] central bankers,[92] and financial analysts.[93][94] However, central banks state that the use of the newly created money is different in QE. With QE, the newly created money is used to buy government bonds or other financial assets, whereas the term printing money usually implies that the newly minted money is used to directly finance government deficits or pay off government debt (also known as monetizing the government debt).[89]

It is also noted[95] that the increase in the money base produced by QE does not necessarily increase the aggregated money supply because banks can keep cash provided by central banks in their liquidity reserves. In other words, QE can only change the structure of the money supply, decreasing the share of money that has been already "printed" by fractional reserve banks; this is a way to tie existing bank accounts and deposits back to real cash without increasing the amount of money.

Central banks in most developed nations (e.g., the United Kingdom, the United States, Japan, and the EU) are prohibited from buying government debt directly from the government and must instead buy it from the secondary market.[88][96] This two-step process, where the government sells bonds to private entities which the central bank then buys, has been called "monetizing the debt" by many analysts.[88] The distinguishing characteristic between QE and monetizing debt is that with QE, the central bank is creating money to stimulate the economy, not to finance government spending. Also, the central bank has the stated intention of reversing the QE when the economy has recovered (by selling the government bonds and other financial assets back into the market).[89] The only effective way to determine whether a central bank has monetized debt is to compare its performance relative to its stated objectives. Many central banks have adopted an inflation target. It is likely that a central bank is monetizing the debt if it continues to buy government debt when inflation is above target, and the government has problems with debt financing.[88]

Ben Bernanke remarked in 2002 that the US government had a technology called the printing press (or, today, its electronic equivalent), so that if rates reached zero and deflation threatened, the government could always act to ensure deflation was prevented. He said, however, that the government would not print money and distribute it "willy nilly" but would rather focus its efforts in certain areas (e.g., buying federal agency debt securities and mortgage-backed securities).[97][98] According to economist Robert McTeer, former president of the Federal Reserve Bank of Dallas, there is nothing wrong with printing money during a recession, and quantitative easing is different from traditional monetary policy "only in its magnitude and pre-announcement of amount and timing".[99][100] Stephen Hester, Chief Executive Officer of the RBS Group, said in an interview, "What the Bank of England does in quantitative easing is it prints money to buy government debt, and so what has happened is the government has run a huge deficit over the past three years, but instead of having to find other people to lend it that money, the Bank of England has printed money to pay for the government deficit. If that QE hadn't happened then the government would have needed to find real people to buy its debt. So the Quantitative Easing has enabled governments, this government, to run a big budget deficit without killing the economy because the Bank of England has financed it. Now you can't do that for long because people get wise to it and it causes inflation and so on, but that's what it has done: money has been printed to fund the deficit." [101]

Richard W. Fisher, president of the Federal Reserve Bank of Dallas, warned in 2010 that a potential risk of QE is "the risk of being perceived as embarking on the slippery slope of debt monetization. We know that once a central bank is perceived as targeting government debt yields at a time of persistent budget deficits, concern about debt monetization quickly arises." Later in the same speech, he stated that the Fed is monetizing the government debt. "The math of this new exercise is readily transparent: The Federal Reserve will buy $110 billion a month in Treasuries, an amount that, annualized, represents the projected deficit of the federal government for next year. For the next eight months, the nation's central bank will be monetizing the federal debt."[102]

Jensen Comment
I hazard a guess that nearly all the representatives and senators who vote on whether or not to raise the USA Government's debt ceiling really understand how persistent budget can lead to monetization of the debt and, thereby, make it "real money."

Can you explain all this to your students?

"Government shutdown, debt ceiling deal includes one tax provision," by Alistair M. Nevius, Journal of Accountancy, October 16, 2013 ---

. . .

The change to the health care law under the agreement reached Wednesday sets up a new requirement that the eligibility of people who receive cost-sharing reductions under Section 1402 of the Patient Protection and Affordable Care Act, P.L. 111-148, or the health insurance premium tax credit under Sec. 36B, be verified. Under the agreement, the secretary of Health and Human Services must ensure that health insurance exchanges verify that individuals applying for the credit or cost-sharing reductions are eligible and must certify to Congress that the exchanges are verifying eligibility. The secretary is required to report to Congress by Jan. 1, 2014, what procedures exchanges are using to verify eligibility.

The health insurance credit is available to eligible individuals who purchase coverage under a qualified health plan through one of the new health insurance exchanges. The credit subsidizes the cost of health insurance for certain low-income individuals.

To be eligible for the credit, a taxpayer must (1) have household income between 100% and 400% of the federal poverty line (FPL) amount for his or her family size (starting in 2014, persons with income below 133% of the FPL are eligible for Medicaid), (2) not be claimed as a dependent by another taxpayer, and (3) if married, file a joint return. The credit amount is the sum of “premium assistance amounts” for each month the taxpayer or any family member is covered by a qualified health plan through an exchange. The premium assistance amount is the lesser of (1) the premium amount or (2) the result of a formula based on a “benchmark plan” and the taxpayer’s household income (Sec. 36B(b)).

Continued in article

Jensen Comment
I think it would be better to have the new fraud law enforced by the IRS since the IRS will have both income data and the health premium subsidy data. However, the IRS insisted all along that it did not want to enforce any part of the Affordable Health Care Act.

I think the Secretary of Health and Human Services will be helpful in enforcing this fraud detection and prevention law unless it has access to the IRS database on tax returns.

Otherwise enforcement will be hopeless. It is rather hopeless in any case since millions of people receiving the subsidy will have unreported income from the underground economy that even the IRS cannot stop or even seriously deter.

I think this new fraud law is just a sham so the GOP can claim that their defeat yesterday was not total unconditional surrender to President Obama. When I say sham I mean sham

Business As Usual Buying Votes in Washington DC
"Bill to end shutdown includes a $3 Billion pork subsidy for Ohio River project," Small Government Times, October 17, 2013 ---

In Washington’s limitless supply of corruption with American tax dollars, the deal that re-opened a supposed “closed” government included something extra special for Kentucky Senate Minority Leader Mitch McConnell: a $2.8 billion provision to boost funding for the Olmstead dam and lock project on the Ohio River, calling into question the fed’s willingness to fund expensive projects when the country is flat broke.

A priority for the minority leader, the Olmstead project would benefit eastern states like McConnell’s Kentucky, Tennessee and Illinois.

Continued in article

Jensen Comment
Mitch McConnell is up for re-election in Kentucky in 2014. Sounds like an earmark to me even though he denies it.

I am scanning quite a few Accounting Review articles these days in search of types of databases and underlying assumptions. In the process I stumbled upon these rather interesting quotations relative to recent posts in The Accounting Onion blog by Tom Selling.

The following quotations appear at the beginning of the following article:
"Toward a Positive Theory of Disclosure Regulation: In Search of Institutional Foundations," by Jeremy Bertomeu and Edwige Cheynel, The Accounting Review May 2013, Page 789:

Quotation One
The accounting academic world also seems to attract those of a more cautious predisposition. Certainly, we are witnessing the effects of some quite strong intellectual biases and prejudices that are consistent with this. Keep away from politics, even the political science of standard-setting, seems to be one.
Anthony G. Hopwood (1944–2010)presidential address to the American Accounting Association (2007, 1372)

Quotation Two
If I have any criticism of FASB, and I would note that I do, it is that they seem to have a political tin ear and to make a lot of powerful enemies.
Rep. John Dingell (2000)

Incidentally, the abstract of the Bertomeu and Cheynel article:

This article develops a theory of standard-setting in which accounting standards emerge endogenously from an institutional bargaining process. It provides a unified framework with investment and voluntary disclosure to examine the links between regulatory institutions and accounting choice. We show that disclosure rules tend to be more comprehensive when controlled by a self-regulated professional organization than when they are under the direct oversight of elected politicians. These institutions may not implement standards desirable to diversified investors and, when voluntary disclosures are possible, allowing choice between competing standards increases market value over a single uniform standard. Several new testable hypotheses are also offered to explain differences in accounting regulations.

"Federal Student-Loan Sharks Print: Why is the government gouging our college kids? The new law on loan rates just makes things worse," by William J. Quirk, The American Scholar, Autumn 2013 ---

Education, Thomas Jefferson believed, should be free. Its universal availability was at the center of his vision for the republic. In the wake of the Constitution’s drafting in Philadelphia, he remarked in a letter to James Madison, “Above all things I hope the education of the common people will be attended to, convinced that on their good sense we may rely with the most security for the preservation of a due degree of liberty.” In 1778, Jefferson proposed to the Virginia legislature a bill for the “More General Diffusion of Knowledge.” The bill’s preamble reads, “those entrusted with power,” in all forms of government, “have perverted it into tyranny,” and “the most effectual means of preventing this would be to illuminate, as far as practicable, the minds of the people at large.” When Jefferson thought about the nation’s education system, writes Merrill D. Peterson in Thomas Jefferson and the New Nation (1970), he “projected three distinct grades of education—elementary, middle, and higher—the whole rising like a pyramid from the local communities.” Elementary schools would freely educate all children in reading, writing, and other basics. The middle and higher schools would be selective and charge tuition, except for poor students who passed rigorous examinations and received state scholarships. From its opening in 1825 until 1860, Jefferson’s University of Virginia charged a tuition of $75 per session.

Perhaps it won’t surprise you to hear that we have very few Jeffersons in the 113th United States Congress, but then we don’t have any in the White House or the Department of Education. Congress spent the summer bickering over whether the rates for student loans for higher education would double on July 1, from 3.4 to 6.8 percent. They did double through congressional inaction; but at the end of July, Congress passed a Senate compromise that fixes rates annually to the 10-year U.S. Treasury note plus 2.05 percent, capped at 8.25 percent. This year’s rate will be 3.9 percent for undergraduates and 5.4 percent for graduate students, who have traditionally paid a higher rate. In the press, the new bill was hailed for decreasing rates and saving students significant amounts in interest. But of course the bill actually increases rates by half a percentage point from what it had been before July 1. The federal government is in effect levying a new tax on college students in a program that already raises an obscene amount of money for the Treasury and is jeopardizing the financial future of a whole generation of young Americans. Our third president, it’s fair to say, would be disappointed if not disgusted.

In his 2010 State of the Union address, our 44th and current president proposed to “finally end the unwarranted taxpayer subsidies that go to banks for student loans.” We all agree with that; but what should we have done next? For starters, the government could have stopped being so greedy and instead made direct loans to students at its cost. With the current cost of funding at 0.7 percent, that approach would have put student loans at around one percent. President Obama apparently never considered that course—by continuing the same high rates, the same high profits go to the government instead of to the banks.

Government loans are wildly profitable. If you borrow at 0.7 percent and lend at 3.9 or 5.4 percent, you have what’s called a favorable spread. The Congressional Budget Office reports that the government makes 36 cents on every dollar lent to undergraduates and 64 cents on every dollar lent to graduate students and parents. The loans cannot be absolved through bankruptcy except under extreme conditions, and the government can, without even a court order, garnish wages, disability payments, and Social Security. Indeed, the only certain way to beat the government is to die without any assets—an extreme course of action.

The original student-loan program followed Jefferson. Passed in 1958, as part of the National Defense Education Act—a response to Sputnik—it provided for Treasury loans to students at three percent. The government’s borrowing rate was 3.1 percent in 1957. The program gave priority to “students with a superior academic background” who expressed an interest in teaching elementary or secondary school, and to students with a “superior capacity” for “science, mathematics, engineering, or a modern foreign language.” Loans were limited to 10 years and were forgiven if the student went into public school teaching.

In 1965, as part of President Johnson’s Great Society program, Congress passed the Higher Education Act. The law introduced the government-guaranteed bank loan, which today has grown to more than $1 trillion in student loans outstanding—an amount greater than credit card debt and second only to mortgage debt. The guaranteed loan program created the student aid industry, led by the banks and the government-sponsored entity Sallie Mae. The industry has enjoyed significant profits from high interest rates on riskless loans. Sallie Mae stock rose more than 1,900 percent between 1995 and 2005. Its CEO, Albert Lord, made $225 million between 1999 and 2004.

As the industry attached a giant siphon to students’ lifetime earnings, the nation began an experiment not in illuminating young minds or upholding the Jeffersonian educational ideal but in finding out what would happen if our college graduates started their working lives with a large negative net worth.

Who came up with the idea that anyone should profit from student loans? Would it be a surprise to hear that the banks and the lenders were involved? When Congress created the guaranteed bank loan in 1965, Sen. Wayne Morse, a Democrat from Oregon, said,

The loan program that we have worked out in this bill is the result of prolonged conferences with the representatives of financial institutions of this country, the banks, and the loaning agencies, the Treasury, the Bureau of the Budget, and with the Department of Health, Education, and Welfare.

The switch from direct loans to guaranteed loans was an accounting fiddle: direct loans showed as a budget expenditure, and the guaranteed loans did not. The Johnson administration was seeking to keep overall budget numbers down in view of its heavy expenses for the war in Vietnam. No one mentioned that a parasitic industry had been created, one that could make money without risk.

The program not only became a profit center, first for the banks and Sallie Mae and then for the federal government, but it also became the main support for a profligate American higher education system. In 2011–12, the program pumped $113 billion into colleges and universities, which amounts to about 35 percent of the total tuition bill. Private colleges and universities typically receive an estimated 60 percent of their tuition from student loans; law schools, 80 percent. The student-loan program is growing bigger and bigger. It has already increased almost 10 times since 1989–90 ($12 billion), tripled since 1999–2000 ($33 billion), and doubled since 2004–05 ($55 billion).

One sign from the 2011 Occupy Wall Street protests read, “Borrowed $26,400, Paid Back $32,700, Still owe $45,276.” As the sign implies, there is no escape from student-loan debt. If a student defaults, he is headed, as financial-aid expert Mark Kantrowitz told Business Week in a metaphor mash-up, “for a trip through hell with no light at the end of the tunnel.”

A 10-year loan can almost double because of debt collection charges of nearly 20 percent. The federal government paid collection agencies $1.4 billion in 2011. Those who predict that student loans are a bubble about to pop note that the increasing cost of tuition and the increased debt load carried by students are similar to housing debts in 2007. But student loans are forever: unlike a house, a student loan can’t be abandoned. The students owe their soul to the company store. And the biggest cost of the student-loan fiasco may not be the crushing debt to the individual graduate but the deflation of that entrepreneurial spirit that distinguishes the United States from much of the rest of the world.

Debt is silent. It creeps along, but once it is incurred, the obligation is as strong as death. Two-thirds of graduates leave college with student loans, owing on average $26,600. A dependent student (one under 24 who is still supported by parents) can borrow up to $31,000 at 3.9 percent over a five-year term by taking out Stafford loans. An “independent” student can borrow as much as $57,500 at the same rate. Parents can borrow further at 6.4 percent. About 90 percent of law students graduate with debt averaging more than $100,000. Each year a graduate student can borrow $138,500 at 5.41 percent and an additional amount up to the “cost of attendance,” say, $54,000 at 7.9 percent.

Up to 3.7 million former students owe over $54,000 and 1.1 million owe more than $100,000. Over two million Americans 60 or older still have outstanding student loans. The miracle of compound interest works against the student. A loan at six percent interest doubles in 12 years—at three percent, it doubles in 24 years. The government, universities, and bankers have captured a substantial part of the student’s future income stream.

Real people exist behind these figures. Consider the example of Alan Collinge, who attended the University of Southern California, taking out $38,000 in loans for his undergraduate and graduate degrees in aerospace engineering. He got a job at Caltech and repaid $7,000 before leaving his job. He could not find a new one and stopped paying Sallie Mae after it refused any forbearance of his debt. He eventually owed $100,000 and couldn’t get a military contractor job because of his bad credit. In 2008, the U.S. Department of Education offered to waive his accrued interest and fees, according to The New York Times. He is now an activist on the subject of student-loan debt. Fortune magazine reports that in the early 2000s, Sallie Mae charged one student at Katharine Gibbs, a for-profit school, 28 percent interest—a stated 14 percent and a supplemental fee. Angelica Gonzales did not graduate from Emory University but owes $60,000 on student loans and is earning $8.50 an hour as a clerk in a furniture store.

Since World War II, there has been a sharp increase in the percentage and number of high school graduates who enroll at colleges and universities. In 1958, 24 percent were enrolled; in 1980, 45 percent; in 2010, 68 percent. (The total number of students doubled between 1980 and 2012, to 19.7 million.) Since 1964, the student-loan industry has financed the increased demand.

The Economist from December 1, 2012, reports that the cost of higher education per student since 1983 has risen by five times the rate of inflation. In comparison, medical costs have gone up twice the rate of inflation. Between 2000 and 2010, tuition rose 42 percent at public institutions and 31 percent at private ones.

Before the era of student loans, college tuition was substantial, but it didn’t threaten a student’s long-term financial health. A college kid could contribute a good part of the cost by working summers and holidays. But very few summer jobs pay well enough to make a dent in a $40,000 tuition bill. To pay tuition, room, and board for four years at Harvard today, at about $65,000 a year, parents need to earn (assuming a 50 percent tax cost) in the neighborhood of $520,000 in pretax money—a pretty exclusive neighborhood. Harvard’s tuition was $1,520 in 1960. Adjusting for inflation, that amount would still be only $11,990 today, but the actual price is $40,016. Tuition at Columbia University cost $1,450 in 1960, which would be $11,438 today, but the current cost is $46,846. State schools have also dramatically increased what they charge. In-state tuition at the University of Virginia cost $490 in 1960, which would be $3,865 in today’s dollars, but the current cost is $12,458. Although the government has piles of studies denying it, student loans appear to have induced, or at least facilitated, the astonishing rise in tuition.

Admittedly, it seems counterintuitive that student loans, intended to make college more affordable, have fueled skyrocketing tuition. But as education policy consultant Arthur M. Hauptman wrote in Inside Higher Ed in 2011, “There is a strong correlation over time between student and parent loan availability and rapidly rising tuitions. Common sense suggests that growing availability of student loans at reasonable rates has made it easier for many institutions to raise their prices.”

Continued in article

Bob Jensen's threads on higher education controversies ---

"Lifting England's Media Chill Libel tourism suffers a blow in British courts," The Wall Street Journal, October 18, 2013 ---

Tourists will always flock to London to shop and see Big Ben. But they're less likely to keep coming to settle legal scores after two High Court rulings Monday set clear limits against libel tourism in England and Wales. Along with new legislation from Parliament, the rulings might finally lift the chill on free speech and the free press under England's plaintiff-friendly defamation laws.

The dispute at the center of Karpov v. Browder began with Russian lawyer Sergei Magnitsky's prison death in Moscow in 2009. Magnitsky had been investigating a multimillion-dollar tax fraud by Russian officials against his client, Hermitage Capital. Pavel Karpov, a retired Moscow policeman, claimed that Hermitage CEO William Browder defamed him in a 2011 BBC interview, a 2012 article in Foreign Policy magazine, and in online videos about Magnitsky's case.

Russian courts dismissed Mr. Karpov's civil and criminal suits, so he took his case to London. Mr. Browder lives in Britain and is a U.K. citizen, but he argued before the High Court that Mr. Karpov has no reputation in England and Wales for Mr. Browder to have besmirched. Mr. Karpov rebutted that he has former schoolmates and an ex-girlfriend who live in England, and that he had previously traveled there "on five or so occasions."

Justice Peregrine Simon threw the case out. Mr. Karpov's "connection with this country is exiguous," Justice Simon concluded, "and, although he can point to the [videos'] continuing publication in this country, there is 'a degree of artificiality' about his seeking to protect his reputation in this country."

Mr. Karpov's real intent—as he admitted in his libel claim—is to fight the sanctions against him imposed by America's Magnitsky Act, for which Mr. Browder campaigned vigorously. The 2012 law prevents Mr. Karpov from entering and making financial transactions in the U.S. Justice Simon declared that the English justice system was hardly an appropriate forum to pursue that fight, especially considering that Russian courts had already rejected Mr. Karpov's complaints.

The second libel ruling involved a complaint by a Geneva-based Serbian businessman against a Croatia-based Montenegrin businessman. In 2010, five Balkan newspapers and blogs published quotations from Ratko Knezevic alleging that Stanko Subotic is a criminal mastermind. Justice James Dingemans ruled that Mr. Subotic has no substantial reputation in England to defend, and he threw out the case.

. . .

All of this tips the legal balance toward free speech and away from an amorphous "right to reputation," and will make it harder for celebrities, oligarchs and brigands to enlist the English courts in future extortion campaigns. Let the tourists come for the Court of St. James's, rather than for spurious victories at the Royal Courts of Justice


"Stanley Druckenmiller: How Washington Really Redistributes Income The renowned money manager goes back to school to explain how entitlements are helping the Baby Boomers rip off future generations," The Wall Street Journal, October 18, 2013 ---

. . .

But he adds that "I did not think it would be nutty to tie entitlements to the debt ceiling because there's a massive long-term problem. And this president, despite what he says, has shown time and time again that he needs a gun at his head to negotiate in good faith. All this talk about, 'I won't negotiate with a gun at my head.' OK, you've been president for five years."

His voice rising now, Mr. Druckenmiller pounds his fist on the conference table. "Show me, President Obama, when the period was when you initiated budget discussions without a gun at your head."

Which brings him back to his thieving generation. For three decades until 2010, Mr. Druckenmiller ran the hedge fund he founded, Duquesne Capital. Now retired from managing other people's money, he looks after his own assets, which Forbes magazine recently estimated at $2.9 billion. And he wonders why in five years the massively indebted U.S. government will begin sending him a Social Security check for $3,500 each month. Because he earned it?

"I didn't earn it," he responds, while pointing to a bar chart that is part of his college presentation. Drawing on research by Boston University economist Laurence Kotlikoff, it shows the generational wealth transfer that benefits oldsters at the expense of the young.

While many seniors believe they are simply drawing out the "savings" they were forced to deposit into Social Security and Medicare, they are actually drawing out much more, especially relative to later generations. That's because politicians have voted to award the seniors ever more generous benefits. As a result, while today's 65-year-olds will receive on average net lifetime benefits of $327,400, children born now will suffer net lifetime losses of $420,600 as they struggle to pay the bills of aging Americans.

One of the great ironies of the Obama presidency is that it has been a disaster for the young people who form the core of his political coalition. High unemployment is paired with exploding debt that they will have to finance whenever they eventually find jobs.

Are the kids finally figuring out that the Obama economy is a lousy deal for them? "No, I don't sense that," says Mr. Druckenmiller, who is a registered independent. "But one of my points is neither party should own your vote. And once they know they own your vote, you're not going to get any action on this particular issue."

When the former money manager visited Stanford University, the audience included older folks as well as students. Some of the oldsters questioned why many of his dire forecasts assume that federal tax collections will stay at their traditional 18.5% of GDP. They asked why taxes should not rise to fulfill the promises already made.

Mr. Druckenmiller's response: "Oh, so you've paid 18.5% for your 40 years and now you want the next generation of workers to pay 30% to finance your largess?" He added that if 18.5% was "so immoral, why don't you give back some of your ill-gotten gains of the last 40 years?"

He has a similar argument for those on the left who say entitlements can be fixed with an eventual increase in payroll taxes. "Oh, I see," he says. "So I get to pay a 12% payroll tax now until I'm 65 and then I don't pay. But the next generation—instead of me paying 15% or having my benefits slightly reduced—they're going to pay 17% in 2033. That's why we're waiting—so we can shift even more to the future than to now?"

He also rejects the "rat through the python theory," which holds that the fiscal disaster will only be temporary while the baby-boom generation moves through the benefit pipeline and then entitlement costs will become bearable. By then, he says, "you have so much debt on the books that it's too late."

Unfortunately for taxpayers, "the debt accumulates while the rat's going through the python," so by the 2040s the debt itself and its gargantuan interest payments become bigger problems than entitlements. He points to a chart that shows how America's debt-to-GDP ratio, the amount of debt compared with national income, explodes in about 20 years. That's where Greece was when it hit the skids, he says, pointing to about 2030.

Breaking again with many Wall Streeters but consistent with his theme, Mr. Druckenmiller wants to raise taxes now on capital gains and dividends, bringing both up to ordinary income rates. He says the current tax code represents "another intergenerational transfer, because 60-year-olds are worth five times what 30-year-olds are."

And 65-year-olds are "much wealthier than the working-age population. So the guy who's out there working—the plumber, the stockbroker, whatever he is—he's paying the 40% rate and the coupon clippers who are not working anymore are paying a 20% rate."

Ah, but what about the destructive double taxation on corporate income? The Druckenmiller plan is to raise tax rates on investors while at the same time cutting the corporate tax rate to zero.

"Who owns corporations? Shareholders. But who makes the decisions at corporations? The guys running the companies. So if you tax the shareholder at ordinary income [rates] but you tax the economic actors at zero," he explains, "you get the actual economic actors incented to hire people, to do capital spending. It's not the coupon clippers that are making those decisions. It's the people at the operating level."

As an added bonus, wiping out the corporate tax eliminates myriad opportunities for crony capitalism and corporate welfare. "How do the lobbying groups and the special interests work in Washington? Through the tax code. There's no more building plants in Puerto Rico or Ireland and double-leasebacks and all this stuff. If you take corporate tax rates to zero, that's gone. But in terms of the fairness argument, you are taxing the shareholder. So you eliminate double taxation. To me it could be very, very good for growth, which is a huge part of the solution to the debt problem long-term. You can't do it without growth."

Amid the shutdown nonsense, this week's debt-ceiling accord did create an opening for some reform before the next deadline early next year. So what should Republican reformers like Paul Ryan do now?

"I would go for something simple that is very, very tough for the other side to argue, for example, means-testing Social Security and Medicare," which would adjust benefits by income. He notes again his impending eligibility for a monthly government check.

"I don't need it. I don't want it. I could also make the argument that every health expert will tell you that wealthy people live 4.5 years longer than the middle class or the poor. So I'm going to get paid 4.5 years more than the middle class or the poor," he says. "It's not that many dollars, but I think it would be a great symbol in seeing exactly how serious they are."

But Mr. Druckenmiller is not sure, so soon after the failed attempt to defund ObamaCare, that Republicans should demand entitlement reform in exchange for the next debt-limit vote this winter or spring. "Maybe they need a break," he says. "I think a much more effective strategy would be for them to publicly shine a light on something so obvious as means-testing and take their case to the American people rather than go through the actual debt limit."

If Mr. Obama rejects the idea, "then we will really know where he is on entitlement reform." For this reason, Mr. Druckenmiller views means-testing as "really the perfect start—and it should only be a start—to find out who's telling the truth here and who's not."


"Reforming the Taxation of Exempt Organizations and Their Patrons," by David S. Miller, SSRN, October 21, 2013 ---

The paper contemplates a radical reformation of our entire system for taxing exempt organizations and their patrons. First, all non-charitable exempt organizations that compete with taxable commercial businesses (such as fraternal benefit societies that provide insurance (section 501(c)(8)) and credit unions (501(c)(4))) would become taxable. Also, business leagues, chambers of commerce, and the Professional Golf Association and National Football League would be taxable but could operate as partnerships. Thus, section 501(c)(6) would be repealed.

Most other tax-exempt organizations would be reassigned into one of five categories, corresponding roughly to current section 501(c)(1) (U.S. governmental organizations), section 501(c)(3) (charitable), section 501(c)(4) (social welfare), section 501(c)(7) (social clubs, but stated more generally as mutual benefit organizations), and retirement plans.

The paper leaves section 501(c)(1) entirely intact, and largely leaves section 501(c)(3) alone, except that it proposes that certain very large public charities with “excessive endowments” be taxable on their investment income to the extent the income is not used directly for charitable purposes.

This paper also generally leaves section 501(c)(4) alone, except that any 501(c)(4) (or other tax-exempt organization) that engages in a significant amount of lobbying or campaigning would be taxable on all of its investment income.

The fourth catchall category – corresponding roughly to the tax treatment of social clubs ‒ would cover virtually all other tax-exempt organizations (other than retirement plans). Very generally, these organizations would not be subject to tax on donations or per capita membership dues, but would be taxable on investment income, fees charged to non-members, and fees charged to members disproportionately.

The paper proposes two significant changes to the treatment of donors. First, section 84 would be expanded to treat any donation of appreciated property to a tax-exempt organization as a sale of that property. Second, any donation to a tax-exempt organization that engages in significant lobbying or campaigning and does not disclose the name of the donor would be treated as a taxable gift by the donor (subject to the annual exclusion and lifetime exemption).

Finally, the paper proposes two measures of relief for tax-exempt organizations. First, the unrelated debt-financed income rules would be repealed. Second, limited amounts of political statements by the management of 501(c)(3) organizations (like election-time sermons) would not jeopardize the tax-exempt status of the organization.

Jensen Comment
Tax reformers should carefully consider this article.

The following is a message from Auntie Bev. I did not verify the alleged facts.

In 59 voting districts in the Philadelphia

region, Obama received 100% of the votes

with not even a single vote recorded for Romney.

(A mathematical and statistical impossibility).


* In 21 districts in Wood County Ohio, Obama

received 100% of the votes where GOP

inspectors were illegally removed from their

polling locations - and not one single vote

was recorded for Romney. 

(Another statistical impossibility).


* In Wood County Ohio, 106,258 voted in a

county with only 98,213 eligible voters.


* In St. Lucie County, FL, there were 175,574

registered eligible voters but 247,713 votes

were cast.


* The National SEAL Museum, a polling location

in St. Lucie County, FL had a 158% voter turnout.


* Palm Beach County, FL had a 141% voter turnout.


* In Ohio County, Obama won by 108% of the

total number of eligible voters.


NOTE: Obama won in every state that did not

require a Photo ID and lost in every state that

did require a Photo ID in order to vote. 

Imagine that!


"High Deductibles Make U.S. Men Less Willing to Be Treated for Health Emergencies," by Ann Carnns, The New York Times, September 5, 2013 ---

As American employers shift health-care costs onto workers, more have been offering health plans with high deductibles. But those deductibles discourage male patients from seeking treatment, even for serious problems like kidney stones and irregular heartbeats. In the year following a transition to a high-deductible plan, men reduced their emergency-department visits for “high-severity” ailments by 34.4% in comparison with a control group, says a team led by Katy Kozhimannil of the University of Minnesota. Women, by contrast, continued to go to the ED for high-severity ailments, although they reduced low-severity visits.

Jensen Comment
It also seems possible that high deductibles might affect birth rates. Couples may delay having babies or decide not to have another baby because of the higher cost of having a baby.

The Proposed Medicare Voucher Plan

One of the budget proposals of the GOP that will be on the table is to give vouchers to 50 or more million aging people on Medicare and force them to buy their own medical and drug insurance from private insurance companies.

This may sound self-serving since I'm on Medicare, but wouldn't this be a monumental losing proposition for all the private insurance companies at most any price? What private insurance company wants to take on millions of decrepit oldsters over 65 years of age who have nothing but rising costs of medical and medication needs? What private insurance company wants to take on the cost of the most expensive benefit to Medicare recipients --- the high cost of dying, often for weeks or months in intensive care, in hospitals. I have a former close friend on Medicare who spent over six months dying in the Intensive Care Unit of the Eastern Maine Medical Center in Bangor, Maine.

Medicare does not pay Grandma's nursing home care, but when she becomes closer to dying she's transferred to a hospital where the billings go to Medicare --- often for more than $10,000 per day while Grandma lingers on because of all the exceptionally good medical care she receives in the hospital.

Salivating hospitals know a good thing when Medicare patients come to them for a place to die. Medical insurance companies will know a bad deal when former-Medicare patients on vouchers come to hospitals to die.

Hospitals and therapy centers know a good thing if my dear wife on Medicare comes in for a month's stay after her 16th spine surgery plus another month in a therapy center. Medical insurance companies will know a bad thing if my dear wife on Medicare vouchers comes a month's stay after her 16th spine surgery plus another month in a therapy center.

I don't think the taxpayers can afford to pay enough on vouchers to justify adding hospital profits to the enormous and exploding cost of Medicare. Something would have to give and it most likely would be the patients themselves, most of whom have nothing to add to what private insurance companies would charge for medical insurance for the elderly and dying.

Private insurance companies will almost certainly put a cap on what they will pay to keep dying people alive. Perhaps this is the cost savings that the GOP has in mind since putting such a cap on Medicare would be a political suicide. These are 50+ millions of voters were talking about.

On November 22, 2009 CBS Sixty Minutes aired a video featuring experts (including physicians) explaining how the single largest drain on the Medicare insurance fund is keeping dying people hopelessly alive who could otherwise be allowed to die quicker and painlessly without artificially prolonging life on ICU machines.
"The Cost of Dying," CBS Sixty Minutes Video, November 22, 2009 ---

By the way, I'm in favor of putting a cap on the cost of dying no matter who pays the bill.

From the CFO Journal's Morning Ledger on October 15, 2013

Some small businesses are finding that if they don’t have a handle on the health-care law’s cost and impact, they may have a harder time getting a loan, Maxwell Murphy reports on CFOJ. To qualify for some loans, especially for growth capital, more companies are being required to provide assurances that they will be in compliance with the law by 2015. “To raise capital, if you’re in a growth mode, you want a [CFO] who exudes credibility,” says Christian Oberbeck, CEO of the lender Saratoga Investment.

Among the small businesses that will be affected by the law, a survey of roughly 1,300 executives this summer by the U.S. Chamber of Commerce found just 30% said they were ready to comply. About 27% said they would cut hours to reduce full-time employees and 23% planned to replace full-time workers with part-timers. Those options might not help their loan applications, Mr. Oberbeck says, because firing workers and cutting hours can damage a business. He also says he would question a business plan that risks running afoul of the spirit of the law.

Executives weighing their options also might have to wait awhile for any relevant data to come from the new public health-care exchanges created by the law. The exchanges have been beset by glitches and other problems, at both the federal and state levels. “It’s tougher to lend money to those companies until we see how the ACA will play through,” says Art Penn, managing partner at PennantPark Investment Advisers, a middle-market lender.


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

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

Bob Jensen's Tidbits Archives ---

Bob Jensen's Pictures and Stories

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

Bob Jensen's threads on such scandals:

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

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

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

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

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

Bob Jensen's fraud conclusions ---

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

Bob Jensen's threads on corporate governance are at


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

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

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

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

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

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

What went wrong in accounting/accountics research?  ---

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


Bob Jensen's threads on accounting theory ---

Tom Lehrer on Mathematical Models and Statistics ---

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

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

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

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