Wednesday, October 22, 2014

Corporate Tax Corruption Deeply Ingrained - Even in Beer Business

In April this year the US Commerce Department reported that before-tax corporate profits in 2013 totaled $2.1T and that corporate tax revenues totaled $419B. That is an effective tax rate of 20%. But wait a minute. I thought the corporate tax rate in the US was 35%!

What made me think of this issue just now was an inspiring business story in The Atlantic (Nov 2014) about Boston Beer Company, producer of Sam Adams Beer. I learned about Sam Adams beer and its unique taste while at MIT in 1989-90. It was still a local beer, total volume around 100,000 barrels a year, but rapidly gaining popularity. The company was founded by Jim Koch (pronounced Cook, not Coke) in 1984, went public in 1995, ticker SAM, languished for about three years at $10 or so a share and is now at about $224 per share. Mr. Koch is a happy billionaire. According to the writer, James Fallows, Koch not only became rich but “opened America to a craft beer renaissance,” preventing growth in imports while creating thousands of well-paying blue collar American jobs.

The only disturbing thing in the article was three consecutive sentences about halfway through. Here they are:
“The IRS applies a lower tax rate to beer from breweries with output below 2 million barrels a year, a level unchanged since 1976. Sam Adams, whose output now exceeds 3.4 million barrels, no longer makes that cut. Koch, along with other brewers, has lobbied Congress to increase the ceiling to 6 million barrels, which would save Sam Adams millions of dollars in federal taxes per year.”
These sentences raised several questions in my mind. They made me wonder how much of Mr. Koch’s success was due to special favors granted by the IRS. They made me wonder how much tax Boston Beer is paying compared to larger competitors. They even made me wonder how in the world the IRS ever got the power to apply different tax rates to companies based on size or any other criterion. I looked up the 2013 financials for Boston Beer and two of its big rivals.

It certainly doesn't look like the feds are showing little Boston Beer any favoritism. I am currently accepting nominations for a more ridiculous set of circumstances than a national corporate tax rate of 35%, corporate tax collections of 20%, and three competing companies the smallest one paying taxes at a rate of 37%, the middle sized one at 13%, and the giant one at 11%.

I’m certain the accountants at all three companies can give very accurate if not informative and understandable reasons for their respective tax rates, but nothing they say is going to improve the image or reputation of corporate America. The fact is, however, that the blame lies not with businesses trying legally to play the tax game, following the rules established by Congress. It lies with Congress which has established an artificially high corporate tax rate and routinely accepts campaign money and votes, not to mention meals, trips, and drinks, in return for concessions that support and motivate a huge lobbying industry seeking favors for companies willing to pay the bills. I know Congress will claim it is acting in the best interests of the USA, but I don’t believe it. It is deep and pervasive corruption, even if legal, and should be stamped out.

It would be so easy. Simply establish the corporate tax rate at 20% of earnings, local or international, reported to shareholders according to GAAP, payable quarterly to the federal treasury, and eliminate ALL exclusions, deductions, credits, exemptions, and allowances. Lobbyists can find real work, Congress can work on real issues, and businesses can turn their attention to business strategy and customer satisfaction and away from the tax game. I believe it would revolutionize our economic system and our political system, and we would see both profits and taxes begin steady growth even as negative political campaign ads disappear.

I have no idea what all the superfluous tax accountants and IRS employees would do, but they are bright folks and would come up with something productive, perhaps turning their skills to business strategy development or charity work.

Monday, September 29, 2014

Change Coming, Plan Needed

Here is a simple survey. Rate the following three in order of importance:
  1. Prompt access to and attention from a qualified physician when medical care is needed
  2. Regular access to health care providers for consultation, advice, and preventive measures
  3. "Health Care" insurance
I'm guessing most of us are going to rank these in the order listed. After all, number 2 is mostly free now on the internet, and number 3 is pretty worthless without number 1.

I thought of the survey after reading this statement from the New York Times:
WASHINGTON — Enrollment in Medicaid is surging as a result of the Affordable Care Act, but the Obama administration and state officials have done little to ensure that new beneficiaries have access to doctors after they get their Medicaid cards, federal investigators say in a new report. The report, to be issued this week by the inspector general at the Department of Health and Human Services, says state standards for access to care vary widely and are rarely enforced. As a result, it says, Medicaid patients often find that they must wait for months or travel long distances to see a doctor.
It may be worth thinking about how in the world the Obama administration or state officials can "ensure... access to doctors" or how a state can have and enforce "a standard for access to care." Mandatory overtime for physicians perhaps? Or a bonus system to entice them to work longer hours?

The above clipping is just one in a string of several that seem to signal the future of actual US medical care (No. 1 in the survey above), an important subject lost in the shuffle of efforts trying to get everybody insured. I'm not making personal complaints here but just trying to understand the lay of the land and make some plans. Good health is primarily a function of genes and strategy, and it is only strategy over which we have any control.

A personal story, not a complaint, has to do with my interest in finally, after eight years of living in town, trying to find a GP or Family Practice physician within walking distance of our once new residence. That was always my plan, but I'm still driving out into the country to see my perfectly fine doctor of fifteen years. Cursory investigation of possibilities quickly revealed that many doctors with established practices don't take new Medicare patients. Of course most multi-physician practices take new Medicare patients but only to be assigned to the newer physicians still paying off their medical school debts. And, a physician friend tells me that it is common for doctors to limit their service to government insured patients to a certain percentage of their practice because of the low reimbursement rates. The bottom line is that low priced medical services demanded by government reimbursement programs already have limited availability, and the situation is unlikely to get better.

Consistent with that, we seem to have been facing a constant stream of news reports about how some health care expert or association has determined that some common preventive or diagnostic test is actually causing more problems that it has solved, resulting in a lot of stress-inducing and expense-incurring false positives and unnecessary treatments while saving only a very few lives. Chest X-Rays, which I got annually as a young person, seem to have become scarce, and now the annual PSA and Mammogram are being questioned, even as the recommended frequency for colonoscopies has decreased from one every seven to one every ten years.

And then there was Dr. Ezekiel Emanuel's Atlantic Magazine article, "Why I Hope to Die at 75." Dr. Emanuel is champion, defender, and a primary architect, of The Affordable Care Act. He has eighteen years to go before reaching 75 while I have only three, so his "hope" probably seems more reasonable to him than to me. Of course his title is somewhat hyperbolic to draw attention. He is not planning euthanasia and promises nothing more than to refuse to seek out life extending medical care, including the annual PSA check, once he reaches 75. I am betting he will break that promise and will have the influence and resources to do so.

Dr. Emanuel is well aware that the increase in demand for medical services by an aging population hoping to live to 100 is on a collision course with downward pressures on both Medicare reimbursements and physician availability, and that increased rationing is the future of medical services for the elderly. I suspect that Soylent Green may be one of his favorite movies.

Third, there was a story in the local news about a heart surgery unit in a local hospital being shut down because of lack of an approved Certificate of Need. Medical care is not a free and competitive market like cell phones and automobiles. Can you imagine Apple having to get a Certificate of Need before rolling out the next iPhone? Still, it is unclear to me why any hospital would want to invest in a service unless there were adequate demand to keep it busy. The combination of fewer facilities and lower reimbursement rates pretty much guarantees fewer surgeons and fewer operations along with higher profits for and longer waits at established facilities. It sounds like a death cycle, no pun intended. Medical care is a market, purchases being made, services being provided, bills being paid, and government planning of a market does not seem to me to be reasonable or likely to work very well. And I have little confidence that the decisions made and policies established are free of political and personal economic considerations and lobbyist influence.

And finally was Brett Baier's autobiographical account of his son's struggles with a heart defect requiring infant surgery, Special Heart: A Journey of Faith, Hope, Courage, and Love. It is good reading about a wonderful family, with a happy ending, and I recommend it, as well as his nightly news program, Special Report. The first big decision the family had to face was whether to endure a risky wait of a few weeks for a renowned pediatric heart surgeon, recommended by everyone but on a trip out of the country, or proceed with an available surgeon. They waited, and one thing we all know, reinforced by the Baier story, is that not all doctors and surgeons are equal. Thankfully, the Baier family, young and vigorous with bright futures and with many influential friends and family and the backing and support of the entire Fox News organization had access to excellent advice and unlimited resources. Most of us, certainly not the low income elderly person with only Medicare, are not going to get that kind of support or priority. Just think of the recent VA scandal. We all, fortunately, do have access to the prayer support on which the Baier family depended and to which they give credit for their son's progress.

What's the point? It is just that there are several indicators that medical care for the elderly, especially expensive and difficult elective surgeries and heroic life extending surgeries are likely to be increasingly scarce over the next few decades. Some of us will have our health improved and lives extended, of course, by government paid health care, and that will be enough for some people to say it is a good thing, same as non-critical assessments of Head Start, but the best hope for most of us is to need less of it. The first fifty years of Medicare have been a great and generous gift from the young to the old. Now we are going to have to "give back." (Unfortunately, some of those who will have to give back are the same ones who gave forward.) We need a plan.

So, as we age, let's get some healthy aerobic and stretching exercise every day, eat healthy foods in moderation, get rid of the gut and flab, say our prayers, get a good night's sleep, and have a glass of wine with dinner and an aspirin with breakfast every day. And focusing our attention on helping somebody every day, will help keep our minds off our own problems. Worry and stress, after all, can lead to illness.

Oh, and I almost forgot to mention this: Let's go to our local Red Cross and donate a pint of blood every eight weeks. It helps lower the levels of any bad stuff that might be building up in a closed system and might save the life of some young person undergoing expensive and difficult surgery. I recommend this in spite of the recent news item reporting that blood from young folks is better than blood from old folks.

We just have to do the best we can, making appropriate sacrifices, because somebody has determined that the USA spends too much on "health care," and we have to cut somewhere. At least we will all have insurance.

Monday, September 22, 2014

FDR and Granny's Outhouse

My grandparents, Oscar and Ezalee, Hobart and Bessie, were born in 1895, 1895, 1897, and 1898 respectively. Their children, three sisters in the first case and a brother and sister in the second, were born in the 1920’s. So, when The Great Depression arrived, both East Tennessee families were suddenly faced with earning livings and raising young families in a punishing economy with little opportunity.

Granddaddy Oscar had been appointed a rural mail carrier in 1927 by US Representative B. Carroll Reece, Republican from Butler, TN. Postal jobs were political in those days. His salary was $157.50 per month, and he carried the mail on horseback, seven to eight hours per day, until switching to a Chevrolet in 1933. I bet he had callouses on his butt. Granny Ezalee was a talented teacher, seamstress, gardener, and cook, well trained by her mother, Grandma Marshall, whom I barely remember. I bet Granny made a lot of clothes, canned a lot of beans and tomatoes, and scalded and plucked a lot of chickens for those three girls. They were poor, certainly by today’s standards, but I doubt they knew it, worried about it, or suffered very much.

Granddaddy Hobart was a flour mill owner/operator and horse trader who rode around Blount County, TN, trading horses and campaigning against “Old Roosevelt.”  He thought the easy money being spread around and government social programs were going to lead to trouble down the road and that the country would be better off in the long run if Alf Landon or Wendell Willkie were in office. He was a good businessman, and I think his family, also poor by today’s standards, got along OK. One piece of advice he gave me based on his experience: "Sonny Boy, don't ever let anybody tell you the price of land doesn't go down. I've seen it go down." Grandmother Bessie was farm raised, locally, and could hold her own in the garden and the kitchen with anybody.

I’m thinking about these folks and the problems they faced because of the FDR special running on TV this week. The impression I come away with is that Roosevelt was a great and unselfish leader, fully aware that his job was to put away and hide any personal problems, polio included, slap a big smile on his face, and persuade the American people that the USA was a great country and the people were doing a great job and everything was going to be OK. Those intimate “fireside chats” were pure genius made possible only by the recently widespread radio technology. I think President Reagan had the same strengths and succeeded as a popular president for the same reasons, though in very different situations, both leaders always talking about the national good and using collective pronouns rather than the first person singular in their speeches.

In an era that valued and had high demand for manual labor, FDR was able to create meaningful real jobs, planting trees and building everything from dams and tunnels to outhouses including a new “little brown shack out back,” built by the WPA and later painted red, for Oscar and Ezalee. I reported on it earlier here. That kind of jobs program would be much more difficult today because of the dramatic reduction in demands for untrained manual labor and our history of providing government checks for doing nothing.

FDR’s suppressed ego finally got the best of him during his second term and inspired him to seek approval to pack the Supreme Court by adding a new Justice for any who didn't voluntarily retire by a certain age. After that, even his own party failed to support him. Had he been successful, it would have been the end of our democratic republic and the birth of a dictatorship.

FDR was rescued from the Supreme Court fiasco by the Nazi challenge which he recognized early and opposed effectively with little support from either Democrats or Republicans. The American people, remembering WWI and struggling with the economy, were completely uninterested in getting involved in a war in Europe, similar to public interest today in nipping ISIS in the bud. But economic issues took a back seat and patriotism ruled as Hitler advanced and the Japanese attacked, and it was the economic buildup for the war that finally changed attitudes and ended The Great Depression.

Granddaddy Hobart was right about the effects of the easy money. Both the value of money, and our work ethic have deteriorated. Had Granddaddy Oscar stuck a year’s pay from his mail carrier job in a mattress in 1930 and I found it now, it wouldn't pay my cell phone bill. And if President Obama were to ask people to leave home and travel to the national parks to build roads and tunnels and plant trees or to the Midwest to harvest wheat and corn to earn minimum wage, sending most of the money back home, he would be met with stony silence and a request for more food stamps.

But our democratic republic is alive and well and awaiting positive and confident leadership focused on our strengths. It is a shame we need that, but FDR set the example and established the precedent, and we have never recovered from it, still always looking for the next savior. Whatever one thinks of FDR, we can all thank him for the 22nd Amendment to the constitution, passed by congress in 1947 and ratified by the necessary states in 1951, limiting presidents to two terms in office. I’d like to see similar limits on congressmen and senators, but, while they gladly put such a restriction on the office of president, I doubt they will ever subject themselves to the same discipline. They just started a fall vacation, in the third week in September, and won’t have to come back to Washington until after the November elections.

Of those nine members of the two families I mentioned in the first paragraph, only my mother, age 93, and one sister are surviving. I probably should let Mother read this before posting it but will share it with her later and seek forgiveness, if necessary, rather than permission.

This is not Granddaddy Oscar, nor is it his 1933 Chevrolet.  I just thought the images might help younger folks think about what the USA was like in 1933. I wish I had such pictures of him, but photography was an expensive luxury in those days.


Sunday, September 21, 2014

Housing First for Columbia - Retreat Style

A few years ago there was a lot of interest in development of student housing south of Williams Brice Stadium, shuttle service back and forth to campus included.  One of those developments was The Retreat at 1929 Bluff Road, about three miles or a one hour walk from the center of campus.  The development offers "Columbia's only CRAFTSMAN-STYLE COTTAGE LIVING community with COLUMBIA'S BEST AMENITIES, and expansive greenspace.  And with a SAVINGS OF UP TO $855 A SEMESTER over the dorms, The Retreat is truly THE VERY BEST IN STUDENT LIVING!" And, six or seven times a year, students could easily walk to Williams Brice Stadium for football games!

Now there is a boom in student housing within easy walking distance of campus. The old SCANA office building on Main Street has been converted. Residents get a space in the adjacent parking garage but there are reports that some are still planning to also rent space on campus to reduce the 0.9 mile walk that would otherwise be required. Major new student housing projects have also been announced on Assembly and on Blossom streets, both within blocks of the campus, and there are others much closer to campus than The Retreat. With the unfortunate proliferation of student loans, cost of the more convenient and newer housing, usually with excellent amenities, should not be a major issue. And this increase in residential living in downtown Columbia is a very good thing for the city.

I haven't visited The Retreat since it is gated, but I am guessing that it is suffering some from several years of student occupation (Some reviews) and will soon be abandoned for the status and convenience of the new high rises much closer to campus. If that happens, The Retreat will provide an excellent opportunity for the City of Columbia to take a giant leap forward with the Housing First approach to homelessness. Units at The Retreat offer up to five bedrooms so transient homeless and first time occupants can be assigned a room at income adjusted cost and given the opportunity to work their way up to better and more private facilities based on the care and housekeeping they practice and on their participation in personal development opportunities offered.

Use of The Retreat for Housing First will greatly facilitate the work of providers of counseling, medical, feeding, and job training services. Day Labor companies can provide pickup there. Transportation can be provided to Transitions, hospitals, etc., using the system of vans already in place. Struggles and spending to provide "winter shelter" can be ceased.  Space not needed for the homeless can become ordinary Section 8 housing.  Conversion of student housing to Section 8 housing in Columbia is not unprecedented. A large development of Section 8 housing on Withers Drive at 320 South Beltline was once, I was told, apartments for married USC graduate students.

An interesting intersection of ideas here is that the only active Housing First initiative currently underway in Columbia is sponsored by the University of South Carolina School of Medicine. You can visit their website here.

Of course there has to be some requirement that homeless persons in Columbia take advantage of such a generous and potentially helpful offering and make some effort to improve their situations rather than camp in the parks and along the riverbanks and railroads. Income information will be required and affordable daily rents will have to be paid, even if only a dollar or two a day. Maintenance and cleaning jobs can be offered at the facility to help residents pay their bills and earn additional money. It is important to avoid attacks on dignity and self respect by having reasonable expectations of those who take advantage of the living space.

As I have pointed out in previous posts, sleeping outside in Columbia SC in public places is both dangerous and unhealthy and should not be allowed. Homeless on the streets should be offered the options of either going to jail, leaving town, or occupying a nice facility complete with baths, laundry facilities, swimming pool, and exercise room and participating in the programs and homeless services provided along with it. Of course there would have to be full time police coverage. Background checks would be required for occupants but, unless the applicant is subject to arrest, would not prevent assignment of a room.

Lest my readers think this is tongue-in-cheek or sarcasm, let me assure you that I believe the Housing First initiative is a good idea offering the potential to save money and provide more effective assistance to homeless individuals than current approaches, and that such an approach would be a good thing for Columbia, SC.

And, if it turns out that The Retreat is unavailable for such use, there are other similar developments in the area. I'm just using The Retreat as an example of what might be possible.

Saturday, September 20, 2014

The Market, the Economy, and the Future

Pay close attention. There is going to be a test at the end of this post.

It’s been six long years since the September 2008 bankruptcy of assumed venerable Lehman Brothers triggered the real estate collapse and panicked us into supporting massive bailouts of other venerable financial dominoes lined up behind it. The upset got my attention because I was holding a $10,000 Lehman Bond, assumed to be an ultra-safe and conservative income-generating investment, suddenly worth almost nothing. Now many of us are wondering what the future holds for our economy, our pocketbooks, our lifestyles, and even our nation.

The two key variables are GDP and the stock market, Main Street and Wall Street so to speak. The former largely determines how Joe the Plumber is doing, and the latter has more to do with how the upper middle and above classes are doing. Click on the chart for a better views.

The stock market is fickle, volatile, easily manipulated, subject to emotion and difficult to understand but very easy to measure. We get instantaneous readings throughout every day the market is open. And the broadest popular measure, the S&P500, is up 150% since the bottom following the Lehman Brothers fall and up about 40% since just before the Dot Com bust of early 2000. That is impressive and is, of course, the single biggest reason that, throughout the last decade and a half, the rich, those who invest, have gotten so much richer even as the poor have remained poor. Of course that comfort and anxiety creating wealth is just on paper and could be decimated in a few months as it was in 2000 to 2002 and again in 2008 and early 2009. Click on the chart for a better view.

GDP, on the other hand, is sluggish, slow to change, impossible to manipulate, easy to understand, and difficult to measure. Still, we anxiously await the noisy and soon to be adjusted quarterly estimates as if they really mattered. The six year interval since the Lehman failure inspired me to think of looking at a six year running average of quarterly percent change in GDP. I doubt that anybody else is considering six year averages, but, statistically thinking, I believe that, in spite of the noise and errors in individual quarterly measurements, the average of 24 consecutive numbers is a satisfactorily accurate picture of what has happened to the real economy over that period of time. An examination of the chart shows that nothing good has happened to GDP in the last six years even as the stock markets have more than doubled.

The GDP chart also shows that GDP growth was an incredibly favorable 4% in 1994 to 1999, even allowing our federal government to run a surplus because of strong tax revenues, and that the trend has been unfavorable ever since the Dot Com bust, only worsening with the real estate bust.

So, here is the multiple choice test. Please consider the data presented above and choose the answer which most accurately describes the current situation. 
  1. The strong stock market, at a high but sustainable level, is signaling a turn in the economy, and boom times with 3% to 4% GDP growth are just around the corner. We can expect strong tax revenues, strong job growth, increasing pay rates, historic infrastructure investments, and diminishing federal debt as a percent of GDP. (The Patriotic Theme)
  2. The strong stock market is a soon-to-burst bubble driven by artificially low interest rates, quantitative easing, greed, and the greater fool theory. The result will be a market crash followed by continued low GDP growth, more panicky stimulus spending, more unemployment, lower wages, crumbling infrastructure, and higher federal debt as a percent of GDP. (The Depression Theme)
  3. Both the stock market and the economy are becoming irrelevant because of low participation as we abandon news programs, newspapers, and cable TV, ignore current events, and return to an agrarian economy with everybody receiving a government check and just sticking around the house to care for their gardens and chickens, posting ignored pictures of them on social media sites, even as the necessary infrastructure crumbles. (The Abandonment Theme)
Whichever choice you make, don’t bet everything on it. Just do your best and don't worry. "Everything's gonna be alright."

(Earlier post mistakenly said September 2009 in the first sentence.)

Tuesday, August 19, 2014

A Nerdy President Everybody Could Trust

Two or three weeks ago I saw on Facebook one of those irritating little “Quotes in a Box” attributed to USA President Calvin Coolidge. I realized I know very little about him but figured that, if he rates a Facebook Box Quote, whether accurate and correctly attributed or not, I should probably learn a bit more. A quick search revealed that his autobiography, personally written and highly personal, is available on Kindle for $1.99, and that is my main source. The Calvin Coolidge Wikipedia article seems to be a pretty good source of less personal information, none of it inconsistent with the autobiography.

Coolidge was our thirtieth president, stepping up from Vice President upon the 1923 death of Warren Harding and then being re-elected in 1924. He chose not to run for re-election in 1928 because, “I felt it was not best for the country that I should succeed myself.”  A more extensive explanation of his decision is included in the book, but rest assured it was not because of failures on his part, of poor prospects of winning, or of a desire to enter private life and make some real money.  

Coolidge was a quiet, unassuming, humble, intelligent, well educated, solidly middle-class Republican lawyer of modest means, both before and after his presidency, with ambition only for service. His demeanor earned him the nickname, “Silent Cal.”   Not everybody agreed, of course, with his conservative small government and personal responsibility themes, but since there were no obvious disturbing and trust destroying inconsistencies between his philosophies and his personal or political behaviors and actions, he was generally assumed to be both trustworthy and admirable.  He entered office, enjoying popularity and without wealth, and left the same way, moving to a modest rented Northampton, MA, home to write his autobiography. He died suddenly in 1933, after what would have been the end of his second full term. We can only wonder what his response to the 1929 stock market crash would have been.

Here are some of my favorite quotes from the autobiography:

When we come into the world the gate of gifts is closed behind us…So far as each individual is concerned all he can do is to take the abilities he has and make the most of them.”

The study of it (U.S Constitution) which I then (in high school) began has never ceased, and the more I study it the more I have come to admire it, realizing that no other document devised by the hand of man ever brought so much progress and happiness to humanity.”

It is much better not to press a candidacy (for governor of Massachusetts) too much, but to let it develop on its own merits without artificial stimulation. If the people want a man, they will nominate him. If they do not want him, he had best let the nomination go to another.”  - In the 21st century, I believe it is personal ambition and expensive “artificial stimulation” that rule.

There is no dignity quite so impressive, and no independence quite so important, as living within your means. In our country a small income is usually less embarrassing than the possession of a large one.” (Well, we have seen some deterioration of that principle.)

(On his duty as Vice President of presiding over the Senate) - “If the Senate is anything it is a great deliberative body and if it is to remain a safeguard of liberty it must remain a deliberative body.”  Oops!

 (On becoming President) “While I felt qualified to serve, I was also well aware that there were many others who were better qualified. It would be my province to get the benefit of their opinions and advice.”

The words of the President have an enormous weight and ought not to be used indiscriminately. It would be exceedingly easy to…foment hatreds and jealousies which…would help nobody and harm everybody.”

On his campaign for President: “…I did not attend any partisan meetings or make any purely political speeches during the campaign.” What?

The description of his education which “began with a set of blocks which had on them the Roman numerals and the letters of the alphabet” and “…is not yet finished” could well be used to establish a “Common Core” for the 21st century public schools.

What a shame that a man with such attributes and principles, such ability and confidence combined with self-effacing humility, could never be elected president today. Now we are all looking for a savior who will fight for US. Read the book. Whatever your political philosophy, you will enjoy it. 

Friday, July 25, 2014

Acting Patriotically

My first real discomfort with President Obama was five years ago, the summer of 2009, when he commented on what should have been a strictly local issue by saying that the Cambridge, MA, police had “acted stupidly” in their handling of an issue involving a Black Harvard professor mistakenly arrested. Whether they acted stupidly or not was far less important, in my opinion, than the fact that President Obama felt compelled to comment on such a local race-related issue. Just a few weeks after that, the “Cash for Clunkers” effort, an example in my view of government acting stupidly, launched my blogging hobby, and I borrowed the president's phrase for the title, “Government Acting Stupidly.” My opinion has not changed, but I did soon abandon that early blog title for the more positive, “Permanent Fixes.”

Now we have a case of the president accusing corporate managements and boards of acting, not stupidly, but unpatriotically by merging their corporations with overseas companies in a way that allows them to declare a non-US location as their tax headquarters, thereby reducing their total tax liability. He suggests that such companies should opt out of that completely legal opportunity and continue to pay higher taxes and asks Congress to immediately close the “loophole” retroactively. “Loophole,” by the way, is just another word for a law passed by Congress and signed by a president.

The issue made me wonder if President Obama is taking advantage of any “loopholes” to reduce his personal tax liability or is simply declaring all his income and reading the tax payable out of the simple table provided by the IRS. The president’s 2013 income tax return is posted online, so I took a look at it. The “Adjusted Gross Income” from Line 37 is $481,098. Using the IRS tax table for “Married Filing Jointly” indicates a tax due on that income of $138,161, an “effective” tax rate of 28.7%.

Of course none of us take that approach if we have options for reducing our tax bill, and neither did the president. He reported $147,769 in itemized deductions, including state and local taxes, contributions, and mortgage interest, and was able to reduce his tax bill to $100,462, a saving of almost $38,000 and an “effective” tax rate of 20.9%. It is exactly what I would have done and is both legal and patriotic, totally compliant with the unbelievably convoluted and intrusive tax code that has been imposed on us by our government for its own benefit. Because of that tax code, the tax return the president had to file to justify that lower bill totaled 42 pages plus certainly a much larger pile of paper his accountant must keep on hand to justify the 42 pages in case the president is targeted by the IRS under some future administration. A side benefit, or issue, is that it kept him from having to pay his “fair share” relative to single people who cannot file jointly and people who choose not to give their money to organizations granting tax deductions or those who avoid big home mortgages by supporting their local landlord. 

The whole thing makes me wonder if it wouldn’t be fairer, simpler, more transparent, less time consuming, less threatening, and less tempting, to eliminate the current tax code and simply tax incomes at a flat 20%. That is about what the president ended up paying anyway after all the calisthenics on what would certainly rank in the top 1% of US incomes. Of course such a simplified system would be far better in every way.  

But back to the current issue, corporate leaders acting unpatriotically. Companies likely to try that tax saving move, referred to as “inversions,” are those that are in global businesses with operations and sales around the world. They are in competitive environments and have a fiduciary responsibility to their employees, shareholders, and lenders to do the best they can against their competition. Success is not guaranteed, and when failure occurs, there is much suffering, mostly by employees. As a few glaring examples of recent corporate failures, take a look at Eastman Kodak, Lehman Brothers, and the president’s favorite solar company, Solyndra, which couldn't be kept alive even with federal favoritism.

Here is the big problem we face.  The United States has lagged economically beginning with the first big oil crunch in 1974 and the almost simultaneous onset of globalization, automation, and major post-war advances of economies of Japan and Germany and, later, China, India, and Latin America. We are in competition with all those economies, and our losses have, in a large part, been their gains. I suppose that was only fair, but now it is time for us to notch up our efforts a bit by making the United States of America once again the number one business and manufacturing site in the world. A really good way to do that is to eliminate our shamefully complex and mysterious corporate tax code and replace it with a simple flat tax of 15% on all corporate earnings as reported to the public with ZERO exclusions, exemptions, deductions, credits, or other adjustments. Just read the annual report and find the “Net Income before Taxes" line, multiply that by 0.15, and mail a check to the government. We would find companies flocking to the United States as a low cost tax haven with tremendous resources, joyful freedom, and a large workforce continuously boosted and replenished from south of the border.  

Congress could begin acting patriotically, focusing on something besides picking and choosing winners and losers and granting favors for votes and contributions, infrastructure perhaps. Patriotism would expand, rapidly replacing our current shame of the stuff going on in Washington DC. Both business activity and tax revenues would soar.  And we could get back to work and quit complaining.

Monday, June 16, 2014

Eating Well, Sleeping Well

I just read "Don't Blame Fat" in the June 23, 2014, issue of Time Magazine. It is comical, yet tragic, that we are so easily manipulated by a mishmash of government advice, diet gurus and fads, and food industry advertising when each of is is perfectly capable of conducting our own experiments and developing appropriate and heathy eating habits. All it takes is regular consultation of a bathroom scale, careful observation of how well we sleep and how we feel when awake, the kind and frequency of waste products we are generating (sorry), and an annual visit to our physicians for some data.

Probably the key point in the Time Magazine article  is in a paragraph about two thirds of the way through the article: "In 1992, the USDA recommended up to 11 servings a day of grains, compared with just two to three servings of meat, eggs, nuts, beans, and fish combined." The article goes on to provide evidence that that advice from only 22 years ago was pure baloney and that the current opinion is that we are getting too much sugar and not enough fat in our collective diet. OK, everybody, about face!

The current post on FDA Voice Blog, found at the FDA website, is comical and self condemning. It notes that ten years ago FDA "advised pregnant and breastfeeding women, and women who might become pregnant, to limit their consumption of fish to no more than 12 ounces a week" and then laments the fact that many women seem to have taken that advice too far, some even completely avoiding fish. Who can blame them for thinking that "no more than 12 ounces" would include zero ounces. The title of the current post is, "Why We Want Pregnant Women and Children to Eat More Fish." I would have written "Children and Pregnant Women" to avoid the possibility of somebody thinking I was concerned about pregnant children, but, that concern about grammar is overshadowed by irritation with the patronizing attitude demonstrated by such statements.

I just checked out the FDA website and see that the banner across the top proclaims, "Protecting and Promoting Your Health." I'm going to go out on a limb here and suggest that is inappropriate overreach for the FDA, maybe better suited for HHS, and that a more reasonable and achievable and less expensive FDA target would be, "Working to Assure Food and Drug Safety." I suspect that if all the effort that has gone into development and publicity of advice on diet over the last few decades, including development and advertising of such as the Food Pyramid and My Plate,
had instead gone into inspection of domestic and imported meats, seafood, and vegetables, we would have far fewer cases of indigestion, food poisoning, and recalls. We are perfectly capable of making our own food choices in a free market environment, but most of us don't have ready access to labs for checking the possibility of e coli contamination. For that, we reasonably depend on the government agencies.

So, here is my advice. Eat a wide variety of meats, fruits, breads, and vegetables in low quantities and do regular table pushaways to avoid Dunlap's Disease. Get at least an hour a day of hard physical work or other exercise. Experiment with foods and quantities and frequency of eating to get waste generation to a Goldilocks level, not too much and not too little but just right. (This is based on my education as a chemical engineer and experience in chemical manufacturing. The human body is, after all, a very complex chemical plant.) And don't depend on the government or the diet gurus or the food industry, not even the locavores, for guidance. They all have vested interests that completely override concerns about our health.

And finally, sleep well!

Friday, June 13, 2014

Facebook Debates and Discussions

Since I use Facebook as one tool for sharing posts on this and my other blog, I've been thinking about the issue of Facebook discussions of politics, religion, and economics and the possibility of avoiding the outcomes in the joke currently making the rounds about use of such a powerful tool only for "arguing with strangers and looking at pictures of cats." I think Facebook offers tremendous advantages as a medium for learning about and exploring important issues but needs all participants to have completed a course in proper etiquette for such. The following guidelines are suggested:

  1. There is no need for an immediate response, or even any response at all, to something that has been posted on Facebook.  A face to face encounter tends to demand we say something or suffer some blow to our egos, and, in my case at least, that sometimes leads to foot-in-mouth disease. With a written post, there for anyone to see and targeted at no particular person, there is no such challenge.
  2. A well phrased Facebook post encourages us to hesitate and think before responding, to read and research the issue at hand and maybe even learn something rather than just declare an unsupported personal opinion.
  3. Unsupported personal opinions are worthless, except perhaps at the ballot box.  Every post should include some data or rational explanation or reference link or personal experience on which any opinions expressed are based.  We should keep unsupported declarations to ourselves.
  4. Anytime a post begins with or contains the words "you" or "yours," or gets personal in some other way, delete it and start over.  Facebook is not the place for personal one to one conversations on any subject and especially not on politics, religion, or economics.  That is why the "Message" option is offered.  Even the pronoun "I" is suspect and likely to inflame.  
  5. Anytime a post includes name calling such as "idiots" or "fools" or "left wingers" or "tea baggers" or "wing nuts" or "commies," etc., delete it and start over.  Facebook is not the place for insults or judgements about participants or about innocent or even guilty third parties.

So, the bottom line is that to have a reasonable discussion on Facebook about controversial issues, the participants need to be standing side-by-side, looking at available data and history, listening to what the experts are saying, providing sound bases for anything written, keeping the discussion impersonal, and focusing only on the issue and not on other participants.

Good luck!

Saturday, June 7, 2014

Size of Government Update

Size of government, defined as total federal, state, and local government spending as a percent of GDP, is a constant and continuing concern of fiscally conservative citizens. The first chart shows that trend from 1965, the year President Johnson declared war on poverty, through 2013, the last full year for which data are available. All the data are taken from the BEA NIPA tables. Just for reference, the dotted line shows federal spending only. It seems to me that focusing only on the federal line misses the total story since some of the federal spending is just transfers to state and local governments and since federal programs and regulations impact state and local spending. The top line total cancels out all transfers of funds between governments and shows only the net total spending.

It would be hard to argue from these data that total government spending is wildly out of control, but the truth is that it has advanced, irregularly over the 48 years, from 30.8% of GDP in 1965 to 37.4% in 2013. (Earlier error corrected in previous sentence.) The only relief we have had from that upward march was during the Clinton administration when a booming dot com economy, pressure from a conservative congress, and a common man kind of president, distracted but willing to listen to reason, combined to result in a stated intent to "end welfare as we know it" and resulted in a balanced budget for about three years at the end of the last century.   

Deeper digging in search of the source of the increases reveals serious cause for concern, or perhaps for celebration depending on ones political philosophy, because, despite the Clinton years, the increase is all in social benefits paid to persons, up from 4+% of GDP in 1965 to 14+% of GDP in 2013. That increase has pressured and crowded out ordinary government consumption spending and investment. Consumption expenditures are only down about a percentage point of GDP, but government investment fell by almost half from 6.4% to 3.6% of GDP. And we wonder about crumbling infrastructure! The pressure from increasing social benefit spending will continue for a few decades just due to aging of the population.  

In addition to the spending problems, the people and their congress have shown a lack of willingness to pay the bills for government largess resulting in accumulated debt approximately equal to GDP. Even now, in the fifth or sixth year of recovery from the last big bust, we are borrowing more than a billion (Oops, I mean a trillion) dollars a year just to pay the bills. And, we are in for a true shock on interest expense for our excessive debt when interest rates return to a more normal six percent or so.

We will never know what kind of nation the United States of America would be today had social benefit spending stayed around 5% or so of GDP, government consumption spending and investment had remained steady, and national debt had remained low, but here is my guess:
  1. A stronger dollar and lower prices as a result of lower inflation.
  2. Fewer economic booms, busts, and bailouts because of less artificial stimulation of segments.
  3. Less difference between the rich and the poor (commonly referred to as "inequality")
  4. About the same poverty rate of around 15%
  5. Higher absolute employment with lower wages but with more purchasing power
  6. Better infrastructure including environmental controls, transportation, and education
  7. Greater sense of personal responsibility and less focus on entitlement
  8. Fewer poor single moms and fewer children born outside of marriage and with absent dads
  9. Much stronger global image with quieter rhetoric, a much bigger stick, and fewer wars
  10. A more knowledgeable and harder working Congress with less focus on fund raising
  11. Less racism (because we would all be busier and more productive)
  12. Fewer selfies, (un)reality shows, Kardashians, and Biebers and little time for Facebook.
It would be nice to have run that experiment, but it is too late now. For those who think we have followed the right path but not far enough and want to double down on borrowing and social benefits, I have to ask, how much will be enough, and when will we pay the bills? Selections from the BEA NIPA Table 3.1 are below.

I have already written several times on the debt issue, summary here, and a time or two on inequality, item 3 above.


Monday, June 2, 2014

Feeling Manipulated?

With apologies to those who are paying high tax rates and don’t or can’t take advantage of any of the tax-reducing favors that have been granted: I hope they don't mind helping with my contributions.

As chief complainer about the plethora of tax deductions, credits, exemptions, and exclusions infecting our federal and state, personal and corporate taxes, forcing higher compensatory tax rates and requiring us all to use professional tax preparers or Turbo Tax even while providing senators and representatives corrupting power to grant favors, pick winners and losers, and buy votes and campaign contributions, I am a bit conflicted by an appeal received from the Bishop of Charleston to participate in the "School Choice" proviso passed by the South Carolina Legislature in June of 2013.  

School choice, the category in which this legislation has been placed, is a hot issue in South Carolina with many arguing that all parents should be able to get vouchers from the state to pay private school tuition and fees for their children, to give them a choice. They say parents who opt out of the public schools should not have to pay taxes to fund them. I'm not sure what they are thinking about older folks like me who haven't had any children in public schools in a couple of decades or about the many adult taxpayers who don't have and don't plan to have children but still have to pay taxes to fund the schools. Of course there is the idea that the purpose of school choice is not to help parents but to help the poor kids who are locked into substandard schools in bad neighborhoods and truly have no choice. It seems reasonable, but I have no idea where they are going to go with those vouchers or how they are going to get there or why the state can’t bring those public schools up to standard.

But, back to the current dilemma. I support our Catholic schools and this new proviso offers the opportunity to redirect up to 60% of my SC income tax obligation for 2014 to any non-profit that will use the money exclusively as scholarships for students with special needs to attend the school of their choice. This is a credit rather than a deduction so, if my SC income tax bill is $5,000, I can donate $3,000 to the newly formed St. Thomas Aquinas Scholarship Funding Organization and owe the SC Department of Revenue only $2,000. Somebody at the State House realized that this redirection of funds away from state coffers could get out of hand and managed to cap it at $8M total for the year.  The deadline for applying is June 30.
After considerable thought, weighing the pros and cons, I strolled up to the Post Office and mailed my check to the Diocese of Charleston and came back home and sent the application for the credit to the South Carolina Department of Revenue. How can I justify that participation when I object so strongly to the complicated tax system we have? 

Here is the thing: If our legislators are going to insist on playing these silly and expensive counterproductive games with the tax code, we citizens really have no choice but to do our part and play along with them. Otherwise, we are just making voluntary donations to the government, paying taxes at a much higher rate than the law requires, having no idea what the additional money will be used for. I would much rather pay just the required taxes and carefully choose the recipients of any voluntary donations. 

(I sometimes wonder whether these special deductions, credits, exemptions, and exclusions are designed to get us to do things that otherwise wouldn't make good financial sense or are just put in place to bail us out after we have already done those foolish things on our own.) 

So I will continue playing the game, as I always have with deductions for contributions and mortgage interest and state taxes, etc. But we would all, corporations, businesses, and individuals, and The United States of America, be better off paying much lower and fairer tax rates without all the concessions and making our spending and investing and donating decisions for sound financial reasons rather than for tax savings. And our elected representatives could find far more productive things to do than being entertained by lobbyists seeking and offering favors. And the IRS could downsize substantially.

Could we just set the federal corporate tax rate at 15% of earnings reported to the public, payable in cash as earned, with no exclusions, exemptions, deductions, or credits, whether earned inside or outside of the US? (More here

Could we just cap the marginal federal income tax rate at 25% max with no exclusions, deductions, exemptions, or credits? (More here

Could we just cut the marginal SC state income tax rate from 7% to 4% and eliminate the exclusions, deductions, exemptions, and credits? (More here

Could we just cut the SC sales tax to 3% and tax all retail sales fully with no exemptions? Well, I suppose we could keep that one silly little exemption that reduces the sales tax on food by one percentage point for folks 85 and older. (The signs announcing it all say that it is a 1% reduction in sales tax for those folks which would mean the tax is reduced from 6% to 5.94%.  I can hardly wait.)  (More here

By the way, if my application for the tax credit doesn't make it in before the $8M cap is reached, that is OK. The Diocese of Charleston can still keep the scholarship money and I will just treat it as a deduction rather than a credit. And I won't have to ask for as much help from fellow taxpayers to fund South Carolina State Government spending.

Sunday, May 25, 2014

"The Stupidity Epidemic"

The title of this post is in quotes because it is the title of an essay, published in book form, by Dr. Joel Best, Professor of Sociology and Criminal Justice at the University of Delaware.  This particular book and Dr. Best’s work in general were recommended to me in a couple of Facebook conversations, most recently one on the subject of education in America.  I ordered the book here and read it over breakfast this morning. 

The Stupidity Epidemic is an enjoyable and informative short read which begins by making the case that belief that our schools are failing is nothing new and has been a consistent theme over the decades for about 150 years.  Dr. Best makes a pretty good case that education has, however, made steady, if slow, progress in many important measures including the proportions of the population completing high school and college, in IQ, in test results, etc.  He ends by concluding that, while there are problems, often social and class related, there is no “Stupidity Epidemic” and that railing about such does nothing to make needed improvements in education.  He argues, quite logically, that “thinking about educational issues requires that we locate students and schools in their broader social context,” and “that we need to appreciate the complexities of educational issues.”  Who can argue with that?  Unpacking of those ideas will require a lot more than the 44 pages in this little volume. 

I found his most important point to be an explanation of the difference between stupidity and ignorance which leads to the conclusion that no well educated people today would argue that we have a stupidity epidemic, that people are becoming denser and less intelligent, but would probably mostly agree that we have an epidemic of ignorance, a large and growing gap between what we know and what we don’t know about the world we live in, how it works, the cultures of the people who occupy it, the history of it, and how to make a living meeting the needs of it.  It made me wonder why he didn't title his book “The Ignorance Epidemic,” a more accurate title which would have been somewhat educational. Of course the primary reason for that epidemic of ignorance is the exponentially expanding inventory of available information.  A secondary reason is failure of our education system to find ways to facilitate some fundamental, high level, understanding of the scope and content of that inventory and means of accessing it efficiently and effectively.  Of course nobody can remember all that stuff in order to pass standardized tests.

Compelling evidence of that growing ignorance epidemic is the example Dr. Best gives of how our grandfathers and great grandfathers a hundred years ago were fully qualified, after completing an eighth grade education, to enter the workforce and become productive citizens.  Today, there is widespread general belief, even if somewhat misguided, that college is essential for all, even if unbearable debt must be accumulated during the pursuit of it and even if it does not lead to productive employment.  The world is simply much more complicated, and education, it seems to me, has failed to keep pace. 

Thanks to Dr. Best for helping clarify the problem, an important step in the diagnostic journey. I recommend his book.