Leadie Gaga, Mud, BKUTK February 15, 2012March 27, 2017 LEAD Mike Martin: “The lead poisoning information on your website last week is a very real issue that gets ignored primarily because it mostly affects poor minority children. But I helped some middle-class mothers of lead poisoned children set up the fledgling American Lead Poisoning Help Association (ALPHA) to provide support for other mothers of lead-poisoned children. The executive director has been raising awareness in her home state of New Jersey and elsewhere by appearing at conferences in outrageous costumes as Leadie Gaga.” ☞ There are two pieces to the lead issue. The first is the $30 million a year Uncle Sam has been spending to help victims of lead poisoning – just now cut back by Congress to $2 million. The main reason this happened, as best I’ve been able to ascertain, is that the asthma lobby has more clout than the lead-poisoned-kids lobby. Or, put another way, a lot more Congressmen have kids with asthma than kids with lead poisoning. It would be good to get this funding restored. The second goes back to this from last week’s post: . . . A 2005 policy statement from the American Academy of Pediatrics reviewed several cost-benefit analyses, all showing that eliminating lead from housing would save billions each year because I.Q. translates into earning power which, in turn, translates into tax revenues. Here are some numbers from the Academy’s 2005 statement. There are 4 million homes in the U.S. needing lead removal or encapsulation. At $7000 to clean an average home, eliminating the lead paint problem would require a one-time investment of $28 billion. The savings would be $43 billion in the first year and each year thereafter because children with higher I.Q.s tend to get more schooling and then jobs with higher pay. So lead remediation would pay for itself in less than one year and would then save tens of billions each year thereafter. . . . So why don’t we do it? If any of my often skeptical and always well-informed readership knows of reasons this doesn’t make sense, they haven’t yet shared them. Two experts I have spoken with, one within the government and one at a non-profit, think there is indeed a compelling return to be reaped here. Rebecca Morley is executive director of the National Center for Healthy Housing, dedicated to protecting children from hazards in their homes. “The return on investment for lead poisoning prevention,” she told me, “is even greater than of one of our best public health interventions – vaccines. It costs about $38,000 for each lead poisoned child who requires special education. If only half of the children with lead poisoning required special education it would save $9.5 billion. Children with lead poisoning are six times more likely to drop out of school and seven times more likely to end up in the juvenile justice system. Lead poisoning is irreversible, yet entirely preventable. A recent cost-benefit analysis shows that for every dollar spent to reduce lead hazards there is a benefit of $17-$220. That’s better than that for vaccines ($5.30-16.50 savings per $1 spent), which have long been described as the single most cost-beneficial medical or public health intervention. The President can be a hero for our nation’s children if he restores this program.” MUD Our dredging company, GLDD, seems to have landed a nice contract in Australia. (What: you’re not on DredgingToday.com?) I’m not buying more here, but feel good owning it for the long term. BUTT KICK Chris Brown of Aristides Capital: “Bank of Utica is a small community bank with just one large branch, in Utica, New York, with a roughly $75 million market cap. It has grown its shareholders equity by 8.2% annualized over the last 11 years, in spite of paying out a good amount of capital to shareholders in the form of dividends over that period. The bank has good profitability; over the last four quarters, the bank had a core return on tangible common equity of roughly 11.6%. The bank is overcapitalized, with a massive 14.8% tangible common equity to assets. If management wanted to, the bank could spend a third of its capital to buy back shares, and it would still be very well capitalized at nearly 10% TCE to assets. Non-performing loans are only 0.36% of assets. The bank has a tangible book value per share of $520.32, but in reality, this understates the value of the bank because unrealized gains of about $17 million ($66.59 per share) on held-to-maturity securities are not included in that book value. So, if the bank decided tomorrow to give back its deposits, sell its loans and securities, and close its doors, shareholders would be looking at receiving approximately $586.91 per share. Of course, the bank isn’t going to do that because it is earning money just fine ($54.48 a share in the last 12 months). The bank just paid a semi-annual dividend of $4.85 and has raised its dividend every year going back to at least 1995. The two knocks on the bank are (1) it doesn’t do a lot of lending; management seems to prefer buying securities rather than making loans, and (2) management does not share much information (other than what is in the required filings) with investors. If you want to be pessimistic, I guess one could argue that the bank isn’t worth more than $586.91 because of that. Net interest margin should be down incrementally this year, but I would have a hard time seeing the bank’s return on tangible common dip below 10%. . . . The company has two classes of stock, both of which are illiquid and trade on the bulletin board. There are 50,000 voting shares (ticker BKUT) outstanding, and 200,000 non-voting shares (ticker BKUTK). Over the last seven years, the non-voting shares have traded at a median discount of 16% to the voting. Both classes have the same rights to dividends and other economic rights, so I’m not sure that a big discount for the non-voting shares makes sense. . . . So, why I am bothering to tell you about all this? Well, BKUT recently traded for $330 and BKUTK for $300. At those prices, BKUTK traded for 51.12% of its current tangible book value (and 5.5 times trailing earnings), accounting for unrecognized gains on the held to maturity portfolio, or 57.66% of tangible book value if we disregard the unrecognized gains. That is crazy stupid cheap. (BKUT is crazy stupid cheap as well, just not quite to the same extent.) I suppose with only a 3.4% dividend yield and CEO that doesn’t like to talk with you, the shares could stay crazy stupid cheap for a while, but I doubt they will stay that way forever. I have liked this bank for some time, and collectively, Bank of Utica is a very large position for our portfolio. We own both the voting and non-voting shares, and may add to or subtract from our position at any time. (If you post this, please remind your readers to use limit orders and not market orders or they could get killed on the execution.)” ☞ I hesitate to post this because it trades so thinly. But it can never hurt to put in a limit order for a few shares – like the one I just placed for a few more at $340. Needless to say, I prefer the cheaper, non-voting shares.
Happy Valentine’s Day, Sunshine Marry Me? February 14, 2012March 27, 2017 SEAWEED V. SOLAR Peter Kaczowka: “Seaweed [from Friday’s post] is interesting, but biofuels will never compete with solar energy. Algae is currently the most efficient biofuel, yet it has only 1% efficiency. It converts 1% of the solar energy hitting a field into usable energy. Solar panels are 20% efficient. A field of solar panels produces twenty times as much energy as a field of biofuel, and requires no fertilizer, no labor, and no trucks to carry away the fuel. Solar panel power production degrades slowly to no less than 80% of original power after 25 years. After that they are easily recycled. (Except for the ‘thin-film’ variety, solar panels are silicon – beach sand.) Their cost is the only issue, but solar is already cheaper than retail electricity in places like southern CA. Within five years solar will be the cheapest source of retail electricity available.” ☞ Peter links to Paul Krugman: . . . These days, mention solar power and you’ll probably hear cries of “Solyndra!” Republicans have tried to make the failed solar panel company both a symbol of government waste — although claims of a major scandal are nonsense — and a stick with which to beat renewable energy. But Solyndra’s failure was actually caused by technological success: the price of solar panels is dropping fast, and Solyndra couldn’t keep up with the competition. In fact, progress in solar panels has been so dramatic and sustained that, as a blog post at Scientific American put it, “there’s now frequent talk of a ‘Moore’s law’ in solar energy,” with prices adjusted for inflation falling around 7 percent a year. This has already led to rapid growth in solar installations, but even more change may be just around the corner. If the downward trend continues — and if anything it seems to be accelerating — we’re just a few years from the point at which electricity from solar panels becomes cheaper than electricity generated by burning coal. And if we priced coal-fired power right, taking into account the huge health and other costs it imposes, it’s likely that we would already have passed that tipping point. But will our political system delay the energy transformation now within reach? Let’s face it: a large part of our political class, including essentially the entire G.O.P., is deeply invested in an energy sector dominated by fossil fuels, and actively hostile to alternatives. This political class will do everything it can to ensure subsidies for the extraction and use of fossil fuels, directly with taxpayers’ money and indirectly by letting the industry off the hook for environmental costs, while ridiculing technologies like solar. So what you need to know is that nothing you hear from these people is true. Fracking is not a dream come true; solar is now cost-effective. Here comes the sun, if we’re willing to let it in. GREECE Bob Iserman: “Should Greece default in the next six months, how would that affect the market? Would it make sense to sell everything now and buy back in after the market declines?” ☞ I don’t see how you and I can know better than “the market” how Greece – and Europe – will play out. It’s possible that all will go to hell and the market will crash. Or that all won’t go to hell and the market will keep rising as people become less fearful and look for higher-than-zero-percent returns on their money. If you know which will happen – I truly don’t – you should act accordingly. If not, spread your bets? WASHINGTON STATE The seventh to attain marriage equality. Governor Gregoire’s signing ceremony remarks start about 10 minutes into this clip. THE GAY AGENDA Rob Shook posted his here: I’m an American. I’m Christian. I’m gay, and always have been. I pay property taxes, sales taxes, and Federal taxes. I serve on a board at the University and I support local charities. I support my alma mater. I work very hard for my employer of 24+ years. I buy things from local merchants when I can, and I believe that strong families build strong communities. I’m a Freemason. I’m in Mensa. I recycle. I love clever puns. I buy girl scout cookies. I teach the concealed handgun licensing course. I’m raising my 8th guide dog puppy for the blind. I play bingo with friends and neighbors. My parents are aging, and I wonder what the future will hold for their health and mobility. I spoil my niece and nephew. I manage my investments and prepare for retirement. I’m fiscally conservative. I do the laundry. I don’t go to the gym enough. I help my neighbors when they have computer problems, and they repay me with baked goods. Does someone want to show me the “gay agenda” in that? Does someone want to tell me why I deserve to be part of a “second class” that can’t enjoy all the benefits of living in this great nation and this great state? I’m like a lot of people — except that I can’t get married, absent protections from my forward-thinking employer I could be fired just for being gay, and can be in a relationship for 4 months, 4 years, 14 years, or 40 years and still be treated as strangers (while Britney Spears can get married on a drunken whim and immediately get all the rights & responsibilities of marriage: THAT is the crap from which marriage needs to be protected). I would never force any church to marry gay folks; if they don’t want to extend the welcome God extends to all His children, then I don’t want to be a part of that community. There are plenty of welcoming churches (and Justices of the Peace) out there. But the “full faith & credit” clause of our great nation needs to be honored. There’s only one thing [above] that “entitles” me to equal treatment under the law, and that’s my first three words: “I’m an American.”
On the Cover of the Rolling Stone One Town's War on Gay Teens February 13, 2012March 27, 2017 I have caused great calamities. I have depopulated provinces and kingdoms. But I did it for the love of Christ and his Holy Mother. — Queen Isabella of Spain Five hundred years later, Michele Bachmann seems similarly confident that she’s on the side of the angels (and that there are angels). But is she? In Michele Bachmann’s home district, evangelicals have created an extreme anti-gay climate. After a rash of suicides, the kids are fighting back. . . . Juan Jover: “As familiar as we all are with the topic of bullying and youth suicide, it is excruciating to read the details of the effect of evangelical policies in schools. It is a must-read article that enhances our resolve to achieve equality.”
Reason for Optimism February 10, 2012March 27, 2017 As I argue in the preface to my investment guide (yes, you need a copy, for crying out loud; and can now even download it by magic, which is part of the point I’m about to make) . . . for all our challenges — and they are daunting — there is, as a hopeful counterbalance: the astonishing on-rush of technology. (Even if, sadly, it seems to have stalled in the antiquated way this column is posted, and the mortifyingly kludgy result displayed this morning. I finally have begun the process of fixing that, I hope, by the Spring.) People look at the last 50 years of technological progress and they are dazzled, says futurist Ray Kurzweil. And they think to themselves, “The next 50 years will probably be equally dazzling! Won’t that be something!” But, says Kurzweil, they are wrong. The technological progress over the next 50 years will be 32 times as fast, 32 times as great. The implications are both thrilling and scary. Cyberterrorism? Don’t get me started. There’s no guarantee that, whether as a nation or a species, we’ll keep from hurtling off the rails. That is, indeed, the central challenge of the century. But if we can manage to keep from blowing it, the implications are amazing. Imagine, for example, a world of “nearly free” clean renewable energy, much as we now have nearly free communications. (When I was a kid, a hushed, urgent, “I’m on long distance!” meant get the hell away from the phone. And that was for a call to Chicago. Today, the same call — even if it’s to China, and even if it’s a video call — is nearly free.) Nearly free energy would make everything dramatically less expensive — including materials, like energy-intensive aluminum — allowing most people to enjoy a terrific boost in their standard of living. (And that’s just energy. The rate of advance in medical technology is another thing, already dazzling, that’s likely to speed up — with astonishing implications.) It’s getting from here to there that is the challenge. At best, it will be a bumpy ride. But making sensible economic and financial choices, and getting into sensible habits, will at the very least tilt the odds in your favor to enjoy as much of the upside as possible while avoiding the potholes as best you can. Okay. Let’s get started. . . . ☞ Whether or not I tricked you with that last ellipsis into buying my book (you think these pixels feed themselves?), let’s try to keep our minds on the main point: that there is reason to be optimistic. Here is just one little example: SEAWEED This just in…Seaweed isn’t just for getting tangled in anymore. According to a new report, this common, seemingly inexhaustible resource may be one, partial but important, answer to the impending decline in fossil fuel supplies. You heard that right. A report published last week in the leading journal Science details how a team at the Bio Architecture Lab in Berkeley, California, modified the common gut bacteria E. Coli to take the smelly, salty sea plant and…produce ethanol. The potential of this new-found energy source is vast, with some scientists predicting that global aquatic biomass could in theory provide the world’s energy needs many times over. The United States, with its enormous coastline, is in a particularly good position to develop seaweed as a low-carbon fuel alternative. What makes seaweed special, besides its charms to small children frolicking in the surf, is that when you compare it to land-based biofuels such as corn and sugar cane, it can produce up to four times as much ethanol per unit. . . . ☞ The cost of producing seaweed-based ethanol — for now — is apparently five times that of today’s fossil fuels. But seaweed is so slippery, we just might be able to slide down the learning curve to a place where this could work. (Brambles, by contrast, will never be commercially viable.) The point is not that this specific technology is the solution; just that, in the broadest sense, there’s a chance that “we’ll figure this out.” Think how electricity transformed human life. It wasn’t always here. Think how computers transformed human life. They weren’t always here. Think what may be next. To wit, this from tech guru Shelly Palmer: ABUNDANCE Abundance — The Future is Better Than You Think February 3, 2012 By Shelly Palmer Those of you who follow my blog know that I am an optimist. The Shelly Palmer School of Connected Living has one primary thesis: “Technology is good.” This is why I am very excited about this new book Abundance — The Future is Better Than You Think, written by my friend Dr. Peter H. Diamandis, X PRIZE Foundation Chairman/CEO, and Steven Kotler, Science Journalist. Abundance is a powerful antidote to today’s dark pessimism. Peter and Steven present a convincing case that the world has been getting better at an accelerating rate over the last few decades. There are abundant stories and hard facts in the book to support the case that our future is better than we think. Anyone who enjoys technology will love the extensive tour of the latest in exponential technologies, DIY innovation, Techno-philanthropy, and more. Have you considered that the free apps we take for granted today on our smart phones (GPS mapping, video conferencing, digital and video cameras, full sets of library and encyclopedia, etc.) would have cost more than $1 million dollars, affordable only to the richest, 20 years ago? And those poorest citizens of the world, who used to be called the bottom billion, are now the “Rising Billion” because of accessibility to technology? Masai warriors in Kenya now have cell phones that give them better access to mobile communication and information than USA presidents 15 years ago. So there you have it. If you want some good news (great news actually), read Abundance. If you want to help change the world’s conversation from its current pessimism about scarcity to Abundance, share the book with your friends. You can visit Peter and Steven’s website www.AbundanceTheBook.com, where you can pre-order Abundance by February 13 and get thank-you gifts (free access to Singularity University’s video library packed with graduate training on exponential technologies, AI, Robotics, Synthetic Biology, Neuroscience, Entrepreneurship, Innovation, etc., The Transcendent Man documentary, and more.) But, before you do, check out this excerpt from Chapter 1. OUR GRANDEST CHALLENGE The Lesson of Aluminum Gaius Plinius Cecilius Secundus, known as Pliny the Elder, was born in Italy in the year 23. He was a naval and army commander in the early Roman Empire, later an author, naturalist, and natural philosopher, best known for his Naturalis Historia, a thirty-seven-volume encyclopedia describing, well, everything there was to describe. His opus includes a book on cosmology, another on farming, a third on magic. It took him four volumes to cover world geography, nine for flora and fauna, and another nine for medicine. In one of his later volumes, Earth, book XXXV, Pliny tells the story of a goldsmith who brought an unusual dinner plate to the court of Emperor Tiberius. The plate was a stunner, made from a new metal, very light, shiny, almost as bright as silver. The goldsmith claimed he’d extracted it from plain clay, using a secret technique, the formula known only to himself and the gods. Tiberius, though, was a little concerned. The emperor was one of Rome’s great generals, a warmonger who conquered most of what is now Europe and amassed a fortune of gold and silver along the way. He was also a financial expert who knew the value of his treasure would seriously decline if people suddenly had access to a shiny new metal rarer than gold. “Therefore,” recounts Pliny, “instead of giving the goldsmith the regard expected, he ordered him to be beheaded.” This shiny new metal was aluminum, and that beheading marked its loss to the world for nearly two millennia. It next reappeared during the early 1800s but was still rare enough to be considered the most valuable metal in the world. Napoleon III himself threw a banquet for the king of Siam where the honored guests were given aluminum utensils, while the others had to make do with gold. Aluminum’s rarity comes down to chemistry. Technically, behind oxygen and silicon, it’s the third most abundant element in the Earth’s crust, making up 8.3 percent of the weight of the world. Today it’s cheap, ubiquitous, and used with a throwaway mind-set, but — as Napoleon’s banquet demonstrates — this wasn’t always the case. Because of aluminum’s high affinity for oxygen, it never appears in nature as a pure metal. Instead it’s found tightly bound as oxides and silicates in a claylike material called bauxite. While bauxite is 52 percent aluminum, separating out the pure metal ore was a complex and difficult task. But between 1825 and 1845, Hans Christian Oersted and Frederick Wohler discovered that heating anhydrous aluminum chloride with potassium amalgam and then distilling away the mercury left a residue of pure aluminum. In 1854 Henri Sainte-Claire Deville created the first commercial process for extraction, driving down the price by 90 percent. Yet the metal was still costly and in short supply. It was the creation of a new breakthrough technology known as electrolysis, discovered independently and almost simultaneously in 1886 by American chemist Charles Martin Hall and Frenchman Paul Heiroult, that changed everything. The Hall-Heiroult process, as it is now known, uses electricity to liberate aluminum from bauxite. Suddenly everyone on the planet had access to ridiculous amounts of cheap, light, pliable metal. Save the beheading, there’s nothing too unusual in this story. History’s littered with tales of once rare resources made plentiful by innovation. The reason is pretty straightforward: scarcity is often contextual. Imagine a giant orange tree packed with fruit. If I pluck all the oranges from the lower branches, I am effectively out of accessible fruit. From my limited perspective, oranges are now scarce. But once someone invents a piece of technology called a ladder, I’ve suddenly got new reach. Problem solved. Technology is a resource-liberating mechanism. It can make the once scarce the now abundant. ☞ Needless to say, given my happy gene (and compulsion to one-click books I’ll never find time to read), I immediately pre-ordered my copy. And by the way? If you “believe in” science and technology … and in seeding these with government programs like DARPA and with what the current Energy Department (led by a Nobel-prize-winning physicist) is doing … vote Democrat.
Lead As In: Pencils, Paint, and Our Children February 9, 2012March 27, 2017 THE REPUBLICAN WAR ON RELIGION Daily Kos nails it. Here. CAMELS Yesterday, an elephant. That 90-second clip was political. One wise elephant. Send him to your list! . . . Today, celebrities who (arguably) bear a resemblance to camels. Which I found when I clicked on the camel in this rather ambitious “People of Influence” painting that one of you graciously sent me. (You’ll find the camel between Abe Lincoln and Confucius. That’s Marilyn Monroe by his hindquarters.) LEAD Take an aspirin tablet and crush it into 8,000 pieces. A single one of those pieces – a tiny speck – is the “allowable” amount of lead in a child’s bloodstream. Even that is too much: 300 times the amount pre-industrial humans carried, and enough to significantly reduce a child’s cognitive ability. One excerpt: With a peculiar mix of frugality and cruelty, Congress’s [$2.4 trillion] spending bill for 2012 shrank a small ($30 million per year) federal lead-poisoning-prevention program to a minuscule $2 million annual effort, a 94 percent cut. And it’s no surprise to anyone that the children harmed by this grinch move are mostly city kids, which means they’re mostly African-American and Hispanic. The nation’s medical establishment has been reporting excessive lead in urban children (75 percent of them of color) since 1952 – so we have 59 years of studies, all showing the same thing. Therefore, in this rare instance, Congress relied on the best available science and knew exactly what it was doing. It was saddling hundreds of thousands of urban children with persistent cognitive damage and elevated blood pressure for life. . . . ☞ It is, among other things, a testament to the power of the paint lobby (I suppose that’s the chemical lobby?) and to those who oppose government regulation generally: And it’s not like this problem has sneaked up on us. The paint industry openly acknowledged in the 1890s that lead-based paint was dangerous; in 1897 at least one company, Aspinall’s, was advertising proudly that its paint “is NOT made with lead and is non poisonous.” The poisoning of children by dust from lead-based paint was first reported in medical literature in 1904. Lead-based paint was banned for interior use in Australia and most of Europe during the 1920s. The U.S. delayed another 50 years, banning it in 1978. . . . ☞ And then there’s the 30 million tons of lead we apparently spewed out the back of our cars until 1995, much of which is in our soil. (How many eight-thousandths-of-an-aspirin-size specks are there in 30 million tons?) The failure to solve the problem of toxic lead seems particularly odd because billions of dollars each year could be gained by eliminating lead from housing. A 2005 policy statement from the American Academy of Pediatrics reviewed several cost-benefit analyses, all showing that eliminating lead from housing would save billions each year because I.Q. translates into earning power which, in turn, translates into tax revenues. Here are some numbers from the Academy’s 2005 statement. There are 4 million homes in the U.S. needing lead removal or encapsulation. At $7000 to clean an average home, eliminating the lead paint problem would require a one-time investment of $28 billion. The savings would be $43 billion in the first year and each year thereafter because children with higher I.Q.s tend to get more schooling and then jobs with higher pay. So lead remediation would pay for itself in less than one year and would then save tens of billions each year thereafter. . . . ☞ If only there were unemployed people available to do this $28 billion of work. Oh, wait . . . PS – Obviously, I’m no expert in lead pollution or the costs or effectiveness of de-leading homes. Maybe it would cost more than $7,000 each. Maybe the payback would be less than the 150% annual return implied above. Maybe it would be just 50% or 20% or 10%. But even a 10% return when we’re borrowing at less than 1% isn’t bad; and putting throngs of unemployed people to work creates a second set of “returns” – lower unemployment costs, higher tax receipts, the ripple effect of energizing the economy. And have we mentioned the simple morality of allowing these otherwise-damaged future fellow citizens brighter minds and, very possibly, brighter lives? Tomorrow: Reason for Optimism (not Specifically on Lead: General Optimism)
Elephants February 8, 2012March 27, 2017 CORRECTION Matt Ball: “You wrote . . . ‘If Romney were smart, he’d say, “It’s crazy that people like me pay such a low tax rate. I have the expertise – and the Street cred – to fix that. And if you elect me, I will.” Instead, he defends the status quo . . . that his lobbyists helped create.’ Actually, Mr. Romney’s policy would give him and his fellow multi-millionaires a very large additional tax cut – on top of the budget-busting Bush tax cut.” ☞ There I go again understating the case against Republicans. Matt is absolutely right. According to the Christian Science Monitor, “[Under] Romney’s tax, high-income households would win big and poor families would actually fare worse.” ELEPHANTS If you like this 90-second elephantine address, send it to your list. STATE TAX BURDEN BY INCOME LEVEL Scroll down to the table see how progressive or regressive your state is. In Florida, the poorest 20% pay 17.6% of their income in local taxes; the top 1% pay 2.6%. In New York, it’s 9.6% versus 7.2%. INNUMERACY – II Bill Merkel: “I just finished reading Malcolm Gladwell’s Outliers, and today’s column made me think of the chapter called Rice Paddies and Math Tests. If you haven’t read it, here’s an excerpt. Fascinating stuff, as usual, from Gladwell.”
The 102% Tax Rate February 7, 2012March 27, 2017 DOUBLE TAXATION – III Andrew Long: ‘You’ve missed the most important form of double taxation. As you know, a very high percentage of the retail cost of liquor is due to various taxes. To make matters worse, I pay sales tax on liquor INCLUDING THE AMOUNT THAT IS DUE TO TAXES. Oh, the humanity. Imagine how much more drunk we could all get without this unfair double taxation.’ NON-PROFIT INEFFICIENCIES Fred Campbell: ‘Considering your column yesterday, I thought you might enjoy this exchange I had with a local charity. I wrote: ‘I received a phone call solicitation on behalf of the Firefighters Burn Fund the other night. You sound like a great organization but I wanted to find out what percentage of each contribution is used for administrative purposes and what percent actually go to the victims?’ They replied: ‘We find it necessary to use professional fund raisers at this time as we are a new organization. Their percentage is typically 80%. Thanks for your kind consideration.” This is of course no more reason to berate all nonprofits than are $600 hammers reason to berate all government or is the Sirius Satellite billing department reason to berate all private enterprise. What I object to are large swaths of the Republican Party agreeing that we should shrink government to the size it can be drowned in the bathtub. I don’t hear them saying that about the private or non-profit sectors. THE 102% TAX RATE By James B. Stewart, here. Jim is quick to note, ‘That doesn’t mean Mr. Ross pays more in taxes than he earns. His total tax as a percentage of his adjusted gross income was 20 percent.’ (You’ll have to read the story to see why.) ‘One thing that emerged loud and clear,’ he writes, ‘is that a large swath of hard-working people are paying a high rate and are furious about it – not because they object to paying taxes, even high taxes, but because so many people, even billionaires, pay at a much lower rate than they do.’ ☞ If Romney were smart, he’d say, ‘It’s crazy that people like me pay such a low tax rate. I have the expertise – and the Street cred – to fix that. And if you elect me, I will.’ Instead, he defends the status quo . . . that his lobbyists helped create. INNUMERACY From former Congressman Alan Grayson: Something caught my eye a few months ago. International standardized tests in mathematics now put U.S. students at or near the bottom, in the entire developed world. Which is really odd, when you think about it. After all, 2+2=4 in New York, Tokyo, and everywhere else I know. One recent exam (results here) put U.S. students 31st in the world in math — just a few points higher than the very bottom among the OECD (i.e., developed) countries. One earlier exam, called TIMSS, had U.S. twelfth-graders at the very bottom of the OECD in math. So the government stopped giving that test to U.S. twelfth-graders. Yes, that certainly solves that problem. So why is this? Whatever the reason is, it certainly isn’t spending. In education, as in health, the United States spends more per capita than any other country. The Economist, a conservative British news magazine, offered this illuminating explanation, from Oxford University: ‘Despite rising attainment levels,’ [the Oxford study] concludes, ‘there has been little narrowing of longstanding and sizeable attainment gaps. Those from disadvantaged backgrounds remain at higher risks of poor outcomes.’ American studies confirm the point; Dan Goldhaber of the University of Washington claims that ‘non-school factors,’ such as family income, account for as much as 60% of a child’s performance in school. So because America has the fifth most unequal distribution of wealth in the entire world, America also has some of the worst math scores in the entire world. It’s as simple as 2+2=4. No wonder the 99% is angry; it’s getting to the point where a lot of us don’t even know what ‘99%’ means. Why should we be surprised that the poor can’t count? In Mitt Romney’s America, they don’t count. Honestly, we can’t go on like this. Courage, Alan Grayson P.S. The highest math scores in the world were in China. Communist China.
The 12% Corporate Tax Rate February 6, 2012March 27, 2017 THE GAME I’m a Patriots fan, having once shaken Tom Brady’s hand. Last night’s Super Bowl was the first I ever watched all the way through. (Really, Wes Welker? Really?) If you want to know what it’s like watching a Super Bowl for the first time, here’s Mo Rocca in that situation some years back reporting for the “Tonight Show.” THE 12% CORPORATE TAX RATE Per Friday’s Wall Street Journal: WASHINGTON—U.S. companies are booking higher profits than ever. But . . . corporate tax receipts as a share of profits are at their lowest level in at least 40 years. Total corporate federal taxes paid fell to 12.1% of profits earned from activities within the U.S. in fiscal 2011, which ended Sept. 30, according to the Congressional Budget Office. That’s the lowest level since at least 1972. And well below the 25.6% companies paid on average from 1987 to 2008. . . . ☞ It would be great if corporate America would allow Congress to raise more revenue by eliminating loopholes while reducing the 35% rate some corporations do pay. But in the meantime, please just laugh when people argue that the Obama Administration is killing business with taxes. DOUBLE TAXATION – II Mike Martin: “If you want to worry about double taxation, why not mention that Social Security and unemployment taxes are paid from income, and then income taxes are paid on the same income without first deducting the Social Security and unemployment taxes that were paid. It means we pay taxes on taxes. We should be allowed to deduct those taxes paid from our income for income tax purposes. There is no double taxation for taxing dividends that everyone claims. They claim the corporation pays income taxes then people pay income taxes on their dividends from the corporations. But people pay taxes on THEIR income, not the corporation income. They are two different entities. I pay taxes on my income, then I hire you to mow my lawn and you pay taxes on your income from mowing my lawn. This is not double taxation. We are two different entities. But when I pay taxes on taxes I already paid, that is only me: one entity paying taxes twice on the same income.” ☞ One might argue that the unemployment deduction – insurance against the risk of unemployment – should be no more deductible than, say, homeowners or auto insurance; and that the money deducted for Social Security is like the purchase of an annuity, to insure that you will have some minimum income as long as you live – annuity purchases are not deductible either. But I think Mike makes says it very well. And look, as I argued Friday, whatever nice theoretical arguments one can have about the fairness of this or that tax, the reality is that any taxation we eliminate will just require taxes someplace else . . . or else an even larger deficit. It’s all well and good to say it should come from $600 hammers and bridges to nowhere – and, yes, we should always be trying to eliminate waste and fraud. But, realistically, the billions in waste and fraud we can squeeze out of the system can’t possibly solve a trillion-dollar problem. (Note to the innumerate: it takes a thousand billions to make a trillion. For more on innumeracy, come back tomorrow.) Bob Stromberg: “Double taxation happens all the time. A corporation makes a profit, and pays corporate income tax. The corporation pays salaries to employees, and those employees pay individual income tax. An employee of the corporation buys tires, and pays excise and sales taxes on the purchase. The tire company makes a profit, and pays corporate income tax. In general, dollars flow from one financial entity (person, business, non-profit organization) to another, and our elected representatives pick and choose which of those dollar transactions to tax. The dollars are not ‘tagged’ with a ‘been taxed already’ attribute to make them henceforth non-taxable. . . . If nobody paid taxes, we’d all be richer – except that we’d each need to pay membership fees in private fire departments, private police departments, etc. In such a world, I bet that one town would figure out how to make the process less expensive and more efficient and form an organization to consolidate all the administrative work and save citizens from having to manage multiple payments and memberships, and that town would become a model for others to emulate.” ☞ And can I point out that – for all we are justifiably dismayed by government inefficiency wherever we encounter it – the business and nonprofit worlds are not without inefficiencies and lapses in judgment of their own? Of the $200+ billion that Americans give non-profits each year, as much as a third or more often goes to the cost of raising that money – paying the salaries of the fundraisers, doing the direct mail appeals, putting on the fundraising dinners, sending the thank you notes – all so the museum can spend $4 million to buy a new painting or the hospital can care for patients that our crazy health care system should have covered in the first place. The government’s cost of “fundraising” – tax collection – is negligible by comparison. As to private inefficiencies and lapses in judgment? Well, for starters, the insurance industry and Wall Street spring immediately and massively to mind.
Double Taxation February 3, 2012March 27, 2017 But first . . . ORAL ROBERTS’ GRANDSON IS GETTING MARRIED If it seems odd to go on TV using an assumed name – they can see your face, idiot – all I can say is that it was 1973 and I hoped no one who knew my face was watching noon-time TV in the Philadelphia market that day. In 1973, even after “the sexual revolution,” Viet Nam, and all that, it still took a lot more courage than I had to talk openly about being gay. How far we’ve come. Look how comfortable Randy Roberts Potts is talking with CNN about his upcoming marriage – and, more to the point, how comfortable (I think) you will be listening to him. For so many Americans, it’s now a no bigger deal having gay friends – and wishing them happy marriages – than it is seeing blacks and whites sitting together on the bus. In 1973, my cousin called to say she recognized my face. The TV was on at her local Philadelphia lunch counter. “How was it?” I asked. She couldn’t say. Upon hearing the guest introduction (“Today, we have with us . . .”), her fellow lunch counter patrons had voiced their contempt and changed the channel. A CLARIFICATION LA JOLLA, CA (The Borowitz Report) – Republican presidential candidate Mitt Romney today released the following letter to the American people: Dear American People: Yesterday, comments I made about poor people made me look terrible. This always seems to happen when I say what I really believe. The fact is, I do care about poor people. That’s because I’m poor myself, when you compare me to Mark Zuckerberg. . . . DOUBLE TAXATION So Mitt Romney pays 14% of his $20+ million annual income in federal income tax. Some have argued this is misleading because it ignores the 35% corporate income tax paid by the companies from which he profited. Add that, they say, and he paid nearly fifty percent. Nonsense. Leaving aside the fact that few companies actually pay the full 35% rate, here’s the deal. Say, through his stake in Bain, Romney invested $5 million in a company and, three years later, reaped a $25 million gain. Chances are good that, during the brilliant Bain-engineered turnaround that led to this profit, this company had little or no taxable income. In that case, his share of the corporate income tax paid on that little or no taxable income would also have been little or nothing. Even if the company had been solidly profitable all three years, those three years’ earnings would have paled in comparison to the realized gain. Right? The company made (say) a 10% pre-tax profit each year – 30% in all. But Bain, in this example, made a 500% profit on its investment, not a 30% profit. So even if the company did pay the full 35% rate on its profits, Romney’s share of that tax would have been little more than a footnote. The broader point when it comes to any form of “double taxation,” I think, is that – except in egregious cases – I just don’t buy it. Take, for example, the estate tax. Yes, you paid taxes all your life, and now, when you die, your estate has to pay tax again. But we need to get tax revenue someplace, so why not raise some of it from people who truly, categorically, unequivocally don’t need it – because they are dead. Would it be nice to tell a billionaire’s children they will inherit it all without the government taking half first? Sure, I guess. (Mitt Romney has pledged to eliminate this burden, shifting it from billionheirs to the less affluent. How can he possibly justify this? The jaw drops in disbelief.) But for now, only the first $5 million or so of an estate passes tax free, and after that Uncle Sam does indeed get nearly half to help pay for all the things in his budget. Is there too much spending in that budget? Perhaps. Maybe we don’t need such a large army, maybe we don’t need to honor our debt obligations or issue the Social Security checks people have been promised – but that’s a different topic. Whatever our elected officials obligate us to spend needs to be paid for, either with taxes or borrowed funds. And no matter what kind of budget you would write, if you were Congress, it would require tax revenue. So the question is: since we need taxes, on whom should we levy them (and for whom should we lower them)? The Romney answer, when Bain and others were lobbying for the 15% rate on hedge fund managers, was: cut taxes on rich hedge fund managers and shift that cost to everyone else. The broader Republican answer has been: cut taxes drastically for the rich – lowering the tax on dividends from 39.6% to 15% and on capital gains from 20% to 15% (Newt would lower them to zero) – and make up the difference by shifting that burden to everyone else (whether via higher taxes, reduced benefits, crumbling infrastructure, or accumulated debt). I can see why some rich people would favor that – but why would anyone else?
Two Minutes, Five Minutes Before You Know It The Whole Day Is Gone February 2, 2012March 27, 2017 LETTER FROM A FORMER SLAVE To his former master. Oh, my. Flying around the Internet – have you seen it? Here. A two-minute read. JON STEWART ON BAIN’S $342 MILLION PROFIT “Morning Joe” Scarborough – who seems too bright to have bought Frank Luntz’s “job creators” hokum but did anyway – recently told his viewers with confidence that private equity firms can’t make money bankrupting companies – obviously. He dripped with contempt at the stupidity of Romney critics for thinking this, and none of his panelists corrected him. No, he said, they obviously only make money if they help companies do well. Yet, as I wrote a couple of weeks ago, that’s not true. As an example, you might want to forward to Joe Scarborough this 5-minute must-see Jon Stewart clip. (Or just this short news report.) Later in the same show – if you have time for more – Stewart interviewed a Yale corporate law prof. After the first 9-minute clip there’s a 5-minute part 2 and an 8-minute part 3.