Year: 2019

Step one: Fairfax resigns as Lieutenant Governor — tomorrow.  Step two: Northam appoints Jennifer McClellan to take his place — pending the special election that would follow in November.   Step three — Northam resigns and leads her November election campaign.  Which she wins.

Not to say this isn’t a tragedy.

If we can’t welcome the racially tone deaf who become enlightened (and homophobes who become equal rights advocates, terrorists who become anti-terrorists) . . . where are we?  And there’s so much good to say about Ralph Northam and Justin Fairfax.  (Plus, we don’t know Fairfax is guilty, though it seems likely.)

But it doesn’t matter.  Both men should do what’s best for the greater good — and be applauded when they do.

Meanwhile: have you read James Comey’s essay on blackface and Confederate monuments?  (Thanks, Glenn!)

I’ll bet that, like me, you had never heard of James Longstreet.

Comey makes a wonderfully clear, concise case.  It begins:

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White people designed blackface to keep black people down, to intimidate, mock and stereotype. It began during the 19th century and wasn’t about white people honoring the talent of black people by dressing up to look like them. It was about mocking them and depicting them as lazy, stupid and less than fully human. It was a tool of oppression. As a college kid in Virginia during the 1980s, I knew that and so did my classmates. But a whole lot of white people seem to not know that history or understand why blackface is so offensive, whether it’s practiced by a college student or a new doctor. The turmoil in Virginia — where I have lived most of my adult life, including nine years in Richmond — may do some good if it reminds white people that a river of oppression runs through U.S. history, deep and wide, down to today. . . .

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It ends:

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. . . Expressing bipartisan horror at blackface photos is essential, but removing the statues would show all of America that Virginia really has changed.

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If you have time, read the middle.

Just delete two sections of the tax code and you’re done.

As colorfully argued on Seeking Alpha by “Investment Pancake,” a retired American lawyer living in Lisbon:

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Summary

• Wealth taxes don’t work.
• The tax code currently exempts the really big amounts of income entirely from tax.
• Instead of adding more junk into the tax law, why not take out the two main pieces of junk that exempt all the big money income from tax?

You might as well be ringing the dinner gong at the weasel farm. The accountants and tax lawyers come scampering across the linoleum floor, skidding out, claws scratching, as they all go careening around the corner towards the dinner plate. A new wealth tax. Just think of the planning opportunities… and the billable hours appurtenant therewith!

Problem.  Wealth taxes don’t work. Like estate and gift taxes, wealth taxes amount to little more than a government subsidy paid by wealthy clients to deserving tax planners. . . .

Have you ever asked yourself “how does any billionaire with half a brain (or the means to hire someone else’s half a brain) elect to pay zero wealth taxes?” There are precisely three ways: (1) either don’t own the wealth in question; (2) make the wealth less valuable on paper so it draws less wealth tax; (3) or do a combination of both. The “not owning wealth” is the simplest of approach of all — transferring it into a trust or LLC might be a nice start. And then divvy up the ownership in mildly creative ways.

Take the illustrative case of a Picasso bought at auction for around $28,000,000. Like many countries in Europe, France and Spain have pernicious-looking wealth taxes, and the owners of this painting [sit] straight in the crosshairs.

The fact is, those wealth taxes are about as dangerous as a stuffed alligator. Give the granddaughter (then 2 years old) the right to use the painting in any way she wants for the rest of her lifetime… as long as she doesn’t sell it or rent it out for money. This sort of thing is called a “lifetime estate” in tax-engineering parlance. Then, give grandpa (or his estate) the unrestricted ownership of the painting following the death of the grandchild. You can impress your friends by calling this a “remainder interest.”

It isn’t hard to understand why a remainder interest owned by a 68 year old in property currently subject to a life estate owned by a 2 year old is worth just slightly north of diddly squat. What’s the actuarial likelihood grandpa will ever see a dime out of that painting? His estate will get the painting at some point… maybe in a 100 years. Discount that remainder interest to present over a 100 year lifespan of a 2 year old and the value of that wealth is miniscule. And what of the value of baby’s lifetime right to look at the painting? I’ll put it to you this way. You can go to the National Gallery in Washington, DC (when there isn’t a government shutdown) and look at as many Picasso paintings as you like all day, every day… for free. So you get the picture.

This $28,000,000 is now worth close to zero. Or should I say, the various ownership interests of the painting in the hands of various European taxpayers who might otherwise have had to pay wealth taxes on that painting is remarkable similar to the number zero. Plenty of billable hours, too, churning out all the relevant paperwork. Funny thing, but I think the legal bill was probably substantially higher than the wealth tax bill that actually got paid.

Wealth taxes. Oh puuuuulease. What are you going to do? Tax people when the value of their stock portfolios are going up? What happens when the value of the portfolio drops? Do you give them a wealth tax refund? Do you really want Uncle Sam to be writing put options and handing them out to wealthy taxpayers?

Here is a novel idea. Instead of taxing billionaires’ wealth, why not tax their income instead? Unlike we do now.

Did you know that the really significant income earned by billionaires goes entirely and permanently and LEGALLY untaxed? I’m really not kidding. Look. You know how most billionaires make the big money. It isn’t salary. Not dividends. Not interest. It’s capital gains. If I buy (or start) a business for $100, and the value of my interest in the company explodes into the billions, I assure you that I am better off financially than I was back when I invested that $100. If I don’t want to trigger any capital gains tax, no worries. I can take loans out, secured by my highly appreciated stock. And when I die, what happens to the value of all that appreciation? It permanently escapes income tax, thanks to Section 1014 of the Internal Revenue Code. Section 1014 of the Internal Revenue Code provides what’s called a “step up” in the basis of that stock. So literally, that $999,999,900 of income I’ve enjoyed (and that my heirs will enjoy) is never going to draw one thin dime of income tax, ever. How does that make any sense? It doesn’t! It’s a gimme for rich people, plain and simple.

So you don’t need a wealth tax. All you need is a dude with a red pen to come over and cross Section 1014 out of the Internal Revenue Code. And you’re done. And no, this isn’t some kind of complicated legal mumbo jumbo I’m suggesting. I’m simply saying to repeal one single section of the tax law so that you or your estate pay income tax on capital gains that you’ve enjoyed during your lifetime.

[And now for the other simple tweak.]

Hey, careful not to spit coffee out all over your diamond studded ascot while you read this, but I’ve got some great news for you. I am going to give you a free gift of $1,000,000,000. Hurray!

So how does it feel to be a newly minted billionaire? Do you feel wealthier? Does it feel like you just got $1,000,000,000 of income? This is not a trick question. I won’t blame you if you think that you have “income” because your wealth increases.

Wrong!

You can thank Section 102 of the Internal Revenue Code, which provides that gifts and inheritances are…. get this…. not income. That’s right. That’s $1,000,000,000 tax-free for you, my friend. Don’t spend it all in one place.

How does this even make sense? You win a $1,000,000,000 lottery, you pay income tax. You get dividends, you pay tax. Interest? You pay tax. You work your tail off and earn a salary that is a tiny fraction of $1,000,000,000, you pay tax. But you sit around doing nadda and you stumble into a gift of $1,000,000,000…. and pay no income tax????? Tell me why that makes any sense at all.

So skip all this talk about wealth taxes that don’t actually work, shall we? Bring forth the dude with the red pen to cross out Section 102. It is not complicated tax law mumbo jumbo. If you get free money, you pay income tax on it — just like you pay tax on money that didn’t come free.

I honestly can’t understand why anyone is talking about wealth taxes, and why nobody is talking about just taxing income, instead. They make it sound like you need some kind of a PhD in tax law to understand how and why billionaires pay little to no taxes, but as you now can see, that’s a lie. You know every single thing that you need to know about how to fix the tax code so everyone pays income tax on income. Repeal Sections 1014 and 102. Done. Simple. Voila. 

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Have a great weekend!

. . . if you’re earning just a hundredth of a percent in the bank, as esteemed reader Gray Chang notes many of us are:

“Maybe you saw this last week in the New Hampshire Union Leader: Big banks are still paying American savers almost nothing, even as interest rates hit 2.5 percent.  Chase and Wells Fargo are paying 0.01 percent on savings accounts, whereas many smaller banks and few larger ones are paying 2.00 to 2.40 percent, all FDIC insured. If consumers would get smart and move their accounts to the more generous banks, the big banks would be forced to pay more.”

And we’re not talking about CDs with penalties for early withdrawal; just fairer rates for the money you keep on deposit.

Check out bankrate.com to see your options.  (And check your own bank to see if they have a better option.)

Thanks, Gray.

[The two broken links within yesterday’s post are now fixed.  Sorry about that.]

Have you seen Amy Patrick’s viral Facebook post?  “Let’s have border security, by all means,” she says, “but let’s be smart about it. [The wall] is not smart. It’s not effective. It’s NOT cheap. The returns will be diminishing as technology advances. This is a ridiculous idea that will never be successfully executed and, as such, would be a monumental waste of money.”

To wit:

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I’m a licensed structural and civil engineer with a MS in structural engineering from the top program in the nation and over a decade of experience on high-performance projects, and particularly of cleaning up design disasters where the factors weren’t properly accounted for, and I’m an adjunct professor of structural analysis and design at UH-Downtown. I have previously been deposed as an expert witness in matters regarding proper construction of walls and the various factors associated therein, and my testimony has passed Daubert.

Am I a wall expert? I am. I am literally a court-accepted expert on walls.

Structurally and civil engineering-wise, the border wall is not a feasible project. Trump did not hire engineers to design the thing. He solicited bids from contractors, not engineers. This means it’s not been designed by professionals. It’s a disaster of numerous types waiting to happen.

What disasters?

Off the top of my head…

1) It will mess with our ability to drain land in flash flooding. Anything impeding the ability of water to get where it needs to go (doesn’t matter if there are holes in the wall or whatever) is going to dramatically increase the risk of flooding.

2) Messes with all kind of stuff ecologically. For all other projects, we have to do an Environmental Site Assessment, which is arduous. They’re either planning to circumvent all this, or they haven’t accounted for it yet, because that’s part of the design process, and this thing hasn’t been designed.

3) The prototypes they came up with are nearly impossible to build or don’t actually do the job. This article explains more.

And so on.

The estimates provided for the cost are arrived at unreasonably. You can look for yourself at the two-year-old estimate that you see everyone citing.

It does not account for rework, complexities beyond the prototype design, factors to prevent flood and environmental hazard creation, engineering redesign… It’s going to be higher than $50bn. The contractors will hit the government with near CONSTANT change orders. “Cost overrun” will be the name of the game. It will not be completed in Trump’s lifetime.

I’m a structural forensicist, which means I’m called in when things go wrong. This is a project that WILL go wrong. When projects go wrong, the original estimates are just *obliterated*. And when that happens, good luck getting it fixed, because there aren’t that many forensicists out there to right the ship, particularly not that are willing to work on a border wall project— a large quotient of us are immigrants, and besides, we can’t afford to bid on jobs that are this political. We’re small firms, and we’re already busy, and we don’t gamble our reputations on political footballs. So you’d end up with a revolving door of contractors making a giant, uncoordinated muddle of things, and it’d generally be a mess. Good money after bad. The GAO agrees with me.

And it won’t be effective. I could, right now, purchase a 32 foot extension ladder and weld a cheap custom saddle for the top of the proposed wall so that I can get over it. I don’t know who they talked to about the wall design and its efficacy, but it sure as heck wasn’t anybody with any engineering imagination.

Another thing: we are not far from the day where inexpensive drones will be able to pick up and carry someone. This will happen in the next ten years, and it’s folly to think that the coyotes who ferry people over the border won’t purchase or create them. They’re low enough, quiet enough, and small enough to quickly zip people over any wall we could build undetected with our current monitoring setup.

Let’s have border security, by all means, but let’s be smart about it. This is not smart. It’s not effective. It’s NOT cheap. The returns will be diminishing as technology advances, too. This is a ridiculous idea that will never be successfully executed and, as such, would be a monumental waste of money.

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How does a 41-year-old stay sharp enough to quarterback his sixth Superbowl victory?  He uses BrainHQ.

You or your parents should, too, because a peer-reviewed ten-year 2,800-subject study showed that doing just a few hours of these exercises dramatically lowered the incidence of dementia.  And more than 100 other peer-reviewed papers have added to the chorus that something real happens here — something that doing crossword puzzles does not achieve.

There are even studies showing that the exercises help with tinnitus . . . cut down on auto accidents . . . and help with PTSD.  But the big allure is dementia.

Check it out here and sign on for a free trial.  Or give BrainHQ to your parents or grandparents.  Imagine if a simple gift like this could spare them that nightmare — and you, the sadness and burden of having to deal with it.

Just 14 hours of the exercises over ten years cut the incidence of dementia by 48%.  What effect would 10 minutes a day have.  (At even just two days a week, that works out to 173 hours, not 14.)

As long-time readers know, I own a small stake in BrainHQ.  But don’t let that stop you.  I will apply anything I earn from your purchase to an extension of your subscription.

Okay, I just threw in Satan.  But you have to watch Get Me Roger Stone on Netflix.  So much will come clear — undisputed by Stone. Indeed, proudly proclaimed.  He and his business partners Paul Manafort and Lee Atwater for decades served the dark side of human nature, representing murderous dictators, elevating lobbying and political giving to new depths, stoking racial division and fear.

And who was young Roger’s hero?  The equally evil Roy Cohn.  Trump’s mentor.  That documentary, Where’s My Roy Cohn?  premiered at Sundance last month and has been picked up by SONY Classics.

Warren Buffett’s got to be just about the smartest guy around.  But who impresses him?

I would have guessed he’d say the smartest guy he knows is his long-time partner Charlie Munger.  And I’m pretty sure he has said that a lot.  But according to one of you who plays bridge with him from time to time (thanks, Peg!), Warren says this guy is the smartest man he’s ever met.  So I clicked that link, read a fascinating profile — and learned a lot about bridge.

Around the same time, this profile of Alan Alda popped up. Is he not just about the nicest guy ever?  Or at least tied with Tom Hanks for that title?  Enjoy.

The meanest guy, or surely in the running, is Mitch McConnell.  I recently recounted a brief encounter and linked to “How Mitch McConnell’s weak-kneed cowardice makes him the perfect target for agents of power and influence.”

He’s this week renewed his effort to eliminate the estate tax on billionheirs, which is about as terrible an idea as there ever was.

And now, it turns out, he’s got a Russia connection, too.

Have a great weekend.

One dearly hopes Howard Schultz — a good man, for sure — sees the light and stands down from his disastrous idea to become the next Ralph Nader / Jill Stein / Ross Perot.  A super friendly Starbucks boycott until he does might help him see that light — and save us $5 a day we can put toward winning in 2020.

I’m not suggesting you go without coffee; just suggesting you make it at home and pour into one of these.

That said, I’ve long advocated Ranked-Choice or Instant-Runoff voting.  You’d vote for Howard Schultz or Nader — or your high school sweetheart — but specify a second choice just in case your first didn’t win.

It would be so healthy for democracy.

One of you recently wrote me with an interesting twist on that notion.

Richard S.: “I love the idea of Ranked-Choice Voting, but may I suggest a variation? Everyone votes for whomever they choose.  After the votes are tabulated, until someone has more than 50% of the votes, we go in reverse order of ‘winning’ and allow the candidates who didn’t make it to allocate all their votes to any candidate above them.  This preserves the very nature of a representative democracy, in which by voting you’re allowing someone else to make choices on your behalf; and would allow all kinds of third party votes to be not thrown away.  Candidates could even — optionally — let people know in advance where they’d allocate their votes, should they not win, so voters could take that into account as well.  This system would also encourage coalition building between the candidates.  Best of all, no changes are necessary at the polls.  Could that work?”

One worry: in a close race, where the leader got (say) 48% of the vote, this would give the least popular candidate — who got just (say) 2.1% — more sway over who wins than the second most popular candidate, who might have gotten 20% or 30% of the vote.

So I think I’d stick with the current proposals, where each voter specifies a second choice.

But what say my estimable readers?

From the left . . . Alexandria Ocasio-Cortez, profiled here with the frame: “Democratic attacks on AOC expose the party’s fear of taking on moneyed interests.”  It concludes:

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. . . For too long, disagreements in the Democratic Party have been kept behind closed doors, and the result was the protection of powerful financial interests. It is time to start talking about this dynamic, so that voters can make a democratic choice about what kind of politics they actually want to build. That, in the end, is why it’s called the Democratic Party.

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I largely share the writer’s enthusiasm for AOC, but don’t buy all her ideas (a 70% rate on income over $10 million — which would be 83% in New York City — is too high and would have adverse unintended consequences, as we learned in the ’60s and ’70s) and I’d challenge some of the writer’s assertions (Democrats lost 1,000 legislative seats from 2010 to 2017 not primarily because the party wasn’t the party of the people, with its push for affordable health care and a higher minimum wage and student debt refinancing and higher taxes on the wealthy, but because the Republican RedMap plan led to redistricting after the 2010 census that cost us vast numbers of seats even as we won the popular vote).

It’s really important that Democrats not demonize business or capitalism — or our wealthy donors.  Business and capitalism, when sensibly regulated, are the greatest engines of broadly shared prosperity the world has ever known.  And our wealthy donors, in the main, favor most of the things AOC does, like higher tax rates on the uber-wealthy (albeit not at counter-productive levels).

But there’s much she and the author of this piece have to say that’s worth respectful consideration.  There’s room — I would argue, a need — in the Democratic party for strong voices on the left.  What would be cool is if AOC found a way to join the Problem Solvers Caucus.

From the center . . . Gina Raimondo, profiled here with the frame, “The Loneliness of the Moderate Democrat.”

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. . . She recalled an exchange with college students not long ago. One of them said: “I get who you are. You’re one of those spineless centrists.”

And I was like, ‘Excuse me?’,” she said. “It takes a lot of spine to be a centrist in America today. You get whacked from the left and whacked from the right. That’s my life. I get whacked.”

Moderate Democrats have certainly had their day and their sway. In fact the passions of the left arise in part from how much compromise there has been — and here we are stuck with Donald Trump. The rage of less moderate Democrats like Alexandria Ocasio-Cortez is earned and righteous. And Raimondo said precisely that to me.

But Ocasio-Cortez is by no means the whole of the Democratic Party. And is the leftward lurch that she personifies the best and safest bet for 2020? I worry, because there’s no political priority higher than limiting Trump to one term. Raimondo also worries — a lot. . . .

Or at least used to joke that she did.

“When you boys are older,” she would tell my brother and me, “that’s what I want you to get me.”

We’d laugh; and I did once get her a pretty expensive model.

But are you kidding me?  A real Rolls costs $366,000 plus tax.  Plus a fortune to garage, insure, and maintain.

And a chauffeur’s salary and benefits?  Yikes!  (And what do you do when the chauffeur is sick or on vacation or wants a day off?  Or when you travel?)

My mother never got her car-and-driver.

But I’ve scrimped and saved . . . and now I have one on call 24/7.

As do you.

And it will soon be cheaper, because no driver — or gasoline — will be required.  And little insurance (driverless cars will rarely crash).

This is why you have to do two things:

1. Find an hour to watch Tony Seba’s talk on the coming clean energy disruption.  It’s already 18 months old, so none of this is new — you know some of this stuff, for sure — but I’d be amazed if it doesn’t grab you.

We are alive at the climactic moment for the species — 10 or 20 years being barely a moment in the context of 10,000 human generations — when we’ll either figure out how to live together in the undreamed of prosperity technology is making possible . . . or else hurtle off the rails, done in by either that technology or by ourselves.

2. Read Part 3 of Andrew Yang’s afore-recommended The War on Normal People: The Truth About America’s Disappearing Jobs and Why Universal Basic Income Is Our Future.  Parts 1 and 2 explain why there will soon be almost no jobs, at least of the sort we have today.  Part 3 begins a robust and pretty wonderful discussion of what to do about that.

One way to look at the ever-accelerating onrush of technology is with fear.  But it’s a lot more fun to look at the future with excitement . . . identifying the huge challenges and changes that loom and devising ways to live happily ever after.