Coyote Blog

Normally this would be a good Friday story, but you can't always control when Washington is going to bring the crazy.

The Obama administration on Tuesday defended its effort to regulate the tax return preparation business for the first time in U.S. history, basing its case largely on a 19th century law dealing with horses lost or killed in the Civil War....

[the Obama Administration attorney] explained that the administration sees the "Horse Act of 1884" as providing ample authority for the U.S. Internal Revenue Service to regulate the tens of thousands of preparers who fill out millions of Americans' federal tax returns.

Here is the logic, such that it is

A post-war industry emerged of agents who would press war loss claims for a fee, usually a percentage of the claim collected. Soon, claim values were being fraudulently inflated.

In response, the government started regulating these intermediaries, barring unscrupulous ones and certifying honest ones as "enrolled agents," a title that is still used today by people who represent clients in matters before the IRS.

The IRS is arguing that tax return preparers represent their customers in much the same way that enrolled agents do, so the agency should be able to expand regulation to include preparers.

Note that tax preparers are not actually IRS enrolled agents, they just argue they are kind of sort of like them (in that they both deal with tax returns, I suppose).  But enrolled agents explicitly act as an intermediary between citizens and the government in disputes and claims.  This is not the role of tax preparers.  They merely charge a fee to fill out time-consuming and confusion paperwork.  My tax accountant has never once had any conversations with the IRS on my behalf, nor should he.  I would engage an attorney for that.

I checked out the government web site today that supposedly offers advice to small businesses on Obamacare compliance.  Of course, I found nothing on my main question, in part because the IRS cannot figure out what it wants to do (my question is on requirements and penalties vis a vis seasonal workers).

I was presented with a number of other government blog posts and articles, including "8 Ways Your Business Can Get Ready for the 2013 Tourist Season."  Curious what the government would counsel on this topic, I clicked through.  Obviously, there is a paragraph break and carriage return sequester.  I cannot get the energy to read this kind of unformatted text.  The advice is actually OK, and ironically one of the eight is that one should consider getting into the business I am in.

Well, it certainly comes as happy news to this correspondent that the Administration announced this week it will delay health insurance mandates on businesses.  Our company has spent a ton of time since last November trying to minimize the expected cost of the mandates -- the initial cost estimates of which for our business came in at three times our annual net income.  Our preparation has been hampered by the fact that the IRS still has not finalized rules for how these mandates will be applied to a seasonal work force.  Like many retail service businesses, we have studied a number of models for converting most of our work force to part time, thus making the mandates irrelevant for us.

I know this last statement has earned me a fair share of crap in the comments section as a heartless capitalist swine, but the vitriol is just absurd.   Many of the folks criticizing me can't or don't want to imagine themselves running a business, so let's say you have an annual salary of $40,000.  Now, on top of all your other expenses, the government just mandated that you have to pay an extra $120,000 a year for something.  That is the situation my business is in.  Are you just going to sit there and allow your savings to become a smoking hole in the ground, or are you going to do something to avoid it?  Unlike the government, I cannot run a permanent deficit and I cannot create new revenues by fiat.  Congress allowed business owners a legal way to avoid the health insurance mandate, and I am going to grab that option rather than be bankrupted.  So are every other service business I know of, which is why I have predicted that full-time jobs are on the verge of disappearing in the retail service sector.

Anyway, it appears that the IRS and the Administration could not get their act together fast enough to make this happen.  Not a surprise, I suppose.  You and I have both been in committee meetings, and have seen groups devolve into arguments aver useless minutia.  This is not a monopoly of the government, it happens in the private sector as well.  But in the private sector, in good companies, a leader steps in and says "I have heard enough, it is going to be done X way, now go do it."  In government, the incentives work against leaders cutting through the Gordian knot in this way, so the muddle can carry on forever.

There are at least two more shoes that are going to drop, one bad, one good:

1. On the bad side, while companies like mine complain about the cost of the PPACA, they are going to freak when they see the paperwork.  My sense is that we are going to be required to know in great detail what kind of health insurance policy every one of our employees have, even if it was not obtained through our company, and will have to report that regularly to the government.  In addition, there are gong to be new reporting requirements to new agencies for wages and hours.  It is going to be a big mess, and my uneducated guess is that someone in the last week or so looked at that mess and decided to hold off announcing it.

   But readers can expect a Coyote freak out whenever it is announced, because it is going to be bad.  Wal-mart will be fine, it has the money to build systems to do that stuff, but companies like mine with 500 employees but only 2 staff people are going to get slammed.  There is a reason government agencies, even government schools, have more staff than line personnel -- they live and breath and think in terms of complex reporting and paperwork.  They love it because for many it is their job security.  Swimming every day in that water, it is no surprise they impose it without thought on the private sector.  This makes it hard for companies like ours that try to have 99% of our employees actually serving customers rather than pushing paper.

2. The individual mandate is toast for next year.  No way it happens.  If the Administration cannot get the corporate piece done on time, there is no way in hell it is going to get the exchanges up and running.  And even if they do, some prominent states with political influence with this President, like Illinois and California, likely will not get their exchanges done in time and will beg for a delay.

From Reuters via Zero Hedge:

The Obama administration on Thursday acknowledged that it is collecting a massive amount of telephone records from at least one carrier, reopening the debate over privacy even as it defended the practice as necessary to protect Americans against attack.

The admission comes after the Guardian newspaper published a secret court order related to the records of millions of Verizon Communications customers on its website on Wednesday.

A senior administration official said the court order pertains only to data such as a telephone number or the length of a call, and not the subscribers' identities or the content of the telephone calls.

Such information is "a critical tool in protecting the nation from terrorist threats to the United States," the official said, speaking on the condition of not being named.

"It allows counter terrorism personnel to discover whether known or suspected terrorists have been in contact with other persons who may be engaged in terrorist activities, particularly people located inside the United States," the official added.

The revelation raises fresh concerns about President Barack Obama's handling of privacy and free speech issues. His administration is already under fire for searching Associated Press journalists' calling records and the emails of a Fox television reporter as part of its inquiries into leaked government information.

A few thoughts:

1. I have no doubt that this makes the job of tracking terrorists easier.  So would the ability to break down any door anywhere and do random house searches without a warrant.  The issue is not effectiveness, but the cost in terms of lost liberty and the potential for abuse.  The IRS scandal should remind us how easy it is to use government power to harass political enemies and out-groups
2. The FISA court is a bad joke, as it seems willing to issue "all information on all people" warrants.  I think there is little doubt that similar data gathering is going on at all the other carriers.
3. Luckily, Susan Rice is now the National Security Adviser.  I am sure with her proven history of not just being a political puppet but really digging in to challenge White House talking points that she will quickly get to the bottom of this.

I am not sure the WSJ has the law right (I don't really trust the media any more to get basic facts correct), but assuming for a moment they know what they are talking about, this caught my attention vis a vis the IRS scandal:

Officials explained that the unit had made the change [to their targeting criteria] because it was receiving many applications for groups that focused on lobbying, which is a permitted activity, and that weren't involved in political activity, which is restricted.

So its OK to kiss a Senator's ass but not OK to advocate for his defeat in the next election?  They may screw everything else up, but Congress is really good at making sure it takes care of itself.

I have had hard time parsing exactly what the intelligentsia means by "incivility."  On the one hand, they often call for more civil discourse and lament the lack of incivility in government nowadays.  But on the other hand, people like Obama very frequently argue by ad hominem attack, preferring to question the motives of the NRA or climate skeptics rather than engage their criticisms of gun control or CO2 limitations.

This has confused me, because I have always defined civility in discourse as the willingness to accept your opponent as a person of good will who merely disagrees or is misguided.  But if this is civility, why the frequent "othering" of political opponents by the same folks calling for civility?

Well, it turns out I have been using the wrong definition of civility.  As Donna Brazille makes clear, "incivility" means criticizing the President or attempting to hold him accountable for missteps of those who report to him.  She actually beings by defining civility in a way with which I mostly agree:

A government of, by, and for the people requires that people talk to people, that we can agree to disagree but do so in civility. If we let the politicians and those who report dictate our discourse, then our course will be dictated.

But then she goes on to say

We, the people, need to stay focused on facts, causes and solutions. Let's begin with the findings of the Treasury's inspector general who uncovered it: That it was bureaucratic mismanagement, but that there was no evidence of any political motivation or influence from outside the IRS.

And that, according to acting Commissioner Steven Miller, who just resigned, the problem started because the Supreme Court's Citizens' United decision created a surge of requests by political groups for tax-exempt status.

LOL - don't let politicians dictate our course - but everyone needs to shut up and take the word for two IRS officials that there is no scandal here (noting that we know from the IRS's own data that the last statement she urges us to accept in the name of civility is definitely false).    Further, she says

Why am I alarmed? Because two "scandals" -- the IRS tax-exempt inquiries and the Department of Justice's tapping of reporters' phones -- have become lynch parties. And the congressional investigation of Benghazi may become a scandal in itself.

So let's of course all be civil, and civility means calling folks criticizing a black President "lynch mobs."

By the way, a bit off-topic, but this paragraph is a textbook example of tricks editorial writers use

The IRS scandal has sparked bipartisan outrage that should require a bipartisan solution. The director who oversaw this was a Bush appointee who was confirmed by a Democratic Congress. Even Watergate reporter Carl Bernstein says he doubts very much that Obama was involved

Each sentence here as a master-stroke of the spinmeister's pen trying to defend her guy in the White House.

1. Note the effort in the first sentence to shift this to a bipartisan issue.  Both sides are upset.  It is a good government issue.    The implication we are supposed to draw is that this no longer can be a critique of this particular administration.  It has transcended.  This is how red-blue team political invective works.  If the outrage is coming from just one party, it should not stick to the President because because it is petty partisanship.  If it comes from both sides, it should not stick because it is a larger issue for all of us that transcends this particular Administration.  In fact, through the article, she actually makes both arguments simultaneously.  Brilliant!
2. It's Bush's fault.  This is just so well-worn that Obama officials simply cannot help themselves.   How can a man the Left thought to be so stupid and incompetent still be directing affairs four and half years after he left the building?
3. This one is really funny.  Is, as implied by the structure of this sentence and the world "even", Carl Bernstein the least likely imaginable person to excuse Obama of such a charge?    I think I am going to start writing this way.  Even Warren Meyer thinks climate change has been exaggerated.  Even Kim Kardashian thinks its important to get a lot of PR.  Even Tia Carrere says its OK to make a bad movie once in a while.  Hey, this is fun.

By the way, as I wrote before, it is unlikely Obama gave a specific order to harass the tea party.  However, he has created a strong culture of "othering" his political enemies and impugning their motives as evil, sending a strong signal to his supporters such that actual orders were unnecessary.  No one ordered from the top that Princeton students harass Yale at every opportunity (or even better, Penn).  The culture takes care of it.

Via ABC

The Internal Revenue Service official in charge of the tax-exempt organizations at the time when the unit targeted tea party groups now runs the IRS office responsible for the health care legislation.

Sarah Hall Ingram served as commissioner of the office responsible for tax-exempt organizations between 2009 and 2012. But Ingram has since left that part of the IRS and is now the director of the IRS’ Affordable Care Act office, the IRS confirmed to ABC News today.

What Obama most needed in the IRS ACA office was someone willing to ignore the clear language of the PPACA legislation and ram through IRS tax subsidies for insurance policies in the Federal (vs. state) exchanges -- subsidies that were purposefully and explicitly denied in the plain language of the law.

There won't be any direct order found telling the IRS to go hassle Conservative groups.  That's not the way it works.  Obama's style is to "other" groups he does not like, to impugn their motives, and to cast them as pariahs beyond the bounds of civil society.  Such and such group, he will say, opposes me not because they have reasonable differences of opinion but because they have nefarious motives.  Once a group is labelled and accepted (at least by your political followers) as such, you don't have to order people to harass them. They just do it, because they see it as the right thing to do to harass evil people.  When Joe Nocera writes this in support of Obama in no less a platform as the NY Times, orders are superfluous

You know what they say: Never negotiate with terrorists. It only encourages them.

These last few months, much of the country has watched in horror as the Tea Party Republicans have waged jihad on the American people. Their intransigent demands for deep spending cuts, coupled with their almost gleeful willingness to destroy one of America’s most invaluable assets, its full faith and credit, were incredibly irresponsible. But they didn’t care. Their goal, they believed, was worth blowing up the country for, if that’s what it took...

He concludes by saying

For now, the Tea Party Republicans can put aside their suicide vests. But rest assured: They’ll have them on again soon enough. After all, they’ve gotten so much encouragement.

There are probably some deeply confused people in the IRS right now -- after all they were denying tax exempt status to terrorists, to enemies of America.  They should be treated like heroes, and now they are getting all this criticism.  So unfair.

Postscript:  And they are racists.  Racist terrorists.

But Obama, in his most candid moments, acknowledged that race was still a problem. In May 2010, he told guests at a private White House dinner that race was probably a key component in the rising opposition to his presidency from conservatives, especially right-wing activists in the anti-incumbent "Tea Party" movement that was then surging across the country.

This is totally the Obama way of fighting a political battle.  He is saying, "forget their stated reasons for opposing me, such as opposition to the health care law, to Wall Street bailouts, and to rising government debt.  They really oppose me because they are racists and I am black."  Obama's opposition are absolutely never, ever people of good will who simply disagree.

PS#2:  It's pretty hilarious the NY Times published Nocera's "Tea Partiers are Terrorists" editorial just 6 months after they editorialized against incivility in the context of the Giffords shooting, which by the way had as much to do with civility in public discourse as the Benghazi attacks had to do with a YouTube video.  In fact, it sure seems like this administration has a history of falsely blaming tragedies on their political opposition's speech.

Every year I am required by law to fill out what is called the "Accommodation Report" by the Census Bureau.  As a lodging company (we run campgrounds) I must reveal my revenues and some of my expenses.  They ask for numbers aggregated differently from how we collect them for GAAP, so it is not a simple exercise.  But I do it under protest, even though several of my competitors do not seem to be similarly punished with this requirement.

Well, I don't actually fully comply.  We run over 150 small locations, and technically I am supposed to fill out an 8-page accommodation survey for every one of them.  This would take a week of my time.  So I pretend I have only one campground and report my summary revenue numbers for all our campgrounds as if they were for one location.   Also, a year ago the Census folks began demanding the data quarterly, and I told them to pound sand, that I was on the verge of not doing the annual report and so I definitely was not going to do all that work quarterly.

Well, this year it got worse.  For some reason, the survey this year had 3 extra pages asking me to break down my expenses in detail, in many categories that do not match those that I use in my bookkeeping.  Here is an example page:

First, not only do I not have time to figure this out (who tracks software purchases as its own item in the accounting system?), but it is not the government's business, particularly given that I am a private company.  Even the IRS is not this intrusive.

Further, at best the data I report will be used for nothing.  More likely, it will be used to justify new taxes on me, new regulations on me, or new subsidies for my competitors.  I have no desire to aid any of these activities.

Postscript:  And you know what I have zero patience with? -- otherwise free market academic economists who support this kind of data gathering because it is critical.  Yes, I am sure they much prefer to get free statistics for their work gathered via government coercion  rather than have to pay for it, as one would have to do if we relied on private companies to gather this data rather than the government.  There is absolutely no difference between an economist supporting government statistics gathering and any other company or individual asking that the government subsidize their inputs.  But, but, we are critical to the country!  Yeah, the sugar industry says the same thing.

CNS News reported, and no one in the Obama Administration seems to be denying, that the IRS is assuming the cheapest conforming health insurance policy for a family of four under Obamacare will cost $20,000 per year

The IRS's assumption that the cheapest plan for a family will cost $20,000 per year is found in examples the IRS gives to help people understand how to calculate the penalty they will need to pay the government if they do not buy a mandated health plan.

The examples point to families of four and families of five, both of which the IRS expects in its assumptions to pay a minimum of $20,000 per year for a bronze plan.

“The annual national average bronze plan premium for a family of 5 (2 adults, 3 children) is $20,000,” the regulation says.

Bronze will be the lowest tier health-insurance plan available under Obamacare--after Silver, Gold, and Platinum.

Kevin Drum shot back, saying that Conservatives were essentially out of touch for thinking that health insurance currently, or could ever conceivably, cost much less

So is this unusual? Not really. The average cost of healthcare coverage for a family is currently about $16,000,and by 2015 (the base year for the IRS examples) that will probably be around $18,000 or so. And that's for employer-sponsored plans. Individual plans are generally steeper, so $20,000 isn't a bad guess. It might be a little high, but not by much. And the family in question will, of course, be eligible for generous subsidies that bring this cost down substantially, thanks to the Affordable Care Act. They won't actually pay $20,000 per year.

(We'll ignore that last part as typical Progressive double think -- as long as the government is paying, the costs don't count.  It's like being free!)

I can't believe that Drum has actually shopped for health insurance of late.  The link he relies on for his data is for employer plans only, and Drum makes the unproven assumption that these are somehow less costly than individual plans people have to actually shop for. This is false.  Employer plan averages include a lot of gold-plated policies in the mix driven by noncompetitive union contracts and executives wanting gold-plated plans for themselves at the expense of shareholders.   I would argue that Drum is comparing "platinum" plans today to "bronze" plans under Obamacare, and it should be disturbing that even with this bit of judo, bronze Obamacare plans come out 20%+ more expensive than gold-plated current corporate plans.

But there is an even easier way to solve this, one Drum (who is nominally a "journalist") could solve with a few phone calls or clicks on Internet sites:  we can get some quotes.  Being a blogger with a real job, I do not have time to do this, but fortunately I don't have to because I just did this a few months ago for my family.  Here are a few quotes for a family of four with two 50+ old adults in pretty good health and two teenage kids from Blue Cross - Blue Shield of Arizona:

BlueOptimum- Plus $5000 deductible - $615.45 per mo., 7,385.40 per year>

BluePortfolio-Plus $3000 deductible - $703.80 per mo., 8,445.60 per year  (HSA eligeable)

BluePorfolio-Plus $5500 deductible - $499.75 per mo., 5,997.00 per year  (HSA eligeable)

Note first that these high deductible and HSA policies are ILLEGAL under Obamacare, in large part because they are actual insurance and Progressives don't mean "insurance" when they say "health insurance", they mean fully pre-paid all-encompassing medical care.  I consider the purpose of insurance to be to protect from catastrophes that you can't afford (e.g. your house burns down).  In the case of medical care, I thought about from my financial position, and determined what the largest financial setback I could bear in a year if someone really had a medical problem.  So I set my deductible at that number, and made sure I bought a policy that paid everything else above that reliably, without any low lifetime or maximum payment numbers.

The Blue Optimum above is a fairly standard co-pay plan that covers most doctor visits and drugs with only a copay.  The Blue Portfolio are HSA plans that are pure insurance.  I pay everything (except certain preventative care costs) up to the deductible, and they pay everything else above that.  In this case, note that the deductible is per person but there is a total family/policy deductible of twice that.  In other words, with the second policy, even if everyone in my family gets cancer in the same year, we aren't out of pocket more than $6,000.  So, for this middle policy, in typical years we spend $8,445.60 plus, say, another $1000 on miscellaneous stuff for a total health cost of $9,445.60.  Or half the Obamacare "bronze" or cheapest possible plan.  In the worst possible year, if two family members get very sick in the same year (not a hugely likely event) we are out $14,445.60 per year.  This is the worst case.  Still 28% lower than the cheapest Obamacare option.

In this plan, I am allowed under the HSA provision to bank about $5,000 a year in a pre-tax account.  I can use this money to pay medical bills up to the deductible, or save it.  If money is left over some day, it becomes a retirement account and I can use the money for retirement.  So I have the financial incentive to shop around for best prices, because the residual in the HSA is mine to spend on .... whatever.   I have told the stories a number of times here about my medical shopping experience.  X-rays that were charged to insurance companies for $250 suddenly cost $45 when I said I was paying cash.  My wife got a 70% cost reduction the other day on orthodic shoes when she offered to pay cash rather than put her insurance in play.  So, not only will Obamacare raise the prices of my insurance substantially, it will also raise medical costs in general by stripping away the last incentives for anyone to price-shop for health care.

When I read my Bastiat, I am always reminded how humans tend to insist on adopting the same myths and fallacies about the economy.  The myths he busts in the 19th century can be seen on the pages of our newspapers every day of the 21st century.   But one unique idea we have spawned since Bastiat is this bizarre notion that somehow it is wrong to pay for ones own medical expenses out of pocket.  It took forever to convince even my very smart HBS-educated wife that it was a much better deal to go to a high-deductible health plan.  Since we did so, we have saved a ton of money, and by the way done our small bit to keep prices down for the rest of you by actually shopping for things like x-rays (you can thank me later).  I don't know why this fallacy is so entrenched and hard to change, but we have built the entire edifice of Obamacare on top of it.

Via the WSJ, the Solyndra scam continues

Having sold off its manufacturing plant, fired nearly 1,000 workers and proven the non-viability of its business model, Solyndra's only real assets are what the IRS calls "tax attributes." These are between $875 million and $975 million in net operating losses that can reduce future taxable income, which the IRS values as high as $350 million. Before it went toes up, Solyndra also accumulated $12 million in solar tax credits that can reduce tax liabilities dollar for dollar.

Tax-loss carry-forwards are routine but worthless if a company can't turn profits to pay taxes on. So Solyndra's owners are asking the court to liquidate the rest of the business and contribute a net $6.7 million to pay off creditors for pennies on the dollar. A holding corporation will then emerge from Chapter 11 that won't make products or employ workers, but it will get the Solyndra tax offsets.

The dummy company is owned by Argonaut Ventures I LLC, Solyndra's largest shareholder and the primary investment arm of the George Kaiser Family Foundation. Mr. Kaiser is a Tulsa oil billionaire who bundled campaign checks for Mr. Obama in 2008.

Wow, who could have predicted this?   Well, lots of folks, including me just over a year ago.   I actually underestimated the value, assuming the losses would be worth about $150 million in avoided taxes, not the $350 million the IRS now pegs them at.  If I can figure out this game, the Obama Administration had to know what was going on.

If the Administration allows this to happen (and remember that in the GM boondoggle,  Obama waived the traditional rules that have bankrupt companies losing their tax loss carryforwards, giving GM a multi-billion dollar tax subsidy almost no one counts in the bailout costs), this will make Kaiser's last cash investment in Solyndra one of the great crony deals of all time.

If you remember, Kaiser (via Argonaut) invested $75 million as Solyndra was going down the tubes.  No rational person could have thought that amount would have saved the company, and it didn't.  What it bought, we now know, is three things:

• Kaiser got the US Government to give up their lead creditor position to Kaiser, basically putting the US Government behind the Obama donor to get repaid and reducing the taxpayers' influence in the bankruptcy
• It gave Kaiser a few precious months to loot the company.  Between that $75 million investment and the bankruptcy, Solyndra sold off most of its liquid assets at a discount to .... Argonaut, the group controlled by Kaiser
• It looks like Kaiser will get nearly a billion dollars in tax losses that can be used to reduce its future taxes by $350 million.

It is becoming increasingly clear that it is impossible to calculate exactly what you owe to the IRS (even the IRS will not take responsibility for what their customer support people tell you that you owe).  Given that, one can't really know his or her tax burden for sure until and unless one is audited and the case is adjudicated.  Doesn't this put the tax code in violation of the Constitution's prohibition of ex post facto law?

Sure seems like it.   Here is the list of questions the Ohio Tea Party has asked as part of their application, which should be routine, for 501(c)4 status.  The Virginia Tea Party had similar requests, including apparently a demand for donor lists and confidential materials which the IRS says will be made public.  The latter seems part and parcel of recent initiative on the Left (seen also in the whole Heartland fiasco) to out confidential donors of Conservative and libertarian organizations while demanding no similar transparency of organizations on the Left.

By the way, I am President of a 501(c)4 organization  (basically a trade group) and I can say with some authority that we never have received any sort of parallel set of questions from the IRS vis a vis our status, so this is either a very new requirement or one especially crafted to apply only to the Tea Party.  I can say from all too much experience that having a Federal agency sit on a request for 9 months and then suddenly demand incredible amounts of work in just a few days from the private party is absolutely typical.

From today's WSJ:

A House subcommittee will hold an "oversight" hearing today on the new Consumer Financial Protection Bureau, the über-regulator that will soon have jurisdiction over most of the country's credit-making institutions. We put "oversight" in quotes because Congress has little say over either the new bureau or its unofficial czar, Elizabeth Warren.

This unprecedented lack of accountability is by Ms. Warren's design. The bureau was the Harvard professor's idea, and she lobbied the Obama Administration and Congress to make it part of the 2010 Dodd-Frank financial reform. That law calls it an "independent bureau," akin to an independent agency like the Securities and Exchange Commission. But that's deceptive. Unlike other agencies, it isn't subject to annual Congressional appropriations.

Incredibly, the law says the bureau's director gets to set her own annual budget by requesting a share of the "combined earnings of the Federal Reserve System." The total she can request is capped this year at 10% of the Fed's total operating expenses (which in 2009 were $5.4 billion). That cap rises to 11% next year and 12% in 2013, and the Fed Chairman has no authority to deny her request. The director can also request an additional $200 million more per year for the next five years from Congress.

This arrangement may be unconstitutional under the separation of powers, and we hope it is soon tested in court. It was a deliberate political gambit to make the bureau less accountable to either Congress or the rest of the executive branch. In July, when its powers fully vest, the bureau will have supervisory authority over banks with more than $10 billion of assets and independent rule-making authority.

Both are cause for worry, given that the bureau will not have to incorporate the views of other banking regulators into its rules when it comes, for instance, to issues of safety and soundness. While the IRS Commissioner and Comptroller of the Currency report to the Treasury Secretary, Ms. Warren and her successors can tell him to crush rocks.

The affront is compounded by President Obama's decision to evade the spirit of the law by letting Ms. Warren set up the bureau without Senate confirmation. Republicans objected to her potential appointment, and even Democrat Chris Dodd said she would be hard to confirm. So Mr. Obama created a special position for her at both the White House and Treasury, letting her essentially create the bureau and hire its staff without facing the Senate. She has proceeded to sign up a raft of liberal antibank populists, such as former Ohio Attorney General Richard Cordray, former AFL-CIO deputy counsel David Silbermann and University of Connecticut law professor Patricia McCoy

Imposing accountability on public officials is hard enough without laws being structured to purposely evade it.

Radley Balko tells his frustrating stories about dealing with the IRS.  These stories seemed totally familiar to me because in my business life, I deal with very similar problems nearly every day.  Doing business in 12 states, I don't just deal with the IRS but 12 sales tax agencies, 12 employment tax agencies, 12 unemployment insurance agencies... you get the idea.   Multiply this story times 100 and that is what I spend most of my time on running my business.

Just as one example, 8 years ago Florida switched our company from quarterly to monthly reporting  for sales taxes.  They did this in the middle of a quarter, so the reporting for that quarter was a funny mix of a partial quarter plus one monthly report.  The next year a letter was triggered automatically from their system saying I hadn't submitted two months of reports.  It took me several hours and multiple phone calls and two faxed letters to get them to understand the situation and promise to update their system.  Frustrating but case closed.  Or not.  Their system again triggered a threatening letter to me over the same issue in December 2004.  And then 2005.  And 2006.  2007.  2008.  2009.  This comes up again every dang year.  Every year after hours of work someone swears I have finally found the right person and I would never hear about it again.  But the next year it pops up yet again.  In 2009 they actually sent a sheriff to our Florida location to start attaching assets over the non-issue.

The Senate will take a vote today to repeal the hugely onerous 1099 provision from the Obamacare legislation.   Good news, though Obama is opposed to the repeal as he feels (probably correctly) that it will open the floodgates to further repeals and amendments.  Which is pretty disingenuous, as one of the soothing memes he handed out when the legislation was being rushed through Congress was that there was plenty of time to amend and fix its rough edges.  How he needs to decide if he was lying about that, as Congress addresses a rough edge that had nothing to do with health care but created a huge and largely useless burden on businesses.  I know that this provision would really kneecap my business.

Meanwhile, small businesses are staring in horror toward 2013, when the 1099 mandate will hit more than 30 million of them. Currently businesses only have to tell the IRS the value of services they purchase from vendors and the like. Under the new rules, they'll have to report the value of goods and merchandise they purchase as well, adding vast accounting and paperwork costs.

Think about a midsized trucking company. The back office would have to collect hundreds of thousands of receipts from every gas station where its drivers filled up and figure out where it spent more than $600 that year. Then it would also need to match those payments to the stations' corporate parents.

Most Democrats now claim they were blindsided and didn't understand the implications of the 1099 provision"”which is typical of the slapdash, destructive way the bill was written and passed. As the critics claimed, most Members had no idea what they were voting on.

Democrats are trying to water down this repeal:

Yesterday the White House endorsed a competing proposal from Florida Democrat Bill Nelson that would increase the 1099 threshold to $5,000 and exempt businesses with fewer than 25 workers. Yet this is little more than a rearguard action in favor of the status quo; the Nelson amendment leaves the basic architecture unchanged while making the problem more complex.

Businesses would still have to track all purchases, not knowing in advance which contractors will exceed $5,000 at the end of the year. It also creates a marginal barrier to job creation"”for a smaller firm, hiring a 26th employee would be extremely costly. The Nelson amendment also includes new taxes on domestic oil production, as every Democratic bill now seems to do.

This analysis is dead on -- our company generally cannot predict exactly how much we will purchase from a specific vendor in a year, so we would still have to collect tax ID's from every single vendor, not knowing which would cross the hurdle.

This is lifted from an email I got from America Outdoors

A little noticed provision in the recently passed health care reform bill will require every payment to corporations over $600 to be reported on a Form 1099 to the IRS, including payments for the purchase of merchandise and services. This provision takes effect in 2012.

The current law requires a Form 1099 to be submitted to the IRS when your business pays more than $600 for rent, interest, dividends, and non-employee services if the payments are made to entities other than corporations. Currently, payments made to a corporation and payments for merchandise are not required to be reported.

To file the required 1099, a business will have to obtain and keep track of a Taxpayer Information Number (TIN) from every vendor before submitting the 1099 to that business and the IRS. Under current tax law, one copy of the form is sent to the IRS, and another copy is sent to the person to whom the business made the payments.

Rep. Dan Lungren (CA-3) introduced "The Small Business Paperwork Mandate Elimination Act" (H.R. 5141). The legislation would repeal the expanded 1099 reporting requirement.  Lungren correctly asserts that the burdens placed on small businesses by this reporting requirement would be overwhelming.

Call your U.S. Representative today and ask them to cosponsor H.R. 5141. The House switchboard number is 202-225-3121.  Ask to be connected to your Representative's office.

My small business has over a thousand vendors.  I would have to hire someone full time for a month to do this.  And it would be to zero purpose.  The IRS would be so flooded with forms that there would be no way they could pull any useful information from the blizzard.  This is yet another example of legislators operating with absolutely no idea how commerce actually works.  We have coined a name for it within our firm -- we call it arrogant ignorance.

Chris Edwards at Cato had more on this a while back.

I'm stunned that there wasn't a broader debate before such a costly mandate was enacted. If it goes into effect, it will waste vast quantities of human effort in filling out forms, reworking computer systems, collecting and organizing data, and fighting the IRS. The struggling American economy can't afford anymore suffocating tax regulations. This mandate is a giant deadweight loss. It should be repealed.

From the TaxProf:

President Obama today issued a presidential memorandum directing the Office of Management and Budget, the Treasury Department, and other federal agencies to block contractors who are delinquent on their taxes from receiving new government contracts. The memorandum also directs the IRS to review the accuracy of companies' tax delinquency claims and asks Congress to enact enforecement tools.

This administration continues to follow the consistent principle that taxes should be applied ruthlessly to out-of-favor and unsympathetic groups, and forgiven or exempted for friends of the Administration.  Does anyone else find it odd that our first black President is doing so much to undermine the equal protection clause of the 14th Amendment?

This is a long-running series on this blog, and the most recent example comes from John Stossel.

[T]he IRS plans to require paid preparers to register with the agency. Subsequently -- the timeline is not yet firm -- they will be required to pass competency tests and receive continuing professional education"¦

In a report issued Monday, the agency also raised concerns about the quality of tax-preparation software"¦

As is usual in such cases, the IRS uses some ridiculously mundane task (in this case, hair cutting) as an example of something which is licensed but its super-critical target industry is not.  This is typically supposed to be read as a justification of the extension of licensing to the new industry, though I always read it as a comment on how over-licensed we already are.

In field tests, the IRS noted Monday, tax-return preparers often gave bad advice"¦

Of course, in numerous field tests, the IRS itself often gives bad advice as well.  From MSN Money a while back:

Two decades ago, Ralph Nader's Tax Reform Research Group prepared 22 identical tax reports based on the fictional economic plight of a married couple with one child. Identical copies were submitted to 22 different IRS offices around the country.

Each office came up with an entirely different tax figure. Results varied from a refund of $811.96 recommended in Flushing, N.Y., to a tax-due figure of $52.13 demanded by the IRS office in Portland, Ore....

Physician, heal thyself.  Maybe the problem is in the tax code, not the preparers.  From the same MSN Money article:

Since 1988, Money magazine has conducted an annual study where 50 tax professionals, including attorneys and certified public accountants, have been asked to complete a tax return for a hypothetical family.

The results have been unnerving. The professional preparers come up with different results each year -- with spreads of as much as $1,000.

So let's see where we are. The IRS can't get the answers right. Neither can the professionals. That may explain why there have been U.S. Supreme Court tax cases where as many as four of the justices got the answer "wrong."

Maybe the justification has nothing to do with the quality of tax preparation.  Let's see who was happy about the IRS announcement:

H&R Block's enthusiastic response to the IRS's regulation plans suggests that the same thing will happen once the IRS licenses tax preparers:

Under the new rules, H&R Block "won't be competing against people who aren't regulated and don't have the same standards as we do," said Kathryn Fulton, senior vice president for government relations.

I will end, as I always do on this topic, with a quote from Milton Friedman:

The justification offered is always the same: to protect the consumer. However, the reason is demonstrated by observing who lobbies at the state legislature for the imposition or strengthening of licensure. The lobbyists are invariably representatives of the occupation in question rather than of the customers. True enough, plumbers presumably know better than anyone else what their customers need to be protected against. However, it is hard to regard altruistic concern for their customers as the primary motive behind their determined efforts to get legal power to decide who may be a plumber.

Obama continues to deny that the health insurance mandate which is backed with a penalty to be collected by the IRS is a "tax."  He says "For us to say that you've got to take a responsibility to get health insurance is absolutely not a tax increase."  Three responses:

1. Asking people to take individual responsibility for their health care expenses is not a tax.  Asking them to do so via a particular method, in this case the purchase of an insurance policy rather than, say, just paying expenses as they go, is a tax.
2. Obama might argue that since people are getting value for the policy they have to buy, there is not net tax but just a (forced) exchange of value.  But this is the classic technocratic fault, to assume that the central planner's definition of value is the same as every individuals.  But its not.  Many folks don't get value from a policy, which is why they don't buy one today
3. Even if Obama were right in #2, he would still be wrong given the rules embedded in this bill.  Young, healthy people will be forced to subsidize the old and those with pre-existing conditions by the rules imposed on insurance companies.  These rules effectively make it impossible to charge full cost to the old and sick, so that the young and the healthy will have to pay more.  Because the young and the healthy will not see values in policies at the prices they will be paying (given these transfers), they won't value the policy with is EXACTLY why the law has to force them to buy it.  Which is why it is a tax.

John Stoessel via Carpe Diem

Competition is a "discovery procedure," Nobel-prize-winning economist F. A. Hayek taught. Through the competitive market process, we producers and consumers constantly learn things that force us to adjust our behavior if we are to succeed. Central planners fail for two reasons:

First, knowledge about supply, demand, individual preferences and resource availability is scattered -- much of it never articulated -- throughout society. It is not concentrated in a database where a group of planners can access it.

Second, this "data" is dynamic: It changes without notice. No matter how honorable the central planners' intentions, they will fail because they cannot know the needs and wishes of 300 million different people. And if they somehow did know their needs, they wouldn't know them tomorrow.

A lot of the lefty sites are gearing up the "poor aren't sharing in the benefits" bandwagon again.  This is usually brought out of the garage whenever someone wants to put a really progressive soak-the-successful tax plan on the table.  So get ready.

The key to parsing their argument is to understand the following distinction:  Do you care about quintiles, or individuals?  Because if you care about quintiles, then there is no doubt that the real median income of the lowest income quintile has not advanced much over the last 15-20 years.  But quintiles are not individuals, and the evidence is that individuals are still doing well, whatever bracket they begin in.  Because you see, while the average for the bottom quintile may not be much higher than the average for that bracket a decade ago, the fact is that the people in that bracket have changed.   As Mark Perry writes:

A common misperception is that the top or bottom income quintiles, or the top or bottom X% by income, are static, closed, private clubs with very little turnover - once you get into a top or bottom quintile, or a certain income percent, you stay there for life, making it difficult for people to move to a different group. But reality is very different - people move up and down the income quintiles and percentage groups throughout their careers and lives. The top or bottom 1/5/10%, just like the top or bottom quintiles, are never the same people from year to year, there is constant turnover as we move up and down the quintiles.

He quotes some stats from Jeffrey Jones and Daniel Heil:

How much income mobility exists in America? Research consistently affirms that there is substantial upward income mobility in the United States, with the lowest income earners typically showing the strongest results. A Treasury Department study of the 1996"“2005 period used IRS income tax data to discern considerable mobility: more than 55% of taxpayers moved to a different income quintile. More than half the people in the lowest fifth of earners moved to a higher quintile over this period (29% to the second, 14% to the third, 10% to the fourth, and 5% to the highest).

Moreover, there is a great deal of movement in and out of the top income groups. The Treasury data show that 57% "of households in the top 1% in 2005 were not there nine years earlier." The rich sometimes get richer, but they get poorer as well. The study also reveals that income mobility has increased, not decreased, during the past twenty years. For example, 47.3% of those in the lowest income quintile in 1987 saw their incomes increase by at least 100% by 1996. That number jumped to 53.5% from 1996 to 2005.

The Pew Economic Mobility Project tried to track actual people, and not brackets, from tax returns.  This is an imperfect science, but the only real way to look at income mobility.  They found that 90% of white children and 73% of black children whose parents were in the lowest income quartile in the base period were later to be found in higher income quartiles.  But this chart, from the same study, is really telling:

(click to enlarge)

That is a pretty amazing picture, marred only by something apparently bad occurring with the kids of middle class African Americans.

So how can there be so much income gain everywhere without the averages for the lower quintile increasing.  I would offer at least two explanations:

1. Immigration. As people gain skills and seniority, they progress to higher income brackets and out of the lower quintile.  However, there is a constant stream of low-skill immigrants moving to this country to fill in the bottom quintile.  It we were to do a quintile analysis apples to apples leaving out new immigrants in the period, I guarantee you would see the median income for the lower quintile increase.  As I wrote before:
   

   Frequent readers will know that I am a strong supporter of open immigration....However, I am tempted to become a close-the-border proponent if the left continue to use numbers skewed by immigration to justify expansions of taxation and the welfare state.  Whether they are illegal or not, whether they should be allowed to stay or not, the fact is that tens of millions of generally poor and unskilled immigrants have entered this country over the last several decades.  These folks dominate the lower quintile of wage earners in this country, and skew all of our traditional economic indicators downwards.  Median wages appear to be stagnating?  Of course the metric looks this way "” as wages have risen, 10 million new folks have been inserted at the bottom.  If you really want to know what the current median wage is on an apples to apples basis back to 1970, take the current reported median wage and count up about 10 million spots, and that should be the number "” and it will be much higher.

   By the way, even for these immigrants, their position in the lower quintile represents upward mobility for them.  Being in the middle of the lower quintile probably is a huge improvement over where they were in their home country - almost by definition, or they would not be working so hard to get here.

2. Safety Net. Some large portion of the bottom quintile are supported by the US government's safety net.  And there are pretty good fiscal reasons why the typical real incomes generated by that safety net have not increased over the last 20 years.  And even beyond the fiscal issues, there are incentives issues as well -- at some point, increasing how lucrative the safety net is can reduce the incentive to get off the safety net and find a job.  Just ask the Swedes.  There is a delicate balance between humanity and sustaining folks vs. killing their motivation.In some ways the left's use of the lack of lower quintile progress as an indictment of American capitalism is wildly ironic.  Basically what they are saying is that the 80% of people who support themselves through capitalist endeavor are doing progressively better but the 20% of the people supported by the government are stagnating -- and therefore we need to increase the role of government.

As we previewed last week, the IRS came out with its numbers on 2006 taxes, and it turns out that the top 1% richest taxpayers earned 22% of the taxable income and paid 40% of the income taxes.  According to candidate Obama, this represents an unfair free ride for the rich.  These numbers increased from 21% and 37% in the last year of the Clinton administration.

I guess my question is, what's enough?  Already, half the country only pays less than 3% of the income taxes.  Do we really want a country where 50.1% of the people vote to live off the other 49.9%?

Postscript:  Yes, I know payroll taxes work differently and hit lower income folks pretty hard.  But then again, the Social Security program is supposed to be an insurance and retirement plan, not a transfer program. The left goes bananas when you suggest Social Security is welfare and not an honorable paid participation program.  So, like any other insurance, the premiums are flat rather than progressive.  You can't have it both way.

From Mark Perry  (a new favorite of mine)

In related news, comes this from the WSJ via Evan Coyne Malloney

New data from the IRS will be out in a few weeks on who pays how much
in taxes. My contacts at the Treasury Department tell me that for the
first time in decades, and perhaps ever, the richest 1% of tax filers
will have paid more than 40% of the income tax burden. The top 50% will
account for 97% of all federal income taxes, while the bottom 50% will
have paid just 3%.

Here is the same data from 2005:

This is really a huge threat to the Republic and the minority protections built into the Constitution.  Our government was most explicitly not meant to be a tyranny of the majority, where 51%+ of the people can legally abuse the rest with impunity, but this tax picture sure seems to be stepping over this line.  A particularly worrisome subset of this problem is the increasing legislative predilection for funding  projects with millionaire's taxes, as discussed here and here.  I discussed more about the implications of 52.6% voting for the other 47.4% to support them here.

Apparently I am required by law to fill out an "annual accommodation report" from the US Census.  Just what I needed.  The IRS, state sales tax authorities, and the Department of Commerce all gather this same information, but for some reason the Census Bureau needs me to repackage it for them  ("estimate time only 34 minutes -- thanks alot").  In fact, they need the data so bad that I am required by law to respond to their request. 

Here is the weird part.  First they ask for revenues including both lodging revenues and sales of merchandise, all as one single number.  Then, they ask for "operating expenses" in which they want me to exclude the cost of any merchandise sold.  What is the point of gathering a revenue number that includes merchandise sales but a cost number that excludes the cost of goods purchased for resale?  Bizarre.  My only guess is that this is so they can stack industries up without double counting, but that makes no sense either.  If this were the case, they would ask me to eliminate all product purchases (e.g. toilet paper for the bathrooms, cleaning supplies).  Also, wouldn't they in that case also ask me to leave out services purchased from other companies?

Postscript: The form has this notice:  "Your report to the Census Bureau is confidential by law.  It may be seen only by persons sworn to uphold the confidentiality of Census Bureau information and may be used only for statistical purposes.  The law also provides that copies retained in your files are immune from legal process."

Does anyone above the age of eight really believe this?  Ask major league baseball players what they think about promises of confidentiality and immunity from legal process.  (emphasis added)

With Barry Bonds still in their sights,
federal investigators probing steroids in sports can now use the
names and urine samples of about 100 Major League Baseball players
who tested positive for performance enhancing drugs, following a
ruling Wednesday from a federal appeals court.

The 2-1 decision by the 9th U.S. Circuit Court of Appeals
overturned three lower court decisions and could help authorities
pinpoint the source of steroids in baseball. It could also bolster
the perjury case against the star outfielder, who is under
investigation for telling a grand jury he never knowingly used
performance-enhancing drugs.

Investigators seized computer files containing the test results
in 2004 during raids of labs involved in MLB's testing program. The
samples were collected at baseball's direction the previous year as
part of a survey to gauge the prevalence of steroid use. Players
and owners agreed in their labor contract that the results would be
confidential, and each player was assigned a code number to be
matched with his name.

For the lack of a better term, I will call large, old-line union dominated companies "Big Rust Belt."  These are companies that tend to have strong unions and that have compensation packages most new companies eschew (e.g. defined benefit rather than defined contribution pensions).  These companies tend to be experienced rent-seekers, and usually are beneficiaries of protectionist practices.  I generally lump the big 3 auto makers (and much of their supply chain) and integrated steel manufacturers in this description.  Other industries, like traditional airlines (e.g. United but not Southwest) also fit in this description.

Already over the past several years, Big Rust Belt has been getting bailouts of their defined-benefit pension plans.  Going forward, Big Rust Belt is looking for the government to bail them out of their health care obligations as well.  Big Rust Belt began offering health benefits as part of their compensation packages in WWII, when government wage freezes made it difficult to compete for labor, and offering health benefits was a way to evade the wage laws.  Health benefits grew in popularity at a time when it seemed reasonable that your employer might still be alive and employing you forty years from now, and because Congress and the IRS made these plans tax-preferred over cash compensation.  Short-sited corporate executives began offering retirement health care in labor negotiations as a way to reduce cash wage increases, on the theory that cash wages hurt the bottom line now while retiree benefits hit the bottom line, well, on someone else's watch.

Now these health benefits are an albatross around these corporations' collective necks.  Not only are they bankrupting them, but smaller companies who were not so dumb as to make these promises to their employees are out-competing them. 

So Big Rust Belt wants at least three things:

• It wants the government to force its smaller competitors to have to offer the same health insurance it was dumb enough to promise.
• It wants the government to take on a portion of its medical obligations, particularly for retirees
• It wants to government to by law limit the procedures it has to pay for (i.e. ration care), something they have been unable to do in their union negotiations.

And, surprise surprise, given that Big Rust Belt is even better at rent-seeking than it is in running its core businesses, state and federal governments look ready to deliver on all of these.  Each of these is a feature of the governator's new plan, and all are features of various Hillarycare models discussed by Democrats in Congress.  So no one should be surprised when GM CEO Robert Lutz says:

he expects the new Democratic-controlled Congress will be more understanding on health care issues

"More understanding" means "more ready to bail Lutz and GM out of there business problems."  And remember that for Big Rust Belt, universal health care does not mean "great, now everyone can have health care";  it means "great, now we don't have to bother competing with any companies who are smarter about how they have compensated their employees."

Update:  More Big Rust Belt rent-seeking here.