Coyote Blog

Congratulations to Edward Prescott, our hometown hero from Arizona State, who shares this years Nobel Prize in Economics.

Why is it that the Nobel committee gives its highest economics prizes to people who consistently put more intellectual nails in the coffin of socialism, then go out of their way to give the "soft" prizes, such as literature and peace, consistently to communists, socialists, and enablers of totalitarianism?

UPDATE

Marginal Revolution has a good roundup on what exactly this economics prize was won for. I should have been more specific when I said "more intellectual nails in the coffin of socialism". The link explains it better, but one argument against free markets is that recessions are proof of market failure and a "better" system would not have them. Prescott and Kydland, among other things, show how:

Recession may be a purely optimal and in a sense desirable response to natural shocks. The idea is not so counter-intuitive as it may seem. Consider Robinson Crusoe on a desert island (I owe this analogy to Tyler). Every day Crusoe ventures out onto the shoals of his island to fish. One day a terrible storm arises and he sits the day out in his hut - Crusoe is unemployed. Another day he wanders out onto the shoals and finds an especially large school of fish so he works especially long hours that day - Crusoe is enjoying a boom economy. Now add into Crusoe's economy some investment goods, nets for example, that take "time to build." A shock on day one will now exert an influence on the following days even if the shock itself goes away - Crusoe begins making the nets when it rains but in order to finish them he continues the next day when it shines. Thus, Crusoe's fish GDP falls for several days in a row - first because of the shock and then because of his choice to build nets, an optimal response to the shock.

UPDATE #2

This is very timely. Our new Nobel Laureates did a lot of work on short term / long term economic paradoxes. For example, they work a lot with problems such as prescription drug regulation, where people can be made happy in the short term (lower prices) but really unhappy in the long term (via forgone research and therefore fewer new drugs). Interesting given that Kerry/Edwards are advocating just such a short term fix that would lead to long-term disaster. The press made a big deal out of how the Nobel Committee slapped Bush in the face with its Peace Prize to Jimmy Carter. Don't hold your breath waiting for anyone to point this one out.

In Chicago for a few days to take my kids to some of my favorite museums - Art Institute, Field Museum, Museum of Science and Technology.

Of course, within about 5 hours of arriving, one my my kids has barfed all over me. I do not know what it is - my kids are very seldom sick but travel seems to wipe them out. One or the other has barfed in the first 24 hours of the last 4 vacations. Wish me luck

A regular feature, it is explained here. Many of our ACME products come courtesy of this site.

Today, in honor our our server which seems to be a bit slow, this fine ACME product:

Welcome to readers of Professor Bainbridge, Club for Growth, and the Carnival of the Capitalists. If my hosting company was Citicorp, they would be calling me right now to ask me about the unusual activity on my account.

In particular, I want to wish a happy second anniversary to the Carnival of the Capitalists

I am not an economist, and would rather not stray too far off track, but the recent payroll numbers are raising interesting questions about the nature of business and employment in this country. Recent jobs growth numbers and unemployment numbers have been fine, with about the same unemployment numbers as we saw in November of 1996 when both parties agreed that the economy was pretty good.

However, as the total jobs growth numbers have lagged GDP growth, a number of people have scratched their heads to wonder why. One interesting fact is that when you survey households rather than employers, the jobs growth numbers look substantially better. Many are pointing to this household survey to say that the economy is changing - that more people are starting their own business or consulting and so are missed in the payroll numbers. This is a good theory, but its force is mitigated by the fact that the sample size, survey process, and error rates for the household survey are all much worse than the payroll survey.

Heritage Foundation argues that the household data is right and is better reflecting reality. Economic Policy Institute argues the opposite.

As a relatively new convert from the corporate world to small business, I can tell you that anecdotally, a good number of the people who left (voluntarily or not) the corporate world early in this decade have not gone back, and are, like me, now self-employed. I just had my 15th business school reunion and the proportion of small people self-employed or running small businesses is up a startling amount since the 10th reunion.

Insurance was a very scary topic for us this year. As many of you know, the cost of business insurance has skyrocketed since 2001. Our workers comp, auto, and liability insurance costs have ballooned to 10% of sales, which seems incredible to me, particularly since we have nothing really bad on our claims history.

However, this year, at renewal time, the problem went way beyond cost. As background, much of our business is in running campgrounds. Campgrounds have the same liability problems as any public contact business, in that there are more and more people out there who, if they slip and fall on your property, will try to get a financial windfall out of it by suing you. This is multiplied in campgrounds, as the possibilities for a customer hurting themselves accidentally are multiplied over a more controlled environment, like a store.

Now, leave aside for a minute the justice of whether or not we should be responsible if someone pulls their hamstring climbing a tree in our campground. Even when most of these cases go nowhere, they generate defense costs. So, liability rates have been going up.

One of the things I have learned about the insurance market, though, is that carriers pick and choose what industries they want to be in. And, the industries they don't want to be in are those that are relatively small but have higher liability potential -- too much risk of loss for too little income. Unfortunately, this seems to include campgrounds.

So, just a few weeks away from the expiration of our old policy, my old agent tells me that their underwriter will not write us for the next year. Either in our liability policy (for reasons above) or for our auto policy (because we have a lot of older drivers) or for our workers comp (same issue, older workers).

I was therefore faced not with a huge cost increase, but with the prospect of no insurance, which would mean shutting down my business (beyond the stupidity of operating without insurance, my contracts forbid it). My insurance agent at the time had no other alternatives.

This is when I learned a huge lesson - there is a big difference among business insurance agents. Many have only one or two underwriters they work with, and if those underwriters drop your line of business, you can be out of luck. It is desperately important, especially if you are in a tougher than average business to insure, to have an agent with access to many underwriters and sources of insurance.

In the end, I pieced the workers comp together state by state through many agents, which was a total pain. Finally and at the absolutely last minute, for the liability and auto, I found an agent who really knows what he is doing. He got me quick fix policies for these to keep running, and then has found better policies over time to replace them. We have had great discussions about trade-offs in liability coverage (since every policy is different in the small exceptions that they make in their coverage). By the way, I don't know if they are even looking for more business, but if you are in a crisis, particularly if you are in the southwest, you might try these guys.

In part 1 of this series, I didn't talk much about the "global test" but rather spent some time giving my views on the war in Iraq. In brief, I opposed this war, but for reasons very different than that of most anti-war activist. I appreciate the need for the US to use force in the world from time to time, not the least for the quite salutary effect it can have on other miscreants who foresee that they might meet with the same fate (e.g.m see "Lybia").

One argument that I did not ever find compelling was the fact that we did not have enough allies or a large enough coalition. First, those putting forward this argument tend to go so overboard that they tend to insult those who did join us as "coerced" or "bribed". I think we owe a lot more to countries like Great Britain, Australia, Poland, Italy, and Spain (v1.0) than to intimate that they were suckers to join us. And what's with the strategy of saying that we did not have a large enough coalition, then actively trying to reduce it?

My hypothesis from day 1 of the war was that France was an ally of Iraq, and never going to join us, but that it didn't matter one way or another because alliances in the Muslim world would be much more important than with countries of fading glory in Western Europe. Therefore, the rest of this post will address two issues:

1. How realistic or unrealistic it was to expect help from our "traditional allies" and
2. Our mixed record of success with the allies that may matter more

Germany and Japan

Germany and Japan spent much of the 20th century unsuccessfully attempting to export totalitarianism to their neighbors by force. Both countries are rightfully reluctant to send their forces on cross-border adventures (in fact, Japan in prohibited in doing so by the constitution the US wrote for it). I have no problem with both countries taking a 100-year or so timeout on foreign adventurism.

France and Russia

The evidence continues to flow in. France and probably Russia were active allies of Saddam and the Baathist dictatorship in Iraq. Period. No amount of diplomacy, short of maybe a nuclear threat, was going to cause them to support an invasion of Iraq. They were no more likely to join in on an attack on Iraq than Mussolini and Italy were likely to join the Allies in WWII against Germany. The evidence emerging includes:

1. France and Russia were given a deal not long before the war to split the development rights to all of the oil in Iraq. Though it was not known then, the Duelfer report shows this to have been a direct strategy of Saddam to gain their security council vetoes. MSNBC had an article BEFORE THE WAR discussing the deal with France and Russia. Incredibly, America Haters, and even the author of this article, spend more time talking about the US going to war in Iraq for the oil. There has never been a scrap of evidence that the US went in for the oil, and very clear evidence that France and Russia were given lucrative oil deals to prevent the invasion. So who was acting for the oil?
2. France and Russia were easily the largest arms suppliers to Iraq. We knew this before the war and we have confirmed it in spades today. Every day our troops get attacked by French weapons, most of which were shipped to Saddam AFTER the embargo was in place and many within months of the start of the war. Iraq is not the only place where this is happening. While the US has in the past been careless or outright irresponsible in some of the places its weapons have ended up, today France, China, and Russia are not the key arsenals of totalitarianism.
3. France and Russia were key enablers in the UN, both passively, by defeating safeguards, and actively, by playing a direct role, of Saddam Hussein's stealing billions of dollars from the oil for food program. This story is still unfolding, and at this point I will leave aside the payments of oil vouchers to individuals, because it is not clear whether these acted as bribes (though they sure look like them). However, even without this aspect, the rape of the oil for food program is a miserable story of corruption, as detailed in part here and here.

The Scotsman has been on top of this story, and has a couple of great articles here and here.

Other Nations?
What about other nations. China? Yeah, right, the boys from Tiananmen square love promoting democracy over totalitarianism. Their actions to protect the Sudanese government from criticism over the current genocide there (again, in part, to protect their oil rights) have shown their true colors. And who else is left? Send in the Peruvian Air Force? The answer is, no one who could really help. When people say that we did not have a coalition, they primarily mean France, and you can see how likely that would have been. As an aside, I find it incredible that liberals of all stripes want to align themselves with French Foreign policy, perhaps the most illiberal in the last 50 years of all the wester democracies and certainly the country most responsible for making colonialism a bad word.

Allies that Really Matter in this War

In attacking Afghanistan and Iraq, the allies that should really matter are its powerful neighbors. I would argue that Pakistan, Turkey, Saudi Arabia and Indonesia are all more important allies in these wars than France. So how have we done with these countries - the answer is a mix of successes and failures.

In Pakistan, we probably have had our greatest diplomatic success. Certainly, on 9/12, as we were trying to decide what to do next, Pakistan seemed to be more of a problem than part of the solution, and certainly their nuclear program was worrisome. But the Bush Administration has done a good job at turning Pakistan into an ally (at least in the near-term), with Pakistan agreeing to base troops and fighters in the country, agreeing to renounce ties to the Taliban, and, perhaps most amazing, agreeing to actually use its troops and security personnel to help hunt down hiding Taliban members. Without Pakistan on our side, defeat of the Taliban would have been impossible, with Pakistan acting as a safe harbor for terrorists much like Laos and Cambodia did in the Vietnam war. Even better, all this has been achieved without ruffling too many feathers in India, which is in itself a diplomatic victory, similar to wearing a Yankees shirt in Fenway Park and not starting a fight. I know that Pakistan still has a ton of problems, but we are getting as much as we could ever expect from them in the near-term (heck, even allying with Stalin made sense for a few years get reach some key goals).

In countries like Saudi Arabia and Indonesia, we probably reached about a diplomatic draw. Neither country would be highly enthusiastic about either an invasion of Afghanistan or Iraq, but both provided at least modest logistics support. Neither, however, have ceased being tremendous breeding grounds for terrorism or have done much to deter those in their countries supporting terrorism. Certainly a reckoning is coming sometime in the future with Saudi Arabia, but, for now, they have been about as supportive as necessary (and no more).

It is difficult to paint our diplomatic efforts with Turkey in the run-up to the war as anything but a failure. Turkey clearly had many concerns about the war, from negative economic impact to encouraging their own Kurdish minorities to get frisky should Iraq's Kurds gain their freedom. However, given our good relations with Turkey over the last half-century, we should have been able to find a diplomatic formula to secure their cooperation. Even more, our failure was particularly deep given that Turkey's support seemed to fall apart at the eleventh hour, when these type of things should already have been worked out.

In Summary

It still flabbergasts me that so many people run around worrying about France's participation in our alliance. It strikes me that France's participation was both stupendously unlikely as well as of little practical value (beyond their UN veto). Much more important was our success with Pakistan and failure with Turkey. A new type of war in different parts of the world will require different alliances than the European wars of the 20th century.

UPDATE

Interesting post from Captains Quarters about the complicated nature of our relationship with Pakistan and the change in Al-Qaeda strategy to try to drive Pakistan out of its alliance with the US.

The Duelfer Report has become sort of a political Rorschach test for both opponents and supporters of the war in Iraq. Opponents of the war (examples here and here) will point to the findings that Iraq, at the time of the invasion, did not have WMD's and probably got rid of them soon after sanctions began and that inspections seemed to be working. War supporters (examples here and here) will point to the findings that Saddam was carefully maintaining the capability to produce WMD's in anticipation of restarting the programs when sanctions lifted. Rather than read all these conflicting reports, go to the original - the executive summary of the report is clear and you can get the gist in a page or two.

The point of the post is really not about WMD's, but about other countries and their attitudes about US and the war. As quick background, I supported the war in Afghanistan, because they obviously harbored those who attacked us and I felt it was important to set the example of a strong response to a terrorist act (rather than the weak response to the USS Cole or the first WTC bombing). The fact that Afghanis are having their first election in millennia and tens of millions of people, particularly women, are freed from the shackles of totalitarianism is just gravy. I opposed the war in Iraq, mostly because I did not think it was our job as a country, or my job as a taxpayer, to help clean up the world. I am not dumb -- I get the argument about stopping Hitler in Czechoslovakia, but I was worried that success would be pushing on a balloon - we might push back terrorism and totalitarianism in Iraq, but what about Saudi Arabia, Syria, Egypt, Iran, etc?? Hitler was a one-headed monster - Islamic fascism unfortunately seems to be a many headed hydra. I know that President Bush would argue that a free and sortof democratic Iraq could be the seed around which moderation crystallizes in the Arab world. I would dearly love this to be true, but I fear that it is wishful thinking.

However, I will say that I have occasionally wavered in my opposition to the Iraq war. One reason is that I am thrilled to see Saddam gone and the Iraqi's trying to make a go of a free society. I wish them well. I cannot understand nor tolerate people who allow their opposition to the war and/or the president to cause them to root for failure as the Iraqi people try to make a go of it.

Second, as is sometimes the case as a libertarian, I have found myself, in my opposition to the war, uncomfortable with many of my bedfellows.

For example, many folks who oppose the war seem to feel that they actually have to go overboard and defend Saddam and pre-war Iraq. An extreme example is Michael Moore's ridiculous Fahrenheit 9/11, which tried to paint a happy picture of Saddam dominated Iraq. I find that position indefensible. Saddam sucked, and Iraq under Saddam sucked. The lighter version of this position is the Kerry campaign's position that we have substituted one bad thing (Saddam) for another (chaos and violence), with the implication that the Iraqi people are (or should be) unhappy with the trade. This is ridiculously disingenuous. Absolutely no one taking this position, that chaos is worse than dictatorship, would take this position for their own country. The proof? When faced with the choice of adopting a more statist security system in this country (Patriot Act, detentions, etc.) to avoid chaos and violence (e.g. future terrorist attacks) the anti-war crowd opposed these measures. And I promise, for all the talk of Bushitler, etc, these measures are trivial compared to what was done to keep "order" in Saddam's Iraq. So it strikes me as tremendously hypocritical to advocate for the Iraqi's a course no one would consider here in the US.

The other issue on which I disagree with my anti-war brethren is this notion of not building up a sufficient alliance or getting enough global approval. This is actually the point I have been trying to get to in this post. For months, I have suspected that this discussion was both naive and misdirected. Naive, because all along I was pretty sure that France and Russia were Saddam's allies, and no more likely to join a coalition against him than Mussolini was going to join the allies against Germany. Misdirected, because if we are going to wage a war with Islamo-fascists, help from countries like Turkey, Pakistan, Saudi Arabia, and Indonesia is probably far more important than getting a few hundred MP's from France or Germany. Recent reports, including the Duelfer report and investigations of the ongoing UN oil-for-food program scandal, have begun to put factual flesh on the bones of my suspicions.

Since this post is going long already, I will continue in part 2.

UPDATE #1

I had a couple of emails already on Iraq. Let me clarify. I do not outright oppose the use of the military, even unilaterally, as a foreign policy tool. Also, I am not one of those idiots that somehow want to believe that terrorists are only attacking us because they have some valid complaints, and if we would just peacefully resolve their valid complaints, they would go away. Most terrorists and the nations that support them are bullies that hate our entire way of life, and who respond to nothing other than force. I have no problem agreeing that fighting terrorism will require military action against sponsoring nations, not just police work.

However, the attack on Iraq and its timing never quite made sense to me. I think of Iraq, Syria, Saudi Arabia, et al as a bunch of teenage boys who have been raising hell in the neighborhood for over a decade. After years of ignoring their crimes or at worst giving them a stern talking to, we suddenly take one aside (and not necessarily even the one most culpable) and shoot him. This made some sense with Afghanistan, since we could draw a direct line of culpability between the Taliban and the 9/11 attacks. But was it time to shoot Iraq? And while there certainly were links between Iraq and terrorists, were they really worse than Syria's or Iran's or Saudi Arabia's. Certainly shooting Iraq got the group's attention, that we can hopefully mine diplomatically over the coming years, but shooting Afghanistan should have had a similar effect, and we never really tried to leverage that before we moved on to Iraq.

UPDATE #2

By the way, leaving now in Iraq and giving up and/or giving in would be a disaster. Reagan's retreat from Lebanon and Clinton's retreat from Somalia were disasters to US Foreign Policy. Our best weapon is to give the opposition no hope of victory. Once you demonstrate there is a point at which you back down, you will always be driven to that point by the opposition. I disagreed with the decision to invade Iraq, but now that we are there, there is no turning back the clock. Our presence is a fact and we must make it a success or it will really be a waste. . Relevant quote:

However, there is an element of truth in Roberts's remark. For a time, the humiliatingly rapid defeat of Iraq's military (with the tacit consent of many Iraqi soldiers, it's important to add) will cause angry young men in the Muslim world to enlist in greater numbers in the effort to wipe out that stain on Muslim honor.

But it is not an infinitely expanding cycle. There is not an endless supply of young Muslim men willing to kill -- or die -- to inflict painful but strategically meaningless attacks on a grimly determined America.

But if America is not grimly determined, then that changes everything. Instead of recognizing the futility of giving their lives to kill Americans, these Muslim young men will be filled with hope that their sacrifice might yield results.

Disappointed that the presidential candidates have skipped your town? Its not too late - now you can create your own stump speech by either of the major presidential candidates:

George Bush
John Kerry

LOL, thanks Mr. Sun. Heads up from Captains Quarters

A regular feature, it is explained here. Many of our ACME products come courtesy of this site.

Usually, to keep with our theme, I try to stick with products used by our friend the coyote. Given that its almost Friday night, though, and you may be looking for the right purchase to start out your weekend, consider this great ACME product:

I can imagine the pricing:
Talking Model: $20.00
Non-Talking Model: $30.00

Have a great weekend!

In part 1, which you should read first, we discussed how the US has crossed a milestone where fewer than 50% of the taxpayers in this country pay about 100% of the personal income taxes. We also discussed how the recent tax cuts actually shifted personal income tax burden more onto the rich, rather than less.

However, John Kerry has cited the same CBO Report I used to make the points in the previous post to say just the opposite - i.e. that the recent tax cuts actually shifted the tax burden away from the rich to the middle class. Assuming he is reading the study correctly (which he is) how can this be?

The answer is in the difference between Federal income taxes and total federal taxes. The tables I used in part 1 were for income taxes only. It strikes me as reasonable to use income tax numbers for analyzing income tax changes. The total tax numbers Kerry uses includes not only income taxes but social security and Medicare taxes (including the employer contribution), federal excise taxes (such as the gasoline tax) and the corporate income tax. Lets look at who bears the brunt of these taxes.

1. Social security taxes are regressive. Very regressive. While your paycheck may show 6.2% FICA, the bill is really 12.4% because your employer matches this payment with funds they probably would otherwise pay you in wages. What makes this tax regressive is that it is a straight 12.4% of every dollar up to a limit, currently $87,900, after which the tax is zero. This kind of profile would never be tolerated in the income tax system. The reason for this is the carryover of the original idea that social security is not a tax and social benefit program but an insurance and retirement plan, a characterization that is becoming increasingly out of whack from reality. (If it was a private retirement plan, the managers would all be in jail right now for the terrible long term returns it pays out).

2. Gas and excise taxes are generally considered regressive as well, since gasoline is probably a much higher percentage of lower and middle class spending than for the rich (those rich who own Hummer H2's notwithstanding).

3. Its harder to pinpoint who pays corporate income taxes. The CBO report allocates corporate income taxes in proportion to dividends reported on income tax statements, which seems reasonable. Fifty years ago, one would have said that this meant the rich pay it, since we pictured the rich as owning all the stock. Today, in our mutual fund world, a lot is probably born by the middle class, particularly middle class retirees.

As a result, the sum of these non-income taxes are probably net regressive - i.e. they disproportionately hit the lower and middle classes. This means that an income neutral income tax cut, i.e. one that does not shift the tax burden but lowers it proportionately for everyone, will still shift the total tax burden to the middle class, because it reduces the amount paid in the progressive system (e.g. income taxes) in proportion to the amount paid in the regressive system (e.g. social security).

This leads me to a couple of thoughts. First, I think while he is quoting correct stats, Kerry is using the data a bit disingenuously. First, it implies to people that the middle class is paying more so the rich can pay less, which is untrue - everyone is paying less. Second, he is trying to use the data to show that personal income tax burden is shifting to the middle class, which we showed in post 1 that it is not - it is actually going the other way. Third, he uses it to justify a tax increase (or a tax cut rollback) on the richest Americans. We showed that already the Bush tax cuts shifted more of an already ridiculously high burden to the rich. This will shift even more.

However, there is a point here if Kerry wanted to latch on to it. Forget the class rhetoric about the income tax system - focus instead on social security. There are two good reasons for this: 1) Social Security is broken, and the financial reckoning is coming 2) unlike the income tax system, social security is truly indefensibly regressive. Yes, you can dig through Kerry's web site and find something on this, but he is for some reason so drawn to the income tax issue he never really hits it hard.

If John Kerry really wants to take up a populist tax banner, leave income taxes as they are (for all the fiscal deficit crisis talk, an economic recovery plus fewer new military invasions will bring the deficit back in line without tax increases). He should instead propose a reduction in the 12.4% FICA tax rate and then an elimination of the $87,900 wage cap. To make this palatable to Congressional Republicans (and me, if I were voting) it should be tied to a package of other reforms such as allowing some investment choice by individuals.

Of course, this is not going to happen. Politicians have used Social Security scare tactics with retired and older people so often that these folks have come to react negatively to any hint of change to Social Security. Reasonable discussion about the future of Social Security is just not possible in the last five weeks of an election, particularly with Florida in play.

OK, today I got an email from yet another associate that claims that the US Government is making up the story that the Pentagon was attacked on 9/11. Again, please Google these things and check Snopes or urban legends or FactCheck.org before you send them to me. The Snopes article on this one is here.

Presumably, since it is ludicrous to think that the feds could gen this event up within minutes of the WTC attacks, the proponents of this theory must also believe the WTC attack was faked or staged or created by the US Government. Beyond fever-swamp conspiracy theory lovers and rabid America-haters, I guess this also appeals to the reality avoiders who would like to believe that there are not islamo-fascists out there trying to kill us.

UPDATE

The Washington Post had an article on Internet conspiracy theories, including the Pentagon one mentioned above. The article also mentions this conspiracy was spread in part by a guy on his "libertarian web site". I have got to find some other name to call myself. Ayn Rand, who many libertarians (including myself) admire, always hated being called a libertarian. I start to understand why. There is a difference between wanting smaller government and living in constant X-files type paranoia about what vile plots the government is hatching.

This is part 3 in a series of my real-world experience in dealing with the Department of Labor (DOL). If you have not already, you should also check out part 1 and part 2 for background.

In this post, I will show you how we defended ourselves in a case where the DOL was extremely reluctant to grant us a legal exemption to the Fair Labor Standards Act (FLSA). It is highly unlikely that this exemption is relevant to you - it is narrowly directed at seasonal recreation businesses, but I think the process and what we learned from it may help you out in your own interactions with the DOL.

Continue reading ‘Working with the Department of Labor: Part 3’ »

A regular feature, it is explained here. Many of our ACME products come courtesy of this site.

Back in the corporate world, I could have really used this to sneak out of meetings.

This has actually become part 1 of a two-part post. In part one, we will look at the unbelievable proportion of income taxes paid by a small percentage of people in this country, and reflect on how crazy it is to talk about the rich getting a free ride. In post 2, we will look at a couple of truly regressive taxes where the rich really do get a free ride, and wonder why these issues get mostly ignored.

Something interesting has happened in this country over the last decade, and it is shown below in one of my favorite statistics. There is much talk in the media about this or that group paying their "fair share" of taxes, but as is usually true in the media, there are depressingly few facts in these articles. This is strange, since there are several government reports that pretty clearly outline the share of taxes paid by various income brackets. The numbers below are from a Congresional Budget Office Report, but the same numbers are buried in the IRS web site as well.

For 2003, the estimated share of total individual income taxes paid by:

Wealthiest 1%: 33.6%
Wealthiest 5%: 55.1%
Wealthiest 10%: 67.9%
Wealthiest 20%: 83.0%
Wealthiest 40%: 97.8%
Wealthiest 60%: 103.0%

The way to read this is that the wealthiest 10% of taxpayers pay 67.9% of the country's individual income taxes. And yes, that 103% is not a typo - the bottom 40% in income as a group pay negative personal income taxes (because of the EITC).

This leads to the following fascinating conclusion: Half of the people in this country pay more than 100% of the personal income taxes. The other half get, as a group, a free ride (though there are individuals in this group that pay paxes, net, as a group, they do not). We are basically at the point in this country where 51% of voters could vote themselves all kinds of new programs and benefits knowing that the other 49% have to pay for them.

Extra Credit Exercise: Given the numbers above, and all the talk about "tax cuts for the rich", craft an income tax cut that does not disproportionately benefit the top half of the income spectrum.

Hard, huh? The same CBO report had an interesting comparison. They estimated what these same numbers would have been without the recent tax cuts. Without the "George Bush tax cuts that unjustly benefit the rich" these same numbers in 2003 would have been:

Wealthiest 1%: 31.9%
Wealthiest 5%: 51.8%
Wealthiest 10%: 63.9%

OOPS - Coyote, that can't be right? That means that the wealthiest people pay a higher share of income taxes after the Bush tax cuts. That must mean that the tax cuts disproportionately helped the lower income brackets? Can that be right?

Yes, thats right. Without the Bush tax cut, the top 60% would have paid 99.9% of all individual income taxes. Now, after the tax cut, they pay 103%, meaning the bottom 40% have gone from paying about 0% to actually getting a bunch of money in net EITC.

Which just goes to prove a related point I make a lot - agree with him or disagree with him, G.W. Bush has got to be one of the worst presidential communicators in recent memory. For further proof, see debate #1.

Interestingly, John Kerry used this same report to say that these tax cuts shifted the burden of taxation to the middle class. And, in one way, he is right, though not in the way that his statement is generally interpreted. For more, see part 2, coming soon. (hint - think total taxes, not just income taxes)

UPDATE

Reason, my favorite libertarian rag, has a related analysis from Nick Gillespie and Mike Snell here. I don't think I trust either Bush or Kerry on fiscal discipline. Neither, apparently, do Gillespie and Snell:

But the fact remains that Bush's cuts have reduced the amount of income tax we all pay. Though Kerry will certainly suggest otherwise in Friday's debate, the trouble with Bush's budget policy isn't that he cut income taxes. It's that he hasn't cut spending. Indeed, perhaps the strongest case for electing Kerry may be that he will usher in an age of divided government that will restrain federal spending and the various problems that accompany it.

UPDATE #2

Fixed an unbelievably bad triple negative - Even I could not figure out what I was trying to say.

Got another email today from a friend sending around the "Its time to panic they are going to reinstate the draft" email. This is the third time in a week I have been forwarded this email. Unfortunately, the email is an urban legend at best, or a campaign tactic at worst, and has been debunked all over - the best is at FactCheck.org. I guess I can forgive my friends, since CBS News fell for it too. I once embarrassed myself forwarding a similar fake email about a change in credit privacy laws. I sent it indignantly to senators and web sites and friends. OOPS, all a hoax.

Please, please. Before you pass on these emails to your friends and embarrass yourself like I did, Google it. Just plug in the email subject line, like I did here for the draft email. You will see a bunch of fairly ideological sites promoting the same story - with exactly the same language - this should be big red flag. You will also see a number of credible 3rd parties and urban legend sites debunking it.

The point of this post was about crazy emails floating around, but given that I mentioned the draft one, the house voted down the draft bill sponsored by a Democratic representative 402-2 today.

PS - if you have not seen FactCheck.org, check it out. They seem as fair as anybody in terms of equal opportunity debunking of both political parties.

UPDATE

Never trust men over 60 with the computer. Our Vice President managed to direct tens of millions of debate viewers to FactCheck.com, which is a anti-Bush/Cheney site. LOL. Perhaps even funnier, by the time debate viewers found the real site at Factcheck.org, they likely saw this headline on the front page:

Cheney & Edwards Mangle Facts. Getting it wrong about combat pay, Halliburton, and FactCheck.org.

OOPS. Dick, just answer the question yourself.

Since I just completed a three part series on buying a business, which starts here, it seems appropriate to link to this article on selling your business from Entrepreneur.com via the Entrepreneurial Mind.

The amount of disclosure that buyers require can be mind-boggling. Putting it all together in a reasonable fashion is just one reason to consider hiring outside help. An intermediary, such as a business broker or an investment banker, can relieve you of some of the work while also keeping the buyer engaged. "We always recommend that a third-party intermediary represent you," says Minor.

yes.

In part 1, we discussed general expectations you should have as a business owner in working with the Department of Labor. In this installment, I will discuss a typical audit and some of the things we did to protect ourselves. In part 3, I will discuss a specific example of how it is possible to win your case with the DOL, but it may take a LOT of effort.

Continue reading ‘Working with the Department of Labor: Part 2’ »

A regular feature, it is explained here. Many of our ACME products come courtesy of this site.

Once again, ACME is way ahead of its time. Below are the ACME rocket skates:

And here is the modern copy-cat product from motosk8 (courtesy of Gizmodo)

Just pulled out the new Washington State sales tax forms to do my September taxes. The form is now 8 (dense)pages long! This is really getting out of control. In contrast, the sales tax forms for Florida (which has other problems, but we will talk about those later) fit on one side of a 3x5 card.

Washington is the worst offender I have seen in at adding jillions of new small targeted sales based taxes. They have become even more complicated than California. The basic sales tax rate varies by industry and by location - and I am not talking about just by county or city but by town. Each of something like 350 towns have their own tax rate. Then there are add-on taxes that don't follow any recognized borders, such as convention taxes and transit district taxes. Then there are lodging taxes, that vary by town but also depend on the number of sites we have in a campground, but of course that threshold number of sites changes by town as well. I have spent litterally hours with maps trying to figure out what rate we collect at for each of our locations. The Washington State tax return takes longer to prepare than any 4-5 other returns we have.

Congratulations to Burt Rutan and Co. for winning the X-prize for private space flight. When I was growing up, we thought this kind of thing would be happening much sooner, but better late than never. Also, thanks to Paul Allen and the Ansari family for funding the effort. D. D. Harriman lives!

Welcome to Carnival of the Capitalist readers. Its great to have you here. If you are looking for the series on buying a business, it starts here. I have started a new series on working with the Department of Labor here. Future series will include posts on managing multi-state businesses, workers comp, liability insurance, sales taxes, and government contracting.

I find that most experienced managers have become experts at identifying and gaming flaws in measurement systems. The in and outs of measurement systems have always interested me, both in business and in sports (how about that segue-way?)

Those of you who are baseball fans may be familiar with Bill James. Bill James came to the conclusion that baseball stats really didn't say very much about what went on in a game, and were misleading in evaluating individual performance. He and people like him have asked questions like "is RBI production really a fair measure of individual performance (since it depends on teammates getting on base)" and "why are walks left out of traditional hitting stats". My post is really on football, but if these baseball questions interest you, check out the book Moneyball.

Much like these baseball stat pioneers, there are a number of people trying to rethink football statistics. For example, is total yardage given up a good measure of defensive productivity? Won't a mediocre defense on a team with a great offense that grinds out 8 minute drives sometimes look better on this stat than a good defense on a team with an offense that is always 3 and out? A site called Football Outsiders is one example of the search for better football understanding. If you are numerically inclined, and are tired of the "its all about execution, about taking it one game at a time" football analysis, check these guys out.

Note that this is part 1 of a three-part series. Here are part 2 and part3.

Over the past several years, we have been audited a couple of times by the Department of Labor (DOL). One of the audits was standard procedure (as a concessionaire to the US Forest Service, audits are sometimes required on certain contracts) and one was based on employee complaints. It never ceases to amaze me that some folks never even bother to call our HQ to complain and try to get it paycheck mistakes fixed -- they go straight to the government rather than our labor department if something looks wrong on their check.

Many times I have heard other small business owners say that the DOL is not "fair". If you were to ask me if I think they are fair, I would answer "yes" and "no". If you want to know if DOL employees are generally honest, well-intentioned, and law-abiding, my experience is that they are. However, if you expect, as a business owner, that the DOL will act as some kind of neutral court of law, in which you and your workers have equal status and equal rules of evidence, then you are in for a surprise. The DOL is not on the employers side and doesn't really pretend to be.

This should not come as a surprise to you. Young lawyers out of school generally don't seek out lower government pay scales with a vision of helping businesses manage their cost structures. They join the DOL because they are interested in defending downtrodden workers against rapacious capitalists who seek to exploit them (etc. etc.) The main mission of the DOL is to enforce labor laws like the Fair Labor Standards Act (FLSA). However, overlaying this mission is a strong institutional culture that mission 1A is to defend workers against employers. This culture will have a number of implications in any dealings you, as an owner or employer, have with the DOL:

1. Workers claims will almost always be believed by the DOL, and the DOL will generally not require much documentary evidence to back up workers claims. The flip side of this is that employers claims that contradict workers will always require extensive documentary evidence. For example, we had several weeks of time sheets burn up in an office fire. In cases like this, the DOL will generally always side with the worker's recollection of time worked rather than the employers, even if the time claimed is completely inconsistent with hours worked in all other documented weeks. The burden of proof, in almost any dispute, will be on the employer.

2. The DOL's first answer to any employer's claims of an exemption under FLSA or other labor laws will be "NO". Congress has granted a number of exemptions to labor laws for certain business situations. For example, one that applies to our business in some cases is the FLSA has relaxed standards for overtime for "seasonal recreation businesses". From my experience, the DOL hates to admit that these exceptions apply to your particular situation. Back to the fairness point, they CAN be convinced, but sometimes it takes a lot of work to do so. In part 2 and part 3 of this series, I will give more specific examples of how to do this.

3. The DOL will never point out to you an exemption or saving that you are missing. I know that many people get frustrated with the IRS, but I have actually had experiences where the IRS found a mistake where I had overpaid. I have never had this experience with the DOL. The DOL does not really have very good staff or tools to help employers comply with the law in the most efficient manner. They have LOTS of tools and people dedicated to making sure workers get every bit of what the law guarantees them.

If you recognize this culture and context, and put any frustration that you might have as a tax-paying citizen and business owner aside, you can get a fair shake from the DOL. You just have to be prepared in advance to argue your case and bring lots of evidence to bear. And, if worst comes to worse, and you are willing to pay the attorney fees, you can always refuse the DOL's finding and take the case to a court of law, where there are much more neutral evidence standards.

The next part of this series will discuss further some examples and lessons learned in making your case to the DOL. Part 3 of the series will include a specific example.

Note: These are my observations as a business owner and are not specific recommendations. I am not a lawyer, and, even if I were, I am not your lawyer.

A regular feature, it is explained here. Many of our ACME products come courtesy of this site.

This is an awesome product. The ACME dehydrating technology was always tops. These are perfect for pitching into an unloved neighbor's swimming pool. Not sure I would add water while holding it in my hand, though...