Category: Public Choice

Richest Rich Use Crony Capitalism to Game Tax System

(p. A1) Two decades ago, when Bill Clinton was elected president, the 400 highest-earning taxpayers in America paid nearly 27 percent of their income in federal taxes, according to I.R.S. data. By 2012, when President Obama was re-elected, that figure had fallen to less than 17 percent, which is just slightly more than the typical family making $100,000 annually, when payroll taxes are included for both groups.
. . .
(p. A12) “There’s this notion that the wealthy use their money to buy politicians; more accurately, it’s that they can buy policy, and specifically, tax policy,” said Jared Bernstein, a senior fellow at the left-leaning Center on Budget and Policy Priorities who served as chief economic adviser to Vice President Joseph R. Biden Jr. “That’s why these egregious loopholes exist, and why it’s so hard to close them.”

The Family Office
Each of the top 400 earners took home, on average, about $336 million in 2012, the latest year for which data is available. If the bulk of that money had been paid out as salary or wages, as it is for the typical American, the tax obligations of those wealthy taxpayers could have more than doubled.
Instead, much of their income came from convoluted partnerships and high-end investment funds. Other earnings accrued in opaque family trusts and foreign shell corporations, beyond the reach of the tax authorities.
The well-paid technicians who devise these arrangements toil away at white-shoe law firms and elite investment banks, as well as a variety of obscure boutiques. But at the fulcrum of the strategizing over how to minimize taxes are so-called family offices, the customized wealth management departments of Americans with hundreds of millions or billions of dollars in assets.
. . .
The major industry group representing private equity funds spends hundreds of thousands of dollars each year lobbying on such issues as “carried interest,” the granddaddy of Wall Street tax loopholes, which makes it possible for fund managers to pay the capital gains rate rather than the higher standard tax rate on a substantial share of their income for running the fund.

For the full story, see:
NOAM SCHEIBER and PATRICIA COHEN. “By Molding Tax System, Wealthiest Save Billions.” The New York Times (Weds., DEC. 30, 2015): A1 & A12.
(Note: bold, and larger font, in original; ellipses added.)
(Note: the online version of the story has the date DEC. 29, 2015, and has the title “For the Wealthiest, a Private Tax System That Saves Them Billions.”)

Taxpayer Funded Stadiums Fail to Bring Promised Economic Development

(p. C14) The Twin Cities of Minneapolis and St. Paul have been an epicenter of the U.S. stadium-and-arena boom, rolling out five major sports facilities since 1990 that together cost more than $2 billion.
Now, the neighboring cities are readying for a sixth: a 20,000-seat, $150 million Major League Soccer stadium to be built by 2018 in St. Paul about halfway between the two downtowns.
. . .
But taken with the other facilities that have a combined seat count of nearly 200,000, this latest project illustrates how the Twin Cities are an acute example of the rapid increase in stadiums and arenas in U.S. cities. These developments come despite a growing chorus of warnings from economists who say the stadiums are almost always poor drivers of economic development. Even when these facilities do spur nearby investment, economists and critics say the cost to the public is typically far higher than with traditional economic-development programs.
“I’ve lived in the Twin Cities since 1976, and have seen this proliferation of new sports stadia,” said Jane Prince, a St. Paul city council member who voted against the soccer stadium aid package. “I just don’t see the promised economic development occurring in conjunction with all of these.”
. . .
“There’s not one group that makes these decisions–it was two city governments, it was a legislature, it was sports owners,” said R.T. Rybak, the mayor of Minneapolis from 2002 to 2014. Mr. Rybak said he had long been critical of sports subsidies but he grudgingly helped craft the aid package for the Vikings stadium after the team was poised to move elsewhere.
That deal, and the others, he said, were “also driven by the increasingly crazy politics of sports economics,” in which teams want their own facilities, custom designed for their ideal crowd sizes.

For the full story, see:
ELIOT BROWN. “Twin Cities to Get Yet Another Stadium.” The Wall Street Journal (Weds., March 23, 2016): C14.
(Note: ellipses added.)
(Note: the online version of the story has the date March 22, 2016, and has the title “In Twin Cities, How Many Stadiums Are Enough?”)

Imperial Passivity of the Holy Roman Empire Allowed Liberty and Diversity

(p. C7) On Aug. 6, 1806, an imperial herald decked out in full court regalia galloped purposefully through the streets of Vienna to a magnificent medieval church at the center of the city. Once there, he ascended to the balcony, blew his silver trumpet and declared that the Holy Roman Empire, an institution that had lasted for more than 1,000 years, was no more.
. . .
But because the empire never evolved into a viable nation-state, many scholars and politicians regarded it as a failure. The Germans in particular (including the great 19th-century historian Leopold von Ranke) blamed the empire for the fact that Germany remained a “delayed nation” that was only unified (through Prussian machinations) in 1871.
Yet it was precisely this lack of political centralization, Mr. Wilson argues, that provided the empire with its greatest strength. Imperial passivity meant that individual rulers and states were largely left alone to govern as they wished. And all subjects had the right to appeal to the emperor if they believed their rights had been trammeled upon. Jews, for example, were given imperial protection as early as 1090; and though forced to live as second-class citizens during much of the empire’s history, many viewed its dissolution as a catastrophe.
Political fragmentation also had cultural benefits. Unlike France and England, with their single capital and monarch, the Holy Roman Empire had numerous kings, courts and centers of patronage. The result was a remarkably wide distribution of educational and cultural institutions, one that is still observable in the former imperial lands. It was probably also no coincidence that both the printing press and Europe’s first mail service were launched within the fragmented empire or that the imperial territories experienced higher levels of economic growth than regions of Europe with more centralized control.
. . .
Though far from perfect, the empire lasted for as long as it did because it strove to provide the two things most hoped for in a state: liberty and security.

For the full review, see:
MARK MOLESKY. “The Strength of a Weak State; In the Holy Roman Empire, individual rulers and states were largely left to govern as they wished.” The Wall Street Journal (Sat., May 21, 2016): C7.
(Note: the online version of the review has the date May 20, 2016.)

The book under review, is:
Wilson, Peter H. Heart of Europe: A History of the Holy Roman Empire. Cambridge, MA: Belknap Press, 2016.

Feds Spend Over $500 Million to Aid Barges Shipping Coal

(p. B1) CHARLEROI, Pa.–A few years ago, coal barges lined up 20 or 30 deep, waiting their turn for a towboat to shuttle them through the locks near this town along the Monongahela River.
These days it is the towboats that often sit idle. Cheap natural gas, stricter power-plant-emissions rules and a weak steel market have gutted coal demand, and with it traffic on the rivers that have served as the industry’s commercial arteries for over a century.
Nevertheless, river infrastructure is about to be flooded with federal cash. In December, Congress authorized $405 million to improve river locks and dams over the next fiscal year, the most since 2008.
The money follows a multimillion-dollar lobbying effort spearheaded by the Waterways Council Inc., which represents an array of companies including coal producer Murray Energy Corp., utility FirstEnergy Corp., agricultural-commodities trader Cargill Inc. and Marathon Petroleum Corp.
. . .
“It’s kind of ironic–we’re spending even more to update and modernize this system when the value and volume of the commodities is diminishing, and coal is something that we as a country are moving away from,” said Steve Ellis, vice president of Taxpayers for Common Sense, a conservative-leaning advocacy group that analyzes infrastructure spending.

For the full story, see:
ROBBIE WHELAN. “Barges Get a Boost, Even as Demand Sinks.” The Wall Street Journal (Thurs., Feb. 4, 2016): B1 & B7.
(Note: ellipsis added.)
(Note: the online version of the story has the date Feb. 2, 2016, and has the title “U.S. Opens Spigot for Lock-and-Dam Fixes, Even as Coal Traffic Dwindles.”)

Tesla Direct Sales Thwarted by Laws that Protect Dealers Instead of Consumers

(p. B3) Tesla Motors Inc. hopes to capture mainstream auto buyers with its Model 3, an electric car it plans to unveil this week at a price about the same as the average gasoline-powered vehicle, but it may need a federal court ruling to succeed.
The Palo Alto, Calif., auto maker’s direct-to-consumer sales are prohibited by law in six states that represent about 18% of the U.S. new-car market. Barring a change of heart by those states, Tesla is preparing to make a federal case out of the direct-sales bans.
The auto maker’s legal staff has been studying a 2013 federal appeals court ruling in New Orleans that determined St. Joseph Abbey could sell monk-made coffins to customers without having a funeral director’s license. The case emerged amid a casket shortage after Hurricane Katrina. The abbey had tried to sell coffins, only to find state laws restricted such sales to those licensed by the Louisiana Board of Funeral Directors.
For now, Tesla is banking on a combination of new legislation, pending dealer applications and other factors to open doors to selling directly in Arizona, Michigan, Texas, Connecticut, Utah and West Virginia. But the company said it is ready to argue in federal court using the coffin case if necessary.
“It is widely accepted that laws that have a protectionist motivation or effect are not proper,” Todd Maron, the auto maker’s chief counsel, said in an interview. “Tesla is committed to not being foreclosed from operating in the states it desires to operate in, and all options are on the table.”
. . .
“There is no legitimate competitive interest in having consumers purchase cars through an independent dealership,” Greg Reed, an attorney with Washington D.C.-based Institute for Justice, a libertarian-leaning law firm, said. He calls Michigan’s laws “anti-competitive protectionism.”

For the full story, see:
MIKE RAMSEY. “Tesla Weighs Legal Fight.” The Wall Street Journal (Tues., March 29, 2016): B3.
(Note: ellipsis added.)
(Note: the online version of the story has the date March 28, 2016, and has the title “Tesla Weighs New Challenge to State Direct-Sales Bans.”)

Government: “One Vast Honey Pot with Thousands of Ants Lined Up Around the Rim”

(p. A21) Ms. Tolchin hit on the subject of patronage when Mr. Tolchin, then a reporter in the metropolitan news department of The New York Times, wrote a series of articles on the topic that several publishers urged him to turn into a book. Daunted, he turned to his wife for help.
“The political-science literature had an enormous hole on the subject,” she told The Washingtonian in 2011. “It’s such a critical part of the political process — it was wonderful virgin territory.”
Their combined efforts — he provided the reporting, she provided the scholarship — resulted in “To the Victor…: Political Patronage From the Clubhouse to the White House,” published in 1971.
In lively fashion, the book surveyed the history and examined the mechanisms of a system the authors described as “one of the occupational hazards of democracy.” They traced its influence, for good and ill, in city halls, statehouses, courthouses and, onward and upward, Congress and the White House.
The picture it painted was often bleak, presenting government at all levels as “one vast honey pot with thousands of ants lined up around the rim to get at the sweetener inside,” according to a review in The Times.
It was a rich subject to which the authors returned in “Pinstripe Patronage: Political Favoritism From the Clubhouse to the White House … and Beyond,” published in 2011. Patronage is “the major reason people go into politics,” Ms. Tolchin told The Washingtonian.”

For the full obituary, see:
WILLIAM GRIMES. “Susan Tolchin, Scholar and Author, Is Dead at 75.” The New York Times (Fri., May 20, 2016): A21.
(Note: ellipses in original.)
(Note: the online version of the obituary has the date May 19, 2016, and has the title “Susan Tolchin, Political Scientist Who Foresaw Voter Anger, Dies at 75.”)

The two books on government patronage that are mentioned above, are:
Tolchin, Martin, and Susan Tolchin. To the Victor: Political Patronage from the Clubhouse to the White House. New York: Random House, 1971.
Tolchin, Martin, and Susan Tolchin. Pinstripe Patronage: Political Favoritism from the Clubhouse to the White House and Beyond. Boulder, CO: Paradigm Publishers, 2011.

Trump Threatens Antitrust Action Against Innovative Amazon Entrepreneur Bezos

(p. A11) Donald Trump, an innovator in all things, is now in the process of changing the rules in America with his threat to bring legal action against Amazon on antitrust grounds and, if we hear him correctly, on tax grounds as well.
Mr. Trump couldn’t have been clearer about his motivation. He complained about Washington Post reporters calling up and “asking ridiculous questions,” “all false stuff,” apparently related to Mr. Trump’s tax returns, which in defiance of all tradition he has refused to release, as well as Mr. Trump’s real-estate dealings.
Mr. Trump says the Post was purchased as “a toy” by Amazon founder Jeff Bezos (who bought the paper with his personal funds in 2013). Mr. Trump says the paper now is being used to attack Mr. Trump in order to protect Amazon’s alleged tax-dodging practices even though Amazon, after long resistance, has begun in recent years to collect state sales tax.
All this seems to arise because the Post, the dominant newspaper in the nation’s capital, has assigned reporters to investigate the business career of the candidate who champions his credibility to be president by referring to his business career.

For the full commentary, see:
HOLMAN W. JENKINS, JR. “BUSINESS WORLD; Donald Trump’s Amazon Adventure; Does he really want to be president–or is his attack on entrepreneur Jeff Bezos a cry for help?” The Wall Street Journal (Sat., May 14, 2016): A11.
(Note: the online version of the commentary has the date May 13, 2016.)

Global Warming Is Producing More Pleasant Weather in United States

(p. 9) CHRISTMAS in New York was lovely this year — especially for those who prefer to spend the day working on their tans. It was the city’s warmest ever, with temperatures peaking at 66 degrees.
Record-breaking temperatures are occurring with alarming frequency in the United States, but Americans are reacting with a collective shrug. In a poll taken in January, after the country’s warmest December on record, the Pew Research Center found that climate change ranked close to last on a list of the public’s policy priorities. Why?
In a paper published on Wednesday [April 20, 2016] in the journal Nature, we provide one possible explanation: For a vast majority of Americans, the weather is simply becoming more pleasant. Over the past four decades, winter temperatures have risen substantially throughout the United States, but summers have not become markedly more uncomfortable.
Of course, people’s preferences about weather vary widely. Some want a snowfall every winter, while others would rather wear sandals year-round. So we sought to develop a measure of the average American’s weather preferences. To do this, we made use of research by economists who study local population growth in the United States. They have found that Americans have been moving to places with warm winters and cool, less humid summers. We made the inference (not true in every case, but reasonable to assume in general) that Americans prefer such conditions.
Then we evaluated the changes in weather conditions that Americans have experienced over the past four decades (i.e., roughly since climate change emerged as an issue in the public sphere). Climatologists customarily report weather changes averaged over the land surface — an approach that counts changes in sparse Montana just as heavily as shifts in populous California. But because we were interested in the typical American’s exposure to weather, we took a different tack, calculating changes over time on a county-by-county basis, weighted by population.
Our findings are striking: 80 percent of Americans now find themselves living in counties where the weather is more pleasant than it was four decades ago.

For the full commentary, see:
PATRICK J. EGAN and MEGAN MULLIN. “Gray Matter; Global Warming Feels Quite Pleasant.” The New York Times (Sun., APRIL 24, 2016): 9.
(Note: bracketed date added.)
(Note: the online version of the commentary has the date APRIL 21, 2016.)

The Nature article mentioned above, is:
Egan, Patrick J., and Megan Mullin. “Recent Improvement and Projected Worsening of Weather in the United States.” Nature 532, no. 7599 (April 21, 2016): 357-60.

Proletariat Loses Money Investing in Ponzi Scheme Supported by Chinese Communists

(p. B1) HONG KONG — At every turn in his improbably rapid rise, Ding Ning, 34, went to great efforts to convey the image of strong government backing for his Internet financing business.
There was his company’s lavish annual meeting and banquet last year in Beijing’s Great Hall of the People, where China’s legislature meets and where top government leaders host official functions. Adding a splash of celebrity to the event were Zhou Tao, a nationally famous actress and host on the government’s main television broadcaster, and several mid-ranking officials, bureaucrats and lawmakers.
There were the positive profiles in state-controlled media, as well as the company’s advertising on official TV. There was the section of his company’s website devoted to building Communist Party spirit.
But it all came crashing down in dramatic fashion for Mr. Ding this week, when the police alleged that his financing business, Ezubao, was a $7.6 billion Ponzi scheme and announced 21 arrests, including of Mr. Ding. The company was shut down.
, , ,
(p. B7) In interviews, former staff and investors described the signals of strong state support as one of the keys to Ezubao’s rapid rise.
“Many people joined Ezubao because they saw the support from the government and from some government officials,” said Feng Zhe, 36, a Beijing resident who worked as a salesman at the company from June of last year until December.
Mr. Feng said a number of his friends and family members invested in Ezubao’s products and suffered losses. “Many people bought their products because the government has lent the company credibility,” he added.

For the full story, see:
NEIL GOUGH. “Feeling Twice Victimized.” The New York Times (Sat., Feb. 6, 2016): B1 & B7.
(Note: ellipsis added.)
(Note: the online version of the article has the date Feb. 5, 2016, and has the title “Ponzi Scheme in China Gained Credibility From State Media.”)

Harry Reid Supported Huge Tax Loophole for Wall Street and Casinos

(p. A1) WASHINGTON — In the span of a mere 11 days this month, $1 billion in future federal tax payments vanished.
As congressional leaders were hastily braiding together a tax and spending bill of more than 2,000 pages, lobbyists swooped in to add 54 words that temporarily preserved a loophole sought by the hotel, restaurant and gambling industries, along with billionaire Wall Street investors, that allowed them to put real estate in trusts and avoid taxes.
They won support from the top Senate Democrat, Harry Reid of Nevada, who responded to appeals from executives of casino companies, politically powerful players and huge employers in his state. And the lobbyists even helped draft the crucial language.
The small changes, and the enormous windfall they generated, show the power of connected corporate lobbyists to alter a huge bill that is being put together with little time for lawmakers to consider. Throughout the legislation, there were thousands of other add-ons and hard to decipher tax changes.
Some executives at companies with the most at stake are also big campaign donors. For example, the family of David Bonderman, a co-founder of TPG Capital, has donated $1.2 million since 2014 to the Senate Majority PAC, a campaign fund with close ties to Mr. Reid and other Senate Democrats. TPG Capital has large holdings in Caesars Entertainment and helps run a Texas-based energy company, both of which stand to benefit from the (p. A17) last-minute change.

For the full story, see:
ERIC LIPTON and LIZ MOYER. “Lobbyists Shield a Tax Loophole Worth $1 Billion.” The New York Times (Mon., DEC. 20, 2015): A1 & A17.
(Note: the online version of the story has the date DEC. 20, 2015, and has the title “Hospitality and Gambling Interests Delay Closing of Billion-Dollar Tax Loophole.” )