Tuesday, December 25, 2012

Of Death and Taxes

As 2012 draws its last breath, my thoughts have been on death and taxes. Those anticipating the world’s end based on misinterpreting the Mayan calendar have gone back into their holes. I’m sure they are busily inventing some other catastrophe to cheer for.

The rest of us watch the slow moving catastrophe we call the United States Congress as it deals, or does not deal, with death and taxes.


With the passing of Daniel Inouye, Congress lost one of its true heroes. If you aren’t familiar with his story, this Wikipedia link can give you the basics. While he certainly looked after Hawaii’s interests and could at times be partisan, he usually had America’s best interests at heart. He worked to get things done. He did not think compromise a dirty word and showed the continued courage to find middle ground. He had friends on both sides of the political aisle—all attributes that these days seems more and more rare.

The latest mass killings, this time of twenty children and six adults in Newtown, Connecticut, is unlikely to make much of a change in our attitude toward guns in this country. Those afraid they will no longer have the opportunity to purchase weapons and ammunition clips, whose sole justification is that they can fire massive numbers of rounds in a very short period of time, will make more purchases now. The false statisticians (those who claim to prove causality by use of statistics) will be talking heads on a fawning media for a few weeks, neither side providing much value to resolving the real issue.

The second amendment of the US constitution is short, and reads, “A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.”

At the time the constitution was drawn, most of the army was composed of militias paid by the various states. Part of the grand bargain that got us “These United States” rather than “these collective states” was the Federal government accepting responsibility for the individual state’s debts from the Revolutionary War. Having seen England try to impose its will by eliminating the right of citizens to bear arms (and therefore protect themselves against the state) our founders wanted to make sure to inhibit the national government they were forming from taking a similar tack.

The NRA claims this sentence means each of us has a right to carry whatever weapons we choose wherever and whenever we want. I suppose that’s a bit too strong. They would probably agree that tactical nuclear weapons should be limited to our national armed forces. They might agree that those with certain criminal records should not have the right to weapons. But they can’t actually say those things directly, because once they concede that not all arms should be available to all individuals, they have agreed that the discussion is not one of absolute, but of where we draw the line.

And they do not want the public to understand the real issue is where to draw the line. To again distract the public and lawmakers from this real question they presented a straw man: suggesting that by making schools no gun zones it puts a target on our kids’ backs because gunman will be drawn to schools where there is no one to shoot back. Their solution is to make schools armed compounds in order to protect our children.

Many of our schools already have armed guards—not primarily to protect children from outside gunmen, but to protect children and teachers from other students who would carry concealed weapons. This, the NRA conveniently forgets. They also neglect to mention that if schools did become armed compounds, those bent on a mass killing of our children would turn their attention elsewhere—say to ambushing a school bus. There the kids are already confined to an aluminum can with limited exits, a place where a semi-automatic military-style weapon could quickly riddle the entire bus, changing clips before the children (or an armed guard on the bus, since that would be the NRA’s next logical step) could react.

These latest deaths won’t change anything, because they are a blip in the total. Every year we lose about 11,000 Americans to bullets. If there were no guns, there would be no deaths by guns. However, as with automobiles (we lose 36,000 Americans a year to vehicle accidents), guns are a part of American society. We are inured to all these deaths because our individual risk of such a death is low.
To minimize the risk of automobile deaths, we require people to use seatbelts; we require cars to have certain safety mechanism. We test drivers (at least once) to make sure they can drive safely. We should apply all these same considerations to people who own guns.

I am not against guns. I have lots of friends who hunt; I even let them hunt on my property. When hunting, they fire their shotguns and rifles one shot at a time, and that is where we should start. Every rifle and shotgun should be single shot, not even three-round bursts should be allowed. Multiple shot bursts and semi-automatic fire are designed to kill people, not deer.

We already ban certain types of bullets because their only purpose is to kill people. Why shouldn’t we ban magazines designed to kill people? Hunters do not need ten or twenty or larger magazines to hunt. A half-dozen shells before the weapon needs to be reloaded provides more firepower than most hunters need in a whole day of hunting. Larger magazines are designed for killing people, not deer.

Revolvers (a dying breed) are single shot and usually carry between four and ten rounds. We could limit them to six in the future. Pistol clips can similarly be limited to a small number of rounds. Revolvers and pistols are not nearly as accurate as rifles, and as distance increases they become increasingly less accurate.

As with automobiles, all firearms should be registered, their serial numbers recorded and the owner required to acknowledge that they will be charged with a criminal act if they do not safeguard their guns. We require individuals to have licenses and carry insurance to drive a car. We should require all gun owners to pass a safety course in order to be licensed to carry a gun. (The NRA has safety courses, and my recollection is that they are very good. I passed one in junior high school before I was allowed to target shoot at my grandparents’ farm.)

All gun transactions should be conditional on the buyer passing a background check, which also requires them to be licensed. Private transactions must not be exempted. It matters not whether the seller is a licensed gun dealer, a trade show operator or me selling a gun to Josephine Blow. In all cases Josephine must pass the same background check and wait the required number of days before taking possession. The costs for maintaining the database of guns and background checks should be paid by the gun purchaser. If, as the NRA claims, the process is inefficient, charge more to pay for an efficient system. Those who want to own cars and be licensed to drive them pay the costs of the system; so should gun owners.

Obviously these policies cannot be implemented without a transition period; however, a transition period should not be an impediment to implementing strict gun ownership requirements. Nor, turning my attention from death to taxes, should a transition period be an impediment to fixing our budget crisis.


I admit that until I wrote this piece, I had not read the Grover Norquist “Taxpayer Protection Pledge.” It reads:
I, _____, pledge to the taxpayers of the (____ district of the) state of ______ and to the American people that I will: ONE, oppose any and all efforts to increase the marginal income tax rate for individuals and business; and TWO, oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.

In the 2011-2012 Congress, 236 Representatives (all but six Republican House members, and including only two Democratic House members) and forty-one Senators (one Democrat and forty Republicans) signed this atrocity. Since a majority of the House is 218, this means (unless people break their pledge) no bill can pass to raise income taxes (expect perhaps through subterfuge). Further, since it takes sixty votes in the Senate to vote cloture and break a filibuster (at least in theory; these days it seems any one Senator can put a permanent hold on any nomination without the necessity of formally going through a filibuster, but that’s a different illness of the Senate), Republicans could prevent any increase in taxes in that body as well.

The deficit for FYE 2012 is about $1.1 trillion. Expenses were something on the order of $3.6 trillion. To balance the budget without increasing revenues would require across-the-board cuts of over 30%. Take your own situation and envision cutting 30% from your housing expense, from your food expense, from your clothing expense, from transportation, from entertainment, from supporting your children or parents, from absolutely everything. That’s how far off we as a nation are from a balanced budget.

If you were faced with this scenario, you would probably borrow your credit cards to the hilt rather than cut all the way back on spending. That’s what Congress has done. We took on two wars, Afghanistan and Iraq and charged it all. Republicans wouldn’t raise taxes because of their pledge and for the first two years of Obama’s presidency when Democrats controlled the House, Senate and White House, the country was in a severe financial recession and raising taxes made little sense.

As someone who thinks the Keynesian idea that when we have a struggling economy we should run some deficits and when we have a robust economy we should run surpluses, I’d suggest that we should currently be running something of a deficit because we have additional expenses caused by the past recession (extra unemployment benefits, food stamps, training costs, etc.) However, those extra costs caused by a lousy economy add up to a few hundred billion at most; nothing close to $1.1 trillion. The difference is our structural budget problem and will not be solved by a robust economy.

Every individual prefers to pay less for government. That is not the same thing as preferring less government. The Republicans (with the complicity of Democrats) have focused their tax efforts for the last two decades on pandering to our preference to pay less for government. The Bush tax cuts decreased annual Federal Government Revenues around $350-400 billion. Had we not enacted them we would have about $4 trillion less in accumulated deficits than we do. Had Bush and the Republicans raised taxes temporarily to pay for the Iraq and Afghanistan wars, we could lop off another trillion or two.

This disparity is not about the rich versus the middle class. Almost all of us need to pay higher taxes to afford the government we want. Most of us also need to collect less from the government than we desire. On the spending side, we have long-term structural problems with Social Security, Medicare, Medicaid and the Defense Department. Republicans are correct that we must look at these areas (well, actually they only want to look at the first three; I added the Defense Department because it is equally broken.)

President Obama is correct that either marginal tax rates must rise or net deductions decrease. He is myopic considering the problem is addressed by focusing on those earning $250,000 or more (or his latest weasel to only increase taxes for those earning $400,000 or more). However, I suppose we have to start somewhere and that’s with the wealthy. Either Republicans must renounce their puerile Norquist pledge or be responsible for a failed government. The president must not give in on this because once there is agreement that changes can be made we can start to have real conversation about the right level of government and how to structure taxation to support it. That’s when middle American has to suck it up and pay more taxes or suck it up and stop asking the Federal government to solve every problem that inconveniences them.

So there we have it. I have run out of patience with Republicans, Democrats, the President, the House, the Senate and the American people when it comes to taxes and spending. With only a few notable individual exceptions not one of them is actually facing reality.

Every empire I am aware of failed in part because they debased their currency attempting to protect their empire while bribing the masses with public goods. I hope we can learn this lesson from history, rather than following those earlier empires’ paths. Nothing this past month has given me a glimmer of hope.

It’s the time of year we celebrate miracles and the beginning of more light in our twenty-four hour days. So despite my best rational judgment, I’ll keep hoping for heroic leaders who will lead us to a better, sustaining future.

~ Jim

Tuesday, November 13, 2012

Fixing the Fiscal Cliff

Unfortunately the moniker “Fiscal Cliff” itself projects visions of the U.S. as Wile E. Coyote discovering on January 1, 2013 that the ground is no longer beneath his fast-spinning feet. Cut the camera shot to his crumpled mess lying on a much lower level than where he started.

Not solving the economic mess encompassed by the fiscal cliff (automatic tax hikes and across-the-board cuts) won’t be that quick, and it won’t be that disastrous. But it won’t be good. Unlike Wile E. who is A-OK after the commercial break, the US economy will not recover for a long time if all those tax policies and spending cuts stay in place for any length of time.

Other commentators have suggested a middle ground between Obama’s higher taxes on the rich and Boehner’s no increase in tax rates. I’ll leave it to them to figure out the how; I am going to postulate a world in which we avoid the insanity of the current stalemate. Then what?

My suggestion focusses on avoiding the next fiscal debacle brought to us by the children we elect to run the country. When I was young and had an allowance, I had to earn it. I had certain chores, and if I didn’t complete them I didn’t get my allowance.

The U.S. Federal fiscal year begins on October 1. If we do not have an agreed budget in place before that date, Congress has not done its job. If they have not done their job, they should not be paid. Congress has not approved a budget for this fiscal year, 10/1/2012 – 9/30/2013; that’s why we have the fiscal cliff problem. The first thing the lame duck Congress should do is pass what I am calling “The Pay for Performance Act of 2012.” Then they should pass a budget, because until they do, they will not be paid.

To be clear, by “budget” I do not mean a budget resolution. I do mean passing all of the appropriation bills required to implement the budget resolution. It’s the deed that counts, not the name.

If the budget calls for a deficit, then the debt limit must be raised. It is lunacy to agree on a budget but vote against increasing the debt ceiling to implement that budget. However, I have no confidence that the boys and girls of Congress will get their act together simply because they aren’t being paid, so when they do finally pass a budget that calls for a deficit, the debt ceiling should automatically be raised to also cover an equal amount for the next year. That will avoid the artificial constraint of facing another debt ceiling crisis should they not agree on a budget by October 1.

There are many other things I would like to fix with how Congress does business, but if they give me this one, I promise not to make other demands for one election cycle. If they don’t… well, that’s what future blogs are for.

~ Jim

Sunday, September 16, 2012

Camping with Dad

My father passed away on Thursday. He was 87, lived a good life and, as deaths go, his wasn’t too bad. Regardless of your beliefs in an afterlife, of this I am sure you will agree: as we remember our ancestors in stories, they yet live with us. So here is a story of Dad and me.

I was a boy scout and I belonged to a camping troop. We camped one weekend every month of the year except during the summer when we spent two weeks at Camp Massawepie in New York’s Adirondack Mountains. I liked camping a lot—the more remote the better.

Dad had a bad back, so hiking was not something he was able to do, but he did enjoy canoeing. Our family owned a log cabin on Chandos Lake, Ont. where we spent two or three weeks each summer. It was rustic—no electricity (or hydro as the Canadians would call it), cooking over a wood stove. A few hours north exists a canoeist’s paradise: Algonquin Provincial Park. Unlike most parks with miles of hiking trails, Algonquin’s trails were the myriad lakes connected by portages. Dad and I made several outings over the years.

Our canoe was a monster designed for family outings—much larger (and heavier) than necessary for just two of us, but we made do with what we had. I was the bowman; Dad took the stern. Back then I could still kneel in a canoe for hours at a time, and we could cover many miles a day. When the wind was against us we would have to huddle next to the shore to reach our destination. We chose times with good long-term forecasts, but even the best laid plans didn’t always work quite as expected.

With a little planning you could canoe multiple lakes in Algonquin with just a few short portages. If you were willing to do just one long portage, you could often find yourself the only canoe on a lake. That was what Dad and I preferred to do, although on one trip Dad threw his back out on our first long portage, and we had to beat a painful retreat.

We shared a two-man tent. If the weather was good, we’d set up the fly to keep the dew off our gear. If it rained, we crammed everything inside the tent. Our duties were clear: Dad would collect firewood, I would do the cooking (what little skills I had from scouting far surpassed Dad’s) and clean-up. Once dinner was complete, we played card games using a set of miniature cards and a small cribbage board for scoring.

Dad’s snores assured us that we would not be disturbed by any wildlife during the night. If I could get to sleep first, I wasn’t bothered since I was physically tired from the exercise. However, I was often awake first in the morning, and the snoring meant I would not get back to sleep.

Once we were away from people, wildlife viewing opportunities increased. A distant log became a black bear swimming across the lake. When he reached shore, he shook off great sheets of water, much as a dog would, and then bounded up a 30-degree slope with no more effort than I would need for a Sunday walk. A beaver scared the bejesus out of us when it surfaced and slapped its tail on the water right behind us. Apparently we had stayed too long looking at its lodge, and it wanted us gone. Other fond memories: Osprey fishing for dinner, belted kingfishers leading the way down an outlet, raucous rattles announcing our presence to all the other animals so they could hide before we turned the next bend.

The individual memories are too many to enumerate, so I’ll just relate one more. One evening we camped on an island in a distant interior lake. We had not seen anyone else for more than a day. A dense fog built up overnight, leaving the lake shrouded as the Mists of Avalon. I awoke early and could not get back to sleep because Dad was snoring loudly. A solitary loon was making his “rain call”—that’s the haunting call you often hear in wilderness scenes in movies (even those set in the Amazon which is not exactly loon habitat). Often loons continue to make that call until they are answered by a mate. They have other calls when they are disturbed or frightened. From somewhere in the fog the loon continued calling.

I sat on the shore and watched the day unfold as the sun crept over the eastern hills. The fog did not diminish in the sun’s heat, and I wondered how we were going to find our way home. Our schedule was a bit flexible, but… Then in a manner of seconds, the fog bank lifted three feet off the water. If I stood, my head was in the clouds (something I have been accused of more than once). I waited for the fog to dissipate, but it didn’t and then fifteen, maybe twenty feet in front of me up popped the loon. It tilted its head and gave its call, which echoed around the lake, bouncing from shore to shore, seemingly trapped by the fog.

Normally I let Dad sleep as long as he liked, but this time I woke him up so that together we could listen to the loon and watch it fish in the window under the fog bank. Many minutes later we heard an answering call; a second loon flew in, splashing down in what must have been an instrument landing. It swam to the first loon and together they dove after fish. Soon the fog bank began to disappear.

Earlier this week, I took my last camping trip with my father. It was a different wilderness experience. Rather than sleep in a hotel, I pulled a blanket over me and slept on the cushioned bench in his hospice room, sharing one last night with him. Although his breathing during the day had been ragged, that night it smoothed out. I fell asleep to the rhythm of his respiration, awoke every time a nurse came in to check on him and fell back to sleep to his steady breathing.

And in my waking hours I remembered our camping trips and the fog and the loons and the snoring I will no longer hear.

Night, Dad.

~ Jim
Simultaneously published at Writers Who Kill

Monday, September 3, 2012

The Inconvenient Truths about Jobs

For the Democrats a major inconvenient truth about their economic policy is found in the nationwide unemployment rate. At 8.3% for July 2012, almost one in twelve people who want to work can’t. That statistic does not reflect those who have “dropped out” of the labor force; nor does it include those who have jobs that underutilize their skills.

Worse that the bald statistics, the Democrats have not presented a clear, cogent strategy for generating new jobs in the economy. The best they can say is that the Republicans would have done worse. Perhaps at their convention this week they’ll come up with a better answer, but I’m not holding my breath.

The Republican mantra seems to be that we are in this mess because (1) Democrats want big government, (2) Democrats are beholden to labor unions, which cause bloated government payrolls and have a negative impact on job growth and (3) Democrats refuse to balance the Federal budget and eliminate regulations. Had they done so, then the free markets would be released from their prisons and would solve the economic
problems that beset us.

Inconvenient Truth #1: Big Government saved us from a Depression.

Republicans, regardless of how they voted at the time, seem to be uniformly against the various actions taken by the multiple segments of the Federal Government to mitigate the economic swoon. Participating were the Federal Reserve, the Bush and Obama administrations and Congress.

Unfortunately for Republicans the very actions they now deny and degrade are those that economists across the political spectrum agree have had a positive impact on our economy. In Blinder & Zandi’s paper “How the Great Recession Was Brought to an End” they state that “without the government’s response, GDP in 2010 would be about 11.5% lower, payroll employment would be less by some 8½ million jobs, and the nation would now be experiencing deflation.”

Inconvenient Truth #2: Focusing on Busting Public Sector Unions does not Translate into Jobs

Two recently elected governors have made eliminating effective public sector unions a major plank of their legislative agendas as a way to balance state budgets and (presumably) encourage private sector employment. Gov. Walker led a highly effective process in Wisconsin to strip unions of many of their previously granted rights. Gov. Christie in New Jersey has also vociferously taken on the unions.
Unfortunately, while the governors won their battles against the public unions, they have lost the war against unemployment.

For July 2012, Wisconsin is tied in 22nd place among states in unemployment rate at 7.3%; New Jersey comes in 47th at 9.8%. The overall U.S. unemployment rate is 8.3%. So Wisconsin is better, New Jersey much worse. Maybe that had to do with the employment mix each state embodied prior to the recession. Perhaps instead of looking at the current unemployment rates, we should consider how employment rates have changed over the last year (i.e. after the governors gutted the unions) as a better measure of governmental policies than at the actual rate of unemployment.

Wisconsin was in 40th place of the states: its unemployment rate decreased only .3% from 7.6% to 7.3% in the last twelve months. That looks positively glowing when compared to New Jersey in 49th place (only New York was worse). New Jersey’s unemployment rate increased .4% over the past twelve months from 9.4% to 9.8%.

The policy of public sector union busting has worked so well in these states that the Republican national platform includes eliminating dues checkoff for public employee unions. So much for creating jobs being the real goal.

Inconvenient Truth #3: Balancing the Federal Budget Will Not Immediately Improve the Economy

On the GOP.gov website Republicans claim that balancing the budget will “Bring Certainty to Job Creators.” Perhaps that is true, but certainty of what? It will provide the certainty of increased unemployment (what job creator is going to hire all those people Republicans plan to fire from the Federal government?). Balancing the budget without raising taxes can only be done through decreased Federal spending. Decreased Federal spending translates into reduced demand. When companies face reduced demand—in fact are certain there will be reduced demand (maybe that’s the certainty Republicans will provide to job creators?) investment and hiring both decrease.

When investment and hiring decrease in both public and private sectors, the economy enters another recession.

We don’t have to try this experiment ourselves. Europe has been modeling it for us through the austerity programs they have introduced. Overall European unemployment is 11.3% for July 2012, up from 10.1% a year earlier. Most of Europe has entered a double-dip recession.

The Solution is Clear but not Easy—and requires another essay since this one is too long already.

Suffice it to say there are answers, which neither party advocates, to solve our problem. I’ll make my suggestions next post.

~ Jim

Monday, August 20, 2012

Beta Readers

My novel Cabin Fever is currently out to several beta readers. After an internet search on the term “beta reader,” I realized people use the term to describe a wide range of functions. I’ll describe my writing process, which leads to my definition of beta reader.

Before anyone reads one of my manuscripts, I will have written several drafts. The first draft is to get the story down. I am a pantster rather than a strict plotter, so my story changes as I write. The second draft aligns the first part of the story with the actual ending. In it I add necessary scenes, eliminate excess characters and scenes, plant additional clues and maybe redesign a subplot or two. In the third (and maybe fourth) drafts I polish the storyline and hone the language, probably still tweaking the story to strengthen it.

The writing by this point is by no means perfect, but good enough not to get in the way of the story. I then ask my life partner, Jan Rubens, to read the manuscript. She’ll circle grammar errors, poor word choices, clunky construction and whatever writing errors she sees, but her most important function as she reads the manuscript is to note what she is thinking and feeling in each chapter and list any questions she has. Because this is her first read, she can tell me where I have confused her, where the dialogue is stilted, where she got bored with description and whether the plot makes sense. Her first read through is a big picture critique.

If I have done my work well, she won’t find too many problems, but she will find some and she usually has suggestions for fixes. Draft five addresses whatever she’s spotted and polishes the language. Now the beta readers get their turn.

I send them a manuscript I hope is perfect and know can’t possibly be. Again, I am most concerned with plot and character problems. By character problems I mean two things: (1) flat, stereotypical characters I need to flesh out, and (2) any instances where they think, “she wouldn’t do that!” Plot issues can include anything from pointing out a flaw in my protagonist’s (or antagonist’s) otherwise impeccable logic to internal contradictions (she entered the room through the only door and exited through a second door).

Beta readers will also let me know about clunky writing, typos (despite my careful proofreading and use of spell check, I read right through some errors), and grammar disagreements. Sometimes they point out repeated phrases I have over-loved such as any fire incorporating “dancing flames,” or I’ve developed a ballet of nodding heads, etc.

All my beta readers are avid readers; some are also writers. I like to have between six and eight to get a good mix of comments. Everyone has their pet peeves or interests and I benefit from a broad cross-section of viewpoints. Cabin Fever could still use a couple of additional beta readers. Please contact me if you are interested. In exchange for your insight I’m offering what I believe is my best novel yet and a chance to see your name in print in the acknowledgements when (well, technically if) the book is published.

~ Jim

(Originally Published on Writers Who Kill Blog 2012-08-19)

Monday, August 13, 2012

Sowing’s Harvest

Originally Posted on Writers Who Kill on 12 August 2012

When we built our Michigan house in 2005 we had to decide what to plant over the septic field. Grass is the traditional answer; its roots pull some of the moisture from the leach field to let it evaporate, while the rest of the water percolates through the soil. We chose wildflowers. We liberated plants from the surrounding woods and trails and transplanted them.

Lesson 1: Invasive species grow best. Well duh! Since I am not a wildflower cognoscenti we went for pretty—and some of the invasives are gorgeous. Fortunately, soon after I transplanted purple loostrife and spotted knapweed I discovered my error and ripped them up. It took three years to get rid of the spotted knapweed because some had gone to seed before my weeding.

Lesson 2: I didn’t want to mow a lawn. It seemed antithetical to living in the midst of the Northwoods. What I didn’t count on was that the maples, birches, aspens, pines, hemlocks, cedars and spruce thought the meadow belonged to them. Of course they were right; the territory had been theirs since the melting of the last glacier. I traded a periodic lawn mowing for pulling weeds—in this case thousands of treelets every year.

Lesson 3: Not all transplants live. The columbine I found has struggled to survive and I’ve had zero luck with jack-in-the-pulpit.

Lesson 4: Nature has her own ideas. I didn’t plant everything now growing in the meadow. Volunteers showed up, brought in by the wind and bird poop and animal fur.

Lesson 5: It takes time to transform bare dirt into something presentable, but given time it will happen.
Lesson 6: I’m not the only one to enjoy the wildflowers.

Lesson 7: If you’d like, this blog could be an allegory for writing, or you can simply enjoy the pictures.

~ Jim

Friday, August 10, 2012

Romney Scandal on Personal Taxes

I have no idea whether Harry Reid’s “source” is correct that Mitt Romney avoided paying any income taxes for ten years. Furthermore, that fact is not per se important. Judge Learned Hand’s opinion in Gregory v. Helvering states in part:

"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."

The scandal of Romney’s position to only release the last two years of his personal income taxes is not the possibility that he paid no taxes for a decade. If Romney and his tax accountants and lawyers figured out how to legally use the tax code to avoid or defer paying income taxes, more power to them and more reason to eliminate all the deductions under the tax code. (See the Jim JacksonSimplified Tax Plan.)

The scandal is that Romney asks voters to trust him to be president, but he does not trust voters enough to provide them information they need to make an informed decision. When his father ran for president, the senior Romney released twelve years of tax returns.

The son is hiding his past and he is a very smart man; there must be a reason.

The reason can’t be that voters will be distressed about how much money he made. We already know he made a ton, and most people do not begrudge him for it. Americans like success stories. Romney is running for president in large part based on his demonstrated abilities to run large, complex organizations (Bain Capital and the Salt Lake City Olympics).

The reason must be how he arranged his finances relative to US tax laws. As Judge Hand said over seventy-five years ago, there is no sin in paying the minimum taxes required by law. However, if Romney used discredited tax shelters or off-shore tax shelters that he underreported and later took advantage of tax amnesty programs, voters should be so informed.

How did Romney build his IRA to over $100 million? If he presciently purchased stocks that increased over 100-fold in a few short years, he should be trumpeting his financial acumen. If, as some have suggested, he made IRA contributions of purposefully undervalued stock to circumvent the annual deduction limits, voters should know. Again, I have no clue how he grew such an outsized IRA, but I do believe voters have a right to understand the mechanics of this amazing financial result.

When a company decides to put itself on the block it dresses its financial statements in as attractive clothing as it can muster. Analysts know to look past the stated numbers and carefully read the footnotes to understand how the financial statements were prepared. They also know it’s necessary to analyze previous years’ financials to fully understand the current statements.

Romney has noted that he isn’t a business, but to understand his full character, voters deserve full disclosure of prior tax returns. The last two years of taxes are window dressing. To get a true sense of the man’s financial values, we need to know how Romney operated before he knew everyone would be looking over his shoulder.

~ Jim

Sunday, August 5, 2012

If You Can’t Say Something Nice…

(Originally posted on Writers Who Kill blog)

Linda Rodriguez's Writers Who Kill blog a couple of weeks back on internet bullying got me considering once again the sage advice Thumper received in the movie Bambi. “If you can’t say somethin’ nice, don’t say nothin’ at all.” This holds doubly true for the internet age where anything can and will go viral. Ben Franklin hit the bull’s-eye in the July 1735 issue of Poor Richard’s Almanac, “Three may keep a secret, if two of them are dead.”

Before written communication, for an uncomplimentary comment you made about one person to a second person to go further, one of you had to repeat what was said. By grade school you had learned how well keeping such a simple secret worked. Your best friend forever promised to keep your deepest secret, which was fine until your BFF got mad because you took the last goldfish from the bag and paid you back by sharing your secret with the person you dissed, either directly or through the insidious grapevine.

Worse, the something rather innocuous you may have said can morph into something more negative than you intended. As kids we played the game of telephone. You whispered something into the ear of one person who transmitted it to the next and so on until it came back around the circle to you transformed, sometimes beyond recognition.

Flash forward to the internet. Whatever you write in a blog, a post, an email may stay on a server for ever and ever, Alleluia! If it is public, as this blog is, anyone anywhere anytime can perform a search and find your comments. Ah, I only vent in private forums, you say. And what happens if the person upon whom you dished your best insults happens to later join that private forum and checks prior posts? Or it turns out that person’s second cousin twice removed also happens to be a member of the private forum. Or some “friend” agrees so strongly with what you said that he cuts and pastes your snarky gem and tweets it to the world.

Even something posted on a no longer extant website can stay alive. Websites exist to archive much of the web as it exists at a given point in time. My son demonstrated this to me by finding pages from an old website he and I developed while he was in high school. We abandoned that website some ten years ago.

With electronic communication, the world has shrunk and so has our ability to say something anonymously. As evidenced by the imbroglio at GoodReads described in Linda’s blog, people with certain skills can and will uncover the person behind a post and publish their real life vitals. One very selfish reason to be nice in this age of crazies is to protect yourself from them.

I remember a colleague who would always go out of his way to put down the company he had previously worked for. He’d badmouth their bosses, his former co-workers, their business practices. No matter what endeavor you engage in, the chances of something nasty you said or wrote about one person coming back to bite you are larger than ever. This person’s comeuppance occurred when his former company bought his current company. He was soon unemployed. This is an extreme example, but consider the ramifications of long ago forgotten posts or unflattering pictures unearthed by a company checking your web presence while considering you for a new job.

Before you think I am self-nominating for halo status, I want to fess up to occasionally getting sufficiently angry at someone or something to want to tell the world exactly what I think.

I may even write a wonderful gem that skewers the jerk with my perfect use of wit, comparative analogies, similes and a touch of sarcasm. I write on my personal computer, never on a work computer. Should my blast take the form of an email, I never fill in an address.

I have witnessed too many mea culpas for emails drafted and unintentionally sent—or unintentionally copied to the immediate world. I remember a particularly lusty email one person sent to a co-worker (and all 30,000 people in the corporation) as an egregious example of what can go wrong.

So what about you? Do you have any funny, interesting or cautionary tales to share?

~ Jim 

Friday, July 27, 2012

Delaying the Start of Social Security Benefits

I was one of the youngest in my 1968 high school graduating class, which means I’m one of the last of those who have already retired to face the decision of starting Social Security payments at our earliest eligibility, age 62. This decision involves many considerations; I advise talking with an experienced financial advisor to help make sure you understand all the ramifications of early retirement.

I was an actuary and understand the mathematics involved in determining the exact retirement age to maximize the present value of Social Security payments. However, that calculation does not include a crucial perspective: reflecting your risk profile relating to outliving your money.

Unfortunately, because you are a single individual the actuarial mathematics of optimizing when to start Social Security doesn’t apply. It relies on the law of large numbers to provide rational results. You and I are single numbers. We only get to die once (reincarnation is not reflected in Social Security earnings records) and you will either die before or after the actuarially expected time—throwing off the results.

A factor people who have significant retirement assets other than Social Security should give significant weight to is the financial effect if you die “too early” compared to the results if you live much longer than anticipated.

Unless you are already living month-to-month (in which case you probably didn’t have significant retirement assets), if you die “too early” you probably didn’t spend all the money you had available. Your beneficiaries will get more than you hoped they would (you hoped you would spend it not your children or church or whatever). You could have lived a bit higher off the hog. That’s your loss.

If you live “too long,” at some point your standard of living takes a rapid decline. In determining how much you can spend each year, you include Social Security, retirement plan payments and dipping into savings based on a reasonable expectation of how long your savings must last. Unless you are lucky enough to have retired from government, your defined benefit plan payments (if any) are not linked to inflation so over time their purchasing power decreases in value. With good planning, you took that into consideration when you determined how much you could pull out of savings each year.

All of which works fine until you live longer than your plan allowed. Savings can no longer hold up its end of the bargain; the pension plan payments buy less and less each year. Only Social Security keeps up with living costs.

By deferring the Social Security payment start until normal retirement age (66-67 depending on your year of birth) you maximize the portion of your assets indexed to inflation. Let’s say your Social Security normal retirement benefit starting at age 66 is $1,000 a month. If you begin payments at age 62, you will receive only $750 a month. Assume inflation runs at 3% every year (that won’t happen, but it could average out to about that). Here’s what you would get at various ages:

With Age 62 Retirement
With Age 66 Retirement

With Age 62 Retirement
With Age 66 Retirement






During the first four years you are unambiguously better off if you start your Social Security benefits at age 62. Over those four years you will receive around $37,500 in benefits. Assuming a risk-free return equal to the inflation rate, those payments would have an accumulated value of approximately $39,000. You’ll need that money to reimburse yourself for the greater normal retirement benefits you could have been receiving had you delayed your Social Security retirement. Your accumulated pot of money (continuing to grow with interest but shrinking with the make-up payouts) runs out around age 77. From then on you are less well off compared to deferring Social Security retirement.

From a risk standpoint, these later years are just the time you’ll need the extra money because your chances of outliving your life expectancy are now much greater.

For me the choice is easy. I can afford to die “too early” and I won’t be living to regret my decision. However, if I live longer than expected, I’ll have to suffer (or not) the consequences of that decision. Having a larger guaranteed income will be a welcome cushion.

I’m not sure most baby boomers will agree with my logic. The majority of my generation has preferred purchasing perishable consumer goods over saving for retirement. I suspect these people will start collecting Social Security as soon as they can. Many will rue their decision after they’ve run out of money and all they have left are their toys that no longer work.

~ Jim

Thursday, July 19, 2012

Libor Rate Fixing – What’s the Big Deal?

When the Barclay’s scandal about reporting lower-than-actual costs of borrowing to those who compile the Libor rate (London Interbank Offered Rate) I thought, “Isn’t this old news?” Sure enough, Calculated Risk, a blog I follow, posted a bunch of links that reminded me why I had indeed come to believe Libor was something of a fiction.

For the record, let’s back up a bit and describe what Libor is—and it’s not one thing; it’s actually 150 things: Libor rates are set for fifteen maturities and ten currencies. Every day around 11:00 a.m. major London banks report the rates they “expect” to pay to borrow for various lengths of time. The compiler ignores the top and bottom 25% of reported rates and averages the middle 50% to determine the Libor rates, which are released to the public at 11:30. Banks, insurance companies, credit card companies (and maybe even loan sharks for all I know) use these rates to determine the interest rates they charge on loan balances. If you check your loan agreement you may find that it calls for something like the 3-month Libor rate plus 2.75%.

The first thing to note is that if only one bank was misstating their rates by substantially over- or under-reporting their borrowing costs, it would make little or no difference to the Libor rate since the high and low outliers are excluded from the calculation. To make a difference to the reported rate requires malfeasance on the part of a significant portion of the reporting banks.

From documents reported so far, it appears that especially in the midst of the 2008 financial crisis many banks understated their reported Libor rates. People began to use the Libor rate as a proxy for understanding each bank’s health, which explains why a bank might report a lower rate than their real borrowing cost. No CEO wants others to view their bank as vulnerable. If no one will lend to a given financial institution, it will soon have to shut down. (See Lehman Brothers for example.)

As a consumer, this chicanery might actually be good news. If your loan agreement ties your interest rate to an understated Libor rate, you aren’t charged as much as you should be. You win; your lender loses. That is a zero-sum game. Holy financial boondoggle, Batman, the banks screwed themselves? Well, for sure they screwed those brethren not able to offset the losses from preternaturally lowered Libor rates. However, some banks have trading arms that take financial positions on (among other things) the movement of Libor rates. If you knew the rates weren’t going to move as much as the economics of the time suggested, perhaps you’d be a wee bit tempted to place a bet given your inside knowledge.

Perish the thought anyone in the financial industry might use inside information. The fools who took the other side of the Libor bets thought they knew better—but what does that say about them when someone like me, a simple retiree with a bit of time on his hands, was convinced the banks were not reporting accurate figures.

As individuals we need to keep in mind that we should never invest in something we don’t understand. That includes not investing money with someone who buys and sells financial instruments you don’t understand—it’s just as likely they don’t understand those financial instruments either. As further proof, just look at the hedging operation that has already cost JP Morgan Chase billions and they haven’t completely unwound their position.

As usual, the lawyers will make out the best since they represent both sides of all suits (and they have already started over the Libor mess) and always figure a way to be paid.

Oh, and if you want a way to fix the problem of the phantom reporting, here’s my solution. Forget about publishing an expected rate. Have the banker boys tell us the highest rate they actually paid during the last 12-hours. There might be a bit of a lag in the data, but we can audit the results and put behind bars those who lie. Which would you prefer, fresh lies no more than 30-minutes old or half-day-old truths? I’ll take the truth, thank you.

~ Jim

Wednesday, June 20, 2012

Class Warfare in the United States

During the Republican presidential primary season, Mitt Romney accused President Obama[i] of class warfare. Then again, when Romney suggested he would be willing to limit tax deductions for mortgages on second homes based on income, Newt Gingrich accused Romney of the same offense as he claims those on the left employ.[ii]

I take it that from Gingrich’s perspective, anything other than a flat tax or sales tax or best yet, a per capita tax, is unfair and promotes class warfare. As with many of Romney’s positions, it’s not clear what he deems class warfare, except that he’s against it and the other side’s policies nurture it.

All of this is a tempest in a teapot because the American people don’t (yet) much believe in class warfare. I think there are three main reasons for this:

1. Our social roots are based on the immigration of our ancestors seeking opportunities to succeed. Even those of us who can trace their ancestors to the Mayflower surely recognize deep down inside that they came because America provided opportunity they did not have in their homeland. What class system existed at the time of their immigration did not prevent perspiration, inspiration and a dollop of luck from allowing the poorest to become the richest, for a worker to become a capitalist. Even if such a rise could not occur in the immigrant’s generation then it was possible in the next or the next.

North American society has always had a top 1% (by definition). Most people know they have very little possibility of attaining that level of income or wealth, but do not begrudge those who have on account of their perspiration, inspiration and luck.

We do, however, have little sympathy for those “born with a silver spoon in their mouth” unless these people serve the public in some manner; then we tend to adore them. Witness the general regard for the Kennedy clan.

What we as a nation have historically begrudged were the most recent wave of immigrants because their hard work and cheap(er) labor threatened those who had recently reached the lower middle classes. Consider as examples the high levels of discrimination against the Irish on the East Coast during the middle 1800s and the Chinese laborers when they flooded our shores to build our western railways. This economic fear drives much of the current angst against illegal immigrants.

2. The burden of our local, state and national governments has always been shouldered disproportionately by those with higher incomes or accumulated wealth. Despite Gingrich’s statements about Romney’s tax policy reeking of class warfare, this differentiation in tax structure has been a part of our social structure from the get go.  We are a country primarily founded on English law, which does have social classes. England (and other feudal societies) developed a system of property taxes, which by their very nature skew the cost of government to those who have wealth.

After the 16th amendment to our constitution was approved, our first income tax structure provided for a 1% rate on income over $3,000 graduating up to a 6% rate for income over $500,000. That was 1913. Adjusting for inflation, the $3,000 would now be about $70,000 and the $500,000 is equivalent to over $11.7 million![iii]

I will grant that the tax rates were not high, but my point is that from its birth, the income tax targeted those well off, and only later were the less well-off included in the tax.

Voters in North Dakota, a state currently flush because of oil and gas revenues, just voted by a 3-1 margin against eliminating the property tax. North Dakota is not exactly a bastion of liberals. They are simply expressing their vision of part of the social contract: those well off have a greater obligation to fund our public goods.

3. Lastly, most members of the US society are themselves among the 1%. To be in the top 1% of earners within the US requires an income in the $400,000 range (it varies from year-to-year because of bonuses, capital gains and so on). However, when we extend our view to the world, most of us are no longer among the 99%; we are the 1%—and at least subconsciously we know it. Depending on whether and how one adjusts for purchasing differences across the world, all it takes is an income of $34,000-$41,000 to be included in the world’s top 1% of earners.

We Americans aren’t drawn to the idea of class warfare because we intuitively understand people in glass houses should not throw stones. However, if those at the top of the income and wealth scales in the US continue to call down the “class warfare” card over each and every proposal that does not actively shrink their financial burden for our public weal, at some point the masses may well decide that in fact class warfare is in operation, except it is the rich warring on the rest of us.

We are in the midst of a great dispute over what public goods should be included in our social contract. That discussion is needed and healthy. Regardless of how that debate is resolved through our democratic processes, we still need to agree on how to pay for government. We have no current agreement.

As a society we are complicit with the malfeasance of political leaders of both parties who have chosen to fund current government expenditures through continual deficit spending, placing the burden on the backs of future taxpayers. Our current predicament is caused by three major factors. (1) We have not recognized the true costs of the social programs we have adopted through bipartisan votes (i.e. Social Security and Medicare). (2) The Bush tax cuts have starved the federal government of cash at a time it is needed. (3) We have engaged in a series of unfunded wars that have dramatically increased expenses without adding a single penny of revenue.

There are people who want to solve all three problems on the backs of the middle class by decreasing government spending that provides them income and adjusting the tax code so the rich will pay less (which implies others will have to pay more.)

Here I will remind everyone of my version of a fair income tax structure [http://2centsb4inflation.blogspot.com/2012/02/jim-jackson-simplified-income-tax-plan.html ]. If we adopt a tax system that is socially fair, we will continue to avoid real class warfare. If, however, the rich continue to shirk their social obligation and entrench their privilege by eliminating estate taxes so that generations of rich enclave themselves as a privileged subset within the US, then perhaps the rich will push the country into true class warfare.

Such a conflict will not be good for anyone in the US. The usual result of such a conflict is that the middle and lower classes suffer a significant decrease in their standard of living as society falters. The rich who do not flee quickly enough lose most of their property and many lose their lives.

It is not the poor who cause class warfare; it is rich. If they keep raising the banner of class warfare to try to gain short-term financial gains at the expense of the masses, they may end up causing that which they most fear, and they will have no one to blame but themselves.

~ Jim

[i] The Boston Globe reported [http://www.boston.com/Boston/politicalintelligence/2012/01/mitt-romney-accuses-president-obama-engaging-class-warfare/vApeJAIfEgTgmeYsrJsFBL/index.html] that in Iowa Romney indicated that Obama’s policies will substitute envy for ambition and poison the American spirit by pitting one American against another and engaging in class warfare.”
[ii] CNSNews.com reported Gingrich to say, “Governor Romney’s proposal to limit certain tax deductions based on income, including the deduction for mortgage interest on second homes, is a surrender to the class warfare rhetoric of the Left."
[iii] The CPI-U [http://www.usinflationcalculator.com/inflation/consumer-price-index-and-annual-percent-changes-from-1913-to-2008/ ] in Jan. 1913 was 9.8. In May 2012 it had increased to 229.815, a ratio of ~23.45.