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Creative Class Accounting


The Lord rewards him according to his works. – The Second Epistle of Paul the Apostle to Timothy

Rewards. That’s the newest game in Washington D.C.

Almost simultaneously Republican presidential nominee John McCain and the U.S. Census Bureau have come up with clever ideas to make the United States of America a better place. The Census Bureau would like for more people to fill out the forms it sends out ever four years and John McCain would like for someone to invent a really good car battery.

Both have concluded that the secret is to offer rewards. Both are great ideas.

The United States Constitution requires that a census be taken every ten years pursuant to laws enacted by Congress which has determined that citizens must respond to forms they receive so that the census can be properly completed. Many people refuse to complete and return the forms and Congress and the Census Bureau have been trying to figure out how to get people to comply with the law. If the traditional approach were used, criminal sanctions would be imposed on those who refuse to obey the law. (Those who refuse to file income tax returns can explain how that works.) To address the problem of non-compliance in returning census forms, however, Congress and the Census Bureau are considering a solution that is thrilling in its simplicity. They have concluded it is more cost efficient to offer incentives to those who comply with the law than to prosecute those who don’t. Prior to the 2000 Census there was talk of having some kind of sweepstakes. That idea has resurfaced and a $1 million prize has been suggested. That amount seems a bit on the penurious side, given the fact that there are close to 300 million people living in this country. They could easily triple that without adversely affecting the budget.

Rewarding those who comply with the census law is, of course, just a first step in reforming our justice system. If encouraging compliance with the law by the use of rewards instead of punishments catches on, other proposals equally attractive will almost certainly follow. The money needed to pay those who abide by the law can be found in money saved by not having to build and staff prisons. Once we have established the appropriate reward for the citizen who returns the census form, it will be necessary to determine the appropriate rewards in other ways.

Those who do not break any traffic laws during a given year may be rewarded by being entered into a lottery for a modest sum. Those from families with criminal proclivities who do not, for example, rob any banks, would be entered in lotteries with considerably higher rewards. After all, the level of the reward should be commensurate with the level of the foregone criminal activity.

And offering money as an incentive to forego criminal activity is no less imaginative than is John McCain’s suggestion on how to encourage creativity.

Sen. McCain has suggested that the government (which most Republicans believe should stay out of people’s lives unless it is chasing terrorists on private phone lines or e-mails or determining what women should do with their bodies) , should offer incentives for creativity.

He has suggested that taxpayers offer a $300 million prize to whoever builds what he refers to as “a better car battery,” one that “has the size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars.” He wants, said he, to “inspire the ingenuity and resolve of the American people.”

Until those words were spoken, few, if any citizens, realized that it was the prospect of a taxpayer reward that inspired creativity. Most people thought that the truly creative among us such as Bill Gates, believed their rewards were to be found in the satisfaction of a job well done and the profits that followed the commercial success of their efforts. McCain’s comments suggest that he has no confidence in the ingenuity and creativity of the American people unless the federal government steps in and offers them extravagant rewards for their efforts.

Surely, everyone would agree that both ideas have great merit. If implemented, only time will tell whether rewarding the compliant or the creative will produce better results for society.

Posted by Christopher Brauchli at 5:00 PM | Permalink

Toys and Almonds


What’s sauce for the goose is sauce for the gander.

It was beef and almonds. The whole time we were fussing about the Chinese government’s failure to impose strict standards on the production of toys and Mattel was recalling toys because of lead paint and other manufacturing deficiencies (some of which Mattel now acknowledges were design flaws), the European Commission was quietly taking action against the United States because of almonds, and the South Koreans were banning some U.S. cows.

Although the almonds were, like some of the parts of the recalled toys, small enough to be swallowed by infants and cause choking, they were not recalled because of their size. Nor were they coated with lead paint like the toys produced in China. Indeed, the almonds have not been recalled. They are still being sold in grocery stores all over the United States and will continue to be sold in those places for the foreseeable future.

The trouble with the almonds, as far as the Commission is concerned, is the aflatoxin levels in their production and processing and the fact that there are inadequate controls in the United States to insure that the almonds that reach Europe meet its standards. It was a bit of an embarrassment but then, much of what we do is. Not properly processing almonds is a much smaller problem than many of the others confronting the Bush administration.

In 2006, as stated in a Commission decision, certain conditions were established “governing certain foodstuffs imported from certain third countries due to contamination risks of these products by aflatoxins.” In establishing the conditions the European Commission’s Scientific Committee for Food noted that “aflatoxin B-1 is a potent genotoxic carcinogen and . . . contributes to the risk of liver cancer.” Accordingly a regulation was issued setting maximum levels for aflatoxins in foodstuffs.

In 2005 and 2006 European food safety regulators observed that those maximum levels were regularly exceeded in almonds and derived products from the United States and constitute “a threat to public health in the Community.” Accordingly, said the Committee, special rules were needed to deal with almonds from the United States. And in some respects the procedures were similar to the U.S. procedures to check lead paint level on toys made in China. The Commission Food and Veterinary Office sent representatives to the United States to “assess the control systems in place to prevent aflatoxin contamination levels in almonds intended for export to the Community . . .. That mission revealed the absence of any compulsory legal requirements to control aflatoxin levels in almond production and processing and the inadequacy of the current control system to offer guarantees concerning the compliance of exported products with Community standards.” The investigation also disclosed the “inadequacy of the laboratories visited to provide any guarantees for exports and demonstrated failures to comply with almost all . . . ‘general requirements for the competence of testing and calibration laboratories’.”

When the U.S. administration learned of this somewhat dismal report card the appropriate agency said it would take action to address the shortcomings, which is more or less what the Chinese said about lead paint. The Commission, however, found the proposed steps wanting, saying they failed to “provide guarantees for compliance of future shipments of almonds with Community legislation on aflatoxins. It is therefore appropriate to subject almonds and derived products originating in or consigned from the United States of America to strict conditions in order to provide a high level of protection to public health.”

On August 1, 2007, a new resolution was adopted that says that all almonds and derived products imported into the Community from the U.S. “should be subjected to sampling and analysis for aflatoxin levels by the competent authority of the importing Member State, prior to release onto the market, insofar as they are not covered by the Voluntary Aflatoxin Sampling Plan set up by the Almond Board of California in May 2006.” (That suggests that with almonds, as with auto emissions, California is ahead of the rest of the country.)

As if the attack on our almonds weren’t bad enough, in September South Korea took out after our cows.

In December 2003 South Korea banned the import of beef from the United States because of its fear of mad cow disease. Imports resumed in April but part of the agreement entered into upon resumption of importing beef was that all beef imported from the United States would be boneless and come from cattle under 30 months old. During July and August bones were discovered in shipments received by South Korea and South Korea has revoked import approval for the two facilities that shipped the offending cows. The question with which my readers are left is whose kettle is really black.

Posted by Christopher Brauchli at 5:21 AM | Permalink

Pharmaceutical Politics


Oh true Apothecary! Thy drugs are quick. – Shakespeare, Romeo and Juliet

The drug companies are our friends. Making drugs that make us well is not all they do. They use part of their profits to make sure that the very best people are elected to the House of Representatives and the U.S. Senate. The very best people are Republicans.
Through September 2006 drug companies had given $8.7 million to political campaigns. If both Democrats and Republicans were equally good, those funds would be distributed evenly between the two parties. Democrats and Republicans are not equally good – Republicans are better. That’s why 69% of drug company contributions have gone to Republican candidates. (In fairness it must be noted that although Pfizer sent 67% of its contributions to Republicans before October, its most recent disclosures show that it has had some sort of epiphany and during October gave only 41% of its contributions to Republicans and 59% to Democrats. There is no logical explanation for this change of heart.)
Drug companies are, of course, deeply indebted to the Republicans. In crafting the Medicare prescription drug benefit that went into effect in 2006, the Republicans left drug pricing to the free market place. One of the proposals that Democrats favored would have permitted Medicare to negotiate prices for drugs that were part of the prescription drug benefit. Republicans did not like that idea since that inserts the federal government into a decision that should be only between the senior citizen and his or her pharmacist.
Thanks to the failure of that proposal, this scene is repeated thousands of times a day around the country. Or it should be, if the world ran the way Republicans in Congress think it does.
A senior walks into the pharmacy and asks for prescription X and is told how much it costs. If the senior does not like the price the senior tells the pharmacist that if the price does not come down, the senior is going to buy the drug at a different pharmacy. Most pharmacists will immediately ask the senior how much the senior is willing to pay and as soon as the senior tells the pharmacist what a fair price is the pharmacist fills the prescription at the lower price and notifies the drug company that in the future the pharmacist will be paying the drug company less. This is an example of the Republican’s idea of the free market in action and that is why they refused to let Medicare negotiate drug prices. They knew seniors could do a better job on their own. That is not all the Republicans did for seniors. The Republicans made sure that the new prescription drug program would not permit the federal government to start its own drug program that would provide seniors with lower prices. That, too, would not be the American way.
All of this helps explain why the drug companies have given Republican Jim Talent of Missouri $900,000 this year. He was one of the big supporters of the drug bill. Republican Rick Santorum of Pennsylvania was another. He, too, is a big beneficiary of the drug companies’ generosity. According to the Center for Responsive Politics he has been well rewarded for his efforts in addition to feeling good, knowing he’s done something for (a) seniors (b) the drug companies and (c) himself. In 2000 when he last ran for the U.S. Senate he was 15th among those receiving funds from drug companies. This year he’s number one and has received almost $500,000 in contributions from drug companies. His opponent, Bob Casey has not, however, been forgotten. He’s a Democrat and he’s gotten $11,850 so far this year.
In addition to wanting to express their gratitude to Republicans for helping preserve the attributes of democracy we all cherish, the drug companies do have a non-altruistic motive. It pertains to the so-called donut hole that so many seniors dislike. When the combined total that a senior and the senior’s insurance company have paid for drugs in a given year reaches a certain amount ($2,250 in 2005), the senior enters the donut-hole, a kind of pay-as-you-go void, really where he or she must pay the full cost of drugs until a certain total ($3,600 in 2005) has been spent by the senior.
Nancy Pelosi, who would be speaker of the House if the Democrats win in November, says the first thing Democrats will do if they take control is launch an attack on the free enterprise system like this one, so loved by Republicans. That’s not how she puts it. She says Democrats will change the rules to enable the government to negotiate drug prices paid for by Medicare. She says the resultant savings would be so great that there would be no need for the donut hole. The losers would be the drug companies. The winners would be the seniors. That is another reason drug companies give most of their support to Republicans. It is a reason seniors should vote for Democrats.

Posted by Christopher Brauchli at 7:23 AM | Permalink

The Minor Fall, The Major Lift


A decent provision for the poor is the true test of civilization. – Boswell, Life of Johnson

The poor are such a nuisance. Just when Congress tries to bring order to its self-created chaos, the poor get in the way. The most recent example is the collision between the very poor who are paid the minimum wage and the very rich that happen to die in that state.
The minimum wage is a concept with which the rich have little familiarity and one they never expected to have an adverse effect on their well-being. The minimum wage provides that those who work for a living should be paid no less than a certain amount. The amount since 1997 has been $5.15 an hour or $10,712 a year if the worker foregoes any vacation. (Since 1997 Congress has increased its members’ wages by $31,600 which coincidentally is slightly less than 3 times more the annual income of a minimum wage recipient.) Adjusted for inflation the minimum wage is at its lowest level in 50 years.
Members of Congress who were concerned about the sad plight of those earning the minimum wage introduced legislation to increase the minimum wage. It was not to be a sudden increase that would startle the recipients but rather an increase scheduled to take place slowly, over the next three years, so the poor could grow accustomed to their new found wealth and carefully consider how to dispose of it. When fully implemented the poor would be paid $7.25 an hour or $15,080 a year. But a sad thing happened to the minimum wage as it was being pulled through the legislative process. Some members of Congress decided if Congress was going to do something for the poor, it should offset that by doing something for the rich. It came up with idea of linking the minimum wage increase to repeals of the estate tax.
The estate tax is a tax imposed on the estates of those who have the good fortune to die rich. According to the Center on Budget and Policy Priorities, in 2000 more than 50,000 estates were subject to the estate tax. Those were estates of people who died with more than $675,000 or, in the case of married couples, $1.35 million. As generous as that seemed, among those who remained affected by the estate tax were all of Mr. Bush’s friends and that didn’t seem fair, especially since they not only helped him get rich by giving him part of a baseball team but helped him become president by giving him lots of money.
As soon as Mr. Bush became president he persuaded Congress to change the tax imposed on decedents’ estates. Thanks to his efforts today Mr. Bush’s friends (and the rest of us who are married) can die with $4 million and pay no tax. In 2009 that amount increases to $7 million. As a result of those changes the Center estimates that in 2006 the number of taxable estates will drop to 13,000 and in 2009 to 7000. After 2009, however, two funny things happen that could only be contrived by a whimsical Congress.
The first happens on January 1, 2010. On that date and for 364 days thereafter no tax will be imposed on the estates of those who are lucky enough to die during that period. There will be some tax consequences but they are much too complicated to describe in a column such as this. (Parents who have been estranged from their children for many years, should, for obvious reasons, resist the temptation of joining their offspring for a conciliatory meal proffered by the formerly estranged during that year unless accompanied by a food taster.) The second whimsical thing Congress did occurs 365 days later.
On January 1, 2011 the estate tax returns and the only people whose estates will pay no taxes are those with estate valued at less than $1 million (or $2 million in the case of married couples). This is, of course, an absurd result that only Congress could have contrived. Recognizing this, it has repeatedly attempted to correct its earlier folly by repealing the federal estate tax.
House and Senate majority Leaders Dennis Hastert and Bill Frist are no fools, appearances to the contrary notwithstanding. They knew that attempting to eliminate the estate tax on the wealthy would not be appealing to some of their colleagues unless linked to something having social value. Accordingly they hitched the wagon loaded with gifts for the rich to the wagon filled with money for the poor. The Congressional mules refused to pull the hitched-together wagons. The wagons were left unattended in the halls of Congress while the mules went home for well-deserved summer vacations.
The poor will continue to receive $10,712 a year. The estate of the dead rich will continue to pay taxes. One of those consequences is worse than the others. Readers can decided for themselves which that is.

Posted by Christopher Brauchli at 9:05 AM | Permalink

Thinking Outside The In-box


The Right Divine of Kings to govern wrong – Alexander Pope, The Dunciad

Every so often Mr. Bush and his friends offer up little surprises that are amusing when not alarming. That’s what makes it so much fun to have George Bush in the White House. The week of May 28 was an every so often event.

The first surprise came from the pages of USA Today, a paper once scorned as nothing more than a tabloid with little hard news. Its disclosure was that Al Gonzales, (who has more fun being attorney general of the United States more than just about anything he’s ever done) held a meeting in mid-May with senior executives from Internet companies to explore the possibility of fighting terrorism by having companies keep records of everything everyone does on the web. Here is an example of why that would be useful in fighting terrorism.

If five people with funny sounding names all went to Mapquest to see how to locate the Empire State Building within a matter of a few minutes of each other, that would be brought to Mr. Gonzales’ attention and he would stop whatever it was he was doing and begin checking other email those people might have written. He would, in short order, discover that those people were not tourists but terrorists planning to blow up the Empire State building. He would immediately spring into action and the plot would be foiled.

Talk of the Empire State Building – once again the tallest building in New York City – brings us to another bit of news generated that same week. It pertains to funds allocated for anti-terrorism.

Aware that terrorists strike where least expected, Homeland Security Secretary, Michael Chertoff, has outsmarted them by, like them, doing the completely unexpected. New York, thought by those of even a little sophistication a likely terrorist target, has had its 2006 anti-terrorism allocation cut from $207.6 million to $124.45 million. Washington D.C.’s funds have been cut from $77.5 million to $46.5 million. Chertoff and Co. have concluded that being likely targets they are no longer likely targets and have instead provided increased funding to places like Louisville, KY, Charlotte, N.C., and Omaha, Neb., being unlikely targets have become likely targets.

In addition to New York City and Washington, New Orleans was another beneficiary of Homeland Security’s rercent decision to doing the unexpected. Its allocation went from $9.3 million to $4.6 million. Although the allocated funds are supposed to be for catastrophic disasters whether inspired by Mother Nature or Father Terror, the department concluded that given the devastation of New Orleans last year there is little a terrorist could do to improve on nature’s handiwork. As far as another attack by mother nature is concerned, the brilliant minds in the Department of Homeland Security focused on the age old bromide about lightening never strikes twice in the same place and they’ve applied it to hurricanes. Mr. Bush’s promise (made shortly after Katrina’s visit to New Orleans) that the U.S. would do whatever it took to protect New Orleans from visits from Katrina’s relatives – this week The Big Easy just missed an uneasy visit from Katrina’s cousin named, interestingly enough, Alberto – was made before his aides told him the story about lightening.

I am, of course, being somewhat hard on the Department. The fact that New York has, in Mr. Chertoff’s words, “zero” monuments or icons and only four major financial institutions and is, therefore, an unlikely target, is not the only reason for its reduced allocation. Another, as explained by a spokesperson for the Department, is that New York did not follow instructions in filling out its application for funds.

According to this unnamed source, New York City faxed its request for funds instead of sending it by e-mail. Requesting money to protect oneself from terrorists is one thing-learning to follow instructions is quite another. The city says it did follow instructions. It is unlikely we will ever know whether failure to follow instructions played a role in the Department’s allocation. It would come as no surprise, however, to learn that a government peopled by simple people places more importance on an applicant’s ability to follow instructions than on the perceived consequence of reducing a city’s ability to protect itself from terrorists.

If terrorists do indeed, strike Omaha and Louisville and devastation is limited because of the intelligent use of funds by those cities, we will marvel at Mr. Chertoff’s prescience. If, on the other hand, a terror attack in New York could have been thwarted with additional funding or resources, an investigation by the federal government will follow and we will learn whether a failure to follow instructions played a role in the reduction of its allocation. Here’s hoping we never find out.

Posted by Christopher Brauchli at 10:48 PM | Permalink

The IRS and the Pauper


When there is an income tax, the just man will pay more and the unjust less on the same amount of income. – Plato, The Republic

The poor are still with us and once again it’s George Bush’s IRS that is insuring they do not take unfair advantage of those of us who have, through our own diligence or felicitous pre-birth selection of parents, avoided their hapless state. The current news is the logical result of steps that were begun by the Bush Administration in 2001. They relate to the earned income tax credit.

The earned income tax credit is intended to provide an incentive for the poor to work by giving them an offset for the Social Security taxes they have paid together with a credit based on their earnings. No household with earned income above $34,692 is eligible for the credit. In 2001 the average low-income tax credit paid by the government was $1,976 for households with children and $364 for single persons.

In 2003 this column observed that in 2001, the IRS began increasing its audits of the working poor while reducing its audits of the wealthy. In 2002 one out of every 64 people claiming the credit was audited whereas only one out of 120 persons with income of more than $100,000 was audited. Fifty-five percent of all audits conducted in 2001 were audits of the working poor. The amount the government was then losing because of the cheating poor was between $6.5 billion and $10 billion.

Although those amounts didn’t seem like much when contrasted with the $72 billion lost because of individual off-shore accounts (few of which were owned by the poor), $46 billion then being evaded by corporations and $30 billion evaded by partnership investors, there was, in fact, a significant difference. The poor are a drag on society whereas wealthy individuals and corporations are what make a George Bush kind of society run smoothly. When the wealthy cheat on taxes they take the money they save by cheating and reinvest it in our economy thus providing new employment opportunities for the poor. The poor, by contrast, use the money saved by cheating to buy food, clothing or pay rent which does no one but them any good.

Using the good offices of the IRS Mr. Bush has come up with a new way to protect the rest of us from the avarice of the poor. Being modest, he didn’t brag about it. Nina Olson did it for him.

Nina Olson is the IRS’s taxpayer advocate. In her annual report to Congress released in early January she reported that since 2001 tax refunds to which 1.6 million poor Americans were entitled had been frozen by the IRS and their returns labeled fraudulent by that agency.

According to Ms. Olson, the majority of taxpayers identified had done nothing wrong and had been wrongly identified by a computer program. Not content with that aspersion cast on the IRS she went on to report that 66 percent of the persons whose refunds were frozen were entitled to the amount they claimed and in some cases, more. Another 14 percent were due a partial refund leaving only 20 percent that might have committed fraud. Forty six percent of the frozen returns that were labeled “conclusively” fraudulent by the IRS were in fact proper requests, a conclusion with which the IRS eventually agreed. The IRS quite properly disputed the idea that 80 percent of the returns pertained to innocent taxpayers. It said “innocent” taxpayers were likely to press for refunds thus suggesting it was unlikely that they would have tolerated having their funds withheld. (It did not mention that Ms. Olson’s report says that IRS employees are not permitted to give a taxpayer any information about a missing refund until six months after the taxpayer contacts the agency, which suggests even if the IRS’s premise is correct, an “innocent” taxpayer can nonetheless be a victim of the system. It was smart to omit that since that kind of makes its explanation look foolish.)

The average income of those whose refunds were held up was $13,000 and the refund due was about $3,500. If the poor were successful they could add almost 30 percent to their income with their fraudulent claims. It’s no wonder the IRS is suspicious of them. Nonetheless, Ms. Olson is performing useful work. She shows that though the IRS is not perfect and hundreds of thousands are suffering as a result of its ineptitude, they are being given an opportunity to participate in democracy in a way only they can, to help make George Bush’s America become the kind of place of which he dreams at night. Seen in that light they will certainly be less critical of the IRS than Ms. Olson seems to be.

Posted by Christopher Brauchli at 10:28 PM | Permalink

Dirty Tricks


We have no greater fear than a terrorist who is inside the United States with a nuclear weapon. The consequences of such an attack would be catastrophic for our people, for our economy, for our liberties. – Thomas Kean, Chairman of the Sept. 11 commission quoted 11/14/2005

It is probably nothing more than an unfortunate coincidence that while the consequences of Hurricane Katrina were still in the national consciousness, the Department of Homeland Security released its report on what to do in the event a terrorist explodes a dirty bomb on our shores. Had the report appeared in The Onion the reader would have thought it a marvelous bit of satire. But repeated reading of accounts in the New York and Los Angeles Times are clear evidence that, as usual, the administration does not disappoint. It is as dumb as it appears to be.

Two important lessons are to be learned from the report. Response to a dirty bomb will be based upon the cost of remediation and cost will determine what levels of radiation are considered acceptable for the citizenry. As Nuclear Regulatory Commissioner Edward McGaffigan explained, “We don’t have access to al-Qaida’s pockets to finance a half billion dollars cleanup. We have to do something and do it as best we can.” California can force the operator of a nuclear power plant to set aside funds to pay for remediation in the event of a disaster but the government cannot, for obvious reasons, force a terrorist to do the same thing. As a result, Mr. McGaffigan and the report conclude, certain compromises in public health must be made. One of those compromises is determining acceptable levels of exposure to radioactivity.

The federal and state governments have specific guidelines in place for acceptable levels of radiation for workers in industrial settings or for people living near nuclear plants or hazardous waste sites but the Homeland Security people don’t believe such rigorous standards should apply to a dirty bomb attack. According to the report, the government must “balance protection with other important factors.” For that reason the guidelines permit “continued shipment, sale and consumption of contaminated food and drinking water for an ‘intermediate’ phase that could last a year or more.” It says that if only a small area is affected “it might reasonably be expected that a complete return to normal conditions can be achieved within a short period of time. However, if the impacted area is very large, then achieving even very low criteria for remediation of the entire area and/or maintaining existing land uses may not be practicable.”

The report sensibly suggests that government should balance “the public health risk against the value of a highway or crucial transportation structure or of a high-profile place.” If local government had budgeted for a major highway improvement at the same time as a dirty bomb was exploded, for example, local officials might decide that a higher level of exposure to radiation would be OK for its citizens if the result was the highway project could continue as planned. A side benefit of that decision would be that with its population exposed to a high level of radiation, fewer people would be around to use the highway and it could, therefore, be a more modest project than before the citizenry had been exposed to what had been considered lethal doses of radiation when health rather than cost effectiveness was the applicable criterion.

Those impressed with the post-Hurricane Katrina relief efforts may be pleased to learn that its recommendations are not the last word. According to the New York Times: “Officials say that in the days or weeks after an attack with a dirty bomb . . . officials at all levels of government and members of the public will discuss what standards to use.”

Readers may be less than sanguine at the thought of Homeland Security conducting post instead of pre-dirty bomb discussions. So will those who read the New York Times report about a simulated dirty bomb attack in Seattle in 2003. After the exercise was completed, officials concluded that one of the problems was “a lack of planning for long-term cleanup.” Had the Homeland Security people been aware of the Seattle experiment they might not have said standards should only be set after the event. They might have thought prophylactic planning more appropriate. Then again, maybe they wouldn’t.

Planning ahead, though saving lives, would tarnish Homeland Security’s reputation as being marginally competent. And all would agree its reputation is far more important than the few thousand lives its incompetence may some day cost us.

Editor’s note:This post was written by Christopher Brauchli but published, for technical reasons, by Spot-on editor Chris Nolan.

Posted by Chris Nolan at 11:50 AM | Permalink

Painless, Profitable Giving


It is not a tax bill but a tax relief bill providing relief not for the needy but for the greedy. – Franklin Delano Roosevelt, Tax Bill Veto Message.

Who’d have thought it? The first proposal that Congress came up with to help the victims of Hurricane Katrina was a proposal to permit people who died in the hurricane avoid estate tax. Of course, anyone looking at pictures of the city and those fleeing the rising waters in New Orleans could tell at a glance that the survivors were worrying that if they drowned their survivors might have to pay significant estate taxes.
Aware of this concern, Republicans in Congress proposed that tax on the estates of all who died leaving behind more than $1.5 million be waived. Sadly, that particular provision did not become law. As a result, families of those who died leaving behind more than $1.5 million in assets may face high estate taxes that could have better been spent by the survivors on rebuilding the substandard housing in which many of them had lived before the hurricane arrived.
The Katrina Emergency Tax Relief Act of 2005, however, did become law. It has many wonderful provisions one of which is worthy of mention here. It pertains to charitable contributions made before the end of the year and will prove an enormous boon to hurricane survivors.
Prior to the enactment of this law, people who wanted to make large gifts to charities were limited in how much they could give and still benefit from reduced income tax liability. That is because deductions for charitable gifts are normally limited to 50% of the taxpayer’s adjusted gross income. So, a taxpayer who has adjusted gross income of $100,000 can only deduct charitable gifts of $50,000. Gifts in excess of that amount may be deducted in limited amounts over the following five years.
As a result, many us who wanted to make large charitable gifts found our charitable instincts and tax saving instincts in hopeless conflict. Although we may have wanted to give away all of our adjusted gross income to charities, the fact that we received no income tax benefit (and would have no money on which to live) dissuaded us. In addition, we knew that when our adjusted gross income reached $145,950 (unless we were married filing separately) a phase-out would cause us to lose a percentage of our deductions. If we had the misfortune to have really high adjusted gross income, we would lose up to 80% of the value of our deductions. But thanks to the Hurricane Katrina, relief from these provisions has been given for the rest of this year.
The Act says, among other things, that in order to help out the victims of Katrina, charitable contributions of up to 100% of a donor’s gross income can be deducted. The phase-out for deductions is eliminated. The only restrictions are that the gift must be made in cash before January 1, 2006 and must go to a public charity. Thanks to the Act, if any of my readers with an adjusted gross income of $10 million has been wanting to make a gift of $10 million to the Museum of Modern Art in New York City, but has not done so because of the phase out and the 50% limit, the gift can now be made and the entire amount deducted, eliminating the donor’s tax liability. If that isn’t an incentive to make large gifts, it’s hard to know what is.
Some readers may wonder why permitting people to make extraordinary gifts to museums, symphony orchestras, opera companies, universities and the like benefits hurricane victims. Others may wonder what sorts of people are dissuaded from giving away all their adjusted gross income solely because they don’t get any income tax benefits from doing so. I can answer both questions.
Making a large gift to a museum does not benefit a hurricane victim who has lost a house. It benefits the museum. The answer to the second question is the same sort of people who the Bush Administration has always worked to benefit: The Very Rich.
The reason most of my readers do not give away all their income to charities is because they like to eat and food costs money. So does housing. Many of my readers use most, if not all, of their adjusted gross income, to survive. The only people for whom adjusted gross income is nothing more than a trifle are the very rich. Thus, it turns out that one of the most significant benefits of the Katrina Emergency Tax Relief Act of 2005, goes to President Bush’s very wealthy friends and their pet charities. It is amazing how Congress and the president can make things appear to be what they are not.
Editor’s note:This post was written by Christopher Brauchli but published, for technical reasons, by Spot-on editor Chris Nolan.

Posted by Chris Nolan at 6:58 PM | Permalink

Meals Ready to Eat


I hate ingratitude more in a man than…babbling drunkenness… Shakespeare, Twelfth Night

Once again we are reminded that when a president decides he would like to be a war president, we – to paraphrase Donald Rumsfeld – go to war, not with the accounting system you would like to have but with the accounting system you have.
September 30 and October 14 were the reminders of this not particularly reassuring sentiment. September 30 was the date veterans were scheduled to be told there’s no free lunch. October 14 was the date a report in the Washington Post confirmed it. The September 30 date acquired significance because of a report made public in April 2004.
In April of last year, there was a report that wounded military personnel in hospitals were being required to pay for their meals. It was disclosed that beginning in 1958 hospitalized military officers had to pay for their hospital food at a daily cost of $8.10. In 1981 it was decided enlisted personnel should be treated the same as officers and they, too, were charged $8.10 a day. That happened because service personnel are entitled to a monetary allowance for food known as Basic Allowance For Subsistence (BAS) if not living on a military base.
After the first Gulf War, Congress decreed that service personnel who were receiving BAS at their home bases should continue to receive it when deployed, even though they were taking all their meals at the bases to which they were assigned. Being in hospital after being wounded, however, was not considered deployment and hospitalized patients had to pay for their food. When that came to Congress’s attention in 2003 it decided war wounded should eat for free while being treated for war wounds. And eat for free they did – until January of 2005.
On January 3, 2005 it was decreed that free hospital food would be given only to inpatients confined to hospital beds and to certain outpatients. When that came to Congress‚s attention there was outrage. In a speech on the Senate floor, on April 14, 2005, Barack Obama of Illinois gave a speech in which he said: “[B]ecause the Department of Defense doesn’t consider getting physical therapy or rehabilitation services in a medical hospital as ‘being hospitalized’ there are wounded veterans who still do not qualify for the free meals other veterans receive. . . . This is wrong and we have a moral obligation to fix it.”
Congress fixed it. Section 1023(a) H.R. 1268 that became Public Law 109-13 prohibits charging anyone injured in Iraq or Afghanistan for their meals so long as they are “undergoing medical recuperation or therapy. . . at a military treatment facility. . . ”
Unfortunately, subsection (b) said subsection (a) would expire September 30, 2005 even if the war had not. The war has not. As far as this writer can determine, (a) has. That’s the bad news.
Donna St. George of the Washington Post imparted the October 14 bad news about “Financial Friendly Fire.” In her report Ms. St. George reports that 331 wounded soldiers have been hounded by the military following their release from the service for what are described as unpaid military debts. The debts can be incurred in a variety of ways. Here is one.
A military person serving in Iraq receives additional pay for combat. If the soldier loses a leg and is sent home for treatment, the soldier‚s pay is reduced because the soldier is no longer in harm’s way, the harm having been done. However, some soldiers continue to be paid as if they were still in harm’s way. When the error is discovered, the Army begins collection efforts using, if necessary, the services of collection agencies that are not always debtor-friendly. This happens for a reason.
According to Gregory D. Kutz, the General Accounting Office’s managing director for forensic audits and special investigations, the computer system used by the Department of Defense is out of date. He told Ms. St. George that the Defense Department had been trying – unsuccessfully – to modernize it since the mid 1990s. According to Mr. Kutz, in some Army National Guard and Reserve units, more than 90 percent of the unit members have fallen victim to computer errors and been asked to repay thousands of dollars inadvertently paid them by errant computers. That’s the bad news. Here‚s a tiny bit of good news:There may still be a free lunch.
Although September 30 has come and gone, it seems possible that the computer will not notice that the law providing for free meals has changed. That possibility notwithstanding, those in hospital should set aside $8.10 a day in case the administration discovers its inadvertent munificence and demands repayment. After all, President George Bush is unlikely to tolerate spending money on the wounded who he certainly believes will be better men and women when they learn to take care of themselves – and their debts – the way the rich do.
Editor’s note:This post was written by Christopher Brauchli but published, for technical reasons by Spot-on editor Chris Nolan.

Posted by Chris Nolan at 5:39 PM | Permalink

Setting Priorities


The Olympian is a difficult foe to oppose.
–Homer, The Iliad

It was the juxtaposition that caught the eye. It was the fact that the G8 gathering began on the same day as the site of the next Olympic games was announced. Each occasion was important. Each demonstrated civilization’s priorities.
As The New York Times observed in an editorial before the G8 began its meeting: “The choices President Bush and his fellow leaders make this week in Scotland will help determine whether more than two million children under five will keep dying every year of diseases that can be easily and cheaply treated, whether 40 million young people will still be unable to go to school and whether 300 million Africans will continue to lack access to clean water.”
To provide a bit of context: If 300 million people in the United States lacked access to clean water no one in this country would have clean water. Not even President Bush. That’s because there are only approximately 295,734,134 of us living here. So the results of the meeting of the G8 look good on paper – especially Mr. Bush’s commitment – but reality is a bit harsher.
The leaders at the meeting (including Mr. Bush) promised to double aid to Africa from $25 billion to $50 billion by 2010. That’s only 5 years from now, not all that long for Africa to wait in the overall scheme of things, even though a lot of people will get sick and die while waiting for potable water. It was a generous gesture and what makes it even better is that it didn’t cost Mr. Bush a penny.
As Faryar Shirzad, a deputy national security adviser explained to the press at the end of the conference, the U.S. aid commitment involves no new money. It is money that had already been promised. And it is not, relatively speaking, a great deal of money. The U.S. currently contributes $.16 for every $100 of national income compared with the major European nations that now give $.36 for each $100 of national income and have pledged to raise that to $.51 by 2010. By committing no new money Mr. Bush did not jeopardize the United States’ standing as the leader of the country that contributes the smallest share of its national income to foreign aid.
By contrast, the choice the International Olympic Committee made was whether to break with tradition and let cost play a role in determining what country would host the 2012 games. Paris already has the infrastructure and sporting venues to accommodate many of the Olympic sports. According to CBC news, the IOC gave Paris “glowing reviews” because its plan would enable the games to take place at reduced cost. When the chips were down, however, London won out. The idea of putting on the games at a reduced cost did not have sufficient appeal to give Paris the prize. If the IOC cared about money it might have given Paris the games.
The IOC might have been influenced by looking at what the Olympics have done for some of the earlier lucky winners. The most recent was Greece. The Greeks budgeted $5.5 billion to put on the games. As of July 7, 2005 the bills were still being added up but had come to $13 billion. The Olympics did, however, help Greece attain one new height. Its deficit reached 6.1 per cent of its gross domestic product. To compensate for that shortfall the government has decreased spending on public works and increased its value added tax. According to Matthew Lynn of, the Greek government is auctioning off some of its Olympic facilities including the kayak slalom course that cost 26 million Euro to build. That should sell really fast.
Greece isn’t the only country that was surprised when all the costs of hosting the games were calculated. According to a PricewaterhouseCoopers study completed in 2004, the Montreal Olympics ended up with a $1.2 billion deficit. Annual maintenance on publicly owned facilities in Montreal is approximately $22 million according to CNN/Money. Barcelona, Atlanta and Sydney broke even although Sydney is reportedly spending $32 million a year to support some of the underused venues left over from the 2000 games.
Given the financial history of the games and the contrasting needs of nations throughout African who – lacking food and water will not be attending the games – it’s worth asking why the games are not always held in the same place? That would reduce the need to spend money on infrastructure and new venues each time the Olympics are presented. The money saved could be spent on the many other causes that need the help of the countries that can afford to put on the Olympics.
But the Olympics, it is argued – sometimes despite the financial or other evidence – give a boost to the local economies and have a unifying effect on the host countries. We have Greece and Montreal to demonstrate the effect on the local economies. And let’s not forget Sarajevo as a demonstrating of the unifying effect the games have on the host country. It hosted the games in 1984.

Posted by Christopher Brauchli at 7:31 PM | Permalink

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