orecast #3: the death of the US Constitution.
The Constitution was originally designed to specify the duties for each of America’s three branches and to limit their powers. Its ability to do the latter function has faded rapidly since the New Deal. Already most of the Bill of Rights remain de jure in force but are de facto void, as can be seen by a Lexis search of successful attempts to use them in litigation – you’ll find almost none.
At some point soon the Constitution will become a purely procedural document, much like that of the former Soviet Union, and equally effective at preserving our liberties. Our rights will exist only on the sufferance of our government and our ruling elites. This is already true in the UK, as the “unwritten constitution” protecting the “rights of Englishmen” has blown away like smoke in the wind.
Category: Taxes
Freedom to Farm: Program Pays $1.3B to People Who Don’t Farm
Dan Morgan, Gilbert Gaul and Sarah Cohen:
Even though Donald R. Matthews put his sprawling new residence in the heart of rice country, he is no farmer. He is a 67-year-old asphalt contractor who wanted to build a dream house for his wife of 40 years.
Yet under a federal agriculture program approved by Congress, his 18-acre suburban lot receives about $1,300 in annual “direct payments,” because years ago the land was used to grow rice.
Matthews is not alone. Nationwide, the federal government has paid at least $1.3 billion in subsidies for rice and other crops since 2000 to individuals who do no farming at all, according to an analysis of government records by The Washington Post.
Some of them collect hundreds of thousands of dollars without planting a seed. Mary Anna Hudson, 87, from the River Oaks neighborhood in Houston, has received $191,000 over the past decade. For Houston surgeon Jimmy Frank Howell, the total was $490,709.
Judge Rules That Prosecutors Violated the rights of 16 KPMG Partners
Those who commit crimes – regardless of whether they wear white or blue collars – must be brought to justice. The government, however, has let its zeal get in the way of its judgment. It has violated the Constitution it is sworn to defend.
That’s the money quote in Judge Kaplan’s stunning 88-page opinion, in which he found that prosecutors violated the constitutional rights of a group of former KPMG partners by pressuring the firm not to pay their legal bills. We’re going to take the liberty of reprinting the opinion’s entire preamble, which contains remarkably clear, riveting writing:
Lattman further posts his views on the winners and losers via this ruling along with a roundup of other commentary.
Law Professor Linda Beale has a few words as well.
Cities Shop for Free WiFi Services
Under the agreement, Sacramento residents would pay monthly subscription fees of about $20 to use MobilePro’s wireless service, local businesses would pay $90 to $250, and Sacramento’s city agencies would be able to use the service free. The agreement resembled that of many other municipal wireless deals across the country. For MobilePro, based in Bethesda, Md., a full year of service would bring in $2 million to $4 million in revenue, analysts estimate.
But earlier this month, the deal fell apart. The reason: Sacramento city officials had noticed new municipal wireless deals inked in San Francisco and Portland, Ore. The Portland rollout, sponsored by Silicon Valley startup MetroFi Inc., and the San Francisco deployment from Google Inc. and Earthlink Inc., both offered wireless service to those cities with expanded free access for some businesses and residents. Instead of relying on user subscription fees, MetroFi, Google and Earthlink planned to make money off local advertising that would be embedded in their wireless service.
The Key Ingredients for a “Great City”
Paul Graham ruminates on the essence of a technology hub:
I think you only need two kinds of people to create a technology hub: rich people and nerds. They’re the limiting reagents in the reaction that produces startups, because they’re the only ones present when startups get started. Everyone else will move.
Do you really need the rich people? Wouldn’t it work to have the government invest in the nerds? No, it would not. Startup investors are a distinct type of rich people. They tend to have a lot of experience themselves in the technology business. This (a) helps them pick the right startups, and (b) means they can supply advice and connections as well as money. And the fact that they have a personal stake in the outcome makes them really pay attention.
Bureaucrats by their nature are the exact opposite sort of people from startup investors. The idea of them making startup investments is comic. It would be like mathematicians running Vogue– or perhaps more accurately, Vogue editors running a math journal.
Grahams words are a must read for local politicians. Madison’s (Wisconsin) biggest challenge with respect to new business development is it’s parochialism. Living in San Francisco years ago, I was impressed by the general willingness to try new things and take risks. We have a world class University, lots of bright citizens but not so many people willing to take financial and career risks.
State Business Filing Data
Larry Ribstein has posted some fascinating state-by-state business filing data from the International Association of Commercial Administrators. Of the 35 states with filing data for the past four years, 32 reported increases in LLC filings and 21 reported decreases in corporation filings. In the six largest states. the growth in LLC filings from 2002 to 2005 ranged from 60.3% to 237.9%, while three of the states experienced declines in the number of corporate filings ranging from (11.4%) to (27.3%) and the three states with growth in the number of corporate filings ranged from 4.6% to 23.7%:
Wisconsin’s data:
- Business & Professional Corporations: 12/31/2004: 5,571 ($1,8M); 12/31/2005: 5,104
- Nonprofits: 12/31/2004: 1,927 ($73K)
- Limited Liability Copmanies (LLC): 12/31/2004: 25,268 ($3,484,515); 12/31/2005: 26,653
- Limited Partnerships: 12/31/2004: 203 ($20K); 12/31/2005: 203
Minnesota had more than twice as many corporate filings and about 1/3 less LLC formations than Wisconsin. Illinois has a significantly larger annual number of corporate filings than Minnesota or Wisconsin.
It would be interesting to see what the numbers look like over time, attrition rates and the correlation to taxes and jobs.
Touching the Surface of Our Tax System: Think Warren Buffett is paying $4 billion for Iscar? Think again.
This brings us to the investment in Iscar. On the face of it, Buffet paid $4 billion for 80% of the Israeli metal cutting toolmaker company. Why only on the face of it? Because in actual fact, the sum was a great deal lower.
While the structure of the deal is not known, it seems that Buffett has set up a local company that will acquire 80% of the activity of Iscar from the Iscar group, controlled by the Wertheimer family. The family will retain control over the old Iscar, which will own 20% of the activity. In the next stage, a company will be formed, into which Iscar’s activity will be transferred (by both sides), leaving Buffett with an 80% stake in the new company, which will take in all Iscar’s activity.
Buffett, therefore, is buying activity, rather than company stock. The significance for tax is a benefit of around $1 billion over a 10 year period. Why? Because income tax regulations allow the recognition of amortization of goodwill on deals for acquisition of current activity at an annual rate of 10% of the goodwill. Almost all the sum paid for Iscar’s activity will be attributed to goodwill, resulting in an annual tax-deductible expense of $400 million. This expense will generate a tax saving of $100 million, assuming an effective tax rate of 25% for Iscar (for which it qualifies as a company with approved enterprise status). $100 million over 10 years is the expected saving, amounting to $1 billion.
Short Term Fix for the AMT
David Lazarus updates us on the most recent tax bill, including its short term fix for the very large AMT (Alternative Minimum Tax) problem.
Meanwhile, the Nashville Songwriters Association International lobbied for and won a special tax break that will give songwriters a lower rate when they sell their catalog, or body of work. “Our lawyers here in town wrote the legislation,” says Debi Cochran, the association’s legislative director.
Perhaps we should organize some sort of parents or bloggers special tax break initiative.
Modern Joint Operating Agreements
Dan Gillmor looks at Hearst’s deal with MediaNews Group to acquire four newspapers. Madison has had one of these for years – a $120M annual arrangement that has kept the Cap Times going despite its very small circulation. Joint operating agreements were protected by congress years ago, as a way to “preserve daily newspapers”. The time has long since arrived to eliminate this relic.
Dave Zweifel passes along his experience at the American Society of Newspaper Editors’ convention recently.
A Word for Governor Doyle on the Broadband Expansion Tax Credit
Gov. Jim Doyle plans to sign the broadband bill passed by both the state Senate and Assembly on Tuesday, a top aide said Wednesday afternoon.
“The governor supports it,” said spokesman Matthew Canter. “In fact, he helped lead the way for it. It’s part of his Grow Wisconsin plan.”
The legislation will give telecommunications companies tax exemptions if they provide high-speed Internet service to parts of Wisconsin that lack it or are underserved – mostly in the rural and northern areas of the state.
I hope that Governor Doyle will insert some language into this bill that requires the recipients of this subsidy – local Telco’s – to provide symmetrical internet access, not the odd services they largely provide today where the downstream and upstream services run at different speeds. The internet is not TV. Our generally poor broadband service significantly limits the opportunities for emerging home based internet businesses and services. This is a trivial change and should be a no brainer for the Governor. Learn much more on these issues, including why the US is so far behind countries like Japan and Korea in true broadband (100mbps symmetrical speeds), here.
Om Malik tells us why this is important.