Tidbits Quotations
To Accompany the May 10, 2012 edition of Tidbits
Bob Jensen at Trinity Universit

They usually have two tellers in my local bank, except when it's very busy, when they have one.
Rita Rudner

Social Security Will Run Out of Money Much Faster Than Last Forecasted
So Will Funds for Disabled People
"Will Social Security Be There For Your Retirement?" by Janet Novak, Forbes, April 23, 2012

Jensen Comment
Of course Social Security will be there for your retirement. If Congress never agrees to increase taxes and decrease government spending to balance the budget, the one thing they will agree upon is printing all the greenbacks needed to meet entitlements --- of course your Social Security monthly payment might not even be enough for one Big Mac at McDonalds. Much depends on how many years before you can begin collecting your inflated dollars. Sometimes it pays to be old even there isn't much else that's good about becoming old.

Bob Jensen's threads on entitlements are at

"Cliff-diving:  The election will determine whether a nasty dose of austerity can be avoided," The Economist, May 5, 2012 ---

AMERICANS have watched austerity sweep Europe with a certain Schadenfreude. But eight months from now they may get a dose of the same medicine. The political compromises that have produced much of America’s deficit of 8% of GDP are programmed to go into reverse at the end of the year, two months after the election. A stimulus package consisting of a payroll-tax cut, investment tax credit and enhanced unemployment insurance expires then, as do George W. Bush’s tax cuts (which have already been extended by two years from their original end-date of 2010). At the same time an automatic, across-the-board cut in domestic and defence spending, called a “sequester”, takes effect, cutting about $100 billion from government spending next year.

The economic impact of this fiscal cliff is a matter of some debate.
The Congressional Budget Office reckons that the combined effects of the sequester and the expiring tax cuts would add up to 3.6% of GDP in fiscal 2013. But David Greenlaw of Morgan Stanley, which puts the total effect at almost $700 billion at an annual rate, argues that the calendar-year impact is much larger, at around 5%. Others think the effect would be smaller, noting that some people will not experience the full tax hit until they file their returns in 2014.

Even the lower estimates could easily be enough to tip the economy back into recession. Mr Greenlaw says the closest precedent was in 1968, when individual, corporate, excise and payroll taxes collectively rose by the equivalent of 3.1% of GDP, mostly to pay for the Vietnam war and to damp down inflation. The next year, the economy fell into recession.

In America in 1968, as in Europe today, austerity was an explicit goal. It is not so in America now. Although both parties seem prepared to let the stimulus measures expire, neither party wants all the Bush tax cuts to end, or the sequester to take effect. But since they have radically different ideas of what should take their place, the question cannot be settled until after the election.

Even the lower estimates could easily be enough to tip the economy back into recession. Mr Greenlaw says the closest precedent was in 1968, when individual, corporate, excise and payroll taxes collectively rose by the equivalent of 3.1% of GDP, mostly to pay for the Vietnam war and to damp down inflation. The next year, the economy fell into recession.

In America in 1968, as in Europe today, austerity was an explicit goal. It is not so in America now. Although both parties seem prepared to let the stimulus measures expire, neither party wants all the Bush tax cuts to end, or the sequester to take effect. But since they have radically different ideas of what should take their place, the question cannot be settled until after the election.

Continued in article


"Ben Bernanke puts Obama, Congress on notice," by Josh Boak, Politico, April 25, 2012 ---

Federal Reserve Chairman Ben Bernanke says he’s trying to save the economy, but he warned Wednesday that he won’t be able to if the president and Congress send the country off a “fiscal cliff.”

The central bank has control over interest rates — used to pull the nation out of an economic abyss in 2008 — but Bernanke said that won’t make much of a difference if both ends of Pennsylvania Avenue can’t agree to extend some of the expiring tax cuts.

“If no action were to be taken by the fiscal authorities, the size of the fiscal cliff is such that there’s absolutely no chance that the Federal Reserve could or would have any ability to offset that affect on the economy,” Bernanke said at an afternoon press conference.

That appears to be the “big what if” for a recovery that Fed projections out Wednesday said is healthier than initially believed.

By a 9-1 vote, the Federal Open Market Committee kept interest rates near zero percent through late 2014.

Fed officials raised their estimates for economic growth this year. Their Wednesday “central tendency” forecast predicted an unemployment rate between 7.8 percent and 8 percent, much lower than January projections of unemployment being 8.2 to 8.5 percent. Unemployment is currently at 8.2 percent.

Similarly, the uptick in Gross Domestic Product this year is anticipated to be between 2.4 percent and 2.9 percent, slightly better than in January.

But Fed policy remained unchanged, despite the fresh projections, because of tepid growth and the lingering threat from Europe’s financial crisis. Rising oil prices contributed to inflation, but the Fed said the impact will disappear going forward.

The bank also did not commit to reviving policies to push down borrowing rates for prospective homeowners and businesses.

However, Bernanke stressed in the press conference after the committee meeting that “those tools remain very much on the table and we will not hesitate to use them, should the economy require additional support.”

One policy Bernanke ruled out was raising the inflation target above 2 percent. It’s been argued that a higher inflation target would fuel faster growth, causing a more significant drop in unemployment. Bernanke called the move “reckless,” saying that would undermine 30 years the Fed has devoted to building up a reputation for fighting inflation, a policy that gave it credibility with the markets for dramatic interventions following the 2008 financial meltdown.

“To risk that asset for what I think would be quite tentative and perhaps doubtful gains on the real side would be, I think, an unwise thing to do,” he said.

Jensen Comment
We look forward to statesman-like courage and bipartisanship in this election year. Yeah Right!

Message from Congress and President Obama to the Bernanke:  No sweat, just print another $2 trillion in greenbacks so we don't have to tighten our belts.

Bob Jensen's threads on the pending deficit and entitlements ---

"Exposing the Medicare Double Count:  The same money can't be spent twice. ObamaCare tries to do precisely that, and the government will have to borrow the difference," by By Charles Blahous and James C. Capretta, The Wall Street Journal, May 1, 2012 ---

One of the enduring mysteries of President Obama's health law is how its spending constraints and payroll tax hikes on high earners can be used to shore up Medicare finances and at the same time pay for a massive new entitlement program. Isn't this double counting?

The short answer is: Yes, it is. You can't spend the same money twice. And so, thanks to the new health law, federal deficits and debt will be hundreds of billions of dollars higher in the next decade alone.

Here's how it works. When Congress considers legislation that alters taxes or spending related to Medicare's Hospital Insurance Trust Fund, the changes are recorded not just on the Hospital Insurance Trust Fund's books, but also on Congress's "pay-as-you-go" scorecard.

The "paygo" requirement is supposed to force lawmakers to find "offsets" for new tax cuts or entitlement spending, and thus protect against adding to future federal budget deficits. Putting the Medicare payroll tax hikes and spending constraints on the "pay-as-you-go" ledger was instrumental in getting the health law through Congress, because doing so fostered a widespread misperception that the law would reduce future deficits.

But the same provisions add to the Hospital Insurance Trust Fund's reserves, which expands Medicare's spending authority. Medicare can only pay full benefits so long as its trust fund has sufficient reserves to meet these obligations. If the trust fund has insufficient resources, then spending must be cut automatically to ensure the fund does not go into deficit. The health law's Medicare provisions prevent these spending cuts from taking place for several more years.

In short, the scoring convention is not widely understood and thus obscures the double-counting.

Perhaps the easiest way to understand this is to look at Social Security. If we generate $1 in savings within that program, then that's $1 that Social Security can spend later. If we also claimed this same $1 to finance a new spending program, we would clearly be adding to the total federal deficit. There has long been bipartisan understanding of this aspect of Social Security, which is why Congress's paygo rules prohibit using Social Security savings as an offset to pay for unrelated federal spending.

No such prohibition exists in the budget process against committing Medicare savings simultaneously to Medicare and to pay for a new federal program. It's this budget loophole, unique to Medicare, that gives the health law's spending constraints and payroll tax hikes the appearance of reducing federal deficits. But it is appearance, not reality. If you have only $1 of income and are obliged to pay a dollar each to two different recipients, then you will have to borrow another $1. This is effectively what the health law does. It authorizes far more in spending than it creates in savings.

How much more? Charles Blahous's study, "The Fiscal Consequences of the Affordable Care Act," published last month by the Mercatus Center, found that the health law would add over $340 billion to federal deficits over the next 10 years. Over the longer term, deficits would run into the trillions.

Medicare spending cuts and tax increases have always been double-counted—recorded both on the paygo scorecard and added to the Hospital Insurance Trust Fund. No budgetary rules were bent. But the fiscal stakes in the Affordable Care Act are extraordinarily high. The health law's Medicare hospital insurance spending cuts and tax hikes are now claimed to have eliminated most of the program's medium- and long-term deficits—even as they have also paved the way for the most expensive entitlement expansion in a generation.

Continued in article

Bob Jensen's threads on the sad state of governmental accounting ---

Bob Jensen's threads on health care ---

Bob Jensen's threads on entitlements ---

"Jenkins: Wal-Mart Is Not Alone:  An Australian firm encounters New York's notorious labor graft," by Holman W. Jenkins, Jr., The Wall Street Journal, April 27, 2012 ---

When in Mexico, don't do as the Mexicans do. That was good advice for Wal-Mart, though it perhaps seemed impractical at the time. Now the company is enveloped in allegations that it paid $24 million in bribes to expedite store openings in our southern neighbor.

Just maybe a little air should leak out of the sanctimony bubble in light of another story this week of corporate innocents blundering around Gomorrah. The Mexican people at the very least are entitled to a twinge of irony.

In 1999, the Australian giant Lend Lease Group bought a New York construction firm, Bovis, and soon was erecting many modern landmarks, including Citi Field (where the Mets play) and the renovated Grand Central. One thing the Australian company didn't do was upend and purify a 70-year tradition of labor graft in the city's building trades.

In a settlement announced on Tuesday, the U.S. Justice Department charged that "Bovis intentionally and fraudulently billed clients, from at least 1999 to 2009, for hours that were not worked by labor foremen from Local 79 Mason Tenders District Council of Greater New York."

A Bovis executive told a judge: "From at least 1999 to 2009, I agreed with others at Bovis to continue the existing practice for laborers at Local 79."

The company will pay a fine and submit to monitoring. Two executives may face jail terms. But these statements beg an obvious question: What motive would Bovis have for overpaying union workers? Because it was the victim of a labor racket that's been going on in New York for decades and will continue to go on is the obvious answer nowhere alluded to in Justice's lengthy statement.

About one thing Lend Lease and Justice agree: The illicit practices didn't begin when Lend Lease arrived. They were already entrenched during a period when Justice itself was in control of the Mason Tenders union.

Justice took over the Mason Tenders in 1995, installing a court-appointed monitor for an initial period of four years, impelled by the testimony of Salvatore "Sammy the Bull" Gravano, the Gambino family underboss who turned on boss John Gotti. Gravano testified that the union, representing unskilled workers, was a mob favorite because the goombahs didn't need special skill or training certifications to qualify for no-show jobs.

Under trustee Michael Chertoff, the government did much to clean up the city's most mobbed-up union. It halted the looting of the union's pension and benefit funds by another crime family, the Genoveses, under Vincent "the Chin" Gigante, also known as the "Oddfather" for his habit of walking on Sullivan Street in his bathrobe talking to himself (a stratagem to avoid prosecution by feigning incompetence, many presumed).

What Justice apparently didn't clean up, however, was the practice of extorting no-show payments from builders. In the last year of its trusteeship, the union was raided by the Manhattan district attorney in an attempted crackdown on such scams.

Graft cultures are hardy for a reason. As much as some arms of government may seek diligently to root them out, others are mobilized to protect them. If you have any doubt, just read former Brooklyn D.A. Burton Turkus's account of the Roosevelt administration's bizarre manipulations to stall New York state's execution of labor racketeer and Murder Inc. chief Louis "Lepke" Buchalter, which the late Turkus attributed to Lepke's connection to labor leaders who were connected to FDR. Of recent vintage is the mystery of Arthur Coia, head of the Laborers' International Union and friend of Bill Clinton, whose pending RICO indictment in 1995 was abruptly dropped, even as one of his constituent unions, the Mason Tenders, was seized by the government.

Lend Lease has now been paraded for the press, but prosecutors acknowledge that the practices are widespread and continuing. Companies will continue to pay up. The Mason Tenders will remain an important stop for politicians running in the city and state. For all the fulmination, the illegal payments to several dozen union foremen amounted to $19 million over 10 years—a sum to be weighed against tens of thousands of votes represented by building-trades members and their families.

Ironically, as nonunion builders encroach and compete more successfully in the city, those builders bound by union contracts will be even more pressured to pay union bribes to allow cheaper nonunion workers on site—what this scandal fundamentally was all about.

Continued in artiicle

Bob Jensen's Fraud Updates ---

"How to End Apple's Offshore Tax Shenanigans," by Robert McIntyre, Citizens for Tax Justice, May 4, 2012 ---
Thank you Paul Caron for the heads up

On Friday, May 4, the New York Times ran a letter from CTJ’s director, Robert McIntyre, responding to a recent Times article describing Apple’s tax dodging. McIntyre explains,

“In its latest annual report, Apple said that as of last September, it had a staggering $54 billion parked offshore (since grown, as the Times points out, to $74 billion).  Almost all of this huge hoard is accumulated in tax havens and has never been taxed by any government. More to the point, most of these untaxed profits are almost certainly United States profits that Apple has artificially shifted offshore to avoid its United States tax responsibilities.

“There’s a simple way to curb this kind of corporate tax dodging, of which Apple is only one prominent example: repeal the tax rule that indefinitely exempts offshore profits from United States corporate income tax. If those profits were taxable (with a credit for any foreign taxes paid), then Apple alone would have paid an additional $17 billion in federal income taxes over the past decade. That would have tripled the federal income taxes that Apple actually paid.

“Congressional scorekeepers estimate that ending the offshore corporate tax exemption would increase overall federal revenues by about $600 billion over the next decade. That’s money that could be put to good use in these times of strained budgets.”

Postscript: In our major study of corporate tax rates last November (Corporate Taxpayers & Corporate Tax Dodgers), we reluctantly included figures on Apple that reported the company’s 2008-10 effective federal tax rate on its reported U.S. profits to be 31.3%. In our notes we pointed out, “For better or worse, we did, with grave reservations, include some potential “liar companies” that we highly suspect made a lot more in the U.S., and less overseas, than they reported to their shareholders (e.g., Apple . . . ). We urge our readers to treat these companies’ true “ef­fec­tive U.S. income tax rates” as possibly much lower than what we reluctantly report. We will be working more on this issue.”

Since then, we have spent quite a bit more time studying Apple’s annual reports. As our letter to the New York Times above notes, at the end of Apple’s 2011 fiscal year, it had accumulated $54 billion in cash offshore, almost all of it in tax havens, and almost all untaxed by any government. Since Apple’s profits stem mainly from its U.S.-created technology, most, if not all, of these untaxed profits are almost certainly United States profits that Apple has artificially shifted offshore.

If we treat all of the untaxed portion of Apple’s offshore profits as really U.S. profits that were artificially shifted to offshore tax havens, then Apple’s U.S. tax rate is much lower than Apple reports. Under this approach, Apple’s 2008-10 effective federal tax rate comes to only 13.4%, and its effective federal tax rate over the last six years (2006-11) was only 12.1%. (Likewise, Apple’s revised effective state tax rate in 2008-10 was only 3.6%, instead of the 8.0% we reported in our state corporate tax study issued last December.)

This alternative calculation is not necessarily perfect, since some of the profits Apple booked in tax havens may have been shifted from foreign countries in which it actually does real business (such as countries in Europe). But even if only three-quarters of the untaxed tax-haven profits are really U.S. profits, then Apple’s actual 2006-11 federal tax rate is still only 14%, less than half of the 31% tax rate that Apple’s annual reports indicate.

A table showing the alternative calculations for Apple’s effective tax rate is at the bottom of this page. (in the article itself)

Post-postscript: How do we know that Apple paid no tax to any government on almost all of its offshore cash hoard? Surprisingly, Apple actually tells us, although it takes a close reading of Apple’s annual reports and a knowledge of U.S. tax laws to understand.

The key is this: the U.S. indefinitely exempts U.S. companies from tax on the profits of their offshore subsidiaries. Only if a foreign subsidiary pays a dividend to its U.S. parent are those profits taxable. If the subsidiary has already paid income tax to foreign governments, the parent company gets a “foreign tax credit” against its U.S. tax for that foreign tax.

So here’s what Apple reveals in it annual reports: Apple says that if it told its foreign subsidiaries to pay Apple the whole $54 billion offshore amount as a dividend, then Apple would owe $17 billion in U.S. federal income taxes. That reflects a $19 billion tax at 35 percent, less a $2 billion foreign tax credit (the sum of all the foreign income taxes that Apple has ever paid). Which means, with a little more arithmetic, that about 90 percent of the $54 billion in accumulated offshore profits has never been taxed by any government.

Continued in article

"Does Apple’s Growing Dependence on China Make It Vulnerable?" by Antone Gonsalves, ReadWriteWeb, May 4, 2012 ---

Jensen Comment
One factor to consider is that the big surge in profits for Apple Corporation is the sales of iPhones that are being made in China for world markets and most importantly for the iPhone market in China which is soaring faster than anywhere else in the world. One of the excuses given by multinational companies for not returning their international profits to U.S. soil is that these were profits were not earned in the U.S. and should not be taxed at the high U.S. corporate rates until U.S. corporate tax rates are more in line with tax rates in nations where those profits are earned. I prefer not to express an opinion on this since I'm really an advocate of replacing corporate income taxation itself with a VAT tax. This is of course a very unpopular idea with liberals and conservatives alike.

It's popular in the liberal press and TV stations like MSNBC to attack "tax breaks for oil companies." For some reason, companies like Apple often escape the wrath of the progressive media. In fact, there aren't many really important tax breaks available to oil companies that are not also available to other companies. So if Congress ever gets serious about wiping out tax breaks for oil companies it will probably have to wipe out tax breaks for companies in general, including such breaks as accelerated depreciation, LIFO, energy credits, etc.

One of the big laughs a few years ago was when two new (shall I say naive) members of Congress proposed that the U.S. government buy the oil refineries in the U.S. and make oil refining a government enterprise. The laugh was that oil companies would like nothing better as long as the government gave them a reasonably fair price for their investments in those refineries. Oil refining is bound up in constant fights with environmentalists and often is a losing proposition for oil companies. After the industry had its laugh over government-owned refineries, the two red-faced members of Congress said no more about that dumb idea.

"Breaking It Down: Oil-Industry Tax Breaks," by Olga Belogolova, National Journal, May 12, 2012 ---

Domestic Manufacturing
The Section 199 domestic manufacturing deduction is most targeted of the tax breaks for the five biggest oil companies. Eliminating it is a part of the proposal by Senate Finance Chairman Max Baucus, D-Mont., as well as the one by House Democrats called the Taxpayer and Gas Price Relief Act. House Democrats also brought the deduction up during a floor debate of a bill to expand offshore drilling last week, trying to force a vote on repealing it for the big five. The motion was tabled.

Available to almost every kind of company, this deduction allows for up to 9 percent of profits from domestic manufacturing to be deducted. Even though the oil and gas industry is limited to a 6 percent deduction, it is considered to be “most egregious” by Democrats, as the industry is expected to save $18.2 billion over the next 10 years, according to the AP report.

Continued in article (including some other big tax breaks by oil companies, including depletion deductions)

"The Lose-Lose Job of Cutting Your Top Tax Breaks," The Fiscal Times, April 27, 2012 ---

. . .

 Among the biggest tax deductions with huge political constituencies are these: 
• Tax-free employer-provided health care and other health spending constitutes the single largest tax expenditure: $214 billion a year.
• Retirement savings, including IRAs and 401(k) programs: $206 billion annually.
• Mortgage interest
deductions on homes and second homes: $113 billion a year.
• Preferential rates on capital gains and dividends: $91 billion.
• State and local income, property and sales tax deductions: $84 billion.

• Earned income, child and dependent care tax credits: $76 billion.

Last weekend, Romney entered the tax-reform fray accidentally when reporters overheard him telling people at a Republican fundraiser that he might be willing to eliminate the deduction for mortgage interest on vacation homes and the deductions for state and local taxes.

“I think almost all of the major tax expenditures could be trimmed, curtailed or eliminated,” said William G. Gale, co-director of the, Urban-Brookings Tax Policy Center. “I don’t think any stand scrutiny with the possible exception of charitable contributions  . . . But even there, if you said that’s got to change because the other ones are changing, I would not object.”

Camp and other Ways and Means committee Republicans and Democrats began preliminary conversations last week on how they might begin to whack away at the thicket of special tax provisions, including “tax-favored retirement accounts.” However, Camp cautioned that an “overwhelming majority of full-time workers rely on those provisions.”

Indeed, an analysis by the Hamilton Project shows that while eliminating the biggest tax deductions would yield substantial savings for the government, it would sharply cut into the after-tax income of families in almost every income bracket.

Continued in article

Jensen Comment
Although I'm in favor of raising tax rates on both upper-income and middle-income taxpayers as part of a package that also greatly reduces government spending, I think the real issue in both deficit reducing initiatives is what initiatives do the most damage to the economy. Eliminating mortgage deductions and property tax deductions (either directly or indirectly via a very destructive alternative minimum tax) may be the death knell for a really, really sick real estate market and construction jobs.

MSNBC believes the budget can be balanced by taxing further taxing the rich who already pay half the income taxes collected. The general proposal is a 76% or more tax rate on the wealthy and make them eliminate the entire $16 trillion deficit ---

. . .

Conservatives will say, What about jobs? Lower taxes create jobs! There's a simple answer to that one: Since the wealthy have had today's low tax rates for ten years, where are the jobs? That theory's been conclusively disproved. Higher rates don't discourage the real job creators, the people who really create and innovate and build. 70% was the top tax rate when Steve Jobs and Steve Wozniak started Apple and it didn't stop them.

Continued in article

Yes, but when Steve Jobs and Steve Woziak started Apple, the government was not trying to collect $16+ trillion dollars to pay for it's National Debt excesses or $80+ trillion to pay for it's run-away entitlements. What the highest earners were paying in aggregate taxes when Apple was founded is a drop in the bucket compared to what the government needs to collect today. If the top tax rate becomes 70% the U.S. will have the highest top tax rate in the world at a time when other nations like Finland, Sweden, Norway, Denmark, and the rest of Europe greatly reduced top tax rates.

Marginal Tax Rate Declines in the Rest of the World ---


Table 1 Maximum Marginal Tax Rates on Individual Income
*. Hong Kong�s maximum tax (the �standard rate�) has normally been 15 percent, effectively capping the marginal rate at high income levels (in exchange for no personal exemptions).
**. The highest U.S. tax rate of 39.6 percent after 1993 was reduced to 38.6 percent in 2002 and to 35 percent in 2003.

  1979 1990 2002
Argentina 45 30 35
Australia 62 48 47
Austria 62 50 50
Belgium 76 55 52
Bolivia 48 10 13
Botswana 75 50 25
Brazil 55 25 28
Canada (Ontario) 58 47 46
Chile 60 50 43
Colombia 56 30 35
Denmark 73 68 59
Egypt 80 65 40
Finland 71 43 37
France 60 52 50
Germany 56 53 49
Greece 60 50 40
Guatemala 40 34 31
Hong Kong 25* 25 16
Hungary 60 50 40
India 60 50 30
Indonesia 50 35 35
Iran 90 75 35
Ireland 65 56 42
Israel 66 48 50
Italy 72 50 52
Jamaica 58 33 25
Japan 75 50 50
South Korea 89 50 36
Malaysia 60 45 28
Mauritius 50 35 25
Mexico 55 35 40
Netherlands 72 60 52
New Zealand 60 33 39
Norway 75 54 48
Pakistan 55 45 35
Philippines 70 35 32
Portugal 84 40 40
Puerto Rico 79 43 33
Russia NA 60 13
Singapore 55 33 26
Spain 66 56 48
Sweden 87 65 56
Thailand 60 55 37
Trinidad and Tobago 70 35 35
Turkey 75 50 45
United Kingdom 83 40 40
United States 70 33 39**

Source: PricewaterhouseCoopers; International Bureau of Fiscal Documentation.



At one point Sweden had the one of the highest top tax rates (87%) in the world and found out that such rates were dysfunctional to economic growth. The most wealthy people in Sweden started hiding money offshore, investing in growth assets in other countries, and/or emigrating.

Increasing worker taxes for employer-provided health care may really clobber workers now struggling to make ends meet, whereas eliminating preferential capital gains rates may clobber stock and bond markets to a point where employee retirement funds get hammered very hard.

We keep asking Congress to solve the spending deficit black hole, but there don't seem to be any good solutions.

Maybe Paul Krugman does have the best answer. Just print greenbacks to balance the budget and let future generations worry about hyperinflation. One problem with this solution, however, is that there are no incentives to stop runaway government spending without taxing --- which is the major cause of the entire deficit mess in the first place.

Case Studies in Gaming the Income Tax Laws ---


"Europe's Phony Growth Debate The austerity vs. spending fight ignores essential reforms," The Wall Street Journal, April 25, 2012 ---

Growth or austerity? That's the choice facing Europe these days—or so the Keynesian consensus keeps saying. According to this view, which has dominated world economic councils since the 2008 crisis began, "growth" is mainly a function of government spending.

Spend more and you're for growth, even if a country raises taxes to pay for the spending. But dare to cut spending as the Germans suggest, and you're for austerity and thus opposed to growth.

This is a nonsense debate that misconstrues the real sources of economic prosperity and helps explain Europe's current mess. The real debate ought to be over which policies best produce growth.

In the 1980s, the world learned (or so we thought) that the way out of the malaise of the 1970s were reforms that encourage private investment and risk-taking, labor mobility and flexibility, an end to price controls, tax rates that encouraged capital formation, and what the World Bank now broadly calls "the ease of doing business." Amid this crisis, Europe has tried everything except these policies.

If Reagan or Margaret Thatcher are too déclassé for Europeans to invoke, how about Germany? Throughout the 1990s and the first years of the last decade, Germany was Europe's hobbled giant, with consistently subpar growth rates and unemployment that in 2005 hit 11.3%, nearly at the top of the OECD chart.

Then-Chancellor Gerhard Schröder, a Social Democrat, surprised the world, to say nothing of his own voters, by pushing through the labor-market reforms that paved the way for the current relative prosperity. The changes cut welfare benefits and gave employers more flexibility in reaching agreement with their employees on working time and pay.

The Schröder government, and later the coalition under Angela Merkel, also cut federal corporate income taxes to 15% from 45% in 1998. Include state taxes, and the effective corporate rate today is close to 30%, down from 50% or more in the 1990s. These reforms made Germany more competitive, attracted investment and jobs, and paved the way for the country's economic resurgence and an unemployment rate currently at 5.7%.

Mrs. Merkel's government did the world an additional favor in 2009, amid the financial crisis, by rejecting calls from the International Monetary Fund, then British Prime Minister Gordon Brown, President Obama, Treasury Secretary Tim Geithner and the same dominant Keynesian consensus to join the global spending party.

"They've already pumped endless amounts of money into the economy," said German Finance Minister Wolfgang Schäuble in 2010 about U.S. policy. "The results are dismal." (See our March 12, 2009 editorial, "Old Europe Is Right on Stimulus.")

Germany's resurgence might have been even stronger if Mrs. Merkel and her coalition partners hadn't reneged on their tax-cutting campaign promises and raised VAT and other taxes in a bid to stay close to budget balance. Still, Europe is lucky that its largest economy remains strong and creditworthy.

Yet now Mrs. Merkel is widely berated for avoiding the policy errors that led to the debt crisis and for having the nerve to encourage other countries to emulate the reforms that worked in Germany. The Keynesians will never forgive the Germans for being right.

Another European spending spree is unsustainable in any case. As the nearby chart shows, debt levels have climbed dramatically across the developed world since the crisis began in 2008, and that debt and the current dreary recovery (or double-dip recessions) are all there is to show for the great Keynesian spending blowout.

Now bond yields are ticking back up in the euro zone's periphery economies, European stock indexes are stumbling, and much of the Continent is in recession. Adam Smith's bond vigilantes are telling European governments that without reforms that reduce spending and encourage more growth in the private economy, their countries are increasingly risky bets. As the smarter Germans understand, the bond markets may be the only lobby for genuine pro-growth reform that exists in most of Europe.

Other than an inflation that will create new problems and bring its own crisis, economic growth is the only way out of Europe's debt morass. But it has to be private growth driven by reforms in taxes, labor markets, regulation, pensions and more.

Europe's voters have already swept several governments from office, and they seem ready to sweep out more. But what really needs to be swept away is the dominant and debilitating consensus that government spending can conjure prosperity.


Harvard Graduate School of Education Looks for Secrets of the Best Education System in the World (supposedly in Finland)
"From HGSE to Finland," Harvard Graduate School of Education, April 24, 2012

Just as magnolias were starting to bloom in Boston during spring break, a group of six Harvard Graduate School of Education (HGSE) students, accompanied by an intrepid middle-school teen reporter, bundled up and headed off to the wintry wonders of Helsinki, Finland. The team consisted of seven members, master’s students Rebecca Conklin, Susan Joo, Trea Lynch, Tracy Shih, Tracy Tan, and Julianne Viola, and Joo’s nephew, 15-year-old Colin Park from Dexter School, an international student from Korea. Their mission: to experience firsthand the daily lives of the people behind the highly successful Finnish education system.

Although hailing from different backgrounds and programs at HGSE, the seven-member team was drawn by a common fascination with the Finnish system, one that sees its students consistently score among the world’s best on the OECD’s PISA exam, despite requiring the fewest number of hours in the classroom. The HGSE team was seeking an opportunity to visit schools and speak with students, staff, and policymakers, in the hopes of distilling the secrets of Finland’s educational success.

“There is a lot of information out there on the successes of the Finnish system. The issue is that more times than not, the only people who are hearing about it are already in circles of education,” says Conklin. “We wanted to bring this experience to a much larger audience, and hopefully start some new conversations in new circles about what we can learn from the Finnish system.”

ust as magnolias were starting to bloom in Boston during spring break, a group of six Harvard Graduate School of Education (HGSE) students, accompanied by an intrepid middle-school teen reporter, bundled up and headed off to the wintry wonders of Helsinki, Finland. The team consisted of seven members, master’s students Rebecca Conklin, Susan Joo, Trea Lynch, Tracy Shih, Tracy Tan, and Julianne Viola, and Joo’s nephew, 15-year-old Colin Park from Dexter School, an student from Korea. Their mission: to experience firsthand the daily lives of the people behind the highly successful Finnish education system.

Although hailing from different backgrounds and programs at HGSE, the seven-member team was drawn by a common fascination with the Finnish system, one that sees its students consistently score among the world’s best on the OECD’s PISA exam, despite requiring the fewest number of hours in the classroom. The HGSE team was seeking an opportunity to visit schools and speak with students, staff, and policymakers, in the hopes of distilling the secrets of Finland’s educational success.

“There is a lot of information out there on the successes of the Finnish system. The issue is that more times than not, the only people who are hearing about it are already in circles of education,” says Conklin. “We wanted to bring this experience to a much larger audience, and hopefully start some new conversations in new circles about what we can learn from the Finnish system.”

Continued in article

Jensen Comment
It is not politically correct to conjecture that a huge factor behind education success in South Korea and Finland is lack of diversity. Among all nations of Europe, Finland has the least problem with educating immigrants ---

The Danish education system, for example, ranks much lower than the education system in Finland and South Korea ---

. . .

On the same day we went to Odense where we visited a club that was trying to integrate the immigrants to the Danish society. Most of the immigrants were Muslims so social integration was not easy. The people there were happy with all the government’s facilities but socially they were not bound with Danes. One of the immigrants termed his life as "imprisoned". 

The Danish government has provided enough facilities for the immigrants. But social integration was not as strong as I expected. In a way, I agree with the statement of my Spanish friend who termed this "the dark side of Danish democracy".

Continued in article

The American Dream ---

"Education Is the Key to a Healthy Economy:  If we fail to reform K-12 schools, we'll have slow growth and more income inequality," by George P. Shultz and Eric A. Hanushek, The Wall Street Journal, April 30, 2012 ---

In addressing our current fiscal and economic woes, too often we neglect a key ingredient of our nation's economic future—the human capital produced by our K-12 school system. An improved education system would lead to a dramatically different future for the U.S., because educational outcomes strongly affect economic growth and the distribution of income.

Over the past half century, countries with higher math and science skills have grown faster than those with lower-skilled populations. In the chart nearby, we compare GDP-per-capita growth rates between 1960 and 2000 with achievement results on international math assessment tests. The countries include almost all of the Organization for Economic Cooperation and Development (OECD) countries plus a number of developing countries. What stands out is that all the countries follow a nearly straight line that slopes upward—as scores rise, so does economic growth. Peru, South Africa and the Philippines are at the bottom; Singapore and Taiwan, the top.

The U.S. growth rate lies above the line because—despite the more recent shortcomings of our schools—we've long benefited from our commitment to the free movement of labor and capital, strong property rights, a limited degree of government intrusion in the economy, and strong colleges and universities. But each of these advantages has eroded considerably and should not be counted on to keep us above the line in the future.

Current U.S. students—the future labor force—are no longer competitive with students across the developed world. In the OECD's Programme for International Student Assessment (PISA) rankings for 2009, the U.S. was 31st in math—indistinguishable from Portugal or Italy. In "advanced" performance on math, 16 countries produced twice as many high achievers per capita than the U.S. did.

If we accept this level of performance, we will surely find ourselves on a low-growth path.

This doesn't have to be our fate. Imagine a school improvement program that made us competitive with Canada in math performance (which means scoring approximately 40 points higher on PISA tests) over the next 20 years. As these Canadian-skill-level students entered the labor force, they would produce a faster-growing economy.

How much faster? The results are stunning. The improvement in GDP over the next 80 years would exceed a present value of $70 trillion. That's equivalent to an average 20% boost in income for every U.S. worker each year over his or her entire career. This would generate enough revenue to solve easily the U.S. debt problem that is the object of so much current debate.

The drag on growth is by no means the only problem produced by our lagging education system. Greater educational disparity leads to greater income-distribution disparity. If we fail to reform our K-12 education system, we'll be locking in inequality problems that will plague us for decades if not generations to come.

Take our own state of California. Once a leader in education, it is now ranked behind 40 other U.S. states in math achievement, placing it at the level of Greece and foreshadowing a bleak future of ballooning debt and growing income disparity.

But the averages mask the truly sad story in the Latino population, soon to become California's dominant demographic group. Hispanics attending school in California perform no better than the average student in Mexico, a level comparable to the typical student in Kazakhstan. An alarming 43% of Hispanic students in California did not complete high school between 2005 and 2009, and only 10% attained a college degree.

Anyone worried about income disparity in America should be deeply disturbed. The failure of the K-12 education system for so many students means that issues associated with income distribution—including higher taxes and less freedom in labor and capital markets—will be an ever-present and distressing aspect of our future.

Continued in article

Bob Jensen's threads on controversies in education are at

"China and the Integrity of Accounting," by Floyd Norris, The New York Times, May 3, 2012 ---
Thank you Roger Collins for the heads up

Is progress about to be made on cooperation between the United States and China on the inspection of auditing firms?

A year ago, when senior American and Chinese officials met, the joint statement pledged efforts to cooperate on inspections of auditing firms. Given the spate of Chinese accounting scandals, it is clear that something needs to be done, but the Public Company Accounting Oversight Board in the United States has been unable to reach an agreement for joint inspections.

Instead of progress, there has been confrontation. The Securities and Exchange Commission wants to see work papers used by a Deloitte affiliate in China for its audit of Longtop Financial Technologies.

Deloitte exposed the Longtop fraud, but had missed it in previous audits. The firm has gone to court to fight the S.E.C. request, saying that under Chinese law it cannot comply with the subpoena.

Treasury Secretary Timothy F. Geithner and Secretary of State Hillary Rodham Clinton are in Beijing on Thursday for another round of talks. A new statement is expected on Friday.

A year ago, at a financial reporting conference at Baruch College in New York, James R. Doty, the chairman of the accounting board, gave a major speech on the integrity of auditing. This year Mr. Doty is nowhere to be seen, although the board has another member giving a speech.

Continued in article

Bob Jensen's threads on professionalism in auditing ---

"Why Colleges Don't Teach the Federalist Papers: At America's top schools, graduates leave without reading our most basic writings on the purpose of constitutional self-government," by Peter Berkowitz, The Wall Street Journal, May 6, 2012 ---

It would be difficult to overstate the significance of The Federalist for understanding the principles of American government and the challenges that liberal democracies confront early in the second decade of the 21st century. Yet despite the lip service they pay to liberal education, our leading universities can't be bothered to require students to study The Federalist—or, worse, they oppose such requirements on moral, political or pedagogical grounds. Small wonder it took so long for progressives to realize that arguments about the constitutionality of ObamaCare are indeed serious.

The masterpiece of American political thought originated as a series of newspaper articles published under the pseudonym Publius in New York between October 1787 and August 1788 by framers Alexander Hamilton, John Jay and James Madison. The aim was to make the case for ratification of the new constitution, which had been agreed to in September 1787 by delegates to the federal convention meeting in Philadelphia over four months of remarkable discussion, debate and deliberation about self-government.

By the end of 1788, a total of 85 essays had been gathered in two volumes under the title The Federalist. Written at a brisk clip and with the crucial vote in New York hanging in the balance, the essays formed a treatise on constitutional self-government for the ages.

The Federalist deals with the reasons for preserving the union, the inefficacy of the existing federal government under the Articles of Confederation, and the conformity of the new constitution to the principles of liberty and consent. It covers war and peace, foreign affairs, commerce, taxation, federalism and the separation of powers. It provides a detailed examination of the chief features of the legislative, executive and judicial branches. It advances its case by restatement and refutation of the leading criticisms of the new constitution. It displays a level of learning, political acumen and public-spiritedness to which contemporary scholars, journalists and politicians can but aspire. And to this day it stands as an unsurpassed source of insight into the Constitution's text, structure and purposes.

At Harvard, at least, all undergraduate political-science majors will receive perfunctory exposure to a few Federalist essays in a mandatory course their sophomore year. But at Yale, Princeton, Stanford and Berkeley, political-science majors can receive their degrees without encountering the single surest analysis of the problems that the Constitution was intended to solve and the manner in which it was intended to operate.

Most astonishing and most revealing is the neglect of The Federalist by graduate schools and law schools. The political science departments at Harvard, Yale, Princeton, Stanford and Berkeley—which set the tone for higher education throughout the nation and train many of the next generation's professors—do not require candidates for the Ph.D. to study The Federalist. And these universities' law schools (Princeton has no law school), which produce many of the nation's leading members of the bar and bench, do not require their students to read, let alone master, The Federalist's major ideas and main lines of thought.

Of course, The Federalist is not prohibited reading, so graduates of our leading universities might be reading it on their own. The bigger problem is that the progressive ideology that dominates our universities teaches that The Federalist, like all books written before the day before yesterday, is antiquated and irrelevant.

Particularly in the aftermath of the New Deal, according to the progressive conceit, understanding America's founding and the framing of the Constitution are as useful to dealing with contemporary challenges of government as understanding the horse-and-buggy is to dealing with contemporary challenges of transportation. Instead, meeting today's needs requires recognizing that ours is a living constitution that grows and develops with society's evolving norms and exigencies.

Then there's scientism, or enthrallment to method, which collaborates with progressive ideology to marginalize The Federalist, along with much of the best that has been thought and said in the West. Political science has corrupted a laudable commitment to the systematic study of politics by transforming it into a crusading devotion to the refinement of method for method's sake. In the misguided quest to mold political science to the shape of the natural sciences, many scholars disdainfully dismiss The Federalist—indeed, all works of ideas—as mere journalism or literary studies which, lacking scientific rigor, can't yield genuine knowledge.

And thus so many of our leading opinion formers and policy makers seem to come unhinged when they encounter constitutional arguments apparently foreign to them but well-rooted in constitutional text, structure and history. These include arguments about, say, the unitary executive; or the priority of protecting political speech of all sorts; or the imperative to articulate a principle that keeps the Constitution's commerce clause from becoming the vehicle by which a federal government—whose powers, as Madison put it in Federalist 45, are "few and defined"—is remade into one of limitless unenumerated powers.

By robbing students of the chance to acquire a truly liberal education, our universities also deprive the nation of a citizenry well-acquainted with our Constitution's enduring principles.

Continued in article

"The Yale Environment Review wants to brief you on the latest in environmental research," by David Wogan, Scientific American, May 4, 2012 ---

I’m excited to share with y’all the Yale Environment Review, fresh out of the Yale School of School of Forestry and Environmental Studies. The Review is a super refined weekly web publication curated by subject matter experts from Yale who summarize important research articles from leading natural and social science journals with the hope that people can make more informed decisions using latest research results.

The Review launched this week and covers a wide range of topics, like this brief about climate change and biodiversity (“Biodiversity Left Behind in Climate Change Scenarios”):

They find that simply using the traditional classification of a species in climate change simulations can underestimate the true scale of biodiversity loss. This happens because the subtle genetic variations among similar-looking species – typically hidden from view – are overlooked. Such a misstep in the models could undermine future conservation efforts.

And another about the effect of air pollution standards on economic growth (“Economic Growth by Stricter Regulation”):

Environmental regulation is often cast as a growth-inhibiting tax on producers and consumers. But a recent working paper from the National Bureau of Economic Research (NBER) provides a strong foundation for the economic benefits of regulation. The authors flip the conventional view on its head and present tighter regulation as an investment in human capital, and thus a tool for promoting economic growth.

A quick glance at the topics page hints at future articles: business, climate change, ecosystem conservation, energy, environmental policy, industrial ecology, land management, urban planning, and water resources. It’s practically a greatest hits album of pressing environmental policy issues.

Continued in article

Bob Jensen's threads on triple-bottom reporting are at




Bob Jensen's universal health care messaging --- http://www.trinity.edu/rjensen/Health.htm

Bob Jensen's Tidbits Archives ---

Bob Jensen's Pictures and Stories

Summary of Major Accounting Scandals --- http://en.wikipedia.org/wiki/Accounting_scandals

Bob Jensen's threads on such scandals:

Bob Jensen's threads on audit firm litigation and negligence ---

Current and past editions of my newsletter called Fraud Updates ---

Enron --- http://www.trinity.edu/rjensen/FraudEnron.htm

Rotten to the Core --- http://www.trinity.edu/rjensen/FraudRotten.htm

American History of Fraud --- http://www.trinity.edu/rjensen/FraudAmericanHistory.htm

Bob Jensen's fraud conclusions ---

Bob Jensen's threads on auditor professionalism and independence are at

Bob Jensen's threads on corporate governance are at


Shielding Against Validity Challenges in Plato's Cave ---

·     With a Rejoinder from the 2010 Senior Editor of The Accounting Review (TAR), Steven J. Kachelmeier

·     With Replies in Appendix 4 to Professor Kachemeier by Professors Jagdish Gangolly and Paul Williams

·     With Added Conjectures in Appendix 1 as to Why the Profession of Accountancy Ignores TAR

·     With Suggestions in Appendix 2 for Incorporating Accounting Research into Undergraduate Accounting Courses

Shielding Against Validity Challenges in Plato's Cave  --- http://www.trinity.edu/rjensen/TheoryTAR.htm
By Bob Jensen

What went wrong in accounting/accountics research?  ---

The Sad State of Accountancy Doctoral Programs That Do Not Appeal to Most Accountants ---


Bob Jensen's threads on accounting theory ---

Tom Lehrer on Mathematical Models and Statistics ---

Systemic problems of accountancy (especially the vegetable nutrition paradox) that probably will never be solved ---

Bob Jensen's economic crisis messaging http://www.trinity.edu/rjensen/2008Bailout.htm

Bob Jensen's threads --- http://www.trinity.edu/rjensen/threads.htm

Bob Jensen's Home Page --- http://www.trinity.edu/rjensen/