Tidbits Quotations
To Accompany the October 29, 2012 edition of Tidbits
Bob Jensen at Trinity University

Mitt Romney a “bullsh*tter”
Barack Obama, President of the United States, in a recent Rolling Stones Magazine interview ---
Do little kids read Rolling Stones Magazine?
Time Magazine Cover Story on BS on Both Sides of the Aisle 

Joe Biden's debate opponent (Paul Ryan), by contrast, was more like the earnest young parish priest who has been sent to coax wicked Uncle Joe out of the pub and into the church. Father Paul did his best, but his appeals fell on deaf ears. I lost count of the number of times Biden interrupted his Republican rival. Paul Ryan’s patience was more than priestly; at times, it was almost saintly.
Niall Ferguson (Harvard Professor of History, "What Biden Doesn’t Want You to Know," by , Newsweek Magazine,  Oct 15, 2012, Page 16 ---

Jensen Comment
Paul Ryan was at fault for this, To put an end to it the first time he was rudely interrupted, he should've paused in an uncomfortable lapse of silence and then asked the moderator if these rude interruptions were going to be allowed by the moderator for the rest of the debate. The moderator could hardly say yes since since the rules agreed to ahead of time by both debaters was that there would be no such impolite interuptions.

"Who is Telling the Truth?  The Fact Wars" as written on the Cover of Time Magazine

Jensen Comment
Both U.S. presidential candidates are spending tends of millions of dollars to spread lies and deceptions.
Both are alleged Christian gentlemen, a faith where big lies are sins jeopardizing the immortal soul.
The race boils down to the sad fact that the biggest Christian liar will win the race for the presidency in November 2012.

"Who is Telling the Truth?  The Fact Wars:  ," as written on the Cover of Time Magazine
"Blue Truth-Red Truth: Both candidates say White House hopefuls should talk straight with voters. Here's why neither man is ready to take his own advice ,"
by Michael Scherer (and Alex Altma), Time Magazine Cover Story, October 15, 2012, pp. 24-30 ---

Millions of Starlings on a Feeding Frenzy (reminds me of campaign donors seeking returns on their investments in a winning politician) ---

One of the casualties of the Benghazi blame game may well be Hillary Clinton. Rather than proudly refuse a second term as Secretary of State in order to commence campaigning for the 2016 Presidential Election, she may be forced to take on a second term as Secretary of State to save face and to try harder to at last carve some foreign policy notches on her re-election gun. What a shame after all the time and money her husband invested campaigning for President Obama this year on her behalf.

Bob Jensen's threads on Rotten to the Core ---

Ted Talk:  Heather Brooke: My battle to expose government corruption --- Click Here

"What You Can't Say," by Walter E. Williams, Townhall, October 24, 2012 ---

. . .

Jon Hubbard, a Republican member of the Arkansas House of Representatives, has a book, titled "Letters to the Editor: Confessions of a Frustrated Conservative." Among its statements for which Hubbard has been criticized and disavowed by the Republican Party is, "The institution of slavery that the black race has long believed to be an abomination upon its people may actually have been a blessing in disguise. The blacks who could endure those conditions and circumstances would someday be rewarded with citizenship in the greatest nation ever established upon the face of the Earth."

Hubbard's observation reminded me of my 1972 job interview at the University of Massachusetts. During a reception, one of the Marxist professors asked me what I thought about the relationship between capitalism and slavery. My response was that slavery has existed everywhere in the world, under every political and economic system, and was by no means unique to capitalism or the United States. Perturbed by my response, he asked me what my feelings were about the enslavement of my ancestors. I answered that slavery is a despicable violation of human rights but that the enslavement of my ancestors is history, and one of the immutable facts of history is that nothing can be done to change it.

The matter could have been left there, but I volunteered that today's American blacks have benefited enormously from the horrible suffering of our ancestors. Why? I said the standard of living and personal liberty of black Americans are better than what blacks living anywhere in Africa have. I then asked the professor what it was that explained how tens of millions of blacks came to be born in the U.S. instead of Africa. He wouldn't answer, but an answer other than slavery would have been sheer idiocy. I attempted to assuage the professor's and his colleagues' shock by explaining to them that to morally condemn a practice such as slavery does not require one to also deny its effects.

My yet-to-be-learned lesson -- and perhaps that of Rep. Hubbard -- is that there are certain topics or arguments that one should not bring up in the presence of children or those with little understanding. Both might see that explaining a phenomenon is the same as giving it moral sanction or justification. It's as if one's explanation that the independent influence of gravity on a falling object is to cause it to accelerate at 32 feet per second per second could be interpreted as giving moral sanction and justification to gravity.


"Moving Further to the Left," by Scott Jaschik, Inside Higher Ed, October 24, 2012 ---

Academics, on average, lean to the left. A survey being released today suggests that they are moving even more in that direction.

Among full-time faculty members at four-year colleges and universities, the percentage identifying as "far left" or liberal has increased notably in the last three years, while the percentage identifying in three other political categories has declined. The data come from the University of California at Los Angeles Higher Education Research Institute, which surveys faculty members nationwide every three years on a range of attitudes.

Here are the data for the new survey and the prior survey:

  2010-11 2007-8
Far left 12.4% 8.8%
Liberal 50.3% 47.0%
Middle of the road 25.4% 28.4%
Conservative 11.5% 15.2%
Far right 0.4% 0.7%

Gauging how gradual or abrupt this shift is complicated because of changes in the UCLA survey's methodology; before 2007-8, the survey included community college faculty members, who have been excluded since. But for those years, examining only four-year college and university faculty members, the numbers are similar to those of 2007-8. Going back further, one can see an evolution away from the center.

In the 1998-9 survey, more than 35 percent of faculty members identified themselves as middle of the road, and less than half (47.5 percent) identified as liberal or far left. In the new data, 62.7 percent identify as liberal or far left. (Most surveys that have included community college faculty members have found them to inhabit political space to the right of faculty members at four-year institutions.)

The new data differ from some recent studies by groups other than the UCLA center that have found that professors (while more likely to lean left than right) in fact were doing so from more of a centrist position. A major study in 2007, for example, found that professors were more likely to be centrist than liberal, and that many on the left identified themselves as "slightly liberal." (That study and the new one use different scales, making exact comparisons impossible.)

In looking at the new data, there is notable variation by sector. Private research universities are the most left-leaning, with 16.2 percent of faculty members identifying as far left, and 0.1 percent as far right. (If one combines far left and liberal, however, private, four-year, non-religious colleges top private universities, 58.6 percent to 57.7 percent.) The largest conservative contingent can be found at religious, non-Roman Catholic four-year colleges, where 23.0 percent identify as conservative and another 0.6 percent say that they are far right.

Professors' Political Identification, 2010-11, by Sector

  Far left Liberal Middle of the Road Conservative Far right
Public universities 13.3% 52.4% 24.7% 9.2% 0.3%
Private universities 16.2% 51.5% 22.3% 9.8% 0.1%
Public, 4-year colleges 8.8% 47.1% 28.7% 14.7% 0.7%
Private, 4-year, nonsectarian 14.0% 54.6% 22.6% 8.6% 0.3%
Private, 4-year, Catholic 7.8% 48.0% 30.7% 13.3% 0.3%
Private, 4-year, other religious 7.4% 40.0% 29.1% 23.0% 0.6%

The study found some differences by gender, with women further to the left than men. Among women, 12.6 percent identified as far left and 54.9 percent as liberal. Among men, the figures were 12.2 percent and 47.2 percent, respectively.

When it comes to the three tenure-track ranks, assistant professors were the most likely to be far left, but full professors were more likely than others to be liberal.

Professors' Political Identification, 2010-11, by Tenure Rank

  Far left Liberal Middle of the Road Conservative Far right
Full professors 11.8% 54.9% 23.4% 9.7% 0.2%
Associate professors 13.8% 50.4% 24.0% 11.5% 0.4%
Assistant professors 13.9% 48.7% 25.9% 11.2% 0.4%

So what do these data mean?

Sylvia Hurtado, professor of education at UCLA and director of the Higher Education Research Institute, said that she didn't know what to make of the surge to the left by faculty members. She said that she suspects age may be a factor, as the full-time professoriate is aging, but said that this is just a theory. Hurtado said that these figures always attract a lot of attention, but she thinks that the emphasis may be misplaced because of a series of studies showing no evidence that left-leaning faculty members are somehow shifting the views of their students or enforcing any kind of political requirement.

Continued in article

Jensen Comment
Those of us like Patricia Walters who like to see academic and political diversity in the Academy probably will not break out the Champaign over the results of this survey. Hopefully it has a big margin of error --- but I doubt it.

We don't know all the causes the purging of conservatives on campus, but if I were looking for a major cause I would say it was the way the Academy has come to despise conservatism among faculty prospects (replacing aging faculty) who show the least favoritism for market economics and capitalism and small government. I once heard a senior professor advise a new assistant professor of political science to hide his conservative thinking at least until he got tenure. I won't mention the university, but I think you can guess. Purportedly a university president (that I know personally) once stated that the economics department had one conservative economist and that was the quota.

Perhaps the reason for purging political and economic conservatism is that these ideologies have always been wrong all along from an intellectual perspective. The Academy is finally realizing associating conservatism with ignorance and purging itself of the dummies.

It's becoming increasingly likely that the United States will only have one political party, partly because liberal role models among all educators are becoming the only role models in the Academy.

But with $100-$200 trillion in unfunded entitlements I doubt that there will be much joy on each one-party campus.

Bob Jensen's threads on liberal bias in the media and the education establishment ---

October 25, 2012 reply from Neal Hannon

I received an interesting survey yesterday that allows one to self describe how you really stand on issues such as

Here's the email and the link to the survey:

Are you tired of having journalists saying what the Tea Party stands for? Would you like to say it yourself? We’re teaming up with researchers at YourMorals.org to conduct the largest survey ever of what Tea Partiers really think. Take the survey now!

When you participate, you’ll get instant feedback on your values, along 6 different dimensions, and you’ll see how you compare to others in the Tea Party movement, as well as to liberals and conservatives who are not in the movement but have taken a similar survey.

The survey should only take 7-12 minutes to complete. Please Click here to take the survey right now.

YourMorals.org is an academic research site run by social psychologists at the University of Southern California and The University of California at Irvine. YourMorals researchers have done important work to better understand conservative and libertarian morality. (Meet the researchers here.)

Thank so much for your help!

In Liberty,

Matt Kibbe
President and CEO, FreedomWorks

P.S. - The survey will guard your privacy carefully. You won’t be asked for personal information, although at the end you’ll be invited to register at YourMorals.org, in case you'd like to participate in other surveys.

Here is an explanation of what the researchers uncovered: (long)

The scale you completed was the "Moral Foundations Questionnaire," developed by Jesse Graham at the University of Southern California and Jonathan Haidt at the NYU-Stern School of Business.

The scale is a measure of the degree to which you endorse five sets moral values which seem to be the foundations of morality across cultures. The five foundations are: 1) Caring vs. harm, 2) Fairness vs. cheating, 3) Loyalty vs. betrayal, 4) Authority vs. subversion, and 5) Sanctity vs. degradation.

The idea behind the scale is that human beings value many different moral concerns. Some of these concerns are about treating other individuals well (the first two foundations: care and fairness). Other concerns are about how to be a good member of a group or supporter of social order and tradition (the last three foundations). At YourMorals.org, we have found that political liberals generally place a higher value on the first two foundations; they are very concerned about issues of care and fairness (at least when fairness is defined as equality). Political conservatives value those things too, although they generally see fairness as proportionality (getting what you deserve) rather than as equality. But the big difference between liberals and conservatives seems to be that social conservatives score higher on loyalty, authority, and sanctity.

This difference seems to explain many of the most contentious issues in the culture war. For example, liberals support legalizing gay marriage (to be compassionate and treat everyone equally), whereas many conservatives are reluctant to change the nature of marriage and the family, basic building blocks of society.

In the graph below, your scores on each foundation are shown in green (the 1st bar in each set of bars). The scores of all liberals who have taken this survey on our site are shown in blue (the 2nd bar), and the scores of all conservatives are shown in red (3rd bar). Scores run from 1 (the lowest possible score, you completely reject that foundation) to 6 (the highest possible score, you very strongly endorse that foundation and build much of your morality on top of it).

Take the survey and find out just how liberal or how conservative you really are!


October 25m 2012 reply from Bob Jensen

Hi Neal,

Thank you for sending this survey link. When I started to take this survey I decided I could not answer the questions out of context. Here are three of the opening questions: 

Part 1 of 3. When you decide whether something is right or wrong, to what extent are the following considerations relevant to your thinking? Please answer on a scale from

Not At All Relevant (This consideration has nothing to do with my judgments of right and wrong)

    to Extremely Relevant (This is one of the most important factors when I judge right and wrong)


Whether or not someone suffered emotionally.

Not At All Relevant Not Very Relevant Slightly Relevant Somewhat Relevant Very Relevant Extremely Relevant




Whether or not those who contribute more are rewarded more.
Not At All Relevant Not Very Relevant Slightly Relevant Somewhat Relevant Very Relevant Extremely Relevant




Whether or not someone cared for someone weak or vulnerable.
Not At All Relevant Not Very Relevant Slightly Relevant Somewhat Relevant Very Relevant Extreme



Jensen Comment
I found that I can create imagined contexts where I could go either way in this survey. For example, the degree to which I care about a somebody's emotional suffering varies greatly with context. I care very little about the emotional suffering of a serial rapist who's just been given a 10-year sentence. I care a lot about the emotional  suffering of an impoverished little girl we help support in Latin America. In addition to the monthly cash donations to her, we bought her a goat last Christmas. This year we will buy her a cow.

Whether or not someone who contributes the most is rewarded more changes a great deal with context.
If the best teacher, Professor X,  in the university teaches piano his/her performance deserves being rewarded more than other piano teachers in the music department. But if there will be 200 piano teachers who will apply for a tenure track position in the music department, I cannot conclude that Professor X should be paid more than Professor Y who gets only average teaching evaluations but is so unique there may be zero applicants to replace him/her in the system.

For example, when I was on leave for two years in a think tank on the Stanford University campus, my neighbor across street was a medical school hand surgeon renowned for replacing arthritic joints with artificial joints. He faced such financial opportunities in private practice that the medical school had to pay him considerably more than most faculty at Stanford University. My next door neighbor was computer scientist Donald Knuth. Even if Professor Knuth was a mediocre teacher he should have been one of the highest paid professors on campus because it's impossible to replace a Don Knuth ---

Whether or not I care for someone weak and vulnerable depends greatly on context. And I need to know the definition of "care." I know a situation where a bipolar K-12 teacher did not show up for class well over half the time. The school system gave her a year off at full pay to treat her medical condition. I think that was very fair. However, if she still cannot show up for work reliably after her treatments, I would not care enough about her weakness to give her full pay between her age of 35  and retirement age of 65. Perhaps she should get Social Security disability, but the school district should not be obligated to pay her full salary for 30 more years when she cannot perform her duties.

And being conservative does not mean you do not care about the poor. Most conservatives think they care more about the poor if their economic policies raise the average level of the poor as Milton Friedman's policies seem to raise the poverty incomes in Chile more than all other South American countries who have more socialist policies. I wonder if the poor in Cuba would do better if Cuba tried capitalism ala capitalism in Chile --- which by the way is not egalitarian. The spread between rich and poor in Chile increased, but the point is that the poor are doing better than their counterparts in both Latin and South America ---

Bob Jensen

"Mistrial in Political Bias Case," by Scott Jaschik, Inside Higher Ed, October 25, 2012 ---

A federal judge on Wednesday declared a mistrial on one charge in a suit by a professor who charged she was passed over for a law school faculty position at the University of Iowa because of her conservative politics and activism, while the jurors rejected another charge.

The judge acted after jurors twice declared that they were deadlocked. The first time they did so, the judge urged them to try to reach a verdict.

Initial press reports indicated that the jury deadlocked on the entire case, but The Iowa City Press-Citizen reported that -- after some confusion on this point -- the judge clarified that the jurors had rejected a claim of First Amendment violations but had deadlocked on the question of whether equal protection rights had been violated.

While informal allegations of political bias against conservatives in higher education are widespread, lawsuits of this nature are rare. The plaintiff -- Teresa Wagner -- argued that she had evidence in the form of comments made to her or about her staunch conservative views (and in particular her work in the anti-abortion movement). But University of Iowa faculty members said that Wagner lost the job not because of her politics, but because she blew a key interview question.

The judge on Wednesday indicated that the case could be tried again, unless a settlement is reached. Wagner and her lawyer did not respond to requests for comment. A spokesman for the University of Iowa said via e-mail: "We respect the judicial process and we will continue to review our policies to ensure that all hiring and promotion practices at the university comply with the law."

Wagner's suit survived an earlier attempt to quash it when a federal appeals court ruled in December that the evidence, viewed in a light most favorable to her (as is the standard for considering the dismissal of cases), could lead one to believe that she was denied her First Amendment rights in losing a job for her political views.

The evidence cited in that ruling and in the trial included the following:

Continued in article

Jensen Comment
I wonder how many of the existing Iowa Law School faculty would classify themselves on various topics that seem to define conservatives versus liberals? We will probably never know except indirectly and incompletely through their research and publishing histories, which by the way might be an interesting student project for students of history.

See "Moving Further to the Left," by Scott Jaschik, Inside Higher Ed, October 24, 2012 ---

"Drought! Famine! Global…Cooling?" by John Ransom, Townhall, October 16, 2012 ---

Climate experts from United Kingdom’s National Weather Service told the world that while is was not unusual for pauses in global warming that last for a decade to occur once every eighty years or so, there was no way that one could last for 15 years or more according to their climate model.

Oops. Their mistake, I guess.

Maybe that’s why when the United Kingdom’s National Weather Service updated their data and it showed that global warming has been paused for the last 16 years, they remained mum.

“The world stopped getting warmer almost 16 years ago, according to new data released last week,” write the Daily Mail’s David Rose. “The figures, which have triggered debate among climate scientists, reveal that from the beginning of 1997 until August 2012, there was no discernible rise in aggregate global temperatures. This means that the ‘plateau’ or ‘pause’ in global warming has now lasted for about the same time as the previous period when temperatures rose, 1980 to 1996. Before that, temperatures had been stable or declining for about 40 years.”

Rose includes a nice graphic, which we have reprinted below, that shows global temperatures remaining stable since 1997, with a statistically insignificant .03 degree rise on the Celsius scale.


The Nobel Prize for Political Literature:  Tolstoy and Twain never won, but many obscure writers have. Criteria other than high art seem to be involved," by Joseph Epstein, The Wall Street Journal, October 14, 2012 ---

You may not know it, but you and I are members of a club whose fellow members include Leo Tolstoy, Henry James, Anton Chekhov, Mark Twain, Henrik Ibsen, Marcel Proust, Joseph Conrad, James Joyce, Thomas Hardy, Jorge Luis Borges and Vladimir Nabokov. The club is the Non-Winners of the Nobel Prize in Literature. All these authentically great writers, still alive when the prize, initiated in 1901, was being awarded, didn't win it.

Rather better, our little club, than the one composed of those who have won the Nobel Prize for Literature. This club includes among its members Sully Prudhomme, Bjornstjerne Bjornson, Frédéric Mistral, Giosuè Carducci, Paul Heyse, Carl Spitteler, Grazia Deledda, Herta Müller, Tomas Tranströmer. Not, let us agree, everyone's idea of an all-star literary vaudeville.

Some splendid writers have won the Nobel Prize in Literature—W.B. Yeats, T.S. Eliot, Thomas Mann, William Faulkner, Boris Pasternak, S.Y. Agnon—but so many of the prizewinners are now entirely forgotten. A number of other winners were never regarded as quite first-rate in their own national literature—to consider only the United States: Pearl Buck, John Steinbeck, Sinclair Lewis—let alone as figures in the grander category of world literature, on which winning the Nobel Prize is supposed to set the seal.

The Nobel Prize in Literature, like the Nobel Peace Prize, has too often been given out of political motives. For a time it went to Soviet dissidents: Pasternak, Alexander Solzhenitzyn, and Joseph Brodsky. In more recent years, the prize has gone to Marxisant writers, especially those with a grudge against the U.S., among them Günter Grass, Dario Fo, José Saramago.

Whenever politics enters, prestige is leached from the Nobel Prize. Think of 1994, when the Nobel Peace Prize was given to Yasser Arafat, Shimon Peres and Yitzhak Rabin for promoting peace in the Middle East; or of 2009 when it was given to Barack Obama for not being George W. Bush.

The reason so many obscure writers win the Nobel Prize in Literature is largely owing to what one assumes has been the geopolitical impulses of the Nobel Committee. Time, its members must feel, to give the award to an East Indian, a Latin American, an Icelander. Last week brought us the 2012 winner, Chinese writer Mo Yan. The Nobel Committee could easily give the prize next year to the Ugandan performance artist and poet Kwame Tsooris-Tsimes, and it would be weeks before anyone learned that such a person doesn't exist.

The monetary aspect of the Nobel Prize adds greatly to its sheen. This year it was worth $1.2 million, which is, as the grifters say, a nice score. The morning that Saul Bellow learned he had won the Nobel Prize in 1976, I had a telephone call from him. After expressing his dubiety about the prize itself, he remarked that at least it would cheer up the alimony and child-support collectors among his ex-wives.

Much of the Nobel prestige derives from the awards in science and medicine. With the exception of economics, whose standing as science is highly dubious, science itself is palpable and its achievements real, and scientists, at least in their professional lives, are less likely to be corrupted by politics. Something like a genuine community exists among scientists that doesn't exist among writers, who are riven not alone by aesthetics but also by politics. The Nobel Prize in Literature, then, can never have the same grandeur as those in science, though it shares something of its lustre.

Although the Nobel Prizes are given only to people who are still alive, winning a Nobel Prize in Literature tends to make its literary recipients a bit posthumous. No study of this phenomenon exists, but my sense is that winning the Nobel puts fini to literary careers. Having won the fame and fortune this ostensibly paramount of all literary prizes confers, perhaps little remains for which to strive.

Would the literary world be better off without the Nobel Prize in Literature? Certainly it would be no worse off without the Nobel, for as currently awarded the prize neither sets a true standard for literary production nor raises the prestige of literature itself. I suppose there is no way to eliminate it, except to make it finally laughable by giving it to people even more undeserving than those who have won it in the past.

Continued in article

Bob Jensen's threads on the liberal bias of the media and academe ---

“We inherited a set of expectations that, at the moment, are actually dooming us to failure,” said Debora Spar, president of Barnard College, in a wide-ranging, lively talk on modern feminism.

"Feminism without perfection:  Reviewing gains at kickoff for 50th year of women at HBS," Harvard Gazette, October 15, 2012 ---

Jensen Hope
Please don't shoot the messenger.

"Why Obama & Romney Aren’t Connecting With Women," by Barbara Frankel, Diversity.inc, October 18, 2012 --- Click Here

"What Google Knows About the Presidential Race:  Political insight: people lie to pollsters, and probably on Facebook. But not to Google's search bar," by David Talbot, MIT's Technology Review, October 23, 2012 --- Click Here

Lately I haven't been telling the full truth to people calling my house asking about my political views. Why should I tell them anything? Of course, since I keep telling Massachusetts senator Scott Brown's people that I haven't made a final decision, they keep calling. This tends to tie them down. I feel bad about that.

People fib to poll takers and survey makers. They put their best face on Facebook. But by contrast, they tend to reveal their true colors in Google searches—and this can provide some insight into what will happen in the presidential race, as we were reminded in a New York Times piece yesterday by a Harvard PhD student, Seth Stephens-Davidowitz.

Four years ago, in October of 2008, search rates tended to predict high black turnout. Searches for voting information overall were slightly lower than they'd been in October 2004 but were higher in states with high black populations—North Carolina, Georgia, and Mississippi. While this isn't surprising, it does show that Google searches can predict behavior.

The piece is worth reading for insights including this one: "Turnout might be expected to be higher in Ohio in 2012 than it was in 2004 or 2008."

And:  "Areas with the largest black populations are, on average, Googling for voting information at rates similar to those of 2008, rather than 2004, levels. By this metric, it does seem that pollsters should assume a black share of the electorate similar to that of 2008, when African-Americans made up an estimated 12 percent of the electorate, rather than 2004, when it was 11 percent—a good sign for Mr. Obama.

And:  "There is nice news for Mitt Romney in the Google data, too: voting searches are higher in Idaho Falls and Salt Lake City, the two media markets with the largest Mormon populations. While neither Idaho nor Utah is a swing state, increased Mormon turnout might help Mr. Romney somewhat in two important swing states: Nevada (7 percent Mormon) and Colorado (3 percent Mormon)."

His overall conclusion: "Mr. Obama’s opponents hope that the 2012 electorate will be less favorable to Democrats, more like the 2004 electorate. My early analysis of Google search data says: don’t count on it."

Teaching Case from The Wall Street Journal Accounting Weekly Review on October 12, 2012

Caps on Tax Deductions Find Favor in Both Parties
by: John D. McKinnon
Oct 05, 2012
Click here to view the full article on WSJ.com

TOPICS: Alternative Minimum Tax, Capital Gains, Income Taxes, Tax Law, Tax Policy, Taxes

SUMMARY: Both the Republican presidential nominee and the incumbent president are considering proposing limits to individual income tax deductions--for different reasons.

CLASSROOM APPLICATION: The article may be used to introduce political reasons for the differences between personal income tax deductions, personal income tax credits, and limits to income tax deductions.

1. (Advanced) Define the term income tax deduction and differentiate it from a personal income tax credit. Identify some items that qualify as personal income tax deductions and some that qualify as personal income tax credits.

2. (Introductory) Based on the article, explain the reasons why each presidential candidate is considering the idea of limits on personal income tax deductions. What would a candidate do to act on plans developed in this area of taxation?

3. (Advanced) How is establishing a limit on personal income-tax deductions different from eliminating certain tax deductions such as mortgage interest and charitable donations? Based on discussion in the article, how is this limit consistent with Democratic party principles?

4. (Advanced) Access the online interactive graphic entitled "Obama and Romney on the Issues" and click on Taxes on the left-hand column. How has the health care law known as "ObamaCare" included items related to personal taxation?

5. (Advanced) Again, access the "Obama and Romney on the Issues" graphic. What is the Alternative Minimum Tax? Explain what Mr. Romney proposes about the AMT. How is that proposal consistent with Republican perspectives?

6. (Advanced) What is special about the capital gains tax? How is the Romney proposal, as described in the interactive graphic, consistent with Republican principles?

Reviewed By: Judy Beckman, University of Rhode Island


"Caps on Tax Deductions Find Favor in Both Parties," by John D. McKinnon, The Wall Street Journal, October 5, 2012 ---

The idea of limiting personal income-tax deductions is gaining traction in both parties as a way to raise more federal revenue without raising tax rates or scrapping popular breaks.

Republicans consider this a way to prevent rate cuts they seek from widening the budget deficit, while Democrats see the extra revenue as a means to shrink the deficit or fund programs.

The approach is also appealing because it would make more income subject to taxation—which boosts revenue—while reducing opposition from taxpayers who want to preserve specific deductions, such as those for mortgage interest, charitable giving or local taxes.

But capping deductions would also inevitably stir up opposition among groups worried that doing so would diminish incentives in the current system, and could have widely disparate effects on taxpayers in different regions.

As with any change in the tax code, the impact would depend on the details.

Republican presidential candidate Mitt Romney joined the chorus supporting the idea this week when he floated the prospect of a dollar cap on the total deductions a household could claim on its tax return. He didn't offer a specific proposal, but suggested options ranging from $17,000 to $50,000.

A $17,000 cap could generate $1.5 trillion or more of extra tax revenue over a decade, according to William Gale, a tax economist at the Brookings Institution, a Washington think tank populated largely by Democrats. Mr. Gale was an author of a recent report that questioned whether Mr. Romney could implement his proposed 20% rate cuts without shifting the overall tax burden to the middle class. On Thursday, he termed Mr. Romney's idea for capping deductions as "a step in the right direction."

In Wednesday's debate, Mr. Romney described a cap on deductions as one way to offset the cost of his proposed rate cut so it doesn't worsen the deficit.

President Barack Obama charged again at the event that Mr. Romney hasn't been specific enough about which deductions he would limit. "He's been asked over a hundred times how you would close those deductions and loopholes, and he hasn't been able to identify them," he said.

Since taking office, Mr. Obama has supported his own limit on the value of itemized deductions for higher-income households, defined as couples earning more than $250,000. His plan would reduce the value of all deductions for such households to 28% from the current 35% maximum. For example, a deduction of $1 million currently would be worth $350,000 in tax savings to someone in the 35% top bracket, all things being equal. Under Mr. Obama's proposal, the same taxpayer would save $280,000.

The president's proposal has expanded in scope in his recent budgets to similarly curb other tax breaks, such as exemptions for interest on bonds issued by state and local governments, contributions to retirement plans and employer-provided health care. His latest version would raise about $584 billion over a decade.

Opponents say the move would damp incentives for such worthwhile activities as charitable giving and home buying.

A Romney campaign aide said Mr. Romney would work with Congress "to preserve access to tax preferences for middle-income folks, and charitable [deductions] in particular."

Defenders of Mr. Obama's plan say it builds on a long-standing concern among some tax experts that deductions unfairly give a greater benefit to people who are subject to higher tax rates.

For months, lawmakers of both parties have been exploring ways to limit deductions and other breaks. They haven't made specific public proposals, but the debate is likely to heat up rapidly next year when Congress turns to overhauling the tax system.

Some recent blue-ribbon proposals for an overhaul also have embraced across-the-board limits on tax breaks. The 2010 deficit-reduction commission led by Erskine Bowles and Alan Simpson suggested a plan to eliminate itemized deductions altogether, replacing them with a system of tax credits and other breaks.

Continued in article

Jensen Comment
There are two ways to limit deductions in arriving at adjusted gross income. One that's already in place is to set a minimum threshold percentage of gross income beneath which almost no deductions are allowed. This is already in place both for nearly all AGI deductions plus additional minimum thresholds on selected items like health expenses. Most taxpayers cannot deduct health expenses unless disaster hits. Additionally, deductions that were once in place such as interest on car loans are no longer allowed.

Setting much more serious minimum or maximum thresholds becomes a political football in Washington DC. Lobbies for such groups as charities, real estate firms, and medical providers will fight tooth and nail against both higher minimum and lower maximum thresholds. I question whether our salivating Congress will resist the lobbying handouts.

Rather than percentage thresholds, there could be actual dollar amount thresholds. This is one way of clobbering higher income taxpayers without hurting taxpayers with more modest income amounts. But since higher income taxpayers are the backbone of many charities, churches, and markets for second (vacation) homes, the lobbies will still fight tooth and nail against absolute-amount as well as percentage thresholds.

When it comes to tinkering with tax exempt interest from municipal, school, county, state, and hospital bonds, taxation of this interest on Federal tax returns will force those non-profits to compete with corporations issuing safer bonds. Most of those tax-exempt bonds have much greater financial risk, as evidenced by the credit rating declines in California, Illinois, and elsewhere. This could really clobber the cost of capital for municipal, school, county, state, and hospital non-profit entities. In particular, this is a double taxation in that homeowners and renters will both pay greatly increased property taxes for public financing plus pay tax on any formerly tax-exempt bonds in their savings portfolios. I can't imagine the Federal government forcing this upon towns, schools, counties, states, hospitals, and retirement savings.

The fair thing to do would be to have the Feds pay the added cost of capital for towns, schools, states, and hospitals. But now is not a good time to have the Federal government add trillions to its own deficits.

It's one thing to plead for tax reform. It's quite another to drill down to specifics that have enormous side effects and externalities.

Teaching Case from The Wall Street Journal Weekly Accounting Review on October 19, 2012

Deferral and U.S. Corporate Taxes in a Global Context
by: Frederick C. Van Bennekom and Colin S. Jackson
Oct 17, 2011
Click here to view the full article on WSJ.com

TOPICS: Corporate Tax, International Taxation, Tax, Tax Havens, Tax Law, Tax Policy, Taxation

SUMMARY: These two letters to the editor comment on the related letter from Paul Volcker on October 8 in which Mr. Volcker "...suggests we consider the relative U.S. corporate tax rate versus other countries, rather than the U.S. rate in isolation." Both Mr. Volcker's letter and the two from October 17 clearly discuss the tax issues.

CLASSROOM APPLICATION: These letters to the editor are useful to bring an international perspective to taxation and to highlight one point of debate in the current presidential election.

1. (Introductory) President Obama has proposed returning our corporate tax rate to 35%, the level in the 1990s which was a period of prosperity in the U.S. What is different today about that very same tax rate of 35%?

2. (Introductory) For what tax rate does Mr. Volcker advocate in his October 8 letter to the WSJ's editors?

3. (Introductory) What other tax items does Mr. Volcker advocate changing? What is his reasoning for those changes?

4. (Advanced) What does it mean to "repatriate earnings"? What current circumstances encourage companies not to repatriate foreign earnings?

5. (Advanced) What is a territorial tax levy? What economic effects might come from such a system being implemented in the U.S.?

Reviewed By: Judy Beckman, University of Rhode Island

Paul Volcker's Views on the Taxation of U.S. Companies
by Paul Volcker
Oct 08, 2012
Page: A16

Obama vs. Volcker, Et Al.
by WSJ Opinion Page Editors
Oct 04, 2012
Online Exclusive


"Deferral and U.S. Corporate Taxes in a Global Context," by: Frederick C. Van Bennekom and Colin S. Jackson, The Wall Street Journal, October 17, 2012 ---

Your editorial "Obama vs. Volcker, Et AI." (Oct. 4) is a needed start to an honest discussion of corporate tax policy.Three items are in play: the taxing of overseas profits earned by U.S. firms, the deferral of that tax and the overall corporate tax rate.

The president says our tax policy subsidizes companies that move jobs overseas. Since he is never clear about this, we have to infer that he's discussing the impact of the tax deferral, claiming that this encourages companies to invest overseas thus leading to outsourcing. The deferral discourages U.S.-based companies from investing its earnings in the U.S.

So should we eliminate the deferral? As the only major country that taxes overseas profits, we put U.S. firms at an immediate and significant cost disadvantage to non-U.S. firms. Moving to a territorial tax system, as the president's Bowles-Simpson commission recommended, would eliminate the issue and give U.S. firms a level playing field.

But the U.S. also has the highest corporate tax rate of any major nation. Since it is levied on profits earned in the U.S. by foreign firms, it also discourages their investment, i.e., outsourcing, in the U.S., which would create jobs in the U.S.

High tax rates are the currency of politicians. The higher the rates, the more they can trade deductions (loopholes) to favored groups for political favors. This is true both for personal and corporate tax rates, and it corrupts market-based rational decision making while corrupting politicians.

Maybe the president will enlighten us about the basis for his claim rather than just throwing out the hype line, so that he and Mr. Romney can have an honest discussion on the issue of corporate taxes.

Frederick C. Van Bennekom
Bolton, Mass.

Paul Volcker (Letters, Oct. 8) suggests we consider the relative U.S. corporate tax rate versus other countries, rather than the U.S. rate in isolation. The disincentive to repatriate foreign profits back to the U.S. only exists when a company is repatriating profits from a country with a lower tax rate than ours.

Everything seemed to be just fine in the 1990s when the corporate tax rate was also 35%, so why lower the rates now? In 1994 the Irish corporate tax rate was 40%, so there was no penalty to repatriate Irish profits back home.

The higher relative U.S. rate has two penalties on investment in the U.S. Earnings here are taxed at a higher rate than earnings in Ireland, and earnings made in Ireland and then repatriated back to the U.S. must pay a 22.5% penalty. Of course, this penalty is rarely paid since those profits are never repatriated. So the U.S. loses out on the investment, the tax revenue and the jobs which have gone to Ireland. This double penalty didn't exist in the 1990s.

Continued in article

Quebec --- http://en.wikipedia.org/wiki/Quebec

"Quebec firms most heavily taxed in Canada and U.S.: study," Financial Post (from the Canadian Press), October 23, 2012 ---

Quebec companies are by far the most heavily taxed in Canada and the United States, even after accounting for generous financial assistance from the province, according to a new University of Montreal business school study.

The HEC Centre for Productivity and Prosperity’s 2012 report said Wednesday that Quebec companies paid 26% more in taxes than the Canadian average and face almost double the tax burden of U.S. companies.

Taxes represented 5.1% of the gross output of Quebec businesses, compared with 4.1% for Canada and 2.9% for the United States, according to a Statistics Canada survey of 2008 data.

Ontario was the second least competitive province in terms of taxes at 4% of gross output, followed by Alberta (3.9), B.C. (3.8), Nova Scotia (3.7), Manitoba (3.7), Newfoundland and Labrador (3.4), P.E.I. (3.1), Saskatchewan (3.0), and New Brunswick (2.6).

Continued in article

Jensen Comment
Quebec is not the best test case for high taxes, because it has offsetting attractions to locate a business in Quebec, including an abundant work force  and abundant hydro power and an abundant land mass with lots of timber and other natural resources. Quebec is one of the best exporting Canadian provinces, especially if you factor out oil exporting in Western Canada.

"The Solyndra Memorial Tax Break How Energy passed out tax-loss credits that mean taxpayers will pay twice for failure.," The Wall Street Journal, October 16, 2012 ---

Perhaps you thought the Solyndra scandal amounted to a $535 million government loan that will never be repaid. No such luck. In the latest twist, Solyndra's investors could be rewarded for their failure, thanks to a tax benefit the Administration handed out in a bid to evade political accountability.

The Internal Revenue Service exposed this double Solyndra debacle last week in the U.S. bankruptcy court for the district of Delaware, which is unwinding the defunct solar-panel maker. The IRS formally objected to Solyndra's Chapter 11 reorganization plan, claiming its "principal purpose is tax avoidance." ***

Having sold off its manufacturing plant, fired nearly 1,000 workers and proven the non-viability of its business model, Solyndra's only real assets are what the IRS calls "tax attributes." These are between $875 million and $975 million in net operating losses that can reduce future taxable income, which the IRS values as high as $350 million. Before it went toes up, Solyndra also accumulated $12 million in solar tax credits that can reduce tax liabilities dollar for dollar.

Tax-loss carry-forwards are routine but worthless if a company can't turn profits to pay taxes on. So Solyndra's owners are asking the court to liquidate the rest of the business and contribute a net $6.7 million to pay off creditors for pennies on the dollar. A holding corporation will then emerge from Chapter 11 that won't make products or employ workers, but it will get the Solyndra tax offsets.

The dummy company is owned by Argonaut Ventures I LLC, Solyndra's largest shareholder and the primary investment arm of the George Kaiser Family Foundation. Mr. Kaiser is a Tulsa oil billionaire who bundled campaign checks for Mr. Obama in 2008. The other owner is Madrone Partners LP, a California venture outfit.

Solyndra's Energy Department loan closed in September 2009, and a year later it was back asking for more as it bled cash. To stave off bankruptcy, the company asked Energy to release the loan's remaining $95 million immediately, instead of in monthly drawdowns, and to restructure the terms (it had already technically defaulted). The emails that follow are from the negotiations that began in December 2010 and are either exhibits in the IRS objection or come from the 300,000 pages of documents the House Energy and Commerce Committee uncovered in its investigation.

Argonaut and Madrone were prepared to commit a new $25 million but needed the government either to take a haircut or subordinate taxpayer repayment rights to new senior debt. Solyndra's private financing rounds were failing because new investors were coming in behind the government's $535 million.

"The DOE really thinks politically before it thinks economically," Steve Mitchell, an Argonaut managing director, wrote to Mr. Kaiser on December 7, 2010. The Department of Energy gnomes demanded $75 million and refused to invite the political blowback that signing away taxpayer claims to private financiers would invite, but Mr. Mitchell wouldn't go above $25 million. So he wrote that he "politely moved the conversation toward how we should use the time to start discussing the bankruptcy process . . . To me it was clear that the DOE folks were somewhat caught off guard that we weren't going to bail out the company."

Argonaut and Madrone could walk away in part because they had so little skin in the game. Solyndra had 73% debt to 27% equity, not the 65%-35% split that the Treasury Department wanted before Energy boxed it out of a 2009 due-diligence review in the push to get stimulus dollars out the door. Realizing that Argonaut-Madrone would rather liquidate than throw good money after bad, Energy eventually gave in.

Meanwhile, Mr. Kaiser's mind was on the net operating losses (NOLs). He mused to Mr. Mitchell that "I would go a long way to preserve the NOLs," and he suggested that the final decision to ante up to $75 million could be "subject to our better understanding of whether the NOLs can conceivably be preserved in a semi-liquidation (that is, somehow maintaining the line of business and avoiding change of control)."

In February 2011, Energy signed off on a deal that would subordinate its repayment interests to a new $75 million loan to Solyndra from Argonaut and Madrone. The two owners would open this tranche of senior debt to other investors for equity warrants. But under the Energy term sheet, those warrants would then bounce back to the Argonaut-Madrone holding company if Solyndra became defunct. That gave Argonaut-Madrone 99.9% control of the net operating losses.

Solyndra went bust in September 2011, but Mr. Kaiser referred in August emails to "the consolation prize NOL" and wrote that "we could get the same benefit out of a new entity in there without absorbing the costs of resuscitating this one." In other words, the holding company will merge with another profitable Argonaut business that can use the tax breaks.

The irony is that the law that created the loan program specifically bars the Energy Department from taking a junior debt position. So Energy simply produced a novel legal analysis claiming that this prohibition applies only when a loan originates, not when it is modified.

One staffer at the White House budget office wrote at the time that "I think they have stretched this definition beyond its limits" and noted in particular that the government "is better off liquidating the assets today than restructuring under DOE's proposal." Fly-speckers at the Treasury agreed. ***

Under the bankruptcy plan, taxpayers will recoup $27 million at most on Mr. Obama's $535 million "investment." The IRS and Energy Department are now asking the courts to reject the deal, because bankruptcy is designed to give a business a second chance, not goose a tax return.

But this is little more than an ex post facto double-cross. Energy created the tax avoidance problem in the first place by gifting Argonaut and Madrone the net operating losses to delay the Solyndra crack-up that was fast becoming inevitable. That left taxpayers worse off than if they simply let Solyndra fail.

This raises a question or two for the President who once called Solyndra a "testament to American ingenuity and dynamism" and who keeps accusing Mitt Romney of supporting tax breaks for outsourcing and corporate jets, which he doesn't. Here one of Mr. Obama's own billionaire pals is trying to sidestep a federal tax bill amounting to hundreds of millions of dollars as a result of an epic crony capitalist fiasco.

The larger problem is Mr. Obama's economic model that seeks to picks winners and losers and misallocates capital. That's bad enough. But does he have to stick it to taxpayers twice for the same failed investment?


From The Wall Street Journal Accounting Weekly Review on October 12, 2012

Another California City Struggles With Finances
by: Bobby White
Oct 05, 2012
Click here to view the full article on WSJ.com

TOPICS: Bankruptcy, Cost Management, Governmental Accounting

SUMMARY: "The small agricultural town of Atwater, Calif., has declared a fiscal emergency, as is seeks to avoid becoming the fourth municipality in the state this year to file for bankruptcy...Atwater is the latest California town to publicly edge down the road toward bankruptcy. Under state law, a local government must declare a 'fiscal emergency' or go through a confidential negotiation process with its creditors before it files a petition under chapter 9 of the U.S. Bankruptcy Code."

CLASSROOM APPLICATION: The article is useful for governmental accounting classes to highlight the particular managerial issues facing cities and towns. While the article focuses on California and specifics of state laws there impact the issues discussed, those specifics also help students to understand the constraints faced by many cities and towns in other locations.

1. (Introductory) Based on the discussion in the article, what towns in California face financial difficulties? What reasons led to this dire situation?

2. (Advanced) What particular state law makes it difficult for California towns to cope with rapid financial changes?

3. (Introductory) Beyond the factors affecting many California towns, what particular problems have beset the town of Atwater?

4. (Advanced) What strategies did the town of Atwater use to cope with emerging financial problems? How did these strategies actually exacerbate the problems?

Reviewed By: Judy Beckman, University of Rhode Island

"Another California City Struggles With Finances," by: Bobby White, The Wall Street Journal, October 5, 2012 ---

The small agricultural town of Atwater, Calif., has declared a fiscal emergency, as it seeks to avoid becoming the fourth municipality in the state this year to file for bankruptcy protection.

Located about 100 miles east of San Francisco, Atwater is grappling with a $3 million budget deficit, declining city revenues and cost overruns for a new wastewater treatment plant.

The town on Wednesday declared the emergency, which under state law allows it to restructure union contracts, including imposing salary reductions and benefit cuts without negotiations. "We're working hard to balance the budget and avoid bankruptcy," said Joan Faul, Atwater's mayor.

She said the city of 28,000 people earlier this week laid off 14 employees, or about 16% of its workforce. She said the city was exploring options for increasing revenue, such as raising rates for water services and for garbage collection. The Atwater City Council is scheduled to meet Oct. 22 to discuss whether it should file for bankruptcy.

Atwater is the latest California town to publicly edge down the road toward bankruptcy.Under state law, a local government must declare a "fiscal emergency" or go through a confidential negotiation process with its creditors before it files a petition under Chapter 9 of the U.S. Bankruptcy Code.

Since June, three California cities—Stockton, San Bernardino and Mammoth Lakes—have filed for bankruptcy protection. The city of Vallejo emerged from bankruptcy last year after declaring Chapter 9 in 2008.

The string of fiscal emergencies and bankruptcies highlights the continuing impact of the 2008 recession, which hit many of the cities hard by lowering property-tax revenues. At the same time, many towns are grappling with rising costs related to employees' pensions, health-care costs and union salaries. California cities face particular hurdles in raising taxes, for which they often have to seek voter approval.

Declaring a fiscal emergency doesn't always lead to bankruptcy discussions. The California towns of La Mirada, Fairfield and Culver City are among those that declared fiscal emergencies this year and placed sales tax increases before voters; they didn't end up seeking Chapter 9.

Still, Doug Scott, a managing director with Fitch Ratings Agency, said Atwater remained a bankruptcy candidate because the city has used restricted funds from its water and sewer service to pay other bills, a practice that has now made it difficult for the city to meet debt payments. Last month, Fitch downgraded Atwater's debt to noninvestment grade, citing poor handling of its respective funds. "We're concerned about the direction this city is headed," said Mr. Scott.

Atwater has struggled since 2008 over how to pay for construction cost overruns for a new $90 million wastewater treatment facility. The city issued $85 million in bonds to pay for the construction, which wasn't enough.

As Ms. Faul explained it, officials later used money designated for other services to pay the extra construction costs, but the practice began depleting funds. The 2008 economic downturn further hindered Atwater's ability to pay its bills by hitting property-tax revenues.

Atwater has introduced city staff furloughs and hiring freezes to curb some of the losses. "We're doing everything we can to avoid bankruptcy," Ms. Faul said.


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

"The 5 Million Green Jobs That Weren't," by Ira Boudway, Business Week, on October 11, 2012 ---

In 2008 candidate Barack Obama promised to create 5 million green jobs. He laid out a plan to invest $150 billion over 10 years that would advance a clean-energy economy built around biofuels, hybrid cars, low-emission coal plants, and renewable sources such as solar and wind. How many has he actually created?

The Bureau of Labor Statistics began tracking green jobs two years ago, but it counts only how many existed as of the end of 2010. It doesn’t keep a running total of newly created jobs, so there’s no way to tell how many existed before Obama’s election. The Brookings Institution also has a tally, but it too goes only through 2010, and of the nearly 2.7 million green jobs it identifies, most were bus drivers, sewage workers, and other types of work that don’t fit the “green jobs of the future” that Obama imagined. The report does zero in on cleantech, which includes the wind, solar, fuel-cell, and smart-grid industries. In 2010, Brookings shows, there were 184,699 such jobs nationwide—up 2,642 since the president took office in 2009.

The American Recovery and Reinvestment Act of 2009 set aside $90 billion in renewable energy grants and loans for a grab bag of thousands of projects—wind farms, solar installations, natural gas fueling stations, biofuel research, and a $5 billion weatherization project for low-income homes. Digging into the public records of the $21 billion spent so far through 19 U.S. Department of Energy programs reveals 3,960 projects that employ 28,854 people.

That’s not 5 million. In November 2010, the President’s Council of Economic Advisers said federal recovery spending had “saved or created” 225,000 clean-energy jobs, including “both the direct jobs of people involved in the construction of a particular project and also the jobs generated by the additional economic activity sparked by these projects.”

Nevertheless, Secretary of State Hillary Clinton took Castro's side in the matter, insisting that Mr. Zelaya had to be reinstated. Mrs. Clinton stuck to that position even after a legal analysis by the Congressional Research Service found that the Honduran Supreme Court had the right to ask the military to remove the president.

When it became clear that Honduras would embarrass the U.S. by going ahead with a fair election on schedule to replace the interim president, Roberto Micheletti, the State Department withdrew its demand. But it had already stripped the Honduran Supreme Court, Mr. Micheletti and numerous others of their U.S. visas. Mr. Micheletti's visa has not been returned.

The White House has treated another U.S. friend, Colombia, with similar disdain. Mr. Obama opposed ratification of the U.S.-Colombia free-trade agreement that had been negotiated and signed by George W. Bush. Mr. Obama claimed to be outraged by violence against organized labor even though President Alvaro Uribe's policies had made all Colombians, including union leaders, far safer than they had been for decades. It took Mr. Obama nearly three years to send the trade agreement to Congress for a vote. He did so only grudgingly, and under intense pressure from Democrats like Montana's Sen. Max Baucus, whose farmers and ranchers were losing market share in Colombia.

Mr. Obama also tried to throw sand in the gears of the North American Free Trade Agreement. Upon taking office he immediately killed a Bush administration pilot program designed to inch the U.S. toward compliance with its Nafta obligation to allow Mexican trucks to cross the border. Mexico responded with some $2.4 billion in retaliatory tariffs that hurt U.S. exporters badly. Thirty-one months into the Obama presidency, the administration agreed to a new pilot program. But the border is still not fully open to trucking competition.

You don't have to speak Spanish, Portuguese or French to get clothes-lined by Mr. Obama. He nixed TransCanada's Keystone XL pipeline earlier this year, even though the company had complied with the U.S. permitting process. The project would have weakened Mr. Chávez by replacing Venezuelan heavy-tar oil used in Gulf Coast refineries with a similar product from a friendly country. Is there a pattern here?

Continued in article

"Tower of Economic Babble:  World leaders bicker and drift without U.S. leadership," The Wall Street Journal, October 14, 2012 ---

In case you lead a normal life and had better things to pay attention to, the world's economic leaders met in Tokyo this weekend. They didn't agree on much, but no doubt the Japanese cuisine was splendid.

This not to say that the grandees were mute. Federal Reserve Chairman Ben Bernanke lectured that the world should welcome his dollar devaluation policy, no matter the upward pressure it puts on many other currencies. Brazil's foreign minister lectured the Europeans about their "delayed reactions" to the financial crisis.

The Europeans lectured the Americans about the looming "fiscal cliff," and Treasury Secretary Tim Geithner returned the favor by lamenting the "headwinds from Europe" hurting U.S. growth. The Japanese and Chinese glared at each another over contested offshore islands, and the Chinese refused even to send their most senior officials.

Meanwhile, the poobahs at the International Monetary Fund lectured everyone about everything. In particular, the IMF wants Europe and the U.S. to pursue "fiscal consolidation," albeit not too quickly lest it hurt growth. In 2009, the IMF said spend more fast, then in 2010 it said spend less and raise taxes fast, and now it says raise taxes not so fast.

This babble is what a world without leadership looks like, specifically without American leadership. The world doesn't much want to listen to a U.S. that is growing at a mere 1.3%, is showering the world with excess dollars, and is increasingly picking trade fights for domestic political gain. The result is that every country goes its own way, global trade and capital flows ebb (see Messrs. Warsh and Davis nearby), and world growth suffers. Leading from behind doesn't work any better in economics than it does on security.

"Obama's Record in the Americas:  Friendly countries have been stiff-armed while those who would do the U.S. harm have been given a pass, and sometimes even encouraged," by Mary Anastasia O'Grady, The Wall Street Journal, October 15, 2012 ---

Mitt Romney says that he will forge a better foreign policy than the one President Obama has had. Maybe so. For the United States' neighbors in the Western Hemisphere, it couldn't get much worse.

On Mr. Obama's watch, America's friends have been stiff-armed while those who would do the U.S. harm have been given a pass—and sometimes even encouraged.

Democrats on the far left, led by the likes of former Sen. Chris Dodd, spent the Cold War arguing that U.S. efforts to keep the Soviets from setting up camp in the region amounted to vulgar imperialism. The Soviets are gone, but the Latin left has gained a new best friend in the current U.S. president.

In April 2009, in the midst of his now-famous apology tour, Mr. Obama warmly greeted Venezuelan strongman Hugo Chávez at the Summit of the Americas in Port-of-Spain, Trinidad. It was a painful moment for the victims of the military dictatorship. Businesses in the once prosperous South American nation had lost their right to earn a profit, owners had been stripped of their property, free speech and pluralism had been quashed.

Ivan Simonovis, the decorated former chief of the Caracas metropolitan police, was living out a 30-year sentence in a cramped, windowless cell, one among a number of Chávez political prisoners. Imagine how it felt hearing the news that the leader of the Free World was in the Caribbean bonding with Fidel Castro's most famous protégé.

Less than three months later, Honduran President Manuel Zelaya—an acolyte of Mr. Chávez—tried to illegally extend his time in office using mob violence. It was a page right out of the antidemocratic, hard-left playbook that has been used in Bolivia, Ecuador and Nicaragua to put an end to political competition. It was also a direct violation of the Honduran Constitution.

All of the country's independent institutions backed the removal of the president by the military. So did Mr. Zelaya's own party. The generals argued persuasively that—given the marauding hooligans he had led in the street just days earlier—they had little choice but to deport the president to avoid bloodshed.

Continued in article

Increased Investor Risks Caused by the Jumpstart Our Business Startups Act
"The Data Facebook Didn't Want to Share,: by Karen Wei, Bloomberg Business Week, October 10, 2012 ---

. . .

Today a great story from our colleagues over at Bloomberg News looks at the recently released documents from Facebook’s IPO and finds that the social network fought to keep key risks hidden. The SEC forced Facebook to avoid double-counting mobile users and to disclose that people who accessed the site largely on mobile devices were making up a growing share of its users. This was problematic for Facebook because it derives less revenue for mobile users than for regular ones. Spokesmen for Facebook and the SEC declined to comment for the Bloomberg story.

The SEC also asked Facebook why it didn’t report how much revenue it generated per user. Facebook’s attorney responded that the company preferred to use aggregate numbers. The SEC went ahead and calculated the figures on its own—which showed that per-user revenue was declining. Facebook ultimately included the statistics in its filings.

The Facebook letters show that while there is a push and pull between the SEC and the company looking to launch an IPO, ultimately the SEC has the final word. As Alan Mendelson, a partner at Latham & Watkins, explained to us in February, a company “might have to cave and put something in the document that you prefer not to.” Put another way, had the SEC’s vetting process not existed, investors wouldn’t have known details about the mobile-revenue concerns before the stock hit the market.

But something big has changed since Facebook started its IPO process. In the spring, Congress passed—and President Obama signed—the Jumpstart Our Business Startups Act, a bill that loosened investor protections with the goal of creating more jobs. The bill reduces disclosure requirements for so-called emerging growth companies that want to go public; under the law an emerging growth company can have as much as $1 billion in annual revenue. The bill also opens the way for buyer-beware offerings through crowdfunding. And it allows companies to raise money from as many as 2,000 investors privately, up from the previous limit of 500. When raising money privately, companies are under far less obligation to divulge information. So once the JOBS Act goes in to effect next year, more deals can avoid the SEC process that forced Facebook to show its cards to investors.

"How to Reduce America's Talent Deficit:  At Microsoft, we have more than 6,000 open jobs in the U.S. Some 3,400 of the positions are for engineers. Schools aren't producing graduates with the skills needed in the marketplace," by Brad Smith (executive vice president and general counsel of Microsoft) , The Wall Street Journal, October 18, 2012 ---

Each month, when the government publishes the national jobs report, Americans pick over small movements in the headline rate of unemployment. In doing so, they largely miss a crucial aspect of the U.S. jobs crisis.

Many American companies are now creating more jobs for which they can't find qualified applicants than jobs for which they can. Thus the economy faces a paradox: Too many Americans can't find jobs, yet too many companies can't fill open positions. There are too few Americans with the necessary science, technology, engineering and math skills to meet companies' demand.

At Microsoft, MSFT -0.32% we have more than 6,000 open jobs in the U.S., a 15% increase from a year ago. Some 3,400 of these positions are for engineers, software developers and researchers (a 34% increase from last year).

Other companies face the same problem. As the national unemployment rate this summer exceeded 8% for the third consecutive year, the rate in computer-related occupations was only 3.4%. Even outside of the technology sector, nearly every firm is in some way a software company given the importance of automation. So America's skills shortage affects businesses in every industry and region.

Unfortunately the problem is likely to get even worse. According to the U.S. Bureau of Labor Statistics, the U.S. this year will create some 120,000 new jobs requiring at least a bachelor's degree in computer science. But all of our colleges and universities put together will produce only 40,000 new bachelor's degrees in computer science. The BLS forecasts that this demand for new jobs will persist every year this decade. And when one adds the high multiplier effect of engineering jobs—each one filled typically leads to five additional jobs in the economy, according to Berkeley economist Enrico Moretti—it is clear that this problem touches all of us.

If we don't increase the number of Americans with necessary skills, jobs will increasingly migrate abroad, creating even bigger challenges for our long-term competitiveness and economic growth. This is a personal crisis for young people facing an increasing opportunity divide.

America has more than 30,000 public high schools and 12,000 private ones, yet last year only 2,100 of these schools offered the advanced placement course in computer science. Four decades after Bill Gates and Steve Jobs were teenagers, we still live in a country where you have to be one of the fortunate few to take computer science in high school.

Last month Microsoft laid out a proposal for how to begin addressing the problem. It couples long-term improvements in American education with short-term, skills-focused immigration reform. Done right, immigration reforms can even help fund education improvements, ensuring that more Americans gain the skills they need.

We need a national "Race to the Future" akin to the Obama administration's Race to the Top grant program (which Mitt Romney praises). It would provide new funding and incentives for states to:

• Strengthen science, technology, engineering and math education in grade school by recruiting and training teachers and implementing the Common Core State Standards and the Next Generation Science Standards.

• Broaden access to computer science in high schools.

• Help colleges and universities raise their graduation rates.

• Expand colleges' capacity to produce more degrees in science, technology, engineering and math, with a particular focus on computer science.

On the immigration front, Congress should create a new, supplemental category with 20,000 annual visas for people with science and technology skills that are in short supply. Lawmakers should also take advantage of existing, unused green cards by allocating 20,000 for workers with these vital skills.

It would be fair and feasible to make these supplemental steps more expensive, for example by charging $10,000 for the new high-skill visas and $15,000 for the new green cards. (Large companies pay about $2,300 for each such H-1B petition today.) This would raise $5 billion over the next decade that the federal government could provide to states committed to smart reforms for cultivating important job skills.

Microsoft is convinced that these initiatives could earn bipartisan support, but lawmakers need to summon the will to act. We can't expect to build the economy of the future with only the jobs and ideas of the past.

Jensen Comment
In spite of the tone of the above article there are a number of things to keep in mind.

The Sad State of North American Accounting Ph.D. Programs

Accounting at a Tipping Point (Slide Show)
Former AAA President Sue Haka
April 18, 2009

Bob Jensen's threads on the Sad State of North American Ph.D. Programs ---

Bob Jensen's threads on career opportunities are at

What do the following states sadly share in common"

You know it must be really bad if California did not make the list.

"Nine States with Sinking Pensions," 247 Wall Street, October 18, 2012 --- Click Here

Several years after from the financial crisis of 2008, state pension funds continue to languish. According to data released this week by Milliman, Inc. and by the Pew Center on the States, there was a $859 billion gap between the obligations of the country’s 100 largest public pension plans and the funding of these pensions. Most of these are state funds, and state legislatures have attempted to respond to this growing crisis by making numerous reforms to try to combat this growing deficit.

In 2010, only Wisconsin’s pension funds were fully funded. Nine states, meanwhile, were 60% funded or less — this would mean that at least 40% of the amount the state owes current and future retirees is not in the state’s coffers. In Illinois, just 45% of the state’s pension liabilities were funded. In some of these states, the gap between the outstanding liability and the amount funded was in the tens of billions of dollars. California alone had $113 billion in unfunded liability. Based on Pew’s report, “The Widening Gap Update,” 24/7 Wall St. identified the nine states with sinking pensions.

Each year, actuaries determine how much a state should contribute to its pensions to keep them funded. Many states, for various reasons, did not pay the full recommended contributions for 2010, while others have been paying the recommended amount for years. In an interview with 24/7 Wall St., Milliman Inc. principal and consulting actuary Becky Sielman explained that despite states making the recommended payments, many large individual public retirement funds are still underfunded.

Of the nine states with pensions that are underfunded by 40% or more, three paid more than 90% of the recommended contributions, and two, Rhode Island and New Hampshire, paid the full amount. Despite this, pension contributions were still generally higher in states that were better funded. Of the 16 states that were at least 80% funded — a level experts consider to be fiscally responsible — 11 contributed at least 97% of the recommended amount.

In an interview with 24/7 Wall St., Pew Center on the States senior researcher David Draine explained why, despite paying the full amount, several states continued to be severely underfunded. He pointed out that meeting contributions was important. He added that states that made full contributions in 2010 were 84% funded on average, compared to those that did not, which were only 72% funded.

To explain why several states that are making full contributions are still underfunded, Draine said much of it has to do with investment losses. “The 2000s have been a terrible period for pension investments that have fallen short of their expectations … that’s a big part of the growth in the funding gap.”

Unfunded liability can also grow due to overly optimistic assumptions about investment growth, pension payments that become deferred, and an increase in benefits or an increase in the number of beneficiaries without a corresponding increase in contributions, Draine explained.

Based on the Pew Center for the States report, “The Widening Gap Update,” 24/7 Wall St. identified the nine states with public pensions that were 60% or less funded as of 2010. From the report, we considered the total outstanding liability, the total amount funded, and the proportion of the recommended contribution each state made in 2010. We also reviewed the level of funding for the 100 largest pension funds in each state, provided by Milliman’s Public Pension Fund Study, which covered a period from June 30, 2009, to January 1, 2011.

Continued in article

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Richard Kaplan --- http://www.law.illinois.edu/faculty/profile/RichardKaplan

"Does Anyone Really Understand Medicare? Richard Kaplan Does, and You Can, Too (Jotwell) (reviewing Richard L. Kaplan (Illinois), Top Ten Myths of Medicare, 20 Elder L.J. 1 (2012)): ---

When former Massachusetts Governor Mitt Romney chose Paul Ryan to be his running mate in the 2012 United States Presidential election, he guaranteed that Medicare would become a central battleground of the campaign.  Ryan, a veteran Congressman from Wisconsin, is widely known for his efforts to turn the federal Medicare program into a voucher program (with the value of the vouchers deliberately calibrated not to keep up with health care costs over time), a transformation that would change everything about Medicare except its name.

Ryan’s proposal is sufficiently controversial that the Romney/Ryan camp has gone to significant lengths to distance itself from it – refusing to use the word “vouchers,” for example, which they evidently believe is toxic politically.  At the same time, the Republican team’s strategists have made a point of highlighting the decreases in Medicare spending that have been projected as a result of various cost-saving measures in the Patient Protection and Affordable Care Act, calling those measures “cuts in Medicare” for which President Obama should be blamed.  Both parties apparently believe that there is such strong support among likely voters to preserve Medicare that they must try to convince voters that the other candidate is going to gut the program, even though only the Republican side has ever proposed actually doing so.

Jotwell readers who wish to know more about Medicare might lament the lack of an accessible source of basic facts about how Medicare works.  That is where Professor Richard L. Kaplan comes in.  Kaplan, a noted tax scholar who teaches at the University of Illinois College of Law, is the founding advisor of the Elder Law Journal, and a noted expert in the field of elder law.  Professor Kaplan draws on his wealth of knowledge about the subject of health care for the elderly in “Top Ten Myths of Medicare,” which was published this past summer.  The article expertly walks the line between being technically accurate and broadly understandable.  Neophytes, as well as those of us who think we know a lot about these issues, will come away from Professor Kaplan’s short article (fewer than 14,000 words) with both knowledge and insight that are sorely lacking in public discussions about this crucial program.

To put the importance of this article in some perspective, readers might consider that the forecasts of long-term U.S. budget deficits that are so often mentioned in the press are driven almost entirely by projected increases in health care costs.  As the economist Paul Krugman once put it, any long-term fiscal problem that the United States faces can be summarized “in seven words: health care, health care, health care, revenue.”  In other words, other than replacing the revenues lost to the Bush tax cuts of 2001 and 2003, the only thing that matters in our long-term fiscal picture is getting health care spending under control.  (I should also note that this means, as both Professor Kaplan and I have each written about in many other venues, Social Security is most definitely not part of the problem, nor need it be any part of a solution.)

Professor Kaplan’s article, however, does not merely enlighten readers about the costs of the program and its interaction with federal budgeting (although he does that well).  He also includes explanations of the nuts and bolts of the program, while trying to correct the public’s misunderstandings about a wide range of issues regarding Medicare beneficiaries, medical providers, and so on.

The article, as its title makes clear, is usefully organized as a “top ten” list.  In a short review like this one, one must fight the temptation simply to list the ten subject headings, even though each one offers its own enticing hint of what one might learn by reading the article.  In addition to debunking a few obvious myths (#2: “Medicare is Going Bankrupt,” and #10: “Increased Longevity Will Sink Medicare”), the reader is treated to some genuinely unexpected revelations, perhaps the most surprising of all being Myth #1:  “There is One Medicare Program.”  Some readers will know that Medicare has multiple parts (Part A, Part B, and so on), but few will know the specifics of those separate programs as well as Professor Kaplan does.

This kind of academic article does, however, often run the risk of simply becoming a summary of a statute.  Fortunately, the myth-busting format provides an over-arching narrative to the article that allows Professor Kaplan to make some larger points – points that are truly counter-intuitive, or that are at least contrary to the conventional wisdom in U.S. policy circles today.

One theme that infuses the article is that Medicare is not the gold-plated, overly generous big government program that so many portray.  On page 13 of the article, for example, we learn how stringently (and, I would argue, absurdly) the program restricts benefits for nursing home care.  After detailing five surprising requirements before a patient can qualify for such coverage at all, Kaplan notes that Medicare pays for only twenty days of such care, and then for no more than an additional eighty days, with an inflation-adjusted deductible currently set at $144.50 per day.

This theme – that Medicare is hardly a freebie, forcing its enrollees to have serious financial “skin in the game” – is not merely a point about how well or poorly we actually provide for our elders’ care.  Professor Kaplan’s concern is also about planning, noting that too many people believe that Medicare simply covers everything, and so they fail to prepare for the large costs that they will actually face when they inevitably need health care.  Failure to plan, under the many onerous rules that Kaplan describes, is truly disastrous for many elderly Americans and their families.

Finally, although Professor Kaplan is very obviously a passionate proponent of Medicare in its current basic form, he is more than willing to acknowledge some troubling facts – facts that might (at least partially) support those whose views of Medicare are less favorable than Kaplan’s.

One of the common themes among supporters of Medicare is to point to the very low administrative costs associated with the program, compared to the costs borne by private, for-profit health insurers.  Even while debunking the myth that “Medicare Is Less Efficient than Private Health Insurance” – a myth that, as he points out, is based on little more than the presumption that government programs must be inefficient, because they are government programs – Kaplan carefully discusses why one key statistic is misleading: “Medicare spends only 1.4% of medical benefits paid on administrative expenditures, while private insurers spend 25% or more for such costs.”

The most cynical explanation for this “apparently excellent result” is that any program can keep its administrative costs down if it does not put much effort into policing false claims.  Medicare, we learn, sometimes has a “practice of paying apparently reasonable claims for medical services with little verification of the claims’ validity.”  Moreover, some of the program’s administrative needs are already covered by other agencies, such as the IRS’s role in collecting Medicare premia from workers’ paychecks.  This means that Medicare itself need not expend those resources, but the government as a whole does.

Still, the reader cannot help but come away with the sense that the lower administrative costs of Medicare mostly reflect genuine advantages over private plans.  Medicare need not advertise, and, perhaps most importantly, it has no reason to try to exclude sick people from its coverage, which is a major activity of private plans that must (for reasons of profit maximization) try to cherry-pick the healthiest customers and deny benefits to as many people as possible.

In short, readers could not find a better article to explain Medicare’s basic workings, its budgetary and political realities, and its combination of shortcomings and truly significant benefits to American society.  Even if the next U.S. President were not going to be chosen on the basis of his commitment to protecting Medicare, reading this article would be worth anyone’s time.

Jensen Comment
One reason Medicare's administrative costs are so low, is that it is a piñata for fraud, including payments to scam artists for equipment to never delivered on fictitious claims. Medicare floods us with mailings about every payment they make on our behalf. However, when there's a billing error such as when report a charge that was not our charge (maybe a payment for some phony claim or for a patient not eligible for Medicare) the system seemingly does nothing about it. Of course we do not really, really care personally if we had not copays for a phony claim, but not investigating phony claims is one way of keeping Medicare's administrative costs low. Perhaps more would get done if we filed a claim with the Justice Department, but the Justice Department most likely would do nothing until a pattern of related claims are reported.

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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

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


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