Tax rebels insist it's freedom or body bags

In New Hampshire, there is a a virtual standoff now between the federal government and a NH couple in their 60s who have been convicted of tax evasion and sentenced to to serve 63-month federal prison terms.

The Manchester Union Leader reports that:

Elaine Brown and her husband, Edward, have said they will remain in their hilltop home and will resist any attempt to arrest them with force.

"It's good against evil and we're standing with God and we know, no matter what happens, that we are righteous," Elaine Brown told "Your Turn" host Terri Dudley of WTSL 1400 AM in Hanover. "We have committed absolutely no crime."

A dentist, Elaine Brown graduated from Tufts University Dental School in Boston and ran a private dental practice in Lebanon.

A jury found them guilty of plotting to avoid paying taxes on the $1.9 million that Elaine Brown earned from 1996 through 2003.

It seems the pair are religious fundamentalists (quoted as saying "The only law book we now recognize is the Bible. The only way we're coming out of our home is either as free man and free woman or in body bags").

It also appears they are believers of the theory that the US income tax is unconstitutional. An earlier Union Leader story story reported that the couple "assert that there is no law that requires citizens of the United States of America to pay a direct tax on their wages." This theory has been advocated by a series of tax protesters, and is the basis for a movie, America: From Freedom to Fascism, currently being shown around the country by various tax protester and other civic groups. According to Wikipedia, the movie:

covers many subjects regarding tax protester arguments including: the Internal Revenue Service (IRS), income tax, the Federal Reserve System, national ID cards (REAL ID Act), human-implanted RFID tags (Spychips), Diebold electronic voting machines,[2] globalization, the possibility of America becoming a police state, Big Brother, and the alleged use of terrorism by government as a means to diminish the citizens' rights.

Some of the premises of the film include:

• Federal income taxes are unconstitutional or otherwise legally invalid.


• The Federal Reserve banking system is unconstitutional and has maxed out the national debt and bankrupted the United States government.


• Federal income taxes were imposed in response to, or as part of, the plan implementing the Federal Reserve System.

To my mind, the NH couple, the relative popularity of the movie, and the far right political attack on both income and estate taxes are all signs of the disintegration of the national fabric. Whether the enemy be viewed as the government as a whole, the IRS, the Alcohol, Tobacco and Firearms Bureau, "tax and spend" Democrats, or the "lazy" poor, there is now a sizable segment of the population that fears government and taxes more than they fear the incredibly wealthy and powerful.

Not good. Especially given the tendency of this group to resort to violence to preserve what they perceive as "freedom."

Consumer spending and the housing market

Recent days have produced a flurry of info on the housing market's effect on the overall economy, and, most importantly, on consumer spending.

The Federal reserve web site posted a research paper by Alan Greenspan and James Kennedy on the effect that cashouts, refinancings, etc. of home equity have had on consumer spending. It is a very dense paper, but the highlights as reported by Bloomberg are that extraction of home equity financed 2.9% of overall consumer spending from 2001-05 compared with 1.1% from 1991-2000.

Already there is talk by industry types that the current housing weakness is having an impact on spending in the economy of both the U.S. and foreign countries where remittences from the U.S. play a big economic role (like Mexico).

To give you an idea of how much spending has been financed by home equity, consider that consumer spending was pegged at $7,057.60 (in billions) for Q3 of 2001 by the Bureau of Economic Analysis. 3% of that would b more than $220 billion.

And keep in mind that home equity can also indirectly finance consumer spending. While some homeowners may draw down their equity to get cash, other simply run up credit cards or other debt, knowing they have their home equity in reserve to help pay off the bill.

Existing homes sales report "was very disappointing"

USA Today's piece on March, 2007 sales of existing homes being down 8.4% from February was described by the chief economist for the National Association of Realtors, David Lereah, as being "very disappointing." Lereah revised his previous estimate that the housing market had bottomed out last September--he now thinks that the market won't recover until the third quarter of 2007.

But the paper also points out that others are "less optimistic," including Patrick Newport, chief U.S. economist for Global Insight, who thinks it will be the first half of 2008 before the housing market "recovers."

Of course, you have to put some thought into what "recovers" actually means. Not to mention the need to be very precise about what it is that is recovering. Are we talking about prices? Units? Both? Would you consider it a recovery if sales picked back up a bit, but the backlog of homes for sale remained high?

The ultimate reality is that the many measures of health in the housing market pretty much all look bad right now. And that's without taking into account the fiasco in the subprime mortgage industry where, by the way, the extent of the losses incurred by investors is still unknown. The company's that bought mortgage-backed securities simply don't have to write down the face value of the investment as long as they keep the investment on the books.

All pretty bad news for an economy that most economists recognize has been propped up for some time by rising housing values.

Want to See What Privatization Means? Check Florida and Jeb Bush

Privatization appears to follow governing members of the Bush family around like a low level infection. Texas has had its share of governing fiascoes that can be traced to privatization of functions that have historically been performed by government, but Florida may surpass even Texas.

Take for example Florida's efforts to privatize both prisons and care of juvenile offenders/delinquents and the like. The Palm Beach Post has done several pieces on the problems (as have other Florida papers), recently focusing on the juvenile justice aspect. Check out this quote from a couple of weeks ago:

When the state shut down its failed prison for teenage girls in suburban West Palm Beach, it moved inmates to a new program that soon had many of the same problems....The state shut that program down, too, only 17 months after opening it.
...
The 18 state-run residential programs, which pay youth-care workers thousands more a year on average than private companies, were less likely to be cited for incidents such as abuse and excessive force, according to rankings in the Department of Juvenile Justice's 2006 Residential Program Report Cards.

Among the many problems, apart physical abuse of the adults and children held in custody by order of the state, is the fact that the private prisons and youth facilities sign contracts specifying how many employees the private firms will maintain to do their jobs. They are paid based on the expectation that they will, in fact, hire those people.

You saw this one coming, right? Why hire all those people when you can skimp by with fewer workers and make more money (while doing a less than stellar job).

The source linked above also offers up this:

Florida Department of Juvenile Justice inspectors also found that the academy's for-profit management company, Diversified Behavioral Health Solutions Inc., had failed to fill dozens of positions required in its $5.4 million annual contract.
...
A monitor calculated in March 2006 that the state was paying at least $689,761 a year for positions the company had not filled.

Not all under staffing is deliberate--the for-profit facilities simply have a hell of a turnover problem and you don't have to be a genius to figure out why:

In 2005, private for-profit programs paid workers a median wage of $17,906 a year, compared with $19,881 at programs for teens managed by nonprofit contractors, the study found. State workers in comparable state-run residential programs made a median of $22,762 that year.

I'm guessing that benefits, including retirement, would also we way better for the state employees.


In another piece a week later, the same newspaper explicitly urged Make public the ripoffs from taking state private. That piece revealed that the state's contracts with private firms for such services as running prisons were so poorly written that the state often has no recourse when the private firm fails to live up to its obligations.

Did I mention that the privatization efforts have been undertaken largely under Jeb Bush's reign as Florida's Governor? Did I mention that?

The March Grim Reaper--Mass Layoffs

Yesterday, the Bureau of Labor Statistics published its Mass Layoff report for March, 2007. Amid all the media happiness about our supposed low unemployment rate, here are the highlights of what the BLS had to say:

MASS LAYOFFS IN MARCH 2007
In March, employers took 1,276 mass layoff actions, seasonally adjusted, as measured by new filings for unemployment insurance benefits during the month, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Each action involved at least 50 persons from a single establishment; the number of workers involved totaled 130,687, on a seasonally adjusted basis. The number of mass layoff events decreased by 4 from the prior month, and the number of associated initial claims fell by 13,290. During March, 420 mass layoff events were reported in the manufacturing sector, seasonally adjusted, resulting in 54,441 initial claims. Compared with the prior month, mass layoff events in manufacturing remained about the same and initial claims decreased by 9,631. (See table 1.)
....
The 10 industries reporting the highest number of mass layoff initial claims, not seasonally adjusted, accounted for 36 percent of the total initial claims in March. The industry with the highest number of initial claims was temporary help services with 9,217, followed by food service contractors with 7,636, and automobile manufacturing with 5,746. Together, these three industries accounted for 18 percent of all initial claims due to mass layoffs during the month.
...
The manufacturing sector accounted for 34 percent of all mass layoff events and 40 percent of all related initial claims filed in March; a year earlier, manufacturing made up 31 percent of events and 40 percent of initial claims. In March 2007, the number of manufacturing claimants was highest in transportation equipment manufacturing (19,397, largely automobile manufacturing), followed by food manufacturing (6,087) and wood product manufacturing (2,674).
....
On a not seasonally adjusted basis, the number of mass layoff events in March at 1,082, was up by 161 from a year earlier, and the number of associated initial claims increased by 12,136 to 123,974.

Consumer debt still piling up...and up

The Federal Reserve issued its G.19 release a week or so ago, detailing the state of consumer debt in the U.S.:

G.19 CONSUMER CREDIT For release at 3 p.m. (Eastern Time)
February 2007 April 6, 2007

Consumer credit increased at an annual rate of 1-1/2 percent in February. Revolving credit rose at an annual rate of 3-1/2 percent, and nonrevolving credit rose at an annual rate of 1/2 percent.

The 2002 through Feb of 2007 stats on outstanding consumer credit, Seasonally adjusted, in billions of dollars:

2002----------------1,984.1
2003----------------2,087.8
2004----------------2,201.8
2005----------------2,295.0
2006----------------2,400.1
2007 (Feb)----------2,409.7

In other words, consumer debt outstanding increased more than 20% from 2002 through Feb. of 2007, a bit over 4 years. That's a rate of increase that puts the real earnings numbers in the prior post to shame...unfortunately.

Real Earnings Stats Continue to be Depressing

In recent times, the powers that be have floated the idea that worker earnings are "beginning to catch up" with corporate profits, it's hard to find any real evidence of real progress in real earnings. [And that ignores the fact that corporate profits themselves seem to have stalled]

The Bureau of Labor Statistics (BLS) just released the Real Earnings report for March of 2007:

Real average weekly earnings fell by 0.1 percent from February to March after seasonal adjustment, according to preliminary data released today by the Bureau of Labor Statistics of the U.S. Department of Labor. A 0.3 percent rise in both average weekly hours and average hourly earnings was more than offset by a 0.8 percent increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
...
Average weekly earnings rose by 4.4 percent, seasonally adjusted, from March 2006 to March 2007. After deflation by the CPI-W, average weekly earnings increased by 1.6 percent. Before adjustment for seasonal change and inflation, average weekly earnings were $580.31 in March 2007, compared with $556.42 a year earlier.

Down for the month, up a puny 1.6% over 12 months. Not exactly a raise to write home about.

And that continues a lengthy series of BLS reports in a similar vein:

Real average weekly earnings fell by 0.3 percent from January 2007 to February 2007 after seasonal adjustment.

Real average weekly earnings fell by 0.3 percent from December 2006 to January 2007 after seasonal adjustment.

After deflation by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), average weekly earnings increased by 2.1 percent from December 2005 to December 2006.

After deflation by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), average weekly earnings decreased by 0.4 percent from December 2004 to December 2005.

So the reports of rising earnings come from where exactly?

Health insurance stat to remember

From the abstract to Summary health statistics for the U.S. population: National Health Interview Survey, 2005 (Vital Health Stat 10. 2007 Jan;(233):1-104):

Among persons under age 65 years, about 42 million (17%) did not have any health insurance coverage. The most common reason for lacking health insurance was cost, followed by a change in employment.

Poverty, violence, and you

If you listen to the conservatives who constantly whine about any and all social programs, you'd get the idea that "poverty" was some abstract philosophical state that matters only in the context of a partisan discussion of economic and social policy. But poverty occurs in the real world, to real people. And violence tends to be pretty strongly associated with poverty, with the violence also also occurring in the real world to real people.

Not surprisingly, given the recent turn of "advanced" societies toward the right, with the obligatory blind eye toward poverty, there seems to be renewed medical interest in exploring the effect that poverty has on the health of the poor.

Here's a short review of what some recent studies have reported (an abstract of the study, if one exists, can be found on the National Library of Medicine web site's "PubMed" database.

In a study of New York City residents that began in 2002, the authors of Urban neighborhood poverty and the incidence of depression in a population-based cohort study, published in the Annals of Epidemiology (vol 17, No. 3, page 171) report that they found an independent association between socioeconomic status (SES) of a person's neighborhood and the likelihood of developing depression.

Another team of researchers undertook a study of 100 African American neonates whose families resided in low-income environments. In Parsing the relations between SES and stress reactivity: examining individual differences in neonatal stress response, published in the journal Infant Behavior & Development (vol 30, No. 1, page 134), the authors report that they found associations between infant behavior, measured by physiologic and behavioral response to being pricked in the heel, and the infant's score on the Neonatal Behavioral Assessment Scale, and "three domains of perinatal risk: socio-demographic, obstetrical complications, and maternal psychological factors during the perinatal period." They report that "Greater magnitude of perinatal risk was associated with both higher and lower than average neonatal stress reactivity."

Switching to an analysis of what relationship might exist between rates of childhood asthma and rates of violent assault in the community, the authors of The association between childhood asthma and community violence, Los Angeles County, 2000 , published in the journal Public Health Reports (vol 121, No. 6, page 720) found a statistically significant correlation between hospitalization rates for childhood asthma and community violence as measured by the rate of hospitalization for assault.

Finally, the article Social capital, socio-economic status and psychological distress among Australian adults, published in the journal Social Science & Medicine (vol 63, No. 10, page 2546), reports that "having trust in people, feeling safe in the community and having social reciprocity are associated with lower risk of mental health distress."

Poverty and violence are not, it seems, merely some abstract philosophical states that matter only in the context of some partisan discussion of economic and social policy (nor are poverty and violence unrelated to each other).

If both poverty and violence affect the physical and mental health of those who experience them, is there any doubt that the rest of society is affected in various adverse ways by this impact on the poor and violence-exposed?

Equally important, if poverty and violence beget physical and mental health problems, and those problems in turn beget more poverty and violence, how many generations of this spiral do you think it takes before a country ceases to even be "advanced?"

Do uncollected taxes grow as IRS employees dwindle?

That's the question raised by both the National Treasury Employees Union and Citizens for Tax Justice, according to an article in Federal Times.

Yesterday, the heads of those two organizations told reporters that:

• understaffing in many areas leaves the IRS unable to dent the $345 billion annual “tax gap” between owed and collected taxes/li>
  
  
• the proposed 2008 IRS budget of $11.1 billion is actually $546 million less than what was recommended by an independent IRS Oversight Board



• the IRS is failing to seek vast amounts of money in offshore tax havens



• the IRS policy now encourages agents to quickly close audits of large corporations.

According to the head of the Employees Union:

Short-changing this agency leads to out-of-whack enforcement. When the IRS doesn’t even ask for enough resources, it fails to direct resources toward the most complex cases and high-income taxpayers.

All of which goes to show that, while there's more than one way to skin a fat cat, there's also more than one way to save that fat cat's skin.

Quote of the day

If you want to know what God thinks of money, look at the people he gives it to.

-- Old Irish Saying, according to Philip Greenspun.

Anatomy of an obfuscation--Biomet, Inc.

If your corporation had committed serious financial fraud on its shareholders, for a full eleven years, and you had to make a public announcement of that fact, what would you do?

I can tell you what Biomet, Inc. did. It issued an incredibly dense press release, as stiffly and redundantly worded as it could manage, and tucked the details of the fraud way down deep into the body of the release--a full 776 words deep.

Like far too many other corporations over the last decade or so, the company played "dating games" with its stock options, pretty much guaranteeing that its executives would make the maximum amount of money when they exercised those options. Of course, the shares that the execs bought cheap could have been sold at full market value, so the corporation and its owners were the primary victims of this chicanery.

And the press release does, eventually, tell you what happened:

• the Company's administration of its various stock option plans disregarded the terms of those option plans



• most of the options issued during the 11-year period from 1996 through 2006 were not priced at the fair market value on the date of their respective grants;



• there was opportunistic misdating and mispricing of options in order to take advantage of lower exercise prices;



• the Company failed to maintain adequate books and records concerning its stock option grants;



• there were inadequate internal controls over the issuance and accounting for stock option grants;



• the relevant accounting and legal rules regarding option plans and their administration were not followed;



• Biomet failed to adequately staff and devote appropriate resources to the administration of its stock option plans; and



• as a result of these deficiencies, Biomet's public filings with regard to stock options were inaccurate.

Now Biomet damn well knew that this is what the public wanted to know. So how did they manage to stick 776 other words in front of the nuts & bolts? Like any college student short on words for a paper due in the morning, they padded it. Padded the hell out of it.

First they gave a lengthy statement of personnel changes (gee, I wonder what prompted those?), complete with pablum quotes from the changing personnel.

Then they gave a stultifying "Review of Historical Stock Option Granting Practices." And I mean stultifying. Here's an example:

On March 30, 2007, Biomet announced an updated report from the Special Committee presented by counsel to the Special Committee and the independent accountants retained by counsel to the Special Committee. Based upon an analysis of this updated report and relevant accounting literature, including Staff Accounting Bulletin No. 99, the Audit Committee determined on March 30, 2007 that the Company should amend its Annual Report on Form 10-K for the fiscal year ended May 31, 2006 and Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2006 to reflect the restatement of the consolidated financial statements and related disclosures reflected therein. In light of the Special Committee's preliminary report discussed below, the Company's previously issued financial statements and any related reports of its independent registered public accounting firm should not be relied upon. The Company believes, based upon the Special Committee's preliminary report, that the impact of the restatement will not be quantitatively material to any prior period financial statements.

Very few non-lawyers could make it through that without drifting off into a reverie about open spaces, the ocean, etc.

So exactly what do you call a company that commits linguistic fraud in the course of admitting that it committed financial fraud?

And by the way, you'll be happy to know that:

..all current members of the Board agreed that, with respect to misdated or mispriced stock option awards to the current directors on or after January 1, 1996 which had not yet been exercised, the exercise price of such unexercised stock option awards would be increased to the fair market value of the Company's common shares on the measurement date applicable to such award. In addition, the current members of the Board agreed that, with respect to misdated or mispriced stock option awards to the current directors on or after January 1, 1996 which had previously been exercised, such directors would at a future date remit to the Company an amount equal to the excess, if any, of the fair market value of the Company's common shares on the measurement date for such award over the exercise price of such award.

As the old saying said: the best place to hide something is in plain sight.

The Wonderful World of Fox Presents: The Beauty of the CEO

Notwithstanding the fact that U.S. corporate profits fell in the 4th Quarter of 2006, or that many financial experts view that fall as the beginning of a broader economic downturn, our beloved Fox News happily reports the results of a corporate survey by Watson Wyatt Worldwide Inc:

CEO Salaries, Bonuses Rise in 2006 on Strong Profits

The survey results read something like an old Disney fantasy for the rich and famous:

The CEOs saw annual bonuses increase 13 percent and the value of their equity-based compensation holdings grow nearly 50 percent last year, according to a study by financial management consultants Watson Wyatt Worldwide Inc.
...
The analysis is based on proxy statements of 92 large companies whose CEOs remained in their positions in 2005 and 2006.

Median annual bonuses for chief executives increased to $2.2 million last year. At the same companies, the median growth in earnings per share was 14 percent.

The median value of CEOs' equity compensation, which includes in-the-money stock options and restricted stock awards, increased to $30.2 million last year.

Base salaries grew 4 percent to a median $1.1 million, according to the study.

Remember that the next time you're sitting at the kitchen table at 3am. trying to figure out whether eating or medical care is a higher priority given your inadequate income. And while you sit there in the middle of the night with shivers and dread, also contemplate this statement from a Market Watch piece on the falling 4th Quarter profits:

While profits are up 130% since the recession ended, industrial capacity in the United States has grown 4%, investments in equipment and software are up 22%, and employment is up 5%.

Sounds fair to me. After all, you could look at this as meaning "everything is up." Right? Huh?

In case you didn't know it, "The superrich are doing you a favor"

Continuing a growing trend to idolize the rich as truly special folks who make life itself possible for the rest of us unrich clowns, Jon Markman at MSN offers up a piece titled The superrich are doing you a favor.

I can't quite decide if the title and piece are tongue-in-cheek or if Markman feels at least a bit of genuine awe and idolatry when viewing the megarich. Witness this:

In fact, the superrich spend so much more of their mountains of money, according to a new line of thinking among academics, that they may provide a public service by smoothing out the little dents and valleys in the global economy. As scads of Russians, Chinese, Indians and South Americans have joined the billionaires club due to the rise of emerging markets' industrial might, worldwide recessions have become much fewer in number and far slighter in severity than in past decades.

This makes sense, even if it doesn't make you feel better. For just when many average people in the United States or Europe are slowing down their consumption of goods and services due to the loss of a job or pending home foreclosure, there are an increasing number of superrich worldwide to fill in the spending gap. It's sort of a perverse fulfillment of the trickle-down theory.

In any case, the piece offers up a bowl full of interesting facts on the super rich, including:

• The wealthiest 1 million people in the world account for as much spending as 60 million other households


• Russian natural resources has helped create at least two dozen Russian billionaires and thousands more multimillionaires


• China is now home to 500,000 millionaires


• BusinessWeek reports 83,000 millionaires in India

Man, just reading about all this wealth, all this vibrant and humming economic activity in so many places around the globe just makes me want to....

Jordan's drug prices soar--can you say "free trade?"

A report by Oxfam indicates that another nation has begun to feel those masochistic benefits of "free trade."

Strong intellectual property protections in U.S. free trade deals have hurt developing countries, pushing up drug prices in Jordan by 20 percent, an aid advocacy group said in a report released on Tuesday.

Beefed-up property rights for drug makers, which have been built into U.S. free trade deals like the one with Jordan, "will make it harder and harder to sustain public health systems," said Rohit Malpani, a trade analyst with the advocacy group Oxfam in Washington.

U.S. trade officials disputed the report's findings, saying the trade agreements fairly balanced intellectual property protections and health care needs.

The Oxfam report found that drug prices in Jordan have increased by 20 percent since 2001, when the bilateral deal with the United States was implemented, and are up to six times higher than comparable drug prices in Egypt.

Oxfam said a big driver of higher drug prices is a rule that guards, for a time, against sharing of clinical trial information that can be used to make generic drugs.

"In developing countries ... public health systems are very fragile and only a small percentage of the population has health insurance," so higher drug prices can have serious health consequences, Malpani said.

Strong stuff. But is the U.S. worried that our free trade mania is having adverse consequences? I'm sure you knew this before I told you---Nope.

But a U.S. trade official, who requested anonymity, said: "We strongly disagree with Oxfam's contention that intellectual property protection is at odds with an effective response to global health crises.

"We believe that our (trade agreements) represent an appropriate means of advancing high standards of IP protection, while safeguarding the ability of trading partners to respond to legitimate public health needs," the official added.

The big test is how strongly the Democrats in congress feel about the issue, and that remains to be seen, although the battle lines are being tested:

Malpani believes support is gathering among some Democratic lawmakers for loosening those rules for developing countries.

Democrats on the House of Representatives Ways and Means Committee, which oversees trade, recently released their own vision for trade including a goal to "reestablish a fair balance" in setting IP rules for medicine with developing countries.

Last month, a group of lawmakers sent a letter to U.S. Trade Representative Susan Schwab saying that trade deals "appear to undermine" a pledge from all World Trade Organization members to give poorer countries flexibility in protecting public health.

Some Democrats are also calling for stronger protection for workers and the environment to be woven into pending deals.