End Federal Deductibility of State and Local Taxes by BUSINESSES

January 20th, 2018 No comments

New York State is thinking of moving to use payroll taxes  instead of individual income tax in order to tax labor income and also get deductibility for federal taxes. That made me think: why do we allow businesses to deduct state and local taxes on their federal tax returns?

There is a good policy reason NOT to allow that deductibility: it is an indirect way to tax interstate trade.  Cities love for businesses to come and locate, because they impose taxes on them much higher than the value of the government services the businesses use. (In addition,  most new businesses employ people who pay more taxes than they cost in government spending, though sometimes city governments shoot themselves in the foot by trying to attract businesses with workers who are ill-paid and have lots of children who will need schooling and police.) The businesses pass along part of the taxes to their customers in the form of higher prices. The customers, though, often live outside the city and even outside the state. Thus, state and local taxation of business is a good way to shift the tax burden to people from other states.

It’s impractical to try to get at this directly, so courts won’t strike it down unless it’s explicitly a tax on sales to people outside the state or on income derived from out-of-state sales, etc.  But the federal government could at least refrain from encouraging burden-shifting the way it does now when it lets a business deduct its state income tax. If we end this deductibility, businesses will be less apt to locate in high-tax states.

To be sure, once tax considerations enter into business location decisions, they will choose less based on fundamentals, so there will be distortion. A business that ought to locate in California will choose  Alabama instead, just to escape taxes, even though its other costs might be lower in California. But another advantage is that the federal government would raise more income, allowing a reduction in some other tax  and reducing the distortion from that other tax.

Thus, there’s a stronger case for getting rid of federal SALT deductibility for businesses than for individuals.  While we’re on the topic of policy, too, I wish we had gotten rid of the individual SALT deduction completely instead of just capping at $10,000. When a cap,    or partial deductibility is used, almost all of the administrative costs remain— and are increased, slightly. The taxpayer still has to keep his records, and the IRS still has to check his records. So if we’re going to limit something, use a FLOOR, not a  ceiling, or, better yet, get rid of it entirely.

Bottom line: let’s get rid of federal deductibility of state and local taxes for businesses.

Categories: taxes Tags:

Political Correctness in the American Economic Association

January 16th, 2018 1 comment

The American Economic Association just issued a couple of draft documents which display a kind of political correctness that economics has been pretty good at avoiding. I know and admire a couple of the authors, but the documents are dreadful. Here are some comments. I only spent an hour and a half writing this, which I mention so that (a) You can see how easy it is to find flaws, (b) You won’t think I’m spending excessive time on it, and (c) If there are mistakes, you’ll know one reason why.

American Economic Association
Ad Hoc Committee to Consider a Code of Professional Conduct
Interim Report

January 5, 2018

1.The AEA appears to be attentive to the diversity of the Executive Committee with respect to gender and race. This attention should be ongoing. Additionally, the AEA should consider the diversity of its committees and officers along dimensions including the range of academic departments, universities and colleges, and types of careers represented in nominations.

No: the Executive Committee should be composed of the best people, certainly without the discrimination by race and gender it now practices, but also with respect to types of jobs people hold. There is a perception that the leadership is cliquish and protective of bad behavior by people from elite schools. Maybe the perception is correct, maybe not—I have no opinion— but adding to the clique won’t help that kind of thing,it just changes the favored personnel. If there’s a problem, address the attitude.

2 (a). Survey members about the climate in the profession, and elicit reactions to potential initiatives such as those listed in this report.

This could be very valuable. It should include asking about examples where chairmen or deans have pressured departments to hire on the basis of race and sex. Illegal though that may be, I have heard of numerous instances of it happening; indeed, it may almost be routine these days. Men have a harder time on the rookie job market than women, and this is a real problem. A survey of this kind could have bombshell results, especially in light of the widespread claim that the opposite is true.

2(e). “Commission an observational study of seminar and conference presentations in economics as well as other disciplines, and quantify the extent to which there is unproductive aggressiveness in economics or its subfields.”

Also quantify the extent to which there is *inadequate* aggressiveness in economics. I think that’s a much bigger problem. I have rarely seen an overaggressive seminar— only the Demsetz-Klein workshop in the 1980’s comes to mind, and have been part of many other workshops including a year spent at Chicago 1989/90 where the seminars were aggressive but only appropriately so. I have often seen boring, useless workshops where the weak assumptions, boring topics, or inadequate expositions of the presenter go politely unchallenged but everybody thinks at the end, “What a rotten seminar! We’d better never invite him back again.” Economics is very fortunate in its culture, and we must protect it.

3. Best practices for addressing bias

All five suggestions are useless and wasteful. The way to address bias is to set up a committee to listen to complaints and then to hammer any editor or referee caught misbehaving, especially if they are at an elite school or are well-connected (like me, for example, MIT ’84, 59 years old). Ex ante measures like those suggested are much more costly and they are wasteful because they are applied to 100% of people rather than the 2% who misbehave.

3a. Study and encourage the use of gender-bias “detectors” for letters of
recommendation.

These sound like witch sniffers in Africa. I bet they’re as bogus as the implicit bias test that has by now been thoroughly as discredited in psychology as phrenology, though non-psychologists often don’t know that it has been.

3b. Adopt training for editors to avoid relying too heavily on institutional background and network connections in screening and referee decisions.

“Training”? Hah! It’s true there is a balancd between relying too much and too little on the credentials of referees, but do you really believe formal training will help?

3c. Encourage departments to implement training workshops for faculty on professional conduct and hiring.

We should actively *discourage* such workshops, and come to the aid of departments whose politically correct deans try to impose them. It sounds like code words for ideology training by identity politics warriors. In any case, it sounds like a waste of time. The hiring committees should spend the time reading some extra files instead.

3d. Encourage departments to implement training for students on professional conduct, including especially bias but also honest and transparent research practices.

Ditto. It is true that students should be taught to be moral in their research practices, but that should be part of the normal program when students learn to write papers. PhD students know not to plagiarize, and any decent person knows they should give credit where it is due. It’s true that we should emphasize keeping good records, writing clean commented code, and packaging up our data nicely at the end of a project (I confess! I am remiss here often.). Is that what this means?

3e. Post examples of good practices for training and instruction surrounding professional conduct.

I’m not sure what this means. I do suggest posting examples of bad practices, which not only illustrates what is bad, but helps deter by stigmatizing the bad practicer. Having the full stories, with all the details of cover-up and cowardice, could help a lot.

4. a. Create a gated website where job market information can be posted by departments, agencies, and firms. The recent AEA survey of department chairs suggests overwhelming support for this idea, as long as the information posted consists of updates on dates rather than specific names of candidates. Creating this website
would allow job market candidates to obtain the information they seek without accessing social media that includes irrelevant or offensive material. The website should include advice and general information about the job market process provided by established members of the economics profession.

This is the “Let’s kill Economics Job Market Rumors” item, I think. It confirms the fears of the bro’s there that the AEA is indeed elitist, biased, and politically correct, and wants to conceal the misdeeds of editors and referees.

I think it will fail, because it wants to be EJMR, but boring and with less information. The “rather than specific names of candidates” part is hilarious. The names are what everyone is interested in! Also, it looks like this is trying to shift the burden to department chairmen and such to provide the data, and they’re too busy already.

4b. Most individuals have procedures within their institutions for addressing harassment. Sometimes these arrangements fail. Hence, the AEA should consider whether it should provide arrangements for members of the profession to seek advice or assistance relating to harassment where institutional remedies are unsuccessful. The committee discussed multiple options, but did not reach a consensus:
i. The AEA could create an AEA ombuds to help resolve conflicts that may
arise between individual members of the AEA and their own institution. The ombuds would take action, i.e., contact the relevant institution.
ii. The AEA could create a network of mentors who could advise those facing harassment. A mentor would provide confidential advice, but not take action or report the claim of harassment. In the event a mentor hears the same issue from multiple individuals, the mentor could share this
information with those individuals provided they all approve.

This might be good, but it sounds weak. I am on the faculty senate at my own university, and the issue arose of whether a faculty committee should hear complaints from faculty who had been punished by the administration for sexual harassment, or whether, as one former senate president said, if they were punished by the administration they must be guilty anyway and there’s no need for review and some danger because of “imbalance of power” already favoring the punished faculty member.

There seemed to be general agreement that there was no need to hear complaints from *victims* after faculty had *not* been punished, and everyone laughed at first when I suggested that would be equally appropriate. But it would be. Universities are terrible at dealing with this kind of thing. They seem to err in both directions, much like American immigration policy and unethical research policy. If it’s a powerful professor who’s accused, he gets off; if it’s a mere student (that is, not an athlete), he gets railroaded. The AEA could help with both kinds of cases.

Having an ombudsman— that is, an official contact person or committee– is a start. This person should *not* be a liberal activist. It should be a random honorable senior economist, someone with no axe to grind. It should be someone just as fair to a wrongly accused professor as to a harassed one. Don’t call him an “ombuds”; that sounds too much like “earbuds”.

What is this person supposed to do? The suggestion is that they just be someone who can help go through university procedures. That would be useful, since there are probably departments where none of the faculty have the guts to help a victim, though I hope most departments have at least one such person— and that the identity of that person is common knowledge, just as big a problem. But it would be better for the ombudsman to take it a step further, consulting with other AEA people and publicizing misconduct if the university either falsely accuses or covers up.

Draft AEA Code of Professional Conduct
January 5, 2018

This is a bland statement that everybody should be nice. I hate such statements, as mere clutter in a world of information overload, and as reeking with hypocrisy, since their most common use is to avoid actually doing anything about evil.

The AEA seeks to create a professional environment with equal opportunity and equal treatment for all economists, regardless of age, gender, race, ethnicity, national origin, religion, sexual orientation, disability, health condition, marital status, parental status, genetic information, professional status, or personal connections.

This  statement is hilarious. It’s code for “We’re liberals”, of course, with not a lot of meaning beyond that. Nobody would take it literally, I think. If someone is old and feeble, I will not give theme equal treatment; I will give them more than usual respect and I will try to help them do things that are hard for them. if someone doesn’t have the right professional status by a couple of years into the job, commonly he’s fired— that is, if he doesn’t finish his dissertation and doesn’t get his Ph.D.  The funny part is  the items like “parental status”. Is discrimination against bastards a problem in the economics profession? Who, exactly, is keeping track of whether each job candidate’s parents were married at the time of his birth? How does “genetic information” enter into being an economist?  What does the AEA intend to do about people with “personal connections” having better opportunities? If someone hears about a job opening at a conference, does that disqualify him? Really, let’s not succumb to the absurdity of so many fields in academia these days.  We in economics should know better.

 

Categories: Uncategorized Tags:

IRS: The Mess of the “Trade or Business” Definition

January 15th, 2018 No comments

My last post proposed that libel lawsuit income be incorporated or put on Schedule C, but I was wrong in making it seem simple. The law is a real mess here. The problem is the definition of “trade or business”. The tax code, in section 162, says that expenses for a “trade or business” are deductible as what is known as an “above the line” deduction, meaning that it is part of the computation of adjusted gross income, in Schedule C, before “itemized deductions”. In section 212, the tax says that expenses for “other income” are deductible— but this is known a “below the line” deduction, part of “itemized deductions” in Schedule A. Section 67 says that these other income expenses are part of “miscellaneous itemized deductions”, formerly subject to a 2% of income floor, now after the 2017 bill denied entirely (see the bill’s section 11045 amending section 67— though this contradicts section 212, which is unamended, I think).

Thus, it was good for the taxpayer before if his income was from “trade or business”, because he wasn’t subject to the 2% floor for expenses and now it is crucial, since his expenses aren’t deductible at all.

So what is a “trade or business”? Neither statute nor regulation has ever defined this term, crucial though it is to a lot of things. It has a tax common law meaning from various court cases, and a sorry sort of common law it is. The classic case is the 1987 Groetzinger. In Groetzinger, the IRS didn’t want to let a professional gambler deduct expenses. Gambling was clearly his occupation, so the Supreme Court said the IRS was wrong, a correct result. The Court said:

We accept the fact that to be engaged in a trade or business, the taxpayer must be involved in the activity with continuity and regularity and that the taxpayer’s primary purpose for engaging in the activity must be for income or profit. A sporadic activity, a hobby, or an amusement diversion does not qualify….

We would defer, instead, to the Code’s normal focus on what we regard as a common-sense concept of what is a trade or business
….

We therefore adhere to the general position of the Higgins Court, taken 46 years ago, that resolution of this issue “requires an examination of the facts in each case.” 312 U.S., at 217 …. But the difficulty rests in the Code’s wide utilization in various contexts of the term “trade or business,” in the absence of an all-purpose definition by statute or regulation, and in our concern that an attempt judicially to formulate and impose a test for all situations would be counterproductive, unhelpful, and even somewhat precarious for the overall integrity of the Code. We leave repair or revision, if any be needed, which we doubt, to the Congress where we feel, at this late date, the ultimate responsibility rests.

So this is  a lame precedent. The Court says it is trying not to create a new test and that the meaning should depend heavily on the context and there shouldn’t be any general test. Moreover, the holding is that professional gambling is a “trade or business” even though gambling for recreation would not be. The holding is not that other money-producing activities would not be a “trade or business”; that’s just extension of the court’s reasoning to completely different contexts such a lawsuit.

Nonetheless, courts talk about the Groetzinger Test as it were a rigid mandatory test, because they want something convenient to use.

The cited case Higgins, as it happens, is an old wrongly decided case. Mr. Higgins had lots of stock investments, a major business, and wanted to deduct such things as the salary of his investment manager. The court said that running a portfolio isn’t a “trade or business” so he couldn’t deduct the expenses. It continues as precedent anyway, never overruled I think.

I thought we might argue that Congress never validated this rule, but unfortunately Congress did pass a couple of statutes around 2000 making expenses deductible for certain kinds of lawsuits. Using expressio unius reasoning, this implies that you can’t deduct expenses for other kinds of lawsuits, though Congress never thought about it, I expect.

So what we have with the 2017 bill is a trial lawyer’s nightmare: a bill that discourages lawsuits by imposing a prohibitive tax rate on plaintiffs by disallowing deduction of expenses.

The question remains of whether the IRS can fix the problem by issuing new regulations. I am inclined to think it can, but since it hasn’t done it before, maybe it has some reason to want not to. I’ll have to figure this out.

Another angle is that if it is Schedule C income, then there is self-employment (Social security) tax to be paid, but if it is Other Income, there is, I think, no self-employment income.

There must be a huge amount of one-off income-generating opportunities, many much more limited in time, scope, and energy than a lawsuit. Are they all Other Income? Maybe if I buy something and resell it, I can put that as Capital Gains instead and deduct the costs somehow there on Schedule D. I think brokerage fees are there, for example.

The situation with a lawsuit is perverse. Suppose I did put the proceeds from my libel suit into an LLC and sold 50% of the shares to Joe, and had the LLC pay the legal fees as they came along.  Could Joe deduct half the legal fees, even though I can deduct none? Or is this not a trade or business for Joe, either? Actually, does this mean all passive investors in companies with pass-through taxation are unable to deduct expenses? That sounds crazy.

To be continued.

Categories: taxes, Uncategorized Tags:

Taxes and Attorney Fees: Make Lawsuit Income Schedule C Income by Regulation

January 13th, 2018 No comments

Update January 15: See the next post for essential connection with this one.  I now think I might be wrong in a lot because of not knowing the “trade or business” law well enough.  Read with caution! I’ll read some cases and revise as necessary. My conclusion that IRS regs can be revised easily, without objection, may or may  not survive.

Apparently the 2017 tax bill eliminates deductions for attorney fees by eliminating miscellaneous itemized deductions (see Professor Gregg Polsky’s Slate article). I knew a lot about this at one time, because I was thinking about taxation of my Citigroup qui tam suit if I won. I’m now intending just to donate the proceeds to charity via a transfer of the lawsuit to a foundation if I get closer to winning, though I was hoping to deduct some fees for 2017 even though no income had yet been generated.  So I discovered the unsatisfactory legal treatment of contingency fees. Personal injury lawsuit income isn’t taxed at all, so the problem doesn’t arise, but income from libel suits and tax, SEC, or government contract whistleblower suits is taxable, and contingent fees are commonly 40%. Read more…

Categories: law, lawyers, taxes Tags:

Avi-Yonah Short Summary of Tax Bill and Donaldson Long Summary

January 13th, 2018 No comments

I really like  Professor Reuven Avi-Yonah’s   HOW TERRIBLE IS THE NEW TAX LAW? REFLECTIONS ON TRA17. It is short and clear and fair. His  four points are that (a) The $150 billion deficit increase isn’t as awful as one might think, (b) The bill  did cut taxes on the rich more than on the poor, but mainly via the 20% pass-through deduction,  (c) The bill has a lot of “good government” features, such as the increased standard deduction, and (d) the big problem is the 20%pass-through deduction, which will create a bunch of problems.

Donaldson’s Understanding the New Tax Law is also good, a longer summary, rather than a commentary.  As I recall, it notes:

1. No NOL carrybacks for corporations any more.

2. 60% max cash charitable deductions instead of 50%.

3. Professors lose the incredible sabbatical unreimbursed employee expense deduction for their rent, utilities, and meals while on sabbatical that I have enjoyed a number of times.

4. NOL carryforwards continue forever rather than just 20 years, saving  recordkeeping without really changing anything else.

 

 

Categories: academia, taxes, Uncategorized Tags:

Additions for My State Tax Paper: Reciprocity, Sullivan, and Pease

January 11th, 2018 No comments

For: Getting Around the State and Local Tax Deduction Limit (January 9, 2018). Available at SSRN: https://ssrn.com/abstract=3099296.

 

(1)  Suppose we accept that fairness (or whatever) means that state taxes should be deducted from income for federal taxation, because they pay for public goods just like donations to private charities.  Suppose John Doe has an income of $1,000,000, West Dakota has a tax rate of 10%, and the US has a tax rate of 30%, so West Dakota tax is $100,000 and US tax is $300,000 sans deductibility.  Then if we add deductibility  of state taxes from federal income, 30% of $900,000 is just $270,000 and John Doe saves $30,000 on his federal taxes.

But suppose, instead, that we don’t do that. Instead, we add deductibility of federal taxes from state income. The result is that since 10% of $700,000 is $70,000, John Doe saves $30,000 on his state tax bill. Read more…

Categories: a.research, taxes, Uncategorized Tags:

The Steele Dossier, Flynn, 18 U.S.C. 1001 (the Martha Stewart Law) and How To Reform “Materially”

January 6th, 2018 No comments

   Byron York has a good article in the Washington Examiner on what it means for the Senate to refer the Steele dossier for criminal investigation by the FBI— basically, that Steele lied to the FBI to get it to investigate imaginary happenings, which is a crime, and the Senators want the Justice Department to file charges under 18 U.S.C. 1001 or explain why not. 

  Read more…

Tim Keller’s Dec. 19 New Yorker Article: Snobbery and Cowardice

January 4th, 2018 No comments

I wrote this for Warhorn media yesterday. I think even someone who’s never heard of Tim Keller and has no interest in religious disputes would find it informative and entertaining. I am very hard on Pastor Keller, because I think he needs the pressure to do what he knows is right, and polemic is the right vehicle for that. Comments welcomed. Warhorn doesn’t do comments, so you’ll have to come back here.

 

What makes Tim Keller uncomfortable…

 

Why the Idea of State Tax Credits and Donations Replacing Deductibility Won’t Work and How to Fix That

January 4th, 2018 No comments

The new tax bill limits the deduction for state and local taxes to $10,000.  This comes after the alternative minimum tax (AMT) already limits them if someone has enough capital gains and deductions to qualify for it, which a lot of people do.  Can states do anything to help their taxpayers? Read more…

Categories: a.research, taxes, Uncategorized Tags:

Pass-through Taxation and C-corp election; Schumpeterian motivations; politics; the financial accounting problem for earnings definition

January 2nd, 2018 1 comment
​​  This is quite a technical post, but some people will be interested.

On Mon, Jan 1, 2018 at 1:02 PM, Someone wrote me about the question of whether the Passthrough tax cut isn’t a big deal ,because even without it, if we slash the rate of taxation on C-Corporations a partnership could elect to be taxed AS IF it was  a C-corporation.  It turns out there are interesting complexities involved.

Read more…

A fisking of Paul Rosenzweig’s LawFare defense of Mueller against the Trump Transition Letter.

December 19th, 2017 No comments

The pdf file HERE is  a fisking of Paul Rosenzweig’s LawFare defense of Mueller against the Trump Transition Letter.

I got interested in this and have been scanning the web for legal explanations of this kerfuffle, since I am not a lawyer.  There aren’t any good ones. As I said, I’m not a lawyer, but I know a lot of law (I’ve co-authored  numerous scholarly articles with law professors from Indiana, Illinois, UCLA, Chicago, Yale,Tokyo,  and Harvard and I’m the relator in New York ex rel. Eric Rasmusen v. Citigroup). I think I know more law than Mr. Rosenzweig, even though I feel my limitations keenly in this area of law (try me on tax whistleblower law, agency law, or the tax treatment of net operating losses and I’ll do better). So I’ll post this, to better inform the public. Maybe it will encourage real experts to come forward too. I wrote a book on game theory when I was 30 that had lots of mistakes, but it was the first in its field and I did stimulate, I fancy, older and wiser people to write books to improve on mine.

If I have mistakes, please  comment. I see an enormous amount of ignorant and arrogant commenting on these issues on the Internet, though, so please only comment  only if you aren’t just mouthing off. I’ll delete the comment otherwise.

 

Organizing a blog a different way

March 5th, 2014 No comments

I think it might work better if I just listed topics. I’ll collect posts in files, and usually I will put new material at the top. I’ll start with words.htm, though, which is mostly alphabetical.

 

Words: Interesting old and new words and phrases.

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Meadow Mushroom Soup

March 5th, 2014 No comments

This October a huge number of meadow mushrooms, agaricus campestris, have sprung up in the church lawn. They are delicious raw or fried in butter. After a rain they did look as if they were flecked with drops of blood— I hesitate to mention it, but they were delicious raw anyway. And the older black-gilled ones are fine to eat, raw or cooked. I made soup very successfully. They weren’t collecting worms or bugs, which made them good for soup. I combined cut-up mushrooms with milk, onion flakes, MSG, salt, and pepper (too much pepper, as it turned out). I was able to dilute it heavily with more milk and it still remained flavorful. It didn’t turn black— more a sort of oyster stew color. I think butter would have helped.

Categories: food, mushrooms Tags:

Is a Declaratory Judgement an Equitable Remedy?

November 9th, 2013 No comments

From Prof. Eugene Volokh:

There are a host of special rules that simultaneously constrain and empower equitable remedies. These rules include the irreparable injury rule, equitable ripeness, equitable defenses (e.g., unclean hands and laches), opportunities to revisit and reopen the remedy (e.g., modification and dissolution of an injunction), and enforcement mechanisms such as contempt. These special rules apply to — and ordinarily only apply to — equitable remedies. They do not apply to the declaratory judgment.

Here are four thoughts:

(a) The idea of the declaratory judgment is very old even if the name is new. Two people have a dispute over rights and they ask the court to resolve it.

(b) A declaratory judgment is not a remedy. Getting one does nothing directly to solve the plaintiff’s problem. A remedy is a command, even if just an implicit command in the sense of declaring someone owes damages.

(c) A bit separate: ordinarily the plaintiff asks for an injunction as well as a declaratory judgment. The DC Circuit Court of Appeals ruled en banc in the Cohen tax case (2011) that despite the plain language of the Declaratory Judgement Act, its scope is the same as the Anti-Injunction Act’s, so declaratory judgments which do not restrain the collection of taxes are okay. The court noted that this was perhaps of little practical importance, since it is the injunction that is the main remedy anyway.

http://www.cadc.uscourts.gov/internet/opinions.nsf/90370AAF761ADAE1852578C00053952B/$file/08-5088-1316088.pdf

(d) Also separate: I found this in a footnote: “Abbott Labs. v. Gardner, 387 U.S. 136, 155 (1967) (the declaratory judgment and injunctive remedies are equitable in nature” But the Supreme Court was wrong when it said this.

Categories: Uncategorized Tags:

The word Fecit

November 6th, 2013 No comments

Fecit: Continued here.

Categories: Uncategorized Tags:

China is as wealthy as Latin America

October 15th, 2013 No comments

Maybe I shouldn’t be surprised–Brazil is very big.

See Credit Suisse.

Categories: Countries Tags:

Intellectual and Commercial Speech: Which Is More Accurate?

October 13th, 2013 No comments

From Prof. Niall Ferguson, Krugtron the Invincible, Part III“:

On both Europe and the approach of the financial crisis, I would say that – unlike Paul Krugman – I was right more often than I was wrong. But so what? When investors and fund managers are right more often than they are wrong, they are rewarded – handsomely. When they are wrong more often than they are right, they lose money or clients, usually both. The world of public intellectuals is different. Using their academic credibility to pontificate about the future, professor-pundits can be wrong again and again without losing money or their tenured jobs. Many distinguished and lucrative careers have been based on just such a pattern of unpunished error. By the same token, the returns on being right are surprisingly low. A book sells because its prediction fits the mood of the moment. The author may get a bonus – in the form of additional sales – if he turns out to be right. But he doesn’t have to return the royalty checks if he turns out to be dead wrong.

This reminds me of Coase’s article around 1974 on the market for ideas. If a business is wrong, it loses money and customers—usually (dietary supplements are an exception). I should perhaps say, “if a business is obviously wrong.” Not so with we intellectuals.

Categories: academia, ideas Tags:

IRS Emails Sharing Individual Taxpayer Info with the White House

October 10th, 2013 No comments

The WSJ tells us

““You shared, at least by someone’s definition … personal IRS taxpayer information with the White House,” said Rep. Jim Jordan (R., Ohio)….

Ms. Ingram suggested during Wednesday’s hearing that such discussions can be appropriate under exceptions to the IRS confidentiality rules. But the IRS still might feel obligated to redact the information when turning over documents or emails to Congress or the public, she said.

“There is a difference between whether someone gives me information about a taxpayer…versus releasing” it, she said at one point.

Democrats also noted that the IRS has sometimes over-redacted information it has turned over to the committee.

The sweeping scope of the IRS confidentiality rules has been a persistent problem for lawmakers in recent months as they probe the agency’s role in overseeing politically active tea party groups seeking tax-exempt status.”

Is there any legal support whatsoever for the IRS claim that it is OK for the IRS to share certain kinds of confidential taxpayer information with the White House?

An ironic feature of the situation is that since the name of the taxpayer has been blocked out, the taxpayer doesn’t know his information has been given to the White House, so he can’t sue for breach of confidentiality.

Categories: IRS, obama Tags:

Student Evaluations

October 8th, 2013 No comments

A new analogy:
How judging the quality of medicine at a hospital by having patients evaluate the doctors? Suppose we took a group of patients that all had breast cancer. Some doctors operate, and we administer the evaluation in the recovery room. Some use chemotherapy, and we give that the patients just after they throw up. Some misdiagnose and tell the patient it’s not cancerous at all. And some give the patients sugar pills and tell them that if they come in once a week and listen to the doctor’s jokes (which are actually quite good), they’ll be cured at moderate cost.

Which doctors will look the best?

How about the hospital? Suppose the doctors are all employees. Will the hospital like the idea of patient evaluations? What strategy will lead to the highest number of patients coming to that hospital?

Categories: teaching Tags:

The Christian and Heavenly Rewards

October 6th, 2013 No comments

In small group today, Mr. Huck raised the question of whether a Christian ought to be motivated by rewards from God. It is an interesting question. Standard doctrine tells us that God saves a person not because of his own actions, but for God’s own reasons. For somebody who understands this, salvation as a reward is not a motivation for virtuous behavior. Indeed, doing an action only for fear of Hell or as the price of salvation is not going to save anybody.

Nor is doing it to attain a feeling of salvation; too many Hell-bound sinners act virtuously merely for material ends like that. This does turn into a version of Newcombe’s Paradox though. Suppose God has already decided whether I am saved or lost. I face the decision of whether to embezzle or not. God is very good at prediction, and has already decided that people who choose to embezzle are not ones he wants to save. Thus, if I embezzle, He has predicted that and I am lost. If I don’t embezzle, though, I don’t get the benefits of extra money (and let us assume that there is no downside to embezzlement from guilt or prison).

One point that came up was that parents do not rely on the gratitude of their children; they offer them material rewards too, in the hopes it will train the children to do the right thing by themselves later. Does God do this too?

Categories: theology Tags:

Writing and Department Names

October 5th, 2013 No comments

Journalism is being merged with Telecommunications, and they’re intending to call the new department “Media”.

Since they’re thinking of new names, it’s a good time to comment that all these names violate two basic rules of writing: 1. Shorter words are better than longer, and 2. Anglo-Saxon is better than Latin or Greek or French. “Telecommunications” is particularly bad in this respect. “Media” at least trips off the tongue, being reducible to two syllables.

So how about a “Newswriting Department” or “News” or “Writing”? It’s OK if it also includes the economics of news, the technology of news, email, etc. as subjects.

I’d also like to see English renamed Reading, and Mathematics renamed Rithmetic, but then I’m more unconventional than most professors.

(ps.– I admit that my own “Business Economics and Public Policy” department has a rotten name. Evolution has shortened it to “Bus Econ”, though.)

Categories: academia, words, writing Tags:

Mycorrhizal

October 3rd, 2013 No comments

Mycorrhizal: living in symbiosis with trees (of mushrooms)

This is a word I should know. Amanitas are mycorrhizal. At the St. Charles cross-country meet today Benjamin and I found lots of amanita muscaria guessowii. They are a fly agaric, supposedly useful for poisoning flies when ground up in milk. This is a yellow variety though, not red. We might try it for our ant problem. We will not attempt any disgusting Siberian pagan rites, however.

Categories: mushrooms Tags:

Veterans with Trophy Won in Action against President Obama after He Barricaded the Monuments to Exaggerate the Shutdown

October 2nd, 2013 No comments

Veterans with Trophy Won in Action against President Obama after He Barricaded the Monuments to Exaggerate the Shutdown

Categories: obama, picture Tags:

A Rasmusen Doppelganger?

September 24th, 2013 No comments

Preferred_Nathan_Myhrvold_300_300_70_c105.eric.head

Nathan Myhrvold and me.

Categories: picture Tags:

Gas Warfare against Civilians

September 18th, 2013 No comments

Kenneth Anderson has an excellent article on modern gas warfare at Lawfare. He explains why it is especially useful against civilians, something I’d be wondering about. It’s rather like the effect of randomly distributed land mines or IED’s:

Having taken testimony from civilians in civil wars ranging from Central America to central Asia, I can say simply that the panic described by survivors in the interviews I conducted in Kurdistan were qualitatively different from that induced by ordinary weapons. This is partly because – from the victims’ and survivors’ standpoint, as they expressed it to me – poison gas free-floating in the air, blowing wherever it blew, invisible and deadly, was “indiscriminate” in some way beyond that term’s usual meaning in the law of armed conflict.

Read more…

Categories: war Tags:

Matthew Shepard and Media Lying as a Deliberate Strategy

September 16th, 2013 No comments

The story that Matthew Shepard was murdered for being homosexual turns out to be totally false. He was killed by two other homosexuals he already knew, one of whom was crazy on meth. Read more…

An Agapao Concordance (Love, Esteem)

September 15th, 2013 No comments

I am at work for a paper to present at the February 2014 Agape and Law conference at Pepperdine. A first step is that I’ve put together an Agape concordance for the New Testament—a list of all the verses that contain some form of “agapao”.
The file is at: agape-concordance.original

Categories: a.research, Bible Tags:

Computer Paranoia

September 14th, 2013 No comments

From Instapundit:

“HOW DO I SET UP MY WI-FI NETWORK TO EXCLUDE ANDROID DEVICES? If an Android device (phone or tablet) has ever logged on to a particular Wi-Fi network, then Google probably knows the Wi-Fi password. Considering how many Android devices there are, it is likely that Google can access most Wi-Fi passwords worldwide.”

Read more…

Categories: civil rights, computers, Uncategorized Tags:

Unexpected Things in Home Schooling, Particularly in Math

September 13th, 2013 No comments

Homeschooling Ben and Lily this year, I’ve been teaching math, programming,and business so far, and helping my wife with the other subjects. One thing that strikes me is how much incidental material I have to teach— and that this might be the most important part of the teaching. We have Word Books where the children write down hard-to-understand or hard-to-spell words that come up, for example. Read more…

Categories: children, education, math Tags:

Notes on Books for American Literature for High School

September 12th, 2013 No comments

I have starred what is most important.

*A Eugene O’Neill play. O’Neill is the best American playwright; really he’s the best English-language playwright since Shakespeare. Long Day’s Journey into Night: A one-day play, somewhat autobiographical, about a retired actor, his two grown sons (both failures in their own ways), and his morphine-addicted wife, who relapses after a cure they thought might finally work. Read more…

Categories: books, education, writing Tags:

Self Defense and Cybercrime

September 10th, 2013 No comments

I was just reading a good post of his upcoming Congressional testimony by Stewart Baker over at Volokh Conspiracy. One thing he talks about is the importance of making it legal for private corporations to fight cybercrime. They’re now hindered by unreasonable privacy laws. As he puts it, it’s like being worried about a theft conviction if you see a thief with your bicycle and take it back. Read more…

Categories: Uncategorized Tags:

The U.N. Charter Forbids a Country to Defend Itself

September 9th, 2013 No comments

The UN Charter is very poorly written. Article 2 of the UN forbids the US to fight Syria in self-defense, but it does allow us to fight Syria for humanitarian reasons. On the other hand, it forbids the UN itself from intervening anywhere for humanitarian reasons. Read more…

Categories: international law, United Nations Tags:

Points of Writing Style in the Internet Age

September 8th, 2013 No comments

I was just downloading a copy of The Merchant of Venice and noticed that it had no line numbers, which would make it harder to cite when I excerpted it for students. But then I realized that most people looking up my cite wouldn’t use the Act-Scene-Line numbers anyway— they’d do a computer search on the file using the first three words of my quote. Thus, really what needs to be in the cite is just the author, work, and hyperlink, and the author speaking—-the character so that the reader can know that about the quotation without having to look it up.

The same idea goes for page numbers of quotes to books that are in the public domain. In fact, those books will be *better* cited than modern ones, since page numbers differ between editions. It is often useful, too, to put the chapter or section name.

Categories: writing Tags:

How Much of S-Corp Income is Labor Income and Hence Subject to Medicare Taxes?

September 7th, 2013 No comments

Here are a couple of comments I posted at Taxprof:

T.C. Summary Opinion 2013-62 (McAlary, http://www.ustaxcourt.gov/InOpHistoric/McAlary.SUM.WPD.pdf) is amazing. Professor Schwidetzky has it absolutely right. Suppose Dr. Roe earns high labor income some years, low in others. He becomes an S-corporation, with zero capital. That’s not supposed to change his tax situation, right? But in deciding his S-corporation labor income for tax purposes, the court didn’t use that tax principle, even though it’s Tax Court. Instead, it used the corporation law principle of something like the business judgement rule— how low a salary wouldn’t be ridiculous for that industry? So it calls for expert witnesses to tell the court how much other doctors make in labor income, even though it knows exactly how much *this* doctor made.
If Dr. Roe puts in some capital for office expenses, that only makes things a little harder. It’s actually far far easier for an expert witness to accurately estimate a cost of capital than someone’s market wage. But we can put in a simple safe harbor for tax purposes. Just require the taxpayer to keep track of how much capital he puts in and give it a return of 5% over the IRS late-payment rate each year.
For a safe harbor, we need a notice-and-comment regulation or an IRS declaration of enforcement policy. Otherwise, even just a court ruling would be OK. This decision is a S(mall) one though, so it can’t be appealed. Even if it could be, the taxpayer would be well advised not to appeal it, because the IRS was extremely modest in its tax demand, and amici following the ideas here would ask the court to more than double it. (Can a court do that in a tax case?)

I found a history of this tax issue at
http://www.aicpa.org/publications/taxadviser/2011/august/pages/nitti_aug2011.aspx
which shows, I think, that an old IRS revenue ruling is the source of the problem, by saying that “reasonable compensation” had to be paid by the corporation rather than trying to define which part of a corporation’s profit was return to labor rather than return to capital. Another way to put this is that the IRS didn’t require that *capital* was limited to a “reasonable return”. Of course, using words like “reasonable” gives wiggle room so that a taxpayer could say that of his corporation’s $500,000 profit, $100,000 was a reasonable salary, $50,000 was a reasonable return to capital, and the rest was a gift from heaven and shouldn’t be taxed at all.
I didn’t look at the Glass Blocks case at http://rothcpa.com/2013/08/tax-court-even-if-you-lose-money-your-s-corporation-needs-to-pay-reasonable-compensation/ , but it seems the IRS has accomplished the Immigration feat of being both incredibly lax with most people and incredibly picky with a few. The poor taxpayer’s labor income was clearly negative, but the IRS “reasonable compensation” method doesn’t let people have negative labor income. The simple method of saying everything is labor income except for an estimated return to capital would have avoided making him pay.
(One caveat is that this involves Medicare and Social Security. It seems to me that a negative-income taxpayer should be treated as making no dollar contributions to the funds for purposes of his later eligibility, but as having put in those quarters of work,which was the way charitable work was treated, It hink, back when my mother kept track of her hours as secretary of the civic symphony).

Categories: a.research, taxes Tags:

Anti-Injunction Act and Obamacare

September 5th, 2013 No comments

For future reference on the latest Anti-Injunction Act caselaw: Agreeing on one thing: The Anti-Injunction Act does not apply
The following contribution to our post-decision symposium on the health care cases is written by Alan Morrison, Associate Dean for Public Interest, George Washington Law School. There’s been a lot of action in the appeals courts too— see Mersino and Hobby Lobby.

Categories: taxes Tags:

Math in Economics

September 5th, 2013 No comments

I just posted this over at Volokh Conspiracy as a comment on Professor Coase’s dismay at the road economics has taken:

Coase could be nonmathematical because he was a genius. Ordinary economists aren’t smart enough; they need calculus. Ordinary people are still less intelligent, and they can’t do economic research at all. It’s like building a bridge. A genius can wing it; ordinary engineers need to use some physics; ordinary people will end up swimming.

Categories: Economics, thinking Tags:

U. of Virginia Got Rid of Two Nobel Laureates Because They Were Conservative

September 4th, 2013 No comments

.UVA expat: How Nobel winner Coase got pushed from Charlottesville has a hugely important example of a university getting rid of professors because of their conservatism:

In 1994, Coase told this reporter how one of his UVA colleagues accidentally received a copy of a secret dossier compiled by then Dean of the Faculty Robert Harris in which Harris outlined a plan to change the economics faculty. Under then President Edgar Shannon, Harris allegedly used non-promotion and non-offer-matching to force Jefferson Center scholars to disperse. Coase left UVA for Chicago in 1964; Buchanan departed four years later.

Form versus Outcome in the Polis

September 3rd, 2013 No comments

It would be useful for everyone, liberal, libertarian, and conservative, to confront the issue of which they’d prefer:
1. A dictator with the right policies (welfare state, free market, or promotion of virtue) or
2. A democracy with the wrong policies (free market and traditional values for the liberal, welfare state and traditional values for the libertarian, welfare state for the conservative). Read more…

How Denominations See Each Other

September 2nd, 2013 No comments

I forget where I found this, but it’s pretty accurate.

How denominations see each other

Categories: humor, religion Tags: