May 31, 2006

The Dreaded Phone Tax Hasn’t Been Totally Repealed, and Could Even Come Back in a Bigger Form

Filed under: Economy,Taxes & Government — Tom @ 3:28 pm

According to a Tuesday Wall Street Journal editorial (subscription required), part of the tax still remains, and it could morph into a more comprehensive tax someday:

The IRS will continue to collect the tax on local calls, but Mr. Snow to his credit did express support for the idea of Congress passing legislation to repeal the tax entirely.

That would be the best outcome, and not just because a future administration might opt to begin collecting the tax again and restart the court battles. Another argument for full repeal is that so long as the tax exists, so will the political temptation to expand its scope and turn it into yet another revenue stream for the federal till. A Joint Tax Committee report issued last year suggested extending the excise tax to “all data communication services,” including cable modems, cellular and DSL Internet connections.

These taxes have more lives than Jason in those Friday the 13th movies. Congress should nuke the telephone tax, including the local amount still being collected, and send it to the House of Horrors museum for future lawmakers to ponder (including the dingalings at the EU who are considering taxing e-mails and instant messages) before they create any new form of taxation.

Getting Exercised Over the Backdating of Stock Options

Filed under: Business Moves,Economy,Stock Schlock,Taxes & Government — Tom @ 1:59 pm

Did you know Congress is partially responsible for the scandalous runup in CEO pay?

Yup. By capping the deductibility of officers’ salaries at $1 million, companies who wanted to retain talent had to come up with creative ways of delivering compensation. (BTW, why are CEO salaries any less deductible that those of professional athletes and entertainers?)

This led to a widespread increase in the use of stock options. If a CEO did a great job, he or she could, and thanks to the great markets of the mid-1990s sometimes did, make tens of millions of dollars by exercising them.

Enter the mostly yucky markets, relatively speaking, of the last 6 years. Companies still need to have their CEOs around, yet don’t want to pay any more non-deductible salary than they have to (Shouldn’t the $1 million should at least be indexed to inflation?). Some boards have cut corners by backdating CEO options to dates when the company’s stock price was lower, enabling the CEO to make a profit, or more of a profit, when he or she exercises. This is a move that almost certainly isn’t legal (many criminal probes are in progress) and is a breach of fiduciary duty to shareholders.

But it all goes back to the fact that companies are not able to simply pay out deductible compensation, as The Wall Street Journal noted in a subscription-only editorial last weekend:

Which brings us to Congress, the villain of this tale that the rest of the press corps wants to ignore. Executive greed is an easier story to sell, we suppose. But the same Members of Congress who most deplore big CEO paydays are the same ones who created the incentive for companies to overuse options as compensation.

In 1993, amid another wave of envy over CEO pay, Congress capped the tax deductibility of salaries at $1 million. To no one’s surprise except apparently the Members who passed this law, most CEO salaries have since had a way of staying just below $1 million year after year. But because companies still need to compete for and retain top talent, they have found other forms of compensation — notably stock options.

And one of the problems with options is that they give executives every incentive to capitalize all company profits back into the stock price — thus contributing to their own pay — rather than paying out dividends to shareholders. As SEC Chairman Chris Cox has noted, the 1993 law deserves “pride of place in the museum of unintended consequences.”

In a better world — one in which Congress kept its nose out of wage decisions — corporate directors could pay the salaries they wanted and wouldn’t rely so much on options to motivate executives. This, in turn, would reduce the incentive for companies to stoop to such dubious pay practices as option backdating. But as long-time observers of Washington, we can say with certainty that backdating will cease as a corporate practice long before Congress admits its mistake.

UPDATE: This MarketWatch article in IBD has a lot of noise about how the backdating of options, which mostly occurred between 1996 and 2002, would not have taken place if Sarbanes-Oxley had been in effect. Give me a break – the ability to detect the backdating goes back to 1992, thanks to rules on executive compensation mandated by the Bush 41 SEC. Nice try, no sale. If SarBox increased disclosure in this area, great, but SarBox fans know darn well that the tedious and mostly-worthless mandated extra internal control work brought about by Section 404 is where all the contention is.

US Government Budget Flim-Flam 101, Courtesy of Brain Shavings

Filed under: Economy,Scams,Taxes & Government — Tom @ 11:28 am

When is a cut not a cut?

When someone is claiming that the “cut” is occurring in the federal budget for something. It’s almost always a reduction in the level of projected spending that ends up being an increase of more than the rate of inflation compared to the prior year.

My dictionary says that’s what’s known as an “increase in real spending.”

“S.O.B.er”Brain Shavings has more, with graphs and all (HT “S.O.B.er” Porkopolis).

“Wow” Economic Numbers Come Out. Let’s See How They’re Reported by Reuters. (Answer: Not Well At All)

Filed under: Economy,MSM Biz/Other Bias,MSM Biz/Other Ignorance — Tom @ 10:14 am

Off the wires from Marketwatch (registration may be required):

May Chicago PMI rises to highest level since October

Business activity expanded in the Chicago region for the 37th consecutive month in May, the National Association of Purchasing Managers-Chicago said Wednesday. The Chicago purchasing managers’ index rose to 61.5% from 57.2% in April, much stronger than the expected decline to 56.2%. It was the highest level since October. Anything over 50% indicates growth. The prices paid index fell to 76.9% from 77.2%. The new orders index rose to 69.6% from 60.8%.

The very last number can be translated as “manufacturers are getting flooded with orders.” Nice problem.

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UDPATE: Reuters 10:04 a.m. — “US Midwest business activity grows strongly.” That’s pretty good, but it’s the immediate reax; let’s see if and how they massage as the day goes by.

UPDATE 2: Reuters 10:36 a.m. — Okay, the headline is good, but now the spin is ready (bolds are mine):

Midwest May business activity grows strongly

Business activity in the U.S. Midwest expanded at a faster rate than expected in May, with new orders and hiring bouncing back from weak April levels.

The report defied weakness in some other regions’ data recently and suggested the Chicago regional economy was staying strong well into the second quarter.

The National Association of Purchasing Management-Chicago business barometer rose to 61.5 from 57.2 in April. Economists had forecast the index at 56.0.

A reading above 50 indicates expansion, and the Chicago index has been above that level for more than three years.

Questions to Reuters:

  1. If above 50 indicates expansion, by definition, how can you call any of the April numbers (57.2, 77.2, 60.8) “weak”?
  2. Could you specify other regions with weakness that needed to be “defied” (as if the weakness is fairly pervasive)? Although I was not able to find regional data at the Institute for Supply Management web site (found and discussed in Update 3), I was able to find this overview of the entire economy in April (Yes, I realize that the page referred to says “Also, the information in the regional reports is not used in calculating the results of the national report” [which, by the way, Reuters neglected to note]. I’m showing that the chance that there is meaningful weakness in an individual region is pretty low.):

ISM0406OV

    Across the board, April could be fairly characterized as an economy that’s on fire. In fact, the “problem,” as indicated in the Inventories numbers, is that things are so good that producers can’t produce things fast enough! The chance that any one region is suffering from a great deal of “weakness” has to be close to zero. It’s up to Reuters, in the face of the above, to show readers that I’m wrong.

So let’s call this characterization of good numbers as weak, and the attempt to refer to conveniently unidentified “weak” regional data what it is, shall we? It’s a fundamentally dishonest attempt to minimize good news by Reuters. Unfortunately it’s par for the course.

UPDATE 3: Reinforcing the conclusion in Update 2, here is the list of April regional reports (HT to Rose Marie Goupil at ISM for helping me find these). Every single one has a composite score over 50, even auto industry-plagued Detroit.

ISMregions0406

Not every region submits a report every month, but I struggle to see where Reuters can claim “weakness” in other regions that needed to be “defied.”

UPDATE 4: Almost forgot — the obligatory “good news may be bad news” warning at the end of the Reuters report:

“The Chicago PMI report certainly came in much stronger than anticipated and will continue to feed the uncertainty surrounding the June Federal Open Market Committee meeting,” said Kevin Flanagan, fixed income strategist, global wealth management, at Morgan Stanley in New York.

Yup, the big bad Fed might stop the economy all by itself with an interest rate hike or two. Zheesh.

Just another day in Business Media Bias.

UPDATE 5: Reuters 12:55 PM report is still singing from the same hymnal (“Midwest economy powers on”) — “Midwestern U.S. business expansion was faster than expected in May, with new orders and hiring bouncing back from weak April levels, a report showed on Wednesday.”

Cross-posted at Newsbusters.org.

The 25th Carnival of Ohio Politics Is Up!

Filed under: News from Other Sites — Tom @ 10:01 am

It’s here.

Biz Media Bias 101: Reuters on the Treasury Announcement

Filed under: MSM Biz/Other Bias,MSM Biz/Other Ignorance — Tom @ 9:47 am

From Reuters’ announcement of the Hank Paulson selection as Treasury Director:

WASHINGTON (Reuters) – President Bush on Tuesday named Henry “Hank” Paulson as his new Treasury Secretary, enlisting a powerful Wall Street player to lead his economic team as he seeks to lift his sagging poll ratings.

The assumption is that Bush cares about his “sagging poll ratings,” which by the way are actually slightly rebounding. Given his conduct for 5-1/2 years, I doubt that he really cares. If he cares at all, he won’t start worrying about it until Labor Day.

….. Paulson, 60, is a former Nixon administration official and a heavy contributor to Republican candidates. He is poised to take the reins of an economy that grew at its fastest rate in 2-1/2 years during the first quarter but shows signs of slowing.

As if what Paulson was doing IN HIS MID-20s is terribly relevant.

As for the “but shows signs of slowing,” this is rich. If it “slows,” it might be to 4% or so, which is twice the rate of the established EU countries and Japan. “Growing less briskly” would be accurate, if that’s what Reuters was interested in being (but it’s not).

Finally:

The Treasury shake-up was the latest in a series of staff changes Bush has made to try to shore up his popularity, starting with the move of Bolten, the former budget director, to the job of chief of staff.

Again, presupposes that personnel moves are all about popularity and not about getting a job done. Totally, absurd. Reuters should simply report the news (but it won’t).

Bizzy’s AM Coffee Biz-Econ-Life Links (053106)

Free Links:

  • They needed a poll for this? — “Americans Like Instant Gratification” (and hate to wait in lines). Who knew?
  • Jacques Chirac is getting grief for pardoning Olympic track hero Guy Drut, who had received a 15-month suspended jail sentence for “picking up a EUR 3,000 monthly salary for a non-existent job from 1990 to 1993.” Read the article, and you’ll see that the reason people are upset has little to do with condoning corruption, and more to do with fear that the dreaded “right wing” will seize electoral opportunity from it. Zheesh.
  • Managing, or Massaging, ExpectationsThis Expatica report tells us that the Pope “was expected to draw up to one million people to the inaugural mass in Warsaw, but only an estimated quarter of a million showed up for Friday’s proceedings.” Benedict DID draw 900,000, as noted in this not widely carried AP report, at Krakow on Sunday (FreeRepublic has some great pics; this Catholic News Agency link reports “1,000,000 strong”). But this AP report managed not to mention the Krakow crowd size, and this one focused on the financial opportunism exhibited by some. And I’m supposed to believe that the WORMs (Worn-Out Reactionary Media, known to most as The Mainstream Media) have no anti-religious bias. Uh-huh.
  • “Don’t try to control illegal immigration, or forest fires will burn out of control” — That’s what The New York Times article about private firefighting in the West is trying to tell us. Spare me.
  • Brad Pitt and Angelina Jolie had their baby daughter named Namibia this past weekend. No, BizzyBlog isn’t going Hollywood. I’m just amazed at the nerve of this: “As the world awaited the birth of the child at a luxury villa complex on the coast, Namibian authorities said they had bowed to pressure from Jolie and Pitt and granted them the right to ban foreign journalists from entering the country – a remarkable move for the Government of any sovereign state. But the exceptionally high-profile presence of Pitt and Jolie promises to be a massive boost to tourist income in the desperately poor country, where the average wage is $46 a week.” Wanna bet?

Subscription-only Links:

  • Biz Weak reports in its June 5, 2006 issue that “The 3 million students graduating from U.S. colleges and universities this year carry more than $40 billion in student loans, and interest rates on federal loans are jumping two percentage points in July. That means new grads are going to feel an even bigger pinch than their predecessors ….. They do have a window to secure the lower rates if they consolidate their loans with one lender by June 30.” Take note if you or your grad are affected.
  • Another Biz Weak article on voting machines found that Sequoia Voting Systems Inc., which sells machines in 20 states, is majority-owned by ….. Venezuelans. Nothing automatically nasty in that, except that a Sequoia affiliate provided the machines for the 2004 recall election of Hugo Chávez, which many observers believe was rigged. So we have potential foreign influence to worry about, on top of the already well-documented security problems. 1,050 counties in the US will use these in 2006. I say, “Paper ballots, please.”
  • In its cover story Saturday, Barron’s reported that the market for second homes in some vacations spots isstarting to plunge.” Supposedly, “some welcome a correction.” I’ll bet that group would not include those who bought recently. (June 1 update: Free Real Estate Journal link is here.)

Positivity: Honoring Three Virginia State Troopers

Filed under: Positivity — Tom @ 6:01 am

All for “extraordinary acts of valor above and beyond the call of duty”:

(more…)

The Pleasure Inn Has “For Service Speak English” Company

Filed under: Economy,Immigration,Taxes & Government — Tom @ 12:39 am

It’s a good thing for this guy that The Ohio Civil Rights Commission (OCRC) can’t cross state lines (HT Michelle Malkin):

Genos

How do you say cheesesteak with in Spanish?

Joseph Vento, the owner of Geno’s Steaks, doesn’t know. And he doesn’t care.

Just read the laminated signs, festooned with American eagles, at his South Philadelphia cheesesteak emporium: This is America. When Ordering, Speak English.

This is my kind of guy:

Some try to order a cheesesteak. And it bugs Vento if they can’t ask for American cheese, provolone or the classic – Cheez Whiz – without pointing.

“If you can’t tell me what you want, I can’t serve you,” he said. “It’s up to you. If you can’t read, if you can’t say the word cheese, how can I communicate with you – and why should I have to bend?

“I got a business to run.”

Vento, who lives in Shamong, put up the signs when the immigration debate seized national headlines six months ago.

With Geno’s Steaks tattooed on his arm, Vento is used to publicizing things, especially what’s on his mind. Speak English signs also poster his Hummer. He has driven through South Philadelphia blaring through the SUV’s P.A. system denunciations of neighborhood business owners who hire illegal immigrants.

“I say what everybody’s thinking but is afraid to say,” Vento said.

Unfortunately for Tom Ullum at the Pleasure Inn, the OCRC, described by the R-Rated Whistleblower as the “$11,456,071-per-year Political Correctness Commission, whose 135+ bureaucRATS seem to have nothing better to do than travel around the state so they can persecute people like bar owners in Mason for having a helpful sign in their window…..” can, and has, come into Mason, and is attempting to make him pay a heavy price for posting signs (originally “For Service Speak English,” plus the recently added “For Service You Must Be Legal”) he has every right to post.

Earth to OCRC: If the State of Pennsylvania can leave Geno’s alone, leave the Pleasure Inn alone. NOW.
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Previous Posts:

  • May 13, 2006 — Why Won’t the Ohio Civil Rights Commission Get Off Tom Ullum’s Back?
  • Dec. 19, 2005 — Update: Thought Police 1, Bar Owner 0; Bar Owners Showing Solidarity–1
  • Dec. 16 — Thought Police 1, Bar Owner 0
  • Oct. 9 — Questions for the Thought Police at the Ohio Civil Rights Commission and The Cincinnati Enquirer

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