Funny But Biased

The WSJ and the WSJ Editorial Page are quite different.  The Editorial Page is conservative to libertarian while the rest of the paper is not.  A report on Congressional spending by Kristina Peterson and Nick Timiraos has a classic example.  In discussing how the increase spending will be divided they say:

On spending, major sticking points have yet to be resolved, including how much of that sum will have to be offset by cuts elsewhere in the budget, and how the additional funding will be divided between defense and nondefense spending, aides said. Republicans generally want more money to go to defense, while Democrats have argued that any increase in spending should be fairly divided. [Emphasis added]

We wonder what Kristina and Nick think is a fair division?  Since we already know the answer to that question (Nancy Pelosi will tell them what is fair), we are more interested why Kristina and Nick didn’t cover entitlements in a story on Congressional spending.

 

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A Reminder On Socialism

Yesterday is was Communism (no, we still don’t reference our stuff0.  Today it is socialism, the slightly less virulent method of restricting economic and personal freedom.   The WSJ Editorial Board tells us:

Venezuela is broke, which takes some doing. For much of the second half of the 20th century, a gusher of oil exports made dollars abundant in Venezuela and the country imported the finest of everything. There were rough patches in the 1980s and 1990s, but by 2001 Venezuela was the richest country in South America.

And now socialist Venezuela is broke.  Yes the country with the largest proven reserves in the world according to Wikipedia is broke.  The socialists are almost as unlucky as the Communists.  There are just too many “unexpected” events every time one of these methods is put in place.

A Reminder On Communism

It seems silly but we need to remind folks that Communism is evil.  Marc Thiessen at the Washington Post is up to the task.  If you think there is some question about the evil of Communism you should read the whole thing.  If not, here is some evidence from Marc on the misunderstanding of Communism:

Sadly, this twisted view of communism is being passed on to the next generation. A recent poll by the Victims of Communism Memorial Foundation found that just 36 percent of American millennials have a “very unfavorable” view of communism — the only American generation where this number is less than a majority. Worse still, 32 percent believe that more people were killed under George W. Bush than under Joseph Stalin. The ignorance is stunning. The first post-Cold War generation has been raised almost completely unaware of the evils of communism.

The Donald’s administration has much to be humble about.  Marc give us a data point that makes us happy he replaced his predecessor and won a year ago:

The Trump administration marked this week’s 100th anniversary of the Bolshevik Revolution by declaring a National Day for the Victims of Communism.

Yea!  There is always work to do.  If you want to recommend a book to somebody try The Draining Lake by Arnaldur Indridason.  It is a great work of fiction that helps explain why the Communist menace doesn’t go away.

Taxes, Expertise, And Information

Kevin Williamson in the NRO Corner is upset about part of the Senate tax bill.  The Senate GOP is planning to tax stock options at the at the date of vesting.  Stock options is shorthand for a variety of equity instruments that are used as compensation.  What is not clear is how exactly the employee’s income would be measured in the proposed bill.

Sidebar: We account (recognize the expense for financial reporting purposes) by recognizing the fair value as the employee earns compensation.  Earning might coincide with vesting.  We don’t think that the Senate intends to use fair value measurement but we are not entirely sure.  Because financial accounting and tax accounting have different goals they are often different.  End Sidebar.

Kevin says:

You can award the options at a lower price than the current price of the stock: If you give the employee the option to pay $90 a share for 1,000 shares of stock currently priced at $100 a share, then you have given that employee $10,000, notionally.

The relevant definition of notionally would seem to be: not real or actual; ideal or imaginary.  We see that you have really given the employee more that $10,000 unless the option expires immediately.  The employee may end up with more or less than $10,000 but the value of that option is almost surely more than $10,000 because the best possible final value can easily be $40,000 but the worst possible final value can only be zero.  That’s why folks are willing to take options where the current price of the security is below the strike price in the option.  The fair value of Kevin’s option is surely more than $10,000.  Even so, we think if the Senate went in that direction it would be the worst possible incentive.

The information problem is knowing what the bill actually says.  We haven’t found anyone who cites the bill so we don’t know what it says.  We agree with Kevin but we want to know how income is measured and what would happen to old options.  Kevin reports and comments that:

The Senate estimates that the measure would produce an extra $13.4 billion in revenue over ten years, but that’s either moving forward revenue that eventually would be collected by taxing the options when the options are exercised or, worse, by taxing people on gains that aren’t actually realized—most startups fail, after all, but they may fail after employees’ shares are vested.

We agree that the Senate proposal is moving the revenue forward.  It is probably creating less total revenue since the startups that succeed do so in a big way.  Even an aging star like Apple has gone from 107 to 174 in the last year.  That surely produced income for the Feds and the state of California this year.

We support Kevin’s position because it is consistent with most tax rules.  You pay taxes on what you were paid in 2017 rather than what you earned.  We need more data to make a stronger position.  How is income measured under the Senate proposal?  What would be the total take keeping the old rules?  What would be the total take if we relaxed the rules as the House suggests?  The tax bill is not going to be perfect but let’s try to limit the number of stupid things in the tax bill.  We think Kevin has identified one of the stupid things but we need a variety of expertise to make a really compelling case.

 

Sticking To Sports

Ryan Huber has a great article on Sticking To Sports that is reposted on NRO.  It also ties into expertise and our current political environment.  How does Bill Simons become an expert about the current football season?  Ryan says:

[Bill], who parks himself in front of multiple TVs 20 Sundays a year to watch football for twelve hours (because it’s his job)

Expertise is hard to acquire.  It requires time to acquire it.  We don’t know if Bill is a football expert having rarely or never heard him but he is meeting one criterion, experience.  We recently commented about another Bill, Texans’ coach O’Brien (we don’t cite ourselves but it is recent if you want to look).  We felt competent because our expertise is not in football but in decision making.

What does Ryan recommend for the wanna-be pundits?  He concludes that all sorts of folks should weigh in on the issues of the day but:

But it does mean that when they enter this realm, a realm in which they will admit no special expertise or insight, they should do so with humility, generosity, and an awareness that their audience is most likely incredibly diverse. If analysts, hosts, and columnists choose to continue to speak about politics in the same way they recently have, more and more people will tune them out. But ESPN already knows that.

Well said.  But beyond that the evidence suggests that expertise is not valued lately.  See “Oh, No, A Pharma Exec” at WSJ:

President Trump said he will nominate the former Eli Lilly & Co. executive to lead the Health and Human Services Department. Mr. Azar was immediately criticized for, well, knowing too much about health care.

Then consider our last two presidents.  They are both good campaigners but neither was practiced in government.  Experts are wrong often because they get the difficult questions.  Sometimes they are wrong because they go outside their expertise or they don’t recognize the knowledge problem.  We need to find a way to identify and respect expertise without attaching God-like qualities to them.  We think it will continue to be a challenge.

 

 

Monday Evening Coaching

We thought at the time Bill O’Brien of the Texans made a really bad coaching decision Sunday afternoon.  It certainly turned out to be true.  The Texans were leading the favored Rams 7 -6 when a Rams interception gave then the ball on their own 25 with a minute and 35 seconds to play.  The Texans stuffed Todd Gurley for a yard loss and everybody was getting up slowly.  It looked like the half was over until Bill came running down the sideline to call his second time out.  We said no-no-no but he didn’t hear us.

This was a really bad choice for two reasons.  First, the good outcome, given that you have only two timeouts left, was that the Texans get the ball back on their own 40 with 30 seconds left.  Their offense had not been scintillating in the first half and was unlikely to be with Tom Savage as QB.   They ended with 283 yards for the game.  Second, the Rams are, in 2017, offensively potent.  Bill was playing with fire.  He got burnt as the Rams made a 50 yard field goal to take the lead and the momentum into halftime.  The Rams came out in the second half and blew away the Texans with 21 points in the third quarter.

It is entirely possible that the Texans were doomed in the second half in any case.  Bill was still wrong to call the time out.  If you had all three time outs, a less than elite offense with the ball, and an elite offense to give it to then you might try to justify the call.  The Texans were zero for three and paid the price.

The Tax Bill 11/12/17

Well, there isn’t a tax bill at this time.  There are two: one in the Senate and the other in the House.  It isn’t a binary choice yet and there will be changes.  Although there could be some improvements it seems unlikely that there will be major changes.  We think that the crucial area for improvement at this time is in business taxes and both the proposals deliver that.  We are in agreement with Laurence Kotlikoff at WSJ:

But the new tax plan, while far from what I and other tax specialists would design, will boost the economy, generate more revenue, maintain fairness, and raise Americans’ living standards. It’s imperfect but worth passing.

Let’s find some other conservative opinions.  Edward Lazear at the WSJ likes the basic frame work but doesn’t like that the full expensing is temporary and has a solution to make it permanent:

One way to offset that would be to use a more targeted approach to reducing the taxes paid by small and midsize businesses.

We care about rates and not full expensing because most businesses are not manufacturing.  We don’t want targeted solutions.  We want lower rates for businesses.  We will count Edward are leaning towards passage.  The Editors at the WSJ have a different ruse, eliminating the Obamacare tax, in mind:

While the penalty raised $3 billion in revenue in 2015, Arkansas Senator Tom Cotton points out that abolishing the mandate would actually be a revenue gusher under the Congressional Budget Office’s scoring rules. Last December CBO projected that repealing the mandate would save $416 billion over 10 years because fewer people would sign up for Medicaid or receive subsidies on the exchanges. Fewer workers might also enroll in employer-sponsored plans, which could result in more taxable compensation.

Being who they are we are pretty sure they will have a hard time supporting tax reform without reductions in individual rates.  We will count them as undecided.  George Will has an entirely different idea.  He is concerned that less people will pay income taxes.  He finds that payroll taxes are different from income taxes.  We are not sure why he thinks that.  He wants to repeal and replace the Internal Revenue Code (IRC) starting with repeal:

This year’s best tax bill, which Representative Bob Goodlatte (R., Va.) has introduced six times since 2006, is four pages long and contains fewer words (411) than the new Republican bill has pages. It could be titled “The ‘What You Wished For, Mitch Daniels’ Act.” It is titled, with almost unprecedented accuracy, the “Tax Code Termination Act.” It would nullify the existing 4 million-word code as of Dec. 31, 2021, and require that by July 4 of that year it must be replaced by a new one, which would necessarily be one designed on purpose.

We are 100% with George but we don’t see why we can’t improve it now.  Kevin Williamson at NRO is taking aim at Catherine Rampell’s analysis of the Republican tax proposal in the Washington Post.  Kevin has been distracted by The Donald but he has great fun in this article although he really ought to pick on an equal.  You should read it all.  He starts off:

The Republican tax plan may be kind of dumb, but if it were three times as dumb as it is, it would only be half as dumb as the Washington Post’s analysis of it.

So Kevin, like us, supports a zero corporate tax rate and seems to support eliminating the death tax.  We would like a different tax reform but we are willing to vote for this one.  Kevin and George don’t seem to be getting enough reform.  It seems likely that they will get the status quo.

Our take is that we think the bill is a big improvement on the status quo on business taxation and that is the crucial area for reform.  We think that because many conservative pundits have a low option of The Donald they will argue for great solutions and that means it is less likely that we will get a good solution.  At some point it will become a binary choice.  We hope that everyone makes the right choice when it does.