Relevant and even prescient commentary on news, politics and the economy.

Embassy building is big bucks in ME


Pentagon’s list shows 865 military bases worldwide, plus bases in Iraq and Afghanistan. There is current funding to build a giant fortress in Islamabad, Pakistan on the order of the ’embassy’ in Iraq to the tune of 785 million USD (corrected number..rdan) (cost overuns excluded but guanteed so perhaps about 1 billion USD). The US spends about 102 billion/year USD on maintaining bases throughout the world.

Could someone explain to me the rational for this kind of military base/embassy? How does it accomplish whatever goals it is designed for?

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An imaginary conversation with my family doctor

by reader Denis
(lots of links)

Me: $1.2 million is the average income for top 1 percentile households (2006 figure). You must have made at least a couple of million last year, right? I mean you are a doctor – and you are with Columbia Presbyterian hospital.

Doctor Levine: “[Laughs].”

Me: You mean that the 15% of share of income (correction from GDP) that slipped out of the pockets of bottom 90 percentile earners and into the buckets of top 1 percentile earners over the past few decades slipped right past you doctors?

Doctor Levine: “[Smiles ruefully].”

Me: Still, with the US having 135% of the per capita GDP of comparable modern economies we should no trouble devoting 15% of GDP [.15 X 1.35 = .2025] to health care, right (note parallel with 15% of income shifted to pockets of folks who earn lots more than doctors)? Unless we have too deeply gutted much of our workforce’s pay – with something like 30% of families living below the poverty line.

A plausible poverty line for a family of three (on the “minimum needs” table on p.44 of the 2001 book Raise the Floor) is $33,345 in 2008 dollars — if health care is otherwise covered(not the $20,000 government calculation based on three times the price of an emergency diet – premiums alone exceed $12,000 yr.!). If you look at the Census, median family income is about $62,000. The real minimum needs line would hover somewhere around 37 percentile – 37 percentile if we didn’t count families with paid health insurance. Knock off 7 points (guesstimate) for families on the top end with paid insurance (not those on the bottom with Medicaid) and we can reckon – it turns out very reliably — about 30% of American families’ incomes are below minimum needs without government helps like food stamps.

Sounds like a quarter of the country must be earning less than the minimum wage or something equally crazy, right? Nearly a quarter of the workforce is earning less than the minimum wage – if we are talking about Lyndon Johnson’s 1968 minimum wage of $10/hr [$1.60/hr adjusted] – back when average income was half today’s. (FYI, tech improvement, like how much better today’s Timex is, generally not counted in inflation estimates.)

Doctor Levine: “How can something like this happen; why can’t we straighten it out?”

We can straighten out our labor market any time we wish – nothing like this happens anywhere else in the first-world. Simply institute the same labor market structure in place in virtually every modern economy (and many not so modern like Argentina and Indonesia): sector-wide labor agreements – wherein everybody with the same job description within the same locale works under identical collectively bargained terms with all the different firms – legislation required. [Note: check out French-Canadian “lite” version.]

Medical Doctor (not psychiatrist) Levine: What is holding back our big wig progressives from pushing – or at least mentioning out loud – such apparently badly needed and promisingly efficacious labor market changes?

Me: Something I call “pack check.” Males instinctively check in with what everybody else is thinking on any economic or political – or metaphorical “hunting pack” — issue. And as long as they stay fix-focused on what everybody else is thinking it can seem impossible to them to make headway in an entirely new policy direction: so many different people require so many different approaches – and whom did we ever convert before with our most reasonable (we thought) arguments. Impostavazoo!

Sociobiology time – my lay opinion anyway: chasing wild pigs (what human males evolved doing) required a kind of perfect awareness of what every other hunting pack member was doing (pigs, as anyone who owns one can tell you, are not stupid) – was an essential survival mechanism. Without awareness of the need to break free from this innate focus-on-everybody-else’s-focus, at least for short breaks, all the economic male geeks in all the world may never initiate any new solution to the uniquely lop-side bargaining power ruining the American labor market – nor anything else – no matter how obviously practical, no matter how desperately (!) needed.

Human males are not so much pig headed as we are “pig-chase” headed.

Doctor Levine: “[Makes excuse; finally escapes].”

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Fox Noise on Canadian private insurance boom

By: Divorced one like Bush

This is a heads up. Fox news has a report out that there is a rise in private insurance activity in Canada. The article suggests that it is because of all the wait time that people are tired of do to a shortage of doctors and possibly the low fees. And, that may be true, especially being there was a Quebec Supreme Court ruling on it.

If you google the headline, you will find many a posting touting this article as a sort of proof that the Canadian system really is bad stuff.

But, and with Fox there is always a butt, what they do not tell you is that their article is based on a report in the CMAJ – JAMC article from 2008: Canada Health Act breaches are being ignored, pro-medicare groups charge

Private for-profit medical clinics are proliferating across the country, according to a detailed report by pro-medicare groups.
The number of such clinics has increased significantly over the past 5 years and there’s evidence “to suspect that 89 for-profit clinics in 5 provinces appear to be in breach of the Canada Health Act,” states the 169-page Eroding Public Medicare: Lessons and Consequences of For-Profit Health Care Across Canada report.
But federal and provincial officials “have fallen down in their responsibility to protect patients against extra billing and 2-tier care,” says report author Natalie Mehra, director of the Ontario Health Coalition.

The Fox article quotes the same Natalie, but not those quotes.

The CMAJ article continues:

Researchers also found evidence of physicians practising in hospitals but referring patients to their private for-profit businesses, where medically necessary services would be provided more quickly, for an out-of-pocket fee…

So, some illegal stuff is going on (boom in private activity), the government was suppose to do something about it, but it didn’t. Can you say “conservative, Milton Freedmon governance”?


In 1995, then-federal health minister Diane Marleau issued a policy interpretation letter calling on provinces to introduce “regulatory frameworks” to govern the operation of private clinics, and make illegal the “facility fees” charged by private clinics which provide publicly-insured services.

Basically as I read the real article, the boom is actually starting to create what we have here in the USA. A two class society regarding health care access with rising expenditures as doc’s have the market opportunity to charge more via cash deals. Kind of a black market situation? Is the solution to be more like us, or is the solution to solve the bottle neck of not enough doctors? Or maybe the problem is that once you let people who can pay for them self do so (choice?), you begin the destruction of what was a system that treated everyone equally. That is, for a basic human need such as health care, everyone is of the same stature.

We have a great opportunity here with Canada. What happened in our banking system is what has happened to Canada’s health care funding system. Same ideology implimented, same distruction for the benefit of the few.

We are seeing the effects of what happens when the ideology of individual freedom is made predominat in an economic system that assured equality regarding basic needs. That is the key: Basic Needs. Not wants, not money beyond autonomous consumption, but money at autonomous consumption. It is libertarian economics vs Jefferson democracy economics. Personal economic freedom for needs funnels down the benefits of human progress to fewer people instead of expanding the benefits to every more people.

There was one letter responding to the CMAJ article. An open letter to the minister of healthPaul C. Hébert, MD MHSc, Editor-in-Chief

After more than a decade, the health system has not fully recovered from the last round of federal cuts in the mid-1990s. The large reduction of about 10% in federal funding for health forced provincial governments to axe many health care programs, close some hospitals and reduce the number of beds in the remaining institutions, as well as slash training positions for physicians and other health care providers… Provincial governments have become much more autonomous and, in many instances, unwilling to adopt new programs and standards in the interest of all Canadians. The ongoing jurisdictional battle between federal and provincial governments, whether over First Nations health, public health, access to care and expensive medications or the setting of national standards, suggests that the federal government has little influence on Canada’s health systems. The ability of the provinces to offer private services1 and mount administrative barriers to portability of services without consequences is a constant reminder of this weakened federal authority…Canada’s health care systems seem to be moving further and further away from fulfilling the promise of the Canada Health Act.

The reason for limited progress is an erosion of national leadership in health. Successive federal governments have either decreased investments or, through inaction, allowed health to be a purely provincial matter. Despite the importance of health in the minds of the voting public, we remain very concerned that health has slipped entirely off the federal agenda.

Get it? What is actually happening in Canada is the results of the Grover Norquist training manual for conservative governance, the goal of which is the drowning of anything that suggests a social conscience.

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SILOs –more action needed?

Tax advantaged “sale-leasebacks” with strapped-for-cash municipalities (SILOs, in the ever-present tax acronym set) came back to light when the Washington Metro train crashed a week ago. The cars were ones that were involved in the metro authority’s SILO deals with various banks, and the authority didn’t have any spare cash left to fund replacements. See this A Taxing Matter posting on the Metro SILOs, Jun 25, 2009.

I won’t rehash the entire discussion of SILOs covered there. Just note that the transit SILO deals were contrived to permit banks to “buy” the federal income tax depreciation deductions on municipal equipment. The municipalites couldn’t use the deductions, since municipalities are tax-exempt entities. The buying corporations were subject to US tax (usually, a bank) and they were looking for every way possible to avoid paying tax–they would essentially pay a fee to the municipalities, sharing part of their tax savings, for serving as an accommodation party in these deals. They “purchased” the municipalities’ property with nonrecourse debt, and then had “lease income” that was offset by both interest deductions and depreciation deductions, generating artificial losses from the accelerated depreciation. Most of the purchase price was set aside to defease the seller’s obligation under the lease, with the excess the fee for accommodating the tax shelter.

Jim Lehrer covered transit agency SILOs in the March NewsHour, depicting many of the transit agencies as motivated by their desperate need for capital–and encouraged by the federal Dept. of Transportation to use these means to get some. So there is a vicious double circle of irony here, that as states and localities cut taxes during the GOP years, under the flawed assumption that lower taxes means higher revenues, the states and municipalities also cut back on the funding needed by these important public service agencies, and an arm of the federal government encouraged these transit agencies to enter these deals, and at least 30 of them did, serving as accommodation parties in tax shelter deals with banks, so that banks would pay even less taxes than they already did.

Future SILOs were generally undone by new section 470, one of the few revenue raising provisions in the 2004 tax act. (The 2004 Act otherwise amounted to a pile of tax breaks for US corporations, such as the rate cut on repatriating offshore profits. It was misleadingly labeled the “American Jobs Creation Act” to signal the purported justification for all the corporate tax breaks. It didn’t lead to the creation of many jobs.) The new section disallowed to U.S. taxpayers a “tax-exempt loss”, defined as the excess of deductions other than interest and interest deductions allocable to tax exempt use property over the aggregate income from the property. Exceptions allowed certain “true” leases–essentially, ones in which the obligation of the seller-renter had not been defeased by the payment from the buyer and where the buyer had actually put some equity into the deal (the provision requires only 20% of genuine, at-risk equity). There are fewer tax benefits to true leases, so even with the exception, the provision deters leasing deals.

One hitch–the act only applied prospectively, and the transit deals (just one of the varieties of SILOs that were being done at the time of the 2004 change) got special treatment, in that any deals in the pipeline were allowed to be grandfathered in as long as they were done by 2006!

The IRS pursued the old deals with pre-2004 Act tools and won SILO (and LILO–the earlier “lease in, lease out” deals) cases against Fifth Third Bank, BB&T, PNC and other banks. See, e.g., IRS Wins AWG SILO Tax Shelter Case, TaxProf Blog (May 28, 2008) (dealing with the Ohio court’s decision in 2008-1 USTC 50,370, in favor of the IRS in a SILO case involving two US national banks’ “purchase”, with nonrecourse loans from German banks whose proceeds were used by the “seller” to defease the lease obligation, of a German waste facility used to acquire beneficial tax deductions); Ohio Judge Rejects Tax Claims on $423 Million Alleged Purchase of German Facility Made by Cleveland & Pittsburgh-Based Banks, DOJ (May 30, 2008); DOJ, Ohio Jury Finds Cincinnati-based Bank not Entitled to $5.6 Million Tax Refund (LILO transctions); BB&T Corp, 2008-1 USTC 50,306 (4th Cir.) (striking down tax treatment of financial service company’s lease of Swedish wood-pulp manufacturing equipment as a LILO shelter); DOJ, Statement of Assistant Attorney General Nathan J. Hochman on Today’s Decision in BB&T Corporation v. United States (Apr. 29, 2008).

After the court victories, the IRS offered a SILO settlement for these deals that permitted them to keep 20% of their claimed tax losses and waived the penalties, if they terminated the transactions. IRS Commissioner’s Remarks Regarding LILO/SILO Settlement Initiative (Aug. 6, 2008); Donmoyer, IRS Offers to Settle 45 leasing Tax-Shelter Disputes, (Aug. 6, 2008); Service Launces LILO, SILO Settlement Initiative, J. Acct. (Oct. 13, 2008). It later announced that “hundreds of taxpayers settled similar cases involving tens of billions of dollars.” DOJ, Justice Department Highlights FY 2008 Tax Enforcement Results (Apr. 13, 2009). On leaving office, Korb statedthat “taxpayers representing over 80 percent of the dollars involved have elected to take advantage of the settlement initiative.” See Korb Interview. (Dec. 19, 2008).

The settlement offer required taxpayers to terminate the transactions by Dec. 31, 2008, else they would be deemed terminated by that date, with taxpayers still able to claim the partial loss benefit through the actual termination date if they terminated the transaction by Dec. 31, 2010. That’s a fairly strong incentive for termination, but the municipalities may be on the hook for hefty termination payments under their contracts. Even worse, the AIG situation provided a perfect trigger for causing a technical default to apply. AIG guaranteed these deals, so when its credit rating went down, the transit agencies are in technical default and liable for hefty penalty payments. (see NewsHour video, above).

There are real problems here, including the idea of one agency of the government supporting its “clients” (transit agents of municipalities) entering into deals like this that result in corporate tax cheats robbing the government of important revenues. Another problem is the idea of the banks that were instrumental in causing the fiscal crisis–by risky, speculative behavior that disregarded the systemic risks–using AIG’s collapse because of that fiscal mess as an excuse to get municipalities that are especially cash-strapped because of the fiscal crisis (and finding their ability to borrow or get tax revenues severely restricted) to pay over large penalty amounts under their shelter contracts. It seems like an unfair windfall for tax cheating Big Banks at the cost of the people.

And of course, just extending the 2004 provision to make grandfathered SILO/LILO transactions illegitimate and their tax deductions disallowed doesn’t solve this problem, since these are windfalls that the tax cheaters would get under their “lease” contracts.

Rep. Menendez of NJ has proposed a potential solution–the “Close the SILO/LILO Loophole Act” S. 1341, introduced in late June. His bill, he says, would “help protect WMATA and other transit agencies who are being threatened by banks seeking to gain a windfall from the current economic climate while potentially putting transit agencies at risk.” See press release, As Lease-Back Deals Are Raaised as an Issue in Metro Crash, Menendez Says legislation Can help Unwind Deals, (Jun 26, 2009); Davis, Bill Would Tax Banks that Sue Agencies , Star Ledger (Jun 24, 2009); Letter from Menendez to Hoyer (Jun 26, 2009) (noting a need to “protect transit agencies from banks who are seeking to exploit a technicality that would result in agencies having to pay banks millions of dollars that could otherwise be used to shore up equipment and ensure safe operations, even though they have not missed a single payment to the bank”). The bill imposes an excise tax equal to 100% of any “ineligible amount” collected by “any person other than a SILO/LILO lessee” as a party to a SILO/LILO transaction. Ineligible amounts are proceeds from terminations, rescissions, or remedial actions in excess of those under defeasance arrangements. The bill also would deny deductions for attorney fees and other costs attributable to seeking to recover ineligible amounts.

It’s messy, but it does end up with the right results, it seems. I note, though, that there are no additional co-sponsors at this time. Doesn’t look like Congress is hopping on the bandwagon.

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Obama Economic Forecast

The right is having a lot of fun commenting about the economic forecast by the Obama team being too optimistic.


I guess they are right, Obama along with everyone else has massively underestimated the damage Team Bush did to our economy.

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Kennedy-Dodd HELP Bill with CBO Scoring

by Bruce Webb

I haven’t gone through the text or the numbers, make of this what you will. But at least we can start with some actual numbers attached.
McClatchy: Kennedy-Dodd unveil cheaper health care bill

Bill Text: SHORTTITLE.—This Act may be cited as the ‘‘Affordable Health Choices Act”

CBO Score

Excerpts and updates may be added under the fold as discussion goes on.

Note 1: Read these tables with care! Page 1 compares currently non-elderly insured to projected non-elderly insured. This is how you end up with 97% of Americans with insurance in 2019 even as that drops to only 90% for non-elderly American citizens. 21 34 million uninsured still seems too high to me but as footnote ‘d’ indicates this includes people eligible for but not enrolled in Medicaid.

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