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Herman Cain, funded by Koch Bros, Says "Let the Little Guys Pay Taxes

by Linda Beale

Herman Cain, funded by Koch Bros, Says “Let the Little Guys Pay Taxes (not the uber-rich)

The New York Times’ “Room for Debate” ran a ‘mini-op-ed’ segment on Herman Cain’s 9-9-9 tax plan, called “What’s So Bad About a Flat Tax?” New York Times (Oct. 14, 2011) (with the subtitle: Isn’t Herman Cain’s ‘9-9-9’ plan essentially what fiscal conservatives and good government advocates have always wanted?). Yours Truly was one of those invited to participate: others include Kotlikoff, Ulbrich, and Gale.

I wrote, in A Plan for the Uber-Rich, that “there’s a lot wrong with flat taxes” (a term used to cover both the flat rate income tax and the flat-rate national sales tax ideas).

Either type of flat tax is regressive, in that it places a high tax burden on the most vulnerable at the lower income scales, for the simple reason that most lower income people use all of their income to pay for food, clothing, shelter and other consumption whereas members of the upper class have lots of cash to spare that they are unlikely ever to consume in their lifetimes. There are additional significant flaws in those tax schemes, like unrealistic economic assumptions, difficult transition paths, rosy revenue scenarios, misleading propaganda about rates and the probability that a national sales tax that cuts deeply into lower income finances will repress consumption that fuels small businesses.

Cain’s plan is even worse, since it:

  • exempts capital income from taxation
  • eliminates the estate tax
  • imposes a flat rate on wage income with no deductions (and apparently only some exemption for the poorest of the poor in certain ‘zones’ defined by the national government, so that if you are poor and live with lots of other poor people, you may not have to pay as much in taxes, but if you are poor and live where there aren’t enough poor people, tough luck)
  • shifts the burden from rich to poor since the rich will only pay on their compensation income and some small additional portion due to consumption taxes, while the poor will pay on all of their income and all of their income again in consumption
  • and continues the regressivity with some type of value-added tax that will also fall mostly on wage earners.

Added since the original positing is Dan Mitchell–conservative spokesperson for the Cato institute, who lauds the flat tax in “The Beauty of the Flat Tax” as “desirable” for its “simplicity, fairness, and transparency.”

  • Actually, the national sales tax version of the ‘flat tax’ supported by Mitchell is anything but simple. It results in the government taxing itself and counting the revenues as a gain. It calculates the tax rate in a way intended to be deceptive and likely to be far too low to raise the claimed amounts of revenues. Since it is a sales tax, we normally discuss that as a tax on top of the price, so a price of $100 and a tax at 23% means a final price including tax of $123. But the way the national sales tax has been discussed is different: they say a tax of 23%, but they calculate that rate by taking the ratio of the tax to the price plus tax–so the rate looks lower than it would look calculated as a ratio of tax to price! In fact, most objective analyses of a national sales tax have suggested that the rate (as a tax to price ratio) would be at least 40% and possibly 50% or even higher, meaning that something purchased foa $100 sales price would have an added national sales tax (not taking into account local and state sales taxes) of betwen $40 and $50 or more. And, worst of all, it will inevitably require an exemption for the poorest of the poor (if not as broad an exemption as currently permitted), thus requiring poor people to pay up front, retain all of their receipts and file a very complex return that will be a request for a refund of the tax. It will, though, be quite simple for the uberrich–they will not have to file income taxes and then would consume only a small amount of their income (and probably even there find all kinds of ways to get around paying their fair share of that limited tax burden). Further, part of the “simplicity” assumption about the tax is that you can get rid of any federal tax collection bureaucracy and that tax enforcement will be minimal. Both of those assumptions are either naive or intentionally misleading: the tax collection responsibilities will fall to the states (imposing significant costs, especially with state systems that still rely on income taxation) and the federal government will nonetheless have to retain a national enforcement system. Most experts say the opportunities for crookedness will be as big in the sales tax system as in any other tax system.
  • What about fairness? Well, fairness is one thing that the flat tax cannot offer. The rich get off super cheap, and the poor pay through the nose. Everybody pays only on what they consume (that is actually collected at the point of consumption), but the rich can choose whereas the poor consume all of their income. Accordingly the national sales tax is highly regressive, compared to our somewhat progressive system today. And with the elimination of the income tax and the estate tax, the role that the tax system plays in pushing against gross inequalities will be eliminated.
  • Transparency is missing as well. The points about simplicity should answer that question head on. It is not a transparent system at all, for much the same reasons that it is not a simple system.
    • Mitchell praises the “repeal of most forms of double taxation” in Cain’s 9-9-9 plan. What he is calling “double taxation” is the fact that people currently pay some tax (though too low) on income earned by capital as well as income earned by labor. Cain repeals all taxes on income earned by capital (and taxes income earned by wages particularly hard–at about 27%, with the “income” tax on wages only, the VAT-type business tax which deducts investments but not wages, and the sales tax (on consumption, which for most wageearners is on all or most of their wage income). But the tax on capital is NOT “more than one bite of the apple” as Mitchell asserts. If you invest 20 and that 20 earns 5 in interest, then the 5 in interest is new money that should be subject to tax, just as 5 earned in payment for labor is new money. The idea that any tax on income from capital is a double tax is just “free market” doubletalk to justify the elimination of taxes on the wealthy. Although economists like to say that “only people pay taxes” and use that to justify allocating all corporate income to shareholders and then asserting that shareholders pay the corporate taxes paid on that corporate income, that is an a priori decision that ignores the reality of perpetual life, managerial renttaking, and “personhood” of corporate quasi-sovereign entities in today’s “free market” globalized economy.
    • Mitchell then asserts that getting rid of deductions and “other distortions in the tax code” will mean that “people will make decisions on the basis of good economics rather than clever tax planning.” Wrong on two counts. First, most businesspeople still do not make most decisions based on tax planning. They want to make money in their business, and if a plan will make money, they will do that plan (even if it also means paying some taxes. Second, some deductions are merely common sense–for example, not allowing businesses a deduction for wages will encourage layoffs in favor of capital investments/robotics, which will accelerate job reduction in the US, not create jobs.

Today’s Associated Press revelations about Cain’s longtime ties to controversial Koch brothers’ group key to his surging presidential bid, AP (Oct. 16, 2011) show a harmonious fit between Cain’s 9-9-9 plan, Cain’s various comments scorning the non rich and his links to wealthy plutocratic anti-populists like David and Charles Koch, billionaires who “bankroll right-leaning causes through their group Americans for Prosperity” Id. (The Koch-funded group would be more aptly named America Run for the Super-Rich, since it lobbies for the right’s agenda of New Deal elimination and targeting of earned benefits of ordinary Americans through a campaign for zero taxation on capital, deregulation, militarization, and privatization .)

AFP tapped Cain as the public face of its “Prosperity Expansion Project,” and he traveled the country in 2005 and 2006 speaking to activists who were starting state-based AFP chapters from Wisconsin to Virginia. Through his AFP work he met Mark Block, a longtime Wisconsin Republican operative hired to lead that state’s AFP chapter in 2005 . . ..

The article notes the many people in Cain’s organization now or earlier with links to AFP, including Rich Lowrie, the accountant/investment manager who serves Cain as chief economic adviser.

And the Koch brothers have a quite clear record of wanting to abolish Social Security, all kinds of federal welfare, minimum wage laws, and similar programs intended to redress the economic imbalance that has grown in our economy since the advent of winner-take-all economics in the Reagan era.

originally published at

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Piling On William Keller

William Keller who until recently was executive editor of The New York Times asserts that Venezuela is a neighbor of Peru. A screenshot and a geography lesson are after the jump.

I am following Glenn Greenwald, via Brad DeLong and was scooped on breaking geography news by Tim Dickonson and DeLong commenter GvaGuy

The explanation is that this howler is the result of a hasty correction of another howler. As Keller explains

This article has been revised to reflect the following correction:

Correction: October 17, 2011

An earlier version of my column incorrectly referred to Brazil as one of the countries where leaders “have been flamboyantly consolidating their own power.” I meant Venezuela.

The new problem is that while Brazil’s leader retired after two terms with an 80% approval rating, Brazil does, in fact, border Peru. Keller’s line is that he mixed up Venezuela and Brazil, because, after all what’s the difference and one can’t expect the guy in charge of the New York Times to learn all the little details.

Shockingly, it was alleged by John McQuaid that Keller quietly corrected his first howler and only later reported that he had made a correction. There is no screen shot proving that the New York Times posted a corrected column without admitting that it had been corrected (we really really need a blogger ethics panel).

Links usually are enough when one links to a reputable source. However, if McQuaid’s (uncontested) accusation is accurate, the New York Times can not be considered a reputable source. I will have to save web pages from The New York Times and other dishonest rags if and when I link.

Second Keller howler

Photobucket

What I learned about geography from the New York Times

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Notes toward A Blog Post on Chrystia Freeland’s Interview of GE CEO Jeff Immelt

UPDATE NOTE: The following isn’t complete. Many of my notes from the latter part of today’s interview can be found on Twitter, hashtagged #Immelt. At the moment, I both (1) don’t have easy access to them and (2) have other things that need to be done. Feel free to look there, and/or mention anything you want discussed here.)

The fake “news” of the day will be Immelt’s disparaging of America and Americans.

The semi-real news of the day will be that Immelt threw President Obama under the bus four or five times before finally saying that he “respects the President and respects the Presidency.” While this is progress from Jack Welch thinking that Buying George W. Bush the office meant that his firm would be exempted from cleaning up the PCBs GE dropped into the Hudson River (it did result in a nine-year delay and the likelihood that taxpayers, not GE, will foot the large majority of the bill), it’s not exactly a ringing endorsement of the man who gave us the Unforced Error of Simpson-Bowles.

Jeff Immelt, unlike Henry Aaron, believes that Simpson-Bowles is what we need for “growth.”

Jeff Immelt admits that, while the Board of Directors has some input, CEO pay is all about “getting what you believe you deserve.”

Jeff Immelt declares that if unemployment gets back down to 6%, no one will care about his being paid $21.5 million last year (about 40% of which appears to be an increase in his pension benefits; other GE pension contributors haven’t been so fortunate) to continue running GE into the ground to a standstill.

Jeff Immelt says that the US is 25th in math and 26th in science. (He’s wrong on the latter; we’re 17th.) He then spewed some horseshit about the “crisis” of Germans believing that it’s easier to find skilled workers in Mexico than it is in the United States.

Why do I call this horseshit? Well, let’s look at the two countries compared by Immeltian standards (link is PDF):

There are two three possibly-reasonable explanations. Either (1) there are a lot of Stupid Germans or (2) the places where Germans trying to hire are Significant Laggard or “Business Friendly, School Crappy” States.

Oops, or (3) the Germans pwnd Jeff Immelt, who then didn’t check the data.

And that’s without noting that, if you adjust for demographic issues such as poverty or consider racial inequalities, the U.S. is right at the top, no matter what Jeff Immelt says.

Otherwise, mostly, Jeff Immelt lies through his teeth, and Chrystia Freeland—who was tougher on George Soros last year—lets him get away with saying it.

It is left as an exercise whether this is because her boss openly declaring this was going to be a powder-puff interview (“I’m a big fan” of a man who has lost 60% of shareholder value for his investors over the past ten years) or because she decided to let Immelt hang himself. (I know which way I’m betting.)

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Super Committee and GME funding

By Michael Halasy

Super Committee and GME funding

SO, about that super committee. Surely you remember, the gang of 12 that was created by the showdown over the debt ceiling this summer. Well, they’re hard at work but among the proposals out there, is one that is causing some grave concerns.

As a health workforce researcher, I understand implicitly the difficulties that lie ahead and the underlying shortage of physicians that will worsen dramatically by 2025. Current estimates suggest a shortage of over a 130,000 physicians by that time. Many, if not most, do not realize that physician training, at least the post graduate residency phase, is paid for by CMS (Center for Medicare Services).

Currently, as we all know, if the super committee does nothing, there will be an across the board 2% cut to all federal discretionary spending. Some of the other proposals are a little more concerning. In 2010, direct GME expenses totaled 9.5 billion. IME or Indirect Medical Education expenses totaled an additional 6 billion.
IME represents an additional 5.5 % payment to teaching hospitals, as it is understood that they not only teach other health professionals, but that there may be extra costs associated with education. Current proposals are to cut that rate in half (first proposed by Simpson-Bowles) to 2.2%. Among other proposals which include Home Health Co-Pays, SNF (skilled nursing facility) shared payments, raising Medicare eligibility to the age of 67, lies a proposal by the House Ways and Means Committee to cut GME funding by 15 billion over the next ten years, or a 15.7% cut. It is unknown at this time if the Committee will pursue this, but this is problematic.

Adding to the problem is the current GME Cap placed in effect in 1997, when several organizations were predicting an oversupply of physicians. This is not our current concern. This cap is problematic, and with the current budgetary concerns has no chance of changing. By 2015, we will have had over a 30% increase in medical school graduates from 2000. There is significant concern that also by 2015, we will not have enough GME residency slots for all US graduates, without even mentioning the several thousand US citizens who go to foreign medical schools every year.

States have already reduced the amount of money in the GME system, with only 41 states participating, and contributing a little over 3 billion annually. Nine additional states are now likely to opt out as well.

We need a serious look at discretionary spending, but this will only compound and weaken an already distressed healthcare system. I hope that the Super Committee strongly considers this, and looks to other alternatives.

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"Free trade" and the Tea Party Congress

An op-ed in the Washington Post points to an idea worth exploring:

For all the talk of populist foment – the Tea Party on the right and the new Occupy Wall Street movement on the left – business interests remain firmly in control. Forced to choose between their voters and their donors, lawmakers don’t hesitate before choosing the latter.

There is little doubt about where the Tea Party faithful stands on free trade. A year ago, a Wall Street Journal-NBC News poll found that 61 percent of Tea Party supporters thought free-trade agreements had hurt the country, compared to 53 percent of Americans overall who held that view. Shortly after that, a Pew Research Center poll found that only 24 percent of Tea Party supporters thought free-trade agreements were good for America.

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Joined the GE Capital Board in 1997

The cause of that “small tax bill”:

Immelt said a small tax bill for 2010 was due to more than $30 billion in losses related to GE’s financial services business during the financial crisis. In 2009, GE Capital’s losses were so large that it company overall lost money on its U.S. operations.

GE’s federal taxes, Immelt said, would rise as the performance of its financial arm improves. [emphasis mine]

Heckuva job, Jeffrey.

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WHAT KOTLIKOFF (REALLY) SAID

by Dale Coberly

WHAT KOTLIKOFF (REALLY) SAID

Larry Kotlikoff responded to my post in comments (Social Security: It’s Just Math). by saying that I (coberly) “wrote quite a lot about something I [Kotlikoff] didn’t really say.” He has a point. I based my speculations about where he obtained his misleading numbers on an NPR summary of their interview with him. Kotlikoff says my speculations were wrong. He actually got his misleading numbers by including “Medicare plus Medicaid plus Social Security expenditures per adult.”

I still don’t know exactly how he derived his numbers, but I remain quite certain that talking about SocialSecurityMedicareandMedicaid in one mouthful is grossly misleading. Social Security has nothing to do with any deficits as it is paid for by the people who will get the benefits. IF those people are going to want higher benefits in the future to keep up with their longer life expectancy and higher standard of living, they would have to raise their own payroll tax about one half of one tenth of one percent, about 40 cents per week in today’s terms, each year while their incomes are projected to be rising over one full percent per year, or eight dollars per week per year in today’s terms. These numbers are derived directly from the SSA Trustees Report, and CBO options numbers two and three.

Medicare and Medicaid, by contrast, depend on the cost of medical care. Costs which we are going to have to pay, if we want the medical care, even if we cut Medicare and Medicaid to zero. We would just end up paying through private insurance, which would tend to mean that the old and poor would not get medical care… not because “we” were not paying for “their” care, but because we were not allowed to pay in advance for our own care using a system that protects our money from loss due to inflation, including “medical inflation.”

Medicare is NOT the young paying for the old. It is the young paying for their own expected costs in old age while they are young and healthy and are making money. As for Medicaid, costs depend on both the costs of medical care and the number of people in poverty in this country. Kotlikoff appears to be suggesting that “the young” could save themselves a lot of money if they just didn’t worry about their own needs when they get old, and didn’t think there was any reason to care for the poor and sick. Neither compassion nor an enlightened self interest would be allowed to suggest to the young that they might become old or sick or poor themselves, or that they would ever profit from living in a nation in which the poor and the sick can expect to be helped to return to being strong and good employees, good customers, or even good soldiers.

Here is a transcript of what Kotlikoff really said on NPR. I offer a few comments interlinear.

August 6, 2011 –

DAVID GREENE, host: Now, S&P says this downgrade might not even be the last one if the nation’s debt keeps ballooning. So how to turn this around? Listen to the prescription from Boston University economist Laurence Kotlikoff.

LAURENCE KOTLIKOFF: What you have to do is either immediately and permanently raise taxes by about two-thirds, or immediately and permanently cut every dollar of spending by 40 percent forever. So I’m talking about cutting Medicare benefits, Medicaid, Social Security, defense spending, you name it, by 40 percent forever, starting today. That’s what the CBO’s numbers say we have an absolutely enormous problem facing us.

Again, Kotlikoff prefers the big hammer approach. We are not allowed any subtlety in deciding what programs to cut, or what taxes to raise. If taxes are currently about 18% of GDP a two thirds raise would raise them to 30%. This looks a bit scary, but if we look hard at what we are getting for the money, and what we can get with the money we have left after paying taxes, we COULD decide that it is just the price we have to pay to provide the infrastructure that protects our ability to make money in the first place. I don’t know if we would feel safe in a country with a 40% smaller defense budget. And I am sure that not allowing the people to pay more than 60% of what it would cost them to provide an adequate retirement would not be really smart financial planning.

GREENE: Big tax increases, huge cuts to military spending and entitlement programs – good luck getting that through Congress – and the problem Kotlikoff says is a whole lot bigger than this $14 debt we’ve been talking about.
KOTLIKOFF: If you add up all the promises that have been made for spending obligations, including defense expenditures, and you subtract off all the taxes that we expect to collect, the difference is 211 trillion. That’s the fiscal gap. That’s our true indebtedness.
GREENE: It’s a big number. Why aren’t we hearing more about that as these big debates and all the drama go on in Washington?

It is indeed a big number. Kotlikoff needs to explain where he got it from. Then we can look at it and see if it makes any sense.

KOTLIKOFF: Well, the politicians have chosen their language carefully to keep most of the problem off the books, and they’ve done this for decades. So this is Enron accounting to the 10th power, I mean, millionth power, actually

. I see. It’s a secret. Been going on for decades. And we never knew. I don’t know if Kotlikoff has any idea what the “millionth power” means, but given his other numbers, I think he just likes the scary sound of it.

GREENE: Quite a strong accusation.
KOTLIKOFF: Well, it’s, you know, it’s true. Why are these guys thinking about balancing the budget? They should try and think about our long-term fiscal problems. We’ve got 78 million baby boomers who are poised to collect, in about 15 to 20 years, about $40,000 per person. Multiply 78 million by 40,000, you’re talking about more than $3 trillion a year in today’s dollars just to give to a portion of the population. That’s an enormous bill that’s overhanging our heads, and Congress isn’t focused on it.

This is the quote I addressed in my earlier post. Kotlikoff needs to explain in detail where he gets his numbers.

But more than that we need to understand that Social Security is not something “we” “give” to “a portion of the population.” Social Security is “us” paying for our own costs in advance of the time we will BE that “portion of the population. This is also true about Medicare, though it’s not so obvious in the way Medicare is financed.

As for Medicaid, well, as long as “we” know that we will never be in that “portion of the population” or derive any benefit from anybody who is,or was, then I guess there is no reason on earth why “we” should set a “portion” of our money aside to take care of those problems. But if we know it is OUR money for our own potential needs, it would be sensible to look at ways to control costs. Kotlikoff appears to think the best way to control the future cost of living is to cut off our own heads now.

GREENE: So Americans just watch this drama play out in Washington. I mean, is your message to them that this was all just a useless process?
KOTLIKOFF: This is a sideshow. The Democrats and Republicans have been having a food fight for decades. Underneath that facade of conflict, what’s really going on is that older generations are taking from young generations on a ongoing basis. And we’ve consistently done too little, too late, looked too short-term. Well, guess what? You can’t keep putting off these problems. And we’ve used language to disguise what’s really going on here, which is this mess of Ponzi scheme.

I would be the last to claim that the Congress is more than a sideshow. But I hope I have made clear to you why it is national suicide to divide ourselves into “the younger” versus “the older” generations. We will all become “older” in time. Meanwhile, even if enlightened self interest does not teach us to pay in advance for at least enough of our old age to meed basic needs, in a program that can guarantee our money will not disappear due to inflation or a bad day on the stock market, we might at least remember that the older generation had something to do with feeding and clothing and housing and educating us, and defending the country and building the infrastructure that makes it possible for us to make more money, with less work, than the now old could when they were young. Teaching us to think of our elders as “the enemy” is teaching us a kind of mental disease that will return us to the law of the jungle and a life that is “solitary, poor, nasty, brutal, and short. It is the devil’s agenda.

GREENE: We’ve been speaking to Laurence Kotlikoff, professor of economics at Boston University. He joined us from member station WBUR in Boston. Thank you so much, professor.
KOTLIKOFF: My pleasure.

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Economists:Entrepreneurs::Blind Men:Interior Decorators

As part of my continuing series of Analogies that Should Be on the SAT, this is what Famous Entrepreneurs do (h/t Brad DeLong):

In the IBM PC era, Steve drove innovation forward with the Macintosh. This, like the Apple II, was squarely aimed at expanding the use of PCs to everyone, the “computer for the rest of us.” Everyone now knows that this was innovating too fast, and that cheaper, duller IBM machines running Microsoft’s dull clone of an earlier operating system would become the standard. But do you know how Steve changed when he realized that “the rest of us” were not going to buy the Mac? He learned that the most important early customers for Macs were corporate marketing departments (those graphics!) and worked hard to create, as he told me not long after, “the best computer company for those corporate marketers we can.”

This is what Nobel Prize-winning economists do (h/t Noah):

As Thomas J. Sargent, one of the leading proponents of the Rational Expectations Hypothesis recounted, “after about five years of doing [standard statistical tests] on rational expectations models, I recall Bob Lucas and Ed Prescott both telling me that those tests were rejecting too many good models.

“Real entrepreneurs don’t wallow in vision, they sell product.” “Real” economists, otoh…

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Roman Riot

Your intrepid if somewhat tardy correspondent confirms the number one story at www.washingtonpost.com. The OWS demonstration in Rome provided cover for people who like to smash and burn things (the black block). This is the line of Rome’s right wing mayor and the right wing minister of the interior.

Being late, as usual, I missed the demonstration and the violence, but I do have photos of the damage and a spent tear gas canister.

update: I went to Pzza San Giovanni to demonstrate but got there when more punctual demonstrators were already leaving.
Also typo corrected.

update II: In my post and in my comment I spoke ironically of the left’s standard line that the vandals were infiltrators and clearly separate from decent protesters like us (note I am a member of the left and was mocking myself). However, the evidence is very strong that the smashers and burners were clearly a different group than the mass of ordinary protesters. You should note I didn’t say “nonviolent protesters” as it seems that some ordinary protesters used violence, against the black block vandals

“quella cinquantina di “neri” che, per altro, il corteo ha isolato e, in qualche caso, anche aggredito a bottigliate.” — Carlo Bonini that is “those 50 or so black clad hooligans who, by the way, the crowd isolated and, in a few cases, attacked with thrown bottles.” As I reported last night, I missed the action (late as usual) but video shows the same all black costumes, covered faces and helmets as the gangs which did massive property damage in Genoa during a G-8 meeting some years ago. It’s hard to figure out what these guys think they are doing, but their symbol is the A in a circle of punk/anarchy not the hammer and sickle which is still the symbol of the Italian far left.

Needless to say Carlo Bonini doesn’t claim that all the damage was done by 50 or so hooligans (they would have to be super hooligans). His line is that not so hard core violent kids joined in the fun. He is a very leading Italian investigative journalist. He is also not so slightly left of center and clearly determined to blame the police/caribinieri — in this case for being soft on anarcho-hooliganism. But his claims of fact are reliable and confirmed by video.

The fairly famous burnt paddy wagon

A dumpster barricade


They don’t like McDonalds

Fire

water

smoke

cobblestones

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