Three charts one story

The Congressional Budget Office released a report on "tax expenditures" which purports to show one thing (the skewing of benefits to the highest quintiles in income) but actually shows something quite different.  This is not to say that the data is wrong - merely that it fails to account for a key fact.

The WP immediately seized on the story.  (Gee what a surprise.)

You may remember that Tax Expenditure theory is one of those delightful Washington creations which purports to measure the loss in tax revenue that is created by allowing taxpayers to exclude certain parts of income from their tax returns through deductions and credits and income exclusions.   For example, a large one (originally created when WWII wage and price limits were cutting into employment) is the exclusion from income of health benefits.   Many have distortive effects.   The health care system would probably be much better if we did not have that exclusion.  Tax Expenditure Theory was invented in large part by a former Assistant Secretary for Tax Policy who thought that rich folks did not pay enough tax.  It was one of those insider debates that is deceptively simple, but ultimately not very accurate.   The arithmetic is correct, but the thinking is distorted.

 The problem with these types of concepts was first pointed out by Adam Smith in the Theory of Moral Sentiments.  (Emphasis added)

"The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it."

Ultimately, while we may think we can calculate the effects of structural elements of the tax code - those calculations may have no ultimate relation to actual human behavior.  So here are the charts - the first two from the CBO report.   The first, with seeming great precision, seems to show that the highest 20% of taxpayers reap enormous benefits from the tax expenditures.

 The second attempts to show the distribution of benefits by type of of preference - exclusions from income, preferential treatment of income (for example capital gains) or tax credits.

The problem with all this seeming precision is that it fails to account for the ultimate structure of the how the income tax ultimately works.   In spite of these preferences the American tax system has two characteristics that are key.   First, it is highly progressive.  The distribution of tax payments skews significantly to higher income taxpayers.   The Tax Foundation has the most reliable data on who actually pays income tax.  Here is a chart divided by income.

Note the top 1% of taxpayers have a bit more than 18% of the adjusted gross income but pay 37% of the tax burden - so even if the CBO numbers are correct, they may not be important. The bottom 50% have just under 12% of the income and pay 2.4% of the tax.   By any measure that is a progressive system.

But wait, there is more.  According to the latest IRS data about 70% of the taxpayers do not itemize.   While it can be argued that some exclusions (like the one for health insurance) are accounted for in this data you will notice that those are skewed relatively evenly.   But the rest of the provisions in the code are supposed to be bundled up in the Standard Deduction for those who choose not to itemize.   But the CBO report does not seem to take that into account.  One final comment, about half the taxpayers pay no income tax - so the distribution of tax expenditures has no effect. But again the report ignores that detail.

After reading the report one is left with the question - so what?   Should the tax system be simplified?  Absolutely!   But do tax expenditures materially distort the fundamental progressive nature of the tax system?  Probably not.

Apples and Baloney

Some lefty think tank released a report yesterday which argued that among a large group of well off nations we are the only one which does not guarantee paid vacation days.   The Center for Economic and Policy Research claims on its website that it was established "in 1999 to promote democratic debate on the most important economic and social issues that affect people's lives. In order for citizens to effectively exercise their voices in a democracy, they should be informed about the problems and choices that they face. CEPR is committed to presenting issues in an accurate and understandable manner, so that the public is better prepared to choose among the various policy options."   If this report is an example of accuracy, then they are still learning their job.  The graph is pretty unfortunately it is wrong.

If you read the entire report you find that the report misses the substance of both state and federal law.   For example, the Fair Labor Standards Act requires overtime pay for labor in excess of 40 hours per week.   Many states modify the FSLA provision so that the bonus rate applies after 8 hours in a day (see for example the provisions of California's AB 60).   There are also a whole series of provisions in federal and state law which offer leave, paid and unpaid (again varying by state law) for things like family and bereavement.   Obviously, none of that is vacation time.

The report also argues that there is discrimination based on income.   Higher paid employees get more vacation.  It claims that only 49% of low wage workers get paid vacation.  They laud the EUs "working time directive" which establishes minimum requirements in law that EU members must follow.   Many of those provisions are covered in labor contracts in the US.  

The most important tradeoff here is whether having a federal standard would actually improve the lives of lower paid workers.    Most large employers in the US (certainly many national companies that hire lots of hourly workers) offer some kind of vacation accrual and holiday pay as a way to stay competitive.   For example, McDonalds offers 10 days a year for all but the most marginal employees.   They also offer sabbaticals and bonus paid weeks off for every five years of service.  Walmart which is often a target of the left, on a page called For Respect, offers vacation accruals for all employees.   Vacation accruals increase as a person works more and as their time with the company increases.

Perhaps the way that the 49% was calculated was on number of employees not on hours worked.   Even then the statistic lack validity.   The tradeoff here is that lack of a federal standard most likely assures more opportunities for people entering the workforce and for the most casual seasonal workers.  Does the CEPR actually think that is a bad thing?

Doc Watson - Milestones

This Spring Kickstarter had a project to help produce a set of previously unreleased recordings by Doc Watson - there are a total of 92 songs in the set.  They are a very interesting mix of family recordings and material that had not been on any other albums.   The project also includes a book put together by Doc's daughter, Nancy, which includes a lot of family photographs.   It is a unique history of Watson's career.   You can get it using the Amazon Paypal system for $65.

Doc Watson was a unique performer.   As I think I have covered previously, I saw him many times when I was a more serious amateur bluegrass musician at the Ash Grove in LA, which at the time offered a wide range of country and folk performers.  

I also met him at the UCLA Folk Festival in 1963.  He was having lunch  and I had the chance to sit down and talk with him for some time.   Watson was a versatile guitar player (this set demonstrates the wide range of music that he played) but he was also a great banjo player.   One thing I learned from him was how to get a drop thumb effect without actually being able to do drop thumb.   There are three kinds of basic banjo styles - three finger picking (often called Scruggs picking), double thumbing (a style that uses only thumb and forefinger) and frailing (or up picking) - within frailing there is a style that some old time players use where the thumb drops down from plucking the fifth string to plucking the middle strings.   Below is a short video on how the two styles are different.  



Watson, at one point said he could not get the style (and I could not either) and he suggested an alternative way to get the same effect without doing that style.   He had a very simple cheat which achieved the same effect.

What impressed me most about Doc Watson was his humanity - this set of four disks and the books - shows off that quality very clearly.  If you have heard Doc, this is probably a must.   If you have not click into one of the sites above and then order the set.

Political Theater is to Theater as Military Music is to Music

This week Senator Carl Levin and his Homeland Security and Government Affairs Subcommittee held a hearing on tax practices for multinational corporations. (A copy of his opening statement is included in the hot link with his name.)  Note, the Senator is not a member of the Finance Committee, which writes tax legislation so the purpose of the hearing was not legislative in any real sense of the world.  Also note that he was able to pull out his own personal iPhone as a prop to make sure the media could snap a photo.

Levin's opening statement is a good example of his biases.   He called the Apple policies, which has operations all over the world, a "tax avoidance" strategy.   Levin seems to have no understanding of the monstrous tax code that he helped to create.  Nor does he seem to have any idea about the complexity of operating a corporation all over the world.   Corporations that do business in many countries have to deal with individual tax policies of the countries they operate in.  At the same time they need to work hard to deal with fluctuating exchange rates and a whole host of other challenges.    

Obviously, there are lots of US based companies that have subsidiaries outside of our borders.  One wonders (actually I do not wonder) why Senator Levin failed to include some other large multinationals in his web - for example, what about General Motors?

Tim Cook's opening statement was clear and unambiguous.  He said “We don’t depend on tax gimmicks. We don’t move intellectual property offshore and use it to sell our products back to the United States to avoid taxes. We don’t stash money on some Caribbean island. We don’t move our money from our foreign subsidiaries to fund our U.S. business in order to skirt the repatriation tax.”   Cook also pointed out that the APP store alone has created 300,000 jobs in the US and generated $9 billion for those developers.   Levin seems to have missed the point.   But then the point of this exercise was not to build understanding.

The ranking member on the subcommittee, John McCain, took the same kind of one sided approach to looking at the situation.   McCain event went so far as to quote Senator Levin in his opening statement.   Levin seems to think that if all the operations of Apple were repatriated that all of his pet social programs would be better funded.   Here is the relevant quote from Levin's opening statement -

"Because of those cuts, children across the country won’t get early education from Head Start. Needy seniors will go without meals. Fighter jets sit idle on tarmacs because our military lacks the funding to keep pilots trained. Apple and the other companies exploiting tax loopholes depend on the safety, security and stability provided by the U.S. government. Their economic existence depends on the U.S. government’s energetic protection of their intellectual property – property which they develop here, and keep under the protection of the U.S. legal system, while shifting the income it generates overseas."

One member of the committee got it right about the purpose of the show trial that Levin called a hearing.



There are several problems with these types of media events.   They don't ever bother to deal with the kinds of issues that are fundamental like tax complexity.   They start with a conclusion hoping to generate not sound public policy but media coverage.   Second, they make many of the participants look like buffoons. (And that may not be a bad thing.)   After reading Senator Levin's opening statement and listening to his questions of Apple Executive Tim Cook, it is pretty clear that Levin never had a course in basic accounting.  Third, and most importantly they do nothing to advance a legislative agenda or to solve a problem.    The US Tax Code is overly complex and based on the last decade or so its rate structure is considerably higher than other nations.   That makes it a lot harder for US corporations to be successful.   Tim Cook's responsibility to shareholders is to assure that Apple is a profitable company not to fund Levin's pet social programs.   If Cook does his job well, the government will generate a lot of tax revenue.  (And based on the statement from Cook, they did.)  In Levin's ideal world some Senate staffer would have the responsibility to determine Apple's tax liability.

What are the implications of Zero Tolerance?

One of my grandsons was suspended from school after he brought a toy gun to school.   No adult saw the toy.  He was in an after school program and showed it to another boy and was reported by three other students who saw him showing the toy to his friend.   When the Principal was informed about the incident, several days after it happened, she called in this boy and confronted him - without another adult in the room.  The Principal ultimately commented that because he had used his hand, while playing with another kid as a gun, in the second grade, this represented a "pattern" of behavior.  (From my point of view, that comment was nonsense.) He was then suspended for two days.

There are a number of issues here.   But let me comment first that I think if an organization establishes a rule, it should be followed.  So in one sense I do not disagree with the ultimate result.   I would question however the thinking about these kinds of rules.   Here are some thoughts.

#1 - Does a Gun Free Zone rule actually improve safety on campus?   That is a hard one to evaluate.  It certainly does not improve the possibility that a person cannot come on campus with a gun.  Witness Sandy Hook.   But it may reduce the likelihood that a student will bring a weapon on campus, and that may be good, especially in some schools.

#2 - Does the rule improve student discipline?  There is always a problem with children and attention spans and a rule which prohibits them from brining toys on campus, is probably good for keeping their attention on studies.   This morning I showed one of my other grandsons a bird feather that I had found on a recent fishing trip, and he commented that he could not take it to school because it was a toy.  Even at five that is a good thing to encourage children to do.

#3 - Does this kind of rule isolate guns and diminish the attention to and respect for the Second Amendment?  I wonder if you make something so foreign in the long term will the proper role of firearms in a free society be lost on its citizens.   The debates about gun control bother me because so many of the strongest advocates on both sides make such outrageous claims.   Ideologues against guns like Diane Feinstein (who arguably is where she is because of a gun incident early in her political career) have no understanding of guns and therefore diminish the strength of a reasonable argument that there should be some limits on the use of firearms in society.   I am especially skeptical of the Principal's interpretation of a gun free zone to include any action which might be quite normal for a boy, such as using you hand to play cops and robbers.   This is not a slippery slope - forming you hand into the shape of a pistol - will not cause you to become a gun toting criminal.  

#4 - What is the role of parental involvement? - In this incident the three children who reported the toy to the principal and the one kid who my grandson showed it to were called in an questioned by the principal.  Then my grandson was called in and confronted with the issue.   In this case, because there was a suspension involved, it would have been good to try to engage one or both of his parents in this conference.   This was not an emergency (the actual incident in question had happened several days before) so it would have been smart of the principal (and I think professional) to get the parents on the phone.  As it was done, an opportunity for learning was turned into a most punitive event.

A study in the Arrogance of Incompetence

The Congress began the process of trying to understand the scandal at the IRS.  Steven  Miller who seems to have spent his entire education and career in Washington came off as someone with little concern for the possible issues raised by targeting groups by the IRS.   Politico characterized his testimony as follows - "And he maintained that he didn’t lie to Congress — even though he never revealed the targeting program in response to repeated requests from Republican lawmakers in recent years."   The former head of the Exempt Units group in the service, Lois Lerner, who will head up the IRS role in implementing the tax elements of Obamacare, has decided to take the Fifth Amendment.  The Washington Post gave Ms. Lerner Four Pinocchios for her explanation of what happened in this disgraceful episode.  That is as high as a public liar can get.

The NYT tried in an article to spin the story that the whole mess was created because the poor IRS workers in Cincinnati were "overworked."   They threw around huge numbers the IRS gets 70,000 (the article said 60,000) applications a year.   But that number includes all of the types of exempt organizations.  Most of the news services looked at a small increase in the number of applications from 2010 to 2011 and a slightly higher increase in the number from 2011 to 2012.    There were 200 employees in the office which means that even if all of those applications were for C4 organizations and presumably they were not the real increased workload was manageable.  They needed to make some ways to simplify the process of review.  But lets be clear here - according to many sources there were 400 organizations (among all of the applicants) that came under increased scrutiny.  At the height of the problem there were an estimated 2800 C4 applicants.

Critical to respect for government is an understanding that the tax agency operates in a professional manner. Neither Miller nor Lerner seem to understand that.    Comedian Dave Barry summed up the current esteem for the agency which he quipped “The IRS spends God knows how much of your tax money on these toll-free information hot lines staffed by IRS employees, whose idea of a dynamite tax tip is that you should print neatly.”   For an Administration that claimed it would be the most transparent in history - they certainly have not come close to that standard on this episode.

Isabella without Columbus

Inside Higher Education had a story this morning about Swarthmore College, a selective liberal arts college in Pennsylvania, that is considering whether to divest from its endowment companies that produce fossil fuels (coal, oil and gas). Part of this comes from the activities of one Bill McKibben - pictured at the left - who seems to think this would be a good idea.  (After all, it is not his money.)  McKibben, like all good ideologues, has established a blacklist which demands that these companies cease their exploration for new fossil fuels.  (It is not clear whether he has also demanded that we go back to a flat earth policy.)

When this story began last year one Swarthmore senior commented in a New York Times story - “We’ve reached this point of intense urgency that we need to act on climate change now, but the situation is bleaker than it’s ever been from a political perspective,” said William Lawrence, a Swarthmore senior from East Lansing, Mich.   There have been a couple of colleges with tiny endowments that have made the step but were Swarthmore to make join them it would slightly more important.   No one out of East Podunk Maine has heard of Unity College and while many have heard of Hampshire - it is out there on the fringes.

But were Swarthmore to make this step it would be significant.  Harvard's undergraduates have

requested the Harvard Board to do it.  So far Harvard's board has declined but what the request actually represents, besides economic insanity, is a real cost.   About 10% of the Russel 3000 involves companies that would be on the no-no list.  So the Swarthmore trustees decided to do an analysis of whether this bright idea made any sense.  Not a bad idea when your endowment really counts.

The IHE story details the potential costs.  For students at Swarthmore it would produce a couple of hundred million dollars in foregone revenue.  That could amount to an increase in tuition of about $13,000.   Swarthmore, like many other endowments (theirs is currently $1.5 billion) uses index funds to improve investing efficiency.   The paper estimates that up to 60% of the funds they use could be affected by this policy.   The five and ten year returns to Swarthmore have been pretty good - for the 10 year benchmark returns have exceeded averages by a bit less than 2% per year.

As the Swarthmore trustee paper suggests, managing an endowment over time is a complex set of tasks.  Fortunately, anyone with a bit of sense would look that this proposal and reject it immediately.

You cannot make these things up.

Huffpost did a story this morning about the President thinking he might go "Bulworth" on us.   David Axelrod - the Dick Morris of this administration commented - “It’s probably cathartic just to say it. But the reality is that while you want to be truthful, you want to be straightforward, you also want to be practical about whatever you’re saying."  Hmm, Practical as opposed to Truthful.   That is what I love about the Washington establishment, PT Barnum now spends full time in politics.  Only an allegedly brilliant strategist like Axelrod would not see the irony in his remarks.

As a reminder - here is the IMDB synopsis of Bulworth the movie -
A suicidally disillusioned liberal politician puts a contract out on himself and takes the opportunity to be bluntly honest with his voters by affecting the rhythms and speech of hip-hop music and culture.

This President, in his first campaign, worked very hard to obscure his political views, in part because he knew that if the American people understood the depth of his passion about liberal policies - they would not have elected him.  This all sounds like Bull but it is not worth much.

What is a Social Welfare Organization?

There are many reasons to form an organization that is not expected to generate a profit.   Some are formed to do charitable activities (like universities or hospitals) and others a formed for more narrow purposes for example cemetery organizations (501 c 13) have a very distinct purpose which is different from state sponsored workers compensation reinsurance organizations (501 c 27).   It all fits into that category first described by Alexis DeTocqueville called voluntary organizations.  When DeTocqueville came to the US in the 1840s he was amazed at the American ability to form organizations to benefit the community.

The Social Welfare category(501 c 4)  of exempt organization is a catchall.  The IRS has two standards to qualify for this status the organization "may be performing some type of public or community benefit but whose principal feature is lack of private benefit or profit."   Clearly informing the public about civic issues, when such a large percentage of the economy is dedicated to government, would fit into the definition.  But should it also fit with all sorts of other organizations that are formed for exempt purposes but not ones designed to influence our roles as citizens?

The NYT argued in a column this morning that advocacy organizations should be filed under §527 - which is a newer category in the code designed to allow groups to form to "influence the selection, nomination, election, appointment or defeat of candidates to federal, state or local public office."   But are groups like the Tea Party doing something more than trying to influence who is going to be the next member of congress from the fifth district?   The major difference between a 527 and 501 c4 is the requirement in the 527 to disclose donors.

There are really a couple of questions here.   First, is it time to rethink how we allow citizens to form into groups not seeking a profit which want to inform the public process and should we continue to make a distinction between groups which want to elect candidates and those that want to influence civic debate?  Obviously, that is something we should do.  But the suggestion that limiting political speech should not be on the list.  Citizens should be able to unite to petition both the government and their fellow citizens. (That you may have noticed was a very bad pun.)

Second, is this (like so many of the other Obama problems right now) an example of an administration that does not understand the limits of authority?   The current administration is not the first to use these kinds of discretionary actions to move opponents or reward friends.   These kinds of breaches should not be tolerated.  Cleaning up the current problem(s) is not enough.

Third, how can we regain a sense of limited government where these kinds of outrages would not happen?   The most direct answer is to reduce the size of the fisc that goes to the federal government.  The GDP ratio of federal spending (which exceeded 25% at at the high end of the downturn) should be reduced significantly.

Former Clinton Aide Joe Klein commented "As in most presidencies, there have been an awful lot of political hacks populating the mid-reaches of this Administration.  In the Obama instance, these have shown an anachronistic, pre-Clinton liberal bias when it comes to the rules and regulations governing many of our safety-net programs, like Social Security disability. And now they have violated one of the more sacred rules of our democracy: you do not use the tax code to punish your opponents."   From my perspective that is true, but not enough.

An Administration with Only Low Level Employees

As one who spent the early part of my career in Washington, I have been bemused with the continuous claims of this administration on responsibility.   Remember, that when they came in they claimed that this would be the most "transparent" administration in history.  In four recent incidents they have been both murky and arrogant (not a good combination).

#1 - The Alcohol, Tobacco and Firearms unit in the Department of Justice was caught in a hair-brained scheme to transfer to and then track illegal firearms with the Mexican drug cartels.   The scandal blew up when it was discovered that there were about 2000 guns where the ATF transferred ownership - or allowed it to happen - to the cartels.   Problem was that the guns ended up being used in illegal activity (SURPRISE!!!!).   When that fact became known, the Administration went into defense mode and claimed that some low level operative in the Phoenix ATF office had developed this plan to move a couple of thousand guns to illegal contacts.  (SOUNDS CREDIBLE DOESN'T IT)  These were not BB guns, many were high caliber weapons.  Evidently the standards that the ATF used for this program were different than the one used on the Obama Gun Control proposal.

#2 - In September 2011, Islamic militants (this administration seems incapable of using that term) attacked embassies in Egypt and Libya.  There is plenty of evidence that the Administration had knowledge of the attack while it was going on.  Yet, there is also plenty of evidence that they fiddled with it.   The President claims he described this as a terrorist incident - but the transcript of his statement does not confirm that.   What is more troubling is that the Administration tried to foist a story on the American public that the cause of all this unrest was a video that no one in the middle east had ever seen.   (Note - All this happened on 9/11 - but the Administration did not seem to grasp that the date somehow had significance.)   The Administration's dereliction of duty came in two ways - first, it consistently denied requests by the embassy in Libya to beef up security and second, it failed to send any kind of assistance as the attacks were taking place.   Neither the President nor the Secretary of State could be bothered.

WP Graphic of the Results of the IG report

#3 - IRS Scrutiny - Until yesterday  morning the Administration's most recent example was evidence that an office of the IRS which used the Exempt Organizations unit to give extra review for 501(c)(4) (Social Welfare Organizations) if they espoused conservative ideas or if they had certain terms in their names.  That started, according to an Inspector General's report in 2010 and then the Director of the Service told them to cool it.   Then in 2012, a "rogue" group started it up again.  (Is is coincident that 2012 was also an election year?) Reminds one of the Nixon administration.

#4 - AP Phone Records - Yesterday, a story developed that the Department of Justice used secret subpoenas to obtain home, office and cellular phone records of individual Associated Press reporters, allegedly to assist on an investigation about disclosure of classified information on a failed attempt by Al Qeada plot.   Most of the news class (and indeed anyone with a sense of the First Amendment) think this might have been a bit of an overstep by the Attorney General.   The AG defended his actions as a "one of the most serious breaches of security" in his 35 years as a prosecutor.

Second administrations often have problems.  But there are a couple of themes that tie these four together.   First and foremost, in each there is an almost megalomanic sense of authority - the Administration's officials know better how to do things than even the laws that are designed to constrain government.   That was what Frederich Hayek saw as a branch "knowledge problem" - the ultimate inability of officials to know enough about events to be able to control them.   Second, although this has not come out completely on the phone records fiasco - there is a pattern after inappropriate behavior.   Each of these steps happens at some point.   A) The President denies responsibility.  B) He promises to get to the bottom of the problem - and hold those who perpetuated this outrage responsible.   It is remarkable how he uses the same phrase repeatedly and then ignores ever actually holding anyone responsible.  C) He claims that the actions are a result of some low level functionary who acted without proper authority.  D) His spokesman dismisses efforts by the press or Congress to understand what happened by discounting the story as "old news."

Lord Acton was only partially right - his famous aphorism should be revised - absolute power (or even the assumption of absolute power) corrupts absolutely.

How do you do a destination wedding?

This is not a topic that I would normally write about but over the weekend became inspired when two friends of ours got married at Stanford Sierra Camp.   As my daughter taught me, when she got married, weddings are fundamentally a set of logistical events.  She was so well organized that she kept a massive three ring binder on all the details.   I am convinced that her vigilance made her wedding a memorable event but also kept costs down.    But as I thought about this weekend there were so many points where the couple paid attention to small details to make it superb.  But here are four details that made the event even more meaningful.

#1 - Location - find a place that can accommodate you and at the same time which has the opportunity for your guests to have lots of things to do.

Our location was in the Sierra and brought people together with good food and lots of outdoor activities.  On the first night we were there we had a "talent show" - which had a good range of talents - ranging from recitation to music of all types to a little humor.   Yesterday morning there was a not to strenuous hike up to some falls and for those who wanted to go a bit further.   The hiking group included all ages including a couple of people who were over 80.  Not everyone went - but for those who did not there was sailing on the lake and just relaxing.

#2 - Brand the Event and Personalize It.

The attention to detail on this event was incredible, beginning with the hold the date announcement.  When you signed up for the "Wedding Camp" you got a booklet back which had a schedule of events and other sorts of details.  Some gleaned from the normal SSC camper information and some unique to the event.   When each guest arrived there were two glasses and a bottle of wine that had been personalized for the wedding.   This morning, every mother received a rose with their name on it.  As you went into the reception area you saw a banner hanging over the fireplace which spelled out wedding camp.  Strewn around the central location were a couple of photo books with pictures of all of the people who were coming as well as some pictures of the couple.   There were also a couple of jigsaw puzzles from pictures of the couple then and now.  This morning a new puzzle appeared that said "Happy Mother's Day."

On the first night, to take advantage of the location, they did a cruise on a pontoon boat to gaze at the stars.  Without the normal light pollution that you have in a city - the sky is quite beautiful.

Every participant also got a Tshirt commemorating the event.   Because this was a camp event - the wedding cake was a S'mores cake - I spoke to the baker who had to do some ingenious baking to achieve the texture of that famous campfire food.  All those things made this event unique.

#3 - Make the meaningful parts of the ceremony for the couple - meaningful to the guests

This couple chose a non-religious ceremony and yet they included elements from Shabbot (the end of the Jewish Sabbath and the commencement of the week to come - and the wedding itself was late afternoon on a Saturday) and they also chose to use a Ketubah (which is a prenuptial agreement) which is not used much but helped to reinforce that a wedding is a serious event.   The couple chose to explain the significance of both the Shabbot (before we participated in it) and the Ketubah.   The Ketubah involved some levity (because part of the tradition in the contract is the dowery) but ultimately both ceremonies were treated with enough reverence to assure that all of us understood that this was not just a party.

#4 - Assure audience participation 

The talent show did that but so did the use of WEDPICS - a smartphone app which encouraged guests to snap pictures.  As I said yesterday - one friend who is a wedding photographer thought there would be a lot of crappy pictures but in reality the album from the wedding has a lot of shots that a normal wedding photographer would not capture.   The WEDPICS album is different but is really interesting - they compliment each other.

If you are planning a wedding soon or if you have a son or daughter that is likely to be married soon and is considering a destination wedding - you might want to start with these four principles - but if you are serious send me a note and I will give you details - they should write a book about how to bring all these elements together.

Understanding the new world....

We are at a wedding of two friends at the Stanford Sierra Camp.  When we arrived yesterday we were informed that the couple was using a new APP called WedPics.  It is a sharing application that allows individuals to snap photos with their phones and then upload them to a common site.

When our son got married, at the end of the reception, I had the bright idea to ask all the people with cameras to let me copy their memory cards.   Between me and a friend who is now in the wedding photography business we got a total of about 700 photos but the request to the guests yielded another couple of hundred shots.   Most were horrible but some were quite good - in places where neither my friend nor I had been.  WedPics is a good implementation of that notion we did seven years ago.

I did a note to my friend (who is now in the wedding photo business) who immediately dismissed the idea.   He looked at the site and said "there are a lot of crappy pictures on the site (for this particular wedding)" - that is undoubtedly true.   But the idea behind WedPics and other APPs like this is crowdsourcing.   You get to capture what is already happening at social events like weddings.   The iPhone is now the most popular camera in the US.   From my perspective having a professional photographer use this has several advantages.   First, you are conforming to something that is already happening but you appear to be supportive.   Second, you may indeed get a shot which you missed.   Third, the most likely hard core users of smart phones for pictures at events like weddings are likely to be people who are more likely to use the services of a wedding photographer in the future and you have encouraged them to think your business is supportive of this "disruptive" technology.

Markets are changing in all areas - even wedding photography.   This looks like a real opportunity which the smart professionals will embrace.

The oppressive nature of the AMT

Here is a short lesson in average and marginal rates on income taxes and why they matter.   An average rate on income taxes relates the amount of taxes you pay compared to your income.   If I make $50,000 and pay $12,500 in taxes my average rate is 25%.    The marginal rate is the rate applied to additional income.  In a progressive system the tax rates increase as your income increases.   For example the 2013 tax rate tables for a person who is married an filing jointly look like this -

• 10% on taxable income from $0 to $17,850, plus
• 15% on taxable income over $17,850 to $72,500, plus
• 25% on taxable income over $72,500 to $146,400, plus
• 28% on taxable income over $146,400 to $223,050, plus
• 33% on taxable income over $223,050 to $398,350, plus
• 35% on taxable income over $398,350 to $450,000, plus
• 39.6% on taxable income over $450,000.

As our income increases I pay at a higher rate.  Most people only think of the average rate they pay but marginal rates have a much greater effect on incentives to work.   If marginal rates are too high people will substitute non-income activities for income - they will take more vacations or (if they are dishonest) take some of their income under the table.   I am a conscientious taxpayer - I do not do all the tax games that some people do.  Indeed last year my average rate was 25% which was about 7% higher than the average rate paid by the President, who made considerably more than I did.

I came home yesterday to get a communication from the IRS which suggested that I had underpaid my 2011 taxes.   I went back to my files to figure out whether their assessment was correct and found that for some reason that I had failed to include one 1099 from an investment firm where I have multiple accounts.   The missing data showed I had about $4000 in additional income.   The incremental increase in taxes for that amount of income amounted to a marginal rate of 33%.

But then there is the kicker of the AMT (Alternative Minimum Tax) which is that bizarre remnant of tax policy which was put there to punish miscreants who (some people think) don't pay enough tax - or at least that was the theory.  The provision requires you to take all your income/deductions and figure your tax and then if you meet certain conditions an additional rate is assessed that rate is paid in addition to the tax you owe from the regular code.  The AMT complicates the code and at the same time is quite arbitrary.   The AMT assessment added another $2300 or a marginal rate of 58% (far higher than any of the posted rates) - the combination of the regular and AMT additions for this increase in my income amounted to an 88% marginal rate.   By any standard that sounds a wee bit excessive.

Odd "logic"

The NYT this morning (and echoed by the WP in Wonkblog) made the point that the "austerity" caused by the sequester's cuts of about 2% of the budget has started to have negative effects from slowing growth, to lower levels of employment, to perhaps even increased toenail fungus (although the last claim is not made explicitly).

The Times is pretty explicit in their claims -

"Hardly a day goes by when either government analysts or the macroeconomists and financial forecasters who advise investors and businesses do not report on the latest signs of economic growth — in housing, consumer spending, business investment. And then they add that things would be better but for the fiscal policy out of Washington. Tax increases and especially spending cuts, these critics say, take money from an economy that still needs some stimulus now, and is getting it only through the expansionary monetary policy of the Federal Reserve."   And they've got some pretty impressive support from all those economists in DC (whose livelihood depends on supporting government) and from folks on Wall Street like Moody's (that did such a great job in analyzing collateralized debt obligations and other fairy tales.

So let's review the logic of this claim.   The issue is whether increases in government spending actually improve answers for economic growth.

The question is if you take money from Peter to pay Paul or to build shovel ready projects or to increase the number of government employees or to loan it to dubious projects like Solyndra whether you get a multiplier effect - $1 becomes $2 as it flows through the economy.

An Alternative View by John Taylor based on policies which 
would reduce the size of government spending - i.e. what the 
Times does not like.

The economics evidence on this is exceedingly mixed.  The Keynesians argue that this kind of diversion helps the economy grow more quickly.   But the evidence is not on their side.   A number of re-evaluations of the policies of FDR suggest that his dithering actually impeded recovery.   The multipliers in the literature run from something like .6 to 1.5 for spending - which means that if you spend a dollar in the public sector the resultant benefit is either equal to 60¢ or $1.50.   My guess is that the 60¢ is more accurate the Keynesians would argue that it is closer to $1.50.

But there is another part of the equation and that relates to increasing taxes.   The recent tax increase(s) also have an effect on the economy.   Every wage earner had a 2% decrease in take home when the silly FICA reduction was not renewed.   At the same time, with the logic of redistribution, the highest income taxpayers are paying a bit more.   Most of the multipliers on tax revenue are negative - some significantly so.  So for example some estimates suggest that increasing some taxes will reduce growth by as much as 5:1 - that is a bit extreme but most economists suggest at least some negative effects from increasing taxes.   One could also make the case that deficit spending is just a future version of a tax increase and thereby has directionality close to those for tax increases (under you can pay me now or pay me later theory).

There is one other odd thing about this story.   Although none of the supporters of the position express it directly, they seem to be saying that dollars at the margin are more important.   If it was a good idea to improve tax equity (the claim made by the Obama administration in supporting the tax increases) but not to reduce spending - then one must conclude that that tiny percent of GDP is determinative on the direction of economic growth.   With all due respect, that sounds like just plain silly.

Banal 7 News

I spent the last couple of days in Merida - as discussed in my last post.   But last night I got the chance to listen to one of the LA editions of 10 PM news.   I admit that I do not listen to TV news often.  After last night, my decision was reconfirmed.   There is lots of stuff going on in the world - from the hearing on the Benghazi incident to stories on the economy.   In LA there are undoubtedly tons of issues that need to be covered.  But what did the this channel cover last night?   The first fifteen minutes reviewed stories that fell into three classes - the trashy pulp fiction; the local neighbor who believes they are media experts ("I have no comment on that"); and the Jerry Springer like interview of one or another deviant.   I am not sure what happened next because at that point, I could stand it no more.

I am not sure what this station thinks it is covering.  But whatever it is there must be a market for it or the station is run by some kind of deranged philanthropist.

Security

I have been working in Merida for the last couple of days with a University that I am very fond of.   Yesterday was a series of discussions about how to make the place more visible internationally and today was a board meeting of the International Board of Advisors.   Over the past several years this university has taken some very measured but ambitious steps to raise its prominence as a center of excellence.

Today the Advisory Board spent several hours looking at what had been accomplished since the last board meeting and looking forward to what could happen next.  This is a university which lives its values but it is not intimidated about searching for the truth.   They are doing some major expansions in both an incubation center and in building new labs to work on the areas where they have strength.   They have decided to focus on project in health and issues relating to sustainable energy.

After the meeting we went out to a nice lunch.  Next to the University is a resort development that took a long time to take off but seems to be starting to grow.  It is very exclusive.  As we approached the security gate there were cameras all around.   The car ahead of us was stopped and the driver presented an ID which was noted and then handed back.   Mind you that a common topic in many parts of Mexico is security - even in places like the Yucatan.   Well, when we got to the gate our driver - which was one of the participants in the board - offered a secure ID - her Costco Card - the guard dutifully wrote down the number of the card and handed it back.   Wonderful!

Getting even more immediate - Google Glass v iWatch

OK - so I have been watching the coverage of Google Glass with interest.   The prototype - which is supposedly going to come out later this year has a small screen which allows one to access the internet in a way that is similar to a smart phone but smaller and closer.   You can find directions, do email, take videos and pictures, and all sorts of other things in a wearable device.

At this point it is a bit better in focus than the reported Apple iWatch.   Whose shape and design, if it ever becomes reality, is far from certain.  Apple is notorious at keeping its pro to-products out of view.

The rap on the Google product at this point includes price (at this point expected to be more than $1500), battery life (according to reports between 2 and 5 hours), resolution (from the wearers comments so far the resolution is not where it should be), and design (it looks dorky).   I would add another rap - it needs to be interchangeable (I wear sunglasses and readers and were I to buy one would like it to be usable with all my glasses.   But the test wearers who have been all over the media this week seem excited about the concept.  Fortune's tech blog offered 5 things to make the product better.

But then there is one other issue which the pro to-iWatch raises.   Is this kind of device better at eye level or on your arm?  The Google approach (eye) is more immediate and in some ways (I have not worn a watch in more than a decade) more convenient.    The wrist option, which the iWatch would offer is less in your face (pun intended) and could use some of the technology and legendary battery life of products of the shuffle or the nano.   Obviously, using the internet is more battery intensive than playing music but I suspect a wrist based product could offer more use time.   This is a space that both companies and possibly others are trying to invade.   By the end of the year, we may have salable models of both concepts.

Follow up on Megabus

 This afternoon I came back on the return trip on Megabus - and while I have some additional comments - my analysis this morning still stands.

On the return trip, I arrived about half an hour before the scheduled departure time.  There were two guys who were organizing the passengers.   Our reservations were checked and then we were given an entry ticket.   The bus was more crowded this afternoon, in part because after the stop in Sacramento it was scheduled to go on to Sparks.

This afternoon I chose to ride on the upper deck of the bus.   You get an interesting perspective from the higher level.   You are riding well above the traffic so you get a different perspective on the road compared to my low slung sports car.   The upper cabin also has some sky lights which gives you a feeling of openness.  At the same time the air pattern, at least where I was sitting has some cavitation which is a bit annoying - I was seated across from the front staircase - so that may have been a factor.

This afternoon I was able to get the WIFI to work at least part of the time - but I would still rate it as unreliable.

There was one other problem - the bus, which was coming from South San Francisco, was delayed by almost an hour because of an accident on the road it was coming from (presumably the 280).   That meant we also got to Sacramento an hour late.  Amtrak, in my experience is notorious for a fairly flexible definition of on time performance and even with the delay in traffic we were able to get back to Sacramento an hour late - the carpool lane did seem to help.

Megabus now offers four trips a day to Sacramento - the earliest is the one I took (8 AM) and four returns (about a half an hour after the run from Sacramento begins for each of the four times).   That is less frequency than Amtrak but certainly some pretty good options.

One other pleasant surprise - Parking all day in Sacramento was only $16 not $23.   So the total cost of the trip was $25, about what one way on Amtrak costs.

So would I do it again?  Yes for many trips to San Francisco - this method would be very useful.   The defects, including the delay, are minor and the price even at the highest increment - is still very good.   Both locations (Sacramento and Sacramento) are handy.   The bus is clean and efficient - what is not to like?

Megabus

A friend told me about Megabus, a new service that has come to Sacramento.  It currently has runs from Sacramento to San Francisco and a limited number of other cities.  It is an express service - so for example you get on in old Sacramento and end up at the Cal Train station in SF.  The trip is about 1:45 - based on my experience over the last couple of years, that is, on average, faster than I could drive it.  In the evening when I return - the bus will be able to use the Carpool lanes which I cannot when I am driving.

The bus I rode on was clean with two decks.  The upper deck gives you an interesting perspective on the road ahead and the scenery.  There was plenty of room.   Unlike first class busses in Mexico, there is no meal service and no TV screen (which on longer trips has movies).   But also unlike Mexico, there is no assigned seating.   On the bus I rode the WIFI was non-functional - I ended up using my 4G on my iPad - I could get a signal but could not connect.   A common complaint on Yelp is that the WIFI is iffy - . More important than that is the pricing system.   Pricing is demand and time based - so as you get closer to the actual time of the bus the price goes up.  If you are lucky, the price can be as low as $2 round trip.   I ended up paying $9 which is about what I would have paid in tolls.  The price about four hours out from the trip has risen to $6 one way - which would still represent a substantial savings over driving or Amtrak.

There are a couple of other considerations.   One could park in the Amtrak lot and walk over for $9 per day but I chose to move a bit closer so will end up paying $23 for the day in Old Sacramento.  But even with that when you consider the cost of gas, tolls and parking in San Francisco, the price comparison is still stunning.  When you get to SF you need to walk or cab it - but the tradeoff is not worrying about where to stash your car.   As I was waiting this morning one of the passengers who was going to the Asian Art Museum said that he had heard that SF has 5500 fewer parking spots than the number of registered vehicles in the city.   That could well be true.

The trip from downtown LA to SF (it does not go to Sacramento) is seven and a half hours and costs $26 - so still quite reasonable.  The price from DC to NYC is $32 and takes about four and a half hours.  Again much cheaper than Amtrak.

The differences with Amtrak, based on this experience, are clear.   This is considerably cheaper, with less hassle to get into the city (on Amtrak you need to transfer to BART at Richmond or take the Amtrak bus into the city) although it does not have cocktails.   From my experience with Amtrak it also seems to be more likely on schedule.

This is a very good new service - they have a couple of options a day on this trip including one which gets you back to Sacramento by 9 PM.  From the website it looks like they are rolling out new destinations but assuming that this service becomes profitable it could be very useful.