Isaac Laquedem

A 100% business income tax rate in Oregon? Watch your ballot

Professor Bogdanski's post today about the corporate gross revenues tax that's the subject of Initiative Petition 17, which we may see on our November ballot, prodded me to pursue some math that I'd been working on for a week or two.  The basic premise of the corporate gross revenues tax is that corporations that sold more than $25 million/year in Oregon would pay the state a tax of 3% of their gross revenues above $25 million.  The state would distribute that fund equally to all Oregonians who satisfied a modest residency requirement.  The state believes that prices will increase 1.3% if the measure passes.  Willamette Week quotes the chief petitioner's reply: "Giant corporations can deduct the tax increase in IP 17from what they pay to the federal government.  So they are not going to pay that much more, if anything at all.  And No. 2, these corporations price their goods nationally or regionally, right?  An iPhone costs the same in Portland as it does in Texas.  There's no difference.  So we don't think price increases will happen."

Let's unpack that with an unpopular example.  WalMart, the store that all good Oregonians love to hate when they're not inside shopping, will be our case study.  WalMart's sales are about $650 billion/year.  Its consolidated pretax income was $21.8 billion, income taxes were $5.6 billion, and after-tax net income after a deduction for minority interests was $15.5 billion, which is about 2.4% of its annual sales.  About 0.8% of WalMart's United States stores are in Oregon.  Some of WalMart's operations are overseas.  It's a fair guess that WalMart sells about $4.5 billion/year in Oregon (maybe $90 million per store) and nets about $120 million/year from its Oregon operations.

IP 17 would levy a tax of $135 million/year on WalMart for its Oregon sales, which corresponds to an effective state income tax rate of 113%.  WalMart cannot offset the state income tax against its federal tax obligation - the chief petitioner may have skipped the corporate taxation class -- but it can claim the state income tax as a deduction against its federal income.  WalMart allows about 26% of its income for income taxes, so a state tax of $135 million creates a federal tax savings of about $32.5 million, for a net tax increase of $102.5 million on profits of $120 million, an effective tax rate of about 85%.  That's in addition to the actual state income tax, and will push WalMart's effective tax rate in Oregon to the mid-90s. Put another way, Oregon will collect 15 to 20 times as much profit from WalMart as WalMart will.

To bring a mot of Oscar Wilde up to date, "If this is the way Oregon taxes its enterprises, it doesn't deserve to have any."

 

Say her name

Portland in 1921: Professor Einstein yields to the Bolsheviks

Not all news stories wear well.  On December 13, 1921 the Oregonian printed this intriguing item:

ROTARIANS DITCH EINSTEIN. -- Because the Einstein theory of relativity has been knocked higher than a kite, according to the story published in The Oregonian yesterday morning, the Rotary club has seen fit to strike the subject from its programme this noon.  Dr. J.W. Daniels of the Hill Military academy was to address the club on the famous theory of relativity, but since the balloon has been punctured, M. Alexander Schwartz has been asked to talk to the Rotarians on "What Bolshevism Means to Civilization."  The remainder of the programme is unchanged.

The Oregonian had not, the day before, reported that Einstein's theory of relativity had been disproven.  It had printed a whimsical piece by William Bird that declaimed that "the full and frightful consequences of the Einstein theory are just beginning to be appreciated," awakening the casual reader to the news that Einstein "was patiently at work undermining the very bases of the solar system."  According to the author, the consequences of the theory of relativity (he did not distinguish between the special theory and the general theory) included the moon speeding up in its orbit, until in a few million years "we shall have two or three full moons every month and four or five tides instead of two every day."  Where, Mr. Bird asked, was Congress?  As he put it, "To look at the record one would think that our legislators were perfectly content to have the moon racing around in its orbit at a reckless pace, in defiance of all the laws of celestial traffic and astronomy."

Mr. Bird got the science backward -- the moon is not speeding up, but slowing down over time and receding from the earth, so the time between full moons will become longer, not shorter -- but he did conclude with a statement that remains true today, though not about Dr. Einstein's theories:

By and large, then, there is little to be hoped from our legislators, who, as usual, are too busy looking out for their own narrow political interests to concern themselves with the general welfare, and the only change of avoiding calamity lies in an aroused and awakened public opinion. 

I'm tempted to recast Mr. Bird's article and put it before Marjorie Taylor Greene and await her floor speech, except that Rep. Greene might not understand enough of the science or the nature of satire to rise to the bait.

Happy 96th birthday, Professor Lehrer

Tom Lehrer's combination of precocity (he entered Harvard at 15) and longevity (he turns 96 today) have combined to make him one of the very few living songwriters to have started his oeuvre during World War II.  (The product was this football fight song.)  Though he claimed in 1977 to have no unpublished works, in fact he had dozens.  One, "The Hospital Song," resurfaced as "I Got It From Agnes" in the 1980 musical revue "Tomfoolery."  He published the others on November 26, 2022 when he released all of his work into the public domain.  After the requisite legalese, he ended his statement with "In short, I no longer retain any rights to any of my songs.  So help yourselves, and don't send me any money."

Happy birthday, sir!

The hidden economics of working from home

As portrayed by Charles Peattie and Russell Taylor, the authors of the "Alex" cartoon, on February 20 of this year.

If the opposite of a shout-out is a shout-back . . .

Then here's one to Jack Bogdanski, whose example got me to start this blog 20 years ago, and whose kind words on March 19 about this blog mean a great deal to me.

An unexpected use for the Portland arts tax: enforcing the short-term rental license regulations

Last September Oregon Public Broadcasting interviewed Ted Sickinger of the Oregonian about the city's efforts to register Portland homeowners who offer their houses for rent through Airbnb.  The Oregonian had published Mr. Sickinger's story on the topic earlier that month.  On March 16 Mr. Sickinger followed up his September piece with a report that hundreds of short-term rentals listed on Airbnb weren't on the city's registry.  Airbnb collects and remits the city's lodging tax for those rentals, but takes the homeowner's word that the homeowner has the required permit.  (The story may have spurred some of the unlicensed to action; the city's received 33 applications for short-term rental licenses since it was published.)

The problem goes back nearly to the start of city licensing: as of October 2017 Portland had issued 1,638 active short-term rental permits.  At the same time, Airbnb had more than 4,600 active listings in Portland, implying that only about a third of Portland Airbnb hosts were bothering to comply with the law.  As of today the city has issued about 1700 active permits and has 600 applications pending.

The city says that it doesn't have the staff or the technology to verify licensing and enforce its short-term rental code, to the ire of neighbors of the unlicensed properties. Isaac believes that the city does have the technology, and would need very little staff time, to make a dent in detecting and combatting the scofflaws.  Our spate of local income taxes holds the answer.

In 2014 Portland amended its code to allow Portlanders to rent their primary residence, or rooms of their primary residence, in zones that don't otherwise allow transient lodging.  One requirement is that the landlord must occupy the residence at least 9 months of the year.  (The "landlord" of a short-term rental may be the property owner, but may instead be a long-term tenant.)  It follows that everyone who holds a short-term rental permit outside a commercial zone must be an individual who is a Portland resident, and who's therefore subject to the Portland arts tax, and who therefore files an arts tax return every year with the taxpayer's name, address, and social security number.  (Let's overlook the non-filers for a moment.)  It also follows that no licensee can own or operate two licensed short-term rentals at different addresses, because only one of them can be the licensee's primary residence for 9 or more months in the year.

The IRS is requiring Airbnb to issue a 1099-K to hosts who receive $5,000 or more from rentals in 2024.  Airbnb's site tells its hosts that "if you have multiple Airbnb accounts using the same tax identification number, these transactions will be aggregated to determine if you meet reporting thresholds.  You will, however, still be issued separate Form 1099-Ks for each account."

If the city could require or persuade Airbnb to send the city electronic copies of the 1099-Ks that Airbnb issues for properties in Portland, the city could readily cross-reference the addresses and social security numbers in those forms against the addresses of licensed properties (available in the licensing data) and the addresses and social security numbers of the arts tax filers.  The city might even catch some folks who have thought of creative ways to avoid the one-to-a-customer goal of the short-term rental licensing.  As an added fillip the city could provide that the booking platform for an unlicensed rental is jointly liable with the host for the fines for operating an unlicensed rental . . . and then go out and enforce the code.

Judge Engoron was the Trump fraud trial judge, but he wrote for the court of appeals

Judge Arthur F. Engoron presided over New York's civil fraud trial against Donald Trump, two of his children, two of his associates, his trust, and nine companies that he controls.  On February 16 Judge Engoron handed down his final ruling on February 16.  In 92 pages he held Mr. Trump and various entities liable for $355 million plus interest, found his sons Eric Trump and Donald Trump, Jr. liable for $4 million each, and barred Mr. Trump, his accountant Allen Weisselberg, and Jeffrey McConney (formerly the Controller at the Trump Organization) from serving as an officer or director of any New York entity for three years. 

Political aficionados with a thirst for blood can be excused for skipping to the last two pages, where the judge laid out the penalties he was imposing, in the manner of the impatient reader of a mystery novel who reads only up to the crime itself and then jumps to the detective's solution, skipping over the 200 pages of investigation in the middle.  The casual reader who skips over Judge Engoron's 6 pages that recite the history of the case, the 67 pages discussing the facts, and the 17 pages of legal conclusions has missed a great deal.  Herewith Isaac's take on what Judge Engoron said.

First, Judge Engoron explained why New York cares about financial fraud.  "New York State, particularly New York City, is the financial capital of the country and one of the financial capitals of the world."  (Page 3.)  "The common excuse that 'everybody does it' is all the more reason to strive for honesty and transparency and to be vigilant in enforcing the rules.  Here, despite the false financial statements, it is undisputed that defendants have made all required payments on time; the next group of lenders to receive bogus statements might not be so lucky.  New York means business in combating financial fraud."  (Page 4.)

Before he dug into the testimony, Judge Engoron threw a dash of shade at Mr. Trump's lead lawyers, Christopher Kise and Alina Habba, stating (correctly) that as the state sought only equitable relief in the form of injunctions and disgorgement of fraudulent profits, the defendants were not entitled to a jury.  The shade came in the form of a footnote on page 6, "In any event, neither party applied nor moved for a jury trial."

Then the judge described the testimony of the 14 non-party witnesses (mostly bankers and outside accountants), the five individual defendants, the eight other witnesses from the Trump Organization, the state's expert, and the 13 expert witnesses that the defendant called.  What's important in his descriptions of the testimony of the witnesses is not what they testified to, but the judge's evaluation of their credibility.  (Isaac will explain why this is important later on.) 

Judge Engoron did not comment on the credibility of the 14 non-party witnesses.  He began his saltiness with four of the five individual defendants.  In the  judge's view, Jeffrey McConney's credibility was "severely impaired" (page 25), then "further compromised" (also page 25), and then further strained when he could not recall if his separation agreement prohibited him from voluntarily cooperating with governmental investigations of the Trump Organization, which lapse the court found "implausible" (page 26).  Allen Weisselberg came in for more direct treatment: his separation agreement bars him from cooperating with the government, which "renders his testimony highly unreliable.  The Trump Organization keeps Weisselberg on a short leash, and it shows." (page 26.)  The judge turned to Eric Trump, whose "credibility was severely damaged when he repeatedly denied knowing that his father ever even compiled a [statement of financial condition] that valued his assets and showed his net worth 'until this case came into fruition.'" (Page 32.)  And the court kept firing salvos in his direction: "When the documentary evidence against him became overwhelming, Eric Trump reversed his previous testimony."  (Page 32.)  "Eric Trump's testimony [about appraisals] was shown to be false when he was confronted with the ample contemporaneous documentary evidence demonstrating otherwise." (Page 33.)

And then there was Donald Trump himself, whom Judge Engoron deflated in a footnote.  On page 36, the judge wrote, "Nonetheless, Donald Trump insisted that he believed Mar-a-Lago is worth 'between a billion and a billion five' today, which would require not only valuing it as a private residence, which the deed prohibits, (footnote 19), but as more than the most expensive private residence listed in the country by approximately 400%."  Footnote 19 reads, "A fact of which he is well aware, having signed the deed himself."  He concluded with this politely damning description of the former president's time on the stand: "Overall, Donald Trump rarely responded to the questions asked, and he frequently interjected long, irrelevant speeches on issues far beyond the scope of the trial.  His refusal to answer the questions directly, or in some cases, at all, severely compromised his credibility."  (Page 37.)

Yet it was not the Trump family but its hired experts that drew the sharpest of the judge's stiletti.  One expert witness, Steven Witkoff, "conceded that he is neither an appraiser nor an accounting expert, nor is he familiar with what 'estimated current value' is under GAAP."  (Page 48.)  Of Steven Laposa, whom the defense offered as an expert witness on real estate research, the court observed that he had "formed no opinion as to whether any of the valuations at issue in this case were accurate, and, prior to this assignment, he had no experience preparing or reviewing personal financial statements."  (Page 50.)  The next expert witness earned a more severe burn from the judge.  He was Gary Giuletti, offered as an expert in surety underwriting and surety brokering.  He testified that he has known Donald Trump for about 25 years, plays golf and eats lunch with him, and is a member of "a bunch of his clubs."  He's also the Trump Organization's insurance broker.  (Page 51.)  The judge's evaluation:  "In its over 20 years on the bench, this Court has never encountered an expert witness who not only was a close personal friend of a party, but also had a personal financial interest in the outcome of the case for which he is being offered as an expert."  (Page 51.)  In 2022, Mr. Giuletti's firm earned $1.2 million in commissions from insurance that he handled for the Trump Organization. 

Mr. Giuletti got off easier than Robert Unell, whom the Trump Organization offered as an expert in commercial real estate finance and banking.  The court summarily disposed of his work: "On the whole, the Court was unable to ascribe any reliability to Unell's 'expert' opinions, finding them unresearched, unsupported, inconsistent, and contradicted by ample other documentary and testimonial evidence."  (Page 56.)

Why are the trial judge's conclusions on credibility important?  Judge Engoron undoubtedly knew that Mr. Trump and the other defendants, except possibly Allen Weisselberg, would appeal his final decision.  It's a principle of appellate law that the appellate court will usually defer to the trial judge's assessment of the credibility of the witnesses.  The trial judge sees and hears the witnesses and their demeanor; the appellate judges read their words from a transcript and only rarely will watch or listen to the testimony. Judge Engoron underscored this point on page 6: "Witnesses testified from the witness stand, approximately a yard from the Court, who was thus able to observe expressions, demeanor, and body language."  My sense is that he's emphasizing to the appellate court that most of the Trump Organization's principal witnesses, including Donald Trump, Eric Trump, and Ivanka Trump, were simply not credible.

As with a good detective story, the description of the crime is at the beginning and the resolution is at the end.  In the case of Judge Engoron's decision, the good stuff is the part in the middle.

The Laquedem Plan to Improve the Discourse of Ideas - also, happy 20th to me

Today marks 20 years since I published my first blog post.  The Laquedem Plan to Improve My Small Corner of the Universe for the next 20 years is to write and publish more often, particularly in the Venn diagram overlap between analysis and amusement. 

The Supreme Court keeps Donald Trump on the ballot. Facebook crumbles

That's as good an explanation as any for why Facebook and its related platforms crashed this morning, locking out millions of users.  Here's a flashback to Facebook's automated apology from an outage nine years ago.

As we often forget, Facebook's customers are its advertisers.  Viewers like you and me are not Facebook's customers, but Facebook's product; it's access to our eyeballs that Facebook sells to its customers.  With that in mind, Facebook's apology to users for its malfunction is akin to a slaughterhouse apologizing to the waiting cattle for having to wait because Production Line 2 is temporarily out of service.

A remembrance of Zachary Taylor, inaugurated on this day in 1849

From John Adams's term until late in the era of Franklin Roosevelt, elected presidents were inaugurated on March 4.  Today is the 175th anniversary of the inauguration of Zachary Taylor, who took office on March 4, 1849 and served until his death from cholera on July 9, 1850. 

But was it cholera that killed President Taylor?  Some ascribed his death to contaminated milk that he drank at a celebration of Independence Day that took place at the Washington Monument, which (unlike Zachary Taylor) was more than five days away from being finished.  Stephen Vincent Benet rendered Taylor's career into light verse:

Zachary Taylor was gallant and gruff,
A general rugged and heady,
He fought like a trump in the Mexican war
And his troops called him "Old Rough and Ready."
For he didn't much mind if their buttons weren't shined
As long as no man was a quailer
And the Mexicans found that their best bit the ground
When faced by old Zachary Taylor.

Zachary Taylor was President T.
One very warm day in July,
When he called for a bowl of ripe cherries and milk,
With a greedy old gleam in his eye,
Now cherries and milk on a very hot day
Make even the strongest turn paler,
And they proved more effective than Mexican shot,
For they finished off Zachary Taylor.

 

 

Lament for Kevin McCarthy

Kevin McCarthy's nearly nine months in office (a full term in other contexts) deserves a ballad to commemorate his service.  Isaac has written one.

 

 

Lament for Kevin McCarthy

(to the tune of “Whatever Became of Hubert?” by Tom Lehrer)
Words by Isaac Laquedem (2023)

Whatever became of Kevin?
Does anyone even know?
Once he mastered the floor, then they showed him the door
When four of his core voted “no.”

It required fifteen rounds to elect him
And only one vote to eject him.
Watch Gaetz and his pals playing games
As the GOP throws out more names

We must amend the rules, ex-Speaker
Says each Fox News reporter
Your successor’s going to be even weaker
And serve a term even shorter.

Whatever became of you, Kevin?
Do you miss being at the top?
Can you keep a straight face
When erased from your place
While you wait for Matt Gaetz
To flop?

Does McConnell look down from the Senate with glee
And gloat to his friends that “it’s NMFP”?
Do you wonder what Nancy would do?
Kevin, what happened to you?