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."

 

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.

One of Donald Trump's upcoming trials commemorates Benjamin Harrison's "spectacularly corrupt administration"

Donald Trump will go to trial on March 4, 2024 in federal court in the District of Columbia on the charges related to his attempts to overturn the 2020 election result.  Why March 4?  It's a Monday, and long trials often start on Mondays.  But Judge Tanya Chutkan, who chose the date, may have intended to make a sly historical reference.  Elected presidents are inaugurated on January 20 now, but before 1937 they were inaugurated on March 4.  March 4 is thus the anniversary of the inauguration of all the elected presidents from John Adams to Franklin Roosevelt in his first term (1933).  It was on March 4, 1889 that Benjamin Harrison (5'6", 160 pounds) was inaugurated.  Harrison's "spectacularly corrupt administration" (the words of historian Heather Cox Richardson) produced a collapse of the stock market and the Panic of 1893.

Celebrations of Benjamin Harrison are few and far between.  Judge Chutkan has figured out an appropriate commemoration, and Mr. Trump will get to play the leading part.

Fulton County's indictment of Donald Trump and friends, analyzed

            The 41-count indictment that a Fulton County grand jury handed down today is riveting in its narrative and notable in its detail.  Isaac has read it with great interest.  The grand jury’s accusations are not vague in time and place, nor are they more vague than necessary in describing the witnesses to the 161 numbered acts in furtherance of the election plot.  Those in Mr. Trump’s inner circle who are yet uncharged will read the indictment attentively to determine which of their friends are “Unindicted Conspirator One,” “Unindicted Conspirator Two,” and the other eighteen or so of the unnamed additional conspirators.

            All 19 defendants were charged with violating the Georgia Racketeer Influenced and Corrupt Organizations (“RICO”) Act.  This charge is particularly ironic, or perhaps poetically just, when applied to Rudolph Giuliani, as he came to fame in the 1980s for using the federal RICO Act to dismantle the core of the New York mafia; as a federal prosecutor he obtained indictments against a long list of the mob’s leaders and lieutenants, convicting most of them.

            The indictment has some Easter eggs within its bulk.  I’ve alluded to one, which is the game of guessing the identities of the unindicted conspirators.  Another is to examine who got indicted with whom.

            The indictment has 41 counts and names 19 defendants.  Every defendant was charged with violating the Georgia RICO Act.  No defendant, however, was charged with violating even half of the 41 counts, and no count except the RICO charge names more than 7 defendants.  Messrs. Trump and Giuliani lead the pack with 13 charges each, sharing in 7 of them.  The runner-up in the indictment list is more obscure; he is Ray Stallings Smith III, a lawyer at a small firm in Atlanta whose practice includes election law.  He faces 12 charges, including all 7 of the charges that name both Mr. Trump and Mr. Giuliani. 

            At the other end of the spectrum lie Jenna Ellis, Jeffrey Clark, and Mark Meadows, who face only one charge each in addition to the all-hands-on-deck RICO charge (Count 1). Ms. Smith’s [thank you, Kari Chisholm, for catching the error] Ellis's charge (Count 2), which she shares with attorneys Giuliani, Eastman, and Smith, is that she participated in inveigling members of the Georgia Senate to appoint impostor electors.  Mr. Clark’s charge (Count 22), which he faces alone, is that he criminally attempted to knowingly make the false statement that the Justice Department had ”identified significant concerns that may have impacted the outcome of the election in multiple States, including the State of Georgia,” asking for permission from acting attorney general Jeffrey Rosen and acting deputy attorney general Richard Donoghue to send that message to Georgia’s governor, speaker of the house, and president of the senate.  Count 28 names only Mr. Trump and Mark Meadows and charges them with having unlawfully “solicited, requested, and importuned” Brad Raffensperger, the Georgia secretary of state, to unlawfully alter the certified vote.

            So who did get indicted with whom?  (It sounds rather like high school gossip.)  Three of Georgia’s fake electors are among the indicted.  They are the only ones charged with Counts 8, 10, 12, and 14.  Two of them are the only ones charged with Counts 16 and 18.  Those six counts all relate to preparing and signing the false certifications.  They form a distinct group of charges and defendants. 

            A second group of defendants share Counts 9, 11, 13, 15, 17, and 19.  They are Messrs. Trump, Giuliani, Eastman, Chesebro, Smith, and Cheeley, and those counts relate mainly to the attempts to file the false elector certifications. 

            A third group of defendants are Sidney Powell, Cathleen Latham, Scott Hall, and Misty Hampton, the only ones charged with Counts 33 to 38.  Those counts describe the efforts to obtain or break into the voting machines of Coffee County.  Ms. Powell was a visible advocate for Mr. Trump’s cause, but the indictment relegates her to a minor part in the Georgia portion of the broader conspiracy.  Based on the structure of the indictment, Donald Trump and Rudy Giuliani were at its center, and Mr. Smith wasn't far from the core.  The skills of high school gossip tell us not who's going out with whom, but who's going down with whom.

Chief Justice John Roberts indirectly alludes to Ambrose Bierce, lexicographer

John Roberts wrote today's Supreme Court opinion in which a 6-member majority struck down the Biden administration's forgiveness of most of the student loan debt in the country.  Whatever the merits of the court's decision, the Chief Justice included this allusive gem in his opinion:

From a few narrowly delineated situations specified by Congress, the Secretary [of Education] has expanded forgiveness to nearly every borrower in the country.  The Secretary's plan has 'modified' the cited provisions only in the same sense that 'the French Revolution 'modified' the status of the French nobility' - it has abolished them and supplanted them with a new regime entirely.

The Chief Justice is quoting from Antonin Scalia's opinion in MCI Telecommunications Corp. v. American Telephone & Telegraph Co., 512 US 128 (1994), which turned in part on the definition of "modify."  In that case Justice Scalia wrote, "It might be good English to say that the French Revolution 'modified' the status of the French nobility - but only because there is a figure of speech called understatement and a literary device known as sarcasm." 

Justice Scalia did not credit any earlier source for his bon mot.  I suspect he was inspired, perhaps unconsciously, by Ambrose Bierce's work "The Devil's Dictionary," in which he defined "abridge" as "to shorten," attributing this fictive mashup of a sentence from the Declaration of Independence to Oliver Cromwell as an example of "abridge" in use: 

When in the course of human events it becomes necessary for people to abridge their king, a decent respect for the opinions of mankind requires that they should declare the causes which impel them to the separation.

The Laquedem Plan to Relieve Our Supreme Court Justices from the High Cost of Vacations

The recent scandalous disclosures that Justice Clarence Thomas and his wife Virginia vacation not only in their 40-foot motor home but on lavish trips financed by billionaire Harlan Crow that have included flights on Mr. Crow's private jet and cruises on his 161-foot yacht were followed by the equally scandalous revelations that Justice Samuel Alito did not report his 2008 trip by private jet as the guest of hedge fund billionaire Paul Singer, to an Alaskan fishing resort where he stayed as the guest of real estate and mortgage servicing billionaire Robin Arkley.  The two stories brought to mind the death of Justice Antonin Scalia in 2016 at a resort in Texas.  "Resort" is a loose term for the 30,000 acre Cibolo Creek Ranch, owned by multimillionaire John B. Poindexter.  (We can't have our justices selecting their friends only from the billionaire class.)  You can book rooms there for $500 to $1200/night, or you can come as the guest of Mr. Poindexter, as Justice Scalia did.  

It's apparent from the examples of Justices Thomas, Alito, and Scalia that the justices of our Supreme Court cannot stretch their salaries, currently $274,200/year, to cover the cost of vacations that befit their status as the nation's senior interpreters of the Constitution and the law.  It's also abhorrent that owners of large corporations with business before the Supreme Court can give the justices over-the-top vacations without the justices thinking it improper to accept the gifts.  Hence the Laquedem Plan to Relieve Our Supreme Court Justices from the High Cost of Vacations.

The LPTROSCJFTHCOV is ridiculously simple, because the mechanism to remove the taint of impropriety already exists.  It's GoFundMe.com.  Let's start a GoFundMe to raise money that the justices and their families can use to pay for their own vacations.   If a million Americans will give just $1/year each, then each justice can spend more than $1 million/year on luxury travel without having to beg for hospitality from their billionaire friends.  If Justice Thomas had $1 million to spend on his vacations, would he still hang out with Harlan Crow?  Or would he and Virginia Thomas buy a larger motor home and hire a driver?  Either way, he could escape his ethical morass.

We already provide public funds to presidential candidates.  Let's offer our Supreme Court a way to escape from the convivial clutches of the kakistocrats.

The Laquedem Plan to Improve Continuing Legal Education and Honor a Legal Leader

The Oregon State Bar requires active lawyers to take a certain amount of coursework, called "continuing legal education" or "CLE," to renew their licenses.  Members report their education every three years.  New members must take nine hours of courses on practical skills, including at least four hours on Oregon practice and procedure.  After their first reporting period, Oregon lawyers must take 45 hours of accredited CLE every three years, including at least five hours on ethics, one hour on mandatory reporting of child abuse and elder abuse, and one hour on mental health and substance abuse.  In alternate reporting periods, Oregon lawyers must also take at least three hours on programs accredited for "access to justice."  The Bar's rules define "Access to justice" education as activities that are "designed to educate attorneys to identify and eliminate from the legal profession, from the provision of legal services, and from the practice of law barriers to access to justice arising from biases against persons because of age, culture, disability, ethnicity, gender and gender identity or expression, geographic location, national origin, race, religion, sex, sexual orientation, veteran status, immigration status, and socioeconomic status."

Recent news stories have given Isaac the idea that the Oregon State Bar should require providers of CLE to meld practical skills with access to justice, resulting in the Laquedem Plan to Improve Continuing Legal Education and Honor a Legal Leader.  Educators could teach lawyers how to organize luxurious hunting trips, expensive vacations, and cruises on private yachts, and then how to invite judges to be their guests.  Other material would cover how to establish political organizations under Section 527 of the Internal Revenue Code to funnel unreported money to a judge's spouse.  And somewhere in the mix would be how to ship rare wine across state lines to judicial incumbents.

The name of this hybrid CLE credit would honor one of its most ardent practitioners.  I suggest calling it "Access to Justice Thomas."

Sometimes "20 to 30" is a phrase that describes an age bracket . . .

And sometimes it's a complete sentence.

A PSU professor calls out the University of Oregon for turning Trumpist on the First Amendment

Maxine Bernstein reports in today's Oregonian that the University of Oregon banned Bruce Gilley, a Portland State University professor, from replying to a UO Twitter account for 60 days because of a comment that Professor Gilley made in reply to that account, which belongs to UO's Division of Equity and Inclusion.  He was one of three Twitter users that the Division's communications manager (now retired) blocked.

Professor Gilley sued.  He argues that UP violated his right to free speech and is asking for nominal damages of $17.91 (because the states ratified the First Amendment in 1791) and an acknowledgment that UO violated his First Amendment right of free speech.  (The university unblocked his account the day after he filed suit.)  A federal court heard argument on Professor Gilley's suit on Friday.

As the saying goes, politics makes strange bedfellows.  UO turned to rising liberal icon Misha Isaak for its defense.  As reported by Ms. Bernstein, Mr. Isaak's defense of UO is mainly that the court should dismiss the suit because persons higher up in the university administration unblocked Professor Gilley when they learned that the Division had shut him out from commenting,  The administration has also reminded the Division of Equity and Inclusion that it cannot block speech based on the user's viewpoint.  I interpret Mr. Isaak's defense of UO as being mainly that because UO blocked his speech for only a short period, and because the UO official who blocked Professor Gilley didn't know about the First Amendment, the University didn't violate his constitutional rights in a big enough way to be worth the court's time.  Mr. Isaak also suggested that Professor Gilley "relished being canceled because it gives him a platform," a strange way to defend an apparent First Amendment violation.  But let's go back a few years to a similar story, still fresh in the minds of constitutional lawyers.

In 2017 President Trump blocked Twitter users with whom he disagreed from replying to tweets on his personal account.  Several of the blocked users sued, backed by the Knight First Amendment Institute at Columbia University.  They argued that the president conducted official business on his Twitter account and that it was effectively a government-sponsored platform from which he could not bar users based on the content of their comments.  Those plaintiffs attracted support from an institute at Georgetown University which filed a brief on behalf of an all-star cast of professors of constitutional law, including Erwin Chemerinsky, Geoffrey Stone, and Laurence Tribe. 

In 2019 the federal court for the Second Circuit ruled unanimously in favor of the Twitter users and against President Trump, and minced no words:  "Accordingly, we hold that the President violated the First Amendment when he used [Twitter's] blocking function to exclude the Individual Plaintiffs because of their protected free speech." Knight First Amendment Institute v. Trump, 928 F3d 226 (2019).  You can read the entire opinion here.

It's embarrassing for a public university with a law school to be caught out taking a page from Donald Trump's playbook and suppressing protected free speech because it doesn't like the speaker's message.  It's more embarrassing, or should be, when the part of the university doing the suppressing is the division that's devoted to providing room for all voices to be heard.  At the very least, the president of the university should take a few minutes to write a note of apology and acknowledge to Professor Gilley and the court that its Division of Equity and Inclusion messed up bigly.