What's the point of a revolution without general copulation?

Help yourself.

Tax lobbyists help businesses reap windfalls

Lobbying for special tax treatment produced a spectacular return for Whirlpool Corp., courtesy of Congress and those who pay the bills, the American taxpayers.

By investing just $1.8 million over two years in payments for Washington lobbyists, Whirlpool secured the renewal of lucrative energy tax credits for making high-efficiency appliances that it estimates will be worth a combined $120 million for 2012 and 2013. Such breaks have helped the company keep its total tax expenses below zero in recent years.

The return on that lobbying investment: about 6,700 percent.

These are the sort of returns that have attracted growing swarms of corporate tax lobbyists to the Capitol over the last decade — the sorts of payoffs typically reserved for gamblers and gold miners. Even as Congress says it is digging for every penny of savings, lobbyists are anything but sequestered; they are ratcheting up their efforts to protect and even increase their clients’ tax breaks.

The Senate approved tax benefits for Whirlpool and a host of other corporations early on New Year’s Day, a couple of hours after the ball dropped over Times Square and champagne corks began popping. A smorgasbord of 43 business and energy tax breaks, collectively worth $67 billion this year, was packed into the emergency tax legislation that avoided the so-called “fiscal cliff."

In the days that followed, the tax handouts for business were barely mentioned as President Obama and members of Congress hailed the broader effects of the dramatic legislation, which prevented income tax increases on the middle class and raised top marginal tax rates for the wealthy.

In the absence of meaningful change, corporations like Whirlpool continue to pursue the exponential returns available from tax lobbying. The number of companies disclosing lobbying activity on tax issues rose 56 percent to 1,868 in 2012, up from 1,200 in 1998, according to data collected by the nonpartisan Center for Responsive Politics.

Tax Credits or Spending? Labels, but in Congress, Fighting Words

In a low-income neighborhood in Bozeman, Mont., taxpayers helped pay for the construction of a grocery store, Town and Country Foods. They are doing the same in New Orleans, with federal dollars helping to build new groceries, including a Whole Foods, in an area still suffering after Hurricane Katrina.

The Bozeman project relied on tax credits, while New Orleans is using federal grant money. To economists — and to taxpayers — that makes no real difference. “These are at some point arbitrary distinctions between taxes and spending,” said Donald Marron, the director of the Tax Policy Center, a nonpartisan Washington research group.

But to Congress, it makes all the difference — and is something worth fighting over. As lawmakers struggle to narrow the government’s deficit, every dollar taken away from the block grant program used in New Orleans counts as a budget cut. Every dollar taken away from the Bozeman tax credit program — part of a vast array of so-called tax expenditures that cost the federal government more than $1 trillion in lost revenue every year — counts instead as a tax increase.

Senator Patty Murray of Washington State, the shepherd of the Senate Democratic budget proposal, proposed raising nearly $1 trillion in new revenue over the next 10 years by cutting tax expenditures and using the money to reduce the deficit. The White House has said it supports her plan.

In contrast, Representative Paul D. Ryan of Wisconsin, in the House Republican budget, insisted that any money generated from curbing tax expenditures must be offset with lower tax rates, so that overall revenue remained the same. Republicans on the Senate Budget Committee echoed that argument. “Eliminating tax exemptions is a tax increase,” said Senator Jeff Sessions of Alabama. “You can’t spin it any other way.”

In the corporate code, expenditures are “just a hidden, ersatz, Soviet-style five-year plan,” said Edward Kleinbard, a longtime Congressional tax expert now at the University of Southern California. “We would never contemplate a world in which the government said, ‘We’re going to write out checks to Nascar because it’s an important resource and we’re going to pay for it!’ People would say, ‘They’re out of their mind!’ ”

Tax expenditures also make it harder to gauge the impact of the federal budget on such crucial activities as housing and retirement security. For instance, the home mortgage interest deduction costs the Treasury about $100 billion a year in lost revenue, and effectively encourages the mostly affluent families who itemize deductions to buy a more expensive home. In contrast, the annual budget of the Housing and Urban Development Department, which generally goes to aiding the poor, is less than $50 billion.

“If someone said, ‘Let’s have a voucher program on the spending side, giving high-income families vouchers to subsidize their mortgages,’ ” said Glenn Hubbard, the dean of Columbia Business School and a prominent Republican economist, referring to the home mortgage interest deduction, “I don’t think that would get through Congress.”

Spending through the tax code has also proved harder to scale back than spending through the regular appropriations process. Already, Congress has cut more than $2 trillion from health spending and the domestic and military budgets. It has hardly touched tax expenditures.

Tax expenditures are the devil. I am not even kidding. They are hidden; no one thinks of them as what they are, which is a subsidy to particular taxpayers, and so you never count them as part of the budget and they can never be eliminated.

The Best Way Yet to Proclaim Love for a Tax Cheat

Ernst & Young LLP received the usual kid-glove treatment given to too-big-to-fail enterprises when it reached a settlement with the U.S. Justice Department over illegal tax shelters it sold more than a decade ago. The government chose not to prosecute the Big Four accounting firm, and Ernst is getting off by writing a relatively small check.

The $123 million that Ernst must pay is equivalent to the fees it charged for the tax shelters in question. About 200 Ernst clients used the shelters to try to avoid more than $2 billion in taxes. The firm doesn’t even have to pay interest on the ill-gotten proceeds, under the deal revealed last week.

Two Ernst tax specialists were sentenced to prison, while two others had their convictions reversed last year on appeal. Ernst was required to admit that some of its personnel engaged in criminal wrongdoing. All in all, the firm came out fine. The public had forgotten about the investigation years ago.

Yet there was one area where Ernst made out beyond all reason: A veritable love letter at the bottom of the statement of facts that Ernst and the U.S. Attorney’s Office for the Southern District of New York agreed to as part of their accord. It said: “The wrongdoing in this case by a small group of professionals at E&Y represented a deviation from the more than 100-year history of ethical and professional conduct by E&Y and its partners.”

To which one can only respond: What? I asked Julie Bolcer, a spokeswoman for the U.S. attorney, what the factual basis was for the statement. She declined to comment. Amy Call Well, an Ernst spokeswoman, declined to answer the same question.

[R]ather than cover 100 years, I decided to go as far back as the merger between Arthur Young & Co. and Ernst & Whinney that created Ernst & Young in 1989. The firm has been in trouble over ethical violations and professional misconduct on a regular basis ever since.

A list of E&Y's ethical, regulatory, and criminal troubles since 1989 follows. Spoiler alert: It's not a short list.

It would be nice to believe the prosecutors were on the public’s side here. Unfortunately it seems they were more concerned about protecting Ernst than they were anyone else.

I know. We should cut entitlements because we just can't afford them.

*sobs wildly*

U.S. Attorney Jim Letten resigns amid online commenting scandal in his office

Amid a metastasizing scandal in his office, U.S. Attorney Jim Letten announced his resignation at a news conference Thursday morning, ending an 11-year run in the post.

The troubles for Letten began in March, when landfill owner Fred Heebe -- the target of a sprawling federal probe -- filed a civil lawsuit alleging that prosecutor Sal Perricone had been using an online alias to savage him and other federal targets in comments posted at NOLA.com.

Perricone, the office's senior litigation counsel and a member of Letten's inner circle, quickly admitted his sins and resigned. The matter was referred to the Justice Department's Office of Professional Responsibility for investigation, and the scandal seemed to die down.

In an interview with New Orleans magazine published in August, Perricone insisted the commenting brouhaha started and ended with him, saying no one else in the office had been aware of his activities.

But last month, the scandal reignited with a vengeance, when Heebe filed a second defamation suit, this one claiming [Letten's longtime First Assistant, Jan] Mann had been commenting about federal targets and judges as "eweman" on NOLA.com. Many of the comments by "eweman" were adjacent to comments made by Perricone under one of his online aliases, suggesting a coordinated campaign.

Mann soon admitted she had commented online at NOLA.com, but did not cop to a specific alias.

[Judge] Engelhardt ... issued a stinging order in late November in which he essentially accused Mann and Perricone of untruthfulness.

In particular, the judge was upset by a letter Mann sent him in October in which she wrote: "Prior to the Perricone incident, I was not a follower of NOLA.com postings and had no real sense of what was happening there."

And then there's Netflix Gets Wells Notice Over CEO Hastings’ Facebook Post:

Netflix and CEO Reed Hastings both received Wells Notices from the SEC, according to a filing this afternoon related to something Hastings wrote on Facebook back in June.

Shares are taking it pretty well. The stock is down only about 1.5% in late trading, at $84.85.

A Wells notice is a notification from a securities regulator that it intends to recommend enforcement action and affords the respondent an opportunity to explain why such an action is not appropriate.

Back in July, Hastings wrote on his Facebook page that Netflix users had streamed more than 1 billion hours of video in June. The SEC is apparently looking into whether or not that violates fair-disclosure rules.

What's this about?

Well, there's an SEC regulation known as Regulation Fair Disclosure ("FD"). It was passed in 2000, to prevent what was then a prevalent practice of corporations leaking inside "scoops" about their business to favored market analysts, who then used their inside information to make stock recommendations. The whole thing became incredibly manipulative during the whole dot com bubble, when these market analysts purported to rely on proprietary information to cheer favored stocks (i.e., the ones their employers did business with), and then there was a big tech stock crash, so the SEC passed Reg FD, which basically says that if the company gives material information to someone, it has to give it to everyone - no more selective leaks.

There's a fairly regimented mechanism by which companies release new information to the public. They file it with the SEC - and those filings are available electronically - and they use particular forms for particular types of information. Generally, if new information comes up suddenly, it's released on Form 8-K.

At the same time, as we all know, most companies now maintain a Facebook page, where they post little PR updates. Which is what happened when Netflix's CEO posted this:

Congrats to Ted Sarandos, and his amazing content licensing team. Netflix monthly viewing exceeded 1 billion hours for the first time ever in June. When House of Cards and Arrested Development debut, we'll blow those records away! Keep going, Ted, we need even more!

Netflix's Facebook page has over 200,000 followers - many of whom are reporters and bloggers. And they picked up the story and Netflix's stock price rose. But Netflix never formally issued a press release, and it did not file any 8-Ks with the SEC.

In response, the SEC just issued a notice indicating that it intends to bring a civil action against Netflix and its CEO for violating Regulation FD. Now, it sounds like the SEC doesn't intend to ask for any monetary penalties - it only wants to issue a C&D order or a civil injunction, so Netflix won't take much of a hit - but, it still raises eyebrows.

On the one hand, Netflix's position is - our Facebook page has 200,000 followers! How much more public do you need?

But I assume the SEC's position is something like - if you're an investor looking for information about Netflix, you might reasonably want to go only to official sources of info - SEC filings, press releases, that sort of thing. You wouldn't necessarily expect relevant information to be released on a Facebook page. And that would mean you'd be at an unfair disadvantage when trading - especially since people can trade on new info very, very quickly. The difference may only be for a few minutes, but that's enough.

But on the third hand, lots and lots of companies have Facebook pages and blogs and the line between "cute bit of positive PR" and "material information that should have been filed with the SEC" might be hard for them to navigate, especially given the informal nature of blogging.

But on the fourth hand, what if Netflix had used its Facebook page to announce its quarterly earnings, which is a major piece of market moving information? Or even something more drastic, like an impending merger or bankruptcy?

So, it's a quandary.

Bank of America CEO Brian Moynihan Apparently Can't Remember Anything

MBIA sued Bank of America (which acquired Countrywide in 2008), claiming that Countrywide lied to MBIA about its supposedly strict underwriting standards, when in fact the firm was cranking out mortgages hand over fist, without doing any real due diligence at all.

In the case of Bank of America, MBIA has long wanted to depose Moynihan because it was precisely Moynihan who went public with comments about how B of A was going to make good on the errors made by its bad-seed acquisition, Countrywide.... In this long-awaited interrogation ... Moynihan does a full Star Trek special, boldly going where no deponent has ever gone before, breaking out the "I don't recall" line more often and perhaps more ridiculously than was previously thought possible. Moynihan seems to remember his own name, and perhaps his current job title, but beyond that, he'll have to get back to you.

In the deposition, attorney Peter Calamari of Quinn Emmanuel, representing MBIA, attempts to ask Moynihan a series of questions about what exactly Bank of America knew about Countrywide's operations at various points in time.

Early on, he asks Moynihan if he remembers the B of A audit committee discussing Countrywide. Moynihan says he "doesn't recall any specific discussion of it."

He's asked again: In the broadest conceivable sense, do you recall ever attending an audit committee meeting where the word Countrywide or any aspect of the Countrywide transaction was ever discussed? Moynihan: I don't recall.

Calamari counters: It's a multi-billion dollar acquisition, was it not?
Moynihan: Yes, it was. Well, isn't that the kind of thing you would talk about?
Moynihan: not necessarily . . .

This goes on and on for a while, with the Bank of America CEO continually insisting he doesn't remember ever talking about Countrywide at these meetings

The exasperated MBIA lawyer tries again: If it's true that Moynihan somehow managed to not know anything about the bank's most important and most problematic subsidiary when he became CEO, well, did he ever make an effort to correct that ignorance? "Do you ever come to learn what CFC was doing?" is how the question is posed.

"I'm not sure that I recall exactly what CFC was doing versus other parts," Moynihan sagely concludes.

The deposition rolls on like this for 223 agonizing pages.

Just to be clear, Moynihan was paid $15 million in cash and stock in 2010 (a figure that doesn't include various benefits, pension contributions, etc). And apparently, for that kind of money, you still don't have any responsibility to keep track of little things like disastrous multi-billion dollar acquisitions.

Matthew Yglesias:

Polling suggests that the Latino problem for the GOP is deeper than immigration. ... Just 12 percent of Latinos support a cuts-only approach to deficit reduction, and only 25 percent want to repeal Obamacare. Only 31 percent of Hispanics say they’d be more likely to vote for a Republican who supports the DREAM Act. This isn’t to say Latinos aren’t eager to see immigration reform, it’s just that the lion’s share have bigger reasons for rejecting the GOP.

[P]erhaps the most telling exit poll result about Hispanics is the almost identical thumping Romney took with Asian and Jewish voters, and even more so with black voters. ... As Tom Scocca wrote last week, all kinds of people vote Democratic, and it’s the Republicans who rely on a narrow ethnic niche to win. The real issue isn’t Democrats courting minority “special interests” (indeed, as an economic matter Latin American immigration is good for everyone except Americans who primarily speak Spanish), it’s Republicans who use targeted outreach to help boost their share of the white vote despite a generally unpersuasive message. Viewed in that light, the anti-Sotomayor demagoguery becomes far more comprehensible. Far from an unforced error, it’s part of a reasonably effective strategy to ensure the loyalty of white voters without altering an economic agenda that’s relentlessly biased toward the rich.

This is just what I was saying in my earlier post - the GOP relies on racial resentment to sell its economic policies, which is why it's in such a tight spot now. I'm reminded of how, after the financial collapse in 2008, the first, immediate reaction of the GOP was to blame everything on overregulation that forced banks to make bad loans to black people. You could not hope for a more clear illustration of the GOP strategy: persuade white voters to support its economic agenda by convincing them that any government action benefits blacks at the expense of whites.

Meanwhile, here you can read about a federal judge's reaction to the continuing attempts of Ohio's Jon Husted to disenfranchise voters.

And here is a second QOTD from Senator-elect Mazie Hirono:

“I bring quadruple diversity to the Senate,” Hirono said at a rally earlier in the campaign. “I’m a woman. I’ll be the first Asian woman ever to be elected to the U.S. Senate. I am an immigrant. I am a Buddhist. When I said this at one of my gatherings, they said, ‘Yes, but are you gay?’ and I said, ‘Nobody’s perfect.’”

And finally, just for rivkat:

Why do billionaires feel victimized by Obama?

If you can stomach it. And to go along with, Billionaires made from scratch? Hardly

I pay all the taxes that are legally required and not a dollar more. I don’t think you want someone as the candidate for president who pays more taxes than he owes.

-- Mitt Romney, before voluntarily understating his charitable deductions, thereby inflating his 2011 taxes due

In Prosecutors, Debt Collectors Find a Partner

The letters are sent by the thousands to people across the country who have written bad checks, threatening them with jail if they do not pay up.

They bear the seal and signature of the local district attorney’s office. But there is a catch: the letters are from debt-collection companies, which the prosecutors allow to use their letterhead. In return, the companies try to collect not only the unpaid check, but also high fees from debtors for a class on budgeting and financial responsibility, some of which goes back to the district attorneys’ offices.

The practice, which has spread to more than 300 district attorneys’ offices in recent years, shocked Angela Yartz when she was threatened with conviction over a $47.95 check to Walmart. A single mother in San Mateo, Calif., Ms. Yartz said she learned the check had bounced only when she opened a letter in February, signed by the Alameda County district attorney, informing her that unless she paid $280.05 — including $180 for a “financial accountability” class — she could be jailed for up to one year.

Debt collectors have come under fire for illegally menacing people behind on their bills with threats of jail. What makes this approach unusual is that the ultimatum comes with the imprimatur of law enforcement itself — though it is made before any prosecutor has determined a crime has been committed.

Prosecutors say that the partnerships allow them to focus on more serious crimes, and that the letters are sent only to check writers who ignore merchants’ demands for payment. The district attorneys receive a payment from the firms or a small part of the fees collected.

Consumer lawyers have challenged the debt collectors in courts across the United States, claiming that they lack the authority to threaten prosecution or to ask for fees for classes when no district attorney has reviewed the facts of the cases. The district attorneys are essentially renting out their stationery, the lawyers say, allowing the companies to give the impression that failure to respond could lead to charges, when it rarely does.

The partnerships have proliferated from Los Angeles to Baltimore to Detroit, according to the National District Attorneys Association, as the stagnant economy leaves city and state officials grappling with budget shortfalls.

Seriously, the debt collection industry oh my god.