One More Example of How We're the Most Taxed Nation on Earth

I have written a great deal in the past on taxation, for instance Taxation and Morality. I have also suggested that people generally underestimate - vastly - how much tax they actually pay. This is because they focus on personal income tax rates to the exclusion of everything else - property taxes, sales taxes, state & local taxes, licenses, fees, etc., etc. The political/bureaucratic class is very efficient at spreading and hiding the pain so you're never completely aware of just how much you're sending their way.

A great example was handed to me just yesterday across the counter at the Enterprise Car Rental office at Denver International. I had rented a Jeep Grand Cherokee for two days for the all-time awesome rate of $7.43 a day. When I got the bill, it came to $98.50! Whatchoo talkin' 'bout, Willis!?

Let's break it down:

Basic charge                           $14.86 (7.43 x 2)
Collision Damage Waiver          29.98
Accident Insurance                   10.00
Supplemental Liability               23.90
Road Safety Program Fee           4.00
Facility Use Fee                         3.20
Concession Recoup Fee              5.42
Sales Tax                                  7.14

Total                                        98.50

The bottom four items are taxes, plain and simple (the Denver Airport is a public facility). They total $19.76, which is more than the rental cost!

The other biggie was insurance, totaling a whopping $63.88. Yes, it's optional, but it really isn't. I would argue this is, at least in part, a tax as well. It is an artificially high number because of our completely screwed up tort system, a situation which exists solely because trial lawyers are huge political contributors. Your money goes to the plaintiffs bar, and then a chunk is forwarded to their buddies in the Beltway. From where I sit, I'm getting taxed, only this is even worse since with normal taxes there's at least a (small) chance that the money goes to something useful. Here, it goes into the campaign kitties of politicians that I uniformly detest.

(As an aside, no one should interpret this as a swipe at Enterprise, a company that has uniformly excellent service.)

Where Are the Howls of Outrage from the Left Today?

It's awfully quiet out there, considering:

• We sent these guys in to specifically assassinate Osama
• No arrest, no trial, he was unarmed
• The intel came from Guantanamo
• The White House is not denying waterboarding was used (so it was)

Where is Seymour Hersh, saying we sent in a death squad and have blood on our hands?
Where is Keith Olberman, calling Obama a torturer and a murderer?
Where is Cindi Sheehan...where is Cindi Sheehan?

There has been nothing but praise for Obama from the right. Can you imagine the reaction from the left if this operation had been conducted by Bush?

Bin Laden's Death - What Kind of Bump for Obama?

Osama...Dead Man

 We can all rejoice this morning, because that bastard, Bin Laden, is dead. All of us in the New York area lost people we knew and the wound is still fresh. Congratulations to all who had anything to do with this operation, especially the Navy SEALs who put their lives on the line. I wish I could buy dinner for whoever made the kill shot and sent that stone-age coward off to his virgins.

(pause...composing myself...)

That Obama will reap political benefit from this is a given. That's the way it works, and he did give the order. The question is, how much, and how long will it last?

There is an interesting precedent, which is the Camp David Peace Accords, orchestrated by Jimmy Carter in 1978. I went back and looked at the numbers and Carter's approval rating was, at the time, quite near Obama's today: 42% vs. 46%. What ensued was a rapid 10-point bump. I'd guess we'll see about the same for Obama, which will put him well comfortably above the critical 50% level thought to be necessary to secure re-election.

But will it last? Carter's didn't. Four months later, he was back to where he was and then even lower. We can also remember that Bush 41's incredible 90% rating on the heals of his Gulf War triumph fell all the way to 30% in sixteen months. Bush 43 also hit 90% after 9-11 but fell steadily to 58% over a similar 16 months (and would later fall to 26%).

The election of 2008 was highly unusual in that its primary focus was foreign policy. (Yes, the market fell out of bed just before the election, but the lingering wars in Afghanistan and Iraq were the public's primary focus over the long election season.) Most elections are about the economy, and, barring something extraordinary like another 9-11, 2012 will be no different. Obama will live or die based on the unemployment number. And given that his economic policies - particularly his health and environmental initiatives - are massive job killers, I believe his prospects remain tenuous. (In this, I would part company with the prediction futures market which has his re-election odds at 60%.)

Obama should enjoy his moment, because history suggests he'll only be able to enjoy it for a few months.

2012 - The Early Going

I have a remarkable number of friends who have solicited my support for Mitt Romney, here, a full nine months from Iowa. Another has asked me to help throw a Gingrich event. Things are heating up, but I have a policy that I never donate to more than one candidate for a given position. It makes no sense unless you're trying to hedge your bets and curry favor, a practice I find repugnant. (Perhaps overlooked in Atlas Shrugged is that Rand eviscerates the private sector favor-curriers as much as she does government socialists.)

I am at least six or seven months away from deciding on a candidate, and I am completely open right now. Normally, Republicans have this self-defeating habit of picking the "next-in-line," but this time feels different to me. I feel we need to let someone emerge from the crucible of the campaign, the way a relatively unknown Bill Clinton did in 1992. For instance, I plan to take a close look at Gary Johnson, the former Governor of New Mexico. He's a libertarian who favors legalizing pot, but he was also a complete ball-buster on spending while governor. I'm talkin' Dr. No.

I am not, strictly speaking, a libertarian. Historically, I have not favored withdrawing into ourselves, foreign policy wise. But unfortunately, being the world's policeman - pax americana - is no longer an option because we don't have the money. Legalizing pot? I don't favor that either, but there's far more that I like about libertarians than not. On economic matters, their agenda is highly compelling. And here's the thing: they are principled. I know where they stand. No flip-flopping or hidden agendas.

Can we say the same about Mitt Romney? Is he a principled candidate, or would he fall prey to the "sophisticated" and "nuanced" positions of Beltway panjandrums, become one more in a line of spineless purveyors of liberalism-lite like Ford, Dole, and McCain? We just don't know. His words say no, but don't they always during the primaries? His actions, historically, suggest otherwise. (I will say this about Romney: based on the calls I’ve been getting, he seems to have a substantial organizational lead at this point.)

I also plan to look long and hard at Michelle Bachmann and Newt Gingrich, and maybe Mitch Daniels. Bachmann has principles and balls, but can a congressman manage the executive branch? Maybe, but there just might be a reason it's never been done. Gingrich has principles as well, and I'd pay good money to see him mop the floor with Obama in a debate. But is he a manager? Many say no. We'll see how well he can manage a campaign. Mitch Daniels? He's got the management chops, but does he have the fire-in-the-belly? Seems bland. Too bad we can't splice him with Bachmann or Gingrich.

I'll say this, though: this is an election that must be won. A crazy amount at stake, including the Supreme Court.

In the meantime, I'll leave you with the current nomination probabilities, as shown in prediction markets:

Romney            25%

Pawlenty          16%

Daniels             10%

Trump                9%

Huckabee           8%

Bachmann          6%

Huntsman          6%

Palin                  5%

Paul                   3%

Gingrich            2%

Johnson             1%

Forgot to mention Trump or Palin, but that's because I don't think either is a candidate. If either becomes one, my views are this: Trump is a joke with no ideological consistency. Palin is nothing if not consistent, but the media has effectively - and unfairly - branded her in such a way as to make her election impossible. She's a dead end.

In the general, the market says Obama has a 60% probability of winning re-election. I view this as far too high for the simple reason that he’s going to have enormous difficultly with Ohio and Florida, and he’s not winning without those. Also, I believe 20% of America voted for him in 2008 as a fashion statement more than anything – sophisticated person on board – and buyer's remorse runs rampant through that group (many of them here on Wall Street). They have checked the “enlightened” box and don’t need to check it again.

I Love My Ford

I have driven BMWs for years and always liked them. Every three years, I leased a new one. Most recently, I had an X5. I got the impression, though, that that quality gap was closing between American and German cars, particularly with Ford.

So, I did something I haven't done in 25 years: I bought an American car, a Ford Edge:

So far, remarkably, I like it far more than the BMW, and it's $320 less a month. Similar size, but the drive is less truck-like. And the technology is terrific. You can talk to the car like on Star Trek. (No, you can't say, "Tea, Earl Gray," but you can give it all sorts of commands.) The GPS guides you around current traffic conditions, which is nifty, and my iPod is permanently plugged in, hidden away. I can change the ambient interior lighting colors which come on at night (my kids, who constantly play with the touch screen, love this feature and my daughter currently has left it pink).

No, the tech isn't perfect. It's balky sometimes, and often it's easier using a button than talking. But it will improve and the cool factor is there. And I've never had so many people ask me about a car I've owned in my life. I was in a meeting the other day with about 25 people when a straggler walked in and asked, "Whose Ford is that outside? That's a great looking car!"

Ford's ears must be burning. When was the last time people said things like that about their cars? They had great earnings this week, and deserved it. Oh, and they didn't take a dime of bailout money.

Smartphones Speeding Up the Tech Cycle

Flip video recorders were all the rage, what, a few months ago? Now, they are toast. The New York Times on it here:

http://www.nytimes.com/2011/04/13/technology/13flip.html?_r=1&ref=business

The story is quite remarkable. Flip was founded by two guys in San Francisco in 2007. In 2009, they sold to Cisco for $590 million. Now, in 2011, Cisco has shut the product down.

The reason? Smartphones. They are replacing one gadget after another. As I ponder my own iPhone, for me it has replaced:

• cameras
• video recorders
• GPS devices
• clock radios
• white noise machines
• kitchen weather stations
• dictionaries (ok, not a gadget)

And it does a whole lot of things that no gadget ever did, like show me in an instant whether my flight's on time or show me discounts near my current location.

Not everybody carries a smartphone yet, but they will. Smartphone usage is supposed to hit 50% in the U.S. by the end of the year. Ten years from now - maybe five - teenagers will marvel that their parents ever lived in a time when they left home without a computer.

More Nuttiness From San Francisco

A friend just put a house on the market in San Francisco and writes this:

In San Francisco, you must disclose to a potential buyer if a person has died in your house during the past three years. However, another law states that if someone has died of AIDS in your house you are forbidden to disclose this fact. Therefore, if indeed someone has died of AIDS in your house, you have to choose which law to break. Either way, a buyer can sue you!

Your Kid's Teacher, Millionaire

It is becoming increasingly clear that the biggest threat facing our country is not Al Qaeda, the recession, or the Kardashian sisters. It is public sector unions. FDR and others warned us that they shouldn't exist, but we didn't listen. And now your kid's teachers are millionaires. No kidding, but more on that in a moment.

I would argue private sector unions no longer serve a purpose, either (other than slowly bankrupting industries), but at least there is an honest negotiation. Labor and capital. They both need each other to survive, and they can compromise from opposite sides of the table.

With public unions, there is no opposite side. This is something that was lost on 95% of the American public until the last year or so. I can still picture the odious Jon Corzine addressing a crowd of public employees. In full campaign mode, he hollered, "I'll fight to get you a good contract!"

Fight whom? Himself? He's the one who's supposed to represent you and me, after all. The taxpayer.

So you have politicians negotiating with unions, the same unions that will recycle their loot back to the politicians in the form of campaign contributions. And TV ads. And phone banks. And canvassing. And screechy rallies attended by the pliant media. This is completely legal, institutionalized corruption, and it's the kind of thing that, in the private sector, lands you in front of a public prosecutor. But then, we've never held our politicians to the standards to which we hold the rest of society...

Politicians have no incentive to do anything but give away the store. The diffuse interest of the taxpayer is not present at the table. I imagine that in the back of their heads, in a place they rarely allow their minds to wander, they all knew this would lead to disaster. But the odds of this happening on their watch always seemed small. Others could be left to clean up the mess on some other, distant, day.

Welcome to that day.

Many of our states, including my own, New York, are functionally bankrupt, and given the future promises they have made, it is not clear how to solve the problem. In New York, for instance, pension guarantees are protected by the New York Constitution. Good luck changing that.

How big are these promises? Let's get back to my millionaire claim about teachers, which on the face of it, should seem preposterous. Teachers are by far the biggest public employee category, and their contract terms are illustrative of what goes on elsewhere. In my town, a teacher retiring today gets 70%, give or take, of his or her salary for the rest of his or her life. That's about $84,000 a year (not taxed by the state, incidentally). Plus, they get health benefits for their entire family for life. That's worth another $16,000 a year, for a total of $100,000 a year. Live for 25 years and that's a total 0f $2.5 million. Discounted at 4%, it's $1.6 million.

To quote our president, "let's be clear": there is zero difference between this and having an IRA with a value of $1.6 million, except the rest of us didn't demand that taxpayers fund our IRAs.


But it's much worse than that. You see, I have done what few have ever done, something so unsettling I wouldn't wish it on my worst enemy: I have actually read all 115 pages of my town's teachers contract (which is a typical one, by the way).


Here are some of the highlights:

• If you stick around a bit, you make six figures. That's for the 181 days you are contractually liable to work. Most of us work about 250.
• But it's not really 181 days. You get 15 sick days a year. Who gets sick 15 days a year? No one, but that wouldn't be the point. If you don't use the sick days, they go into your "sick day bank," and you are paid for these days when you retire.
• Automatic raises every six months irrespective of performance.
• Five bereavement days a year.
• Four personal days, no questions asked.
• Three religious holidays, which don't include the Christian and Jewish holidays you already get.
• Extra pay for the slightest effort beyond basic teaching duties. Coaching sports, helping with plays, overseeing recess; all the things private school teachers (who make way less) are expected to do for nothing. My personal local favorite: $1339 for overseeing the juggling club.

That's only a taste. 

There is a reason all this is structured this way: to make it very hard for you and me to figure it out. I call it backdoor compensation. We are shocked enough to discover our friendly 2nd grade teacher scoring six figures; imagine how we'd feel if we knew the real number. Teachers unions are vile, but they are not dumb.


Many of us grew up with the Berlin Wall. Its existence seemed a simple fact of life, and few of us had any notion it would disappear in our lifetimes. Then, almost overnight, it was gone. This is the nature of unsustainable paradigms: their outward appearance can remain unchanged for years, but the pressure mounts underneath. When that pressure can no longer be contained, its release is sudden and shocking.


The Berlin Wall moment for public unions is fast approaching.

Rise of the Machines

My family and I watched Jeopardy the other night, where the two greatest Jeopardy champions of all time were challenged by Watson, a really, really smart computer made by IBM. You've probably heard by now that Watson kicked butt. Silicon triumphs over carbon.

I was trying to impress upon my kids the historic nature of what they were seeing, as computers rapidly approach the intelligence level of humans. It won't be long until you won't know if you're talking to a computer or a human over the phone.

This point-of-no-return is sometimes referred to as the "singularity." Computers will understand the subtleties of human speech, even humor and sarcasm. They will make jokes themselves. We will interact with them the same way we interact with people, only the computers will have vastly superior memories, and they will keep getting smarter.

What really kicks things into gear is when computers can improve themselves, because, unlike biological improvement (i.e. evolution), which can take eons, iterations of technological improvement can happen very quickly. All bets are off when this happens, but it's a reasonable assumption that robots may become indistinguishable from humans at some point. Debates will flare up over what "rights" should be accorded to these creations. I see the ACLU getting fired up about this.

If all this sounds like the musings of a teenager who has been watching too much Star Trek, I know. It does. But it doesn't make it any less inevitable.

Is this all a good thing or a bad thing? Depends who you ask. Ray Kurzweil is perhaps the scientist/futurist who has given this the most thought. I highly recommend his book, The Singularity Is Near.

Kurzweil is very excited by the singularity. He says it will allow humans to transcend biology, which, as he points out, is already happening anyway. Think cochlear implants, pacemakers, and artificial hips. How much of us has to be artificial before we are...something else?

Computers are also augmenting our intelligence. Ever settle a dinner table argument by looking something up on your smart phone? There you go.

In fact, smart phones are a development worth pondering. I argue that people in the distant future would love to travel back and see today's world, just as we might love to travel back to see when some caveman learned how to make fire or when Gutenberg first fiddled with movable type. Why? Because this decade marks the first time in human history when essentially everyone started taking their computers with them everywhere. Computers have become an extension of ourselves. The other day I ran a short errand and forgot my iPhone. I had to restrain an impulse to run back and get it. A few years from now, it will be unthinkable.

There's no going back. From this point on, computers will be with us wherever we go, and they will become integrated with our daily lives to the point where going off-grid will be the equivalent of losing one's sight or hearing. Computers become a sixth sense, if you will. One that connects us to everything else.

The integration will start to become physical. For instance, instead of having to carry a device around, perhaps it projects on to the back of your retina. So imagine, for a moment, you're at a party and someone approaches. You know you've met him before but you can't place it. Damn!

Not a problem. A micro-camera implant scans the face and immediately recognizes it, having tagged it previously. Then you see an instant summary of who the person is and how you met them. Inside your eye.

I don't know about you, but I'd find that pretty useful. And I'd no longer have to grab my wife's elbow and whisper, who is this guy again?

Kurzweil, the optimist, predicts this will take us to some pretty cosmic places. Frankly, if I just blurted them out here, they'd seem ridiculous. If you let him build his case, though, most of his conclusions seem almost inevitable. He is nothing if not meticulous in constructing his argument.

Kurzweil's principle insight is that numerous technologies are advancing at exponential rates. Moore's Law, except not just for microprocessors. He argues that exponential growth can have some wildly profound implications, but we don't see them because our minds are programmed to project linearly. That, and exponential growth isn't so noticeable at first.

Consider the Chinese legend of the chessboard. Some clever fellow introduces the game of chess to the kingdom and the emperor is impressed. He is asked what the clever man would like as a reward, to which the man says one grain of rice doubled on each square of the chessboard until the board is full. No problem, says the emperor. One piece, two, four, eight...hey, this guy's not so clever, after all!

Probably somewhere around the middle of the third row it dawns on the emperor that maybe it is he who is not clever. By the end of the third row, he owes 16,777,215 grains of rice for a single square. By the end of the last row, he owes 2 to the 65th power, or more rice than there is in the world.

I think he chopped the guy's head off for making him look stupid.

But the point is, exponential growth can be extremely uninteresting for long periods of time. Then, quite suddenly, it becomes very interesting, indeed. According to Kurzweil (and others), we are at that point right now. Fasten your seat belts.

There are others in the uber-nerd community who have a dystopian take on this. Their godfather is probably Bill Joy. They believe that exponential growth is replete with dangers that can't even be imagined. A lone scientist creating a world-killing plague in his bathtub. Smart machines deciding they don't need us anymore. That sort of thing. (I call that last one the Terminator Scenario. I'll be back.)

I guess the main point here is that the nerds don't seem to be disagreeing on the basic point of exponential growth, merely on its implications. Either way, those implications are profound, and they are in our lifetimes, so it is important for anyone with even the least bit of intellectual curiosity to educate themselves on the basics. Listen to the nerds. Entirely new industries will be born in months and others swept away. It will pay to be on the right side of these trades.

I recommend starting with Kurzweil's book and also Andy Kessler's Eat People. And, to quote one of the vanquished Jeopardy contestants, "I, for one, welcome our new computer overlords."

Mixed Feelings About the "Billionaire's Pledge"

No doubt by now you've heard of "The Giving Pledge." Founded by Bill Gates and the increasingly-irritating Warren Buffett, it is a public pledge to give the majority of one's wealth to charity. You can see who's ponying up here:

The List

How could I possibly have mixed feelings, you ask? It's all good, right?

Not exactly.

The question is not just how much social utility is created by the donation, but how much disutility is created by the extraction of the capital from our economy.

Let's examine both sides of this in the recent pledge by list member Mark Zuckerberg to give $100 million to the Newark public school system. How much utility is being created? Well, none. In fact, it's probably a big negative. Zuckerberg is demonstrably one of the smartest people of his generation, but this gift is one of the dumbest of all time, exceeded only by Ted Turner's $1 billion gift to the United Nations.

Both these gifts are examples of egregiously bad philanthropy, otherwise known as throwing good money after bad. New Jersey public schools are broken, and it's not a problem money can fix. In fact, money allows the problems to persist longer. The problem, in a nutshell, is the teachers unions, which have become a black hole of salaries, benefits, and bizarre work rules. Everything they do is antithetical to the interests of parents and students. $100 million thrown into this swamp will merely postpone the day of reckoning and allow students to be educationally abused that much longer.

Zuckerberg isn't, as we've established, an idiot. He either knows this, or could have figured it out. But that's hardly the point, is it? By some amazing coincidence, Zuckerberg was having some pr problems at the time of the gift, namely a movie called The Social Network that was making him look like a nasty piece of work. $100 million for the kids, a quick appearance on Oprah and 60 Minutes, and presto! All is well again.

The fact is, most philanthropy is accompanied by ulterior motives of some sort. Otherwise, it would all be anonymous, right?

Okay, I can hear you. You say big deal, a little ego-rubbing is a small price to pay. In some cases, I agree with you. Free markets will never solve every last social problem. In these cases, I prefer private philanthropy to solve the problem, because it will likely do a better job of it - and be more accountable - than the government. (In fact, one of the things I detest about big government is that it tends to crowd out effective private philanthropy. Just look at Europe.)

But, as with Zuckerberg and Turner, not all philanthropy solves problems. Sometimes, they make it worse. Philanthropy, poorly conceived, is replete with moral hazard.

It ain't always easy giving money away.


Ironically, I think it's Bill Gates who has his arms around this better than anyone. The Gates Foundation thoroughly analyzes where their money can create the greatest social utility for the dollar. The answer is often less-than-sexy things like mosquito netting in Africa and sewer systems in India.

But let's get back to the other side of the equation, the disutility created by removing capital from our economy. Our billionaires club presumably funds its charitable gifts by selling their company stock, or the stock of other companies. This capital creates jobs. the people that get those jobs pay taxes, buy homes, have families, and otherwise do things that create even more jobs. They even give to charity. It's a virtuous cycle, and there's no charity than can match the social utility of job creation.

For charity to be worthwhile, the social utility of a donation (not always positive, as I've mentioned) must exceed the disutility of the capital extraction from the private sector. This is not always an easy hurdle.

Mark Zuckerberg is in his 20s. He has created not just thousands of jobs at Facebook, but an entire new industry that is having profoundly positive effects. Silicon Valley is a boomtown again, and if our country is to find a way out of our current mess, the Valley will lead the way. But my point is, I don't want Zuckerberg thinking about charity. He's too valuable doing what he's doing. Later in his life, when his years of intense creativity are behind him, he can start giving it all away. I'm sure by then, when he has time to ponder the variables, he will make more intelligent decisions.