Thursday, February 17, 2011
Bash the Bank
A power has risen up in the government greater than the people themselves, consisting of many and various and powerful interests, combined into one mass, and held together by the cohesive power of the vast surplus in the banks.
—John Caldwell Calhoun, Speech 1835
For the last quarter of 2010, JPMorgan Chase (JPMC) had a 47% jump in profits and since 2010 was such a good year it set aside $9.73 billion for its investment bankers’ bonuses. It is easy for pundits to decry such bonuses and at the World Economic Forum in Davos the bank’s president, Jamie Dimon, struck back at critics. He deplored what he described as “banker bashing” and said that bankers have become political whipping boys. He doesn’t seem to know why that is. To figure it out he could go back to JPMC’s actions in the early days of the foreclosure crisis and its unwillingness to help homeowners, whose homes were in foreclosure, modify their mortgages, an unwillingness described here and in countless other publications.
Alternatively Mr. Dimon might have considered events that would be described by Stephanie Mudick, an executive vice president in JPMC’s Office of Consumer Practices when testifying before the House Committee on Veterans Affairs on February 9th. She testified that the bank had overcharged approximately 4,500 members of the U.S. military on mortgages and had “accidentally” foreclosed on 18 service members’ homes. Stephanie expressed the bank’s “deepest regret over the mistakes we’ve made in applying these protections [for service members]. I commit to you that we will get this right.” (On February 15th it was announced that the bank would make amends by, among other things, not foreclosing mortgages on any active-duty military personnel. This will, of course, not help those who “accidentally” lost their homes or were overcharged. As one lawyer representing service members who had been cheated by the bank observed: “When I was prosecuting cases, I never had a defendant who got caught breaking the law that didn’t want to give back what they took and promise to lead a better life.”)
When berating his critics, Mr. Dimon knew about the lawsuit that was filed against the bank by Irving H. Picard in early December 2010. Mr. Picard is the bankruptcy trustee who is making claims against those who were unjustly enriched by their dealings with Bernie Madoff. According to Bloomberg News, in his suit against the bank, Mr. Picard alleges that the bank knew of Madoff’s fraudulent operation and was, according to Mr. Picard’s attorney, “willfully blind to the fraud, even after learning about numerous red flags surrounding Madoff. JPMC was at the very center of that fraud, and thoroughly complicit in it.” Some people might think the allegations in the suit would have chastened Mr. Dimon. On the other hand, maybe not. After all, a plaintiff can say anything he or she wants in court pleadings and that does not make them true, even when Bernie Madoff says the banks knew what was going on. And if those episodes did not help Mr. Dimon understand why people bash banks, he might consider the matter of the Blackstone Hotel in Chicago and New Markets Tax Credits (NMTC).
The Department of the Treasury describes the NMTC program saying it “permits taxpayers to receive a credit against Federal income taxes for making qualified equity investments in designated Community Development Entities (CDEs).” The credit totals 39 percent of the cost of the investment and is claimed over a seven-year credit allowance period. An organization that wants to receive money under NMTC must demonstrate “a primary mission of serving, or providing investment capital for low-income communities or low-income persons as defined by the Department of the Treasury. The determination as to whether an area meets the requirements is based on the most recent census which is the year 2000. As Bloomberg Markets Magazine reported on February 11, 2011, because of the use of old census data many high-end developments have occurred with NMTC funds that were not supposed to be the beneficiary of those funds. The Blackstone hotel is one of them. It opened in 2008 after a $116 million dollar renovation. Rooms at the Blackstone today go for up to $699 a night. Very few low-income persons stay there.
Prudential Financial Inc. developed the property and got $15.6 million in tax credits. JPMC was the lender and handled construction financing receiving fees and interest from the project. A spokesman for JPMC told Bloomberg Markets Magazine “We think these projects help the community.” He’s probably thinking of employment opportunities since when it opened it hired 200 workers.
As Cliff Kellogg, a former senior policy advisor at Treasury discussing the Blackstone project told Bloomberg, “Things like luxury hotels are entirely contrary to what we set out to do.” It’s probably contrary to what Mr. Dimon’s bank set out to do when it participated in the project, helped Bernie Madoff cheat investors, cheated soldiers or accidentally threw them out of their homes. As the saying goes, bad things happen. That’s no reason to bash those who received $9.73 billion in bonuses. Just ask Mr. Dimon.
Wednesday, February 9, 2011
The Tax Man Cometh
It was a true. . . as turnips is. It was as true. . . as taxes is. And nothing’s truer than them.
— Charles Dickens, David Copperfield
Talk about stifling entrepreneurship. And it’s not like they’re being paid a lot of money and certainly not enough to provide a nest egg if and when they emerge into the outside world. Just consider what they’re earning (aside from the money they’ve earned through their creative approach to taxes.) According to a 2002 Economic Policy Institute study, federal prisoners who work for Federal Prison Industries then earned between $.23 and $1.15 anhour and the average wage was $.92 an hour. In Massachusetts today, prisoners earn $.50 to $5 a day for the menial tasks they perform. (In July 2010 in Massachusetts, Bristol County Sheriff Thomas Hodgson and some Republican lawmakers presented a proposal) to quit paying prisoners for their work. According to one of the legislators, that would save the state $3 million a year.) Whether it’s the 2002 amounts or Massachusetts today, neither figure is enough to provide the prisoner with a nest egg for that happy day when he or she emerges from prison’s confines a free person. Prisoners may well be puzzled as to why creativity within prison walls is being discouraged and, indeed pursued. To them it may well seem mean-spirited.
Modeling themselves on many good citizens outside prison walls, prisoners have discovered the opportunity for wealth accumulation through tax fraud. According to recent reports, prisoners have, since 2009, filed 44,944 fraudulent tax returns and those returns have netted the prison filers more than $295 million in tax refunds. Of course that is chicken feed compared with the tax fraud committed by upstanding citizens who are not incarcerated. A good example of this is offered by Chicago lawyer, Edwin Meyer.
Mr. Meyer helped create and sell fraudulent tax shelters that cost the government billions of dollars in tax revenue, a sum that makes the work of the criminal population already incarcerated seem insignificant if not downright paltry.
Notwithstanding the insignificant amount collected by creative prison inmates, in January 2010, Senators Charles Schumer and Charles Grassley asked the IRS to crack down on prisoners committing tax fraud. It is, of course, something of a challenge to get prisoners to stop engaging in criminal activities since they are already in prison and the worst that can happen if they are found guilty of extra-curricular criminal activities, as it were, is that they’ll simply stay put longer than they otherwise might have and if subject to a life sentence, that amounts to no punishment at all. The threat of having their wages garnished in order to recoup the millions they have acquired, is also not very real. Nonetheless, from the taxpayers’ perspective it is worth cracking down on tax fraud wherever it is found and the only question taxpayers may have is why it was so easy for prison inmates to file fraudulent tax returns.The answer, according Senator Schumer who is cited in BNA’s Daily Tax Report, is that in the past, even after the IRS learns of the prisoners’ activities, although it can “share taxpayer information with the Federal Bureau of Prisons in order to punish prisoners [who have filed fraudulent tax returns] prison officials do not want to carry out additional enforcement unless more details about the charges can be released. Because some of those details include sensitive information, IRS has declined to share any information with the prisons bureau.” It is not clear what kind of sensitive information is contained in a fraudulent tax return. The IRS knows the answer since it has not been sharing information with the Bureau of Prisons. Senator Grassley, the incoming ranking member of the Judiciary Committee says that the failure of the IRS and the prisons bureau to share information suggests that “prisoner tax fraud is a low priority for the federal government.” The good news is, that is about to change and, as a result, it may become harder for prisoners to collect large sums of money by filing fraudulent tax returns.
According to a report by the Associated Press on February 3, 2011, the IRS and the Federal Bureau of Prisons have signed a memorandum of understanding that should slow, if not eliminate the ability of prisoners to accumulate nest eggs by filing fraudulent tax returns. The memorandum is designed to eliminate the confidentiality issue that had theretofore thwarted information sharing. According to Ed Ross, spokesperson for the Bureau of Prisons, the memorandum of understanding “allows us to receive information from the IRS when they suspect inmates have filed fraudulent taxes. Because of privacy issues, we were unable to do that prior.” That is great news for the taxpayer but somewhat less good news for the entrepreneurs among the prison population. It means they are once again back to the meager hourly wages they were earning before discovering the joys of tax fraud.
Wednesday, February 2, 2011
Representative Smith Redefines Rape
In Germany, Prussia must make moral conquests through legislation.
— Wilhelm I, Speech to the Cabinet (1858)
It’s important to get going on legislation early in a session of Congress since there’s so little time for people to work. January has 21 days in which Congress could work if it chose, but members of the House of Representatives were in session for only 11 of those days. The days they were not in session they were off doing important things like not being in Washington. Representative Joe Walsh, a newly elected Republican Congressman from Illinois explained it well when discussing why he sleeps in his office saying: “I think it’s important that we show we don’t live here, we are not creatures of this town . . . .I don’t want to live in this town. I want to be home all the time.” Working for only 11 days helped him meet his goal.
The first thing the House did was to vote to repeal the health care law. That was House Bill 1. Less noticed was House Bill 3 that would redefine rape for purposes of addressing funding for abortions. It is hard to underestimate the importance of this legislation. At a time when Republicans have promised to address pressing issues that have been ignored while Democrats ruled the roost, it is comforting to see that there will still be time to address issues that no one knew were pressing but clearly are to some members of the House. Redefining rape is one of them. It is not as pressing an issue as it would be if the dreaded Sharia law that Oklahomans bravely tried to outlaw were part of our national culture. Under Sharia law in some countries, a woman who claims to have been raped may find that instead of the perpetrators being charged with a crime she may be charged as an adulteress and stoned to death. If the United States had that kind of a law it would be easy to understand why Representative Chris Smith of New Jersey believed the issue so important as to warrant being the third piece of legislation introduced in House. Of course, Shariah law does not obtain in the United States and there was not an obvious reason to try to redefine rape for purposes of federal law this early in the session.
House Bill 3 is called the “No Taxpayer Funding for Abortion Act. Its sponsors appear to include most of the Republican members of the House of Representatives including the two Mr. Kings, the one from New York who is going to hold hearings on the evil posed by Muslims in our society and the Iowa Mr. King who wants to deprive children born in the United States to illegal immigrants, the citizenship guaranteed them by the 14th Amendment to the United States Constitution.
Mr. Smith’s goal is to make it harder for women who have, for example, become pregnant because of a date rape, to obtain abortions unless they can pay for them themselves. In addition to the usual proscriptions about paying for abortions Mr. Smith’s bill adds additional restrictions on how abortions are paid for. If money in a health savings account is used to pay for an abortion, the amount spent is to be taxed as income to the patient. Medical expenses incurred in an abortion cannot be deducted on a tax return as medical expenses and money paid into a health benefit plan that includes abortion coverage cannot be deducted on the individual’s tax return. Those are just a few of the restrictions proposed by Mr. Smith. Exceptions to the foregoing are made if the “pregnant female was the subject of an act of forcible rape or, if a minor, an act of incest.” There is also an exception for health related abortions.
In responding to the president’s State of the Union speech, Michelle Bachmann complained that we have a bureaucracy that “tells us which light bulbs to buy.” That does not prevent her from supporting legislation that tells “pregnant females” what rights they have with respect to their bodies. Insofar as Ms. Bachmann and her colleagues are concerned, those women’s bodies are fair game for the drafters of the legislation. The bill does not attempt to define “forcible rape, ” leaving open to question whether the victim must prove that she gave her assailant a black eye to prove that the rape was forcible.
David Bryden was a professor at the University of Minnesota law school when he wrote an article in 2009 titled “Redefining Rape.” In the introductory paragraph he says that: “The new consensus is that the very definition of rape reflects patriarchal attitudes that deny justice to victims of sexual coercion.” If House Bill 3 had been introduced at the time he wrote his article he would probably have wanted to add a footnote inviting the reader to look at House Bill 3 as an example of this. Mr. Smith might want to read the article. It would provide an insight he and 172 of his fellow House members are obviously lacking.