Tax Loopholes For Rich Individuals And Corporations Are Mostly A Myth

One of the most common misconceptions is the belief that wealthy individuals and corporations pay less Federal income tax than ordinary individuals. This belief is widely spread by some politicians, the press, and others who believe that the tax system is stacked against ordinary individuals. Indeed, most uninformed observers assume that our federal budget deficit could be wiped out if only the rich and the corporations paid their fair share of taxes. But in fact these beliefs are largely untrue.

Now that's not to say that there are tax "breaks" that treat certain types of incomes, transactions, or expenditures in a more favorable manner. There are plenty of them. But these areas of special treatment were not created by Congress to hand out rewards to their rich campaign contributors, but rather enacted by Congress to promote some social or economic goal. Now you might agree or disagree with the purposes behind these tax breaks, but they are intended to alter public behavior, not pay off cronies, And in fact, dollar wise most of these tax breaks favor the little guy, not rich individuals and businesses.

For example, what is the biggest tax break in the Internal Revenue Code? It's the provision that lets workers exclude the value of employer provided health benefits from income tax, which saves workers (and takes away from the Treasury) $180 billion a year. In second place is the provision that allows taxpayers to delay paying tax on pension and Sec. 401(k) plan contributions until they actually withdraw the funds, which saves workers over $100 billion a year in taxes. In third place? Well, this spot goes to the provision that permits homeowners to deduct the interest expense on the first $1.1 million of mortgage debt, which saves taxpayers $100 billion a year. So the three biggest tax breaks in the Internal Revenue Code go to workers, not business or rich individuals.

But what about the Buffett rule proposed by President Obama, which would make Warren Buffett pay taxes at the same rate as his secretary? Well that makes for terrific sound bites on the news, but in fact there are very few Warren Buffetts and Mitt Romneys out there paying that low tax rate. Indeed, the revenue projections accompanying the Buffett rule proposal is estimated to only raise $3 billion a year in revenues, a pittance compared to the trillions of dollars that the U.S. is in the hole.

Now, there are tax breaks that benefit business, but as noted above there's a reason why Congress inserted them in the tax law. The biggest break is for accelerated depreciation. When a business buys plant and equipment, and other long lived assets for use in their business, U.S. tax law requires that the cost be deducted gradually over the life of the property. Now in some countries, taxpayers are permitted to write the entire cost of the property in the year of acquisition, but U.S. law generally requires a write off over a period between three and forty years, depending on the type of property involved. In recent years, the law has been changed so that the write-off period is less than what the actual useful life of the property, to encourage businesses to invest in more plant and equipment than they otherwise would. Indeed, with the economic downtown, some classes of property were permitted an immediate write off last year. The faster write off compared to the economic life of property produces a tax "break" of $70 billion a year, certainly a sizable amount, but calculated to boost the economy.

Lower rates for capital gains is a big item at $60 billion, but there are problems with raising capital gains rates. First of all, income tax rates are graduated, meaning you pay at a higher tax rate the more you earn (think of being pushed into a higher tax bracket), and capital gains recognized in a particular year often represent the accumulation of several years worth of appreciation at once. Paying tax on $500,000 income recognized in one year produces a much higher amount than the tax on $50,000 a year for 10 years. Consequently a lower capital gains rate merely smoothes out the tax rate in a fair manner. But perhaps more importantly, there have been times where capital gains were taxed at a high rate, and an unexpected, but very disturbing behavior arose. What happened is that people with appreciated assets refused to sell their assets because they didn't want to pay the tax. In essence, people tied up their money in what they already owned, causing great economic inefficiencies. People didn't sell their land to someone who would develop new houses or shopping centers, and they didn't sell their stocks and use the funds to invest in new businesses. It was against this backdrop that capital gains tax rates were lowered to coax people into selling their property and reinvesting the proceeds.

If you're looking for other large dollar tax breaks, there aren't that many more, and against most of them benefit ordinary individuals. The next largest tax breaks are $50 billion for state and local tax deductions for individuals and $40 billion for charitable contributions for individuals. There are no other business tax breaks that come anywhere close to these amounts. There is the research and development tax credit, the low income housing tax credit, clean energy tax credits, the domestic production deduction and a few other narrowly defined tax breaks, but once again they have been created by Congress to encourage taxpayers to engage in specific types of activities desired by Congress.

Of course, then there are those who think that the solution is to raise tax rates. But tax rates are high enough already. I'm certainly not one of the 1 percent, but when I recently received a small bonus, my net pay check was only 60 percent of the gross amount after deductions for federal income tax, state income tax, and payroll taxes. And the 1 percent actually pays more because of the progressive rate schedule. As far as corporate rates go, the United States has the highest corporate tax rate in the world. It is so high that a booklet giving tax and business advice to corporations headquartered in Ireland tells Irish companies selling products and services into the United States to minimize their presence in the United States as much as possible, because of the high tax rates. Indeed, even President Obama recognizes that the corporate tax rate needs to be lowered to avoid having the United States become noncompetitive in the international economy.

Senator Russell Long said it best many years ago. "Don't tax you, don't tax me, tax that man behind the tree." The man behind the tree is the guy benefiting from tax breaks and loopholes. And he's about as real as the tooth fairy and the Easter bunny.

No Teacher Left Behind

While "No Student Left Behind" may have a mixed record, it is clear that "No Teacher Left Behind" is a rousing success, particularly in the Los Angeles Unified School District. At least in the LAUSD and other school districts in California, aside from the uncertainty of layoff faced by teachers with lesser seniority in lean budget times, experienced tenured teachers effectively have lifetime employment, something which puts them in a select grouping with judges, priests and nuns as those having a lifetime appointment. Indeed, public school teachers have carved out a unique niche for themselves in that that job performance has nothing to do with how much teachers get paid or whether they can keep their jobs. In what other job situation does an employer effectively have little ability to motivate or pressure an employee into doing a better job?

This issue has been highlighted lately by the LAUSD sex abuse scandal, where the surprise is that the teachers involved in fact have actually been fired. Tenured teacher firings are almost unheard of in California. In Los Angeles, 20 teachers are fired annually out of a base of 30,000 teachers. Firing a teacher is a drawn out process that can take up to five years given the state appeals procedures, during which time the teacher receives full pay while not working. Plus the firing process requires an inordinate amount of time and effort to assemble the case to fire a teacher, and which costs tens of thousands of dollars per incident. Even with the backdrop of the recent sex abuse cases, the teachers union rejects calls for making the process of firing teachers any easier. Indeed, legislation passed in 2011 by the California Legislature makes it even more difficult to terminate teachers (in this case, for budgetary reasons) than before. No teacher left behind even caught the attention of Newt Gingrich, who specifically referred to the protection of bad teachers in Los Angeles schools trumping the interests of students in one of the Republican candidates debate..

Indeed, it's appalling to look at some of the policies in effect. For example, the main perpetrator in the Miramonte School scandal was under suspicion for over 20 years for inappropriate behavior with children, yet until the most recent investigation, his slate was clean. Why? Because an agreement between LAUSD and the teachers union dating back 20 years calls for the deletion (though not complete expungement) of any potential charges made against a teacher that are not resolved in four years.

Now there clearly are issues which do make it more difficult to apply a job performance evaluation system with merit pay differentials for teachers when compared to other workplace positions, so extra care is required in crafting a process that can lead to the termination of a teacher. Student performance is in part, sometimes large part, affected by factors beyond the control of teachers. Specifically, parental involvement, or lack thereof, is often the key to the ability of students to perform. Consequently, any performance measurement must clearly allow for this variance. This is why evaluation purely by test scores would not be a valid measurement.

However the inability to rely only on test scores does not mean that there should be no evaluation of job performance at all, and that there are no valid measures of performance. Indeed, the grant of tenure which used to be automatic is no longer the case, and the fact that a significant portion of teachers now are not granted tenure indicates both that unqualified teachers were granted tenure under the old automatic system, and that there are ways to evaluate performance. Every other profession in the country has metrics, whether objective or subjective, which determine whether somebody is doing a good job or not doing a good job. Why not teachers?

A Stroll Through Brooklyn Chinatown

Brooklyn Chinatown is a long shoestring of a Chinatown along 8th Avenue. When we visited Brooklyn Chinatown in the 1990s, it was all of four blocks long from 55th St. to 59th St. When I went back in 2006, it ran from about 48th St. to 61st St. Now it runs from 40th St. to 65th St. The reason for the shoestring development is that "8" is the luckiest number in Chinese culture. I don't know why, it's just something about the way the word sounds. Consequently, everybody wants to open a business on 8th Ave., and very few want to do so on any other street. As a result, Brooklyn Chinatown is now 25 blocks long and about 2 blocks wide.

As late as my 2006 visit to Brooklyn Chinatown, all of Brooklyn Chinatown was north of the N subway stop on 8th Ave.. So when I got off the subway I was surprised to see Chinese businesses to the south, so that's where I immediately headed. My first stop was at Chili & Chilly where I ordered the "fried shrimp dumpling", not knowing what to expect. When the waitress brought out what looked like plain old ha gow, I was a little disappointed. But when I bit into it, I discovered that the ha gow had been deep fried, despite the fact that the wrapper was still its regular white color. It was so delicious! Chili & Chilly was one of many storefront operations carved out of one block long building between 63rd and 64th Streets. I noticed several other eateries on the block, along with the sign "Fei Long Food Court." I had read about this newly opened food court on Chowhound, which was associated with Fei Long Supermarket and was surprised to see that the food court consisted of individual shops on the street, as opposed to a true food court. I was ready to head north on Eighth Avenue but I was a little puzzled about not seeing an entrance to the supermarket. I saw a map on the wall which pointed to the entrance being between two of the storefront restaurants. Funny, I didn't see anything that had looked like a supermarket entrance. I went back to that spot and only saw a narrow doorway covered by long thick vertical plastic strips, like you see sometimes at the entrance to a walk in refrigerator case. I stepped through and guess what? No, not the supermarket, but an indoor food court with a dozen Chinese eateries. And to think I almost missed the real food court if I hadn't been looking for the market. I checked out the various stalls and took a peek at the market which was further inside. I also sat down and ate some of the peanut noodles I had bought at Yuan Bao, which was another one of the exterior eateries.

Finally headed up 8th Street, I stopped at the dim sum house at 60th St. that was called Diamond on Eight (sic) in 2006, but was now Super Lucky Seafood. It was 3 pm, and I was lucky that they did have some beef cheung fun left among a very small dim sum selection. At 58th St., and actually not on 8th, I spotted the cleverly named Restaurant on 58th St. Chinese Restaurant. With a name like that I had to eat there, and since they served lunch specials until 3:30 pm I was able to get a nice order of tofu and fish for less than $6. However, my primary target for this excursion really was Pacificana Restaurant on 55th St., which opened up shortly after my previous trip to Brooklyn. I have often commented that New York City Chinese food is mired in the 1990s, far behind what one finds these days in Los Angeles, San Francisco, and in particular, Vancouver and Toronto. In reading about Pacificana, I thought that it might something better, more akin to our Elite, Sea Harbour, Lunasia, etc. in the San Gabriel Valley. However it was pretty clear that this was not the breakout New York Chinese restaurant I was looking for, with dim sum cart service and fairly ordinary varieties of dim sum.

The other target for the day was going to be Yunnan Flavor, the only Yunnan restaurant in the US aside fron the chain of Yunnan Garden restaurants in the San Gabriel Valley and Las Vegas. However, when I got there, I saw a long line--of mostly caucasians. Uh oh, the place was discovered. I figured it wasn't worth my wait so I trudged further up Eighth Ave. At 46th St. I spotted the strangely named Chen Fulin Kwok restaurant. Historically, Brooklyn Chinatown, like Manhattan Chinatown was exclusively Cantonese. However, the eastern part of Manhattan Chinatown has turned entirely Fujianese in the past 20 years or so. I had read that Fujianese were moving into Brooklyn Chinatown, too, and "Fulin" looked like the word "Fuleen", which is a name adopted by a number of Fujianese owned Chinese restaurants across the eastern, midwest and southern states. (Fuleen appears to be the Fujianese version of the name Fu Lin, a Chinese word which connotes happiness and fortune, and which has been attached to numerous Chinese American restaurants for decades. However, the name Fuleen has only popped up only in the last decade or two, and only in the eastern U.S. where Fujianese dominate the Chinese restaurant business.) I looked at the menu and to my excitement, I saw "fish dumplings", a common and favorite dish of mine at San Gabriel Valley Chinese restaurants but basically unheard of in New York. However, when I tried to order them, the lady said she was out. I then settled for something called "fish ball and fish" soup instead.

Reaching the end of Eighth Ave. Chinatown, I had traversed 25 blocks. Instead of walking the 22 blocks back to the N train at 62nd St., I had discovered you could catch the D train at Ninth Ave., which would drop me off directly under my hotel in Midtown Manhattan. Congratulating myself for being so clever, I headed over the Ninth Ave. I thought the stop was around 45th St., but I didn't see any subway station. Well maybe it was 49th St. No, not there. So I kept on going and headed all the way back to the N train. (As it turns out the subway station was just off of Ninth Ave., but it didn't matter since the D line was out of service for the weekend, as I would find out the next day.) At this point I was very tired, so I went back to the Fei Long Food Court, sat down, and ate up some more of my food. I opened up the fish ball and fish soup to find something that looked like wontons. Hmph. They messed up my order. I started eating them, and about half way through I realized that these won tons had fish skin wrappers, albeit not as elastic as other versions I've had in the past. Just shows you can never tell what the description of a Chinese dish might really mean.

20 For the Price of 1-- Riding The Manhattan Chinatown To Flushing Bus

Well it took longer than I expected, but I finally made it onto the Chinese bus that runs between Manhattan Chinatown and Flushing Chinatown. For one thing, the one way fare is now $2.75 instead of $2.50, but it's still an amazing ride. I had used my previous visits to scout out how the bus operated. This was necessary because it's a rather unusual bus--the bus does not have markings saying where it goes, there are no marked bus stops, and the bus has no schedule but runs Disneyland style--the bus waits until it fills up, then an empty one pulls up behind it.

Shortly after arriving at my hotel in SoHo, I headed on out to the "bus stop". Sure enough there was a row of buses parked on Division St., a couple of people lined up in front of the lead bus, and a longer line behind the next bus. The lead bus appeared full so I got in line for the second bus. We started getting on the bus, and I made sure and asked the driver if this was the bus to Flushing. It was only a couple of minutes before all 20 seats were filled, as required for the bus to take off. With the bus holding 20 passengers and the fare of $2.75, the total fare for a full bus is $55, or exactly the same amount I paid the cab to ride from JFK into Manhattan the same afternoon. 20 for the price of 1, as compared to my single rider cab fare from the airport, is indeed a great value. We got to Flushing in about half an hour. However I've gone to Flushing often enough to know that the bus driver didn't get off at the regular exit from the freeway. Soon I saw he was driving through a residential neighborhood, rather than going to the commercial district, which I found interesting. He eventually stopped to let off a passenger--I don't know whether that was a regularly scheduled stop or by request. (My guess is the latter.) Shortly thereafter we were on Main St., and after a few more stops we reached our destination of 41st Ave.

The purpose of this trip to Flushing was to visit the food court at the New World Mall, which opened up this past summer. When the bus arrived at 41st Ave., I quickly made my way over to Roosevelt St. where the mall was (even though the mall's street address was Main St., a quirk of New York City's street address system). I had a little trouble finding the mall since I first went to the wrong part of Roosevelt, then ultimately discovered that the entrance was half a full block up from Main St. I had previously visited the other Chinese food courts of Flushing, which could be generously described as dives, if not worst. However, this food court is really nice, reminiscent of the food courts one finds in enclosed shopping malls.

The New World food court has 30 different eating places, but I had also done my homework about the mall and found that there were a large number of eateries I wasn't interested in--Sichuan style, Japanese, Korean, etc. Consequently the number of targets was much smaller. My first stop was Noodle Village where I spied the fish cake soup. It was really good--large, rectangular slices of fish cake cooked almost until they were crispy. Next was Hottest 86, not so named because they served spicy food, which they don't, since it's Hong Kong style, but because, well who knows why? (The 86 does refer to their main location on 86th St. in Brooklyn.) There I had the fish fillet in black bean sauce with the crispy coating which was pretty good. Also picked up the glass noodle soup from Sliced Noodle which was great when I sampled it on the spot. I also bought snacks for later, including a pumpkin pastry at Tianjin Foods, and a salty/sweet rough flatbread from Casserole Big Bowl of Noodles. I headed back to 41st Ave. to catch the bus back to Manhattan. This was a little more confusing because I poked my head into the first bus in line, and when I asked the driver whether this was the Manhattan Chinatown bus, he replied "Brooklyn." (Good thing he spoke English.) He then directed me to third bus in line, and I rode back to Manhattan.

While this may sound silly, riding the Chinatown to Flushing bus and visiting the New World Mall food court was a dream come true. I am really impressed with the Chinese bus to Flushing. It's incrementally more expensive than taking the subway to Flushing, which costs $2.25 on the #7 train, but it cuts travel time in half and makes Flushing more accessible to Manhattan than I would have imagined.

The Frenchies Next Door, Explained

The house next to ours sat vacant for quite a while, as the real estate flipper/owner got caught up in the real estate downturn. While he did not buy the house at the peak of the market, he clearly jumped in too soon in putting in $1 million or more in upgrades. Unable to sell the property, he tried renting it out, but at $15,000 a month, there were no takers. After dropping the rental to $12,000 a month, or perhaps more, he finally found a renter summer before last, at least for four and a half months.

Now we still wondered what kind of person would pay that kind of rent, and only for a four month period. The family, husband, wife, small child and dog, were French speakers, and the husband introduced himself as Michel. However they kept to themselves, and indeed the husband wasn't around particularly much. My best guess was that the husband was in Los Angeles temporarily on business, perhaps in the entertainment industry. They had a couple of parties with loud music, once with French music and another time with 70s and 80s oldies, with the parties ending at a decent hour. (This was in contrast to parties thrown by the real estate flipper/owner, which typically started after midnight with rock music blasting and lasting until dawn, sometimes blocking the street with parked cars and taxicabs ferrying guests from the Hollywood clubs after closing.)

After four or five months the Frenchies were gone, and I never had any better indication of who they might have been. Then, a month ago I was flying back from New York on Jet Blue, watching the late night telecast from WNBC-TV with Jay Leno interviewing Jean DuJardin, the star of the movie "The Artist." While I enjoy watching Leno, I'm never up late enough to watch the Tonight Show on Los Angeles time, so this was a treat for me. DuJardin recounted how the movie was shot entirely in Los Angeles, that he had never visited Los Angeles before, and how he became accustomed to the daily commute from the large house he had rented in Los Feliz to various locations in Los Angeles where "The Artist" was filmed. Immediately bells rang. Was the Frenchie next door in town for four months to work on The Artist? That prompted me to try to find out more about the shooting of "The Artist" in Los Angeles, but information was sketchy. The City of Los Angeles did give an award to "The Artist" early this year for being the best movie shot in Los Angeles, but the news story referred to the movie being shot in Los Angeles over a "seven week period". That created some doubt in my mind, though it's possible that with pre-production and post- production periods, somebody involved in the movie might have had to stay in Los Angeles for four months.

However, the solving of the puzzle seems to have come from the telecast of the red carpet pre-Oscar show before the Academy Awards. I'm not one to watch red carpet shows, and indeed I can't recall watching more than a glimpse of any such show. Plus, I was actually at work when the telecast began. But it so happened that my son's girlfriend was fortunate enough to have been invited to attend the Oscar show at the theater formerly known as the Kodak Theater, prior to Kodak's recent bankruptcy filing. So I decided to tape the show to watch later to see if she might have been caught on camera while milling around the red carpet. No such luck, but there was another interview with Jean DuJardin, where he proclaimed his affection for Los Angeles based on his four to five month stay (he actually said "five or four months") in the city shooting the movie. Which means the Frenchie next door, Michel, was probably Michel Hazanavicius, winner of the Best Director Oscar for "The Artist."

Loan Modification Pendulum Swinging Too Far The Other Way?

So the big banks have been getting a bad rep for being uncooperative in giving mortgage loan modifications to underwater borrowers. But at least my experience is that they're giving them too easily. I just found out that Chase put our mortgage under their loan modification program last November. Great, except I didn't ask for the modification. And my total mortgage balance is $17,000. As everybody knows, even a dog house in the Los Angeles is worth at least $17,000, so there was no chance there was an underwater loan.

Indeed, the manner in which I found out about the modification is bizarre. I had recently received a refund check from the Los Angeles County Tax Assessor in the amount of one property tax installment payment. I found this puzzling and initially attributed it to more government inefficiency, theorizing that they mistook the late December payment of the second installment due on April 10 for a duplicate payment of the first (December installment). Before I had a chance to call them up, my annual mortgage statement came in, and it showed a disbursement for property taxes, even though I don't have an impound account with the lender. A call to Chase then revealed that they paid the property taxes because my loan was part of the loan modification program.

Since my loan apparently qualified for an unsolicited modification by the lender, I would imagine that under these new standards, everybody now qualifies.

Worst Traffic Jam in Los Angeles History

Given that traffic, and traffic jams in the Los Angeles are legendary, it is indeed saying something when describing last Sunday's 25 mile jam on Interstate 10 from Palm Springs as the worst in Los Angeles history. But what should be at most a two hour drive turned into an eight hour nightmare to those who were trapped, and to put it in more perspective, the jam area which should be traversed in half an hour took six hours to navigate. Indeed this was many times worst than the predicted Carmageddon from this past summer that never came to pass.

Now there have been massive traffic jams in Los Angeles over the years. Last summer's fire that blocked the Cajon Pass on the highway between Los Angeles and Las Vegas, the closure of the Hollywood Freeway into the San Fernando Valley by a traffic accident perhaps 15 years ago, and the panic during the South Los Angeles riots which turned a 10 mile drive across town into a four hour ordeal are those which come immediately to mind. However, the Palm Springs tie-up is different because it was caused not by some unforeseen disaster, but rather was the direct result of governmental ineptitude. (And where have we heard that story before?)

The story begins when Caltrans decided to make some overnight repairs to Interstate 10 outside of Palm Springs. The repairs were scheduled to be finished by 7 am Sunday morning, plenty of time for the traditionally heavy Sunday traffic flow back from the lower desert into Los Angeles. While the Los Angeles area has miles and miles and miles of roads and highways, there are a handful of locales that are connected by a singular route due to the topography. Los Angeles to Palm Springs is one of these, as similarly is the road to Santa Barbara. However, in a series of blunders that only a governmental agency is capable of committing, the Sunday drive turned into a living nightmare for thousands of motorists.

First of all Caltrans tore up more highway than they could replace on time. What? Isn't one of the first things you do is calculate how long it takes to complete a specified amount of work? How could that happen? That by itself is inexcusible. Then they discovered that the concrete order they placed was never filled. WTF? Don't you check on your supplies before your begin your project? Even a government agency should be able to figure this out. At this point in time you would probably warn residents that there would be a traffic problem so they would stay at home instead of taking to the roads. Of course, Caltrans didn't think about that until it was way too late. And by this time, traffic got so bad that the replacement concrete truck got stuck in the traffic jam that Caltrans created and couldn't get to the construction site for several hours. All in all, a project that was supposed to be completed at 7 am was not finished until 9:30 pm. Motorists were caught in this traffic jam truly of biblical proportions without gas stations, off ramps, bathrooms, and with spotty cellphone service. People ran out of gas, missed flights, missed the Grammy awards, and who knows what else. All thanks to your gasoline tax dollars being put to work.

Of course, Caltrans acted decisively in the wake of this debacle and "transferred" the engineer in charge of the project. This is to be contrasted to private industry where the engineer would have been fired on the spot. Or in Communist China where he would have been executed.