Suggested Answers to the Short Quiz

[johnkarls]

.
Question 1

Is Dana Milbank a long-time OpEd columnist for the Washington Post whose columns are syndicated in 200 newspapers nationwide?

Answer 1

Yes.

Question 2

Did our 2/14/2008 meeting 7 years ago focus on Dana Milbank’s book “Homo Politicus: The Strange and Scary Tribes That Run Our Government” (Random House 2008)?

Answer 2

Yes.

Question 3

Was Dana Milbank’s thesis in “Homo Politicus” that “campaign contributions” are in fact bribes in every sense (except legally) and nothing happens in THE CESSPOOL THAT IS WASHINGTON DC except as the result of bribes (aka campaign contributions)?

Answer 3

Yes.

Question 4

Did our 2/14/2008 meeting also focus on “The Squandering of America” (Knopf 2007) by Robert Kuttner, a 20-year columnist for Business Week who had served, inter alia, as an investigator for the Senate Committee on Banking, Housing and Urban Affairs and as the Executive Director of President Jimmy Carter’s National Commission on Neighborhoods?

Answer 4

Yes.

Question 5

Did Robert Kuttner’s “The Squandering of America” strike the same theme that “campaign contributions” are in fact bribes in every sense (except legally) and nothing happens in THE CESSPOOL THAT IS WASHINGTON DC except as the result of bribes (aka campaign contributions)?

Answer 5

Yes.

Question 6

But did Robert Kuttner’s “The Squandering of America” go one step further in disclosing that “campaign contributions” are just as commonly the result of EXTORTION BY THE POLITITIANS as BRIBERY OF THE POLITITIANS?

Answer 6

Yes.

Question 7

Was Exhibit A for extortion by the politicians Presidential Candidate Barack Obama raising “campaign contributions” in 2007 from hedge-fund managers who wanted to preserve capital-gains tax rates for their compensation as hedge-fund managers?

Answer 7

Yes.

Though President Obama, of course, didn’t invent “this game” but was only forced to play it.

Indeed, for our 2/14/2008 meeting, another example was described in one of the Reference Materials which comprised a 2/14/2008 Editorial in the Wall Street Journal entitled “McCain’s Donor List” the first three paragraphs of which were:

“Banks have made loans against some dubious collateral lately, but John McCain's fund-raising list? That was the security the candidate put down when he took out a $3 million loan in November to get his then-struggling campaign through the primaries. There's a lesson here about campaign finance reform.

“Mr. McCain's candidacy was by last fall in serious trouble, his campaign coffers having drained away. Desperate for cash, the McCain campaign went to the bank for a loan -- in this case Fidelity & Trust Bank of Maryland, which lent $3 million on the strength of Mr. McCain's willingness to document his fund-raising prowess.

“The Arizonan is one of the most influential members of the Senate Commerce Committee, which regulates much of American business, and he would remain powerful even if he lost his Presidential bid. With industries lining up to pay protection money to committee Members, Mr. McCain would not be short of donors to help retire his Presidential campaign debt. Subprime he is not.”

[The remainder of the WSJ editorial can be viewed on http://www.ReadingLiberally-SaltLake.org by scrolling down to the material for the 2/14/2008 meeting, or on-line at http://www.wsj.com.]

Question 8

Did we also study for our 2/14/2008 meeting how it would be malpractice by their tax advisers if Hollywood actresses/actors do not also receive capital-gains tax rates for all of their compensation for participation in movies?

Answer 8

Yes.

The mechanism by which a hedge-fund manager or a Hollywood star would obtain capital-gains treatment was pioneered in the oil industry and is called a “carried interest.”

[Yours Truly was Texaco's Senior Tax Counsel and Director of Worldwide Tax Planning 1974-1987 when Texaco was still a Fortune-Ten Company.]

Indeed the “carried interest” existed in the oil industry long before the institution of American income taxes a mere 100 years ago following the adoption of the Sixteenth Amendment to the U.S. Constitution in 1913.

In the oil industry, a common transaction comprises a partnership (or a contractual arrangement that is treated as a partnership for U.S. tax purposes) pursuant to which an oil company might agree to drill on a property owned by a farmer or a rancher or another oil company which has higher priorities for its drilling budget, in return for a percentage of the combined enterprise.

[Such transactions have always been called, since long before the Sixteenth Amendment, “farm outs” since the property owner (quite often a literal “farmer”) is “farming out” her/his mineral interest to be developed and drilled by an oil company that is said to be “farming in” the mineral interest.]

The ancient tax-partnership theory is that both parties have merely added to their combined “pool of capital” and, therefore, neither has any taxable gain to recognize.

For example, if an oil company earns a 50% mineral interest in a farmer’s property by development and drilling worth $20 million, the farmer is not viewed as having sold 50% of her/his mineral interest for $10 million (the half of the $20 million of development and drilling that benefits the 50% portion of the mineral interest that s/he retains). And the oil company is not viewed as having received a fee in the form of property (the 50% mineral interest that the agreement implies is worth $10 million before any drilling) for providing a drilling service, 50% of the costs of which would then be deductible against the $10 million of property-in-kind revenue.

If the holes are dry, the oil company then writes off its entire $20 million cost of its now-worthless 50% mineral interest. And the farmer has nothing to write off because s/he had no cost for the retained 50% mineral interest which has now been demonstrated to be worthless.

But if the drilling is successful, neither party has taxable gain to recognize immediately upon that success. If neither the oil company (the “carrying party”) nor the farmer (the “carried party”) sells its/her/his mineral interest, each will recognize income as it/she/he sells its/her/his portion of the oil produced.

And if either does sell his mineral interest, which is a capital asset, it/she/he will have a capital gain.

[This unusual tax treatment was probably adopted by the IRS out of pity for the farmers and ranchers. After all, if the oil company in our example were viewed as having received a 50% mineral interest worth (before any drilling) $10 million as a fee for drilling the farmer’s 50% mineral interest that s/he retains, against which the oil company could write off the 50% of its drilling expenses which benefitted the farmer’s 50% retained mineral interest ($10 million), the oil company’s net taxable income would have been $0. But if the farmer or rancher in our example were viewed as having sold a 50% mineral interest to the oil company for the $10 million of drilling that benefits the 50% mineral interest that is retained, the farmer or rancher would have $10 million of taxable income against which the farmer or rancher would have little or no cost to write off. Historically, farmers and ranchers with a multi-million tax bill and NO CASH since the amount received was a drilling service, presented a very sympathetic case. Particularly 100 years ago when U.S. income taxes were invented, and especially because the country was still overwhelmingly agrarian.]

Tax advisers of hedge-fund managers have long since employed this time-honored principle of taxing partnerships for “earning a partnership interest by drilling” to claim that the hedge-fund manager is “earning an interest in the hedge-fund partnership by providing a service, i.e., management.” BUT UNLIKE THE OIL COMPANY IN OUR EXAMPLE WHICH RECEIVED A 50% INTEREST IN THE ENTERPRISE WORTH $10 MILLION AGAINST WHICH IT COULD HAVE WRITTEN OFF $10 MILLION OF ITS DRILLING EXPENSES, THE HEDGE FUND MANAGER HAS NO COSTS TO DEDUCT AGAINST HER/HIS SERVICE FEE IF THE RECEIPT OF AN INTEREST IN THE ENTERPRISE IS RECOGNIZED IMMEDIATELY AS A TAXABLE SERVICE-FEE ITEM OF INCOME.

And at the time of our 2/14/2008 meeting, we observed that virtually all well-known Hollywood stars negotiate for a percentage of the GROSS profits.

[In Ancient Hollywood History, stars negotiated to have fixed fees replaced by percentages of the NET profits. But this lasted for only a very-short time because of the practice of studios to allocate all of their lavish general expenses to otherwise-profitable pictures to eliminate the stars’ profit percentages, producing the old Hollywood adage that “there has never been a Hollywood picture that was profitable.”]

So it would be tax malpractice for the tax advisers of the Hollywood stars not to structure their contracts as a partnership (or a contractual arrangement that is treated as a partnership for U.S. tax purposes) pursuant to which the stars “earn an interest in return for providing a service, i.e., their acting.”

If Hollywood tax advisers are competent, then it is amusing to look at the http://www.imdb.com listing for any Hollywood star because it will almost invariably show several movies that are “announced” or “in production.”

[Tom Hanks, at the moment, has two that have been “announced” (The Seventies and American Gods), two in “pre-production” (Lewis and Clark and Jack Johnson) and two that are in “post-production” (Ithaca and A Hologram for the King).]

It doesn’t take a Sherlock Holmes to conclude that the “announcement date” listed on imdb.com is when the tax partnership (or the contractual arrangement that is treated as a partnership for tax purposes) begins for purposes of qualifying for “long term” capital gains treatment.

However, it should be noted that there is a theoretical possibility that Hollywood tax advisers are incompetent.

And there is also a theoretical possibility that Hollywood movie stars really care about social issues and really care about electing politicians such as President Obama who they believe will implement policies that they favor.

Though a cynic would probably conclude from the output of Hollywood movies, virtually all of which feature violence and sex, or comprise “kiddie flicks,” that the rounding error that present social issues truly reflects the lack of interest of Hollywood stars in social issues (vs. protecting their capital-gains tax rates).

Question 9

Would it also appear that President Obama’s popularity in Silicon Valley (and elsewhere) is caused by the ability of multi-national companies to pay no U.S. income tax on their profits from exporting American jobs, and that not long ago Microsoft alone had amassed more than $1 TRillion in its foreign tax-haven subsidiaries producing media articles about how Microsoft stock was being evaluated by securities analysts as a bank rather than a software company since, for Microsoft, its software business had become the proverbial “teat on the whale”?

Answer 9

It doesn’t take a Sherlock Holmes to answer this question!!!

Question 10

If one were a skeptic, would it require much imagination to suspect that the reason why so many common-sense solutions to our country’s most pressing problems are never adopted is that they present too tempting a target for politicians as a source for “campaign contributions”?

See, for example, our Six-Degrees-Of-Separation E-mail Campaigns posted in the first section of http://www.ReadingLiberally-SaltLake.org to --
-- renew 1968 Executive Order 11387 to halt the export of American jobs, to reduce or eliminate American unemployment, and to cause the real income of American workers once more to rise, or
-- provide the final development costs for thorium fission in order (A) to eliminate global warming, (B) to eliminate the dependence of the U.S. and its allies on members of OPEC (the long-standing Organization of Petroleum-Exporting Countries) and, in the case of Europe, natural gas imports from Russia; and (C) to eliminate the gaping U.S. balance-of-payments deficit and resulting piling up of our foreign national debt -- with an energy source which is incapable of exploding (which is why after a successful 18-month demonstration project in the 1960’s, the U.S. turned instead to uranium and plutonium), for which meltdowns are physically impossible, which has such an incredibly-high burn-up rate that virtually no radioactive waste is produced, and which is so much cheaper than any other energy sources that all of the countries of the world would rush to use it (making unnecessary, for example, the military invasion of such countries as China to prevent them from bringing on line one new monster-size coal-fired electric plant EVERY MONTH!!!).

Answer 10

Of course it would NOT take much imagination!!!

Question 11

Could America’s annual TRillion-dollar budget deficits and its cumulative national debt (now over $18 TRillion which is more than 100% of the size of our economy) both be eliminated virtually overnight if the U.S. government charged the clients of lobbyists what the governmental decisions they are obtaining are worth, rather than letting the politicians “sell” those decisions for “campaign contributions” for only a few cents on the dollar of what they are actually worth?

Answer 11

Probably!!!

Question 12

Upon its founding, was America the laughing stock of Europe because its Articles of Confederation under which it operated until 1789, and its Constitution under which it has operated ever since, both provided (quoting Sec. 9 of Article One of the Constitution which parrots almost ver batim the Articles of Confederation) -- "No Title of Nobility shall be granted by the United States: and NO PERSON HOLDING ANY OFFICE OF PROFIT OR TRUST UNDER THEM, SHALL, WITHOUT THE CONSENT OF THE CONGRESS, ACCEPT ANY PRESENT, EMOLUMENT, OFFICE, OR TITLE, OF ANY KIND WHATSOEVER, from any King, Prince, or foreign State”? [Emphasis added.]

Answer 12

Yes.

Question 13

Was America idealistic in wanting to prevent any of its officials from accepting bribes from foreigners? Was this contrary to common practice in Europe?

Answer 13

Yes. Yes.

Incidentally, traditional Arab culture requires “backsheesh” which Western culture would view as a bribe, but the term “backsheesh” is literally translated into English as “thank you.”

Question 14

Did the Clinton Foundation (aka The Bill Hillary & Chelsea Clinton Foundation) accept, without the consent of Congress, contributions from foreigners?

Answer 14

Yes.

[Technically, The Bill Hillary & Chelsea Clinton Foundation was known as the William J. Clinton Foundation while Hillary was Secretary of State. The fact that they are the same legal entity which merely underwent a name change can be seen from their IRS Tax Returns (Form 990), all of which over the years have the same Taxpayer ID Number = 31-1580204.]

Question 15

If Hillary Clinton was prohibited by the U.S. Constitution from accepting any gifts, etc., from foreigners without the consent of Congress while she was Secretary of State, is it acceptable for such gifts to be accepted WHILE SHE WAS SECRETARY OF STATE by the foundation of her husband and daughter -- a foundation on whose Board she herself has served both before and after her term as Secretary of State and whose Board is currently listed on the Foundation’s official website as including “Secretary Hillary Rodham Clinton” as if to emphasize, however erroneously, that she still is the Secretary of State (and, perhaps, imply that she is the future President of the U.S.)?

Answer 15

What is the definition of “bag man”???

Must a “bag man” be a male human being -- or could it be a female human being and could it even be a legal entity such as a foundation???

Question 16

In other words, instead of donating to the worthy causes supported by The Clinton Foundation either directly or through other organizations, why are the foreigners donating to The Clinton Foundation? Do they expect a quid-pro-quo for routing their donations through The Clinton Foundation?

Answer 16

What do you think??? Let’s discuss!!!

Question 17

Do the Clintons receive compensation for their work for their Foundation?

Answer 17

No.

But it does appear that their Foundation pays for considerable amounts of their expenses, such as travel.

Though considering the security requirements for all three Clintons, there does NOT appear to be anything out of line.

Question 18

Aside from the fact that the U.S. Constitution prohibits gifts from foreigners but says nothing about “campaign contributions” (aka bribes) by Americans, should there be a difference between the two?

Answer 18

What do you think??? Let’s discuss!!!

Question 19

Is adequate protection provided by American legal decisions which require an explicitly-agreed quid-pro-quo for successful criminal prosecutions?

Answer 19

Of course not!!!

Question 20

In other words, aren’t Dana Milbank and Robert Kuttner correct that everyone in Washington DC knows how to “play the game”?

Answer 20

Yes, unfortunately everyone does know how “to play the game”!!!

Question 21

In other words, a politician who accepts a “campaign contribution” from a lobbyist and then fails to do what the lobbyist wants, though the politician could never be sued for Breach of Contract because there is no explicit quid-pro-quo, will NEVER receive another “campaign contribution” from ANYONE, not just the lobbyist whose client was “double crossed”?

Answer 21

Such a politician would have to have a NEGATIVE I.Q. (not merely a below-average I.Q.)!!!

Question 22

Is our author, Zephyr Teachout, unfairly criticizing the U.S. Supreme Court for its Citizens United decision which accorded labor unions and corporations First Amendment “Free Speech” rights?

Answer 22

Yes.

Question 23

In other words, isn’t it true that courts are supposed to try to follow their previous decisions (“stare decisis”) so that the citizenry believes that there is a “rule of law” rather than ad hoc legal decisions based on pure whim?

Answer 23

It would be nice for courts to be able to apply one set of principles to parties we don’t like and another to parties we do. But, at least in theory, that is not the way they should operate.

[The reason for the qualifier “at least in theory” is set forth in painful detail in the third and fourth sections of http://www.ReadingLiberally-SaltLake.org.]

Question 24

And isn’t it true that corporations are accorded some Constitutional rights such as “Free Speech” while being denied other Constitutional rights that are only accorded to human beings?

Answer 24

Yes.

Question 25

And hadn’t the U.S. Supreme Court already accorded The NAACP “Free Speech” at the height of the Civil Rights Movement when The NAACP was advertising for oppressed African-Americans to become legal clients of The NAACP in violation of state laws prohibiting the solicitation of legal clients?

Answer 25

Yes.

On p. 4 of the text of the Supreme Court’s decision in Citizens United v. Federal Election Commission posted on http://www.ReadingLiberally-SaltLake.org, the “syllabus” (aka summary of the court’s opinion) states:

“The Court has recognized that the First Amendment applies to corporations, e.g., First Nat. Bank of Boston v. Bellotti, 435 U. S. 765, 778, n. 14, and extended this protection to the context of political speech, see, e.g., NAACP v. Button, 371 U. S. 415, 428–429.”

NAACP v. Button is discussed in greater detail in the body of the opinion.

Question 26

Now that Citizens United has crippled Campaign-Finance Reform Legislation, what can be done about what Dana Milbank and Robert Kuttner call “The Best Government Money Can Buy”?

Answer 26

What do you think??? Let’s discuss!!!