We recently posted a blog about the increase in poaching by terrorist groups. These groups sell the ivory obtained on the black market to fund their terrorist activities.
Researchers from Oxford University recently discovered that elephants emit a distinct low rumbling sound when humans approach and believe that it may be a warning single to other elephants that “humans” are nearby. In 2010, researchers discovered elephants also have a distinctive “bee alarm rumble”, which, when played, causes the animals to flee while shaking their heads. The researchers believe that the head shaking is likely an attempt to kill the insects.
The fact that elephants appear to have two different rumble sounds for bees and for humans have led to them to think that may have a more sophisticated verbal communication than previously realized.
“The acoustic analysis [of the rumbles] showed that the difference between the ‘bee alarm rumble’ and the ‘human alarm rumble’ is the same as a vowel-change in human language, which can change the meaning of words (think of ‘boo’ and ‘bee’),” Dr. King explained to the Oxford blog. “Elephants use similar vowel-like changes in their rumbles to differentiate the type of threat they experience, and so give specific warnings to other elephants who can decipher the sounds.”
Accordingly to a recent report by the Convention on International Trade in Endangered Species, as many as 20% of Africa’s elephants could be killed in the next 10 years if illegal poaching continues at the current rate. 25,000 elephants were poached in 2011 and 22,000 in 2012.
Revenge Is LLC… today releases its first video in a series called Michael’s Musings. In this first video – “Obamacare Goes To The Dogs” – Michael, a dog, and his furry companions explore the benefits of Obamacare while at the same time proposing a hilarious new “essential health benefit.” Light hearted and high spirited, Michael and his companions educate and entertain. http://youtu.be/E_VYRCRI0c4
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Death of the Honeybee
If the bee disappeared off the surface of the globe then man would only have four years of life left. No more bees, no more pollination, no more plants, no more animals, no more man.
A quote often ascribed to Albert Einstein
It is not known whether the above quote was really made by Albert Einstein but we do know that some mysterious disease has wiped out about a third of the commercial colonies of honeybees since 2006. This phenomenon is known as colony collapse disorder or CCD.
Honeybees are a critical component of the production of crops that make up about ¼ of our diet and, according to the Agriculture Department, pollination by honeybees adds about $15 billion in the value of crops each year. An international study of 115 food crops grown in over 200 countries showed that 75% of the crops were pollinated by animals, especially by bees.
Many possible causes have been studied and most researchers suspect that a host of viruses, parasites and possibly other factors like pesticides are working together to kill the bees.
A recent study suggests that the mass die-offs of honeybees may be linked to a rapidly mutating virus that jumped from tobacco plants to soy plants to bees. The researchers found that the increase in honeybee deaths generally starts in autumn and peaks in winter and may be correlated with increasing infections by a variant of the tobacco ringspot virus.
Bees are a keystone species and vital to the systems that support food production for human beings. Their rapid destruction is a poignant example of the inter-relationship and importance of the many species in our eco-systems.
For more information, we suggest:
Bee Colony Collapses Are More Complex Than We Thought, US News & World Report
The GMO controversy currently in public discussion may be more about trust than health. Some GMOs are good GMOs and have greatly improved the health of many people around the globe. Iodized salt is an example; it greatly reduced the goiter epidemic in the US during the 1920s and still provides significant health benefits in third world countries. Scientists are currently working on modifying rice to include Vitamin A, a vitamin deficiency common in many poor countries that causes many debilitating diseases.
Critics of GMOs claim that GMOs can cause potentially toxic or allergenic reactions, alter the nutritional value of food, taint the genetics of natural varieties of the same crop, impose toxic impact on other living things, concentrate food power in the hands of few large companies and marginalize small farmers. The Bt toxin used in GMO corn is an example of a GMO run amok.
The poster child for the anti-GMO movement is Monsanto. Monsanto’s patented genes are estimated to be in roughly 95% of all soybeans and 80% of all corn grown in the U.S. Monsanto has not helped its public image by financially destroying small farmers by suing those who try to avoid payment of huge license fees to Monsanto for seed. And Monsanto and other BigCo’s are now trying to get a law passed in Brazil that would allow them to sell “suicide seeds” to farmers – genetically modified seeds that farmers could only once and have to buy them over and over again.
Because of these concerns, at least 26 countries (including Switzerland, Australia, Austria, China, India, France, Germany, Greece, Italy, Mexico and Russia) all include total or partial bans on GMOs and less severe restrictions exist in about 60 other countries. Can all of these countries be wrong and Monsanto be right?
As American consumers learned longed ago from Big Tobacco, BigCo is quite capable of lying to consumers and secretly modifying its product to make it even more addictive, no matter the cost in human life and wellness. While our government eventually made the public aware of the danger of smoking and made tobacco companies include warning labels on its products, it took decades to do so. How many people died or suffered serious illness during this period? Today, the Great Recession is “Exhibit A” of the government’s inability to stand up to BigCo and protect American consumers.
Given our lack of trust in BigCo and lack of confidence in government oversight, GMO labeling is the minimum we should require. If consumers know what products are genetically modified and how, we can each make our own decision on whether to consume the product or not. Of course, labeling is not the end-all to protection since labels can easily omit accurate information or present it in a misleading way. Even with labeling we will need strong consumer organizations to monitor label accuracy.
Terrorists Profit from Poaching Wildlife
There are many reasons to fight against unlawful poaching of animal species on this planet, not least of which is preservation of critical ecosystems and moral recognition that we humans do not own Mother Earth. However, a new dynamic has developed that should persuade even big game hunters.
Since 2011, Kenya has seen elephant poaching rise to unsustainable levels, fueled by the unprecedented increase in the market value of ivory by 1500% in four years to about $1,000 per pound. About 30,000 elephants were killed illegally in 2012, the highest number in 20 years. Known as “white gold,” countries in the Far East (and in particular, China and Vietnam), refuse to ban the sale of ivory and, as the price escalates, the magnitude of poaching escalates. While many of us in the US wish we could take the high road on this issue, the New York Times reports that the US is the second-largest consumer (after China) of illegal animal products like elephant ivory, rhinoceros horn and tiger bone.
Elephants are not the only species suffering from increased poaching. The black market price for horns from rhinoceros is about $30,000 per pound or, as described by Grant Harris (senior director for Africa for the National Security Council) “literally worth greater than their weight in gold.” In 2013, South Africa lost more than 450 rhinos, which could be a record loss.
In a report filed by Ian J. Saunders with the International Conservation Caucus Foundation (ICCF) in April 2013, Mr. Saunders reported that terrorism is playing a substantial role in the increase in poaching elephants in Africa:
“The rapid escalation of the threat to elephants is due to heightened levels of participation from the heavily armed poaching gangs, often hailing from Somalia, operating either for organized crime syndicates or from fundamentalist organizations. Ivory has the potential to provide an easily accessible and untraceable source of revenue to terrorist and extremist organizations in both Kenya and Somalia, providing a direct threat to the U.S. and its African allies.”
Experts believe that the recent terrorist attack on the Westgate Mall in Nairobi, Kenya, which left more than 68 dead and more than 150 injured, was fueled in part by illegal profits obtained from illegal poaching. The attack was conducted by the terrorist group Al-Shabaab, an al-Qaeda-backed terrorist group from Somalia. Al-Shabaab reportedly was forced out of several areas in which it had produced significant funds from illegal trafficking in coal. To replace those funds, al-Shabaab began trafficking in illegal ivory obtained from poaching elephants. Studies by the Elephant Action League conclude that al-Shabaab’s illegal trafficking in ivory could be supplying up to 40% of its funds.
In response, President Obama formed a cabinet-level Task Force on Wildlife Trafficking in July 2013 to devise a national strategy for reducing poaching. In addition, the US destroyed six tons of illegal African elephant ivory in order to send a message of zero tolerance, reduce the appeal of ivory, rhinoceros horns and other illicit animal products, and send a clear signal that these products should not be perceived as valuable. Other countries have followed suit.
According to the Washington Post, the hunting of elephants, rhinos, sharks and other species in developing nations for sale in wealthier countries as valued at $7 billion to $10 billion per year, placing it among drugs and human trafficking as one of the world’s top illegal markets. The interconnection between wildlife and humans is succinctly defined by Monica Median, former assistant to several Secretaries of Defense:
“Elephant poaching is the latest example of how our
‘natural security’ impacts our national security.”
For more information, we recommend the following:
How Elephant Poaching Helped Fund Kenyan Terrorist Attack, Treehugger.com
Obama Announces Initiative To Combat Wildlife Trafficking, Washington Post
In a Message to Poachers, U.S. to Destroy Its Ivory, New York Times
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Last week this blog talked about several corporate tax loopholes – corporate jets and the carried
interest issue. This week we cover the ethanol tax credit, oil industry tax breaks and the ever
fascinating LIFO inventory method of accounting.
How do these work?
Ethanol Tax Credit. This is considered by many to be one of the worst tax boondoggles. Tax
credits for ethanol have been around since 1978 due to substantial and very skilled lobbying
efforts by its beneficiaries. In its current form, gasoline refiners (not farmers) get a tax credit
of $.45 for every gallon of pure ethanol that they blend with gasoline. According to the
Government Accountability Office, this will cost taxpayers $5.7 billion in tax expenditures
in 2011. In addition to being a tax expenditure, this credit is also criticized for encouraging
production of an inefficient fuel (ethanol burns less efficiently than gasoline) that increases
demand for fuel and artificially increases the cost of farm commodities and retail prices of food.
I recently attended a seminar by a food industry expert who identified the ethanol tax credit
as one of two major challenges facing the food industry today because of the increased prices
and scarcity of corn it causes (the other major challenge being the cost of energy). President
Obama proposes to eliminate this credit and replace it with a lower cost credit that would apply
to cellulosic ethanol made from non-food crops and agricultural waste.
Oil Industry Tax Breaks: The oil industry benefits from a number of tax breaks and has
for decades. The tax breaks permit oil companies to immediately deduct their expenses for
preparing domestic oil and gas wells for drilling and for exploring for and researching new
sites for oil wells. Companies in most other industries have to amortize these types of costs
over many years. Investors in some oil companies get to write off their investments over time
based on a percentage of the income they get from the investment each year. Investors in most
other industries are not able to do so. Oil companies also get a 15% tax credit for using tertiary
methods to extract oil. These methods are considered more efficient ways to extract oil but
critics of the tax credit point out that most businesses work to increase efficiency because it’s
good business and are not also rewarded with tax expenditures to do so. President Obama’s
budget proposes to repeal many of the major tax breaks for the oil industry. The estimated
increase in tax revenues is estimated to be about $40 billion over 10 years.
LIFO Method of Inventory: One of the most boring of tax provisions but also one of the most
costly “tax expenditures” is the LIFO method of inventory accounting. “LIFO” stands for “last
in, first out.” Under tax law principles, income earned from selling products is supposed to be
matched with the related cost of producing the product, i.e., you deduct the cost of producing
a product in the same year you collect the sales proceeds from selling the product. When the
product is unique and substantial, the costs and sales proceeds can pretty easily be matched.
When the product is inexpensive and there are lots of them (think of a manufacturer of socks),
it is impossible to directly match the cost of making a specific sock with the revenues from
selling that specific sock. So the law allows manufacturers to use accounting methods to
account for inventory that estimate the cost of the socks sold that year. One of these methods
is LIFO. Under this method, the manufacturer can pretend that the last bolts of cotton fabric
that the manufacturer purchased was used to make the socks regardless of which bolts of cotton
fabric were actually used. Since the cost of cotton fabric has risen significantly during the
course of the last year, the cost of the cotton most recently purchased is much higher that the
inventory of cotton fabric the manufacturer may have available from earlier purchases. By letting
the manufacturer offset its revenues from selling socks by the most costly cotton fabric just
purchased, the net profit from selling the socks will be much lower and the manufacturer will
pay less in taxes. President Obama proposes to eliminate LIFO inventory. Estimated revenues
from repealing this boring tax benefit – a stunning $70 billion over 10 years.This is the largest
single revenue raiser in Obama’s proposed 2012 budget.
It is reported that 70% of Americans believe that corporations don’t pay their fair share of taxes. And it is not surprising. In 2009, Exxon Mobile made $19 billion in profits but not only did not pay any income taxes at all, it received a $156 million rebate from the IRS. Bank of America got a $1.9 billion tax refund from the IRS in 2010, although it made $4.4 billion in profits and received a bailout from the Treasury Department and Federal Reserve of almost $1 trillion. And the list goes on. The Institute for Policy Studies reports that 25 of the top-paid CEOs in the US were paid more in salary and other compensation than their corporations paid in federal income taxes. No wonder most Americans feel that the system is rigged.
However, getting rid of corporate tax loopholes will not by itself solve the deficit crisis. When
it comes to tax expenditures, corporate tax breaks are not where the money is. The top 10
corporate tax breaks will cost $350 billion in tax expenditures over 2010 and 2014, but the top 10
individual tax breaks will cost $3 trillion over that same period. The most costly individual tax
1. Exclusion of employer provided health insurance: cost -$659 billion
2. Home Mortgage interest deduction: cost- $484 billion
3. Capital gains and dividends (taxed at 15% maximum rate): cost -$403 billion
4. Pensions: cost – $303 billion
5. Earned Income Tax Credit (for low-income taxpayers): cost – $269 billion
6. Charitable donations: cost – $241 billion
7. Deduction for state taxes: cost – $237 billion
8. 401(k) Plans: cost – $212 billion
9. Basis step up on death: cost – $194 billion
10. Exclusion of social security benefits: cost – $173 (Medicare would be #4 on this list if
Parts A, B and D were combined.)
If Washington DC actually gets serious about fixing the deficit, it is likely that some
individual tax expenditures will become part of the dialogue and proposals have already been
introduced to limit the amount of employer-paid health care premiums that employees can
exclude from taxes, to limit the amount of deductible home-mortgage interest, to increase capital
gain rates, and to take other steps to reduce the individual “tax expenditures”. This does not
diminish the need to deal with corporate tax loopholes, particularly those that are the result of
effective lobbying rather than good policy. Fairness in the tax system is one of the ingredients
essential to a cohesive and productive democracy.
There is lots of talk these days in Washington DC about “tax expenditures” and “corporate tax loopholes.” This blog will try to deconstruct these concepts and describe some of the most commonly discussed loopholes.
A “tax expenditure” is a tax deduction or tax credit that is specially designed to benefit a particular industry or class of taxpayers. The same way an individual can deduct their mortgage interest from their gross income, a business can deduct costs associated with its business from its gross earnings to reduce its tax liability. Businesses use these deductions in place of and in conjunction with government subsidies to reduce their adjusted gross income. A government subsidy is financial assistance given to a business or industry for many different reasons (to encourage growth, promote research or to avoid collapse of the world economic system). However, because government subsidies have a bad connotation, businesses often lobby for beneficial tax deductions to increase their profits and reduce the amount they contribute our state and national coffers. Instead of asking the government for outright financial assistance, they ask for concessions in their tax bills. Washington uses the phrase “tax expenditure” to show that a tax deduction given to one industry is – to other taxpayers – the economic equivalent of a direct subsidy to that industry.
Corporate Tax Loopholes
A “corporate tax loophole” is a special tax deduction given to a specific industry or class of taxpayers that other taxpayers view as boondoggles. The Internal Revenue Code is loaded with special tax deductions because: it can be more cost efficient to implement and encourage desired behavior since fewer government bureaucracies are involved; tax deductions are politically easier to award to industries as they are not as obvious to the taxpaying public as are direct subsidies and are not as scrutinized; and the general public likes beating the tax man but does not like government handouts. Ending Tax Loopholes essentially means removing special tax deductions that are viewed as unfair boondoggles. Although ending loopholes won’t fix all of our financial problems, their removal will help restore a sense of fairness in the tax system.
The corporate tax loopholes President Obama most often refers to are deductions for corporate jets, the carried interest rule, oil company special deductions, the ethanol credit and the LIFO method of accounting for inventory. Each one will be explained over the course of the next few blog postings. Today’s blog will tackle corporate jets and the carried interest rule.
Corporate Jets: Under current tax laws, the cost of corporate jets can be depreciated over 5 years even though they last many more years. Under basic tax principles the cost of a piece of equipment that lasts more than one year is supposed to be depreciated over its useful life. Our tax laws got away from using actual useful lives a long, long time ago and now equipment is depreciable over the number of years specified in the tax code (which varies depending on the type of equipment) which are usually a lot less than the equipment’s actual useful life. This rapid depreciation is thought to incentivize business to buy more equipment, hire more people, increase its business and otherwise live the American dream. President Obama thinks 5 years is to rapid and wants to increase the depreciable life of a corporate jet to 7 years, a number that is still much lower than a jet’s actual useful life. This change is estimated to produce tax revenues of only $3 billion over 10 years.
Carried Interest Rule: This is one of my biggest pet tax peeves. Hedge fund managers typically get paid a management fee and a percentage of the profits earned from the investments they manage for investors and they report their share of profits as long-term capital gains taxed at 15%. In contrast, people who get paid for services in other industries pay income taxes as high as 35% and are also subject to payroll taxes.
Under general tax law principles, there is a distinction between income from providing labor (i.e., the wages and salaries earned by most of us ordinary working stiffs) and income earned from investments of capital. Service income is taxed at the higher ordinary income tax rates and subject to payroll taxes but gains from capital investments are taxed at the much reduced capital gain tax rate and not subject to payroll taxes. The lower rates are provided to capital based on the belief that encouraging wealthy people to invest their capital increases business, which in turn increases jobs and salaries and everybody benefits.
Even though hedge fund managers get their share of profits from providing management services, hedge fund managers rely on an arcane partnership tax provision in the Internal Revenue Code to treat their share of profits as capital gains and pay the much lower capital gain tax and not pay payroll taxes. (Some hedge fund managers do invest their own money but no one is disputing their right to treat profits from their actual investments as capital gains). President Obama thinks that hedge fund managers should be taxed the same as the ordinary working person. Various legislation proposals have been bandied about for years to fix this disparity but Wall Street lobbyists have so far beaten them down with the standard mantra that, if hedge fund managers have to pay ordinary income taxes, this will hurt business and reduce jobs. (Would they really give up the ability to make millions of dollars because they have to pay more tax???) Some of these legislative proposals target only hedge fund managers; others include managers in other industries that do the same thing; for example, managers of real estate funds report their profit participations as capital gains even though received for their services and not for capital investment and they too would be covered by some legislative proposals. President Obama’s 2012 Budget includes the broader version. Budget impact – estimated to be $21 billion over 10 years.
Next week, we will talk about the ethanol tax credit, oil industry tax loopholes, and the ever fascinating LIFO method of accounting for inventory.
As the debt ceiling crisis continues, some politicians and scholars are encouraging President Obama to exercise his purported rights under the 14th Amendment to the Constitution to lift the debt ceiling if Congress continues to fail to get its own act together. President Clinton, Senator John Kerry and Senator Tom Harkin are among those encouraging President Obama do to so. President Clinton has publicly stated that he would invoke the 14th Amendment and raise the debt ceiling “without hesitation.”
So what are the legalities involved in President Obama invoking the 14th Amendment?
Section 4 of the 14th Amendment provides that “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”
Section 8 of Article 1 of the Constitution provides that “The Congress shall have Power … To borrow money on the credit of the United States…”
Former Dean of the Chicago Law School Geoffrey R. Stone believes that the 14th Amendment gives President Obama the power to lift the debt ceiling without Congressional approval. He argues that the Constitution, via the 14th Amendment, says the public debt of the US previously approved by the Congress cannot be repudiated and not raising the debt arguably is a repudiation and unconstitutional.” Senator Harkin compares the idea to President Lincoln making the Emancipation Proclamation and President Franklin Roosevelt starting the Lend-Lease program, which enabled the US to support Allied nations before declaring war in 1941.
However, Erwin Chemerinsky, constitutional scholar and Dean of the UC Irvine Law School, and Lawrence Tribe, professor of Constitutional Law at Harvard Law School, disagree. They say that the 14th Amendment only means that debt already authorized by Congress cannot later be declared invalid by the US. Due to Article 1, Section 8 of the Constitution, only Congress can approve an increase in the debt ceiling. Dean Chermerinsky points out that any bonds issued after an unilateral increase in the debt ceiling could be challenged on grounds that this borrowing violated Article 1, Section 8, the buyers of the bonds would be buying a lawsuit and the bonds would likely be rated as lower grade bonds than bonds issued prior to a unilateral presidential increase in the debt ceiling. Professor Tribe asks whether, if the President can unilaterally increase the debt ceiling, where does his power stop? Could he also unilaterally impose taxes, coin money or sell federal property to pay US debts? For Dean Chermerinsky’s op-ed piece, click here ; for Professor Tribe’s op-ed piece, click here.
Another unknown is whether a unilateral presidential increase in the debt ceiling would prevent US bonds from being downgraded. There is the threat of lawsuits, although it is not clear who would have standing to bring the lawsuit. And there are threats of impeachment proceedings against President Obama if he took this action, most vocally by Tea Party Representatives Tim Scott and Michele Bachmann. The rating agencies might well conclude that the uncertainty surrounding the constitutionality of the issuance of bonds on President Obama’s act alone along with the obvious inability of Congress to get its act together requires that US bonds be downgraded anyway.
Efforts by Wall Street has reportedly stepped up in recent days to encourage Congress to resolve this issue. A letter dated July 28 from the Financial Services Forum and signed by the CEOs of the major banks is attached here. While Main Streeters generally decry the clout of Wall Street lobbyists, this may be one case where we hope it is a legendary as we typically fear it is.