Scottbweese

Are the AP snooping, Benghazi, and IRS scandals about to destroy Obama's second term? Not really—because hyperpartisanship in Washington had already stalled the president's agenda and put the 113th Congress on track to become another one of the young 21st century's already-legendary do-nothing bodies.

Most of what a president can accomplish takes place early in a term. But as Republican communications pros are fond of reminding reporters, Obama's second term was already off to a rocky start.

Gun control already failed.
The major reason the Toomey-Manchin bill to expand background checks failed was distrust of the federal government. That's not going to change. The IRS and AP scandals will no doubt worsen distrust of the federal government, especially in circles already prone to such sentiments and make it harder for members of Congress to withstand gun-lobby pressure. But the important thing to remember is that every major gun proposal before the Democrat-controlled U.S. Senate already failed at a time when the political winds were as favorable to such reforms as they have been in more than a decade. And none of those proposals ever had a shot in the U.S. House.

Budget negotiations already failed.
The sequester was supposed to be a budgetary approach so stupid no one would ever allow it to be implemented, and yet here we are, with the Pentagon planning to furlough 650,000 civilian workers and Head Start and other programs across the country slashing services or putting off planned innovations. Even in the wake of a decisive reelection and while riding a crest of positive national sentiment, the president was unable to come to a grand bargain on revenues and spending with Republican leaders, and so instead we have the sequester, and no sign that Congress is eager to revisit the issue or reverse it. Republican willingness to negotiate with the president was always low, and what remained at the end of his first term seemed to evaporate early in the new year—that is, well before the current scandals.

Obama's appointments were already stalled.
Some worry that the scandals now providing fuel for congressional investigations could weaken the president and embolden his enemies to such an extent that they will prevent his second-term Cabinet from being seated in a timely manner, or as the president might wish. But after the successful Republican opposition to the idea of a Susan Rice nomination to the State Department and the GOP's pre-scandal efforts to thwart or delay the seating of Thomas Perez as Labor Secretary and Gina McCarthy as EPA Administrator, it will be hard to tell the difference if that's the case. The appointments process under Obama has been broken since 2009.

As for the matter of whether the AP scandal will lead to calls for Eric Holder's head, it's worth recalling that the chairman of the Republican National Committee already called for him to resign in December 2011 over the Fast and Furious program, releasing a web ad accusing him of a "cover-up." There may be more calls, but they won't be the first ones.

The implementation of Obamacare was already going to be complicated and rocky.
The period in which a massive new law is implemented is always full of kinks. That was going to be the case no matter what. The one thing that might potentially change in the wake of the IRS scandal is the willingness of Republicans to increase funding for the taxing agency, so that it can oversee the implementation of the tax credits, tax increases, and individual mandate compliance that are a key part of the Affordable Care Act. But given that the Republican-controlled U.S. House has already held 36 votes to repeal Obamacare—a 37th is planned this week—and opponents of the law already contested it all the way up to the level of the Supreme Court, it is not far-fetched to imagine that adequate funding to implement mandate oversight was always going to be a hard sell. As the Fiscal Times reported in an examination of the issue, "long before the current uproar over the IRS scrutiny of these politically motivated groups seeking non-profit status, Republicans were challenging budget and staffing levels at the IRS and demanding to know how much the agency intended to spend to implement Obama's health care reform law."

Republicans have also already refused to appoint people to the Independent Payment Advisory Board, tasked with finding Medicare savings under the health-reform law. Last week, before the AP scandal broke and before the extent of the IRS one came into view, Democratic congressman John Larson of Connecticut predicted that the road ahead would involve "yet another round of obstructionism, another round of hostage-taking and another round of trying to block anything that Obama does."

Immigration reform was always going to be a difficult bill to pass.
The best chance for Obama to enact a major domestic priority this year involves the Gang of Eight comprehensive immigration reform bill, which revives the goal of providing undocumented immigrants with a pathway to citizenship. Attempts at comprehensive immigration reform have failed over and over since Reagan's 1986 "amnesty" bill, leading the Washington Post's Rachel Weiner to conclude in January, "if immigration reform succeeds, it will go against a quarter-century of political history."

Circumstances are more auspicious today than they were during the 2004-07 failed reform attempt period, but the Republican split on immigration is not something that will be resolved or erased by a new round of scandal investigations in the House. Republicans need to solve—or at least mitigate—their problems with Hispanic voters in order to have a shot at the White House in the years ahead, and the Washington leadership of the party knows this. That is a fact on the ground, as will be Hispanic anger if immigration reform and the fate of 11 million undocumented people fall victim to Republican opposition to the president thanks to Benghazi, the AP records snoop, or what went on in 2010 at the IRS division that reviews tax-exempt organizations. And yet there is also—already—substantial Republican resistance to a comprehensive bill, especially when it comes to questions like gay and lesbian immigration equality. "If the Judiciary Committee tries to redefine marriage in the immigration bill they will lose me and many others," Graham tweeted Monday.

Obama has said he will sign a bill that does not provide for gay and lesbian immigration equality, and ongoing scandal investigations might diminish his negotiating power on that front. But a much more significant factor than administration scandals when it comes to the fate of gays in the immigration reform bill will be the Supreme Court decisions, expected in late June, on two gay marriage cases.

In short, those who wondered why Obama seemed so singularly unenthusiastic about the prospect of a second term while in the midst of running for it now have their answer. Because it looks like this. Because despite optimistic rhetoric about how the 113th Congress would be different from the 112th, which was the least productive Congress since the 1940s, the likelihood was that it was always going to look like this.

Dr. Hawking, a renowned physicist and cosmologist, will not attend an annual conference on the future of Israel and the Jewish people.

The Obama administration is on the verge of backing an F.B.I. plan for an overhaul of surveillance laws that would make it easier to wiretap people who communicate by Internet rather than phone.

(Eugene Kontorovich)

In an important but largely ignored case, a French Court of Appeals in Versailles ruled last week that construction of a light rail system in the Israeli-controlled West Bank by a French company does not violate international law. In doing so, the court sided with many of the arguments long made against the blanket application of the relevant provisions of the Geneva Conventions to Israeli settlements. National courts rarely if ever address such issues, and thus the decision is important both for its rarity and for what it says.

In this post, I’ll address issues relevant to the substance – Israel’s presence in the West Bank. In the next post I’ll deal with the “Kiobel” issues raised by the case – corporate liability, the value of American ATS cases, and so forth. I should note at the outset that what follows is based on a rough translation of the opinion and my vague French; I would be grateful for corrections on matters of language that I have misapprehended. I venture forward because it is an important decision that deserves attention, yet has been met by complete silence by international legal scholars.

The Jerusalem Light Rail, which began running last year after a long period of construction, links the Western part of the city with the parts occupied by Jordan prior to and annexed by Israel after the 1967 War. The project was widely criticized by pro-Palestinian groups, as was the participation of French rail companies in the project. Along with a variety of political pressure and boycott activities, a Palestinian group sued the French-based multinational conglomerate Alstom Transport for its role in in the project. The case was dismissed below in 2011, and the Court of Appeals upheld the decision last week.

Crucially, the Court held that only the Government of Israel, and not private parties, can violate the relevant provisions of the Geneva Conventions. The arguments that Israeli communities in the West Bank violate international law start with Art. 49(6) of the Fourth Geneva Convention, which provides that “The Occupying Power shall not deport or transfer its civilian population into the territory it occupies.” The provision was also relied on heavily in the lawsuit. The Court ruled that 49(6) only speaks to and applies to action by the Israeli government (“the Occupying power”), and does not regulate Alton’s activities in the occupied territory.

This is an extraordinarily important holding in light of the decades old-debate about the meaning of 49(6) in the context of Israeli civilian migration into the West Bank. It is in direct opposition to the political and international law position on settlements. In the standard narrative, any migration of Israeli Jews past the Green Line, or the expansion of their residences and communities once there, is a war crime. Thus when private citizens decides to buy or build a house across the Green Line, or even expand an existing one, it is a war crime.

Moreover, Israeli citizens who migrate to the West Bank are often said to be guilty of war crimes themselves as aiders-and-abettors. The Versailles decision would seem to reject such a position.

This conventional reading of 49(6) as generally banning Jewish settlements is disconnected from the text, which only speaks of “transfers” carried out by the Government. Some scholars, including myself, have long maintained that private movement of persons is in no way covered by 49(6), and the Court apparently adopts this position (though I am unclear how much of a role domestic legal principles played). Now one might say the government is always “involved” – roads, security, zoning, etc., but ubiquitous “background” roles do not trigger the state action doctrine in U.S. constitutional law, and it is not clear why they would under international law. (On the other hand, if one gets a package bus/light rail ticket, it would be an unusual literal case of “transfer” into occupied territory.)

Indeed, the French case would be a strong one for inferring governmental role, since the defendant worked under contract with Israeli governmental entities. My understanding of the Court’s opinion is a little fuzzy here, but it seems they say contractual privity is not enough to trigger 49(6) either. This would certainly make it inapplicable to the vast majority of Israeli settlers (not all, necessarily, since 49(6) is ultimately a case-by-by-case factual question.

The Court goes on the reject the notion that the relevant norms have become customary or jus cogens and apply without the particular textual restrictions of 49(6).

Israel’s critics have long claimed that “everyone agrees” that all “settlements” (a term referring to all Israeli activity in the West Bank, at least that benefits Jews) clearly violates international law, and that only Israeli apologists could believe the arguments to the contrary. I assume the Versailles Court of Appeals won’t be accused of being unduly sympathetic to the Jewish State.

Indeed, many might share my surprise on such a decision coming from a European court, especially given the supposed uniformity of views on the underlying legal issues. Perhaps two factors may explain the surprising decision: this is not an international court, but an ordinary municipal one, and it was an important French industrial concern, rather than Israel, in the dock. International lawyers may what could positively be described as professional or scientific knowledge of the matter, or more cynically as guild orthodoxy. Judges unversed in these verities might see things differently. And of course, here international law is being used against important and powerful domestic interests.

The plaintiffs could still appeal to the Cour de Casssation, which however is not obligated to hear the appeal.

[Cross-posted on OpinioJuris.]

For Iraqis frustrated with poor services, sectarian politics and violence, the governor, Ali Dwai, provides a rare example of democracy’s potential.

(Orin Kerr)

Law enforcement has successfully captured Dzhokar Tsarnaev, and DOJ has announced that Tsarnaev is being interrogated without first being read his Miranda rights because the DOJ thinks that the public safety exception to Miranda applies. Back in 2010, I blogged a lot about Miranda in this setting. Here are a few reminders about the law here:

1) A lot of people assume that the police are required to read a suspect his Miranda rights upon arrest. That is, they assume that one of a person’s rights is the right to be read their rights. It often happens that way on Law & Order, but that’s not what the law actually requires. The police aren’t required to follow Miranda. Miranda is a set of rules the government can chose to follow if they want to admit a person’s statements in a criminal case in court, not a set of rules they have to follow in every case. Under Chavez v. Martinez, 538 U.S. 760 (2003), it is lawful for the police to not read a suspect his Miranda rights, interrogate him, and then obtain a statement. Chavez holds that a person’s Miranda rights are violated only if the statement is admitted in court, even if the statement is obtained in violation of Miranda. See id. at 772-73. Further, the prosecution is even allowed to admit any physical evidence discovered as a fruit of the statement obtained in violation of Miranda — only the actual statement can be excluded. See United States v. Patane, 542 U.S. 630 (2004). So, contrary to what a lot of people think, it is legal for the government to even intentionally violate Miranda so long as they don’t try to seek admission of the suspect’s statements in court.

2) Even if we assume that the police later seek to admit a statement from Tsarnaev from post-arrest custodial interrogation outside Miranda, a court would allow an initial pre-Miranda interrogation to be admissible under the public safety exception of New York v. Quarles, 467 U.S. 649 (1984). It’s not clear how long the public safety exception will continue to apply: At some point in time, it becomes harder to say that the agents needed to dispense with Miranda in light of the threat to public safety. We don’t have good cases on when that line might be crossed, in part because (fortunately) there aren’t many similar cases. So the longer investigators interrogate Tsarnaev outside Miranda, the more they run the risk that some statements they obtain from him may be inadmissible. But recall that under (1), the government is still free to question Tsarnaev outside Miranda as long as the government accepts the uncertainty of whether those statements would be admissible in a criminal case against him. Assuming that the evidence against Tsarnaev’s many different crimes over the last week is likely to be overwhelming, agents may not need any statements from him for a criminal case. They may simply want whatever intelligence he can provide for use in broader antiterrorism efforts, and Miranda is no impediment in that case. The agents are free to question Tsarnaev outside Miranda to gather intellligence as long as they don’t cross the line into coercing statements from him. See, e.g., Townsend v. Sain, 372 U.S. 293 (1963).

3) It is true that, under existing law, interviewing Tsarnaev for an extended period without reading him his Miranda rights and obtaining a waiver creates a risk that any incriminating statements made after an extended period may not be admissible in court in a criminal prosecution against Tsarnaev. However, if Tsarnaev does end up making incriminating statements that fall outside the public safety exception, and the government wants to use those statements in court against him, the government has a possible remedy to get the substance of even those statements admitted. At the end of the interrogation, agents can give him his Miranda warnings, see if he will waive his rights waiver, and, if he does, try to get Tsarnaev to repeat his pre-waiver incriminating statements. Because the two-stage interview likely would not be deemed an intentional two-step interrogation technique designed to circumvent Miranda, a court would very likely allow the post-Miranda, post-waiver statement under Justice Kennedy’s controlling opinion in Missouri v. Seibert, 542 U.S. 600 (2004).

UPDATE: I have fiddled with the post a bit to make it clearer.

ANOTHER UPDATE: If Tsarnaev is going to be charged in federal court, the more pressing limit on his interrogation may be the limits imposed by Rule 5 of the Federal Rules of Criminal Procedure. See generally Corley v. United States (2009).

AP

On April 5, 2012, in the Rose Garden of the White House, US president Barack Obama signed the Jumpstart Our Business Startups Act, one of those distinctly American pieces of legislation that hits you over the head with an unequivocally positive acronym--in this case, JOBS. The law, parts of which went into effect right away, was intended to help startups grow and, in the process, add more jobs to the US economy. Exactly a year later, it's worth taking stock of how the JOBS Act is doing.

Fewer Small Companies Are Going Public

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The JOBS Act was supposed to encourage smaller companies to go public. Startups, it was argued, were delaying IPOs or avoiding them altogether because of the regulatory burdens, stunting potential growth in the American economy. So the JOBS Act greatly reduced the disclosure and accounting requirements for IPOs by companies with less than $1 billion in annual revenue.

But in the year since the law went into effect, just 63 such firms have gone public, down from 80 in the previous 12 months. That's a 21% drop despite improving economic conditions. And in Silicon Valley, at which many provisions of the JOBS Act were explicitly aimed, the situation is even more dire: only eight venture-backed American companies went public in the first quarter of this year, raising $672 million, compared to 19 such IPOs that raised $1.7 billion a year prior, before the law was signed. The dot-com boom this is not.

And why should it be? A glut of startups going public isn't actually desirable. Instead, it's clear that IPOs set up perverse incentives that favor short-term profits over sustainable businesses. "For many young companies," wrote Felix Salmon in a persuasive essay last year, "the drive to go public results in a death spiral of unsustainable growth." Look, even investment bankers--the ones who take a cut of each inopportune IPO--have soured on the JOBS Act, with just 29% of them calling the law effective and 80% criticizing the lack of transparency among companies going public under the law.

But More Companies Are Avoiding Scrutiny
The JOBS Act was originally favored by venture capitalists frustrated by the dearth of IPOs to provide huge returns on their investments. Not incidentally, they wrote the bill.

Key provisions of the JOBS Act were drafted on the kitchen table of Kate Mitchell, a partner at Scale Venture Partners, according to Bloomberg's definitive reconstruction. In March 2011, then-US Treasury secretary Tim Geithner held a conference titled, "Access to Capital: Fostering Growth and Innovation for Small Companies." During a break, Mitchell ducked into an empty room with:

• Greg Becker, CEO of Silicon Valley Bank;
• Steven Bochner, partner at Palo Alto law firm Wilson Sonsini Goodrich & Rosati;
• Carter Mack, president of San Francisco investment bank JMP Group;
• and others.

They began formulating what would become known as the "regulatory on-ramp" provision of the JOBS Act, which exempts "emerging growth companies" that go public from external audits of their financials for five years--a rollback of the Sarbanes-Oxley accounting reform bill. The unofficial "Mitchell Commission" issued recommendations in October 2011; they became law six months later. "This is probably the only bill I'll be involved with in my life, but the people who do this for a living say this is shocking how quickly it went through," Mitchell said shortly after the signing.

There she is in the center of the frame behind president Obama and next to AOL founder (and current venture capitalist) Steve Case, another key figure in lobbying for the bill, and Republican majority leader Eric Cantor, who had been advocating for his party to strengthen its ties with Silicon Valley:

But while JOBS Act hasn't led to more IPOs, more than 100 companies have taken advantage of the on-ramp provision, which allows them to secretly file papers with federal regulators while exploring the option of going public. I've previously raised the possibility that Twitter, which is likely to qualify as an emerging growth company, will file its IPO secretly. Money transfer company Xoom did it; file storage firm Dropbox could, too.

Untold number of startups have also avoided public disclosures that used to be required of any company with more than 500 shareholders, which is what pushed Facebook into the financial limelight; the JOBS Act raised the limit to 2,000 shareholders. That provision was also supported by non-startup companies like convenience-store chain Wawa, a privately held firm that wants to remain that way and keeps its financial information private.

All told, companies are saving money on compliance, but investors know much less about highly speculative investments, and that opacity hasn't led to the uptick in IPOs it was supposed to produce.

But Guess Who Is Going Public Under the JOBS Act
Oh, just a little emerging-growth company named Goldman Sachs.

The investment bank is creating a new finance company (paywall), Goldman Sachs Liberty Harbor Capital, to invest in the risky but potentially high-yielding debt of small US companies. Taking that new firm public is a way around the Volcker Rule, which will soon prohibit banks from making trades with company funds. But as Goldman noted in a regulatory filing for the new firm: "We are an 'emerging growth company' within the meaning of the recently enacted Jumpstart Our Business Startups (JOBS) Act," which means it won't have to reveal much information until just before the IPO and won't have to submit to audits for five years.

Goldman isn't the only company that the JOBS Act's framers probably didn't have in mind when they drafted the law. Several "blank check" firms, or shell companies, have filed for IPOs (paywall) under the law. These aren't job creators; in fact, shell companies typically have zero employees and are used instead to facilitate mergers and acquisitions, often utilizing offshore tax havens. But because they also have little revenue, they qualify as emerging growth companies under the JOBS Act and can avoid lots of regulation.

More Fun on the Way
There are other provisions of the JOBS Act that haven't taken effect quite yet, so it's only fair to reserve judgement. One will allow hedge funds and other private securities to advertise, which calls to mind billboards for SAC Capital--"We're on the inside track!"--but is more likely to be used by small-time investment vehicles that didn't previously stand a chance of raising capital. Which might be nice, but it's only a good thing if those firms are worth investing in.

Another highly anticipated provision will allow startups to "crowdfund" investments from the general public. Again, that could democratize the world of venture capital and allow more great innovation to flourish.

But considering the JOBS Act's year-one record, will it live up to its promise?

(Reuters)
Close your eyes and picture the scariest thing you can think of. Maybe it's a giant spider or a giant Stay Puft marshmallow man or something that's not even giant at all. Well, whatever it is, I guarantee it's not nearly as scary as the real scariest thing in the world. That's long-term unemployment.
There are two labor markets nowadays. There's the market for people who have been out of work for less than six months, and the market for people who have been out of work longer. The former is working pretty normally, and the latter is horribly dysfunctional. That was the conclusion of recent research I highlighted a few months ago by Rand Ghayad, a visiting scholar at the Boston Fed and a PhD candidate in economics at Northeastern University, and William Dickens, a professor of economics at Northeastern University, that looked at Beveridge curves for different ages, industries, and education levels to see who the recovery is leaving behind.
Okay, so what is a Beveridge curve? Well, it just shows the relationship between job openings and unemployment. There should be a pretty stable relationship between the two, assuming the labor market isn't broken. The more openings there are, the less unemployment there should be. If that isn't true, if the Beveridge curve "shifts up" as more openings don't translate into less unemployment, then it might be a sign of "structural" unemployment. That is, the unemployed just might not have the right skills. Now, what Ghayad and Dickens found is that the Beveridge curves look normal across all ages, industries, and education levels, as long as you haven't been out of work for more than six months. But the curves shift up for everybody if you've been unemployed longer than six months. In other words, it doesn't matter whether you're young or old, a blue-collar or white-collar worker, or a high school or college grad; all that matters is how long you've been out of work.
Help Wanted -- If You've Been Out of Work for Less than Six Months
But just how bad is it for the long-term unemployed? Ghayad ran a follow-up field experiment to find out. In a new working paper, he sent out 4800 fictitious resumes to 600 job openings, with 3600 of them for fake unemployed people. Among those 3600, he varied how long they'd been out of work, how often they'd switched jobs, and whether they had any industry experience. Everything else was kept constant. The mocked-up resumes were all male, all had randomly-selected (and racially ambiguous) names, and all had similar education backgrounds. The question was which of them would get callbacks. 
It turns out long-term unemployment is much scarier than you could possibly imagine. 
The results are equal parts unsurprising and terrifying. Employers prefer applicants who haven't been out of work for very long, applicants who have industry experience, and applicants who haven't moved between jobs that much. But how long you've been out of work trumps those other factors. As you can see in the chart below from Ghayad's paper, people with relevant experience (red) who had been out of work for six months or longer got called back less than people without relevant experience (blue) who'd been out of work shorter. 

Look at that again. As long as you've been out of work for less than six months, you can get called back even if you don't have experience. But after you've been out of work for six months, it doesn't matter what experience you have. Quite literally. There's only a 2.12 percentage point difference in callback rates for the long-term unemployed with or without industry experience. That's compared to a 7.13 and 8.95 percentage point difference for the short-and-medium-term unemployed. This is what screening out the long-term unemployed looks like. In other words, the first thing employers look at is how long you've been out of work, and that's the only thing they look at if it's been six months or longer.
This penalty for long-term unemployment is unlike any other. As you can see in the chart below, job churn is another red flag for employers, but not nearly to the same extent. Applicants who'd gone through five to six jobs but had relevant experience were still more likely to get called back than those who'd gone through three to four jobs but didn't. And they had about as good a chance as those who'd only held one or two jobs but weren't experienced. In other words, there is no job-switching cliff like there is an unemployment cliff.

Long-term unemployment is a terrifying trap. Once you've been out of work for six months, there's little you can do to find work. Employers put you at the back of the jobs line, regardless of how strong the rest of your resume is. After all, they usually don't even look at it. 
Let's be clear. Ghayad's field study shows employers discriminate against the long-term unemployed. All of the fake resumes he sent out were basically identical. But firms ignored the ones from people who'd been out of work for six months or longer -- even when they had better credentials. Employers look at how long you've been unemployed as a better proxy for skills than anything else on your resume. In other words, more jobs-training probably won't help the long-term unemployed all that much. Even a stronger economy will only help them years in the future, rather than many years in the future. 
It's time for the government to start hiring the long-term unemployed. Or, at the least, start giving employers tax incentives to hire the long-term unemployed. The worst possible outcome for all of us is if the long-term unemployed become unemployable. That would permanently reduce our productive capacity. 
We can do better, and we need to start doing so now. We can't afford long-term thinking in either the short or the long-term.

What motivates us to work? Contrary to conventional wisdom, it isn't just money. But it's not exactly joy either. It seems that most of us thrive by making constant progress and feeling a sense of purpose. Behavioral economist Dan Ariely presents two eye-opening experiments that reveal our unexpected and nuanced attitudes toward meaning in our work. (Filmed at TEDxRiodelaPlata.)

The Senate’s recent vote of 79-20 to end the medical device tax has many using their replacement knees to jump up and down.  Unfortunately, the dream is over and the reality is still with us.  The Senate vote was on a budget resolution – the U.S. Senate’s answer to an air kiss.

While this feel-good vote might be used to build on (and certainly the margin of the vote is noteworthy) the reality is that this vote and a magic feather will get you a flying elephant.   For those still dreaming that the medical device tax is going away is the cold water that the amendment required that the revenue loss (not an insignificant amount – over $10 billion dollars over 10 years) must be completely offset with new undetermined revenues.  So the vote was in essence – “yes I’d like to replace this stupid tax by raising some unknown tax on unknown persons at an unknown time.”  Wow – who were the 20 who voted against that?

Is there a possibility of the medical device tax being removed (or modified) down the road?  Yes there is – but that road is much more potholed and twisted then many medical device manufacturers think – if the phone calls I’m getting are any indication.

Why is that?  First, getting an acceptable offset is not at all easy – the tax writing committees do not have $10 billion dollar plus offsets that no one opposes jingling in their pockets.  Second, as I learned from years on the Finance Committee – if you want to move a tax provision you need to be on a tax train (ie a bigger tax bill).  You need the locomotive of a bigger tax bill to move things forward.  The only big tax bill in sight at the moment is tax reform and readers can take their own views on the likelihood of tax reform happening in the near future.  In short – the outlook for tax legislation moving in the near future that would include a reform/repeal of the medical device tax is not great.

My worry is that medical device companies will be too busy chilling champagne and not doing the necessary planning to prevent overpaying the medical device tax.

As a reminder, the tax is a 2.3% excise tax on the sales price (that’s gross sales, not profit) of taxable medical devices.  The tax is extremely broad-based and applies to almost any FDA-registered device that is intended for human use – everything from MRIs to tongue depressors to ultrasounds to condoms.  There are exceptions and exemptions if you know where to look, but this one-paragraph-long statute has already produced pages of perplexing regulations  and  an IRS Notice  full of temporary guidelines.

Of particular concern is that there are a significant number of taxpayers who either don’t realize the law applies to them or hope that it will be repealed (or they would be exempted).    These taxpayers have been caught completely flatfooted, and I and my colleagues have had to pull oars registering these medical device companies with the IRS, coming into compliance, and even navigating some of those exceptions and exemptions mentioned earlier.  Equally important though are steps that can be taken to ensure your company does not overpay (of which we see a good deal).

One of the best strategies to limit your exposure to the tax is to determine — what is the “price” of the medical device?  The law wants to capture the cost of the device itself, but many times there are bundled services, warranties, and other items that can be separated out from the cost of the actual medical device.  The results of this may be depending on the facts a reduction of the “price” and tax liability.  The bundled items have to be genuinely optional, so sales contracts may have to change so that technical assistance, training, service updates, etc. are genuinely optional.  As part of this, you need to have arms-length valuation that accurately accounts for these items.

Another area that we are seeing overlooked is the situation of the contract manufacturer – manufacturers who are making products using materials and intellectual property actually owned by the customer.  A contract manufacturer escapes the tax entirely (it shifts to the customer), but it always depends on the facts and circumstances of the taxpayer.  On top of these are a number of potential safe harbor price reductions that can vary from customer to customer.

The Service knows this tax is hitting a lot of people unawares, and to their credit the IRS is trying to work with taxpayers.  The IRS has stated that taxpayers won’t be hit with penalties for nonpayment through September, but there’s a caveat – “unless due to willful neglect.”  If you aren’t in compliance now because the tax is a maze and you need help, even the Government understands.  But if you’re sticking your head in the sand, hoping Congress will solve all your problems, the Service is likely to take a dim view of that, and you’ll still be stuck with the bill – a big bill.

 

Reuters
For Southern Californians, the housing bubble and bust weren't abstractions. We watched the market inflate, witnessed people making terrible choices long before they knew it, and marveled at the fall while perusing real-estate listings or driving through the hardest-hit neighborhoods. I've heard so many stories from people who made risky investments in real estate, bought more house than they could afford, or shouldn't have qualified for a home loan at all. And I've cursed the investment bankers and politicians who, to varying degrees, inflated the bubble.

What I never imagined is that we'd forget its lessons so quickly. Oh, I knew some people would. Twice while sitting in a coffee shop, I've overheard Orange County residents talking, as they so often did during the early aughts, about all the money to be made if they could just scrape together enough cash to make the minimum down payment on a house before interest rates rise.

But what is President Obama thinking?

The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place. President Obama's economic advisers and outside experts say the nation's much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.

In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs -- including those offered by the Federal Housing Administration -- that insure home loans against default. Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default. Officials are also encouraging lenders to use more subjective judgment in determining whether to offer a loan...

There are, in fact, public-policy changes that could help people who aren't benefiting from the housing market's recovery. Low-income households would benefit tremendously if the cities where they lived lifted often onerous restrictions on building more multifamily units. And at the federal level, Congress could rectify the unequal treatment of owners and renters by either getting rid of the home-mortgage deduction or extending a commensurate tax credit to rent expenditures. 

But the notion that the federal government is a good judge of who can be given home loans without undue risk of widespread default has been rather spectacularly disproved in the very recent past. To see the Obama Administration encouraging banks to be less careful is frustrating, especially in instances when taxpayers will be on the hook for any loans that are defaulted upon. Perhaps instead of encouraging banks to behave more riskily by promising to bail out loans that turn out to have been bad ideas, the Obama Administration could institute reforms that reduce the rents that Wall Street is able to extract from Americans.

There is a corruption at the heart of American politics, caused by the dependence of Congressional candidates on funding from the tiniest percentage of citizens. That's the argument at the core of this blistering talk by legal scholar Lawrence Lessig. With rapid-fire visuals, he shows how the funding process weakens the Republic in the most fundamental way, and issues a rallying bipartisan cry that will resonate with many in the U.S. and beyond.

The Fair-Trade Movement Does More Harm Than Good April 4, 2013 Amrita Narlikar and Dan Kim Summary: 

Despite the claims of its champions, the fair-trade movement doesn't help alleviate poverty in developing countries. Even worse, it is just another direct farm subsidy of the kind most conscientious consumers despise. In the long term, the world needs free trade, not fair trade.

Fair-trade coffee beans dry in the sun in Nicaragua, 2004. (William Neuheisel / Flickr)

Fair trade is a form of protectionism, and it should not be allowed to hide behind the mask of morality.

By Steve Mullin

New teacher evaluation systems were intended to provide useful feedback and weed out weak performers, but the reluctance to set a high bar has led to scores that seem impossibly rosy.

On March 26, 2013, the Lebanese daily Al-Sharq, which is associated withSa'd Al-Hariri's Al-Mustaqbal faction,published an article by Lebanese writer Sana Kojok that claimed that during Passover, the Jews eat matzah made with the blood of non-Jews. ...
No. 5255 - March 29, 2013

So there’s some dudes
oh wait shit i got ahead of myself
first there’s only one dude
his name is Iluvatar
(but with an accent over the u
but fuck accents this is america)
but then Iluvatar has him some thoughts
and those thoughts turn into other dudes
and those other dudes are called the Ainur

so Iluvatar lines up all these Ainur
and he’s like alright dudes
I have called you all here today
because I have a great idea for a band
you see
some bands rock hard
some bands even rock out with their cocks out
my friends
we are going to rock out so hard
we are going to INVENT COCKS
and EVERYTHING ELSE, actually.
Everyone thinks this is mad sweet
so they all gather round
and Iluvatar teaches them
A MIGHTY RIFF
and then he’s like okay dudes
now it is time
for you
to JAM

so all these Ainu are jamming out
busting mad solos on their celestial instruments and whatnot
and Iluvatar is sitting in his arm chair all pleased
but then this one Ainu named Melkor has to come along
and stick his dick in the porridge, so to speak

Here’s Melkor’s deal:
he is by far the most gifted musician out of all these dudes
he’s like if Orpheus was playing a Bach concierto on a piano made of Mozarts
dude is a prodigy is what I am trying to say
so obviously he doesn’t feel the need to show up to celestial band practice
and instead spends most of his time wandering through the void
looking for the sacred flame that animates all creation
you know
like ya do.

But if H.P. Lovecraft has taught us anything
(and I’m not saying that he has)
it is that wandering through the void is an excellent way to go TOTALLY CRAZY
so Melkor basically morphs into a huge asshole
and shows up at the big important Ainu dress rehearsal totally wasted
and with an ELECTRIC GUITAR
[warning: electric guitars are not strictly a canonical part of this myth
but they are a strictly canonical part of any totally sweet band
so suck it]

so everyone is jamming with the sweet riffs Iluvatar gave them
and meanwhile Melkor is just shredding over there on his axe
paying less than no attention to the rhythm or key or anything
and eventually the dudes who are standing near him are like holy shit
this music makes my blood want to shoot out my skull and start doing pushups
fuck Iluvatar’s pussy-ass music of creation
it is time for some goddamn THRASH METAL UP IN HERE

so dudes start drop-tuning their harps and lyres and organs
and whatever other lame shit you use when you’re not playing speed metal
and within ten minutes Iluvatar’s sweet heavenly orchestra
has become Melkor’s doombattle moshpit slaughterhouse
so Iluvatar stands up
all slow and confident
and he puts up his left hand
and suddenly this new riff starts up
and it’s pretty sweet, and it’s actually managing to pull the song together a bit
but then Melkor is like FUCK DAT
and starts biting the heads off chickens and whatnot
beating his guitar against his face and eating rusty nails
so Iluvatar stands up again
and this time he looks a little peeved
and he puts up his right hand
and ANOTHER riff starts up
all beautiful and placid and harmonic and shit
but Melkor is having none of it
he is just mashing power chords with the amps turned up to gazillion
so finally Iluvatar gets REAL PISSED
and he puts BOTH hands up
and the music just STOPS
and he’s like way to go guys
look what you did:

so he gives them all the power of sight
because up to this point
we were just dealing with an entire orchestra of brilliant Stevie Wonders
and BAM
they all see the world that their music has apparently been making
no one told them this would happen
they just thought they were having a sweet jam sesh
and the world is AWESOME
and Iluvatar is like yeah i know it’s awesome
guys this was my plan
even your shit, Melkor
I planned that too
like all that fire and ice and lava and shit?
that is where we get snowflakes and rain and … and rad lava
so everyone wins!
and everyone is looking at this world
and all their licks and riffs and meedlies are encoded in the terrain
and they are totally getting their minds blown
and then DUDES start showing up
humans and elves!
and Iluvatar is like okay who wants to go live in this new world
and everyone is like OH ME ME ME
so they go to earth and become the Valar
except joke’s on them
because that shit they saw?
that was just a vision of how things are GOING to be
so now earth is just a screaming ball of magma and junk
and they are the ones who have to do the hard work of building it
so humans and elves can just show up and party

so naturally these dudes are pretty pissed
the main guys who got suckered into this
are Ulmo, who is mainly in charge of water
Manwe, who does wind stuff
Aule, who is a geology nerd
and Melkor who is an asshole
also Melkor invents fire
which is good
but he invents it by torching all of the other stuff
so, not as good

so imagine yourself in this situation
you’ve just been promised a paradise based on a sweet track you recorded
you pay the security deposit, sign the lease
and now you are stuck in a hell of fire and low property values
while your dick friend tries to immolate everything you own
and you are PERSONALLY RESPONSIBLE FOR RENNOVATING THIS PLACE

naturally the outcome is ceaseless wars
the Valor keep trying to build shit
and Melkor just keeps setting it on fire
over and over again
until finally the valor succeed in making something vaguely resembling a world
and all the humans and elves show up
and the valor all put on human and elf skins
because when they’re naked they’re just invisible
which is actually a pretty okay superpower depending on your body image
and Melkor doesn’t want them to have all the fun
so he tries to assume physical form too
but he is too metal for humanity, so he turns into a VOLCANO
and then more wars
but eventually less wars
and now, people!

So the moral of the story
is that shitty music is literally destroying the world.

the end.

The IRS yesterday released the 2012 IRS Data Book, which contains a wealth of statistical information for the IRS's Oct. 1, 2011 - Sept. 30, 2012 fiscal year. Here are the statistical tables: Returns Filed, Taxes Collected, and Refunds Issued Table 1: Collections and Refunds, by Type of Tax Table...

The U.S. Supreme Court yesterday granted certiorari in United States v. Woods, No. 12-562: Issue: (1) Whether Section 6662 of the Internal Revenue Code, which prescribes a penalty for an underpayment of federal income tax that is “attributable to” an overstatement of basis in property, applies to an un­derpayment resulting...

The annual income tax season is no fun for any of us but it can be a lot worse for same-sex couples in California, Nevada, and Washington. Those three states follow community property law and recognize either same-sex marriages or domestic partnerships. The combination makes tax filing an even bigger hassle than the rest of us face. 

Because the Defense of Marriage Act (DOMA) denies federal recognition of those relationships, the IRS applies special rules to same-sex couples in the three states, rules that don’t apply to couples—same- or opposite-sex—in other states. Those rules complicate tax filing and can result in higher (or lower) income and payroll tax bills. (I blogged yesterday on more general issues concerning DOMA and taxes.)

Community property law generally requires that married couples split income evenly between spouses. That rule also applies to domestic partners in the three community property states that recognize them.

Splitting income makes little difference for opposite-sex married couples but creates tax issues for same-sex partners because of DOMA. Here are just a few of the problems that the IRS has explained in various publications.

• Same-sex couples with children may or may not be allowed to file as heads of household. The issue revolves around the requirement that a head of household provide more than half the support for a dependent child. Because spending out of community property income comes equally from both partners, neither provides more than half the support, so neither can claim the dependent. Only if some support comes from non-community property may one partner file as head of household.
• Domestic partners in community property states must split the income from a business operated by one partner, even if the other partner has no involvement. In contrast, in the case of opposite-sex couples, earnings from a business are attributed only to a spouse who is actively involved in the business. Further, each domestic partner must pay self-employment tax on her half of business earnings, a situation from which a special provision protects opposite-sex couples. As a result, same-sex couples could pay as much as double the payroll tax that finances Social Security that an opposite-sex couple would pay.
• The IRS applies community property laws inconsistently with regard to tax credits. For example, the earned income credit, the dependent care credit, and the refundable portion of the child tax credit all ignore community property laws in determining a domestic partner’s earnings but split all income in measuring adjusted gross income.

Same-sex couples may also benefit from being denied joint filing status. A person who adopts her same-sex partner’s child may claim the adoption credit, a benefit not available to opposite-sex spouses. And as I explained yesterday, being denied joint filing status protects same-sex partners with similar incomes from incurring marriage penalties.

Taxpayer Advocate Nina Olson has pointed out additional problems for same-sex couples caused not by tax rules but rather by IRS procedures. For example, domestic partners in community property states must split both earnings and the income tax withheld on those earnings. But the IRS has rejected returns filed electronically because its software failed to allocate withheld taxes correctly between partners.

The IRS appears to have first offered guidance for same-sex couples in 2010, three years after California granted community property rights to domestic partners and shorter periods after similar action in Nevada and Washington. At that point, the IRS gave domestic partners the option of filing amended returns reflecting community property laws but did not require them to file new returns. Affected couples could recompute their taxes and file new returns, but in a final kicker, a partner owing more tax would have to pay interest on the underpayment (offset, at least in part, by interest paid on the refund presumably going to the other partner). At least the IRS waived penalties for underpayment.

Finally, the interaction between the federal income tax and California’s tax complicates tax filing for same-sex couples. The state’s tax return requires a couple to enter adjusted gross income from their joint federal return, even though they cannot file that return with the federal government. That means such a couple must prepare three federal returns—one joint for their state taxes and two individual to file with the feds—plus a state return.

Same-sex couples in Nevada and Washington are luckier—neither state imposes an income tax.