Who Pays the ACA Tax Penalty?

Mostly those who make less than $50,000 per year.  State-by-state breakdown below.  This is a tax on the poor.

Obamacare Poverty Tax 2015

Civil Asset Forfeiture is a Crime

Civil asset forfeiture is a crime.  I wrote this for the Wall Street Journal (July 24, 2017).  As always, there was a lot of material that didn’t make it into the article. I put all of it into a 7.73 mb zip file which you can download by clicking here.

Cops and Robbers All Rolled Into One

Richard Rubin meets a sacred cow featured

Sacred Cows of the US Tax Code

Over on the Wall Street Journal website Richard Rubin and Heather Seidel have put together a video explaining some sacred cows of the US tax code.  They use actual cows and milk bottles of varying sizes.  If yolu’re having trouble sorting out tax rates, the tax base, and the relationship between the two, this will probably work for you.  Warning: it may be behind a paywall. It’s worth the effort just to see Mr. Rubin wear a cowboy hat.

Richard Rubin meets a sacred cow

Richard Rubin meets a sacred cow (click for largere image)

U.S. Government Debt as a Percentage of GDP

Robert Reich On Tax Cuts

My fraternity brother Al Braden posted a statement by Robert Reich on Facebook. Thanks to Don Clark (another brother) for bringing it to my attention.

Don’t you love how these former supply-side conservative economists are now coming out to say they were dead wrong – that the Reagan and Bush tax cuts on the rich DIDN’T spur growth and DIDN’T pay for themselves? And that the Clinton tax increase actually spurred growth? And that Trump is wrong — that his tax cuts on the rich WON’T spur growth?

The record is now clear: When Ronald Reagan cut taxes on the wealthy i n 1981, the national debt was 25 percent of the Gross Domestic Product. By the time he left office, it was 40 percent.

When Bill Clinton entered office and raised the top personal tax rate in 1993, the national debt was 48 percent of GDP. By the time Clinton left office, it was down to 30 percent of GDP.

When George W. Bush cut taxes on the wealthy in 2001 and then again in 2003, the national debt was 35 percent of GDP. By the time Bush left office, it was 48 percent of GDP. And the economy tanked.

The national debt is now 77 percent of GDP. If nothing at all happens, and the boomers collect their Social Security and Medicare, it will be 9 1 percent of GDP a decade from now.

But if the Trump-Republican tax cuts on the wealthy are enacted, it will balloon to at least 100 percent of GDP.

Supply-side, trickle-down economics is and has always been a cruel hoax.

What do you think?

Well, Since He Asked

First, I don’t know anyone who meets the descsription in the first paragraph.  Certainly no economist.  This claim is purely a product of Prof. Reich’s incipient dementia.

Second, there is a small germ of truth in what he says.  Economists have known for 60 years that temporary changes in taxes do not affect behavior.  Permanent tax changes that affect permanent income and permanent spending will, by contrast, have significant effects.  Sadly, most of the economics profession seems to have forgotten this simple fact.  Temporary changes in income will be used to either pay off debt or they will be added to wealth as saving.

Prof. Reich long ago stopped calling himself an economist. The above statement is a nearly perfect illustration of the reason for this decision. His entire focus is on the government debt. All of a sudden he’s worried. WHERE HAS HE BEEN FOR THE LAST EIGHT YEARS?

Before going further if you need to review the relationship between the government budget deficit and the government debt, click here.

U.S. Government Debt as a Percentage of GDP

U.S. Government Debt as a Percentage of GDP (click for larger image)

Under the Obama administration, the U.S. recorded its first annual government budget deficit over $1 trillion. The debt rose from 55.6% of GDP to 99.8%, This outcome would not have occurred if that administration had not taken so many anti-growth activities. Remember, that percentage has GDP in the denominator. The anemic GDP growth during the Obama years is part of the problem. This was caused by (a) the tremendous growth of government, (b) the tidal wave of new regulations, and (c) outright crony capitalism disguised as the 2007 “stimulus” package.

Reich’s exclusive focus on the debt to GDP ratio is laughable. Where was he when the previous administration recorded the largest government budget deficit in history ($1.4 trillion, 2009)?

US government budget surplus and deficit

US government budget surplus and deficit (click for larger image)

In fact, the smallest deficit of the Obama administration was $160.7 billion in his first year in office, 2007.

What Prof. Reich Doesn’t Know

Practically everything. Actual economists can think about more than one variable at a time.

Practically everything. Actual economists can think about more than one variable at a time. We look at:

  • the growth of real income and wages (stagnant for the duration of the Obama administration)
  • the state of the labor market (not very good with a historically low unemployment rate largely the result of a drastic decrease in the size of the labor force)
  • inflation (kept under “control” because demand has been so weak
  • business fixed investment collapsed.  Net growth since 1996: 0.00%.

Real net foxed investment

Real net foxed investment (click for larger image)

Once again, the highest real investment was in 2007. By the end of Mr. Obama’s second term, investment had rebounded to about the same level it was in 1996. This despite real GDP growing from $10.6 trillion to $16.7 trillion over the same interval. https://fred.stlouisfed.org/series/GDPCA

U.S. Real GDP

U.S. Real GDP (click for larger image)


Reich is an idiot. Years ago he became a shill for progressive politics. Whenever you see him commenting about economic issues you should ignore it. If you must read what he says, you should assume the truth is the opposite of what he says.

San Juan Mayor September 29

The Puerto Rico Disaster

Hurricane Maria has devastated Puerto Rico. Hopefully this is not news to you. But some of the responses have been way over the top. In this article I’ll review a little history. That will help you understand some of the reasons for the sluggish response to this disaster. Then I’ll look at the last 24 hours of trhe news cycle. This article is about the Puerto Rico disaster.


Puerto Rico is in debt and has defaulted on payments. The reasons for this are bad government management, outrageous pensions and salaries to government employees, and flat-out incompetence. But, despite all this, the island managed to sell $3.5 billion in new 20 year bonds on March 17, 2014. At issue the yield was 8.618%. One month later the yield was 9.335%. Puerto Rico collected $218,750,000 more than they would have if the bonds had been priced correctly. That’s a cool quarter billion dollars. There are links to three other articles at the beginning of the article linked above.

To stay afloat, the island decided to not maintain their electric, water, and highway infrastructure. Which means said infrastructure suffered far more damage than it would have if it had been kept in good shape.

None of this is meant to demean the disaster Puerto Rico experienced. The residents are U.S. citizens. They deserve every bit of support the government and other aid agencies can offer.

The Current Situation

But on September 29, the mayor of San Juan said this:

San Juan Mayor on September 29 The Puerto Rico Disaster

San Juan Mayor on September 29 (click for larger image)

Hello? Genocide? Really?

The next day she said this:

San Juan Mayor Carmen Yulin Cruz on September 30 The Puerto Rico Disaster

San Juan Mayor Carmen Yulin Cruz on September 30 (click for larger image)

In response, one of Puerto Rico’s leading political analysts, Luis R. Davila-Colon, tweeted (translation via Google translate).

Cada cual parte de su cargo particular y de su estilo. Yulin llora y pelea con Trump para llamar atencion y acumular pietaje pal 2020.

Each one is part of his particular position and his style. Yulin cries and fights with Trump to call attention and accumulate pie 2020 pal.

Journalist Cate Long engaged Mr. Davila-Colon in a conversation:

Cate Long chats with Luis R. Davila-Colon The Puerto Rico Disaster

Cate Long chats with Luis R. Davila-Colon (click for larger image)

Ben Domenech, publisher of The Federalist, is from Puerto Rico. He has a few things to say:

Ben Domenech Weighs In The Puerto Rico Disaster

Ben Domenech Weighs In (click for larger image)

Over the years we’ve repeatedly seen municipal bankruptcies, the state of Illinois virtually broke, and Puerto Rico’s finances under control of an outside board. All these events have one common factor: cities, states, and now one territory that have been run by the Democratic party. Truly the party of financial irresponsibility.


The Equifax Data Breach

Equifax Site Generates Phishing Error

Equifax Site Generates Phishing Error

[Update September 20]

Equifax experienced a breach in March.  Apparently they did not inform anyone.  From Bloomberg:

Equifax Inc. learned about a major breach of its computer systems in March — almost five months before the date it has publicly disclosed, according to three people familiar with the situation.

In a statement, the company said the March breach was not related to the hack that exposed the personal and financial data on 143 million U.S. consumers, but one of the people said the breaches involve the same intruders. Either way, the revelation that the 118-year-old credit-reporting agency suffered two major incidents in the span of a few months adds to a mounting crisis at the company, which is the subject of multiple investigations and announced the retirement of two of its top security executives on Friday.

Equifax hired the security firm Mandiant on both occasions and may have believed it had the initial breach under control, only to have to bring the investigators back when it detected suspicious activity again on July 29, two of the people said.

Brian Krebs, among others, has noted that the vulnerability was in Apache Struts:

Krebs on Apache Struts

The Apache Struts Project Management Committee issued a lengthy statement which you can read here. But most people just want to know what the heck this application does.  Here’s the short description from the project website:

Apache Struts Project Description

Apache Struts Project Description (click for larger image)

On a lighter note, Twitterer @PlanetKingdom found this in the thicket of the Equifax website:

Equifax Recomments Netscape and IE

Equifax Recomments Netscape and IE (click for larger image)

You read that correctly.  Equifax was, at least until recently, recommending Netscape and Internet Explorer. Is it still 1999?  Yet another demonstration of utter incompetence.

[Original article begins here]

143 million Americans had their identities compromised in the Equifax data breach. U.S. population 20 years and older in August, 2017, was 353.5 million. Fully 40 percent of the adult U.S. population had virtually 100 percent of their personal data stolen. The purpose of this article is to summarize and pull together advice from my personal experience as well as four good sources:

Krebs on Security “Equifax Breach Response Turns Dumpster Fire
Krebs on Security, “How I Learned to Stop Worrying and Embrace the Security Freeze
Krebs on Security, “Breach at Equifax May Impact 143M Americans
ArsTechnica “So Equifax Says Your Data Was Hacked. Now What?

Here, I’ll look at three issues. First what should you do? And – importantly – what shouldn’t you do? Second, what the heck happened and how has Equifax responded? And, third, why has Equifax’s response been so utterly incompetent?

What Should You Do?

Don’t panic. Yet. First find out if you are affected. From Krebs:

Equifax has set up a Web site — https://www.equifaxsecurity2017.com — that anyone concerned can visit to see if they may be impacted by the breach. The site also lets consumers enroll in TrustedID Premier, a 3-bureau credit monitoring service (Equifax, Experian and Trans Union) whichalso is operated by Equifax.

According to Equifax, when you begin, you will be asked to provide your last name and the last six digits of your Social Security number. Based onthat information, you will receive a message indicating whether your personal information may have been impacted by this incident. Regardless of whether your information may have been impacted, the company says it will provide everyone the option to enroll in TrustedID Premier. The offer ends Nov. 21, 2017.

Next, get your credit reports from all three credit reporting agencies (Equifax, Experian, and TransUnion). You can do this fairly efficiently via http://annualcreditreport.com. But beware. Some of the security questions are obscure. For example, “In which of the following years did you take out a mortgage?” Even worse, some of the answers the site thinks are correct are wrong. One question asked while I was trying to get a credit report for my lovely wife: “Have you ever used any of these last names?” One choice was her ex-husband’s last name – which she never used. I checked “None of the above” and was promptly told I had failed the security questions and would have to call the company to get the report. Even worse, after that the Annual Credit Report website crashed so I couldn’t get the report from the third agency.

Annual Credit Report fail

Annual Credit Report fail (click for larger image)

My advice is to print these reports to pdf files and put them somewhere safe. All three have a section just below your personal information that flags any problems that may exist. If that’s clear, so are you. At least for today. Remember, a credit report is a snapshot at a point in time. The report could change ten minutes after you download it.

Third, take advantage of Equifax’s offer of one year free enrollment in TrustIDPremier credit protection service. You can find out whether your information was stolen here: https://www.equifaxsecurity2017.com/enroll/ — in fact, there are two questions that determine whether you’re a likely victim before you can proceed to the enrollment page:

Equifax Questions to Determine Eligibility

Equifax Questions to Determine Eligibility (click for larger image)

Once you enroll, you’ll be given a date on which you can actually complete enrollment. As of August 9, the wait was five days. It’s probably longer now. And beware: the free protection only lasts for one year. After that, Equifax will undoubtedly try to sign you up for the paid version of this service. Reasons why anyone would do that escape me.

Fourth, if you don’t have a Discover card, get one. (Disclaimer: my only connection with Discover is as a satisfied customer.) Discover offers a zero-price service that will monitor thousands of risky websites as well as Experian’s credit reporting. They look for your Social Security number on those sites. Experian is used to see if anyone is trying to obtain credit in your name. Search for Social Security Number and New Account Alerts. The link will take you here: https://dashboard.discoveridentityalerts.com/dashboard

Discover security message

Discover security message (click for larger image)

Fifth, consider freezing your credit. I won’t go into details on this, but Krebs on Security has a great article about why you shouldn’t be afraid to do this and how to proceed.

Equifax has their own special site for their security freeze. https://help.equifax.com/s/article/ka137000000DSDjAAO/How-do-I-place-a-security-freeze-on-my-Equifax-credit-file

But beware: some users report that entering a random last name and an equally random last six digits of a Social Security number is treated as a regular account with the usual response.

You may be charged a fee for each credit reporting service where you place a freeze. These fees vary by state and, perhaps, age. In California, the fee is $10 each unless you are 65 or older. In that case the fee is $5. Click here to see the complete table (downloadable pdf). State by state fees for security freeze:

Finally, if you are a victim of identity theft, the Federal Trade Commission is the government agency acting as a clearinghouse for these reports. First, file a police report. Then visit the FTC identity theft website.

What Happened?

Equifax screwed up bigtime. The problem began when they failed to install a security patch. Oops.

Equifax said the attackers were able to break into the company’s systems by exploiting an application vulnerability to gain access to certain files. It did not say which application or which vulnerability was the source of the breach.

Here’s what Krebs has to say:

That the intruders were able to access such a large amount of sensitive consumer data via a vulnerability in the company’s Web site suggests Equifax may have fallen behind in applying security updates to its Internet-facing Web applications. Although the attackers could have exploited an unknown flaw in those applications, I would fully expect Equifax to highlight this fact if it were true — if for no other reason than doing so might make them less culpable and appear as though this was a crime which could have been perpetrated against any company running said Web applications.

The problem has now been compounded by total incompetence by Equifax management and IT people. For example, just after http://www.equifaxsecurity2017.com was opened, some browsers were giving invalid certificate errors. Users of OpenDNS were affected. It’s unnerving to get this error message at that site:

Equifax Site Generates Phishing Error

Equifax Site Generates Phishing Error (click for larger image)

Management beara a big chunk of the blame. Their former head of IT security, Susan Mauldin, has two degrees in music composition – and zero in any computer-related field.. Accompanying her out the door is former CIO David Webb.  Ms. Mauldin is being scrubbed from the internet as fast as Equifax can manage it. Too bad they didn’t devote the same effort to handling this data breach. Luckily the folks at Reddit did a screen grab of her Linkedin profile:

Susan Mauldin LinkedIn bio from Reddit

Susan Mauldin LinkedIn bio from Reddit (click for larger image)

Equifax deserves to be sued out of existence. Frankly, I hope a few executives go to jail. As Krebs puts it,

My take on this: The credit bureaus — which make piles of money by compiling incredibly detailed dossiers on consumers and selling that information to marketers — have for the most part shown themselves to be terrible stewards of very sensitive data, and are long overdue for more oversight from regulators and lawmakers.

And the markets are already punishing them. The stock price has fallen by 1/3 since the incident:

EFX stock price from Yahoo finance

EFX stock price from Yahoo finance

Why Has The Response Been So Incompetent?

I’ve already explained part of the problem: giving someone with zero qualifications a sensitive job in IT. This is similar to what happened at the Office of Personnel Management.

Incompetence starts at the top. CEO Richard F. Smith was previously an executive at General Electric. His responsibilities there had little to do with data security:

Prior to joining Equifax, Smith spent 22 years with GE holding several president and chief executive officer roles across numerous businesses including Engineering Thermoplastics, Asset Management, Leasing, and Insurance Solutions. GE appointed Smith an officer of the company in 1999.

But there is a connection with Ms. Mauldin via the great state of Georgia. Recall that her degrees are from the University of Georgia. Mr. Smith:

In May 2010, Smith was inducted into Georgia State University’s J. Mack Robinson College ‘Business Hall of Fame.’ He was the 2013 chairman of the Atlanta Committee for Progress where he is a current board member, and also serves on the board of directors for the Commerce Club. Smith was the 2009 chairman of the Metro Atlanta Chamber of Commerce and now serves on its board of directors and executive committee. As co-chairman of the Atlanta Super Bowl Bid Committee, Smith was part of the team instrumental in Atlanta’s winning bid for Super Bowl LIII in 2019.

Sounds like a bit of quasi-nepotism. But also consider former CIO David Webb (emphasis added):

Dave Webb is chief information officer for Equifax, where he is responsible for leading a global team of IT professionals in delivering the technology strategy as well as support for the company’s innovative consumer and business solutions. He joined the company in 2010.

A 30-year veteran of the IT and financial services industries, Webb joined Equifax from Silicon Valley Bank, where as chief operations officer he led the company’s IT strategy. He also served as a vice president at Goldman Sachs, supporting the investment and merchant banking divisions, and held technology leadership positions at Bank One and GE Capital’s auto finance business.

Additionally, Webb has served as a technology consultant to several large corporations in the U.S. While living in Europe, he held positions at companies servicing the oil industry, including Kestrel Data Limited, Marathon Oil UK Ltd., and Brown and Root Ltd.

Webb earned a bachelor’s degree in Russian from the University of London and a master’s degree in business administration from the J.L. Kellogg Graduate School of Management at Northwestern University.

Russian and an MBA. Sounds ideal for a CIO. Experience is no substitute for education when hiring people in IT. Ah, but note that last phrase in the third paragraph: “and held technology leadership positions at Bank One and GE Capital’s auto finance business.” Another guy from GE, Mr. Smith’s former employer. More quasi-nepotism.

Incompetence plus hiring for sensitive positions based on who you know. If there’s a better formula for disaster, I haven’t heard about it yet.

Otkritie stock price Is Russia’s Banking System Collapsing?

Is Russia’s Banking System Collapsing?

State-run firms are withdrawing billions from Russia’s largest privately held lenders as panic spreads following the largest ever bank collapse in the country’s history.

Is Russia’s banking system collapsing? Or perhaps the private banking system in Russia is being gradually taken over by the government. That would be consistent with Mr. Putin’s past behavior. It appears three of the four largest private banks are being deliberately punished by the government. An article on the Financial Times website dated September 18 includes new information about Russia’s largest banks. →

B&N Bank

B&N Bank

The banks are B&N Bank (БИНБАНКБ, pronounced bean-bank) and the Credit Bank of Moscow. The withdrawals were 12.3 billion rubles at B&N and 11.1 billion at Credit Bank of Moscow. These are respectively 36 and 17 percent of state-run deposits at each bank.

Credit Bank of Moscow Strategy

Credit Bank of Moscow Strategy

There may be elements of retaliation involved. This summer Credit Bank of Moscow withdrew its rating from Expert RA, a Russian agency. Credit Bank CEO Vladimir Chubar said the withdrawals were made by a single large state-run organization in the aftermath of the rating revocation.

A branch of Otkritie bank

A branch of Otkritie bank

All this comes in the wake of the crisis at Otkritie, once Russia’s largest private bank. Last month Russia’s central bank had to bail them out. In that instance, state-run corporation withdrawals led to a run on the bank. Otkritie lost a full third of its balance sheet over the summer. According to Bloomberg, in June and July alone the bank lost 26% of deposits from all customers, totaling 433 billion rubles. The central bank has accused Otkritie of cooking its books and manipulating bond prices. (Unfortunately I was unable to find the amount withdrawn by state-run enterprises.) ()

Otkritie borrowed 728 billion rubles from the central bank in August. That means it owes the central bank over one trillion rubles.

Those three banks are part of the “Garden Ring,” located on Garden Ring Road in Moscow. The fourth bank, Promsvyazbank, saw state-run business deposits increast by 79 percent in August to a total if 98 billion rubles.  Interestingly, Promsvyazbank’s website is only available in Russian:



But Google translate says this:

Promsvyazbank translated

Promsvyazbank translated by Google translate

According to my calculations, total net withdrawals[1] were $475 billion rubles out of total deposits of 1,888.9 billion. That’s a serious hit to any bank’s capitalization. Bloomberg says,

Bank of Russia Governor Elvira Nabiullina has overseen a purge that has seen one in three lenders lose their licenses since 2014 as she attempts to eliminate under-capitalized institutions. This is the first time the cull has impacted one of the 10 lenders designated as systemically important by the central bank, with the bailout financed through a new fund created to assist in the consolidation of the banking sector.

At the same time these four banks were declared too big to fail by the central bank. Given the way Russia is being governed, the real mystery is why the banks were not simply nationalized.
A good working hypothesis is that Mr. Put8in wants to maintain the appearance of a market economy.  Private banks are crucial to that process.

[1] Withdrawals from Otkritie include all depositors. Activities at the other three banks are only state-run enterprises.

Sort of Good News on Regulations

George Washington University’s Columbian College of Arts and Sciences hosts the Regulatory Studies Center. And today they released some good news.  The volume of new regulations emanating from Washington, D.C. has decreased.

Regulations Issued by Type and Year

Regulations Issued by Type and Year (click for larger image)

Naturally, I have a complaint.  The horizontal axis is at zero.  When I see a bar on a graph like this that extends below that axis I’ll be much happier.

The Latest Bad Tax Ideas From Washington

Bad ideas flow from Washington, D.C. like water flows over Niagara Falls.  But there are two that make up the latest bad tax ideas from Washington.

Niagara Falls The Latest Bad Ideas From Washington

(click for animation)

Naturally, these are being floated as part of the tax reform effort. Politico has summarized the proposals being kicked around. You can read more there. And Dan McLaughlin, attorney and columnist for the National Review Online, has written briefly about one of these proposals. (In fact, it was Dan’s column that alerted me to the potential problem.)

But here are two of the many ideas floated in the Politico article.

One idea quietly being discussed would be taxing the money that workers place into their 401(k) savings plans up front: an idea that would raise billions of dollars in the short-term and is pulled from the Camp plan. This policy idea is widely disliked by budget hawks, who consider it a gimmick; the financial services industry that handles retirement savings; and nonprofits that try to encourage Americans to save.

Among the decisions that the White House, Treasury and congressional leaders have settled on is that any tax proposal will require U.S. companies to bring back earnings from overseas at a one-time low tax rate, a favorite proposal of the business community known as repatriation.

I’ll discuss these proposals in order.

Taxing Retirement Contributions

It happens you can already make retirement contributions out of taxed income. The Roth IRA allows you to make contributions out of after-tax income. You get no tax deduction in the year you contribute. But you are allowed to withdraw when you retire and pay zero taxes. To summarize, contributions to Roth are from after-tax income, while withdrawals are tax-free. Contributions to conventional IRAs are from before-tax income, but withdrawals are taxed as ordinary income. (Rollover IRAs are accounts created when a balance is transferred from, say, a 401(k) account. Employers sometimes require this, especially for employees who no longer work at the firm.) Also, some households hold more than one type of IRA.

But this proposal is different. It would essentially mandate that contributions to 401(k) plans be made out of after-tax income. (Presumably, the 403(b) plans used by academics would also be included.) This is a terrible idea for a number of reasons. First, as Dan McLaughlin noted,

While the overall goal of cutting business and investment taxes by lowering the corporate tax rate is a good one, much of the pro-growth benefit of reducing business taxes will be kneecapped if the budget bean-counters get away with slapping additional taxes on money invested in 401(k)s, many of which flow into investments in the same corporations getting the tax cut. Taxing individual retirement savings is also bad from the standpoint of conservative economic philosophy, because it discourages self-reliance. It would unsettle plans made in reliance on the existing code by lots of people – not a reason to freeze the code in amber, but certainly a caution for anyone monkeying with the rules. And as an electoral matter, it’s likely to be politically radioactive with precisely the sorts of wavering suburban voters who were staunch Republicans during the Obama years but are uncomfortable with Trump.

Second, economists have complained for decades that Americans don’t save enough. And it’s true. In the second quarter of 2017 household saving was 5.4% of gross national income (GNI).[1] The last thing we need is to remove an incentive to save. But that’s exactly what this proposal would do.

Political Risk

Finally, there’s political risk. Roth IRAs essentially create tax revenue for the government today. But future tax revenue will be lower when retirees withdraw funds tax-free. Future Congresses are likely to be unhappy with this. What today’s Congress has done any future Congress can undo. It’s entirely possible that a future Congress could revoke the tax exemption for withdrawals.[2] This explains something that has puzzled many economists and investment advisers. If you believe the government’s promise, no one with an ounce of understanding of economics would ever choose a conventional IRA over a Roth IRA. Yet Roth IRAs have not been very popular. To see this, we can compare the demand for Roth and conventional IRA accounts.

The Employee Benefit Research Institute publishes data on IRA holdings (among many, many other topics). Their latest data is from 2013.[3] And there are two measures: the percentage of households holding each type of IRA and the percentage of assets held in each.

Looking first at the percentage of households, conventional IRAs were 34.5% of the market, Roth IRAs were 20.5%, and rollover IRAs were 21.0%. The remaining 24% of households held two or all three.

Market share by households The Latest Bad Ideas From Washington

Market share by households (click for larger image)

The market share by percentage of asset valuess shows conventional IRAs were 26.6%, Roth IRAs were 5.7% and rollover IRAs were 19.8%. Again, the remaining 47.9% of total assets were allocated to two or all three.

Market share by assets The Latest Bad Ideas From Washington

Market share by assets (click or larger image)

Roth vehicles continue to be unpopular. As Vice-President Pence said recently, “People in Ft. Wayne understand this.”

Repatriating Funds Held Overseas

Where to begin? The first objection is that corporations would be required to repatriate funds held in other countries. This sounds more like Socialism than capitalism. The government will actually order businesses to return those funds?

But even worse, this is a one-time offer at a lower tax rate. Corporations have already paid taxes on those earnings in other countries. The correct U.S. tax rate would match what other countries charge: 0.00%.

Finally, it’s temporary. As economists once knew, temporary tax changes do not change long-run behavior. Even if these funds are repatriated, the deadline for this deal will pass and corporations will once again begin to accumulate funds in other countries. Sadly, this is typical of the short-sighted “thinking” in Washington, D.C. Whoever dreamed up this idea should be booted out of the meetings discussing tax reform.


Over the past 30 years I’ve positively dreaded the idea that the tax system would be overhauled again. When Congress opens up the tax code for any serious rewriting, you can bet the farm that the code will not get any simpler. As I’ve written many times before, Congress and the President use tax complication to hide the many favors they dispense to favored interest groups. Sadly, it appears that we may be in for another 5,000 pages added to U.S. tax law.

[1] Source: U.S. Bureau of Economic Analysis. Accessed September 4, 2017.

[2] I once used this example in an MBA finance class. One of the students exclaimed, “They [Congress] would never do that!” He became more cynical as the course progressed.

[3] Craig Copeland, Ph.D., Employee Benefit Research Institute. “Individual Account Retirement Plans: An Analysis of the 2013 Survey of Consumer Finances” November, 2014, Number 406.. https://www.ebri.org/pdf/briefspdf/EBRI_IB_406_Nov14.IAs1.pdf accessed September 4, 2017.

Operation Choke Point Is No More

Red Tape

Red Tape (click for larger image)

A win for the good guys!  Operation Choke Point is no more.  This underreported story was pointed out by James Taranto who helped me with my first Wall Street Journal op-ed (Stimulate the Economy and Spend Nothing, jan. 16, 2017 )  I’ve written about this abysmal assault on our Constitutional rights before. Click here and here and here and here.

Reporting in the Washington Examiner, Joseph Lawlor wrote

The Trump administration has ended Operation Choke Point, the anti-fraud initiative started under the Obama administration that many Republicans argued was used to target gun retailers and other businesses that Democrats found objectionable.

Assistant Attorney General Stephen Boyd told GOP representatives in a Wednesday letter that the long-running program had ended, bringing a conclusion to a chapter in the Obama years that long provoked and angered conservatives who saw Choke Point as an extra-legal crackdown on politically disfavored groups.

“All of the department’s bank investigations conducted as part of Operation Chokepoint are now over, the initiative is no longer in effect, and it will not be undertaken again,” Boyd wrote in the letter.

The letter was addressed to Jeb Hensarling and Bob Goodlatte, the chairmen of the Financial Services and Judiciary Committees, respectively. Their staffs confirmed they received the letter.

Here’s the full letter from Assistant Attorney General Boyd.

Letter from Steven Boyd