Five Factoids

Here are five factoids that came to my attention this AM that might be of interest:

1) One of the primary reasons that Scott Brown lost his bid for the Senate in New Hampshire was his anti-gun (Second Amendment) stance ... i.e., he alienated much of the conservative base up there.

2) Kaci Hickox, the nurse who would not adhere to her Ebola quarantine at her home in Maine, is not certified as a nurse in Maine! If she is so recognized elsewhere is not clear. Why has this not been reported?

3) Howie Carr, a popular talk-show host here in Boston, was in a car accident yesterday near his studio. He was taken to the hospital but released last night.

4) 357 people are under active observation for Ebola just in New York City ... a factoid only released after Tuesday's midterm elections ... see: NBC New York Story.

5) Voters in Berkeley, California passed a resolution on Tuesday that imposes a one cent per ounce tax on soft drinks. A six-pack of 12 oz. Pepsi's will now cost $0.72 more in this berg.

The Debate

Yesterday I participated in a Skype call with a bunch of my homies from college days … many of whom read this blog. In this conversation I was jibed for a blog entry in which I criticized New Hampshire Senator Jeanne Shaheen for attacking Scott Brown over his support for the oil depletion allowance ... calling it a government subsidy for the rich oil companies. In it I equated this non-cash write-off allowed oil exploration companies to depreciation allowed other corporate taxpayers … see: Energy Independence.

To defend myself I thereafter participated in an e-mail debate with two of my homies in which they both took the position that this accounting entry was unfair. I think that this debate was a lively and edifying back and forth and so I want to reproduce it here. In order to protect the identities of these two opponents, I have given them aliases … Dr. Kildare and Godot. I tag my arguments with “Me.” Here is the verbatim trialogue:

Me: (replying to a comment made during the Skype call that mining companies don’t get an equivalent write-off as oil exploration companies.)  See: http://www.taxpayer.net/library/article/the-percentage-depletion-allowance-pda-a-double-giveaway. Even for land for which there is no payment.  This would be wrong in my book ... [George]

Me: By the way [Godot] ... you asked if steel companies should be allowed to depreciate the ore that they use to make steel ... if they buy this iron ore, they have a full tax right-off immediately ... as it is considered an operating expense [I should have said "cost of goods sold"] in the income statement. If they own the iron ore pits, then see my previous e-mail. George

Godot: George...thanks for this clarification. So the Feds do allow certain companies mining "critical" materials such as uranium, silver, etc. to get a depletion credit. We could certainly classify oil as a critical material. But in both cases, these credits or write-offs are little more than gifts from the taxpayers given to industries that are doing just fine on their own....which you seem to agree with. It is pure political pork. So will there be an update/revision of your earlier blog?

Me: [Godot], You, I think, once had a rental property ... which, I suspect you depreciated on your tax forms. This is the same as depreciating a piece of oil producing land. There is one major difference however ... oil-producing land does get less valuable after the oil is extracted.  However, rental real estate generally gets more valuable over time. Perhaps then we should eliminate this notion of allowing depreciation deductions on the tax returns for rental properties ... but keep it on oil lands? George

Godot: George...the basic difference between a rental property and oil in the ground is that the rental property is an asset one has to use other assets (usually cash) to acquire. Real estate wears out over time and use and that is the basis for its depreciation. Whether its sale price increases in value over time is immaterial to the depreciation value which is based strictly on what one originally paid for it...and that the value increases is far from certain. I have invested in real estate that has sold for much less than I paid for it (unfortunately). Oil companies should be allowed and are allowed to depreciate the assets they need to use to find and extract the oil from the earth....equipment, land purchases, leases, etc. Allowing oil companies to depreciate the actual oil they find, if any, continues to be a rip-off that we all pay for. Under this concept, all minerals mined from the earth should therefore be depreciable. We could even let DeBeers Diamonds have a tax write-off for every one of the diamonds they extract from their mines. [Godot]

Me: [Godot], Differentiating between the oil in the ground and the ground itself is sophistry. The oil depletion allowance IS depreciating the value of the land from which the oil is being extracted. So, can I assume you agree with me? George

Dr. Kildare: OK.  I went to the web to look up "oil depletion allowance".  There are several articles there defining the concept. It is a depletion allowance, not a depreciation, to allow recovering the cost of buying a mineral. I still think it is a kaka concept: You make money selling the oil, after taking off expenses of recovering the oil, and then receive a payment for having less oil, that you just made a bunch of money buy selling it.

Me: [Dr. Kildare], So when you have a rental property you should not be allowed to depreciate it because you are also receiving rents from the people renting said property? Don't forget this depreciation is on top of the money you spend (and deduct from declared income) to rent the property ... taxes, mortgages, upkeep, advertising, etc. These two concepts, to me, are analogous. George

Dr. Kildare: the depletion allowance is specifically for the mineral. Oil companies do not buy land.  It is done through leases, thus enriching some guy who owns useless desert land in Oklahoma.

Godot: "Land" that an oil company has to buy or lease for its drilling exploration might be legitimately depreciable. Land, in general according to GAAP, however, is not depreciable because land does not wear out or get used up.. George is talking about oil in the ground, or more specifically, an asset the oil company has not paid for. Therefore should not be allowed to write-off.

Me: [Godot], You say, "oil in the ground, or more specifically, an asset the oil company has not paid for. Therefore should not be allowed to write-off." Are you telling me that the purchase or leasing of land under which oil may be found is the same as that for land for grazing cattle? Come on!! George

Godot: George ... from a tax point of view, land is land. However, as your article points out certain industries get favored nation tax treatment. If the oil industry were an endangered species, I might agree. But we both know the oil industry is doing quite well. So the depletion allowance is pure political poppycock.

Me: [Godot], I thought we were arguing accounting ... and you have slipped over into politics.  I think you are confusing oil refining companies with oil exploration companies which are far riskier. If you agree with me about the accounting treatment, then we can discuss the actual amounts involved. I do believe that newer technologies might require the revisiting the formulas used for oil depletion allowances ... but I myself will not reject this accounting concept. The counter argument, in my mind, is a purely political calculus. George

Dr. Kildare: The law, for oil in the ground, is a special case, as passed by Congress.  that is why the law exists. and is also the cause of the yowls of those opposed to it.  This is not a standard and usual accounting rule. The depletion allowance is an exception to usual and customary to allow the oil companies to recoup some $.  It is specifically for loss of the volume of oil in the ground each year and has nothing to do with how the rights to extract the oil were obtained.  It is prorated yearly until the company has recouped all of its investment and then goes away. Any expenses to the oil men for obtaining rights to drill, remove the oil from the ground or sell it to me and thee are handled by usual and customary accounting. The screeching I have always heard relates to the fact that the oil company never paid for the oil in the first place.  They paid for a lease and spent money looking for and extracting oil which they then sold at a profit.  They paid someone the gamblers ante at the outset on the come that there was oil under the land. They did not have a guarantee that there was oil there so I believe it is specious to say that they paid the land holder for his oil.

Me: [Dr. Kildare], And, if there is no oil there, do they get any oil depletion allowances?  NO ... they ate these upfront costs. Your description, to me, sounds an awful lot like the equivalent of depreciation ... and I am reasonably sure that this was the argument that was made to Congress to get them to agree to these non-cash charges to their income statement. You say that the oil exploration company never paid for the oil to begin with ... and I say that they paid a lot more to buy or lease this land than they would have to use it to graze cattle. They also had considerable expense to drill, extract, and distribute this oil ... if any turned out to be there. These expenses could easily offset much of their eventual [dirty] profit.  Ergo they deserve to recoup all or part of this extra purchase or lease expense (and even that money which they sunk into dry holes) through this depletion allowance. Without this non-cash tax allowance, we probably would still be quite beholding to the Mid-East potentates. If it walks like a duck ... Do you really want to discourage such strategic energy exploration by removing this (to me, meaningful, rational and time-tested) accounting incentive? George

Me: [Dr. Kildare], One more thing. And to call it a "subsidy" is demagogic pandering to the uninformed voter. This suggests that the government gives these oil exploration companies taxpayer money. No, the oil-depletion allowance is just a non-cash charge ... a reduction in the amount of taxes owed against any revenues generated (exactly like depreciation is). George

Readers ... if you are still here ... I thank you for your indulgence. I do think that this is a very important topic ... if somewhat in the weeds.

Energy Independence

I have written in the past about "oil industry subsidies." Rather than using a hyperlink, I will just reproduce my 2011 blog entry text here:

Semantics are wondrous things.  Many politicians, including some Republicans, are now calling for the elimination of oil industry "subsidies" as one small way of closing our heinous budget deficit.  These subsidies supposedly total $4.4 billion per year (see: Oil Industry Subsidies.) This is a very small amelioration (less than 0.3%) considering that our budget deficits are now running around $1.6 trillion per year.

Now, I am old enough to remember what these oil-industry "subsidies" really are.  They used to be called "oil depletion allowances."  These allowances were meant to equate to "depreciation" in other industries.  In other words, as an oil company either purchased or leased the mineral rights to a piece of land ... and then extracted the oil, there was a reduced value to this land since the oil was being extracted.  Thus oil companies were allowed to "depreciate" this depleted oil deposit to allow them to then go and buy or lease other land to look for more oil. 

Can we thus call the ability of General Motors to depreciate the machinery (robots, machine tools, etc.) it uses to make cars an "auto-industry subsidy?"  If we did, all hell would break loose.  Now maybe the formulas used to calculate oil depletion allowances need to be reformulated given the new technology used in oil extraction.  But to eliminate these oil-industry "subsides" entirely is but another step in our tree huggers' attempt to emasculate the United States' energy-producing capabilities.  This is a little like playing Russian Roulette with five bullets in your six-shooter.

I pretty much said what needed to be said back in 2011, but now Jeanne Shaheen of New Hampshire is using this same demagoguery against Scott Brown in their Senate race up there. If we are ever going to achieve energy independence in this country, it will not be by eliminating this valid accounting process for oil exploration companies. Machinery wears out and is obsoleted ... and needs to be replaced. That is why depreciation is a valid accounting entry for manufacturing companies. Such is also the case for oil in the ground. Once it is gone then the high prices paid for this resource is lost unless it was allowed to be depreciated like any other income-producing asset. This is not a "subsidy" ... it is simply a logical accounting rule ... something that seems continually to be lost on liberals ... and naive voters

Why the media, accounting professionals and university professors don't come to defend this age-old accounting practice is beyond me.  Oh, yes ... I think I just answered my own question.

The Warren Court

I have written before about the tyro Senator from Massachusetts, Elizabeth Warren … see: Lizzy ... basically commending her for putting a bevvy of bank regulators on the hot seat for not bring criminal charges against any banking types for the 2008 financial meltdown.  Since then Senator Warren has, from her position on the bench of the Senate Banking Committee, embarrassed two more sets of financial officials testifying there:

1) She asked the Federal Reserve Chairman, Ben Bernanke, why the “too big to fail” provisions of the Dodd-Frank financial reform law have not yet been fleshed out and implemented.  She said that not only have the big financial-center banks gotten bigger since this act was passed, but that they are benefiting from a money-cost differential between themselves and the smaller regional banks ... to the tune of something like $83 billion per year.  (See: Huffington Post Story).  Bernanke gave a dismissive response even after Warren kept pressing him on this issue.  (I must add however that, after Bernanke’s testimony was over, one could see Warren rushing up to the Fed Chairman as he was exiting the hearing room, presumably with some backtracking words.)

2) And, more recently, Senator Warren pressed Treasury officials as to why officers of HSBC bank have not been prosecuted (and/or had serious sanctions imposed on the bank) for laundering considerable drug money whereas minor drug dealers end up in the poky, see: Reddit Reference.  (HSBC did pay a $1.92 billion fine which seems to indicate that these were pretty serious offenses.)

Please don’t misunderstand me.  Although I commend Ms. Warren on her aggressive cross-examination style from the bench of the Senate Banking Committee, I still have serious questions about her own ethics regarding her long-ago claims of minority Native-American status … and the character weakness she displayed in how she ran her campaign against the incumbent Senator Scott Brown.  So I am conflicted about my above paeans for this woman ... but I do hope she continues her aggressive judicial ways from the bench.

“All Politics Is Local”

Why would someone in the prime of his life enter the buzz saw of local politics … particularly in a state as corrupt as Massachusetts? Beats me. But there is such a person and his name is William Callahan ... and he is running for the State House here in the place aptly named a “Commonwealth” after the left-leaning politics of its inhabitants. For generations this state has been run by Democrats to the point that it is assumed to be their birthright. Yes, Governor Romney did govern his state for four years, but he could but make a small dent in its political hackery caused by this state’s one party rule … 87 % of its legislature is Democratic … and this has resulted in its last three Senate Presidents being convicted of felonies … stay tuned for possibly more. Generations of Democrat legislative rule here in Massachusetts has created a miasma of political privilege and disdain which, in turn, has led to fiscal irresponsibility and creeping moral corruption. We can ill afford this long ethical slide to continue. It may very soon become irreversible.

Enter William Callahan, a recently retired Colonel in the National Guard (as the National Guard’s Fiscal Officer for all of Massachusetts) who had served two tours of duty in Iran. Bill is a level-headed optimist ... still believing that he can help change things (see: Callahan's Webpage) … and I have signed on to do my small bit to help him. He is running a vigorous ground campaign here in the Middlesex’s 5th district comprising Natick, Sherbourn, and part of Millis, Massachusetts … going from door to door plying his message of restoring ethical standards in our Massachusetts government, working diligently to reduce our states’ out-of-control spending and confiscatory taxing, and improving government transparency, i.e., open up our governmental processes to the fresh air of full and timely disclosure. He is running against David Linsky, not the worst of the Democrat Beacon-Hill actors who has done some beneficial things for our communities. But he has never seen a tax increase that he didn’t endorse or a pork-barrel bill he would eschew… and, over the most recent session, has voted with the Democrat leadership over 99% of the time. This is why he needs to be replaced.

Will Bill win ... in a state whose citizens first consider the “D” or “R” following a candidate’s name before voting? It certainly is an uphill slog. But I cannot count out someone who has won two Bronze Stars for his service for his country in a hostile foreign land ... and is endorsed by U.S. Senator Scott Brown and the Natick Police Patrol Officers' Association.  But then again Massachusetts has its own form of IEDs. I am doing my small part to help this good man avoid being blown up in his attempt to make things better.  And I would appreciate anyone who might help in this effort to pass this message along.

Thank you.

(Title quote is attributed to the former Speaker of the U.S. House from Massachusetts, Tip O'Neill.)

Legal Eagle

Massachusetts Senate candidate, Elizabeth Warren, has a very unique riposte to Senator Scott Brown's charge about just how little she stands up for the common man.  She now says that, even though she was a lawyer (or perhaps a legal consultant?) for The Travelers Insurance when it was a defendant in a class-action lawsuit by a plaintiff group of asbestos victims, "[s]he pointed out that that plaintiffs’ lawyers in the case and asbestos workers’ unions have said her advocacy in the case helped protect the settlement for victims" (see: boston.com Story).

Perhaps it is true that, even though Elizabeth Warren was contracted to help the defendant, The Travelers, and took a hefty fee for this legal effort, she was "secretly" working for the plaintiffs.  How can this be?  Either she is misrepresenting what she did in this case ... or she violated her legal ethical standards when she tilted toward the plaintiffs when representing and taking money from the defendant.  This is clearly a major conflict of interests ... and should cause a further look by the Harvard Law School and/or the Massachusetts Bar Association.  Ha Ha!!

Sitting Bull

I had always been curious why the Democrats in Washington never backed Elizabeth Warren to head the Consumer Financial Protection Bureau.  She was, after all, the face behind this consumer-reform push coming out of the Dodd-Frank Financial Reform Law.  My wife and I were even somewhat sympathetic to her cause back then (my wife more than I).

I think we have since discovered this hesitancy on the left ... Elizabeth Warren is one gigantic fraud:

- First it was discovered that she has claimed Native-American heritage ... for which there is no documented proof ... and as a result of which it is quite likely that she has received juicy jobs in academia.  She refuses to authorize release of employment records that would clear up this issue.

- Second it was noted that all the recipes (three, I think) that she submitted to the book, Pow Wow Chow, under the attribution that she was a Cherokee, had been cribbed virtually word for word from other sources ... ironically the New York Times in two instances..

- Now, it is revealed that Ms. Warren has apparently been practicing law in Massachusetts without the proper licensure.  Since I am not conversant with the ins and outs of this issue, I refer you to the lawyer, John Hinderaker, to explain things fully in his blog post at Powerline.

- Lastly, in frequent debates and discussions on local radio here in Massachusetts, Ms. Warren, when asked embarrassing questions, has been evasive to the point of listener-cringing.  Just the other day she was queried as to why the current poobahs at the Consumer Financial Protection Bureau were making high six-figure salaries.  She responded with a litany of the good things this agency was doing but, conveniently and obviously, never answered the question.

Her campaign in this state against Senator Scott Brown has basically devolved into one talking point -- her election here will help keep the Republicans from taking over the Senate.  In other words, "hold your nose and vote for me."

Balderdash!

In the local Scott Brown/Elizabeth Warren debate last night (Massachusetts Senate race), Scott said that he thought that global warming was real, but that he wasn't sure to what degree that mankind was responsible.  Can this be?  Yes, I suppose that Scott's justifiably timid premise might be based upon the recent shrinking of the Arctic polar ice cap ... see: AP Story). However, what is less frequently mentioned by the cult of greenies is that the ice cap in Antarctica is growing. In fact it recently reach its largest size in 33 years! (See: Forbes Story).

Now I am sure that the Northern Hemisphere produces more carbon dioxide than the Southern Hemisphere (particularly since China is building about one coal-powered power plant per week), but I am also sure that the Southern Hemisphere produces more carbon dioxide than in past years.  Yet, its ice cap is growing!  Ergo, this means that the dynamics of global warming and global cooling is far more complicated than our covey of animated climate scientists are willing to admit.

I have previously stated in this blog and my Junkier Science blog that our earth's climate is clearly affected by numerous things, minute changes in the Earth's tilt, alterations in solar radiation levels, the dynamics of ocean current shifts, increased/decreased levels of atmospheric particulates from things like volcanoes, atmosphere chemistry changes (including CO2), and maybe even our Solar System's shifting position in the Milky Way.  Of all these independent variables, the only one that man might have any control over is CO2 levels.  To me, this seems to be too convenient a solution to our angst over what may (or may not) be happening to our climate.  One time a surgeon told me that, since he was good a wielding a hammer, every health problem looked to him like a nail.

I sincerely think that far too many scientists see CO2 as a climate-change "nail" because it is the only dial that mankind might twist to fix things.  Therefore, data is fudged and simulation models are "adjusted" so as to prove this singular point.  If these simulation models were multivariate instead of single variant, I might be more easily convinced.  But they are not, and, until they are ... BALDERDASH!