Obama on the IRS

I wrote recently about why the IRS scandal is such a potential problem for the President. What follows are the President's recent comments on the scandal, via the WSJ:

THE PRESIDENT: Good afternoon, everybody. I just finished speaking with Secretary Lew and senior officials at the Treasury Department to discuss the investigation into IRS personnel who improperly screened conservative groups applying for tax-exempt status. And I look forward to taking some questions at tomorrow’s press conference, but today, I wanted to make sure to get out to all of you some information about what we’re doing about this, and where we go from here.

I’ve reviewed the Treasury Department watchdog’s report, and the misconduct that it uncovered is inexcusable. It’s inexcusable, and Americans are right to be angry about it, and I am angry about it. I will not tolerate this kind of behavior in any agency, but especially in the IRS, given the power that it has and the reach that it has into all of our lives. And as I said earlier, it should not matter what political stripe you’re from — the fact of the matter is, is that the IRS has to operate with absolute integrity. The government generally has to conduct itself in a way that is true to the public trust. That’s especially true for the IRS.

So here’s what we’re going to do.

First, we’re going to hold the responsible parties accountable. Yesterday, I directed Secretary Lew to follow up on the IG audit to see how this happened and who is responsible, and to make sure that we understand all the facts. Today, Secretary Lew took the first step by requesting and accepting the resignation of the acting commissioner of the IRS, because given the controversy surrounding this audit, it’s important to institute new leadership that can help restore confidence going forward.

Second, we’re going to put in place new safeguards to make sure this kind of behavior cannot happen again. And I’ve directed Secretary Lew to ensure the IRS begins implementing the IG’s recommendations right away.

Third, we will work with Congress as it performs its oversight role. And our administration has to make sure that we are working hand in hand with Congress to get this thing fixed. Congress, Democrats and Republicans, owe it to the American people to treat that authority with the responsibility it deserves and in a way that doesn’t smack of politics or partisan agendas. Because I think one thing that you’ve seen is, across the board, everybody believes what happened in — as reported in the IG report is an outrage. The good news is it’s fixable, and it’s in everyone’s best interest to work together to fix it.

I’ll do everything in my power to make sure nothing like this happens again by holding the responsible parties accountable, by putting in place new checks and new safeguards, and going forward, by making sure that the law is applied as it should be — in a fair and impartial way. And we’re going to have to make sure that the laws are clear so that we can have confidence that they are enforced in a fair and impartial way, and that there’s not too much ambiguity surrounding these laws.

So that’s what I expect. That’s what the American people deserve. And that’s what we’re going to do.

Thank you very much.

Mitt Romney on The Tonight Show

Mitt Romney recently sat down with Jay Leno to chat about some of the big news stories of the day from the IRS scandal to Benghazi to the economy to the AP tapping debate. The video from that interview is in two parts below:

 



A Plug...

When frequent contributor and collaborator Jerry Newhall recently asked for some space on this page for a plug, I was more than happy to oblige. A plug!?! some might say. But not to worry dear readers, he isn't shilling anything dodgy like internet gambling...

As a periodic contributor to BlawgConomics, I've shared my ruminations on subjects from zombies to handbags. And as regular readers know, I'm currently hard at work alongside the Esteemed Editor on a paper examining the nature of Bitcoin. I thought readers might be interested in my take on another intersection of law and technology, criminal copyright.

Along with a sagacious coauthor, I recently accepted an offer from the North Carolina Journal of Law and Technology to publish our article "Criminal Copyright Enforcement Against Filesharing Services." A working draft of the full paper is available on SSRN, but I wanted to summarize the highlights for BlawgConomics readers. (And of course am very interested in reader comments.) From the abstract:

"The high-profile prosecution of the popular online storage website Megaupload for criminal copyright infringement is the latest in a series of recent criminal prosecutions of online filesharing services. But what pushes a legitimate online file-storing business over the edge to criminal enterprise? How might criminal copyright enforcement differ materially from civil enforcement?

This article answers these questions and suggests guidelines for prosecutorial discretion. After a condensed history of criminal copyright law, we explain why "secondary" theories of infringement apply in the criminal, as well as civil, context and why the DMCA "safe harbor" defense is a red herring in criminal copyright actions. We then propose guidelines for prosecutors to consider before bringing a criminal enforcement action against filesharing services including limiting prosecutions to theories of liability already established in civil case law, and targeting only those filesharing-service operators that openly defy civil enforcement actions."

But most important of all, we managed to find a way to cite Batman: Detective Comics. No mention of zombies, but hey, you can't always have it all...

If the Gun Rights Debate Isn't Interesting Enough for You Yet...

From the L.A. Times last week:

"Gun crime has plunged in the United States since its peak in the middle of the 1990s, including gun killings, assaults, robberies and other crimes, two new studies of government data show.

Yet few Americans are aware of the dramatic drop, and more than half believe gun crime has risen, according to a newly released survey by the Pew Research Center.

In less than two decades, the gun murder rate has been nearly cut in half. Other gun crimes fell even more sharply, paralleling a broader drop in violent crimes committed with or without guns. Violent crime dropped steeply during the 1990s and has fallen less dramatically since the turn of the millennium.

The number of gun killings dropped 39% between 1993 and 2011, the Bureau of Justice Statistics reported in a separate report released Tuesday. Gun crimes that weren’t fatal fell by 69%. However, guns still remain the most common murder weapon in the United States, the report noted. Between 1993 and 2011, more than two out of three murders in the U.S. were carried out with guns, the Bureau of Justice Statistics found.

The bureau also looked into non-fatal violent crimes. Few victims of such crimes -- less than 1% -- reported using a firearm to defend themselves.

Despite the remarkable drop in gun crime, only 12% of Americans surveyed said gun crime had declined compared with two decades ago, according to Pew, which surveyed more than 900 adults this spring. Twenty-six percent said it had stayed the same, and 56% thought it had increased."

For any readers who haven't found the gun rights debate interesting, maybe that will do the trick?

Is Privacy Fighting Back?

I am very comfortable admitting that I am rarely in the vanguard when it comes to adopting technological innovations. I also tend to value privacy a bit more highly than the 50th percentile of Americans does. Based on those two facts, I will admit that I might not be the most neutral voice in the room when it comes to privacy concerns surrounding toys like Google Glass.

However, it appears I am not the only one who has reservations about glasses which can record anything from conversations to video...

Obamacare Woes for Democrats...

Many passionate arguments in support of universal healthcare rest on the notion that it is absurd that citizens of the most powerful, most wealthy nation in the history of the world cannot afford regular check-ups. While I agree, in theory, that people should be able to get the help they need when they need it, it is also true that healthcare does not exist in a vacuum, and that many historic factors, going back to when decisions on how to tax insurance benefits (and surely other data points even before then) occurred, have conspired to create the high-cost state of affairs which exists today.

The high costs, some of which Obamacare was ostensibly enacted to remedy, but which may just be added to by the legislation, have made the simple question of whether or not Americans believe health care should be universal much more complicated. In other words, in a question which should have been asked with more frequency in the run up to the historic vote, if we all get insurance, who is going to pay for it?

In general, and ceteris paribus, higher taxes mean that less jobs are available in a given economy when compared to that same economy with lower taxes. Of course one could argue that higher taxes mean more benefits, an ability for some people to forgo working, etc. However, protections can take time to enact, and, in any case, cost something themselves, whether in dollar or social cost terms. Taxes, while at some level beneficial, at higher levels are not.

And, despite the early claims of the Obama Administration to the contrary, several of Obamacare's provisions, particularly penalties for non-compliance, are taxes. Indeed, that very notion is what the Supreme Court relied on in upholding the bill. Therefore there are going to be costs. Among others, it seems that if companies are paying more to comply with the bill, or are paying taxes to avoid it, then less people will be employed.

While as a society we should ask ourselves questions like 'shouldn't everyone who wants health care be able to obtain it', shouldn't we also ask whether people who want to be productive should be able to? Shouldn't we wonder a little bit more about how providing health care without attacking some of the root causes for its astronomical costs will tax resources? Shouldn't we have attacked the front-end problems with health care before trying to fix the back-end? It seems to me we should have.

It also seems clear that, even among those who passed the bill 'we should pass to see what it contains', there is agreement with that theory. It could be a tough mid-term for the Democrats...

The Miranda Debate - Looking Elsewhere for Guidance

Miranda rights figured heavily in the aftermath of the capture of the Boston Marathon bomber. Regular readers might agree that any articles I might have posted on the topic would likely have been high on ranting (on which side, I am not quite sure) and which, despite my attempts at nuance, would have actually been a little manic (think of a Fox News anchor trying caffeine for the first time v. a MSNBC analyst buzzing on whatever it is they take).

Whatever else it might have been, it seems almost certain that it would have been short on actual legal analysis. Luckily for readers, there are sites like Dorf and Volokh where they actually look at laws and court decisions when analyzing legal issues. Anyone who would like to take a look at some actual, thoughtful legal analysis on Miranda in the context of domestic terrorism would do well to visit those respective sites here and here.

Good Solar REIT Resources

Long time readers will know how much time and effort I have spent thinking and writing about the Solar REIT concept. Any one who shares my interest in the concept might be interested in a few resources I have uncovered recently.

Here is an interesting article on the concept itself.

Here is a brief paper where the S-REIT is described in the context of some other cutting-edge solar funding approaches.

Here is a good list of resources (with my research noted...though not for being 'best in class'!)

Here is the latest and greatest on the various requests which have been made of the IRS pertaining to the structure.

Interesting Feedback on a Post on the Law of Unintended Consequences

A regular reader recently commented (in person) that I had possibly gone too far in a post on a newspaper which purposefully published the names of some gunowners who were subsequently robbed. In the post, I followed what I thought was a perfectly logical path which suggested that a cause - the publishing of the names - led to an effect - the robbery - which was not only probable, but possibly intended. The punchline was that it was a post not about unintended, but rather intended, consequences.

The reader, whose judgment I value greatly, and is usually a voice of reason when I moot my more outlandish conspiracy theories, argued (if I might paraphrase) that the whole thing was instead most likely an unfortunate set of coincidences.

However, while I might have gone a bit far in suggesting that the editors of the paper intended for illegal activity to occur, my conclusions might not have been as incredible in nature as the reader suggested. The very publishing of the names and addresses of the gunowners was an act which was political in nature. In addition, it was an act which, even if not "intended" to provoke reactions from others in the community (shame? questions? avoidance?), was certainly of a nature which made such reactions probable.

And if it were probable that there would be reactions from law-abiding members of the community, wasn't is also possible that those who don't conform to society's rules and laws might react to the information as well?

I am not sure whether it is more or less polite to suggest that someone in the media had nefarious political ends in mind when doing something, or whether they were instead willfully blind to the very likely consequences of their actions. However, in either case, it seems to me that the newspaper was at least negligent. And we should expect more (mounting evidence to the contrary) from those who report the news.

Should Non-Citizens be Able to Vote in Local Elections?

I don't know if I can provide a good answer to the question posed by the title. On one hand, voting is certainly one of the rights and responsibilities of citizenship, and citizenship only. On the other, it doesn't seem crazy to me think that people who pay taxes and live in a city should be able to have a say in how those taxes are used in that city.

One cannot stop there however; there also other complications inherent in the question. One side of the debate can make claims, in many cases justified, that allowing non-citizens to vote is really just a shameless vote grab. It is also fair to ask where the freedom to vote will end. In state-wide elections? Nationally?

The other side, again, in some cases justified, can claim vaguely nationalist or racist undertones in the rhetoric of those who are against the vote for non-citizens. Who has had the right to vote has also changed over time, that side would rightly say, and in saying so could point to times when property ownership, race, and sex were more important in the law's eyes than equality. Perhaps this is just the next step in that, to date, virtuous cycle they might say.

There are also broader questions on immigration policy, states rights issues (could states be forced to allow non-citizens to vote?) and fairness questions implicated in this conversation. One could even go to the other end of the spectrum and ask whether those who, in many cases, don't take advantage of the rights they do have to vote, have the right to tell others they cannot. All of these questions and topics are relevant, and this happens to be one of those situations where I can see some sense in just about all of them.

In any case, with the recent news that New York City is considering allowing non-US citizens to vote in local elections, it should be expected that this debate will be making its way to the forefront on the nightly news entertainment programs very soon. It should also be expected that the talking points about the topic will be expressed a bit more forcefully, unobjectively and venom-filled than they are above. I think it is safe to say that no one, citizen or not, will benefit from that...

Why the IRS Controversy is so Problematic for the Administration

It is a well-known and accepted fact that presidents have the ability to appoint friends and allies to certain positions in government agencies when they come into power. A natural corollary is that those appointees represent that president's general intentions while carrying out their duties. This, and not the more publicized sweeping bills which have to make it through oft-unfriendly legislatures, is probably the most consistent means by which most presidents exert the most influence.

Appointees carrying out the will of the person who appoints them is not only a corollary, but is mostly beneficial. While political battles about big-picture items have always raged in America, it is also true that many functions of government are less controversial, and having loyal foot soldiers in place to carry out the day-to-day activities required by those functions in a way that reflects the positions of the party in power in an efficient way allows for the business of the nation to be done without too much fuss.

That which is outlined above can also very simply be thought of as the spoils of war.

However, while having appointees in place carrying out the will of the president is widely accepted, it also seems like the arrangement could be taken too far. While forestry management, or commerce, or anti trade policy, or fisheries might be expected to be managed differently under different administrations, it would also seem problematic if any of those policies were managed differently for two different groups under the same administration.

If whites could chop down more trees on national forest land than blacks, it would not be acceptable. If only Protestants could go fishing in protected areas, and not Catholics, it would likely cause great push back. If only immigrants of Asia were allowed to trade certain goods, while immigrants of South America were not, it would seem very odd indeed. Any differences between different sets of religious, national origin, racial or political groups would be particularly stark if they occurred in the context of tax policy. While it might seem louche, people take money very seriously.

That is one reason why the news this week that Tea Party and Jewish affiliated non-profits have received more scrutiny from certain IRS offices than others in recent years - including in the run-up to President Obama's reelection - might seem so significant. Another is simply that most Americans have felt stress about money at some point in their lives. Indeed, even the 1% have probably had money-related stresses, even if they might not be recognizable to most people. Therefore, any situation which creates money-related stress has wide resonance and has the potential to lead to very visceral reactions from a wide swathe of people.

As far as I can tell, there is no direct link between the Obama Administration and the recently reported abuses of power in certain IRS offices. However, the Administration must proceed with caution. Regardless of political stripe, irrespective of whether people believe that tax policy is appropriate at any given time, almost no one enjoys dealing with the IRS. If the IRS is seen as protecting, or working for, the President, if having the IRS serve as his attack dog starts to be viewed as if it were the spoils of war, the damage will far exceed any minor benefit it may have created for him.

More on Intrade - Revisiting a Prudent Prediction

In the comments section to a post on the prediction market Intrade the other day, long time reader Billy Ray Valentine (poooosibly a very clever pseudonym) pointed out that I had exhibited uncanny prescience in a previous post where I discussed how ripe for legal action Intrade could potentially be. The comments in question were made by me in response to Mr. Valentine's query as to how Intrade differed from any other, existing derivatives market. With Intrade in much the type of legal trouble I had predicted, I thought a post of my response might be interesting for readers. For reference, the original post which prompted the discussion can be found here.

Good evening Billy Ray,

As someone with a profound interest in derivatives markets, I suspect that you have already formulated your own opinion with regards to that question. Nonetheless, I fell compelled to respond. Therefore, what follows are my thoughts on the idea that I think you are driving at.

Depending on how one defines 'derivative', the most straight forward answer to your question is that there really is no difference between Intrade and any other derivatives market. In both cases users are writing contracts based on their prediction of whether or not an underlying event will occur.

Extending this concept, one could argue that there is no substantive difference between betting on whether President Obama is going to be reelected and writing an option contract based on a theory that a stock might decline in price. Or maybe you would prefer comparing the Obama bet to writing a futures contract based on an orange market report?

In case someone reading this thinks that I am just playing semantics games to make a point, the lack of a difference really couldn't be any clearer in some cases regardless of how you define derivatives. For example, Intrade offers contracts on Dow prices on certain dates. Contracts to do the same exact thing are some of the most highly traded instruments on futures exchanges!

So if the contracts on Intrade themselves are akin to other derivatives products on regulated markets, why isn't Intrade treated the same way as the CBOE? The most simple answer is lack of regulatory resources/desire/pressure.

My guess, and I would stress that this is only a guess (albeit based on assumptions made from following such things over the years) is that for one, some, or all of the reasons above, regulators are simply letting platforms such as Intrade be for the time being.

As we have argued on this page in the past (notably in our article review regarding Timothy Lynch's 'new paradigm' for defining derivatives), regulators and legislators are aware of these markets, and they are aware of how they operate. It is not like they are shrouded in secrecy. Something I read, if true, supports this; that is that that one cannot use US-bank issued debit or credit cards to open an Intrade account (I haven't verified this personally).

While this isn't really casting a blind eye, and while it shows at least a de minimus interest by regulators, this clearly isn't the same as blocking access, or regulating the platform outright.

Why? With the much bigger problems they are dealing with in the financial markets, the relatively small dollar amounts at stake in prediction markets and the fact that Intrade is not a domestic company, it seems probable that the powers-that-be have done a cost-benefit analysis and have decided that the resources/time to shut Intrade down are not worth the payoff. This idea is supported by something else I read about the platform, which is that the CFTC has simply ignored requests for legal clarification of Intrade's status from the company itself in the past.

Now, this 'allowing by ignoring' relationship could change at any time. Certainly US regulators have thrown their weight around when it comes to online gambling sites, even when they have been housed offshore. If some kind of scandal arose from Intrade, or if regulators decided to flex their muscles a bit, it wouldn't be a shock to see Intrade disappear at least from our shores.

However for now, while the regulators are away, the wonks will play...