The Frustrated CFO

Marketplace Fairness (???) Act, or Lets Stomp on Small Businesses Again

Believe it or not, but the Battle for (or against, if you will) the Internet Sales Tax has been going on for 20 years now. 

First, there were no online sales taxes at all.  Back in the early 90s, members of various legislative bodies thought that the World Wide Web was something that Al Gore invented and, therefore, didn't pay much attention to it, especially the Republicans.  Meanwhile, the online vendors (the term e-tailer didn't gain wide acceptance until 2000) and their customers justifiably acted like pioneers in the brave new world:  as far as they were concerned, they operated in the environment with no physical attributes, and no brick-and-mortar regulations were applicable to them. 

It didn't take too long, however, for the states to catch on and get all itchy on account of the missing revenues.  The first most obvious targets were those conventional retailers, who quickly added shopping carts to their websites: Godiva, Staples, Best Buy, Bloomingdale's, etc.  With them it was easy to enforce the guiding principle of sales taxation - the physical presence rule.  They have multiple locations practically in all states - collecting and remitting sales taxes are routine tasks for them.  A bit of code-writing and, voila, if your shipping address is in the state where the seller has a store, an office, or a warehouse, the tax will be applied.  

I was in the avant garde of the e-commerce consumers.  I bought my first book on Amazon in 1995.  I recall it was a new addition of Joy of Cooking: 1150 pages - too bulky to drag it with me from B&N.  A desire to own a one-of-a-kind Victorian coral bracelet sold by an antique dealer in Amsterdam trampled my inherent mistrust and led me to the conclusion of my first eBay purchase in 1996.  I had to fax my credit card info to the seller - we were still two years away from the inception of PayPal. And that same year I booked a room at Montreal's Ritz Carlton through Expedia.  I consider myself an Internet veteran.  Today, 90% of my consumer experience is managed online.  And I am not alone: in 2012 Internet sales amounted $226 billion.

And all these years, I've been kind of on the fence about this whole Internet taxation issue. On one hand, I LOVED not paying sales taxes for the items I bought from my home.  Plus, no state or city resources were utilized: I didn't use any public transportation, roads, or street parking; I didn't walk into any buildings; nor did I use any City utilities. The cost of my connectivity is taxed via my cable and power providers, while delivery services collect sales taxes from the shippers. I still remember how disappointed I was when Amazon opened a distribution center in NYC to facilitate same-day deliveries and started taxing my purchases.

On the other hand, the economist in me is fully aware of the importance of sales taxes for the state and municipal budgets. And, while I strongly believe that 70% of government employees are redundant and the rest are lazy, I do want all bridges to be repaired on time. Unlike other people, I understand that it's a capital-intensive process and money has to come from somewhere.  I knew only too well that Bluefly, with offices and employees in NYC, should've been taxing my purchases (they didn't) way before the CEO decided to launch a brick-and-mortar outlet.

I am a stickler for the rules that create common platforms for everyone involved: generally accepted accounting principles (GAAP), international financial reporting standards (IFRS), international commercial terms (Incoterms), etc. Speaking the same language prevents misunderstanding. If we cannot avoid paying, collecting, and remitting sales taxes, let's at least stick to the simple rules of physical presence already in place. Even though, the interpretation of what constitutes "physical presence" in the Internet environment could be debatable. I kept pondering, for example, whether, besides the conventional criteria like leased or owned commercial property, payroll, and inventory, the location of web servers and interface workstations should be considered as well.

Yet, one thing has always been clear to me: If you don't have any type of presence in a state and don't use any of the state's resources in order to generate income, you cannot be made responsible for collecting sales taxes in that state. This is not medieval Europe, I thought: just because the governments want additional revenues, they should not just impose new tax-collecting laws like some Sheriff of Nottingham. This would destroy a lot of small businesses that were able to break out of their local boundaries and find their way into the national and even international markets through the web.

What a fool I was! Who cares about small businesses? Members of the government act according to their allegiances to a few Big Players with their big gains and losses at stake.  On one side, there are Wal-Mart, Target, COSTCO, and Amazon (boy, this alliance alone was unimaginable only a few years ago), who are literally everywhere on the ground and on the web. These "poor" leviathans complain that they are at the "price disadvantage," losing customers to those e-tailers (read: smaller businesses), who don't charge sales taxes. "All" they want is to level the playing field, i.e. for everyone to collect taxes everywhere.

On the other side of the barricade is eBay providing thousands of online shops and craftsmen with the means of offering their products to the world.  It stands to lose tons of fees if the members' business volumes contract.  Nobody represents the unaffiliated e-tailers.

Guess who tips the scales? In the beginning of this month, the Senate approved an Internet tax proposal (perversely named Marketplace Fairness Act), which is not based on e-tailers' physical presence at all and will force shoppers to pay sales taxes on the majority of online purchases. In basic terms: all online sellers will have to collect sales taxes and file returns for all states to which they ship their merchandise. 

The plight of small businesses, including the additional workload related to the new responsibilities, is almost an afterthought in the proposed legislature: the ones with less than $1 million in out-of-state sales will be exempt from sales-tax obligations.  What is this stupidly irrelevant number? Are they low-balling like some cheap hagglers?  Again, common ground, people! According to the Small Business Administration's definition, a retailer is considered "small" if the sales do not exceed $5 million to $21 million, depending on the product!

Why our various government bodies always have to be such opportunists and never think about the future impact of their decisions, I have no fucking clue. The e-customers have only this much disposable income: if they have to spend a portion of it on the Internet sales taxes, they will buy less goods.  Consumer market contraction anyone?  And in the long-run every time a small business is hurt, it affects the entire economy.  But who cares about the long run? The governments are more interested in grabbing whatever they can right now, whether they entitled to it or not.       

Quote of the Week: The Negation of F. Scott Fitzgerald's Misguided Morality

"Scott Fitzgerald was, in his own words, 'a moralist at heart.'  He wanted to 'preach at people,' and what he preached about most was the degeneracy of the wealthy.  His concern, however, did not lie with the antisocial behaviors to which the rich are prone: acquiring their wealth through immoral means...  Like many American moralists, Fitzgerald was more offended by pleasure than by vice, and he had a tendency to confound them.  In The Great Gatsby, polo and golf are more morally suspect than murder.  Fitzgerald despised the rich not for their iniquity per se but for the glamour of it..." 

                                                        Kathryn Schulz

                                                        Bad Egg (article for New York Magazine) 

The Frustrated CFO's comment:

A highly opinionated person has a difficult time restraining herself in the face of the inevitable hype evoked by the new adaptation of the "great American novel." And I'm not even talking about myself: Kathryn Schulz's strongly negative point of view resonated very positively with me. So, let me stick (or rather add) my two cents as well.

First of all, just like Ms. Schulz and a few other intelligent people, I always thought that, as a fictional novel, The Great Gatsby was a bad book. Moreover, the simplistic socio-economic generalizations of F. Scott Fitzgerald's writings, based on his own immediate upper-class surrounding, offend my intelligence. It's one thing when writers stick to what they know. Hey, if all of them were Philip K. Dicks, how would we know the difference? It's a completely different matter, however, when someone takes bits and pieces of his personal experience, severely impaired by alcohol and self-loathing, and tries to pass his cardboard characters and schematically constructed narrative as a "critical social history." That's a very dangerous, irresponsible, and self-serving undertaking. Was J.D. Rockefeller Jr., the conservationist, identical to Tom Buchanan?  I don't think so. Yet, they both belonged to the same class, the same age group, they both went to Ivy League Schools, etc.

There is a reason why the book's popularity rose sharply after WWII: the social changes were ripening and the white rich people were despised by most, including their own heirs (Patty Hearst was not the only one, you know). In the eyes of the readers who caused the Baby Boom, the Fates have punished poor, infatuated Jay Gatsby for trying to be where he didn't belong, for wanting to become rich and impress Daisy into loving him, for betraying "moral values" in order to accomplish this self-imposed task.

But times have changed. What the majority of critics don't realize is that by now the novel has lost all of its social-scorn charge. The baby-boomers and their children, corrupted by the celebrity-obsessed media, LOVE wealth above everything else and ENVY, but do not disapprove of, the rich. A "self-made man" Jay Gatsby is not pitied, but revered.  Who cares about shady deals, DUIs, and murders - it's all in the "job description" of climbing the ladder to the "top." 

Here is another quote to illustrate the depth of our contemporaries' perversion: 

"Every time I'm out, a drunken Wall Street guy comes up to me to say, 'You're the man.'  It's depressing.  Gordon Gekko was not a hero."

                                                                Michael Douglas 

Only in this environment the unrestrained lavishness of Baz Luhrmann's production could be acceptable, and preferable, to the hordes of day-dreamesrs wasting their lives on fantasizing about becoming rich and famous overnight. 

Now, go and Check out this entertaining post about what other directors might've done with this stale material.

Wave Goodbye to Quality Standards

Remember how in the beginning of the year, we got a cascade of breaking news about problems with Boeing 787 Dreamliners?  First there was a battery fire, then an oil leak, a fuel leak, engine cracks, a damaged cockpit window; then an emergency landing of an All Nippon Airways 787 followed by the airline's grounding of all 17 of the jets.  On the same day Japan Airlines announced that they will stop flying their 787s as well.  It must've made Qantas's execs feel real good about the cancellation of the 35-units order ($8.5 billion list price - nearly 10% of the projected annual revenue) back in August of 2012 due to endless quality-related delivery delays.

It was not the first time either that the largest aerospace company in the world gave up a painfully huge chunk of already budgeted revenue.  In 2008 Boeing lost its bid for a $40-billion U.S. Air Force (!) contract to build 179 refueling aircrafts.  Whose tankers won favors with the Pentagon? The French competitor's - Airbus (!).  I recall reading at the time that Boeing's executives were so sure that the US defense order was pretty much in their American pockets that the celebration gala was already booked and catered.  I also remember that many inside sources cited the higher quality and reliability of the European tankers.

There is a reason why I consider these Boeing's quality issues to be so distressing.  First, the United States lost significant portions of international market shares in steel, heavy machinery, tools, household appliances, electronics, and consumer goods.  The mere notion of an American TV set became a memory: I still remember how it made me feel reading in 1999 about the buyout of the last U.S. TV maker Zenith Electronics by South Korean LG.  

The decades-long American automotive dominance (at one point 75% of the global supply) was first overtaken in the 1980s by the Japanese manufacturers with far superior quality and lower prices.  Now, China became the world's leader in the production of motor vehicles (23% of the global market).  Only the tremendous support of the US government keeps our carmakers in second place with an 11.8% share.  Then again, the frequency of auto recalls are really getting out of control, so it's anybody's guess how long we will be able to keep this standing.

Even while all these repositionings were taking place, I kept saying that the national economy will not completely deteriorate as long as the US continues supplying the world with two types of products, which pretty much define our era - microprocessors (Intel still manufactures in Chandler, AZ and Hillsboro, OR) and airplanes (Boeing's facilities are 90% domestic).  But now, with Boeing's value in an apparent decline, our country really pushes itself into a danger zone.  I mean, a slice of the defense budget, funded by our own taxes, went, of all countries, to France!!!

How did it happen?  Who's fault was that?  It's everybody's fault (well, maybe it's the media's fault first and then everyone else's).  In this celebrity-obsessed culture, merit-based standards have disappeared.  No one wants to work and be rewarded according to their contributions into the final output, being it tangible products or services.  No one cares about the quality of their work.  And nobody looks into the future.  Everyone wants to be rich and famous with a minimal effort, RIGHT NOW.  US manufacturing is getting suffocated by bizarro day-trading patterns, market-driven executive bonuses, union bargaining, wide-spread ignorance, and laid-back work ethics.  What quality?  As a result, a few products and services still produced domestically have a very low value per dollar spent.  From airplanes to... pretty much everything.

Yes, it's not just the industrial sector.  Every step we take, we are confronted with bad attitude and terrible quality.   Commercial and residential construction is slow and unpredictable.  Most of NYC bridges are overdue for maintenance by decades.  The cranes are falling onto nearby buildings, because City inspectors take bribes.  It's common knowledge that there is no such a thing as a leveled house - they are all crooked, with slanted floors and uneven walls.  It's not enough just to hire expensive contractors - if clients want the renovations to go smoothly and with decent results, they must supervise people who are paid $100-$250 per hour.     

Most doctors don't want to think about the patients' specific symptoms - their primary concerns are billing the insurance and getting pharmaceutical "incentives."  And that's why the US is the most overtested and overmedicated country in the world.  Don't even get me started on the sales staff.  If your mechanic tells you that the car will be ready in 3 hours, you would be wise to multiply that by 2.  The food deliveries are always a hit-or-miss - every other order is messed up.  But everyone expects tips, even if your dishes arrive upside down.  The old doormen in my building used to not only know my name, but even recognize the frequent visitors.  The young replacements cannot even associate my face with my apartment number - it's too much to ask. 

My own receptionist, for God's sake, is too lazy to ask about the caller's business - she just gives me a name.  And even that she doesn't care to get right.  A 45 year-old man with a fairly deep voice called the other day.  "Ted Fisher," he replied to her sleepy "Who's calling?" question.  She patches herself through to my extension and says,"Patricia for you." 

MONEYNEWS: The Shit Will Hit the Fan Soon - Didn't I Say So?

For a really long time now, I've been explaining (and so have other realists) that the overpricing of pretty pieces of paper (aka stocks, bonds, treasury bills, etc.) caused by the gambling games of cocaine-fueled, high-strung nitwits in high-rise brokerage offices and delusional day-traders glued to their hand-held devices has nothing to do with real production values, revenue growth, profit generation, and economy improvements.  

It's shocking to me that people seriously accept the stock market "rally" of the past few months as a sign of tangible fiscal gains. The same goes for the rise in housing prices resulted from the unprecedentedly low mortgage rates artificially kept down by the US Treasury.

Don't you people understand that, just like with a terminal patient, this is a temporary remission before the downfall?  You cannot take a candy wrapper that worth 1 cent and say that its price is $430 just because there is a schmuck who is willing to shell out that kind of money for it and hope that there is another idiot out there who will pay $450.  Any, more or less logical, person should understand that the real value behind the candy wrapper is still 1 cent, regardless of how much money you pay for it.  But apparently the general public is severely lacking common sense and logical aptitude.

You know what else they are lacking? The disposal income - the money to spend, the moolah to throw around, the dollars to buy the products of the very companies, whose stocks comprise these people's pension and college funds.  If the consumer market contracts, how can companies generate revenues?  How can a nation experience a recovery, when 99.9% of it is getting poorer and poorer by the minute?

This issue of the constant reduction of consumer spending is at the core of the economic disasters ahead of us.  And apparently the public-stock billionaires, whose wealth is so easily added up and compiled into lists in the Forbes's offices, have already caught up with the reality - they are in high-gear disposal mode.

Please-please read this MONEYNEWS' article about Billionaires Dumping Stocks.  In addition to listing the relevant verifiable facts, it also refers readers to the voice of reason - an economist with an impeccable prediction record who foresees a market adjustment as dramatic as 90%!!!  And if you want a really full picture read the other articles linked below as well.   

Related articles

'Aftershock' Author Robert Wiedemer to Moneynews: Investors Buy Into Fed's '100% Fake' Recovery

Billionaires dumping stocks like they're going out of style (including bank stocks).

Downton Abbey and Economics of Large Country Estates

Not quite Doctor Who just yet (it's not easy to compete with one of the top five grossing broadcasts in BBC's history), Downton Abbey is, nevertheless, an undeniable international success.  NBC Universal estimates that in the past three years the show has been viewed by as many as 120 million people worldwide.  Despite being a somewhat traditional British period melodrama, the hit series became popular in Scandinavia, Russia, South Asia, and the Middle East.  Over 8.5 million American households tuned in to their local PBS stations to watch the Season Three finale.  In January, an article in the New York Times told the story of Jim Carter's cycling trip to Cambodia: while wandering among the temples of Angkor Wat, he was surrounded by a crowd of Asian tourists, excitedly calling to him, "Mr. Carson!  Mr. Carson!"  This is what I call making TV history!

Of course, the casting is superb.  But there is no denying that, first and foremost, the show owes its popularity to the excellent storytelling skills of Julian Fellowes.  The writer/creator made his characters alive with a realistic mix of "good and evil" traits in each and every one of them.  He also managed to construct a multifaceted entertainment device, which reveals different aspects of the tale, depending on a particular viewer's interests.  There is plenty of romance, nearly operatic dramatics, suspenseful intrigues, social tension, snappy one-liners reserved for Maggie Smith's deadpan delivery, and spellbinding details of the times when craftsmen still cared about beauty and quality, not just immediate functionality.  

There is also a fundamental atmosphere of dignity surrounding the leading characters, regardless of their social origin.  The audience is subconsciously attracted to the possibility of people treating each other with respect and making sacrifices.   It's an escape from the reality of contemporary human behavior: Individuals of power caring about their charges? It's something no employee experiences nowadays.  Servants not spitting into their patrons' dishes?  Well, let's not even go there...

So, the show provides viewers with a lot of engaging material. To the point that most people don't even realize that one of Downton Abbey's most remarkable aspects is that its stories are painted on a solid factual canvas of the early 20th century.  But, the geeks of  history and socio-economics, who also love the show, are very anxious about the future of the Crawleys and their glorious home.  They don't brush away the tidbits about possible sell-off, lost castles, shortage of funds, and estate management - they soak it all up.

Because, you see, these were not easy times for the British gentry and their large country estates.  No siree!  In fact, by the time we meet them in this BBC series, they've already suffered several serious economic blows.

The majority of families with hereditary titles were not industrialists, bankers, or international traders.  They were (and many still are) landowners: centuries ago their royal sovereigns granted them counties and shires to rule; the fancy names came with the properties.  For many generations, it wasn't befitting of any European aristocrat, not just a British one, to make income-earning efforts.  The only careers acceptable for men were political or military: some of them contrived imperial plans and the others led people to death trying to fulfill them.  (As you recall, Matthew Crawley's solicitor practice was considered problematic as recently as the dawn of the last century.)  Of course, the only acceptable activities for women were bringing in a rich dowry (like Lady Cora did), making "society" connections, bearing the offspring, playing a hostess, hunting, and gardening.

The only source of most squires' income was that rural land they owned.  Up until the last quarter of the 19th century, they played a significant part in the agricultural sector of the economy by letting out large parcels to farmers.  And this was enough to keep the estates and their upstairs and downstairs occupants in good shape.

Believe it or not, the first shift for the worse was caused by a stock market crash - the 1873 collapse of the Vienna Stock Exchange (yeah, the "investors" could've learned their lessons back then, but they never do!).  This is not the right occasion for going into the genesis and the consequences of the Panic of 1873.  Let me just register my belief that this was the first link in the chain of economic events that led to revolutions, both World Wars, and the Great Depression.  Hell, our current reality may be affected by it!  However, the most relevant aftermath of the event, to this post's subject, was the Pan-European poverty which led to the contraction of market demand and agricultural depression.  Most of the British Country Estates experienced severe deterioration of their income.

Unfortunately the disappearance of revenues coincided with an escalation of standards (and costs) of comfortable living.  The Industrial Revolution offered possibilities for new luxiries to the estates' owners: innovative plumbing, electricity, central heating, phones, etc.  It would be silly for lords and ladies to stick to the retrogressive ways of existing, in an Amish sort of way, for the sake of frugality.  But can you imagine the capital investment required to outfit a stately home such as Downton Abbey with all the modern amenities?  And how about those utility bills covering 100+ rooms?

As it always happens, when the national economy goes sour, the governments use taxation instruments to cover their own holes.  While the Death Duty was first introduced in Great Britain in 1796, through the multitudes of loopholes, it remained a nuisance until the late 19th century.  But starting with the 1890's all bequeathed property became subject to the "probate duty" with the persistently increasing taxation rates (they peaked to 65% in 1940, becoming one of the major sources of funding the UK's World War II efforts).  Truth be told, economically speaking, the best thing that could happen to the Downton's inhabitants is for Lord Grantham t0 stay alive all the way to the end of the show - this will spare the audience from witnessing not just the loss of the character, but also the most significant financial blow.

Further tightening of the taxation screws came on the wings of social justice as it was interpreted by the 1909 People's Budget, conceived by two future Prime Ministers: David Lloyd George, then a Chancellor of the Exchequer, and Winston Churchill, then President of the Board of Trade.  This fiscal Act was essentially a first attempt in British history to redistribute wealth.  It resulted in the increase of income taxes and a mandatory revaluation of land every time it changed hands with 20% taxes imposed on the value increase.  The likes of the Crawleys nicknamed the political duo behind it the "Terrible Twins."

Of course, World War I dealt a terrible blow to all Europeans, including the British landed gentry.  Always a great source of life-changing drama, the war becomes the predominant backdrop of Downton's second season.  In a very tactful way, while focusing on the inhuman horrors of combat with numerous lives lost and deformed, the show still managed to pinpoint the specific effect this terrible turmoil had on the economy as a whole and the estate itself.  The withdrawal of working-age men from civilian life devastated both the remaining income-generating opportunities and the property's service.             

So far, the series creators have been kind to the viewers who became emotionally attached to the beautiful property: they only mention a possibility of a sale.  But the sad truth is that, by that time, there were only a handful of people who could buy these grand houses. 

Some of them became regional museums, schools, prisons, etc.  A few others opened large portions of the living quarters for public viewing.  Most of the art displayed to the paying visitors in these mansions and castles doesn't belong to the titled heirs anymore.  One part of the People's Budget was a provision for Acceptance in Lieu, which allowed for inheritance tax debts to be written off in exchange for donation of national treasures.  While the legal ownership got transferred to such esteemed institutions as the Victoria & Albert Museum or the National Gallery, the art objects are allowed to retain their familiar positions as long as they can be viewed by the public for at least 100 days a year.  

However, the rest of Great Britain's large country estates were simply demolished.  Since 1900, over 1,600 important houses had been destroyed in England, Scotland, and Ireland; many of them architectural gems and the seats of historical figures.  Some of the demolition spoils - fireplaces, library panelings, balustrades were sold for next to nothing; many ended up in America.  

From the point of view of economic history, Julian Fellowes already wrote a sequel to Downton Abbey in his screenplay for Gosford Park (2001), based on an idea by Robert Altman, who also directed.  The movie takes place in 1932 and Sir William McCordle (played by pre-Dumbledore Michael Gambon) resides comfortably in his Victorian estate, because he had cast aside gentlemanly ideals a long time ago.   He is a World War I profiteer, a ruthless manufacturer exploiting the labour of women and children in his factories.

By the end of Downton's third season, the key decision-makers seem to be in agreement that Matthew's insistence on turning the estates into a big-scale industrialized agricultural enterprise is the only way to keep the place attached to the name.  It remains to be seen how far Julian Fellowes will push the historical realism into the melodramatic mosaic of the show, while preserving its high ratings.

2013 Golden Globe Awards and the Foreign Press Conspiracy Against America's Future

Like many other people exposed to human congestion and the environmental deterioration of big cities, I got hit by a terrible flu.  So, for quite some time I could only summon enough strength to drag my ass to work (THAT show, of course, must always go on).  Hence, as reactions to the Golden Globes broadcast go, this post is definitely outdated.  On the other hand, my sentiments are unlikely to change, so it's just as well...

Nearly every time I go abroad, I am exposed to various degrees of anti-American attitudes.  Last time I was entering London's National Gallery, I had to watch American flags being set on fire on Trafalgar Square.  In most European countries, economic and social difficulties are openly blamed on the US by both official and popular opinion-makers.  People shamelessly gloat every time we have a natural disaster and entertain themselves with predictions of our imminent economic and moral destruction.  Even in Amsterdam's coffeeshops (aka hash bars), where the consumption of various cannabis products is supposed to make customers laid-back and agreeable, the hostility flares up at the sound of an American accent. I'm not going to venture into the anti-US mood swings of many Asian, African, and Latin American Nations - it would require a separate series of posts.

Individuals and nations alike have a need to absolve themselves and blame someone else for their troubles.  The wealthiest country in the world full of fucked up crap (as a true patriot I never deny problems) makes for an easy target.  But why don't they first stop going to McDonalds, watching our movies, googling, and tabulating in Excel?  And, please, stop blaming us for Justin Bieber!  He is Canadian, for crying out loud!

The truth is that there is only a small contingent of people in the world who are capable of forming their own opinions even about matters close to their own homes, leave alone those far removed.  The majority, like a flock of sheep, rely on judgments presented by someone else through various media outlets.  Make no mistake: foreigners are just as susceptible to the brainwashing powers of newspapers, magazines, and TV as our domestic masses. 

Prominent journalists and commentators have a tremendous influence on the attitudes of their nations, especially in smaller countries.  Moreover, it's a reciprocal relationship: as reading and viewing audiences become more receptive to particular sentiments, the media purveyors cater to their likings in order to retain their own popularity. 

Enter Foreign Press...  In general terms, any journalist who lives in the United States (the definition applies to any country, actually), but works for a public medium abroad, reporting on our domestic events, is a foreign correspondent.  These journalists, most of them expatriates, impact the way people in other countries view America. 

They usually conglomerate in major news hubs:  New York City, Washington DC, Los Angeles, etc.  In fact, I believe that New York Foreign Press Association, formed in 1918, is one of the oldest of such organizations.  Yet, not too many people know about it. 

However, many people around the world know about Hollywood Foreign Press Association (HFPA), even though it counts as its members only 93 journalists.  Or, at the very least, people know about the awards they have been granting since 1944 for achievements in film and television - the Golden Globes.  These reporters write on the subject that is most likely to attract the largest audiences - the United States entertainment industry.  They represent 55 countries in Europe, Asia, Australia, and Central and South America.  Wikipedia estimates their combined readership around 250 million (!).  And, boy, do they have an agenda! 

I can probably write another dissertation breaking down the clever and camouflaged ways they perpetuate their purposes: why Argo and not Zero Dark Thirty; why Les Miserables and not Silver Lignings Playbook, or Moonrise Kingdom; why Homeland (even though 100% deserving, but also perfectly fitting in their scheme) and not Boardwalk Empire; why Episodes and Smash and not Curb Your Enthusiasm and VEEP.  Why on Earth did they completely ignore a 2012 movie that not only celebrated the resilience of human spirit, but also raised a bar of creative filmmaking, while breaking the walls of the Hollywood bastion - Beasts of the Southern Wild?

Of course, I am not planning on writing a thesis.  I just want to dwell a little on one question: Why the fuck  did HFPA shove two Golden Globes into the grabby hands of Lena Dunham?  Obviously, they had their reasons. 

If one tries to think logically about this, it seems doubtful that the middle-aged-to-quite-old journalists from Egypt, Philippines, Japan, China, Russia, and Brazil would pay any attention to a tiny show about a group of youngish hipsters, especially the one with ratings too low and viewership too small even by cable standards.  But our own self-absorbed hipster-driven domestic media, in their unforgivable ignorance and blind confusion of values, served up Dunham as an overbuzzed gift.  A handful of people with similar backgrounds proclaimed her to be the "voice of the generation" they really know nothing about.  And that's a very dangerous claim.   

HPFA took notice; rejoiced; said, "Much obliged!" and started parading this embarrassment to the whole world.  Look, they say to their 250 million readers in various countries, these characters are what all young Americans are like: navel-gazing, purposeless, severely limited in their abilities and skills, obnoxiously bad-mannered, insincere, unaware, incapable of squeezing out of themselves one true emotion or an original thought.  This is the American Future. 

By allowing them this opportunity, Dunham did a great service to the foreign entertainment journalists.  Therefore, she has totally deserved her two Golden Globes.  By letting her climb on stage at the Beverly Hilton Hotel twice, they exposed her as a "new American entertainment and media darling."  Look, they say, this is the person hailed as a breakthrough by culture commentators and "intellectuals" (God, forgive me, for calling them that!), talk show hosts, Hollywood producers, the art community and whatnot.  They adore her, while in reality she is:

A "creator" without an ability to imagine characters, situations, or plots.  She can only transfer to paper and/or screen her own personal existence or the lives of the poor exploited mother-fuckers who got caught into her sticky cobweb.  If there is a need to invent something genuine, it's Jenni Konner (the actual coiner of "the voice of a generation" label) or Sarah Heyward to the rescue.  On a few occasions Dunham ventures out of her comfort zone of the first-hand experiences, she steps right into the fuzzy cloud of her girly fantasies with an explosion of silliness.  I swear, the only time Dunham made me laugh out loud was during the 5th episode of the 2nd season - what buffoonery!  Honestly, in comparison, the wetly dreaming Dunham makes Stephenie Meyer look like a real creator. 

A " writer," whose first published work will be a self-help book.  What?  No secret collection of innocent and fragile early poetry?  Every respected author has it somewhere in their most private drawer.  Of course, it probably wouldn't garner a $3.6 million advance.  The real literature never does (see Arts and Entertainment by the Numbers - Books).

An "actress,"  who couldn't memorize her acceptance speech lines - the only winner of a Golden Globe with a piece of paper in her hand.

A "comedienne," who tries to be funny by reminding her fellow nominees how much younger she is and telling them that they helped her through middle school.  Even though, I have to be honest - I cannot complain too much about that, because it gave Tina Fey a chance to write the funniest line of her career to date: "Amy, I know you since you were pregnant with Lena Dunham."

A "director" incapable of overcoming her personal feelings and give some screen time to her other "lead" characters, cutting out their best tidbits (which are just a few to begin with).   You are right, Howard Stern, "she hogs the screen," and I have no idea what kind of strings she pulled to make you recant your true opinion of her.    

A chameleon, who changes her attitudes depending on her PR management's recommendations.  First, her characters were "reflections."  Obviously, she was told that they were not very sympathetic.  Now she says that the "girls" were exposed as being self-absorbed on purpose.  The show gets criticized for being too white.  Instead of admitting that she really has no people of color in her life, she throws Donald Glover into her hodgepodge...  only to cast him away after two episodes.  The PR whispers into her ear that she comes off as too sure of herself in all her interviews and talk-show appearances, and she starts screaming about her "confidence issues" every time she gets a chance.  Seriously?  I know quite a bit about self-doubt.  You don't fool me.  

A "nice girl" (as proclaimed by all), who in her conversation with the former It Girl, Miranda July, for Interview magazine openly admitted that she was a complete asshole as a school girl and a college student, and that now she adapted an equally "sweet" disposition towards everyone without any discrimination.  Apparently, some people get confused assuming she is their friend.  

A conniving manipulator, who undercuts all reasonable critics by calling them haters or qualifying them as shallow: "I'm a real person with a real body and that's why you don't like me."

What can I say?  Even if the foreign press was a dark-magic cabal, they couldn't conjure a better poster girl for their purpose of showing the American future in the worst possible way.

Now, let's see.  Do Girls' characters actually represent any portion of the 43 million Americans ages 20-29?  Yes, they do - 800,000 hipsters residing in the big cities on the East and West Coast, who faithfully watch the show (the other 3 millions of viewers consist of the hipsters' parents, the media, and the cultural pundits).  That's less than 2%!  

Does Lena Dunham, who takes her voice (plus, face and body) of the generation role very seriously, actually represent anybody at all?  Yes, she does - a handful of privileged kids, who were empowered by their well-connected parents to do whatever they wanted and were handed undeserving opportunities by the mafia of Nepotism.

And the saddest part is that dear Lena is not going anywhere.  Nowadays, award-winning shows scattered all over the place: broadcast networks, FX, Showtime, etc.   To keep the statuettes' numbers up, HBO will continue pouring money into products that attract foreign and domestic media attention, whatever the reason.  They just picked up Dunham's new show idea for development.  In return, she will keep upholding her family tradition by shoving her crap into everyone's face. 

Look at that photo!  This is what she does: like a fucking hamster on stilts she wobbles on the red carpets and in the back rooms, trying to imprint herself on as many "players" as she can, making the foreign press and their readers very happy.

Tragicomedy of Obama's Fiscal Cliff "Win"

According to common definitions, a tragicomedy is supposed to have both funny and sad elements, making you laugh and then cry, or the other way around.  For me personally, this genre achieves the strongest effect when it generates a subtle emotional shift: one minute you are laughing your head off and in the next moment, even though nothing drastic happens, you find yourself with a face full of tears; you don't even notice how it happens.  You know what I'm talking about...  All Russian "comedies" are tragicomedies and so are Salvador Dali's paintings.  Fellini was a master of the genre - that is because he understood that Life itself is a tragicomedy.  What a movie he could've made out of this fiscal "cliff-hanging" bullshit!

First I was chuckling softly to myself on account of the make-believe "impasse" antics so eagerly played out by the White House and the Capitol up until December 31st after more than 500 (!) days of supposedly diligent preparations.  We know we cannot take this seriously anymore - we've seen this happening before.  Why are they threatening each other?  What were they going to do if they didn't reach some sort of a half-ass decision?  Jump out of their windows?  We are not that lucky. 

I was roaring with laughter when our Nation's executives, who have US Treasury, the Federal Reserve,  IRS, Government Accountability Office, a bunch of Nobel Prize Laureates in Economics and what have you at their disposal, shyly admitted that for decades they've been forgetting about the goddamn INFLATION (!!!) whenever they tried to separate the middle-class from the wealthy or establish alternative-minimum tax (ATM) exclusions.  Now the stupid $250K mark of "the rich" I previously cursed is out of the window replaced with more sensible $400K.  The ATM scheme got eased up as well and it will be indexed to the value of money from now on.         

I hope you agree with me that the 5% increase of the capital gains tax rate from 15% to 20% for the upper class is also a laughable point.  Some commentators declare that the proverbial "1%" lost.  I say, "Bravo!  Great win, you, guys - just 5%!"  Apparently, it's Ok to tax the top tier of my earnings at 35%, while someone with $1 billion of assets and $100 million of annual gains contributes 20%!  Do we really think that additional $5 million will make that much difference in a life of a family that can afford anything they could possibly imagine?  I mean, Dolce and Gabbana just became billionaires on account of increased demand for luxury goods!   

On the other hand, someone who makes $100k a year will really miss the $2,000 that will be taken out of his net earnings due to the reversal of the Social Security tax rates after only two years of relief.  You cannot help feeling a little sad about it, especially when you consider that 77% of American households are affected by this change.  If each of these families loses on average around $1,000 of disposal income, it will translate into nearly $90 billion drop in consumption of goods and services.  I felt kind of embarrassed, though, shedding a tear about it.  After all, we've been contributing 6.2% into Social Security fund forever.  We knew that the 4.2% rate was only a temporary abatement.    

But now, three weeks later, I cannot shake off a feeling of  desperation.  Oh, there were no new developments or anything like that - everyone in Washington was too busy preparing for the inaugural celebrations.  It's just that the general public's hopeless ignorance became evident once again and it is tragic.  It appears that the immediate reduction of the paychecks is one and only concern for the majority of people.  The short-term loss is blinding - it works as a diversion from far more important issues.

People forgot that the fiscal cliff deal wasn't just about the government's revenues.  The other side of it, the one that deals with the federal spendings, wasn't and still hasn't been addressed at all.  If no solution is developed, the Nation will require to borrow again, even though the already raised Debt Ceiling has been (surprise!) reached. 

But I have much scarier questions.  Why the hell the government is using my Social Security contributions to plug their fiscal deficits?  Why are they funding somebody else's payments with my money?  What happened to the money current retirees contributed from their own paychecks?  Where did they go?  Oh, don't worry - I'm well informed.  These are rhetorical questions.  I know that my generation is the last one that MAY BE able to get federal retirement benefits and that our children do not stand a chance to get even 50% of what they shell out of their earnings.  But why are we not wailing about it on every corner? 

If You Are Cheating on Your Taxes, Don't Step on Anyone's Toes

I've been going to the original Bumble & Bumble salon on 56th Street since... Well, who cares?  Especially when we talk about, to paraphrase Benjamin Franklin, the only two certain things in this world - our attempts to resist aging and taxes.

All I'm saying is that I have a first-hand experience with the house that Michael Gordon built - in this very location, starting back in 1977.  In fact, the masters I come to see here have been at B&B since the very beginning!  This says volumes about the environment of the place. It has a very unique ambiance - you feel special there.  That's why the company has an impressive record of retaining clients and employees alike.

Up until the 2006 sale of the B&B brand (the salons, the products, et al) to Estee Lauder (most people don't realize that it also owns Clinique, MAC, Bobbi Brown, La Mer, Origins, Jo Malone, Smashbox, Aveda, and Darphin), from time to time you could catch a site of Mr. Gordon on the premises.  His mannerism always struck me as a peculiar combination of a relaxed composure (grapevine has it that he is into Buddhist spirituality) and a blatant assholiness toward some employees.

But, as I always say, you don't get to be a successful entrepreneur by being warm and fuzzy.  To survive in business you need to be tough.  Some of us can be tough and decent at the same time.  Unfortunately, that's very rare.  Well, since I didn't need to deal with him personally, I was able to abstract Michael Gordon into what he was as a small-business owner: someone, who started from nothing and grew his brand to international recognition.  I admired him for his courage, drive, and strategic savvy. 

Also, one cannot dismiss the fact that for Mr. Gordon it wasn't just about branding, growth, and money.  He was truly a hair-man, devoted to the idea of creating high-quality products that satisfied a wide spectrum of needs.  Unlike the vast majority of other famous salon owners (Sally Hershberger is one example), who are engaged in "private label" merchandising (i.e. buying generic, mass-produced,  "juice" and pouring it into containers with their names), Michael Gordon actually developed unique mixtures, which are used to great effects in many salons and homes. 

It was his quality standards and unrelenting drive to succeed that fascinated me.  Imagine my surprise, when I read in New York Times that this remarkable and shrewd businessman was arrested for tax evasion.  And it wasn't even for something cleverly devised (not that I would approve that) - no, it was plainly stupid: he didn't declare on his tax return the $30 million capital gain generated by that famous sale of B&B. 

The charges (both criminal and that of stupidity) against him are mounting: when he was questioned by IRS about this omission, he claimed ignorance of the fact.   And that's lying to a federal agent, because apparently there is evidence of his active attempts to hide this money. 

What is the point of lying like that anyway?  Didn't he sign his tax return back in 2007?  He never heard of capital gains? Weren't there a horde of lawyers and accountants involved in the closing the deal?  Nobody mentioned the tax liability?  Hard to believe.     

NYT didn't make it a secret that IRS has acted on a tip received from a "confidential informer."  Of course, they did.  Truth be told, IRS doesn't have sufficient resources to look for specific violations of the tax code.  The best they can do is to react to the red flags selected by their algorithms.  Your employer reported your earnings, but you didn't include them on your tax return - an inquiry will commence.  Itemized deductions  exceed certain levels, even if by $100 - the flag will be raised.  Meanwhile, corporate executives receive multi-million dollar perks and call them "business expenses"; private shareholders transfer stocks and property between related parties and don't recognize capital gains; owners make equity withdrawals and show them as loans - and none of it ever get noticed.  

However, the situation changes if someone makes a call, sends a letter, or an electronic message to IRS, detailing a case of the tax evasion.  If this someone provides sufficient information and the violation is big enough to prick up agents' ears, they will be on the case right away.  Especially if it involves a notable figure that can get media interest (hey, you cannot blame IRS agents for wanting some attention). 

Even though IRS has, what they call, a whistleblower reward program, it's not easy to get paid for reporting tax violations.  Obviously, in most cases, the informants are not motivated by money.  Typically, they have some sort of a relationship with the evader and it resulted in two outcomes: an incredible animosity that goes way beyond a simple grudge and the knowledge that the government is being shortchanged.  The IRS becomes a mere weapon of revenge.

This is why Leona Helmsley went to jail in 1992.  The Queen of Mean dragged behind herself a trail of disgruntled contractors, corporate employees, and household help, who really hated her.  Some of them possessed hard evidence proving that millions of dollars spent on personal properties were billed to Helmsley's real estate business. 

And that's why Michael Gordon got arrested.  In his brazen manner, he must've rubbed the wrong way someone with the first-hand knowledge of the $30 million unreported gain.  That hurt someone dropped a note to IRS.  

Do I have to state the obvious?  Don't steal big bucks from government - it's dangerous.  But if you make a conscious decision to dodge some taxes, make sure that no one knows about it but you.  And I mean NO ONE.  If that's impossible, make sure that you are super nice to those who are onto you - they have your freedom in their hands.       

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Founder of Bumble and Bumble Accused of Hiding $30 Million From I.R.S.

Quiet Changes in Taxation, or the Underhanded Squeezing of the Middle Class

During the election, pollsters consistently showed that for the majority of voters "the economy" was a primary concern.  Unfortunately, nobody asks the test contingent what exactly they mean when they blacken a little circle next to "The Economy" and why they believe in new elects having any impact on it. 

In reality, for most people, the economic worries amount to "I don't have enough money to survive and I hope the President will make sure that I do."  I can hear the audience laughing.  I'm laughing too - through tears.   

"Economy" is a very broad term.  It includes creation of the new jobs (the best hope for it are the small businesses, which don't get government subsidies and bailouts); reduction of the national debt (it would result in less of the tax money going into paying interest to the foreign lenders, but the counter keeps ticking upward); the trade deficit (well, that's an ongoing joke); domestic treasury (the interest rates have been at the record lows for years now, nevertheless the equity and debt markets jump up and down like a rabbit and a frog); foreign monetary policy (the only time the dollar gets stronger is because other currencies tumble), etc.   Oh, politicians of all ranks talk a lot about these issues, but they are like birds: a lot of chirping and wing-flapping, but there is no way they can do anything useful with those feathered extremities.

I'd say that the only part of "the economy," on which the government has a direct, visible, and tangible impact is TAXATION.  Three months ago I offered my opinion on the pre-election debates around the tax cuts and ridiculous $250K "middle-class" ceiling.  Well, at least those topics were brought into public view, brightly spot-lighted by all respectable publications, both in print and on the web.

But there are IRS changes that quietly undercut the fiscal well-being of millions of middle-class taxpayers, while remaining largely misunderstood and unnoticed.  From time to time they are briefly mentioned in the secondary business media, such as the WSJ blog, or discussed on specific accounting and taxation sites, but I believe everybody should be urgently educated on these financial assault weapons.  We should be screaming about them.

Among these painful tax issues, the Alternative Minimum Tax (AMT) is a biggie.  The general public is very intimidated by the AMT concept because the tax preparers are not willing to divulge their "trade secrets."  But the majority of financial professionals who don't make their living in personal taxation, including me, have no problem clarifying that it's exactly what it sounds like: the other method of calculating your tax liability, different from the conventional method.  Both methods must be applied and the one resulting in the higher taxes must be elected.   

The AMT approach seemingly follows the familiar chain of Gross Income, less adjustments, less exemptions, less deductions, less credits.  However, the structure of the reductions used to arrive at the taxable income and the way the flat AMT rate is applied make a big difference.

First of all, AMT disallows a large portion of the itemized deductions, including 100% of state and local taxes, plus a big chunk of medical expenses as well as of mortgage interest.  Moreover, while maxed at a seemingly lower flat rate (28%) than the top tax bracket (35%), AMT frequently yields higher results, because it's applied evenly to every dollar, starting with the very first one.  To contrast: regular method uses a progressive scale, wherein the first dollar is taxed at 10%,$8,701-st (for singles) at 15%, etc.; the 28% rate kicks in only after you reach $85,650 and 35% is applied to incomes over $388,850. 

Still, for many years this alternate methodology was kept at bay by the legislature, impacting only the big earners (2.7% of US taxpayers, or 3.8 million households).  The instrument of taming the AMT was the level of exemptions (non-taxable income).  In 2011 they were: $74,450 for married taxpayers filing jointly, $48,450 for singles and the heads of households, $37,225 for married couples filing separately. 

But everything changes now.  33 million will end up paying significantly more money to the federal government, because (unless a sensible decision is passed before the end of the year) the exemptions will drop to, respectively, $45,000, $33,750, and $22,500, bringing the AMT to new heights.

As I said, this is a big one and it's shocking that people are not talking about it every day at the water fountains.  However, there are even quieter changes in the Internal Revenue Code that lick the butter away from your bread.  For example, I have not seen any articles in newspapers or magazines addressing the fact that all of a sudden over-the-counter (OTC) medications were disallowed from the medical portion of itemized deductions.  And the $2,400 cap on pre-tax contributions into medical flexible spending accounts (FSA) went absolutely unspoken.  It just happened.  

I estimate that between changes in OTC, FSA, and AMT, my tax bill for 2012 will be $10,000 higher than it would be without these alternations.  I cannot help myself feeling violated.  Don't you?                 

MTA vs. Sandy, or The Frustrated CFO Now Predicts the Future

Ever since the "tempest" of August 2007, the MTA has been trying to assure the City that never sleeps that their bosses are not snoozing either, that they are awake and active, doing everything they can to protect NYC's transit from water disasters: they reported on elevation of ventilation grates and "building of other defenses."  (Isn't it amazing how vague and unspecific the reports of supposed efforts are?)  Anyway, they've spent nearly $100 million "making sure" that they can say to the water, "No Pasaran!" 

How much of that money was used for actual work and how much was appropriated to service MTA's $31 billion debt (i.e. to pay interest) or cover $900 million gap of its annual operating budget (including executive salaries) - that we will never know.  Yet, the City, even though fed up with MTA's bullshit, had no choice but to stick to "positive thinking" and hope that "everything will be Ok" (there is a reason the subway riders still clutch The Secret to their embattled chests, keeping it at a #1 spot on Mental and Spiritual Healing bestsellers list).  

And then, Sandy, the wild child of the thoroughly raped Mother Nature, rowed in on a high tide.  Her rage wasn't even that hard core.  She wasn't planning on avenging all human sins against the poor planet.  At no point she's raised her fists above 42 mph.  But the relatively moderate amount of liquid she spat out choked the MTA to a total standstill.  New York's ancient and pretty much dysfunctional drainage system couldn't absorb the incoming water and it went in straight through those elevated ventilation grates and whatever other openings it could find.     

Newspapers and bloggers write that MTA's workers heroically battled the consequences of Sandy's anger.  And that is absolutely right.  Individual employees on and under the ground toiled around the clock in harsh conditions.  As one comedian said many years ago, "We need to create disasters, so that we can have heroes."  However, I imagine that while they were struggling,  their bosses were singing hosanna to the storm for giving them stronger justifications to ask the public for more money, for much-much more money.

Liberals laud governor Cuomo for declaring in his post-Sandy speeches that we now live in a new climate reality, that people should get used to storms and hurricanes.  (Big Fucking News! Some people have been screaming about it for years, for decades, and nobody wanted to listen!).  The gratitude for stating the obvious makes the confused people hot for Andrew to the point that their urine boils inside.  They overlook a simple truth that no politician does anything without a politically-motivated reason. 

Yes, environmental policy, including eco-friendly transportation and energy efficiency, have always been a part of Andrew Cuomo's platform, but I don't remember him ever saying before that New York has become a target of continuous hurricanes.  It's not that he is wrong - we have pushed the climate conditions into the dangerous territory.  It's the timing of these "revelations" that bother me.  Call me a cynic, but I hear an already familiar pattern here: the dark clouds are gathering over us, so the sacrifices for the sake of protection must be made.      

And now, I will try to foretell the future events that will materialize out of this predicament.  First - the rise of the transportation costs.  The MTA already announced the impending hike (yet another one) of the tolls and fares to go into effect in March 2013.  I predict that the Authority will use Sandy to justify much higher increases than usual.  Originally they said that new city transit rates may go up to anywhere between 5% and 25%.  I am sure that it will be at least 25%, most likely even more. 

Then, the NYC government will be called into action to pitch in and, as a result, some sort of an additional levy will be imposed on NYC residents, both individual and commercial.   Eventually, the State will do the same.

And you know what, we will not even complain.  We will accept it as inevitable necessity.  It's like with all "security" issues.  Do you want another 09/11?  Of course, not.  So, submit yourself to surveillance cameras and telecommunications monitoring; take off your shoes and get a shot of X-rays in the airport.  Do you want to be paralyzed by the absence of transportation and electricity next time the City is hit by the storm (and remember - it's going to happen soon)?  No?  Then, pay up and shut up.