Posted by Darren A. Nichols The Detroit News · March 07, 2012 2:36 PM
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Part of an $11 million grant intended to provide businessattire to 400 low-income job-seekers instead helped only two people, an audit of the city's Department of Human Services has found.The audit, conducted by the city's auditor general for the period from July 2009 to September 2011, found the department failed to control the operations and finances of a boutique that was to provide the clothes.
The department did not safeguard grant funds or create an inventory for the clothing, the audit found.
Among the most telling findings, which will be discussed today during a City Council committee meeting, is that a third-party contractor advanced $148,000 to a downtown Detroit clothing store and opened an account, but did not include the city on the account.
"It's just another example that money is not as much of an issue than managing the money, whether it's grant or general fund dollars that we have," said Council President Pro Tem Gary Brown. "We have to find a better way to manage the resources and give Detroiters the value for the tax dollars they deserve."
The audit is the latest finding against the city's Department of Human Services, which has been under scrutiny for chronic mismanagement of federal funds. Many of the department's leaders have departed since an internal investigation was launched last year, including an inquiry into the purchase of $182,000 worth of high-end furniture for a department office. In 2009, the department received more than $11 million in stimulus funding and created a service center.
The center, at 1970 Larned, included the Customer Choice Pantry, the New Beginnings Clothing Boutique and a call center that had the capacity to service 60,000 families in need. The boutique was to provide business attire for low-income residents for job interviews.
To receive clothing, residents were required to have a job interview scheduled. According to the audit, the DHS was supposed to help 400 people between October 2010 and September 2011 but instead served only two.
"The DHS was only able to provide the auditors with two referral forms signed by two clients documenting that they received clothing from the boutique," the audit said. "Eligible Detroiters are not being served with available clothing being stocked in the boutique."
The department did not give a reason for not reaching the goal of providing 400 people with clothes.
The audit found the Department of Human Services hired a contractor to run the boutique. The contractor negotiated the purchase of clothing without involving city officials and did not give them keys to the center.
The contractor also did not provide proof of the receipt of the clothing to auditors.
"The potential loss of thousands of dollars exists because controls have not been established for the boutique," the audit said. "…failure to maintain an adequate inventory system results in the inability to efficiently monitor and safeguard inventory and to identify inventory losses from theft and damages."
Posted by RYAN DEZEMBER and JAMES T. Areddy · March 06, 2012 4:10 PM
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Fu Chengyu's first attempt to buy a piece of the U.S. oil industry kicked up a storm of protest and ended in failure. Seven years later, the Chinese executive is pouring billions of dollars into the oil patch without even a whisper of trouble.
His new recipe for success: Seek minority stakes, play a passive role and, in a nod to U.S. regulators, keep Chinese personnel at arm's length from advanced U.S. technology.
Since 2010, Chinese companies have invested more than $17 billion into oil and gas deals in the U.S. and Canada, according to data provider Dealogic, giving their energy-thirsty nation a long-coveted foothold in a region known for innovative new drilling techniques. North America has become China's top region for oil and gas deals. Mr. Fu has been leading the push, first as chairman of China National Offshore Oil Corp., known as Cnooc, then as chairman of China Petrochemical Corp., called Sinopec, one of the largest oil companies in the world.
The recent deals are nothing like Mr. Fu's audacious, unsuccessful bid for Unocal Corp. in 2005. They typically involve a Chinese firm paying upfront for a stake in an oil or gas field and agreeing to cover some drilling costs. Cnooc executives figured such joint ventures "might be a nonthreatening way to get back into America," says Aubrey McClendon, chief executive of Chesapeake Energy Corp., who struck a 2010 deal with Mr. Fu that marked the beginning of the Chinese investment surge.
The deals address pressing needs for both sides. U.S. companies have developed revolutionary new ways to extract oil and gas, but they need lots of capital to make that happen. China's state-owned energy companies, for their part, have been scouring the globe for supplies of oil and gas to help power the nation's surging economy, and the knowledge to extract their own hard-to-tap reserves back home.
The North American energy push is part of a wave of investment money from Chinese state-owned and private enterprises into the U.S. and other Western nations. A big chunk of the investment is oriented to energy, mining and other areas critical to China's fast-growing economy. The deals are giving Chinese buyers a foot in new markets, and in some cases, exposure to American technology and management techniques they can use in China.
China surpassed the U.S. in 2009 as the world's largest consumer of energy in all forms. The International Energy Agency estimates that China also could become the world's largest consumer of oil, thanks to the affinity of its growing middle class for cars. Currently, imports fulfill more than half of its oil needs—much of them from such potential trouble spots as Iran and Sudan. Its natural gas consumption nearly doubled between 2006 and 2010, according to the BP Statistical Review.
China's new approach to investing in U.S. energy companies suggests it has learned lessons about how to make the industry and American politicians more comfortable with Chinese money. "Buy a portion of that company, work together with that company, and that company is your strongest ally in the U.S.," says S. Ming Sung, a former executive at Royal Dutch Shell PLC who has advised Sinopec and is now an adviser to several organizations that promote clean energy.
Sinopec's Mr. Fu, who declined to comment for this article, has been China's most visible proponent of the new approach. Born in China's remote northern Heilongjiang province, the 60-year-old executive earned a master's degree in petroleum engineering in 1986 from the University of Southern California, where he now serves on the board of trustees. Like other leaders of major state-run companies, he is a senior member of the Communist Party.
Those who know him say his technical and operational knowledge of the oil industry is considerable. "He built his foundation in engineering," said Iraj Ershaghi, a professor of petroleum engineering at USC who taught Mr. Fu in the 1980s.
Mr. Fu joined Cnooc when the state-owned company was set up in 1982, and held senior positions in its joint ventures with foreign companies such as Shell and the former Phillips Petroleum, now part of ConocoPhillips .
By 2005, China's oil consumption was surging, and Chinese companies of all sorts were beginning to explore major acquisitions abroad.
Mr. Fu, by then Cnooc's chairman, began negotiating directly with Unocal's then Chief Executive Charles Williamson to buy the El Segundo, Calif.-based company for $18.5 billion. News of the offer brought criticism from U.S. lawmakers, who argued the deal would put crucial U.S. energy resources in Chinese hands. U.S. lawmakers passed a resolution asking the Bush administration to review any Unocal-Cnooc deal.
Mr. Fu spoke out publicly in defense of the deal—an unusual move for the leader of a state-controlled company. In an opinion piece in The Wall Street Journal titled "Why is America Worried?", he argued that most of Unocal's reserves were outside the U.S. anyway, and that Cnooc would preserve American jobs and "will be an open and responsible participant in the process."
Nevertheless, members of the Committee for Foreign Investment in the U.S., an interagency body chaired by the Treasury Department, indicated they would recommend that President George W. Bush block the deal, say people briefed by members. The Treasury Department declined to comment, saying it doesn't talk publicly about specific cases reviewed by the committee.
After lawmakers passed language in a bill that would delay a deal, Mr. Fu pulled the offer. Cnooc blamed "unprecedented political opposition." Unocal subsequently was bought by Chevron for $17.3 billion.
In a 2006 interview with the Journal, Mr. Fu said that Cnooc "learned we need to be more prudent in terms of public relations and political lobbying when dealing with such a big deal. We now understand American politics better."
In the wake of the busted deal, Chinese energy firms shied away from North America. State-owned oil companies began striking energy deals elsewhere in the world, such as in Nigeria and Yemen, which gave it access to significant reserves.
Meanwhile, back in North America, new techniques were being developed to extract oil and natural gas from shale formations deep underground, from tar sands in Canada, and from deep water in the Gulf of Mexico. Chesapeake and its competitors were rushing to buy drilling rights to U.S. shale fields.
Such projects require vastly more capital to drill than conventional reservoirs. A single shale well can cost more than $9 million, U.S. companies say. But the global financial crisis was constricting capital for these expensive projects, so energy companies began looking for new sources of funding.
In 2009, China National Petroleum Corp., or PetroChina, bought 60% stakes in two oil-sands projects from a Canadian operator for about $1.9 billion. The following year, Sinopec committed $4.65 billion for a 9% stake in Alberta's Syncrude oil-sands project, one of Canada's biggest energy projects. Last summer, Cnooc agreed to pay $2.1 billion for OPTI Canada Inc., a producer that held a minority stake in a large oil-sands project. There was little political opposition in Canada.
Cnooc tiptoed back into the U.S. in 2009 with a small deal to provide development funding and receive a minority stake in some of Statoil ASA 's Gulf of Mexico leases.
Oklahoma City-based Chesapeake began looking to Asia as a source of capital, says Mr. McClendon, the CEO. In 2010 it sold preferred shares to a unit of Singapore's Temasek Holdings Ltd. and Hopu Investment Management Co., a China-focused private-equity firm. Other investors with ties to the governments of South Korea and China followed with similar investments in Chesapeake.
The deals gave Chesapeake "the Good Housekeeping stamp of approval in Asia," says Mr. McClendon. Encouraged, Chesapeake approached Chinese oil companies, and Mr. McClendon developed a rapport with Mr. Fu, who he describes as "comfortable with Americans." Mr. McClendon says Cnooc executives were openly saying: "Since 2005, we haven't had a strategy to invest in the U.S., and we think now is the time to do it."
In 2010, Cnooc agreed to pay Chesapeake $1.08 billion for a one-third stake in 600,000 acres in the oil-rich Eagle Ford Shale formation in south Texas, and to spend another $1.08 billion on drilling there. The two executives struck a similar deal, worth nearly $1.3 billion, for stakes in Wyoming and Colorado fields.
Messrs. McClendon and Fu were intent on avoiding the kind of political opposition Cnooc faced five years earlier in its ill-fated bid for Unocal. The deals were structured so that Cnooc didn't get an ownership stake in Chesapeake itself and didn't control production.
"They didn't come over here and try to buy Chesapeake," Mr. McClendon says. "They came over here to buy a minority, nonoperating interest in an asset and not take the oil and gas home."
The Chesapeake deals also included an unusual provision regarding "secondment"—the temporary assignment of employees to another company, a common practice in the oil industry. On Chesapeake's Oklahoma City campus there are Norwegian and French oil workers, a result of the company's joint ventures with France's Total SA and Norway's Statoil.
Mindful of the political backlash that might result if Cnooc employees had the run of Chesapeake's facilities, the two executives agreed that the Chinese deals wouldn't allow for any secondment, Mr. McClendon says.
Nevertheless, the Chinese companies hope to gain insight into how their new partners decide things like where to drill wells and how to set up the infrastructure around them, people involved in the deals say.
Last year, Mr. Fu left Cnooc to become chairman and Communist Party secretary of Sinopec—part of the occasional reshuffling of top executives that occurs at China's state-owned companies. Sinopec, one of China's largest state-controlled firms, is mostly a refiner, but that business is tough in China because the government keeps consumer fuel prices low, pressuring profit margins.
With Mr. Fu at the helm, Sinopec agreed in January to pay $2.5 billion to Devon Energy Corp. of Oklahoma City for a one-third stake in about 1.3 million acres of drilling property in Ohio, Michigan and elsewhere. As in Chesapeake's deals with Cnooc, Devon's pact with Sinopec allows the American company to keep full operating control as well as control over sales of oil and gas from the wells.
David Hager, who heads Devon Energy's exploration and production business, says he expects to work with Sinopec on other fronts. "The most likely outcome is that they would want us to participate with them in China," he says.
Zhong Hua, chief financial officer of the publicly traded arm of China's Cnooc, said in an interview that the company's U.S. exposure will advance its technical know-how. "With the U.S. experience, the company is fully capable of developing and deploying its own technologies within a short period of time in the coming years," he said.
The U.S. Energy Information Administration estimates that China's shale formations hold 1,275 trillion cubic feet of gas that can be extracted using current drilling technology, or more than the recoverable reserves in the U.S. and Canada combined. China already is getting some help from U.S. companies in tapping shale energy. Houston-based Baker Hughes Inc. said recently that it participated in drilling China's first horizontal shale-oil well late last year.
Chinese firms now are attempting to negotiate partnerships with FTS International, a Fort Worth, Texas, company that specializes in hydraulic fracturing, a process used to extract energy from shale, according to one person familiar with the matter. FTS, which is owned by Chesapeake and a consortium of Asian investors, would use proceeds from any deals to expand internationally, this person says. FTS Chief Executive Marc Rowland said in a statement that the company is "actively seeking international opportunities" but "has no announcements at this time."
Mr. Fu, for his part, appears eager for Sinopec to step up shale-gas exploration in China. Mr. Ershaghi, the USC professor, visited Beijing last July at his former student's request to lecture Sinopec managers and engineers on shale-gas production.
"He did mention to me his desire to raise the awareness of shale gas in China," says Mr. Ershaghi. "He thought that's going to be one of the major developments that's going to solve China's energy needs."
In January, in a New Year's address to Sinopec employees, Mr. Fu signaled that he expected foreign deal-making to continue.
"The slowdown of the global economy brings us new opportunity to go overseas, expand overseas M&A and introduce advanced technology and talent," Mr. Fu said.
Posted by Prashant Gopal · March 05, 2012 1:43 PM
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The Obama administration will extend mortgage assistance for the first time to investors who bought multiple homes before the market imploded, helping some speculators who drove up prices and inflated the housing bubble.
Landlords can qualify for up to four federally-subsidized loan workouts starting around May, as long as they rent out each house or have plans to fill them, under the revamped Home Affordable Modification Program, also known as HAMP, according to Timothy Massad, the Treasury’s assistant secretary for financial stability. The program pays banks to reduce monthly payments by cutting interest rates, stretching terms, and forgiving principal.
The government’s need to protect neighborhoods from blight and renters from eviction by keeping the current owners in place is outweighing concern that taxpayers will end up bailing out real-estate investors. The program is being enlarged after less than 1 million borrowers modified loans through HAMP, compared with the administration’s stated goal in 2009 of helping 3 million to 4 million homeowners.
“When we started the program we focused on owner-occupied houses because the need was so great and we wanted to target the efforts to that group,” said Massad. “Given where we are today, more and more people recognize that vacant properties are a problem no matter how they became vacant.”
Investors are central to the federal government’s strategy for reviving real estate with home prices down 34 percent since July 2006 and as foreclosures deplete the pool of buyers who can qualify for a mortgage. Federal Reserve Chairman Ben S. Bernanke told homebuilders in Orlando, Florida last month that the U.S. economic recovery has been “frustratingly slow,” in part because weak housing markets are holding back consumer spending.
The homeownership rate, which peaked at 69.2 percent in June 2004, fell to 66 percent in the fourth quarter of 2011, according to the U.S. Census Bureau. A new Fannie Mae program designed to reduce the overhang of foreclosed homes is encouraging potential buyers, including private-equity firms, to purchase properties in bulk and convert them to rentals. Almost one in four home purchases in January was made by an investor, according to the National Association of Realtors. And investment and vacation properties made up 21 percent of houses in the foreclosure process in January, according to Irvine, California-based RealtyTrac Inc.
The Obama administration announced last month that it would triple incentives to owners of mortgages that reduce home-loan debt and expand eligibility to borrowers struggling under the weight of other liabilities, such as medical bills. The extension will apply to all loans, including those held by Fannie Mae and Freddie Mac, the government-sponsored mortgage financiers. About 700,000 landlords will be eligible under the revisions to HAMP, which has been plagued by consumer complaints about lost paperwork, servicer delays and restrictive eligibility requirements.
“This is a huge change,” said Dan Immergluck, a housing policy professor at Georgia Institute of Technology. “The excessive concern to make sure nobody who played any role in creating the problem gets any benefit has paralyzed the response.”
The danger of blight to communities from foreclosed, vacant properties is still pervasive six years into the slump. Empty houses push down a neighborhood’s property values, according to a 2009 report by the Center for Responsible Lending, which said foreclosures will affect 91.5 million nearby homes through 2012. That will reduce property values by $20,300 for each household, according to the group, which seeks to protect homeownership and family wealth.
By widening the program, the plan will inevitably offer aid to buy-and-flip investors who pushed prices higher during the boom by taking out mortgages with little or no down payment. Speculators accelerated the crash because they were quick to default when prices fell, according to a September report from Andrew Haughwout, Donghoon Lee, Joseph Tracy, and Wilbert van der Klaauw of the Federal Reserve Bank of New York.
At the peak of the boom in 2006, more than a third of home purchase loans were made to borrowers who already owned at least one house, according to the study. In California, Florida, Nevada, and Arizona, which had the most pronounced bubbles, investors accounted for 45 percent of the mortgages.
While survivors of the property bust are now long-term investors, some of them may have started out as flippers, Haughwout said.
While speculators are “no one’s first priority for receiving taxpayer dollars,” providing assistance to a large class of multiple property owners and “blanket modifications offered regardless of occupancy” would be more efficient than restrictive programs, the Fed said in the September report.
Chandrajit Bhattacharya, an analyst at Credit Suisse Group AG in New York, said that the HAMP changes will result in about 200,000 modifications for investors. While it won’t keep bondholders “up at night,” it will probably slow the process of liquidating foreclosed homes.
Bhattacharya said he doesn’t understand why the government should be subsidizing workouts for property investors who are in the business of making money on their purchases. Vacancies are unlikely to increase if the houses go into foreclosure and are purchased by owner-occupants or new investors who fill them with tenants, he said.
John Burns, an Irvine, California-based real estate consultant, said it’s “ridiculous” for taxpayers to come to the aid of individuals who made bad bets.
“What kind of precedent are you going to set?,” Burns said. “Are you going to refund people who lost money on the stock market too?”
Government help to homeowners comes after President George W. Bush’s administration rescued banks with the Troubled Asset Relief Program in 2008, when the housing crash sparked the worst financial crisis since the Great Depression. Wall Street benefited from Federal Reserve emergency programs to keep credit flowing, while Bush and President Barack Obama directed federal money to save companies including General Motors Co. (GM) and Chrysler Group LLC. The Obama administration then pursued a series of programs meant to reduce foreclosures.
John Russell, 61, of Northville, Michigan, said he was never a speculator seeking to flip houses. He bought four rental properties in neighborhoods in the state more than 10 years ago and said he planned to keep them for decades more. Now the houses are worth far less than he owes, his rents have tumbled, and he has to spend about $20,000 a year to keep them operating.
Russell, a retired Chrysler executive whose pension was cut during the automaker’s 2009 bankruptcy, said two houses are in foreclosure and he can’t afford to keep them without the federal government’s help.
Banks have repeatedly rejected him for a modification because they aren’t primary residences, he said. Russell said he simply wants his mortgage bills to be brought in line with the rents.
“I guess what you’re always asking yourself is the market going to come back?,” Russell said. “As an investor you want to think that some day the house will be worth more than it is today.”
Moose Scheib, chief executive officer of LoanMod.com, a Dearborn, Michigan-based (MBASMI) firm that advises homeowners facing foreclosure, said many of the investors who hung on through housing bust are “mom and pop” property owners who bought real estate as a source of retirement income. Russell is one of his clients.
“Our economy is in trouble, housing is in trouble,” Scheib said. “Whether you’re fixing it on behalf of investors or homeowners, it benefits everybody to do that.”
Posted by Daily Caller · March 05, 2012 1:39 PM
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Could Congress be persuaded to spend taxpayer money on a Museum of Government Waste?
That’s what filmmakers Ellen and Jim Hubbard of Nevada have been trying to figure out for the last five years.
The couple is releasing a film — set to come out this year — about their quest to obtain an earmark from Congress for a museum dedicated to wasteful government spending.
The point of the film and project, Ellen Hubbard said, is to show the absurdity of what special pet projects Congress chooses to spend money on and the process one has to go through in order to obtain an earmark.
“In the beginning it started off as, ‘what’s the ultimate ridiculous earmark that we can come up with?’” Hubbard said in a phone interview with The Daily Caller, referencing taxpayer-funded museums dedicated to magic, wheels, tea pots and prison.
Despite understanding that they would be unlikely to actually obtain such an earmark, the Hubbards made a serious go at it anyway.
“We ended up hiring a lobbyist, we met with members of Congress, their staffs, several lobbyists,” Ellen Hubbard said.
“We never ever thought we would get an earmark just as regular citizens, let alone an earmark for something this crazy,” she added. “But we really authentically tried to get it.”
In meetings on Capitol Hill, they would say the museum has a wealthy backer who wants the government to support it with an earmark.
“And once you tell them about a wealthy backer, it was weird,” Hubbard said. “All of them acted the same way. The conversation shifted from ‘what’s your earmark’ to ‘how can we get this done.’ It was eye opening.”
The filmmakers recruited the help of a friend, radio talk show host Greg Knapp, who stars in the movie. They also got creative with their filming techniques.
“Obviously when you meet with a member of Congress or a staffer or a lobbyist and you’re really trying to get the straight dope, you can’t bring two cameras and a sound engineer with you,” she said. “So that’s when we wore hidden cameras.”
After five years of filming, Hubbard is tight-lipped about how successful they were in actually obtaining federal dollars for the museum.
“I’m not going to tell you because that’s really the point of watching the film,” she said.
But using private money, she and her husband plan to follow up on the film by actually opening up a Museum of Government Waste this year. David Williams of the Taxpayers Protection Alliance will run it.
Williams — who also contributed to the film — admits he was skeptical about helping out at first. “I really don’t want to be condoning someone getting an earmark,” he told TheDC. “It goes against every fiber of my being.”
But he says he jumped on board when he realized the museum would only be funded by private money and they were doing it as a “lark” to “expose Washington’s ways and how it works.”
“And after talking to them and doing a few interviews, it really dawned on me that maybe we really should have this museum,” he said.
“Why not have a space in Washington D.C. where we could have pictures of members of Congress — a hall of shame. We could have individual items. We could have tea pots to represent the tea pot museum and have rotating exhibits.”
They’re still working out the details, but the museum is slated to be in Washington. Williams plans to move his organization, the Tax Payers Protection Alliance, into the same space as the museum.
Posted by JENNIFER LEVITZ and ERIC Morath · March 02, 2012 5:33 PM
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Congress says it is trying to find ways to get the U.S. Postal Service out of the red. But some lawmakers have also become an obstacle in this cost-cutting effort as they resist the agency's plan to close post offices and mail-sorting hubs.
Elected officials from West Virginia to New York to Missouri publicly say they will fight the shutdown of a mail plant in their districts after the agency last week named 223 it intends to close.
"I'm going to do everything I can to block their efforts," said Rep. Maurice Hinchey (D., N.Y.), pledging a battle to keep a Newburgh, N.Y., plant open.
In a flurry of public statements, other lawmakers urged the agency to "halt" or "go back to the drawing board."
"Needless to say we heard from most people that have some closures in their districts," Postmaster General Patrick Donahoe said in an interview. "The general sentiment was that we understand you're having issues, but is there anything that can be done that would spare a facility in a certain congressional district."
The postmaster can reverse himself if new evidence emerges that the agency missed in its review, but it isn't likely. Mr. Donahoe said the 223 sorting facilities set to be closed were selected after several months of a study that involved talking to local people, legislators, examining terrain and weather, and running a business model that looked at mail volume and logistics.
The agency doesn't need Congress's approval to close the plants and post offices, but lawmakers "draw on a number of tactical tools" to delay or dissuade the postal service, including public protests, withholding support for major postal-related legislation, and adding language to committee reports instructing the agency to study the matter further, the U.S. Postal Service Office of Inspector General said in a June 2011 report.
In addition, lawmakers can enact new rules that dictate how facilities close in the future.
The Postal Service does need congressional approval to enact more sweeping changes, including the postmaster's proposals to drop Saturday delivery, raise the cost of mailing a letter to 50 cents in the next five years, and ease a requirement to pre-fund future retiree health benefits.
The agency is experiencing historic losses—more than $5 billion in its most recent fiscal year—that it attributes to burdensome retiree health costs and a shift in communication habits in the digital age. First-class mail volume has fallen 25% since 2006, and the agency predicts annual losses exceeding $18 billion by 2015 without drastic changes, including closing an "enormous amount of excess capacity."
The Postal Service is supposed to operate without taxpayer dollars. But in recent years the agency has been bleeding cash, forcing it to borrow billions from the Treasury. The Postal Service expects to hit its $15 billion borrowing cap later this year.
Congress has had a long love affair with postal-sorting facilities, which bring jobs, and post offices, which often serve as Main Street anchors and increasingly are named after local war heroes. And lawmakers argue that cutting sorting facilities and post offices would slow delivery of essentials, especially to rural America, and would drive away customers, further hurting the postal service. Mr. Donahoe says the argument that these measures would alienate customers is overstated.
Congress is now weighing multiple bills aimed at remaking the postal service and putting it on firmer financial footing. The bills would take steps such as easing the pre-funding mandate for retiree health benefits and allowing the postal service to branch into nonpostal ventures, like issuing hunting licenses.
Mr. Donahoe's decision to move ahead with the facility closings before Congress passes legislation overhauling how the Postal Service operates will "undermine congressional support for helping the postal service," said Sen. Susan Collins, (R., Maine), who has pushed postal legislation in the Senate. She is protesting plans to close a mail plant in eastern Maine, arguing that it will disrupt timely service in the rural state.
Sen. Ron Wyden (D., Ore.) said the closing of postal facilities in his state "threatens the integrity of Oregon's vote-by-mail system." He added: "It is not a risk worth taking."
Meanwhile, the fear of congressional impasse on a postal overhaul is frustrating to businesses that rely on the mail, said George White, chief executive of Up With Paper, a small Ohio greeting-card company. "The biggest concern is the negativity surrounding the Post Service," he said. "Customers worry if their post office is going to be there…that can cause them to lose faith in mailing greeting cards."
Congress has a long history of tangling over postal facilities.
Although, many policy makers agree that the agency needs to downsize, "political barriers" are perhaps the biggest obstacle, the Office of Inspector General said in its June 2011 report.
Already, in mid-December, 15 senators struck a deal with the Postal Service to put a moratorium on any closures until May 15, which the legislators said would give them time to pass comprehensive changes. That accord came after Mr. Donahoe said he was considering closing 3,700 post offices and was looking to cut mail-sorting facilities.
Mr. Donahoe said he would honor the moratorium, and that he still hopes for legislation to provide financial relief, but that he has to begin the process now to close the 223 mail hubs after May 15, and notify employees who may move to other sites. The agency expects the closures will eliminate 35,000 jobs, mostly through attrition.
Not everyone is howling. Rep. Dennis Ross, (R., Fla.) who has pushed postal overhaul legislation in the House, said he contacted Mr. Donahoe when he learned the Lakeland processing plant in his district was slated to close. But Mr. Ross said following the discussions, he took the postmaster "at his word" that the facility was unprofitable and doesn't plan further steps to halt a closing even though the local Chamber of Commerce and others are upset.
"The greater good is saving the post office and to do so we have to reform fiscally," he said in an interview. "That means downsizing facilitates that are costing money."
Posted by Curtis Dubay · March 02, 2012 4:50 PM
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President Obama’s fiscal year 2013 budget proposal explicitly claims a $1.561 trillion tax hike over 10 years, as reported by the White House Office of Management and Budget (OMB). This is a vast understatement, because that figure fails to account for all of the President’s tax increases and improperly claims credit for reducing tax receipts from tax cuts that are not new policies.
Numbers Do Not Match
The indication that something is amiss with the $1.561 trillion tax hike figure is that it is substantially smaller than the estimate in the Treasury Department’s “Green Book.” The Green Book provides an in-depth explanation of the President’s numerous tax policy changes in the budget. Treasury releases it separately when OMB releases the budget. The Green Book estimates that the President wants to raise taxes by $1.689 trillion. That is $128 billion more than the OMB figure.
The OMB and Treasury estimates should match. The Treasury Department is responsible for estimating the revenue effects of the President’s tax policies for OMB, and OMB uses those estimates in its budget tables.
The reason for the difference is that OMB puts more than $154 billion of tax hikes the President wants outside the tax section of the table, where OMB lists the revenue effect of most of the President’s tax policy changes. This is also where OMB calculates the net revenue effect of the President’s tax hikes and cuts. The Treasury estimate in the Green Book properly accounts for these tax hikes with the other tax changes in the budget.
While OMB does account for these other tax hikes elsewhere in the table, putting them in areas other than the tax section misleads readers to believe that the President’s tax hikes are smaller than they are in reality. After all, it is sensible to find the line in the OMB table that states the net effect of the President’s tax policies and assume that it is the total amount.
The biggest missing tax hike from the tax section is the “Financial Crisis Responsibility Fee,” better known as the bank tax. OMB put this tax in the Treasury Department’s section of the table. This tax hike adds another $61 billion to the President’s tax hike total. Also included in the Treasury Department’s section is a $44 billion tax hike from allowing the IRS to adjust a program integrity cap. OMB put a $48 billion increase of the unemployment tax in a footnote of the Labor Department’s section and a $1 billion hike of user fees for commercial navigation of inland waterways in the Veterans Affairs’ section (Corps of Engineers). These hidden tax hikes account for the missing $154 billion.
OMB also failed to account for a relatively small amount of tax cuts in its total tax hike figure. Those tax cuts total $26 billion. Subtracting that sum from the $154 billion missing tax hikes figure arrives at the missing $128 billion of net tax hikes OMB misclassified that should be included in President Obama’s total tax hike.
Credit Where Credit Is Not Due
Adding the missing tax hikes that OMB misplaced is necessary, but not sufficient, to arrive at the final tally of President Obama’s tax hikes. Both OMB and Treasury give the President credit for tax cuts that are not new policies and therefore wrongly reduce the amount he plans to increase revenue.
These policies include extending the payroll tax holiday ($31 billion), the American Opportunity Tax Credit ($137 billion), the Research and Experimentation Credit ($109 billion), the group of tax-reducing policies known as the “tax extenders” ($34 billion), and several other tax provisions that have long been part of the tax code ($6 billion). These pre-existing tax cuts that President Obama does not deserve credit for equal $317 billion.
Properly remove that $317 billion of previous tax cuts from the President’s net tax hike as reported by OMB, add the missing $128 billion of tax hikes, and the President actually calls for raising taxes by more than $2 trillion over 10 years. That is 31 percent more than the OMB figure suggests the President wants to raise taxes.
Use the Correct Figure
Congress should disregard the misleading tax hike figure from OMB’s table and use the correct $2 trillion amount when referring to the total tax hikes in the President’s budget. Members of Congress should question OMB as to why they chose to mislead readers about the total tax hike that President Obama has called for on American taxpayers.
Curtis S. Dubay is a Senior Analyst in Tax Policy in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
Posted by Mark Whittington Yahoo News · February 29, 2012 7:32 PM
· 1 reaction
President Barack Obama's Secretary of Energy Stephen Chu uttered the kind of Washington gaffe that consists of telling the truth when inconvenient. According to Politico, Chu admitted to a House committee that the administration is not interested in lowering gas prices.
Chu, along with the Obama administration, regards the spike in gas prices as a feature rather than a bug. High gas prices provide an incentive for alternate energy technology, a priority for the White House, and a decrease in reliance on oil for energy.
The Heritage Foundation points out that hammering the American consumer with high gas prices to make electric and hybrid cars more appealing is consistent with Obama administration policy and Chu's philosophy. That explains the refusal to allow the building of the Keystone XL pipeline and to allow drilling in wide areas of the U.S. and offshore areas.
The consequences of the policy are not likely to be of benefit to the Obama administration. The Republican National Committee has already issued a video highlighting the spike in gas prices and the failure of the administration to address the issue.
Presidential candidate Newt Gingrich has issued a half-hour video touting an energy plan he claims would result in $2.50 a gallon gasoline. The plan is based on unfettered drilling for oil and gas instead of a reliance on green energy. Gingrich has also savaged Obama's touting of algae based biofuel as "weird."
Chu has likely highlighted an issue Republicans are going to pick up and run with. Americans are not going to be appreciative of schemes to hit them in the wallet so the American economy can shift to green energy. Besides American traditional adherence to the free market, the idea of being fleeced by a deliberate government policy is likely to be greeted with anger.
Add into the mix green energy fiascos like Solyndra, and Chu might well have kindled a full blown scandal.
How the Obama administration reacts to the expected firestorm is open to question. Green energy is as part of its fundamental religion as is universal health care, another unpopular Obama policy. If it tries to bull ahead, the electorate will likely punish Obama and the Democrats. If it tries to backtrack, Obama looks weak and facilitating, and likely will still not appease gas strapped Americans experiencing price shock at the gas pump.
Posted by IANTHE JEANNE DUGAN And JUSTIN SCHECK of Wsj · February 27, 2012 11:29 AM
· 1 reaction
Alfredo Garcia was among the residents of Webb County, Texas, banking on a windfall from federal stimulus money.
Mr. Garcia expanded his Mexican restaurant from 80 to 120 seats, anticipating a rush of new patrons springing from the nearby Cedro Hill wind farm, a project built with the help of $108 million from U.S. taxpayers.
When construction ended, Cedro Hill had just three employees and Mr. Garcia's restaurant, Aimee's, filed for bankruptcy protection. "Nobody came," said Mr. Garcia, a county judge who closed Aimee's last year, putting 18 people out of work.
Companies have received more than $10 billion to create jobs and renewable energy by building wind farms, solar projects and other alternatives to oil and natural gas under section 1603 of the American Recovery and Reinvestment Act of 2009. The program expired in December, and President Barack Obama proposed last week that Congress revive it in the 2013 budget.
On federal applications, companies said they created more than 100,000 direct jobs at 1603-funded projects. But a Wall Street Journal investigation found evidence of far fewer. Some plants laid off workers. Others closed.
The discrepancies highlight broader challenges calculating the economic benefits of stimulus spending. Jobs have been an important measure influencing distribution of more than $800 billion in stimulus money, which also has included tax breaks and spending on roads, sewers, schools, health and public assistance. Yet the number of jobs created or saved is largely based on formulas, mathematical models and reports by recipients, rather than actual tallies.
The President's Council of Economic Advisers said overall stimulus spending created between 2.2 million and 4.2 million jobs as of the second quarter of 2011. Some jobs, such as construction work, were temporary. But without the spending, they said, the economy would be worse off.
The 1603 program was an important part of the government's push to encourage investment in alternative energy. Many Democrats have supported such government funding, while some Republican counterparts say the market should pick winners.
The role of government is likely to be widely debated during this year's presidential campaign.
White House spokesman Clark Stevens said the 1603 program "has played a central role in the dramatic expansion of renewable energy generation in the United States, with energy generated from wind and solar set to double in the president's first term."
The goal, he added, is "to spur investment in projects that will continue to diversify our energy portfolio, and that is exactly what it is doing."
Jen Stutsman, a spokeswoman for the Department of Energy, which administers the 1603 program with the Treasury Department, said it created "tens of thousands" of jobs in construction, installation and operation.
Jobs figures reported by grant recipients were full of errors, the Congressional Research Service said in a report last year: "Thus it is recommended that any job creation estimate be viewed with skepticism."
The report also addressed a broader issue. "The potential for job creation has become a key factor in evaluating renewable energy investment incentives and programs," it wrote. Yet "quantifying and measuring green job creation and growth has been difficult."
Some communities expecting a flood of new hires from 1603 grant spending have so far found little to celebrate.
Raser Technologies Inc., for example, filed for bankruptcy protection last April, after receiving a $33 million grant for a geothermal plant in Beaver County, Utah.
Lecia Langston, a Utah state economist, said the plant now has fewer than 10 employees. Regulatory filings show that in the year after receiving its 1603 grant, the total number of company employees fell from 42 to 27.
When it went bankrupt, Raser owed $1.5 million in state and local taxes, bankruptcy documents show. Neil Glassman, a bankruptcy lawyer for Raser, declined to comment.
Other companies prospered. AllEarth Renewables Inc. in Williston, Vt., for example, saw its revenues rise nearly sevenfold in two years to $20 million, thanks largely to $2.3 million in 1603 funds used to install solar-power systems at homes and businesses that agreed to buy the electricity generated, said spokesman Andrew Savage.
But counting jobs beyond its own 24 employees was trickier. Each installation, Mr. Savage said, "triggers a chain of activity through our suppliers that results in jobs that are real but hard to quantify."
The 1603 program gave $10.7 billion to 5,098 businesses for 31,540 projects, according to the Treasury Department. Recipients were generally reimbursed 30% of their costs after projects were finished.
Those businesses claimed on federal applications that they created 102,883 jobs directly. But the Journal found evidence of far fewer.
About 40% of the funding, $4.3 billion, went to 36 wind farms. During the peak of construction, they employed an average of 200 workers apiece—a total of roughly 7,200 jobs.
Now, those projects employ about 300 people, according to the companies and economic development officials. Their parent companies employ many more, both in the U.S. and abroad.
In Texas, the state comptroller estimated the Cedro Hill wind farm would create 531 jobs directly and indirectly during construction in 2010 and taper down to 44 jobs this year, according to computer models and information from developers.
But county officials said few locals were hired.
"I'm so disappointed," said Rosaura Tijerina, a Webb County commissioner who supported tax subsidies for Cedro Hill, which is owned by California-based Edison International. "I expected a lot more jobs."
Susan Olavarria, a spokeswoman for Edison, said 300 people worked building the wind farm, including 80 locals. "Many of these jobs require a certain level of experience in operating heavy machinery, which can limit the availability of local workers in smaller communities," she said.
Ms. Olavarria said out-of-town employees stayed at hotels and campgrounds. They shopped, she said, bought gas and ate at restaurants.
Richard Castillo, a 46-year-old local truck driver, complained he was employed for just six weeks. "Am I counted in their jobs figures?" he said.
The American Wind Energy Association lobbied successfully in late 2010 to extend the 1603 program through 2011, predicting it would create thousands of jobs. Wind companies wound up with more than $7 billion of the 1603 money, yet industry payrolls declined to 75,000 last year from a peak of 85,000 in 2009, according to the association.
Iberdrola Renewables Inc., the U.S. arm of a Spanish energy giant, received more than $1.5 billion for its wind and solar projects. In January, it laid off 50 people, leaving about 850 U.S. employees, according to spokeswoman Jan Johnson.
The company takes credit for creating more than 15,000 jobs, based on economic models that count staff, suppliers, temporary construction jobs, as well as employment generated by the money workers spend on food, hotels and other purchases.
Some communities are baffled by such estimates. In Kenedy County, Texas, population 416, Iberdrola said it supported 978 jobs building a wind farm there.
"How dare they claim they created those jobs," said Dick Messbarger, executive director of the nearby Kingsville Economic Development Council. "Their existence is almost invisible."
Ms. Johnson said focusing on the number of permanent jobs "overlooks not only all the manufacturing and construction positions it took to erect the turbines, but also the 850 Iberdrola Renewables employees who work every day to ensure delivery of 4,700 megawatts of clean, renewable energy across the country."
The 1603 program also nurtured the geothermal business, which produces electricity using the earth's heat. Some recipients say the federal money didn't boost hiring.
Canada-based Nevada Geothermal Power Inc. last year received $65 million for a geothermal plant near Winnemucca, Nev. The company used half the grant to refinance a loan and the rest for "drilling and corporate development," said government-relations chief Paul Mitchell. NGP would have likely retained the Nevada plant's 14 employees without the grant, he said, though the money helped the company maintain financial stability.
Historically, alternative energy development was funded by banks in exchange for tax credits. Those investors pulled back after the 2008 financial crisis. The 1603 program gave companies a choice of tax credits or, in most cases, cash equal to 30% of a project's cost.
Energy companies and trade groups last year spent $14 million lobbying for 1603 and other programs, with many citing jobs.
The Solar Energy Industries Association told Congress that another year of 1603 funding would create 37,394 jobs, including indirect employment. The industry employs 100,237 workers, according to a trade group.
Private-equity firm Wayzata Investment Partners created neither jobs nor energy with the $6.5 million it received for a plant in Thompson Falls, Mont. The facility had state permits to burn coal and wood for energy, and Wayzata had invested more than $20 million to comply with government rules, said a person familiar with the matter.
After finishing the work, this person said, Wayzata told Treasury officials the plant would burn only wood; coal-burning plants don't qualify for 1603 money.
But Wayzata found it couldn't make money operating the plant on just wood without investing millions of dollars more in equipment improvements, said three people with knowledge of the project.
Wayzata submitted its application to the Treasury Department and in June 2010 received its payment. By then, the plant had not produced power for months, regulatory filings show. The facility, which still doesn't produce power, is for sale. Wayzata representatives declined to comment.
Another wood-burning plant, Blue Lake Power in Northern California, received more than $5.3 million in October 2010. The plant had a number of temporary shutdowns around that time, said Chief Executive Kevin Leary. About a year ago, it laid off most of its staff and stopped producing power. Mr. Leary said the plant is now scheduled to start operating again on March 15. If the plant doesn't work, he said, it may face bankruptcy.
Grant rules require that for five years recipients annually report the number of employees and amount of power produced. Even if a project stops producing power—or employing workers—for long stretches, owners can keep the money unless they convert their facility to a use other than power production or stop trying to get the plant working within five years of receiving the grant.
So far, Treasury has tried to recoup funds from two recipients, a department spokeswoman said. Each case involved grants of less than $1 million.
The 1603 grant applications were reviewed by the National Renewable Energy Laboratory, which is largely funded by the Department of Energy to explore alternatives to fossil fuels. The Colorado lab also developed a widely used computer model that estimates jobs generated by alternative energy projects—known as Jobs and Economic Development Impact.
The government hired the lab to count jobs created with 1603 spending. The lab found the grants had a significant impact, according to a report awaiting public release, said people familiar with the matter.
In Webb County, Texas, Ms. Tijerina, the county commissioner, said she regretted not asking for a guarantee on the number of jobs provided by the Cedro Hill wind farm.
"Another wind farm recently came in here and we told them we want it in writing that they will hire locals, even 20 or 30 people," said Ms. Tijerina, who is also a lawyer.
Ms. Olavarria, the spokeswoman for Cedro Hill parent Edison, said about $1 million was spent locally on materials and services each month during the project's yearlong construction in 2010. The wind farm pays property taxes of about $1 million per year, she said, and will pay $2.5 million to a scholarship fund over 10 years.
That is little consolation to Benita Mendosa, who manages G&G Grocery in Bruni, Texas. She said the small store laid off a worker after one of the subcontractors on the project ran up a $2,000 gas bill and didn't pay it.
How so few jobs came out of a stimulus program mystified Joseph Mendiola, acting director of Laredo Development Foundation in Webb County.
"Green energy is a future for all communities we should embrace," he said. "But they shouldn't tell us it is for jobs."
Posted by Becker Adams · February 22, 2012 8:41 PM
· 1 reaction
Unions say they are gearing up to spend more than $400 million to help re-elect President Barack Obama and lift Democrats this election year in a fight for “labor’s survival,” according to the Associated Press.
Having recently come under close scrutiny around the country — and fearing the consequences of a Republican in the White House — union leaders say they have little choice as they try to beat back GOP efforts to curb “collective bargaining rights” or limit their ability to collect dues.
“People are digging deeper,” said Larry Scanlon, political director of the country’s largest public workers union, the American Federation of State, County and Municipal Employees (AFSCME). “If Republicans take over the presidency, Congress and enough state legislatures, unions will be out of business, pure and simple.”
This year, AFSCME is expected to spend at least $100 million or more on political action, including television advertising, phone banks and member canvassing. The effort is to help the president, Democrats running for the House and Senate, gubernatorial candidates, and key state lawmakers.
With increased spending planned by other labor groups, including the powerful Service Employees International Union and the AFL-CIO, unions are likely to top the $400 million they spent to help elect Obama four years ago.
Not all union expenditures on political action are publicly disclosed, so some numbers are based on self-reporting. That is to say, some union leaders are being kept to the “honor system.”
What could possibly go wrong?
Unions have long been known as one of the most reliable supporters of Democratic candidates and their efforts have increased with every election as the threats to organized labor grow. And by “threats,” we mean “having their unsustainable spending curbed.”
As mentioned earlier on The Blaze, unions already spent more than $40 million last year to repeal an Ohio law that reformed “collective bargaining rights.” They are spending millions more in a bid to recall Republican Wisconsin Gov. Scott Walker, who led the charge to curb the same “rights” as a way to balance the state’s budget.
But some unions leaders claim they are being spread thin as they deal with a new wave of measures they say are designed to weaken their clout. Indiana passed a right-to-work measure earlier this month, and Republicans in New Hampshire are pushing a similar bill. Legislatures in Arizona and Utah are weighing measures to limit bargaining rights for their public employees.
“Part of the Republican strategy is to try to bleed us,” said Mike Podhorzer, political director of the AFL-CIO. “There are certainly more union members now who understand the importance of political engagement and are willing to go door-to-door and make phone calls and do campaigns.”
Tim Phillips, president of the conservative anti-tax and anti-regulation group Americans for Prosperity, denied any grand strategy to weaken unions. His group, founded with the support of billionaire brothers Charles and David Koch, spends millions on anti-Obama and anti-union ads across the country.
“It‘s not accurate to say there’s some master plan to drain resources,” Phillips said. “These are genuine public policy efforts.”
Phillips also said that, for the first time, unions have to confront organized grassroots opposition in a number of states.
“And Americans for Prosperity is absolutely a key component in that,” Phillips said. “The unions have always had the advantage and we are now matching them.”
AFSCME, the 1.6-million member union, started early this year, spending $1 million on television ads during Florida’s GOP presidential primary to weaken Mitt Romney, the candidate organized labor presumes will emerge as the Republican nominee.
The SEIU teamed up with Priorities USA Action, the major super PAC backing Obama, to buy ads in Florida and Nevada accusing Romney of flip-flopping on immigration policy. SEIU is the single largest contributor to Priorities USA after making a $500,000 contribution in December.
The 2.1 million-member union is expected to spend at least $85 million to help Obama win, similar to what it spent in 2008, spokeswoman Jennifer Farmer said.
The AFL-CIO is following a new strategy outlined last summer to contribute less money to specific candidates and spend more on building its infrastructure. The goal is to “lay a foundation for year-round mobilization that keeps going in the months following an election,” the AP reports. Competing for the union money are the various races, from president to state lawmaker.
“We have to use 2012 not just to win for its own sake, but to use as a springboard for 2014 when the governors in all these states are up,” Podhorzer said.
The new strategy emerged because some unions feel that Democrats in Congress are not doing enough to stand up for labor’s agenda.
The AFL-CIO also started its own labor super PAC, which allows it to raise unlimited amounts of money and mobilize support beyond its traditional base. The new super PAC has already pulled in $3.7 million.
Posted by Wsj · February 22, 2012 10:37 AM
· 1 reaction
President Obama's 2013 budget is the gift that keeps on giving—to government. One buried surprise is his proposal to triple the tax rate on corporate dividends, which believe it or not is higher than in his previous budgets.
Mr. Obama is proposing to raise the dividend tax rate to the higher personal income tax rate of 39.6% that will kick in next year. Add in the planned phase-out of deductions and exemptions, and the rate hits 41%. Then add the 3.8% investment tax surcharge in ObamaCare, and the new dividend tax rate in 2013 would be 44.8%—nearly three times today's 15% rate.
Keep in mind that dividends are paid to shareholders only after the corporation pays taxes on its profits. So assuming a maximum 35% corporate tax rate and a 44.8% dividend tax, the total tax on corporate earnings passed through as dividends would be 64.1%.
In previous budgets, Mr. Obama proposed an increase to 23.8% on both dividends and capital gains. That's roughly a 60% increase in the tax on investments, but at least it would maintain parity between taxes on capital gains and dividends, a principle established as part of George W. Bush's 2003 tax cut.
With the same rate on both forms of income, the tax code doesn't bias corporate decisions on whether to retain and reinvest profits (and allow the earnings to be capitalized into the stock price), or distribute the money as dividends at the time they are earned.
Of course, the White House wants everyone to know that this new rate would apply only to those filthy rich individuals who make $200,000 a year, or $250,000 if you're a greedy couple. We're all supposed to believe that no one would be hurt other than rich folks who can afford it.
The truth is that the plan gives new meaning to the term collateral damage, because shareholders of all incomes will share the pain. Here's why. Historical experience indicates that corporate dividend payouts are highly sensitive to the dividend tax. Dividends fell out of favor in the 1990s when the dividend tax rate was roughly twice the rate of capital gains.
When the rate fell to 15% on January 1, 2003, dividends reported on tax returns nearly doubled to $196 billion from $103 billion the year before the tax cut. By 2006 dividend income had grown to nearly $337 billion, more than three times the pre-tax cut level. The nearby chart shows the trend.
Shortly after the rate cut, Microsoft, which had never paid a dividend, distributed $32 billion of its retained earnings in a special dividend of $3 per share. According to a Cato Institute study, 22 S&P 500 companies that didn't pay dividends before the tax cut began paying them in 2003 and 2004.
As former Citigroup CEO Sandy Weill explained at the time: "The recent change in the tax law levels the playing field between dividends and share repurchases as a means to return capital to shareholders. This substantial increase in our dividend will be part of our effort to reallocate capital to dividends and reduce share repurchases."
And that's what happened. An American Economic Association study by University of California at Berkeley economists Raj Chetty and Emmanuel Saez examined dividend payouts by firms and concluded that "the tax reform played a significant role in the [2003 and 2004] increase in dividend payouts." They also found that the incentive for firms to pay dividends rather than sit on cash helped "reshuffle" capital from lower growth firms to "ventures with greater expected value," thus increasing capital-market efficiency.
If you reverse the policy, you reverse the incentives. The tripling of the dividend tax will have a dampening effect on these payments.
Who would get hurt? IRS data show that retirees and near-retirees who depend on dividend income would be hit especially hard. Almost three of four dividend payments go to those over the age of 55, and more than half go to those older than 65, according to IRS data.
But all American shareholders would lose. Higher dividend and capital gains taxes make stocks less valuable. A share of stock is worth the discounted present value of the future earnings stream after taxes. Stock prices would fall over time to adjust to the new after-tax rate of return. And if investors become convinced later this year that dividend and capital gains taxes are going way up on January 1, some investors are likely to sell shares ahead of paying these higher rates.
The question is how this helps anyone. According to the Investment Company Institute, about 51% of adults own stock directly or through mutual funds, which is more than 100 million shareholders. Tens of millions more own stocks through pension funds. Why would the White House endorse a policy that will make these households poorer?
Seldom has there been a clearer example of a policy that is supposed to soak the rich but will drench almost all American families.