Carl from Chicago

Business executive interested in history, economics, taxation and energy policy.

Energy “Plan” – No New Transmission

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DECEPTION

The energy industry in the US is complicated and when I write posts I like to provide a decent amount of background for my thesis that we are allowing our energy infrastructure to deteriorate and not doing anything constructive about the situation. One critical element of this is that the greens and left-leaning individuals, who decry “old school” solutions like building new coal plants and promote complicated and unproven alternatives to these known, sensible and cost-effective solutions – are being disingenuous when they counter propose their “solutions”, because in the end they don’t want to do anything constructive at all to re mediate and solve the issues. This opinion article, in the New York Times, neatly encapsulates their duplicity by clearly stating that they don’t WANT to solve the transmission problem, even if someone could wind their way through the rats nest of financing, legal issues, and permitting. Thus it represents an important piece of evidence as a “confession” of their duplicity.

BACKGROUND

The energy infrastructure of the United States consists of three main components:

– Generation (nuclear, coal, gas, hydro, and other)
– Transmission (the lines that connect power stations to cities, and the utilities to each other)
– Distribution (the local electric lines, customer meter, trucks, etc…)

In general, the US has failed to invest in generation and transmission assets over the last 25 years or so. “Base load” generation primarily consists of 1) coal plants (no one is building new ones because of environmental legislation) 2) hydroelectric plants (no one is damming rivers due to the Sierra Club) 3) nuclear plant (they are far too expensive, regulation is uncertain, and Three Mile Island hasn’t gone away). There have been some “peaker” plants running natural gas (more expensive) and some minor “renewable” projects but generally we have just been “running in place” with regards to capacity and utilizing up all the “reserve” capacity that had been built up in previous years, as evidenced by blackouts in places like California.

Transmission consists of the long high voltage lines that crisscross the country. While some of these lines have been rebuilt and capacity upgraded, generally we have NOT built new transmission lines. Transmission lines that cross the country or long distances require permitting and siting and can take decades to build, if you can stomach the endless rounds of negotiating with all parties along the way and an ever changing morass of regulatory issues. Even after a line is permitted and built, the courts can stop them from functioning, such as a famous undersea transmission cable in the East that cost hundreds of millions to build.

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WSJ Opinion Article on Illinois Taxes

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The WSJ recently wrote an opinion piece on the Illinois tax increases which I wrote about here called “The Taxing Illini”. From the article:

This is a state that does almost everything wrong economically. It is not a right-to-work state and is thus heavily unionized, repelling new business investment. It has the fifth highest minimum wage among the states, the fifth most trial-lawyer friendly legal code, the sixth highest workers’ compensation costs, and the 11th highest property taxes. It has one of the highest inheritance taxes, at 16%, so retirees flee to states with no death tax, such as Florida and Arizona. A rare Illinois advantage has been its relatively low income-tax rate, but that will shrink or vanish under Mr. Quinn’s increase.

The sad part about this article is that they failed to mention that Illinois has pretty much the highest sales tax rate of any state in the country, and in Cook County the rate is higher than 10% with relatively few exemptions. I guess they just ran out of bad things to say about the state, or figured that the “slaughter rule” was in effect, kind of like in that recent WBC game featuring the USA team.

Cross posted at LITGM

Business Idea?

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I was out walking in the River North area last night when I came upon a bona-fide white Bentley with this sign on the side.

If anyone wants to call the number and hear the “plan” and post it up as a comment that would be interesting.

Cross posted at LITGM

It’s Not Reform

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Illinois, like most states, is in the throes of a financial crisis. Our new governor, Pat Quinn, now is leading the financial and budget process.

One of the few financial areas in which Illinois has a sensible tax policy is with regards to the state income tax. The state income tax is a flat 3%, tied to the Federal form (many other states are very complex, with graduated rates, and they diverge significantly from the Federal returns on key points of logic). Note that the state tax rate is supposed to be 2.5% but a 0.5% “surcharge” was added ostensibly to pay for transit and this was never rescinded. By contrast, Illinois has some of the highest sales tax rates in the nation, with Cook County and Chicago at over 10%, and we have high property taxes, as well.

Pat Quinn has now proposed a 50% tax hike, from 3% to 4.5%. In this requested tax hike, he is extremely deceptive and calls it tax “reform”, as noted in this headline from the Chicago Tribune. Mr. Quinn’s idea of reform, however, is reform as only a hard-core re-distributionist Democrat could see it – the structure of the tax is now being graduated so earners under a certain amount around $60,000 would pay about the same and high earning individuals and families would pay much more.

Mr. Quinn – here are some ideas for ACTUAL reform, as to how it is defined in the real world, not the act of giving some people the same tax rates and charging others a disproportionate amount:

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Computers and Accounting

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Over the years industries change, and are impacted by technology. The famous examples are robots replacing workers on the assembly lines, automated phone systems eliminating the need for manual operators, and the impact of the web on a whole host of systems from journalism to retailing.

One item that has received relatively little attention is the impact of computers on the accounting profession. This article describes the death of a sole practitioner who ran a small firm and was able to do this without utilizing a computer – the rarity of this situation led to the above headline.

When I was interviewing much accounting work was done by hand. Computers were used, but they were mainframes, and they basically held the journal entries that were calculated and supported off line. Accountants had many manual worksheets (21 column paper) where you put down your numbers (by hand), “tied them out” to source documents, and made your calculations. The advent of Lotus 1-2-3 which was ousted by Microsoft Excel and other similar programs eventually automated all of the analysis and workpapers supporting the audit.

For annual reports, they were typed by hand (for smaller companies or pension plans), or sent to an expensive printer for production. Word processors were new and dedicated and difficult to use – we had a print shop full of women (at that time, they were all women) who would take the manual documents and physically type them up and then you’d proof them and send back changes. Obviously this has been passed by with a whole series of programs that allow for this to be done and checked without clerical staff.

For taxes, forms were done by hand. The earliest programs were used for the corporate returns and complex calculations such as depreciation; I remember thinking that there was no way that a computer would be able to automate all the complexities of the tax code. And while the corporate world still is extremely complex, much of the individual tax world can be done with off the shelf programs that allow tax preparers to bring up the prior year return and do them quickly and efficiently, as well as check calculations and for missed deductions.

The interesting thing is that while automation has drastically changed the job of the accountant, eliminating much of the word processing, manual calculations, and forms, the number of accountants has only increased. This is probably due to the fact that computers have allowed the government to come up with more complex requirements for financial statements, and Sarbanes requires myriad more processes to be fully documented. Meanwhile, the tax code has become infinitely more complex, with new laws and regulations coming in a flood.

It seems that Moore’s law, the increasing power of technology, has been trumped by the increasingly byzantine power of bureacracy and our elected officials to add complexity. I don’t have a name as catchy as “Moore’s Law” for this trend, however… but am open for ideas.

Cross posted at LITGM