Mitch Townsend

Obituary – David Bradford

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David Bradford was an advocate of tax simplification and flattened rates, and the author of “Untangling the Income Tax” (Harvard University Press, 1986). His first preference was for a straight consumption tax (VAT or sales tax). Another interesting proposal was a tax only earned income, leaving returns on capital untaxed. The reasoning behind this was that

  • earnings are roughly equivalent to consumption, given a low rate of savings;
  • such a tax could be made politically palatable by allowing some different tax rates;
  • it would eliminate the “tax arbitrage” of the mortgage interest exemption (high-bracket taxpayers pay deductible mortgage interest, some of which is in turn paid to low-bracket taxpayers as taxable income on passbook savings), and
  • it would be easier to administer and harder to evade than a VAT.

Dr. Bradford served in the Ford and Bush 41 administrations. His analysis of the income tax law in effect in the 1970’s led to the extraordinary bracket-flattening of the Tax Reform Act of 1986 during the Reagan administration. Another obituary here.

Update: Plus ça change, plus c’est la même chose.

Sarbanes-Oxley Yet Again

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The threat of an adverse opinion on a public company’s internal controls was not an idle one. According to Compliance Week, nearly 10% of the 10-K (annual report to the SEC) filings in January included an adverse opinion because of material weaknesses in their internal controls. There may be more coming, since companies with a December year-end have until March 16 to file.

I noticed a pattern to the adverse opinions: they are nearly coterminous with companies having restated their earnings for earlier quarters. This begins to make sense: if a company’s internal controls were well-designed and operating as intended, no restatement would have been necessary. Earnings restatements and accounting problems are often punished more severely than earnings or performance disappointments, and are easy targets for class-action lawsuits. When more data is available, it will be an interesting exercise to separate the effect on share prices of the adverse opinion from that of the restatement. Maybe someone with better math skills will attempt it.

Here is a partial list of companies that have had an adverse Sarbanes-Oxley opinion, but a clean opinion on their financial statements, from their auditors:

BearingPoint Inc. (ticker: BE; formerly KPMG Consulting)
Auditor: PricewaterhouseCoopers
Material weakness: Revenue recognition (preliminary only; filing due March 16,2005)

Calpine Corporation (ticker: CPN)
Auditor:PricewaterhouseCoopers
Material weakness: Provision for income taxes.

Eastman Kodak Company (ticker: EK)
Auditor: PricewaterhouseCoopers
Material weakness: Provision for income taxes.

Flowserve Corp. (ticker: FLS)
Auditor: KPMG
Material weakness: Provision for income taxes, intercompany accounts, consolidation, others.

Netbank Inc. (ticker: NTBK)
Auditor: Ernst & Young
Material weakness: Estimated fair market value for rate locks and hedges.

Sapient Corporation (ticker: SAPE)
Auditor: PricewaterhouseCoopers
Material weakness: Controls over health insurance accruals and lease accounting.

SunTrust Banks, Inc. (ticker: STI)
Auditor: PricewaterhouseCoopers
Material weakness: Internal controls at a recently-acquired subsidiary; loss provision errors.

I also checked MCI, formerly WorldCom, since it was one of the companies whose accounting problems led to the adoption of Sarbanes-Oxley, and since it may hold the world record for earnings restatements in prior years. MCI is getting a clean opinion. An interesting pattern, don’t you think?

Even-Handed Nonsense

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Cathy Young frustrates me. She can bang out an opinion piece that usefully frames moral and political issues, so that even those who disagree have to incorporate bits of her arguments to support their own. Her current column in Reason, for example, is worthwhile reading. It points out how neither the left nor the right has been able to resist enacting its moral programs as law, and neither is content to leave peaceable citizens alone.

She also wrote an infuriatingly wrong-headed column about The Politically Incorrect Guide to American History and its alleged support in conservative circles – “gushing praise,” no less, drawing a comparison with the Ward Churchill affair. The book itself, which I do not intend to read, seems to be mostly well-known paleo-conservative stuff. The controversial part is the author’s advocacy of the Southern cause in the Civil War, including that it was not fought primarily to abolish slavery (this is news?). His assertion that the defeat of the South was a tragedy for American liberty was once the received wisdom in some parts of the country, but has been renounced by mainstream conservatives for some forty years or more.

The only source she cites for this “gushing praise” is Hannity and Colmes. The transcript is here on Lew Rockwell’s blog (Rockwell seems to approve). Read it and judge for yourself. The author, Thomas E. Woods, Jr., let loose some stinkers without Sean Hannity calling for ventilation, but that’s hardly “gushing praise.” Even Alan Colmes went after Woods for his denial that the New Deal rescued the American economy, and his assertion that it was wartime spending that ended the Depression (again, not news). The book is a featured selection of the Conservative Book Club, but the member reviews there can be scored as one gushing, two flushing.

So what do authentic conservative and libertarian voices say about this man and his book? Hmm, Obsidian Wings has nothing nice to say, and says it well. Instapundit files Woods under “i” for Idiotarian. The Claremont Institute gives the book no praise. In the Weekly Standard, Max Boot applies the eponymous footwear where it does the most good.

Far from repeating the Ward Churchill nonsense with the sides reversed, we wingnuts look pretty good in comparison. Remember Trent Lott? This is not a bug, it’s a feature.

Link Rot

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Link rot is the tendency of all hyperlinks to eventually go bad. Sometimes the site moves (usually when Blogspot gets to be too much), sometimes the article goes into archives, and sometimes the site just vanishes. This seems to be the case with the Gweilo Diaries, in which a lawyer known only as Conrad detailed his misbehavior in the Far East, mainly in Hong Kong, mixed in with reliably irreverent commentary. Every Friday, he featured a cheesecake of an Asian actress. The site appears to have been taken down, and now the URL registration has lapsed. He has even closed the Hotmail account for the site. My guess is that his employer found out and made him shut down.

This is after Steven den Beste stopped opining. Sigh. A lot of the time, the stuff you read on weblogs is the same stuff that, rendered audible, leads you to finish your coffee quickly and flee the donut shop. These sites didn’t fall into that category.

And now this. The Belgravia Dispatch, by Gregory Djerejian, is giving me a teal screen of death:

You are seeing this page because there is nothing configured for the site you have requested. If you think you are seeing this page in error, please contact the site administrator or datacenter responsible for this site.

Guys, come on. Don’t make me go back to the real world.