And maybe we should make their rich families pay for the bullets

Posted by Marc Hodak on July 20, 2009 under Stupid laws | 3 Comments to Read

One of them is Jim Tedesco

One of them is Jim Tedesco

No one can top a New York state legislator in achieving that delicate balance of self righteousness, populist money grubbing, and raw chutzpah:

Rich New Yorkers convicted of crimes would be forced — if [Republican Assemblyman Jim Tedisco’s] bill becomes law — to pay the state and federal governments for how much it costs to keep them in jail.

This is one of those ideas that sounded good when Jim was sitting on the toilet one morning, reading the paper about some illegally thrown bar mitzvah in a downtown prison.  “Hmm.  The rich have the money.  Why do we taxpayers have to pay to house them in prison?”  Naturally, he called his brainstorm the “Madoff bill” because everyone’s heard of Madoff who, as far as the law knows, doesn’t have a cent left.

A sliding scale would determine how much convicts would have to pay, based on their assets, under Tedisco’s bill.  Those who are worth $200,000 or more would pay the entire tab, while those whose net worth is $40,000 or less would pay nothing.

Once he was done pushing that one out, certain things should have occurred to him:

–  When someone is tried and convicted, legal penalties are pronounced at sentencing.  You can’t extract extra penalties after sentencing.

–  A person can only be sentenced for the crimes they committed.  Since this proposed penalty would be based on the person’s assets not already attached under sentencing, which one would think would fully account for ill-gotten gains, then this idea amounts to a penalty for simply being “rich,” which last I checked wasn’t a punishable offense, even in New York.

Fortunately for the entertainment value of this proposal, Tedesco’s economic illiteracy is even greater than his legal illiteracy:

Convicts’ homes “or any equity found in it” would not be counted in determining their assets nor would their mortgage payments, tax bills or payments for child or spousal support, Tedisco said.

I love that “any equity found in it.”  So you don’t have to bother looking under sofa cushions and in backs of closets to make sure you don’t miss any of that equity.  And not counting mortgage payments, tax bills, or certain other payments as assets is a big help since they…uh, aren’t assets.

Of course, the thing I hate the most about this bill is the economics.

Read more of this article »

White House to appoint “pay czar”

Posted by Marc Hodak on June 7, 2009 under Executive compensation, Stupid laws | Be the First to Comment

Schematic of current TARP compensation rules

Model of current TARP compensation rules

According to our private sources:

The Obama administration plans to appoint a “Special Master for Compensation” to ensure that companies receiving federal bailout funds are abiding by executive-pay guidelines, according to people familiar with the matter.

They appear to be set to name Kenneth Feinberg, a lawyer, whose main qualification appears to be that he had the word “compensation” in his previous title.  His job will be to sort out the contradictory, illogical morass that Congress has created for TARP recipients.  Good luck Ken.

“Because your time and money are worth nothing to us”

Posted by Marc Hodak on May 26, 2009 under Revealed preference, Stupid laws | Be the First to Comment

New York State, in an obvious attempt to see just how much it can piss off its taxpayers, has sent an extraordinary notice to all its citizens.  It warns them that not only will their tax rates be raised in 2009, but they will have to recalculate their 2008 taxes now based on the new 2009 tax rates in order to comply with the new law.  I know you think you just misread that last statement, so read it again, and rest assured that it is correct.

Here’s how it works.  Most income taxes need to be paid each quarter on an estimated basis; the state doesn’t want to wait until the end of the tax year to collect its loot.  The typical rule for estimated taxes is the lower of either (a) 90% of your actual tax bill that you’ll eventually have to pay or (b) 100% of your last year’s actual tax bill.  For most filers whose incomes are flat or growing, the easiest thing to do is to look at your tax bill for last year and just pay that in equal installments over the current tax year.  Simple enough.

This year, New York is saying that if you wish to use the second option to pay estimated taxes, i.e., 100% of last year’s taxes paid, you need to recalculate the amount you would have owed last year based on this year’s higher tax rates.

That’s right, the lovely time you recently spent calculating your New York taxes, you need to go through that again now using the new tax rates so that the state can squeeze that last $100 from you without having to wait until next April.  We really are talking about chickensh*t sums, here.  For the 60% of people who hire accountants to do their taxes, the vast majority of them would ending paying more for this recalculation than they would owe in additional estimated payments.

Why would the state do such a crazy thing?  Because the state’s politicians are desperate for those incremental dollars, and they truly don’t care if what it costs you to pay them the lawful amount.

Most debates on tax policy center on the elasticity of supply, i.e., the degree to which an increase in taxes will reduce the willingness of the person being taxed to continue engaging in the taxed behavior.  For example, if raising the sales tax causes people to buy less such that the actual tax raised is minimal, and businesses will otherwise suffer from the reduced sales, most policy makers would say that’s not an efficient tax.  In New York State, we now have proof positive that if a business has to pay someone doing no productive work $10,000 in order to get the state an extra $8,000, the politicians feel they are ahead.  Such abuse of New York State taxpayers is why we are seeing more of this.

TARP compensation rules: Part deux

Posted by Marc Hodak on April 21, 2009 under Executive compensation, Self-promotion, Stupid laws | 2 Comments to Read

The second installment of my Lombard Street article here.  Sample:

The clearest evidence of popular envy being the root of these provisions is the clause requiring the board to review “luxury” expenditures—a kind of Optics Committee—for items like office decorations and corporate jets. Clearly, these expenditures are far more material to the press and public than they are to the shareholders. Does it really matter to the shareholders if the company’s most valued employees benefit from nice offices? Sure, there is a crude sense of entitlement that drives an executive to spend a lot on lavish appointments, but such appointments tend to be personalized, which arguably creates a retention benefit, especially in situations where bonuses are otherwise being suppressed. Corporate jets might be a frivolous expense, or they may be a cost effective way to provide efficient and secure transportation to busy executives. The ARRA law leaves it up to the board to make such determinations on behalf of the shareholders, but this is a canard; boards already make these determinations. The real purpose of this clause is use public sentiment to eliminate perks on no firmer grounds than the grade school “chewing gum rule”—if I can’t have some, nobody else can.

Congress passes extreme marriage penalty for bankers

Posted by Marc Hodak on March 19, 2009 under Stupid laws, Unintended consequences | 2 Comments to Read

There are so many unintended consequences that would pop out of the 90 percent tax on bail-out bankers that it could keep this blogger busy for days.  Unfortunately, I’ll probably be way too busy helping set up the management companies that will supplant every last employee at a major bank without “assistant” in their title.

One of the first drivers for this won’t be, as many suppose, the people making over $250K.  It will be people married to working spouses.  The $250K limit applies to household income.  So, if your husband or wife is a New York lawyer, your household income is $250,000 before Morgan has paid you your first dollar.  Everything above that is gone as soon as it hits your bank account.  You may, in fact, owe money on your earnings.

So, sorry honey, I don’t care how much the taxpayers need you to protect what little they have in that big ‘ole bank.  Our nanny now makes more than you do, so find another job, or stay home and watch the kids.

Congress prohibits pay-for-performance

Posted by Marc Hodak on February 16, 2009 under Executive compensation, Politics, Stupid laws | 2 Comments to Read

There are so many wonderful features of the executive compensation provisions of the new gigatera-spending law that I have to post them one at a time to avoid TLDR from my fans.  One of my favorites is the effective elimination of pay-for-performance as a viable basis for rewarding employees.

Actually, the law reads “…each TARP recipient shall be subject to…a prohibition on any compensation plan that would encourage manipulation of the reported earnings of such TARP recipient to enhance the compensation of any of its employees.”

Let’s see if we can get this straight; in golf, the score is the number of strokes one takes to get the ball in the cup.  Does compensating one based on this standard encourage cheating?  How could it not?  So, if golf were under TARP, the number of strokes would be forbidden from being used as a standard for rewarding any player.  Under TARP, film talent would be forbidden from getting compensation based on net profit (a.k.a. monkey points, a notoriously manipulable figure).  Under TARP, paying patients based on the care provided would be illegal.

I could go on, but the bottom line is that any bottom line serving as a basis for pay is a bottom line begging to be manipulated.  An incentive to perform is indistinguishable from an incentive to cheat.

The tightest interpretation of this rule would imply that a company can’t use GAAP earnings as a basis for pay-for-performance, which would be bad enough.  But any driver of GAAP earnings–revenue, cost control, inventory turns, etc.–could easily fall under the purview of this law.

So, TARP recipients be warned:  pay-for-performance is now illegal.

Congress creates strong incentives for bankers

Posted by Marc Hodak on February 15, 2009 under Executive compensation, Politics, Stupid laws | 5 Comments to Read

…to leave the TARP program as soon as possible.

And Obama is not a happy camper.  The bill that finally passed Congress yesterday included a couple of items that his advisors neither asked for nor wanted.  They would have been OK with the restrictions on “unnecessary and excessive risks.”  They were fine with the clawbacks and the elimination of golden parachutes.  They were happy about the limits on corporate jets and office redecoration, and the imposition of “Say on Pay.”  But the bonus limits caught them by surprise.

Basically, no officer can get a bonus that exceeds half of his or her salary, and that bonus can only be in the form of stock that doesn’t vest as long as the firm remains on TARP.  So, Vik Pandit, who has sworn to only take $1 in salary now has a bonus opportunity of 50 cents.  That will lend a whole new meaning to “fighting for that extra penny” at the end of each quarter.  The bill nominally imposes these limits on up to the top 20 “most highly-compensated employees” (on top of the five “senior officers”).

Now, here is where having a logic- and math-challenged Congress really begins to hurt. Read more of this article »

It should always be this easy

Posted by Marc Hodak on July 15, 2008 under Stupid laws | Read the First Comment

New South Wales quickly passed a law to limit protests against the Pope’s upcoming visit. Australia’s federal court just as quickly invalidated the law.

Legislatures feel bound to pass new laws. They don’t get rewarded for not passing laws. It’s especially easy when the target of those laws are unpopular groups. In Australia, a group of gays exercising their free speech rights regarding the the Church’s stance on homosexuality would qualify.

I often wonder about the necessity of an “anti-legislature,” a body devoted to eliminating unnecessary laws, to neutralize the worst effects of legislatures. It turns out that the most effective anti-legislature, if it ever awoke from its constitutional coma, would be a judiciary committed to upholding the principle of enumerated powers. This episode provides a lesson in how simple it would be to end this pointless deference to a legislature with a regulatory scheme. It takes this kind of smack-down to shame a legislature into controlling its unconstitutional impulses.