Archive for September, 2010

What we say, not as we do.

You have to hand it to Karla, she really knows her stuff.  Here she uncovers another outrage.   Please enjoy this guest post. 

We all have our suspicions about Washington and its population of opportunistic politicos.  Most of us believe that they believe they are some kind of special person, somehow above average working Americans.

Thanks to some diligent digging by the Washington Post, those suspicions have turned to reality. It turns out we have been absolutely correct all along. We now know that federal employees across the nation owe fully $1 billion in back taxes to the Internal Revenue Service.

All this political blather about giving middle-class Americans a tax cut is a mere smokescreen. Thousands of feds have been giving themselves a huge tax break all along — unofficially. And these tax scofflaws include more than three dozen people who actually work directly for the president. The amount unpaid has escalated 37% in the last 19 months since the new administration took office.  

The Post did some research and found that out of the total sum, a mere 638 workers on Capitol Hill owe the IRS $9.3 million in back taxes. As in, overdue. The IRS gets stiffed by the legislative body that controls its budget. How Washington works.

Now, back taxes have been a continuing problem for the current administration. You may recall early on that Tom Daschle was the president’s top pick to run the Health and Human Services Department. But it turned out the former Democratic senator, who was un-elected from South Dakota in 2004, owed something like $120,000 to the IRS for things from his subsequent benefactor that he just forgot to pay taxes on. He considered it a minor thing, but he was pressured to drop out.

And then we learned Timothy Geithner owed something like $42,000 in back taxes and penalties over a five year period to the IRS, which is one of the agencies that he’d be in charge of as secretary of the Treasury. In the end this was excused by Washington as one of those inadvertent accidental oversights.  What would happen to you if you tried that excuse?

And under Geithner’s expert guidance the U.S. economy has been, well…wow! Just look at it.

Privacy laws prevent release of individual tax delinquents’ names. But we do know that as of the end of 2009, 41 people inside the White House currently owe the government they’re allegedly running a total of $831,055 in back taxes.

In the House of Representatives, 421 people owe a total $6,524,892. In the Senate, 217 owe $2,774,836. In the IRS’ parent department, Treasury, 1,204 owe $7,670,814. At the Labor Department, where Secretary Hilda Solis’ husband had some back-tax problems before her confirmation, 463 owe $7,481,463. Eighty-one workers for the Federal Reserve System’s board of governors owe $1,076,733.

Over at the Justice Department, which is busy enforcing other laws and suing Arizona, 1,971 employees still owe $14,350,152 in overdue taxes.

Then, we come to the Department of Homeland Security, which is run by Janet Napolitano, the former governor of Arizona who prefers to call terrorist acts “man-caused disasters.” Within that department, there reside 4,856 people who owe the tax agency a whopping total of $37,012,174.

Bottom line: They run up debt both internally with their people and externally with our rapidly rising taxes. Traditionally and sadly, they often get away with it. You and I cannot.

Just another reason why you need a Strategic Tax Plan…Now!

To Your Success…

Karla Dennis

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Good Evening

Ask the experienced person rather than the learned one – Ancient Proverb 

Out of the swirling mist he appears, his eyes blazing with confidence.  The heroine is transfixed as she stares at him through the glass window pane.  Her ample chest beginning to heave with excitement as she reaches for the window latch to allow the Prince of Darkness to make his entrance.  

Striding through the full length glass, his cape flowing behind him, he quickly hooks his arm behind the head of the stunning woman and draws her near.  

“Good evening”, he delivers his signature line in the thick Transylvanian accent.  

There is nothing like watching a good vampire movie in the middle of the night.  Sleep being a privilege in our household, I once again found myself on the couch in the early morning hours in front of the TV. 

As I continued to watch the second rate vampire movie my mind began to wander. 

“Why do vampires not like garlic?” 

“Why does the girl always open the window for him? 

“Why does the vampire always outsmart everyone?” 

The last thought stayed with me for awhile as a cool breeze blew in from the window I had just opened.  Perhaps the vampire was a smart man during his days amongst “the living?”  Maybe he was university professor?  A scientist? 

As the heroes burst into the room to confront the vampire, the answer came to me.  

The vampire has been around for a long time.  

Being a member of the undead has its advantages.  The vampire is able to outsmart everyone because he carries the wisdom of generations with him.  Being “alive” for 500 years or more allows him to accumulate several lifetimes of experiences which he uses to his distinct advantage.  

“Imagine if I knew what I knew now when I was young”, I thought.  Oh man! The things I would have convinced my brothers to do, the arguments I would have given my parents and …..ah yes …..the lines I would have given the girls in college! 

Alas, it’s like the old saying goes, “We are blessed with both youth and wisdom in our lives; but never at the same time.” 

Of course it’s one thing not to possess the wisdom of generations in your head but quite another to deny that such generational wisdom exists.  

There are some things I hear from many intelligent and educated people when discussing our current business and economic climate that betray their short historical perspective.  For example: 

“That will never happen” 

“We have conquered the business cycle!” 

“We are so much more advanced than people back in those days” 

For many of these people, common historical events such as sovereign defaults of debt, collapses of fiat currencies and small conflicts that explode into broader wars are dusty events consigned to the back of old history books.  

“So Bechara, if these things really happen then how come I have never seen them in my lifetime?” snickers the crowd from the peanut gallery.  

Well, its because history, especially economic history, plays out in such long cycles that to see events repeat themselves you have to either be alive for a very long time (Dracula would have made a great investment banker) or you have to study history carefully and without prejudice.  

For example interest rate cycles and secular market trends tend to last about 25 years.  In other words, today’s 25 year olds have only known low interest rates during their entire life.  For many of them this translates into the belief that interest rates have always been low and will always be low. 

A suggestion that interest rates might rise dramatically is met with a, “That would never happen” type response.  The perceptive few, who study a little history, would only have to go back to the 1970s to see that interest rates can (and eventually do) move much higher.  

We now see how valuable it is to be say..500 years old, as you would have witnessed approximately 20 of these 25 year cycles.   

The lack of historical wisdom is not confined to 25 year olds; however, as even 50 year olds can easily fall into this trap.  For a 50 year old has only witnessed 2, of these 25 year cycles in their lifetime.  

For an example of historical events that happen over more than one cycle consider the following.  

The city of Rome at its height had a population of approximately 1 million.  After the fall of the empire in 476 AD, the city contracted to such a degree that the population hovered around 15,000 for hundreds of years afterwards and cows were grazing outside the Coliseum until the late 1800s! 

That would never happen…right? 

How now brown cow ….as they say…take a look at this little factoid from the Washington Times:

Detroit Going Back To Farmland

DETROIT | Detroit, the very symbol of American industrial might for most of the 20th century, is drawing up a radical renewal plan that calls for turning large swaths of this now-blighted, rusted-out city back into the fields and farmland that existed before the automobile. 

Will cows soon be grazing outside Tiger stadium? 

As the vampire story continued its predictable plot on the screen, I reflected on how difficult (or impossible) it is to transfer wisdom amongst generations.  We can teach facts to children, but it is extraordinarily difficult to teach someone how to take facts, intuition, knowledge of human nature and blend them together to create the thing we call wisdom.   

In my own life I can confess that the things my father repetitively told me in my teens did not make much sense to me then.  In my early adulthood, I began to understand exactly what the old man was talking about and precisely what he meant.   

We can teach children that 2+2=4 but we can’t teach them wisdom.  They have to learn it for themselves.  Some learn rapidly, some slowly and some never learn at all.  

Have a great week, 

Michael Bechara, CPA

Managing Director

Granite Consulting Group Inc.

mbechara@consultgranite.com

www.consultgranite.com

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Fairy Tales and Dirty Laundry

We got the bubbleheaded bleach-blonde, comes on at 5.  She can tell you about the plane crash with a gleam in her eye.  It’s interesting when people die, give us dirty laundry – Lyrics to “Dirty Laundry” by Don Henley 

Amongst authors of children’s stories, no one can compare to the Brothers Grimm.  These two 18th century German brothers are responsible for writing some of the most cherished fairly tales that we still recant to our children today.  

I’m talking about “Rumpelstiltskin“, “Snow White“, “Rapunzel“, “Cinderella“, “Hansel and Gretel“, “Little Red Riding Hood“, and  other classics.  Often when reading these tales to my children, they ask me if it’s possible for a fox to eat a little girl or if there really are bad people that take children away from their parents.  

I have always answered the questions honestly, but have always reassured them that these spectacular events are unlikely to occur.  “The greater danger comes from everyday activities”, I explain.  “You are more likely to get hurt riding your bike in the street or playing with Dad’s tools”, I usually stress while focusing on my son.   

In all honestly, I actually can’t blame kids for being obsessed with these fantastic but unlikely dangers.  When it comes to our fears, we definitely have a penchant for the spectacular here in America.  As the quote above from Don Henley suggests, we like our dirty laundry.  

Our teen horror movies are full of slashers wearing hockey masks and pumpkin heads who chase pretty teenagers with long knives or aliens invading the Earth and subjugating the population.  Adults trade stories of freak accidents and predictably rubberneck on the highways while staring at car wrecks.  

Perhaps even as adults we fear the gruesome and extraordinary dangers that are more likely to happen in a fairly tale than in our daily lives.  We also dismiss everyday activities as harmless when they present real dangers that have a much great change of occurring.  

Our national assessment of dangers is no exception to this bias.  

Dominating our headlines are incessant stories of underwear bombers, the latest “killer flu”, and pirates off the coast of Somalia.  

“So, Bechara are you saying these things are not dangerous”, sneers the peanut gallery.  

My friends, one of the key realities of this life is that no activity is completely danger free.  Just being alive carries its own risks.  An understanding of this concept is one of the key prerequisites to being an adult.   

The correct question is, “What is the biggest danger to our national existence” 

Is it terrorism?  Another world war?  A Bee Gees revival band? 

These “threats” are akin to the spectacular, but unlikely, dangers presented by the Grimm Brothers.  As much national attention as these themes receive, they simply pale in comparison to the more mundane, but infinitely more dangerous, threats to our national survival.  

A rational assessment of dangers paints a very different picture of what to worry about.  Admiral Mike Mullen, Chairman of the Joint Chiefs of Staff and the top military officer in the land, recently made such a rational risk assessment.  So what was the top threat to the United States in Admiral Mullen’s mind? 

China, Russia, North Korea…how about Iran? 

Nope. 

The national debt is the single biggest threat to national security, according to Adm. Mike Mullen, chairman of the Joint Chiefs of Staff.

 Admiral Mullen has hit the nail on the head; the massive debt that hangs over every citizen’s head threatens to not only to devour ever larger slices of GDP but also threatens to bring down our entire economy and way of life.     

The issue of national debt is admittedly not a “sexy” one and therefore does not receive the attention it deserves for the reasons mentioned above.  Sadly, this mischaracterization of risk is not confined to national politics.  

In our work we very often see companies undergoing disaster recovery exercises or performing risk assessments.  The typical question asked during these exercises is, “What could bring down the company.”  

The usual responses focus on …… you guessed it…the spectacular and once in a lifetime ( or more) events rather than the more boring, but infinitely more deadly, risks.  

For example, in many companies much fanfare is created by discussing a massive hurricane or power outage but little attention is paid to the concentration of the company’s business with one or a few customers.  

Which is a more clear and present danger and which will have an impact that is not mitigated either by insurance or other circumstances? 

Well having made our point we are left to ponder our national debt.  I suppose the issue is similar to the fairy tales we described earlier.  Sooner or later we are about to learn a lesson.  At some point we will arrive at the moral of the story.    

It is interesting to note that the original Grimm Brothers fairly tales have been watered down over the years.  In the originals, more often than not, the ending was decidedly unhappy. 

Have a great weekend, 

Michael Bechara, CPA

Managing Director

Granite Consulting Group Inc.

mbechara@consultgranite.com

www.consultgranite.com

 

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