Imogen Heap

I was listening to Imogen Heap's song, "Hide and Seek," this morning.

The best part starts at the 2:58 mark. (And yes, I know about the SNL skit.) I've never heard of Imogen Heap before. Her song , "Let Go," is also very good.

Jamba Juice Coupon (good through 8/9/09)

FYI:

http://www.summerblissisback.com/eb7/sbbg7.html

Buy one, get one free at Jamba Juice. Good through August 9, 2009.

California's Pension Problem

The next time a California government worker starts talking about furlough days and pay cuts, remind them about their pensions and lifetime medical benefits. Or, just give them a link to this Judy Lin 7/31/09 article:

http://news.yahoo.com/s/ap/us_california_budget_pensions

California has at least $63 billion in unfunded pension liabilities, an amount equal to roughly two-thirds of all annual general fund spending...

Government workers and their union representatives often say the more generous pensions offset lower pay.

But the latest U.S. Census survey, from 2007, shows the average annual salary of California state government employees was $53,958, compared with $40,991 for the average private-sector worker.

"The pension benefits for public employees in California are extravagant and they are going to bankrupt cities and counties, along with the state," said Keith Richman, a former state assemblyman who said he plans to launch an initiative campaign to change state employee pension benefits.

I predicted California's pension problem back in December 2007:

Someone must pay for all of these employees and their pensions, sabbaticals, and health care. Teachers’ unions usually ask for more money, but the California State Teachers Retirement System is already worth around $125 billion. It has around 750,000 members and is the third largest public retirement fund in the country. Yet, after health care, education reform remains crucial, and the CTA continues to ask for more money.

As a result of government salaries and benefits spiraling out of control, California’s bond ratings have gone from AAA to single A and are approaching status that is slightly above junk (see http://www.treasurer.ca.gov/ratings/current.asp). The high salaries and unusual benefits of local government workers are just one small part of major fiscal problems that will not get better on their own.

Regarding the state's bond ratings, my prediction recently came true: "Moody's Investors Service downgraded California's general-obligation bond rating to Baa1 from A2, a drop of two notches and only slightly above junk status." (See Sacramento Bee, Capitol Alert, July 14, 2009)

It's nice to see the mainstream media finally discussing public sector benefits--even if it is over a year late. Having $63 billion in unfunded pension liabilities is shockingly irresponsible. No wonder California can't balance a budget.

Update: the SJ Mercury points out that public sector pensions are based on unrealistic actuarial projections. See here:

The current level of benefits is built on an assumption of an 8.25 percent annual gain on investments after expenses for Federated, and 8 percent for safety workers. These unrealistically high assumptions leave taxpayers solely on the hook when returns come up short, as they have — drastically — the past two years...

City Council members are reluctant to confront unions on bread-and-butter issues and, with term limits, have little incentive to tackle long-term problems. But if nobody faces up to this, a taxpayer revolt is inevitable. And waiting will only make things worse.

Behind the Numbers: Top 1% Paid 40% of Total Income Taxes

Professor Greg Mankiw points out that the the top 1% of taxpayers paid 40.4% of the total income taxes collected by the federal government. See here.

I don't think we should have a "free lunch" system where millions of Americans have no financial stake in their government. At the same time, with sales taxes increasing, it's hard to argue the middle class and poor are getting a "free lunch."

It would be more fair to see what percentage of all taxes--state, local, and federal--are paid by the top 10% rather than just income taxes. According to the WSJ, the top 1% of earners pay 26% of all federal taxes. See here. Given the income and wealth disparity in this country, the 26% figure does not shock my conscience--in fact, it seems more on the low than the high side. (Update: the income tax is less than half of federal taxes and only one-fifth of taxes at all levels of government.)

Mankiw's cited statistics show that our income taxation system is inefficient and non-diversified. Any entity that relies on such a small percentage of its "customer" base for 40% of its "profits" will soon have problems. Rather than feel sorry for the super-rich, we should realize that income taxes are volatile and inconsistent sources of revenue. By relying on such a volatile source of revenue, the government isn't doing us any favors.

Mankiw's post implicitly contends that the rich have never had it worse--their 40% contribution is "the highest percentage in modern history," he says. This increased burden could mean two things: one, the rich are getting bilked; and/or two, the recession has hit the middle class and poor harder than the rich, so they are getting smaller slices of the income pie and paying less taxes as a result of receiving less income. I'm going with Door #2. I am disappointed that Professor Mankiw--normally a very thorough writer--cited the Tax Foundation's statistics without properly explaining the numbers.

Overall, we should figure out how to get more paying stakeholders into the system so we diversify revenue sources and rely on more recession-resistant revenue streams.

Update: Professor Mankiw points out that "the [tax] data predate the recession." Although the recession is not factored into the tax data, the disparity in tax burden between the rich and others may still be a result of a declining middle class.

Linkfest

Some interesting links:

http://www.feer.com/tales/

http://blogs.findlaw.com/courtside/

http://www.law.ucla.edu/volokh/harass/BREADTH.HTM

Michael Lewis on Goldman Sachs

Reason #48756 why Michael Lewis is the best financial journalist working today:

http://bloomberg.com/apps/news?pid=20601039&sid=a2X3hNaWcbeg

Every time we hear the phrase “the United States of Goldman Sachs” we shake our heads in wonder. Every ninth-grader knows that the U.S. government consists of three branches. Goldman owns just one of these outright; the second we simply rent, and the third we have no interest in at all. (Note there isn’t a single former Goldman employee on the Supreme Court.)

Devastatingly funny, isn't it?

Lawyers Making a Difference: Jon Eisenberg

Here is an awesome interview (Super Lawyers, August 2009) with attorney Jon Eisenberg, who has litigated several fascinating cases against the government:

During the Al-Haramain case you wrote a response to a government brief that you were not allowed to see. How does one go about doing that?

It was quite a challenge. It wasn't just that we had to speculate as to what might be in the secret DOJ brief; the conditions under which we wrote our secret response were onerous, approaching the bizarre: We were required to write the brief under guard in the U.S. Attorney's office in San Francisco; we were forbidden from preparing any notes for the brief-writing session; the DOJ retained sole possession of the brief we produced; and the DOJ has refused to allow us to review the brief since we wrote it. Litigation doesn't get any weirder than that.

Unbelievable stuff. Sounds like something out of a Soviet novel, doesn't it?

Mr. Eisenberg mentions one of his favorite authors, Jerzy Kosinski. Mr. Kosinksi's book, Being There, was adapted into a very good film by the same name. I had seen the film but was unaware of Mr. Kosinski's connection to it. If you haven't seen the film Being There, I highly recommend it. Peter Sellers plays the main character in the film.