Death and Taxes

2016 was a tough year for hedge funds, their managers anyway. The combined income for the top 25 managers was a paltry $11 billion, the lowest since 2005. That’s just a little over half of the $21.2 billion they “earned” in 2014. Don’t feel too sorry for them, though. Most of their income is categorized as “carried interest” and taxed at a rate of 20%, compared to the 39.6% top tax rate for “earned” income. Your investment in a hedge fund is subject to the typical “two and twenty” fee structure. The fund manager annually takes two percent of your invested assets plus twenty percent “performance fee” on profits realized. (The performance fee is considered carried interest.) What if your assets lose money? Does the manager suffer 20% of the loss? Ha, ha, that was a joke.

While campaigning last year, our president said, “I have hedge fund guys that are making a lot of money that aren’t paying anything.” He said he would change the tax system to force those who work for hedge funds to pay more. “They’re paying nothing and it’s ridiculous. I want to save the middle class. The hedge fund guys didn’t build this country. These are guys that shift paper around and they get lucky.”

What little that has been revealed about the Republican “tax reform” includes a reduction of the tax rate to 15% for “pass-through” income. This is trumpeted as relief to small family businesses that are S corporations – meaning the business is not taxed. The income is passed through to the individual owners who are presumably taxed at a lower rate. Guess what – investment firms can be pass-through businesses also. If carried interest is taxed at the higher rate, who cares, because as pass-through income it will be taxed at even less than before.

The United States nominal tax on corporations is 35%, purportedly the highest in the industrialized world. The effective tax rate, because of endless incentives and breaks, is not so high, about 22% for profitable companies. Of the Fortune 500, nearly forty percent paid zero Federal tax in at least one year between 2008 and 2015. Some, including General Electric, International Paper, Priceline.com and PG&E, incurred a total federal income tax bill of less than zero over the entire eight-year period — meaning they received rebates.

Our president recently delivered a speech to an audience including hundreds of truckers – “hard-working men and women” who are “the lifeblood of the economy.” He touted a lower tax on manufacturers as a boon to truckers as it will increase growth and demand for trucking. He also wants to eliminate the estate tax, pejoratively called the “death tax” by Republicans. He claims this will allow truckers to pass their assets on to the next generation, allowing their businesses to stay in business. Republicans have previously said keeping family farms alive was the overriding reason to abolish estate taxes.

The first $5.49 million of your estate is exempt from estate tax; for a married couple, it’s $11 million. Tax experts calculate last year 80 farms were subject to any estate tax at all; for trucking companies, it was 30. Elimination of the estate tax is estimated to save the Trump family approximately a billion dollars. That assumes that The Donald does actually own anything.

As billionaire hotelier and husband of another New York real-estate magnate, Leona Helmsley, famously said, “We don’t pay taxes. Only the little people pay taxes.”

Me, the Naitos & the Big Float

Read about Portland’s Naito family and the changes in my home town in the October issue of the on-line literary magazine The Write Launch.

Bill & Sam Naito – 1928
The Big Float – 2017

Remembering Santa Rosa

I recently repatriated from northern California back to Portland. I spent the past twenty-plus years in Santa Rosa, the heart of Sonoma Wine Country. Residing there one becomes accustomed to ever-moving ground and resultant cracked walls and stuck and then unstuck doors. Once a diverse agricultural area, while I was there, Gravenstein apples, hops, prunes and other crops were replaced with vineyards. Nearly every bare patch of ground was planted with wine grapes. Santa Rosa was the setting for Alfred Hitchcock’s murder-suspense “Shadow of a Doubt.” The artist Christo brought notoriety to Sonoma County in the sixties with his “Running Fence.” Every spring, the Rose Parade, smaller scale than Portland’s Rose Festival, brings out thousands of spectators.

When I became a full-time resident, the city’s population was about 125,000; it was about 175,000 when I left last year. What the population is today is a guess; three thousand homes have been destroyed by fire, including the affluent

Fountain Grove Inn – before
Fountain Grove Inn – after

Fountain Grove neighborhood and the working class Coffey Park area. The Fountain Grove homeowners have the means to be okay sooner than the residents of Coffey Park, many of them renters. Businesses, Trader Joe’s, the Hilton Hotel, K-Mart and dozens more have been destroyed. Chateau St. Jean and Paradise Ridge Wineries are no more; other wineries suffered significant damage. The home of “Peanuts” creator, Charles Schulz burned to the ground. (His widow Jean had been evacuated.) The Charles M. Schulz Museum and adjacent Snoopy’s Ice Rink areunscathed so far. Celebrity chef Guy Fieri, whose Santa Rosa home still stands, recruited volunteers and suppliers for outdoor grilling near the fairgrounds to feed first responders and those who suddenly became homeless.

This is Santa Rosa’s worst disaster since 1906. The epicenter of the San Francisco Earthquake was a couple miles west of Santa Rosa. With about 7,000 residents at the time, Santa Rosa suffered, per capita, greater damage and loss of life than the big city fifty miles south.

Santa Rosa, in transition from small agricultural town to Wine Country destination during my time there, will survive and rebuild, but the scars and pain will last a long time.

Should Presidents Talk to Children?

After the 1988 presidential election and his two terms in office, Ronald Reagan spoke to the nation’s schoolchildren.

I would say that the most important thing you can do is to ground yourself in the ideas and values of the American Revolution. And that is a vision that goes beyond economics and politics. It’s also a moral vision, grounded in the reverence and faith of those who believed that with God’s help they could create a free and democratic nation. They designed a system of limited government that, in John Adams’ words, was suited only to a religious people such as ours.

Well, I don’t have very much of a quarrel with the very cheap weapon and so forth that makes it so easy for the wrong people to have a gun. I would like to see us concentrate on what I described in California: of making sure that anyone who buys a gun is a responsible citizen and not bent on crime.

Two decades later, in his first year as President, Barack Obama planned to address the nation’s student body at the beginning of the new school year. Immediately, controversy ensued. Parents were outraged that the Kenyan Muslim not be allowed to indoctrinate their offspring with his socialist doctrine.

Where you are right now doesn’t have to determine where you’ll end up. No one’s written your destiny for you. Here in America, you write your own destiny. You make your own future. We need every single one of you to develop your talents, skills and intellect so you can help solve our most difficult problems. If you don’t do that – if you quit on school – you’re not just quitting on yourself, you’re quitting on your country.

Our current president recently addressed Boy Scouts at their Jamboree.

You know, in the Boy Scouts you learn right from wrong, correct? You learn to contribute to your communities, to take pride in your nation, and to seek out opportunities to serve. You pledge to help other people at all times. In the Scout oath, you pledge on your honor to do your best and to do your duty to God and your country. And by the way, under the Trump administration you’ll be saying “Merry Christmas” again when you go shopping, believe me. Merry Christmas. They’ve been downplaying that little beautiful phrase. You’re going to be saying “Merry Christmas” again, folks. But the words “duty,” “country” and “God” are beautiful words. In other words, basically what you’re doing is you’re pledging to be a great American patriot. By the way, what do you think the chances are that this incredible massive crowd, record setting, is going to be shown on television tonight? One percent or zero? The fake media will say, “President Trump spoke” — you know what is – ‘President Trump spoke before a small crowd of Boy Scouts today.” That’s some — that is some crowd. Fake media. Fake news.
Thank you. And I’m honored by that. By the way, all of you people that can’t even see you, so thank you. I hope you can hear. Through scouting you also learned to believe in yourself — so important — to have confidence in your ability and to take responsibility for your own life. When you face down new challenges — and you will have plenty of them — develop talents you never thought possible, and lead your teammates through daring trials, you discover that you can handle anything. And you learn it by being a Scout. It’s great.

Afterwards, the Scout leader apologized for the president’s speech.

Urban Renewal and the Dreamland Ballroom

As in many cities of segregated America, Little Rock Arkansas had a thriving African-American community. The West 9th Street neighborhood on the eastern edge of downtown was filled with black-owned businesses and professional offices. The Dreamland Ballroom headlined acts such as Duke Ellington, Fats Waller, Etta James, Louis Jordan, Big Joe Turner et cetera. Urban renewal came to the neighborhood in the 1950s. It came with a vengeance after the integration of Central High School made news around the world.

Originally termed “slum clearance,” the more genteel label “urban renewal” saw the eviction of black families and their relocation to housing projects further east. The Little Rock Housing Authority (LRHA) had authority to purchase –requiring homeowners to sell at assessed price – and demolish swaths of “blighted” areas. The LRHA director went on record that, “the city of Little Rock through its various agencies including the housing authority systematically worked to continue segregation” through its slum clearance and public housing projects. The city built two new high schools: Horace Mann High in the mostly black eastern part of Little Rock, and Hall High in the white western edge. Construction in the 1960s of Interstates 630 and 430 solidified the de facto boundary between white and black Little Rock.

Fast forward to 1991. Kerry McCoy, founder and owner of Arkansas Flag and Banner, was looking for a new headquarters for her company. The Taborian Hall, built in 1918 by an African-American contractor for the Knights and Daughters of Tabor, had stood derelict on West 9th for decades; it even lacked a roof when McCoy purchased it. In addition to the lodge, the building in its  glory days housed the USO, the Gem Pharmacy, medical and dentist offices and the Dreamland Ballroom. The flag business has thrived and Kerry McCoy has steadily progressed with making the Dreamland a viable operation. (You can schedule your wedding reception there.)

While full-scale gentrification has yet to come to the West 9th district, the neighborhood’s changes and Dreamland’s resuscitation was the subject of a PBS documentary.

 

 

My Baby, the Long-Distance Runner (New York City Marathon Preview)

The route of the first New York City Marathon in 1970 was entirely inside Central Park. Of the 127 entrants, 55 finished. The lone woman entrant dropped out because of illness. The 2017 marathon route meanders through all five boroughs. More than 50,000 runners will finish the course.

This year will be special: my daughter, Maureen McGovern, will be running. Moe has finished sixteen previous marathons. This is her first time in the New York City Marathon. She is running to raise money for the Michael J. Fox Foundation for Parkinson’s Research.

Read her (and partly my) story here.