Good Riddance
The mainstream media are finally taking note that someone (or someones) in the Bush White House tried to expose a CIA operative solely because her husband had the temerity to expose the administration's falsehoods about Iraq and the uranium it supposedly sought from Niger. Josh Marshall and Atrios, among others, have pursued this doggedly and well.
In working democracies, this is the sort of action that topples a government. If Bush or Cheney knew about this, then it meets the definition of High Crimes and Misdemeanors.
Also, if recent reports are correct, at least five journalists received the leak besides Robert Novak, who used it. I hope that those reports are false: otherwise, we have at least five journalists who don't care a wht about foul play.
Terminator 1040
Some six weeks ago, Arnold Schwarzenegger's gubernatorial campaign allowed reporters to examine, but neither take nor copy, his individual tax returns for 2000 and 2001. Lo, there then appeared a multitude of articles about his income and charitable donations, but not much else.
Fortunately, Lee Shepherd has an in-depth article in a recent Tax Notes on the subject. (Tax Notes is available only by expensive subscription, but anyone can sign up for a 15-day free trial.) Shepherd unearthed quite a bit of how Schwarzenegger organizes his finances:
Reporters were not permitted to copy or remove documents. The Wall Street Journal got its own separate viewing. Tax Notes, which was not invited to any viewing, had requests to view the returns refused. So we have to rely on articles published in the newspapers that viewed the returns. Schwarzenegger has not filed his 2002 return yet, and he has promised to show it when he does. His campaign stopped returning our phone calls.
The newspaper articles were not the caliber of article that we would like to write, not because the reporters weren't trying, but also because Schwarzenegger's individual Form 1040 tells only half the story. Like other prominent movie actors, he works through a loan-out corporation, Oak Productions, which receives all of his income from acting and movie residuals. Our request to view the other pertinent returns, the corporate returns of Oak Productions, was also refused.
Most of the press made no mention of Oak Productions, or of Legend International Airways, another corporation owned entirely by Schwarzenegger. But an exception was an article in the San Francisco Chronicle last month that featured some analysis by San Francisco accountant Sandy Murray.
In public records, Schwarzenegger has said he is "sole member" of [Legend], which according to the Singapore Business Times paid $133 million in 1997 to buy a Boeing 747 jumbo jet from Singapore Airlines and then leased the plane back for an undisclosed amount.
Schwarzenegger is "taking a bath every year" on the venture, said Murray: $2 million in losses in 2001, $8 million in carry-over losses from the years before that. Without a look at Legend's tax returns, Murray said, it wasn't possible to know whether the losses are for tax purposes—to be recouped by gains when Schwarzenegger finally sells the aircraft—or whether it is just a bad investment.
The myth of Arnold the Business Genius
Usually, the term "offshore lease" piques my interest, because it often means that a taxable American entity has conspired to shift income to a foreign tax-exempt entity and claim losses for itself. But Legend doesn't have any income to use the depreciation losses from the aircraft lease: it is carrying unused losses forward. Schwarzenegger may have thought that leasing an airplane was a great tax shelter. Indeed, corporations are the usual providers of this sort of leases: they take depreciation deductions on aircraft and other things when the companies that (normally) would have bought them lack the taxable income to make use of them. Schwarzenegger miscalculated somewhere. Either he thought that the airplane lease was somehow going to make him tons of actual cash, or he thought that leasing meant significant tax advantages. He was dead wrong either way.
The Myth of Arnold the Straight Dealer
Shepherd notes that Schwarzenegger doesn't get hired to do films like "Terminator 3." Instead, his "loan-out" corporation, Oak Productions, gets hired. Shepherd speculates that the incentive to use Oak Productions is that Schwarzenegger can deduct more expenses through Oak Productions than he could without the company. Normally, medical or job-related expenses are subject to thresholds that increase with one income and are subject to phase-outs that start well below Schwarzenegger's annual income. The Internal Revenue Service has been slow to crack down on loan-out corporations, and Congress hasn't been much help, either. However, the very training materials that the IRS publishes for its auditors on the entertainment industry single out loan-out corporations for special opprobrium:
Personal Service ("Loan Out") Corporations (PSC)—There has been a growing trend among entertainers and others in the industry in recent years toward unjustified use of the corporate device to obtain the benefits of deductions and shelters that would otherwise not be available.
Background—There is a large body of case law on this subject, motivated by evolving tax principles over the years. Borge v. Commissioner, 405 F. 2d 673 (2d Cir. 1963) cert denied 395 U.S. 933 (1969); Keller v. United States, 723 F. 2d 58 (10th Cir. 1983); Foglesong v. United States, 691 F. 2d 848 (7th Cir. 1982).
Current applicable law—At the present time, some of the controlling law toconsider in this area may be found in the following authorities.
1. IRC section 482—This statute authorizes the Government to re-allocate gross income in order to clearly reflect income among commonly-controlled taxpayers.
2. IRC section 269A —If a PSC was formed principally to avoid or evade tax, and if the corporation performed services for only one other entity, the IRS is authorized to reallocate income to the artist/shareholder.
3. Rev. Rul. 74-330, 1974-2 C.B. 278, Rev. Rul. 74-331, 1974-2 C.B. 281—The "lend-a-star" rulings deal with off shore personal service corporations owned by non-U.S. performers.
4. Common law factors—The employee versus independent contractor factual analysis is appropriate for personal service corporations in order to determine whether the performer was an employee of his or her corporation or of the producer directly.
5. Sargent v. Commissioner, 929 F. 2d 1252 (8th Cir. 1991); Nonacq., A.O.D., CC-1991-022 (October 22, 1991) —The Tax Court had held (93 T.C. 572 (1989)) that the hockey teams had paid the players directly and the players' PSCs thus should be ignored, based on assignment of income doctrine and IRC section 482. The eighth circuit reversed, holding the players were employees of their PSCs. IRS has announced non-acquiescence in the appellate decision; we will follow the Tax Court (outside the eighth circuit).
6. Statutory requirements—Where the performer has a PSC, the producer must file a Form 1099 for compensation paid to the PSC for the performer's services; the PSC must comply with all withholding, reporting, and payment rules with respect to the wages it pays the performer.
The case law on this issue has often, but not always, favored the taxpayers. Shepherd notes, correctly, that entities like Oak Productions illustrate the problem of the tax shelters employed by the most affluent taxpayers. When judges pay heed to the corporations and not to the actual income changing hands, they do the public no favors. "If he can do it, why can't I? If doctors can do it, why can't athletes? This is a slippery slope that undue judicial respect for piles of paper sitting in business managers' desk drawers has sent the law down." Indeed.
Quem di diligunt adolescens moritur
Despair comes easy when Strom Thurmond lives to see his hundreth birthday, but Edward Said and Hugo Young die in the prime of their lives. Young was a brilliant, humane columnist for the Sunday Times and then The Guardian. Said was truly a Renaissance man, a gifted musician and a sharp political critic and a brilliant scholar. Good obituaries for Young appeared in the pages of the New York Times, and most of the British papers, including of course his latest paper, The Guardian. The New York Times was far less kind to Said, even though he worked in New York City at Columbia for many years. I found better obituaries in the Washington Post, in Ha'aretz, in the Boston Globe, and in the Sydney Morning Herald. (Said was long an advocate for a one-state solution for Palestine and Israel. In Jersualem, that makes you a secular soul, probably a leftist one. In New York, that makes you anathema. Go figure.)
Another Glimpse at Our Liberal Media
Any American leftist knows that any plausible Democratic presidential nominee is bound to be both a relief and a disappointment. On one hand, even the most conservative Democrats nowadays have to take progressive stances on a host of issues, from the environment to labor rules to tax policy. On the other hand, even the most liberal Democrats will side with big and small business on anothe rhost of issues, from the environment tp labor rules to tax policy. As Doug Henwood keeps pointing out, the reason for leftist to vote Democratic is that once the Democrats win, their inherent flaws make more obvious the need for real and metaphorical revolution.
Wesley Clark has, like all of the competitors for the nomination, some real strengths and some real weaknesses. In a good world, never mind an ideal one, the mass media would try to illuminate both, so that citizens could be better informed. In the world we have, the mass media have a narrow and cynical sense of what their role should be. In his "Editor's Desk" column in the current Newsweek, Mark Whitaker shows, perhaps unwittingly, just how narrow and cynical his colleagues can be. Here, he has just come from a reception for Wesley Clark at which Clark spoke smartly about the weaknesses of the current administration and the strengths of some administrations of yore.
From there, I went to dinner with a veteran Newsweek correspondent who covered Clark when he was commander of NATO. When I asked what he thought of the general, my colleague made an "L" with his thumb and forefinger. "Loser!" he said. Sure, Clark was very smart, he conceded, but he was also brittle and egotistical. He just couldn't compete with what our man thinks is George W. Bush's greatest political strength: the impression he gives of being a "regular guy" you can trust.
One would hope that even a Newsweek correspondent would realize that the election next year is not one for high school class president. The cool kids in the media are treating serious candidates like quixotic members of the math team or the audio-visual club who thought that running for office with good ideas and good policies would benefit the school. In high school, it's not irreparable if someone loses because he or she can't offer an "impression" of "being a regular guy" to sway the vote. In a presidential election, the country loses when image trumps substance.
(Edited slightly for grammar and clarity on 24 September.)
Just Say Yes!
A wise man once wrote that "[r]eligion is the sigh of the oppressed creature, the heart of a heartless world, and the soul of soulless conditions. It is the opium of the people."
It is therefore somewhat disheartening to find that our head of state calls for more opium:
[B]oth Houses should reach agreement on the faith-based initiative, to support the armies of compassion that are mentoring our children and caring for the homeless and offering hope for the addicted. It's in our churches and synagogues and mosques. It's where we find Hindus and Jews and Christians and Muslims that we find decency and compassion.
Where is Nancy Reagan when America really needs her?
Pox Romana
Silvio Berlusconi just doesn't know when to quit. A few days ago, we noted that Berlusconi went out of his way to praise Benito Mussolini and to deem his dictatorship to be a benign one.
Peter Popham reports in today's Independent that Burlusconi has a perfectly inane explanation for what he said.
The Italian Prime Minister, Silvio Berlusconi, has apologised to the Jewish community for claiming in an interview with the British press that the dictator Benito Mussolini was "benign" and "killed nobody".
Mr Berlusconi tried to blame his remarks on the two British journalists who interviewed him for deliberately getting him drunk....
Mr Johnson retorted: "Il Presidente's memory must be playing him tricks ... Alas, no champagne at all. We were plied with about a gallon of iced tea ... It was always clear that it was an interview."
Mr Farrell, who has recently published a revisionist biography of Mussolini and who describes himself as "a great fan of Berlusconi", also flatly denied Mr Berlusconi's account. "We were drinking iced lemon tea, pints of it, served by him," he told The Independent. "It was informal but it was official. It took months to arrange the interview and there were two tape recorders on the table between us. It was obvious that it was an official interview." Mr Farrell added: "It's such a shame he has told this lie. He's gone down in my estimation."
If Berlusconi cannot find allies in a journal as conservative as The Spectator, then he is quite isolated indeed.
I must confess a horrible oversight on my part when I reported on this story on Sunday. As Andrea Pollett writes in a letter to the editor of The Spectator this week, it is patent nonsense to claim that Mussolini "sent [enemies] on holiday to confine them" rather than murder them.
Giovanni Amendola (liberal deputy and former minister, d.1926);
Pietro Gobetti (intellectual and founder of a liberal review, d.1926);
Antonio Gramsci (founder of the Italian Communist Party, d.1937);
Giacomo Matteotti (socialist deputy, d.1924);
Carlo and Nello Rosselli (intellectuals and founders of an anti-fascist review, d.1937);
Father Giovanni Minzoni (active supporter of the peasant's rights, against the landowners backed by the fascists, d.1923).
These are the most well known victims of the fascist regime that Berlusconi ignores, or pretends to ignore. But they are only a minimal part of the thousands of people who lost their lives under Mussolini's dictatorship, either shot after being sentenced for political reasons, or beaten to death by the fascist squads, or questioned in torture chambers, or detained in prison for years, in inhuman conditions, until they died.
Many roman Jews, taken by the Nazis to concentration camps—despite some say "on holiday"—with Mussolini's connivance, never returned. Others were slaughtered in Italy. The ones who were not deported had to face the shameful racial laws issued by the dictator, a real apartheid, for adults and children alike.
The words spoken by Berlusconi are not the sloppy attempt of a revisionist to deny what is undeniable: they reveal this man's deep ignorance about the recent history of the country whose premiership he disgracefully holds, hopefully not for long.
Never mind that this letter is much more detailed than any I could have written: at the very least I could have mentioned Gramsci. One might think that I do not have a copy of The Prison Notebooks on a bookshelf at home!
Our Man in Rome
Italian Prime Minister Silvio Berlusconi is one of the few European leaders sure to agree with President Bush on almost anything. Let's hope that agreement isn't always reciprocal. Nicholas Farrell wrote the following in the current edition of the conservative English magazine The Spectator about a recent interview with Berlusconi:
In my biography of Mussolini, published in July, I argue among other things that Il Duce was hugely popular with Italians. Rather mischievously, I had wanted to ask Berlusconi, "Why was Mussolini more popular than you?" The right moment failed to pop up. But Mussolini did: while discussing Iraq, Berlusconi said, "I understand the difficulties in teaching democracy to a people who for nearly 40 years have known only dictatorship." To which I said, in a jocular way, "Like Italy at the fall of fascism." He replied, "That was a much more benign dictatorship—Mussolini did not murder anyone. Mussolini sent people on holiday to confine them [banishment to small islands such as Ponza and Maddalena which are now exclusive resorts]." This, though extraordinary, is more or less true. Unlike the Russian communists, the Italian fascists did not use mass murder to retain power. There was no need. You see, Mussolini—until he started losing battles—was very popular.
Yes, the text in quotes are the benighted musings of the most powerful man in Italy, a man that President Bush counts as an ally. And, yes, he priased Mussolini essentially unprompted. (I suppose that we'll hear next that Mussolini was only a social friend of Hitler.)
The Friend of Our Enemy is... Our Friend?
The ever-invaluable researchers at the National Security Archive—not to be confused with the National Security Agency— have just released a slew of declassified documents from United States government files about the Taliban.
There's nothing earth shattering here—no secret pipeline deals or the like—but it is clear from a bunch of these documents that Pakistan was instrumental in the rise of the Taliban. It's a good thing that Pakistan wasn't doing anything really bad, say, testing weapons of mass destruction or helping the North Korean nuclear program.
Good News and Bad News
The bad news is that 69% of Americans polled recently by the Washington Post believe that Saddam Hussein was personally involved in the 11 September attacks, even though not an iota of tangible evidence supports the assertion. The good news, I suppose, is that fewer Americans believe in that bit of hokum than the 73% of Americans who believe in the existence of angels who visit Earth.
An Offer Mitt Needed to Refuse...
When Mitt Romney ran for governor of Massachusetts last year, he promised to change the way that the state government did business. Begone with the patronage hires! And begone with any taint of corruption! That sort of talk genrally resonates with voters, and it did particularly well in 2002. After all, Mitt was the fellow who cleaned up the Augean mess at the United States Olympic Committee.
In July, Romney picked William Monahan to chair the state's Civil Service Commission. Romney had been trying, without much success, to disband the state's Civil Service Commission, and Monahan was just the sort fo conservative Republican to help him try again.
But Monahan didn't last long in his new post. First came news that Monahan was just another patronage appointment. He had helped Romney with his unsuccessful 1994 Senate race. For 24 years, Monahan had served on the Board of Selectmen in Romney's hometown of Belmont. But once he spent some town funds for a rally for Romney, his own re-election campaign proved unfruitful:
Monahan, a Republican, lost his bid for another selectman's term in April 2002, days after he organized a rally to welcome Romney back to Belmont after three years in Salt Lake City, running the Winter Olympics. Monahan later became involved in the Romney campaign as a volunteer.
What probably enticed Monahan about the Civil Service Commission was the lucrative effect that it would have on his state pension: instead of a pension of $4,800 per year, he would receive some $64,000 per year if his new position lasted for three years.
Then came news that Monahan was not just another patronage appointment. The Boston Globe reported last week that Monahan resigned because the Globe started asking questions about some of his business dealings. In 1980, Monahan and a partner purchased a bar in Boston from a company controlled by Boston Mafia boss Gennaro Angiulo. As part of the transaction, they received a $180,000 mortgage from Angiulo.
Romney's press secretary, Shawn Feddeman, said the governor did not know of Monahan's past business relationship with Angiulo when he appointed him to the post in July.
"Monahan has submitted his resignation and the governor has accepted it," Feddeman said. She would not comment further.
She said a background check had not uncovered Monahan's dealings with the Mafia leader, although a Belmont newspaper reported them in 1992.
Monahan, in an interview yesterday, said his decade-long business relationship with Angiulo and his brothers was "arm's length," but one which he regretted. He said he was well-aware of Angiulo's position as a top Boston gangster at the time.
"It was bad judgment. No serious harm came of it, but I never should have gotten involved in the thing," Monahan told the Globe.
Perhaps it's time for Mitt Romney to starting reading his hometown paper. And perhaps it's time for William Monahan to start vetting his business partners a little more carefully.
