Does Law Have Insufficient Visual Drama?

Once upon a time, where you wanted to sell real estate, you handed some soil or twig for the property to the buyer in what was called livery of seizen. Couples kiss, wear traditional costumes, and exchange rings when they marry in front of a crowd. One of the traditional ways to revoke a will (recently litigated in Colorado) is to destroy or deface the physical document (which leads to a number of peculiarities of probate law). Traditionally, wills were read aloud after a death, although that rarely happens these days. Even though it no longer legally matters, it is traditional to seal a contract with a handshake. When sports teams finish a game, win or lose, the players each slap hands saying "good game", emotionally putting an end to disputes over the details that led to the final result. Churches acknowledge affiliations to their faith with dramatic baptisms in the Christian church and a vividly memorable circumcision ceremony for infant Jewish and (at least in traditional societies) adolescent Muslim boys. Basic trainees in the military, men entering monastic orders, and prison inmates have their hair shorn, and are stripped of almost all of their personal possessions.

The current story arc in the webcomic Red String's (set in Japan but written by Gina Biggs of Georgia) features Hanae Niijima, a lesbian whose mother will not accept the fact that she has come out or acknowledge Hanae's true love Fuuko Akimoto. The set up to the scene is in this dialog:

Hanae: Why can't you be happy for me? This is who I am. This is ME.

Mother: It's NOT you. You were my sweet little girl who liked flowers and unicorns; who loved to be dressed up in frilly clothes and have me curl your hair. You were never a tomboy!

Hanae: That's STILL me. You think you have to be boyish to like a girl? That's . . .you can't believe that.

Hanae decides the overcome the conceptual block that seems to be getting in the way of her mother by making a visual statement:

Hanae: Fine. [Grabbing scissors with one hand and her long flowing curly hair with the other.]

Mother: What are you doing?!

Hanae: If its frills and curls keeping you from accepting this then I'll get rid of them. Will that work?

Hanae then hands a long pony tail of crudely cut off hair into the hands of her shocked mother who sits, holding it, staring off into space.

Obviously, I'm not recommending that this become a ritualized part of the process of coming out that is mandated in any way. But, powerful visual dramas can often convey meanings about abstract concepts, particularly emotionally charged ones, that some people have a hard time grasping from mere words.  Hanae's mother might be able to understand from the hair in her lap what she couldn't when her daughter merely spoke to her.

For example, one of the classic problems that one sees in modern family law litigation is that one or both of the people who once were married, or at least a loving couple, can't let go of that relationship. The service of the divorce petition, the signing of the papers, the dryly worded court order ending a marriage and providing for the sharing of the children and property of the marriage, and often a restraining order as well, don't communicate to the former member of that relationship with adequate emotional force that the relationship is really, once and for all, over.  Some people are simply beyond reaching by any means of communications, but a large number of people who go through family law proceedings simply don't really understand at an emotional and subconscious level what has happened until much later, even if they can parrot the court's ruling.

Perhaps if that message could be conveyed with more visual drama in some universally accepted new ritual, more people who move on, and there would be, as a result, less senseless fighting driven by old emotions instead of new practicalities. The demise of fault based divorce has made the process much more antiseptic for all involved in the process, but have we overdone it to the point of failing to really acknowledge in an emotionally valid way that not just the legal construct of the marriage, but also the emotional reality of the relationship that it approximates, has ended. Shouldn't the symbolism and ritual that ends of marriage need to be even more powerful and less subtle than the symbolism and ritual that starts one?

Adoptions tend to be even more understated, for fear of spooking the relinquishing parents, and not surprisingly, the main complaint that gets litigated in adoptions is that of relinquishing parents who claim they were properly appraised of the gravity of their actions.

A classic problem in consumer litigation of all kinds is the not infrequent failure of a debtor or consumer, already overwhelmed by paper and having trouble determining what is most important, to realize that a summons and complaint in a lawsuit is a once and for all speak now or forever hold your peace notice that has profound legal consequences if ignored.  This lack of understanding is one of the driver's of the almost ubiquitous paranoia about ulterior motives and about being cheated by one's betters found among unsophisticated people who have frequently been on the receiving side of litigation.

Perhaps we would do well to imitate the litigation practices of the protocol agents of the advanced civilization in the science fiction book "Jaran" by Kate Elliott, where legal disputes are announced by delivery of a physical baton in person by a courier, and one responds to the allegations at a mandatory in person appearance at the designated place and time, as inefficient as that may be, rather than simply enforcing the duty to appear by entering a default judgment against a party who does not appear (one that is often forgotten until property is seized pursuant to the judgment).

I have no empirically evidence to support the theory that more dramatic visual drama in the legal system would make any difference at all. The modern trend has been to strip away formalities, arcane language, pompous court room surroundings, wax seals, fancy ribbons and the like from legal matters. Instead, modern legal proceedings and legal facilities, favor plain English, the bare minimum of in person appearances, contemporary but understated and inoffensive surroundings suited for efficient, processing of business matters, dispenses with wigs and obtuse morning suits, and use very simple seals and acknowledgements - relying on the ability to confirm orders with third party repositories rather than lack of counterfeitability for reliability. Many documents that used to have to be notarized are now simply signed under penalty of perjury with no third party verification of identity or intent.

For lots of purposes this trend may be a good one. It demystifies the legal system and makes it more accessible to pro se parties. Much of what courts do is as much administrative business as it is emotionally meaningful decision making. For the most part, people prefer an inexpensive, quick, form driven informal probate process to the traditional succession proceedings of courts of equity will all their pomp and circumstance. And, some parts of the court process, like the delivery of jury verdicts finding someone guilty or not guilty, have managed to hold onto some of the drama that gives them emotional power. But, maybe some of the time, particularly in civil matters that don't involve business people and may have consequences for people who do not have the same cultural heritage as the lawyers and judges who are running the system, a higher touch, lower tech approach is in order and would make courts more effective. It is certainly a hunch that would be worth exploring with more systematic research.

The Making Of West Virginia

A hundred and fifty years ago, a single map based on information from the 1860 census that showed the percentage of the population consisting of slaves by county, was the primary basis of the boundary between Virginia and West Virgina. The original proposed name for the breakaway states, “Kanawha” didn't stick, however.

The story of western Virginia is complex, and the map itself disguises this somewhat. Areas with relatively small slave populations generally sided against secession when the vote was taken on April 4, when it failed, then again on April 17, when it succeeded. However, this opposition to secession did not necessarily translate into abolition, or even resistance to slavery. When West Virginia finally became a state in June 1863, it passed rigid manumission laws that would have protected slavery for decades were it not for the 13th Amendment. And in several counties the opposition to secession constituted a slim rather than a decisive majority; in other words, the map is not a transparent reflection of political sentiment. Yet it captured the imagination of the nation’s leaders and the public, and it circulated widely through Washington.

By August, the Army had secured the western counties to the point that the residents could begin to organize themselves into a new state. At this moment of victory, the Coast Survey issued a second edition of the map that boldly colored the proposed state of “Kanawha” in western Virginia. This edition also reinforced the initial message of the map with statistics showing that the vast majority of slaves had remained in Virginia.

Slaves made up 31.1% of pre-division Virginia, while post-division 37.2% of Virigina's population consisted of slaves, while 2.5% of West Virginia's population did. The geographic cline in slave ownership from the hills to the coast in Viriginia was largely a product of the viability of plantation style agriculture in different parts of the state.

It isn't entirely clear to me why McDowell, Buchanan, Wise and Pendelton Counties in Viriginia, which were contiguous to West Virginia and also had few slaves did not join their neighbors in leaving the state of Virginia.

Defined Benefit Promise In ERISA Plan Must Be Kept

CIGNA, a finance and insurance company, converted its retirement plans covered by ERISA, from a defined benefit plan to a superficially similar defined contribution plan called a "cash balance" plan.

The retirement plan beneficiaries sued, claming that the new plan deprived them of benefits that they had earned under the old plan. A federal trial court agree and reformed the plan to remedy the shoftfall. The U.S. Supreme Court, in an opinion issued today, agreed that any plan beneficiary who was actually harmed by the loss of benefits they had earned under the defined benefit plan that were forfeited in the cash balance plan was entitled to an equitable remedy, but found that the specifics of how the federal trial court went about calculating that remedy was incorrect.

The ruling has broad applicability for the many large and medium sized employers that have converted defined benefit plans to cash balance plans on a model similar to that used by CIGNA, although the ultimate remedy is likely to be somewhat less rich than lower court rulings in the CIGNA case had suggested. As the U.S. Supreme Court explained (citations omitted):

CIGNA . . . told its employees that they would “see the growth in [their] total retirement benefits from CIGNA every year,” that its initial deposit“represent[ed] the full value of the benefit [they] earned for service before 1998,” and that “[o]ne advantage the company will not get from the re-tirement program changes is cost savings.” In fact, the new plan saved the company $10 million annually (though CIGNA later said it devoted the savingsto other employee benefits). Its initial deposit did not “represen[t] the full value of the benefit” that employees had “earned for service before 1998.” And the plan made asignificant number of employees worse off in at least the following specific ways:

First, the initial deposit calculation ignored the fact that the old plan offered many CIGNA employees the right to retire early (beginning at age 55) with only somewhat reduced benefits. This right was valuable. For example, as of January 1, 1998, respondent Janice Amara had earned vested age-55 retirement benefits of $1,833 per month, but CIGNA’s initial deposit in her new-plan individual retirement account (ignoring this benefit) would have allowed her at age 55 to buy an annuity benefit of only $900 per month.

Second . . . the new plan adjusted CIGNA’s initial deposit downward to account for the fact that, unlike the old plan’s lifetime annuity, an employee’s survivors would receive the new plan’s benefits (namely, the amount in the employee’s individual account) even if the employee died before retiring [by] multiplying the otherwise-required deposit by the probability that the employee would live until retirement—a 90 percent probability in the example of our 32-year-old. And that meant that CIGNA’s initial deposit in our example—the amount that was supposed togrow to $120,500 by 2031—would be less than $22,000,not $24,000 (the number we computed). The employee, of course, would receive a benefit in return—namely, a form of life insurance. But at least some employees might have preferred the retirement benefit and consequently could reasonably have thought it important to know that the new plan traded away one-tenth of their already-earned benefits for a life insurance policy that they might not have wanted.

Third, the new plan shifted the risk of a fall in interest rates from CIGNA to its employees. Under the old plan, CIGNA had to buy a retiring employee an annuity that paid a specified sum irrespective of whether falling interest rates made it more expensive for CIGNA to pay for that annuity. And falling interest rates also meant that any sum CIGNA set aside to buy that annuity would grow more slowly over time, thereby requiring CIGNA to set aside more money to make any specific sum available at retirement. Under the new plan CIGNA did not have to buy a retiring employee an annuity that paid a specific sum. The employee would simply receive whatever sum his account contained. And falling interest rates meant that the account’s lump sum would earn less money each year after the employee retired. Annuities, for example, would become more expensive (any fixed purchase price paying for less annual income). At the same time falling interest meant that the individual account would grow more slowly over time, leaving the employee with less money at retirement.

Of course, interest rates might rise instead of fall, leaving CIGNA’s employees better off under the new plan. But the latter advantage does not cancel out the former disadvantage, for most individuals are risk averse. And that means that most of CIGNA’s employees would have preferred that CIGNA, rather than they, bear these risks.

The amounts likely involved are significant. If, in our example, interest rates between 1998 and 2031 averaged 4 percent rather than the 5 percent we assumed, and if in 2031 annuities paid 6 percent rather than the 7 percentwe assumed, then CIGNA would have had to make an initial deposit of $35,500 (not $24,000) to assure that employee the $11,667 annual annuity payment to whichhe had already become entitled. Indeed, that $24,000 that CIGNA would have contributed (leaving aside the life-insurance problem) would have provided enough money to buy (in 2031) an annuity that assured the employee anannual payment of only about $8,000 (rather than $11,667).
We recognize that the employee in our example (like others) might have continued to work for CIGNA after January 1, 1998; and he would thereby eventually have earned a pension that, by the time of his retirement, wasworth far more than $11,667. But that is so because CIGNA made an additional contribution for each year worked after January 1, 1998. If interest rates fell (as they did), it would take the employee several additional years of work simply to catch up (under the new plan) to where he had already been (under the old plan) as of January 1, 1998 . . .

The District Court found that CIGNA told its employees nothing about any of these features of the new plan—which individually and together made clear that CIGNA’s descriptions of the plan were incomplete and inaccurate.

The implication seems to be that on remand the trial court may use equitable remedies to cure these deficiencies.

Better Battery May Not Be A Battery At All

The single biggest technological challenge to replacing fossil fuels in vehicles and other technological gadgets is finding a better battery. Electricity can do everything else that an internal combustion engine can do, often better, but is hard to store. Batteries are a way of storing electricity chemically, but an alternative to batteries, called supercapacitors, which store free electrons as ions in something akin to a static electricity state, are superior in terms of discharge speed, recharge speed and number of times the system can be charged and discharged before failing. But, they've been unattractive due to their cost and low energy denesity.

A new kind of supercapacitor made a graphene, a newly discovered form of carbon, which is an abundant and cheap material and is increasingly inexpensive to mass produce in this particular form, may change that. Graphene based supercapacitors with an energy density close to that of lead-acid batteries are close to reaching mass production.

Mitochondrial DNA linked to male, but not female infertility

Mitochondrial DNA, which is uniparentally inherited from your mother, regardless of your gender, is a parallel set of DNA found in every cell, along with the nuclear DNA which is a mix of DNA from both parents. As a result,

mutations in the mitochondria can slip through the quality-control checks unnoticed and therefore build up to high levels, if these mutations are harmful in their effects on males but not on females. This is because all of the screening of mitochondrial mutations is done in females as a result of their maternal inheritance.

One area where this seems to happen is in mtDNA's impact on male fertility. According to the journal article, P. Innocenti, E. H. Morrow, D. K. Dowling. "Experimental Evidence Supports a Sex-Specific Selective Sieve in Mitochondrial Genome Evolution." Science, 2011; 332 (6031): 845 DOI: 10.1126/science.1201157, mtDNA mutations may be a major source of the inferility found in about five percent of men.

Abraham Lincoln, Vampire Hunter

Some concepts are just so awesome and absurd that you can't help but to be attracted to them. Abraham Lincoln, Vampire Hunter, which is set for release June of 2012, based on the book of the same name, is such a film.

The idea of Lincoln as supernatural savior was born in 2008, when Mr. Grahame-Smith, who is based in Los Angeles, had just finished the manuscript for his successful Jane Austen sendup, “Pride and Prejudice and Zombies.” He found himself in bookstores between tables full of “Twilight” novels and those piled high with Lincolniana. “Sort of shrewdly, from a cynical standpoint, I thought, ‘Wouldn’t it be great if you could combine these two things,’ ” Mr. Grahame-Smith said. That was the impulse behind his “Abraham Lincoln: Vampire Hunter” novel, which was published last year by Grand Central Publishing.

Despite the supernatural premise, the book and film both make high claims to historical accuracy, and the timing won't be bad, as much of the South's recollection of the 150th anniversary of the Civil War return to popular consciousness the events of the Civil War.

It also doesn't hurt that one of the main characters in the Twilight series that brought the modern vampire craze to its climax, as well as one of the main characters in HBO's series "True Blood" that has also been a notable example of the 21st century vampire craze in fiction are both vampires who were bitten during the Civil War.

Then again, if the world comes to an end on May 21, 2011, as one billboard campaign in Denver predicts that it will, we will never find out if the concept works.

Uganda Lets Anti-Gay Bill Die

Uganda is a country in East Africa at between mass violence torn Rwanda, Burundi, Congo, and Sudan that has itself experienced mass political violence (the best known being massacres by Ida Admin in the 1970s) in its recent history. Its purchased ties to Gaddafi have made it a pivotal in efforts to find a resolution of the situation in Libya, and it has plaed in active and mixed role in addressing regional conflicts.

Uganda is also remarkable for being a nation in Africa where the dominant political forces, sometimes violent, are the local brands of evangelical Christianity. This political wave has manifested itself in major social issue overhauls of its statutes, after long periods of legislative stagnation under less than democratic rule.

One recent wave of legislative change that received widespread praise was one of the most dramatic legislative reforms to establish women's equality and give women's rights that force of law in all of history in a given country as the direction of its constitutional court on April 4, 2007.

Another, which secured widespread international condemnation and massive popular support locally, was a virtulently anti-gay bill that has been considered by its parliament for the last eighteen months:

The Anti-Homosexuality Bill sought to impose the death penalty for a number of reasons, including being a “serial offender” of the “offense of homosexuality.” The bill also called for Ugandans to alert the government to known cases of homosexual behavior within 24 hours.

Religious leaders said they had obtained more than two million signatures in support of the measure[.] . . .

Since the bill was introduced, gay-rights advocates have gone into hiding in Uganda; a vitriolic newspaper published the names and addresses of gay men and lesbians and told readers to kill them; and one prominent activist for gay rights, David Kato, was bludgeoned to death with a hammer in his neighborhood outside Kampala.

The bill expired with Uganda's current legislative session on Friday, in a major victory for gay rights defenders and the international community. The far away legislative debate has made its way to American shores because missions of prominent American evangelical churches have been financial backers of the churches and political organizations that have been pivotal in backing the anti-gay legislation in Uganda. Pressure from gay rights activists on these churches, which often aren't known for their anti-gay stances in their U.S. activities, may be one important behind the scenes reason that the legislation has faltered in Uganda.

College Graduates Usually Live With Parents After Graduating

When I graduated from college, I went straight to law school, and from law school, straight to a home that my wife and I shared with no one else but our cat.  I've never moved back in with my parents and neither did my brother after he graduated from college, nor did either of our spouses.  But, this pattern is increasingly rare. 

A new survey discussed by Time Magazine finds that 85% of college graduates move back in with their parents after graduating from college.  The iconic modern American twentysomething is comic strip character Dustin, who spends days looking for jobs and nights at home with his parents, and his undead television comedy counterpart "George" (played by Ellen Muth) in the series "Dead Like Me," both of which presciently debuted before the current economy made their protagonists' experiences so routine.  What is driving the trend?

Times are undeniably tough. Reports have placed the unemployment rate for the under-25 group as high as 54%. Many of these unemployed graduates are choosing to go into higher education in an attempt to wait out the job market, while others are going anywhere — and doing anything — for work. Meanwhile, moving back home helps with expenses and paying off student loans.

Failure to launch, is no longer the exception.  It is the norm in the current economy.  This also helps to explain why more and more young twenty-somethings are deferring getting married and having kids.  Household formation rates are at record lows.  We are experience the baby boom in reverse.

The particularly troubling part is that missteps at the beginning of a career often have a disproportionate impact on a person's entire work life.  If this is really just a temporary bump in the road, it isn't that big a deal in the greater scheme of things, but this may be a far more serious case of a nascent lost generation.  When the economy picks up again, that big businesses and professional firms that would have hired people from the last few crops of college graduates to entry level jobs that put those hires on a path to high end careers are likely to hire almost entirely from the most recent crop of new graduates, rather than trying to locate promising talent that was missed in the prior years when hiring was stopped or slowed.  Even for those new graduates who wash out of their plum first jobs a few years later as firms winow out all but the most talented prospects whom they promote, not starting off at a plum job may make the difference between being able to pay off students loans in five years and being able to pay off student loans in twenty years.

For bright new college graduates, their prospects are not totally crushed.  The current bought of unemployment is probably cyclic.  When the economy comes back, there will be jobs and it is always better to be in the job market with a college degree than to be without one.  But, jobless new graduates are left in a particularly frustrating position.  While commentators like David Brooks wants to call them lazy, what can they do?

It’s difficult to argue that they need to go to college, because they did. It’s difficult to argue that they can’t move to new jobs (unlikely to be homeowners) or suffer high health care costs (doesn’t health care reform allow employers to push their health costs onto their parents’ employer?). Unless we think that the graduating class of 2008 is fundamentally worse than the graduate class of 2006 I don’t see a technology problem.

Also for fun, the graduating classes post-Recession have increasingly large student debt loans, which should lower the reservation wage they’ll accept due to liquidity pressures. So the idea that everyone 20-24 is on vacation is harder to accept compared to earlier years.

New college graduates emerging out into the world this year are no more, and no less than unlucky.  They should have been born a few years earlier or later than the year that I graduated from high school, but they weren't.

We can hope, at least, that this will be merely a temporary circumstance.  But, it isn't impossible that this trend will endure.  For example, one of the major forces driving Islamic terrorism in the world is the existence of an immense class of unemployed college graduates across the oil rich states of the Middle East and North Africa.  Indeed, the suicide of a once too often discouraged college graduate in Tunisia was the spark the set off the wave of revolutions that have dislodged or tried to remove authoritarian regimes across tthe regime.  Similarly, this phenomena has been the norm in Japan ever since it experienced its housing bubble collapse triggered lost decade, long before the financial crisis, and it has defined a whole generation since then.  There is not obvious end to that trend on the horizon in Japan.

Colorado Securities Act Trumps Forum Selection Clause in Contract

As a general rule, parties to a contract can decide where disputes arising under the contract or between the parties in relation to the transaction are litigated and according to which state's law. When this is part of an arbitration clause, state law determinations that a choice of forum are frequently pre-empted by the Federal Arbitration Act. But, what if the contract provides that suits may be brought in ordinary courts, but only in a particular state?

If that contract is a contract related to a sale of securities that are regulated by the Colorado Securities Act because sales are made by a business with Colorado offices from which it conducts business, the Colorado Court of Appeals has held that the contract's forum selection clause is void as violation of a public policy articulated in that statute in an anti-waiver provision.

The Colorado Court of Appeals followed precedents interpreting similar issues under Colorado's Wage Claims Act and invalidating an arbitration requirement in a case covered by Colorado's Wrongful Withholding of Security Deposits Act. California and Illinois have similarly used anti-waiver provisions to invalidate forum selection clauses.

The Colorado Court of Appeals rejected analogies to federal securities contracts in international situations where state securities law claims are also present, a situation where many federal courts have upheld choice of forum clauses. It also rejected analogies to arbitration cases, where a federal statute applies, and to change of venue motions in the federal courts which do not have an analogous provision for transferring a case to a different state in Colorado's state courts.

In the case decided, in which the clause also selected Texas law as applicable, the distinction was crucial, because the general partnership interests that were marketed are securities under Colorado law, but not under the state securities laws of Texas, and because the Texas securities law, on its face, does not apply to transactions conducted outside the state of Texas.

Notably, this case was not brought as a class action.

Great Blogger Outage of 2011 Over

Blogger was out of service for almost twenty-four hours, preventing me from updating or editing posts at this blog. May 12, 2011 posts and comments have temporarily disappeared.  My apologies for any blog fix you were deprived of in the interim. He who lives by the cloud, dies by the cloud.

Righthaven Appears To Have Lied About Standing In Copyright Suits

Righthaven, [is] a new . . . venture that says it acquires copyrights from Stephens Media and sues bloggers for unauthorized display of those stories — about 200 cases in all since Righthaven was founded last year. . . . U.S. District Judge Judge Roger Hunt . . . ordered Stephens Media and Righthaven last month to respond to internal documents revealed in a case before his court. The documents seemingly showed that Stephens did not actually convey the copyrights to Righthaven, although Righthaven claims in court documents that it is the copyright owner. The Electronic Frontier Foundation told the judge that the arrangement was a “sham” and that Righthaven has no legal standing to sue.

From here.

While the contract between Stephens Media and Righthaven was and is easily amended to cure the problem (apparently granting Righthaven what amounts to a 50% contingent fee), the disclosure appears to betray a serious pattern of litigation misconduct by Righthaven's attorneys and to cast doubt on judgments and settlements that it has obtained from its litigation strategy to date in its campaign of copyright enforcement.

The publisher of the Denver Post has a similar arrangement with Righthaven.

Probate Law and 9-11

Osama bin Laden is dead. Why care? Because it opens the door to probate claim litigation in his estate for 9-11 victims.

Osama bin Laden evaded civil liability for 9-11 and other terrorist attacks prior to his death because no process server could find him.

Bin Laden’s death could open the door to civil litigation targeted directly at him if new assets are uncovered, said Bill Wheeler of Mississippi’s Wheeler and Franks. The firm is pursuing a civil suit pending in Washington federal court stemming from the 1998 embassy bombings in Africa.

If an estate is discovered abroad, said Wheeler's co-counsel, James Franks, “that would be much easier than trying to get service on bin Laden [when he was alive].” But the ability to access those assets would depend on the probate laws in that country, he added.

Of course, the probate issues in these kinds of cases are non-trivial. Bin Laden was a Saudi Arabian national and at the time of his death was domiciled in Pakistan, both jurisdictions that use Islamic law as determined in Shari'ah courts to determine the inheritance rights in the estates of Muslim decedents like Bin Laden. In rem jurisdiction would also be present, under general Anglo-American and civil law principles, in jurisdictions where Osama bin Laden owned property. My understanding is that he was disinherited by his family, so none of the substantial inheritance to which he would otherwise have been entitled would be available to him or to his creditors.

Testamentary freedom is limited in the Islamic law regime, with only one-third of an individuals estate distributable to a non-designated heir, and I am not familiar with how it handles claims arising from the acts of decedents. Western legal systems typically provide some priority in an estate for spouses and children of a decedent over the claims of tort creditors. Also, it is likely that Bin Laden dedicated a significant share of his wealth to religious organizations which he controlled, rather than personally owning that wealth.

Shari'ah law does provide for the payment of "blood money" (diyah) when one causes the wrongful death of another, a remedy that parallels that of a civil suit, but there is not consensus among scholars of Islamic law over whether the 9-11 terrorist event was wrongful. Some Islamic law scholars have issued proclamations stating that the attack was wrongful under Islamic law, but Bin Laden likely had conferred with an Islamic law scholar, or had the authority as an Islamic law scholar himself, to determine that the attacks were conducted pursuant to a valid Jihad.

Not surprisingly, the Quran, which is the primary source of authority in Islamic law, is particularly sparse in resolving issues of jurisdiction, venue and collateral estoppel in a system of Shari'ah law courts that has no one central organization and was mostly not in place at the time that the Quaran was written.

Indeed, from a formal structural perspective, a large share of all the schisms and conflicting interpretations of Shari'ah within Islam that divide it into religious sects and national polities have this lack of clear canon law jurisdictional rules at their root. The problem is somewhat less acute in Shi'ite Islam, where there is or was for a long period depending on the sect, a living person to adjudicate these disputes, than for Sunni Islam, but in Shi'ite Islam, disputes over the legitimate order of succession among Imams (itself a quasi-probate issue) produced similar schisms.

The New American Work Force

[I]n 1954, about 96 percent of American men between the ages of 25 and 54 worked. Today that number is around 80 percent. One-fifth of all men in their prime working ages are not getting up and going to work. According to figures from the Organization for Economic Cooperation and Development, the United States has a smaller share of prime age men in the work force than any other G-7 nation. The number of Americans on the permanent disability rolls, meanwhile, has steadily increased. Ten years ago, 5 million Americans collected a federal disability benefit. Now 8.2 million do.…There are probably more idle men now than at any time since the Great Depression, and this time the problem is mostly structural, not cyclical.

From Tyler Cohen at the Marginal Revolution citing David Brooks at the New York Times.

In parallel with the shift Cohen notes, the percentage of adult women in the work force has almost doubled from about 32% to about 65%.  About one in five American women will never have children, and the vast majority of those who do have children will also work for many years while they have children, sometimes even when the children are infants.  Also, both men and women are entering the work force later because they are more likely to finish high school and attend college, and a much larger number of working age adults are incarcerated now than were in 1954.

Finally, of course, unemployment rates are just under the double digits as we creep out of the recession caused by the financial crisis, and men have taken more of a hit in the current recession than women.  In contrast, 1954 was a point of relatively low unemployment, driven by a manufacturing economy that was serving a world market whose own capacity had not yet recovered from the capital destruction of World War II and the millions of men permanently removed from the work force by that war.

I'm not ready to jump to the "loser men" interpretation  that Cohen, citing David Brooks, does.  An increased number of permanent disability claims is to be expected as a generation of blue collar baby boomers ages.  Total labor force participation relative to the working aged population as a whole is at all time highs, unrivaled anywhere else in the world, and Americans work longer hours that workers in any other country.

The working aged men who are withdrawing from the labor force, in addition to growing ranks of graduate students and inmates and disabled blue collar workers, are mostly early retirees who have played by the rules, worked hard, saved money, raised children, sent them to college and are retiring early because they are prosperous, not because they are lazy.  Many young retirees use their years of early retirement to give back to the community and their families, contributions that were often slighted during the hectic years when they built up their nest eggs.  Early retirement is the American answer to the fact that we have so much less work-life balance, longer work weeks, and less vacation time than our developed world counterparts.  For my druthers, I'd prefer an economy where the average American works fewer hours per year, unemployment is lower, early retirement is rare because most people love their jobs, and men and women balance work and family in more similar ways to each other than we do today.  But, until we reach that day, I am not going to grudge the time that working age men who toiled intensely for a few decades and accrued a nest eggs take to retire early and smell the roses.

My father was anything but an early retiree, but what he spends his time doing in retirement is typical of retirees in reasonably good health of all ages.  He visits grandchildren and stepgrandchildren.  He helps an urban Cincinnati church reimagine itself and develop a plan for raising funds and turning itself around.  He directs a youth choir, commissioned the composition of one hymn and wrote another hymn himself.  He is civically active, writing letters to the editor and op-ed columns relevant to his professional experience.  He participates in a gourmet group and a community choir.  He keeps his home in good repair.  He keeps a watchful eye on the good health and well being of his neighbors and the neighborhood's esprit de corps.  He takes steps to move forward efforts to convert smelly feedlot manure into a renewable energy source.  He set up a volunteer training program for people in his small town and established a lecture series in his old department.  He stays connected to the people he has spent a lifetime building ties to across the nation and the world.  Of necessity, he spends a lot more time than he once did tending to his own good health, and as a consequence of his age, spends more time reading obituaries and attending funerals than he once did.  He spends more time on vacation travel than he once did, but no more than a typical French or German bureaucrat in the prime of his career does.  Just as we strive to find meaningful work in our lives working for pay, and some of us achieve that, we strive to find meaningful leisure in our lives when we are not working for pay and some of us achieve that as well.

What my father does in his retirement is not the same as work, admittedly.  He no longer has to fight pitched bureaucratic battles with the university facilities department over furniture acquisitions for his department.  He longer spends hours grading papers from students in his classes.  He no longer bears primary responsibility for finding internship opportunities for three dozen graduate students a year.  He doesn't have to deal with office politics or admissions decisions.  His days of pouring over long technical reports and attending endless meetings while serving as an advisor to a federal nuclear waste disposal project have come to an end.  But, like most retirees, early and late, he is not an "idle man."  The kind of person who works hard enough to retire early, even more so than the usual retiree, usually is constitutionally incapable of being idle even if they tried.  Early retirement may leave our nation with more really good golfers than we really need, but if one takes it as a given that economic production is a means to an end, rather than an end in and of itself, something economists sometimes forget, this shouldn't be terribly troubling.

One can argue that an economic system that compensates some of our most skilled physicians, executives, lawyers and engineers so well that a large fraction of them withdraw their valuable skills from the monetary economy early is out of kilter.  Surely, my inlaws, who are both medical doctors and both retired early, would have probably done so a little bit later if medical doctors were paid less than they are in our economy and they needs to work longer to be economically self-sufficient.  In that world, they would have spend a few more years treating patients and a little less time playing golf in their golden years.

But, I can hardly fault them. They were cogs in the machine and did what made sense at the time.  The way that the profession was designed when they were actively participating in it, medical doctors had to work exceedingly long hours and carry pagers whereever they went missing children's birthday parties and family time after school, foregoing extended vacations, and generally giving extremely intensely of themselves to serve large numbers of people in medical need with cutting edge skills and technology that provided great benefit to those patients.  They didn't have the option of living more balanced lives while they were working, and that system had built into it the incentive of an early retirement as a reward for that very intense work using skills so scarce that the United States established an immigration visa to secure people with these skills that it was unable to produce in sufficient numbers at home.  If the hope of early retirement hadn't been available in the long run, lots of doctors in their generation would probably have decided that their toil simply wasn't worth it and would have deprived the health care system of their skills far sooner.

The economy at large is experiencing basically the opposite of what most of academia is experiencing.  While old academics are lingering in their tenure track positions long past the traditional retirement age, leaving little room for the ranks of new professors seeking to fill their shoes, in hot parts of the private sector, the millionaire entrepreneurs and executives and physicians of the last long economic boom are making way for their ambitious, young, tech savvy successors.

Indeed, one of the many reasons that upper middle class managerial and professional workers experience low rates of structural unemployment than less skilled workers is that upper middle class workers can afford to retire early and free up jobs for younger workers.  In contrast, many blue collar workers often can't hope to save enough too retire early and continue to fill jobs that reduce the opportunities available for their younger successors.  Still, many middle class, as opposed to upper middle class retirees are workers who have been laid off from long, physically demanding careers as soldiers, as cops, as firemen, and factory workers whose unions, aware that large numbers of them would experience permanent disabilities anyway if they didn't retire early, worked with management to desire jobs that allow for early retirement.

Getting up and going to a paying job is something that people do because they need to support themselves and their families, and because the economy needs certain jobs to get done.  There is no shame in working and no one wants to be unable to support themselves.  But, it is a mistake to assume that getting up and going to a paying job has intrinsic moral value.  There is nothing morally wrong with an early retiree in his early 50s lingering over the newspaper while having breakfast, and spending the rest of his day doing what he thinks is the most valuable use of his time when money is not an object.

Economists tend to think that rational actors want nothing more than more money.  But, most people simply want to have enough money to allow them to be secure in their ability to meet their comfortable but modest economic needs.  Once that goal is accomplished, increasingly sooner for much of the nation's upper middle class in this more prosperous age, earning more money becomes a much lower priority goal.  Sometimes these activities will produce money anyway, but money is no longer the point.

I'm sure that a reporter with a little gumption could find men who don't fit the narrative that I've outlined and fall into the stereotype that David Brooks is trying to conjure. 

I know of several men with good educations and/or professional experience in Denver who spent time as homemaker husbands and/or returned to school for more education, when their own careers hit bumps during bad job markets and their wives had jobs.  Yet, isn't this something that the feminist revolution has been bracing us for, and encourging us to welcome, over the last several decades?  And, at any rate, this remains a statistically minor blip that only accentuates a larger trend of more people seeking graduate educations, blue collar boomers wearing their bodies out, more people spending long years in prison, more people retiring early, and a bad economy driving up unemployment rates.

I'm sure that a not insignificant number of working aged men, particularly men with criminal records or substance abuse problems have simply given up after long, fruitless job hunts, are dependent upon family or friends or lovers, and do little but drink too much and watch television.  In earlier days, when our economy needed lots of unskilled labor for mindless jobs because we hadn't yet mastered automation, people like that would have worked at abundant assembly lines all work and gotten drunk and wasted time after hours and on the weekends.  Now, a lot of that work has been offshored or automated.  There are still unskilled mindless jobs in our economy, but there aren't nearly as many as their used to be, while there are almost as many people chasing after them.

But, for the most part, America's meager safety net doesn't afford men who are not financially secure early retirees the option of leaving the labor force whether they want to or not.  More so than any other developed nation in the world, Americans must work or starve and die.  Leaving the work force is a very expensive luxury purchase for most Americans not to be made lightly, and men and women alike do so in our economy at their peril.

Like any other nation, we have "loser men."  We also have "loser women," "loser children" and "loser seniors."  But, for the most part, those loser men are the men who have no choice but to continue working at unfulfilling, dead end, low paying jobs because they have no other choice and didn't manage to save anything for their futures, not the early retirees who have left the work force entirely.

Religion and Politics Drives Spouse Selection

It may not be polite to discuss religion and politics with mere acquaintances, but these matters go to the core of our revealed preferences in our choice of a spouse.

On a scale of 0 to 1, where 1 means perfectly matched, physical traits (body shape, weight and height) only score between 0.1 and 0.2 among spouse pairs. Personality traits, such as extroversion or impulsivity, are also weak and fall within the 0 to 0.2 range. By comparison, the score for political ideology is more than 0.6, higher than any of the other measured traits except frequency of church attendance, which was just over 0.7. . . .
An important point of the paper apparently is that this correlation does not emerge through convergence over the term of a relationship. Rather, partners are strongly similar at the beginning of relationships.  

From here, via Gene Expression, both relying on Alford, Hibbing and Peter K. Hatemi, "The Politics of Mate Choice," Journal of Politics, April 2011. The sample size was 5000 married couples.

Corporate Taxes Are The Exception

According to the IRS in 2008 there were 6,349,720 for profit corporations in the United States. These come in several types.

Pass Through Corporations

Some don't pay income taxes at all and are pass through entities:

S corporations: 4,292,433 (of which 4,049,944 are active)
Form 1120 RIC filers: 13,081 (mutual funds with pass through taxation)
Form 1120-REIT filers: 1,650 (real estate investment trust with pass through taxation)

The active S corporations have, in the aggregate, 6,930,746 shareholders (an average of 1.71 shareholders each). Of the active S corporations, 2,493,706 S corporations (61.6%) have net income; this income is allocated to 4,200,809 shareholders in those corporations (an average of 1.68 shareholders each).

While subchapter S of the Internal Revenue Code allows up to 100 shareholders as of 2004, (and really more, due to the nature of the counting rules) to be shareholders in S corporations, in practice, this is very rare and there is little grass roots pressure to increase the limitation. As of the 2007 tax year, when there were 3,989,893 active S corporations:

2,411,642 had 1 shareholder (60.4%)
1,163,717 had 2 shareholders (29.2%) (thus, 89.6% had 1 or 2 shareholders)
200,183 had 3 shareholders (5.0%) (thus, 94.6% had 1-3 shareholders)
188,531 had 4-10 shareholders (4.7%) (thus 99.4% had 1-10 shareholders)
14,481 had 11-20 shareholders (0.4%)
4,575 had 21-30 shareholders and (0.1%)
3,764 had 31 or more shareholders (0.1%)

Most of the S corporations with 31 or more shareholders are either in the business of accomodations and food service (802) (about 0.4% of S corporations of that type) or "Management of Companies" (1,076) (about 4% of S corporations of that type).

Excluding single owner S corporations, the average number of shareholders per S corporation would be about 2.8 per corporation, which is still fewer partners than any type of entity taxed as a partnership under subchapter K.

In the five year period, total number of active C corporations is down about 15% and the total number of S corporations is up by about 20%.

C Corporations

Others are taxed under the C corporation regime, in some cases with significant modifications:

Ordinary C corporations: 1,995,828 (of which 1,762,483 are active)
Form 1120-F filers: 30,549 (foreign corporations that do business in the U.S.)
Form 1120-PC filers: 7,482 (property and casualty insurance companies)
Form 1120-L filers: 736 (life insurance companies)
Other Corporations: 7961 (mostly from U.S. territories and possessions)

In addition to the 30,549 foreign corporations that must file Form 1120-F, there are 66,797 domestic C corporations that are 50% or more foreign owned. S corporation status is not available for corporations with foreign shareholders.

Of the latter group, there are 1,782,478 active corporations (mostly ordinary C corporations and another 19,997 from other types). Inactive corporations had no taxable income or expenses, but are required to file tax returns in any case.

Of this group of active corporations, 935,939 corporations (52.5% of active corporations that are subject to corporate income taxes) had no net income (i.e. they either broke even or experienced a tax loss), while 846,540 had net income.

Of the 846,540 with net income, 544,331 owed corporate income taxes before credits, and 533,386 owed corporate income taxes net of credits. Thus, just 29.9% of corporations that are subject to corporate income taxes actually owed any corporate income taxes in 2008. Another 17.6% of corporations that are subject to corporate income taxes had net income but owed no corporate incomes taxes for one reason or another (e.g. loss carryforwards and tax credits).

Of the corporations owing any corporate income tax, 360,457 paid less than $6,000 of corporate income tax (all of which is subject to the 15% corporate income tax bracket). These corporations accounted for about 0.3% of all corporate income taxes owed, and for 67.6% of all corporations that owed any corporate income tax.

Another 77,640 corporations owed more than $6,000 but less than $15,000 of corporate income tax, and almost all of that income would have been taxed in the 15% or 25% corporate income tax brackets (which end at $13,750 of tax owed). These corporations account for 0.3% of all corporate taxes owed, and for 14.6% of corporations that owed any corporate income tax.

Thus, 82.2% of corporations that owed any corporate income taxes owed just 0.6% of corporate income taxes owed. (Note that this doesn't necessarily mean that the corporate income tax has no tax revenue effect in these cases, it simply means that it created an incentive to convert most corporate income into taxable compensation in many cases.)

Another 60,055 corporations (11.3% of corporations that owe corporate income taxes) that owed less than $100,000 of corporate income taxes (and thus owed some corporate income taxes in the 34% corporate income tax bracket but received some benefit of the lower 15% and 25% marginal tax rates for corporations before they were fully phased out at $133,900 of taxes due), owed 1.1% of all corporate income taxes.

Thus, 93.5% of corporations that owed any corporate income taxes owed less than 2% of all corporate income taxes.

The 370 corporations owing more than $100 million in corporate income taxes in 2008 owed 64.8% of all of the corporate income taxes owed by all corporations in that year. The next 1,642 corporations (those owing $10 million to $100 million in corporate income taxes in 2008) owed 21.3% of all of the corporate income taxes owed by all corporations in that year. Thus, the 2,012 corporations with the biggest tax bills owed 86.1% of all corporate income taxes. All of this corporate income is taxed at a flat corporate income tax rate of 35% (bubble rates eliminate the benefit of graduated tax rates at lower incomes for these corporations).

In between, there were 37,221 corporations that owed $100,000 or more of corporate income taxes but less than $10,000,0000 of income taxes, overwhelmingly taxed at an average rate of 34% to 35%. The 34% rate is fully phased in at $113,900 of tax owed and the 35% rate is fully phased in at $6.417 million of tax owed. The owe 12.7% of all corporate income taxes.

Thus, 39,232 corporations owe 98.8% of all corporate income taxes, despite being just 0.6% of all corporations required to file an IRS Form 1120, while 91.7% of all corporations required to file an IRS Form 1120 of some kind owe no corporate level federal income taxes. The 1.2% of corporate income taxes paid by the remaining 7.7% of corporations is mostly paid in the 15% or 25% corporate income tax brackets, which can provide tax deferral or reduction to shareholders in the 35% individual income tax bracket that would apply to a pass through entity. In addition, C corporation dividends are not subject to FICA or self-employment taxation, and qualified dividends and long term capital gains from these entities are subject to tax rates of 15% or less.

Entities Taxed As Partnerships

In 2003, there were also about 19 million sole proprietorships and there were "2.5 million businesses in the United States taxed as partnerships with 15.6 million partners, an average of about six partners each":

About 402,000 are limited partnerships (i.e. those with both general and limited partners), with an average of 17 partners each, disproprtionately in the finance and insurance area, and to a lesser extent in the real estate, rental and leasing industries. About 725,000 are general partnerships (i.e. those in which all partners have unlimited liability), with an average of 3.7 partners each. About 1,270,000 are limited liability companies, with an average of 3.9 partners each. About 150,000 are some other form of entity taxes as a partnership (one suspects that limited liability partnerships and limited partner assocations would be in this category, for example), with an average of six partners each.

None of these entities taxed as partnerships owe entity level federal income taxes.

Updated partnership data is available from the IRS. In 2008 there were 1,898,178 LLCs taxed as partnerships (about half in real estate, rental and leasing; 948,862 LLCs with 3,533,512 partners), up about 50% from five years earlier, with 7,524,174 partners (an average of 3.96 each). Some of the largest LLCs, measured by numbers of owners per LLC on average, are in finance and insurance, with 147,327 LLCs and 1,055,783 partners (9.2 each on average). Outside these two industries, the average LLC has 3.6 partners.

In 2008, there were 669,601 general partnerships with 2,623,041
partners (3.9 partners each on average), a drop of about 7% over five years, and 411,698 limited partnerships with 7,054,319 partners (17.1 partners each on average), an increase of about 2% over five years.

Of the general partnerships, 238,586 general partnerships with 925,616 partners were in the real estate, rental and leasing industry, while 74,185 general partnerships with 467,033 partners were in the finance and insurance industry. These industries accounted for about 35% of general partnerships and 53% of general partners. Outside these industries, the average general partnership has about 3.5 partners.

The limited partnerships were concentrated in real estate, rental and leasing (246,760 limited partnerships and 2,048,474 partners) and finance and insurance (77,622 limited partnerships with 2,017,856 partners); the two industries account for almost four-fifths of limited partnerships and almost three-fifths of the partners in limited partnerships. Also notable is the industry of transporation and warehousing that has 1,510 limited partnerships with 1,107,494 partners (an average of 733 partners each).

In the 2008 tax year, there were 3.3 million partnership tax returns filed (up more than 30% over five years), a number that is more comparable to the active corporation numbers than the total corporation numbers because inactive partnerships are not required to file income tax returns, while inactive corporations are required to file income tax returns.

Non-Profits

The IRS identifies 1,855,067 non-profit entities that owed no corporate income taxes in 2008, the vast majority of which are organized under Internal Revenue Code Section 501(c), with the vast majority of those being organized under 501(c)(3). There were 901,000 exempt organization tax returns filed in 2008.

Other Entity Types

There were also 3,075,000 estates and trusts that filed tax returns in 2008. There were 30,683,000 employment tax returns filed in 2008, which would include many sole proprietors with employees but would exclude many business entities without employees.

Managerial Variety

For all the myriad choices of entity, there are basically three kinds of ownership structures that are dominant in the United States today.

One is an active closely held business with just a handful of owners who operate largely by consensus.

A second is an essentially passive investment portfolio of either physical assets or financial investments with a medium sized group of investors who are expected (or required) to be largely passive and to defer to a handful of active managers whose shared incentives they rely upon to assure sound management of their investments.

A third is the publicly held corporation, where, in practice, senior management appoints a board of directors that intervenes only in cases of succession crisis or managerial insanity or corporate takeovers, which is largely indifferent to shareholders whose voting rights are basicallly worthless outside a takeover event.

Closely held active businesses with more owners than you could fit around a medium sized conference table (perhaps a dozen to a few hundred), who are involved enough to make considered votes for members of a genuine shareholder representing board of directors, that in turn independently supervises a managerial group on behalf of the shareholders, are very rare in the for profit sector, despite the fact that this is the model for the typical American state corporation statute and is common in the governmental and non-profit sectors.

The typical business that operates on this basis is either a large professional services firms, such as a law firm or accounting firm in which owners are also mostly full time employees of the firm, or is a cooperative, rather than a partnership, or an ordinary corporation. The co-operative business form is discussed in a footnote below.

Choice of Entity

S corporations are attractive because they provide a clear way to reduce FICA taxation, have simpler to comply with tax rules for non-tax experts than limited liability companies, and are consistent with the economic arrangement that many small business owners want. They are a particularly attractive choice for operating businesses without appreciating assets. In contrasts, businesses that primarily own property, particularly if it is likely to appreciate, and businesses that do not qualify to be S corporations due to foreign ownership or complex financial arrangements between co-owners but want pass through taxation treatment favor limited liability companies taxed as partnerships or as disregarded entities. Most new closely held businesses are organized as S corporations or LLCs.

Limited partnerships are chosen over limited liability companies mostly as a result of tradition in certain kinds of investments and because they are the only type of entity that deprives economic owners of almost all voting rights. Limited liability partnerships are typically chosen by professional service partnerships previously organized as general partnerships, to minimize the amount of transition legal and tax work required. General partnerships are usually either chosen by default without counsel, or are between entities or individuals for whom legal liability is not a concern but the ability to fully utilize losses is a concern, since the taxation of unlimited liability general partnerships is simpler than the taxation of limited liability entities taxed as partnerships. Only about a quarter of entities now taxed as partnerships have unlimited liability.

A few state and local jurisdictions (mostly if not entirely in the Northeast) tax S corporations and/or limited liability companies at the entity level, making these choices less attractive and zeroed out C corporations more attractive.

As discussed further below, C corporations are attractive for the anonymity they offer, the fact that one only owes taxes on transactions that produce cash flow for the person taxed (something that venture capitalists often like as a feature), because special tax breaks are available for capital gains in these entities in some circumstances, in some cases for employee benefits reasons, in some cases because they afford low marginal tax rates to high income individuals, and in cases where there are foreign owners, a company is publicly held, or for some other reason no other entity choice is available. One a corporation is a C corporation and has accumulated earnings and profits that have not been distributed as dividends, the tax cost of converting to another form of entity can be great, so many older closely held companies are organized as C corporations out of inertia.

In the current tax environment there can be tax benefits to having C corporations that actually pay corporate level income taxes.

The combination of a 15% entity level corporate income tax and a 15% tax on qualified dividends or long termm capital gains is equivalent to a 28% income tax rate and is FICA free. So, a small amount of entity level taxation produces lower aggregate income taxes than pass through taxation for an individual in the top 35% federal income tax bracket, and with FICA and self-employment tax considerations can also produce lower total taxes for someone in the next lower 25% federal income tax bracket who would otherwise have been subject to the Medicaid portioon of FICA or self-employment taxes.

The combined tax burden on income taxed 25% corporate tax bracket is equivalent to a pass through tax rate of roughly 46%, which is more than the top federal income tax bracket of 35%, but it can mitigate the Medicaid portion of FICA or self-employment taxation, which is almost six percentage points, can allow owner level income earned in a state with a high individual income tax rate to be deferred until the owner moves to a state with little or no individual income taxes, and may even allow the owner to avoid individual level income taxes entirely by holding onto the stock until death when unrealized capital gains taxes are forgiven with the stock liquidated by the individual's heirs. Also, even if there will eventually be a shareholder level tax, taking a tax of 25% immediately rather than 35% immediately can free up cash flow to reinvest in the company providing a tax deferral benefit and a low cost form of business financing in a growth business.

Analysis

More than 98% of entity level federal income taxes are owed by fewer than 40,000 large C corporations (with the lion's share of those taxes coming from publicly held entities) out of more than 30 million businesses and non-profit organizations in the United States. Corporate level income taxation is the exception rather than the norm.

For the other 99.4% of corporations, the primary purpose of the corporate income tax is to create an incentive to discourage corporations from accumulating corporate level earnings that are not taxed on a pass through basis in a form that prevents them from being taxed at the shareholder level when earned. The pattern observed strongly supports that theory that the vast majority of corporations of any economic consequence act rationally to minimize combined owner-entity level federal taxation through choice of entity and management of compensation arrangements, except in cases where foreign ownership that desires to receive a return on its capital, or the need to have a large number of equity investors to finance the venture makes this effectively impossible.

About 7.7 million business entities are taxes on a pass through basis as S corporations, partnerships, RICs or REITs, and another 4.9 million economic entities are non-profits, trusts or estates that either owe no entity level tax or have the capacity to shift entity level taxation to beneficiaries in a way that would eliminate double taxation.

Of the 1.8 million C corporations, about 70% are "zeroed out" C corporations that owe no entity level corporate income tax after tax credits, and the vast majority of the tax paying C corporations with low amounts of corporate income tax owed appear to choose this form of organization because they benefit from progressive marginal tax rates for low income C corporations either as a form of partial tax deferral or as a means of reducing aggregate tax burdens. "Zeroed out" C corporations have a number of tax virtues related to employee benefits, although they are increasingly marginal, and offer anonymity to owners in years when dividends are not paid. For example, they can provide a way in which individuals who do not have a social security number can operate a business and comply with relevant legal and tax laws (including a taxpayer identification number), so long as some means (e.g. overcompensation of paid employees who can work legally, who in turn financially support the true owners) is found to compensate the owners.

The broad outlines of the data from the 2008 tax year are similar to those of the 2003 tax year about which I previously posted in 2006. There are about 13,000 publicly held corporations (including all corporations with 500 or more shareholders) and about 97,000 foreign owned corporations that do business in the United States that have no choice but to be taxed as C corporations. These businesses pay the lion's share of all corporate income taxes.

Corporate Tax Integration Proposals

Many commentators have proposed to end the double taxation present in C corporations by integrating corporate and shareholder level taxation, typically by affording a deduction for dividends paid, by exempting dividends paid from individual level taxation, by wider use of pass through taxation in a simplified form, or by giving shareholders who receive dividends a tax credit that treats corporate level income taxes as a withholding tax collected in advance from funds to be distributed ultimately as dividends (the most common approach internationally). One proposal to make up the revenue that would be lost if one of these corporate tax integration options were adopted would be to impose a small annual (or otherwise periodic) tax directly upon the fair market value of publicly traded securities like a property tax, since the corporate income tax is already largely a tax on the privilege of operating as a publicly held entity, and because it would be cheap and easy to administer. These reforms would in addition to promoting fairness also reduce the debt-equity distinction that favors debt in the current tax code, which is an important factor in creating systemic risk in the economy. It would also reduce the tax bias between public and privately owned companies that now favors privately owned companies even when this is not optimal from a non-tax perspective.

Footnote On Cooperatives

In 2002, 3,140 farmer cooperatives provided marketing, farm supplies, and services to farmers. This represents a steadily declining number of farmer cooperatives, down from about 10,000 in 1950, and 6,211 in 1981. This decrease in the number of cooperatives reflects the trend of consolidation and merger occurring in production agriculture and in many segments of the food industry.

Of cooperatives operating in 2002, 1,559 primarily marketed farm products, 1,201 primarily provided farm supplies to farmers, and 380 primarily provided other services. Many cooperatives engage in two or all three of these activities.

Cooperatives can also be classified according to organization structure. Centralized cooperatives have only farmer members. Federated cooperatives have only other farmer cooperatives as members. The membership of mixed cooperatives consists of both farmers and farmer cooperatives. In 2002, 3,060 cooperatives were centralized, 53 were federated, and 27 were mixed. Just under 2.8 million producer memberships in farmer cooperatives were reported in 2002. This number includes duplications for farmers who hold membership in more than one cooperative, a common situation.

The tax treatment of patronage refunds paid to patrons and other tax implications of farmer membership affect a great number of farmer taxpayers. The gross business volume of all farmer cooperatives in 2002 was $111.6 billion, up from $90.8 billion in 1991. Marketing represented 69.0 percent of the total, farm supplies 28.3 percent, and selected services 2.7 percent. If inter-cooperative business transactions are eliminated, net business volume was $96.8 billion, up from $76.6 billion in 1991.

Most farmer cooperatives are relatively small businesses. In 2002, 83.8 percent of all farmer cooperatives reported business volume of less than $25 million.

Looking at some balance sheet numbers, combined assets of all farmer cooperatives in 2002 totaled $47.5 billion, up from $31.3 billion in 1991. Total liabilities were $27.9 billion, compared to $17.2 billion in 1991. This leaves net worth, or member and patron equity, at $19.6 billion, a sizable increase over the $14.1 billion of 1991.

The 100 largest cooperatives (the so-called Top 100 in USDA Rural Development publications) usually operate over sizable geographic areas and make up an important segment of the farmer cooperative industry. In 2002, the Top 100 accounted for $64.0 billion in business volume, 57.3 percent of the business volume for all farmer cooperatives.13 They likewise dominated the balance sheet items with $27.2 billion in total assets (57.2 percent of the total) and $8.6 billion in member and patron equity (43.9 percent
of the total).

Eighty-nine of the 100 had earnings in 2002, totaling $817.0 million. How a cooperative uses its earnings affects tax calculations of both the cooperative and its farmer patrons.

These earnings were accounted for in several ways. Cash patronage refunds totaled $194.5 million (23.8 percent). Retained patronage refunds were $394.6 million (48.3 percent). Thus $72 out of every $100 in margins realized by the Top 100 were distributed or allocated as patronage refunds. The eighty-nine cooperatives in the Top 100 for 2002 with earnings paid $74.3 million in corporate income taxes (9.1 percent). Dividends on stock amounted to $1.6 million (0.2 percent) and $152.0 million (18.6 percent) were placed in unallocated reserves.

The 11 cooperatives in the Top 100 that suffered losses in 2002 had total losses approaching $675 million. Close to $35 million was covered with tax benefits and approximately $300 million was set off against unallocated equity. The remainder is either being carried on the cooperatives’ books or being recovered from patronage equities. . . .

NON-FARM COOPERATIVES . . .

The National Cooperative Business Association reports that in the United States a network of 48,000 cooperatives directly serve 120 million people -- nearly 40 percent of the population. . . .

The largest single segment of the cooperative industry is credit
unions. The roughly 10,000 credit unions in the United States
have more than $600 billion is assets and 83 million members.

Building on their base of member savings and consumer loans and home mortgages, credit unions now offer additional services to their members including credit cards, automated teller machines, tax-deferred retirement accounts and certificates of deposit.

Created in 1916, the cooperative Farm Credit System is the nation's oldest and largest financial cooperative. It provides real estate loans, operating loans, home mortgage loans, crop insurance and various other financial services to more than 500,000 farmer, small-town resident and cooperative borrowers. It loans roughly $90 billion annually to its members.

One element of the Farm Credit System is CoBank. It has about $25 billion in outstanding loans and leases to farmer and rural utility cooperatives and water and waste disposal systems. CoBank has become an important financier of exports of U.S. farm products as it broadens its role of making credit available to enhance farm and rural income.

Since 1969, the National Rural Utilities Cooperative Finance Corporation (CFC) has been a valuable source of financing for rural electric and telephone cooperatives. With $21 billion in assets and almost $21 billion in credit outstanding, CFC supplements funding provided by USDA's Rural Utilities Service and provides business services to its borrowers. In a short period of time, the National Cooperative Bank (NCB) has become an important financial institution for America's housing, business and consumer cooperatives. Chartered by Congress in 1978 and private since 1982, NCB has originated more than $6 billion in loans to nearly 2,000 cooperatives throughout the country. NCB has become a leader in providing development funding for new, non-agricultural cooperatives and in devising methods of attracting outside capital to leverage its investments.

Nearly 1,000 rural electric cooperatives own and maintain nearly half of the electric distribution lines in the United States, cover 75 percent of the land mass, and provide electricity to 36 million people.

Roughly 270 telephone cooperatives are providing a growing portfolio of communications services to 2 million households, including wireless technology and high-speed Internet access.

More than 1,000 mutual insurance companies, with more than $80 billion in net written premiums, are owned by their policyholders.

America has about 1 million units of cooperative housing, nearly 600,000 of them in New York City. New units are being developed in many other sectors, including senior citizen communities, trailer parks, low-income complexes, and student housing near college campuses.

Millions of Americans receive basic medical care through cooperatively organized health care providers. Health maintenance organizations (HMOs) serve more than 1 million people coast-to-coast and will likely be an increasingly important part of the health care system in the years ahead. In several major cities-- Seattle, Minneapolis, Memphis, Sacramento, Salt Lake City and Detroit--companies have formed cooperative health alliances to purchase health care for their employees.

Child care cooperatives are meeting the needs of families where the parent(s) are employed and want affordable care. These centers can be organized by parents on their own, by a single employer, or by a consortium of businesses providing a single center for the group. More than 50,000 families use cooperative day care centers daily.

Some business cooperatives manufacture or otherwise procure products for their retail outlet members. For example, more than 15,000 independent grocery stores rely on cooperative grocery wholesalers for identity, brand names, and buying power they need to compete with the chains and the discounters. Members also receive training and financing. Several cooperative grocery wholesalers are multi-billion-dollar firms rivaling the largest farmer cooperatives in sales and assets.

Cooperatively owned hardware wholesalers supply virtually all of the independent hardware stores in the United States. As huge warehouse chains spread across the nation, the independents are relying more and more on TruServ, Ace Hardware, Do-it-Best, and other cooperatives for products, promotions and education to remain viable businesses.

Other business cooperatives negotiate group purchase contracts with suppliers and their members purchase the goods and services they need directly from those suppliers. A leader in this group is VHA. More than 2,200 hospitals and other health care providers purchase $20 billion annually in supplies and services under contracts negotiated by this cooperative.

Restaurant supply purchasing cooperatives save money and provide quality products for both company-owned outlets and franchisees of several fast-food chains. These firms include Unified Foodservice Purchasing Co-op (A&W, KFC, Long John Silver’s, Pizza Hut, and Taco Bell) and Restaurant Services, Inc. (Burger King). Besides their bottom-line impact, purchasing cooperatives also offer another, less tangible benefit: they help to build trust among franchisers and franchisees, particularly on pricing issues.

Cooperatives are leaders in other major industries, including media and news services (Associated Press), outdoor goods and services (Recreational Equipment Inc.), lodging (Best Western), carpeting (Carpet One), electrical distributors (IMARK), natural foods, and collegiate bookstores. . . .

[TAXATION OF COOPERATIVES]

As one form of business corporation, cooperatives calculate taxable income and use tax rates like other corporations, but with one principal difference. This difference reflects cooperatives' distinct way of distributing net margins to its patrons based on use, rather than to investors based on investment. . . .

The general principle of cooperative income taxation is that money flows through the cooperative and on to patrons, leaving no margins to be retained as profit by the cooperative. Thus margins are taxed only once. The tax is ultimately paid by the final recipient (the cooperative patron), although under some circumstances the cooperative pays tax on a temporary basis, then receives a deduction when the money is finally passed on to the
patron.

This single tax principle only applies if business income sources and distribution methods are "cooperative" in nature. Earnings from sources other than patronage and margins not distributed in the manner specified by the Code are generally not eligible for single tax treatment. The critical issue [is] in distinguishing patronage- and nonpatronage-sourced income . . . . General corporate income tax rules apply to earnings from nonpatronage sources and double taxation results.

When statutory conditions are met, cooperatives treat retained patronage refunds and per-unit retains as if the funds retained had been paid to the patron, deducted by the cooperative, taken into the patron's income as ordinary income, then invested in the cooperative. Conditions for this tax treatment include agreement by the patron to recognize the full patronage refund for tax purposes even though not received in cash or negotiable form.

Farmer cooperatives that meet several organizational and operational rules set out in Code section 521 are allowed to deduct two additional items: (1) dividends paid on capital stock and (2) distributions of nonpatronage earnings to patrons on the basis of their patronage.

Subchapter T of the Code, "Cooperatives and Their Patrons," contains most of provisions directly related to cooperative taxation and the taxation of patrons. Part I of subchapter T consists of three sections. Section 1381 describes cooperative organizations to which subchapter T applies. Subchapter T applies to all farmer cooperatives, including farmer cooperatives qualifying under section 521. A business need not be a farmer cooperative to qualify for subchapter T tax status. Any business "operating on a cooperative basis" uses subchapter T when computing its tax liability.

Farmer cooperatives file on form 990-C. Other cooperatives file form 1120. . . . Cooperatives must report such distributions to IRS (form 1096) and to the patron receiving the distribution (form 1099-PATR). Section 6044(c) provides an exemption from reporting for certain consumer cooperatives.

From here (the U.S. Department of Agriculture source is in the public domain).

How Common Is Geriatric Dementia?

[T]he incidence of all-cause dementia almost doubles with every 5 years of age and that the prevalence of dementia rises from approximately 2 percent to 3 percent in those 65 to 75 years to 35 percent in those 85 years and older.

From here.

New Long Form Passport Form Intimidating

Humor writer W. Bruce Cameron's latest column described a government form so awful, I feared that he might be simply making it up. But, alas, his summary of the DS-5513 long form passport application, proposed this February, is every bit as bad as claimed. Comments received in the 60 day comment period can be found here.

It asks for all sorts of information, that while including many of the sort of questions that a lawyer might put on an intake form for someone trying to prove their U.S. citizenship in a court case, asks for a host of details (e.g. dates of pre-natal appointments), that reasonable people who happen to have been born outside a medical facility and without having a birth certificate issued within a year of their birth are exceedingly unlikely to know, especially if they, rather than their parents, are completing the form while they are adults. Moreover, many of the details asked for provide evidence that does not directly prove or disprove citizenship, while not asking other questions that might directly establish one's citizenship.

The form does nothing to acknowledge that a typical applicant will not have complete answers to all of the questions asked and can apply with incomplete information, even though in many or most cases, citizenship could be established with only an incomplete portion of the form. It doesn't even make clear who must fill out the long form at all.

Also, while the form contains a variety of questions targeted at the issue of establishing citizenship by paternity or citizenship by birth in the United States, it doesn't seem to address citizenship by naturalization of a relative, or address the issues involved in nationality v. citizenship. Finally, it doesn't seem to have any questions calculated to address the "Superman Rule" (Generation Y readers may prefer to call it the "Roswell Rule") which grants U.S. citizenship to children of unknown paternity and unknown circumstances of birth found in the United States at a young age.

Anyway, this is one more reason I'm glad that I secured passports for my children last year, with no particular reason for doing so.

Back Door Cramdowns?

The general rule under the United States bankruptcy code is that when loans are secured by collateral in a reorganization (rather than a liquidation), that the loan is broken up into two parts for bankruptcy purposes - one equal to the value of the collateral which is entitled to receive value in the bankruptcy equal to at least the value of the collateral (often by being given a loan with a principal amount equal to the value of the collateral and otherwise the same interest rate, amortization period and other terms as the original loan), and with the othe part equal to the remainder of the loan that receives the pennies on the dollar or no payout that other general unsecured creditors (like ordinary corporate bond holders and credit card copmanies) receive. The reduction of the loan to the value of the collateral is called a cramdown. Mostly, cramdowns apply to business property bought with secured credit and vacation properties with mortgages.

Residential mortgages and most car loans aren't eligible for cramdown treatment in bankrupty. The debtor must either reaffirm the loan in full, even if the collateral is worth less than the loan, or surrender the property.

There is a gray area in the case of residential mortgages that is turning out to be quite relevant. Often, a house in bankruptcy in an areas where there has been a housing price bubble collapse will have two mortgages. The first mortgage will clearly not be eligible for a cramdown. But, what about the second mortgage? If the value of the house is less than the amount of the first mortgage, is the second mortgage really a mortgage at all? Or, is the second mortgage really just an unsecured debt like a credit card because its claim against the collateral is contingent and only a remote future possibility?

A recent newspaper article in the Mercury News reviews this legal battle. According to the article, "bankruptcy lawyers say the provision has been used effectively on hundreds, if not thousands, of cases in the Bay Area during the past two years." The California Mortgage Bankers Association is unhappy about this trend, but sees few options on the legislative front in a divided Congress. On the other hand, "there are no complaints from investors in first mortgages, like the pension and retirement funds represented by the Association of Mortgage Investors."

Income tax deductability and funding from mortgage backed securities made splitting low down payment mortgages into a a conventional first mortgage with an 80% loan to value ratio, and a second mortgage with a higher interest rate that covered the balance except for a small down payment, attractive compared to a single larger first mortgage with title insurance. Second mortgages used to extract cash from a house that had appreciated in value during the housing bubble were also popular.

The issue has a special tenor in California where residential mortgages are generally non-recourse. There, the only way that a lender can collect is out of the collateral, so a bankruptcy proceeding that wipes out a second mortgage lien wipes out any remedy for the lender.

There are two narratives that explain the trend to deny the cramdown to residential mortgages.

One is that it protects lenders from being penalized by artificially low appraisals in bankruptcy court. If the property is really worth less than the loan, a rational bankruptcy debtor would give up the property and escape the mortgage debt in bankruptcy, so a cramdown should only take place if the appraisal undervalues the property providing an undeserved benefit to the debtor. Similarly, an appraisal based only on current comparables fails to capture appreciation in real estate that may be available in a short time during a temporary real estate price slump. These concerns don't seem to have been well supported, however, by the experience in Chapter 12 farm bankuptcies, where cramdowns are allowed.

The other narrative is that home owners aren't rational. They attach sentimental, and dignity related and moving cost related value to their home that no lender could realize if the home were foreclosured upon or surrendered. In this narrative, denying residential home owners a right to cramdown mortgage loans is a way of giving residential mortgage owners more than their fair share in a bankruptcy every time a debtor keeps a home that has a fair market value of less than the face value of the loan.

It is unclear how common this situation is in Denver. Internet real estate appraisal service Zillow.com says 41% of meto Denver homeowners owe more on their mortgages than their homes are worth, and many of those homes would have second mortgages. But, Standard & Poor's/Case-Shiller, which experts believe is more accurate (Forbes actually dropped them as a source after obvious gross errors in their statistics were pointed out), concludes that housing values have declined far less than Zillow concludes, and hence far fewer homeowners are upside down. Case-Shiller consistently ranks Denver as one of the twenty major housing markets least impaired by the housing bust, while Zillow counts Denver as the second hardest hit market in the nation. Like other observers, I'm strongly inclined to give Case-Shiller more credit than Zillow for accuracy on this point. Too much other data corroborates the conclusion that Denver's real estate market has declined less than those of many other markets in places like California, Arizona, Nevada and Florida.

New Rules

The U.S. Supreme Court has approved new court rules to take effect on December 1, 2011 unless Congress acts to disapprove them.

The most notable changes are revisions to the rules concerning what a creditor in bankruptcy must include in a claim filed with a bankruptcy court, and the plain English restyling of the Federal Rules of Evidence. The other bankruptcy and appellate rule changes are relatively obscure.

There were also changes to the Federal Rules of Criminal Procedure that reflect new telecommunications and other electronic technologies used in the courts (e.g. allowing testimony by Skype rather than merely by telephone and allowing for the e-filing of many court documents).

Combined U.S. Tax Burden Lowest Since 1958

Americans are paying the smallest share of their income for taxes since 1958, a reflection of tax cuts and a weak economy. . . . The total tax burden — for all federal, state and local taxes — dropped to 23.6% of income in the first quarter, according to Bureau of Economic Analysis data. By contrast, individuals spent roughly 27% of income on taxes in the 1970s, 1980s and the 1990s — a rate that would mean $500 billion of extra taxes annually today, one-third of the estimated $1.5 trillion federal deficit this year. . . . Individuals paid taxes at an annual rate of $10,549 per person in the first quarter — about the same as individuals have paid since 1990 when adjusted for inflation. Incomes have grown; tax payments haven't.

From USA Today via the Tax Profs Blog.

The top income tax rate in 1958 was 91% (where it remained from shortly after World War II until 1964). At the time, the nation was running under the recently overhauled Internal Revenue Code of 1954, which was revised, in part, because of budget surpluses run by the federal government in 1948, 1949 and 1950 (the Korean War soaked up surpluses in the following years). There was also a gift and estate tax regime in place in 1958 which was less generous (and more complicated) than the one in place as of 2011.

In contrast, the top federal income tax rate in 2011 is 35%, and for most long term capital gains and qualified dividends the top federal income tax rate is 15%. Thus, in addition to a low aggregate tax burden by historical standards, top marginal tax rates are also low by historical standards. It is also easier given the state of transportation and telecommunications technologies to relocate to a low tax state now to minimize state and local tax burdens than it was to do so in 1958.