Out with the Old

Change is rippling through the Arab world, first in Tunisia and now in Egypt and possibly Yemen. The question is what - or who - comes in with the new?

Tunisia has had only two leaders since 1956. Both have been dedicated to economic progress and have taken a firm stand against Islamic extremists. Mubarak in Egypt is now 82 years old and took power after Sadat was assassinated. He also kept the lid on Islamic extremists, but looked the other way as long as they did not actively plot against his government. Yemen - well Yemen is a little backward, say like the 1300s.

The problem with massive unrest is that it opens the door to the most ruthless factions operating in a country. The group that can move fastest to eliminate rivals and seize the reins of power comes out on top. The Bolsheviks did this in Russia, the Nazis in Germany, and now there is a distinct possibility of this happening in the three Arab states named above. Which brings us to the Muslim Brotherhood and al-Qaeda, both of which are ruthless enough to seize the brass ring.

The Muslim Brotherhood is active in all three countries, as well as the U.S. Founded in Egypt in 1928,  it is very secretive in its operations, and Sharia (think Iran) in its religious orientation. Its goal is to establish a worldwide Islamic hegemony that is based on Sharia law. Terror is alright as long as it is directed at Jews and Americans, but the MB parts company with al-Qaeda over the use of indiscriminate terror that kills fellow Muslims. That has not stopped them, however,  from tactical operations with al-Qaeda where they think their interests coincide. Another distinction from al-Qaeda is that it has a social policy arm that seeks to help poor Arabs. It is these differences that make me place my money on the MB because it will have more popular support.

The counterweight to these two groups is the military. Many of the army officers in these countries have received extensive Western military training. They view themselves as a professional class, are anti-extremist by nature, and tend to be somewhat more secular in worldview than their fellow citizens. They also have the serious weaponry if they have the will to use it. Mubarak did but he's old. If he still has enough gas left to deal with the unrest this time, rest assured that it will come again and at some point he simply will not have enough left to handle the pressure. Is there a young officer in the Egyptian Army capable of doing the job? Time will tell. In the meantime, look for these three groups to be slugging it out with each other to see what significant parts of the Arab world will look like for the next 50 years.

What the House Voted to Repeal

The House voted to repeal Obamacare and sent it to the Senate. Not only would Obamacare reduce the U.S. healthcare system into a clone of England's or Canada's systems, it piles tax upon tax in the process. Here is the full list:


Individual Mandate Excise Tax(Jan 2014): Starting in 2014, anyone not buying “qualifying” health insurance must pay an income surtax according to the higher of the following

	1 Adult	2 Adults	3+ Adults
2014	1% AGI/$95	1% AGI/$190	1% AGI/$285
2015	2% AGI/$325	2% AGI/$650	2% AGI/$975
2016 +	2.5% AGI/$695	2.5% AGI/$1390	2.5% AGI/$2085

Exemptions for religious objectors, undocumented immigrants, prisoners, those earning less than the poverty line, members of Indian tribes, and hardship cases (determined by HHS)
Employer Mandate Tax(Jan 2014):  If an employer does not offer health coverage, and at least one employee qualifies for a health tax credit, the employer must pay an additional non-deductible tax of $2000 for all full-time employees.  This provision applies to all employers with 50 or more employees. If any employee actually receives coverage through the exchange, the penalty on the employer for that employee rises to $3000. If the employer requires a waiting period to enroll in coverage of 30-60 days, there is a $400 tax per employee ($600 if the period is 60 days or longer).

Combined score of individual and employer mandate tax penalty: $65 billion/10 years

Surtax on Investment Income ($123 billion/Jan. 2013):  This increase involves the creation of a new, 3.8 percent surtax on investment income earned in households making at least $250,000 ($200,000 single).  This would result in the following top tax rates on investment income

	Capital Gains	Dividends	Other*
2010-2012	15%	15%	35%
2013+ (current law)	23.8%	43.4%	43.4%
2013+ (Obama budget)	23.8%	23.8%	43.4%

 

*Other unearned income includes (for surtax purposes) gross income from interest, annuities, royalties, net rents, and passive income in partnerships and Subchapter-S corporations.  It does not include municipal bond interest or life insurance proceeds, since those do not add to gross income.  It does not include active trade or business income, fair market value sales of ownership in pass-through entities, or distributions from retirement plans.  The 3.8% surtax does not apply to non-resident aliens.

Excise Tax on Comprehensive Health Insurance Plans($32 bil/Jan 2018): Starting in 2018, new 40 percent excise tax on “Cadillac” health insurance plans ($10,200 single/$27,500 family). For early retirees and high-risk professions exists a higher threshold ($11,500 single/$29,450 family).  CPI +1 percentage point indexed.
Hike in Medicare Payroll Tax($86.8 bil/Jan 2013): Current law and changes:

	First $200,000 ($250,000 Married) Employer/Employee	All Remaining Wages Employer/Employee
Current Law	1.45%/1.45% 2.9% self-employed	1.45%/1.45% 2.9% self-employed
Obamacare Tax Hike	1.45%/1.45% 2.9% self-employed	1.45%/2.35% 3.8% self-employed

Medicine Cabinet Tax($5 bil/Jan 2011): Americans no longer able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin)
HSA Withdrawal Tax Hike($1.4 bil/Jan 2011): Increases additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.
Flexible Spending Account Cap – aka“Special Needs Kids Tax”($13 bil/Jan 2013): Imposes cap of $2500 (Indexed to inflation after 2013) on FSAs (now unlimited). . There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children.  There are thousands of families with special needs children in the United States, and many of them use FSAs to pay for special needs education.  Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education.
Tax on Medical Device Manufacturers($20 bil/Jan 2013): Medical device manufacturers employ 360,000 people in 6000 plants across the country. This law imposes a new 2.3% excise tax.  Exemptions include items retailing for less than $100.
Raise "Haircut" for Medical Itemized Deduction from 7.5% to 10% of AGI($15.2 bil/Jan 2013): Currently, those facing high medical expenses are allowed a deduction for medical expenses to the extent that those expenses exceed 7.5 percent of adjusted gross income (AGI).  The new provision imposes a threshold of 10 percent of AGI; it is waived for 65+ taxpayers in 2013-2016 only.
Tax on Indoor Tanning Services($2.7 billion/July 1, 2010): New 10 percent excise tax on Americans using indoor tanning salons
Elimination of tax deduction for employer-provided retirement Rx drug coverage in coordination with Medicare Part D($4.5 bil/Jan 2013)
Blue Cross/Blue Shield Tax Hike($0.4 bil/Jan 2010): The special tax deduction in current law for Blue Cross/Blue Shield companies would only be allowed if 85 percent or more of premium revenues are spent on clinical services
Excise Tax on Charitable Hospitals(Min$/immediate): $50,000 per hospital if they fail to meet new "community health assessment needs," "financial assistance," and "billing and collection" rules set by HHS
Tax on Innovator Drug Companies($22.2 bil/Jan 2010): $2.3 billion annual tax on the industry imposed relative to share of sales made that year.
Tax on Health Insurers($60.1 bil/Jan 2014): Annual tax on the industry imposed relative to health insurance premiums collected that year. The stipulation phases in gradually until 2018, and is fully-imposed on firms with $50 million in profits.
$500,000 Annual Executive Compensation Limit for Health Insurance Executives($0.6 bil/Jan 2013)
Employer Reporting of Insurance on W-2(Min$/Jan 2011): Preamble to taxing health benefits on individual tax returns.
Corporate 1099-MISC Information Reporting($17.1 bil/Jan 2012): Requires businesses to send 1099-MISC information tax forms to corporations (currently limited to individuals), a huge compliance burden for small employers
“Black liquor” tax hike(Tax hike of $23.6 billion).  This is a tax increase on a type of bio-fuel.
Codification of the “economic substance doctrine”(Tax hike of $4.5 billion).  This provision allows the IRS to disallow completely-legal tax deductions and other legal tax-minimizing plans just because the IRS deems that the action lacks “substance” and is merely intended to reduce taxes owed.

Read more: http://www.atr.org/comprehensive-list-tax-hikes-obamacare-a5758##ixzz1Bp1jqvUy

I Knew I Liked These Guys

Frontier Airlines is a growing Denver-based carrier with trademark animals on the tails of its jets. I have yet to fly them but my kids have and they have universally liked the product, as do Denverites, who are fiercely loyal to the airline. I came across an article that helps explain some of the "why" behind the buzz.

Bryan Bedford is the CEO of Frontier and he recently appeared on the television show Undercover Boss. If you haven't seen the show, the m.o. is that the president/CEO of a company goes undercover in his/her own company and works as an everyday employee to see how things look from the bottom of the heap. Some bosses are appalled and others are gratified by what they find. Bedford threw baggage, collected tickets, served drinks in flight, and did all the other things line employees do every day. He also prayed with his troops. He what? Yup, the cameras showed Bedford who:

 "... spoke frequently of God, praying with and hugging employees who shared their financial and family difficulties with him. "

The report continued,

"While acknowledging his employees' diversity, Bedford says he's not shy about his Roman Catholic faith or broadcasting its messages publicly in company communications. 'We believe that every employee, regardless of personal beliefs or world view, has been created in the image and likeness of God,' reads the first line of Republic Airways' vision statement."

Imagine treating others - employees and customers - as you yourself would like to be treated. What a novel concept! All companies have a personality. Frontier is getting noticed in a good way for its corporate culture and now you know why. The next time you head east from Portland, give them a try and see what you think.

www.airportbusiness.com/web/online/Top-News-Headlines/Republic-opens-new-chapter-/1$42192

Man the Lifeboats!

The Oregonian reports that Evraz, parent company of Oregon Steel, an Oregon company founded in 1928, has decided to move its corporate headquarters from Portland to Chicago. The paper quotes the president of the company that of course this has nothing to do with Oregon's business climate:

"Rehwinkel said in an interview the move has nothing to do with Portland's business climate or Oregon ballot measures 66 and 67, which raised taxes on corporations and high-income earners."

Yeah, that's it, as Jon Lovitz used to say on Saturday Night Live. And it also probably had nothing to do with Mayor Daley coming to Oregon to seduce Oregon companies in the aftermath of the Measure 66-67 vote as I blogged on almost exactly a year ago on January 30, 2010. Here is one Hiz Honor's quotes at that time:

“It will help our economic development immediately. You’d better believe it. We’ll be out in Oregon enticing corporations to relocate to Chicago. I’ll be very frank. I make no bones about that. If those states want to do that, so be it.” 

Yeah, that's it - nothing to do with Oregon's bad business climate. He he he.


www.oregonlive.com/business/index.ssf/2011/01/evraz_parent_company_of_oregon.html

Say What?

 Tri Met is apparently considering letting these little guys on its buses and trains as assistance animals. And all that undoubtedly comes with them? The mind reels! What next - assistance giraffes? Rhinos? Tigers? Sheesh.


www.kgw.com/news/TriMet-considers-mini-seeing-eye-horses-on-buses--trains-114204459.html

Sneaking Up on High Speed Rail in Oregon

A "High Speed Rail Corridor" (HSRC) has been designated for some time running from Eugene to Vancouver, BC. The state of Washington has taken the lead by investing heavily in track and signaling, as well as trainsets. Last year Oregon bought two new Talgo trainsets (pictured left) to contribute to the service. As I pointed out, though, in a March 2, 2010 post, poor track is the big impediment to realizing the goal of truly high speed service in Oregon. Circumstances require that we rethink how this service is approached in Oregon and it starts with the foundational concepts of limited budgets and looking at actual demand. A new report does just that.

The report is entitled "High Speed Rail in America" and ranks various proposed corridors around the country including the one above. www.america2050.org/2011/01/high-speed-rail-in-america.html It concludes that in the Northwest Corridor the focus should really be between Seattle and Portland and service both south and north of these points should be more conventional feeder-type service. For example, in 2009 there were 740,000 passengers between Seattle and Portland. The numbers beyond those end points drop off to under 100,000 annually, although the north end had a boost last winter with the Winter Olympics in Vancouver, BC.  Big difference. As much as I like riding the sleek Talgos to Seattle from Salem, it doesn't make much economic sense to tie up these expensive trainsets for traffic volumes far below their capacity on track that is not designed for high speeds. Building frequency of service is the key to moving people out of cars and on to trains, so how does one do that?

The first step is to restrict the Talgos to the SEA-PDX corridor. By doing so, instead of Talgos poking along to Eugene and Vancouver, BC, additional roundtrips could be added with them between SEA and PDX; more frequency = more passengers = more revenue.

The second step is to grow the feeder services and frequency is the key here too. To do that requires cheaper equipment, with cheaper operating costs that matches capacity to demand - something like the DMU railcar pictured to the left. Instead of carrying 420 passengers like the Talgos, the DMU carries roughly 140. Instead of being designed to run at 125 mph, DMUs travel at a respectable 79 mph. The trailing unit on a DMU is unpowered so operating costs are lower. They can be run from either end, so there is no need to turn them at their destination. They are modern looking and offer many passenger amenities for the 2-hour run up the Willamette Valley. Running from both Portland and Eugene throughout the day, DMUs could be timed to offer connections to the high speed SEA-PDX service, as well as providing frequent commuter service to Portland. The economics of DMU units might also make it possible to extend rail service up the Columbia Gorge to The Dalles or even Pendleton/La Grande.

The tracks cannot be forgotten, of course. Oregon will need to identify and remove bottlenecks to high speed service, but by going cheap on equipment, more money will be available to do the track work over time. As passenger volumes build because of increased frequency, it will become more evident that investing in passenger rail is a prudent way to enhance mobility for Oregonians without the enormous expense of turning I-5 into an 8-lane mega road - that still gets jammed.

High speed rail will happen in the Northwest. If we wait until I-5 is just one big traffic jam, it will be too late to economically build our rail passenger network. Prudent and deliberate steps now, not wishful thinking, is what will get the job done.

(Tip o' the hat to Glenn Geisendorfer for this report!)

Angels of Mercy

Immediately after the earthquake in Haiti there was so much destruction that aid flights from other countries could not land. That is aid flights from everyone but Missionary Flights International and its antique DC-3s. In the 2 weeks following the quake, this non-profit missionary support organization flew 230 missions into Haiti and moved 2 million pounds of supplies. Volunteers poured in from all over to marshal and load supplies. Donations came in at the rate of $300,000 per day at one point to keep them running. And they are still doing it, as they have since the 1970s. Its people are volunteers who raise their own support, they fly airplanes that were phased out by the mainline carriers in the 1950s, and they just keep getting the job done for the Kingdom. Well done faithful servants! Salt and light. Salt and light.

www.airportbusiness.com/web/online/Top-News-Headlines/Missionary-Flights-service-fills-critical-aid-void-Aviation-ministry-has-become-go-to-agency-for-sending-Haiti-supplies/1$41998