“POLITICIANS SAY ‘MORE TAXES!’ WE’RE STARVIN’ IN VAIN…AND THE BAND PLAYS ON”

10/22/19

Late last week, in her continuing quest to address Chicago’s fetid financial footing, Chicago Mayor Lori Lightfoot proposed increasing the Chicago food and beverage, or restaurant, tax by 0.25%.   The Mayor argues that, in the great scheme of things, this is a negligible increase, and she has a point.   Right now, the total tax rate on restaurant meal in Chicago is 10.50%, composed of

General sales tax                                                              10.25%

Existing food and beverage (restaurant) tax                        .25%

Total                                                                                 10.50%

unless one is eating in the McPier taxing area, in which diners must pay another 1.00% in order to provide the politicians funds to develop Navy Pier, McCormick Place, and the like, which is a more palatable way of saying to give politicians the spondulicks to fund massive projects designed to reward politically connected contractors, but those of you who know Chicago-ese had no need of this translation.  The McPier tax goes back nearly thirty years and was supposed to expire once Navy Pier was “developed” into what it is today (Yours truly will reserve aesthetic judgment to his readers.) and McCormick Place was brought up to competitive standards.  However, the politicians have, mirabile dictu, found new, vital projects to fund, such as Wintrust Arena and the infrastructure supporting another new hotel, and even more remunerative sinecures to reward to their various coat-holders and hangers-on, so the McPier tax continues.   But I digress.   When we add the McPier tax, diners masticating in the McPier area face an additional 1.00% tax on their meals, bringing the total tax on such meals to 11.50%.   The McPier area, by the way, is not geographically inconsequential, reaching from the Lake on the east to Ashland on the west, Diversey on the North, and the Stevenson on the south, i.e., into areas that rarely, and restaurants that never, serve conventioneers or Bear fans looking to drown their sorrows after another stellar performance by the erstwhile Monsters of the Midway.   Last Spring, the McPier area was to be expanded as far north as Irving Park, as far west as Western Avenue, and as far south as Hyde Park.   Much to the Mayor’s credit, she strongly opposed that idea and it died in the state House.   Yours truly, a huge fan of the Italian restaurants on Oakley Avenue in the near southwest side neighborhood now trendily referred to as “Heart of Chicago,” thanks the Mayor from the bottom of his heart, but, again, I digress.

The Mayor’s logic in adding another 0.25% to the Chicago diner’s already colossal sales tax bill is the old “drop in the ocean” argument, and that logic has a certain appeal given that the total tax is “only” being increased from 11.50% to 11.75%, or 2.2%, for McPier area diners and from 10.50% to 10.75%, or 2.4%, for non-McPier area diners.    Compared to the tax increases that are coming for, say, homeowners, Uber riders, or maybe even suburbanites working in the city, this is indeed a drop in the proverbial ocean.

However…

Think of the underlying logic behind the “drop in the ocean” argument.   The additional tax appears small because the existing tax is already so large.   The implication is that it is in the best interests of politicians to keep taxes really high so that any additional taxes look Lilliputian by comparison…as if the pols, in Chicago or anywhere, need any further incentive to keep taxes high.   And this is, of course, a self-regenerating argument…additional tax increases make taxes higher making additional tax increases look smaller making taxes higher making additional tax increases look smaller in a seemingly never ending upward spiral.   Such is the logic, or at least the logical conclusion, of the Mayor’s argument, and it’s perfect for politicians.

One concluding note of caution…

Am I arguing against the additional quarter of a percentage point restaurant tax?   No more than I argue against just about any tax.   But at least this tax is understandable, given Chicago’s desperate need for revenue because the city can’t, and surely has no desire to, cut its way out of the cavern it has dug for itself.   Further, the additional restaurant tax is, at the risk of falling for the aforementioned argument, small.  Finally, it is placed on an avoidable activity, i.e., eating out, which, by the way, means that it will probably not generate the projected revenue, but that is grist for future mills.   So if yours truly is going to get excited about opposing a tax increase, I wouldn’t do so in response to this one.   It is not the additional restaurant tax per se that has inspired this post; it is the argument the Mayor is using, that argument’s implications for future taxes, and the approach to public finance that argument implies, that inspired this missive.

See my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on how things work in Chicago and Illinois politics. 

SENATOR WARREN IS DOING HER PARTY AN IMMENSE SERVICE, HOWEVER UNWITTINGLY

10/16/19

Since she has assumed the role of front-runner in the race for her Party’s presidential nomination, and especially at last night’s debate, Senator Elizabeth Warren of Massachusetts has helped her party craft a convincing argument for the general election…unless that election involves her.

As some of us had suspected, the latest Democratic whoop-whoop surrounding the Ukrainian machinations of President Trump has had, at least up to this point, been far more damaging to Joe Biden than to Donald Trump.   No matter how this comes out, the voters now know that the Biden father/son tag team of Joe and Hunter are, even if probably not criminal, just part another part of the old Washington system, a process by which pols enrich themselves and their families through years of “public service” and private “don’t mind if I do”ness.   While it would be foolhardy to count Mr. Biden out of the nomination race, his star has surely fallen as a result of the revelations regarding Hunter’s excellent financial adventures in places in which his father was able to wield considerable influence.  

Senator Bernie Sanders has been done in by the havoc age has a habit of wreaking on our bodies.   One would think that his cockamamie, hare-brained ideas would have done him in years ago, but this is, after all, the modern Democratic Party, so it took a heart attack to effectively finish his candidacy.

This leaves Senator Warren as the front-runner, which shouldn’t surprise anybody who has been paying attention.   She’s Bernie without the Bernie baggage, Bernie-lite, if you will, piously proclaiming that she is a capitalist to her bones, or some such rhetoric, while still spouting the same socialistic, necessarily authoritarian nonsense that Bernie has been dangling before the dim for years.  She’s smart, smarter than Bernie and, while calling her likeable would be something of a stretch, she is certainly less irascible than the crotchety, creaking, costermonger of cantankerousness from Brooklyn via Vermont.   Senator Warren’s combination of attributes seems to be what the Dems are looking for as 2020, as evidenced by Ms. Warren’s consistently remaining at or near the top of the pack while the Dems have quickly alternately embraced and abandoned their innumerable flavors of the day.

(I feel obliged to digress here for a moment to compliment Senator Sanders.   Clearly, yours truly does not harbor warm thoughts toward the man or his politics, but it’s nice to have someone genuine in public life.   Bernie Sanders really believes in his socialist credo and is not ashamed to admit it.   If he were to donate the millions he has made on his books to one of his socialistic causes, his genuineness would be even more authentic.   Still, it’s nearly heartwarming to see an “I am what I am” kind of guy in politics in this country where duplicity seems to be the key to success.   But I digress; at least I do so parenthetically.)

Ironically, Ms. Warren’s front-runner status could turn out to be a great thing for the Democrats.   The political necessity of going after their front-runner, who happens to on the leftward most flank of their party, allows, indeed demands, that those who pass for moderates in today’s Democratic Party display their moderate bona fides.   And we saw that in abundance last night.   Whether it is…

 “Mayor Pete” Buttigieg proclaiming “We cannot wait for purity tests, we have to just get something done,”  

Senator Amy Klobuchar pointing out, in regards to Ms. Warren’s health care “plans,” that the difference between “a pipe dream and a plan is something that you can actually get done,” (Despite her butchery of the language, one can see what Senator Klobuchar meant by that…I think.)

senatorial wannabe Beto O’Rourke pointing out the obvious, as in “Sometimes I think that Sen. Warren is more focused on being punitive or pitting some part of the country against the other, instead of lifting people up,” or

again, “Mayor Pete” also showing a firm grasp of the obvious in saying to Senator Warren “Your signature is to have a plan for everything, except this,” where “this” means paying for the Senator’s grandiose schemes,

Ms. Warren’s front-runner status has allowed others in the field to point out to, or at least try to convince, the American people that not everybody in the Democratic race is a wild-eyed lefty hell-bent on putting the economy and, by necessity, the country firmly under the thumb of the Washington power structure.   There are some people in the Democratic Party who still retain a sense of what passes for moderation and a degree of faith in the economic system that built this country.   Whether yours truly really believes that is an open question, and my doubts in this regard extend beyond the Democratic Party.   The important thing, however, is not whether any of these Democrats can be reasonably construed as moderates or that yours truly would agree with that proposition; the important thing is that Ms. Warren’s leading from the left gives some of her opponents the opportunity to at least pose as moderates.    And in that sense, Ms. Warren’s front-runner status is doing her Party a great service.

Of course, if Ms. Warren does wind up with the nomination, all the above is moot, and the Dems’ path to the presidency is, though not impossible given the wild and deep-seated, er, unpopularity of the incumbent, imperiled.   And right now, if I were a betting man, my money would be on Ms. Warren to bear the Democratic standard.    But, if she were to stumble, the Dems may have a nominee who can, during the general election, run clips of herself or himself attacking Ms. Warren from the “right.”  And that will surely help in November, 2020.

WHY THE HELL ARE THESE GUYS OUT ON THE STREET?

10/11/19

Early this month, a police officer in the south suburbs of Chicago, had to shoot one Joseph Jesk, who was threatening the officer’s life.   We later found out that Mr. Jesk had been found guilty of murdering his wife fewer than ten years ago but was somehow not still in prison.    Few people made anything of the latter because, one supposes, it is now so common for vicious criminals, including murderers, to be given a relative pass by a justice system that seems confused about the very notion of what constitutes justice, let alone public safety.   And we wonder why we have a growing crime problem.

The cops have long been frustrated by seeing their yeoman efforts at catching the bad guys rendered nearly pointless when the perps are given laughably light sentences by judges who seem eager to demonstrate their perverted views of “social justice.”   The cases of Mr. Jesk and the like continue to fuel this frustration.

I wrote the following letter to the Chicago Sun-Times expressing my frustration at the Jesk affair and the many, many more like it that seem so commonplace today.   The letter wasn’t published, but I thought you’d find it thought provoking.

10/3/19

The Sun-Times reports (10/3/19, page 4) that Joseph Jesk, who was fatally shot by a Bridgeview police officer, pled guilty in December, 2011 to murdering his wife.

Why in the world was this man out on the street less than ten years after killing his wife?   A seventeen-year sentence, reduced to just over six years…for murder?   And a subsequent slap on the wrist for meth possession…by a convicted felon?

Perhaps a justice system that is so eager to demonstrate its compassion by giving violent criminals light sentences ought to reserve some of that compassion for the future victims of these emancipated predators.  Thank God the police officer who successfully defended himself against Mr. Jesk was not one of those victims.

IT’S GREAT TO HAVE ALL THESE HARVARD GUYS WORKING ON MY BEHALF

10/11/19

As first a professional and then an amateur investor, I have for years banged my head against the proverbial wall trying to beat the indices.   Then, years ago, it came to me, slowly, but not as slowly as it has come to most market participants, that I don’t have to bang my head against the wall anymore; I simply had to, as indexing’s detractors like to say, surrender and accept mediocrity.  By doing so, I was virtually guaranteed to improve my investment performance.   Oh, sure, I own a few individual stocks, on which I have done quite well, and I still put on an option position now and then.   Vertical put spreads, which, despite their provocative sounding name, have nothing to do with the recreational habits of those of questionable propriety, are my current fascination in the options world.   However, these few stock positions and even fewer, and more paltry, option positions are put on to amuse, rather than enrich, myself.   The bulk of whatever financial assets we have is in index funds and there it will remain.

So it is heartening, especially to this graduate of a couple of Midwest cow colleges, to know that the great minds at Harvard (aka, the U of I of the East), the notables on CNBC and other bastions of the financial media, and the rocket scientists of Wall Street continue their futile pursuits of the holy grail of active management that consistently, reliably, and durably beats its passive counterpart.   The efforts of these great minds (and I’m not being sarcastically ironic here…really, these people are indeed, for the most part, great minds) only serve to make the markets more efficient and, hence, passive investing even more compelling.

So thanks, guys, for making my life easier and more profitable.

I wrote the below letter to the Wall Street Journal expressing these very sentiments.   It went unpublished, perhaps owing to the academic pedigrees of much of the staff of that estimable Journal:

9/28/19

The Wall Street Journal reported on 9/28 (“Harvard Fund Logs Return of 6.5%,” 9/28-9/29/19, B13, Dawn Lim and Juliet Chung) that the Harvard endowment achieved a 6.5% return in fiscal 2019, far behind the S&P 500’s 10.4%.

While one year does not constitute a performance record, such underperformance is not an anomaly and is virtually certain to repeat itself and be sustained over time.   Surely, the powers-to-be at Harvard are smart enough to realize this.  So why don’t Harvard and its fellow enormously endowed institutions of higher learning pursue a purely passive investing strategy and reap the seemingly inevitable rewards?   One suspects the reason for sticking with active management is that a change to indexing would result a lot of people, many of whom doubtless are Harvard alums, losing their highly paid gigs managing the endowment’s investments.

That Harvard and its similarly situated institutions whistle past the ever-growing evidence and continue to pursue the quixotic mission of beating the indices will have a dyspeptic effect on the endowment.   However, the bad news for Harvard and for those who love it is good news for the rest of us.   The continuing fruitless pursuit of mediocrity by very smart people that constitutes most of active management serves to keep the markets efficient and hence profitable for those of us who have accepted the facts and become proud indexers.

Thanks, Harvard.

LET’S TALK ABOUT SOMETHING LESS CONTROVERSIAL…LIKE ABORTION

10/4/19

The above line is one of my favorites when I am in a group that is getting into a heated discussion about some topic that shouldn’t be capable of melting an ice cube.   For those few of you who aren’t getting it, the line was meant to be ironic.  But I digress.

Last month, it was reported that the abortion rate in this country had reached a recorded low, a rate not seen since records on this, depending on which side you are talking to, medical procedure or murderous abomination had been kept.  

When these numbers, yours truly had two thoughts:

1. Terrific; how can a record low abortion rate possibly be bad news?
2. Still, this is going to generate controversy because a lot of people are in the business of making this most controversial of topics even more controversial.

I was disappointed, at least in a sense, or maybe just surprised, on both counts because the reaction to this news was muted.   Not even the most ardent pro-lifers were vocally delighted and the only controversy that the numbers evoked was an argument (of course) regarding the reasons behind this drop.   And even the latter was conducted at an amazingly low decibel level.

While Clarence Page noticed the numbers and wrote a reasoned column on the reasons behind the drop in abortions, I think he, and just about anybody else, who commented on this issue missed the larger point.   So I wrote the below letter to the Chicago Tribune responding to Mr. Page’s column.  It wasn’t published, which isn’t surprising; both the Tribune and the Sun-Times publish only two or three letters per day.   Nonetheless, this letter, like all of my writings, should not go unnoticed, so I’m sharing it with my readers:

9/22/19

In his 9/22/19 column, Clarence Page attributes our nation’s record low abortion rates to increased use of contraceptives rather than to state abortion restrictions.   The evidence seems to support Mr. Page’s contention, but the reason behind the steady drop in abortions since 2011 is not as important as the fact of the steady drop in abortions during that period.   While there would be some obvious policy implications from the answer to the contraception vs. legal restriction argument, that answer will probably never be found given the highly emotionally charged nature of the arguments on the many sides of the abortion issue.   For now, at least, everybody should simply be happy that fewer abortions are taking place regardless of the reasons for that reduction.

The drop in the abortion rate to record lows provides abundant evidence of the wisdom of Ronald Reagan’s long-ago observation that it is amazing what can get accomplished if we don’t care who gets the credit.  

DOUBLING DOWN ON CHICAGO’S CASINO GAMBLE

10/4/19

A consultant has told the city of Chicago and the state of Illinois that no private operator could make money on a Chicago casino under the onerous tax regime contained in the legislation laying the groundwork for such a gaming emporium.  

Judging from what I’ve been reading, the consultant is probably right.   Further, yours truly might be the last guy who is in favor of taxing anything heavily unless the real purpose behind such taxation is to wipe out the activity being taxed.   However, I think I have come up with a better approach to testing the viability of a casino under existing legislation.   

A couple of points:

First, yours truly realizes that there are pitfalls to my approach, the most salient of which is operators’ bidding with the sure expectation of, after having won the license, coming back after a short period of time asking for relief under threat of closing the place down. 

Second, since I wrote the below letter to the Chicago Sun-Times, 9^th Ward Alderman Anthony Beale has come up with a proposal that involves awarding the license first and then having the licensee negotiate a better deal with the legislature.

The first point does not by any means invalidate my idea; protections can be written into the bidding process.   The second point provides at least a measure of credibility to an approach that does not simply accept the consultant’s report as the final word.

This letter, too, was not published, which isn’t surprising given that the Sun-Times publishes only two or three letters per day.   However, the letter is worth sharing with my growing readership:

9/22/19

As Rich Miller (Opinion, 9/22/19) points out, the tax rate set by lawmakers for a Chicago casino is “astoundingly high” and a consultant’s report concludes that it would be “nearly impossible” for an operator to make a profit under such a structure.  

However, rather than take the word of a consultant, wouldn’t a better approach be for the Lightfoot administration to solicit bids from casino operators under the current tax structure and see what happens?   If the city gets reasonable bids from experienced, competent operators under the existing tax structure, why should the revenue strapped city and state sweeten the deal for the operators?   If the process attracts no bidders, at least the Mayor can go to the legislature with concrete proof that the tax structure it has put in place is unworkable.  Perhaps the bidding process could be expanded to include the tax structure itself.

Soliciting bids, and perhaps bids even extending to the tax structure itself, would seem to at least be a truer test of the onerousness of the proposed tax structure than taking the word of consultant as holy writ.