Moneybox
A blog about business and economics.

July 22 2016 5:29 PM

An Illustrated Guide to the Palace Intrigue at Fox News

Fox News chief Roger Ailes resigned in disgrace on Thursday in the wake of a sexual harassment suit brought by former Fox anchor Gretchen Carlson earlier this month. In the tumultuous two weeks since the suit was filed, the nation’s No. 1 cable news channel has been embroiled in palace intrigue. The network has a reputation as a place where loyalty is prized and insubordination punished, and a gaggle of pundits and reporters from the Fox universe have come to Ailes’ defense—and questioned Carlson’s character—in interviews and op-eds.

On the other side, more than 20 female associates of Ailes have come to Carlson’s lawyers with stories like hers, and six told their stories to New York’s Gabe Sherman. Sherman has also reported that Fox News star Megyn Kelly has told investigators of her own harassment by Ailes, and encouraged a former Fox host with a similar story to come forward. Rupert Murdoch’s two sons have reportedly been pushing for Ailes’ ouster for years, and the 85-year-old chairman will run the channel for the time being,

In part because of the nondisparagement clauses that some Fox employees sign, public testimonials have largely run in Ailes’ favor. But there are different degrees of support. And tracking the various players, both on and off-screen, in the Fox News drama can be as difficult as keeping track of Bill O’Reilly’s many books about murdered luminaries.

So we hope this graphic makes things simple. The next time you’re struggling to remember who had the courage to speak out about a man with a reported 40-year history of harassing women, who came to his defense, and who kept quiet, they’re all here.

July 22 2016 12:21 PM

Why Colorado Marijuana Businesses Suddenly Have an IRS Problem

This post originally appeared on Inc.

The IRS appears to be harshing the mellow of some 30 cannabis companies in Colorado.

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That’s according to tax lawyers, accountants. and business owners in the state, who say the federal agency is auditing the cannabis entrepreneurs for tax years 2014 and 2015, possibly because they failed to fill out form 8300—a document that businesses file when they make cash deposits over $10,000. Some companies are also having issues with tax code 280e, which was created for drug traffickers and does not allow for normal business deductions.

Whether the audits are civil or criminal is unclear, according to tax attorney James Thorburn of Thorburn Walker LLC, who is representing some of the business owners. One audit letter obtained by Inc. was sent from the IRS’s fraud group. “When you see something about criminal investigations and fraud, it typically is not a civil audit,” he says.

However, Thorburn says that when he questioned an IRS agent about the specific department, the agent said he used “inappropriate letterhead” and is no longer part of the fraud group. Still, “I am telling my clients that there is potential for criminal charges,” Thorburn says.

The IRS says it cannot comment on specific taxpayers, but a representative did say that the agency follows federal law, which considers marijuana a Schedule I drug under the Controlled Substances Act. Inc. confirmed the audits by speaking with business owners who are being audited and seeing the audit letters. The news about the Colorado audits was first reported by Marijuana Business Daily.

There is a big difference between civil and criminal audits. A civil audit can result in fines, while a criminal audit could result in a prison sentence and steeper fines.

The audits come as marijuana cultivation and sales are now legal in some form in 25 states. But new laws—passed by state legislatures—conflict with federal law. The IRS, in fact, has a cut-and-dry stance on marijuana: It’s an illegal substance, according to federal law, and entrepreneurs running state-legal marijuana businesses are considered drug traffickers.

Since the IRS must adhere to federal law, “these new state statutes do not have any impact on federal tax law when determining allowable expenses for income tax purposes,” according to a memo written by Kristen E. Bailey, the director of collection policy at the IRS.

The IRS wouldn’t say it is targeting marijuana companies for audits.

In Colorado, Thorburn says the conflict between the federal government and state has caused a great deal of friction. He believes that the Department of Treasury is not making concessions for the industry as laws are slowly reforming. In 2013, Deputy Attorney General James Cole released guidance for federal agencies, noting that authorities should focus limited resources on marijuana companies that sell to minors, serve as fronts for drug cartels, use violence and firearms to distribute, or cause other harm.

In December 2015, Congress extended a rider in the 2016 spending bill that banned the Department of Justice from preventing states from creating their own marijuana laws. All of these reforms gave the cannabis industry confidence that federal legalization was on its way, Thorburn says, but tax code 280e and the recent audits have deflated some of that confidence.

“The IRS is taking a strong position that what the industry is doing in Colorado is a criminal violation of federal law,” says Thorburn. “It’s not a huge step to say that the federal government could prosecute the violators of the federal crime.”

Hank Levy, a CPA who handles taxes for marijuana companies, has his own theory: He believes the IRS is taking the opportunity to collect while marijuana is federally illegal.

“I would not be surprised if they are combing through cannabis companies,” says Levy. “The IRS perceives there is big, easy money by auditing these companies.” It’s easy to pick up a retail dispensary’s tax return and see if they’ve done their forms correctly—and it’s easy for the IRS to win at the tax court level, he adds.

A co-founder of one of Colorado’s largest cultivators and retailers, who requested to be anonymous, says his company is being audited for failing to fill out form 8300 in about 20 instances.

“Our accountant did not tell us we needed to fill out form 8300 for single cash deposits over $10,000,” he says. “It’s our fault; we should've known.”

Still, the entrepreneur believes the IRS is targeting marijuana businesses on a moral level. He is afraid of criminal prosecution and is working with his lawyers during the audit process.

“We are very sensitive as an industry, but the IRS has been aggressively going after us,” he says. “They are acting as the judge, jury, and executioner and assigning punishment without due process.”

July 22 2016 2:46 AM

Why Trump’s Acceptance Speech Hardly Mentioned the Economy

Donald Trump delivered a long, dark, and gory convention speech on Thursday night. He bellowed warnings about murderous ISIS terrorists and immigrants, about crime waves sweeping American cities and police officers being gunned down. He talked about Hillary Clinton's email mendacity (of course) and described a world swirling into chaos because of her incompetence (of course). He painted himself as the only hope for fixing a “rigged” political system.

He spent relatively little time, however, talking about the economy. In the longest convention address by a party nominee in the modern era, the subjects of trade, taxes, and jobs took up maybe 10 minutes or so—in the leaked draft of his remarks that circulated beforehand, economic concerns commanded about seven out of 64 pages. He sprinkled in some stats about poverty to reinforce the theme of America in decay. And while he offered his standard spiel about negotiating better, making smarter trade deals, and getting tough with China—calling it a “signature issue” of his campaign—the material was utterly overshadowed by the apocalyptic talk of mortal threats at home and abroad.

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The fact that jobs got short shrift Thursday was no coincidence. It's a reminder that his campaign is fundamentally not about the economy—it’s about white working-class nationalism. Trump inflames anxieties and resentments and offers himself as protector and avenger. Bucking his party's free-trade consensus has merely been one useful way to accomplish that. Early in his campaign, it allowed him to signal to blue-collar conservatives that he cared about their (often very real) troubles. But just as importantly, railing against China, NAFTA, and corrupt trade negotiators let him enforce the us-vs.-them dynamic essential to any good nationalist appeal. Yes, Trump's opinions about trade deals are probably sincere—he's been ranting about America getting beat at the negotiating table since the 1980s. But why wax on about economic data when there are even more visceral fears to appeal to?

Even as Trump makes the bold claim that his position on trade will single-handedly win over Bernie Sanders voters, it almost comes off as a throwaway—though the populist similarities between the Trump and Sanders campaign have been pointed out, most of the likeness ends there. Trump now spends his time on villains his base truly lies awake worrying about: cop killers. Terrorists. Immigrants who murder innocent Americans. And so his economic message has become revealed for what it is: the side salad to a main course of bullets and blood.

July 21 2016 9:36 PM

Donald Trump Says the U.S. Is One of the Most Taxed Countries in the World. This Graph Shows It’s Not.

In the leaked draft of the speech he will deliver tonight at the Republican National Convention, Donald Trump repeats one of his favorite talking points about the economy: “America is one of the highest-taxed nations in the world.”

July 21 2016 1:28 PM

The Astounding Collapse of American Bus Ridership

Ridership statistics from the past decade suggest that Americans have gotten off the bus.

Even in New York City, despite record population gains and new highs for subway ridership, bus ridership has fallen by 16 percent since 2002. Bus ridership in D.C., after a good decade, is down 6 percent this year on weekdays despite the troubles of the regional subway system.

Nationwide, bus trips have fallen from 5.86 billion in 2002 (a peak year) down to 5.11 billion last year, and dropped almost 3 percent between 2014 and 2015.

What’s to blame? Low gas prices, the recession, investments in rail, competition from Uber and bike-share? A new Bus Turnaround Campaign in New York, undertaken by research and advocacy groups, suggests that the fault lies largely with the bus service itself, and that the city—and, implicitly, other American cities—has the power to restore the bus to the urban transportation toolkit.

July 20 2016 7:48 PM

This Bizarre Convention Speaker Is a Big Reminder That the GOP Is the Party of Scams

Ponder this: Of all the speakers who will be appearing at the GOP convention Wednesday night, who is the most apt symbol of the Republican Party in 2016? It can’t be Ted Cruz, given how thoroughly Trump vanquished him in the primary. Mike Pence? He’s the concession prize to a hapless donor class. Marco Rubio? Please.

Personally, I think a case can be made for Michelle Van Etten. You probably haven’t heard of her. She might not even get any real airtime; my guess is that some networks will cut away to pundit commentary during her speech, as they’ve tended to do during more obscure speakers. I frankly have no idea how she was picked to appear, and while Van Etten confirmed for me via LinkedIn that she would be attending, she did not respond to my request for an interview. But her scheduled onstage presence is a wonderful example of conservative subtext suddenly becoming text—the Republican Party is the party of scams.

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You see, Van Etten is a small-business woman who has made a go of it in the world of multilevel marketing, aka the legal yet deeply unsavory cousin of the pyramid scheme. For those unfamiliar with the basic hustle, it works like this: Companies like Amway, Mary Kay, and Herbalife recruit independent salespeople to move wares like kitchen knives, makeup, or vitamins. Of course, those men and women are expected to stock up on inventory. But rather than harass their Facebook friends and co-workers about the wonders of anti-aging nutritional supplements or whatnot, they can also make money by recruiting new members of the sales force, whose revenue they will get a cut of. As the network grows, the money moves from the suckers at the bottom of the pyramid back to the top.

How is this different from a pure pyramid scheme, where all the money comes from roping more marks into fraud? Theoretically, legitimate multilevel marketing firms are supposed to sell a certain percentage of their product to actual end consumers. But as the recent controversy over supplements company Herbalife shows, the boundaries between what’s a fraud and what’s legal can get a tad blurry. And in the end, data from court cases suggest that people who sign up to sell for these companies tend to lose money in the bargain. (And you too can experience those joys in Slate’s new multilevel-marketing game).

Van Etten, for her part, is associated with Youngevity, a company started by a former veterinarian and naturopath, Joel Wallach, that largely hawks nutritional supplements.* Wallach promotes fringe theories about human health and mineral intake and is an occasional guest on conspiracymonger Alex Jones’ program, InfoWars. The two men also have a tight business relationship; you can join the “InfoWarsTeam” to sell Youngevity’s goods, and you can buy an “Alex Pack” of supplements. (As the Daily Beast reported, Jones has said the company’s “Tangy Tangerine” mix makes him “feel crazed” with energy “to stomp some people.” You know, in a good way.) To her credit, Van Etten seems to focus less on the powders and pills than on selling clothes and accessories through a Youngevity subsidiary, MK Collab, which is a sort of boutique. Apparently, she’s quite good at her work; she’s achieved the rank of “senior vice chariman marketing director,” and her RNC bio says she has more than 100,000 in her network. She’s pretty high up on the pyramid.

So, distant association with quacks and chemtrails believers aside, what makes Van Etten such a spot-on avatar for contemporary Republicanism?

On the most literal level, the modern Republican Party is remarkably entangled with the multilevel marketing industry—perhaps nobody more so than Donald Trump himself. The GOP nominee did paid speaking engagements with ACN, a company that sells phones, and struck a licensing deal with the supplement seller Ideal Health, to turn it into the the Trump Network. (Like many of his naming-rights side-projects, this one ended in tears.) Dr. Ben Carson, meanwhile, had a long relationship with Mannatech, a supplement company that was sued for claiming its products could cure cancer. Multilevel-marketing firms are also prodigious political donors and have given money to groups supporting George W. Bush, Mitt Romney, and Jeb Bush, among others.

Like Trump’s nomination, bringing a multilevel marketer to talk at the national convention speaks to the GOP's increasingly unabashed embrace of obvious cons (as Paul Krugman's clever headline writer put it, it's a “Party Agrift.”) Movement conservatism has a long history of entanglement with get-rich-quick schemes and snake oil salesmen hawking miracle cures or gold bullion (just think about Glenn Beck’s advertisers). But this stuff is no longer at the periphery of the party. It’s on the convention stage. Likewise, Republicans have long sold magical thinking in public policy, like tax cuts for the wealthy that will pay for themselves. But now its presidential standard-bearer is promising to make Mexico pay for a border wall.

And then there’s the resonance with GOP public policy thinking—which, as much as anything else, stands for the notion that Americans have a right to get ripped off. On a small scale, they want to undo the Obama administration’s fiduciary rule, which merely requires retirement investment advisers to work in their client’s best interests. Much bigger: They want to cripple or kill the Consumer Financial Protection Bureau, which is dedicated to making sure Americans aren’t preyed upon by financial companies.

So while Van Etten may not end up saying much of note, her presence Wednesday night still speaks volumes.

*Correction July 20, 2016: I originally referred to Joel Wallach as Ben Wallach, for some inexplicable reason.

July 20 2016 5:02 PM

Why Unilever Thinks Dollar Shave Club Is Worth $1 Billion

On Tuesday, consumer-goods giant Unilever announced it had purchased Dollar Shave Club. The reported price for the 4-year-old razor subscription service is $1 billion—about five times the projected 2016 revenue of the company. That price tag may sound steep, but Unilever—the company behind such everyday retail brands as Dove and Axe—is buying a lot more than razors. It’s buying its way into the growing subscription model, which sidesteps brick-and-mortar retail—and it’s buying Dollar Shave Club’s 3.2 million subscribers.

Razor subscription services, in particular, have been popping up over the past few years; Dollar Shave Club’s main competitor is Harry’s, which was founded in 2013. That’s left Procter & Gamble, the makers of Gillette, playing catch-up. According to Euromonitor, P&G’s share of the shaving market fell from 71 percent in 2010 to 59 percent last year. That might explain why the company is finally entering the game—albeit a little late—with its own mail order outfit, Gillette Shave Club. P&G already competes with Unilever in the U.S. shampoo and deodorant market; now the two companies have opened a new front for competition.

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But as much as Unilever and P&G are competing to sell you every single one of your toiletries, they’re also eyeing another competitor: Amazon Prime. P&G is even launching other services to compete with Amazon’s ubiquitous subscription offers. This month, P&G launched the Tide Wash Club in Atlanta, a service promising to send consumers Pods refills for a flat monthly fee. The company’s other experiment, Tide Spin, operates in Chicago and is a laundry pickup and delivery service for “the busy consumer.” The company has yet to reveal any compelling information about the success of either program, but it’s clear that the success of Amazon’s subscription-based services is making major corporations rethink how they do business.

July 20 2016 1:21 PM

The Republican Party’s Terrible, No-Good Plan for American Cities

Those of us eagerly awaiting the Republicans’ return to urban policy will have to wait a little longer. While the party was once considered a credible, reform-minded alternative, or at least a counterweight, to Democratic political machines, the GOP’s radical rightward shift has left its pols struggling to compete in urban America. Of America’s 25 biggest metropolises, only three have Republican mayors. The current softening of the GOP’s position on drug-crime sentencing and imprisonment isn’t enough to make the party a serious contender in U.S. cities.

A quick glance at the Republican platform shows why, and it has nothing to do with social conservatism. To the extent that the Republican Party offers an urban agenda, it is a Godzilla policy: a program for destroying cities, not restoring them.

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The urban philosophy of the GOP can be summarized by its opposition to the Obama administration, which, the 66-page document suggests, “subordinates civil engineering to social engineering as it pursues an exclusively urban vision of dense housing and government transit” and seeks to “coerce people out of their cars.” (If only that were the Democratic agenda. The truth is that neither Bernie nor Hillary has talked much about urban poverty, transit, evictions, rents, or growth restrictions, and Obama—once heralded as the “urban president”—has not much changed the status quo. We’ll have more on their platform shortly.)

In this, the GOP platform’s approach to land use and transportation is ideologically indebted to the Agenda 21 movement, a popular grassroots conspiracy theory that alleges that a nonbinding U.N plan from 1992 is herding Americans into cities as a form of social control.

One of the GOP’s more potent suggestions is that the federal government abandon the Highway Trust Fund’s support for mass transit and sidewalks, among other extraneous outlays. Transit, the document says, is “an inherently local affair that serves only a small portion of the population, concentrated in six big cities.” (The six metro areas with the nation’s biggest transit systems contain about 60 million people and account for more than one-fifth of U.S. GDP.)

On housing, the Republicans pay lip service to the ongoing rental crisis, noting that “nearly 12 million families spend more than 50 percent of their incomes just on rent.” But there is no subsequent mention of Section 8, the severely underfunded housing voucher program (and GOP brainchild) that covers only a fraction of eligible families. The party also calls for a comprehensive review of regulations impeding the growth of the housing supply, particularly environmental laws.

The biggest opening for the GOP at the metropolitan level is to position itself as the anti-regulation party, particularly with respect to schools, small businesses and zoning. Republican support for charter schools could be a part of that platform (though many powerful Democrats are also in that camp).

If there’s one roll of red tape conservatives like, though, it’s restrictive zoning. Echoing Stanley Kurtz’s periodic op-eds in National Review, the platform blasts the U.S. Department of Housing and Urban Development’s efforts to bring low-income housing to wealthy communities:

Zoning decisions have always been, and must remain, under local control. The current Administration is trying to seize control of the zoning process through its Affirmatively Furthering Fair Housing regulation. It threatens to undermine zoning laws in order to socially engineer every community in the country.

That market just isn’t ready to be free.

The other great paradox of the free-market/devolution party is that there’s one American community that isn’t ready for local control: the District of Columbia. Why not? Because unlike less populous Wyoming or Vermont, “it belongs both to its residents and to all Americans, millions of whom visit it every year.”

The Americans it belongs to most, though, are the visiting members of Congress, who have the power to oversee elements of budget and policy for the District’s 660,000 inhabitants.

July 20 2016 1:15 PM

Donald Trump’s Casual Plan to Transform Washington Into a Cesspool of Corruption

Perhaps you think Washington, D.C., has a problem with corruption. Perhaps you are tired of politicians toadying to lobbyists for campaign donations, of regulators swinging through the revolving door between government and big business.

However awful you may think Washington is now, Donald Trump appears to have a plan that would make it far, far worse.

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On Tuesday, Reuters reported on Trump's chilling plan to “purge” the government of civil servants hired during the Obama administration. During a private meeting with donors, New Jersey Gov. Chris Christie, who in addition to being Trump's tragic manservant is also charged with running his presidential transition team, said he had already put together a list of federal employees the Republican nominee would sack once in the White House. Christie said as well that he thought Congress should change the law to make firing civil servants simpler, all in order to prevent “burrowing”—the practice of turning political appointees into career employees so that they can continue on in the next administration.

As my colleague Elliot Hannon noted, cleansing the government of opposition party members is something you would expect from a third-world strongman, not an American president. It would be a fundamentally destabilizing attack on the basic functions of government, which rely on the continuity provided by career officials insulated from electoral politics. It would bring back the specter of rampant political patronage. It is completely nuts.

And yet that's not even close to where things end. Tacked onto the end of its report, Reuters notes the following:

Christie added that the Trump team wants to let businesspeople serve in government part time without having to give up their jobs in the private sector. Trump frequently says he is better equipped to be president because of his business experience.

Now, there are certainly examples of presidents appointing advisers from the private sector—General Electric CEO Jeff Immelt was Obama's "jobs czar," which is to say, he headed up a panel on creating work.

That's not what this sounds like. It sounds like Donald Trump's plan to shake up Washington is to pack it chock full of conflicts of interests. Forget the revolving door. In Trumplandia, there will be no door. Business people will be able to happily continue drawing a salary from their corporate employers while pulling the levers of government. Given the atrophied state of our anti-corruption laws, there wouldn't be much to prevent the transformation of Washington into an exercise in grift far more explicit and pervasive than anything that exists now.

The charitable reading here is that the Trump camp just doesn't sense why any of this might be a problem—that it quaintly views this tossed off idea as a convenient way to lure more private-sector talent into the halls of government. But the fact that Christie is sharing these plans behind closed doors with donors casts a serious shadow of impropriety over the whole thing. (Reuters obtained recordings of the meeting. The Trump campaign declined the wire service's request for comment.) It doesn't take a great leap of imagination to read this as him saying, “Hey, look how easy it will be to get your man on the inside.”

In a way, this is predictable, coming as it does from a nominee who has refused to give up his vast international business interests while campaigning for the White House, and who will just hand them off to his children if elected. Trump is nothing if not a walking conflict of interest. Apparently, he'd like to reshape Washington in his own image.

July 20 2016 12:08 AM

Donald Trump Jr., Wharton Grad, Talks About How He Was Educated by Construction Workers

Like his father, by whom he is employed, Donald Trump Jr. is a Wharton graduate* who enjoys some of the finer things in life (in his case, things like big game hunting in Africa). He also has the bearing of a pushy bond trader with slicked-back hair reminiscent of one Patrick Bateman. That, on its face, might make him seem like an odd choice for delivering a message about how much Trump the elder cherishes and respects blue-collar Americans. And yet, on the second night of the Republican National Convention, he did a surprisingly effective job of it.

In the most memorable chunk of the speech, Trump Jr. talked about growing up watching his father at work. “He didn't hide out behind some desk in an executive suite, he spent his career with regular Americans,” he said. “He hung out with the guys on construction sites, pouring sheetrock and hanging—pouring concrete and hanging sheetrock. He listened to them and he valued their opinions as much and often more than the guys from Harvard and Wharton locked away in offices, away from the real work.” On the nose? Sure. Obvious pandering? Sure. But it's also believable enough, in part because Trump himself talks like a carpenter from Middle Village. And when Trump Jr. told the crowd that many of his father's executives started off in blue-collar jobs, he wasn't lying.

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The next section, meanwhile, was a master class in catering to your audience:

His true gift as a leader is that he sees the potential in people that they don't even see in themselves. The potential that other executives will overlook because their resumes don't include the name of fancy colleges and degrees. I know he values those workers and those qualities in people, because those are the individuals he had my siblings and me work under when we started out, that he would trust his own children's formative years to these men and women says all you need to know about Donald Trump. We didn't learn from MBAs. We learned from people who had doctorates in common sense. Guys like Vinny who taught us how to drive heavy equipment operate tractors and chainsaws who worked his way through the ranks to become an entrusted father. It's why we're the only children of billionaires as comfortable in a Caterpillar as we are in our own cars.

Coming from a man who did, in fact, go to business school (albeit undergrad)—whose father regularly brags about his own Ivy League degree—this all a bit funny. But never mind that. It gets in a dig at fancy, college-educated folks. It flatters the good sense of working-class men. And Vinny! How can you not trust a man who trusts his own kids to Vinny?

And there is probably a lot of sincerity in this. Regardless of Trump's habit of running get-rich-quick schemes that prey on desperate, hard-up families, or his apparent desire to deliver tax cuts to billionaires, he is at his core a “kid from Queens,” as his son put it, who first made his fortune in real estate and construction, one of the last industries in America that has a way of breaking down class barriers. He shares plenty of blue-collar values and blue-collar resentments. And while Donald Trump might not be able to offer guys like Vinny much in the way of policy, he can probably offer them some of his own respect. For a lot of voters, that's enough.

*Correction, July 20, 2016: This post misstated that Donald Trump Jr. and his father are Wharton MBAs. They both have undergraduate degrees from the business school.

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