You posed an article by Robert Frank of the Wall St. Journal on my wall so I felt compelled to read it and respond thoroughly. Upon finishing my first read of the article, my mind was reeling attempting to harmonize its clever craftsmanship and highly disingenuous message; the WSJ is certainly getting its money’s worth with Mr. Frank.

Upon further contemplation, I was left with a lot of thoughts, which I’ll share below, after briefly recapping the author’s position.

Author’s Position

The article is motivated by the following correlation: those States most reliant on income tax revenue from their wealthiest citizens now face the largest deficits. Mr. Frank frames this subject by noting that this is emerging during a time of greatly increased public spending. He then notes that “as the incomes of the wealthy have grown, they have become less stable.” Mr. Frank acknowledges that there is a consensus that these top salaries are too tightly linked to the market. Nonetheless, this situation has left governments increasingly dependent upon their top earners for revenue.

This story is told through the personal story of Brad Williams, a former economic forecaster for the State of California. Mr. Williams retired from the State in 2007 and now runs his own consultancy. We learn that Mr. Williams had long been aware of this excess reliance on top earners. While working for the State, he advocated the following fixes: 1) flattening income tax rates, 2) allowing the wealthy to defer payments on windfall profits, and 3) establishing a “rainy day” fund. His proposals, however, were not adopted. Mr. Williams, however, felt vindicated by the recommendations of a bipartisan commission assembled by former Governor Schwarzenegger in 2009. The commission’s proposal to fix the State’s over reliance on income taxes from the wealthy was to decrease those taxes while increasing the general sales tax. As California remains beholden to its wealthiest, and by implication, to the market, Mr. Williams laments of having “no real pleasure in being right.”

My Thoughts

As I alluded earlier, the author of this article, Robert Frank, has spun this tale well. However, its unquestioned reliance on certain tacit assumptions, along with a gross disregard of other highly relevant factors, make it a staggeringly disingenuous work of art.

To his credit, Mr. Frank notes how the top tax bracket has fallen from 90% during WWII to 35% today. But instead of analyzing this massive decrease, he instead highlights how today, those earning over $379,000 are taxed twice that of those whose salaries are under $69,000. This “twice as high” tax rate is presented as a great injustice while the broader 55% decrease is included as mere background. Mr. Frank fails to examine how these massive tax reductions for the wealthy helped create the very conditions which underlie the current crisis.

Throughout the article, the increased accumulation of wealth is treated as inevitability. Furthermore, the article dismisses, as asides, other factors that have lead to the current crisis, namely decreased corporate taxes. As anyone following the saga of General Electric is aware, large corporations, while thriving, are paying far less in taxes than before. These profits are instead going into CEO and senior executive pay. Since these outsize compensation packages are directly tied to the stock market, they foment instability. Thus, public officials, instead of leading, are left studying Wall St. to “more accurately predict state revenues.”

In essence, this story is about how US public policy regarding taxation has empowered the super-wealthy to leverage their wealth so spectacularly as to ensnare all of us in their vagaries. The US economy has been split in two, leaving government constantly one step behind, trying to fix what has already transpired while the next movement is afoot.

The proposals that the author endorses, those espoused by Mr. Williams, are cruel and cynical. To escape the current volatility, it is suggested that income taxes be lowered and sales taxes increased. Such a proposal would further impoverish the state, enrich the already wealthy, and burden the poor and middle class.

Mr. Frank fails to examine other, more progressive policies, that could help address the current volatility in state revenues. Higher income taxes for the very wealthy might well temper current excesses in market-based speculation. And decreasing income polarization would itself engender more stable revenue collection models, thus allowing states to better plan for and wisely craft their spending priorities.

Instead, we’re one again pitched tired old proposals which do little more than privatize profit while socializing losses. We’re told that states will benefit if the super-rich are allowed to spread out their income tax payments on windfall profits over multiple years. In the same breath, we’re encouraged to create a “rainy day” fund, the type which could ostensibly be funded by such windfall tax revenues. Mr. Frank’s vision would leave us poorer now and surely impoverished later.

Conclusion?

Sorry, but if that’s the best that “conservative” America has to offer, then maybe we should start dragging the term “conservative” through the mud, like “social welfare” (aka Socialism) has been. As Bob Herbert has opined in his swan song at the New York Times, America has lost its way. Our extreme economic inequality now holds the majority of us hostage, and our elected officials appear to be indifferent, impotent or in-cahoots. Our system no longer serves us. Rainy day funds are not the answer to an America, Inc., which has become “too big to fail.”

So, Jim, those are my thoughts. This article is well crafted but wrongheaded. I respectfully disagree.

Best,
-WD

I long for both the here and the distant, bats swooping across the gloriously moonlit hills. I worry that I am too entertained by TV, albeit of my own choosing at my time. I wonder what I could realistically grow to survive.

Don’t worry folks, not going off the deep end here, but certainly treading some intense waters. I think that we all are, but we haven’t yet admitted it collectively. My cause for optimism is that perhaps we’ll rebuild in a more equitable and sustainable manner. My only fear is that it will be so piecemeal, so segmented, individualized, customized, and misincentivized, that the “a-ha” moment will come far too late.

Modern day McCarthyism must not be tolerated in a free, open and democratic society, which we claim to be. I’m hardly throwing in the towel, but if we don’t get this seriously right, it’s gonna go way wrong.

A re-valuation of good will and enchanted spirit would go a long way.

In other news: Pepper is well. That is all.

Like countless other small towns, Hardin’s fortunes have waned as traditional industries have become less profitable or simply moved on.

In 2004 the city created the Two River Authority (TRA), a quasi-governmental economic development agency charged with creating jobs. TRA’s first project was the construction of a prison in conjunction with Corplan Corrections Inc., a Texas company that specializes in pushing detention centers on economically desperate small towns. The Hardin prison was touted as a no brainer; Montana had a growing inmate population and shortage of prisons. Convinced that a new facility would be quickly filled, TRA obtained $27.4 in revenue bonds for the new detention center. The bonds were to be repaid from the prison’s revenues and did not cost the taxpayers a dime.

By 2007 the jail was complete. There was, however, one small problem… it had no inmates. Relations between the TRA and the State of Montana had soured; the state was now claiming that there had never been any deal to house prisoners in the facility.

Community Education Centers, a for-profit prison corporation, and the jail’s preliminary operator, began to seek inmates from out-of-state. But when the Montana attorney general put the breaks on this plan, TRA was forced to take the case to court. A year later, the court granted TRA’s request to seek prisoners from beyond Montana’s borders; surely some states had extra prisoners in need of a new home. Even the new governor of Montana, skeptical of the program from the start, lent a hand, inviting officials from neighboring states, Indian tribes and the federal government to tour the facility. But none were impressed, and the jail sat empty; even the for-profit prison management corporation figured it was time to get out of town. TRA had built it, but nobody had come.

And so set in the desperation. First, upon hearing of President Obama’s plans to close Guantanamo, TRA began to pitch the facility as the ideal place to house the displaced enemy combatants. These efforts garnered international attention and led to such an outcry by Montana residents that state officials stepped and indicated that no such deal would be forthcoming. Though the Guantanamo plan ultimately failed, the media storm surrounding it had succeeded in broadcasting the woes of Hardin to the world. It was now mid-2009; the jail had been empty for over two years.

Enter Michael Hilton, President of the American Police Force (APF). Hilton, who prefers to be called “Captain Michael,” approached the TRA and explained that his company was eager to run the jail and build a large special-forces training center on adjacent land. APF (unlike Blackwater (Xe), DynCorp, or CACI) is a relative newcomer to the private security racket. Its militaristic website boasts a wide array of services, including: Special Forces Training, Convoy Security, and, until it was recently removed, International Arms Sales (including WMDs). In mid-August, 2009, APF and TRA signed an agreement stating that APF would operate the jail.

From the beginning, APF’s plans were met with skepticism. After Hardin city officials stated that prisoners from California would be housed in the facility, California officials responded that no such agreement had been made. Likewise, though APF claimed that the federal government was it biggest client, no trace of it could be found in federal contractor databases. Local media outlets, seeking information about APF’s operations, were denied any information, ostensibly for security reasons. Hardin residents were of two minds about the city’s potential benefactor; while some eagerly hoped to cash in on the promised job opportunities, others were beginning to question the legitimacy of the entire deal.

On September 24, 2009, APF came to Hardin, arriving in three black Mercedes SUVs emblazoned with “City of Hardin Police Department” decals. There was only one problem… the City of Hardin did not have a police department; the County Sheriff’s office was responsible for law enforcement within the city. Though TRA authorities attempted to assure a jittery populace that APF’s contract was limited to operation of the jail and training facility, the damage had been done. Though the decals were promptly removed, citizens who had been following this saga at arm’s length were suddenly up in arms.

Following APF’s inflammatory entry, it did little to endear itself to an increasingly skeptical population, refusing to reveal its parent company, financial backers or from where it would collect inmates for the facility. This excessive shroud of secrecy prompted detailed investigations by local and national media into APF and Hilton, its elusive and tight lipped leader. The results were stunning, though to many, hardly shocking. In 1993, Hilton had plead guilty to 14 felonies, including 10 counts of grant theft. He had been named as a defendant in multiple cases alleging fraud, breach of contract and breach of warranty. He had declared multiple bankruptcies, and, the coup de gras, had gone by over a dozen aliases. Hardin, it seemed, had been conned.

The Montana Attorney General got involved again, seeking answers to many of the same questions both wary citizens and dogged journalists had posed. Montana’s Governor went on the record stating that the people of Hardin had been duped, not just by APF, but by Corplan into building the white elephant in the first place.

Then, on October 9th, just two weeks after APF first rolled in to Hardin, it backed right out. The official reason given for cancelling the contract involved unforeseen costs associated with replacing an analog telephone system and damaged security cameras at the jail. But as details have emerged of Hilton’s pending court date in California regarding another scam gone awry, it seems clear that the jig is up.

As if all of this is not interesting enough, there are two side-stories worth noting. The first concerns Greg Smith, former executive director of TRA. Just two days after TRA announced the deal with APF, Smith was placed on paid leave; to this date, no reason has been given for his suspension. Smith’s wife, Kerri, is currently a finalist in the city’s mayoral race. Hilton had stated on record that he advised Kerri to call him about a job with APF should her bid for mayor be unsuccessful. On October 5th, in a closed door meeting, Greg Smith formally resigned from TRA.

The second mini-drama involves Becky Shay, a former reporter with the Billings Gazette and APF’s current spokesman. Shay abruptly quit her job with the Gazette the day after APF arrived in Hardin, morphing quickly from reporter to stonewaller. In a press conference held days before the deal fell apart, Shay broke down in tears multiple times. It is unclear whether Shay will remain as APF’s spokesman or if her first paycheck will clear.

There’s more… the Billings Gazette has uncovered that the original agreement, ostensibly regarding the jail, also contained a clause which might explain the “Hardin Police Department” SUVs. TRA granted APF the right to submit a proposal to provide police services to the city. Indeed, the concern about private mercenaries patrolling the streets of Hardin under the color of law constituted the bulk of early rumors surrounding the whole deal.

So what’s the moral to this story? Is it just a sad case of desperate people getting conned? Corrupt local politics? That’s part of it, but there’s more going on here. This saga speaks to the moral and visionary bankruptcy of modern America. An economically depressed town pins its future hopes on a prison, peddled by a private corporation seeking to profit from increased incarceration. A simple fact about corporations is that they must grow to survive and please their stakeholders. Corporations in the business of constructing or managing prisons want more Americans behind bars, and will work towards that goal. A strange video slideshow (archived – download and open in browser) on the TRA website presents the Hardin jail as a wonderful place just waiting to be brought to life. But a prison is hardly a place of great promise; we should be ashamed that incarceration is one of our few remaining growth industries. Prisons should not be for-profit.

And how about civics? Privatizing Hardin’s police force is against the Montana constitution, but this is just what TRA seemed to have had in the works.

What about the glorification of militarism? APF’s website attempts to impress with dark colors, rousing music, and pictures of soldiers, weapons and war machines. When did war become chic, rather than the nightmare that it is?

And how about due diligence? How could TRA and city leaders go on record day after day praising APF when simple investigations would have revealed information that ought to have given any reasonable person pause?

But there’s an upside too. The public unraveling of APF in Hardin was fostered by a combination of traditional and new media. Local television stations and newspapers reported on the story as it unfolded while investigative blogs and personal bloggers spread the story around the internet. Some good investigative journalism happened here, without which, Hardin, Montana might just have been duped, once again.

Sources:

• KULR 8, Billings Montana
• Billings Gazette
• MontanaWithKids.com
• TPM Muckraker
• Two Rivers Authority