The Economy

Good Week/Bad Week: Render unto Cesar Romero

Senators look to abolish AMT, other things starting with A; auto club mobilizing opposition. Plus: Trump now academia nut. And: Bandit at Qwest?
John GoffMay 27, 2005

Disclaimer: This column, such as it is, does not, in any way, shape, or form, purport to adhere to traditional journalistic concepts.

It has not been approved by the American Society for Quality, the Ukrainian Society for Mediocrity, the Literary Guild, the Lollipop Guild, the Knights of Pythias, the Dukes of Hazard, the directors of the Guggenheim Museum, the directors of Crazy Guggenheim, or the Diet of Japan (fish, mostly).

In addition, it does not meet the high artistic or intellectual standards set by Lady Murasaki, Saki (H.H. Munro), Earl “the Pearl” Monroe, Erle Stanley Gardner, Gardner McKay, Stubby Kaye, Kay Ballard, Kay Kaiser, or Kaiser Wilhelm.

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While the items in this column are based on real events, most everything else is made up. Some quotes are real, some are as flimsy as a three-goal lead. Please, no lawsuits.


1. Taxpayers

This week in Washington, a bipartisan group of lawmakers (BGL) began debating the merits of the alternative minimum tax. Also known as the AMT (or the ANT by self-centered myrmecologists), the tax has become the subject of intense debate in Congress of late. Four senators — two Republicans and two Democrats — are hoping to abolish the tax or extend it. Either works.

First implemented in the late Sixties, the AMT was intended to ensure that wealthy Americans pay their fair share of taxes. The legislation was triggered by a 1969 GAO survey of the richest taxpayers, which found that 155 well-to-do citizens paid no federal income tax whatsoever that year. Of the 155, half indicated they paid no state tax, either. Within that group, 12 percent said they threw slugs into toll machines when they drove through.

The senators say the trouble with the AMT is that it’s now hitting even middle-class workers, particularly those with two or more children or those who attempt to claim Cesar Romero as a dependent. In some cases, married couples with three children end up paying $4,000 more in tax thanks to the AMT. Said Sen. Charles Grassley (R-2D2): “People with children have enough problems. Plenty of problems. They’ve got the marriage tax, the death tax, and the college tax. Then, there’s all those karate parties.”

The AMT requires taxpayers to calculate their taxes twice, once under the standard tax rate and once using the AMT rate. If the difference in the two calculations is greater than 3 percent of the taxpayer’s adjusted gross income (before deductions, itemization, and fudging), a 0.97 percent multiplier is applied to the taxpayer’s five-year annualized salary. After that, the taxpayer takes the smaller of hat size or shoe size, subtracts pie (the number eaten in the preceding calendar year), and multiplies total number of toes (both feet). According to tax experts, the filer then takes the higher amount and sends a blank check to the IRS. At the time of the AMT’s passage in 1969, framers of the bill called it “a breakthrough in tax simplicity.”

Todd Touche, director of the citizen advocacy group Americans for Fair — And By That We Mean Less — Taxes (AFFABTWMLT), called the alternative minimum tax “an abomination, like that snowman in Nepal. You know, the Yahtzee.” Touche also claims the AMT targets “unusually toed people.”

It’s unclear if any attempted reform of the tax will gain much support in Congress. In the past, lawmakers in Washington have been loath to tackle the AMT since it allows them to raise taxes while claiming they’re cutting taxes. Moreover, in a confidential conversation with one senator (D-NY), the lawmaker told GW/BW: “People may not like this tax, but hey, there’s lots of things I don’t like. Like Brussels sprouts. Or Neil Diamond. Later Neil Diamond, I mean. Not “Cracklin’ Rose” Neil Diamond.”

Indeed, supporters of “Cracklin’ Rose” Neil Diamond concede that few senators will likely get on board the anti-AMT bandwagon. Even senators pushing for reform of the tax appear to be waffling. In a recent interview, Sen. Ron Wyden (I-Claudius) was quoted as stating: “What we’re saying, with this bill, is that this ought to be at the top of the list in terms of lists that currently exist or lists that somebody might be making. Other things on the list maybe ought to be moved down the list a little. To 2. Maybe 1B. Either works.”

2. Donald Trump

With “The Apprentice” finished for another season, it seems Donald Trump has a new project in the works. On Monday, the real estate magnate announced his latest venture: Trump University, a virtual college.

To motivate students of the college, who will be scattered across the country, the school will feature online courses, CD-ROM lessons, and threatening letters from Trump himself. During the packed press conference announcing the launch, the property developer spoke eloquently about his venture into the academic world: “In today’s hypercompetitive business climate, the need for the highest-quality education has become more crucial than ever. And make no mistake, harbor no illusion. I take this venture very seriously. Very seriously. To me, education is the most noble pursuit there is, a sacred pursuit.” Afterward, Trump handed out “Apprentice” tee shirts, then goosed Spanish songstress Charo.

Unlike other colleges, Trump University will not offer degrees, grades, or easy sex. Students (a.k.a. customers) will pay $300 per course, or alternatively, 10 cents a dance. Each course will take one to two weeks to complete, depending on the complexity of the topic and simplicity of the student. There will be no books, no library. Explained Trump: “You want pretty pictures about how to grow daisies, go to Barnes and Noble. You want to learn how to squeeze a lifelong friend in a condo deal, come to me.”

Roger Schank, cognitive psychologist and a professor at the school of computer science at Carnegie Mellon University, will serve as chief learning officer at Trump University. Schank joined Trump and other faculty members — including Comb-Over, the school mascot — at the news conference. In discussing his rather unusual alliance with Trump, the longtime backer of alternative learning noted: “The problem with a traditional school is that it’s a little academic, a little bookish. And of course, there’s the Salisbury steak.”

When reporters asked Schank to clarify his statement that “school is a little bookish,” the Northwestern professor cited a recent study conducted by the Ponds Institute. In that survey, the majority of college students said they liked the concept of higher education so long as it didn’t interfere with Pilates. Another 10 percent claimed Dostoevsky “harshed their mellow.”

Trump said that the idea for a university had been at the back of his mind for years, and had only managed to make its way to the front part when he realized he’d be out of the limelight during the summer hiatus of “The Apprentice.” He also said that the virtual project could eventually develop into a bricks-and-mortar school, or possibly a bricks-and-mortar-and-pestle school (in partnership with the Food Network). He also said any lectures he gave at the University would be packed. “When I make speeches,” he said, “a lot of people show up. A lot. You’d be amazed what a few free shrimp on a plate does to people.”

Asked about the courses to be offered by Trump University, the Donald said the faculty was hard at work on the curriculum. While he said he wasn’t sure about exact offerings, he did state that the courses would focus on his personal strengths as a businessman. Asked to name those, the controversial property developer said: “My commitment to fulfilling promises and meeting obligations. Plus, an almost preternatural ability to smoke out a photo op.”

In a related story, late last week Trump Hotels & Casino Resorts emerged from bankruptcy in a restructuring that left bondholders simmering. “I was able to cut the amount of debt, cut the amount of interest being paid, and overnight change the structure of the company,” Trump crowed at a May 20 press conference announcing the deal. “It’s been an amazingly positive process.”

Dyslexic bondholders say they may block to sue the deal.


1. The Qwest Seven

Earlier this week, a former accountant at Qwest Communications International claimed the Securities and Exchange Commission failed to provide guidance on how to record fiber-optic capacity swaps. James Kozlowski (no relation to ex-Tyco CEO Dennis Kozlowski or ex-Wal-Mart associate Shug Kozlowski) is one of seven former Qwest executives being sued by the SEC. The government suit alleges that Kozlowski (et. Al) defrauded investors by claiming billions in revenues that did not actually exist. The SEC also claims that, upon receiving a Wells notice, Kozlowski booked an airline flight (el-Al) to avoid prosecution.

The SEC says the fraud at Colorado-based Qwest occurred between April 1999 and March 2002. At the heart of the alleged scam: the commission alleges that Qwest repeatedly booked revenue from one-time sales while claiming that the income was recurring. Using this controversial bookkeeping procedure, known by accountants as the straight-lie method, the SEC suit asserts “Qwest booked nearly $3 billion in sham sales.” Says one SEC lawyer working on the case: “Hell, there aren’t that many pillows in the world, let alone Denver. Who do they think they’re fooling?”

Kozlowski, however, claims that he relied on the advice of an outside audit firm, Burns & Schreiber, in deciding to book the revenues. In addition, Kozlowski says he contacted the SEC to request guidance on how to handle the income — but received none. “For the SEC now to sue Mr. Kozlowski…is inexcusable,” insisted Kozlowski’s attorney, “particularly when the SEC itself refused to fulfill its responsibility to provide accounting guidance. Accounting guidance is the foundation of our entire financial system — that, and lending money at substantially higher rates than what you borrow it at. Those two things.”

While the SEC did not respond immediately to Kozlowski, GW/BW has obtained a copy of a confidential letter that the agency later sent to Qwest management later. In that note, the commission warned the company against questionable bookkeeping practices:

“According to SEC rule 24, section 102, public filers will refrain from classifying as recurring income:

1. Any sales that might or might not happen again (see rulings: SEC v. WorldCom, SEC v. HealthSouth)

2. Any sales that might or might not happen under a future contractual agreement (see rulings: SEC v. Enron, SEC v. Halliburton)

3. Any sales that might or might not have happened in a previous life (see ruling: SEC vs. McClain, et. Al)

In addition, the SEC specifically warned Qwest about “claiming the income of another company as their own, or getting dark stuff on the important parts of their 10-K.” According to one source close to the case, however, several of the defendants are “absolutely livid over the SEC suit.” The others, says the source, appear to be “genuinely dumbfounded by the government’s charges, as well as the Jessica Simpson/Willie Nelson thing on TV the other night.”