Welcome to the Capital Note, a newsletter about business, finance, and economics. On the menu today: weaponizing tax leaks, Olympic sponsorship (and its problems), the advertising that dreams are made of, Babe Ruth slices, capitalism, rope, and China. To sign up for the Capital Note, follow this link.
News and Views
About those tax leaks . . .
In the course of writing about the use made by ProPublica of stolen tax data in a recent article about the “true” (fact check: not true) tax rate paid by certain billionaires, I quoted a comment by that article’s authors that the data consisted of “the tax returns of thousands of the nation’s wealthiest people, covering more than 15 years.”
Tweeting on June 16, Glenn Greenwald wondered “how large ProPublica’s archive of people’s tax returns is.”
What prompted his question was a later piece in ProPublica in which the authors (Robert Faturechi and Jeff Ernsthausen) wrote that “the leading candidate to take over the investigation relating to former President Donald Trump’s taxes paid virtually no federal income taxes in four of six recent years.”
Tali Farhadian Weinstein, who is married to hedge fund manager Boaz Weinstein, is running for Manhattan district attorney in the Democratic primary, in which early voting has already begun. She and her husband reported income as high as $107 million in 2011, and she recently donated $8.2 million to her campaign — more than her seven Democratic rivals have raised in total.
But in 2017, according to a trove of tax data obtained by ProPublica, she and her husband paid no federal income tax. In 2015 and 2013, they also paid no federal income tax. In 2014, she and her husband paid $6,584.
Farhadian Weinstein provided a statement in response to questions from ProPublica: “In 6 of the last 11 years (the years in which we had income), we paid more than 50% of our income in Federal, State and New York City taxes. In the other years, we earned no net income and, as a result, did not pay income tax. We both benefited from many opportunities in this city and country and are glad to pay taxes at among the very highest tax rates in the entire country . . .”
Faturechi and Ernsthausen present the numbers in a strikingly different way but are careful to note that “there’s no indication the Weinsteins did anything illegal.”
What was most interesting to me was the way in which the line of attack taken in the earlier ProPublica article, which really revolved around a somewhat bogus point of principle, has widened — or narrowed, depending on how you look at it. The first used data, not all of which (by any means) were derived from (supposedly) confidential tax returns, to highlight the difference between certain billionaires’ tax bills and the amount that their fortunes had increased over the same period. The article wasn’t really “about” a Bezos or a Musk, but about a tax system that ProPublica’s writers believed to be unfair.
This new set of disclosures are more directly targeted at one person, even if the “public interest,” as it was before, is wheeled out as a justification for their publication.
One of the billionaires mentioned in this article objected arguing that publishing personal tax information is a violation of privacy [but] we have concluded that the public interest in knowing this information at this pivotal moment outweighs that legitimate concern.
This time, Robert Faturechi and Jeff Ernsthausen explained that:
This story was not on our initial list of coverage of the IRS data but a ProPublica reporter came across Farhadian Weinstein’s information as part of his ongoing research. With the primary election a week away and the outsized spending by Farhadian Weinstein continuing to draw attention, ProPublica concluded the public interest would be served by letting voters and other taxpayers see her tax history.
Once again, the moment is, you guessed it, “pivotal”:
But as the authors’ own words (and the links that, directly or indirectly, they provide) show, neither the amount of the candidate’s spending nor the identity of some of her donors — important elements in the ProPublica article — is a secret.
Gothamist (from April):
A review of donations by Gothamist/WNYC shows that leading finance and real estate players have poured hundreds of thousands of dollars into Farhadian Weinstein’s campaign. Some of the donors have close ties to her husband, Boaz Weinstein, founder of the $3 billion hedge fund Saba Capital Management. Others travel in similar social circles, or even live in her Fifth Avenue coop building.
The money coming in has raised concerns among good government groups and rival candidates in the race about Farhadian Weinstein’s ability to act as a watchdog over Wall Street when she has such close monetary and social bonds to some of the financial sector’s key players . . .
Meanwhile, Faturechi, and Ernsthausen note that:
Farhadian Weinstein has made fairness a central principle of her campaign. As she has put it on her campaign website, “Tali believes in a DA’s office that is ethical, fair, and advances equity for all New Yorkers.” She has presented herself as a centrist in a progressive Democratic field. A former federal prosecutor and general counsel for the Brooklyn DA’s office, she has picked up a string of high-profile endorsements, including from former Attorney General Eric Holder, former Democratic presidential nominee Hillary Clinton, the New York Daily News and the New York Post . . .
The contrast between the size of the candidate’s tax bill, her family wealth, and “fairness” is thus a key point that the authors of the ProPublica piece want to make. However, I suspect that the real reason that they deployed the stolen tax data against Farhadian Weinstein was this:
She has presented herself as a centrist in a progressive Democratic field . . .
“Public interest” is a usefully flexible concept, it seems.
Writing a few days ago in the Wall Street Journal about the earlier ProPublica article, Holman Jenkins:
We can save the pros and cons of a wealth tax for another day, but notice how gratuitous was ProPublica’s use of stolen tax data . . .
By definition, these returns don’t contain information about unrealized stock-market, real estate and other asset gains that aren’t “income” under U.S. tax law but ProPublica has decided should be. For almost the entirety of its purpose, ProPublica relies on Forbes’s long-running research into the wealth of the richest Americans.
Forbes did the work, tracking down and valuing the wealthy’s assets for the years 2014 to 2018. More to the point, at any time in the past three years, anyone could have calculated how much the wealthy would have owed if unrealized gains were taxed. And did. Using the same Forbes data, economists Emmanuel Saez and Gabriel Zucman, in a single sentence in a Washington Post op-ed in April, said everything ProPublica really had to say.
Forbes engaged in enterprising journalism. Whoever stole the tax returns was enterprising in another sense. ProPublica was enterprising only in inventing a piffling rationalization for publishing the stolen data and proclaiming itself the author of an important scoop.
This rationalization comes down to a conceit: a taxpayer’s actual payment in a given year, which ProPublica extracts from the stolen returns, compared against their Forbes unrealized gains reveals what “we’re going to call . . . their true tax rate.”
This is a misuse of the word “true.”
Fact check: True.
Later, Jenkins observes:
It’s news that tax returns of thousands of Americans, which the government is pledged to protect, now are in the hands of unknown numbers of private parties and criminals.
This is the real abuse—ProPublica describes itself as a “nonprofit newsroom that investigates abuses of power.”
Some forms of “abuse” are, it seems, more equal than others.
Around the Web
Olympic sponsorship (and its problems)
As someone who has never had much time for the Olympics, not least because of the arrogance and authoritarianism of the IOC, the body that runs it, I will admit that this (via the Financial Times) made me laugh:
There will probably be little promotion by NEC or other Olympic sponsors of technology used in the games this summer, whether it is related to Toyota’s self-driving vehicles or security robots developed by Secom.
As one sponsor grimly acknowledged, silence is the best marketing strategy to navigate a toxic environment where any association with the event could potentially be damaging for the corporate brand.
Another chief executive quietly retracted a comment he made to the Financial Times a few months ago that he loved sports and wanted the Olympics to go ahead, saying that what would have been a harmless comment in any other context was inappropriate in light of lingering public opposition to the games.
From the Washington Post in late May:
As the Games have drawn closer, Japanese citizens have rallied against them. In a poll released May 18, 83 percent opposed holding the Games. This week, the Asahi Shimbun, one of Japan’s most influential newspapers and a sponsor of the Tokyo Olympics, published an editorial headlined, “Prime Minister Suga, please call off the Olympics this summer.”
The advertising that dreams are made of:
If you’ve ever crammed for an exam just before bedtime, you may have tried something dream researchers have been attempting for decades: coaxing knowledge into dreams. Such efforts have had glimmers of success in the lab. Now, brands from Xbox to Coors to Burger King are teaming up with some scientists to attempt something similar: “Engineer” advertisements into willing consumers’ dreams, via video and audio clips. This week, a group of 40 dream researchers has pushed back in an online letter, calling for the regulation of commercial dream manipulation.
“Dream incubation advertising is not some fun gimmick, but a slippery slope with real consequences,” they write on the op-ed website EOS. “Our dreams cannot become just another playground for corporate advertisers.”
Dream incubation, in which people use images, sounds, or other sensory cues to shape their nighttime visions, has a long history. People throughout the ancient world invented rituals and techniques to intentionally change the content of their dreams, through meditation, painting, praying, and even drug use. Greeks who fell ill in the fourth century B.C.E. would sleep on earthen beds in the temples of the god Asclepius, in the hopes of entering enkoimesis, an induced state of dreaming in which their cure would be revealed . . .
Asset price inflation, what asset price inflation?
A 1914 Babe Ruth pre-rookie minor league baseball card valued at $6 million will soon be available for purchase in three-dollar increments.
This is not a contest, or a lottery — this is an authentic sports collectible being sold to thousands of buyers.
Last week, this exact Babe Ruth card broke the record for the most expensive sports card transaction in history, according to Sports memorabilia investment platform Collectable, and now its anonymous buyer is selling equity in his million-dollar card.
The buyer is offering shares of his ultra-rare 1914 Baltimore News Babe Ruth card on Collectable for three dollars a share. The price-per-share would indicate a valuation just north of $6 million.
Collectable is a platform that allows people to buy equity in memorabilia when they may not be able to afford the piece as a whole. This concept is similar to how brokerage firms like Robinhood offer fractional shares of public companies.
For example, it may be difficult for some investors to afford a share of Amazon stock at a price of over $3,000, but a fractional share of Amazon stock is more attainable. The same premise applies to some high-priced collectibles . . .
Lenin probably never said that “the capitalists will sell us the rope with which to hang them” and China is closer, these days, to being fascist rather than communist, but the quote is a good enough for me to use as an introduction to this piece by Elizabeth Braw in Engelsberg Ideas on “China’s takeover of Western capitalism.”
Congenica is not the sort of company a lot of people follow closely. The Cambridge-based start-up specialises in genomics, an area most of us struggle to understand.
Given this reality, perhaps it was inevitable that some venture capital funding Congenica received late last year garnered little media interest. But Congenica’s decision to give Tencent, a Chinese entertainment giant, a stake in its £39 million Series C funding round was both important news and a routine announcement. Chinese firms regularly snap up the best Western technology and the best Western start-ups.
Such business deals are part of a Chinese strategy to turn itself into a global superpower. So are sundry less legal means that undermine Western countries and, conveniently, strengthen China. It’s not warfare – but it’s certainly not globalisation as usual. Congenica’s funding from Tencent arrived only a few months after another cutting-edge UK biotech firm, Nanopore, announced it was negotiating to sell an 11 percent stake to Tencent. And while the Shenzhen-based buyer may lack the name power of Huawei, it is in many ways an even more important outfit than the telecom equipment maker. It’s an entertainment giant in its own right, best-known as the messaging platform WeChat’s parent company, but it’s also a formidable investor in start-ups – 580 and counting.
And Tencent is only one of many Chinese outfits that over the past five years or so have been on a start-up buying spree . . .
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