Philip Greenspun’s Weblog

“Jeff Bezos, World’s Richest Person, Announces Divorce After 25 Years Of Marriage” (Forbes):

The couple lives primarily in Washington State, which requires divorcing spouses to equitably divide “community property,” including all income generated during a marriage. “It seems very likely, if not 100% a certainty, that whatever Jeff Bezos has earned at Amazon has been community income,” says David Starks, a partner at the Seattle-based law firm McKinley Irvin.

If MacKenzie Bezos, 48, does indeed receive half of her husband’s assets, she would be worth more than $68 billion, making her the fifth-richest person in the world.

The Forbes journalists pride themselves on precision, presumably, when it comes to what happens to $68 billion, yet here they conflate “community property” with “50/50 division”. Somehow Americans seem unable to educate themselves on family law, which may have far more impact on their spending power than choice of career, whether to attend college, etc.

From the Washington chapter of Real World Divorce…

Are the assets split 50/50? “We’re a ‘fair and equitable’ state,” says DeVallance. “It is not a 50/50 state. The property division can be a disproportionate.” Does the fact that Washington State is a “community property” jurisdiction mean that assets acquired before the marriage remain with each party? “No,” explains DeVallance. “All property is before the court, including separate property, though it is somewhat rare to invade separate property.” DeVallance pointed to a November 25, 2013 appeals court decision in the divorce of Julian Calhoun and Christopher Larson (see http://www.courts.wa.gov/opinions/pdf/698338.pdf ). After a marriage that lasted more than 20 years, Calhoun won $139 million as her share of community property and more than $40 million from Larson’s separate property (stock in Microsoft acquired prior to the marriage):

According to the trial court, the separate property award served two objectives. First, it recognized Calhoun’s intangible contributions to the marital community. The court explained, “This was, after all, a long-term marriage in which the wife made a major contribution to all that the community accomplished, measured in terms of their children, their foster children, their impact in the broad community and their more narrow business interests.” … In other words, while Larson generated the couple’s considerable wealth, Calhoun’s intangible contributions served equally to benefit the marital community. Second, the award helped ensure Calhoun’s short- and long-term financial security. The court found that Calhoun held a college degree in English literature but was not “gainfully employed” during the marriage. Larson, in contrast, obtained significant employment and investment experience during the marriage. The court found he had a “keen business sense” and that, “[i]n recent years, he has stayed busy actively managing his extensive investments and philanthropic endeavors.” As between the two, Larson was in a better position to acquire and manage future wealth. … The $40 million separate property award—consisting of Microsoft stock and cash—provided Calhoun with immediate liquidity.

Calhoun’s request for attorney’s fees for the appeal portion of the lawsuit was unsuccessful, though not on the grounds that someone who has won $180 million in a divorce can afford to pay her own attorney.

Regarding our hypothetical scenario DeVallance says “On the basis that she is the primary parent she can ask for the house and may get it. She would receive a disproportionate share of community assets.”

[Mrs. Bezos is fortunate not to be living in Germany, where, assuming Mr. Bezos checked the “separate property” box on the marriage certificate application, she would be getting nothing more than child support (capped at $6,000 per year per child).]

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Back in the 1970s and 1980s it was conventional for software and hardware companies to have research labs, modeled to some extent after AT&T Bell Labs and IBM’s various labs. This way the cash cow product could soldier onward with incremental changes while the replacement incubated. IBM, for example, kept selling efficient-but-inflexible hierarchical DBMS software for mainframes while its Almaden (San Jose) research lab created our modern RDBMS and SQL (initially unusably sluggish).

Product cycles are much shorter today. In theory a company with a popular program can push out new features or fixes every day or at least every week (“Update and Restart”!).

I was chatting with the CEO of a successful one-product software company. Making a change to this software involves getting signoffs from a huge number of constituents, a massive testing effort, etc. The result is a lot of interface that everyone agrees is suboptimal. I suggested starting a research lab with a comparative handful of developers to knock together working prototypes that can be used by a few thousand people and then, if anything catches on, use that experience (if not much of the actual code) as inspiration for making the painful and expensive changes to the core product.

He reasonably asked if I could cite currently successful companies that are doing a formal “labs” department as opposed to simply having hackathons or similar informal ways of pulling together proofs of concept. So now I’m going to bounce the question over to readers!

Readers: Is the idea of a separate “labs” group within a company essentially obsolete due to (a) faster release cycles from the main product engineering group, and (b) hackathons and similar venues that can be sources of inspiration for the main team?

Also, what other examples can people think of for a big innovation coming out of a separate group within the same company? It has to be in the same area where the company already has a successful product, preferably software. So Bell Labs developing the transistor or HP Labs the ink jet printer wouldn’t count (since HP’s business wasn’t primarily printers prior to the lab innovation and AT&T was not primarily in the business of making vacuum tubes).

Related:

• “The Death of the Corporate Research Lab Means the Rebirth of Innovation” (2015)

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“The Economics of Soaking the Rich: What does Alexandria Ocasio-Cortez know about tax policy? A lot.” (Paul Krugman, NYT):

The controversy of the moment involves AOC’s advocacy of a tax rate of 70-80 percent on very high incomes, which is obviously crazy, right? I mean, who thinks that makes sense? Only ignorant people like … um, Peter Diamond, Nobel laureate in economics and arguably the world’s leading expert on public finance. … And it’s a policy nobody has ever implemented, aside from … the United States, for 35 years after World War II — including the most successful period of economic growth in our history.

As I said, Diamond and Saez put the optimal rate at 73 percent, Romer at over 80 percent — which is consistent with what AOC said.

What we see [from a displayed chart] is that America used to have very high tax rates on the rich — higher even than those AOC is proposing — and did just fine. Since then tax rates have come way down, and if anything the economy has done less well.

Which brings me back to AOC, and the constant effort to portray her as flaky and ignorant. Well, on the tax issue she’s just saying what good economists say

Back in the glory days to which Krugman refers, Americans escaped the high ordinary income tax rates by converting what looked like ordinary income into capital gains, taxed at roughly the same rate then as now. See https://philip.greenspun.com/blog/2016/05/06/eisenhower-era-tax-avoidance-strategies-from-eisenhower/

Let’s assume that the Democrats will regain control over the U.S. at some point and that there is a good chance that the young and charismatic folks such as AOC will be the leaders. We will then have the tax rates that they’re currently proposing.

What would be the impact on a successful Californian, for example? The current tax rate is 39.6 percent federal plus 13.3 percent state. So the earner can spend 47 cents of each gross dollar. With an 80 percent federal rate, the after-tax benefit of earning one extra dollar would be 7 cents. This is an 85-percent pay cut for the rich Californian, which should provide some motivation to act.

Question for today: How will Americans adapt?

The world is very different from what it was in the high-tax heyday. The economy is a lot more global. It is possible to pay 10 percent on income in the UK (see https://philip.greenspun.com/blog/2019/01/02/move-to-the-uk-if-youre-an-entrepreneur-10-percent-capital-gains-tax/ ) or 20ish percent in Estonia or Singapore. Americans can take advantage of foreign corporate tax rates by starting enterprises overseas, but individual income tax rates are available, however, only to those who renounce U.S. citizenship, which can be expensive and challenging. (Also, for anyone living in the UK, it is quite easy for a family court plaintiff to impose a 50 percent tax on assets after a two-year marriage! See Real World Divorce.)

We have corporate tax rates of about 26 percent now (Tax Foundation). Could it be that our most productive citizens will simply start corporations and accumulate profits inside the corporate shell indefinitely, Warren Buffett style, thus deferring taxes for decades?

Will our most productive citizens move to Puerto Rico for 183 days per year? (see Forbes for how Americans can become mostly tax-exempt and GQ for the lifestyle report)

Will every rich family set up non-profit orgs like the Clinton Foundation and run all of their Gulfstream charter and parties in Switzerland and Australia through the foundation?

Given our spectacular debt-to-GDP ratio, the fondness of the American voter for a command-and-control centrally planned economy, and the growing number of voters who aren’t subject to income tax (since they are on welfare or otherwise have low income), high future individual tax rates do seem plausible.

Or will productive Americans just decide to pay the exit tax and renounce their citizenship, following Eduardo Saverin‘s example?

Related:

• Greg Mankiw, Harvard econ professor, calculates his own tax rate as already being 90-95 percent under the 2010 code

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Folks: I’ll be working in San Francisco Monday and Tuesday of next week (Jan 14 and 15). Please email me, philg@mit.edu, if you’re interested in getting together. One possibility is downtown coffee on the morning of January 16. I might be able to make it down to Silicon Valley on the 16th if I can finish work early.

Decided: Coffee at the Fairmont (Nob Hill) at 8:00 am. The lobby should be an awesome place for conversation! (unfortunately I don’t think that I can make it down to Silicon Valley)

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About 35 seconds into this video (Guardian), Nancy Pelosi says that “a wall is an immorality,” presumably explaining why she and other Democrats won’t vote to fund the “wall” requested by the Trumpenfuhrer.

On the other hand, we already have 580 miles of “barrier” (Wikipedia), which includes parts that look like walls and parts that look like fences.

Could the solution to our current political impasse be for Democrats to vote to fund an extension of the current “barrier”? (Or, if they truly do think that any kind of barrier is immoral, will they vote to tear down the existing 580 miles? If something is “immoral” then surely we don’t want to keep doing it.)

Related:

“I met Sonny for the first time in 1992 when we both were candidates for the Republican Senate nomination in California. I shook hands with him, as we prepared for a debate, and I immediately liked him. The first question in the debate was about illegal immigration. I gave a prepared three-minute answer. Sonny simply said, ‘It’s illegal immigration. It’s illegal. Enforce the law.'” (regarding Sonny Bono)

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Cuba was richer, per capita, than Singapore in 1959 (Forbes) and Havana was the richest part of Cuba. As such, the city enjoyed world class physical infrastructure circa 1959: roads, sidewalks, beautiful houses and colonial buildings, etc.

Except for some central business district areas and parts of the city that have been restored for tourist, Havana today is essentially in ruins. It is a good thing that not everyone has a smartphone because walking and trying to use a phone would likely result in falling into a pit (not marked off with cones) or stumbling over broken pavement. One guide said that approximately 33 buildings collapse monthly in Havana and 600 people are injured from collapsing ceilings, etc. (see also USA Today)

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The GDP per capita today is about the same as it was in 1959 while the cost of materials and construction and construction have skyrocketed. There is no way that current Cubans could reproduce the infrastructure that their grandparents and great-grandparents bequeathed to them. Even if they never spent a dime on building anything new, I don’t think that 100 percent of their income would suffice to maintain the roads and buildings that they had in 1959 (concrete deteriorates rapidly in a hot humid salty environment).

Cuba should be a cautionary tale for any nation that isn’t experiencing substantial per capita GDP growth. Even if a country maintains a steady population and income per capita, the rise in the cost of repairing and rebuilding infrastructure means that quality and quantity will decline.

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