Copyright by John T. Reed

President Barack Obama has no experience at anything related to being president. He hardly has any experience at anything at all.

But we have been assured that doesn’t matter because he will have all sorts of extremely experienced advisers.

I am an expert on expertise and how to impart expertise. I have written 83 how-to books, many of which are about how to impart expertise to others, namely my coaching and how to write how-to books titles. I have also written over 5,000 how-to articles that have all been published to a national or international audience.

I addressed this issue very squarely in the second book I wrote back in 1981. That book is called Aggressive Tax Avoidance for Real Estate Investors. It is now in its 19th edition.

The vast majority of laymen think the Internal Revenue Code is so complex that only accountants and tax lawyers can understand it. Therefore they do not try. They simply hire an adviser, namely an accountant or attorney, and turn it all over to them. Here is my response to that from page 34 Aggressive Tax Avoidance... which has a subhead “Why you must know the law:”

Why you must know the law
You don’t need to become an accountant or an attorney. But you do need to know tax law. For a number of reasons.
1. Day-to-day decisions. Every day throughout the year you make decisions pertaining to your real estate investments. Many of these decisions have tax ramifications. If you are ignorant of the law, you won’t recognize the ramifications—and you’ll blunder.
In most cases, a year-end visit to your tax adviser is too late to correct these blunders.
There’s an example of this in the famous Starker decision (602 F 2d 1341). T.J. Starker was doing a delayed exchange. He had an attorney, Charles Duffy. But Starker did not consult Duffy at one stage of the exchange. Starker was supposed to receive property from the Crown Zellerbach Corporation. But at one point, he told Crown to deed two properties directly to his daughter instead of to him.
When IRS tried to tax the whole transaction, they lost—except on the two properties Starker told Crown to deed to his daughter. Had he asked his attorney, the tax could have been avoided. But Starker did not know that switching the grantee had any tax ramifications.
In other words, April 15th isn’t the only “tax day.” Every day is tax day, potentially. You can’t have a tax adviser looking over your shoulder every day. So, to an extent, you have to be your own tax adviser.
2. More efficient use of adviser. If you don’t know tax law, your tax adviser will have to spend part of each session giving you a kindergarten class on the law. That would be worse than paying a computer repairman—at computer repairman rates—to read the owner’s manual to you.
Investors who don’t know the law tend to ask questions like,
“Why can’t I claim the historic tax credit? The building’s more than 100 years old.”
An investor who does know the law would be more likely to ask,
“I’d like to get the historic credit on 153 Harvard Avenue. It’s not in the National Register. But it is in a historic district. Do you think I have a chance of getting it declared ‘significant’ to the district?”
3. Evaluating your adviser. This is the most important reason why you must know the tax law. How can you tell if your accountant or attorney is worth a darn unless you know something about the tax law?
Most people pick their tax adviser on the basis of his “bedside manner.” They can’t choose according to competence level because they would not know a competent adviser from an incompetent one.
Frequently, people tell me that this book showed them that the family accountant had been giving them bad advice for years. But until they learned the law, they thought he was doing a great job.
John Zacarro, husband of 1984 Democratic vice-presidential nominee, Geraldine Ferraro, is a case in point. According to the former Big Eight accounting firm of Arthur Young, Zacarro’s family accountant of 40 years, Jack Selger, “did not take advantage of the many tax shelters that were readily available.” (Time, September 3, 1984)
A famous real estate book author who shall remain nameless switched from having an accountant do his taxes to doing them himself the year he first read this book.
Reading this book will make you a well-informed consumer of tax advice. Then you’ll be able to tell whether your tax adviser knows his stuff or not.
4. Counteract adviser conservatism. Most of us are more conservative when we handle other people’s affairs. Tax advisers are often more conservative when they’re giving you advice than they are on their own tax return.
If conservatism were free, that’d be fine. But it’s not. If you follow conservative tax advice, you’ll pay more than the law requires. You can tell the adviser not to be conservative. But suppressing his conservatism is easier said than done.
Most of your tax adviser’s other clients are conservative. They tell him,
“Just make sure I don’t get audited.”
So tax advisers tend to assume that everybody who walks through their door has the same goal—avoiding audit—and he does your tax return accordingly.
Avoiding audit is a very dumb goal. For one thing, it’s virtually impossible. You might still be audited no matter how conservative you are. And the conservatism which most people use to avoid audits is typically a self-inflicted “audit” which is far more severe, thorough, and costly than the vast majority of real audits.

In the case of President Obama, the reasons why he cannot be ignorant of the subjects and just rely on his advisers are the same except that I would reword #4 to “Counteract adviser bias.” In income taxes, the main problem is conservatism. In national government policy, there are zillions of different types of biases.

CIA director

What specific advisers will Obama be relying on? One of the most important is his Central Intelligence Agency director. On 1/6/09, he named Leon Panetta to that position.

Instantly, critics complained that Panetta had no intelligence experience, which is correct.

How did Panetta’s supporters respond? Panetta doesn’t need any experience because he will have all sorts of extremely experienced advisers.

Advisers advising Obama’s advisers

Excuse me. I thought Obama was the one who didn’t know anything but was going to rely on his advisers. Now we are told the that Obama’s advisers don’t know what they are doing either, but that doesn’t matter either because Obama’s advisers have advisers.

Obama’s selection of Panetta for CIA is evidence of my third argument from Aggressive Tax Avoidance... If you do not know what you are doing, you are in a lousy position to select competent advisers. Obama has no experience or training in national security or intelligence. As a result, he made an incompetent selection for his adviser known as the Director of the CIA.

Bias in the advisers who said to select Panetta

This blunder also illustrates my Aggressive Tax Avoidance... argument number 4. The advisers who advised Obama to select Panetta were obviously biased against national defense and intelligence and in favor of such defense policies as the Beatles “give peace a chance” and eliminating “root causes” ends all world violence and that, not interest in having a strong defense, motivated their advice.

Day-to-day decisions

Obama has not yet made any decisions because as I write this on 1/6/09, he has not been inaugurated yet. The same is true of Panetta as CIA director. But it is true without a doubt that both will start making extremely important decisions involving intelligence after inauguration day. For one thing, you do not always have time to convene a committee of advisers before you make a decision. Furthermore, because of their ignorance of intelligence and the ramifications of various decisions, both Obama and Panetta will no doubt make decisions without consulting the committee of advisers and those decisions will be such that the committee of advisers will unanimously denounce the decision after they learn about it.

Efficient use of adviser

When Obama and Panetta consult their advisers, it will be like molasses. Because they know nothing, the advisers will constantly be giving each of tem kindergarten classes on the subject in question. That is time-consuming. As is gathering the committee meetings itself. In a world connected by electronics that move information at the speed of light, Obama’s unprecedented reliance on advisers is anachronistic. There may have been time for such things back when our presidents were wearing powdered wigs. In the 21st century, we need a president and CIA director who know what they are doing, not a couple of guys who rely totally on un-elected advisers schooling them after the crisis starts.

Conflicting advice from advisers

There is also the problem of a lack of unanimity among Obama’s advisers. I addressed that problem in my Web article about which form of ownership a real estate investor should use: corporation, limited liability company, sole proprietorship, S corporation, etc. In that article I said,

To make the decision correctly, you would have to consult with a competent lawyer from each pertinent specialty. That list includes, but is not limited to:

1. federal income tax law
2. state income tax law
3. state tort law
4. federal laws pertinent to real estate
5. securities laws (possibly)
6. bankruptcy planning
7. estate planning
8. pension planning
9. elder law
10. college financial aid law
11. landlord-tenant law
12. partnership law (possibly)
13. trust law with some entities
14. divorce or family law
15. foreign law if your entity will be created in a foreign country like the Cayman Islands
16. HUD law
17. business law
18. construction law (possibly)
19. criminal law (possibly)
20. environmental law
21. labor law
22. finance/debt collection law

Can you really check with lawyers in all those specialties? As a practical matter, no. It would take too much time and money. And guess what! Even if you could, it would leave you worse off because their advice would conflict. Some would say to use an LLC because of the advantages and disadvantages in their area while another would say go with sole proprietorship because of the advantages and disadvantages in his area.

Who would resolve the conflicts? No one. In medicine, general practitioners and pharmacists resolve some conflicts. But there is no one in medicine to resolve specialty conflicts like a surgeon who recommends surgery for your cancer and a radiologist who recommends radiation treatment. General practitioners can resolve some general conflicts. But they do not oversee surgeons and radiologists.

And in the legal profession, there is not even a general practitioner at all. You’re on your own, baby.

Obviously, the same problems arise from a president relying solely on advisers, only more so. For example, how to deal with terrorists involves the attorney general, secretary of state, CIA Director, military, and so on. Those advisers will give Obama conflicting advice. Who is the general practitioner to whom he must turn to resolve the conflicts?

The president.

Ooops. Obama has no experience at anything so he cannot play that role. Neither can anyone else.

‘The power team’

I have also written about this relying on advisers theory when it comes to beginning real estate investors being told by get-rich-quick gurus that they don’t have to know anything because their “power team” of experts will take care of them. This is bull. The bad real estate gurus just say it to sell their expensive seminars and “mentoring” services, not because it’s true.

Most successful organization heads have outside advisers who advise them on matters requiring narrow, specialized expertise like law and engineering. But it is nonsense to think that the head guy can be expert at nothing. He at least needs to be expert at things like hiring subordinate managers. Obama has never done that. And the head guy usually needs to be an expert at the core activity of the organization in question. For the White House, that is running an executive branch of government, like mayor, county administrator, governor, or cabinet member. Obama has never done any of that either. He knows nothing about anything including how to hire and use the right advisers.

We are in big trouble with this guy in the Oval Office. He doesn’t know what he is doing and relying totally on advisers cannot fix that.