DODD-FRANK & CFPB ANNIVERSARIES

ABSTRACT: We have just reached the second anniversary of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the first anniversary of the Consumer Financial Protection Bureau (CFPB) that it created. Much has been accomplished despite efforts of the financial industry and some in Congress to block, weaken, and/or delay progress. The CFPB, in its first major enforcement action, ordered Capital One Bank to pay $210 million to settle charges of deceptive marketing. The CFPB has received 45,000 complaints and projects over 200,000 per year. (To file a complaint go to http://www.consumerfinance.gov/complaint.)

For the Dodd-Frank law overall, it is estimated that 31% of the rule making required by the law has been finalized. This effort is extensive because Congress was unable to resolve many of the complex and controversial issues and instead passed them on to the regulators’ rulemaking process. The financial industry has been lobbying heavily (over $200 million over the last two years and 1,300 meetings with three key regulatory agencies) to delay, weaken, and complicate the rulemaking and implementation. Sheila Bair, the very effective former chair of the Federal Deposit Insurance Corporation (FDIC) writes, “we see regulators who are too timid … they try to placate industry lobbyists … We need a regulatory system focused on the public interest, not the special interest. … and Congress needs to support them.” [1]

I urge you to let your representatives in or candidates for Congress know that you support strong regulation of the financial industry and strong penalties, including jail time, for violators.

FULL POST:We have just reached the second anniversary of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the first anniversary of the Consumer Financial Protection Bureau (CFPB) that it created. (The existence of a similar agency in Canada has been credited by some with having avoided the mortgage fraud and predatory lending that contributed to the financial and housing market collapse in the US. [2]) Much has been accomplished despite efforts of the financial industry and some in Congress to block, weaken, and/or delay progress. Most notably, Senate Republicans blocked President Obama’s appointment of anyone to head the CFPB to prevent it from functioning effectively. Obama eventually appointed a head of the CFPB in January 2012 without Senate approval when it was in recess.

The CFPB, in its first major enforcement action, ordered Capital One Bank to pay $210 million to settle charges of deceptive marketing to credit card customers. In addition, the CFPB has:

Engaged in lots of fact-finding and gathering of input from a wide range of constituencies
Undertaken its “Know Before You Owe” initiative to help people understand the consequences of debt
Proposed a redesign of mortgage forms to enhance disclosure and understanding
Started developing a range of mortgage regulations making them safer for borrowers and lenders, including a ban on balloon payments and prepayment penalties, and a cap on late fees
Jointly with the Education Department, issued a report on subprime-style lending in the private student loan market and created a model document on college costs and financing options [3]
Initiated oversight of companies reporting on individuals’ creditworthiness
Launched a database that tracks credit card complaints

The CFPB has received 45,000 complaints, many about credit cards and mortgages. The frequency is increasing and is projected to exceed 200,000 per year, perhaps by a lot. [4][5] (To file a complaint go to http://www.consumerfinance.gov/complaint.)

For the Dodd-Frank law overall, it is estimated that 31% of the rule making required by the law has been finalized (123 of 398 rules). To-date, 8,843 pages of rules and regulations have been created by 10 regulatory agencies. The CFPB is responsible for 1,013 of those pages and most of the 1,561 pages devoted to consumer protection. The other major contributors are the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) each with 3,200 pages and the Federal Reserve with 1,439 pages. [6] This effort is so extensive because Congress was unable to resolve many of the complex and controversial issues and instead passed them on to the regulators’ rulemaking process.

The financial industry has been lobbying heavily (over $200 million over the last two years and 1,300 meetings with three key regulatory agencies: the Treasury, the Federal Reserve, and the CFTC) to delay, weaken, and complicate the rulemaking and implementation. For example, new requirements for reserves to protect against losses won’t begin kicking in until January and won’t be fully implemented until 2019. New rules on trading of derivatives won’t start until later this year and will apply to many fewer companies than originally envisioned. The Volcker Rule, to prevent excessive, risky trading by federally insured banks, is still in the works with no draft released and nothing implemented, despite JPMorgan’s recent huge loss on such trading, estimated to be $6 billion. [7][8]

Sheila Bair, the very effective, former chair of the Federal Deposit Insurance Corporation (FDIC), writes, “Yet, still, we see regulators who are too timid … they try to placate industry lobbyists by creating this clarification or that exception, resulting in indecipherable rules that are hundreds, and in some cases, thousands of pages long. … And the irony is that once the rules have ballooned … the lobbyists who sought all the clarifications and exceptions ridicule the regulators for … red tape. … We need a regulatory system focused on the public interest, not the special interest. And we need strong, credible voices who will weigh into the debate on the side of the population at large. … The system is not getting fixed and we need to send a message to Washington. … We need regulators to write rules that the public can understand and the [bank] examiners can enforce. … and Congress needs to support them.” [9]

I hope this information and that in previous posts will help you do anything you can to support strong regulation of the financial industry. I urge you to let your representatives in or candidates for Congress know that you support strong regulation of the financial industry and strong penalties, including jail time, for violators. Tell them your personal stories about how the financial collapse has affected you and your family. Only strong grassroots pressure by voters will ultimately make the difference.

[1] Bair, S., 7/20/12, “Two years after Dodd-Frank, why isn’t anything fixed?” Yahoo! Finance

[2] Krugman, P., 2/1/10, “Good and boring,” The New York Times

[3] Dougherty, C., & Lorin, J., 7/20/12, “CFPB says students victimized by ‘subprime-style’ lending,” Bloomberg Businessweek

[4] Singletary, M., 7/11/12, “Consumer protection bureau nears its first anniversary,” The Boston Globe

[5] Puzzanghera, J., 7/23/12, “Cordray marks consumer protection agency’s 1^st year,” Los Angeles Times

[6] Davis Polk & Wardwell LLP (law firm), 7/20/12, “Dodd-Frank progress report,” http://www.davispolk.com/dodd-frank-rulemaking-progress-report

[7] Liberto, J., 7/21/12, “Two-thirds of Dodd-Frank still not in place,” CNN Money

[8] Drutman, L., 7/19/12, “Big banks dominate Dodd-Frank meetings with regulators,” Sunlight Foundation

[9] Bair, S., 7/20/12, “Two years after Dodd-Frank, why isn’t anything fixed?” Yahoo! Finance

CORPORATE RIGHTS IN TRADE TREATIES

ABSTRACT: The “Investor State Dispute Settlement” provisions in the draft of the Trans-Pacific Partnership trade treaty (TPP) give an investor (generally a multi-national corporation) the right to sue a government directly for compensation for any negative effect on its profits of any law or regulation. These suits are decided by international tribunals and raise significant concern that they can undermine public health, environmental protection, human rights, and management of economic activity. Under the North American Free Trade Agreement (NAFTA), these tribunals have required governments to pay more than $350 million to corporations and there are more than $12 billion in pending cases. Cases involve food and cigarette labeling; pesticides, drugs, and health care; and pollution and toxic waste. Australia has announced it will stop supporting the inclusion of investor state dispute settlement provisions in trade treaties.

We need openness and debate during the development of the Trans-Pacific Partnership trade treaty to ensure that protections for workers and the middle class are at least as strong as they are for corporations and the investor class. “At stake is nothing less than a democratic society’s ability to regulate a market economy in the broad public interest.” [1]

FULL POST: The “Investor State Dispute Settlement” provisions in the draft of the Trans-Pacific Partnership trade treaty (TPP), as well as in North American Free Trade Agreement (NAFTA) and numerous other treaties, give an investor (generally a multi-national corporation) the right to sue a government directly for compensation for any negative effect on its profits of any law or regulation. These suits are decided by international tribunals made up of three trade lawyers from the private sector who hear the cases and have the power to order trade sanctions or unlimited amounts in fines payable by governments to corporations. The lawyers rotate between serving as the tribunals’ judges and representing the corporations bringing the suits, thereby earning income from the corporations bringing the suits. The tribunals are conducted in secret with no accountability to the public and taking into account only the claim to profits, not health, environmental, or other concerns. [2][3]

Traditionally, international law has been used to settle disputes between countries, while a corporation was required to pursue a dispute in the courts of the country concerned. However, trade and investment treaties, of which there are now over 2,000 worldwide, typically give foreign investors (generally corporations) the right to bypass local court systems and directly sue governments. NAFTA expanded these rights and the TPP draft expands them further. (Note that these treaties allow companies to sue governments but not the reverse.) [4]

The investor state dispute settlement provisions in these treaties raise significant concern that they can undermine the ability of democratically elected governments to implement policies on public health, environmental protection, human rights, and management of economic activity. [5] Laws and regulations that could be attacked include Buy American provisions in government contracting, requirements that energy come from renewable sources, regulation of financial products and companies, and anti-sweat shops rules.

Based on suits under NAFTA, international tribunals have required governments to pay more than $350 million to corporations based on issues such as bans on toxic substances and land-use policies. There are more than $12 billion in pending cases under US trade treaties. [6] Through 2011, the United Nations Conference on Trade and Development had identified 450 lawsuits brought by companies against governments under trade and investment treaties. These are the known cases (see some examples below); most are kept secret. Argentina had the most cases (51), many related to its financial crisis and the privatization of water. It has been required to pay over $1 billion to multi-national corporations. [7]

Based on its experiences, Australia announced in 2011 it would stop supporting the inclusion of investor state dispute settlement provisions in trade treaties. It stated that it supported equal treatment of domestic and foreign business, but felt that these provisions provided greater legal rights to foreign businesses. Furthermore, it stated that it would not support these provisions because they constrained its ability to make laws on social, environmental, and economic matters. Finally, it noted that these provisions had been included at the behest of Australian businesses seeking protections when they entered foreign markets. It stated that if Australian businesses had concerns about investing in foreign countries, they should make there own assessments and decisions and not look to trade treaties for protection. [8]

In the US, concerns about previous trade and investment treaties led to press coverage, debate, and stopping them: the 1998 Multilateral Agreement on Investment, the 2005 Free Trade Area of the Americas, and the original efforts at an Asian-Pacific free trade area. We need openness and debate during the development of the Trans-Pacific Partnership trade treaty. We need to ensure that protections for workers and the middle class are at least as strong as they are for corporations and the investor class. [9] “At stake is nothing less than a democratic society’s ability to regulate a market economy in the broad public interest.” [10]

Examples of investor state dispute settlements include:

The World Trade Organization (WTO) recently ruled that the US cannot require country of origin labeling on meat. Canada and Mexico brought suit against the policy and now will be able to impose trade sanctions on the US if it does not comply with the ruling. Not only will consumers not know where their meat is coming from but public health personnel will have a harder time tracking down the source if health problems occur. [11]
In 2012, the WTO ruled against US dolphin-safe tuna labeling and against a US ban on clove, candy, and cola flavored cigarettes.
Foreign manufacturers of generic drugs have sued the US government claiming US patent laws and court decisions have prevented them from marketing their generic versions of drugs.
A US health care provider has sued Canada, challenging its Canada Health Act, as interfering with its ability to provide services and make profits in Canada.
Two US manufacturers of pesticides have sued Canada based on its ban of certain pesticides.
Philip Morris, the multi-national tobacco company, has sued Australia and Uruguay over health warnings and advertizing on cigarette packages, even though their regulations are in compliance with and encouraged by the World Health Organization’s convention on tobacco control.
Ecuador was required to pay Chevron $78 million because its efforts to protect the Amazon from pollution were found to have negatively affected Chevron’s profits.
A Swedish energy company is threatening to sue Germany for its decision to phase out nuclear energy. It previously challenged a German standard on the increase in river water temperatures at its coal-fired power plant and got Germany to relax the standard.
Mexico was required to pay $17 million to US-based Metalclad because a local government refused to give it a permit to build a toxic waste dump.

[1] Wallach, L., 3/13/12, “A stealth attack on democratic governance,” The American Prospect

[2] Wikipedia, retrieved 7/18/12, “Investor state dispute settlement,” http://en.wikipedia.org/wiki/Investor_state_dispute_settlement

[3] Wallach, L., 3/13/12, “A stealth attack on democratic governance,” The American Prospect

[4] Wikipedia, retrieved 7/18/12, see above

[5] Wallach, L., 3/13/12, see above

[6] Wallach, L., 3/13/12, see above

[7] Agazzi, I., 5/7/12, “Global corporations undermining democracy worldwide,” Inter Press Service

[8] Wikipedia, retrieved 7/18/12, see above

[9] Faux, J., 3/13/12, “The myth of the level playing field,” The American Prospect

[10] Wallach, L., 3/13/12, see above

[11] Public Citizen, 6/29/12, “WTO rules against yet another US consumer protection policy,” Public Citizen

TRADE AGREEMENTS PAST AND PRESENT

ABSTRACT: Past trade agreements have not lived up to their promises of new, good jobs for Americans and increased exports. While they have provided cheaper goods for us to buy, they have reduced jobs and put downward pressure on wages in the U.S., while increasing our trade deficit. [1] They have undermined U.S. laws protecting workers, the environment, and public health.

The currently under-negotiation Trans-Pacific Partnership (TPP) appears to be taking all of this a step further. TPP negotiations are being kept secret, although corporate representatives are fully involved. The big winners under past trade agreements and the TPP (as drafted) are multi-national corporations. The TPP negotiations and draft documents must be open to the public and Congress. This will ensure that various interests are appropriately balanced and that corporate interests don’t dominate.

FULL POST: First, a little history. NAFTA, the North American Free Trade Agreement, was signed in 1993. The best estimates are that NAFTA has resulted in the loss of almost 700,000 jobs in the US. Our trade deficit with the other participants, Canada and Mexico, has increased from $9 billion to $101 billion. [2][3] In the 20 years since China joined the World Trade Organization, 2.9 million jobs have been offshored to China, many of them well-paying manufacturing jobs. “[S]tate-subsidized Chinese production [has] decimated American industry and reduced the incomes of American workers.” [4] Our trade deficit with China has grown from $13 billion in 1991 to $295 billion in 2011. [5] “[I]n the past, the U.S. trade imbalance has widened after each new agreement. … U.S. businesses … profit immensely from outsourcing and offshoring … Nor is there any apparent economic benefit to the United States.” [6] “Historically, trade deals like NAFTA … are associated with economic displacement and instability, the erosion of labor and human rights standards, and the subordination of national sovereignty to foreign investors.” [7]

The current Trans-Pacific Partnership negotiations (13 negotiating meetings over two years) involve Australia, Canada, Chile, Malaysia, Mexico, Peru, Singapore, Vietnam, and other countries. TPP is actually much more than a traditional trade agreement and the negotiations have been conducted in secret because US Trade Representative Ron Kirk has indicated that he believes the only way to complete the deal is to keep it secret. (Negotiators have agreed not to release negotiating documents until four years after the deal is completed or abandoned.) Although 600 corporate representatives serve as official US trade advisors and have full access to the negotiations, the US Senate committee with jurisdiction over TPP has been denied access to the negotiations. [8][9]

Recently, two of the 26 chapters of the draft agreement were leaked. The TPP draft text includes:

International rights for pharmaceutical corporations that would prohibit generic versions of drugs in developing countries, dramatically increasing drug prices and reducing access [10]
Further financial industry deregulation
Prohibition on controlling the flow of money among countries and other measures designed to limit negative effects of financial speculation
Increased protection for foreign investors
Incentives for US firms to offshore jobs and investment
Provisions that favor foreign corporations (including government subsidized ones) over domestic ones
Provisions allowing corporations, including foreign corporations, to assert control over natural resources
Expansion of NAFTA’s international tribunals where corporations can sue governments if laws or regulations that protect the public interest (e.g., health, safety, and the environment) might have a negative affect on profits (More on this in my next post.)

Wallach sums up TPP with these words: “Countries would be obliged to conform all their domestic laws and regulations to TPP’s rules – in effect a corporate coup d’état.” [11]

We need to know more about the TPP draft. And we need to apply what we’ve learned from past experience with trade agreements so intended results are achieved and various interests are more appropriately balanced. The US is a democracy; therefore the TPP negotiations and draft documents must be open to the public and to Congress. Then, there can be open discussion and debate about its provisions and its balancing of various interests – those of the public, workers, corporations, investors, local communities, and countries. We need to ensure that corporate power doesn’t run roughshod over other interests.

[1] Faux, J., 3/13/12, “The myth of the level playing field,” The American Prospect

[2] Hindery, L., 5/1/12, “Free trade run amok: the TPP,” The Huffington Post

[3] D’Amico, S.J., 7/10/11, “Trade deals are no deals for the US,” The Boston Globe

[4] Lind, M., Dec. 2011, “The cost of free trade,” The American Prospect

[5] U.S. Census Bureau, retrieved 7/16/12, “Trade in goods with China,” http://www.census.gov/foreign-trade/balance/c5700.html

[6] Prestowitz, C., 3/13/12, “The pacific pivot,” The American Prospect

[7] Chen, M., 6/21/12, “Backdoor talks on trans-Pacific trade deal aim to globalize corporatocracy,” In These Times

[8] Wallach, L., 7/3/12, “NAFTA on steroids: The Trans-Pacific Partnership is a global coup d’état,” The Nation

[9] Chen, M., 6/21/12, see above

[10] Common Dreams, 7/10/12, “Obama’s trade policy ensures big pharma profit at expense of world’s poor,” http://www.commondreams.org/headline/2012/07/10-2

[11] Wallach, L., 7/3/12, see above

BAD BEHAVIOR AT THE BIG BANKS

Abstract: Two “new” major, multi-bank scandals have gotten attention recently: the manipulation of the LIBOR interest rate index from 2005 – 2009 and the rigging of interest rates on municipal deposits over at least ten years. These far-reaching scandals are but the tip of the iceberg, which includes the endemic fraudulent mortgage practices that led to the 2008 financial collapse and more. JPMorgan Chase, among others, is involved in all of the above. It has also paid a $153 million fine for fraud in securities trading and a $700 million penalty for its misbehavior in municipal finance.

Despite overwhelming evidence of serious, chronic criminal behavior at the big banks, penalties are mere slaps on the wrist, no senior executive has been prosecuted, and the banks continue to do business as if they had done nothing wrong. This behavior and the unhealthy economic and political power of the big banks must be stopped. The only way to do so is to prosecute bankers and send some of them to jail.

Full post: On the heels of the large trading losses at JPMorgan Chase (somewhere between $2 and $9 billion) comes news of two major, multi-bank scandals: the manipulation of the LIBOR interest rate and the rigging of interest rates on municipal deposits.

Barclays Bank, based in London, has paid British and American regulators a fine of $450 million for rigging the London Inter-Bank Offered Rate (LIBOR) from 2005 through 2009. This is a big deal because LIBOR is used worldwide to set the variable interest rates on an estimated $500 trillion worth of financial contracts, including mortgages, credit cards, and many commercial and personal loans. The rate rigging helped Barclays’ traders make more money and made their bank look stronger in the midst of the financial crisis. Other banks were clearly involved in the scheme and more penalties are expected. [1]

The second scandal, rigging interest rates on municipal deposits, has, at least so far, received far less attention. Three low level employees at GE Capital (the financial services subsidiary of General Electric) have been convicted in a scheme that involved virtually every major bank and finance company on Wall St. They conspired to skim billions from cities and towns across the country by paying them lower interest rates on their deposits. The cities and towns are generally legally required to get competitive bids from at least three banks. The bidding is managed by a broker. In this scheme, the banks divvied up the business so there was a prearranged winner of the bidding. The broker was bribed to tell the prearranged winner what the other two bids were, so it could come in just over those bids. [2]

This conspiracy had been going on for at least ten years. The municipalities’ deposits were the multi-million proceeds of bonds that were sold to finance major projects and were spent over the multiple years those projects, such as building a school or sewer system, took to complete. Therefore, lowering the interest rate the municipality is paid by just a 100^th of a percent (e.g., 5.00% instead of 5.01%) could cheat a city or town out of tens of thousands of dollars, and save the bank the same amount. Overall, municipalities lost tens of millions of dollars on tens of billions of dollars of municipal deposits. To-date, four banks – UBS, Bank of America, JPMorgan Chase, and Wells Fargo – have admitted involvement and have paid $673 million in restitution and fines.

These two new scandals, amazingly, are but the tip of the iceberg in terms of fraud in the financial industry. Fraudulent writing of mortgages, fraudulent packaging and selling of them as supposedly safe AAA-rated securities, and fraudulent mortgage foreclosures (see blog post / newsletter issue #19, 2/20/12) led to the 2008 financial collapse.

JPMorgan Chase, to focus on one of the big banks, is involved in all of the wrongdoing mentioned above. It has also paid a $153 million fine for fraud in the trading of collateralized debt obligations (CDOs) and a $700 million penalty for its misbehavior in the funding of a $300 million sewer system in Birmingham and Jefferson County Alabama. In this latter scandal, it bribed Goldman Sachs with $3 million not to compete with it and bribed local officials (some of whom are now in jail) to accept a complex financial deal that means the $300 million sewer system will cost $3 billion. This provided profits to JPMorgan while saddling local households, some of them quite poor, with sewer bills of at least $50 month. [3]

The pattern of repeated misbehavior in the financial system is clear. Our big banks’ executives are more interested in their profits and bonuses than serving their customers or playing by the rules. The fines and penalties they’ve paid are mere slaps on the wrist given their size and profitability. None of these payments have meant even one quarter where a bank reported a loss instead of a profit. Despite the overwhelming evidence of serious, repeated criminal behavior, there has been no prosecution of any senior official – not a one, and the banks continue to do business, including with local, state, and the federal governments, as if they had done nothing wrong. [4] (In the Savings and Loan collapse, which was truly miniscule by comparison, over 1,000 senior officials were convicted of felonies.)

Joseph Stiglitz, a Nobel Prize winner and former World Bank economist, believes we must break the unhealthy economic and political power of the financial sector in order to have a more just and prosperous society. He believes the only way to do this is to prosecute bankers and send some of them to jail. [5]

[1] Morgenson, G., 7/7/12, “The British, at least, are getting tough,” The New York Times

[2] Taibbi, M., 7/5/12, “The scam Wall Street learned from the Mafia,” Rolling Stone

[3] Moyers & Company, 6/22/12, “How big banks victimize our democracy,” Public Affairs Television, Inc.

[4] Eskow, R., ???, “Wall Street’s unpunished crimes,” Huffington Post

[5] Common Dreams staff, 7/2/12, “Following Barclays’ scandal, Stiglitz says, ‘Send bankers to jail’,” http://www.commondreams.org/headline/2012/07/02-4

Hello world!

I’ve been very frustrated that important information and context for our national policy making and politics is not being provided by our mainstream media. Although the information is available, most people don’t have the time to do the searching to find it. Often it is buried in pieces that are too long and cumbersome for most people to wade through to find the kernels of important information.

Therefore, I started a policy and politics newsletter in Novemeber, and am now turning it into a blog. I write concise, focused pieces that you can read in a few minutes. Key points are bolded so you can skim the posts very quickly. I will provide links to sources and to more detail, so if there is a topic you are particularly interested in you can pursue it in more depth.

Each issue of my newsletter has been migrated to this blog as a post.

Please sign up to “FOLLOW” my blog, which means you’ll get an email of each new post.

I encourage you to comment on the posts, current and past ones, thereby becoming a participant in the discussion of these issues. I and other readers are interested in your reactions and thoughts.

If you would like to contact me personally, you can email me at john@lippittpolicyandpolitics.org.

WHY THE DECLINE IN LABOR UNIONS

Here’s issue #38 of my Policy and Politics Newsletter, written 7/3/12. The previous newsletter described the role of unions. This newsletter outlines the reasons for the decline in private sector union membership.

Private sector union membership has dropped from 34% of the workforce in 1954 to 7% today. (Public sector union membership has grown from 10% to 37%, so that’s a different story for another day.) [1]

The Wagner Act of 1935 (also know as the National Labor Relations Act) created the basis for current labor unions. It was part of President Roosevelt’s New Deal. It gave workers rights and protections in organizing unions and bargaining collectively. [2]

Employers, especially large corporations, have been pushing back ever since. Initial efforts to weaken the Act failed, until the Taft-Hartley Act was passed in 1947. It was vetoed by President Truman but the Republican Congress overrode his veto. Previously, employers were expected to remain neutral during union organizing efforts. Now employers were allowed to actively oppose unionization. Taft-Hartley also gave flexibility to states to regulate unions and prohibited secondary boycotts (where a union encourages customers not to buy the employers products). Requiring all employees of a unionized workplace to become union members was outlawed. It made union organizing much more difficult and is generally seen as the turning point in unionization in the US [3] (although membership continued to increase for 8 more years before beginning its long decline). In the last 30 years, labor laws have been weakened and the ones that remain are often not vigilantly enforced. [4]

Since the early 1980s, large employers have increasingly aggressively opposed unions. One strategy has been to increase competition among workers for jobs, particularly in the manufacturing and industrial sector that was the heart of middle class union jobs. For example:

Trade agreements, developed with corporate input, have few if any worker protections, which means US workers must compete against much cheaper labor in other countries
Differences in state labor laws and practices are used to make workers compete against workers in other states where unions are weaker, the standard of living and pay is lower, and state and local governments provide financial incentives for relocation of jobs
Threats to replace workers if they strike pit current workers against non-union and unemployed workers. Employers were emboldened in the use of this tactic by President Reagan’s firing and replacing of air traffic controllers when they went on strike [5]

Wal-Mart in particular is well known for it aggressive anti-union tactics, both in attacking any efforts to unionize (including eliminating business components where unionization seemed likely) and using part-time workers that are harder to unionize. [6] The widespread, increased use of part-time workers, contractors, and consultants effectively undermines the use of full-time, potentially union workers. The presence and hiring of immigrant workers, often undocumented ones, also weakens unions.

Weakened labor laws and weak enforcement undermines unions. For example, workers who engage in organizing efforts are not infrequently, illegally fired. However, the enforcement process typically takes many months if not years and if the firing is found to be illegal, typically the company is ordered to reinstate the worker with back pay. This provides only a small financial penalty to the employer and means the worker has to subsist for an extended period of time without the job. Under current law, there is a 45 to 90 day waiting period between the request for and occurrence of the secret ballot voting by employees for a union, and employers work to delay this even longer. In that time, the some employers retaliate against, fire, harass, and generally make life miserable for the pro-union employees, while actively campaigning against the union in mandatory meetings with employees, intimidating them into rejecting the union. [7] [8]

Finally, employers lobby and make campaign contributions to encourage public policies that weaken labor laws, unions, and their power. They band together for these activities and for media campaigns against unions through groups such as the US Chamber of Commerce, the National Federation of Independent Business, Associated Builders and Contractors, The Center for Union Facts, and the National Right to Work Committee and Foundation. [9]

There are other factors, including unions’ internal problems (e.g., corruption and lack of democracy) and unions suffering from their success. For example, their success in improving pay, benefits, and working conditions left some workers feeling that union membership was not necessary, and through their success in advocacy and standard setting, government policies have addressed many of the issues that unions originally tackled, such as limits on working hours, overtime pay requirements, and health and safety issues. [10] [11]

In the US, since 1947, our politics and policies have given employers more clout in the balance of power between employers and employees. One of the effects has been the decline of private sector union membership from 34% to 7%. It doesn’t have to be this way. In Europe, although there has been some decline in union membership, it has been nowhere near as great as in the US and union membership currently ranges between 20% and 71% (in Sweden). [12] Corporations are more likely to work with their unions than to be aggressively anti-union as they are in theUS.

[1] Bureau of LaborStatistics,US Dept. of Labor, 1/27/12, “Union members – 2011,” http://www.bls.gov

[2] Wikipedia, retrieved 7/1/12, “National Labor Relations Act,” en.wikipedia.org/wiki/Nation_Labor_Relations_Act

[3] Clark, B., retrieved 7/1/12, “The decline of unions – Why?” http://www.old-yankee.com/blog/decline-of-unions

[4] Cassidy, J., 6/8/12, “America’s class war,” The New Yorker

[5] About.com Economics, retrieved 7/1/12, “The decline of union power,” economics.about.com/od/laborinamerica/a/union_decline.htm

[6] Wikipedia, retrieved 7/2/12, “Criticism of Walmart,” en.wikipedia.org/wiki/Criticism_of_Walmart

[7] Wikipedia, retrieved 4/23/12, “Labor unions in the United Sates,” en.wikipedia.org/wiki/Labor_unions_in_the_United_States

[8] Reich, R., 6/14/11, “Why the Republican war on workers’ rights undermines the American economy,” robertreaich.org

[9] Johnson, D., 9/1/10, “How companies turn people against unions,” Campaign forAmerica’s Future

[10] Macaray, D., 1/10/08, “Three big reasons for the decline of labor unions,” CounterPunch

[11] Hunter, R.P., 8/24/99, “Four reasons for the decrease in union membership,” http://www.mackinac.org

[12] Fischer, C., 9/11/10, “Why has union membership declined?’ Economist’s View

THE ROLE OF LABOR UNIONS

Here’s issue #37 of my Policy and Politics Newsletter, written 6/28/12. Labor unions have been in the news quite a bit lately. This issue focuses on the role of unions in our society and economy.

Labor unions allow workers to approach employers as a group to discuss working conditions, pay, benefits, and other workplace issues. This affects the balance of power between workers and employers.

If you as an individual employee approach your employer about any of these issues, for example, receiving paid sick days if you currently had none, where does the balance of power lie? With the employer, of course. But if workers as a group approach the employer about such issues the balance of power is quite different.

Pay is probably the first item that comes to mind when thinking about employer – employee issues. There is lots of evidence that when employees are members of unions and bargain collectively on pay, they average 10 – 30% higher pay after controlling for other important variables. [1]

Employee pay is ultimately about how the profits of a business are divvied up among front-line or on-the-floor workers, senior executives and managers, and owners (which may be senior executives or stockholders). The balance of power among these groups affects how the rewards of the business are split. If workers participate in the discussion as a group, i.e., as members of a union, the result will be different, as indicated by hard evidence, common sense, and economic theory. Highly visible examples of this have been the negotiations between professional athletes and team owners in basketball most recently, but also in football, baseball, and hockey.

Therefore, it’s not surprising that as union membership in the private sector has dropped dramatically (from 34%in 1954 to 7% today [2]), income inequality has widened. Senior executives and stockholders have gotten much richer, while the rest of us have barely maintained our standard of living. The share of profits going to workers’ pay is the smallest it’s been since tracking began in 1947. [3]

This has not just increased in income inequality, but has undermined the middle class broadly. Union members’ pay and benefits used to set a standard in many sectors of the economy and to some extent for the economy as a whole. Non-union workers would receive similar compensation because there was competition in the job market, so companies with non-union workforces had to pay competitively to attract good workers. As union membership has declined, this is less of a factor in the job market and therefore there is downward pressure on wages and benefits.

The erosion in benefits has been very visible. Fewer and fewer workers have company managed pension plans, which were standard for union workers. And workers are paying more and more for their health care. Reductions in job security and increasing use of part-time workers are also partially the result of decreased union membership. Other issues that unions over the years have had an impact on are the length of the work week, overtime rules, availability of paid vacation and sick time, safety in the workplace (there are an estimated 58,000 workplace related deaths each year [4]), the minimum wage, unemployment and workplace injury compensation, how layoffs are handled, unfair or arbitrary actions by supervisors, and discrimination in hiring, pay, and promotions in the workplace.

Without or with weakened unions, union and non-union employees have less power and employers have more power. As a result, workers are likely to receive less pay, fewer benefits, and experience less desirable working conditions.

The next issue of the newsletter will address the reasons for the decline in private sector union membership.

[1] Wikipedia, retrieved 4/23/12, “Labor unions in theUS,” en.wikipedia.org/wiki/Labor_unions_in_the_Unitede_States

[2] Bureau of LaborStatistics,US Dept. of Labor, 1/27/12, “Union members – 2011”

[3] Reich, R., 3/2/12, “Bye bye American pie: The challenge of the productivity revolution,” retrieved on 3/3/12 from www.commondreams.org/view/2012/03/02-6

[4] Nader, R., 3/30/12, “If big labor would fight millions would join them on the ramparts,” retrieved at http://www.commondreams.org/view/2012/03/30-5

FIXING THE FILIBUSTER

Here’s issue #36 of my Policy and Politics Newsletter, written 6/15/12. The previous issue outlined the abuse of the filibuster [1] and its impact on the gridlock in Congress. This issue focuses on what can be done about it.

The requirement for 60 votes to end debate and stop a filibuster is part of the Senate’s rules of operation. This cloture rule, as it is called, was adopted in 1975, so it is not part of the Constitution or even a rule with great historical tradition. [2] It means that 41 Senators, who potentially represent less than 15% of the US population, can bring progress in the Senate to a halt.

The Founding Fathers and the Constitutional Convention considered and rejected requiring a super majority vote to pass legislation. They established the fundamental principle of our democracy of majority rule in a legislative body. [3] As a result, the Constitution specifically lists six instances when a super majority vote is required, such as impeachment, overriding a presidential veto, ratifying a treaty, and amending the Constitution. [4]

The current, unprecedented use of the filibuster is largely unreported by the media. They typically describe the need for 60 votes to proceed in the Senate as ordinary procedure and rarely differentiate a bill or other matter that had enough votes to pass (51 or more) but was filibustered (i.e., didn’t have the 60 votes needed to end debate) from one that didn’t have the 51 votes to pass. [5]

Senator Tom Harkin (Democrat from Iowa) has proposed that the first cloture vote to end debate require 60 votes, but that over a period of days or weeks the required vote fall to a simple majority of 51 Senators. This would allow ample time for debate and discussion, in the Senate and with the public, but would provide an incentive for compromise and an ability to stop obstruction. He originally introduced this proposal in 1995 when the Democrats were in the minority, so he is offering it as an institutional reform, not to gain a partisan advantage. [6] Other Senators have presented other proposals to change the Senate’s rules to weaken the power of the filibuster. However, it takes 67 votes to change a Senate rule in the middle of a two year Congressional session. A simple majority vote of 51 Senators can change the rules when they are adopted at the beginning of a session, which occurs after an election (e.g., in January 2013).

In May 2012, a lawsuit was filed against the Senate claiming that the filibuster is unconstitutional. It was brought by four members of the US House of Representatives, three immigrant students (who would have been helped by the DREAM Act that was filibustered), and the nonpartisan, good government group Common Cause. [7] [8]

There is growing agreement that the filibuster is being seriously abused and significantly harming the ability of our federal government to govern effectively. Because of the partisan implications of filibuster reform, it is unclear whether this consensus or the current efforts to fix the filibuster will reduce its use.

[1] A filibuster occurs when one or more Senators refuse to end debate on a piece of legislation or other matter. It requires a super-majority of 60 out of 100 votes to close off debate (cloture) and allow a vote on the bill or other matter.

[2] Wikipedia, retrieved 6/8/12, “Filibuster in the United States Senate”

[3] Harkin, T., 6/30/10, “Fixing the filibuster,” The Nation

[4] Millhiser,I., 5/15/12, “Four members of Congress sue to declare the filibuster unconstitutional,” Think Progress

[5] PR Newswire, 12/18/07, “Record breaking: Senate conservatives use filibuster for 62^nd time in this session of Congress,” United Business Media

[6] Harkin, T., 6/30/10, “Fixing the filibuster,” The Nation

[7] Wong, S., 5/14/12, “Group sues Senate to scrap filibuster,” Politico

[8] Millhiser,I., 5/15/12, “Four members of Congress sue to declare the filibuster unconstitutional,” Think Progress

THE FILIBUSTER: WEAPON OF OBSTRUCTION

Here’s issue #35 of my Policy and Politics Newsletter, written 6/10/12. It focuses on the filibuster as an important problem contributing to the gridlock in Congress.

The use of the filibuster [1] – or the threat of a filibuster – by the minority party in the Senate to block action has become much more frequent in the last six years, accelerating a trend that goes back to the 1970s. “The filibuster … became a routine weapon of obstruction” according to Mann and Ornstein in their Washington Post article of April 27 [2] (see Newsletter issue #32). Traditionally, it was used to block legislation, such as civil rights laws. More recently, since 2005, a filibuster or the threat of one has been used to block presidential nominations of judges. [3] Most recently, it has been used to block presidential nominations for positions in the executive branch and to obstruct progress in general.

The official Senate statistics only track the formal motions to end a filibuster, not the threats to filibuster, so they understate the use and impact of the filibuster. In the last six years, since the Democrats gained control of the Senate, the occurrence of formal motions to end filibusters by the Republican minority has doubled (average per two year Congressional session of 138 vs. 65 in the previous four years when the Democrats were the minority). The pattern of the Republicans increasing the use of the filibuster also occurred in the 1987-94 (average of 58 vs. 38 in the previous six years with a Democratic minority) and in 1971-80 (average of 32 vs. 7 or fewer in all previous Congressional sessions). [4]

Presidents used to receive routine approval of personnel for high-ranking executive branch positions that require Senate approval because it was seen as the President’s right to build his own team. Recently, however, the Republicans have blocked some of President Obama’s executive branch appointments. Most notably, they threatened a filibuster to block his nomination of anyone to head the Consumer Financial Protection Bureau (CFPB). This body was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in the wake of the 2008 collapse of the financial sector, to protect consumers from abuses particularly in mortgage lending, but also in credit card and banking practices. To prevent the CFPB from functioning effectively, the Senate Republicans threatened to filibuster the appointment the head of the CFPB, first Elizabeth Warren (so Obama never formally nominated her) and then Richard Cordray (former Ohio Attorney General). Obama eventually appointed Cordray without Senate approval when the Senate was in recess so the agency could function. [5]

On the judicial front, Republican filibusters and other delaying tactics have created a situation where nearly one in nine federal judgeships sits empty (80 positions in the District and Circuit Courts), and nearly half of those vacancies are in courts so overburdened that they have been deemed judicial emergencies. As-of March, there were 22 judicial nominees who had been approved by the Judiciary Committee and were waiting yes or no votes in the full Senate. Sixteen had strong bipartisan support in the Committee, having received unanimous support or one dissenting vote. The wait for full Senate votes on committee-approved nominees is averaging over 3 months. For comparison, under President George W. Bush the wait was less than one month. Of the 22 filibusters of district court nominees that have occurred in the last 60 years, 19 have been of Obama nominees.

On the legislative front, the filibuster threat has been used to block the legislation preventing a doubling of the interest on student loans, the Paycheck Fairness Act promoting gender equity in wages, attempts to extend unemployment benefits, the reauthorization of the Export-Import Bank, the DREAM Act providing a path to citizenship for immigrant children brought to the country when they were quite young, and the DISCLOSE Act that requires increased disclosure of political contributions. The last three of these had passed in the House of Representatives and would have passed in the Senate except for a filibuster. [6]

As Republicans filibuster or threaten to filibuster 70% of the major legislation in the Senate, not only is important legislation blocked, but laws that ultimately pass are watered down, often hopelessly convoluted, and sometimes include irrelevant or wasteful add-ons or earmarks as necessary to get the 60 vote super-majority needed to move to a vote. The filibuster incentivizes grandstanding and the power of small minorities (sometimes an individual Senator’s threat of a filibuster) rather than effective governance. [7]

The next issue of the newsletter will examine efforts to limit the impact of the filibuster.

[2] Mann, T.E., andOrnstein,N.J., 4/27/12, “Let’s just say it: The Republicans are the problem,” The Washington Post. Adapted from their book “It’s even worse than it looks: How the American Constitutional system collided with the new politics of extremism.”

[3] Wikipedia, retrieved 6/8/12, “Filibuster in the U.S. Senate”

[4] U.S. Senate, retrieved 6/8/12, “Senate action on cloture motions,” http://www.senate.gov/pagelayout/reference/cloture_motions/clotureCounts.htm

[5] Editorial, 1/28/12, “Filibustering nominees must end,” The New York Times

[6] Wong, S., 5/14/12, “Group sues Senate to scrap filibuster,” Politico

[7] Guess, S., 1/21/10, “Filibusters are strangling the Senate,” The Guardian

STUDENT DEBT: THE NEXT MIDDLE CLASS CRISIS?

Here’s issue #34 of my Policy and Politics Newsletter, written 6/6/12. It examines the rising levels of student debt.

Total student debt topped $1 trillion dollars recently (surpassing credit card debt) with borrowing exceeding $100 billion for the first time in 2010. The average 2010 graduating senior who had a student loan owed a little over $25,000 and 17% of graduating seniors’ parents had loans, and they averaged $34,000. Family incomes, grants, and public investments in higher education have not kept up with rising higher education costs, and therefore the use of loans has increased. Use by older students has grown as they pursue re-training and further education in an effort to increase their chances of landing a good job. Parents are taking on increasing debt to support their children’s education (roughly 10% of the total or $100 billion) and increasing numbers of seniors who are receiving Social Security owe money on student loans.

There is growing concern that student loan defaults could become a problem for lenders. Among members of the Class of 2005 who had begun repaying loans, an estimated 25% have missed at least one payment, making them delinquent, and 15-20% have defaulted, having been delinquent for nine months or more. Once default has occurred, the full amount of the loan is due immediately and interest, penalties, and fees can accumulate. Also, for federal government loans, the borrower loses eligibility for loan forgiveness and future aid, and can also have wages, tax refunds, and federal benefits (including Social Security) garnished. There is no statute of limitations (as there is for most crimes except murder and treason), so borrowers are responsible for the loan literally forever.

There is no relief from student loans under bankruptcy except under very rare and difficult to assert hardship situations. Prior to 1976, student loans were forgiven in bankruptcy, but since then bankruptcy laws have been tightened and in 2005, in a major rewriting of the bankruptcy laws (with a big push by financial institutions wanting to make it harder for consumers to escape credit card debt), student loans were made “non-dischargeable” except for “undue hardship.” This provision was slipped into the 2005 law by an unidentified lawmaker with no hearings or public discussion. After the law was passed but before it went into effect, the House Judiciary Committee recommended that this student loan provision be repealed because less than 1% of student loans were being discharged in bankruptcy. However, repeal never happened. [1]

The student loan debt burden is hampering the economic recovery; it dampens consumer spending, which is what drives our economy. The middle class is getting squeezed again. It is struggling to maintain its standard of living through higher education but can only afford it with increased debt. With high unemployment, jobs that reward education and allow students to pay off their debt are hard to get. The middle class has no economic margin. If they have jobs, wages and benefits are stagnant at best, and families have increased work hours as much as possible. Home prices are depressed with no equity to tap and credit card debt is high. Defaulting on student debt could be the next crisis for middle class families – and for lenders. Long-term delinquency rates on student loans (around 9%) are already higher than they are for mortgages, auto loans, and home equity lines of credit. [2]

In the midst of this, the interest rate on federal student loans will double, from 3.4% to 6.8%, on July 1 unless Congress acts. This will affect 7.4 million students. The cost for keeping the rate at 3.4% is about $6 billion in lost revenue. (This is less than 0.2% of the federal budget of $3.8 trillion including Social Security and Medicare.) Despite the fact that the federal government can currently borrow money at rates well below 3%, in the current political and fiscal environment every reduction in projected revenue must be offset. The fight in Congress is, ostensibly, over how to pay for the cost. The Republicans have proposed cutting preventive health care programs in the new health care law. This was defeated. The Democrats’ version had 51 votes but was filibustered by the Republicans. [3]

In addition, to keeping the interest rate low, advocates are calling for reinstating bankruptcy relief, a reasonable statute of limitations on loan collection, and controls on private interest rates and collection practices. [4] [5]

[1] National Association of Consumer Bankruptcy Attorneys, 2/7/12, “The student loan ‘debt bomb’:America’s next mortgage-style economic crisis?”

[2] Common Dreams, 5/31/12, “Student debt explodes, climbing 275% since 2003,” www.commondreams.org/headline/2012/05/31-8

[3] Associated Press, 5/26/12, “Senate rejects two plans on student loan rates,” The Boston Globe

[4] Brown, E., 5/11/12, “Indentured servitude for seniors: Social Security garnished for student debts,” Common Dreams, www.commondreams.org/view/2012/01/11-8

[5] National Association of Consumer Bankruptcy Attorneys, 2/7/12, see above

REGULATING THE BIG BANKS (Part 2)

Here’s issue #33 of my Policy and Politics Newsletter, written 5/31/12. The previous issue of the newsletter laid out the rationale and need for strong regulation of the six big banks that dominate the industry. It closed by noting that JPMorgan Chase’s recent multi-billion dollar loss from securities trading has re-focused attention on bank regulation. This issue of the newsletter takes a look at the response to the JPMorgan loss.

The over $2 billion trading loss at JPMorgan has strengthened support for the Volcker Rule, which bans speculative and risky proprietary trading by banks. It has reinvigorated the discussion about financial institutions that are “too big to fail.” The six biggest US banks are bigger now than they were before the recent financial collapse and have assets ($9.5 trillion) equal to 2/3 of the entire US economy. Many believe that the collapse of any one of them would trigger events that would cripple the US economy. Therefore, despite the provisions of the Dodd-Frank law that state there will be no future bailout, many find it hard to believe that a bailout wouldn’t happen because these huge banks truly are too big to fail. [1]

Opponents of stronger bank regulation will characterize the push for the Volcker Rule and splitting up the six big banks as an attack on successful businesses, business people, and the wealthy. But JPMorgan CEO Dimon’s own reputation disproves this. Until the current fiasco, he and his leadership at JPMorgan had been praised and celebrated. The call for strong regulation is not an attack on success or wealth, but on bad and unethical business practices, failures of risk management, greed, and bad judgment that harm the public good. [2]

Because of the historical inability of these banks to control risk, as was just demonstrated by the best of them, and because of the inability of government to effectively regulate, oversee, and hold accountable these extremely large, complex, and powerful financial corporations, many experts are arguing that breaking them up into smaller entities is the only real solution. These experts include four regional Federal Reserve presidents and the head of research at one of the regional Federal Reserve banks. [3]

One example of the power of these banks and the conflicts of interest that exist in our financial system is that JPMorgan CEO Dimon sits on the Board of the Federal Reserve Bank of New York. Among other responsibilities, it regulates and oversees JPMorgan and the other Wall Street banks. Many experts see this as a major conflict of interest and are calling on him to step down. For example, Simon Johnson (professor at MIT’s Sloan School of Management and former chief economist of the International Monetary Fund) says, “he should, under these circumstances, absolutely step down from that role. It’s completely inappropriate to have such a big bank represented in this fashion.” [4]

Our current recession and financial crisis were caused by bad risk management, unethical business practices, and greed at our large financial institutions coupled with a failure of government oversight, enforcement, and regulation. The result has been high unemployment, extensive loss of homes and home value, and large losses of revenue for governments at the federal, state, and local levels. The bailout of the financial industry and the steep loss of revenue due to the recession are major factors contributing to the large federal government deficit with which we are struggling.

The big banks are working hard to weaken and delay (if not prevent) the implementation of the Volcker Rule and support for it. I am amazed they have any credibility to lobby against regulation after the financial debacle and recession they just caused. Some of their supporters, including in Congress, appear to have an ideology that corporations can do no wrong and that there is no such thing as a good regulation. Others, I believe, are swayed by the large campaign contributions from the financial sector and the new potential of unlimited spending by it through Super PACs.

The Volcker Rule is needed to prevent proprietary trading losses, like the one just experienced at JPMorgan, from seriously impacting our banking system, our federal government, and our economy. It is one, critically important step in regulation and oversight of our financial system that is necessary to reduce and, hopefully eventually eliminate, the potential for too big to fail banks again requiring a taxpayer bailout and crashing our economy.

[1] Moyers, B. & Johnson, S., 5/17/12, “Are JPMorgan’s losses a canary in a coal mine?” Common Dreams

[2] Editorial, 5/15/12, “Dimon in the rough,” The Boston Globe

[3] Rohde, D., 5/11/12, “Break up the big banks,” Reuters

[4] Moyers, B. & Johnson, S., see above

REGULATING THE BIG BANKS (Part 1)

Here’s issue #32 of my Policy and Politics Newsletter, written 5/29/12. JPMorgan Chase’s recent multi-billion dollar loss from securities trading has focused attention on the regulation of our large banks. This issue of my newsletter and the next one take a look at this issue.

The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010. Its goal was to put an end to practices in the financial industry that led to the 2008 collapse of the financial sector and our economy.

One of its goals was to prevent speculative securities trading by banks that many equate to gambling with taxpayers’ money. This trading, called proprietary trading, enhances banks’ profits (when things go right) and senior managers’ bonuses, but do not benefit or serve bank customers. The Volcker Rule, named after former Chairman of the Federal Reserve (under Presidents Carter and Reagan), Paul Volcker, who proposed and supports it, is the specific piece of the Dodd-Frank law that bans such trading by banks. It would reinstate a key provision of the Glass-Steagall Act, put in place after the Great Depression but repealed in 1998, that required separation of banking from proprietary trading.

The reason for separating banking and proprietary trading is that banking is protected and supported by the federal government to ensure the safety of depositors’ money. Banks’ deposits are insured by the Federal Deposit Insurance Corporation (FDIC) and banks have access to very low cost funds from the Federal Reserve. Proprietary trading is speculative and risky, providing potentially big gains and big losses to the banking corporation and its executives. If a bank, while protected and supported by the government, is allowed to engage in proprietary trading, this amounts gambling with taxpayers’ money. [1] And as we have just experienced, banks that are “too big to fail” will receive bailouts using taxpayer funds if their bets go bad.

During the process of writing the Dodd-Frank law, and now during the writing of regulations to implement the law, including the Volcker Rule, the financial industry from Wall Street has worked tirelessly to water down, delay, complicate, and confuse the process. [2] Using legions of lawyers and lobbyists, large campaign contributions, media campaigns, and friends in Congress and the Executive Branch (some who have traveled through the revolving door of moving between financial industry and government jobs), Wall Street works to add provisions and loopholes that complicate the result, and to undermine support for reform. Those working to create solid regulation and limitations try to write provisions that allow reasonable activities but close loopholes, knowing that after the fact the financial institutions will exploit any loopholes they can find.

The Volcker Rule’s ban on proprietary trading by banks only significantly affects the six biggest banking corporations, [3] as they are the ones who engage in extensive proprietary trading. Proprietary trading is not an essential banking activity and it creates a conflict of interest between the bank and its customers. The other 20 regional banks and 7,000 community banks are generally supportive of the Volcker Rule but find it “impossible … to challenge” the six big banks on this issue. The Volcker Rule is scheduled to go into effect in July 2012, but the banks have managed to get a two year delay and will have until 2014 to comply. [4] Two of the six big banks, Goldman Sachs and Morgan Stanley, got their banking licenses during the recent financial crisis specifically to reassure their depositors that their deposits were protected by the FDIC and to get access to support from the Federal Reserve. [5]

The recent $2 billion plus proprietary trading loss at JPMorgan Chase really grabbed everyone’s attention because JPMorgan is touted as having the best risk management in the industry. Its highly regarded CEO, Jamie Dimon, has been leading the charge against the Volcker Rule, claiming it is unnecessary. [6] If proprietary trading at JPMorgan in calm financial markets could result in such a big loss, many are wondering how great the current risk of huge losses at other banks might be, let alone what it would be when financial markets are more volatile.

The next issue of my newsletter will cover the response to this JPMorgan trading loss.

[1] Silver-Greenberg, J., &Schwartz,N.D., 5/17/12, “JPMorgan losses reportedly up $1b,” The Boson Globe

[2] Taibbi, M., 5/24/12, “How Wall Street killed financial reform,” Rolling Stone

[3] The six biggest banks are JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley. They average $1.6 trillion in assets.

[4] Rohde, D., 5/11/12, “Break up the big banks,” Reuters

[5] Moyers, B., with Volcker, P., 4/5/12, “Gambling with your money,” Moyers & Company on National Public Radio

[6] Gogoi, P., 5/15/12, “Dimon likely to face ire, not ouster at JPMorgan meeting,” The Boston Globe

WHY GRIDLOCK IN D.C.?

Here’s issue #31 of my Policy and Politics Newsletter, written 5/20/12. Just about everyone is concerned about the political and policy gridlock in our federal government. This issue of the newsletter takes a look at why this is happening.

The Washington Post published an article on April 27 that is the best piece I’ve seen on why we are experiencing gridlock in Congress. It’s entitled, “Let’s just say it: The Republicans are the problem.” [1] It is important to know that it is co-written by two scholars from two institutions that tend to have different, if not opposing, perspectives. Thomas E. Mann is at the Brookings Institution, which is often described as centrist or liberal leaning. (However, I don’t think it has ever been called progressive or aligned with Democrats.) Norman J. Ornstein is at the American Enterprise Institute, which is almost invariably described as conservative and is often seen as aligned with the Republican Party.

In the article, they state, “We have been studying politics and Congress for more than 40 years, and never have we seen them this dysfunctional. In our past writings, we have criticized both parties when we believed it was warranted. Today, however, we have no choice but to acknowledge that the core of the problem lies with the Republican Party.” They describe the Republican Party as “an insurgent outlier … ideologically extreme; scornful of compromise; unmoved by conventional understanding of facts, evidence, and science; and dismissive of the legitimacy of its political opposition.”

The authors note that both parties have moved away from the center, the Democrats in large part because of the loss of conservative, southern Democrats. They use a football metaphor, where the 50 yard line is the center, to describe the current situation: “While the Democrats may have moved from their 40 yard line to their 25, the Republicans have gone from their 40 to somewhere behind their goal posts.” (The goal line is the 0 yard line and the goal posts are actually 10 yards behind the goal line.)

They identify two individuals as key movers in the shift in the Republican Party: Newt Gingrich (Republican Representative from Georgia in Congress from 1979 to 1999) and Grover Norquist (president and founder in 1985 of Americans for Tax Reform). They state that “the forces Gingrich unleashed destroyed whatever comity existed across party lines, activated an extreme and virulent anti-Washington base … and helped drive moderate Republicans out of Congress.” Norquist created the Taxpayer Protection Pledge where signers pledge never to support a tax increase even to close a loophole. Currently, 238 of 242 Republicans in the House and 41 of 47 Republican Senators have signed the pledge. Mann and Ornstein note that this pledge, and others that it has led to, “make cross-party coalitions nearly impossible.”

They note that bipartisan groups “propose solutions that move both sides to the center, a strategy that is simply untenable when one side is so far out of reach,” and that “In the first two years of the Obama administration, nearly every presidential initiative met with vehement, rancorous and unanimous Republic opposition … followed by efforts to delegitimize results and repeal the policies.” Republicans have voted against measures that they co-sponsored to deny President Obama anything that might look like progress.

Procedurally, particularly in the Senate, progress has ground to a near halt. “The filibuster [2] … became a routine weapon of obstruction.” The confirmation process for presidential nominees has also been “abused … to block any and every nominee,” including to “posts such as the head of the Consumer Financial Protection Bureau, solely to keep laws … legitimately enacted from being implemented.”

Mann and Ornstein critique the media, noting that they understand journalism, “But a balanced treatment of an unbalanced phenomenon distorts reality.” They advise the press, among other things, to “stop lending legitimacy to Senate filibusters by treating the 60-vote hurdle as routine. The framers certainly didn’t intend it to be. Report individual senator’s abusive use of holds [on presidential nominations] and identify every time the minority party uses a filibuster.”

In closing, they note that “If our democracy is to regain its health and vitality, the culture and ideological center of the Republican Party must change.”

[1] Mann, T.E., andOrnstein,N.J., 4/27/12, “Let’s just say it: The Republicans are the problem,” The Washington Post. Adapted from their book “It’s even worse than it looks: How the American Constitutional system collided with the new politics of extremism.”

[2] A filibuster requires a super-majority of 60 out of 100 votes to end debate and allow a vote on passage of a bill or other matter.

SPURRING ECONOMIC RECOVERY

Here’s issue #30 of my Policy and Politics Newsletter, written 5/15/12. The US government budget process and the elections in Europe have focused attention on how government can best spur economic recovery.

There are basically two schools of thought on how governments can spur economic recovery:

Austerity: cut spending, raise taxes, and have tight monetary policy (i.e., high interest rates)
Stimulate: increase or maintain spending, cut taxes, and have loose monetary policy (i.e., low interest rates)

The theory behind the austerity approach is that it will spur consumer and business confidence so they will increase spending and grow the economy. In addition, government spending and borrowing (i.e., deficits) take money out of the private economy. The theory behind the stimulate approach is that when consumers and the private sector are not spending enough to grow the economy, the government should step in and spend, even if it creates deficits in the short run.

In the short run, cuts in government spending eliminate jobs, either those of public sector workers or those of the workers who provide the goods or services purchased. Those goods and services may be purchased directly by governments (e.g., military equipment or construction of highways) or by the beneficiaries of government benefits (e.g., purchases by those receiving unemployment benefits or food stamps). In the US, the public sector, primarily state and local governments, are laying off about 10,000 workers a month because of reduced spending. This hurts efforts to reduce unemployment and the economic recovery.

On the other hand, government spending does create jobs; the best estimates are that the 2009 federal stimulus package created roughly 3 million jobs and kept the unemployment rate 2% lower than it would have been otherwise. (See newsletter #26, Economic Recovery: How and for Whom.)

In the US, the federal government initially took the stimulate approach, increasing spending and cutting taxes while moving interest rates to near zero to stimulate business and consumer borrowing. Now, the approach is shifting toward austerity with calls for reducing the federal deficit by cutting spending as evidenced by the budget deal last August and the budget recently passed by the House.

In the Eurozone and Great Britain, the austerity approach was adopted. The 17 Eurozone countries have slipped back into recession and Britain is tottering on the edge of recession, while the US has seen slow growth for eleven consecutive quarters. As Paul Krugman puts it, “the confidence fairy doesn’t exist – … claims that slashing government spending would somehow encourage consumers and businesses to spend more have been overwhelmingly refuted by the experience of the last two years.” [1]

Although everyone agrees that the US government must address its deficit, the question is when. Many economists and Federal Reserve officials believe that austerity now would hurt the US economy and that we should stimulate the economy first and tackle deficits after the economy strengthens. [2] Keep in mind that when the economy strengthens, more jobs, more production, and more sales will increase tax revenues and automatically begin to reduce the deficit.

The evidence seems pretty clear, both from current experience and the Great Depression, that in the short run austerity doesn’t work and that government spending spurs job creation and economic recovery. However, it appears that ideology is overwhelming the facts in both the US and Europe.

[1] Krugman, P., 5/7/12, “Those revolting Europeans: How dare the French and Greeks reject a failed strategy!” The New York Times

[2] Fitzgerald, J., 5/13/12, “Austerity vs. stimulus debate revived by elections inEurope,” The Boston Globe

CITIZENS UNITED ACTION (Part 2)

Here’s issue #29 of my Policy and Politics Newsletter, written 5/9/12. It continues from the previous issue the arguments supporting local resolutions calling for the overturning the Supreme Court’s Citizens United decision.

With the 2012 election season underway, the consequences of the Citizens United decision are becoming clear. The unlimited, super political action committee or “Super PAC” spending has already exceeded $100 million. Ninety percent of this money is coming from roughly 500 wealthy individuals or corporations, meaning that they are largely drowning out the voices of the other 300 million people in the US. The Super PACs are out-spending the candidates’ campaigns. This is a real concern because it means that the campaign is out of the control of the candidates and that it is very difficult to hold this spending to any standard of accountability, for example for the accuracy of their campaign ads. The majority of this spending, 86% according to one tabulation, [1] is negative, i.e., targeting an opponent. Negative advertising demeans candidates and our political process. It turns voters off, which, along with the growing voter perception that the huge amounts of money in the campaigns mean that their vote doesn’t matter and that the system is corrupt, reduces voter turnout. [2] Moreover, the amount spent to date is a drop in the bucket compared to the hundreds of millions of dollars that these Super PACs have stated they will raise and spend during the 2012 election period.

Corporate spending is the big concern because corporations have far greater resources than all other sources combined. Even before Citizens United, 72% ($3.4 billion) of all federal campaign contributions in 2007 – 2010 came from the business sector (individuals and organizations), with labor contributing 4% ($172 million), ideological groups 7% ($308 million), and others 17%. In addition, corporations exert substantial influence in other ways, such as lobbying ($3.3 billion in 2011) and the revolving door (e.g., Obama’s Secretary of the Treasury and his 3 chiefs of staff all came from the financial industry, which has gotten very favorable treatment in the wake of the financial collapse and recession it caused).

Some people argue that unions provide a counter-balance to corporate spending, but past spending and a comparison of overall resources indicate otherwise. Furthermore, union membership in the private sector has dropped from 34% in the 1950s to under 7% today. Clearly, the corporations are winning this battle.

With unlimited corporate funds now unleashed, we can expect even greater business sector dominance. The Citizens United decision dramatically expands potential spending and, therefore, concerns that elected officials will be more responsive to contributors and their money than to constituents. The 15 largest corporations in the US have annual revenues of $2 trillion and annual profits of $146 billion. If just these 15 spent only 1% of their annual profits on campaigns, they would spend more than twice what the Obama and McCain campaigns combined spent in the last presidential election.

Citizens all across the country are concerned that unlimited campaign spending by corporations and wealthy individuals will mean that our elections won’t be a fair fight. 79% of the public supports a Constitutional Amendment to overturn Citizens United, including over 2/3 of Republicans and over 80% of Democrats and Independents. Over 1,000 business leaders formally support overturning Citizens United and there has been unusual criticism from state and other federal judges. The Montana Supreme Court upheld the state’s 1912 law limiting corporate spending in campaigns, despite a lower court ruling that Citizens United had invalidated the law in question. The 2nd U.S. Circuit Court of Appeals similarly upheld aNew York City law that places limits on political contributions.

With unlimited corporate campaign spending unleashed, government of, by, and for the people is truly at risk. If, as the Citizens United decision asserts, money equals speech, then those with no money have no voice. This flies in the face of the principles of our democracy and the Constitution that our founders wrote. It is essential that citizens everywhere make their voices heard loudly and clearly to build the incredible momentum that will be necessary to overturn the Citizens United decision.

[1] Fowler, E., 5/2/12, “Presidential Ads 70% Negative in 2012, Up from 9% in 2008,” http://mediaproject.wesleyan.edu/2012/05/02/jump-in-negativity.

[2] Kroll, A., 4/24/12, “Poll: Super-PACs will hurt voter turnout in 2012,” Mother Jones

CITIZENS UNITED ACTION (Part 1)

Here’s issue #28 of my Policy and Politics Newsletter, written 5/6/12. It describes an action step – local resolutions – being taken around the country to work toward overturning the Supreme Court’s Citizens United decision.

As you probably remember, in January 2010, the US Supreme Court, in a five-to-four decision on Citizens United v. Federal Election Commission, ruled that corporations, unions, and other groups have the same freedom of speech rights as are granted toU.S. citizens under the Bill of Rights. The court expanded on previous rulings that spending money is considered “speech” and held, for the first time, that limiting campaign spending by corporations, unions, and others would violate their freedom of speech rights. It struck down key provisions of the bipartisan McCain-Feingold campaign finance law, despite its being upheld by the Supreme Court in 2003, and overturned the 1907 law banning corporate contributions.

In response, many communities and some states have passed resolutions that call for overturning the Citizens United decision. This can only be done through a Constitutional Amendment or by the Court reversing itself (which doesn’t seem at all likely). In my home town ofReading,Massachusetts, we just passed such a resolution. Here’s an overview of it and how it happened. Perhaps this will be valuable to you if you should get the opportunity to be involved in such an effort.

A group of residents got together and decided that we wanted to present a Citizens United resolution in our town. We drafted a resolution based on what had passed in another town in Massachusetts, which was a short and simple version of the draft resolution on the Move to Amend website. [1] The resolution states that:

Free speech rights belong to people not corporations or other organizations, and
Unlimited spending by corporations and others in our elections presents a real danger to our democracy because they can drown out the voices and interests of ordinary citizens.

The resolution calls:

On Congress to pass an amendment to our Constitution to clearly establish that money is not the same as speech, and that only human beings are entitled to constitutional rights such as free speech, and
On our state Legislature to pass a resolution calling for such a Constitutional amendment.

We first approached our Board of Selectmen (which may be a Town or City Council where you live). The process will vary, but our Selectmen recommended that we petition to have the resolution on the agenda for our Town Meeting (this is probably unique to New England). We got the handful of signatures required and the resolution became an official agenda item. At Town Meeting, I started off with a short, 10 minute, Power Point presentation to initiate the consideration of the resolution.

One objection to the resolution, even from some who supported its content, was that it was not an appropriate matter for a local governmental body. There are three key responses to this argument:

This is a local issue because corporations or others could spend unlimited money to elect or defeat local candidates or on a local ballot question. For example, if a developer wanted officials or a zoning change that would allow a development project, it could spend unlimited money to achieve that goal.
Only a huge groundswell of citizens voices from the local level on up will overcome the resistance and inertia of corporateAmericaand our political system.
Hundreds of communities across the country have felt it was appropriate to consider and pass resolutions that call for overturning the Citizens United decision. And the number is growing rapidly. InMassachusetts, the number is now 34 with 14 added this week.

The next issue of the newsletter will present other arguments that support such a resolution. If you would like a copy of the actual resolution or the Power Point slides and talking points I used, please email me.

[1] Move to Amend (http://movetoamend.org/) is one of the organizations leading the fight to overturn the Citizens United decision. There is lots of information and tools to support local action at its website. Common Cause (http://www.commoncause.org) and its Amend 2012 project (http://www.amend2012.org) are also leaders of this effort.

GOVERNMENTS’ ROLES

Here’s issue #27 of my Policy and Politics Newsletter, written 4/22/12. After a bit of a hiatus from the newsletter while I was on vacation, I’m back with an issue that looks at the role of government in our economy and society.

Our federal and state governments play important roles in supporting people and our economy and providing opportunities both for individuals and companies. Although sometimes criticized for hindering personal or companies’ initiative, which does happen on occasion, for the most part governments do foster opportunity – and we need them to.

Government supports are sometimes criticized as “entitlements,” which has almost become pejorative in its use. The concern is that government support leads to individuals becoming dependent on it and hence lazy and lacking in initiative. However, the great, great majority of government supports – including, for example, support for education from birth through college – provide individuals opportunities to become productive members of society.

Interestingly, government supports for businesses are almost never referred to as entitlements, although some of them have been around for a long time. Furthermore, there are many examples of companies taking advantage of government supports, sometimes to engage in highly risky or other types of activities that they wouldn’t if they didn’t have – or believe they would have – government support. The recent bailouts of the financial and automotive industries, the subsidies for large agribusiness, and tax benefits for fossil fuel companies are all examples.

In addition, companies depend on government supported infrastructure in numerous ways, including:

Availability of productive workers based on publicly supported education and job training
Ability to get products to consumers through publicly funded transportation systems
Copyrights, patents, trademarks, and a legal system to protect companies’ intellectual properties and the profits they gain from them, as well as to maintain the overall legal infrastructure of contracts and laws
Support for innovation through government sponsored research and tax credits for research and development
A supportive financial system including direct financial support (such as Small Business Administration loans) and well-regulated markets through which investors feel confident in investing their money

Although business people tend to exalt the “free market,” this isn’t really what they want or what exists. What they want – and need to succeed – is a well-regulated and supported economy where productive workers and capital are readily available, where their ideas and innovations are protected, and where they can inform and deliver products to customers.

To create a productive workforce, government provides a range of essential supports to individuals and families. Although sometimes criticized as “entitlements,” these supports provide opportunity to individuals to realize their potential and become the productive workers employers need.

Our education system is probably the primary example. This includes not only K-12 schools but also support for higher education through public colleges and universities, loans and grants for student tuition, as well as grants to higher education for direct and research support. Early care and education – often referred to child care – is receiving growing attention as our knowledge of the importance of early brain development grows and the evidence accumulates that children who arrive at school unready are unlikely to succeed in school or in life. Government financial support and regulation to ensure that children receive safe, nurturing, stimulating, and educational experiences in early care and education are essential, especially for children from low income families.

Clearly, children who aren’t well nourished or healthy will struggle to learn and succeed whether they are newborns or teenagers. Government food programs (e.g., food stamps) and Medicaid (health insurance for poor children and their families) are essential to healthy brain development, school readiness and success, and ultimately becoming productive members of society.

There are many other examples of governments’ supportive roles that range from public libraries to support for seniors (i.e., Medicare and Social Security), not to mention police, fire, and water and sewer services.

In summary, government supports or “entitlements” exist for both individuals and companies. They are important to providing opportunity and maintaining a vibrant economy and society. Although some political rhetoric juxtaposes an entitlement society as the opposite of an opportunity society, that is not the case or the reality. As Renee Loth wrote in her Boston Globe column (3/3/12), “Far from being in opposition, entitlements and opportunity go together like milk and Cocoa Puffs.”

ECONOMIC RECOVERY: HOW AND FOR WHOM

Here’s issue #26 of my Policy and Politics Newsletter, written 3/31/12. The previous two issues examined the 2008 collapse of US financial firms that caused our current recession. This issue looks at the beginning of an economic recovery.

The US economy is beginning to recover from the Great Recession. It grew at an annual rate of 3% in the 4^th quarter of 2011. That’s the good news. However, this growth is still too slow to generate the jobs needed to significantly reduce the high levels of unemployment any time soon.

The bad news is that the portion of household income growth going to workers is at a record low. Although the economy is producing more goods and services than before the recession began, it’s doing so with 6 million fewer workers. That reflects increased productivity, which could mean that everyone would be better off. However, due to public policies (including tax rates) and the weakening of unions, the bulk of the growth in incomes is going to managers and investors, and not to workers. [1]

In the current recovery (2009 – 2010), incomes have grown 2.3% (adjusted for inflation). However, the incomes of the top 1% have grown by 11.6% while the incomes of the bottom 99% have only grown 0.2%. In other words, 93% of the income growth of the current recovery has gone to the 1% with the highest incomes. [2]

The recovery has been slow because consumers don’t have the money to buy much. And consumer spending is 70% of our economy. [3] Our economy needs large numbers of middle and lower-income families with the purchasing power to buy more goods and services; the rich are too few in numbers and save more of their income than anyone else, so giving them more money and purchasing power is not nearly as effective a way to stimulate the economy.

Cuts in government spending are undermining the recovery. State and local governments are laying off about 10,000 workers a month because of reduced revenue and resultant deficits. Similarly, reducing the federal deficit at a time of high unemployment will not help the economy because budget cuts do not create jobs; rather they lead to public sector layoffs and reduced purchases of good and services by government. [4]

The federal government’s stimulus spending did create jobs and reduce the severity of the recession. 80% of economists believe the stimulus increased employment. [5] The best estimates are that it created roughly 3 million jobs and kept the unemployment rate 2% lower than it would have been otherwise. [6] [7] In particular, support for low income households appears to have been an extremely effective way to stimulate the economy and create jobs because these individuals are highly likely to spend their money in the short-term in the local economy. Infrastructure projects, such as highway construction projects, appear to have been nearly as effective. [8] The federal stimulus money that went to states helped them reduce their budget cutting and layoffs. However, the stimulus spending is over and additional government spending to stimulate the economy does not appear likely, to say the least, even though the lessons of the Great Depression would seem to strongly indicate that such spending would help the recovery.

[1] Reich, R., 3/2/12, “Bye bye American pie: The challenge of the productivity revolution,” http://www.commondreams.org/view/2012/03/02-6

[2] Saez, E., 3/2/12, “Striking it richer: The evolution of top incomes in theUS,”University ofCalifornia,Berkeley, Department of Economics, http://elsa.berkeley.edu/~saez/saez-UStopincomes-2010.pdf

[3] Reich, R., 9/30/11, “America faces a jobs depression,” The Guardian, http://www.commondreams.org/view/2011/09/30-9

[4] Krugman, P., 1/29/12, “The austerity debacle,” The New York Times

[5] The American Prospect, 2/21/12, “The balance sheet”

[6] Atcheson, J., 2/20/12, “US running on myths, lies, deceptions, and distractions,” http://www.commondreams.org/view/2012/02/20-0

[7] Stiglitz, J., 9/8/11, “How to putAmerica back to work,” Politico.com

[8] Feyrer, J., & Sacerdote, B., 1/25/10, “Did the stimulus stimulate? Real time estimates of the American Readjustment and Recovery Act,”DartmouthCollege and the National Bureau of Economic Research

THE 2008 FINANCIAL COLLAPSE: CONTEXT AND FOLLOW-UP

Here’s issue #25 of my Policy and Politics Newsletter, written 3/25/12. The previous issue provided highlights from the movie Inside Job, a documentary on the 2008 collapse of US financial firms that caused our current recession, which I highly recommend. Here’s some context and follow-up on the 2008 financial collapse.

The 2008 collapse was the product of deregulation of the financial industry over the last 30 years that led to three financial crises, each of increasing severity. These three crises were the Savings and Loan (S&L) crisis of the late 1980s, the “dot-com” stock bubble burst of 2000-2001, and the financial collapse of 2008.

In the early 1980s, the S&Ls were deregulated and by the end of the 1980s their newly allowed risky investments brought numerous bankruptcies that cost taxpayers $124 billion. 747 out of the 3,234 S&Ls failed, contributing to the 1990–91 economic recession. ^{^[1]}

Then in 2000-2001, the bubble in stock prices burst resulting in $5 trillion in losses and again contributing to a recession. This “dot-com” bubble was the result of speculation fueled by respected business publications, such as Forbes and the Wall Street Journal, that encouraged the public to invest in risky companies, despite some of the companies’ disregard for basic financial and even legal principles. Not all of the companies involved were actually “dot-com” companies. Enron and WorldCom engaged in illegal accounting practices to exaggerate profits. Several companies and their executives were accused or convicted of fraud and the Securities and Exchange Commission (SEC) fined top investment firms like Citigroup and Merrill Lynch millions of dollars for misleading investors – encouraging them to buy stocks the companies knew were risky at best. In all, large financial firms paid $1.4 billion to settle possible claims and promised not to engage in misleading practices again. ^{^[2]} Nonetheless, similar misleading practices occurred with mortgage-backed derivatives leading up to the 2008 collapse.

The US Senate’s investigation of the 2008 financial collapse found “that the crisis was not a natural disaster, but the result of high risk, complex financial products; undisclosed conflicts of interest; and the failure of regu-lators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street.” ^{^[3]} As in the S&L crisis, the regulators had been too close to the industry and had ignored problems. Moreover, two years after the 2008 crash, the FBI’s investigation had one-fourth of the resources the agency used during the S&L crisis, despite the fact that the 2008 collapse was 10 times as large. ^{^[4]} While the S&L debacle led to felony convictions of over 1,000 senior S&L executives, no significant criminal charges have been filed based on the 2008 collapse. ^{^[5]}

Economist Paul Krugman notes that Canada, despite a similar concentration of its financial industry in five large firms, exhibited remarkable stability while US firms were in crisis. He and others believe that this is because of stricter oversight and regulation. For example, Canada has: [6]

An independent Financial Consumer Agency to protect consumers from deceptive lending
Strong restrictions on subprime-type lending
Limits on the packaging of mortgages and other debt into securities to be sold to investors
Limits on the risks banks can take and on the reserves they have to keep to protect against losses

The Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 addresses some of the causes of the 2008 collapse, although many analysts believe it is too weak to prevent another crisis. Nonetheless, Wall St. and its allies on Capitol Hill are trying to weaken the law and block its implementation. This is an example, both before and after the fact, of crony capitalism – cozy relationships between our financial corporations and our public officials in Washington, in Congress and in the Executive and Judicial branches of government, blocking meaningful regulation that is necessary to protect citizens and our economy.

[1] Wikipedia, retrieved 3/21/12, “Savings and loan crisis,” http://en.wikipedia.org/wiki/Savings_and_loan_crisis

[2] Wikipedia, retrieved 3/21/12, “Dot-com bubble,” http://en.wikipedia.org/wiki/Dot-com_bubble

[3] Wikipedia, retrieved 3/21/12, “Late-2000s financial crisis,” http://en.wikipedia.org/wiki/Late-2000s_financial_crisis

[4] Willoughby, J., 4/13/09, “The Lessons of the Savings-and-Loan Crisis,” Barron’s

[5] Black, W. K., 5/4/10, “Wall St. Fraud and Fiduciary Responsibilities: Can Jail Time Serve as an Adequate Deterrent for Willful Violations?” Testimony before US Senate, Committee on the Judiciary, Subcommittee on Crime and Drugs

[6] Krugman, P., 2/1/10, “Good and boring,” The New York Times

INSIDE JOB: THE 2008 COLLAPSE OF US FINANCIAL FIRMS

Here’s issue #24 of my Policy and Politics Newsletter, written 3/23/12. Last week, I finally watched the movie Inside Job, a documentary on the 2008 collapse of US financial firms that caused our current recession. I highly recommend it. Here are some highlights.

The movie Inside Job documents how the deregulation of the financial industry over the last 30 years has led to three financial crises, each of increasing severity. These three crises were the Savings and Loan (S&L) crisis of the late 1980s, the Internet stock bubble burst of 2000-2001, and the financial collapse of 2008.

The 2008 collapse was the worst of the crises and was largely caused by risky and fraudulent practices in the mortgage industry and by financial firms’ packaging of mortgages into securities that were sold to investors. These practices had fueled a bubble in the housing market – unwarranted price increases and over-building – that then caused a dramatic decline in house prices. This resulted in millions of mortgage defaults and foreclosures, and an economic recession – often called the Great Recession – that is the worst since the Great Depression of the 1930s. The losses in households’ wealth, primarily in housing and investment assets, exceed $14 trillion. Tens of millions of homeowners, who had significant equity in their homes in 2007, now have little or nothing. It is estimated that homeowners who owe more on their mortgages than their homes are worth – who are “underwater” – owe $700 billion more than their homes are worth. ^{^[1]}

Inside Job documents that despite warning signs former Federal Reserve Board Chairman Alan Greenspan, Treasury Secretaries Lawrence Summers and Henry Paulson, and SEC Chairman Arthur Levitt (among others) vehemently opposed any regulation of complex financial instruments known as “derivatives” (because they are “derived” from other financial instruments such as mortgages). They blocked efforts of the Commodity Futures Trading Commission under the leadership of Brooksley Born to regulate derivatives. By the late 1990s, the unregulated derivatives market involved $50 trillion of securities and was (and is) described by many as legalized gambling.

The movie notes that an orchestrated campaign by Wall St. and its lobbyists for deregulation of the financial industry, along with the incestuous revolving door which had formerWall St. executives in senior positions in government, succeeded in creating widespread support for deregulation. Greenspan, Summers, Paulson, and other senior government officials, as well as many in Congress, supported deregulation. This led to:

The 1999 repeal of the Glass–Steagall Act of 1933, passed in the aftermath of the Great Recession, which had required the separation of Wall Street investment firms and their risky investments from banks to reduce the risks that banks and their depositors would need a government bailout
Staff cuts at the Securities and Exchange Commission (SEC), which oversees our financial markets
Financial firms being allowed to decrease their reserves that protect against bankruptcy to as little as 3% of their assets, increasing the risk of the need for a taxpayer bailout
Academic economists supporting deregulation and downplaying risks
Specific warnings about high levels of risk being ignored
Credit rating agencies (e.g. Standard & Poor’s) covering up the risks of mortgage-related derivatives

The mortgage industry pushed unaffordable, sub-prime mortgages on unwitting customers because it received higher fees for them. Then, financial firms packaged these mortgages into derivatives and sold them as safe investments when the firms knew they were risky – and often made side bets that underlying mortgages would go into default and that the derivatives would decline in value.

The next issue of my newsletter will provide more context and some follow-up on the 2008 financial collapse, including steps to take to reduce the likelihood of another financial crisis. Unfortunately, it is not at all clear that Congress and the regulators will take these steps.

[1] Wikipedia, retrieved 3/21/12, “Late-2000s recession,” http://en.wikipedia.org/wiki/Late-2000s_recession

CORPORATE POWER (Part 3): LOBBYING AND THE REVOLVING DOOR

Here’s issue #23 of my Policy and Politics Newsletter, written 3/15/12. This issue examines how corporations influence our government and its policies through lobbying and the “revolving door.”

Corporate influence on government actions and policies occur through campaign contributions (see Newsletters #13 – 17), lobbying, and the “revolving door” where personnel often cycle back and forth between working in government and working for a corporation for which they had an oversight responsibility in their government position.

Lobbying and the revolving door are two key pieces of the puzzle of how corporations have such strong influence. Corporate personnel and their lobbyists build strong personal relationships with Congress people, their staffs, and government agency personnel. Here are examples of how these relationships are built and operate:

Corporations, their executives, and their lobbyists:
- Provide electoral support to Congress people through campaign contributions, solicitation of donors, political action committees (PACs), and Super PAC expenditures.
  - $3.4 billion in campaign contributions between 2007-2010 (see Newsletter #17)
  - $774 million in 2010 from 26,783 wealthy individuals (see Newsletter #14)
- Provide information and persuasionto Congress people, their staffs, and government agencies, through lobbying, including expertise, position papers, and draft legislation.
  - $3.3 billion in total lobbying expenditures in 2011 with 12,633 registered lobbyists, over 23 lobbyists per member of Congress ^{^[1]}
  - $476 million spent on lobbying by 30 large corporations between 2008 and 2010 ^{^[2]}
- Go to work for Congress or government agencieswhere they have power and influence, which may benefit, directly or indirectly, their previous employer.
  - Obama’s 3 chiefs of staff all previously worked in the financial sector: Jacob Lew at Citigroup, Bill Daley at JPMorgan Chase, and Rahm Emmanuel at Wasserstein Perella ^{^[3]}
  - Treasury Secretary Tim Geithner is the former head of the Federal Reserve Bank of NY. Hank Paulson, head of Goldman Sachs, was Treasury Secretary under Bush and Robert Rubin, co-chairman of Goldman Sachs, was Secretary under Clinton. Other Treasury Secretaries in these administrations were the CEO of CSX Corp. and the CEO of Alcoa. ^{^[4]}

On the other side of the revolving door, people leave government positions and go to work for the corporations (or their lobbying firms) that they oversaw or regulated while in government. As a result of all these relationships and interconnections, corporations receive:

Friendly legislation from Congress such as laws governing corporate practices, regulation, taxes, competition, trade, etc.
Accommodating regulations and oversight from government agencies and even outright support at times, such as the recent bailout of financial firms.
Inside information. For example, multiple sources document multiple instances where Treasury Secretary Paulson shared inside government information with his former employer, Goldman Sachs. [5]

There are many, many examples of the results of corporate influence on government actions and policies; a few have been highlighted in previous newsletters:

Failure to regulate speculation in oil and gasoline markets (see Newsletter #22)
Lax regulation and oversight of the financial industry (see Newsletters #21 and #19)
Low effective tax rates for many corporations (see Newsletter #2) and low tax rates for high income individuals (see Newsletters #21, #8, and #7)
Failure to regulate health threats such as mercury emissions and the use of antibiotics to enhance growth of healthy farm animals (see Newsletter #20)
High levels of spending that benefit corporations such as military contractors and that seem impossible to cut (see Newsletter #5)

These are only highlights and examples of corporate influence; future newsletters will highlight others, but the full story takes books to tell and involves many corporations and industries. The outsized influence corporations wield in our democracy was of great concern and impact before the Citizens United decision, which now allows unlimited corporate spending in our election campaigns. With unlimited corporate campaign spending now unleashed, our democracy, and government of, by, and for the people, is truly at risk.

[1] The Center for Responsive Politics, retrieved 3/7/12, “Lobbying database,” http://www.opensecrets.org/lobby/index.php

[2] Public Campaign, Dec. 2011, “For hire: Lobbyists or the 99%? How corporations pay more for lobbyists than in taxes,” publicampaign.org/reports/forhire

[3] Moyers, B., & Winship, M., 1/24/12, “The Washington – Wall Street revolving door just keeps spinning along,” http://www.commondreams.org/view/2012/01/24-3

[4] Wikipedia, retrieved 3/13/12, “US Secretary of the Treasury,” en.wikipedia.org/wiki/United_States_Secretary_of_the_Treasury

[5] Moyers and Winship, see above

GASOLINE PRICES: WHY SO HIGH?

Here’s issue #22 of my Policy and Politics Newsletter, written 3/5/12. This issue takes a look at gasoline prices and why they are so high.

Gasoline prices have been rising and have become an issue in the presidential campaign. So why are prices so high and is there anything that can be done about it?

Current gas prices are NOT driven by supply and demand. Supplies of oil and gas are up and demand in the US is down; so basic economics says that the price should be low. According to the Energy Information Administration, supply is higher than three years ago when gas prices fell (briefly) to around $2.00. And demand is at the lowest level since April 1997. [1] The US is actually producing more oil and gas than we can use, so we are exporting 3 million barrels of oil products per day. [2] All of this suggests that gas prices should be low.

Tension over Iran and concern about the oil it supplies to world markets is putting some upward pressure on oil prices. Financial speculators see this as an opportunity to make money and jump into the market heavily, which drives prices up much more. Wall Street firms and other financial players dominate the buying and selling of oil, even though they have no intention of ever taking possession of the oil they buy. Ten years ago, producers and end users (airlines, oil refiners and retailers, etc.) were responsible for 70% of the trading of oil; now the financial speculators make up 65% – 80% of the market. The only reason they are in the market is to make money and the money they make comes out of our pockets through higher prices. [3]

Estimating how much speculation increases the price of oil and gasoline is difficult; however, many experts, including ones from Exxon Mobil, Delta Airlines, and Goldman Sachs, believe that speculation drives up the price of oil by 40%. This is a “speculators’ tax” that we all pay. There is historical evidence to support this. For example, in the summer of 2008, when speculators were driving the oil market, gas prices spiked to over $4.00 a gallon before declining sharply to $2.00. [4]

Congress and the President tried to reduce the impact of this speculation as part of the Dodd-Frank financial reform legislation. The law directed the Commodity Futures Trading Commission, which regulates this market, to set a cap on how many contracts for oil any one trader or company could control, which would limit the level and impact of speculation. After significant delays, such a cap was proposed in October 2011. However, many supporters of the cap view the proposal as quite weak. Nonetheless, the speculators are suing to block the implementation of even this modest reform. [5]

Through speculation in the oil markets, the Wall Street-based financial industry is making substantial sums of money that are coming out of the pockets of average Americans. The motivation is to make money for the few; however, there’s no added value for society at large, only costs. This is a variation on the theme that also drove the subprime mortgage market – make money regardless of the consequences. Due to campaign contributions, lobbying, and the revolving door between Wall Street and the federal government – in other words, due to crony capitalism – it’s likely that nothing significant will be done and we will all continue to pay this “speculators’ tax.” As a result, the Wall Street speculators will get richer while we get poorer as we pay more for gas than we should.

[1] Sanders, B., 2/28/12, “Wall street greed fueling higher gas prices,” CNN.com

[2] McClatchy Newspapers, 2/21/12, “Once again, speculators behind sharply rising oil and gasoline prices,” The Sacramento Bee

[3] McClatchy Newspapers, see above

[4] Sanders, B., see above

[5] Common Dreams staff, 3/2/12, “Obama’s oil speculation task force missing in action,” CommonDreams.org

CRONY CAPITALISM AND WINNER TAKE ALL POLITICS

Here’s issue #21 of my Policy and Politics Newsletter, written 2/29/12. This issue will begin to link the issues of corporate power, great inequality of income and wealth, and campaign finance. It is a bit long, as it is a summary of the first three shows of Bill Moyers’ return to public TV.

In case you haven’t heard, Bill Moyers is back on public television. (In theBostonarea, he’s on Sunday at 4:00 on channel 2. Or you can do what I do, download the podcasts from billmoyers.com or other sources.)

His first show back on (Jan. 13) was on Winner Take All Politics, the title of a recent book by Hacker and Pierson, whom Moyers interviews. The book and show document that the huge income disparity in the US (see issue #4 of my newsletter) is, in large part, the result of government policies over the last 30 years. Although globalization, technological change, and other changes in our economy have been factors, the real culprit is our public policies and how they have responded to these challenges. Other countries face these same challenges but have not experienced the dramatic increase in inequality that has occurred in theUS.

Over the last 30 years, the top income tax rate has been reduced from 70% to 35% (see issue #7 of my newsletter) with even lower rates for unearned (i.e., investment) income. As we’ve heard recently, multi-millionaires like Presidential candidate Romney are paying less than 15% of their income in taxes. If you were making around $20 million a year as he is, every one percentage point reduction in your tax rate puts $200,000 in your pocket. And with your tax rate cut in half, you are saving $3 million or more a year, or over $90 million over the last 30 years. Specifically, the Bush tax cuts of the early 2000s have given $50 to $100 million to each of the 400 richest Americans over the last 10 years.

This sets up a reinforcing cycle as some of these riches are funneled back into our political system through campaign contributions and Super PACs, further increasing the influence of the well-off and getting them favorable treatment. In addition, the lobbying capacity of the corporations and very rich has grown, while that of the middle class, particularly unions, has shrunk, further expanding the gap in political power and influence.

Hacker and Pierson note that politicians have learned that they can get re-elected despite ignoring or only giving symbolic support to the middle class, while moving the agenda of the corporations and very rich forward.

On Moyers’ second show (Jan. 20), David Stockman, President Reagan’s budget chief, was a guest. Stockman is writing a book entitled The Triumph of Crony Capitalism. He defines crony capitalism: using political power such as campaign contributions and lobbying to get returns that can’t be gotten in the market. He states that in theUS we do not have free market capitalism or democracy, but crony capitalism.

Stockman believes that we need to re-institute and strengthen the separation of the investment business and its risks from the banking system, as was in place prior to 1999 under a law called Glass-Steagall. Otherwise, he predicts that we will have recurring economic crashes. He says that financial institutions that are too big to fail are too big to exist and he advocates for banning corporate money from our political system and capping all campaign contributions at $100.

Moyers’ third show (Jan. 27) was with John Reed, who retired as CEO of Citigroup in 2000 after presiding over the merger of Citibank with Travelers Insurance. This merger led to and actually required the repeal of the Glass-Steagall law. The mantra at the time was that the new, enhanced financial system could handle the increased risk better than before and therefore repealing the separation of banking from the investment business wouldn’t be a problem. There was an extensive public relations and lobbying campaign to deliver this message, which ultimately skewed almost everyone’s thinking about this deregulation.

Reed, in retrospect, says that it’s amazing that everyone was so wrong and that the system as a whole went so far off the tracks that it caused the great recession we are now experiencing. He states that this was the result of crony capitalism between Wall Street executives andWashington politicians.

In other countries, including Canada, the crisis in the financial institutions wasn’t nearly as bad as here in the US. Our financial deregulation allowed financial institutions (including banks) to take great risks and to provide huge rewards to their people, an important part of our income and wealth inequality. And ultimately, these institutions and individuals did not bear the risk when things went wrong; the government and the public bailed them out.

Reed calls for re-regulation of the financial system, noting that regulations are need so that appropriate risks can be taken. He makes the analogy that cars have brakes (regulation) so that we can drive fast (take risks), but control our speed as needed. If cars did not have brakes, we’d all drive only very slowly. He is amazed that those lobbying against re-regulation and strengthening of oversight of financial institutions have any credibility given the crash they caused with deregulation. He notes that when corporations and the wealthy can buy the rules (or lack thereof), the situation is unstable.

One person who loudly warned of the dangers and, as Glass-Steagall was being repealed in 1999, predicted that in 10 years we would all come to realize that a big mistake was being made, was Senator Byron Dorgan of North Dakota. He noted that the deregulation was designed by those with a self-interest and that the complex securities, i.e. “derivatives,” that have been created are casino gambling with trillions and trillions of dollars. He states that the Dodd-Frank re-regulation law, which is being heavily lobbied against by Wall Street, is too weak to prevent the next collapse.

Another Moyers guest was Gretchen Morgenson of The New York Times who has written a book entitled Reckless Endangerment. She noted that there have been no meaningful penalties for the individuals or institutions that caused the collapse of the financial system and no one has gone to jail. Furthermore, the same people who drove the ship into the iceberg are still in leadership roles on Wall Street and in the federal government.

Moyers closes by calling the Supreme Court’s Citizens United decision, which allows unlimited spending by corporations in our political campaigns, “grotesque,” stating that it corrupts our political system and means that those with no (or little) money have no speech. He calls Winner Take All Politics immoral and notes that we have experienced a deep undermining our democratic institutions.

He cites a sign he saw at Occupy Wall Streetas telling it like it is: “The system isn’t broken, it’s fixed.”

I encourage you to listen to the podcasts of these three shows. They are 52 minutes each and will provide you the richness and depth that I can’t in this summary.

CORPORATE POWER (Part 2): HEALTH IMPACTS

Here’s issue #20 of my Policy and Politics Newsletter, writtten 2/26/12. The last issue looked at the mortgage foreclosure settlement that was very favorable for the corporations involved. Here are some different examples of corporate interests trumping the greater good.

Corporations frequently find ways to avoid costs and risks, while maximizing profits and paying huge amounts to corporate executives. These include avoiding paying for the costs of impacts on the environment and on public health.

One example is air pollution that is bad for health. Another is the use of antibiotics in animals for non-medical reasons (they grow more quickly) that jeopardizes public health.

The Environmental Protection Agency recently issued standards for the release of mercury into the air by power plants. As you probably know, mercury, even at very low levels, harms brain and nervous system development in young children and fetuses. More than 300,000 children are born each year with exposure to unsafe levels of mercury. Because airborne mercury accumulates in fish, pregnant women are advised to avoid eating many types of fish.

These regulations have been delayed for 20 years by corporate power, through campaign contributions, lobbying, and inside influence. The utility companies and their allies in Congress are continuing to try to block them today. A cost-benefit analysis shows that the public benefits are huge, $90 billion per year is a very conservative estimate, and the costs relatively small, $10 billion per year in slightly higher electricity costs. Despite this, the companies claim the regulations would kill jobs, disrupt electricity supplies, and lead to soaring electricity rates. These are the same arguments they made when acid rain regulations went into effect and none of these things happened. [1]

In a similar situation, the US Food and Drug Administration recently dropped plans to regulate the use of human antibiotics in animal feed. Livestock consume roughly 80% of the antibiotics sold in the US. This practice contributes to the presence of drug resistant bacteria. This problem was first identified in 1977 and it was recommended then that approval for the non-therapeutic use of penicillin and tetracycline be rescinded, but no action has been taken. The European Union has banned the use of antibiotics in animal feed for healthy animals. Many scientific and medical organizations have called for similar action by theUS, including the American Medical Association, the Infectious Diseases Society of America, the Pediatric Infectious Disease Society, and the World Health Organization.

Over 100,000 Americans die each year from bacterial infections and 70% of these involve bacteria resistant to the commonly used treatment drugs. Last summer over 36 million pounds of turkey was recalled after it was found to contain drug resistant salmonella. Outbreaks of disease from drug resistant E.coli have also occurred in the last year. [2]

These two are particularly egregious examples of corporate interests trumping public health. Other examples will be presented in future newsletters along with examination of the ways corporations obtain and wield this kind of influence and power, for example through campaign contributions, lobbying, and the revolving door where public officials move between government positions and positions working for or with corporations.

[1] Krugman, P., 12/26/11, “Springtime for toxics,” The New York Times

[2] McVeigh, K., 12/29/11, “FDA draws criticism after U-turn on antibiotics in animal feed,” The Guardian

CORPORATE POWER (Part 1): THE MORTGAGE FORECLOSURE SETTLEMENT

Here’s issue #19 of my Policy and Politics Newsletter, written 2/20/12. The last issue looked at Supreme Court decisions that favor corporations. Here’s an example of a legal settlement that favors corporations.

You’ve probably heard about the recent $26 billion settlement of the mortgage foreclosure fraud case against 5 large financial institutions: Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, and Ally Financial. This settlement, agreed to by 49 of the 50 states, is for foreclosures that occurred fraudulently, without proper documentation or where it was unclear that the institution foreclosing on the homeowner was the owner of the mortgage and had the legal right to foreclose. (This settlement has nothing to do with the creating of risky and fraudulent mortgages or the selling of them to investors as high quality investments, which are the two key elements of the financial fraud that crashed our financial system in 2008 and caused our current recession.)

Although $26 billion sounds like a lot, it isn’t very much when viewed from the perspective of these 5 companies’ $425 billion in revenue in 2010 and their $39 billion in profits (even though they hadn’t fully recovered from the financial collapse they and others created). Furthermore, they are only actually paying $5 billion. The other $21 billion comes from reducing the amount owed (principal) on mortgages where homeowners owe more than their house is worth. These costs will be borne largely by the investors who bought the mortgages or by the government’s Making Home Affordable Modification Plan that subsidizes principal reductions by banks. This latter piece means that we, the taxpayers, are again bailing out these banks! [1] [2]

If you were illegally foreclosed on by one of these 5 companies and have lost your home, you will get between $1,500 and $2,000. This doesn’t seem like much compensation for the trauma you’ve experienced! Looking at it another way, this settlement sets the penalty for forgeries and fabricating documents at a maximum of $2,000 per loan. [3]

Some other points that help put the $26 billion settlement in perspective: [4]

Financial institutions, including these 5, received a $700 billion bailout and $1.2 trillion in low cost loans from the Federal Reserve to keep them afloat when they crashed our financial system.
The federal government’s track record of enforcing consent decrees in settlements such as this one is poor. In consent decrees, companies, without admitting guilt, state that they won’t engage in specific illegal activities in the future. In the current settlement, there is essentially no penalty for Countrywide Mortgage (now owned by Bank of America) for failing to comply with a previous consent decree over some of the same practices.
This settlement has been reached before there has been a full investigation of what occurred. The President just announced a new federal task force to investigate the financial sector in his State of the Union speech. It may uncover more extensive or egregious fraud than is currently known.

In this settlement of “this remarkable fraud that the banks and the [mortgage] servicers have created … the only big losers are the taxpayers and, of course, the homeowners.” [5] This is a “raw demonstration of who wields power in America.” [6] This is a great deal for the companies because no one is going to jail and the $5 billion cost may well be less than what it would have cost them to do things right in the first place. Hence, they can simply view this $5 billion as a cost of doing business.

This settlement is an example of corporations getting off easily, while people suffer. One piece of this is the not unusual practice of corporations, without admitting guilt, consenting not to engage in illegal activity in the future. As occurred here with Countrywide, there is typically little enforcement when they engage, again, in similar illegal activity. As is the case with this settlement, financial penalties are typically small and provide no significant disincentive for engaging in illegal activity.

Future newsletters will examine other examples of corporate interests trumping the greater good and ways corporations obtain and wield influence and power. One way, which has been documented in past newsletters, is through the substantial investments the business community makes in our public officials through campaign contributions.

[1] Common Dreams staff, 2/17/12, “Mortgage settlement ‘whitewash’: US taxpayers will pay for big bank settlement, mortgage deal or not; abusive foreclosures continue,” http://www.commondreams.org/headline/2012/02/17-0

[2] Levitin, A., retrieved 2/17/12, “The servicing settlement: Banks 1, public 0,” http://www.creditslips.org/creditslips/2012/02/the-servicing-settlement-banks-1-public-0.html

[3] Smith, Y., 2/16/12, “The top twelve reasons why you should hate the mortgage settlement,” Naked Capitalism

[4] Bond, B., 2/10/12, “A bad deal,” Credo Action

[5] Common Dreams staff, see above

[6] Smith, Y., see above

THE CORPORATE SUPREME COURT

Here’s issue #18 of my Policy and Politics Newsletter, written 2/5/12. Recent issues have looked at the Supreme Court’s Citizens United decision that gives corporations freedom of speech rights to spend unlimited amounts of money in our elections. This issue takes a look at some other Supreme Court decisions that also favor corporations.

In addition to Citizens United, the Supreme Court has made a number of decisions that appear to indicate a strong slant in favor of corporations. Typically, these rulings have been decided by a 5 – 4 vote with the “conservative” bloc prevailing. It’s interesting to note, that while the “conservative” bloc describes itself as strictly interpreting the Constitution and adhering to its intent, corporations are not mentioned in the Constitution and, at the time, were entities chartered by state governments, generally for specific and limited purposes, and subject to state laws. [1]

Here are other examples of the Court’s pro-corporate decisions: [2]

After 20 years of litigation on the Exxon Valdez oil spill inAlaska, the Supreme Court reduced the punitive damages awarded by the trial court from $5 billion to $507.5 million. This is a slap on the wrist (less than 1.5% of annual profits) for a company that has averaged $36 billion a year in profits over the last 7 years.
In Sorrell vs. IMS Health, Inc. in 2011, the Court declared Vermont’s Prescription Confidentiality Law unconstitutional because it required a physician’s consent before his or her history of prescribing drugs could be sold by pharmacies and health insurers to pharmaceutical companies. The Court ruled that the state’s attempt to protect this information illegally discriminated against the pharmaceutical companies’ free speech rights – namely their ability to use this information in marketing and advertising “speech”. The supposedly conservative, states’ rights Court, ruled that federal law and Courts supersede state law and a physician’s individual right to privacy. [3]

Disallowing class action lawsuits against corporations on behalf of consumers and workers has been a recurring theme in this Supreme Court. [4]

In AT&T Mobility LLC vs.Concepcionin 2011, the Supreme Court overruled federal courts inCaliforniaand a number of state Supreme Courts. The lower courts had ruled that a consumer contract that prohibited class action lawsuits and required arbitration was unconscionable and therefore unenforceable. The US Supreme Court ruled that federal law preempted state law and that the contracts were valid and enforceable.
In Wal-Mart Stores, Inc. vs. Dukes in 2011, the Supreme Court invalidated the class action suit of 1.5 million women who contended that they had suffered sexual discrimination in pay and promotions at Wal-Mart. The Court concluded they were not a “class” eligible to file a class action lawsuit because they did not all have the same supervisor and that a class action lawsuit cannot be brought against a corporate policy or practice, but only against an individual supervisor.

In other cases, the Court has ignored precedents in ruling against injured workers, whistleblowers, and shareholders. In Ledbetter vs. Goodyear Tire & Rubber Co. in 2007, the Court ruled that employers cannot be sued for race or gender pay discrimination if the claims are based on decisions made by the employer more than 180 days ago. In this case, Lilly Ledbetter learned after years of employment that she had been paid less than male workers but was denied her ability to sue because she had not brought the suit within 180 days of when her employer first discriminated against her, obviously without her knowledge. [5]

The dissenting opinions from the other justices on the Supreme Court often clearly underscore the five “conservative” justices’ – Roberts, Scalia, Thomas, Alito, and Kennedy – departure from precedents and the contortions of their legal reasoning. In the Citizens United decision, the Court went out of its way to find a way to make its broad ruling on corporate freedom of speech and political spending, rather than focusing on the issues of the much narrower case that was presented to it. Previous conservative Justices Rehnquist and Byron White have made statements that quite clearly indicate they would have disagreed with the Court’s decision in Citizens United. White, for example, wrote in an earlier case that corporations are “in a position to control vast amounts of economic power which may, if not regulated, dominate not only the economy but also the very heart of our democracy, the electoral process.” [6]

The decisions highlighted here, among others, reveal the dramatic judicial activism of these five justices. Rather than being driven by the merits of each case, precedents, and the intent of lawmakers, their decisions involving corporations appear ideological and results-oriented, with a clear intent to benefit corporations, while being hostile to government laws, rules, and regulations on corporate behavior.

[1] Raskin, J., 2010, “The Citizens United Era: How the Supreme Court continues to put business first,” People for the American Way Foundation

[2] Nader, R., 7/18/11, “The corporate Supreme Court,” CommonDreams.org

[3] Raskin, see above.

[4] Raskin, see above.

[5] Wikipedia, retrieved 2/1/12, “Ledbetter v. Goodyear Tire & Rubber Co.,” http://en.wikipedia.org/wiki/Ledbetter_v._Goodyear_Tire_%26_Rubber_Co.

[6] Nader, see above.

MONEY IN OUR ELECTIONS (Part 5): HIGHLIGHTS, HOPE, AND CONCLUSIONS

Here’s issue #17 of my Policy and Politics Newsletter, written 1/29/12. The campaign fundraising issue is a complex and critically important one. Here’s one final piece – for now – on this topic.

First, a little more information on where all the money comes from:

Wall Street’s big donors, those who give over $10,000, dominate the individual contributions to campaigns. Their contributions of $178 million in the non-presidential 2010 elections and $328 million in the 2008 presidential election cycle are triple those of the next most generous sector, lawyers. The Wall Street contributions are roughly 10 times what they were 20 years ago. [1]
90% of the Super PAC spending of about $30 million in the Republican primaries is coming from “probably fewer than 100 people” according to David Donnelly of the Public Action Campaign Fund. [2]
Roughly 72% ($3.4 billion) of all campaign contributions in 2007 – 2010 came from the business sector (individuals and organizations), with labor contributing 4% ($172 million), ideological groups 7% ($308 million), and others 17%. [3]
Campaign giving is of course closely linked with lobbying. The US Chamber of Commerce, the biggest lobbying organization, spent $66 million in 2011. Of the top 20 lobbying groups (each spent at least $13 million), only two are not corporations or business associations, the American Medical Association and the AARP. [4]

A variety of initiatives are working to get campaign contributions and their undue influence under control:

Partial public financing of campaigns is working in states fromMaine toArizona where small individual contributions are matched by public funds and total spending is capped (although Supreme Court rulings have weakened some key elements of these state systems). We have a partial public financing system for our Presidential elections that was enacted in response to the Watergate scandal (where secret, large contributions were funneled to the Watergate burglary and related activities), however its effectiveness has been greatly diminished if not eliminated by the huge amounts of money in our presidential campaigns.
Hundreds of communities across the US, including Los Angeles and New York City, have passed resolutions asking Congress for an amendment to overturn Citizens United, the Supreme Court decision allowing unlimited spending by corporations in our elections. A number of state legislatures are considering resolutions as well. [5] Numerous organizations have come together to organize these efforts. (See www.movetoamend.org and www.commoncause.org for example.)
In Montana, the state Supreme Court upheld the state’s 1912 law limiting corporate spending in campaigns, despite a lower court ruling that Citizens United invalidated the law. The law was enacted when it was common practice for the copper industry to bribe state politicians. The 2^nd US Circuit Court of Appeals similarly upheld a New York City law putting limits on political contributions. [6]

Huge campaign contributions by corporations, wealthy individuals, and other groups mean that our elections are not a fair fight, that our “we the people” democracy is undermined by the influence of money, and that there is great potential for outright corruption. Limiting individuals’ contributions and eliminating contributions from corporations are not silencing anyone; they are simply ensuring that some voices aren’t so loud that they drown out all others. If, as the Citizens United decision says, money equals speech, then those with more money have louder voices, and those with no money have no voice. This flies in the face of the principles of our democracy and the Constitution that our founders wrote.

[1] Drutman, L., 1/26/12, “On FIRE: How the finance, insurance, and real estate sector drove the growth of the political 1% of the 1%,”, http://sunlightfoundation.com/blog/2012/01/26/on-fire-how-the-finance-insurance-and-real-estate-sector-drove-the-growth-of-the-political-one-percent-of-the-one-percent/

[2] Eggen, D., 1/16/12, “Super PACs dominate Republican primary spending,” The Washington Post

[3] Center for Responsive Politics, retrieved 1/29/12, “Business-Labor-Ideology split in PAC and individual donations to candidates and parties,” http://www.opensecrets.org/bigpicture/blio.php?cycle=2008

[4] Center for Responsive Politics, retrieved 1/29/12, “Lobbying: Top spenders,” http://www.opensecrets.org/lobby/top.php?showYear=2011&indexType=s

[5] Jarvis, B., 1/6/12, “How cities and states are sticking it to Citizens United,” YES! Magazine

[6] CommonDreams.org, 1/4/12, “States take on Citizens United,” http://www.commondreams.org

MONEY IN OUR ELECTIONS (Part 4): THE IMPACT OF CITIZENS UNITED

Here’s issue #16 of my Policy and Politics Newsletter, written 1/25/12. Having taken a look at the Supreme Court’s Citizens United decision generally, I’ll now describe a specific example of its impact.

First, a mea culpa. I was wrong when I wrote in the last issue: “These PACs currently have no requirement to disclose their contributors … ” The PACs are required to report contributors and expenditures on a monthly or quarterly basis, at their choice. However, because this schedule is not tied to the schedule of elections, voters may not know until after they have voted who paid for the ads they have seen. In addition, the identity of actual donors can be made difficult to find out. For example, a $1 million donor to one of the pro-Romney Super PACs set up a corporation in Delaware, made his contribution through the corporation, and then dissolved the corporation. [1]

As an example of the impact of the Citizens United decision, a $5 million contribution from Las Vegas casino magnate, Sheldon Adelson, to the pro-Gingrich Super PAC, Winning Our Future, may well have singled-handedly saved Gingrich’s campaign. (We only know who made the contribution because it was leaked, and when asked, Adelson confirmed it. Other contributors will not be revealed until the end of the month.) [2]

This contribution allowed the supposedly independent Super PAC to run ads in South Carolina that are very likely to have allowed Gingrich to win its primary and stay in the race for the Republican presidential nomination. The Super PAC ran ads both attacking Romney and promoting Gingrich at a level that matched the spending of the pro-Romney Super PAC. Without these ads, it is highly likely Gingrich would have lost inSouth Carolinaand that his campaign, which is lacking money and organization, would have been over. It appears that the PACs outspent the candidates inSouth Carolina.

News hot off the press: Adelson’s wife has just given the pro-Gingrich Super PAC another $5 million. This will allow Gingrich to be competitive in theFlorida primary on January 31.

As I noted in the last issue, I call the Super PACs “supposedly” independent because they are required to be by law, but the reality is quite different. For example, Becky Burkett founded and heads up the pro-Gingrich Super PAC Winning Our Future. She is former top aide to Gingrich, an experienced fundraiser, and as recently as 2011 was the chief development officer for American Solutions, a PAC Gingrich founded in 2007. [3] In addition, candidates and their campaigns can communicate with the Super PACs through their public statements and their campaigns’ ads and strategies, as well as through mutual allies.

Overall, Super PACs have reported spending about $28.5 million to-date in the Republican presidential primaries. This is a drop in the bucket compared to the $1 billion they are expected to spend during the whole 2012 election period.

[1] Efforts to increase reporting and transparency passed the House in 2010 but were filibustered by Republicans in the Senate where there were 59 votes (out of 100) in favor, one short of the 60 needed to overcome a filibuster.

[2] Mooney, B.C., 1/20/12, “Super PACs and their cash are political game-changers,” The Boston Globe

[3] Confessore, N., 12/13/11, “Former Gingrich aide forms fund-raising group,” The New York Times

MONEY IN OUR ELECTIONS (Part 3): THE CITIZENS UNITED DECISION

Here’s issue #15 of my Policy and Politics Newsletter, written 1/15/12. Having examined campaign fundraising amounts and sources in the previous two issues, now I’ll look at the Supreme Court’s Citizens United decision.

The previous two issues documented the large amounts of money spent on political campaigns and that a small number of very wealthy individuals give huge amounts of money to candidates and to our political parties. They also noted that the amounts of money are growing fairly rapidly. This trend is going to continue in the 2012 election cycle and is expected to accelerate, in large part because of a US Supreme Court decision known as Citizens United versus the Federal Election Commission (FEC).

In the 5 to 4 Citizens United decision, the Supreme Court held that corporations (and also unions), which are often treated as “persons” under the law, have a First Amendment right to freedom of speech. Furthermore, it ruled that this right to freedom of speech means that these “persons” can spend unlimited amounts of money to support or oppose candidates for elected office. [1] [2]

This decision overturned key, and in some cases longstanding, campaign finance laws, rules, and precedents. It did not overturn the prohibition on direct contributions by corporations to candidates, but allowed unlimited contributions to political action committees (PACs) that are supposedly independent of and not coordinated with the candidate and his or her campaign. I say “supposedly” independent because these PACs are often run by former close associates or campaign staff of the candidate, or in other ways have connections to the candidate or his or her campaign. In addition, a candidate’s strategy is often well known and can be amplified by these PACs.

These PACs currently have no requirement to disclose their contributors, meaning we, the public, won’t know who is behind the messages the PACs put forth and whether the contributors present potential conflicts of interest for the candidate. Even if these PACs operate independently of candidates and their campaigns, it is unrealistic to believe that candidates won’t know and reward the contributors to PACs that support their campaigns. [3] Clearly, this will result in elected officials who are less accountable to their constituents and more responsive to contributors.

As a result of Citizens United, we have PACs and their sponsors stating that they will raise and spend hundreds of millions of dollars during the 2012 elections. Already, in the Republican primary race, PACs have spent tens of millions of dollars on advertising, most of it negative and some quite nasty and untruthful, supposedly independently of the candidates’ campaigns. [4] This “free speech,” bought with large amounts of special interest money, is drowning out the voices and interests of the public; it represents a real threat to our democracy.

A large number of groups has formed a coalition to work to overturn the Citizens United decision. An effort to hold protest rallies at every federal courthouse in the country on January 20, the second anniversary of the Citizens United decision, is being spearheaded by Move to Amend (www.movetoamend.org). In Boston, there will be a protest rally at the Moakley Courthouse on Friday, 1/20, from 12:30 – 1:30 and a Summit on Citizens United and the efforts to overturn it on Friday afternoon and evening and all day Saturday (http://wiki.occupyboston.org/wiki/The_Rally_and_Summit_to_Unite_Citizens_for_Democracy).

[1] It should be noted that the Supreme Court went out of its way to make this broad, precedent setting decision when the case before it was much narrower. This will be a topic for a future issue of this newsletter.

[2] Nader, R., 7/18/11, “The Corporate Supreme Court,” CommonDreams.org

[3] Hohenstein, K., Summer 2011, “Said the Pot to the Kettle: Citizens United and the Power of Corporate Speech,” Justice Rising, vol. 5, #2,Alliance for Democracy

[4] Scharwath, K., 12/16/11, “The Fight to End Corporate Personhood Heats Up,” TriplePundit

MONEY IN OUR ELECTIONS (Part 2): WHERE DOES IT COME FROM?

Here’s issue #14 of my Policy and Politics Newsletter, written 1/8/12. The previous issue examined the total dollar amounts for federal election campaigns overall and on a per office basis. Now, I’ll start to take a look at where all the money comes from.

The money contributed to federal election candidates comes from 5 sources:

Large individual donations, which are $200 or more and have to be reported with the individual’s name and are supposed to include the individual’s employer and occupation
Small individual donations of less than $200 where the individual’s name is not reported
Political Action Committees (PACs)
Self-funding by candidates
Other, miscellaneous sources

The percentages for the 2010 election cycle for Congressional seats are as follows: [1]

Congress in 2010	Large Indiv.	Small Indiv.	PACs	Self	Other
Senate	53%	12%	15%	12%	8%
House	47%	9%	38%	3%	3%

The dominance of the large individual contributions is dramatic, and even more so when one examines the overall contributions of these individuals. And even more dramatic if the focus is on the largest of these contributors.

In the 2010 election cycle, 26,783 individuals each contributed a total of more than $10,000 to federal election campaigns. (This group is roughly 1 out of every 10,000 Americans, or 1% of the 1%, i.e., 0.01% of Americans.) Combined, these contributors gave $774 million to politicians, political parties, PACs, and independent expenditure groups. This 0.01% of Americans contributed 24.3% of all contributions from individuals. Overwhelmingly, these individuals are corporate executives, investors, lobbyists, or lawyers. [2]

On average, they contributed $28,913, which is more than the median individual income in the US of $26,364. The top 3,480 donors gave $336 million in total, an average of almost $100,000 each, with:

The top 17 contributors averaging $1.6 million each for a total of $28 million
The next 995 averaging $136,000 each for a total of $136 million
The next 2,468 averaging $70,000 each for a total of $172 million

As a result, these extremely wealthy contributors have unique access to and influence on our elected officials and political parties. Leaders of both parties are very aware that more than 80% of party money comes from these few donors. Although elections may be one person, one vote, the disproportionate influence of these few donors on who runs for office, who gets elected, and what policies are enacted, undermines the core of our supposed democracy.

In future issues, I will look at some likely results of the access and influence of large contributors; the impact of the Supreme Court’s Citizens United decision; the supposedly independent expenditures that are not part of candidates’ official campaigns; fundraising for presidential campaigns; contributions from business, labor, and ideological sources; and other important campaign fundraising topics.

[1] The Center for Responsive Politics, retrieved 12/31/11, “Where the Money Came From,” http://www.opensecrets.org/bigpicture/wherefrom.php?cycle=2010

[2] Drutman and Phelps-Goodman, 12/13/11, “The Political One Percent of the One Percent,” Sunlight Foundation, http://sunlightfoundation.com/blog/2011/12/13

MONEY IN OUR ELECTIONS (Part 1): HOW MUCH IS SPENT?

Here’s issue #13 of my Policy and Politics Newsletter, written 1/1/12. Having taken a look at voting, I now turn to campaign fundraising. This is a complicated story and will require multiple issues of the newsletter.

The amount of money spent on election campaigns in the United States is staggering. This is due to many factors, but, particularly for the federal offices that are the focus here, the long duration of campaigns and the heavy use of TV advertising are two key ones. Fundraising is critical because the candidate with the most money usually wins. The sources of campaign funds are important to examine because they have implications for who gets elected and what policies are enacted. The large sums of money involved lead to concern about the influence that contributors have over elected officials and the policies put in place, as well as to concern about opportunities and temptations for outright corruption.

Because campaigns are expensive and because money is a key factor in determining who wins, a central qualification for running for office is the ability to raise money. Deciding whether or not to run is much more dictated by the ability to raise money than by the ideas, positions on issues, or other attributes of a candidate. It also means that many people who would be good public officials don’t even bother to run.

The total campaign spending for federal elections in 2010 was $3.6 billion. In the presidential election year of 2008, it was $5.3 billion and this will increase for the 2012 election. The cost of campaigns has been growing consistently and significantly. The total for the 2010 Congressional elections was more than twice the amount of the 1998 elections. The 2008 presidential election year amount was 70% higher than the amount in 2000, just two presidential elections ago. [1] In the 2008 presidential race, President Obama raised $745 million and Senator McCain had $368 million.

The national Republican and Democratic Parties raised roughly $750 million each in the 2007 – 2008 presidential election cycle and over $500 million each in the Congressional election cycle of 2009 – 2010.

In the 2010 Congressional races, the average winner of a Senate seat spent $9.8 million and of a House seat spent $1.4 million. In part because incumbents standing for re-election typically have a big advantage in fundraising, 85% of the incumbents for Senate and House races were re-elected. The average cost of winning a Senate or House seat has gown substantially since 1990: [2]

Congress	2010	2000	1990
Senate (ave. per seat)	$9.8 million	$7.3 million	$3.9 million
% of 1990	253%	188%	100%
House (ave. per seat)	$1,440,000	$840,000	$408,000
% of 1990	353%	206%	100%

The next issue, Money in Our Elections, Part 2, will examine where all this money comes from.

[1] The Center for Responsive Politics, retrieved 12/31/11, “The money behind the elections,” http://www.opensecrets.org/bigpicture/index.php

[2] The Center for Responsive Politics, retrieved 12/31/11, “Election Stats,” http://www.opensecrets.org/bigpicture/elec_stats.php?cycle=2010

WHY THE RESTRICTIONS ON VOTING? (Part 2)

Here’s issue #12 of my Policy and Politics Newsletter, written 12/18/11. This newsletter continues looking at the issue of voting, exploring who is affected by the changes in voting laws and why they are happening.

The new hurdles to voting and registering to vote that have recently been put in place in various states (see Newsletter #11) will have the greatest impact on the young and old (particularly those who don’t have a driver’s license), on minorities, and on low income individuals. For example, the requirement for a government-issued picture ID will have the greatest impact on the 10% of US citizens who lack such IDs, including, disproportionately, 25% of African-Americans, 18% of 18 – 24 year olds, and 15% of those with incomes under $35,000. Some states’ laws disqualify or make it difficult to use student IDs. Note that before 2006, no state required voters to show a government-issued photo ID in order to vote. In some states, one has to pay to get a government-issued voter ID or the documents required to qualify for one; this has the effect of instituting a backdoor poll tax. Some states’ laws requiring an ID were blocked by courts on the ground that they interfered with the right of eligible citizens to vote. [1]

So where is the thrust for these new, restrictive voting laws coming from? The charge is being led by conservative Republicans and an advocacy group they and corporations created and fund called the American Legislative Exchange Council (ALEC). ALEC was founded by arch conservative Paul Weyrich, who in 1980 stated, “I don’t want everybody to vote. … our leverage in elections … goes up as the voting populace goes down.” ALEC is funded in part by the billionaire Koch brothers, who bankrolled the Tea Party. It develops model legislation that it provides to state legislators. [2] [3]

The 6 states that passed new voter ID laws this year have Republican Governors and Legislatures. In 5 of those states, the law was sponsored by a legislator who is a member of ALEC. The 5 Governors who vetoed voter ID laws were all Democrats.

In Maine, a new Tea Party Republican Governor and Republicans in the Legislature repealed the state’s 38 year old same day registration law. (It was reinstated by a referendum.) In Floridaand Iowa, new, conservative Republican Governors removed ex-felons’ right to vote, disenfranchising 100,000 voters in each state. And the pattern goes on. [4]

In conclusion, these new barriers to voting are the result of a concerted effort to reduce voting among citizens who tend to be progressive or Democratic. Conservative Republicans are engaged in an unprecedented effort to reduce voting to gain partisan advantage. These are the first efforts to systematically diminish rather than expand voting and voting rights since the final days of southern resistance to black voting. These efforts represent an attack on the basic principle of democracy on which this country was founded.

[1] Weiser, W., and Norden, L., 10/3/11, “Voting law changes in 2012,”BrennanCenter for Justice, New York University School of Law

[2] Berman, Ari, 8/30/11, “The GOP war on voting,” Rolling Stone

[3] Nichols, John, 12/9/11, “Koch Brothers, ALEC, and the savage assault on democracy,” The Nation

[4] People for theAmerican Way, retrieved 10/29/11, “The right to vote under attack: The campaign to keep millions of Americans from the ballot box,” http://www.pfaw.org/print/16472

WHY THE RESTRICTIONS ON VOTING? (Part 1)

Here’s issue #11 of my Policy and Politics Newsletter, written 12/16/11. This newsletter addresses the issue of voting – an issue that has been simmering in the background but is coming to the forefront.

The ability and right to vote is a foundational principle of our democracy. From the end of the Civil War, through the 19^th Amendment in 1920 that gave women the right to vote, to the Voting Rights Act of 1965, the US has worked to achieve this principle of government by, for, and of the people through universal voting. Until recently, efforts have been focused on making it easier to:

Register to vote (e.g., motor voter laws that allowed voting registration when getting a driver’s license and same day registration when voting) and
Cast a ballot (e.g., expanded early or absentee voting, on-line or mail voting, and voting on weekends).

Despite these efforts voting participation in the US is well below participation levels in other western democracies. [1] Turnout in the last six Presidential elections averaged only 53% and only 37% in the last six Congressional elections. Turnout in recent national legislative elections was 93% inAustralia, 66% in theUnited Kingdom, and 61% inCanada.

Starting in the 1990s, a range of efforts with the stated goal of preventing voter fraud were initiated that are making it more difficult to register to vote and to vote. Despite assertions of voter fraud, every non-political investigation of the issue has failed to find any significant voter fraud. “A major probe by the Justice Department between 2002 and 2007 failed to prosecute a single person for going to the polls and impersonating an eligible voter.” [2] “In fact, Americans are more likely to be struck by lightning than to commit voter fraud.” [3] “There is no evidence – none – that fraud is a major problem in any state.” [4]

Nonetheless, in 2011, state governments have enacted an unprecedented array of new laws to make it harder to register and to vote. These new laws are likely to make it significantly harder for more than 5 million eligible voters to vote in 2012. [5] The new restrictions on voting and registering include: [6] [7]

Requiring a government-issued picture ID to vote (in 14 states including Alabama, Indiana, Kansas, Rhode Island, South Carolina, Tennessee, Texas, Wisconsin. Vetoed by Governors in 5 states. Proposed in 22 more states.)
Requiring proof of citizenship to register. (Kansas andAlabama)
Repealing same day voter registration. (Repealed inMaine after being in effect for 38 years without any problems but reinstated by voters in a statewide referendum.) In 2008, over 1 million voters registered on Election Day.
Reducing early voting (i.e., prior to Election Day). (Florida,Georgia,Ohio,Tennessee,West Virginia) In 2008, 40 million voters took advantage of early voting.
Prohibiting ex-criminals who have served their time from voting. (Florida,Iowa,Kentucky,Virginia)
Restricting voter registration drives. (Florida,Texas)

In the next issue, I’ll take a look at who is affected by these changes and why they are happening.

[1] Caldwell, Patrick, Nov. 2011, “Who stole the election?” The American Prospect

[2] Berman, Ari, 8/30/11, “The GOP war on voting,” Rolling Stone

[3] Weiser, W., and Agraharkar, V., 10/22/10, “Ballot security and voter suppression: Information citizens should know,”BrennanCenter for Justice, New York University School of Law

[4] Roberts, C., and Roberts, S., 10/25/11, “Voting barriers keep popping in 2012,” syndicated column in the Reading Daily Times Chronicle

[5] Weiser, W., and Norden, L., 10/3/11, “Voting law changes in 2012,”BrennanCenter for Justice, New York University School of Law

[6] Berman, Ari, 8/30/11, “The GOP war on voting,” Rolling Stone

[7] Caldwell, Patrick, Nov. 2011, “Who stole the election?” The American Prospect

MEDICARE AND MEDICAID AND OUR HEALTH CARE SYSTEM

Here’s issue #10 of my Policy and Politics Newsletter, written 12/9/11. The previous newsletter discussed Social Security and the fact that 1) it has no impact on the deficit, 2) the shortfall is relatively small, and 3) there are a number of straightforward ways to address the shortfall. This newsletter will begin to address Medicare and Medicaid, the other two entitlement programs that are consistently raised during deficit discussions.

Medicare and Medicaid present much greater challenges than Social Security, both because they do have a significant impact on the deficit and because the solutions are much more difficult.

Medicare is our universal health insurance program for seniors. It spent $502 billion in 2009. Medicaid is our health insurance program for low income, low wealth individuals. It spent $374 billion in 2009. Note that more than a quarter of Medicaid spending is for seniors. [1]

Medicare and Medicaid are NOT socialized health care. (Neither is the health care system under the recent reform legislation.) In a socialized health care system, the health care providers (e.g., the hospitals, doctors, and nurses) are government facilities or employees. Our Veterans’ Administration’s health care system and theUnited Kingdom’s health system are socialized health care. Both are highly regarded, although not perfect.

Medicare is a single payer system for our seniors (with some twists). Most other advanced countries’ have single payer health care systems that cover all residents (not just seniors).

Medicare and Medicaid, as parts of our overall health care system, face the same challenges of rapidly increasing costs that the overall system is experiencing. In the US, we spend over $7,500 per person per year on health care; almost two and a half times the average of other advanced countries. And yet our outcomes are worse: we have the highest infant mortality rate, many people with no health insurance or under insurance (where they pay significant costs and/or are exposed to significant risk), and a shorter life expectancy (77.9 years versus 79.4 years). [2]

Health care costs are high and growing rapidly in the US. Our system creates incentives to spend money on unnecessary tests, drugs, and procedures. Our privatized system includes marketing costs and profits. Our fragmented system has high administrative costs of 15 – 30%; twice the rate of other advanced countries. (Medicare is very efficient; its administrative costs are roughly 3%.) Our overall health system has high drug costs because there is no central entity that can negotiate with drug companies for cost control as other countries’ single payer systems do. This is why drugs are cheaper in Canada. Our Veterans’ Administration and some large health insurance companies do negotiate and get much better drug prices. (Medicare was prohibited from negotiating drug prices by the drug coverage law enacted by the Bush administration.)

Medicare, because of its size and role as the single payer for seniors, offers a means to controlling health care costs, if our politicians would let it. Medicaid, because of its size, also has significant leverage. (They can also address quality issues more effectively than our fragmented private payers.) Furthermore, Medicare’s clout could be enhanced by allowing non-seniors to join. Estimates of the potential savings of an expanded Medicare program range from $58 billion to $400 billion per year.

Medicare and Medicaid aren’t the problem. They only reflect the problems of our overall health care system. They have the potential to lead the way in solving our health care system’s problems, if our politicians will let them. Cutting back on Medicare and Medicaid will only exacerbate the problems by further complicating and fragmenting the system, while leaving many more people without affordable, decent health insurance – on top of the 50 million without insurance today.

[1] Centers for Medicare and Medicaid Services, 12/9/11, “National Health Expenditure Data,” https://ww.cms.gov/NationalHealthExpendData

[2] Reich, Robert, 7/22/11, “Why Medicare is the Solution – Not the Problem,” http://robertreich.org/post/7941066493

SOCIAL SECURITY: FACTS AND FIXES

Here’s issue #9 of my Policy and Politics Newsletter, written 12/4/11. A topic that is receiving quite a bit of attention in the deficit reduction discussions is Social Security, although it has no impact on the deficit. Sorry this is a bit long, but the complexity is tough to abbreviate further.

Social Security does have an imbalance between available resources and projected benefits over the 75 year time horizon that is typically used for analysis of it. There is a trust fund that the Social Security deductions from wages go into. It currently has a surplus, but it is projected to run out in 2037 as more people, i.e., the baby boomers, begin collecting benefits. After 2037 and until 2086, the on-going payments from workers would be able to pay about 75% of the benefits Social Security recipients are currently promised. So even in a worst case scenario, beneficiaries over the next 75 years will receive significant Social Security checks.

Social Security is the country’s most effective anti-poverty program. Poverty among seniors is roughly 10%, but without Social Security it would be 45%. Social Security lifts 13 million seniors out of poverty. [1]

Note that Social Security does not have an impact on the deficit. It is funded through the dedicated payroll tax and Social Security Trust Fund. Therefore, discussions of Social Security’s long-term solvency should be kept separate from the deficit reduction discussions.

Social Security’s imbalance can be fixed by reducing the benefits it provides or increasing the revenue for it or a combination of the two. Key options include the following: [2] [3]

Increase revenue
- Currently, Social Security tax is paid only on earnings up to $106,800. If this cap were increased, some or all of the shortfall would be eliminated. The Social Security tax was designed to cover 90% of all wages and is adjusted for wage growth. But because of the dramatic rise in very high wages, only 83% of wages are currently taxed. If the cap were increased to cover 90% of wages, it would be roughly $180,000. If this were done without increasing future benefits for those who paid more into the Trust Fund as a result, the shortfall would be eliminated.
- The current payroll tax is 12.4% with half paid by the employee and half paid by the employer. If the rate was increase by 2% to 14.4%, the shortfall would be eliminated. This would have a negative impact on low wage workers, for whom the Social Security tax is their biggest tax burden. An increase of this amount or less could be phased in over time to lessen the impact, but this would also reduce the amount of the shortfall eliminated.
- If part of the current Trust Fund balance were invested in stocks, presumably a privately managed index fund, the earnings would likely be significantly greater than the current earnings from the Treasury Bonds in which the Trust Fund is invested. This could reduce the shortfall by up to a third.
- Various other sources of revenue could cover part or all of the shortfall. Possibilities include Social Security taxes on high incomes that are above the current or future tax cap and using some or all of the estate tax for Social Security.
Reduce amounts paid to current or future beneficiaries
- Reduce the annual cost of living increase that is linked to inflation. Reducing the increase by 1% each year, would reduce the shortfall by 78%. However, well into the future, this would mean that Social Security benefits would be much less than they are today in relation to the cost of living. Furthermore, some data suggest that the current cost of living increases are less than the typical increases in expenses for seniors.
- Raise the age at which full benefits can be collected. Currently, this age is increasing from 65 to 67 by 2022. This increase could be accelerated or the age could be increased to 68 or 70, but would reduce the shortfall by less than a third. Arguments for this are that we are living longer and healthier on average and, therefore, could work longer before collecting Social Security. However, this is less true for minorities and for those in physically demanding jobs.
- Reduce the dollar amount paid to future beneficiaries. If, for example, benefits to new enrollees were cut by 5% starting immediately, the shortfall would be cut by about 30%.

Note that given that these projections go out 75 years, the assumptions that are made about economic growth and the growth of the labor force have a significant impact on the estimates of the shortfall and the impact of possible solutions. Small differences in the assumptions of annual growth have large impacts over 75 years.

In conclusion, relatively modest changes to Social Security can put it on a solid financial basis for the next 75 years. A variety of options for increasing revenue and/or reducing benefits are available, and could be carefully crafted and implemented to shield the neediest recipients from harm and provide amply advance notice of changes to participants. [4]

[1] Center on Budget and Policy Priorities, 12/4/11, “Social Security,” http;//www.cbpp.org/research under Areas of Research, Social Security.

[2] U.S. News & World Report, 5/18/10, “12 Ways to Fix Social Security,” http://money.usnews.com/money/blogs/planning-to-retire/2010/05/18.

[3] S. Sass, A. Munnell, & A. Eschtruth, 2009, “The Social Security Fix-It Book,” Center for Retirement Research,BostonCollege.

[4] Center on Budget and Policy Priorities, 12/4/11, “Policy Basics: Top Ten Facts about Social Security on the Program’s 75^th Anniversary,” http;//www.cbpp.org/research under Areas of Research, Social Security.

THE FLAT TAX AND FAIRNESS

Here’s issue #8 of my Policy and Politics Newsletter, written 12/1/11 . Having reviewed historical income tax rates in the last newsletter, this one will take a look at the flat tax, which is being proposed by a number of the Republican presidential candidates.

The flat tax – a simplified federal income tax with one tax rate for everyone – is a favorite tax reform of many of the Republican presidential candidates. It is almost always designed to be a “revenue neutral” option to the current, more complicated income tax, meaning that it would raise the same amount of revenue for the federal government as the current tax.

To produce the same amount of revenue, the flat rate has to be somewhere in the middle between the highest rate (now 35%) and the lowest rate (now 10%). Because the flat rate is lower than the current rates for high income filers, high income people would pay less. As a result, to be revenue neutral, middle and low income people will have to pay more. [1]

Some of the Republican presidential candidates have proposed variations on the flat tax to ensure that no one would pay more income tax than they do currently or to reduce the negative impact on low and middle income filers. Because these variations would reduce the total revenue to the federal government, they would not be revenue neutral and would increase the federal deficit substantially.

For example, under candidate Herman Cain’s 9-9-9 plan, the flat income tax rate of 9% is lower than all the current rates. (Note that the lowest income filers actually currently pay no income tax because of the personal exemption [$3,650 per person] and the Earned Income Tax Credit.) To make the overall plan revenue neutral, he proposes a 9% national sales tax that would apply to all purchases, including food and clothing. As a result, it is estimated that the highest income 1% of filers would pay $210,000 less in taxes and the lowest income 60% of filers would pay on average $2,000 more. [2] (Note candidate Cain has since said that his plan would include a provision to ensure that those with the very lowest incomes wouldn’t pay more.)

The flat tax is often promoted as being “fair,” because everyone pays the same rate. However, many people believe “fair” means a graduated or progressive income tax, where people with higher incomes pay a higher percentage of their income because they can afford it, as a smaller portion of their income is needed to pay for basic living expenses. In other words, higher income people have more discretionary income and therefore can afford to pay more in taxes. This is the concept behind our graduated federal income tax system and has been since the income tax was first implemented in 1913. If you believe a graduated income tax is “fair,” then the flat tax, by definition, is not “fair.” [3] And as you know from the previous newsletter, today’s income tax rates are less progressive than they used to be: today’s highest rate for the highest income filers is 35%, while in 1980 it was 72% and in 1950s and early 1960s it was 91%.

[1] Reischauer, Robert, former Director of the Congressional Budget Office as quoted in Scott Leigh, 10/28/11, “Flat-tax fantasies – and the realities,” The Boston Globe.

[2] Citizens for Tax Justice as cited in Jay Fitzgerald, Boston Globe article, 10/30/11, “Flat tax, fat cats, and you.”

[3] Leigh, Scott, 10/28/11, “Flat-tax fantasies – and the realities,” The Boston Globe.

INCOME TAX RATES: AN HISTORICAL PERSPECTIVE

Here’s issue #7 of my Policy and Politics Newsletter, written 11/27/11. As you probably know, the Congressional Super Committee failed this week to reach an agreement on a recommendation for reducing the federal deficit. One of the key sticking points was income tax rates. The Republicans insisted on reducing income tax rates along with reducing some deductions, while the Democrats refused to lower tax rates for the wealthy and supported rolling back the Bush cuts in tax rates for the wealthy.

The federal income tax went into effect in 1913. The income tax rates have always been progressive, meaning that the tax rate for lower income tax filers has always been lower than the rates for higher income filers. The rates are much less progressive today than they have been historically and they have been simplified by reducing the number of steps between the lowest rate and the highest.

A summary of federal income tax rates: [1]

Year	Lowest Rate	Highest Rate	# of Steps	Notes
2003 – 2011	10%	35%	6	Bush tax cuts
1993	15%	39.6%	5	Clintontax increase
1988	15%	28%	2	Reagan tax cuts
1981	14%	70%	16
1964	16%	77%	26
1946	20%	91%	24
1944	23%	94%	24

During most of the post World War II economic boom in theUS(1946-1964), the wealthy paid at a 91% rate while the lowest income filers paid at 20%. For the next 18 years, the wealthy paid at a 70% or higher rate while the lowest income paid at roughly 15%. Since then the rates for the wealthy have been reduced dramatically. The threshold for paying the top rate has been between $200,000 and $400,000 of income since 1964.

Note that if your taxable income is $1 million, a 1% rate reduction reduces your taxes by $10,000. If your taxable income is $50,000, a 1% rate reduction reduces your taxes by $500.

The argument typically advanced for reducing tax rates for the wealthy (or for not increasing them) is that if they have more money they will invest it and that, therefore, the economy will grow, jobs will be created, and everyone will be better off. However, in the 1990s, when President Clinton increased income tax rates on the wealthy, the economy performed very well. And in the 1980s and the 2000s, when tax rates were cut, there was no economic boom. Furthermore, over the last 30 years, as the income tax rates for the wealthy have been cut in half, income inequality in the US have widen considerably and middle and low income households have seen very little growth in their incomes (see newsletter #4, 11/13/11).

In summary, both the performance of the economy and changes in household incomes over the last 30 years do not support the argument that cutting income taxes for the wealthy will lift all boats, trickle down to middle and lower income households, or stimulate the economy.

[1] Wikipedia, 11/4/11, “Income tax in theUnited States: Tax rates in history,” retrieved from the Internet at http://en.wikipedia.org/wiki/Income_tax_in_the_United_States

A BALANCED BUDGET AMENDMENT: DOES IT MAKE SENSE?

Here’s issue #6 of my Policy and Politics Newsletter, written 11/20/11. As you probably know, the US House voted on and rejected a Balanced Budget Amendment to the US Constitution this week.

Consideration of a Balanced Budget Amendment (BBA) to the US Constitution by both houses of Congress was required as part of the agreement that raised the debt ceiling back in August. The House and Senate will probably vote on different versions of the BBA. (See below for more detail.) A BBA, if ratified, would constitute a dramatic, some say radical, shift in policy making.

The biggest concern about a BBA is that in a recession, when government revenue falls, the BBA would require cuts in expenditures. Therefore, government likely would have to cut safety net programs, such as unemployment compensation, food stamps, heating assistance, and subsidies for health care when they are most needed. It would eliminate the ability of the government to serve as a counter weight to recessions by spending when other sectors of the economy are on a downswing. Seven Nobel Prize-winning economists have stated that a BBA would “mandate perverse actions in a recession” and would harm economic growth. Norman Ornstein of the conservative American Enterprise Institute has called a BBA “about the most irresponsible action imaginable.” [1]

An argument advanced in support of a BBA is that states have and have managed to live with requirements for balanced budgets. However, because of this, during the current recession, state and local governments have been cutting jobs nationwide by roughly 10,000 a month and have been making painful cuts in services and programs. They have been helped through this crisis by federal government support and federal deficit spending, where they get roughly a third of their revenue, and especially by the stimulus funding in 2009 that explicitly supported states. Moreover, states can borrow for capital spending outside of their balanced budgets, something the federal BBA would prohibit.

Possible provisions of a BBA include: [2]

Super majority votes in both houses of Congress are required for:
- Deficit spending (most likely a three-fifths [60%] majority)
- Tax increases (most likely a two-thirds [67%] majority)
Cap on overall spending at 18% of gross domestic product (GDP, the size of the overall economy) (Note: Under President Reagan spending averaged 22% of GDP)
Capital spending (i.e., long-term investments in infrastructure and human capital) would be included under the cap and spending controls (Note: Generally not the case at the state level)
Exemptions for national emergencies and Social Security

In summary, the BBA makes for great politics for some but is lousy policy. Please note that President Reagan promoted and popularized the BBA while the budgets he presented to Congress were the eight most out of balance budgets since WWII. And that for many of those pushing the BBA today, it was not a priority for them when George W. Bush was president and significant surpluses inherited from President Clinton became large deficits.

[1] Loth, Renee, 8/13/11, “Danger in the balanced budget amendment,” The Boston Globe

[2] Beutler, Brian, 11/14/11, “Despite packed agenda, Congress returns to radical balanced budget amendment,” http://tpmdc.talkingpointsmemo.com/2011/11/debt-limit-hangover-despite-packed-agenda-congress-returns-to-radical-balanced-budget-amendment.php

DEFENSE SPENDING: CAN WE AFFORD TO CUT IT?

Here’s issue #5 of my Policy and Politics Newsletter, written 11/17/11. Another piece of the debate on how to reduce the deficit is whether defense spending should be cut. Here’s some context.

Defense spending has more than doubled from 2001 to 2011, increasing 121%, more than any other component of the federal budget (all other discretionary items together increased 60%). It now stands at $733 billion, 58% of discretionary spending. [1] In 2011, theUS spent $51 billion on the war inIraq and $122 billion on the war inAfghanistan, together representing 24% of the defense budget.

If the Super Committee of Congress cannot present a deficit reduction compromise that is approved by Congress, defense spending will be automatically cut by about $1 trillion over 10years, a 17% reduction. For the sake of comparison, after the Korean War ended defense spending declined 31%, after Vietnam28%, and after the Cold War 31%. [2] Both of the bipartisan deficit reduction commissions, which if anything tilted to the conservative side, recommended cutting defense spending by $1 trillion over 10 years and said this could be done responsibly. Therefore, substantial cuts in defense spending should not only be possible, but are appropriate.

Some people are arguing against cuts in defense spending because of their negative effect on employment. Ironically, this argument is coming from many of the same people who have argued against federal stimulus spending, saying the government spending doesn’t create jobs. Many of them have also supported government budget cuts that reduced jobs for teachers, construction workers, police officers, and firefighters. [3] So these arguments against defense cuts ring hollow.

Furthermore, a study from the Political Economy Research Institute at the University of Massachusetts Boston by Pollin and Garrett-Peltier found that for every 12 jobs created by defense spending, the same spending for education would create 29 jobs, or in health care would create 20 jobs, or in clean energy would create 17 jobs. [4]

The USnow spends more on defense than all our top rivals in the world combined. We spend 5.4% of our overall economy, our Gross Domestic Product (GDP), on defense, while our European allies spend 1.7% of GDP on the military. They, Japan, Korea, and other countries around the world no longer need tens of billions of dollars in USmilitary support. “We can still maintain the superiority of our own security, … for two-thirds of what we now spend.” [5]

All indications would seem to be that we can safely cut our defense spending, particularly as the wars inIraqandAfghanistanwind down. Furthermore, cuts in other areas are likely to be more painful both in terms of jobs and in the reductions in the services or support people receive, such as through Social Security, Medicare, Medicaid, Head Start, education programs, etc.

Perhaps the question should be, “Can we afford NOT to cut defense spending?”

[1] Government Printing Office, retrieved from the Internet at www.gpo.gov on 11/0/11, “Table 8.9 – Budget Authority for Discretionary Programs: 1976-2015”

[2] Kayyem, Juliette. 11/7/11, “Paychecks as defense weapons,” The Boston Globe

[3] Frank, Barney, 11/12/11, “Defense cuts affect jobs, but other cuts are worse,” The Boston Globe

[4] This study is cited in both of the above articles. It can be accessed at: http://www.peri.umass.edu/fileadmin/pdf/published_study/spending_priorities_PERI.pdf

[5] Frank, Barney, 11/12/11, “Defense cuts affect jobs, but other cuts are worse,” The Boston Globe

HOUSEHOLD INCOME: GROWING INEQUALITY

Here’s issue #4 of my Policy and Politics newsletter, written 11/13/11. One piece of the debate on how to reduce the deficit is whether the well-off should pay more. Here’s some context.

Household income in the United States has become significantly more unequal over the last 30 years. Income for wealthy households has grown faster than for others, and the wealthiest households, the 1% of households with the highest incomes, have experienced by far the greatest increases. The increases in incomes between 1979 and 2007, adjusted for inflation and taxes, are as follows: [1]

The richest 1% of households had their average incomes increase by 275% – in other words they almost quadrupled. Their average annual wage income is $713,000 (not including income from investments). [2]
The next 19% of the population with the highest incomes saw household incomes grow by 65%. Their annual incomes are now over $112,500.
The 60% of households in the middle had their incomes grow by just under 40%. Their annual incomes are between $27,000 and $112,500.
The poorest 20% experienced income growth of about 18%. Their annual incomes are under $27,000.

In summary, the 1% richest got much richer – the equivalent of a 5% raise on top of inflation every year. The middle got about a 1% raise each year on top of inflation and the poor got about a half of a percent raise each year.

As a result, the top 20% of households now has more income than the other 80% of households combined – 53% of the total income of all households. [3] The top 1% receives 23.5% of total income, up from 8.9% in 1976. A similar pattern is evident in wealth: the top 1% now has 35% of the total wealth in America, up from 18% in the late 1970s. [4]

This is due to a variety of factors including:

Growing executive compensation (CEOs now receive 300 times the typical workers’ wage, while in the 1970s it was 40 times)
An increased share of income that is received from investments, including capital gains and dividends
The equalizing effect of federal taxes is smaller
The composition of government revenues shifted from progressive income taxes to unprogressive payroll taxes, sales taxes, and gambling revenue
Federal benefit payments are doing less to even the income distribution due to growing amounts going to seniors that are without regard to income

The overall result is that the middle class does not have sufficient income and purchasing power to maintain its lifestyle and support full employment in theUSeconomy. And the poorest 20% of households struggle to survive on incomes of under $27,000.

[1] Congressional Budget Office, Oct. 2011, “Trends in the Distribution of Household Income between 1979 and 2007”

[2] Reich, Robert, 9/4/11, “The Limping Middle Class,” The New York Times

[3] Reich, Robert, 9/30/11, “America Faces a Jobs Depression,” The Guardian

[4] Reich, Robert, 10/16/11, “The Rise of the Regressive Right and the Reawakening of America,” Robert Reich’s blog

THE FEDERAL DEFICIT: HOW DID WE GET HERE?

In the previous newsletter on corporate taxes, I mentioned that having corporations pay their fair share of taxes would help reduce the deficit. The deficit is a hot topic with the federal Super Committee required to submit its recommendations on how to reduce the deficit in 2 weeks. (This is issue #3 of my Politics and Policy Newsletter, written 11/10/11.)

The deficit does need to be addressed, especially over the long term. However, the strategies for reducing the deficit are hotly contested. The context and rational debate on the deficit often get lost in the heated rhetoric and political posturing. So here’s a first piece of perspective on the deficit.

In 2001, President Clinton turned over to new President George W. Bush a federal budget with a substantial surplus: [1]

2001 federal budget: a $127 billion surplus (asClinton left office)
Projected surplus over the next 10 years of $5.6 trillion

When President Bush left office 8 years later, he had turned this surplus into a substantial deficit:

2008 federal budget: a $455 billion deficit (as Bush left office)
Projected deficit for 2009 of $1.2 trillion and many trillions of dollars of deficits over the next 10 years

The surpluses turned into deficits due to three major reasons:

Large tax cuts that particularly benefited high income individuals and corporations
Increased military spending (including wars in Afghanistan and Iraq)
An economic recession (largely caused by a lack of regulation of the financial industry)

To reduce the deficit, therefore, it only makes sense to reverse the policies that caused it in the first place:

Reverse the Bush tax cuts. If all of them were allowed to expire at the end of 2012 as scheduled, future deficits would be cut roughly in half. [2]
Reduce military spending. Military spending more than doubled from 2001 to 2008 ($332 billion to $686 billion). All other federal spending increased less than 50% ($332 billion to $494 billion), excluding Social Security and Medicare, which have their own funding separate from general revenue. [3] (Figures are not adjusted for inflation.)
Improve the health of the economy, most importantly by increasing jobs and reducing unemployment. (More on this in a subsequent newsletter.)

I hope this is helpful context as you hear coverage of the Super Committee’s work to reach recommendations on deficit reduction. If you are so inclined, I encourage you to contact yourUSRepresentative and Senators by phone, email, or regular mail to share your thoughts on deficit reduction.

[1] Manuel, Dave, retrieved from the Internet at www.davemanuel.com on 8/14/11, “A history of surpluses and deficits in theUnited States”

[2] Tritch, Teresa, 7/23/11, “How the deficit got this big,” The New York Times

[3] Government Printing Office, retrieved from the Internet at www.gpo.gov on 11/0/11, “Table 8.9 – Budget Authority for Discretionary Programs: 1976-2015”

CORPORATIONS: ARE THEY PAYING FAIR TAXES?

Here’s issue #2 of my Policy and Politics newsletter, written 11/5/11. It’s a bit long and dense, but has important information corporate taxation. I’ll be shorter and sweeter in the future!

I’m very concerned about the pervasive and powerful influence corporations have on our every day lives, as well as on our politics and policy in the United Sates. This is a theme I will address fairly regularly. I will attempt to link various facets of this influence together, because I do believe the whole is more than the sum of the parts and that the reinforcing interactions among the various facets often go unnoticed and underestimated.

A study just came out of 280 of America’s most profitable companies (all were profitable in each of the last 3 years, 2008-2010, and all are from the Fortune 500 list). [1] The study finds that:

1. Many large corporations pay taxes at actual rates much lower than the stated rate of 35% despite being quite profitable, with roughly a quarter paying no taxes at all.

The average effective tax rate for all 280 companies in the study over the three year period was 18.5%; roughly half the 35 percent rate they theoretically pay. (Note: An individual with over $35,000 in income and a couple filing jointly with over $70,000 in income are taxed at a 25% rate.)
About a quarter of the companies (71) did pay an average effective tax rate of 32%.
Almost a quarter of them (67) paid an average of no federal income tax over the last three years, despite combined profits of $357 billion.
30 of these companies actually got money back from the government (i.e., had a “negative income tax rate”) over the three year period, despite combined profits of $160 billion. For example, GE paid a rate of negative 45% and Verizon negative 3%.
The top ten defense contractors with profits of $67 billion over 3 years paid at an average rate of roughly 15%.

2. Many large corporations receive subsidies from the federal government.

Total tax subsidies given to all 280 profitable corporations amounted to $223 billion over 3 years.
The financial services industry received the largest share (17%) of all federal tax subsidies over the last three years.
Wells Fargo tops the list of 280U.S.corporations receiving the most in tax subsidies, getting nearly $18 billion in tax breaks from theU.S.treasury in the last three years. Others in the top 20 include AT&T, Verizon, GE, IBM, Exxon Mobil, Boeing, Goldman Sachs, Proctor & Gamble, Wal-Mart, Coca-Cola, and American Express.

3. Corporations are paying less in taxes today than they used to, measured in a variety of ways.

The corporate tax rate today is 35%; it was 46% up until 1986. The overall effective corporate tax rate (i.e., what was actually paid) today is 18.5% for these 280 corporations; it was 26.5% in 1988. This is a 24% reduction in the stated tax rate and a 30% reduction in the effective tax rate based on what is actually paid.
In 2010, corporate taxes paid for 6% of the federal government’s expenses, roughly half of the 11% they paid in the late 1990s and a quarter of the 25% they paid in the 1950s.
As a share of the economy (i.e., of gross domestic product or GDP), overall federal corporate tax collections for fiscal years 2009-2011 fell to 1.16% of GDP, their lowest level since World War II. This is roughly half the level of the 1970s through 2008 and a third of the level of the 1960s.

4. Stark inequities exist in taxes paid across industries and among companies in the same industry because of special tax breaks and the complexities of our tax policies.

5. Corporations claim that US firms pay more income tax than their foreign competitors. However, overall, the effective foreign tax rate on the 134 companies with significant foreign profits was 6.1 percentage points higher than their effective U.S. tax rate — almost a third higher. Furthermore, they can “defer” paying U.S. taxes on their foreign profits indefinitely.

Twenty-five years ago, President Ronald Reagan was horrified by a similar epidemic of corporate tax dodging and addressed the problem by eliminating many corporate tax loopholes in 1986. Over time, the results of this effort have been reversed and, ironically, that reversal has been led in large part by politicians who claim to be Reagan’s disciples and to oppose government subsidies that interfere with market incentives.

Over the years, corporations clearly have, through lobbying and campaign contributions, convinced policy makers to reduce their tax burden. Today, they are lobbying for lower tax rates and an exemption for profits of overseas subsidiaries. However, the report (on page 1) notes that “today corporate tax loopholes are so out of control that most Americans can rightfully complain, ‘I pay more federal income taxes than General Electric, Boeing, DuPont, Wells Fargo, Verizon, etc., etc., all put together.’”

The evidence indicates that significant numbers of corporations are not paying their fair share of taxes. Requiring them to pay their fair share would not only make our tax system fairer, but also help to reduce the budget deficit.

[1] Citizens for Tax Justice and the Institute on Taxation and Economic Policy, 11/3/11, “Corporate Taxpayers and Corporate Tax Dodgers, 2008-2010,” http://www.ctj.org/corporatetaxdodgers/

Bill Moyers and Winner take all politics

The first issue of my Policy and Politics Newsletter, back on 11/1/11, was an atypical item. It provided a link to a speech by Bill Moyers at an event honoring Ralph Nader and the 40^th anniversary of his organization, Public Citizen. I did not send other videos, let alone anything this long – 20 minutes. But Bill Moyers and this speech are special. I imagine many of you feel the way I do about Bill Moyers: he is incredibly well informed, thoughtful, and articulate. His professionalism and integrity set a standard that all should aspire to. I hope you can find the time to listen to this.

Bill Moyers: Democracy in Shambles: “Money First, People Second… If At All”

http://www.commondreams.org/video/2011/10/31-1

In January, Bill Moyers came back on public television. You can also download the podcasts of the shows from billmoyers.com or other sources. His first show back (Jan. 13) was on Winner Take All Politics, the title of a recent book by Hacker and Pierson, whom Moyers interviews. The book and show document that the huge income disparity in the US (see issue #4 of my newsletter) is, in large part, the result of government policies over the last 30 years. Although globalization, technological change, and other changes in our economy have been factors, the real culprit is our public policies and how they have responded to these challenges. Other countries face these same challenges but have not experienced the dramatic increase in inequality that has occurred in theUS. A further summary of the show is in newsletter issue #21.

The website at http://mysite.verizon.net/vzew302m has all past issues of my newsletter.