SHAMEFUL FAILURE TO ADDRESS GUN VIOLENCE

ABSTRACT: A filibuster in the US Senate just blocked passage of a law to require background checks on most gun buyers, despite the fact that 90% of Americans support these background checks; even 74% of National Rifle Association (NRA) members support them!

This reflects the power of money in politics – the money of the gun and ammunition makers and sellers. Their well-funded front organization, the NRA, only has about 2 million members, but wields outsized influence.

The facts make this failure to address gun violence shameful. In the four months since the Newtown massacre of 20 young children and 6 adults, over 3,500 people have died from gun violence. Roughly 30,000 people die each year from gun violence in the US. This is ten times as many as died on September 11th, but we spend far more time and money to prevent violence by terrorists than we do to prevent gun violence.

Contrary to the NRA’s rhetoric, guns do NOT make you safer: 1) For every use of a gun in self-defense at home, there are 11 suicide attempts, 7 assaults or murders, and 4 gun accidents; 2) Gun death rates are over three times higher in states with high gun ownership; and 3) Despite the claim that more armed civilians would stop mass shootings, this hasn’t happened once in the last 30 years.

In 1996, Australia banned automatic and semi-automatic weapons, required strict permitting and tracking of gun purchases, and purchased and destroyed about 700,000 firearms. The results are:

  • 59% decrease in firearm murders (without an increase in non-firearm murders)
  • 65% decrease in firearm suicides (without an increase in non-firearm suicides)
  • No gun massacres in the 16 years since enactment of the law compared with 13 massacres (in which 4 or more people died) in the 18 years before enactment
  • The murder rate has dropped to 1 per 1 million people. (The US rate is 33 times higher.)

The votes in the US Senate are profiles in cowardice. There is no reason for anyone other than law enforcement and the military to have automatic and semi-automatic weapons with magazines that hold over 10 bullets. I urge you to call, email, and / or write your federal and state elected officials and demand reasonable gun laws that will prevent future gun massacres.

FULL POST: A filibuster in the US Senate just blocked passage of a law to require background checks on most gun buyers. Although there was a majority of 54 votes in favor, the Republicans, abetted by four Democrats, obstructed progress. This occurred despite the fact that 90% of Americans support these background checks; even 74% of National Rifle Association (NRA) members support them! The Senate also failed to pass a provision banning the sales of assault weapons; there were only 40 votes in favor, even though 45% of gun owners support a ban on these weapons. [1]

This reflects the power of money in politics – the money of the gun and ammunition makers and sellers. While their lobbyists operate behind the scenes, their well-funded front organization, the NRA, operates in public. Although it only has about 2 million members (out of 300 million people in the US), which is only 5% of gun owners, and 30% of gun owners have an unfavorable opinion of the NRA, it wields outsized influence. Together, the money, the private lobbying, and the public publicity have banned federal research and data sharing on gun violence and perpetrated myths about guns and gun violence.

The facts make this failure to address gun violence shameful. In the four months since the Newtown massacre of 20 young children and 6 adults, over 3,500 people have died from gun violence. Roughly, 30,000 people die each year of gun violence in the US, 12,000 murders and 18,000 suicides. This is ten times as many as died on September 11th, but we spend far more time and money to prevent violence by terrorists than we do to prevent gun violence. There is also far more focus, effort, and resources spent to keep illegal immigrants out of this country than there is to keep guns out of the hands of illegal gun purchasers.

Contrary to the NRA’s rhetoric, guns do NOT make you safer:

  1. For every use of a gun for self-defense at home, there are 11 suicide attempts, 7 assaults or murders, and 4 accidents with a gun. Six times more women were shot by husbands, boyfriends, and ex-partners than were murdered by strangers. A women’s chance of being killed by her abuser is 7 times higher if he has access to a gun.
  2. Gun death rates are over three times higher in states with high gun ownership. The state with the highest gun ownership (Wyoming, over 60% of households) also has the highest rate of gun deaths (over 15 per 100,000 people). The state with the lowest gun ownership (Hawaii, less than 10% of households) also has the lowest rate of gun deaths (less than 5 per 100,000 people). The other states clearly demonstrate this relationship that more guns means more gun deaths.
  3. Despite the claim that more armed civilians would stop mass shootings, this hasn’t happened once in the last 30 years.
  4. Civilians in the US own roughly 310 million guns while law enforcement and the military have 4 million guns. Roughly a third of Americans own a gun, down from about half in 1973. The average gun owner has 8 guns. [2]

In terms of evidence to support the effectiveness of legislation to prevent gun violence, there is a very relevant example from Australia. In 1996, 35 people were killed in Australia by a gunman in a massacre reminiscent of those we have experienced recently here in the US. In response, Australia, under Conservative Prime Minister John Howard, banned automatic and semi-automatic weapons, required strict permitting and tracking of gun purchases, and purchased and destroyed about 700,000 firearms in a gun buyback program. [3]

The results are: [4][5]

  • 59% decrease in firearm murders (without an increase in non-firearm murders)
  • 65% decrease in firearm suicides (without an increase in non-firearm suicides)
  • No gun massacres in the 16 years since enactment of the law compared with 13 massacres (in which 4 or more people died) in the 18 years before enactment
  • The murder rate has dropped to 1 per 1 million people, a fortieth of what it was. (The US rate is 33 times higher.)

The votes in the US Senate are profiles in cowardice. Colorado, New York, and Connecticut have recently passed meaningful gun violence prevention laws. There is no reason for anyone other than law enforcement and the military to have automatic and semi-automatic weapons with magazines that hold over 10 bullets. Sensible gun laws, as evidenced by the Australian experience, would make a difference. (See my post of 12/16/12 for more detail.)

I urge you to call, email, and / or write your federal and state elected officials and demand reasonable gun laws that will prevent future gun massacres. I also encourage you to participate in on-line or local actions to express your support for common sense gun violence prevention laws.

It’s past time to take serious steps to reduce gun deaths and violence, as well as hopefully, eventually, to eliminate the occurrence of gun massacres – as Australia did. We must insist that our elected officials pass sensible gun violence prevention laws.

[1]       Jan, T., & Viser, M., 4/18/13, “Wider checks on guns rejected,” The Boston Globe

[2]       Gilson, D., March/April 2013 issue, “Hits and myths: Ten pro-gun claims that don’t stand up to fact-checking,” Mother Jones

[3]       An equivalent buyback program in the US would need to purchase and destroy 40 million guns.

[4]       Matthews, D., 8/2/12, “Did gun control work in Australia?” The Washington Post

[5]       Editorial Board, 12/18/12, “Australian gun control holds lessons for U.S.,” USA Today

SOCIAL SECURITY AND CHAINED CPI

ABSTRACT: In his federal government budget, President Obama has proposed cutting future Social Security benefits. He has done so in a way that is probably meant to obscure this fact. The Social Security Administration estimates that the result would be a 5% cut in benefits over every 12 year period.

It would not reduce the annual deficit, because SS has its own, dedicated funding stream. Social Security (SS) does not have a major funding problem; its shortfall 20 years from now is easily remedied.

Therefore, it seems that the only reason President Obama is proposing this cut in SS benefits is to offer a political olive branch to Republicans who want to cut SS because they are ideologically opposed to it.

An average 77 year old is receiving $23,832 per year from SS. If chained CPI had been used over the last 12 years, this person would be receiving $22,560 instead. Despite the very modest level of income that SS provides, one-third of seniors rely on SS for at least 90% of their income and another third for over 50% of their income.

The use of chained CPI as the government’s new, official measure of inflation will also, over time, reduce low income families’ eligibility for benefits and push low and middle income taxpayers into higher income tax rate brackets. Thus, it will disproportionately hit low and moderate income families. This would be morally and ethically questionable in the best of times, but with low and middle income families still suffering from the effects of the Great Recession, and income and wealth inequality at levels unseen for at least 80 years, this is unconscionable.

I urge you to contact the President, your Senators, and your Congressperson in the House of Representatives and ask them to oppose this change – or to explain why they support it.

FULL POST: In his federal government budget, President Obama has proposed cutting future Social Security benefits. He has done so in a way that is probably meant to obscure this fact or at least muddy the waters so his proposal isn’t describe as a benefit reduction.

Obama has proposed that the annual inflation adjustment for Social Security (SS) benefits be calculated differently. Instead of using the current Consumer Price Index (CPI), he proposes using a figure called the “chained CPI.” [1] It gives a lower estimate of inflation than CPI, so benefits would increase more slowly. The Social Security Administration estimates that the result would be a 5% reduction in benefits over every 12 year period.

This would cut total SS payments by $10 – $20 billion per year over the next 10 years. However, it would not reduce the annual deficit (which is roughly $800 billion), because SS has its own, dedicated funding stream and is not part of the regular federal budget. Furthermore, SS does not have a major funding problem; its shortfall 20 years from now is easily remedied by other steps that don’t reduce future payments to retirees. (See posts of 1/7/13 and 12/4/11 for more details.)

Therefore, it seems that the only reason President Obama is proposing this cut in SS benefits is to offer a political olive branch to Republicans who want to cut SS because they are ideologically opposed to it.

An average 77 year old is receiving $23,832 per year from SS. If chained CPI had been used over the last 12 years, this person would be receiving $22,560 instead, $1,272 less or a little over a 5% reduction. [2]

Despite the very modest level of income that SS provides, one-third of seniors rely on SS for at least 90% of their income and another third for over 50% of their income. Chained CPI won’t keep up with the inflation that seniors actually experience, given the high portions of their incomes that go for the necessities of food and health care. [3]

And if that isn’t bad enough, remember that SS was meant to be one leg of a three legged stool of retirement security that included employer pension plans and personal savings. Employer pensions have disappeared for most workers and have, at best, been turned into personal savings plans, such as 401ks, where workers have all the risk, just like other personal savings. Given this, now is not the time to be cutting SS, the only guaranteed retirement benefit left in what is now a much less stable and riskier two legged stool.

The use of chained CPI as the government’s new, official measure of inflation will also, over time, reduce low income families’ eligibility for benefits and push low and middle income taxpayers into higher income tax rate brackets. For example, the federal poverty rate is adjusted annually for inflation. Using chained CPI, it will rise more slowly and, in the future, fewer families will fall below the poverty line, which is used to determine eligibility for programs from Head Start to health care, food, and heating assistance. The federal income tax brackets are also adjusted annually for inflation. With the cut off amounts for higher income tax rate brackets rising more slowly, more taxpayers will fall into higher brackets, increasing their income tax. This doesn’t affect the wealthy, of course, because they are already in the top bracket. [4]

The bottom line is that this change in the measure of inflation that is used to calculate Social Security benefits, eligibility for many anti-poverty programs, and income tax rate brackets will disproportionately hit low and moderate income families. This would be morally and ethically questionable in the best of times, but with low and middle income families still suffering from the effects of the Great Recession, and income and wealth inequality at levels unseen for at least 80 years, this is unconscionable.

In reality, this is a backdoor way to cut benefits for SS recipients and low income families, and to have low and middle income taxpayers pay more in income taxes – without having to say that’s what you’re doing. Obfuscation is the name of this game.

I urge you to contact the President, your Senators, and your Congressperson in the House of Representatives and ask them to oppose this change – or to explain why they support it.

 

[1]       Chained CPI assumes that as the prices of goods and services rise, consumers substitute less costly alternatives. For example, if gas prices rise, consumers use their cars less or buy (usually smaller) cars that get better gas mileage. Or if the price of beef goes up, they buy less beef and more chicken or less meat overall. Or if the price of heating oil goes up, consumers turn down the heat and use electric space heaters to heat only the rooms in which they spend time. First, this sounds, in many cases, like a decline in one’s standard of living or quality of life. Second, in some cases buying a cheaper substitute isn’t really an option. When the cost of health insurance and health care goes up, there often isn’t a way to buy a less costly alternative. And for seniors, this is a big part of their budget.

[2]       Matthews, D., 12/11/12, “Everything you need to know about Chained CPI in one post,” The Washington Post

[3]       Warren, E., 4/10/13, Newsletter from Senator Elizabeth Warren

[4]       Ohlemacher, S., 4/8/13, “Obama plan hits seniors, low-income taxpayers,” Associated Press (in the Reading Daily Times Chronicle)

THE SHRINKING DEFICIT

ABSTRACT: The federal government’s annual budget deficit is falling, and falling faster than at any time since WWII. Overall government spending has been falling since 2007. Roughly 750,000 government jobs have been cut since the recovery began in 2009, cancelling out much of the benefit of increased private sector employment, and leaving unemployment higher than it would be otherwise.

Many economists believe that an austerity strategy of a rapidly declining deficit and spending cuts such as the “sequester” could hurt the economy and its recovery. Europe is experiencing a second recession and very high unemployment (12%) due to its austerity strategy. The current, irrational obsession with the deficit is precluding investments that have a high return and would improve the fiscal picture over the long-term.

Ultimately, jobs and a strong economy are the answer to taming the deficit, which is already shrinking rapidly.

FULL POST: The federal government’s annual budget deficit is falling. And it’s falling faster than at any time since the end of World War II. And that’s even before the March 1 spending cuts (the “sequester”) are factored in. [1] The deficit for this year is projected by the Congressional Budget Office to be $845 billion, down from $1,100 billion last year and $1,413 billion in 2009. It grew in 2008 and 2009 because the Great Recession led to 1) a dramatic loss of tax revenue due to decreased economic activity and jobs; [2] 2) increased expenditures for unemployment, food assistance, and other government benefits that softened the impact of the recession on families; and 3) tax cuts that were used to stimulate the economy, reducing the depth of the recession. [3]

Overall government spending, including the federal, state, and local levels, has been falling since 2007. Although the decline in federal spending in the fourth quarter of 2012 is seen as the culprit in causing the economy to shrink (i.e., negative growth) in that quarter, spending reductions and job losses have been most pronounced at the state and local levels. Federal spending has declined from 25.2% of our total economy or Gross Domestic Product (GDP) in 2009 to 22.8% in 2012, and is projected to fall to 21.5% by 2017 without any dramatic changes in budget policy. (The 40 year average has been 21.0%.)

Roughly 750,000 government jobs have been cut since the recovery began in 2009. This has been a “massive drag on the economy,” cancelling out much of the benefit of increased private sector employment. [4] Although the US unemployment rate has fallen to 7.7%, it would have fallen significantly further if these government jobs, including those of many teachers, had not been lost.

Many economists believe that an austerity strategy of a rapidly declining deficit and spending cuts such as the “sequester” could hurt the economy and its recovery. Historically, rapidly falling government deficits and spending have tended to lead to recessions. [5] If you want evidence of this, you need look no further than Europe at this moment. Europe is experiencing a second recession and very high unemployment (12%) due to its austerity strategy. Mark Cliffe, chief economist at IMG, describes its austerity strategy as “a bit of a vicious circle. Europe is pursuing a policy that is self-evidently failing.” [6]

The current, irrational obsession with the deficit (rather than a focus on creating jobs and strengthening the economy), is precluding investments in infrastructure and other activities that have a high return on investment and would improve the fiscal picture over the long-term. Especially given the federal government’s ability to borrow money at near zero interest rates, now is an ideal time to make investments in the future strength and growth of our economy, which is the best long-term strategy for reducing the deficit. [7]

There isn’t a good answer to the question of why the deficit – which is already rapidly falling – is more important now than creating jobs and strengthening the economy. [8] And if we look at Europe, we can see clear evidence that an austerity strategy does not lead to a falling deficit or a stronger economy with more jobs. The only answer is ideology – a belief that a smaller public sector is more important than putting struggling Americans back to work and back on their feet.

Ultimately, jobs and a strong economy are the answer to taming the deficit and the overall accumulated debt. Furthermore, a focus on creating jobs would resonate with the American public, many of whom are still struggling with the impacts of the Great Recession. It’s a matter of delivering a clear message about the need to create jobs and stimulate the economy, and that this will solve the issue of the deficit, which is already shrinking rapidly.

 

[1]       Klein, E., 2/12/13, “The deficit chart that should embarrass deficit hawks,” The Washington Post

[2]       Raum, T., 2/22/13, see above

[3]       Konczal, M., 1/22/13, “The most important graph on the deficit, “ The Roosevelt Institute

[4]       Raum, T., 2/22/13, “Government downsizes amid GOP demands for more cuts,” Associated Press (in the Reading Daily Times Chronicle)

[5]       Klein, E., 2/12/13, see above

[6]       The Balance Sheet, 4/3/13, “Europe’s austerity addiction,” The American Prospect

[7]       Summers, L., 1/21/13, “America’s deficits: The problem is more than fiscal,” The Washington Post

[8]       Wolf, M., 1/22/13, “America’s fiscal policy is not in crisis,” Financial Times

NO FISCAL CLIFF FOR CORPORATE TAX LOOPHOLES

ABSTRACT: So you thought our Washington politicians were serious about reducing the deficit? Guess again. The actual bill that averted the “fiscal cliff” in January included 43 corporate tax breaks worth $67 billion in 2013, which is more than the revenue that was raised! This means that the “fiscal cliff” legislation did NOT decrease the deficit, but rather increased it. The tax breaks include: 1) $11 billion for corporations such as GE, Citicorp, and Ford on overseas earnings, 2) $430 million for Hollywood producers for filming in the US, 3) $331 million for railroads for track maintenance, 4) $500 million for pharmaceutical giant Amgen, and 5) $120 million for Whirlpool Corporation. The support for corporate tax loopholes is often bipartisan as they provide leverage for campaign contributions.

So, take with a big grain of salt all the talk about deficit reduction. Corporate welfare continues unabated while deficit reduction is used as an axe to cut government programs, many focused on helping low and middle income families. And take with a big grain of salt the talk about the need to cut Medicare and Medicaid spending when big giveaways to Amgen and other pharmaceutical corporations are costing these programs billions of dollars every year.

Note: I’m back to blogging after a three month hiatus. And no, unfortunately, this post is NOT an April Fool’s joke.

FULL POST: So you thought our Washington politicians were serious about reducing the deficit given the last minute “fiscal cliff” deal in January and the automatic spending cuts (“the sequester”) that went into effect on March 1? Guess again. Corporate tax loophole giveaways that were actually part of the “fiscal cliff” bill cost more than the revenue that was raised!

As background, the manufactured austerity crisis, known as the “fiscal cliff,” was a package of spending cuts and tax increases set to go into effect automatically on December 31, 2012, if a substitute agreement on deficit reduction wasn’t reached. (See post of 12/12/12 for more details.)

Early on New Year’s Day legislation was passed that supposedly tackled the deficit by increasing revenue. It also postponed the spending cuts until March 1. Most of the scheduled tax increases were scaled back, so only $30 – $60 billion per year in new revenue was generated. Income tax rates on individuals with incomes over $400,000 were increased, with some reductions in deductions starting at $250,000 in income. The estate tax was increased a bit and workers’ Social Security taxes were increased by 2% of wages on earnings up to $110,000. (This restored a temporary cut in the Social Security tax that was targeted at boosting the economy and middle and low income workers during the Great Recession.) (See post of 1/7/13 for more details.)

The postponed spending cuts ended up going into effect on March 1 because our politicians could not come to an agreement on other deficit reduction measures. These spending cuts are likely to hurt the economy, slowing the recovery and increasing unemployment. In addition, these cuts are hurting low and middle income families. Head Start’s high quality school readiness programs are serving fewer children – fewer 3 and 4 year olds from families in poverty. School systems are laying off teachers and staff. College students are losing government support. Housing authorities are laying off staff and cutting housing assistance to poor families. And there will be cuts in health care that will disproportionately affect low income individuals. [1]

Despite all of this, quietly, and with very little coverage by the mainstream (corporate) media, the actual bill that averted the “fiscal cliff” in January included 43 corporate tax breaks worth $67 billion in 2013, which is more than the revenue that was raised by the highly publicized tax increases. [2] This means that the “fiscal cliff” legislation did NOT decrease the deficit, but rather increased it by giving more in tax breaks to corporations than it raised in tax revenue from individuals!

For example, Whirlpool Corporation got a tax benefit worth an estimated $120 million in 2012 and 2013 after spending $1.8 million on lobbying over the last two years; a 6,700 percent return on investment. Whirlpool’s total income taxes paid to federal, local, and foreign governments for 2009 -2011 were a REFUND of $561 million! And it is carrying forward federal tax credits it can use to decrease its US taxes in future years. Meanwhile, Whirlpool closed a factory in Arkansas and laid off 800 workers, moving the manufacturing of its refrigerators to Mexico. This was part of an overall reduction of its workforce in North America and Europe of 5,000 jobs, which it announced in 2011. [3]

Another example was a provision in the “fiscal cliff” legislation that gave two years of relief from Medicare cost controls for certain drugs. Although not mentioned by name, the clear beneficiary is the pharmaceutical giant, Amgen. It is estimated that this loophole will cost taxpayers about $500 million over two years – to the benefit of Amgen. The company’s CEO quickly informed investment analysts of this good news. Two factors make this particularly egregious:

  • Amgen had already received a two year delay on these cost controls and another one is hard to justify
  • Two weeks earlier, Amgen had pleaded guilty in a major federal fraud case to illegal drug marketing and had agreed to pay $762 million in criminal and civil penalties

This particular case is tied to close relations Amgen has with three Senators: Max Baucus (D – Montana), Mitch McConnell (R – Kentucky), and Orrin Hatch (R – Utah). [4][5] As in this case, the support for corporate tax loopholes is often bipartisan. Many of them have to be renewed every two years. This gives members of Congress leverage for an on-going source of campaign contributions from these corporations and their lobbyists. The supposedly temporary nature of these corporate tax loopholes also avoids the accounting analysis, and resultant publicity, the federal budget process requires of permanent or longer-term tax expenditures. Overall, corporate welfare will cost the federal government at least $154 billion in 2013 through 135 individual provisions in the tax code. [6]

Other corporate tax breaks in the “fiscal cliff” legislation include:

  • $11 billion for corporations such as GE, Citicorp, and Ford on overseas earnings
  • $430 million for Hollywood producers for filming in the US
  • $331 million for railroads for track maintenance

So, take with a big grain of salt all the talk about deficit reduction. Corporate welfare continues unabated while deficit reduction is used as an axe to cut government programs, many focused on helping low and middle income families. And take with a big grain of salt the talk about the need to cut Medicare and Medicaid spending when big giveaways to Amgen and other pharmaceutical corporations are costing these programs billions of dollars every year.

[1]       Coalition on Human Needs, 3/22/13, “Sequester Impact,” http://www.chn.org/wp-content/uploads/2013/03/sequester-impact-mar-13-21.pdf

[2]       Rowland, C., 3/17/13, “Tax lobbyists help businesses reap windfalls,” The Boston Globe

[3]       Rowland, C., 3/17/13, see above

[4]       Moyers, B., & Winship, M., 1/25/13, “Foul play in the Senate,” Common Dreams

[5]       Lipton, E., & Sack, K., 1/20/13, “Fiscal cliff bill benefits Amgen,” The New York Times

[6]       Rowland, C., 3/17/13, see above

A HIATUS IN BLOGGING

I apologize for the hiatus in my blogging. My professional life has been very busy; I’m teaching two college courses right now. And nothing has slowed down in my personal life, so I haven’t found the time to keep blogging.

As I’m sure you know, it isn’t for the lack of material. With the automatic budget cuts (the sequester) quickly approaching and partisan politics unabated in Washington, there’s plenty I’d like to be blogging about.

Hopefully, in March I’ll be able to return to at least a weekly blog post. I’m looking forward to it; I hope you are as well.

CUTTING SPENDING TO REDUCE THE DEFICIT Part 2

ABSTRACT: Medicare and Medicaid do present significant funding challenges. This is because they reflect the costs of our health care system, which spends 2 ½ times what other advanced economies spend on average – and our health outcomes are worse. Obamacare takes initial steps to make our whole health care system more cost effective. One proposal to save money in Medicare is to raise the age at which one is eligible for coverage from 65 to say 67. This would save only $13 billion per year over 10 years and would only shift the cost for health insurance somewhere else.

Cuts to Medicaid mean that fewer low income individuals, primarily low income children and seniors, would have health insurance.

It is unfair and unnecessary to cut services and benefits for low income families and seniors when other options for reducing the deficit are available.

FULL POST: Medicare and Medicaid do present significant funding challenges. This is because they reflect the costs of our health care system, which spends over $7,500 per person per year. This is 2 ½ times what other advanced economies spend on average – and our health outcomes are worse. (See post of 12/9/11 for more details.)

The real issue is the need to make our whole health care system more cost effective. Obamacare takes initial steps to do just that. It includes cuts in payments to Medicare health insurers and health care providers of $700 billion, requiring them to be more efficient, but not cutting any benefits to seniors. Nonetheless, during the 2012 campaigns, Republicans attacked this as a cut to Medicare, despite the fact that their Vice Presidential candidate, Paul Ryan, the chairman of the House Budget Committee, had included these cuts in his budget the previous two years. Ironically, Republicans have also taken steps to eliminate the cost control board created by Obamacare that is charged with limiting the growth of Medicare spending. [1]

President Obama has continued his efforts to reduce Medicare costs by proposing giving Medicare the right to negotiate with drug makers for lower prices. [2] The Veterans Administration and large health insurers already do this and save significant amounts of money, but President Bush’s Medicare drug benefit prohibited Medicare from doing so, providing a windfall to the pharmaceutical corporations.

Another proposal to save money in Medicare is to raise the age at which one is eligible for coverage from 65 to say 67 and increase premiums for high income recipients. The Congressional Budget Office reviewed these proposals and concluded that they would save only $13 billion per year over 10 years. Moreover, increasing the eligibility age would only shift the cost for health insurance somewhere else and would leave some people without health insurance.

Cuts to Medicaid mean that fewer low income individuals would have health insurance or that their benefits would be cut. Medicaid beneficiaries are primarily low income children and seniors, with Medicaid paying for many seniors’ nursing home care. An expansion of Medicaid is an essential part of reducing the number of Americans without health insurance under Obamacare.

It is unfair and unnecessary to cut services and benefits for low income families and seniors when other options for reducing the deficit are available. Despite our riches, the US is less generous in its benefits for seniors and low income families than other countries with advanced economies. Surely, we can find the will and a way to maintain, if not improve, our benefits for these members of our society.

[1]       New York Times editorial, 11/18/12,  “A bad idea resurfaces,” The New York Times

[2]       Krugman, P., 12/3/12,“The GOP’s big budget mumble,” The New York Times

CUTTING SPENDING TO REDUCE THE DEFICIT

ABSTRACT: A deal was reached to address the year-end “fiscal cliff” or austerity crisis. Spending cuts were postponed for two months and most of the tax increases were eliminated, while some tax and revenue increases were enacted. The deficit reduction focus will now largely shift to spending cuts. We should be focusing on job creation and strengthening the economy, but somehow the deficit is the hot topic.

 The discussion of spending cuts will probably focus on the military and on entitlement programs, specifically Social Security and the health care programs, Medicare and Medicaid. Much of the discussion of cutting military spending will be on avoiding cuts. However, military spending can be reduced up to $200 billion per year – without jeopardizing national security.

 Turning to calls for cuts in Social Security and our public sector health programs, keep in mind that every other advanced economy has health care for all and a retirement support system. Social Security has its own funding stream and does not contribute to the deficit, so rationally it shouldn’t be part of this discussion. Ideologues are using the deficit issue to target Social Security because of their doctrinaire opposition to it. Minor changes to its funding would cover benefits for the next 75 years.

 My next post will review proposed cuts to Medicare and Medicaid.

 FULL POST: As you probably know, a deal was reached to address the year-end “fiscal cliff” or austerity crisis. Spending cuts were postponed for two months and most of the tax increases were eliminated, while some tax and revenue increases were enacted. The cap on the US government’s debt was not addressed and will be hit in about two months. Here’s a quick summary of what was enacted: [1]

  • Income tax rates on incomes over $400,000 will increase from 35% to 39.6% and some reductions in deductions will start at $250,000 in income, but there is no “Buffett Rule” requiring 30% be paid on incomes over $1 million. The net result is that new revenue from income taxes will be only about $60 billion per year as opposed to up to $450 billion with the rates increased on incomes over $250,000 and the “Buffet Rule”.
  • The Social Security payroll tax reduction was NOT extended, so all workers will have an additional 2% taken out of their paychecks on earnings up to $110,000.
  • Tax benefits for low income households were extended: a child credit and the Earned Income Tax Credit, which supplements income from low paying jobs. The tuition credit was extended as was the corporate research and development credit. The Alternative Minimum Tax, which originally was to function like the “Buffett Rule”, was adjusted so it won’t affect middle income taxpayers.
  • Unemployment benefits for the long-term unemployed were extended for a year.
  • The estate tax was increased slightly but not nearly as much as some had proposed and only on individual estates of over $5 million or joint estates of over $10 million.

The deficit reduction focus will now largely shift to spending cuts. We should be focusing on job creation and strengthening the economy, given high unemployment and slow economic growth, but somehow the deficit is the hot topic. As the current experience in Europe is clearly showing, cutting government spending weakens the economy and job growth and can put countries back into a recession.

Having said that, the discussion of spending cuts will probably focus on the military and on entitlement programs, specifically Social Security and the health care programs, Medicare (for seniors) and Medicaid (for low income people including low income seniors).

Unfortunately, much of the discussion of cutting military spending will be on avoiding cuts, including the $50 billion per year cut that is now scheduled for March 1. Military spending can be reduced this much and more – up to $200 billion per year – without jeopardizing national security. (See blog posts of 9/29/12 and 11/17/11 for more information.) For example, Lawrence Korb, an assistant defense secretary under President Reagan, has itemized $150 billion in annual cuts to the military budget. [2]

In the recently enacted $633 billion Defense Department spending bill, there was widespread criticism of inclusion of unnecessary spending. The dollar amount was more than the Department or President requested.  The Pentagon complained that it is required to keep weapons, as well as bases and units, that are not needed or efficient. Defense Secretary Panetta decried meddling by Congress that required “excess force structure and infrastructure.” [3][4]

Turning to calls for cuts in Social Security and our public sector health programs, keep in mind that every other advanced economy has health care for all and a retirement support system. So the issue is not whether it is possible to have these programs, it is are we willing to pay for them and are we willing to control health care costs.

Social Security has its own funding stream and does not contribute to the deficit, so rationally it shouldn’t be part of this discussion. Ideologues are using the deficit issue to target Social Security because of their doctrinaire opposition to it. Furthermore, its current funding will cover its benefits for roughly the next 20 years and after that minor changes to its funding would cover benefits for the next 75 years without any cuts in benefits. (See post of 12/4/11 for more details.)

The most prominent proposal for cutting Social Security spending is to reduce the annual increase in benefits that adjusts for inflation. This would save less than $20 billion per year over 10 years. [5] Ask any senior you know if the inflation adjustment is sufficient to keep up with their cost of living and I bet they’ll say, “No.” So cutting this will only hurt our seniors and reduce Social Security’s ability to keep seniors out of poverty. Furthermore, Social Security has become an increasingly important part of retirement income as private sector pensions have largely disappeared; cutting its rather modest benefits seems inappropriate in this environment.

My next post will review proposed cuts to Medicare and Medicaid.

[1]       New York Times, 1/1/13, “Highlights of the agreement,” The Boston Globe

[2]       Dubose, L., 11/15/12, Book review of Ralph Nader’s “The seventeen solutions: Bold ideas for our American future,” The Washington Spectator

[3]       Bender, B., 1/5/13, “A reprieve for local military bases: New Congressional funding flouts Pentagon’s plan for cutbacks,” The Boston Globe

[4]       Boston Globe Political Notebook, 12/21/12, “House approves defense bill despite Pentagon objections,” The Boston Globe

[5]       Krugman, P., 12/3/12, “The GOP’s big budget mumble,” The New York Times

REBUTTING ARGUMENTS AGAINST INCREASING INCOME TAXES ON THE WEALTHY

ABSTRACT: The Bush tax cuts, and the even larger cuts in the income tax rates for high incomes over the last 30 years, have contributed to creating the federal government’s deficit (see post of 12/22/12) and to dramatically widening income and wealth inequality in the U.S. There has been a dramatic shift of the tax burden from the well-off and corporations to middle and lower income households. This shift in the tax burden has contributed to stagnant incomes for middle and lower income earners while incomes at the top have skyrocketed.

 Despite the Republican rhetoric that high income individuals are “job creators,” the fact is that increased income for them is far less effective in stimulating job growth than increased incomes for low and middle income individuals. There is strong evidence, from multiple perspectives, that increasing taxes on the wealthy and redirecting the funds to productive investments or to lower income individuals, for example through unemployment benefits, will benefit the economy and job creation. It would also reduce inequality and address a root cause of the deficit.

FULL POST: The Bush tax cuts, and the even larger cuts in the income tax rates for high incomes over the last 30 years, have contributed to creating the federal government’s deficit (see post of 12/22/12) and to dramatically widening income and wealth inequality in the U.S., which are at their highest levels since the 1930s.

The 400 richest individuals in the US, as identified by Forbes magazine, have pocketed $1.3 trillion because of the Bush tax cuts. The best estimates are that these individuals actually pay only about 18% of their income in taxes, while their predecessors in 1960 paid more than 70%. Not only have their tax rates fallen dramatically (from 91% in 1960 and 70% in 1980 to 35% today [see 11/27/11 post for more detail]), but their increased use of offshore tax havens and other tax reduction strategies has further reduced the taxes they actually pay. For example, the tax return Mitt Romney released shows that he, and presumably his partners at Bain Capital, reported their management fees as capital gains rather than earned income. Assuming they all did, they saved an estimated $200 million on income taxes and another $20 million on the Medicare payroll tax. [1] Also since the 1960s, corporate taxes have fallen from over 27% of federal government revenue to about 10% today. [2]

These reductions in government revenue from high income individuals and corporations have dramatically shifted the tax burden from them to middle and lower income households at the federal, state, and local levels. This shift to regressive revenue sources [3] includes flat rate payroll taxes (i.e., Social Security and Medicare), and in the case of Social Security a cap so that no tax is paid on earnings over $110,000. It also includes most state and local revenue sources, such as sales and excise (e.g., cigarette, alcohol, and car) taxes; flat rate state income taxes; and state revenue from gambling (i.e., lotteries and casinos), all of which are quite regressive. [4] This shift in the tax burden has contributed to stagnant incomes for middle and lower income earners while incomes at the top have skyrocketed. [5] (See my post of 11/13/11 for more detail.) Both fairness and reversing causes of the deficit would argue for increased income tax rates on high incomes.

Despite the Republican rhetoric that high income individuals are “job creators,” the fact is that increased income for them is far less effective in stimulating job growth than increased incomes for middle and low income individuals. The US economy is driven by consumer spending; it’s 70% of our Gross Domestic Product (GDP), a measure of overall economic activity. The lower an individual’s income, the more likely he or she is to spend any additional income to buy goods and services in the local economy. On the other hand, the wealthy are more likely to save additional income or to spend or invest it outside of the US. Furthermore, they are much more likely than the less well-off to use the money for speculative rather than productive investments. Speculative investments do not help the economy or create jobs; they actually harm the economy by increasing prices for consumer goods (e.g., food and gasoline [see my post of 3/5/12]) and by contributing to speculative bubbles (e.g., Internet stocks and mortgage investments) that eventually burst and harm the economy.

Republicans have opposed an increase in the tax rate on high incomes, claiming it will hurt small businesses. But only about 2 – 3% of “small businesses” would be affected and many of these aren’t really small or aren’t businesses at all. Republicans also claim that such a tax increase would hurt the economy and job creation, but “yearly gains in employment, GDP growth, and small business job growth were all greater after the Clinton tax hikes of 1993 than after the Bush tax cuts of 2001.” [6]

In summary, there is strong evidence, from multiple perspectives, that increasing taxes on the wealthy and redirecting the funds to productive investments (such as infrastructure building) or to lower income individuals (who will spend it in their local economies), for example through unemployment benefits, will benefit the economy and job creation. [7] It would also reduce inequality and address a root cause of the deficit.

In my next posts, I’ll take a look at cutting the deficit through spending cuts, the spending cuts in the austerity package, and alternatives to them.

[1]       Peters, C. Nov./Dec. issue, “The Bain of my existence,” Washington Monthly

[2]       Van Gelder, S., 12/8/12, “4 ways to leap the ‘fiscal cliff’ to a better USA,” YES! Magazine

[3]       Regressive revenue sources place a greater burden, relative to one’s ability to forego the income, on middle and lower income households than on higher income individuals.

[4]       Jacoby, J., 12/9/12, “Biggest lottery winner? That’d be the Treasury,” The Boston Globe

[5]       Appelbaum, B., & Gebeloff, R., 11/29/12, “Tax burden is lower for most Americans than in the 1980s,” The New York Times

[6]       Lehigh, S., 12/14/12, “Points of clarity through the fiscal cliff fog,” The Boston Globe

[7]       Judis, J.B., 12/12/12, “Rein in the rich: How higher taxes could lift the economy,” The New Republic

INCREASING REVENUE TO CUT THE DEFICIT

ABSTRACT: Increased revenue needs to be part of the effort to reduce the federal government’s budget deficit. Two revenue sources that are not included in the austerity package are closing corporate tax loopholes and enacting a financial transactions tax. They could eliminate over half the deficit with little negative impact on the economy.

 The highest profile revenue issue in the austerity package is the personal income tax. Given that the 2001 – 2003 tax cuts on earned and unearned income were significant contributors to creating the deficit, reversing them for high income individuals would seem appropriate. Maintaining the Bush tax cuts on high incomes would cost up to $160 billion per year in lost revenue. Alternatively, using these funds on high impact spending will reduce the deficit over the long-term while strengthening the economy and creating jobs in the short-term.

FULL POST: Increased revenue needs to be part of the effort to reduce the federal government’s budget deficit. However, the increased or new taxes that produce the revenue should not be so large or so quickly implemented that they put the economy back into recession. Here’s a look at the revenue increases that are part of the current austerity package (aka the “fiscal cliff”), some of the negotiations that have occurred on them, and some alternatives that are not included in the package.

First, two revenue sources that are not included in the austerity package are closing corporate tax loopholes and enacting a financial transactions tax (as 10 European countries are doing). These could provide $250 billion and $350 – $500 billion annually, respectively, in new revenue, and eliminate over half the deficit with little negative impact on the economy. (See my post of 9/29/12 for more detail.) An alternative minimum tax for highly profitable corporations that would ensure that they pay a minimum tax rate – similar to the Buffet Tax proposal for high income individuals – would seem quite reasonable. Roughly a quarter of our large and profitable corporations pay NO federal income tax despite multi-billion dollar annual profits. (See my post of 11/5/11 for more detail.) Google, for example, avoided paying $2 billion in taxes in 2011 by funneling profits to overseas shell companies. [1]

The highest profile revenue issue in the austerity package is the personal income tax. The tax cuts enacted by President Bush in 2001 and 2003 are scheduled to expire. President Obama originally proposed letting the cuts expire on income over $250,000 per year, but keeping the cuts on income under that amount. The Republicans proposed a $1 million cut off and Obama has countered with a $400,000 cut off. As the cut off gets higher, the amount of revenue (and deficit reduction) is reduced. The difference between a $250,000 and a $400,000 cut off is estimated to be $40 billion per year in revenue (i.e., $160 billion versus $120 billion in increased revenue).

Expiration means the tax rate on upper incomes would increase from the current 35% to 39.6%, the rate that was in place in the late 1990s. (Note that for an individual with $20 million in taxable income, the Bush tax cuts of 2001 – 2003 have put roughly $1 million in their pockets each year for the last 10 years.) In addition, increasing the tax rate on unearned income – capital gains, dividends, and interest – back to 1990s rates is another hot topic. Given that the 2001 – 2003 tax cuts on earned and unearned income were significant contributors to creating the deficit, reversing them for high income individuals would seem appropriate.

The bottom line is that maintaining the Bush tax cuts on high incomes would cost up to $160 billion per year in lost revenue. Alternatively, using these funds on high impact spending, such as infrastructure investments or unemployment benefits, would generate an estimated net gain of 1.2 million to 1.5 million jobs and add 1.0% to 1.5% to economic growth. The growth in jobs and the economy will, in and of itself, reduce the deficit because taxes and revenue grow when the economy grows. Therefore, this approach will reduce the deficit over the long-term while strengthening the economy and creating jobs in the short-term. The only revenue increase in the austerity package that has a greater positive effect on jobs and the economy than letting the tax cuts on high incomes expire is terminating the cuts in the estate and gift taxes. [2]

In my next post, I’ll review the arguments against raising tax rates on high income individuals. In subsequent posts, I’ll take a look at cutting the deficit through spending cuts, the spending cuts in the austerity package, and alternatives to them.

[1]       Brown, C., 12/13/12, “Google on ‘immoral’ tax evasion: ‘It’s capitalism’,” Common Dreams

[2]       Bivens, J., & Fieldhouse, A., 9/18/12, “A fiscal obstacle course, not a cliff,” Economic Policy Institute

STOP THE GUN MASSACRES

ABSTRACT: Gun massacres must stop. We must enact sensible gun laws. Automatic weapons with magazines that hold over a dozen bullets turn tragic murder into horrifying massacre. Sensible gun laws would make a difference; they lead to much lower gun violence in other countries, and the federal assault weapon ban made a difference in the 10 years it was in effect.

The profits of gun and ammunition makers are at stake. The right to bear arms the framers of our Constitution had in mind was not unfettered access to weapons that fire a dozen bullets per second.

We must seize this moment to loudly and collectively demand that our elected leaders enact strong, sensible gun laws (detail below). To take action, start by going to the White House petitions site (https://petitions.whitehouse.gov/petitions). Find a petition calling for action on gun laws and sign it.

FULL POST: Gun massacres must stop. We must enact sensible gun laws. Yes, guns don’t kill people, people kill people. But automatic weapons with magazines that hold over a dozen bullets turn tragic murder into horrifying massacre. There is no reason anyone other than law enforcement or military personnel should have automatic weapons with high capacity magazines. The federal bans on assault weapons and high capacity magazines that were in place from 1994 to 2004 need to be reinstated.

Why is getting a driver’s license so much more rigorous than getting a gun, including an automatic? With over 4 times as many civilians murdered each year with guns (over 12,000) as died in the September 11 attacks, why do we do so much to prevent terrorism and so little to prevent gun violence? Why do we allow gun homicides in the US at almost 20 times the rate in similar countries with similar overall crime and violence rates? [1]

Sensible gun laws would make a difference; they lead to much lower gun violence in other countries and the federal assault weapon ban made a difference in the 10 years it was in effect. In the struggle for sensible gun laws, remember that the profits of gun and ammunition makers are at stake. They support loose gun laws and the National Rifle Association so they can maximize their profits.

The right to bear arms (as part of a well regulated militia) that is in the second amendment to the Constitution was written when guns were muzzle loaders and the time per bullet – to reload and fire again – was measured in minutes. Today we measure the number of bullets fired per second. The right to bear arms the framers of our Constitution had in mind was not unfettered access to weapons that fire a dozen bullets per second.

We must seize this moment to loudly and collectively demand that our elected leaders – our President and Members of Congress, our Governors and State Legislators – enact strong, sensible gun laws including 1) a ban on assault weapons and high capacity magazines, 2) limits on the number of guns and amount of ammunition an individual can buy, 3) reasonable requirements for obtaining a gun license, and 4) strong background check requirements for all gun purchases. In addition, the penalties for violating gun laws should be tough; any gun or ammunition seller who violates the law and allows an individual to obtain guns or ammunition illegally should be treated as an accomplice to murder, under criminal and civil law.

To take action, start by going to the White House petitions site (https://petitions.whitehouse.gov/petitions). Find a petition calling for action on gun laws and sign it. (If you don’t already have an account you will need to go through the quick process of obtaining one.) There are multiple petitions on the firearms issue, which you can scroll down to find or select the “Filter by issue” button and select “Firearms”. I urge you to sign at least one and as many as you support if you have the time. This will send a strong signal of support for this issue. The two I’d suggest starting with are:

  • “Immediately address the issue of gun control through the introduction of legislation in Congress” (http://wh.gov/RN6U). It already has over 100,000 signers; please add your voice.
  • “Today IS the day: Sponsor strict gun control laws in the wake of the CT school massacre” (http://wh.gov/RRkn). It has over 19,000 signers and you can add your support.

Also, call, email, and / or write your federal and state elected officials and demand gun laws that will end the massacres now. Participate in local or on-line actions to express your support for sensible gun laws.

It’s past time to take serious steps to reduce and hopefully eventually eliminate the occurrence of gun massacres. We must insist that our elected officials pass sensible gun laws.

[1]       Brady Center to Prevent Gun Violence, retrieved 12/15/12, “Facts: Gun violence,” www.bradycampaign.org/facts/gunviolence

A MANUFACTURED AUSTERITY CRISIS, NOT A FISCAL CLIFF

ABSTRACT: The so-called fiscal cliff you’ve been hearing so much about is actually a manufactured austerity crisis. There is widespread agreement that if nothing is changed by or relatively soon after December 31 that our economy is extremely likely to fall into a recession and unemployment is likely to increase to over 9%, an increase of between 1% and 1.5%.

 

The federal government’s deficit does need to be addressed, but doing so precipitously and in the wrong ways will hurt the economic recovery. The immediate problems are not the government deficit, but the lack of jobs, particularly middle class jobs, and the lack of consumer spending, which represents two-thirds of our economic activity. We should use strategies for addressing the deficit that minimize negative effects on jobs and the economy, and phase them in over time to reduce their impact on our weak economy.

 The austerity package bundles together a variety of measures that are largely unrelated. Addressing these complex issues individually and with time for thoughtful consideration would make more sense than doing so in a bundle under severe time constraints. The austerity package’s cuts to social programs would be 8.4% across the board, with a few programs exempted. These cuts would have very significant negative effects on low income families and on education.

FULL POST: The so-called fiscal cliff you’ve been hearing so much about is actually a manufactured austerity crisis. [1] Congress and the President agreed on this package of spending cuts and tax increases (which take effect on December 31) because the Republicans demanded it in exchange for their votes to increase the federal government’s debt cap back in August 2011. As you may remember, they pushed the government to the brink of default – which hurt its credit rating and the economy – in order to extract these austerity measures. (By the way, I believe this brinksmanship and the harm it caused is incredibly UNpatriotic; but that’s a separate discussion.) A Congressional “Super-committee” was created to find alternative ways to reduce the deficit but was unable to come to a consensus recommendation, so we are left with this “fiscal cliff.” However, the effects of the austerity package would occur over time, so it is actually more of a “slope” than a “cliff.” [2]

There is widespread agreement that if nothing is changed by or relatively soon after December 31 that our economy is extremely likely to fall into a recession and unemployment is likely to increase to over 9%, an increase of between 1% and 1.5%. The roughly $100 billion per year in spending cuts and $350 billion in annual tax increases would reduce the deficit from about $1 trillion per year to about $600 billion. But taking this $400 billion out of the country’s economic activity would almost certainly turn slow economic growth into a recession. (See my post, The “Fiscal Cliff” and the Economy of 9/19/12 for more details.) As we’ve seen in Europe, austerity measures have pushed Greece, Spain, and Britain into a recession and the whole Eurozone is teetering on the edge of recession.

The federal government’s deficit does need to be addressed, but doing so precipitously and in the wrong ways will hurt the economic recovery. The immediate problems are not the government deficit, but the lack of jobs, particularly middle class jobs, and the lack of consumer spending, which represents two-thirds of our economic activity. [3] In addressing the deficit, we should use strategies that minimize negative effects on jobs and the economy. (See my post, Addressing the Deficit on 9/29/12 for four specific policy changes that would eliminate the roughly $1 trillion per year deficit with minimal impact on jobs and the economy.) Furthermore, spending cuts and increased tax revenue should be phased in over time to reduce their impact on our weak economy. [4]

The austerity package bundles together a variety of measures that are largely unrelated other than they have some impact on the federal government’s revenue or spending; although some actually have no impact on the deficit. Therefore, some view this “fiscal cliff’ as more of a “fiscal obstacle course.” [5] Major changes to both the personal and corporate tax codes are included, as well as significant changes to spending on a wide range of government programs from defense to social programs. Addressing these complex issues individually and with time for thoughtful consideration would make more sense than doing so in a bundle under severe time constraints.

In addition to the expiration of the Bush tax cuts, which expire for all income levels in the austerity package, other benefits for middle and low income households are scheduled to expire as well. These include:

  • Unemployment benefit extensions beyond the traditional 26 weeks (2 million individuals would lose benefits in December and another 1 million in April)
  • The reduction in the Social Security and Medicare payroll tax (by 2% of pay, which puts about $1,000 a year in the average worker’s pocket)
  • An enhancement to the Child Care Tax Credit
  • The expansion of the Earned Income Tax Credit, which augments incomes of low income workers
  • An exemption from income tax on mortgage debt that is forgiven

The austerity package’s spending cuts come 50% from the military and 50% from social programs. Many members of Congress oppose the cuts to the military. However, there are strong arguments for cutting military spending: 1) it has more than doubled (to $733 billion per year) since 2001, 2) we are winding down the wars in Iraq and Afghanistan, 3) we have far and away the largest military budget in the world, and 4) it’s widely acknowledged that there is significant waste in the military budget. Furthermore, military spending is not an efficient way to create jobs and at 58% of the federal government’s discretionary spending, it would be difficult and unfair to significantly reduce spending without cutting the military budget. (See posts of 9/29/12 and 11/17/11 for more details.)

The austerity package’s cuts to social programs would be 8.4% across the board, with a few programs exempted, such as Medicaid and the Children’s Health Insurance Program. These cuts would have very significant negative effects on low income families and on education. It is estimated that: [6]

  • 75,000 3 and 4 year old, disadvantaged children would lose the enriched preschool services of Head Start;
  • 25,000 young children would lose subsidies for early care and education (aka child care);
  • 16,000 teachers and other school staff would lose their jobs;
  • 460,000 students would lose special education services and 12,500 special education staff would lose their jobs;
  • 20,000 youth would lose job training;
  • 734,000 households would lose heating (or cooling) assistance;
  • Community health centers would lose $55 million; and
  • 1.3 million college students would lose tuition support.

If cuts to military spending are reduced, but overall spending reductions are maintained, cuts to social programs would be even more severe.

In my next two posts, I’ll discuss reducing the deficit through alternatives to the current austerity package, including reviewing various alternative proposals that have been put forth. I’ll focus first on options for increasing revenue and second on options for cutting spending.

[1]       Klein, E., 11/28/12, “It’s not a fiscal cliff, it’s an austerity crisis,” Bloomberg

[2]       Stone, C., 9/24/12, “Misguided ‘fiscal cliff’ fears pose challenges to productive budget negotiations. Failure to extend tax cuts before January will not plunge economy into immediate recession,” Center on Budget and Policy Priorities

[3]       Krugman, P., 11/12/12, “On deficit hawks and hypocrites,” The New York Times

[4]       Woolhouse, M., 11/19/12, “Phase in deficit cuts, economists say,” The Boston Globe

[5]       Bivens, J., & Fieldhouse, A., 9/18/12, “A fiscal obstacle course, not a cliff,” Economic Policy Institute

[6]       Every Child Matters Education Fund, 11/16/12, “The pending threat of Congressional actions to children’s safety net programs,” Every Child Matters, http://everychildmatters.org

IRRATIONAL EXTREMISM BLOCKS PROGRESS

ABSTRACT: The irrational extremism associated with the Tea Party faction of the Republican Party has just blocked progress for disabled people around the world by defeating ratification of a treaty. Radical Republicans used scare tactics and lies to defeat it. They ignored the support of 61 Senators including John McCain, of former President G. W. Bush, of every veterans group in America, and of former Senator Dole, who came to the Senate chamber to support the treaty in a wheelchair as an 89 year old, disabled veteran, and former Republican Presidential nominee. They ignored the fact that it would improve opportunities for 4.5 million children worldwide who don’t attend school because they are blind.

This is an example of how a small number of extremists in Congress is blocking progress for millions of people in the U.S. – and around the world.

FULL POST: The irrational extremism associated with the Tea Party faction of the Republican Party has just blocked progress for disabled people around the world by defeating ratification of a treaty. The treaty, the United Nations Convention on the Rights of Persons with Disabilities, is:

  • Based on the Americans with Disabilities Act (ADA) passed 22 years ago.
  • Supported by 61 Senators including John McCain as well as former President G. W. Bush and former Senator Bob Dole.
  • Ratified by 126 other countries.

Despite 61 votesin favor of ratification, radical Republicans used scare tactics and lies to defeat it. (Treaty ratification requires a 2/3s majority or 66 votes.) [1]

Because it is based on the ADA, the U.S. is already basically in compliance. But because it conflicts with Tea Party ideology that views cooperation with the United Nations and other countries as surrendering U.S. sovereignty, arguments were fabricated to defeat it. Tea Party types argued that it would threaten parents and home schooling because it says that disabled children have a right to education, and that it would promote abortion because it says that disabled people have a right to health care including reproductive health. They argued both that the treaty was toothless in forcing other countries to provide access for disabled persons and that it would tie the hands of the U.S. and force unwanted changes here despite the fact that the ADA is already in place. [2]

They ignored the support of every veterans group in America, who viewed it as supporting disabled veterans, and of former Senator Dole, who came to the Senate chamber to support the treaty in a wheelchair as an 89 year old, disabled veteran, and former Republican Presidential nominee. Among other potential treaty benefits, they ignored the fact that it would improve opportunities for 4.5 million children worldwide who don’t attend school because they are blind.

This is an example of how a small number of extremists in Congress is blocking progress for millions of people in the U.S. – and around the world.

[1]       Calvan, B.C., 12/5/12, “Treaty for disabled rights falls short in Senate,” The Boston Globe

[2]       Boston Globe Editorial, 12/6/12, “Tea Party scare tactics doom disabled treaty in the Senate,” The Boston Globe

CAMPAIGN SPENDING: THE FUTURE

ABSTRACT: The huge sums of money in our political system are corrupting it, in subtle and not so subtle ways, and are undermining the promise of democracy of, by, and for the people. We the people need to work to blunt the impact and eventually stop the flow of these huge amounts of money. Steps that could and should be taken include: 1) Legislation at the federal and state levels should be enacted promptly that requires disclosure on a timely basis of all political spending and the sources of the funds; 2) Lobbyists’ contributions to candidates must be severely restricted and perhaps prohibited; 3) Tougher rules and enforcement are needed of the ban on coordination between Super PACs or other groups and candidates’ campaigns; and 4) Ultimately, a Constitutional Amendment is needed to overturn the Supreme Court’s Citizens United decision.

 I urge you to communicate to your elected representatives at the federal and state levels your concern about the corrupting influence of huge amounts of money in our political system. Ask them what remedies they support and encourage them to support the steps listed above.

FULL POST: The huge sums of money in our political system are corrupting it, in subtle and not so subtle ways, and are undermining the promise of democracy of, by, and for the people. Despite the fact that all the outside money and all the advertising it bought were less effective in the 2012 election than was anticipated and than was hoped for by those paying for it, the big spenders learned some valuable lessons. They won’t give up on their efforts to influence and control government and its policy making. They will find more effective ways to use their money and will have substantial impacts in the future. [1] Therefore, we the people need to work to blunt the impact and eventually stop the flow of these huge amounts of money.

First, some of the lessons the big spenders learned:

  • Advertising, and particularly negative advertising, has diminishing returns as the amount of it and repetition of it increases.
  • Grassroots efforts to identify and turn out supporters can have a big impact.
  • Grassroots, person-to-person communications can be more effective than advertising.
  • Untested candidates or ones with extreme positions are more likely to lose.
  • Money can have a bigger impact in less visible, lower cost races.

The less visible, lower cost races include primary, US House of Representatives, and state office races (as opposed to the final Presidential election and final US Senate races). In the Republican Presidential primary, the big money from Super PACs clearly had an effect. Money from the Super PAC supporting Romney deluged state primary elections with negative advertising against whichever competitor was threatening Romney at that point. This clearly allowed Romney to win state primaries he wouldn’t have won otherwise. Huge Super PAC expenditures by extremely rich individuals single-handedly kept Gingrich and Santorum in the primary race longer than they would have been otherwise. [2]

In lower cost races, a given amount of money (e.g., $100,000) is more significant, may overwhelm other campaign spending, and can have a disproportionate impact, especially if spent late in the election period and as a surprise. State office races such as those for Governor, state legislative seats, and elected judges can be dramatically affected by relatively small amounts of money. State ballot initiatives can also be significantly altered by relatively small sums of money.

Given the corrosive effects of huge amounts of money in our political system, a New York Times Editorial stated, “A backlash against the damaging power of big money cannot come too soon.” [3] Steps that could and should be taken include:

  • Legislation at the federal and state levels should be enacted promptly that requires disclosure on a timely basis of all political spending and the sources of the funds. The DISCLOSE Act that has been introduced in Congress is one example. (It was filibustered by Senate Republicans multiple times.) Disclosure must cover all entities engaged in political spending, including non-profit, “social welfare” groups, known as 501(c)(4)s to the IRS.
  • Lobbyists’ contributions to candidates must be severely restricted and perhaps prohibited, especially for an elected official sitting on the legislative committee that oversees the special interest the lobbyist represents. The definition of a lobbyist must be expanded to cover all individuals and entities that work to influence government policies, rules, and regulations. The ability of lobbyists and others to deliver aggregated contributions from multiple individuals or groups, often referred to as “bundling,” and which can occur through fundraising events organized by a lobbyist, should be banned or at least fully disclosed.
  • Tougher rules and enforcement are needed of the ban on coordination between Super PACs or other groups and candidates’ campaigns. The overlap and connections between candidates’ current and former campaign staff and the staff of the supposedly independent groups, and the use of the same consultants, provide clear evidence that these groups are not, in fact, independent. [4]
  • Ultimately, a Constitutional Amendment is needed to overturn the Supreme Court’s Citizens United decision, to make it clear that corporations are not persons with Constitutional rights, that money is not the same as speech, and that corporations and political spending can be regulated.

 I urge you to communicate to your elected representatives at the federal and state levels your concern about the corrupting influence of huge amounts of money in our political system. Ask them what remedies they support and encourage them to support the steps listed above.

[1]       New York Times Editorial, 11/10/12, “A landslide loss for big money,” The New York Times

[2]       Boston Globe Editorial, 11/8/12, “Billionaires: Now, mind your own business(es),” The Boston Globe

[3]       New York Times Editorial, 11/10/12, “A landslide loss for big money,” The New York Times

[4]       Boston Globe Editorial, 9/29/12, “As super PACs link arms, mega-donors’ clout increases,” The Boston Globe

WHY LIMITED SUCCESS FOR CAMPAIGN SPENDING

ABSTRACT: So why were all the outside money and all the advertising it bought less effective than was anticipated in the recent election? First, the great bulk of the outside money was spent on advertising, largely negative advertising. Voters were overwhelmed and simply tuned them out. The advertising lost effectiveness and experienced diminishing returns. Second, the huge amounts of money and advertising drew lots of attention. So fact checkers were very active and the mainstream media became active in covering the money, the advertising, and the fact checking. This gave voters information that may have led them to question or resist the messages of the ads.

Third, the big money and advertising appears to have been less effective than good old fashioned grassroots organizing. Finally, Democratic candidates and messages appear to have resonated better with voters than Republican candidates and messages. Despite the outside money’s lack of success in electing desired candidates, I doubt that it will go away. My next post will examine likely future effects and what can be done to better monitor and control potential negative impacts.

 FULL POST: So why were all the outside money and all the advertising it bought less effective than was anticipated – and than hoped for by those paying for it – in electing specific candidates in the recent election? I think there are four major reasons.

First, the great bulk of the outside money was spent on advertising, largely negative advertising. And it bought lots of ads. But voters know that ads are marketing and hype, and that their goal is often to deceive and obfuscate (especially negative ads) rather than to inform. [1] Also, voters were overwhelmed by the din and repetition of all the ads and simply tuned them out. [2] Advertising markets where the Presidential race or other races were competitive were literally saturated; all the available air time was purchased for political ads. In short, because there was so much advertising, it lost its effectiveness and experienced diminishing returns. [3]

Second, the huge amounts of money and advertising drew lots of attention. So fact checkers were very active in analyzing the accuracy of the ads. And the mainstream media became active in covering the money, the advertising, and the fact checking. This included reporting on who had funded the ads or that the actual funders were veiled in secrecy. This coverage of the ads, their accuracy and their funding, gave voters information that may have led them to question or resist the messages of the ads. Although negative advertising has historically depressed voter turnout, that did not happen in this election. Perhaps there was an actual voter backlash against the negative advertising.

Third, the big money and advertising appears to have been less effective than good old fashioned grassroots organizing – voter outreach, identification, and get out the vote efforts. The ground game appears to have been more effective at producing votes than the airwaves. [4] In addition, efforts to make it harder to vote or to suppress voting appear to have generated a backlash in some places that resulted in high voter turnout that blunted the impact of negative advertising.

Finally, Democratic candidates and messages appear to have resonated better with voters than Republican candidates and messages. The extreme positions and statements of some Republicans, particularly Tea Party types, generally did not sit well with voters, both within their states or districts and beyond. And the advertising blitz could not overcome these differences between the parties.

Despite the outside money’s lack of success in electing desired candidates, it did have significant impacts. (See 11/14/12 post.) I doubt that it will go away, and there are good reasons to be concerned about big money in political campaigns. My next post will examine likely future effects and what can be done to better monitor and control potential negative impacts.

[1]       Carroll, J., 10/29/12, “America’s kidnapped politics,” The Boston Globe

[2]       New York Times Editorial, 11/10/12, “A landslide loss for big money,” The New York Times

[3]       New York Times Editorial, 10/7/12, “The cacophony of money,” The New York Times

[4]      New York Times Editorial, 11/10/12, see above

THE IMPACT OF ALL THE CAMPAIGN SPENDING

ABSTRACT: Roughly $6 billion was spent on the 2012 elections for federal offices. Although complete data isn’t yet available, an unprecedented $1.3 billion plus of this amount was “outside” money. Roughly a quarter of this outside money was “dark” money – money where the actual source of the money cannot be identified. About 80% of the outside money was spent opposing a candidate, typically through negative advertising. And over 70% of the outside money was spent trying to elect Republicans. The big outside money donors are large corporations and very wealthy individuals who have very specific, special interests in government actions that provide them substantial benefits.

Although the deluge of outside money achieved only limited election results, it had other significant, if somewhat more subtle, impacts. First, the great majority of the outside spending was on negative advertising, which changed the tone of the campaigns and demeaned the whole electoral process – candidates, voting, and the role of government. Second, the unlimited contribution amounts increase the influence these contributors have with elected officials; it creates a sense of obligation. Third, candidates had to spend even more of their time than before raising money. Finally, certain issues were not even discussed during the campaign for fear of alienating large donors.

FULL POST: Roughly $6 billion was spent on the 2012 elections for federal offices according to the best estimates; a truly staggering sum. Although complete data isn’t yet available, an unprecedented $1.3 billion plus of this amount was “outside” money, namely spending by entities other than the candidates’ campaigns themselves. And roughly a quarter of this outside money was “dark” money – money where the actual source of the money cannot be identified. [1]

About 80% of the outside money was spent opposing a candidate, typically through negative advertising. And over 70% of the outside money was spent trying to elect Republicans. This Republican advantage in outside money was offset in part by Obama’s and other Democratic candidates’ ability to out raise Republicans in direct contributions to their campaigns (i.e., in “inside” money). [2]

Beyond the general concern about the influence of large amounts of campaign money on candidates and elected officials, these unprecedented levels of outside money raise particular concerns. The outside money comes almost exclusively from large donors (i.e., $100,000, $1,000,000, and multi-million dollar contributions). The outside money donors are large corporations and very wealthy individuals who have very specific, special interests in government actions that provide them substantial benefits.

The good news is that all this outside money didn’t buy successful election results to the extent I and many others thought it would. Clearly, outside money significantly affected the Republican Presidential primary.[3] It also had a notable impact on some Congressional primary races. And presumably the large sums that flowed into competitive Congressional races, particularly in the last few days before the election, did affect the outcome of some of those races. [4] [5]

Although the deluge of outside money achieved only limited election results, it had other significant, if somewhat more subtle, impacts.

First, the great majority of the outside spending was on negative advertising, which changed the tone of the campaigns, particularly in competitive races. This negativity demeaned the whole electoral process – the candidates, voting, and the role of government. The ads were often misleading and sometimes clearly false. This occurred because candidates cannot be held accountable for the ads, given that the outside money is independent and outside of the candidates’ control (at least in theory). [6] The negative advertising forces candidates to spend time and money defending themselves rather than discussing issues. Note that in the Massachusetts Senate race there was very little of the negative advertising that was common elsewhere because the candidates had an enforceable agreement to ban outside spending on advertising.

Second, the unlimited contribution amounts, newly unleashed by the Supreme Court’s Citizens United decision, increase the influence these contributors have with elected officials when they are in office. The big contributions by large corporations (which have far deeper pockets than any of the other players) and very wealthy individuals, create a sense of obligation. [7] For example, Sheldon Adelson and his wife have given over $36 million to Super PACs and unknown tens of millions to non-profit groups that don’t have to report donors. He has a clear policy agenda and makes it known that he views giving to these groups, who then support specific candidates, the same as giving to the candidates directly. [8]

Third, candidates had to spend even more of their time than before raising money. This diverts their time and attention from interacting with voters and discussing issues. [9] The huge amounts of money in general, turn campaigns into an arms race. The unlimited outside spending exacerbates this, requiring candidates to build up huge war chests to be able to counter last minute outside expenditures. [10]

Finally, certain issues and issue options were not even discussed during the campaign for fear of alienating large donors. For example, the issues of global warming and meaningful regulation of the financial industry effectively disappeared from the presidential and many other campaigns. It’s hard to believe that the deep pockets and big campaign spending of companies and executives in the oil, gas, and coal corporations and of those from Wall Street didn’t contribute to the lack of discussion of these issues.

So why were all the spending and all the advertising less effective than was anticipated – and than hoped for by those paying for it – in electing specific candidates? That will be the topic of my next post.

[1]       Schere, M., Elliott, J., & Barker, K., 11/2/12, “Dark money rises,” ProPublica

[2]       Sunlight Foundation, retrieved 11/13/12, “Outside spenders’ return on investment,” http://reporting.sunlightfoundation.com/2012/return_on_investment

[3]       Boston Globe Editorial, 11/8/12, “Billionaires: Now, mind your own business(es),” The Boston Globe

[4]       Calvan, B.C., 11/5/12, “Spending on congressional races soars,” The Boston Globe

[5]       McGinty, J.C., 10/29/12, “Donors make last-minute investments in House races,” The New York Times

[6]       Eggen, D., & Farnam, T.W., 11/8/12, “Spending by independent groups had little election impact, analysis finds,” The Washington Post

[7]       New York Times Editorial, 11/10/12, “A landslide loss for big money,” The New York Times

[8]       Boston Globe Editorial, 9/29/12, “As super PACs link arms, mega-donors’ clout increases,” The Boston Globe

[9]       Eggen, D., & Farnam, T.W., 11/8/12, “Independent groups’ big money had little impact on vote results,” The Boston Globe

[10]    Eggen, D., & Farnam, T.W., 11/8/12, “Spending by independent groups had little election impact, analysis finds,” The Washington Post

THE DEBT, THE ECONOMY, AND THE POLITICAL PARTIES

ABSTRACT: Since 1945, Democratic presidents have on average reduced the federal government’s debt as a percentage of GDP by about 3% while Republican presidents have on average increased it by about 3%. PresidentObama has increased the debt percentage more than any president in this period. However, this is largely due to his inheriting a large deficit and the worst recession since the Great Depression. Other than this, the six largest increases in the debt percentage have occurred in recent Republican presidents’ terms.

Multiple measures of economic performance are better under Democratic presidents than Republican ones. Since 1949, overall economic growth measured by median annual increase in GDP has been 4.2% under Democratic presidents and 2.6% under Republican presidents. Stock market performance since 1913 as measured by the median increase in Standard and Poor’s index of 500 stocks has increased 12.1% under Democratic presidents and 5.1% under Republican presidents. The annual increase in corporate earnings since 1936 has been 10.5% under Democrats and 8.9% under Republicans.

This data certainly shows that Republicans aren’t more fiscally responsible than Democrats; if anything it strongly suggests the opposite. The data also show that Republicans aren’t the party of economic prosperity more so than Democrats.

FULL POST: The historical record of the federal debt and the performance of the economy under Republican and Democratic presidents is interesting to examine.

First, the federal government’s total debt (the total of all the previous annual deficits and surpluses) as a percentage of the overall economy (i.e., the Gross Domestic Product or GDP) is probably the most meaningful statistic about the debt. Since 1945, Democratic presidents have on average reduced the debt’s percentage of GDP by about 3% while Republican presidents have on average increased it by about 3%.

President Obama has increased the debt percentage more than any president in this period. However, this is largely, if not totally, due to his inheriting a large deficit and the worst recession since the Great Depression. Other than this, the six largest increases in the debt percentage have occurred in recent Republican presidents’ terms: George W. Bush’s two terms (with 2005 – 2009 being the worst other than Obama), George H.W. Bush’s term, Ronald Reagan’s two terms, and Gerald Ford’s partial term. The only two terms under Democratic presidents where the debt percentage increased were Harry Truman’s and Bill Clinton’s first terms. Both of them reduced the debt percentage in their second terms significantly more than the increase in their first terms, so overall they both reduced the debt percentage. [1]

Multiple measures of economic performance are better under Democratic presidents than Republican ones. Since 1949, overall economic growth measured by median annual increase in GDP has been 4.2% under Democratic presidents and 2.6% under Republican presidents.

Stock market performance since 1913 as measured by the median increase in Standard and Poor’s index of 500 stocks has increased 12.1% under Democratic presidents and 5.1% under Republican presidents. The annual increase in corporate earnings since 1936 has been 10.5% under Democrats and 8.9% under Republicans. [2]

While a president’s actions have only indirect influences on these measures and a president inherits policies and the state of the economy from his predecessors, this data certainly shows that Republicans aren’t more fiscally responsible than Democrats; if anything it strongly suggests the opposite. The data also show that Republicans aren’t the party of economic prosperity more so than Democrats.

[1]       The Economist, 11/1/12, “The change in America’s debt by presidential term,” www.economist.com/blogs/graphicdetail/2012/11/daily-chart

[2]      Healy, B., 11/2/12, “Taking stock of past races,” The Boston Globe

CANDIDATES’ BUDGET PROPOSALS AND THE DEFICIT

ABSTRACT: Both Presidential candidates, Obama and Romney, have put forward tax and budget proposals that they say will reduce the deficit. Obama’s tax and spending proposals would reduce the deficit by about one quarter. Romney’s proposals cannot be reasonably expected to reduce the deficit. Furthermore, they are likely to increase the deficit and the already high levels of inequality in income and wealth.

FULL POST: Both Presidential candidates, Obama and Romney, have put forward tax and budget proposals that they say will reduce the deficit. Obama has specified tax increases and a cut to military spending that would begin to reduce the deficit. Romney says his tax proposals would be revenue neutral, although he fails to specify how he would offset his tax cuts, and he promises to increase military spending. He asserts that his proposals would produce economic growth that would increase tax revenue and reduce the deficit; however, there is no credible evidence for that assertion. (Note: President G. W. Bush’s tax cuts, increases in military spending, and promises of economic growth that would pay for them are what began the process of turning a federal government surplus into deficits.)

Obama would let the Bush tax cuts on income over $250,000 expire and would also restore or increase taxes on unearned income (i.e., capital gains, dividends, and interest). He has also proposed limiting deductions and exclusions from income, as well as implementing the “Buffett Rule,” so that households with incomes over $1 million would at least pay taxes at the rate that middle class families do. These measures would generate roughly $200 billion per year in additional revenue, reducing the deficit by one-fifth. [1]

Obama has also proposed reducing the $700 billion military budget by about $50 billion per year as the wars in Afghanistan and Iraq wind down. Together, these tax and spending proposals would reduce the deficit by about one quarter.

Romney proposes keeping the Bush tax cuts and further reducing tax rates on earned income by one-fifth. He would maintain even lower tax rates on unearned income than earned income. Overall, these proposals would reduce income tax revenue by about $400 billion per year. Romney says he will make up for the lost revenue by reducing tax deductions and credits, and that the well-off will continue to pay at least the same amount in taxes. He says would do this by limiting total deductions and credits on a tax return to a fixed dollar amount and has mentioned amounts ranging from $17,000 to $50,000. [2]

While it is theoretically possible to achieve the same amount of revenue (i.e., revenue neutrality) under Romney’s proposals, it would be challenging and would require significantly cutting very popular deductions. [3] Four deductions account for 80% of all deductions and credits; in order of size they are the deductions for 1) home mortgage interest, 2) state and local taxes paid, 3) real estate taxes paid, and 4) charitable contributions. If an across the board cut to deductions were used to offset the loss in revenue, Romney would have to cut all these deductions by about one-third. Clearly, this would be unpopular and would also hit the middle class as well as high income families.

Romney has also proposed eliminating the estate tax, while Obama proposes maintaining an estate tax on estates over $3.5 million. Romney has also stated that he will increase the military budget. Here again, Obama’s proposal clearly reduces the deficit and these Romney proposals would clearly increase the deficit. The benefits of eliminating the estate tax, of course, go to wealthy families.

With a backdrop of 30 years of decreasing income tax rates that have seen dramatic increases in income and wealth in our best-off households and middle class families struggling to keep their heads above water, further cuts in tax rates do not seem at all likely to reverse this trend or benefit the middle class. Further, to provide some perspective on Romney’s proposal, looking at the cuts in tax rates alone, a family with taxable income of $100,000 or less, whose tax rate is cut from 25% to 20%, would see a benefit of $5,000 or less. A family with taxable income of $1 million, whose rate is cut from 35% to 28%, would see a benefit of $70,000; and if income is $10 million, a benefit of $700,000. This just doesn’t seem fair, especially on top of the huge tax cuts these high income households have seen over the last 30 years.

In addition, Romney’s proposal maintains lower rates on all unearned income (i.e., capital gains, dividends, and interest), while Obama’s has lower rates only on long-term capital gains (i.e., investments held for over one year). Having lower rates on all unearned income also doesn’t seem fair, especially given that the great bulk of unearned income goes to high income, high wealth households. Moreover, one of Romney’s arguments for lower tax rates is that by letting taxpayers keep more of what they earn, they will be rewarded for working. If we want to reward work, then income tax rates on work, namely earned income, should be lower (not higher) than the rates on non-work (unearned) income.

Finally, Romney’s assertion that cuts in tax rates will spur economic growth does not have any credible evidence. [4] This rationale has been used for the tax rate cuts that have occurred over the last 30 years. The strongest economic growth of the past 30 years (and the only elimination of the federal government’s deficit) occurred under President Clinton when he increased tax rates on high incomes. Furthermore, the rationale for tax cuts spurring growth has been that they put more money in consumers’ pockets and, with consumer spending being two-thirds of our economy, their spending will grow the economy. However, Romney has said his tax cuts will be offset by reducing deductions so that there will be no loss in government revenue or increase in the deficit. Therefore, there is no increase in the money in consumers’ pockets and no increased spending to spur economic growth.

If Romney’s tax cuts are indeed offset by reducing deductions so the result is revenue neutral, and if he lives up to his commitment to cap federal government spending at 20% of the overall economy (i.e., of gross domestic product), which would require significant spending cuts, Romney’s plans are likely to lead to job losses and a recession, not economic growth. Overall, Obama’s budget and tax proposals are highly likely to do more to spur near-term growth in jobs and the economy than Romney’s. [5]

In conclusion, Obama’s tax and budget proposals do take steps that can be reasonably expected to reduce the deficit by about one-quarter. Romney’s proposals cannot be reasonably expected to reduce the deficit. Furthermore, they are likely to increase the deficit and the already high levels of inequality in income and wealth.

[1]       Tax Policy Center, Oct. 2012, “Major tax proposals by President Obama and Governor Romney”

[2]       Wirzbicki, A., & Borchers, C., 10/5/12, “Questions on challenger’s idea to cap tax deductions,” The Boston Globe

[3]       Kranish, M., 9/21/12, “Candidates leave much unsaid on tax plans,” The Boston Globe

[4]       Rowland, C., 10/15/12, “GOP faith unshaken in supply-side tax policies,” The Boston Globe

[5]      Bivens, J., & Fieldhouse, A., 9/26/12, “Who would promote job growth most in the near term?” The Century Foundation

PRIVATIZATION EXAMPLES I

ABSTRACT: Currently, privatization of public sector functions is being looked to to generate badly needed immediate cash. First example: the city of Chicago, desperate for cash to cover a budget shortfall, sold its parking meter revenue for the next 75 years for $1.2 billion. Parking rates in some neighborhoods have quadrupled. The city is prohibited from engaging in any activity that could be competition for the parking meters and has to reimburse the private owners for any lost revenue due to a street closing, a meter being out of commission, and free parking provided to the disabled. Chicago has given up the ability to make decisions about parking for 75 years and appears to have in effect guaranteed substantial profits to the private investors.

Second example: Indiana received $3.8 billion in 2006 from an international consortium in exchange for the right to maintain, operate, and collect tolls for 75 years on 157 miles of Interstate 90. The 400 page lease agreement is indicative of both the thought that went into it and the complexity of such an arrangement.

A danger in these high-value, long-term privatization deals is that sophisticated investors will take advantage of government officials desperate for short-term revenue, who often don’t take the time or have the expertise to perform appropriate, long-term, cost-benefit analyses. Because of their significant impact on the public, any privatization deal should require public hearings, and those with a longer time span than the term of office of the person signing it should require super-majority approval (say 2/3) by the relevant legislative body, while those over 10 years should require a voter referendum with a super-majority (say 2/3) needed for approval.

FULL POST: In my previous post (10/16/12), I provided an overview of privatization of public sector functions and evidence that there’s no guarantee of improved performance. Privatization doesn’t always meet its stated goals of saving taxpayers’ money, improving public services, and/or increasing accountability. It only tends to be successful if there is good oversight and regulation, as well as real competition.

Currently, privatization is being looked to, not for those traditional reasons, but to generate badly needed immediate cash. This is occurring because the public sector is being squeezed by falling revenues (largely due to the recession and in some cases due to tax cuts) and rising costs (generally due to inflation). Here are two examples of privatization to raise immediate cash.

First, in 2009, the city of Chicago, desperate for cash to cover a budget shortfall, sold its parking meter revenue for the next 75 years for $1.2 billion. The private consortium of investors was led by the huge Wall Street financial corporation, Morgan Stanley (one of the companies responsible for the collapse of the financial sector and the recession that contributed to Chicago’s severe budget shortfall).

The deal will allow the private owners to increase parking fees substantially and parking rates in some neighborhoods have quadrupled. [1] It prohibits the city from any activity, such as building a new parking garage, that could be competition for the parking meters. The city has to reimburse the private owners for any lost revenue due to a street closing for repairs or a street festival. If a meter is out of commission for six hours, the city must reimburse the owners for a full day’s worth of revenue. In May 2012, the private owners had billed the city for $50 million for reimbursements for out of service meters and free parking provided to the disabled. [2]

Not only will this deal cost Chicago substantial money for 75 years, it also means it has given up the ability to make decisions about parking and its cost for 75 years. Furthermore, it appears to have in effect guaranteed substantial profits to the private investors, as there is no competition and little risk.

Second, Indiana received $3.8 billion in 2006 from an international consortium in exchange for the right to maintain, operate, and collect tolls for 75 years on 157 miles of Interstate 90 as it crosses Indiana. The 400 page lease agreement has limits on toll increases, requires the state to reimburse the private owners if tolls are waived during an emergency (such as a natural disaster), and covers details such as how quickly the consortium must remove dead animals from the highway. While the length of the agreement is indicative of both the thought that went into it and the complexity of such an arrangement, it is hard to imagine that every issue that could come up in 75 years has been identified.

In the short run, with the economy in recession and traffic down on the highway, it appears that Indiana taxpayers are coming out ahead. Indiana wisely used the funds for investments in infrastructure rather than short-term spending. [3] But it’s only six years into a 75 year lease and lots can happen over that time. For example, if traffic levels don’t increase and the consortium of owners goes into bankruptcy or defaults on their debt, what will happen? Could a bankruptcy court throw out the limits on toll increases?

Experiences with highway privatization in California, Virginia, and San Diego have all had significant problems. These privatization contracts are typically long-term, generally limit competition, and, therefore, result in significant limits on future public decisions and policies. [4]

A danger in these high-value, long-term privatization deals is that sophisticated investors and corporations will take advantage of government officials desperate for short-term revenue, who often don’t take the time or have the expertise to perform appropriate, long-term, cost-benefit analyses. A 75 year commitment clearly goes long beyond the longevity in office of the public officials who make the deal and it’s hard to believe that such a deal can be known to be in the public’s best interest over that time span.

“[P]rivatization can undermine good public policy and democratic decision making. Turning tax dollars and control of public services over to companies whose overriding incentive is to maximize profits can lead to long-term costs and sometimes devastating consequences.” (p. 4) [5]

Because of their significant impact on the public – on public services, on public policy and flexibility, on accountability, and on transparency – I would suggest that any privatization deal should require public hearings before (and after) the fact. Furthermore, those with a longer time span than the term of office of the person signing it should require super-majority approval (say 2/3) by the relevant legislative body. Privatization contracts of over 10 years should require a voter referendum with a super-majority (say 2/3) needed for approval.

[1]       Rusnak, K., retrieved 10/21/12, “Privatization plans lack long-term focus,” economyincrisis.org/content//privatization-plans-lack-long-term-focus

[2]       People for the American Way, retrieved 7/31/12, “Predatory privatization: Exploiting financial hardship, enriching the 1 percent, undermining democracy,” http://www.pfaw.org

[3]       Daniels, M., 5/10/12, “Indiana didn’t ‘sell’ its toll road,” The Washington Post

[4]       Dannin, E., 3/15/11, “The toll road to serfdom,” American Constitution Society (www.acslaw.org/acsblog/node/18553)

[5]      People for the American Way, retrieved 7/31/12,, see above

AN OVERVIEW OF PRIVATIZATION

ABSTRACT: Privatization of public services or “outsourcing” has been promoted for decades as a way to save taxpayers money, improve public services, and increase public sector accountability. A resurgence is occurring as the public sector is being squeezed by falling revenues and rising costs. In this environment, privatization is often looked to to generate badly needed cash immediately. As a result, privatization is big business these days.

As background for a detailed look at current privatization activity, municipal level privatization has been used significantly and studied quite extensively, especially for water and sewer systems and for solid waste collection and disposal. From 1997 – 2002, more services were brought back in house or deprivatized than were outsourced. Services were deprivatized because of unsatisfactory results. Most studies of water, sewer, and solid waste privatization (21 of 35) found no cost or efficiency difference between public or private delivery. The other 14 studies were split.

Competition and careful monitoring are required to obtain benefits from privatization and to ensure that profit maximization doesn’t result in a loss of quality. A review of privatization by The Century Foundation [1] states that “public monopoly or government regulation is a more effective approach to ensuring efficient service delivery than privatization or deregulation.”

The delivery of public services must incorporate the fact that citizens are more than consumers. They frequently want to be engaged and have a voice. Public services are not just part of a market but part of a community.

FULL POST: Privatization of public services or “outsourcing” has been promoted for decades as a way to save taxpayers money, improve public services, and increase public sector accountability. A resurgence is occurring as the public sector is being squeezed by falling revenues and rising costs, much of which are due to inflation. In this environment, privatization is often looked to not for the traditional reasons of saving money or improving services and accountability, but to generate badly needed cash immediately. In this environment, privatization of public assets (e.g., buildings, parking facilities, roads, and land), which has been used in the past to cover short-term cash problems, has taken on new importance.

The privatization resurgence is bolstered by rhetoric from the right, which favors smaller government, and by lobbying from corporations, which are always looking for new ways to make profits.

As a result, privatization is big business these days. Wall Street firms and the big management consulting companies have public sector or public private partnership business divisions to pursue privatization deals. Financial corporations are setting up “Infrastructure Funds” that create pools of money to buy privatization deals as investments. Over $100 billion is available to Infrastructure Funds run by large financial corporations such as Goldman Sachs and JPMorgan Chase.

As background for a detailed look at current privatization activity, municipal level privatization has been used significantly since the 1960s and surged in the 1990s. It has been studied quite extensively, especially for water and sewer systems and for solid waste collection and disposal. These studies have tracked privatization, the contracting out of services, and deprivatization, the bringing of services back in house into the public sector. An overall review of privatization of 67 basic local services with a focus on water, sewer, and waste services was conducted by The Century Foundation. [2]

Up until 1997, privatization of water, sewer, and waste services was growing, but from 1997 – 2002 more services were brought back in house or deprivatized than were outsourced. The reasons for deprivatization were tracked. In 2002, among 245 cases of deprivatization the following reasons were given, including multiple reasons in many cases:

  • Service quality not satisfactory                                            73% of cases
  • Cost savings insufficient                                                       51%
  • In house efficiency improved                                               36%
  • Problems with contract monitoring or specifications             35%

In summary, services were deprivatized because of unsatisfactory results. Furthermore, despite the fact the privatization is promoted as reducing costs and saving taxpayers money, most studies of water, sewer, and solid waste privatization (21 of 35) found no cost or efficiency difference between public or private delivery. The other 14 studies were split with 9 of the 35 finding private delivery cheaper or more efficient and 5 finding public delivery cheaper or more efficient.

The Century Foundation report notes that competition and careful monitoring are required to obtain benefits from privatization and to ensure that profit maximization doesn’t result in a loss of quality. However, it noted that in many cases, such as water and sewer services, there was no competition and privatization merely substituted a private monopoly for a public one. The report states that “public monopoly or government regulation is a more effective approach to ensuring efficient service delivery than privatization or deregulation.” (page 12)

The delivery of public services, even when privatized, must incorporate the fact that citizens are more than consumers. They frequently want to be engaged and have a voice in what, how, and the quality with which services are delivered. From a citizen’s perspective, more than just efficiency is involved; safety, reliability, transparency, and other values; local control; public accountability; and community identity can all be important. Public services are not just part of a market but part of a community.

Future posts will build on this overview and review specific examples of current and proposed privatization of public services and assets.

[1]       The Century Foundation describes itself as a progressive, non-partisan think tank, founded in 1919. It convenes and promotes the best thinkers and thinking across a range of public policy questions and produces timely and critical analyses of major economic, political, and social institutions and issues.

[2]      Warner, M., 2009, “Local government infrastructure and the false promise of privatization,” The Century Foundation, http://government.cce.cornell.edu/doc/pdf/Warner_2009_TCF.pdf

THE FINANCIAL TRANSACTION TAX

ABSTRACT: A financial transaction tax (FTT) could generate $350 to $500 billion of revenue per year by applying a very low tax rate to financial transactions. The US had a financial transaction tax from 1914 to 1966 and 40 other countries have such a tax. It would not only generate needed revenue, it would also provide a disincentive for high volume, short-term, speculative trading. It has been dubbed “The Robin Hood Tax” (see www.robinhoodtax.org).

Multiple bills to create a FTT have been introduced in Congress, one of which, HR 6411, would rebate the tax to households with incomes under $75,000. It is also aligned with a broad, international campaign for the FTT.

FULL POST: As presented in my previous post (9/29/12), a financial transaction tax (FTT) could generate $350 to $500 billion of revenue per year by applying a very low tax rate to financial transactions. This would in effect be a sales tax on Wall St. transactions.

The US had a financial transaction tax from 1914 to 1966 and 40 other countries have such a tax. The US tax on purchases and sales of stock was 0.04% (40 cents on a $1,000 transaction). Currently, the US has a very small 0.0034% tax (3.4 cents per $1,000) that is levied on stock transactions to support the operating costs of the Securities and Exchange Commission (SEC), which regulates financial markets. However, much of the revenue is being diverted to other purposes. [1]

A financial transaction tax would not only generate needed revenue, it would also provide a disincentive for high volume, short-term, speculative trading. Such trading produces profits for speculators, but no benefit for the overall economy. It actually harms the economy by contributing to increased market volatility and increased prices for commodities such as food and gasoline (see blog post 3/5/12).

The financial transaction tax has been dubbed “The Robin Hood Tax” and is being supported by National Nurses United (www.nationalnursesunited.org) and others (see www.robinhoodtax.org). Multiple bills to create a FTT have been introduced in Congress. One is House bill HR 6411, The Inclusive Prosperity Act. It would impose a 0.5% tax on stock trades ($5 per $1,000) and a lesser rate on other financial transactions (e.g., trading of bonds, currencies, and derivatives). The tax would be rebated to households with incomes under $75,000. It would generate an estimated $350 billion per year that could be used for deficit reduction or social and human needs, as recommended in the bill. It is aligned with a broad, international campaign for the FTT, including a very active effort in the European Union. The international campaign includes a specific focus on using revenue generated to address climate change and global health issues. [2]

[1]       Wikipedia, retrieved 9/28/12, “Financial transaction tax,” en.wikipedia.org/wiki/Financial_transaction_tax

[2]       Vanden Heuvel, K., 9/26/12, “The better bargain: Transaction tax, not austerity,” The Nation

ADDRESSING THE DEFICIT

ABSTRACT: The federal government’s deficit does need to be addressed, but doing so precipitously and in the wrong ways will hurt the economic recovery. Spending cuts and tax increases that have the least negative impact on jobs and the economy should be used. Given these criteria, four items come to the top of the list: 1) A financial transaction tax, 2) Cuts in military spending, 3) Reversing tax cuts and loopholes for high income individuals, and 4) Closing tax loopholes for profitable corporations. These four policy changes would eliminate the roughly $1 trillion per year deficit.

 I urge you to determine where candidates for election stand on these measures as alternatives to the “fiscal cliff”. After the election, I urge you to contact your elected representatives to let them know where you stand and to ask them their position on these issues.

FULL POST: The federal government’s deficit does need to be addressed, but doing so precipitously and in the wrong ways will hurt the economic recovery. Specifically, the austerity approach of across the board budget cuts and tax increases, as in the 12/31/12 US deficit reduction “fiscal cliff” (see 9/19/12 blog post) and as currently being implemented in Europe, would hurt job creation and likely push our economy back into a recession, as is happening in Europe.

Selected spending cuts and tax increases that have the least negative impact on jobs and the economy should be used, as opposed to the broad ones of the “fiscal cliff.” Spending cuts in areas that have seen significant recent increases and the reversing of recent tax cuts should be prioritized. Fairness should also be considered.

Given these criteria, four items come to the top of the list:

  • A financial transaction tax
  • Cuts in military spending
  • Reversing tax cuts and loopholes for high income individuals
  • Closing tax loopholes for profitable corporations

These four policy changes would eliminate the roughly $1 trillion per year deficit. Here’s some detail on each of them.

A financial transaction tax (FTT) could generate $500 billion of revenue per year with a very low tax rate of between 0.1% and 0.5% on financial transactions (i.e., between $1.00 and $5.00 on the purchase or sale of each $1,000 worth of stocks, bonds, currency, commodities, or other financial instruments, including “derivatives”). If such a tax were applied very broadly to all financial transactions (there are over $1 quadrillion of financial transactions each year in the US), a 0.1% tax would actually generate over $1 trillion and eliminate the full deficit by itself. [1] A bill to create a FTT tax has been introduced in Congress. It would generate an estimated $350 billion per year. Most of us pay a sales tax on many of our purchases, so why shouldn’t there be a sales tax on Wall St. transactions? (More on the FTT in my next post.)

Military spending could be reduced without jeopardizing national security because:

  • We are winding down the wars in Iraq and Afghanistan ($170 billion in 2011),
  • Military spending has more than doubled since 2001 (increasing almost $400 billion per year and more in percentage terms than any other component of the federal budget),
  • There is significant waste (easily tens of billions each year) in the military budget (some of it pork barrel spending to favor specific Congressional districts), and
  • The US alone spends over 40% of all global military expenditures and three times what our European allies spend relative to the size of their economies. (See blog post of 11/17/11.)

 Furthermore, military spending produces fewer jobs than just about any other kind of public spending. Overall, phasing in cuts to military spending of $100 – $200 billion per year would be quite reasonable.

Personal income tax rates have been reduced significantly over the last 30 years and most recently in 2001 and 2003. Since 1981, tax rates on high incomes (the cut off has varied between incomes over $200,000 and over $400,000) have been cut in half (from 70% to 35% on regular income). The lowest rate has been cut from 14% or 15% to 10%. Note that if you have taxable income of $1 million, the reduction from 70% to 35% puts $350,000 in your pocket every year. (See blog post of 11/27/11 for more detail.)

Reversing the tax cuts of 2001 – 2003 for those with incomes over $250,000 would generate $200 billion per year. If The Buffet Rule were implemented, eliminating loopholes and special tax benefits so that those with the top 10% of incomes actually paid at least 30% in income tax, revenue of $450 billion would be generated.

The corporate income tax rate today is 35%, down from 46% in the late 1980s. The effective tax rate (what is actually paid) was 18.5% in a recent study of 280 large, profitable corporations; down from 26.5% in the late 1980s. (See blog post of 11/5/11 for more detail.) If corporations actually paid the 35% rate an additional $500 billion in revenue would be generated. If they paid an effective rate of 22.5%, which was the average between 1987 and 2008, revenue would increase by $250 billion.

In summary, four manageable steps that would return us to the status quo of the 1990s and add a financial transactions tax from the 1960s, both periods when the economy was doing very well, would eliminate the $1 trillion deficit:

  • A financial transaction tax: $350 – $500 billion
  • Cuts in military spending: $100 – $200 billion
  • Reversing tax cuts and loopholes for high income individuals: $200 – $450 billion
  • Closing tax loopholes for profitable corporations: $250 billion
  • TOTAL: $900 billion – $1.4 trillion

These steps, some phased in over time, would result in federal budget surpluses (as occurred in the 1990s). They would strengthen our economy and reduce inequality. None of them are radical; they simply reinstitute previous policies.

I urge you to determine where candidates for election stand on these measures as alternatives to the “fiscal cliff” that is in place for December 31, 2012. (See 9/19/12 blog post.) And after the election, I urge you to contact your elected representatives to let them know where you stand and to ask them their position on these issues.

[1]       Buchheit, P., 8/27/12, “Add it up: Taxes avoided by the rich could pay off the deficit,” http://www.CommonDreams.org/view/2012/08/27

THE “FISCAL CLIFF” AND THE ECONOMY

ABSTRACT: The federal budget’s “fiscal cliff” is looming on December 31, 2012. If Congress and the President let us fall over its edge, it will significantly harm our fragile economy. It cuts annual spending by about $100 billion per year and increases taxes by about $350 billion per year. The result would be a significant reduction in the annual deficit, from about $1 trillion to about $600 billion. However it would also negatively affect the economy: a recession or projected growth of only 0.5% versus growth of between 1.7% and 4.4% if the fiscal cliff were completely eliminated. The negative impact on the economy would make it harder, over the longer-term, to reduce the deficit.

There are many ways to soften the cliff’s impact. One would be to eliminate the tax increase on income under $250,000. Another would be reducing the spending cuts. It’s clear that the US government’s stimulus package helped soften the US recession; it’s equally clear that austerity is not a route to economic recovery. Austerity in Europe has turned a slow recovery into a stalled economy with recession in some countries. We need to call on Congress and the President to soften the fiscal cliff. Right now, the primary focus needs to be on strengthening the economy and creating jobs, which, over the longer-term, will help reduce the deficit.

FULL POST: The federal budget’s “fiscal cliff” is looming on December 31, 2012. If Congress and the President let us fall over its edge, it will significantly harm our fragile economy. Under current law, annual spending cuts of about $100 billion per year would occur and the Bush tax cuts of 2001 through 2003 would expire, which would result in an annual tax increase of about $350 billion.

The result would be a significant reduction in the annual deficit, from about $1 trillion to about $600 billion. However, it would also negatively affect the economy; projections range from a recession (i.e., negative economic growth as economic output shrinks) to growth of only 0.5%. If the fiscal cliff is completely eliminated, in other words if all the tax cuts are extended and the spending cuts are eliminated, projected economic growth would be between 1.7% and 4.4%. [1][2] The negative impact on the economy would make it harder, over the longer-term, to reduce the deficit.

There are, of course, many ways to soften the impact on the economy and on specific groups or agencies. The fiscal cliff’s increased taxes would affect almost everyone and, therefore, hurt consumer spending. Some people are proposing eliminating the tax increase on income under $250,000. This would reduce the tax increase to about $200 billion per year (instead of $350 billion). In addition, it would significantly reduce the impact on our economy (which is 70% consumer spending) because those with incomes over $250,000, who would see their taxes increase, spend only a fraction of their income on goods and services in the local economy. The real job creators in our economy are the vast middle class; their consumer spending is businesses’ revenue and increased business revenue is what leads to job creation. [3]

Reducing the spending cuts would soften their impact. The fiscal cliff’s spending cuts would be split roughly evenly between the military and social programs. Some of the loudest voices arguing for reducing the spending cuts are opposing the $50 billion cut to military spending despite the facts that:

  • Military spending has more than doubled since 2001,
  • We’re winding down two wars, and
  • This represents less than 7% of the over $700 billion per year military budget, which is roughly half of discretionary spending.

One argument that is being put forth is that a cut to military spending would cost jobs. Ironically, this argument is being put forward by many of the same people who have said that government spending doesn’t create jobs and that the way to improve the economy and create jobs is to cut government spending. Yes, cutting military spending will cost jobs in the military-industrial complex. But because military spending creates fewer jobs per dollar than other types of spending, cutting it will cost fewer jobs than cuts in other areas, or, if these cuts will allow spending elsewhere, more jobs will be created than those lost, resulting in a net gain in jobs. [4] (See 11/17/11 post: Defense spending: Can we afford to cut it?)

It’s clear that the US government’s stimulus package helped soften the US recession; it’s equally clear that austerity – cutting government spending and benefits often while raising taxes in an effort to reduce government deficits – is not a route to economic recovery. [5] While deficits do need to be addressed over the longer term, doing so while our economy is weak will only exacerbate the problem. Austerity in Europe has turned the slow recovery of 2009 into, at best, a stalled economy and recession or even depression in some countries. Demands for austerity in exchange for financial aid have occurred five times in Europe, with Greece, Portugal, Ireland, Spain, and Italy. Each time the austerity measures have deepened the economic crisis and weakened the country’s economy. Cutting public spending and benefits, while increasing taxes, decreases employment and incomes. This reduces consumer spending which hurts businesses and kills jobs. As a result, tax revenue falls, increasing (not reducing) government deficits. [6]

We need to call on Congress and the President to soften the fiscal cliff. Right now, the primary focus needs to be on strengthening the economy and creating jobs, which, over the longer-term, will help reduce the deficit. There is ample evidence that austerity will only make the economy and the deficit problem worse.

My next post will examine strategies for reducing the deficit in both the short and the long-term that would be less damaging to the economy than the fiscal cliff.

[1]       Businessweek, 8/2/12, “A decade of tax cuts and deficits,” Bloomberg Businessweek

[2]       Lipschutz, N., 8/22/12, “Even if ‘fiscal cliff’ gets resolved, outlook is anemic,” The Wall Street Journal

[3]       Reich, R., 8/30/12, “Labor Day 2012 and the election of 2012: It’s inequality, stupid,” http://www.RobertReich.org

[4]       Pemberton, M., 8/16/12, “Top 10 myths of the jobs argument against military cuts,” Institute for Policy Studies

[5]       Loth, R., 9/1/12, “The value of public-sector jobs,” The Boston Globe

[6]       Kuttner, R., 9/10/12, “Angela Merkel’s bad medicine,” The American Prospect

OUR SLOW ECONOMIC RECOVERY

ABSTRACT: Our economy is recovering slowly, as would be expected after such a deep recession and the near collapse of the financial system. Most economists agree that the federal government’s stimulus package aided the recovery by increasing employment by about 3 million jobs. Since the recovery began in 2009, the private sector has added 4.5 million jobs. The loss of public sector jobs, however, has been a drag on the recovery; over 600,000 jobs have been lost since 2009, including over 200,000 teachers. Without these job losses, the unemployment rate would be about 0.5% lower, or roughly 7.6%. Regardless of some people’s rhetoric, a public sector job puts money into a family and the economy the same way a private sector job does.

The current rate of economic growth is too slow to generate enough jobs to quickly and significantly reduce the unemployment rate. Federal Reserve Chairman Ben Bernanke recently made a forceful argument that additional steps are needed to stimulate the economy and attack high unemployment. The implied message is that stimulus through spending by the federal government would make sense and that cuts in government spending would not help economic growth or unemployment reduction.

FULL POST: Our economy was the subject of much rhetoric at the recent Republican and Democratic conventions. The reality is that the economy is recovering slowly, as would be expected after such a deep recession and the near collapse of the financial system. Most economists agree that the federal government’s stimulus package aided the recovery by increasing employment by about 3 million jobs and keeping the unemployment rate lower than it would have been (by about 2%).

The recovery began in mid-2009. The private sector has added 4.5 million jobs with net increases in each of the last 29 months. However, this is only half of the 9 million jobs lost in the recession and unemployment is still high at 8.1%. The worst month for job losses was January 2009 when over 800,000 jobs were lost just as President Obama was taking office.

The loss of public sector jobs has been a drag on the recovery; over 600,000 jobs have been lost since 2009, including over 200,000 teachers. The public sector continues to lose roughly 10,000 jobs per month, including teachers, firefighters, police, and other local, state, and federal government workers. Without these job losses, the unemployment rate would be about 0.5% lower, or roughly 7.6%. [1][2] Regardless of some people’s rhetoric, a public sector job is a job and puts money into a family and the economy the same way a private sector job does.

Harvard economist Kenneth Rogoff, who has studied recessions historically and globally, says the pace of the current recovery is consistent with what would be expected after this recession, which continues to reverberate around the globe. Economies damaged by financial crises recover more slowly and the brinkmanship in Congress over increasing the debt ceiling in the summer of 2011 created an additional drag on the recovery. The recovery after the 2001 recession (one of four in the last 30 years) actually experienced even slower job growth than the current recession.

Mark Zandi, chief economist at Moody’s Analytics and advisor to Republican Presidential nominee John McCain, notes that the economy’s problems were brought on by Wall Street’s recklessness and that “government saved our bacon. … the cost [to the economy] would have been measurably … greater had the government not interceded.” [3]

Nonetheless, the rate of economic growth has been too slow to generate enough jobs to quickly and significantly reduce the unemployment rate, let alone the numbers of underemployed workers and those who have given up looking for a job and therefore are not counted in the unemployment figures. Federal Reserve Chairman Ben Bernanke recently made a forceful argument that additional steps are needed to stimulate the economy and attack high unemployment. He noted that the likely benefits outweigh the potential costs. However, monetary policy from the Federal Reserve has limited ability to stimulate the economy at this point because interest rates, the main tool at its disposal, are already extremely low. Therefore, the Federal Reserve may take other, nontraditional steps. [4] The implied message is that stimulus through spending by the federal government would also make sense and that cuts in government spending would not help economic growth or unemployment reduction.

[1]       Loth, R., 9/1/12, “The value of public-sector jobs,” The Boston Globe

[2]       Woolhouse, M., 9/9/12, “Recovery slow, fits post-crisis pattern,” The Boston Globe

[3]       Quoted in Woolhouse, 9/9/12, see above

[4]       Appelbaum, B., 9/1/12, “Fed chief makes a detailed case for a stimulus,” The New York Times

CAMPAIGN FUNDRAISING: BIG VS. SMALL CONTRIBUTORS

ABSTRACT: Although every campaign likes to tout the importance and number of its small contributors, it’s large donors who give the bulk of the money. A few big contributors (0.1% of all contributors) give more than the millions of small contributors (90% of all contributors). As of June, 26% of the $469 million raised for the Obama campaign and affiliates (including Super PACs) was from contributions of $200 or less, while 7% of Romney’s $362 million was contributions of $200 or less. 112 so-called “mega-donors” (1 out of every 3 million Americans) have each contributed over $500,000. Super PACs have raised a total of $298 million for the 2012 election cycle; 70% of these contributions come from the 112 mega-donors.

Justice Posner, a Republican and not a judicial liberal, said recently that the Citizens United Supreme Court decision (which allows these huge campaign contributions) has created a political system that is “pervasively corrupt [where] wealthy people essentially bribe legislators.”

Despite all of this, I encourage you to send your small contributions to candidates. I do believe that candidates and office holders listen a bit more closely to contributors. However, it will be essential to stay engaged and active after the election to hold our elected officials accountable for their actions.

FULL POST:

Although every campaign likes to tout the importance and number of its small contributors (typically those contributing $200 or less to a federal office campaign), the truth is that it’s the large donors who give the bulk of the money. As of June, 2.5 million small contributors have given $148 million to the 2012 presidential candidates; this is not a small amount but it accounts for less than 18% of the total raised. On the other hand, 2,100 donors of $50,000 or more have given $200 million to the candidates’ campaigns and affiliated groups, including Super PACs. This means that these few big contributors (0.1% of all contributors) give more than the millions of small contributors (90% of all contributors).

Clearly, from a campaign fundraiser’s perspective, it is more cost effective to schmooze a few hundred rich people than to try to cultivate a few hundred thousand small contributors. Although the overall pattern is similar, there is a noticeable difference between the fundraising of Democrat Obama and Republican Romney: as of June, 26% of the $469 million raised for the Obama campaign and affiliates (including Super PACs) was from contributions of $200 or less, while 7% of Romney’s $362 million was contributions of $200 or less. [1]

Large campaign donors, the 1 out of every 400 Americans who give over $200 to Congressional campaigns, have a disproportionate impact on our elections, both on who gets to run (see 8/6/12 post) and who wins. But there’s an even smaller group that is having a truly outsized impact on the current elections: 112 so-called “mega-donors” (1 out of every 3 million Americans) have each contributed over $500,000. They are led by casino magnate Sheldon Adelson who through June has given $38 million to Super PACs. Super PACs had their biggest fundraising month so far in June when they raised $54 million. This brings the total amount they have raised for the 2012 election cycle to $298 million; 70% of these contributions come from the 112 mega-donors. [2] And this is just the part of the iceberg we know about. (See my 8/10/12 post on non-profit organizations that don’t have to disclose contributors and are outspending the Super PACs.)

Justice Posner of the US 7th Court of Appeals, a Republican and not a judicial liberal, said recently that the Citizens United Supreme Court decision (which allows these huge campaign contributions) has created a political system that is “pervasively corrupt [where] wealthy people essentially bribe legislators.” [3]

Despite all of this, I encourage you to send your small contributions to candidates. They do make a difference and do identify you to the candidate (and hopefully office holder) as an engaged citizen. I do believe that candidates and office holders listen a bit more closely to contributors than non-contributors. However, given the reality of where the bulk of the campaign money comes from, it is essential to stay engaged and active after the election to hold our elected officials accountable for their actions.

[1]       Vogel, K.P., 8/7/12, “Election 2012: The myth of the small donor,” Politico

[2]       Blumenthal, P., 7/27/12, “Super PAC mega-donors surpass 100, June best Super PAC month ever,” Huffington Post

[3]       Moyers, B., & Winship, M., 7/17/12, “Presto! The DISCLOSE Act disappears,” Moyers & Company

BIG FINANCIAL CORPORATION SCANDALS CONTINUE

ABSTRACT: Things are rotten in the big financial corporations. News of illegal activity continues to surface regularly. The fines that have been imposed haven’t been a sufficient deterrent to stop this bad behavior. Multiple big banks have paid penalties of over $100 million for 1) money-laundering for countries subject to US economic sanctions, 2) selling inappropriately risky investments to conservative investors including municipalities and non-profits, 3) fraudulently foreclosing on mortgages, 4) interest rate manipulation in multiple scenarios, and 5) discriminating against minority borrowers.

Despite this repeated wrong doing, the Securities and Exchange Commission (SEC) and the Justice Department announced recently that they have ended their investigation of Goldman Sachs for fraud related to selling mortgage-backed securities to customers when it knew the securities were likely to be bad investments. This is the latest indication that there will be no significant accountability for the banks that brought on the collapse of the financial sector and our economy.

These huge financial corporations are not just too big to fail, they are simply too big and complex to control by either internal management or outside regulators. Either these huge financial corporations need to be broken up into smaller and less complex entities, or government regulation of them needs to be dramatically changed and strengthened. We cannot allow them to continue to pocket the gains from their risky business practices when we know that we will bear the costs when things go wrong.

FULL POST: Things are rotten in the big financial corporations. News of illegal activity continues to surface regularly across a broad range of banks and financial activities. Here are some of the latest. The fines that have been imposed (which sound like big amounts but are small compared to the size and profitability of these corporations) haven’t been a sufficient deterrent to stop this bad behavior. (In terms of the size of these financial firms, JP Morgan Chase took a $6 billion loss on internal, speculative securities trades and still had a profit for the quarter.)

  • Standard Chartered, a big British bank, has agreed to a $340 million penalty with New York State to settle charges of money-laundering for countries subject to US economic sanctions. It admitted to concealing transactions with Iran of over $250 billion over nearly 10 years. The bank made hundreds of millions of dollars in fees on the transactions. It agreed to increased monitoring but received no other sanctions on its business. A former US Treasury official noted his disappointment in the small penalty and the lack of criminal charges. A federal investigation is on-going. Since 2005, the US Treasury has imposed fines of over $2 billion on banks for violating US economic sanctions including ING Bank ($617 million), Lloyds Bank ($350 million), UBS ($100 million), Barclays ($176 million), and JP Morgan Chase ($88 million). HSBC bank has been accused of laundering billions of dollars for drug cartels and terrorists and has yet to settle, but has set aside $700 million for potential penalties. [1][2]
  • Wells Fargo bank is paying $6.5 million to settle charges that it sold inappropriately risky investments to conservative investors including municipalities and non-profits. A Wells Fargo vice president will pay $25,000 and serve a 6 month ban on working in the securities industry. Wells Fargo and its vice president have neither admitted nor denied wrongdoing, as is typical in these cases. Last month, Wells Fargo paid $175 million to settle charges that it discriminated against minority borrowers. [3]

Despite repeated wrongdoing, the Securities and Exchange Commission (SEC) and the Justice Department announced recently that they have ended their investigation of Goldman Sachs for fraud related to selling mortgage-backed securities to customers when it knew the securities were likely to be bad investments. They will not pursue criminal charges against the corporation or its employees. This occurred despite President Obama’s announcement of a special investigative task force in January, despite a formal notice from the SEC in February that it intended to pursue legal action, and despite the $550 million fine Goldman Sachs paid in 2010 for failing to make appropriate disclosures to investors on a similar security. This is the latest indication that there will be no significant accountability for the banks that brought on the collapse of the financial sector and the economy, especially given that the deadline to file cases is fast approaching. [4] [5]

Whatever the reasons are for these huge financial corporations not being held accountable, it is clear that they are not just too big to fail, but simply too big and complex to control. Internal management seems unable to control traders and stop illegal activity (assuming they intend to). Outside regulators have an extremely difficult time detecting and responding to illegal and harmful behavior, not to mention doing so in a timely manner that might prevent the worst of the consequences.

Dramatic changes are needed. Either these huge financial corporations need to be broken up into smaller and less complex entities, or government regulation of them needs to be dramatically changed and strengthened. Otherwise, the risk that they will do serious damage to our economy again is simply too high. We cannot allow them to continue to pocket the gains from their risky business practices when we know that we will bear the costs when things go wrong.

[1]       Rooney, B., 8/14/12, “Standard Chartered pays $340 million to settle Iran charges,” CNN Money

[2]       Sanati, C., 8/8/12, “Why London bankers are shrugging of Standard Chartered threat,” CNN Money

[3]       O’Toole, J., 8/14/12, “Wells Fargo in $6.5 million SEC settlement over risk disclosure,” CNN Money

[4]       Protess, B., & Ahmed, A., 8/9/12, “SEC and Justice Dept. end mortgage investigations in Goldman,” DealBook of The New York Times

[5]       Mattingly, P., 8/10/12, “US won’t prosecute Goldman Sachs, employees over CDO deals,” Bloomberg Businessweek

GENETICALLY MODIFIED FOODS: WHY NO LABELS?

ABSTRACT: There aren’t laws in the US requiring labeling of genetically modified (GM) food (as there are in the other developed countries) because the large food and agricultural-biotechnology corporations and their trade associations have spent years working to block labeling. They’ve spent $572 million on lobbying and campaign contributions over the last 10 years. In addition, the revolving door moves people back and forth between their organizations and the relevant government agencies. GM organisms are patented and provide their creators with a monopoly, significant market place power, and potentially substantial profits. Farmers are prohibited from producing their own seed for next year’s crop; they are required to buy it from the corporation.

The costs and benefits of GM foods are, at best, unclear. The large agro-biotech corporations and the related chemical corporations are working hard, through campaign contributions, lobbying, and the revolving door, to have minimal regulation and oversight, and to prevent requirements to label foods as having GM content. This is another example of corporate power riding roughshod over the public interest. Our public officials need to stand up to the corporate interests and serve the public interest and demand of over 90% of the public for GM food labeling and oversight.

FULL POST: There aren’t laws in the US requiring labeling of GM food (as there are in the other developed countries) because the large food and agricultural-biotechnology corporations and their trade associations have spent the years since 1994 (when the first GM tomatoes were marketed) working to block labeling. They’ve spent $572 million on lobbying and campaign contributions over the last 10 years. In addition, the revolving door moves people back and forth between their organizations and the Department of Agriculture and the Food and Drug Administration (FDA) – most recently President Obama appointed Michael Taylor, a former vice president and lobbyist for Monsanto, as a senior advisor to the Commissioner at the FDA – they have successful prevented federal and state efforts to require GM food labeling.

GM organisms serve corporate interests in a way that naturally occurring seeds, plants, and animals don’t. Because they are patented, they provide their creators with a monopoly, significant market place power, and potentially substantial profits. This also allows the corporations to restrict independent, objective research into the efficacy, safety, costs, and benefits of GM organisms. It gives seed corporations great power because in their contracts with farmers, the farmers are prohibited from producing their own seed for next year’s crop; they are required to buy it from the seed corporation. The large seed corporations have, through acquisition and other means, concentrated their scope and power and now four large corporations control 50% of the market. Over 200 independent seed companies have ceased to exist over the last 15 years. One of those large seed corporations, Monsanto, has gone so far as to sue thousands of individual farmers whose crops were contaminated by Monsanto’s GM crops for illegally possessing their GM plants. [1]

The costs and benefits of GM foods are, at best, unclear. The costs, beyond the immediate ones (seed, pesticides, and herbicides), are largely uncalculated, and to some extent are unknown. The benefits have not been as great as the agro-biotech corporations have claimed, for example in increased yields, reduced herbicide and pesticide use, improvement of farmers’ economic conditions, and reduction of world hunger. The large agro-biotech corporations and the chemical corporations that produce the herbicides, pesticides, and fertilizers that GM crops require, have substantial market power and profit potential. They are working hard through campaign contributions, lobbying, and the revolving door of sharing personnel with government, to have minimal regulation and oversight, and to prevent requirements to label foods as having GM content. [2]

This is another example of corporate power in the US, in contrast to other countries, riding roughshod over the public interest. There is a clear public interest, as well as public desire (over 90% in multiple polls), to have foods with GM content labeled. And there is a clear need for more effective oversight of the introduction of GM organisms into the environment and our food, as well as monitoring of long term costs and benefits. Our public officials need to stand up to the corporate interests and serve the public interest on GM food labeling and oversight.

[1]       Farm Aid, see above

[2]       Moyers, B., with Shiva, V., 7/13/12, “The problem with genetically modified seeds,” Moyers & Company

GENETICALLY MODIFIED FOODS: REASONS AND RISKS

ABSTRACT: Genetically modified (GM) foods have been developed to resist herbicides or pesticides, to resist pests or viruses, and for other reasons. Large portions of common crops in the US are GM, such as sugar beets (95%), soybeans (93%), cotton including for cottonseed oil (93%), canola (93%), and corn and maize (86%). As with any new technology, all the risks associated with genetically modified organisms have almost certainly not yet been identified. Known risks include Allergic reactions, Antibiotic resistance, Toxicity, Decreased biodiversity, Undesired spreading, Resistant weeds and pests, and Poisoning wildlife. In addition, once GM genes are out in the environment, it is impossible to recall them. Furthermore, there is no way to assess, in advance, their full, long term impact and there is no monitoring system in place.

FULL POST: Genetically modified (GM) foods have been developed to resist herbicides or pesticides (so the herbicides can be used to kill weeds or the pesticides to kill pests without harming the desired crop), to resist pests or viruses, and for other reasons. Large portions of common crops in the US are GM, such as sugar beets (95%), soybeans (93%), cotton including for cottonseed oil (93%), canola (93%), and corn and maize (86%). [1]

The known risks of GM foods include those listed below. However, as with any new technology, all the risks associated with genetically modified organisms have almost certainly not yet been identified. Clear risk assessment procedures for known risks are not yet in place, let alone attempts to uncover and analyze currently unknown risks. Some of the risks, such as health issues such as cancer, are long term and possibly cumulative, so risk assessment is challenging. From a scientific perspective, this should put a substantial burden on those who wish to use the new technology to clearly demonstrate its benefits. [2]

  • Allergic reactions: GM foods routinely contain new proteins, including ones that have never been in any food before. Proteins are the basis of most food allergies. Examples of GM foods where new proteins cause allergic reactions include soybeans with Brazil nut proteins (which trigger Brazil nut allergies) and vegetables with milk proteins (which trigger milk allergies).
  • Antibiotic resistance: The genetic modification process often brings new genes that produce antibiotic resistance into a GM product. These can reduce the effectiveness of antibiotics in a person eating such a GM product and can also accelerate the development of antibiotic resistant diseases. Because of the widespread presence of antibiotic genes in GM foods, this impact needs to be analyzed cumulatively across the whole food supply.
  • Toxicity: a) Some GM plants concentrate toxins (such as heavy metals like mercury) from the soil in the non-edible parts of the plant. However, there is a risk that toxins could also be concentrated in the edible part of the plant or that contamination of the edible part of the plant could occur. b) All organisms produce toxic substance to defend themselves against diseases and predators. GM foods could have increased levels of these toxins that could be harmful to humans.
  • Decreased biodiversity: The push to use GM plants reduces the biodiversity of crops. The resulting monoculture of a single or a few varieties of a crop tends to require increased herbicide, pesticide, and fertilizer use, increasing costs for farmers and likely harm to the environment.
  • Undesired spreading (specific examples below): GM plants (or animals) can spread in undesired ways. Notably, when insects pollinate GM plants they carry GM genes in the pollen they pick up and do not stay within prescribed boundaries. When they carry the pollen to non-GM plants, they can create seeds for undesired GM plants. This is a particular concern for organic farmers who do not want GM genes in their crops but whose fields are within the range of pollinating insects.
  • Resistant weeds and pests: The herbicide or pesticide resistant genes in GM organisms or the changed usage patterns of herbicides and pesticides with GM crops may result in weeds, pests, and viruses that are resistant to current herbicides and pesticides. At least 10 species of herbicide resistant weeds have been identified.
  • Poisoning wildlife: GM organisms may poison wildlife that feeds on them.

Examples of undesired spreading are well documented. Canada’s organic canola industry is basically extinct due to contamination from GM canola. In the US, in 2000, GM corn that represented only 1% of planted acreage contaminated at least 25% of the harvest that year. The GM corn was not approved for human consumption. The result was the recall of over 300 food products, export markets rejecting US corn, and corn prices plummeting for all US corn farmers. A class action suit against the GM corn creator, Aventis, led to a $112 million settlement for corn farmers. Corn farmers and users are concerned that a similar incident could occur with a new GM corn intended for biofuel production. [3]

In addition to the risks identified above, once GM genes are out in the environment, it is impossible to recall them. And because of the complexity of natural ecology, there is no way to assess, in advance, the full, long term impact of these genes. Moreover, there is no monitoring system in place to even look for such effects.

The next post will wrap up this discussion of GM foods by taking a look at what’s behind the lack of GM food labeling in the US.

[1]       Wikipedia, retrieved 8/16/12, “Genetically modified food,” en.wikipedia.org/wiki/Genetically_modified_food

[2]       Union of Concerned Scientists, retrieved 8/16/12, “Risks of genetic engineering,” http://www.ucsusa.org/food_and_agriculture/science_and_impacts/impacts_genetic_engineering

[3]       Farm Aid, retrieved 8/16/12, “New GE crops on the market,” http://www.farmaid.org/site/apps/n1net/content2.aspx

GENETICALLY MODIFIED FOODS AREN’T LABELED

ABSTRACT: Federal regulators are allowing a growing number of genetically modified (GM) agricultural products into our food. What is surprising is that these foods are not labeled. This is the result of a powerful and concerted effort by big corporations in the GM business. Over 90% of the American public in multiple polls supports GM labeling and forty-nine countries, including Russia and even China, require labeling. From a public health perspective, labeling is the only way to track unintended health effects.

FULL POST: Federal regulators are allowing a growing number of genetically modified (GM) agricultural products into our food [1]. What is surprising is that these foods are not labeled as being or containing GM products. In general, foods are required to be labeled with their ingredients so consumers can know what they are eating. The lack of GM labeling is the result of a powerful and concerted effort by big corporations who make significant profits from the raising and selling of GM products.

This lack of labeling flies in the face of the economic theory of free markets, which requires consumers to have full information and make knowledgeable decisions when purchasing goods and services. It also contradicts a basic premise of democracy – that citizens are informed.

Over 90% of the American public in multiple polls supports labeling of food to indicate GM content. Forty-nine countries, including Russia and even China, require the labeling of food that contains GM ingredients. The United Nations (UN) food safety organization supports labeling. Furthermore, the US is the only developed country that does not require safety testing of GM plants, which also is supported by the UN. The lack of testing and labeling creates the risk that other countries will block the importation of US agricultural products.

The US Senate in June 2012 voted 73 – 26 against an amendment to the 2012 Farm Bill that would have allowed states to require GM labeling of food. At least 19 states have introduced legislation on GM labeling of food. A bill in Vermont died this year after Monsanto, a dominant player in the GM field, threatened to sue the state if the bill passed.

From a public health perspective, labeling is the only way to track unintended effects. Neither you as an individual nor public health officials can know that a GM food triggers allergic reactions or other health problems if you don’t know the food that’s being eaten contains GM content. [2] For these reasons, the American Public Health Association and the American Nurses Association, among others, have called for labeling GM foods. [3]

In California, there will be a ballot question this November known as the California Right to Know if Your Food has Been Genetically Engineered Act (Proposition 37). It would require food manufacturers and retailers to label GM foods. Over 1 million people signed the petition to get this measure on the ballot. The opposition includes the big agro-biotech and herbicide / pesticide corporations such as Monsanto, BASF, DuPont, Syngenta, Bayer, and Dow Chemical, as well as big food manufacturers such as PepsiCo, Coca-Cola, and Kellogg, which are some of the biggest users of high-fructose corn syrup, soy lecithin, and sugar beets, commonly used GM ingredients. [4]

The next two posts will also be on GM foods. The next one will examine the reasons for GM organisms and foods along with the risks they present. The subsequent post will look at what’s behind the lack of GM food labeling in the US.

[1]       GM foods are also referred to as Genetically Modified Organisms (GMOs), Genetically Engineered (GE) foods, and biotech foods.

[2]       Silver, C., 6/26/12, “How Monsanto is sabotaging efforts to label genetically modified food,” Inter Press Service

[3]       Sanders, B., 6/19/12, “Label genetically engineered food,” The Huffington Post

[4]       Sauve, C., retrieved 8/16/12, “This is the food fight California cannot afford to lose,” San Jose Mercury News

CAMPAIGN FUNDRAISING: THE PERFECT STORM

ABSTRACT: The unprecedented spending and the unprecedented secrecy in the current election campaigns are creating the perfect storm and it’s battering our democracy. They are the result of three factors: 1) great concentration of wealth, 2) unlimited campaign contributions, and 3) secrecy through weakly regulated non-profit organizations. Non-profit organizations don’t have to report contributors and are spending tens of millions of dollars on political activity. These non-profit organizations have accounted for two-thirds of the outside spending to-date – close to $100 million. The Internal Revenue Service has, so far, failed to exercise its oversight responsibilities. Corporations, in particular, like the secrecy.

The DISCLOSE Act in Congress would require disclosure of contributors of over $10,000 by all organizations. Senate Republicans have filibustered it (including a watered down version) multiple times. We need to demand that our elected officials require disclosure of campaign contributors. And we need a Constitutional Amendment that will reverse the Citizens United decision and allow limitations on contributions to political campaigns. Otherwise, the voices of we the people are drowned out by the purchased – not free but purchased – speech of wealthy individuals and corporations.

FULL POST: The unprecedented spending in the current election campaigns and the unprecedented secrecy about who’s contributing to the campaigns are creating the perfect storm and it’s battering our democracy. As Supreme Court Justice Louis Brandeis said, “we can have a democracy or we can have great wealth in the hands of a comparatively few, but we cannot have both.” This perfect storm is the result of three factors:

  • The greatest concentration of wealth in more than a century,
  • Unlimited campaign contributions (thanks to the Supreme Court’s Citizens United decision that allows unlimited spending by corporations, unions, and other groups), and
  • Secrecy for many of the contributors, especially corporations, through weakly regulated non-profit organizations. [1]

In addition to the Super PACs, which have to disclose contributors, there arenon-profit trade associations (such as the US Chamber of Commerce) and non-profit “social welfare” organizations [501(c)(4)s] that don’t have to report contributors. Politics is not supposed to be the primary purpose of these organizations. However, the US Chamber of Commerce is spending tens of millions of dollars on political activity, while refusing to disclose its contributors. Republican strategist Karl Rove’s Crossroads GPS, for example, is a 501(c)(4) that is raising and spending tens of millions of dollars on political activity in close alliance with his Super PAC, while refusing to disclose its contributors. [2]

So far in the 2012 election, these non-profit organizations have accounted for two-thirds of the outside spending – close to $100 million spent primarily on advertising. Back in 2010, they spent $130 million, outspending Super PACs 3-to-2. The Internal Revenue Service has, so far, failed to exercise its oversight responsibilities for these non-profit entities. It has no clear test for what constitutes excessive political activity and these tax-exempt groups are permitted to raise and spend money before being officially reviewed and approved. The tax exempt status of Karl Rove’s Crossroads GPS is still pending more than two years after being created and after having spent tens of millions back in the 2010 elections. [3]

Corporations, in particular, like the secrecy these non-profit groups provide. For example, insurance giant Aetna secretly gave $3 million to a non-profit running ads attacking Obama’s health care plan, while publicly supporting the President. Not a single Fortune 500 company has been reported as contributing to a Super PAC, but they are giving millions to non-profit organizations where their contributions can be kept secret. [4]

At the time of the Citizens United decision, eight of the nine justices made it clear that transparency on contributions for political activity was important and that it was Congress’s responsibility to require appropriate disclosure. The DISCLOSE Act in Congress would require disclosure of contributors of over $10,000 by all organizations, Super PACs, trade associations, unions, and 501(c)(4)s. However, Senate Republicans have filibustered it (including a watered down version) multiple times. Many of the Republicans filibustering the DISCLOSE Act previously supported disclosure, including Senator McCain and Senate Minority Leader McConnell, and 14 Republicans who supported it just a couple of years ago. [5]  “[T]he essence of free speech, and democracy, is openness and accountability. … but Republican leaders remain adamantly opposed, and for an obvious reason. Republicans raise far more secret money than the Democrats and have far more to hide.” [6]

We the people are going to have to weather this perfect storm as best we can in this election. And then we will need to demand that our elected officials require disclosure of campaign contributors so we know who is trying to influence our elections. Ultimately, we need a Constitutional Amendment that will reverse the Citizens United decision and allow limitations on contributions to political campaigns. Otherwise, the voices of we the people are drowned out by the purchased – not free but purchased – speech of wealthy individuals and corporations who have amounts of money that far exceed that of everyone else.

[1]       Reich, R., 7/13/12, “The selling of American democracy: The perfect Storm,” RobertReich.org

[2]       Roberts, C., & Roberts, S.V., 7/18/12, “Shine a light on political donations,” Daily Times Chronicle

[3]       McIntire, M., & Confessore, N., 7/7/12, “Corporate money funneled to nonprofits with an agenda,” The New York Times

[4]       Moyers, B., & Winship, M., 7/17/12, “Presto! The DISCLOSE Act disappears,” Moyers & Company

[5]       Moyers & Winship, 7/17/12, see above

[6]       Roberts & Roberts, 7/18/12, see above

CAMPAIGN FUNDRAISING: WHO RUNS FOR OFFICE

ABSTRACT: Because of the way we fund campaigns, we have two elections every cycle, the money election and the voting election. For Congressional races, fewer than 1 in 400 people contribute $200 or more to a campaign. This one-quarter of 1% of the population determines who will show up on the ballot for the voting election. Consequently, these campaign contributors, this 1 out of 400 people, have the power to block candidates from getting on the ballot and, therefore, the power to block – to veto – issues and policies from even getting on the agenda. There are many ways to change the funding of campaigns and broaden who can afford to run.

The current elections will have huge amounts of money spent on negative advertising. Voters will be turned off and disillusioned by the whole process and therefore will not bother to vote. We the voters must stay engaged and elect the best candidates we can find. And then we must hold our elected officials accountable for their actions after they are elected.

FULL POST: Because of the way we fund campaigns, we have two elections every cycle, the money election and the voting election. If you don’t win the first, or at least show that you’re competitive, you don’t even get to the second one. For Congressional races, fewer than 1 in 400 people contribute $200 or more to a campaign. This one-quarter of 1% of the population determines who will show up on the ballot for the voting election, the one everyone thinks is the real election. To succeed as a Congressional candidate, you must gain the support of these large contributors.

Consequently, these campaign contributors, this 1 out of 400 people, have the power to block candidates from getting on the ballot and, therefore, the power to block – to veto – issues and policies from even getting on the agenda. This tilts our democracy toward plutocracy, where the wealthy rule and the rest of us try to hold on for the ride. “[A] nation in which so few have the power to block change is not a nation that can thrive.” [1]

And the proof is in the pudding; it’s not what candidates say on the campaign trail, it’s what they do in office. There’s plenty of winking and nodding that goes on during the campaign, where the one quarter of 1% know that it’s just rhetoric and that they don’t have to worry that action will follow.

There are many ways to change the funding of campaigns and broaden who can afford to run. One that is in place in Arizona, Maine, and a few other places is to match small campaign contributions from individuals with public funds. Presidential elections used to have a mix of private and public funds until the public funding got overwhelmed by huge sums of private money. A newer idea is to give every taxpayer a voucher that can only be used to contribute to campaigns. Another approach would be to reduce the cost of campaigns and the importance of money by requiring broadcasters – who get to use the public airwaves – to provide free air time to candidates so they don’t have to spend small fortunes on advertising.

The current elections will have huge amounts of money spent by supposedly independent groups outside of the candidates’ own campaigns. The bulk of this money will be spent on negative advertising. The small number of wealthy individuals and corporations that are funding these outside groups hope, in part, that voters will be turned off and disillusioned by the whole process and therefore will not bother to vote.

We, the voters, cannot fall into this seductive trap of cynicism and apathy. We must stay engaged and active in the election, and elect the best candidates we can find, even though they are rarely if ever perfect. And then we must hold our elected officials accountable for their actions after they are elected.

[1]       Lessig, L., 7/13/12, “Big campaign spending: Government by the 1%,” The Atlantic

WHY WE NEED STRONG REGULATION

ABSTRACT: A fierce battle is occurring over government regulation. Key arguments against regulation are that corporations will regulate themselves and that the discipline of free market capitalism will punish bad corporate behavior and reward good behavior. The series of scandals in our large banks have clearly proven these arguments are wrong. And there are many examples beyond the recent bad behavior in the financial industry.

The market is unable to detect, publicize, and punish bad behavior before very serious damage has been done. Corporations resist efforts to exert control or set standards from outside and our huge corporations have the power to successfully do so. As Robert Sherrill wrote, “thievery is what unregulated capitalism is all about.” “Trust but verify” seems applicable here. We need strong regulators and regulations to verify that large corporations are behaving in a legal and ethical manner. Albert Einstein defined insanity as “doing the same thing over and over and expecting different results.” Deregulation is insanity; we’ve seen the results time and again. Strong regulation of corporations, particularly large corporations, by government is necessary.

FULL POST: A fierce battle is occurring in Congress and the federal government over regulation of the financial industry and over government regulation in general. Key arguments against regulation are that corporations will regulate themselves (with minimal standards from government) and that the discipline of free market capitalism will punish bad corporate behavior and reward good behavior. President George W. Bush asserted that these forces were effective and sufficient as he promoted deregulation.

Over the last couple of years, the series of scandals in our large banks have clearly proven these arguments are wrong. The large banks have not regulated themselves. The mortgage and LIBOR scandals (among others) have shown a pattern of behavior by many banks over many years where they clearly did not regulate themselves, but spun further and further out of control and into illegal and unethical behavior. The recent huge JPMorgan trading loss, currently estimated at $6 billion, shows that they simply cannot control internal behavior despite strong incentives to do so. And there are many examples beyond the recent bad behavior in the financial industry: for example, the Savings and Loan scandal of the late 1980s, Enron and WorldCom’s collapses of 2001 and 2002, and the “dot com” stock bubble of 2000. Our large corporations don’t even seem to be able to exert reasonable control over executive compensation.

The discipline of a competitive market place has also clearly not been effective as a deterrent for bad behavior. The recent scandals have shown as false the assumption that banks would behave honestly to protect their reputations with customers. Moreover, it is clear in all of the examples cited above that the market is unable to detect, publicize, and punish bad behavior before very serious damage has been done. [1]

Finally, corporate capitalism, where the goal is to maximize profits, clearly has strong incentives for promoting self-interest. Conversely, the corporations have strong incentives to resist the public interest, such as worker safety, fair employee compensation, and clean air and water, because they might increase costs and reduce profits. Therefore, corporations resist efforts to exert control or set standards from outside. And our huge corporations have the power to successfully do so, in the market place, in the courts, and in our elections and government.

As Robert Sherrill (the reporter and investigative journalist for The Nation, the Washington Post, and the New York Times Magazine, among others, and the author of numerous books on politics and society [2] ) wrote about the Savings and Loan scandal, “thievery is what unregulated capitalism is all about.” The recent behavior of our large banks seems to have proven this statement again.

“Trust but verify,” a phrase President Reagan popularized when he used it to describe relations with the Soviet Union, seems applicable here. [3] We need strong regulators and regulations to verify that large corporations are behaving in a legal and ethical manner.

Finally, Albert Einstein is quoted as defining insanity as “doing the same thing over and over and expecting different results.” [4] Deregulation of the financial industry in particular, and corporate America in general, is insanity. We’ve seen the results time and again over the last 30 years of deregulation and in the events leading up to the Great Depression. We’re paying a very steep price right now in high unemployment, lost wealth in homes and investments, and over the longer haul in lower wages and reduced benefits for workers.

We need to push back against the large corporations and their special interests in the name of the public interest and the interests of we the people. Strong regulation of corporations, particularly large corporations, by government is necessary.

[1]       Surowiecki, J., 7/30/12, “Bankers gone wild,” The New Yorker

[2]       Wikipedia, retrieved 7/25/12, “Robert Sherrill,” en.wikipedia.org/wiki/Rovbert_Sherrill

[3]       Wikipedia, retrieved 7/26/12, “Trust, but verify,” en.wikipedia.org/wiki/Trust_but_verify

[4]       BrainyQuote, retrieved 7/26/12, “Albert Einstein quotes,” http://www.brainyquote.com/quotes/quotes/a/alberteins133991.html

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 1st 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 100th 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 62nd 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.

[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]       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 4th 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 2nd 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 19th 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 75th 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