Wednesday, August 31, 2011

GOP needs to stop resentment of low-income people who don't pay income tax

Traditionally, the Republican platform has been lower taxes for everyone, rich, middle-class, and poor alike. Both Reagan's and Bush's tax cuts benefited almost all workers. Recently, however, some Republicans, including several of the leading candidates, have been complaining about the poor not paying enough taxes. Specifically, they say it is a big problem that 47% of Americans do not pay income tax. In some ways, I see their point. If people are receiving social services but not paying for them, there is nothing to stop them from continuing to vote for more and more government services, ad infinitum. However, the working poor already pay quite a bit of tax: payroll taxes, sales taxes, and gas taxes. Saying they need to pay more tax--while also calling for less overall spending on social programs--is an extremely tone-deaf stance that could cost Republicans a lot of working class votes. It smacks of contempt for the poor and class warfare in reverse.

When I worked as an AmeriCorps volunteer three years ago, I made $900 a month before taxes. The $65 or so in payroll taxes that they took out of each month's pay was a huge hit. My AmeriCorps director encouraged me and my fellow volunteers to go on food stamps. I desperately wanted to avoid relying on government assistance, and managed to make it work--but that was possible only because I did not have to pay income taxes. If Republicans did raise taxes on the poor, many of them would probably just use more food stamps and welfare money. The end result would be more taxes and more government spending--which doesn't seem like what the Republicans want.

In fact, here is a Businessweek article by a conservative economist that calls for expanding the earned income tax credit in order to reduce dependence on welfare.

There is still, however, the issue of people receiving social services without paying for them. I can think of two ways to address this issue without raising taxes on the poor. One, limit the child tax credit, WIC, and similar programs so that credits/benefits gradually phase out after two children or so. At some point, parents have to be responsible for supporting their own children, and the government should not subsidize (i.e. encourage) people who have large numbers of children that they cannot support. Secondly, eliminate the payroll tax, replacing the worker's portion with an additional equivalent amount of income tax. I've already discussed the evils of the payroll tax (it's regressive, it often goes unnoticed, it discourages job growth by taxing hiring). Plus, that way, when Congress wants to cut or raise income taxes, every worker will feel the effects to some degree. Hopefully people will start to realize that they have to pay more to get more, and that tax cuts can help people at all income levels not just the rich.

As a candidate, Obama opposed an individual health-care mandate

During the 2008 primaries, Obama actually came out against an individual health-care mandate with this very sensible argument:

"If a mandate was the solution, we could try that to solve homelessness by mandating everybody buy a house. The reason they don't have a house is they don't have the money. So our focus has been on reducing costs, making it available."

Unfortunately, he abandoned this belief once he was elected, and signed a health care bill with an individual mandate that has been declared unconstitutional by several appeals courts. Perhaps someone needed to remind him of this quote during the Obamacare debates.

Speaking of presidents who abandoned previously stated positions, with decidedly negative results:

"Somalia...started off as a humanitarian mission then changed into a nation-building mission and that's where the mission went wrong...I don't think our troops ought to be used for what's called nation-building."
--Candidate George W. Bush

As president, of course, Bush led us into two very costly nation-building exercises on a scale not seen since the 1940's and which have dragged on for almost a decade. 9/11 may have justified the initial attack on the Taliban, but I don't understand why Bush changed his mind so dramatically on the wisdom of nation-building.

Tuesday, August 30, 2011

Environmental authorities cracking down hard on...musicians?

Musicians who play vintage guitars and other instruments are now increasingly afraid to take those instruments out of the country when they go on tour. A lot of old instruments contain materials (such as ivory, ebony, and various types of wood) that are now environmentally restricted. According to the Wall Street Journal, customs officials have been seizing them if their owners do not have complete documentation proving that no piece of the instrument (no matter how small) was obtained illegally. For instruments that may be 80 or 100 years old, that documentation can be very difficult or even impossible to get.

A blues guitarist (who is also a law professor) now says that he won't go out of the country with a wooden guitar. An Atlanta businessman recently tried to import several antique pianos, which clearly predated any restrictions on ivory keys. But he still faced criminal charges when he didn't have his paperwork straight, and he ended up pleading guilty to a misdemeanor and paying a $17,500 fine in order to avoid years of prison time.

Makes sense, right? I mean, musicians are such a grave threat to ecosystems worldwide.

Monday, August 29, 2011

Ten years after 9/11, has anybody won the war on terror?

With the tenth anniversary of 9/11 approaching, it's safe to say that Al-Qaeda has lost the war on terror--after all, Bin Laden is dead and much of their leadership and global influence has all but disappeared. But the real question is, who won? New York magazine columnist Frank Rich argues that America is suffering from a number of problems today that can be traced directly to our government's response to 9/11. And if you can look past a few of Rich's more partisan comments, I feel that overall he makes a good point. It could be that the war on terror, like Vietnam and WWI before it, has been a conflict with no real winner.

9/11 had the potential to unite us, and for a short while it did. But eventually, as Bush started using it as an excuse to invade Iraq, the unity died. Instead, one was either with the White House or with the terrorists. Many have accused the mainstream media of cheerleading the war and not providing a balanced analysis of the rationale for the invasion. People who criticized the president or the Iraq War were attacked as "unpatriotic." Instead of unifying us, the Iraq invasion and its aftermath seems to have ignited the bitter partisanship that now seems to pervade Washington. Before Iraq, Democrats and Republicans could actually work together. Now, any politicians who attempt to compromise are viewed by their base as "surrendering." Bashing the president was not nearly as popular in the media before 2003 as it has been in the past eight years, no matter which party has controlled the White House. Trust in government has plummeted to all-time lows.

Perhaps a bigger problem was, as Rich puts it, the war was fought by a "largely out-of-sight, out-of-mind" army and paid for by a "magic credit card." As support for the war waned, the military resorted to widespread dishonest recruiting and unprecedented use of stop-loss policies to keep up troop levels. Washington also thought that they could pay for the war almost entirely through deficit spending. Taken together, the Iraq and Afghanistan wars, the continuation of the Bush tax cuts, and the Medicare prescription drug entitlement are responsible for the majority of our national debt at this point, and played a huge role in the S&P credit downgrade.

The war on terror has clearly been a defeat for Al-Qaeda. But with bitter partisan divisions, massive debts, and a seemingly endless conflict in Afghanistan--all a result of the war on terror--can we really say that we have won?

Government by the special interests, for the special interests

As a candidate in 2008, Barack Obama focused much of his message around overcoming "politics as usual" and bringing about change that would benefit the true public interest. That was one of the main reasons I voted for him, despite the fact that I disagreed with him on most matters of economic policy. When Obama was elected, much of the country hoped that he would take steps to work with Republicans and to cut down the influence of lobbyists and special interests in Washington.

In reality, however, Obama, Pelosi, and Reid did exactly the opposite. In their two years of unopposed control over Washington, they rarely passed up an opportunity to throw red meat to their favored special interests, usually screwing over the American people as a result. Jay Cost of the Weekly Standard has the full story, but here's a summary:

1. A massive stimulus bill heavy on pork and various pipe dreams such as "green initiatives," but little actual stimulus.

2. Giving a majority stake in Chrysler to the United Auto Workers. (Isn't that a conflict of interest for a labor union to own the company that employs its members?)

3. The attempted cap-and-trade bill, which would have made environmentalists happy--but which would also have hit businesses and individuals extremely hard, likely causing a huge spike in unemployment

4. The toothless financial reform bill, basically a sweetheart deal for Goldman Sachs and all the other Wall Street mega-banks that donated large sums of money to Obama's campaign.

5. When trying to get votes for the health care bill in 2009, Pelosi actually told reluctant Rep. Jim Cooper (D-Tenn), "The store is open. Now is the time to get your provisions." Although, after the "Cornhusker Kickback" and the "Louisiana Purchase," that statement hardly seems surprising.

And all of this from a president who promised to minimize the influence of special-interest lobbyists. Very gifted in doublespeak, indeed.

Thursday, August 25, 2011

Rick Perry's proposal to repeal the 17th Amendment

In a book that he published last fall, "Fed Up! Our Fight to Save America from Washington," GOP front-runner Rick Perry lays out several ways he wants to change the Constitution.  Perhaps the most interesting is his proposal to repeal the 17th Amendment, which provides for the direct election of senators by the people. It's not exactly an argument that gets made very often. Repealing the 17th Amendment would restore the original language of the Constitution, which gave state legislatures the power to appoint senators.

Perry, and a few other conservatives, argue that the 17th Amendment undermined states' rights and upset the balance of power between federal and state governments, which helped lead to the federal government becoming extremely big and bloated. At some level, I see the point. Senators who were appointed by the state legislatures would probably have more of an incentive to resist federal encroachment on issues that should be reserved for the states. Some feel that direct senatorial elections have become dominated by Washington special interests and out-of-state campaign donations, and repealing the 17th would fix that.

However, it seems to me that repealing the amendment would have one fundamental problem: it takes power away from people and gives it to politicians. I do not want to think about what kind of corrupt bargains could take place if state politicians were allowed to elect federal politicians. Instances like the Blagojevich affair, where the Illinois governor tried to sell Obama's Senate seat, could become common. Strict party-line votes in state legislatures could also become the norm. If not for the 17th Amendment, Massachusetts voters could not have elected Scott Brown. Maintaining a balance between federal and state governments is important, but not as important as reflecting the will of the people in that state.

We need to decrease the size and power of the federal government, but repealing the 17th Amendment would probably cause more problems than it solves. As for Rick Perry, if he truly believes in states' rights, then his support of federal amendments that ban abortion and gay marriage make little sense.

Is "shovel-ready" still possible with today's regulations?

In the 1930's, FDR was able to create thousands upon thousands of jobs and stimulate the economy through infrastructure projects such as the Hoover Dam. In 2009, a similar attempt by Obama fell flat. Projects that were said to be "shovel-ready" were in fact nowhere near. According to this Wall Street Journal article, those projects failed to get off the ground largely because of a maze of environmental regulations and bureaucratic procedures that did not exist in the New Deal era. The effect of these regulations is substantial; according to a firm that advises on public works projects, a new bridge or a road through an urban area often requires five to seven years of planning before it is ready for a shovel. It is possible, says the author, that the Hoover Dam could not even be built today.

Obama is pushing for a new round of infrastructure spending to stimulate the economy, but any stimulus is unlikely to happen as long as these delays remain in place. I can't help but wonder what will happen to the country's infrastructure if it takes five years of bureaucratic haggling to even get started on a project.

Sunday, August 21, 2011

Republicans, inexplicably, want payroll tax cut to expire

Last December, Congress passed a bill that reduced the workers' portion of the payroll tax from 6.2% to 4.2% for one year. There is naturally a partisan disagreement in Congress over whether to renew the tax cut or let it expire. Some are arguing that the tax increase would hurt workers and the economy overall, while others are saying that the revenue is needed to balance the budget.

Surprisingly, however, the Republicans are the party that wants the tax cut to expire--a tax increase by their definition. This makes absolutely no sense to me. The GOP is fresh off a tense budget battle in which they fought vigorously to avoid any tax increases whatsoever. And now they are changing their tune?

Apparently so. According to the Associated Press (see above link), Republican congressman David Camp opposes extending the tax cuts because of the deficit, and Eric Cantor "has never believed that this type of temporary tax relief is the best way to grow the economy."

Wait a minute. I thought the Republicans believed that tax cuts were the BEST way to grow the economy. If they oppose "temporary" tax relief, then make it last 10 years instead of 1.

Mitt Romney did not come out for or against extending the tax cut, but said he would rather have the cut on the employer's side to spur job growth. I agree. However, why not cut both sides of the payroll tax? Better yet, why not eliminate the payroll tax altogether and replace the lost revenue by closing loopholes or raising the capital gains tax. The payroll tax discourages hiring and hits both employers and low-wage earners fairly hard.

I am completely baffled as to why many Republicans suddenly want to increase taxes on all working Americans. It almost seems to validate the progressives' claim that Republicans only care about rich people and corporations.

Wednesday, August 17, 2011

A good 8-point plan to fix politics (that will never happen)

The Daily Beast today outlined a pretty good 8-step plan to fix most of what ails American politics. (Of course, the special interests and party leaders would never let something like this happen). I would say that 5 of the 8 points are spot on, and 2 of them need only minor tweaks. Here is their nifty flowchart that describes the plan. In a nutshell, it consists of:

1. Independent redistricting.

2. A nationwide "clean elections" system. (My objection: This is probably unconstitutional. A better idea would be strict limits on campaign donations for all organizations, but no limits on donations from individuals).

3. Nonpartisan primaries: all candidates on the same ballot, top two advance.

4. More states committing to give their electoral votes to the winner of the national popular vote.

5. Fill vacancies in legislative committees randomly. (My suggestion: Require every committee to be evenly divided between Republicans and Democrats. Committees should not be tools of partisan power).

6. Eliminate the provision where senators can anonymously place holds on bills. 

7. Force filibusters to happen via actual on-floor debates.

8. Eliminate the debt ceiling. (My objection: It would be a bad idea to eliminate the last line of defense against out-of-control, over-budget spending. A better idea would be to pass a balanced budget amendment that also mandates a significant tax increase whenever the U.S. gets involved in a war).

$20 million for a green jobs program, but only 14 new jobs

Last year, Seattle won a $20 million federal grant to invest in weatherizing homes in poorer neighborhoods. The goal was to create 2000 jobs in Seattle and shrink carbon footprint.

More than a year later, only 14 jobs have been created--and worse, they are almost all administrative jobs. (That's $1.4 million per job, by the way). Community organizers are making various excuses and calling for more money. Perhaps if they get another $5 million, they can create three more jobs.

Could it be any clearer that job creation needs to be led by the private sector, and that the government--particularly the federal government--is just NOT GOOD at directly creating jobs?

Tuesday, August 16, 2011

Putting a leash on Wall Street

Traditionally, the function of the financial sector has been to provide capital for business. Over the last few decades, however, it seems that Wall Street has become much more than that. As William D. Cohan argues in this Bloomberg article, Wall Street has now become a huge casino--with speculation, hedging, and arbitrage instead of craps, blackjack, and roulette--where the players get to make bets that have consequences for the US economy but not for themselves.

In the past, Wall Street transactions mostly consisted of actually buying and selling shares of companies. Recently, however, we have seen an explosion in derivatives, which allow investors to speculate on the price of shares or commodities without actually buying the shares or commodities themselves. Credit default swaps, a type of derivative, played a huge role in the credit crisis of 2008. Even Warren Buffett has called derivatives "financial weapons of mass destruction."

Even worse is the concept of "too big to fail." Currently, Wall Street bankers have no consequences for making risky investments--they are rewarded with huge bonuses if the bets pay off, and with bailouts if they don't. Some people think that the banks should simply be allowed to fail. The problem is, if letting the banks fail could lead to economic disaster, that's still an awful situation. People on Wall Street should not be able to take risks that could submarine the whole economy if they fail. Banks that are too big to fail are too big, period, and need to be broken up. Reinstating Glass-Steagall would be a good start.

What is the government doing to prevent another financial crisis like what happened in 2008? Predictably, nothing. Wall Street simply donates too much money to candidates of both parties. Oh, and most of Obama's economic team has ties to Goldman Sachs. The Dodd-Frank bill claims to be "finance reform," but it specified almost nothing and left the reforms up to a team of bureaucrats. The best way to guarantee that nothing good will be accomplished anytime soon is to leave something up to a team of bureaucrats.

Some libertarians have compared the current American economic situation to the events of Ayn Rand's Atlas Shrugged. In that comparison, Wall Street--along with Fannie Mae and Freddie Mac--would be the obvious choice for the role of Orren Boyle, the incompetent businessman who keeps himself afloat by using his connections to get constant favors from the government. Although Wall Street is not incompetent, they have been taking way too many risks that endanger the whole economy. Government has only been encouraging those risks, and in some cases (e.g. housing) mandating them. It's a classic case of crony capitalism.

Monday, August 15, 2011

What to make of questionable comments from GOP candidates

Last week was not a good one for GOP sound bites. The leading candidates made a couple of statements that, if interpreted a certain way, could lead one to wonder if the party is careening off an ideological cliff.

First, during the GOP debate, every single candidate said that they would walk away from a deficit deal that had $10 in spending cuts for every dollar in tax increases. That is absolutely crazy. Anyone who would actually veto that deal has no business running for president. It's extremely unlikely that they would get a deal that was even that good. Do they think Democrats are just going to disappear? Do they not realize that those ten dollars in uncut spending will mean higher taxes later on? Would they really turn down a chance to substantially reform entitlements and move closer to long-term fiscal health in exchange for, say, ending the Bush tax cuts?

Like the author of the above article, I think that the mainstream candidates in the debate were most likely lying, and simply pandering to the hard-liners in the GOP base. Their statements are thus mostly an indictment of a primary system that is dominated by the radical wing of each party and forces candidates to throw red meat to their base, whether they truly believe what they are saying or not.

Secondly, Mitt Romney proclaimed at the Iowa State Fair that "corporations are people." Again, there are two ways of interpreting this. It could mean simply that corporations are made up of people, and as Romney said, all the money that goes to corporations eventually goes to people. It could, however, also mean that corporations deserve the same constitutional rights as people, an interpretation which the DNC is already using to attack Romney. This is a policy position that was unfortunately legitimized by the Supreme Court in the Citizens United case--in my opinion, one of the most destructive decisions in recent history.

As I stated in my first post, businesses are more akin to governments than to individuals; they are collective organizations which increase overall wealth, security, and efficiency but must be carefully monitored and limited lest they usurp the power of the people. The Citizens United case gives corporations (and unions) undue power over the political process, and Republicans who actually believe that "corporations are people" risk being labeled as protecting corporate fat cats at the expense of ordinary people.

Friday, August 12, 2011

Appellate court declares Obamacare's individual mandate unconstitutional

The 11th circuit has declared Obamacare's individual mandate to be unconstitutional. I've thought it to be unconstitutional from the beginning; Congress has the power to "regulate interstate commerce," but that does not give them the power to force people to engage in commerce by buying health insurance. A state-level health care plan (like the one that has already been implemented in Massachusetts) would still be OK, though. It seems to me that the states that want universal health care should implement similar plans and leave the rest of the country alone.

This raises questions about what will happen if the Supreme Court agrees with the 11th circuit's ruling that the individual mandate is unconstitutional, but the rest of the law can stand. Clearly, without the individual mandate, Obamacare is not financially viable, since only sick people will enter the insurance pool. The question is whether anyone will have the guts to do anything about it before the Obamacare subsidies blow the federal budget to smithereens.

Thursday, August 11, 2011

Bad news for Dems: Americans don't trust the government

We're almost three years into a crippling economic slump. Economic inequality is skyrocketing. Democrats are trying their hardest to blame the Tea Party for the recent debt crisis. Yet voters are not moving towards the Democrats or toward big government in any significant numbers. Democratic pollster Stanley Greenberg recently asked voters why, and his conclusion was quite enlightening. According to Greenberg, voters simply do not trust the government to carry out its policies fairly. This distrust in government translates to distrust of big-government progressives and of Democrats in general.

The voters' take on TARP, for instance, was that "government works for the irresponsible, not the responsible." "Average citizens," they said, "don't get money for free." Overall, the Americans in Greenberg's survey see a government made up of politicians that work only for themselves, Wall Street lobbyists, campaign donors, and special interest groups. The American people are ignored. The 2009 stimulus, the lack of seriousness about controlling the borders, the attempted cap-and-trade legislation, and the number of Obama cabinet members with ties to Goldman Sachs are all seen as indicators of how much Washington is controlled by special interest lobbyists and campaign money.

Greenberg goes on to suggest several ways that Democrats can "detoxify" government and renew voters' faith in progressivism. But is detoxifying government really possible? Hasn't Greenberg just pointed out the fundamental problem with big government? If we had a government of angels, I'd be a progressive too. The problem is, we don't. We have a government made up of people--all of them flawed, inherently corruptible, and inherently self-interested at least to some degree. We've all heard the saying, "Power corrupts." It is simply not realistic to expect that people, when given the power of a seat in Congress, will consistently put the interests of the people ahead of themselves and their campaign donors. I'd love for someone to think of a counterexample--a government that consistently did the right thing for its people, decade after decade.

But most of the time, at least, government doesn't work that way. As government gets bigger, those who benefit are mostly a well-connected few. That certainly happened under the big-government crony capitalists of the Bush administration and it's happening now. And Americans seem to be figuring that out.

Wednesday, August 10, 2011

A victory over special interests in Wisconsin

In general, I have no problem with private sector unions. They represent workers and negotiate with companies who have strong incentives to cut costs in order to make a profit. Public sector unions, on the other hand, are a completely different story. They are employed by government, whose goal is not to make a profit but to get votes. If anything, government has an incentive to overpay their workers in order to try to get their votes. It is also not fair that public sector unions, who take their money out of the taxpayer-funded salaries of public workers, are free to donate vast sums to political parties. Finally, we have George Meany, the former President of the AFL-CIO, who said in 1955 that "it is impossible to bargain collectively with the government."

Public sector unions, basically, are just another one of the special interests that are currently infesting governments throughout the country. Thus, I believed that Scott Walker's bill which limited the collective bargaining power of public sector unions in Wisconsin was a step in the right direction. Predictably, Democrats fought Gov. Walker tooth and nail, first by fleeing the state, then by organizing an attempted recall of the six Republican lawmakers they saw as most vulnerable. They needed three of the six seats to regain control of the Wisconsin senate.

What happened? Despite staggering amounts of money and effort from organized labor, the Democrats only managed to win back two seats--one in a solidly Democratic district, the other held by a man who had left his wife and moved outside his district to live with his mistress. The other four recall elections were not close.

It certainly helped that Walker's bill helped school districts save millions of dollars by eliminating the teachers union's monopoly power on health insurance contracts, and that Walker's administration has had a very good record on jobs. It's good to know that people can still stand up to powerful special interests.

Monday, August 8, 2011

Bush and Obama: More similar than different

Obama is (deservedly, in my opinion) taking a lot of heat these days for the debt crisis and the down economy. One of the classic responses from left-wingers trying to defend Obama is "Well, would you prefer Bush?" In some ways, that is a good point. More fundamentally, however, I feel like it misses the point. If you look past the "R" and "D" labels, Bush's and Obama's presidencies are really more similar than different. Obama is not really a liberal, although he does lean left; nor was Bush really a conservative, although he leaned right. They are both statists, dramatically expanding the power and the role of government. And both their administrations were characterized by grossly irresponsible spending and heavy-handed policies that backfired.

During Bush's eight years in office, the national debt ballooned from $5.7 trillion to $10.6 trillion--an increase of nearly $5 trillion. During Obama's 2.5 years in office, the national debt grew from $10.6 trillion to $14.5 trillion--an increase of nearly $4 trillion in about one-third of the time. However, Obama has done his borrowing in a historically bad economy, when some amount of deficit is acceptable or even advisable so as to allow for pro-growth tax cuts or spending. Bush's borrowing was mostly during good economic times, when deficits are much harder to justify. In addition, some of Obama's spending was the result of the two wars he inherited from Bush. Conclusion? Bush borrowed a lot when he should have been borrowing nothing. Obama is borrowing a ridiculous amount when he should only be borrowing a little.

Besides spending like drunken sailors, both presidents seemed to believe that more power from the U.S. government is a good thing. Bush attempted to expand American global influence with bombs and guns. He started two wars that turned into long, deadly occupations, while continuing to believe that the people of Iraq and Afghanistan would somehow appreciate the American occupation and the heavy American influence on their new governments. Obama, on the other hand, seems to believe that he always knows better than the American people--whether it means forcing people to buy healthcare, preventing people from buying incandescent lamps, trying to tell companies that they can't open a factory in a certain state, or trying to prevent workers from having a secret-ballot vote on whether to unionize. Obama clearly does not see individual economic freedom as anything worth protecting.

So forget the "R" and "D" labels. We should not automatically associate all Democrats with Obama or all Republicans with Bush. The next president, regardless of party, needs to be someone who is as unlike either of them as possible.

Sunday, August 7, 2011

Now is the time for tax reform

The United States is currently in an unenviable situation. The economic slump is approaching the end of its third year. At the same time, sky-high deficits and debt have resulted in a credit downgrade and a bitter partisan fight in Washington. Clearly, a return to economic growth would help solve both these problems.

Where will the growth come from, though? Stimulus spending has been tried--and has failed. Pro-growth tax cuts like those in 1961 and 1981 would not be politically feasible because of deficit concerns. One possible answer, suggested by WSJ columnist Stephen Moore, is revenue-neutral tax reform.

As Moore points out, a similar deal was struck in 1986, when the top income tax rate was lowered to 28%, which was balanced out by eliminating a host of deductions. The deal resulted in an estimated $1 trillion of economy-wide gains. This time, rather than lowering the marginal income tax rate (which was already done under Bush), a better idea would be to lower the corporate tax rate. Combining state and federal taxes, the US corporate tax rate is currently 39%, which is far higher than almost all other countries, and gives US companies a clear disadvantage in the global market. The employer portion of the payroll tax, which is basically a direct tax on hiring, also needs to disappear ASAP. If we want more hiring (which clearly we do), we shouldn't be taxing it.

How can we balance this out? For one thing, aggressively close off loopholes and tax subsidies. The real sad part of our corporate tax policy is that the largest corporations can hire armies of lawyers to figure out how to best exploit the loopholes--but mid-size businesses, without the ability to hire those lawyers, get hit with the full effect of the tax. That needs to end. Similarly, the favors to special industries (agriculture, hedge funds, green energy, etc) in the tax code need to be cut. Ethanol was a good start.

And if that doesn't balance the revenue effects of cutting the corporate and payroll taxes? Raise taxes on large high-yield capital gains, or put a tax on derivatives transactions. Unlike business, Wall Street does not create jobs or produce goods that add value to the economy. Large capital gains and derivatives are almost exclusively the province of the rich. And such a tax could discourage the kind of high-risk speculation that resulted in the 2008 crisis.

Wednesday, August 3, 2011

Two views on balancing the budget

Esquire today presented a very interesting left-right juxtaposition: two articles by former senators Gary Hart (D-Colo.) and Bob Packwood (R-Ore.) about balancing the federal budget. Here is Hart's article and here is Packwood's.

So who's right? Well, neither. Or both. Hart understandably decries the failure to regulate financial markets. Hart also correctly points out that the Iraq and Afghanistan wars combined with the Bush tax cuts were not good for the deficit. Given that both the wars and the tax cuts have continued for more than a decade, at this point they are responsible for a huge chunk of the federal debt.

Now, the Bush tax cuts, by themselves, were not a bad idea. Hart's biggest mistake is his refusal to acknowledge that tax cuts can stimulate the economy--a strategy that is part of Keynesian economics and worked undeniably well under both Reagan and JFK. The problem is, if you cut taxes you need to restrain spending, and Bush did exactly the opposite. Here's an idea: pass a law that requires a tax increase for any military operation that continues longer than 10 days. That will keep deficits down, and it might make the trigger-happy contingent of the GOP (which thankfully seems to be in decline) less likely to push for war.

Packwood's article discusses the worrisome increase in total federal spending, with a particular emphasis on entitlements. He is right on there: unless something is done to stop the runaway growth of entitlement spending, deficits will explode in the next few decades. However, by failing to discuss anything besides entitlements, Packwood exemplifies a certain conservative myopia. If the GOP focuses too much on slashing entitlements and leaves everything else alone, they will lose election after election. It would almost take a Vulcan to not see it as unfair for seniors and Medicaid patients to have to make all the sacrifices. While restraining entitlements are essential, fiscal conservatives need to be just as willing to consider things like dismantling the American empire, eliminating foreign aid, cutting federal payroll, closing tax loopholes, and probably--in a decade or two--raising taxes in some form.

Tuesday, August 2, 2011

"Terrorists" rhetoric completely crossed the line

With the signing of the debt deal, perceived as favorable to the GOP and the Tea Party, a whole mess of nasty rhetoric has come out of the woodwork. You might expect a leftist blog to compare the Tea Party to terrorists. It's a bit more surprising when you see a New York Times columnist claiming that the Tea Party has "waged jihad on the American people." Still, it's only an op-ed column.

However, when the Vice President of the United States says that the Tea Party "acted like terrorists," that's pretty despicable. He was responding to an even blunter comparison from Rep. Mike Doyle (D-Pa), who flat-out said that a “small group of terrorists have made it impossible to spend any money.”

Look, I realize political debates can get heated. You could call the Tea Party Republicans obstinate, pigheaded, or extremist, and I might agree with you somewhat. You could talk about GOP hypocrisy for not cracking down on spending when Bush was in office, a perfectly valid argument. You could call them cruel and heartless or talk about their supposed allegiance to millionaires and oil companies at the expense of the working class. Fine.

But terrorists? Terrorists want to blow up buildings and trains and kill people, ideally thousands of people. The Tea Party wants to cut government spending--that's it. Some people have tried to argue that the Republicans were leading the country toward default with their reluctance to raise the debt ceiling. That is hogwash. The government would still have had more than enough money to pay interest on the debt. The only way a default could have happened is if Congress decided that paying some bureaucrats in the Department of Energy was more important. The worst-case scenario was a government shutdown a la 1995.

So seriously, enough with the crazy rhetoric, or there might be knife fights in the Capitol before the end of the year.

Monday, August 1, 2011

The debt deal: kicking the can down the road

So, after a months-long fight over raising the debt ceiling, we finally have a deal. But what did it accomplish? Not much, according to this Washington Post analysisIn the words of Sen. Lindsey Graham:

“It’s a $3 trillion package that will allow $7 trillion to be added to the deficit over the next decade. We’re no longer running toward oblivion, we’re walking toward it.”

In the best-case scenario the deal will only cut 6-7% of federal spending over the next 10 years. That is ignoring the fact that federal spending is slated to increase by over 50% over the same time period. Meanwhile, unemployment is as high as ever. As fights go, the budget battle was reminiscent of the War of 1812, which featured years of nasty fighting and then a cease-fire that basically just restored the status quo ante bellum. 

In general, I like divided government. When one party controls the House, Senate, and the White House, they tend to do things like send us into a protracted war without a clear objective, or an exit strategy, or a way to pay for it. The downside of divided government, however, was on full display over the last few weeks. With Democrats stubbornly refusing to cut or reform entitlements, and Republicans stubbornly refusing to raise revenue by closing loopholes or eliminating tax subsidies, there was little chance of achieving significant long-term deficit reduction. They also ignored the ongoing jobs crisis in their obsession with the deficit, refusing to consider more small business tax cuts or infrastructure spending that could help reverse unemployment. Indeed, the only compromise they could settle on was just kicking the can down the road.