“No Man’s life liberty or property is safe while the legislature is in session”.

- attributed to NY State Judge Gideon Tucker

Friday, August 5, 2011

The Debt Limit Deal- Government American Style

I wrote in this recent post,

"Actually, they do. And we know for a fact that voters in at least 87 House districts, the ones which elected freshmen GOP members, and a handful of states which elected Senators like Marco Rubio, Rand Paul, and other Tea Party-inclined GOP freshmen Senators, don't care about bi-partisanship which allows the free-spending liberal Democrats to continue their usual Washington ways.

What I believe we are seeing is not a new emphasis on bi-partisanship, but a fleeting moment of collaboration to do the minimum necessary to operate the federal government, until the 2012 elections sweep Democrats from their control of the Senate and, probably, the Oval Office.

But I agree with Charles Krauthammer, who contended recently on Fox News that Americans need a serious, knock-down, drag-out debate about the nation's direction at least once every generation.

That's what is occurring now. The recent debt limit debates and so-called (faux) crisis is merely the opening shot in that battle.

If you can objectively observe the trends of the past four years, it's pretty clear that the election of an inexperienced, spendthrift Senator from Illinois to the presidency, along with majorities in both houses of Congress, was the breaking point.

Now momentum has moved back the other way."

David Rivkin, Jr., and Lee Casey, attorneys who served in the Department of Justice during the Ronald Reagan and George H.W. Bush administrations, wrote an editorial in Tuesday's edition of the Wall Street Journal entitled A Debt Deal The Founders Could Love. In it, they expanded on a similar point, eschewing this sudden love of bi-partisan compromise by Democrats,

"The debt-ceiling crisis has prompted predictable media laments about how partisan and dysfunctional our political system has become. But if the process leading to the current deal was a "spectacle" and a "three-ring circus," as Obama adviser David Plouffe put it, the show's impresarios are none other than James Madison and Alexander Hamilton. Our messy political system is working exactly the way our Founders intended it to.

To the extent House members were the most intransigent during the process—a matter of opinion, in any case—they were meant to be. The House of Representatives is the "popular branch," as described in The Federalist Papers, and was intended to "have an immediate dependence on, and an intimate sympathy with, the people." Many people, especially those who elected tea party candidates last November, passionately believe that the federal government has gone off the rails. They think that Washington has been spending like a drunken sailor since President Obama took office, and that this profligacy must end.

By contrast, the Framers conceived the Senate as a body of graybeards (or, at the very least, as modestly mature individuals who have reached the age of 30). It was meant to represent the interests of the states and to serve as a check on "the impulse of sudden and violent passions," or the danger of "factious leaders" offering "intemperate and pernicious resolutions" that might in time characterize the lower house. If the Senate has been less willing than the House to call an immediate halt to federal borrowing and to seek a more gradual return to fiscal responsibility, this too is exactly what it is supposed to do.

The result was a compromise, as it has nearly always been throughout our history. This will be a disappointment to many who voted for real and immediate fiscal restraint, but that too is to be expected. The Framers believed in gradual change. They prized stability and predictability. Most would have agreed with Talleyrand's injunction—"above all, not too much zeal"—and themselves watched as Talleyrand learned this lesson the hard way. An early and enthusiastic participant in the French Revolution, France's future foreign minister was forced to take refuge in the United States after his countrymen started cutting off heads.

Accordingly, the Framers rejected a parliamentary system of government, where power is concentrated in the legislature and very often in one house of the legislature. There truly are winners and losers in such political systems, and governmental policy can indeed be transformed immediately after a new government takes office.

By contrast, our Constitution diffuses power both vertically among the federal government and states and horizontally among the three branches of the federal government—and then again within Congress itself. Change, even good and necessary change, is always difficult. It must be based on consensus.

Yes, reaching consensus on any issue that matters is messy. Shouting and intransigence are commonplace in such battles and have been since the very beginning. Indeed, the Washington circus began well before the capital city was completed, and the Founding generation was second to none in its use of political invective. For example, Thomas Jefferson and his surrogates suggested President Washington had gone senile and claimed that John Adams was a closet monarchist. After he became president, Jefferson himself was excoriated because of an alleged sexual relationship with one of his slaves, Sally Hemmings.

Rarely in our system do the participants, whether in the House, Senate or White House, achieve all or even most of their goals in a single political battle. Sunday night, a debt-ceiling deal was reached that will raise the federal debt ceiling and permit continued borrowing to fund federal government operations through 2012 rather than just for another six months. The hard questions—taxes and spending cuts—have largely been postponed.

But the key point has been made. Few now suggest that we can continue on our current spending binge. That is the beginning of a consensus, and a good start towards genuine change. Postponing the difficult questions also means that the electorate can have its say in the 2012 elections, and represents significant political risks for all parties.

The Framers would be pleased at the "spectacle." "
Rivkin and Casey have done a wonderful job, in my opinion, of debunking, with historical examples, this commonly-, but wrongly-held notion that there was more political civility in our Republic's olden times. One often hears these appeals for bi-partisanship, compromise and civility when a party or leader knows they possess a very weak position, either in terms of votes or ideology.
In this most recent case, the debt limit battle, the Democrats were weak on both counts. Thus, the appeal for compromise in order to attempt to hide their weakness on spending and rather naked desire to simply be given the license to embark on a few trillion dollars more in American indebtedness.
While it's true that the ultimate amount of spending cuts were minuscule, and the debt ceiling was raised by an amount ($2.4T) calculated by Wonderboy to allow him to get through the next election before seeking to raise it again, the tide has turned, and Tea Party-inspired legislators who voted for the anemic bill made their point.
And it's not finished. Michele Bachmann voted no and, I am sure, will use that vote to bludgeon any fellow candidates for the GOP presidential nomination, should they voice support of the bill, as passed.
It would have done no good for the US to have gone through the trouble of allocating incoming tax receipts to pay debt interest and some necessary expenses, while shutting down parts of the federal government. But the near-run partial shutdown proved a point.
It substantially eroded Wonderboy's remaining low levels of power and standing with voters. I suspect, given the excessive rhetoric of Democratic Senators and the VP, calling Tea Party-backed legislators "terrorists" won't have endeared that party to voters, come 2012. Not to mention Harry Reid's continuing insistence that he wants to raise taxes so he can hand Wonderboy more money to waste.
Even if the GOP can't field a candidate who defeats Wonderboy next year, the Senate is likely to shift to GOP control, making the First Rookie's second term, if there is one, essentially pointless.
But, as Rivkin and Casey imply, America gets the government it wants and deserves. It tried Democratic hegemony for two years, and found it unacceptable. As I wrote in the earlier post, were the entire Senate up for re-election last November, chances are the Republicans would control that chamber now, too.
Come 2012, though, sufficient numbers of independents could be so wary of continued Democratic control of any federal branch of government that even a weak GOP presidential candidate will be washed into office along with majorities in both houses of Congress. To begin the work of cutting back federal government size, reach and spending.
Yes, it sure is messy when government change occurs 33 Senate seats, 435 House seats at a time, every two years, and the Oval Office only once each four years. It makes for halting, erratic government during the big power shifts.
But I sense a trifecta coming for the GOP in 2012 now that the Democrats showed their true colors during the debt ceiling battle, i.e., raise taxes, borrow more, spend more.
I believe most voting Americans no longer want that type of federal government. And when they get what they want next year, it won't look so messy anymore.

Thursday, August 4, 2011

Lindsay Graham: RINO Chameleon

Judging by Lindsay Graham's vote against the debt limit bill, he must be getting worried 4 years early.

Last year and earlier this year, the South Carolina Republican Senator was a periodic target of former Fox News program host Glenn Beck. Beck rightly pilloried Graham for having become a closet progressive.

Suddenly, Graham is trying to look and act like a Tea Party activist. Funny, though, how he was absent from the big Washington Tea Party rallies on 9/12/2010 and during the final stages of the Democratic push on ObamaCare.

Jim DeMint, his Senate colleague from the same state, however, was very visible.

I'm thinking that with Nicki Haley's election as a very conservative governor of his state, Graham is worried that he's going to be challenged from the right when he runs again in 2014.

My earliest memories of Graham are from my college days, when he and two other then-Democratic Representatives- Phil Gramm of Texas and Trent Lott of Mississippi- all deserted their party to become GOP members. They were known as the Boll Weevils. All subsequently ran for the Senate and won there, too.

Gramm left the Senate quite a few years ago. Lott was effectively forced out for comments taken by the liberal media as racist.

Though Graham hasn't made a major faux pas like that, he's long in the tooth now. Too many years, I believe, cutting deals and changing patterns like a chameleon to remain in power.

Now, he's just a RINO trying to slip on Tea Party colors while hoping nobody will notice. With luck, either he'll decide to retire after this term, or get shellacked by some young, truly conservative Republican in South Carolina.

Wednesday, August 3, 2011

Eric Cantor & The Debt Limit Bill

Gerald Seib wrote a thoughtful piece in the Wall Street Journal this week profiling Eric Cantor's enhanced stature coming out of the debt ceiling debates and bill.

Seib's conclusions matched my own, i.e., that Cantor is as much a voice and leader of the House GOP Tea Party freshmen as anyone, and provided the necessary pressure on John Boehner to keep him out of deals involving more or higher taxes.

I was surprised to learn of Cantor's apparent bonding with Washington court jester Joe Biden. However, with luck, that's not going to be a relevant relationship in a little over another year.

Mostly, though, I appreciated Seib's characterization of Cantor as providing a mix of Tea Party anti-spending, anti-tax fervor with a recognition that failure on the part of the GOP to deliver some sort of legislation which avoided Wonderboy claiming default, while at least beginning to cut spending, was unacceptable.

The House GOP leadership is pretty much where I had hoped and thought it would arrive. Boehner having years in the House to provide some seasoned political sense, with Cantor, Ryan and McCarthy delivering the fresh thinking and Tea Party-driven spirit of lower spending.

Tuesday, August 2, 2011

When Compromise Becomes A Virtue

Isn't it funny that when Democrats can't get what they want by ramming bills through Congress with majorities in both houses, they suddenly discover compromise?

Remember how, in early 2010, after Scott Brown of Massachusetts became the 41st Republican Senator in a special election, the Democrats, far from working to compromise on ObamaCare, contorted the process of passing the bill in order to avoid any compromise with Republicans, instead, ramming the bill through as a spending bill, rather than a policy-focused health care bill?

Now, during the current debt limit increase process, because Harry Reid and Wonderboy can't get what they want, they brand the newly-elected Republican Representatives and Senators who bring with them a new voter preference for fiscal rectitude and lower spending as terrorists, while they now preach compromise.

They trot out that old Washington refrain,

'The voters want us to work together to get something done. They don't understand all this partisan extremism and bickering.'

Actually, they do. And we know for a fact that voters in at least 87 House districts, the ones which elected freshmen GOP members, and a handful of states which elected Senators like Marco Rubio, Rand Paul, and other Tea Party-inclined GOP freshmen Senators, don't care about bi-partisanship which allows the free-spending liberal Democrats to continue their usual Washington ways.

What I believe we are seeing is not a new emphasis on bi-partisanship, but a fleeting moment of collaboration to do the minimum necessary to operate the federal government, until the 2012 elections sweep Democrats from their control of the Senate and, probably, the Oval Office.

Then compromise won't be required anymore- again. Only then, the GOP will be able to cut spending, borrowing, entitlements, and enact meaningful tax reform with fewer preference items and lower rates.

All without compromise.

That's when you won't hear the word compromise from House and Senate minority leaders anymore.

But I agree with Charles Krauthammer, who contended recently on Fox News that Americans need a serious, knock-down, drag-out debate about the nation's direction at least once every generation.

That's what is occurring now. The recent debt limit debates and so-called (faux) crisis is merely the opening shot in that battle.

If you can objectively observe the trends of the past four years, it's pretty clear that the election of an inexperienced, spendthrift Senator from Illinois to the presidency, along with majorities in both houses of Congress, was the breaking point.

Now momentum has moved back the other way.

As I write this at 4PM on Monday afternoon, Boehner and his leadership team has just finished their press conference. They didn't get all they wanted. The debt limit bill isn't a conservative's dream. But it at least has, as Paul Ryan asserted, changed the direction in spending at the federal level for the first time in decades.

The real heavy lifting will occur after 2012. Until then, it'll be a holding action as the GOP prevents wild spending in reaction to recent weak economic data. But the stage appears to be set now for a longer term move toward conservative values on federal spending, debt and taxes.

Monday, August 1, 2011

A Rant Without Evidence- Socialist Senator Bernie Sander's WSJ Editorial

Bernie Sanders, the independent- read 'socialist'- Senator from Vermont, is a member of the Senate Budget Committee and author of a detail-less rant in Friday's Wall Street Journal.

"The rich are getting richer. Their effective tax rate, in recent years, has been reduced to the lowest in modern history. Nurses, teachers and firemen actually pay a higher tax rate than some billionaires. It's no wonder the American people are angry."

Where's Bernie's evidence? Actually Stephen Moore recently wrote a Journal editorial last Thursday in which he debunked the myth of "the rich" paying lower tax rates than lower income filers. Moore wrote,

"During Monday night's national address, President Obama recited the Buffet line that millionaires and billionaires pay lower tax rates than their secretaries. Democrats in Congress routinely cite Mr. Buffett's tax confessions as irrefutable evidence that tax rates on the very rich are too low and the system is unfair. And the system would be unfair, if Mr. Buffett's tax facts were the whole truth. But they aren't.

I don't know the details of Warren Buffet's personal taxes, and he hasn't made them public. But the IRS does provide reliable data on effective tax rates—the overall share of their income that various groups pay in federal income taxes (not including state or local taxes) after accounting for all deductions and exemptions. These are different than marginal tax rates, which are paid on the next dollar of income and now peak at 35% for individuals.

IRS data for 2008, for example, show that households in the top 10% of earners (above about $114,000) paid 19% of their income to the feds. Those in the top 1% (above $380,000) paid 23.3%. The top 0.1% of earners, with incomes of $2 million or more, end up paying a slightly lower tax of 22.7%, because they get more of their income from investments (more about this below).

So what about the rest of us? According to IRS data, a median-income household ($35,000) in 2008 paid about 4% of its income in federal income tax.

Mr. Buffett may have been referring to all federal taxes, not just income taxes, when he said the rich pay less than others. His secretary and most workers in America do pay a lot in Social Security and Medicare payroll taxes, but even accounting for them the federal system is highly progressive.

According to the Congressional Budget Office (CBO), middle-class families in 2007 (earning between $34,000 and $50,000) paid an effective 14.3% of their income in all federal taxes. The top 5% of income earners paid 27.9% and the top 1% paid 29.5%. And what about the highest earners? Americans with annual incomes above $2 million paid an average 32% of their income in federal taxes in 2005 (the most recent year for which data are available).

So how does Mr. Buffett arrive at such a low personal tax rate? He may have been referring to a 2010 IRS study of the 400 richest American taxpayers, a list he's probably on. It showed those people paid an effective federal income tax of 18.1% in 2008.

Yet that study crucially omits the corporate income tax, which is mostly borne by the owners of companies.

Mr. Buffett owns about one-quarter of his investment company Berkshire Hathaway, and his shares are worth about $38 billion. This wealth is mostly stored in what are technically called "unrealized capital gains." Eventually when those gains are converted into income, he will pay a capital gains tax. Even so, in 2008 Berkshire paid $3 billion in corporate taxes. And since Mr. Buffett is the principal owner, he shoulders a big share of that tax.

The reason for the light capital gains and dividend tax is that corporations pay up to a 35% tax on their profits before a dime of it is passed on to shareholders. The real tax rate on corporate income paid to individuals through capital gains and dividends is not 15%. It is closer to 45% once you count the tax on corporate profits. If the dividend tax rises to 20% next year from 15% today, then the total tax on dividends paid to shareholders would be closer to 50%, and that doesn't include state and local taxes.

Overall, though, Warren Buffett is wrong on taxes. The tax system is already far too reliant on the wealthy to pay the government's bills. Taxes on millionaires and billionaires are already near a record high in terms of the share of all income taxes paid. And the effective tax rate on this group is much higher, not lower, than any other income category. The best way to balance the budget is for the economy to produce a lot more American success stories like Warren Buffett."

So, on his first point, score Bernie Sanders a liar.

Then the Senator continues,

"Many corporations, including General Electric and Exxon-Mobil, have made billions in profits while using loopholes to avoid paying any federal income taxes. We lose $100 billion every year in federal revenue from companies and individuals who stash their wealth in tax havens off-shore like the Cayman Islands and Bermuda. The sum of all the revenue collected by the Treasury today totals just 14.8% of our gross domestic product, the lowest in about 50 years.

In the midst of this, Republicans in Congress have been fanatically determined to protect the interests of the wealthy and large multinational corporations so that they do not contribute a single penny toward deficit reduction."

Corporate tax preference items are frequently cited by Democrats interested in class warfare over tax policy. I don't know the source of GE's tax preference items, but Exxon-Mobil makes use of oil depletion accounting which Congress granted decades ago to encourage American oil exploration and production. The company is simply using what Congress granted because Congress wanted more oil production. What's wrong with that?

Does Sanders want less US oil production? Further, American business wouldn't have these tax preference items if members of Congress like Sanders, and their staffs, didn't sell their power to write tax law for various favors- campaign contributions, for example- now and in the future. Think senior executive posts and/or board seats.

If Congress now wants fewer tax preference items with lower, simpler, fewer rates, by all means they should reform the tax code. But Republicans aren't necessarily defending the tax codes, and the companies Sanders mentioned aren't doing anything illegal.

Sanders then turns to entitlements with these passages,

"If the Republicans have their way, the entire burden of deficit reduction will be placed on the elderly, the sick, children and working families. In the midst of a horrendous recession that is already causing severe pain for average Americans, this approach is morally grotesque. It's also bad economic policy.

President Obama and the Democrats have been extremely weak in opposing these right-wing extremist proposals. Although the United States now has the most unequal distribution of wealth and income of any major industrialized country, Democrats have not succeeded in getting any new revenue from those at the top of the economic ladder to reduce the deficit.

Instead, they've handed the wealthy even more tax breaks. In December, the House and the Senate extended President George W. Bush's tax cuts for the rich and lowered estate tax rates for the wealthiest Americans. In April, to avoid the Republican effort to shut down the government, they allowed $38.5 billion in cuts to vitally important programs for working-class and middle-class Americans.

The Reid plan is bad. The constantly shifting plan by House Speaker John Boehner is much worse. His $1.2 trillion plan calls for no cuts in the wars in Afghanistan and Iraq, and it requires a congressional committee to come up with another $1.8 trillion in cuts within six months of passage.

Those cuts would mean drastic reductions in Social Security, Medicare and Medicaid. What's more, Mr. Boehner's plan would reopen the debate over the debt ceiling, which is now paralyzing Congress, just six months from now.

While all of this is going on in Washington, the American people have consistently stated, in poll after poll, that they want wealthy individuals and large corporations to pay their fair share of taxes. They also want bedrock social programs like Social Security, Medicare and Medicaid to be protected. For example, a July 14-17 Washington Post/ABC News poll found that 72% of Americans believe that Americans earning more than $250,000 a year should pay more in taxes."

I wrote these two posts- here and here- recently on my business blog, building upon this July 4th post, America's Porkiest Generation. The theme of those posts is that the US Congress and various administrations of both parties have misled the American public into believing that three existing and one newly-created, poorly-designed, common-pool, defined-benefit social welfare programs- Social Security, Medicare, Medicaid and ObamaCare- were and are affordable, sustainable and constitute valid, binding promises by future generations to pay for pensions and healthcare of prior ones.

Sanders includes some numbers in those passages from his editorial, but not ones that matter to the point at hand- whether the four programs are, in reality, unenforceable Ponzi schemes whose promises were never valid. It's no surprise that a socialist would cherry pick from many polls, though he does not enumerate the "poll after poll," to claim that "the American people have consistently stated that they want wealthy individuals and large corporations to pay their fair share of taxes." Of course, not only do we not know the sample compositions, sizes, etc., of those alleged many polls to which Sanders refers, but we also do not know whether those polled believed that "wealthy individuals and large corporations" already "pay their fair share of taxes," do we? Further, as I wrote in those prior linked posts, who is to say what is fair?

Bernie Sanders? The Democratic party? I think not.

As I cited in this recent post,  AEI head Arthur Brooks noted that,

"Between 1986 and 2009, the percentage of Americans who pay zero or negative federal income taxes has increased to 51% from 18.5%. And all this is accompanied by an increase in our national debt to 100% of GDP today from 42% in 1980."

So it should come as no surprise, when 51% of Americans pay no federal tax, that, in some survey whose provenance is unknown, an alleged 72% want Americans earning over $250,000/year, hardly a 'wealthy' income for a family anymore, to pay more in taxes.

Having failed to clearly justify any of his points thus far, Sanders concludes his rant by asserting,

"In other words, Congress is now on a path to do exactly what the American people don't want. Americans want shared sacrifice in deficit reduction. Congress is on track to give them the exact opposite: major cuts in the most important programs that the middle class needs and wants, and no sacrifice from the wealthy and the powerful.

Is it any wonder, therefore, that the American people are so angry with what's going on in Washington? I am too."

I want "shared sacrifice" in spending reductions, not merely deficit reductions. The former are real spending cuts, whereas the latter is the difference between tax receipts and spending. A significant matter over which Sanders silently glides. In my view, that shared sacrifice means cutting the unearned, unaffordable, unfunded, larded-up defined-benefits to various groups from the four entitlement programs which are bankrupting our nation.

That would be true shared sacrifice- for every federal largess recipient to experience the same effects of inflation, higher taxes, average wage change and overall US GDP growth each year as the average working, tax-paying American.

How about Bernie? Want to go there in the name of fairness and shared sacrifice?