Why are Congress’s balls at 15 percent?

If anyone would like to put a name and a time to the reduction of taxes on investment income, I cite the Jobs and Growth Tax Relief Reconciliation Act of 2003, which reduced marginal rates for all individual taxpayers, but also capital gains and “qualified dividends.” You’ll note from the tax bracket charts that the top ratepayers got the biggest cut of 3.3 percent, while the three brackets below got a 2 percent cut each and the bottom two saw no change. That may partially explain President Obama’s insistence on the Buffett Rule.

For those who need a refresher, the Buffett Rule entails creating a seventh tax bracket for minimum incomes of $1 million, with a 30 percent marginal rate. This is in response to the 15 percent rate paid on capital gains, ushered in to encourage business investment. Proponents point out that this wasn’t a problem during the Clinton administration, when the top rate was 29 percent. Opponents say it will discourage investment and amounts to class warfare.

Some of you may remember that this sort of thinking was behind the Alternative Minimum Tax, designed to make up for loopholes that allowed upper-income households to pay much less in income tax, or sometimes zero. (It’s worth noting that corporations pay 6 to 8 percentage points less than households, as well as trusts, under this scheme.) The Buffett Rule would be far simpler, but not necessarily fairer, despite having fairness as its intention.

For example, let’s say a household does make $1 million but derives much of that income from a small business or family farm. I haven’t heard about exemptions for those yet. And let’s say a company does make a fair bit of money off investments, but reinvests it into itself to hire a few extra hands, whereas an individual investor uses it to pay for a car elevator. There’s no guarantee that the Buffett Rule would chill investments, but there’s also no guarantee that it would not.

It’s an impossible dream to roll back tax rates to 1999 levels, as much as I’d personally prefer that. Once people get some unnecessary treats from the government, you’ll have a hell of a time taking them away, which explains a lot about why the U.S. budget is in such dire straits. Even if Congress’s collective balls were that big, it wouldn’t address the loophole problem. So the task must be for the government to identify the holes that need the most plugging and, for the love of God, plug them.

Of course, they might also consider growing the aforementioned balls to the point that they wouldn’t be afraid to make some tough choices about needlessly low rates. But perhaps I’m just pissing in the wind myself.

The lost virtues of Washington

It’s time once again for The Future American’s FAIL OF THE WEEK! Every Saturday, I name a person or group who has spent the past seven days behaving in a particularly idiotic way. Since it’s my belief that idiocy knows no politics, nobody is safe.

This week’s fail was brought to you by the 382 members of Congress who voted against a bill that revived the recommendations of the Simpson-Bowles commission. (The article insists on calling it the Bowles-Simpson commission, but my version rolls off so much more nicely.) I’m not entirely surprised; look at the recommendations and tell me if you’d vote for it.

• $200 billion in cuts to discretionary spending, including a 15 percent cut to defense procurement;
• $100 billion in new tax revenue, mostly through closing loopholes, but also through a 15 percent-per-gallon gas tax;
• health care cost controls, including the institution of the public option;
• a corporate tax rate reduction, for the sake of international competitiveness;
• and entitlement reductions ranging from Social Security to military pensions.

Everyone has a pet project in there somewhere. Democrats approve of the revenue increase and defense cuts, but not the entitlement cuts or corporate tax reduction. Republicans have the reverse of that view. But what about those who just want to bring the debt down and have little to no compelling preferences of how to do it? Because that describes a hell of a lot of us in the centrist/independent community.

But the true failure lies in the rest of the article. More than one Beltway insider, independently of one another, admits that the political risks of bills like this are viewed as insurmountable, and that only a true crisis will be enough to spark “courageous” voting. Such was the case with the bank bailout, which nobody liked but accepted as necessary for the time. We still slag them for not taking preventative measures long before that.

History has repeated itself within four years. The successor to the Simpson-Bowles commission, known fondly here as USConJointSelComDefRed, literally gave up on finding a workable debt reduction plan. The Simpson-Bowles version is the workable debt reduction plan, and only 38 members of Congress have the cojones to support it. Are the others unable to comprehend the political risks of letting this behavior continue?

It seems that courage is a lost virtue in Washington, along with compromise, strength of character, long-range thinking and prudence. Considering no one has come forward to rebut the above piece – and don’t tell me they haven’t read it; it’s from the Washington Post – so is brutal honesty.

Line-Item Veto III: This Time It’s Constitutional

Ah, the line-item veto. The first topic I ever wrote about on this blog. How young I was – my knowledge of congressional authority regarding federal spending was, to say the least, lacking, and I believed a presidential line-item veto didn’t need to work around any constitutional barriers. The last time I wrote about it was over a year after that, when Congress was considering the related legislation that passed in the House yesterday, which avoids those barriers.

The bill would allow the president to choose individual items of spending and budget bills for elimination, as the veto granted to President Bill Clinton (by a Republican-controlled Congress) did. The difference is that this time, the items marked for elimination would go back to Congress to be voted on individually. It would also stipulate that the money that would have been spent on earmarks go toward deficit reduction.

I must admit that that part confuses me, if we’re talking about new programs. If we’re talking about ones that have been funded with earmarks for a number of years, that would be different; otherwise, what money would there be to contribute unless you cut that amount of money from somewhere else? My only other concern with this bill is that President Obama might interpret this new power to include policy riders such as a potential Keystone XL pipeline approval. But, hey, I don’t like policy riders.

Other than that, tactically speaking, this is a great way for Republicans to hold the president to account for signing earmark-ridden bills, and for the 57 House Democrats who supported the bill to look less like the tax-and-spenders they’re often made out to be (however rightfully, in some cases). But the Senate isn’t planning to debate its own version, sponsored by Sens. John McCain (R-AZ) and Tom Carper (D-DE). The Senate is less willing to cede spending decisions to the White House, which was why a similar 2007 proposal by then-Sen. Judd Gregg (R-NH) only got 49 out of 60 needed votes.

It seems that the Constitution’s phrasing on spending predates the concept of a line-item veto by a considerable amount of years, so the legal issues are not without thorns. Since the president is allowed to veto bills in their entirety, but is still subject to the possibility of a congressional override, my position is that this would merely be a contracted version of those same powers and is therefore constitutional. Frankly, I think the framers would have preferred line-item veto power.

The Senate does itself no favors by refusing to have a dialogue on this matter. Their branch of government is already pretty terrible at disposing of earmarks by themselves. I’d say they need all the help they’re allowed to get.

Let’s shrink government, I guess

Over the course of his term in office, President Obama’s approach to the economy has taken an interesting progression, starting with easy but antiquated New Deal-style stimulus, only less centralized, and currently a mixture of Clintonian free trade pursuits and government reductions that can only be described as Reaganesque. For those of you who aren’t well-versed in the economic policies of modern presidents, let me sum it up thusly: crappy then, OK now. And only because he faced up to the OK stuff.

Obama is seeking authority from Congress to consolidate six trade agencies and the Commerce Department into a single Cabinet-level department that has yet to be named, although “Commerce Department” would make sense. That would include the Census Bureau and other statistical agencies, and the National Oceanic and Atmospheric Administration would be moved to the Interior Department. The Office of the U.S. Trade Representative and the Small Business Administration would be two offices to go.

It’s a sensible idea. If the U.S. wants to be a more appealing location for international commerce than it already is, the first thing they should have done is make trade easy to navigate. Some members of Congress have already complained that these offices would merely be units within another bloated Cabinet department. I say, if they’re housed under a single department with a single general purpose, it’ll automatically be more efficient than the current system.

But why is Obama coming up with this idea now, when the federal organization charts were this messy when he took office? It’s hard not to see it as politically timed. He’s facing a group of Republicans chomping at the bit to paint him as a big-government sop, and they have plenty of ammunition. Personally, I don’t think he likes big government so much as he believes it’s a necessary evil during averse economic times. Keynesians tend to do that.

Since Obama’s presidency was on the heels of his predecessor’s bailouts, he probably believed people other than big banks and major auto companies could use a jolt of cure before they got a 12-step program of prevention, thus the stimulus was born. There’s no reason he couldn’t have tried both, and waited for the economy to pick back up before he tried more heavy-duty domestic policy, i.e. Obamacare. The timing of his ideas is less than impeccable.

I doubt his legacy will be commonly associated with streamlining the Commerce Department. In fact, there’s a better chance that we’ll look back on this and assume Republicans wore him down until he finally got serious about shrinking government. It’s a good political sell to people who only started paying attention this week.

And they’re still on everyone’s payroll

In the past week or so, you might have skimmed over some headlines having something to do with Republicans and Democrats fighting it out over a payroll tax cut extension. It even bores me to read about it, and “fiscal policy” is the number-one tag on my site (unless you count “news,” which is used for every Sunday Drill). But if you click on one of those headlines, you’ll immediately go from being bored to being filled with rage. It’s the one thing both parties can be good at together.

On Saturday, the Senate voted 89-10 to pass the two-month extension. On Tuesday, the House voted 229-193, presumably along party lines, to reject this extension. But it’s not because they don’t want to extend the cut; it’s because they’d rather open negotiations that would extend it for a year, as opposed to two months. If they don’t pass something by New Year’s Day, payroll taxes go up, and Medicare payments and jobless benefits go down.

OK. I don’t like stopgap measures. They represent a failure to think big when everyone had the time to do so. Along with policy riders and excessive outside influence from special interests, they are one of the three horsemen of the inevitable legislative apocalypse. But there is no reason the American people have to face any unnecessary hits to their own finances because of these people.

As for the substance of the legislation, you already know how I feel about payroll taxes. This isn’t even about the substance of the legislation. And that’s the part that pisses me off. Had they been at an impasse because they disagreed about whether or not they should actually extend a payroll tax cut, I would make an excuse to the effect that the congressional system was designed to make legislation difficult to move to temper the tyranny of the majority. But this is just procedure, the least meaningful element.

I would support passing the stopgap with an immediate up-or-down vote so they can end this interminable argument and get to that hard work House Republicans are talking about. I could give an equal thrashing to Senate Democrats for refusing to start looking at the one-year extension now. But that would still come after the House Republicans gave an answer to the two-month one, so they don’t deserve equal thrashings. The Republicans lose. Although, to be fair, their counterparts in the Senate had the right idea, so this isn’t a party difference so much as a chamber difference.

One of these days I’d like to see all members of Congress abide by this principle: If you agree on the idea of a bill, just fucking pass it and save the timing issues for afterward.

This is America – nobody just gives up

That USConJointSelComDefRed was unable to come up with a debt reduction plan isn’t the most appalling thing that happened this week. The words “bipartisan committee” have caused us to see it coming the way the words “Starring Adam Sandler . . . and Adam Sandler!” cause us to see another shitty Happy Madison movie coming. No, the truly horrific part was the fact that they announced their inability before deadline.

While the committee was required to unveil their plan today, they technically had until Wednesday to approve it, giving them two extra days for revisions. I must remind you that this group has existed since August; while I would not have much faith in anything getting done in two days, when they had more than three months of work time, I’d think the final two days would have given them enough of a sense of urgency to at least make an effort. Apparently not.

And now across-the-board spending cuts are due to kick in, making nobody happy. Personally, I would have chosen legislation crafted around the recommendations of the Simpson-Bowles commission to be the trigger, rather than just cuts. Sen. Kent Conrad (D-ND), once of the Gang of Six, is working on such a bill as we speak. If that doesn’t pass, I’m giving up on Congress’s ability to get anything done. Former Speaker Newt Gingrich (R-GA) still thinks it has that ability. Yeah. He’s not ready for this.

So, who can we blame this time? In the last days of USConJointSelComDefRed, the Republicans, stunningly, were willing to give an inch on increased tax revenue, achieved through closing loopholes while still lowering marginal rates. The Democrats said no. Earlier, they proposed curbing the growth of entitlements in exchange for revenue increases. The Republicans said no. Now they’re playing the less-intransigent-than-thou act. Anybody want to hear it? No?

We could also blame President Obama for not making any sort of executive decision and thinking a group of lawmakers with a collective 9 percent approval rating could be trusted. Or previous administrations for a bunch of unnecessary foreign engagements, stringless bank bailouts and seemingly endless make-work schemes. Or banks for putting themselves into a position that would merit bailouts. Or Americans themselves for lacking basic budgeting skills. You know who I blame? ALL OF THE ABOVE.

So what’s going to happen now? Are both branches of government going to sit back and hope the automatic cuts do the job for them? That’s what’s really lacking in American politics today: tenacity. Nobody has ever viewed America as a nation of quitters. That could change very shortly.

What are we paying you people for?!

It’s time once again for The Future American’s FAIL OF THE WEEK! Every Saturday, I name a person or group who has spent the past seven days behaving in a particularly idiotic way. Since it’s my belief that idiocy knows no politics, nobody is safe.

This week’s fail was brought to you by USConJointSelComDefRed, otherwise known as the debt/deficit reduction supercommittee. They are a month away from the state by which they should have a comprehensive reduction plan ready to send to Congress and, subsequently, President Obama’s desk. Guess how much progress they’ve made? According to this handy summary prepared by The Atlantic Wire, the Republicans and Democrats on the committee have agreed that cost-of-living adjustments to Social Security should be calculated differently, and that’s all.

You can probably guess the pattern by now. Democrats have grudgingly agreed to entitlement cuts in principle, but still aren’t crazy about what those cuts would look like. Republicans oppose anything that involves cutting from defense, raising taxes or stimulus-style spending. The one surprising factor is that the Democrats’ plan would result in greater reduction than that of the GOP, who might have gone bigger if not for the need to – sing it with me – raise taxes.

This is exactly what we saw earlier in the year from the Gang of Sucks Six, so I can’t say the gridlock itself comes as much of a surprise. The fail lies in how that gridlock came about. To read the above link, it seems as though the members of USConJointSelComDefRed have spent most of the discussion period on separate sides of the room, along party lines, only coming together to give the appearance that they’re actually working together. Perhaps “transpartisan” would have been a better word for what we’re looking for, as opposed to “bipartisan.” Trans- implies “between”; bi- implies “two versions of the same old crap.”

Frankly, we would have had a much easier go of this matter if we’d just accepted the recommendations of the Simpson-Bowles commission. Neither Simpson nor Bowles holds elected office, thus neither has nearly as many political or special interest considerations. Their plan had chutzpah, to be sure, but chutzpah is exactly what these clowns needed, just so they can see how real authorities do business.

Is it any wonder, then, that pundits keep talking about an “anti-incumbent mood” in America? This is exactly how it originated: from sitting politicians of any seniority neglecting to see the political value in getting shit done. They might as well be executives of a failing company spending more on PR than fixing the damn problem.

The three-percent near-solution

Had it not been for the big banks and an assortment of government figures, federal contractors, specifically those employed in war zones, might still be Public Enemy #1 when it comes to corrupt/wasteful use of taxpayer money. Not anymore. In fact, the government now wants to reduce its oversight over these companies, for the sake of – sing it with me – job creation. The ensuing revenue loss might end up being considerably less popular, but it hasn’t yet.

A scarcely noticed 2006 law empowers governments to withhold 3 percent of payments to contractors until they pay all of their federal taxes. That law has been stalled for almost six years, and has just over another year to go before it is implemented. The issue was first raised by Sen. Chuck Grassley (R-IA), who was concerned about $290 billion in unpaid taxes over three years, against $2.7 trillion paid taxes.

So, what’s the problem? Even when measured against deficits in the trillions, $290 billion is a lot of money, and this is a much fairer way to get it without messing with anyone’s rates. The problem is that the law would apply to all contractors, regardless of whether or not they were tax cheats, who are the true enemies of the government. Those who don’t cheat, up to the smallest and least profitable companies, would still have to spend significant amounts on unnecessary bureaucracy.

Thus, the law in its current incarnation would be a bad idea for everyone involved, including the government, who might end up paying higher prices to make up for the shortfall. But the above link does not indicate how the government would target contractors who actually do cheat on their taxes. They use a figure of $11 billion over ten years to represent the shortfall that would come of repealing the law. I’m assuming this figure refers to money withheld by genuine cheating. For the record, my guess is that the majority of that money would be repaid by a law requiring contractors to have zero ties, recently cut or not, to top administration officials – not that I’m naming any names.

As mentioned, this law has yet to be implemented, so nobody has actually gained or lost money as a result from it yet. For the next 15 months or so, any congressional attention will be purely cosmetic, showing Americans that they plan to get out of the way of jobs before they have any more opportunity to get in the way. But nobody will object to withholding federal funds from companies that manipulate them, for the sake of deficit reduction.

And once they figure out how to accomplish that by revising this law, they might want to look at some others that have actually made an economic impact by this time, instead of merely hinting at action.

Why doesn’t Warren Buffett have a reality show?

I really hope President Obama expected the backlash he’s been getting over his proposed “Buffett tax.” Many people will think an extra tax on the super-rich will be just the icing needed on the deficit reduction cake; these people tend to be on the left. Others will shout “Class warfare!” and not let up on such shouting; these people tend to be on the right. Some will assume that, because it’s Warren Buffett’s idea, it must be the right thing to do; these people tend to be President Obama.

Thankfully, Lois Beckett and Marian Wang of ProPublica – an awesome non-profit newsroom whose writers, mainly Wang, are featured regularly on Rise of the Center – have given us a handy backgrounder on the tax. Here are their findings in crib sheet format for those who need help at debates:

• PREMISE: Households making $1 million a year or over will be required to pay a certain minimum percentage of income tax in order to match middle-class rates.
• RATE: To be determined.
• GOAL: To resolve the problem of upper-income households paying overall lower rates than middle-income households, due to very low taxes on capital gains and dividends.
• IMPACT ON DEFICIT: See “Rate.”

The above-noted goal had already been addressed through the Alternative Minimum Tax, which is something of a headache to understand. Thus the Buffett tax might not do much more than simplify this same effort. It won’t be easy to tell until we know exactly what the rate will be and the Congressional Budget Office’s (CBO) evaluation of the fiscal effects. Of course, the Republicans haven’t wasted any time baying about impending doom for job creation and corporate investment. They’re all permanently set to “OPPOSE TAX” mode.

Once again, they’re operating under the false assumption that all of America’s millionaires use their disposable income to create jobs. While there is no evident correlation between low capital gains taxes and job creation, 30 percent of the beneficiaries of these low rates are within the bottom 99 percent of earners. This proposal would protect low taxes that at least aid business expansion in theory. Let’s not discount the many millionaires who sit on their ass and do nothing.

Even so, if Buffett and the Patriotic Millionaires want to prove their credibility, they might pool some of their money together and donate it to the government for deficit reduction. In the meantime, the government can focus on closing loopholes and see what needs to be done afterward.

Disposal Day #86: I’m detecting a pattern here

STORY #1: Unresponsive to stimuli

Highlights from President Obama’s jobs speech yesterday: various tax breaks and incentives for companies and households; investment in transportation and construction projects, especially schools; cuts to red tape; an independent fund that would attract private money to be spent on those construction projects; teacher and veteran hiring; summer jobs for youth; extra cuts to be identified by USConJointSelComDefRed; entitlement reform; upper-income tax hikes; elimination of loopholes; mortgage refinancing; patent and trade reform.

I’m sorry, but I fail to see how this is vastly different from his first stimulus package. You can deny its status as such if you’d like, but it meets the basic definition: government using fiscal policy to boost economic demand (stimulus) by many means, smashed together (package). I may have bought it the first time, but save sheer desperation, I cannot think of a compelling reason to buy it again. Could he have least thrown in a promise to spend it all on schedule this time?

STORY #2: BACHMANN HAS KIDS

At least Speaker John Boehner (R-OH) and House Majority Leader Eric Cantor (R-VA) were open to the idea of working with this plan; since so much of its content has been pushed by their party, they must be thrilled. Guess who isn’t? Rep. Michele Bachmann (R-MN) may have been the first of this year’s GOP presidential candidates to stick her nose into it. In her words, Obama is “philosophically incapable” of this task.

While my optimism for Obama is at an all-time low, I would not be so quick to take economic advice from someone who thinks she can cut gas prices in half with a “wave [of] her magic wingnut wand.” In addition, her response did not include much more of an alternative vision beyond her zeal to repeal Obamacare (“zeal to repeal” – that’s a good catchphrase) and, oh, yes, did I mention her assload of children?

STORY #3: Hey, remember him?

Most of the post-debate polls I’ve seen have put former Ambassador Jon Huntsman (R-UT) squarely in the middle. With the Wall Street Journal giving a mild endorsement to his economic plan, and his name garnering a little more recognition as of late, I have more hope for his candidacy than I ever had before. I encourage everyone reading today to take a good look at it and tell me it’s not at least more original than Obama’s.