Commentary Magazine


Topic: taxes

Buyer’s Remorse from ObamaCare Backers?

One of the key selling points for ObamaCare was President Obama’s repeated promise that if you like your current health insurance plan, you can keep it. This posed a challenge to the president because not only was it clearly untrue, but the health-care reform law was specifically designed to prevent many people from being able to keep their insurance. The most humorous moment in the frantic effort to sell the public on ObamaCare based on false pretenses was when ABC News finally asked Obama to explain the claim:

“When I say ‘If you have your plan and you like it,… or you have a doctor and you like your doctor, that you don’t have to change plans,’” the president said after we asked him about this, “what I’m saying is the government is not going to make you change plans under health reform.”

Ah. The government would merely create the conditions in which people would be forced off their insurance, but there’d be no paper trail on each particular such decision that led directly back to the president, so the rest is just details. ABC News, to its credit, pointed out that the president was acknowledging that his pledge “isn’t literally true.” But now some of the president’s allies who helped elect Democrats and then sell their health-care reform, and who inexplicably believed this ridiculous claim the president was making, feel duped. They are the unions, and they are not happy, as Avik Roy explains:

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One of the key selling points for ObamaCare was President Obama’s repeated promise that if you like your current health insurance plan, you can keep it. This posed a challenge to the president because not only was it clearly untrue, but the health-care reform law was specifically designed to prevent many people from being able to keep their insurance. The most humorous moment in the frantic effort to sell the public on ObamaCare based on false pretenses was when ABC News finally asked Obama to explain the claim:

“When I say ‘If you have your plan and you like it,… or you have a doctor and you like your doctor, that you don’t have to change plans,’” the president said after we asked him about this, “what I’m saying is the government is not going to make you change plans under health reform.”

Ah. The government would merely create the conditions in which people would be forced off their insurance, but there’d be no paper trail on each particular such decision that led directly back to the president, so the rest is just details. ABC News, to its credit, pointed out that the president was acknowledging that his pledge “isn’t literally true.” But now some of the president’s allies who helped elect Democrats and then sell their health-care reform, and who inexplicably believed this ridiculous claim the president was making, feel duped. They are the unions, and they are not happy, as Avik Roy explains:

Last Thursday, representatives of three of the nation’s largest unions fired off a letter to Harry Reid and Nancy Pelosi, warning that Obamacare would “shatter not only our hard-earned health benefits, but destroy the foundation of the 40 hour work week that is the backbone of the American middle class.”

The letter was penned by James P. Hoffa, general president of the International Brotherhood of Teamsters; Joseph Hansen, international president of the United Food and Commercial Workers International Union; and Donald “D.” Taylor, president of UNITE-HERE, a union representing hotel, airport, food service, gaming, and textile workers.

“When you and the President sought our support for the Affordable Care Act,” they begin, “you pledged that if we liked the health plans we have now, we could keep them. Sadly, that promise is under threat…We have been strong supporters of the notion that all Americans should have access to quality, affordable health care. We have also been strong supporters of you. In campaign after campaign we have put boots on the ground, gone door-to-door to get out the vote, run phone banks and raised money to secure this vision. Now this vision has come back to haunt us.”

The letter goes on to warn of the law’s “unintended consequences” and “perverse incentives.” It’s bad for business and for the health of so many Americans, they say. Their criticisms of the law are correct, of course. The problem with fixing the law, as we’ve already seen with the employer mandate suspension, is that the law’s manifest blunders are connected, and the worst elements of the law are also its funding mechanisms. The whole thing is a terrible piece of legislation, and even its major backers are now either finally admitting or finally realizing that the public had to be misled in order to get the bill passed.

The law remains unpopular for this reason, but it is truly amazing the lengths to which some commentators will go to explain away the public opposition to a plainly bad law sold on dishonest claims. Here’s the Economist, for example, musing about Democrats’ communication deficit:

When Republicans and Democrats use different terms for the same thing, the Republican phrase is nearly always shorter and more concrete, observes Joseph Romm, the author of “Language Intelligence”. He has a point. When arguing about abortion, Republicans favour “life” (evocative) while Democrats talk about “choice” (abstract). Republicans talk about “taxes” and “spending” while Democrats want to raise “revenue” for “investment”. George W. Bush had the “Patriot Act”, whereas Mr Obama has the “Patient Protection and Affordable Care Act”. The former is an awful law that is hard to oppose; the latter an awful mouthful that is hard to remember.

Actually, people commonly call it ObamaCare, which is easy to remember and just as easy to dislike according to the public. But of course the rest of that paragraph is risible as well. On the abortion issue, the term “choice” may be (to put it kindly) “abstract,” but surely for Democrats it’s a lot better than the “evocative” version of what they’re advocating. And the point about “taxes” and “spending” versus “revenue” and “investment” is rather obvious: one is literal, the other an attempt by the entity taking your money to avoid saying so.

And that is really what this communication issue is all about, in the end. Democrats are advocating terrible public policy on a whole host of important issues, and admitting what they are doing is a nonstarter for those who want to win reelection. Finding good names for bad ideas is a clever way to get around this, but wouldn’t it just be easier if Democrats came up with good ideas?

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New Technology Belies Tax Justification

Over the weekend, the New York Times had a fascinating piece about the quick development of driverless cars, and the implications for urban areas:

Imagine a city where you don’t drive in loops looking for a parking spot because your car drops you off and scoots off to some location to wait, sort of like taxi holding pens at airports. Or maybe it is picked up by a robotic minder and carted off with other vehicles, like a row of shopping carts… Inner-city parking lots could become parks. Traffic lights could be less common because hidden sensors in cars and streets coordinate traffic. And, yes, parking tickets could become a rarity since cars would be smart enough to know where they are not supposed to be. As scientists and car companies forge ahead — many expect self-driving cars to become commonplace in the next decade — researchers, city planners and engineers are contemplating how city spaces could change if our cars start doing the driving for us.

The new technology raises other questions, which the paper addressed in a follow-up article:

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Over the weekend, the New York Times had a fascinating piece about the quick development of driverless cars, and the implications for urban areas:

Imagine a city where you don’t drive in loops looking for a parking spot because your car drops you off and scoots off to some location to wait, sort of like taxi holding pens at airports. Or maybe it is picked up by a robotic minder and carted off with other vehicles, like a row of shopping carts… Inner-city parking lots could become parks. Traffic lights could be less common because hidden sensors in cars and streets coordinate traffic. And, yes, parking tickets could become a rarity since cars would be smart enough to know where they are not supposed to be. As scientists and car companies forge ahead — many expect self-driving cars to become commonplace in the next decade — researchers, city planners and engineers are contemplating how city spaces could change if our cars start doing the driving for us.

The new technology raises other questions, which the paper addressed in a follow-up article:

In Washington, an average of six parking tickets are issued every minute of a normal workday. That is about 5,300 tickets on each of those days. Those slips of paper have added up to $80 million in parking fines a year, according to a report by AAA Mid-Atlantic… Mr. Walker Smith said that while traditional revenue sources from tickets, towing cars and gasoline taxes could dry up, cities and states will come up with new ways to make money on vehicles.

Automation will also impact the insurance industry, technology writer Nick Bilton reports, as well as taxis and meter maids. Such costs should not be lamented: Cities and states like to maintain the fiction that they ticket for safety, not revenue, and they should have to live by that fiction. Some professions do not stand the test of time. Spare a moment for the poor typewriter factory workers; they deserve more public sympathy than the meter maids.

Already, new technologies are challenging traditional tax policy. After years of pushing higher fuel standards for environmental reasons, states now complain that they derive less revenue because cars require fewer gallons of gas. Certainly, states want revenue for roads, but it is also true that fuel efficient cars cause less wear and tear because they are lighter; fuel efficiency comes at the expense of weight and, too often, safety.

Automobiles are not the only technology whose advancement has challenged justification for tax collection. It took more than a century to get rid of the telephone excise tax whose original justification was to help fund the Spanish-American War. Pennsylvania still has an occupation tax, a legacy of the colonial period in which occupations were granted by writ and often considered property. The Internet has also challenged traditional tax collection, especially from brick-and-mortar stores.

The government may make myriad excuses for taxation, but new technologies and the evolution of society should force governments to acknowledge both the basic and the obvious: Tax is about revenue, not safety, and the government’s increasingly insatiable appetite for new and expensive programs. Putting lipstick on a pig does not make it more palatable. When governments lie about their motivation for taxation and fines, it only breeds cynicism and resentment about government, moods corrosive to both community and citizenship.

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RE: Apple Does Its Duty

I guess Senator Rand Paul reads Contentions. At least his opening statement tracks what I wrote this morning exactly.

He said, for instance, “I am offended by the spectacle of dragging in here executives from an American company that is not doing anything illegal. If anyone should be on trial here, it should be Congress.”

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I guess Senator Rand Paul reads Contentions. At least his opening statement tracks what I wrote this morning exactly.

He said, for instance, “I am offended by the spectacle of dragging in here executives from an American company that is not doing anything illegal. If anyone should be on trial here, it should be Congress.”

It seems the hearing on Apple’s tax avoidance didn’t go exactly as planned, with other Republicans chiming in on the country’s appalling tax code and Apple executives making good suggestions on how to fix it.

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The Danger and Rampant Corruption of Traffic Light Cameras

The ongoing IRS scandal has struck such a nerve with the public because it is a clear example of a prying, ever-present government abusing its revenue-raising power and succumbing to the temptation of easy corruption. There are few things more outrageous with regard to the government’s ability to fund its own corrupt practices–but the latest scandal out of Florida may be one of those cases.

Media Trackers points to this investigation by Florida’s WTSP-St. Petersburg 10 News, which notes that the Florida Department of Transportation instituted a particularly dangerous way to wring more money out of motorists, and crossed federal standards to do so. At issue are the traffic light cameras, an unsafe plague on roadways rife with corruption across the country. The cameras are installed to catch motorists violating traffic rules, but the lawbreakers are usually on the other side of the cameras. From WTSP:

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The ongoing IRS scandal has struck such a nerve with the public because it is a clear example of a prying, ever-present government abusing its revenue-raising power and succumbing to the temptation of easy corruption. There are few things more outrageous with regard to the government’s ability to fund its own corrupt practices–but the latest scandal out of Florida may be one of those cases.

Media Trackers points to this investigation by Florida’s WTSP-St. Petersburg 10 News, which notes that the Florida Department of Transportation instituted a particularly dangerous way to wring more money out of motorists, and crossed federal standards to do so. At issue are the traffic light cameras, an unsafe plague on roadways rife with corruption across the country. The cameras are installed to catch motorists violating traffic rules, but the lawbreakers are usually on the other side of the cameras. From WTSP:

The 10 News Investigators discovered the Florida Department of Transportation (FDOT) quietly changed the state’s policy on yellow intervals in 2011, reducing the minimum below federal recommendations. The rule change was followed by engineers, both from FDOT and local municipalities, collaborating to shorten the length of yellow lights at key intersections, specifically those with red light cameras (RLCs).

While yellow light times were reduced by mere fractions of a second, research indicates a half-second reduction in the interval can double the number of RLC citations — and the revenue they create. The 10 News investigation stemmed from a December discovery of a dangerously short yellow light in Hernando County. After the story aired, the county promised to re-time all of its intersections, and the 10 News Investigators promised to dig into yellow light timing all across Tampa Bay.

The practice of reducing yellow light times without notifying motorists was blamed for at least one recent traffic death near Tampa, which prompted further investigation. The danger of the traffic light cameras–even without manipulating light times–is nothing new. As the Star-Ledger reported a few months ago, a study in New Jersey found that the installation of traffic light cameras resulted in increased accidents at those intersections, including a 20-percent rise in rear-end collisions.

Aside from the life-threatening risk to motorists and passengers in those accidents, the Star-Ledger noted that according to the study the “crash severity cost,” which calculates the cost of property and vehicle damage, as well as medical care for the crash victims and the expense to the municipality of emergency response, increased by about $1.2 million. The cameras are putting lives at risk every day, so why use them? Back to WTSP:

Red light cameras generated more than $100 million in revenue last year in approximately 70 Florida communities, with 52.5 percent of the revenue going to the state. The rest is divided by cities, counties, and the camera companies. In 2013, the cameras are on pace to generate $120 million.

“Red light cameras are a for-profit business between cities and camera companies and the state,” said James Walker, executive director of the nonprofit National Motorists Association.

They are a cash cow. But a “for-profit business between cities and camera companies” that incentivizes making the roads more dangerous for citizens doesn’t sound like a particularly ethical undertaking for the government. As it turns out, “ethical” is not a word often associated with how the traffic cameras are operated. As Holman Jenkins recently explained in the Wall Street Journal, the cameras have become a sleazy new form of taxation, and “When governments are engaged in sleazy new forms of taxation, sleaze happens.”

Jenkins points out that if you’re looking for corruption, Chicago is a good place to start–and in fact the Chicago traffic light camera regime has been engulfed in a graft scandal. Jenkins noted that in Baltimore, traffic light cameras were ticketing motionless vehicles, and have come under fire in Los Angeles and New York as well. “Ticket-racketeering has been, let’s just say, a contending motivation with safety since the automobile age was born,” Jenkins writes.

Even if Florida DOT officials don’t read out-of-state newspapers, they still can’t claim they weren’t warned, as WTSP makes clear:

Numerous U.S. Dept. of Transportation (USDOT) documents provide guidance to municipalities on how to install and operate RLC intersections. But FDOT and Florida communities are by-and-large ignoring those recommendations when it comes to yellow light intervals.

USDOT/Federal Highway Administration (FHA) report said cities should not use speed limit in the yellow interval equation because it results “in more red light violations and higher crash rates.”

Traffic light cameras aren’t about safety, because they diminish the safety of motorists. They are about money. And the fact that they are rife with corruption and deceit, and increase their financial gain by scamming drivers into unnecessary risks makes them, in many cases, morally indistinguishable from outright theft.

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Apple Does Its Duty

The New York Times is in a state of the highest dudgeon this morning as it reported that, “Even as Apple became the nation’s most profitable technology company, it avoided billions in taxes in the United States and around the world through a web of subsidiaries so complex it spanned continents and went beyond anything most experts had ever seen, Congressional investigators disclosed on Monday.”

It made this the lead story, not the terrible tragedy in Oklahoma. It even devoted the Quote of the Day to the story, quoting a law professor, “There is a technical term economists like to use for behavior like this. Unbelievable chutzpah.”

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The New York Times is in a state of the highest dudgeon this morning as it reported that, “Even as Apple became the nation’s most profitable technology company, it avoided billions in taxes in the United States and around the world through a web of subsidiaries so complex it spanned continents and went beyond anything most experts had ever seen, Congressional investigators disclosed on Monday.”

It made this the lead story, not the terrible tragedy in Oklahoma. It even devoted the Quote of the Day to the story, quoting a law professor, “There is a technical term economists like to use for behavior like this. Unbelievable chutzpah.”

Timothy D. Cook, Apple’s chief executive, will testify today at a Senate hearing, a hearing the Times expects to be “explosive.” The whole tenor of the article is that Apple did something wrong, that it’s a “greedy corporation” that dodged paying its fair share.

But the Times admits that, “Investigators have not accused Apple of breaking any laws and the company is hardly the only American multinational to face scrutiny for using complex corporate structures and tax havens to sidestep taxes.” In other words, Apple management lived up to its fiduciary duty to its stockholders to minimize the amount of taxes it pays to various governments. Outrageous!

The problem lies not with Apple, but with out-of-date corporate tax law that needs to be overhauled from top to bottom to take into account the new integrated global economy. All Apple did was make the problem obvious. This is not unlike the situation in the late 19th century when industrial corporations of unprecedented size arose and the laws needed to govern the new situation took years to develop. Standard Oil didn’t break any laws; it showed what laws were needed.

Undoubtedly, the senators before whom Mr. Cook will testify today will be in the same state of high dudgeon as the Times, and will beat up on him pretty bad. But instead, they should thank Mr. Cook for making the Senate’s duty plain: Rewrite the corporate tax laws.

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Taxes, Immigration, and the Senate’s Identity Crisis

As Bethany has previously written, the problems with the new Internet sales tax, which passed the Senate this week, were depressingly obvious–even as the bill received Republican support. But perhaps the most unfortunate aspect of the bill is not that Republicans should have known better, but that they did know better and voted against both economic common sense and the best interests of small businesses around the country.

The legislation would have forced businesses to pay sales taxes in the home state of every online customer, thus adding a burden to doing business that large retailers could handle but their upstart competitors could not. But to listen to Republicans defending their votes in support of the measure, you could be forgiven for thinking that upholding crony capitalism was a virtue of the bill, not an unfortunate element to be downplayed. (Though it was called the Marketplace Fairness Act, Grover Norquist more accurately referred to it as the “Let People in Alabama Loot People in New York Act.”) Here, for example, is how John Thune is quoted by the New York Times:

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As Bethany has previously written, the problems with the new Internet sales tax, which passed the Senate this week, were depressingly obvious–even as the bill received Republican support. But perhaps the most unfortunate aspect of the bill is not that Republicans should have known better, but that they did know better and voted against both economic common sense and the best interests of small businesses around the country.

The legislation would have forced businesses to pay sales taxes in the home state of every online customer, thus adding a burden to doing business that large retailers could handle but their upstart competitors could not. But to listen to Republicans defending their votes in support of the measure, you could be forgiven for thinking that upholding crony capitalism was a virtue of the bill, not an unfortunate element to be downplayed. (Though it was called the Marketplace Fairness Act, Grover Norquist more accurately referred to it as the “Let People in Alabama Loot People in New York Act.”) Here, for example, is how John Thune is quoted by the New York Times:

“It’s obviously an issue that can be divisive for Republicans because a lot of the antitax groups are weighing in against it,” Senator Thune said. “But in states like mine where you’ve got a lot of smaller retailers trying to compete in smaller communities, people are going to do their business online, and that has grown dramatically over the last few years.”

Antitax groups are against it, but Thune wants to protect his favored businesses and let the government get involved in picking winners and losers. There is a bright spot, however. The Times had reported on the bill’s momentum: “Earlier test votes won as many as 75 yeses. And House action, once seemingly unthinkable, may be unstoppable.” But Speaker of the House John Boehner is signaling that reality is closer to the former than the latter, according to the LA Times:

House Speaker John A. Boehner said he probably won’t support legislation allowing states to require that larger retailers collect sales taxes on Internet purchases.

And a key House committee chairman said his panel would take a “more thoughtful” approach to the bill, which passed the Senate overwhelmingly Monday.

The comments signaled that momentum from Monday’s easy passage of the bill in the Senate won’t lead to quick House action on the controversial issue.

All to the good, but it draws attention to an interesting dynamic at play in the Congress of 2013: namely, a bit of a role reversal between the upper and lower chambers. Traditionally, because the House can pass bills on simple majority and because revenue-raising legislation originates there, the lower chamber has played an activist role to the Senate’s deliberative role. The Senate gives every state the same number of representatives, which forces regional accommodation when crafting or amending legislation. Senators also represent entire states rather than increasingly gerrymandered districts, so addressing constituent concerns in each bill is a more complicated process.

Of course the most recognizable reason for these traditional roles is the existence of the filibuster in the Senate, which doesn’t exist in the House. It can therefore be difficult to even get to a vote.

Yet for all the attention paid to the filibuster’s use by Republicans, two things remain true: the Senate has been able to pass major liberal legislation, like ObamaCare and financial regulation, and Boehner’s House has become a break on the Senate’s penchant for far-reaching legislation.

The Internet sales tax bill is an example of a bill that was passed by the Senate but faces far dimmer prospects in the House. More significant is the fact that the House’s new role has slowed down the Senate as well. From the perspective of conservatives, this is a moderating effect; to liberals, who were wondering if the Senate could possibly get any slower, it’s the opposite. But either way, the message has come through loud and clear.

To see how this plays itself out, one need look no further than the immigration reform effort. The question of whether the final immigration bill could pass the House is not just implicit; it’s invoked almost constantly by the bill’s supporters. In order to pass the House, immigration reform proponents believe (correctly) that it would almost surely need to do more than just pass the Senate. It will need broad bipartisan support that includes conservatives who are popular with the grassroots to give cover to their counterparts in the House. Additionally, the bill’s chief proponent, Marco Rubio, has been warning his fellow senators in the “gang of eight” that the bill cannot pass the House as currently constructed–a clear exhortation to take House conservative concerns about border security into consideration when amending the bill.

The reviews of this role reversal will likely be mixed, even among conservatives. There will be many on the right justifiably frustrated if the immigration reform effort stalls in the Senate because of the fear of House Republicans. But it will also be difficult to argue against the House’s instinctive distrust of crony capitalist bills like the Internet tax hike. Senate Republicans might also wonder why, especially on the issue of market distorting tax increases, they need the House to slow them down in the first place.

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How Internet Sales Tax Would Destroy Small Online Businesses

It’s said that the road to hell is paved with good intentions. Like many proposals put forth in the last several years, the Internet sales tax bill (titled the Marketplace Fairness Act) currently working its way through the Senate is loaded with good intentions based on the idea of “fairness.” In reality and practice, the bill would end up like many liberal projects: a disaster for small business owners.

Think about those who run a business out of their home, a small shop providing products to a niche market of consumers. When an order comes in, the owner is the sole point of contact: they play the role of cashier, customer service, production and shipping. Despite the truly small nature of their small businesses these individuals would be forced to hire accountants or learn, track and charge the appropriate sales tax for each state in which a customer resides. They are faced with a choice: either spend a significant portion of their profit on an accounting professional, or spend a significant amount of time managing their own finances. A potential third option, only selling products to a select number of states, would be equally destructive for niche businesses that only survive by selling nationwide. 

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It’s said that the road to hell is paved with good intentions. Like many proposals put forth in the last several years, the Internet sales tax bill (titled the Marketplace Fairness Act) currently working its way through the Senate is loaded with good intentions based on the idea of “fairness.” In reality and practice, the bill would end up like many liberal projects: a disaster for small business owners.

Think about those who run a business out of their home, a small shop providing products to a niche market of consumers. When an order comes in, the owner is the sole point of contact: they play the role of cashier, customer service, production and shipping. Despite the truly small nature of their small businesses these individuals would be forced to hire accountants or learn, track and charge the appropriate sales tax for each state in which a customer resides. They are faced with a choice: either spend a significant portion of their profit on an accounting professional, or spend a significant amount of time managing their own finances. A potential third option, only selling products to a select number of states, would be equally destructive for niche businesses that only survive by selling nationwide. 

A number of Republican senators, including Mitch McConnell and Marco Rubio, have come out against this bill and are joined by Democratic senators from no-tax states like New Hampshire, Montana and Oregon, despite President Obama’s support. Influential groups like the Heritage Foundation and its lobby arm Heritage Action for America are against the bill. Today on the Senate floor McConnell affirmed that the viewpoints on the bill aren’t falling along traditionally partisan lines while explaining his opposition:

For me, the issue boils down to that fact that the legislation we’re considering would create an enormous compliance burden for a lot of small businesses out there, making them tax collectors for thousands of far-away jurisdictions. Just as importantly, this legislation would increase the tax burden on Kentuckians. And as I’ve said before, I don’t think the people of Kentucky sent me here to help them pay higher taxes. Brick-and-mortar companies complain about the inequity that exists in current law, where their customers have to pay taxes that online shoppers do not. And I am sympathetic to that concern. But by imposing this new Internet Tax, states would suddenly be empowered to force online retailers to simultaneously comply with all the different tax codes of all the states in which their customers reside. That’s no small feat. From what I’m told, there are nearly 10,000 state, local, and municipal tax codes nationwide. And while complying with so many codes might not be a big deal for large online retailers, it’s a huge burden on the little guys. So small businesses owners are worried, and justifiably so.

While many online-only retailers do enjoy an advantage over “brick-and-mortar” stores who charge sales taxes, the cost of compliance with the tax code is far less cumbersome for stores that only need to comply with the sales tax of the locality in which they operate. If small online business owners are forced to comply with every single state, local and municipal tax code in America, they would be put at a distinct disadvantage, not on a level playing field. 

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The Right Way to Reduce Inequality

The most recent Gallup poll, which shows a majority of Americans believe that some of their neighbors have too much money and that the government should therefore confiscate and redistribute some of it, is likely to please the president, who based his reelection campaign on class resentment. Though Gallup paints this as vindication for the president on the message, it does expose the problem with how we tend to conduct the conversation of basing policy on that message. Gallup pronounces:

Inequality is and will continue to be one of the most important domestic political issues. President Barack Obama has consistently pushed for measures that he believes would provide those at the bottom end of the socioeconomic spectrum a fairer chance to succeed, and has coupled that with consistent arguments for higher taxes on those with high incomes and wealth. At this point, the American public would generally agree with Obama that wealth should ideally be more evenly distributed — and a modest majority, consisting mainly of Democrats and independents, appears to support the idea of bringing about that redistribution through heavier taxes on the rich.

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The most recent Gallup poll, which shows a majority of Americans believe that some of their neighbors have too much money and that the government should therefore confiscate and redistribute some of it, is likely to please the president, who based his reelection campaign on class resentment. Though Gallup paints this as vindication for the president on the message, it does expose the problem with how we tend to conduct the conversation of basing policy on that message. Gallup pronounces:

Inequality is and will continue to be one of the most important domestic political issues. President Barack Obama has consistently pushed for measures that he believes would provide those at the bottom end of the socioeconomic spectrum a fairer chance to succeed, and has coupled that with consistent arguments for higher taxes on those with high incomes and wealth. At this point, the American public would generally agree with Obama that wealth should ideally be more evenly distributed — and a modest majority, consisting mainly of Democrats and independents, appears to support the idea of bringing about that redistribution through heavier taxes on the rich.

There are generally two weaknesses with how liberals talk about inequality. The first is that they usually begin by assuming inequality is detrimental to society without establishing that it is. They may be right, but it would be unwise to build redistributive policies on class warfare and demonization instead of data. An exception in this regard is the Washington Post’s Brad Plumer, who wrote an interesting piece a few weeks back about new research into “trickle-down consumption.” One example, according to Plumer: “In cities like New York, the wealthiest are competing for the most valuable apartments and bidding up prices — which has broader ripple effects.” The concept is not new, but Plumer’s post adds some interesting context.

Trickle-down consumption, of course, is really a problem in unequal spending which is enabled by, but not the same thing as, unequal income. Additionally, there are advantages to having the wealthy consume instead of save: they support businesses owned by the less wealthy, which increases the income of less well-off, and when they purchase property that will often result in an increase in their taxes. The latter is a result those on the left claim to want, and it comes about through consumption and sometimes job creation (construction, etc.) instead of confiscation. Nonetheless, the discussion is worth having and Plumer’s piece brings hard data to the table instead of stories about Warren Buffett’s secretaries.

Yet it also raises the second issue with how inequality is too often discussed: how it should be rectified. Gallup demonstrates this perfectly when it only proposes one way to redistribute income: by taxing “the rich” more. But there are all sorts of ways to try and level the playing field. Gallup is noticeably vague in giving Obama credit for proposing ways to give the poor a fair shake. There’s a good reason for that.

As I noted in December, referencing an important article on taxing the rich by Joel Kotkin, Obama’s soak-the-rich approach to taxation can easily exacerbate existing inequality. Many high-earners live in cities, where there are also a large number of low-income residents. As Kotkin explains, this makes these economies heavily dependent on the consumption of the wealthy, and raising taxes on them would hit the very industries that typically offer income-class mobility to the poor.

There’s also the issue of education. Obama sought to end the D.C. Opportunity Scholarship Program, which was designed to give low-income youth stuck in D.C.’s failing schools a chance at a better education. His party remains broadly hostile to school choice, siding with public union bosses instead.

And no discussion of inequality should omit crime. The successful policing innovations in New York City have benefited low-income neighborhoods above all. Yet politicians and leftist activists are falling all over themselves to find ways to undo the incredible work of the NYPD. As Fred Siegel wrote recently in the New York Observer:

The Kimani Gray case may fade, but the intertwined issues of crime and race will remain high on the electoral agenda. If the politicians fail to thread the needle, the danger ahead is that New York could regress to a Chicago-like situation, where the well-to-do areas are reasonably well-policed while the minority areas are left to fend for themselves regarding crime. The liberal champions of equality will have once again produced greater inequality.

So by all means, let’s talk about rectifying inequality. But Gallup’s refusal to connect any issue other than taxation with inequality mirrors the left’s own, and ensures that so many worthy policy objectives remain ignored.

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The Strike of Capital

In the 1930s an economic phenomenon known as a “strike of capital” helped prolong the Great Depression. A strike of capital occurs when companies, banks, and individuals with capital to invest or money to loan decline to do so for fear that the investments might not prove profitable due to business conditions or government action.

A strike of capital would seem to be what is going on now. As the New York Times noted in an editorial yesterday, American corporations are sitting on vast piles of cash. Apple Corporation alone has about $140 billion in the bank. Altogether publicly-listed corporations in the United States are holding about $4.75 trillion in cash, not far short of one-third of annual GDP. In 1995, they held only about $1.2 trillion in cash, and cash has about doubled as a percentage of corporate assets since that time, to 12 percent.

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In the 1930s an economic phenomenon known as a “strike of capital” helped prolong the Great Depression. A strike of capital occurs when companies, banks, and individuals with capital to invest or money to loan decline to do so for fear that the investments might not prove profitable due to business conditions or government action.

A strike of capital would seem to be what is going on now. As the New York Times noted in an editorial yesterday, American corporations are sitting on vast piles of cash. Apple Corporation alone has about $140 billion in the bank. Altogether publicly-listed corporations in the United States are holding about $4.75 trillion in cash, not far short of one-third of annual GDP. In 1995, they held only about $1.2 trillion in cash, and cash has about doubled as a percentage of corporate assets since that time, to 12 percent.

The Times notes that since interest rates are very low right now, all that money isn’t earning much parked in the bank. But it doesn’t come to grips with why corporations are reluctant to invest right now. Could it have something to do with the fear that federal economic and tax policies, and Obamacare, might either throw the economy back into recession or make any investment less profitable and more risky? Could be.

What companies have been doing is increasing both dividend payments and the buying back of their own stock, both of which tend to increase stock prices, part of the reason the market has been rising.

Instead the Times decries the fact that corporations have been keeping profits earned abroad in foreign countries rather than bringing them home. But while the federal government taxes corporate profits earned abroad, it does so only when that money has been repatriated to the United States. Is the Times editorial board really puzzled as to why so many corporations prefer keeping 100 percent of their earnings abroad rather than having only 65 percent of them here? It seems so. The Times writes:

Some businesses have brazenly proposed that Congress temporarily lower the rate on repatriated profits in exchange for a promise to spend some of that cash on plants and equipment or in dividend payouts. It should not take a tax break for companies to get on with investing for the future. That is what they are supposed to be in business to do.

Actually, corporations are in business to create wealth. Corporate managers “invest in the future” only when that seems the best way to fulfill their fiduciary responsibility to the stockholders to maximize the return on invested capital.

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Conservatism and the Search for Apostates

During a recent interview on NBC’s The Today Show, former Florida Governor Jeb Bush was asked whether the Republican Party should put revenue increases on the table in order to reach a grand bargain.

Governor Bush said it’s hard to imagine that, after the tax increases that went into effect earlier this year, one could argue we have a revenue problem. When pressed by Matt Lauer, however, whether there was any “wiggle room,” Bush said, “There may be [room for revenue] if the president is sincere about dealing with our structural problems.” And he went on to speak about the importance of growth as a way to increase revenues.

It didn’t take long for Bush’s critics to strike. As a story  in the Washington Post put it:

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During a recent interview on NBC’s The Today Show, former Florida Governor Jeb Bush was asked whether the Republican Party should put revenue increases on the table in order to reach a grand bargain.

Governor Bush said it’s hard to imagine that, after the tax increases that went into effect earlier this year, one could argue we have a revenue problem. When pressed by Matt Lauer, however, whether there was any “wiggle room,” Bush said, “There may be [room for revenue] if the president is sincere about dealing with our structural problems.” And he went on to speak about the importance of growth as a way to increase revenues.

It didn’t take long for Bush’s critics to strike. As a story  in the Washington Post put it:

[Bush] drew a sharp critique from anti-tax activist Grover Norquist… Norquist likened Bush’s comments to “throwing marbles at the feet” of GOP lawmakers. “If you’re trying to introduce yourself to the modern Republican Party outside of Florida, probably best not to start with a discussion about how much you could be talked into a tax increase,” Norquist said. “People are looking for someone who’s tough, and you’re saying, ‘I’d fold.’”        

Craig Shirley, in the context of a broader attack on Bush writes, “A Bush speaking at the Reagan dinner [the annual Conservative Political Action Conference dinner] is for True Believers mind-boggling.” Shirley goes on to say, “Jeb Bush might also explain his call this week for even higher taxes on the American worker.”

Now both Norquist and Shirley have, in different ways, made useful contributions to the conservative cause–Norquist on policy and Shirley through his fine book on the 1980 Reagan campaign. I’ve had cordial communications with both; but in this instance their criticisms strike me as misguided.

For one thing, Jeb Bush was a highly successful conservative governor. To therefore characterize an invitation to Bush to speak at CPAC’s annual dinner as “mind-boggling” is itself a bit mind-boggling. (It’s worth noting that Bush spoke last week at the Reagan Library where he was warmly welcomed.)

In addition, Bush was not calling for higher taxes on American workers; he was saying that if Barack Obama was serious about dealing with our structural problems–meaning our unsustainable entitlement system–there may be room for an increase in revenues, which could be done by closing loopholes and deductions instead of increasing tax rates. Bush wasn’t saying he expected the president to tackle entitlements in a serious manner; he was merely answering a hypothetical in a reasonable way.

But the main point I want to underscore is the danger to conservatism when someone like Jeb Bush (or Mitch Daniels, or Bob McDonnell, or Chris Christie) is considered an apostate.

Let’s consider Bush’s record as governor. While Bush never signed an anti-tax pledge, he never raised taxes. In fact, he cut taxes every year he was governor (covering eight years and totaling $20 billion). 

Ronald Reagan, by contrast, signed into law what his biographer Lou Cannon called “the largest tax hike ever proposed by any governor in the history of the United States”–one four times as large as the previous record set by Governor Pat Brown–as well as the nation’s first no-fault divorce law and legislation liberalizing California’s abortion laws, which even people sympathetic to Reagan concede “led to an explosion of abortions in the nation’s largest state.” (Reagan didn’t anticipate the consequences of the law and deeply regretted his action.)

Now imagine the Norquist and Shirley standard being applied to Reagan in the 1970s. If Jeb Bush’s comments unleashed heated attacks, even given his sterling anti-tax record, think about what Reagan’s support for unprecedented tax increases–including higher taxes on top rates, sales taxes, bank and corporate taxes, and the inheritance tax–would have elicited. The Gipper would have been accused of being a RINO, a pseudo-conservative, unprincipled, and a member of the loathsome Establishment. Fortunately for Reagan (and for America) the temptation to turn conservatism into a rigid ideology was not as strong then than it is now.

To be clear: I consider Reagan to be among the greatest presidents of the 20th century and a monumental figure in the conservative movement. He shaped my political philosophy more than any other politician in my lifetime, and working in his administration was a great privilege. I’m just glad he was judged in the totality of his (conservative) acts, which were enormously impressive, and not marked out as unprincipled or a heretic because of his transgressions against conservative orthodoxy. 

What is sometimes forgotten about Reagan, I think, is that he was not only a man well grounded in political theory; he was also a supremely great politician who made thousands of decisions and compromised throughout his career, usually wisely but sometimes not. And on those rare occasions when he was criticized by movement conservatives, he was known to complain about those who wanted to go “off the cliff with all flags flying.”

It tells you something about the times in which we live that some of those who consider themselves to be the torchbearers of Reaganism are now employing a standard of purity that Reagan himself could not have met and would never have insisted on.

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Mr. Obama’s Planet

Saul Bellow used to joke that while the unexamined life is not worth living, the examined life will make you wish you were dead. The political equivalent might be that we can’t live with taxation without representation, but taxation with representation is going to kill us. 

By “us,” I mean those of us who like to find out what’s in a bill before Congress passes it; who would like our representatives to read bills before they vote on them; who want to see hearings on legislation before it is brought to a vote; and who would like to have it posted on a website for a few days before it is signed into law–just in case we have some questions after we find out what’s in it. For such people, Senator Rand Paul’s description of the Senate’s action in passing a $600 billion tax increase this week will be discouraging: 

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Saul Bellow used to joke that while the unexamined life is not worth living, the examined life will make you wish you were dead. The political equivalent might be that we can’t live with taxation without representation, but taxation with representation is going to kill us. 

By “us,” I mean those of us who like to find out what’s in a bill before Congress passes it; who would like our representatives to read bills before they vote on them; who want to see hearings on legislation before it is brought to a vote; and who would like to have it posted on a website for a few days before it is signed into law–just in case we have some questions after we find out what’s in it. For such people, Senator Rand Paul’s description of the Senate’s action in passing a $600 billion tax increase this week will be discouraging: 

I think it was 2:00 in the morning, and everybody kind of wanted to go home. And so I think nobody had a chance really to read the bill. I’m not sure the bill really was even around for anybody to read at 2:00 in the morning. It certainly defied all of the rules that we have in the Senate. We have one specific rule that says bills have to be online for 48 hours. So when things get thrown together hurriedly in the night, people have no idea what’s in these bills. 

At least the tax increase was called a tax increase. In 2010, President Obama pushed through Congress (at the last moment, with no hearings) a new 3.8 percent tax on investment income, calling it a “Medicare contribution.” But it was not a “contribution” and it had nothing to do with Medicare: it had no effect on the Medicare benefits of the person making the “contribution;” it had no effect on the Medicare benefits of anyone else; the revenue from the “contribution” did not go to the Medicare Trust Fund, but rather straight to the Treasury’s general fund, to be spent on things other than Medicare. 

The individual mandate under Obamacare will be enforced by what the legislation called a “shared responsibility payment.” None dared call it a “tax” while it was being considered, but when it got to the Supreme Court, the Obama administration argued a tax is what it was. Chief Justice John Roberts upheld it as a new kind of tax–a tax for not doing something. It used to be that taxes were levied on income earned or things done. Now we have “shared responsibility payments” for not doing what Congress wants us to do (although the chief justice agreed Congress had no power to require us to do it). Undoubtedly there will be more “failure-to-do-it” taxes in the future, now that they have been constitutionally blessed.

It would take an extraordinary novelist to come up with concepts like these–“shared responsibility payments” that are not “taxes” when they are considered but become new kinds of “taxes” after they’re passed; new “Medicare contributions” that don’t go to Medicare or its “trust fund;” $600 billion tax increases considered by the world’s greatest deliberative body at two in the morning, without the benefit of hearings or public comment or even a text. The resulting novel wouldn’t sell as fiction–no one would willingly suspend disbelief. But as non-fiction it might do quite well.

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The Boehner-Cantor Rift and the Speaker Election

House Majority Leader Eric Cantor broke with Speaker John Boehner on the fiscal cliff deal vote yesterday, fueling speculation that he may challenge Boehner in Thursday’s Speaker election. At the Guardian, Jim Antle writes

It’s rare for the top two members of the House leadership to split on an important vote. Bob Michel, the hapless leader of the House Republicans during a long period in the minority, and Newt Gingrich voted differently on the 1990 “read my lips” tax increase. They split again over the 1994 assault weapons ban.

Even less common is a House speaker and majority leader going their separate ways on big-ticket legislation. The last major example is when the Democratic-controlled House debate funding President George W Bush’s surge in Iraq. House speaker Nancy Pelosi allowed the measure to proceed to the floor and voted no. House majority leader Steny Hoyer voted yes.

House speakers typically don’t even vote at all unless it is necessary to break a tie. So it may have been a clarifying moment when speaker of the House John Boehner and House majority leader Eric Cantor parted ways on the deal that ended the long national nightmare known as the fiscal cliff. Boehner voted for the bipartisan agreement negotiated between Vice-President Joe Biden and Senate Minority Leader Mitch McConnell; Cantor breathed the final moments of life into the opposition.

As Antle notes, despite conservative frustration with Boehner, Cantor is the only one who could potentially rally enough members behind him to seize the gavel. And Breitbart reports that there may be growing support for it:

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House Majority Leader Eric Cantor broke with Speaker John Boehner on the fiscal cliff deal vote yesterday, fueling speculation that he may challenge Boehner in Thursday’s Speaker election. At the Guardian, Jim Antle writes

It’s rare for the top two members of the House leadership to split on an important vote. Bob Michel, the hapless leader of the House Republicans during a long period in the minority, and Newt Gingrich voted differently on the 1990 “read my lips” tax increase. They split again over the 1994 assault weapons ban.

Even less common is a House speaker and majority leader going their separate ways on big-ticket legislation. The last major example is when the Democratic-controlled House debate funding President George W Bush’s surge in Iraq. House speaker Nancy Pelosi allowed the measure to proceed to the floor and voted no. House majority leader Steny Hoyer voted yes.

House speakers typically don’t even vote at all unless it is necessary to break a tie. So it may have been a clarifying moment when speaker of the House John Boehner and House majority leader Eric Cantor parted ways on the deal that ended the long national nightmare known as the fiscal cliff. Boehner voted for the bipartisan agreement negotiated between Vice-President Joe Biden and Senate Minority Leader Mitch McConnell; Cantor breathed the final moments of life into the opposition.

As Antle notes, despite conservative frustration with Boehner, Cantor is the only one who could potentially rally enough members behind him to seize the gavel. And Breitbart reports that there may be growing support for it:

“At least 20 House Republican members have gotten together, discussed this and want to unseat Speaker Boehner–and are willing to do what it takes to do it,” [American Action Majority spokesperson Ron] Meyer said. “That’s more than enough to get the job done, but the one problem these guys face is they need a leader to coalesce behind.” 

Meyer said the conservatives have considered House Majority Leader Eric Cantor (R-VA) to take the helm after Boehner is knocked out. His opposition from the right to the Senate fiscal cliff deal that Vice President Joe Biden cut with Senate Minority Leader Mitch McConnell is a sign Cantor may try for the job. 

AMA is hardly the only conservative entity aware of the rekindled effort afoot to unseat Boehner. Another conservative with inside knowledge of the effort told Breitbart News that the movement has “new focus and juice,” and if enough members go to Boehner telling him they won’t support his re-election, that Americans should “watch for him to resign gracefully.”

AMA has been one of Boehner’s most vocal critics, so it’s not clear how much of this is just wishful thinking and how much reflects an actual burgeoning revolt. For one, Cantor’s office has downplayed his rift with Boehner, saying he stands behind the current speaker. And many members might be concerned about shaking up House GOP leadership right before the debt ceiling debate. 

Then there’s the question of how much of this the Boehner opposition brought on itself. After all, the speaker’s Plan B deal that was killed by his internal critics was better in comparison to what ended up going through yesterday. Conservatives have legitimate complaints about the final deal, and legitimate grievances about the closed-door process of negotiations. But Boehner had to play the hand he was dealt, and unfortunately for Republicans it’s been stacked against them since the November election.

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A Bad Deal Beats a Calamitous Outcome

The deal to avoid going over the so-called fiscal cliff was a lousy one: tax rate increases during a weak economy, no spending reductions, nothing on entitlement reform. And yet if House Republicans had succeeded in derailing this deal, negotiated between Senator Mitch McConnell and Vice President Joe Biden, it would have been disastrous. 

It would have led to much higher tax increases on all Americans, even beyond the increase in payroll taxes that will now go into effect, and triggered decimating cuts in the defense department. And it would have done a great deal to advance the storyline that Republicans — at least House Republicans — are extremists enamored with nihilism.

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The deal to avoid going over the so-called fiscal cliff was a lousy one: tax rate increases during a weak economy, no spending reductions, nothing on entitlement reform. And yet if House Republicans had succeeded in derailing this deal, negotiated between Senator Mitch McConnell and Vice President Joe Biden, it would have been disastrous. 

It would have led to much higher tax increases on all Americans, even beyond the increase in payroll taxes that will now go into effect, and triggered decimating cuts in the defense department. And it would have done a great deal to advance the storyline that Republicans — at least House Republicans — are extremists enamored with nihilism.

I don’t believe that narrative for a moment. Most Republicans want to take meaningful steps to re-limit government, which is entirely admirable. But they faced a particularly bad set of circumstances, and it wasn’t at all clear to me what the game plan would have been if they had succeeded in blowing up the deal passed by an overwhelming margin in the Senate. 

To have amended the Senate deal with the most minor spending cuts–essentially pocket change, given the level of deficits and debt we’re dealing with–would have been fiscally meaningless. And if an amended deal had led to no deal at all–which is precisely what would have happened–it would have been calamitous for House Republicans. There is simply no way Republicans could extract a good, or even mediocre, deal from this situation. They had to hope they could minimize the damage, retreat to safer and better ground, and think through a strategy on how to more effectively wage future battles with the president. Republicans can also take some comfort in the fact that Democrats, after having spent a decade demagoguing the Bush tax cuts, made them permanent for 98 percent of Americans. And as the dust settles on this deal, it may dawn on Republicans that Democrats, who presumably were in a position of maximum strength, didn’t get nearly as much as they hoped for. (For more, see Yuval Levin’s excellent analysis here.)   

Congressional Republicans who wanted to amend the deal sent to them by the Senate may have been engaging in a primal scream of sorts. They are enormously (and understandably) frustrated at the president’s staggering indifference to our debt crisis and their inability to do anything about it. And because this deal is so bad in so many ways, they wanted to vote against it. But if more of them had voted the way Senator Marco Rubio and Representative Eric Cantor did, they would have badly damaged their party and their country.

I for one am glad that cooler and wiser head prevailed and that this bad deal didn’t give way to a much worse outcome. Sometimes that’s the best you can hope for in the aftermath of a damaging election loss.

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Obama Sets Stage for Conflict

Just as it looked like a fiscal cliff deal was coming together, President Obama gave a partisan, sarcastic speech this afternoon that seemed intended to set back the entire process. As Jonathan wrote, Republicans have good reason to think the president’s goal is to go over the cliff. But they also suspect the White House is preparing to push for further tax increases, in addition to the hikes on individuals making over $400,000 (and families making over $450,000) a year.

“What they’re telegraphing to me is that when Republicans ask for spending cuts, [Democrats are] gonna say ‘You’re not getting those unless we get more tax hikes’,” said one Republican Senate aide after the speech.

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Just as it looked like a fiscal cliff deal was coming together, President Obama gave a partisan, sarcastic speech this afternoon that seemed intended to set back the entire process. As Jonathan wrote, Republicans have good reason to think the president’s goal is to go over the cliff. But they also suspect the White House is preparing to push for further tax increases, in addition to the hikes on individuals making over $400,000 (and families making over $450,000) a year.

“What they’re telegraphing to me is that when Republicans ask for spending cuts, [Democrats are] gonna say ‘You’re not getting those unless we get more tax hikes’,” said one Republican Senate aide after the speech.

According to Senate GOP sources, there is no more debate on the deal to raise taxes on those making over $400,000, which is necessary to avert automatic across-the-board expiration of the Bush tax cuts. But Republican leadership is balking at the White House demand to delay sequestration without corresponding, targeted spending cuts.

“Not only was [Obama’s speech] unhelpful and antagonistic (as pretty much every journalist on Twitter and even Ezra Klein recognized), the tax part of negotiations is done,” another Republican aide said in an email. “There’s already an agreement there. The sticking point is Democrats trying to turn off the sequester cuts. Republicans aren’t going to agree to simply set spending cuts aside.” 

One big concern is that the White House will demand additional tax increases down the road, in return for spending cuts. Some also say the current tax deal will impact more Americans than initially thought. According to a Senate Republican source, the tax increase on individuals/families making over $400,000/$450,000 a year is not enough to reach the $600 billion in tax revenue included in the potential deal, even if you include hikes on capital gains, dividends, and phased-out personal exemptions and itemized deductions. In other words, those making well under $400,000–and as low as $250,000 a year–could also end up paying higher taxes under the deal.

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Happy New Year, America

If you’d like to have your New Year’s Eve thoroughly ruined, I’d suggest taking a look today at Mortimer Zuckerman’s piece over at USNews.com, “Brace for an Avalanche of Unfunded Debt.”

It’s so depressing because it’s true. The federal government keeps its books not in ways that most clearly reveal the true financial picture, but in ways designed, quite deliberately, to obscure that picture. This is for the short-term benefit of politicians and nothing else, the country be damned. And, as Zuckerman notes, unless something is done about this, and soon, that is exactly what the country will be.

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If you’d like to have your New Year’s Eve thoroughly ruined, I’d suggest taking a look today at Mortimer Zuckerman’s piece over at USNews.com, “Brace for an Avalanche of Unfunded Debt.”

It’s so depressing because it’s true. The federal government keeps its books not in ways that most clearly reveal the true financial picture, but in ways designed, quite deliberately, to obscure that picture. This is for the short-term benefit of politicians and nothing else, the country be damned. And, as Zuckerman notes, unless something is done about this, and soon, that is exactly what the country will be.

As he points out, the country is incurring future financial obligations at the rate of $8 trillion a year. That exceeds the total taxable income of everyone earning more than $66,198 a year and all corporate profits. Even a liberal should be able to understand that if future obligations in entitlements are rising at $8 trillion and the total taxable income of the middle class and up, plus corporations, is $7 trillion, “getting the rich to pay their fair share” won’t do the trick.

The good news, of course, is that these future obligations are not like the national debt, which is at $16 trillion and rising fast. The debt is an inescapable obligation because we pledged the “full faith and credit of the United States” when we borrowed the money. The only alternatives don’t bear thinking about: repudiating the debt or inflating it away.

As Zuckerman points out, it costs $359 billion to service the debt at today’s very low interest rates. Should interest rates begin to rise, either because of returning prosperity or a loss of faith by the market, the cost of servicing the debt will increase $150 billion for every percentage point rise in interest rates. We’re currently paying about 2.2 percent on the debt. Greece is paying over 16 percent to borrow money. As they say: you do the math.

Unlike the debt, future entitlement obligations are obligations only because current law says they are, and laws can be changed. For instance, if we were to, 1) change the formula by which cost-of-living increases in Social Security payments are calculated so that it didn’t overstate inflation as the formula does now, and 2) gradually increase the age of eligibility to reflect ever-increasing life expectancy, Social Security would become solvent for the foreseeable future.

The annual cost-of-living adjustment is designed to keep recipients’ purchasing power intact, but it currently gives them, in effect, a raise. Is it really too much to ask of recipients that they get what’s due them, not more? Likewise, would raising the age of eligibility one month for every year future recipients are now under the age of 55 incur unbearable political opposition? Not if politicians, starting with the president, do their jobs and, you know, lead, explaining the truth and showing the way out of trouble. I have a news bulletin for the political class: the American people are neither stupid nor selfish. Tell them the truth and they will accept it.

But to do that—to tell the American people the truth about the financial situation of the country—requires that politicians surrender the power to keep the books in self-serving ways. The country needs just what corporations have: a set of accounting rules they are obliged to follow that reveal the truth, not conceal it, and an independent authority to certify the books as honest and complete, including future obligations. (The Congressional Budget Office, which “scores” legislation, is nonpartisan, but it is by no means independent. It is a creature of Congress and has no choice but to do Congress’s bidding, which is political protection first, the truth a long-way second.)

There will be no long-term solution to the impending financial disaster until the government keeps honest books. The sooner this fact is on the country’s political radar and becomes part of the discussion, the better. There is not a lot of time left.

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Those Courageous Liberals

The question at the heart of the Chuck Hagel controversy was always whether President Obama actually wanted Hagel as his secretary of defense, or whether it was all a gimmick to trick the press into further proclaiming the absurd-beyond-belief characterization of Obama’s cabinet as a “team of rivals.” You would think it would raise some eyebrows that this supposed ream of rivals all agree with each other. But Obama figured the press could be fooled again by appointing a registered Republican to run the Pentagon.

A gimmick, however, is generally not worth fighting for. But to understand why Obama thought the press could be fooled so easily into this nonsense, take a look at yesterday’s National Journal article, which broke the news that the White House is considering dropping Hagel. It’s a well-reported piece that got a scoop where everyone else merely had inklings. But notice the way this straight news story characterizes Hagel’s stand on the Iraq War:

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The question at the heart of the Chuck Hagel controversy was always whether President Obama actually wanted Hagel as his secretary of defense, or whether it was all a gimmick to trick the press into further proclaiming the absurd-beyond-belief characterization of Obama’s cabinet as a “team of rivals.” You would think it would raise some eyebrows that this supposed ream of rivals all agree with each other. But Obama figured the press could be fooled again by appointing a registered Republican to run the Pentagon.

A gimmick, however, is generally not worth fighting for. But to understand why Obama thought the press could be fooled so easily into this nonsense, take a look at yesterday’s National Journal article, which broke the news that the White House is considering dropping Hagel. It’s a well-reported piece that got a scoop where everyone else merely had inklings. But notice the way this straight news story characterizes Hagel’s stand on the Iraq War:

While much of the criticism centers on questions of whether Hagel has been a strong enough supporter of Israel and tough enough on Iran–as well as past comments he made about gay people–he is also paying, in part, for his bluntness and bravery in advocating unpopular positions during his 12 years in the Senate. Hagel’s gutsy and prescient stand against his own party and President George W. Bush in the run-up to the Iraq invasion—and his criticism of the war’s management afterwards—all but cost him his political career, turning him from a possible GOP presidential contender into a pariah within his party.

As John Tabin noted last night, something is missing from the description of Hagel’s “prescient” stand against the Iraq War. And that something would be Hagel’s vote in favor of the Iraq War. What’s more, turning on the war effort when trouble hit was far from constituting “bravery,” as National Journal would have it. It was the popular thing to do.

Beyond the fact that reporters should not be bestowing medals upon politicians in straight news articles such as this, and in addition to the need to actually get the history and the facts right, there is the pattern of the press deciding that whenever a politician takes a stand on an issue that they agree with, it’s brave and courageous.

Hagel didn’t vote against the Iraq War, so his bravery consists of badmouthing Republicans and conservatives. In our current media climate, that is possibly among the least-brave acts one can take. But yesterday’s news also centered on the ongoing controversy over gun control in the wake of the Newtown tragedy–and it followed the same pattern and took the same tone it has since the fatal shooting took place. In a column about gun control, the New York Times’s Nicholas Kristof had earlier asked: “Do We Have the Courage to Stop This?” What kind of courage, specifically, do we need? Kristof answers: “the gumption to stand up to National Rifle Association extremists.”

Of course. Just as in the case of Hagel’s nomination, we hear of powerful lobbies controlling members of Congress. But is it really courageous to attack the NRA? Bashing the NRA has been a daily ritual since the tragedy in Newtown, and both Republican lawmakers and Democratic legislators have said they’re open to adjusting their positions on gun control in favor of stricter rules and in defiance of the NRA.

But of course to the left, listening to interest groups can also be courageous and wise—it just depends on the interest groups. California Governor Jerry Brown is presiding over a fiscal basket case well on its way to becoming a failed state. But the L.A. Times, in discussing how to grade Brown’s year, can’t decide “whether to give him a B-plus, an A-minus or a full A.” What did Brown do to earn such accolades? He raised taxes on the state’s high earners. Specifically, “He merged his tax proposal with a more liberal version sponsored by the California Federation of Teachers.”

So allowing public sector union leaders to write legislation aimed at protecting their benefits by getting to choose who pays for them gets Brown on the dean’s list. It doesn’t seem to matter that the tax increase is already seen as a laughable bit of delusional public policy and that the state’s finances keep getting worse even as Brown and the unions celebrate their victory. When the tax initiative seemed headed for defeat, its supporters in the business community stepped forward to rally support. In another supposed straight news article, the San Francisco Chronicle called supporters of the tax hike “The few and the brave.” In case you didn’t get the point, one of the major liberal groups supporting the measure calls itself the Courage Campaign. After the tax passed, Brown praised the state’s “courageous decision.”

The liberal press knows bravery when it sees it. It’s just a coincidence that by their own criteria, America’s newspaper reporters join the Hagels and Browns up on that pedestal.

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The Right’s Latest Meaningless Purity Test

In a strange about-face today, FreedomWorks has decided to withdraw its support of House Speaker John Boehner’s “Plan B” a day after declaring its support for the plan. Yesterday Dean Clancy, legislative counsel for the group, wrote “Speaker Boehner: Congratulations, you are moving in the right direction. You woke up and realized you have the power to say No to the Left. Stay the course. Go all the way to the FreedomWorks plan, and you’ll have it made in the shade.” This comes as the Heritage Foundation continues to beat the drums against Boehner’s plan, calling it, “the latest unsatisfactory proposal put forward by Speaker John Boehner (R-OH) to avoid the fiscal cliff. Boehner’s plan would protect most Americans, except for millionaires, from a tax hike. But even this is a poor fix because it ignores the real problem: spending.” Heritage’s more flexible legislative arm (due to tax restraints on the non-profit Heritage Foundation), declared, “Heritage Action opposes ‘Plan B’ and will include it as a key vote on our legislative scorecard.” Club for Growth has also been forceful with its opposition to the plan, joining smaller Tea Party groups. 

While conservatives are eating their own over the plan, Senate Democrats have announced that they have no plans to vote on Boehner’s “Plan B,” even if it passes a House vote, as many are promising it will. The bill will therefore be dead on arrival, despite the fact that Senate Democrats voted for a similar plan almost exactly two years ago. There are no other plans under discussion from congressional Republicans, who are spending as much time fighting with conservative groups as they are with their Democratic counterparts. 

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In a strange about-face today, FreedomWorks has decided to withdraw its support of House Speaker John Boehner’s “Plan B” a day after declaring its support for the plan. Yesterday Dean Clancy, legislative counsel for the group, wrote “Speaker Boehner: Congratulations, you are moving in the right direction. You woke up and realized you have the power to say No to the Left. Stay the course. Go all the way to the FreedomWorks plan, and you’ll have it made in the shade.” This comes as the Heritage Foundation continues to beat the drums against Boehner’s plan, calling it, “the latest unsatisfactory proposal put forward by Speaker John Boehner (R-OH) to avoid the fiscal cliff. Boehner’s plan would protect most Americans, except for millionaires, from a tax hike. But even this is a poor fix because it ignores the real problem: spending.” Heritage’s more flexible legislative arm (due to tax restraints on the non-profit Heritage Foundation), declared, “Heritage Action opposes ‘Plan B’ and will include it as a key vote on our legislative scorecard.” Club for Growth has also been forceful with its opposition to the plan, joining smaller Tea Party groups. 

While conservatives are eating their own over the plan, Senate Democrats have announced that they have no plans to vote on Boehner’s “Plan B,” even if it passes a House vote, as many are promising it will. The bill will therefore be dead on arrival, despite the fact that Senate Democrats voted for a similar plan almost exactly two years ago. There are no other plans under discussion from congressional Republicans, who are spending as much time fighting with conservative groups as they are with their Democratic counterparts. 

Could there possibly be a bigger waste of time than what is currently taking place? Conservatives are at each other’s throats fighting over a plan that has no chance thanks to a Democratically controlled Senate and White House. Once upon a time, conservatives understood that the only chance at passing conservative legislation was by holding those branches of government, as Philip Klein pointed this out today in the Washington Examiner,

If all it takes to enact a conservative agenda is to hold one chamber of Congress, then why did conservative activists work so hard for Republicans to win control of the Senate? Why did they spill so much sweat in an effort to defeat Obama, even though it meant supporting Mitt Romney?

Klein goes on to say “Conservatives should acknowledge that some sort of compromise is inevitable. But that doesn’t mean they have to swallow anything that Boehner cooks up.” While these groups don’t have to go along with Boehner’s plan, if they plan to spend their precious political capital fighting “Plan B” they need to at least have an alternative that House Republicans can work with. While many of these groups have their own proposals, none stands a chance at passage through a Democratically controlled Senate, nor will Obama sign them.

During the primary season when opposition to Mitt Romney was at its peak, a group of conservatives started a group called the Not Mitt Romney coalition. The group spent its time fighting the eventual choice of Romney as the Republican nominee. From early on, it became clear that Romney was the most viable of all possible picks in a slim Republican field of candidates, and despite this, conservatives continued to fight his nomination instead of trying to find and recruit an alternative who would be more acceptable to their base (with the exception of the Weekly Standard‘s editor Bill Kristol, who famously spent months trying to draft reluctant Republicans into running). By the time Romney secured the nomination, a great deal of his campaign’s energy, money and political capital was spent battling his eventual nomination with fellow Republicans instead of building his case against Barack Obama. In campaign post-mortems, many of Romney’s top staff attributed their loss in part to this lengthy and nasty primary battle. 

If conservatives have learned anything from that primary experience, it’s that along with principled stands against objectionable legislation or politicians, they need to provide acceptable alternatives. It’s easy to declare that something or someone fails the conservative litmus test, but in order for Republicans to move past the label as the “Party of No” (which inevitably leads to plummeting approval ratings), they need to start offering reasonable solutions. 

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The Difference Between a Concession and a Confession

One of the arguments some intelligent conservatives are making is that if Republicans agree to increase rates on the top earners in America, it will do irreparable damage to the GOP. The basic case goes like this:

If Obama succeeds and ends up getting a confession from Republicans that tax cuts are the problem, tax cuts are the cause, what happens to the next Republican who campaigns on tax cuts? Not going to have a prayer.

Now it may well be that raising tax rates will do significant damage to the Republican Party. It may be substantively unwise. And I’m certainly sympathetic to Republicans not wanting to play a role in something they think is bad policy.

But here’s where I think this analysis is wrong.

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One of the arguments some intelligent conservatives are making is that if Republicans agree to increase rates on the top earners in America, it will do irreparable damage to the GOP. The basic case goes like this:

If Obama succeeds and ends up getting a confession from Republicans that tax cuts are the problem, tax cuts are the cause, what happens to the next Republican who campaigns on tax cuts? Not going to have a prayer.

Now it may well be that raising tax rates will do significant damage to the Republican Party. It may be substantively unwise. And I’m certainly sympathetic to Republicans not wanting to play a role in something they think is bad policy.

But here’s where I think this analysis is wrong.

If Republicans agreed to raise the rates on the top income earners in America, it would not be a “confession” that tax cuts are the problem. It would be a concession–one done in order to (a) keep something worse from happening (e.g., higher taxes on everyone, not just the top 2 percent of income earners; and/or the economic damage caused by going over the fiscal cliff) or (b) extracting something better in return (for example, entitlement reforms).

Whether the concession is worthwhile depends on the details of a deal. But conservatives should bear in mind that even a politician as principled as Ronald Reagan agreed to tax increases as part of broader deals. Indeed, Reagan agreed to what at the time was the largest tax increase in American history (the TEFRA tax).

It’s true that Reagan came to regret that decision. But the reason is that he never got the spending cuts he asked for in exchange for the tax increase he reluctantly agreed to. If he had, Reagan would have defended his decision on the grounds that the tax increases, which as a general matter he strongly opposed, were worth what he was able to get in return (spending cuts). And even though Reagan had agreed to tax increases in 1982, he and his party were still able to champion tax cuts in 1984. 

My guess is at the end of the day, Speaker Boehner will (wisely) not agree to raise the top rates, given how obstinate and unreasonable President Obama has shown himself to be. But even if Boehner does agree to an increase in the top rates, it will be a concession, not a confession.

Ronald Reagan agreed to tax increases and in the process didn’t ruin the GOP brand, and neither would John Boehner. 

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The High Cost of Dems’ Cheap Populism

Last week, I wrote about the fact that President Obama’s approach to taxes as part of the “fiscal cliff” negotiations is billed as taxing the rich but would end up hurting the poor and possibly deepening inequality. Policies built on the flimsy populism of “fairness”–at least as modern Democrats define it–are quite often devoid of economic common sense. What’s more, the Democrats seem to know this.

The New York Times offers a “News Analysis” today in which it is revealed that the Republicans are right on the merits of most of the arguments, but Obama and congressional Democrats have boxed themselves in by relentlessly demagoguing the issue. Here’s the Times:

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Last week, I wrote about the fact that President Obama’s approach to taxes as part of the “fiscal cliff” negotiations is billed as taxing the rich but would end up hurting the poor and possibly deepening inequality. Policies built on the flimsy populism of “fairness”–at least as modern Democrats define it–are quite often devoid of economic common sense. What’s more, the Democrats seem to know this.

The New York Times offers a “News Analysis” today in which it is revealed that the Republicans are right on the merits of most of the arguments, but Obama and congressional Democrats have boxed themselves in by relentlessly demagoguing the issue. Here’s the Times:

The mounting concentration of wealth is even more dramatic. A recent Economic Policy Institute study found that between 1983 and 2010 about three-quarters of all new wealth accrued to the wealthiest 5 percent of households. Over the same period, the bottom 60 percent actually became poorer.

Such figures are why some Democrats argue that even if the economy were to return to Clinton-era growth rates, its poor and middle class could not stomach a return to Clinton-era tax rates, at least not yet.

Why can’t the economy handle going back to Clinton-era tax rates? “In part, that is because the economy is still growing slowly, and tax increases have the potential to weaken it,” the Times explains. So higher taxes would indeed impede economic growth. But the Democrats only expect to protect the non-rich from tax increases for a limited time. They’re coming after the middle class too. The Times continues:

“It’s perfectly reasonable for the White House to begin collecting more revenue from folks who have done by far the best in pretax terms,” said Jared Bernstein of the Center on Budget and Policy Priorities, a former economist for Vice President Joseph R. Biden Jr. “But ultimately we can’t raise the revenue we need only on the top 2 percent.”

Well, you could solve some of the revenue problem by cutting spending. But the Democrats’ long-term strategy is to do the opposite. Republicans often complain that Obama wants a GOP House to cooperate on his terms, in order to essentially make the GOP the tax collectors for the welfare state. And as the Times notes, that’s exactly right:

“The goal is not just to make the tax code more progressive, but also to obtain adequate revenue to finance progressive spending programs,” said Peter Orszag, a vice chairman at Citigroup and a former White House budget director. “Making the tax code more progressive but locking into a vastly inadequate revenue base is not doing the notion of progressivity overall any favors.”

So the left can at least claim that they want your money in order to give it back to you in the form of benefits. It’s for your own good. Except, as the Times notes, it’s not:

The Congressional Budget Office has found that between 1979 and 2007, the top 1 percent of households saw their inflation-adjusted income grow 275 percent. For the bottom 20 percent, it grew just 18 percent, and federal tax and transfer programs also did less and less to reduce income inequality over that period.

To recap: Democrats don’t want to raise taxes on the middle class right at this moment, because those tax hikes would harm economic growth, especially for the middle class. But they do want to enact those damaging tax hikes on the middle class at some point, because they want to increase, not decrease, federal spending in the face of mounting debt and deficits. That might hurt the middle class, but the tax revenue gained from it would be spent in part on federal transfer programs intended to reduce inequality, though they won’t succeed in doing that either.

It’s almost as if near-term political gain and populist theater, and not economics, are driving Obama’s approach to policy.

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Nearly Half of Republicans Say Obama Has “Mandate” on Taxes

Another day, another bad “fiscal cliff” poll for the GOP. Bloomberg finds that nearly half of Republicans agree that the presidential election has given Obama a mandate to raise tax rates on the top income bracket:

The president goes into talks with Republicans amid broad public sentiment that his victory is a sign the electorate has spoken in favor of his positions on taxes and entitlements.

Sixty-five percent of Americans say the Nov. 6 results gave Obama a “mandate” on his proposal to raise tax rates on income over $250,000 and “to get it done.” Forty-five percent of Republicans agree.

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Another day, another bad “fiscal cliff” poll for the GOP. Bloomberg finds that nearly half of Republicans agree that the presidential election has given Obama a mandate to raise tax rates on the top income bracket:

The president goes into talks with Republicans amid broad public sentiment that his victory is a sign the electorate has spoken in favor of his positions on taxes and entitlements.

Sixty-five percent of Americans say the Nov. 6 results gave Obama a “mandate” on his proposal to raise tax rates on income over $250,000 and “to get it done.” Forty-five percent of Republicans agree.

At what point do Republicans get so fed up that they just give up and let the Democratic Party take the blame for the fallout from raising taxes during an economic downturn? For Senator Rand Paul, it sounds like that time has come

“I think what we should do first of all is put forward what we’re for. So if you’re in the House, the House leadership should put forward something that extends the Bush tax cuts forever and has significant spending cuts. And I think they pass that. If the Democrats won’t accept that and we’re unwilling to stay by our position, then I would say, let them pass a tax increase on the upper income folks, but let them do it with their votes not our votes. Republicans vote present in the House. Democrats can pass the tax increase with only Democrat votes. And then, the Democrats are the party of high taxes and the Republicans, we’re the party of lower taxes. And I think that’s the way it should be. …

Don’t give in by splitting the baby. Give in by voting present, let the Democrats pass an increase in the upper tax brackets. it comes over to the Senate, Republicans vote no, and it becomes a Democrat tax increase but not a Republican/Democrat tax increase, which I think is a mistake for Republicans.”

That would seem to pass Grover Norquist’s “no fingerprints” test. Republicans in the Senate will be attacked for voting no on a middle-class tax cut extension, but at least they won’t be saddled with blame over the top bracket tax hike. Also, the fact that Rand Paul is endorsing this proposal might make it a bit more palatable for Tea Party groups.

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