Shutdown Antics Threaten Constitutional Order

The current shutdown of the federal government and upcoming showdown over the debt ceiling has caused many people to ask who is to blame for this gridlock. The media, in its effort to try to report both sides of the story, often end up giving balanced treatment to an unbalanced phenomenon. What we have is an extremist element within the minority political party that refuses to accept the results of the previous elections. Leading up to the shutdown, House Republicans demanded defunding of the Affordable Care Act (or Obamacare) in exchange for passing a continuing resolution budget that would fund the rest of the federal government for a brief period. Republicans also threatened to prevent the debt ceiling from being raised that could result in a catastrophic default on our national debt if their demands are not met. In making these demands, Republicans are attempting to thwart the Constitutional order of our government while threatening financial and economic chaos.

An Economy on the Rebound

When President Barack Obama took the oath of office on January 20, 2009, the U.S. economy was in free fall. During the preceding year and half, some of the nation’s largest and most important financial institutions went bankrupt, including Bear Stearns, Countrywide, and Lehman Brothers, as risky loans and other investments failed. Many other large banks were on the verge of collapse. The downfall of the financial sector had been preceded by a spectacular end to a massive speculative housing bubble that almost instantly wiped out trillions of dollars of Americans’ net worth. When Lehman Brothers and AIG went into bankruptcy during the same weekend in September 2008, panic ensued all across the economy. It felt like 1929 all over again. The Troubled Asset Relief Program (TARP), which was signed into law by President George W. Bush and was implemented by President Obama, stopped the bleeding in the financial sector, but the damage to the broader economy had already been done as other sectors of the economy continued to rapidly deteriorate. The stock markets plummeted, losing more than half of their peak market capitalization just six weeks after Obama took office. Many retirees and workers nearing retirement saw their investment portfolio lose much of its value. Millions of people lost their jobs due to no fault of their own after the U.S. entered a recession in December 2007. Over 1.2 million Americans were laid off between the election and Obama’s inauguration. All told, the Bureau of Labor Statistics estimates that 8.7 million jobs were lost due to the Great Recession. No president since Franklin D. Roosevelt has begun their tenure in the White House under such dire circumstances. An evaluation of each segment of the economy around the time Obama took office compared to now shows that we are definitely better off four years later.

Thank Romney for Underscoring Need for "Buffet Rule"

After losing the South Carolina Primary to Newt Gingrich, possibly in part due to his waffling at the pre-Primary debates about releasing his tax returns, Mitt Romney released his tax returns for the past two years, which show that he paid about 14% in federal taxes on income of nearly $43 million. The timing of Romney's tax return release was impeccable- for Democrats. For months, President Obama and Democrats have been attacking Republicans for wanting to maintain tax breaks and loopholes for the super-wealthy. Last August, Warren Buffet pointed out in an op-ed that he paid a lower federal tax rate than his secretary in 2010. He paid about 17.4%, whereas his office staff paid an average of 36%. Buffet rightly pointed out that this simply isn't fair. He added, "it’s time for our government to get serious about shared sacrifice."

Last October, the non-partisan Congressional Research Service released a report that indicated 25% of all households earning at least $1 million annually are paying a smaller share of their income than a large segment of the middle class. The report adds that 94,500 millionaires pay a lower tax rate than most of the middle class and that 7,000 millionaires pay no income taxes at all.

The reason for this is because of the payroll tax (Social Security tax), which doesn't tax income above $107,000, and the capital gains tax rate, which is 15%. Investment income is usually taxed at this rate, which is much lower than earned income tax rates. Many of the super-wealthy make their money via investment income rather than earned income.

President Obama has talked about "the Buffet rule" as a way to help fight the budget deficit by implementing a higher minimum tax rate for people in the highest income bracket, to ensure they don't pay a lower percentage of income in taxes than the middle class. As he has stated, millionaires shouldn't be paying lower tax rates than their secretaries. Mitt Romney's revelation that he paid an effective federal tax rate of 14% underscores the notion that it is completely unfair for the super wealthy to pay less in overall taxes than the middle class. And it adds to the powerful narrative that was created by the Occupy Wall Street movement, whose underlying theme deals with the challenges posed by the incredible gap between the top 1% of earners in the U.S. and the rest of the country, and the disproportionate amount of power that the top 1% hold. Romney's tax returns show that we are in dire need of tax reforms that will create a fairer revenue system. If Romney becomes the GOP nominee, which seems pretty likely at this point, you can count on Romney's ridiculously low tax rate as becoming a major campaign issue. It will help show that the GOP's insistence in preserving Bush's tax cuts for the wealthy and Romney's advocacy for even more tax cuts for top earners are entirely out of touch with our federal budget deficit reality and lack any sense of fairness. So I thank Mitt Romney for serving as a poster-child for all that is wrong with the fiscal policies he and his party tirelessly support.

Taxes and Used Car Dealers

To support their argument against President Obama's calls additional revenue to solve the budget deficit, Republicans have argued that the U.S. has one of the highest corporate tax rates in the world. Democrats, on the other hand, have pointed out that companies and wealthy Americans are paying historically low levels of taxes. Paradoxically, both parties are right. To understand why, you need to think of the U.S. tax code like code like a user car dealership. Sticker prices are usually high at used car dealerships, but hardly anyone ever pays sticker price. The same is true with federal tax rates, especially with corporate taxes. Although the corporate federal tax rate in America is high (too high in my view), most companies take advantage of a plethora of loopholes and deductions that result in a much lower actual corporate tax. The Government Accountability Office released a study in 2008 that revealed 55% of U.S. companies paid no federal income taxes during at least one year in the seven-year period covered by the study. This makes our tax code look like a proverbial block of Swiss cheese, as the wealthiest companies and individuals are able to become savvy at tax avoidance by hiring the best accountants and tax attorneys who can find loopholes. The U.S. corporate tax rate needs to be competitive with the rest of the world. However, most countries do not have the kind of loophole-ridden tax system we have. Simply stated, we can help solve the massive budget deficit by raising revenue while actually lowering the corporate tax rate. This means we need to close the loopholes, end the subsidies (corporate welfare) and make the tax code fairer and the tax environment more predictable for businesses. The current Administration has supported this, but to date, the Tea Party element of the House Republican caucus has opposed anything that would increase the amount of revenue coming into the Treasury. Hopefully saner heads will prevail.

Presidents and Vacation

I meant to post this in August while Congress was on recess and President Obama was on vacation. It's not exactly a timely topic anymore, but I think it still warrants mentioning:

This August was a crazy time for American politics. The debt ceiling debate (or debacle) along with the "compromise" bill where the Democrats essentially gave in to nearly all of the GOP's demands, followed by the stock market's precipitous drop and frightening volatility have resulted in hysteria among some of the political talking heads. One thing that annoyed me a bit was constant criticism of President Obama for taking a vacation after the debt ceiling crisis was finally solved. It seems to me that every time Barack Obama and his family take some vacation time, they are subject to relentless attacks by the right-wing media. Conservative pundits on FOX News and elsewhere assaulted the President for taking vacation during such distressing economic times. Of course after the debt ceiling compromise bill was passed, Congress took a 3-week recess, and there isn't much the President can do about the economy without Congress. Even if the President recalled Congress, everyone should know by now that there is little chance the two parties could come to an agreement on measures to stimulate economic growth and fight unemployment anytime soon.

In hearing all of this criticism of the President and his vacation-taking, I wondered how he compared with his predecessors regarding the amount of vacation days he's taken. Fortunately, there are folks in the media who have nothing better to do than track Presidential vacation days.

CBS Radio's Mark Knoller observed the following in August:

So far, President Obama has taken 61 vacation days after 31 months in office. At this point in their presidencies, George W. Bush had spent 180 days at his ranch where his staff often joined him for meetings. And Ronald Reagan had taken 112 vacation days at his ranch. Among recent presidents, Bill Clinton took the least time off — 28 days.

Would FOX News care to publicize that comparison during their prime time shows?

Where Did All That Debt Come From?

I've intended since the spring to write about our country's current fiscal situation and how we arrived here. For months, Congressional Republicans have been asserting that our federal government does not have a revenue problem, it has a spending problem, and have argued for draconian spending cuts largely aimed at programs that benefit the middle class. And President Obama and many Democrats have largely conceded to the GOP on the issue, allowing them frame the debate about our economic woes as being the result of a large federal debt and ongoing budget deficit. Polling shows that a large majority of Americans blame our country's budget woes on wasteful government spending. However, it is critical to examine our country's fiscal policy during the past decade, to fully understand why our deficit and debt have become so large. The data show that the current budget deficit is primarily the result of 3 factors:

• Significantly decreased federal tax revenue due to the 2001 and 2003 Bush tax cuts for the wealthy;
• The wars in Iraq and Afghanistan, and other post-9/11 defense and security spending, which have added trillions of dollars in new debt;
• And more recently, the financial crisis of 2008 and recession have led to a dramatic decease in the amount of tax revenue coming into the U.S. Treasury (estimated to have increased the debt by $3.6 trillion).

Warren Buffet Paid a Lower Tax Rate Than His Secretary in 2010

In today's New York Times, billionaire investor Warren Buffett pointed out that he pays a lower federal income tax rate than his staff. His effective tax rate last year? 17.4 percent! His is not a unique case. Our tax code is written so that the wealthiest have the best tax breaks. As the President has said, everyone needs to pay their fair share. And since debt reduction is the pressing issue on politicians' minds in Washington, I hope that the new 'Super Congress' takes a balanced approach that includes significant revenue increases when they look for ways to improve our nation's budgetary problems. I plan on writing more about this and the recent debt ceiling debate - there is a lot more to the subject- but I was impressed by Buffett's Op-Ed.

Buffett states, "my friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice."

Are We Headed for Single Payer Health Care?

It's been interesting to listen to the debate rage over what will happen to the individual health insurance mandate in President Obama's health care reform bill as the issue moves its way up through federal courts. The mandate was recently ruled unconstitutional by one (Bush-appointed) federal judge in Virginia, but was ruled constitutional by a couple of other federal judges. It seems that most pundits agree that this issue is headed for the Supreme Court.

Ezra Klein of the Washington Post noted that Republicans may be doing some long-term damage to their cause by focusing on the individual mandate, which as my last post explained, was originally a Republican idea. To be certain, the mandate is essential to have a health-care system where everyone has coverage but private insurers dominate (Obama's plan). If the Supreme Court ultimately rules the mandate unconstitutional, the only other options for universal coverage will be the single-payer system, as found in Canada, or the fully nationalized system, as found in the United Kingdom. The mandate, as Klein states, is a very "common device" used in several other industrialized countries (including Switzerland and the Netherlands) that ensure universal coverage while relying on private insurers.

Klein makes a convincing argument when he states, "if Republicans get [the insurance mandate] ruled unconstitutional in America, they'd be wise to ask themselves what other options they have: After all, the constitutionality of Medicare is not in question, and that's really the other model we could eventually trend toward."

Another columnist argues:

By fighting the mandate needed to make private insurance solutions work, and doing nothing to ease the health cost burden on everyday Americans, you'll hasten the day when the public throws up its hands and says, "Just give us single-payer and price controls." Don't think the anti-government wave this fall won't reverse itself on health care if the most private sector-oriented health care system on earth keeps delivering the world's costliest, most inefficient care.

The current unrealistic threats by the new Republican-controlled House of Representatives to repeal the 2010 health care reform bill are good political theater, but will likely backfire. Anyone with a rudimentary understanding of how our federal government works, knows that Republicans do not have the numbers they need to repeal. They don't have a veto-proof majority in the House and are in the minority in the Senate. Additionally, the non-partisan Congressional Budget Office, which typically acts as a referee in the partisan atmosphere of Congress, has indicated that a repeal of the health care bill would increase the national deficit by $230 billion.

What is ironic about the last election, which was supposedly about run-away government deficits, is that Republicans have supported positions that drastically increase the national debt. The extension of the Bush-era tax cuts for the rich have added far more to the long-term debt of our nation than Obama's 2009 stimulus plan. The CBO estimated that the health care reform bill would actually decrease the deficit by $143 billion in its first 10 years and $1.2 trillion in the second 10 years. In an upcoming post, I'll go into some of the details of the new law, including its cost savings, but the fact of the matter is that repeal would drive us further into debt, notwithstanding doing nothing to improve our antiquated health care system including helping the tens of millions of uninsured working-class Americans and their families.

Isn't it ironic that the new House majority voted against a measure this week that would have required all Representatives to disclose whether they would accept their government-provided health insurance? As Rep Steve Israel (D-N.Y), stated, "every Republican voted to hide their own government health care, while many of them are pledging to repeal health care for everyone else." Don't we think it is relevant for constituents to know whether their representative is accepting government-sponsored health care? Nonetheless, repeal isn't going to happen. The Supreme Court is really the only mechanism by which the Obama heath care reform bill (and Romneycare) can be annulled at this point. And in the remote chance that occurs, it will probably lead us to something that is actually closer to what conservatives label as "socialized medicine."