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Trump's Cabinet Picks Are A Sorry Lot

As the Friday inauguration date draws near, most ordinary Americans who read, stay informed, pay attention to history and events, and engage in critical thinking are, understandably, aghast at the poor job Mr. Trump has done so far in putting together a workable Cabinet of high-level appointees with the expertise, experience and values that can lead the country. 

We Americans share many values.  Among them has always been a view that those who are better off should help those who are less well off. We've done that in many ways, beginning with private charity (supported by our tax code) but going much beyond the soup kitchens and church support for a sick parishioner to include a progressive income tax, taxation of the estates of the wealthiest among us upon their deaths (since they were generally almost tax free in life), and the provision of many necessary services through public institutions.  The latter includes things that are important to the everyday life of all of us as well as the opportunities for better lives for those of us not born with a silver (or, in Trump's case, golden) spoon:

• a public right to decent health care, made real by the expectation that hospitals (whether for profit or nonprofit) will care for those who enter their emergency rooms in medical emergencies, even if the patients cannot afford to pay the going price for the service needed, and made more substantive by the passage of the Affordable Care Act which provided coverage for pre-existing conditions, allowed young people to remain on their parent's insurance, and made market exchanges available to provide better to understand choices while providing a federal subsidy for those who otherwise couldn't afford insurance;
• public education from kindergarten through college, supported by federal and state funding, with reasonable rules that protect our children, such as not allowing private carrying of guns within protective zones around schools, and --in many states--rules that ensure that public support reaches poor districts as well as wealthy ones;
• protection of the environment, from national monuments and parks to restrictions on dangerous fracking and oil drilling in sensitive areas (consider the Arctic National Wildlife Refuge), from ensuring that communities have clean water to drink through regulation of corporate waste to ensuring that children have safe homes through regulation of lead paint, from protecting the nation's waterways so that individual owners and polluters cannot hoard or harm nationally important resources to protecting creatures large and small that represent the genetic diversity of this Earth
• regulation of commercial enterprises, to ensure that they do not exploit their workers, through fair labor laws and hiring laws and workplace rules that prevent employers from being able to force individuals to work in dangerous conditions or without appropriate rest and meal breaks
• regulation of financial enterprises, to ensure that those sophisticated 'quants' don't take advantage of less sophisticated customers, to prevent discriminatory practices that disadvantage people of color, to ensure open and fair reporting of financial positions
• regulation of the foods and drugs that enter our marketplace, to protect Americans, our children and our pets from the kind of pollution of food products that occurred when China's unregulated marketplace allowed melamine (plastic) to be substituted for protein in pet foods that were exported abroad or the indiscriminate use of toxic pesticides without informing consumers so that we can make good decisions about products that we buy; and on and on

Trump's appointees for many of the important Cabinet positions seem to be primarily wealthy crony capitalists with radical ideologies that are in direct conflict with the agency missions. Consider just the following three:

• Betsy DeVos--Trump's choice as education secretary-- is a billionaire heiress (ie., another one born with a silver spoon in her mouth) who has no experience in running major programs (the student loan portion of the Education portfolio is a trillion-dollar budget with enormous complexity), shows little understanding of the broad issues in education, has never supported public schools, and has wrecked Michigan's education system by funding a multimillion-dollar initiative pushing support of for-profit charter schools that siphon off public dollars  for the private enrichment of corporate managers, provide public dollars for religious education, and remain totally unaccountable to the taxpaying public while performing abysmally in their job of educating students.  Not surprisingly, at her confirmation hearing she refused to support "equal" accountability for private and public schools. She supports the completely discredited "conversion therapy"  for gays and will likely work to reverse the protections won for LGBTQ students based on her personal religious beliefs.  DeVos has never taught, has never served on a school board, and has never even sent her own children to public schools or participated in a PTA meeting.  She showed at her confirmation hearing that she has little or no understanding of educational issues of importance, such as the Federal laws requiring appropriate education for students with disabilities or nondiscriminatory opportunities for female and LGBTQ students. Her answer on whether guns should be allowed on school grounds was--(a paraphrase) Yes, because who knows, it might be necessary to protect children by shooting at a grizzly bear, and acknowledged that she would support Trump's proposal to ban gun-free school zones.  This, in a world where too many toddlers and high-school students have been mown down by guns brought in by students bent on death.  Betsy DeVos is anti-public education, anti-teacher, and anti-union--one of those who blame every problem of our underfunded schools on the teachers rather than on the ideological bureaucrats that have siphoned money away from public schools for vanity projects.  In the confirmation hearing, she refused to say that she would not work to privatize schools,  she thought it would be "premature" to say she would support the rules requiring investigation of college sexual assaults, and she didn't even understand a question from Al Franken dealing with an important educational issue regarding assessment.  Her values, in short, are not the values of a majority of ordinary Americans whose children attend public schools, and who want their children's teachers to be decently paid and respected.  (She hasn't completed her ethics disclosure yet, but she did omit a $125,000 anit-union political donation from her Senate disclosure form.  Not a good indicator of her respect for integrity.)   See, e.g., Betsy DeVos, Trump's education pick, lauded as bold reformed, called unfit for job, Washington Post (Jan 17, 2017); Amy Wang, All the vital questions Trump's pick for education secretary couldn't answer at her confirmation hearing, Quartz (Jan. 18, 2017); Some Colleges Have More Students From the Top 1 Percent than from the Bottom 60. Find Yours, The Upshot, New York Times (Jan. 18, 2017) (providing a clear picture of the way privatization of education at the college level has favored the elite).

 

• Scott Pruitt--Trump's choice for the EPA--is an Oklahoma oil and gas yesman who has fought for years to undermine the regulatory power of the EPA--suing the EPA 14 times alongside the oil companies during his Attorney General stint-- so that the oil and gas industry can pollute at will without fearing the power of the federal government to reign them in.  Fracking in Oklahoma has been clearly connected to a sharp increase in the number of earthquakes near fracking wells, but Scott Pruitt would rather expend state dollars on suing the EPA to try to eliminate regulations meant to protect people, communities, and the environment.  Pruitt is a climate change denier who accepts that human activity affects climate but denies the scientific consensus about the pace of warming, suggesting at his confirmation that the discussion of climate change was too "personalized" and not "precise" enough  to merit vigorous action; he has financial ties to oil and gas companies and so, unsurprisingly, he wants to use his role as EPA head to prevent the EPA from fighting pollution that endangers every American's health as well as the planet we and other species live on.  As pointed out in the confirmation hearing, one of the letters Pruitt sent as A.G. was drafted for him by Devon Energy:  he was serving an oil company, not the public, but he claimed such actions were appropriate. Interestingly, Pruitt claims to be in support of state's rights--except when the state's rights run counter to the interests of oil companies.  So he advocates state rights approach to environmental regulation, but at the same time threatens to undo California's ability to set its own clean-air standards!  Quite hypocritical and demonstrative of his obvious kowtowing to the oil industry.      This obsequiousness to polluting industry is NOT an American value.  It is the way crony capitalists work together to make the rules work in their favor and the public be damned.  The fact that Oklahoma Republican Senator James Inhofe--a person who is notorious;y anti-environmental protection,  a climate change denier, and pro Big Business no matter the cost to the environment--support Pruitt assures the American people that Pruitt does not care at all about the potential harms to the environment from  removing our current protective regulations and allowing business to do to the American natural resources the same thing corrupt industry has done to China's air, water, and land.   See, e.g., Trump's EPA pick casts doubt on California's longtime power to set its own clean-air standards, Los Angeles Times (Jan. 18, 2017) (Pruitt suggests he may not continue the federal waiver that has permitted the state to cut its greenhouse gas emissions from vehicles by about a third in 8 years); Scott Pruitt, Testifying to Lead E.P.A., Criticizes Environmental Rules, New York Times (Jan. 18, 2017) (noting Pruitt's hearing testimony criticizing federal rules protecting air and water and addressing climate change); Earth sets a temperature record for the third straight year, New York Times (Jan. 18, 2017) (take a look at the "How 2016 Became Earth's Hottest Year on Record" graphic showing the rapidly increasing temperatures--it is definitely starting to look much like the "hockey-stick graph" that Republicans] climate-change deniers mocked in Al Gore's "inconvenient truth" documentary, and then type in your city's name in the "How Much Warmer Was Your City in 2016?" graphic to see just how cities are experiencing climate change).

 

• Andy Puzder--Trump's choice for Labor--is a constant friend of Big Business  and an ideological critic of almost any worker protection, from much-needed minimum wage increases to $15 an hour to a national program that provides insurance for minimum wage earners (the Affordable Care Act) to any other business regulations that, in his view, impede Big Business's ability to make big profits for its owners.  Thus, he is directly opposed to the mission of the department he would lead..  As the fast-food executive head of Restaurant Holdings, Inc., the parent company of Carl's Jr., he has demonstrated his view that big companies should be able to use workers however they want to make money for the managers and wealthy shareholders, with little regard for ordinary workers' wellbeing.  For instance, the Carl's chain is known for the kind of scheduling that requires workers to show for a 4 hour shift that might result in the worker being sent home after 1 hour because there is lower demand.  Consider what that means for ordinary Americans working at these low-salaried jobs.  They may have to arrange a babysitter or some other child care every time they go into work.  They may have to travel with inconvenient and expensive public transportation systems, or buy gas for a lengthy car trip that ends up not even earning enough to pay for the round trip and other expenses because of the short day.   Pudzer even claims that workers who aren't paid overtime "gain in stature and sense of accomplishment" even though they are often paid so little that they qualify for food stamps and other public benefits.  See, e.g.,  Trump's Labor Secretary Nominee No Friend to Workers,  Advocate (Dec. 8, 2016)   Further, Puzder's company itself has scoffed at labor laws, running afoul of requirements.  Id. (noting violations of the Fair Labor Standards Act) . This is NOT American values.  Of course, Pudzer has been a donor and adviser to Trump, like many another of Trump's other billionaire crony appointees.

These three appointees illustrate that Donald Trump has no interest in "draining the swamp" of crony capitalism that has at times seemed to be much too important in DC.  He is actively feeding the swamp monster, with selection of billionaire crony capitalists who want to remake the government to smooth the way for Big Business to do whatever it wants, without protective regulations for workers, the environment, or consumer protection.  This is the 4-decade-long Republican attack on ordinary Americans taken to the extreme--deregulation, tax cuts for the wealthy (with hidden tax increases for everybody else), militarization for the military-industrial complex, and privatization of services like education and health care that the government does best because the profit motive ensures corruption and high costs.

I have espoused a view in this blog of what I call "democratic egalitarianism".  It is a philosophy that government should function in a democracy to help ensure that each citizen can participate in opportunities and that the whole protects the most vulnerable amongst us.  I believe that every American w wants our society to move towards a sustainable economy with decent livelihoods for all, good health care for everyone, education that provides opportunities and knowledge that bridges the gap between those born with wealth and the majority of us who are not.  And I am convinced that every American who cares about these things should write or call their Senators and tell them not to approve these unfit candidates for the office they have been nominated for.  Certainly, no candidate should be approved without a clear slate from the ethics office.   Trump himself owes it to the American people to divest himself of his businesses.  Putting them in the charge of his children and claiming that he will remain sufficiently unconnected with them is absurdly insufficient.  But even more, no candidate should be approved to head an agency about which the candidate knows nothing, and for which the candidate's only vision is destruction of the protections the government provides for the American people from the 'stateless' corporatism that allows Big Business to run amok in its search for rent profits above all else, no matter the long term harm done to the American people..

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How should underpayment of employees affect tax policy?

In a pre-Labor Day blogposting, Robert Reich wrote about the brute capitalism results for many employees today--a full-time job that doesn't play a living wage.  Walmart was his example--"America's biggest employer" where a "typical employee is still paid less than $9 an hour."  See Reich, Wal-Mart's typical employee is paid less than $9 an hour, Salon.com (Aug. 30, 2013) (posted originally on Reich's blog).

Wal-Mart has used its market clout to shut out labor unions and bring the retailing sector down to its self-defined low.  I've written before about my own personal experiences in talking to Wal-Mart employees about unions and encountering abject fear that the employee would lose his or her job if any Wal-Mart supervisor were to be aware of the discussion, being told that Wal-Mart supervisors routinely enter employee rest areas and tear down any materials discussing advantages of unionization, and seeing the evidence of anti-Union and pro-owner sentiment in the way huge profits are channeled to managers/owners while workers are paid a mere pittance of what would be a decent wage.  Wal-Mart documents revealed several years ago that it was intentionally refusing to provide health coverage becuase it was cheaper for the "company" (managers and owners) to push employees off to Medicaid and other government assistance.

That is brute capitalism at work--ensuring that the few at the top receive all the benefits of profit-making and productivity gains, while the average workforce is paid too little to provide a decent living for a single person, much less a family.

So what does this have to do with tax policy, you say?   Reich is making an argument for an increase in the minimum wage to $15 an hour and greater recognition of workers' rights.  Those are worthy objectives, and I fully support them.  You could add better enforcement of anti-trust laws.  In general, we should be asking ourselves why we allow one retailing giant to become so huge that it encompases distribution networks, warehousing, sales and manufacturing contracts around the globe that ensure that workers in China or Bangladesh manufacturing clothing for the company are making it on very little money and that workers in the US who sell that same clothing (or otherwise work in stores) are similarly poorly situated.  

But the question I am raising is the connection between such company policies and tax policy.  I think there is a strong argument that we should consider at least the following principles, coupled with a stronger (more progressive and higher rates) corporate tax to ensure the rules have some bite:

1) our tax rules should discourage companies from ripping off workers to overreward managers and owners.

2) our tax rules should work to ensure that people in the lowest income brackets don't have to carry the burden of paying taxes on their meager incomes

and

3) our tax rules should shift the incidence of tax to those at the top who control their own salaries and away from those at the bottom who have practially no say on what they work for.

We could go part way towards accomplishing the first with a strict limitation on deductible compensation.  That might perhaps deny a deduction to executive pay that is more than 30 times the pay of the average worker as well as impose a cap above which no pay is deductible in computing the company's taxes.

We could make our rules work better to accomplish the second point by extending the personal exemption and standard deduction to ensure that some measure (2X?) the federal poverty amount is entirely exempt from federal income or payroll taxation.

Finally, we could accomplish the third point by creating a more progressive income tax structure that identifies several additional brackets at the high end (distinguishing between those who earn not quite a million and those who earn multi-millions and those who earn billions) and a more progressive estate tax structure that exempts a core amount (smaller than the high exemption recently made permanent) and then imposes a graduated tax on the excess.

If we don't begin to address the issue of hardworking Americans who cannot get by on a single job by amending our policies (including tax) to make the existence of a highly privileged upper class and a highly disadvantaged underclass the most important topic for government to address, I fear this country is in for a rude shock.  Infrastructure expenditures will continue to dwindle especially in poorer areas,  Education will continue to be moved to easily quantifiable but not so likely to be enduringly useful online instruction under the pressure from the "accountability gurus" (who want to evaluate out of existence public teacher unions, without knowing what makes a good educator) and the likes of the (also non-educator) Bill Gates and his ilk.  The wealthy will continue to live in more and more secluded and luxurious gated communities separate from the hoi-poloi of the middle and lower classes.  Generally speaking, brute capitalism and bogus "free market" theories of economics and tax will continue to leave more and more of our citizens underprivileged, hungry, lacking in education, and turning to whatever avenue for changing their lives remains open (including crime).

 

Megan McArdle (one of those Bloomberg economists who tends to write in support of right-wing economic ideas) recently argued that Wal-Mart can't pay the good wages that Trader Joe's or Costco pays because (i) it is simply too big, with too much merchandies, to make the kinds of profit it expects doing so, and (ii) it has a low-income customer base who can't afford to buy anything except the cheap stuff it provides [produced in unsafe conditions by a non-unionized labor force].  See Megan McCardle, Why Wal-Mart Will Never Pay like Costco, Bloomberg.com (Aug. 27, 2013).  

Megan thus supports my argument that we should never allow one retailer to grow to such huge consolidated form (antitrust needs to be reinvigorated to battle giants like WalMart).  But Megan misses Henry Ford's key insight--if you want your workers to buy your good product, you pay your workers well, and their business will further your business.  Wal-Mart has done exactly the opposite--it has driven out stores that paid workers better (and added to localities' environmental problems in spades), in order to drain off huge profits for its owners and top managers while using every technigue in the book to block workers' unions and prevent workers from getting paid decent wages for what they do, forcing workers to only be able to buy from the Wal-Mart type distribution network (Wal-Mart and "dollar store" or other cheap merchandisers who pay their staff very little).  

Whether we think about this in terms of the growing inequality in this country that stifles economic growth for all in the long run, or the class warfare that the right has been engaging in for at least the decades since Reagan was elected President, or the corporatism (derived in large part from the "free market" rhetoric) that has taken over most American institutions, we should recognize that Wal-Mart and other big companies like McDonald's and the other fast-food chains have built a business model that is detrimental to ordinary Americans for the benefit of the few ("the 1%" of the Occupy Wall Street rhetoric).  And we should start considering ways to counter the these harmful developments.  In particular, we should ensure that companies pay their workers a living wage and we should protect those workers at the bottom of the income scale from having to give up any of that wage in payroll or income taxes.

The Elderly May Not Be As Taxing As Generally Thought

One of the common assumptions about health care costs (and the costs of benefit programs like Medicare) has been that the increasing life spans of Americans will result in significantly greater health care expenses.  It is common knowledge that much of the highest cost medical care occurs near the end of life, as the elderly need more medicines and assistance in daily living.  So speculation has suggested that as Americans live longer, health costs will increase correspondingly.

A recent study provides a glimmer of good news--apparently, most of the highest medical care costs occur in the last year of life, even for those that are living longer.  That means that the longer lifespans aren't translating into more time in intense medical care, but rather more years of generally healthy and active lifestyle followed by a similar duration of end-of-life care.  See Michael Fitzgerald, Old Age May Not Ruin Medicare Budgets After All, Salon.com (Aug. 22, 2013).

What should that information mean for policy makers?  It seems to support the progressive, social justice goal of ensuring that we have a system for universal health care coverage like "Medicare for all".  Under democratic egalitarianism, a combination of general revenue support and additional premium payments from those who have the ability to pay provides a means for decent protection of all of our citizens and the creation of a just society.   By asking those with the ability to pay to carry more of the burden, such a system ensures adequacy for all even in times such as ours when there is extraordinary inequality of wealth or income.   Our forebears handled that kind of situation through one-on-one charities, back when communities were much smaller and people knew that they depended on their neighbors for help in tough times, so were willing to help out when they were able.  The modern version of that neighborly compassion is a government that creates safety net programs for all of its people, with public programs in those areas where a profit motive interferes with the creation of adequate, sustainable, just programs for everyone.  Education and health services are clearly two key areas where people acting together through government create fairer and more adequate systems that serve all of the people.

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The Right cuts food stamps to pass corporate farm welfare--where's the sense in that?

The House has its priorities firmly in mind.  Those priorities involve making sure that the wealthy people and corporations keep their wealth while any and all possible cuts to any welfare or "entitlement" programs are made.

All you have to do is look at the right's emphasis on passing a farm bill (mostly aiding corporate farmers and gentlemanly nonfarmers) and on cutting food stamps to the nation's food-insecure. In June, the House proposed slashing $20 billion from food stamps and ended up passing a separate farm bill because it was so determined to cut aid to food-insecure Americans.  Now, the media is all concerned that a farm bill won't pass at all, because the right is insisting on doubling the cut to food aide--slashing $40 billion from the program.  See, e.g., Nixon, GOP Rush to Slash Food Stamps Puts Farm Bill in Jeopardy, (Aug. 1, 2013).

These proposed cuts are draconian.  As those legislators who took the "live a week on food stamps" challenge learned, it is extraordinarily difficult, time-consuming, and unsatisfying to try to find sufficient food on a budget of $3.00 a day. And there are literally millions of Americans without enough food to live decently, and millions whose well-being will be jeopardized if Congress does not fund food stamps at an adequate level.  Food stamp recipients already faced difficulties because of the expiration of the stimulus provisions.

A report released Thursday by the Center on Budget and Policy Priorities, which studies federal spending, found that the 47 million people who currently receive food stamps will see their benefits reduced in November because of an expiring provision in the stimulus bill passed in 2009 by a Democratic-controlled Congress.

The stimulus law provided a slight boost in benefits for all food stamp recipients as part of a bill to strengthen the economy and ease hardship on millions of unemployed workers.

According to the center’s report, beginning Nov. 1, a family of three will see a reduction of about $29 a month — $319 for the remaining 11 months of the next fiscal year. The report said the cut would result in an average of less than $1.40 per person, per meal.  Id.

 

We are the richest country in the world.  Twenty of the country's richest billionaires earned in 2012 as much money as is needed to cover food aid for food-insecure Americans who go hungry or eat poorly most of the time.  Food-insecure Americans lose focus and lose opportunities while those overpaid equity fund managers  whine over the unlikely prospect (unlikely because of all the heavy lobbying and the quid pro quo nature of providing campaign support to those in Congress who write the laws) of actually having to pay regular ordinary income rates on their overabundant take from the profits of other people's money that they manage (i.e., their compensation income, labeled carried interest). Everybody in Michigan pays a very low flat income tax, while underprivileged, unemployed and discriminated against blacks in Detroit scrounge for used metal to sell to buy food or pay the mortgage.  Ordinary people have been tossed out of their homes by the banks that were bailed out by the government, while the bank presidents and CEOs and directors and other managers continued business as usual with multimillion dollar salaries, stock options and other perks.

Poor people do not "deserve" to starve. Rich people do not generally "deserve" to be rich.  Yet flat tax schemeds and preferential taxation of capital income belie that wisdom by giving the rich a pass.  Democratic egalitarianism demands a change.  Those at the top have been getting richer and richer, but ordinary Americans have not.  It's time to reverse the redistribution direction.  Instead of redistributing resources upwards to the rich, we must move them down to the needy.

Watch the Bill Moyers program on hunger in America (linked at the bottom of the post).  If you do not wince with uncomfortableness at the way we Americans are dealing with food insecurity, you must have lost all compassion.

It is time, folks, to just say no to all this  brute capitalism, "free" market ideology that has given us an unequal society with high teenage pregnancy, low birth weight babies, high illiteracy, shorter life expectancy, high unemployment, low educational achievement and all the other indices of an underdeveloped country in the midst of enormous, even obscene wealth.  Say "NO" to the right's idea that poverty results from a lack of personal responsibility, rather than a lack of personal opportunity.  Say "NO" to the ideology of the self-described meritocracy that considers its own wealth and the poverty of others merited, rather than recognizing the increasing impact of the class status one is born into and the decreasing possibility of upward mobility in America.  Say "NO" to the failed pseudo-economic theories of Milt Friedman, Ayn Rand, Glenn Beck, and Karl Rove--the ideology of "free" markets and unfree persons, of "competitive capitalism" and uncompetitive positions defined by class status and money.  Say "No" to the politics of the right, that would privatize, deregulate, cut tax revenues and increase military expenditures, that would willingly support a government of largesse and entitlement for the rich and austerity and "personal responsibility" for the poor.

 

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Offshoring profits with captive reinsurance

One of the ways that corporations manage to cut their federal income tax bills way, way below the statutory rate is by setting up reinsurance affiliates offshore.  While some of these reinsurance affiliates may actually function as full-service reinsurance companies to many different customers, those truly taking on and diversifying risk, most are scams, in that they are just ways to offshore U.S. profits through premium payments for self-insurance.

Two bills now before Congress, H.R. 2054 and S.991, reintroduced recently by Rep. Richard Neal (D-MA), Rep. Bill Pascrell(D-NJ) and Sen. Robert Menendez (D-NJ), are intended to end this run around the US corporate tax laws, picking up a proposal from the President's  FY2014 budget to deny tax deductions for certain reinsurance premiums paid to foreign-based affiliates of domestic insurers.

Naturally, the GOP-Big-Business-Friendly machine is up in arms about any bill that would take away this kind of tax subsidy for multinational corporations. 

[Although the GOP professes to believe in a 'free market', that is demonstrably false, in that every preferential tax subsidy for Big Business is highly lobbied for, and at the same time, "reforms" (like further preferential capital gains rates or regressive consumption taxes) that would push the burden of supporting federal government programs that are immensely important for ordinary people are pushed.]

So GOP Governor Rick Scott of Florida has issued a letter to Congressman Vern Buchanan (R-FL), a member of the US House of RepresentativesWays and Means Committee (who had been involved in various lucrative real estate gambits that smacked of crony capitalism in the time before his elevation to congressman). Gov. Scott claims that legislation that gets rid of the loophole of deducting premiums paid to a corporation's own offshore (tax haven) subsidiary is just a terrible idea.  Gee, it would increase costs and that would be "disastrous."  He also cites a Brattle Group "study" that claims that insurance availability would decrease by 20%.  He also makes various claims about the importance of reinsurance generally as part of the insurance market.

Scott's letter seems to mix up questions about general reinsurance versus the kind of reinsurance to offshore affiliates that the legislation is targeting.  Reinsurance occurs when an insurance company seeks to diversity its risks by reinsuring part of them with another insurance company that acts as a reinsurer.  Genuine reinsurance is a useful part of insurance, and the legislation doesn't outlaw reinsurance or add to the costs of reinsuring through  bona fide third-party reinsurance companies.  The legislation deals with offshoring of insurance premiums through affiliated reinsurers, quite a different thing, through which US corporations essentially convert US profits to offshore profits, reducing their US taxes correspondingly, by paying premiums (sometimes exaggeratedly high premiums, providing even greater tax avoidance) to their own subsidiaires located in offshore tax havens.

Yes, not getting to use the offshoring reinsurance scam to cut US corporate taxes would increase those companies' costs.  But every time a US company reduces its own costs and increase its own profits through offshoring its profits to tax havens and thus avoiding US taxes, it is shifting the tax burden off onto ordinary Americans who can't/don't engage in such lucrative offshoring.  Ordinary workers thus end up bearing an increased tax load to support those companies' lower tax burdens. 

(Oh, and a bunch of reinsurers appear to have been involved in illegal trade with Iran, too.  See article on NY regulators, below).

The US has prospered most when we have had a more equal society  in which corporate entities have borne a greater share of the tax burden (resulting, if the incidence of tax falls mainly on shareholders as may be the case) in their shareholders, who are in the main members of the upper crust, paying a fairer share of the tax burden and relieving ordinary folk from having to take up too big a share. 

It seems to me that we have reached a point where Americans have to decide what kind of society they want.  If we want a highly unequal society in which children of the wealthy receive a prime education, go to the best colleges, are introduced through their wealthy parents to societal leaders who can open doors for them in whatever career they want while most everybody else finds themselves forced to opt for expensive online colleges, few connections, living from hand to mouth and hoping against hope to be able to satisfy basic needs, then we can just continue on the path we are already moving on.  But if we are not satisfied with that kind of oligarchic society, we have to vote out the right-wingers who are pushing it and institute new policies, reviving labor laws to support workers, instituting a more progressive income tax, reforming the tax code to remove the many tax subsidies for Big Business (and especially those for Big Finance and Big Oil) and otherwise attempt to shift the focus of the economy to creating jobs for ordinary people.  Revamping the reinsurance industry is one of the obvious reforms along the way to a more sustainable economy.

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Redistribution and public production of public goods--not "let the markets handle it"

In recent posts, the Importance of Distribution and Markets, Minimum Wages, and the Sins of Friedmania,  I have noted the centrality to sustainable democratic institutions of corraling the market so that the power and wealth of the elite few does not work to impoverish the many.  That means that government either rungs many programs for the benefit of the many itself--such as Medicare, Veterans' Care, public education, public utilities--or government ensures that it has systems in place to counter the power of the elite--such as redistributionist tax policies, social welfare policies that satisfy important needs such as health care and retirement security, with a good measure of "required self-help" through mandatory savings mechanisms.

Mark Thoma has a recent piece in the Fiscal Times that reflects the same ideas, from a slightly different perspective.  He enumerates 7 ways that markets don't work and require government intervention: retirement savings, health care, carbon emissions, labor support, financial sector, government contracting, and economic and political power.  See Mark Thomas, 7 Important Examples of How Markets Can Fail, http://www.thefiscaltimes.com/Columns/2013/06/18/7-Important-Examples-of-How-Markets-Can-Fail.aspx#page1, Fiscal Times (   2013).

    "When there are substantial departures from the conditions needed to approximate pure competition, markets usually perform poorly and government intervention can often help. In some cases, e.g. with a carbon tax or cap-and-trade, government intervention will reduce output and employment growth in the industry and many misguided market fundamentalists, or those with other agendas, will object to these “growth killing” policies. In other cases, e.g. in health insurance markets, government intervention will cause the industry to expand rather than contract. Here, the objection is generally about the growing size and power of government. "

   " But in both cases what’s important is that government intervention is moving us closer to the competitive ideal, and true believers in the power of markets would endorse rather than object to these policies. "  Id.

 

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The 'ignorance is bliss'/'ride'em cowboy' mentality of today's GOP

Today's GOP is dominated by the Tea Party types that are a cross between an ostrich with its head stuck in the sand-- the "ignorance is bliss" philosophy-- and a 1860s cowboy as depicted in the 1960s western-mania TV shows-- the "hell bent on raising a ruckus"/"my way or the highway" mentality.  The combination is deadly dangerous for democratic egalitarianism.

On the ignorance is bliss side, see, for one example out of many possible, the "two pending Republican bills that seek to curtail or end vital surveys by the Census Bureau."  Editorial, Stragegic Ignorance, New York Times (May 25, 2013).  

As described in GOP Census Bill Would Eliminate Key Economic Indicators, Huff. Post (May 26, 2013), the only purpose of H.R. 1639,  the bill introduced by Jeff Duncan (R-SC), appears to be to ensure that the government does not have reliable data on the many important indicators of the health of the economy, from housing and health to crime, employment and the environment. 

 A spokesman for Duncan declined to explain why the congressman wants to eliminate such data or even whether he understands that the data would be compromised by his bill, which has 10 co-sponsors.

But the proposed Census Reform Act is explicit in its intent to end nearly every survey the Census conducts, mandating the "repeal" of the nation's agricultural census, economic census, government census and mid-decade census. It would also bar the bureau from carrying out the American Community Survey (ACS), which the House voted last year to end, although the Senate let that measure die.

There is very little done by the government or big businesses that does not at some level depend on the reams of information provided by the Census surveys, from writing regulations and distributing federal services to rolling out new products and finding customers. The ACS is an ongoing survey that collects data every month, instead of every 10 years, so that governments and businesses have current information. Id.

Because it bars the Secretary of Commerce and the Census Bureau from carrying out "any survey, sampling, or questionnaire", the bill would effectively hamstring the government's ability to gather any kind of information other than a numerical count of population.  Note that this would also include all of the information collected by the Department of Labor's Bureau of Labor Statistics, since those statistics are generally gathered through the U.S. Census Bureau.  See, e.g., Department of Labor, Bureau of Labor Statistics, Consumer Expenditure Survey.  To get a further sense of the importance of the information provided through the Department of Labor with Census Bureau support, see this page showing the subject categories of Labor statistics collected.  Some information collected by the Census Bureau is also used by the Department of Health and Human Services, although DHHS surveys are so specialized that the department has an extensive set of specialized surveys that various of its agencies conduct.  (Let's hope Duncan doesn't notice them, or he will set out to gut that agency, too.)

A similar bill was introduced in the Senate by Rand Paul (R-KY) which specifically targets the American Community Survey--the frequently updated survey that gathers information anonymously and provides a wealth of data about economic trends across the country. See Poe press release; see also Huff Post, Rand Paul, Ted Poe Sponsor Bill that Seeks Religion Law that Already Exists (May 25, 2013) (noting that a 1976 law already ensures that answers about religion on the Census are voluntary, but the Paul/Poe bill gratuitiously includes the same provision again). 

Paul claims the mandatory survey is too intrusive--he wants it to be "voluntary".  Voluntary surveys get low participation rates, particularly in some geographic areas.  The data needs are universal--having gaping holes where there were too many dropouts to give the survey statistical validity would be a huge problem.  But Paul doesn't care--he's too busy scoring Tea Party points with anarcho-libertarians who've been brought up (since Reagan) to think that "government is the enemy", while at the same time benefitting from billions in government aid because of these very surveys.   And too busy using terms like "protect Americans" (from the Poe Press Release) in hypocritical ways that have nothing to do with protecting anybody but the elite--since the result of not having the ACS survey will be to allow more misleading pronouncements to go unchecked by data.  Like Sarah Palin's ignorant assertions about Alaskan self-sufficiency (when more federal tax dollars go to Alaska than come from it), these anti-tax/anti-government claims are mere posturing that misleads ill-informed people to support policies that favor the elite.   As the HuffPost article notes,

[T]he 14 largest counties in Poe's state of Texas received more than $14 billion in federal funding in 2008 based on ACS data, according to a recent Brookings Institution study. Id.

Without such data, it would be harder to show the failure of the laughable tax-cuts-for-the-rich/austerity-for-everybody-else policies of the rightwing in Congress and in state legislatures.  Take, for example, the recent reporting about the way the GOP legislatures that have decided NOT to expand Medicaid will leave the most vulnerable poor in the lurch (yet again) as far as receiving health care that all of us need and most of us take for granted.  The better off will receive the benefit intended by Obamacare, but the worst off will remain vulnerable in those recalcitrant states where the GOP runs the show with the "ignorance-is-bliss" mentality.  Without the kind of regular information collected by the Census Bureau and in particular the American Community Survey, the government won't be able to track results of these Red State "experiments" in austerity to show how much like Third World countries their states become regarding poverty, unemployment, and all the other economic indicators provided by the census.

This ostrich-with-tits-head-in-the-sand mentality makes sense only if the ideas you support are purely ideological ones, for which data is irrelevant.  As Maurine Haver, head of Haver Analytics, noted to a reporter:

[T]here is a fundamental divide between people who are interested in solid, reality-based data and those who are not. "If you know what you think, you don't need information to help you assess what's going on," she said. "The people that need information are the people who use it because they really want the truth, not people who think that because they believe it, it becomes the truth." Id.(paragraphing changed and italics added).

Of late, that seems to be the position of the Tea Party reps in Congress, like Rand Paul, Ted Cruz and too many others.   And they don't care about the ensuing harm to ordinary folk from their efforts. 

Need more proof of the ostrich-plus-cowboy mentality?  Just look at the fight breaking out in Congress between Ted Cruz and the rest of the Tea Party cohort with the somewhat more sensible GOP members like John McCain over the debt ceiling. Kusskin-Shoptaw, McCain, Tea Party Senators Squabble over Debt Ceiling Procedures, Bloomberg.com (May 22, 2013).

 Once again, the Tea Party is willing to run the United States off a cliff over an artificial fiscal limit that is, in the actual economic scheme of things, meaningless except as a stage for such masquerades about fiscal responsibility concerns.  The Party of No wants to Know Nothing to disguise its "bankrupt the US to get at the liberals" ideology in the sheep's clothing of a fake "we care about economic responsibility" policy initiative.

Freedom does NOT reside in allowing brute force economic might to set the rules.  Freedom is having government institutions that work and are subject to the will of the people.  So that when 81% of the American public want gun check legislation, Congress listens to the people instead of to the well-funded NRA.  So that when a majority of the American people don't want corporate funding to be siphoned to campaigns behind the closed doors of erroneous 501(c)(4) status, IRS employees are allowed to do their work to find "parties" that are circumventing politicking disclosure requirements rather than being hung out to twist in the wind under a fake "scandal" created by the ideological anti-tax right.  So that when agencies allocate resources or describe results of economic legislation, they have accurate data to do so.  Freedom does not rest in willful ignorance.

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Another reason for NOT cutting Social Security benefits--seniors poorer than you think

As everybody knows, a constant refrain of the far-right GOP establishment is a desire to cut taxes for the wealthy while cutting benefits for the poor. 

The ideological right talks about benefits for the poor as "welfare" but never talks about the tax expenditures for the wealthy--which amount to much more of an income redistribution, from middle class to wealthy--as "welfare".  They should, because that's what it is.  The tax preference for capital gains, a "privileged" tax rate, favors the very wealthy who own most of the financial assets, who itemize and who have much of their income in the form of capital gains (now, after the Democrats' weak-handed agreement to extend almost all of the absurd Bush tax cuts, also used for corporate dividends), just as the overly generous estate tax exemption levels and rates favor the very wealthy, who are the only ones EVER subject to the estate tax at all. 

(For some interesting stats on the very wealthy around the world, you might find the charts and information here interesting.)

The ideological right also talks about benefits for the elderly--which they have paid for throughout their working lives under earned benefit provisions in place since FDR--as "entitlements", a generally derogatory term meant to engender hostility from middle class hardworking folk (based on the "those welfare bums are not like me" idea).  What the right fails to point out is how important Social Security earned benefits are as the very underpinnings of a decent standard of living at later stages of life, paid for as much as possible by hardworking folk.  It is in fact a decent standard of living when you are older and less able to take care of yourself, when you depend more on community and on what you have managed to put aside during your prime, that is at stake. 

Of course, much of the right's ideological tirade against Social Security "entitlements" is misleading and downright wrong.  For instance, you've undoubtedly heard the argument for cutting Social Security benefits that goes something like this: 

Seniors do fine in America today, and can live long after they retire.  We think social Security was just intended to cover the little time between retirement and death that faced Americans a half century ago.  So we should up the retirement age or at least cut benefits, because with fewer workers supporting the big baby boom of retirees the Social Security fund is going bankrupt and we're now sacrificing our children's futures, by  contributing to the deficit with a "bankrupt" Social Security system, just to provide a cushy retirement to seniors that don't need it.

This argument is wrong in so many ways it is hard to count them.  Social Security is one of the most effective programs we have.  It is not bankrupt.   We've used the Social Security surplus for years to mask deficit spending--especially the wasteful deficit spending of the Bush years, to fund his wars of choice rather than pay for them with taxes that has been our preferred means of paying for wars in the past.  To reneg on the promise of benefits now would make millions of seniors, many of whom have fought for this country in Korea, Vietnam, Iraq and Afghanistan or by keeping the mom-and-pop store going and the home fires burning, pay for Bush's wars instead of the wealthy Gun, Oil and other corporate interests that support the neo-liberal/neo-conservative militarization campaign.  There is no need for benefits to be cut--we are a wealthy country and could actually increase benefits by taxing the wealthy on all of their earned income (or better still, eliminating the distinction throughout the Code between earned and "capital" income) and extrapolating the progressive nature of the benefit schedule for those increased income levels as well. 

But the biggest issue is the one that gets overlooked--many of our seniors are not doing so well, and without Social Security would be doing horribly.  Even with Social Security, the medical expenses near life's end are all-absorbing for many seniors, a situation that we should be remedying rather than worsening.  And this is particularly bad for those poorest seniors who worked at grueling labor jobs during their prime--they tended to make less money and receive less in benefits than others, yet have more potential job-related health issues and be less able to work into their seventies as others can do.

For information on the poverty of American seniors, taking into account not just their direct incomes but their benefits from transfer systems and their real costs, see Dylan Matthews, Senior Poverty is Much Worse Than You Think, Washington Post WonkBlog (May 20, 2013). The graphs are particularly helpful in seeing the way poverty and near-poverty take a heavy toll on the senior population.

We should not cut benefits.  We should in fact move to a single-payer Medicare-for-all system that would continue the health care savings that we've begun, and we should move to at least full wage coverage for Social Security taxes, with a corresponding extension of the progressive benefits scale.

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Baucus Will Not Run in 2014 (yay!)

Max Baucus announced to his fellow Senators today that he will not seek re-election to the Senate in 2014.  He has been the top Democrat on the Finance Committee since 2001.  See Senate Finance Chairman Max Baucus Won't Run Again in 2014, Bloomberg.net (Apr. 23, 2013).

As someone who thinks that Baucus has been a hindrance to progressive reform of the tax code and financial regulation, I must admit that I do not find his retirement a loss.  His chairmanship of the Finance Committee has been marked by a failure to understand the most important issues related to federal income and estate taxation and by adoption of positions that are too favorable to Big Money and Big Business (especially Big Banks).  He has been tone-deaf, in other words, to the class warfare waged by the right against the middle class and the resulting growth in inequality in the country that has been worsened by the current tax provisions that support redistribution upwards to the very wealthiest owners of financial assets and businesses.  In particular, he has failed to use his position to push for reasonable reform of the capital gains preference and the wealth-favoring versions of the estate tax passed by the Bush administration.  He has refused to consider a reasonable financial transactions tax. In fact, Baucus was too willing to go along with the initial passage of the Bush tax agenda in 2001-2004, and he did nothing to ensure that the Bush tax cuts would fade into oblivion on the sunset date.  In fact, he worked to make permanent almost all the Bush tax cuts and supported the corporate-friendly "extension" of the broad menu of corporate tax cut provisions (including a retroactive extension of the R&D credit, which cannot possibly serve the purpose it is claimed to serve when enacted retroactively).  The tradeoff provided only token items on the progressive menu. 

Of course, the Republicans will cast Baucus' choice to retire as a reflection of problems for Democrats.  See the Bloomberg News article cited above, in which Rob Collins of the National Republican Senatorial Committee says as much.  I suspect that Baucus knew he would be targeted by liberal Democrats for his failure to vote for gun control and for his failure to support progressive tax policies. 

That said, he remains as Finance Chair through 2014, and he has said he intends to produce a rewrite of the tax code.  He is the wrong person to do that, and so it is important that other Democrats relegate him to a position of less influence in order to come up with more progressive changes than he would support.

Is Ron Wyden (who would become the most senior member of the Finance Committee when Baucus leaves) capable of carrying the banner of progressivism?  His emphasis on "tax simplification" is worrisome, because it suggests that he does not understand the relationship between complexity in the tax code and sophistication of taxpayers to whom the complexity applies.  The main reasons for complexity are two-fold:  (i) existing tax rules are expanded to cover abusive schemes developed by sophisticated tax advisers (attorneys and accountants), and (ii) existing tax rules are riddled with exceptions to provide subsidies (tax expenditures) favoring industries represented by heavy lobbying.  To the extent that tax simplification reduces the anti-abuse rules needed to prevent various tax scams and manipulation, simplication is a policy mistake.  To the extent that simplication results in changes to the tax expenditures, it can be useful  but it is often also mistaken, because the easiest way to "simplify" such rules is to expand them to cover even more of heavily lobbied-for industries.  Wyden needs to expand his understanding of the relationship between simplification as a goal and fair allocation of resources to the extent that resource allocation is handled through tax expenditures in the Code, reasonable rules to ensure that the most sophisticated taxpayers pay their fair share, and fair distribution of the tax burden.  Baucus did not serve the publci well in regards to these issues.  Let's hope that Wyden does better.

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The Inequality Gap

Robert Reich, former labor secretary, has some worthwhile advice for the President's State of the Union address:  he notes that the focus should be the "central issue you want the nation to help you take action on".  That's "not immigration, guns or the environment" (though "[a]ll are important") but rather "joblessness, falling real wages, economic insecurity, and widening inequality" . See Robert Reich, Memo to Obama: Focus on the inqueality gap, Salon.com (Feb. 11, 2013).

He's right.

"It's the economy, stupid", that old slogan from the Clinton campaign days, goes only so far.  It doesn't tell us, for example, what parts of the economy are most important--is it the stock market's well-being, and indirectly the fortunes of the very few at the top of the income distribution who own significant amounts of those items being sold on the market?  Or is it the unemployment data, with its distressing litany of continuing failure of our economy to provide decent jobs for ordinary people?  Is it the way that corporate owners and managers can use the powers of government to make unionization difficult and thereby make it much easier for corporate management and shareholders to retain all the productivity gains while workers wages stagnate (everything from Wal-Mart's tendency to tear down union fliers in worker areas (based on my personal observation) to the CEO's determination to beat unions down any way possible (see the New York Times story in the 2/12 edition, At Cablevision, Norma Rae's Been Escorted Outside, New York Times (Feb. 12, 2013), at A23, regarding Cablevision's firing of two  dozen employees for being off work, after claiming to have an "open" management that invited worker conversations yet allowing those same employees to cool their heels for 40 minutes waiting to talk to him and then walking out and firing them for not being on the job)?  Or is it the general optimism of the upper class, who can pass on untaxed estates to heirs who will get those stocks at stepped up basis and renew the cycle of monetization without taxation for their own account?

Stock market statistics mostly tell us about the upper class, along with the upper part of the middle class that has some share of that bounty:  they don't tell us about how well the economy is serving others, unless the general well-being of corporate America spills over to the general well-being of average Americans.  It doesn't do that in an era of push-down on unions to ensure that workers have no voice, push-back on taxes to ensure that the wealthy managers and owners not only get all the productivity gains but have to pay too little in taxes to support the system that made those gains possible.  Mostly, stock market statistics tell us about how the privileged are maintaining their privilege, as their ownership of most of the financial assets continues to mean their heightened influence over most laws and their garnering of most of the gains that do take place.

This is well noted in a post on Economist's View (Mark Thoma), embedding a post by Miles Corak on Free Exchange about research on inter-generational social mobility.

The real lesson from the historical research is not that there is anything inevitable about a low degree of inter-generational mobility, or that it signals more persistence than other research. The most privileged will do everything they can to perpetrate their status across generations, and in past eras the structure of labor markets and public policies permitted, and in some measure continue to permit, a non-level playing field.

I've long argued that the way to evaluate the economy is in terms of how well it is serving ordinary people who make up the middle class (roughly defined as the middle three quitiles of the income and wealth distribution)  and how adequate is the safety net it provides for those who make up the lower class (the bottom quintile of income and wealth).  What matters is economic sustainability, in terms of  adequacy of those many intangibles by which we measure quality of life--like accessible quality health care, accessible quality education, accessible quality jobs, decent wages for decent work.  That means that government's intervention in the economy will need to be on the side of the little guy, ensuring that resource allocation isn't so skewed to the already rich that we become an oligarchy where most of us live off crumbs and a few of us live like kings.  If we want a sustainable economy and sustainable democracy, democratic eqalitarianism demands that governments temper market forces with protections for underdogs, providing counterforces to the redistribution upwards tendency of brute force capitalism.

Today, the rise of the US oligarchy and the frightening power of wealth in determining how laws work have put us in a terrible situation:   "debtor prisons, once a relic of the 18th century, are making a frightening comeback in the U.S. justice system."  Alex Kane, Miss a traffic ticket, go to jail?, Salon.com (Feb. 11, 2013).

So an appropriate slogan for progressives today should be something along the lines of "It's the inequality, stupid."  And that certainly doesn't mean more of the same old failed GOP policies that favor the wealthy, mistakenly labeled "job creators" by the GOP in its constant effort to undo unions (witness Michigan's disastrous anti-union legislation or Cablevision's determination to aid anti-union forces and squelch union activists), favor capital over labor (from the problematic preferential rate for capital gains to the ridiculous "carried interest" taxation of the compensation payments to so-called profits partners (a category of "partner" for tax purposes not provided for in the tax code but essentially an invention of Wall Street) to the squandering waste of an estate tax and charitable contribution deduction that favor meritless accession to and use of untaxed wealth and pushes the burden for government revenues to laborers instead).  And it certainly doesn't mean more of the same "deficit hawks, austerity mavens, trickle-down charlatans, and government haters who have commanded center stage for too long."  Memo to Obama: Focus on the inqueality gap, As Reich says:

The President should make it clear that any Republican effort to hold the nation hostage to the GOP's ideological fixation on the budget deficit and a smaller government will slow the economy, likely pushing us into another recession.  And that those most imperiled are the middle class and the poor. 

He should emphasize that the real job creators are not the rich but the vast majority of ordinary Americans whose purchases give businesses reason to add jobs.  And that if most Americans still cannot afford to buy, the government must be the spender of last resort.  Id.

Reich goes on to make some specific policy suggestions for acting to reduce inequality.  These include

• reversing the impact of the reinstatement of the higher Social Security tax rate by exempting the first $20,000 of income from the tax and lifing the ceiling on income subject to it;
• reviving government-run work corps, like the WPA and CCC, "to put the long-term unemployed directly to work"
• raising the minimum wage
• imposing a 2% tax surcharge on wealth in excess of $7 billion to be dedicated to education
• Cutting corporate and military welfare
• not cutting public investments or safety nets
• giving tax credits for actual job creation
• supporting states that rehire teachers, firefighters police and social workers.  Id. (quoting and paraphrasing).

Sounds like a pretty good plan.   As Corak noted (in the Economist's View post cited above):

[D]ynamic labor markets offering new opportunities to the population as a whole, progressive public policies of relatively more benefit to the relatively disadvantaged, and strong families with growing incomes and human capital will lead to much more mobility than aristocrats of a pervious era could ever have imagined.

And the Reich plan is certainly better than what most of the GOP-led state experiments like Michigan are coming up with, which read like a plan for even more redistributing upwards to the top few, including:

• eliminating income taxes in favor of regressive sales taxes,
• eliminating business taxes in favor of regressive user fees (a GOP-led Michigan "upward" redistribution "innovation"),
• pushing hard against unions  (a GOP-led Michigan "innovation"),
• reducing safety net support like Medicaid (being considered in Michigan),
• taxing vulnerable seniors on pension income (another of Michigan's recent "innovations"),
• cutting support for state universities while reallocating the support that remains to those that serve the upper class rather than underprivileged who will generally need to borrow more and take longer to succeed (another of Michigan's redistributionist efforts).

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