ataxingmatter

Tax evaders (and those who aide them), not regulatory complexities, cause tax evasion

The July 24 New York Times Magazine carries an article by Adam D entitled My Big Fat Belizean, Singaporean Bank Account.

The author shows how easy it was for him to establish a secret offshore bank account that would allow him to evade US (and other nation's) taxes with ease.  It only cost around a thousand dollars, and the firms that do this for a living can set you up with a fake corporation in one tax haven and a real bank account in another, both of them sworn to secrecy about your identity as a US citizen and complicit in aiding wealthy taxpayers in avoiding required reporting to the IRS.

And that means a lot of moolah gets stashed abroad, and a lot of taxes remain unpaid.

The Tax Justice Network, a global research firm that advocates against such havens, suggests that the amount hidden offshore is between $21 trillion and $32 trillion. If properly taxed, that could yield more than $200 billion in revenue around the world. Furthermore, because a 2010 McKinsey & Company report estimated the world’s financial assets at about $200 trillion, somewhere around 10 percent or more of the world’s wealth is effectively invisible. And it’s also almost certainly in the hands of the people and institutions that most actively influence major investment decisions.  Id.

So far, so good.  But where the author goes wrong is in his ruminations about the reasons such shenanigans go on.  He thinks it is because regulations and tax laws are so complex.

One often-overlooked lesson of the financial crisis is that shenanigans don’t happen in the absence of regulation; they happen when regulations are exceedingly complex and involve confusing, overlapping regulatory authorities.

Pshaw.   This is, quite simply, garbage regulatory mythology.  Shenanigans happen in brute force capitalism--the kind we've had in place for the last few decades--until there is one dominant beast who controls everything.  Regulations ain't the cause. 

Every simple rule becomes an opportunity for "inventive" tax lawyers and those with wealth desirous of hiding it or evading taxes on it to come up with "creative" solutions that skip around, over, or under the law.  When tax administrators find out what is going on, they can sometimes take immediate steps.  Often it requires legislation and regulation, and in the time it takes to create the lock on the door that the evaders broke through, lots of taxes have been evaded.  And as soon as the lock goes on, the inventive tax lawyers and wealthy tax evaders get busy at their manipulative game again.  So there is a spiral of complexity to deal with the problem caused by sophisticated taxpayers seeking sophisticated help to avoid or evade taxes.

This "regulations and complexity are the cause of offshoring and tax cheating" nonsense sounds about like the 2001 arguments made by many on the corporatist right for reducing tax rates.  First, the proponents of lower taxes noted that there was a considerable amount of cheating via tax shelters by the wealthy and big corporations.  Then, the illogical next step was taken: if only the wealthy just had to pay a little less in taxes, they'd be good citizens and quit using tax shelters, the Republican head of the Joint Economic Committee opined.  HA.  If you lower the rate today, the greedy ones just demand a lower rate than that the next day.  We've seen that play out as the corporate lobbyists got a twenty-year-long wish list fulfilled in the 2003 Bush tax cuts, then came back for more the next year and the next (and are still demanding even more today).

Jobs Measure in Senate today

The Senate has a jobs bill--a very small $15 billion in Reid's S. Amdt. 3310.  It was able to make it through a cloture vote today with 62 yeas and 30 nays and 8 no-votes (Feb. 22) and thus has a fairly good chance of passage.  Republicans Brown, Colins, Voinivich, Snowe and Bond voted yes.  Nelson was the only Dem that voted nay.  Seven Republicans didn't vote.  One Democrat--Lautenberg of New Jersey who is hospitalized--didn't vote.

This is a bare-bones version of the earlier proposals, offered as a substitute to HR 2847, which has garnered the Obama administration's support.  In fact, it is a bill that is "filled with Republican Ideas"--so says the Democratic Caucus's Senate website, here.  When the Dems were in the minority, the Republicans passed Republican ideas (e.g., tax cuts for corporations; section 179 expensing for equipment that businesses likely would have bought anyway).  When the Dems are in the majority, the Dems pass Republican ideas (e.g., tax cuts for corproations; section 179 expensing for equipment that businesses likely would have bought anyway).

The CBO prepared a table showing the estimated effects on revenues and spending for this amendment, available here.  It notes that the tax provision include the temporary payroll tax exemption for employers who hire new workers, a business tax credit for firms that retain new workers for one year, another increase in expensing for business assets, and others.   The "incentives for hiring and retaining workers" (i.e., the payroll tax relief and business tax credit) will cost about 4.2 billion in 2010, and ethe expensing provision will cost another half billion in 2010.   As I've noted before, many of these measures aren't going to create jobs--including the tax incentive for businesses and the tax cut (expensing provision) for business investment.  The bill also includes some transportation funding (extending the Highway Trust Fund) that will ultimately mean jobs--but only about .1 billion of direct spending increase would result in 2010, according to the CBO.  And it includes more support for "Build America Bonds" to help state and local governments borrow at lower costs to finance more infrastructure projects.  Those last two are worthy measures, making it clear that for every good idea the Congress these days ends up having to pass a good bit of the business lobbies' provisions like expensing.

Other measures likely to come forward will include unemployment insurance and extension of health insurance subsidies for laid-off workers (each terribly important to the economy, as well as to the individual workers).  Of course, the Senate is foolishly also still talking about an "extenders" bill for those dreadful Bush-era tax cut provisions that just won't die.  Let 'em die, Harry.....

Congress appears doomed to fail on Jobs Creation Legislation

The House passed a puny measure worth about $154 billion over a decade.  The Senate, strangled by the GOP party of no, appears set to pass a bill that does almost nothing and costs only about $15 billion over a decade.  See Deal on Jobs Shows Limits of Push for Bipartisanship, NY Times, Feb. 12, 2010 and the NY Times editorial, Ho NOt to Write a Jobs Bill, NY Times Feb. 12, 2010 at A 26.

What is Reid proposing? 

1) waiver of the ER 6.2% Social Security tax for workers hired who haven't had a job for 60 days, plus a $1000 tax credit for any new employee retained for 52 weeks.

this is really puny stuff.  First, it's a tax break for an employer who won't be likely to hire a new employee for the break--too little at stake, and new employees aren't hired until there is work for them to do. The employer is more likely to pocket this money for himself or his shareholders--a nice little extra profit.  Second, the employer will just get the reduced taxes for new employees that it would have hired anyway--it isn't at all likely to create new jobs that wouldn't have been created without this "ice cream topping".  So this is another piece of the current corporatist agenda--giveaway to business, without any real results for ordinary Americans.

2) extend the expensing of capital investments yet again.

This is not just puny, but also "been there, done that" and no magnificant new job creation was forthcoming.  Businesses only need to make capital investments if they expect more business that their current equipment can't handle.  If they don't have consumer demand, they don't need the new investments.  This expensing provision was already part of the Bush "job creation" business-friendly tax cut packages. Look at the record there--really puny job creation and nothing to show that tax cuts and deregulation do anything to create sustained job creation.  Further, since it's already been done, it  has been around for long enough that businesses that were at the point of needing new equipment just to keep going may have already used it to accelerate somewhat that equipment purchase.  But they aren't gonna buy equipment they don't need.  That's like thinking that a set of 64 wine glasses is so cheap that it's a bargain, but then realizing that you still have 32 in a box that you haven't used for the past three years so even a bargain is a waste of money.

3) reauthorize spending on road and transit programs

Well, this is at least related to working on public infrastructure projects, which is the only thing that really has any prospect of creating (or preventing the loss of) jobs.  It should be focused on innovative "green" solutions--inner city rail, etc.  And those projects will create real jobs.  But this is way too little money --get rid of programs 1 and 2 and put all that money here, plus about $150 billion more over the next year, and we might have something worthwhile.

4) provide a federal subsidy to states for a portion of the interest on bonds used to finance public works projects

A good idea, but too puny.  States are truly strapped for cash, and as the editorial points out, states employ about a fourth of  the work force (almost as many as the health sector) and have been cutting jobs right and left to balance budgets.  Those jobs matter and have a huge impact on morale and on other things--nothing like a bureaucratic entanglement from lack of personnel to delay that public infrastructure project.  So this puny little amount of money will help, but it isn't nearly enough.

What should Congress be doing instead?  It should be thinking of public infrastructure and human capital projects that provide3 support to important public institutions that will last long beyond the current Recession.  Congress should be funding public transit and renewable energy projects that would directly put to work hundreds of thousands of ordinary Americans.   Another important public infrastructure project that would make a real difference in unemployment?  How about providing 1-2 billion apiece to the ten largest inner cities to be used for urban renewal--destruction of ruined buildings, building of public transit and energy projects--with the requiremment that at least 75% of the employees be from the city itself.  Detroit's mayor has said that tehre aare 10,000 buildings that need to be pulled down in the city.  That would be great work for unskilled laborers and make a marvelous dent in uhemployment.  And it should be providing another stimulus packagge for the states to support education from K-16 and beyond--the best investment we can make in keeping our US universities and schools great, keeping educators employed, and offering ordinary Americans the chance to better themselves through educational advancement.

Just imagine.  What if Congress would have the courage to discuss these issues publicly?  Quit thinking about their corporatist patrons?  Start thinking about ordinary Americans?  And actually fund public infrastructure and human capital support over the next two years.

Tax Gimmicks then and now--sunsetting tax cuts; temporary tax hikes

When the Republicans wanted to enact  huge tax cuts for individuals and businesses in 2001 and 2003 (as well asadditional cuts in other years), they realized that it would result in long-term deficits of unforgiving amounts.  So they scaled back their package with a gimmick--a sunsetting tax provision that, like Cinderella's fairy godmother, caused everything to go back to its former (natural) state on the stroke of midnight--midnight 2010, that is.   Thus, they were able to claim that their package of cuts was much less costly than it would be if their plan to make the cuts permanent before 2010 rolled around materialized.  It was smoke and mirrors--"we'll do this and claim our cuts are cheap; once the cuts are enacted, we can accuse anyone opposed to making them permanent of raising taxes and no one will remember it was our gimmick to cover the real cost of the cuts. "

The gimmick succeeded in many ways. 

• First, Barack Obama felt his chances of election were threatened enough by the status quo devotion to the current rates that he promised, in an election that was his to lose, that he would not raise taxes on anyone making less than $250,000 a year.  That was nuts, for several reasons.  For one, the economic crisis:  By the time of the election, we were in the midst of a calamitous crisis brought on by the reckless Reaganomics of deregulation, privatization, militarization and tax cuts, with programs already underway of huge outlays from the federal treasury to compensate for the credit crisis and expectations on every side of a need for a gigantic stimulus package to re-start the economy.  For two, the problem of appearing to engage in class warfare.  While I think the wealthy should be targeted for much higher taxation after years of preferential treatment for their income, it would have been simpler just to argue for letting the Bush tax cuts die their natural death and then instituting in finely targeted tax cuts that would be much more beneficial to economic growth, along with finely targeted tax increases to do the same (such as elimination of the capital gains preference).  Didn't happen.
• Second, once rates are in place, the right-wing propaganda machine starts churning and repeating a twisted version of reality.  Americans aren't very well trained in economics or finance, and we are too easily swayed by people that come across as genuine--we still buy snake oil from the traveling salesmen.  So Beck and Hannity and their ilk have been pedaling the snake oil that letting the Bush cuts lapse is a tax increase, that government is evil and all taxes are theft, that it's the Democrats who've caved to the Wall STreet millionaires (rather than the Bush regime, with its talk of its constituents being the "haves and the have-mores").  So people are primed to think they are overtaxed and get nothing for it.

As a result, there's a good chance that most of the tax cuts--including the low capital gains rates and treating dividends as capital gains and all the tax breaks for multinationals-- will be made permanent, or at least extended from year to year.

Will it work the same for the reverse application of the gimmick?  Bill Richardson, governor of New Mexico, is trying to find a way to balance the state's budget.  States are suffering especially now during the crisis, as tax receipts are down at a time when folks are struggling with foreclosures and loss of jobs and need more in social services, not less.  Richardson, who will propose a new executive budget to the Legislature on Jan. 19, plans to ask for a temporary $200 million tax increase as part of the means of meeting a $300 million budget gap for fiscal year 2011.  The governor isn't proposing specific tax hikes, but leaving it up to negotiations with the Legislature.  Regretably, he has said that he is opposed to increasing capital gains taxes or personal income taxes or decreasing business tax credits and incentives, so he hasn't left room for much other than the "sin" taxes that tend to be exceedingly regressived or other types of excise taxes (gas production has been mentioned).

Governor's should remember that what they do now has long term effects.  Naming something temporary doesn't mean it will actually be temporary.  States might do well to think about their long-term needs, and whether a change to the way they tax capital gains or a more progressive personal income tax or an addition of a VAT tax might be the best way to increase revenues for now and for the future.

War taxes?

Since Bush invaded Afghanistan in 2001 (and then, Iraq), we have been paying for war as an afterthought.  In the Bush era attempt to treat war as something that happened "over there" and didn't disrupt the credit-fed consumer binging happening "over here,"  there were no pics, no war bonds, and certainly no war taxes to pay for it.  Instead, we actually cut taxes year after year after year, reducing government revenues at a time when we were passing supplemental appropriations year after year after year to pay for the war. With reduced taxes and increased military spending, that meant we borrowed to pay for the war of choice that Bush led us into.

In most wars, this country's citizens and leaders have been somewhat wiser on the fiscal score.  In the past, we generally raised taxes to pay for the huge expenditures that war necessitates--for caring for soldiers overseas and after they come home, for tanks and trucks and planes and drones and all the guns and missiles, not to mention warships and fuel, the construction of bases and building of roads and provision of power and all the other expenses of going to war (including, increasingly under Bush, the privatization of the military and the much higher costs of contracted mercenaries compared to Army soldiers and of Halliburton cafeterias that, in quite a few cases, didn't serve the food they charged the US for). 

Now that Bush and much of the Bush Congress are gone from office, it's time to look at the costs of war when we think about what our tax burden should be.  As one writer notes: 

[O]ne thing literally everyone agrees Vietnam showed, from flaiming liberals to fire-breathing neocons, is that it's a very bad idea to get involved in a long, grueling, expensive war without explaining to the American people how much they will have to sacrifice, and securing their support."  The Economist, David Obey's war tax (Nov. 27, 2009).

David Obey, chair of the House Appropriations Committee, introduced on Nov. 19--with 10 Dems as co-sponsors--the "Share the Sacrifice Act of 2010" to do just.  See Pincus, If It is to be fought, it ought to be paid for, Wash. Post, Dec. 1, 2009.  How? by adding a graduated  surtax, in 2011, to the income tax for those earning more than $30,000 a year.  The rate would be 1% on incomes up to $150,000 and more above that--generally, a few hundred dollars, with the rate on higher incomes set to generate enough revenues to pay for the prior year's cost of being at war, with returning GIs and families of those killed in combat exempt.  And the surtax could be delayed (from 2011 to 2012) if the economy is weak.

The article notes an irony that has been mentioned also in the context of the health care reform debate about paying for government action.  IN health care, many of those (especially republicans) who argue that "oh no, we can't do this to fix the health care system, it costs too much and will create deficits" are the same ones who supported the series of Bush tax cuts that led to huge deficits, and their argument was "deficits don't matter."  In the war tax debate, many of those most eager for further commitment to Afghanistan are unwilling to support taxes to pay for the conflict rather than living on borrowed money.  (Or, they'd probably be willing to cut various "entitlements" for the vulnerable amongst us, even while extending even more "entitlements" to corporate taxpayers those who own significant financial assets in the way of further tax cuts.)  Note the article quotes Lindsey Graham as saying spending has been out of control "since the administration came into power."  Funny--the spending that has happened was necessitated by the economic mess left by the Bush Administration, that fought wars and INCREASED SPENDING while cutting taxes.  Was it spending out of control? or was it spending while going on a multi-year tax cut binge that was out of control?  I'd say the latter. 

If you want the right's take on this, read Amy Ridenour--a self-admitted Rush Limbaugh enthusiast.  She thinks Rush's "logic" is fine.  By the way, his argument translates to:  we're in debt [implying it's all Obama's fault and not because of the Bush screwups of the economy and the huge amount of borrowing already committed under Bush] so this argument about paying for the war is silly when we already have so much debt; and/or yeah, well, just cut the spending on all those silly programs that progressives have put in place since Roosevelt (Rush calls it the "Fair Deal, New Deal, Rotten Deal, Raw Deal and Great Society")--ie, the programs (subtracting out Rush's trash talk) that we as a people have decided over many decades to use to support the vulnerable and improve opportunities for decent living standards for all.  And like many right-wingers, Ms. Ridenour claims that her goal is supporting "principles of a free market, individual liberty and personal responsibility, combined with a commitment to a strong national defense."  Amy, how do not paying for the wars we CHOOSE to wage add up to either "personal responsibility" or "commitment to a strong national defense" or even "free market"--since there is no such thing as a "free" market without the stability, institutional structure, and legal forms provided by a stable and functioning government?

At any rate, mainstream commentators seem to think the bill wouldn't pass, which means that they seem to think that it won't get substantial Republican support, which the Rush-Ridenour excerpt surely suggests is correct.  See David Obey's war tax, Economist (Nov. 27, 2009).  Those very people who are gung ho for war ("commitment to strong national defense") and gung ho for not having deficits aren't likely, that is, to vote to pay for the war in which they are so gung ho for  others to fight.  As the Economist article hints, how better to support the troops than paying for their fight? 

CBO reports and the home buyers tax credit

CBO reports provide an interesting glimpse of economic activity that we should all be more familiar with as we discuss tax policies--especially tax policies that tend to favor particular industries or income distributions. 

Consider, for example, the CBO's January 1, 2009 report. issued after the financial crisis had hit and in the midst of a beginning debate about economic stimulus.  The CBO foresaw a contracting economy (GDP falling by 2.2% in 2009, gorwing by only 1.5% in 2010); increasing unemployment (exceeding 9% in 2010--we're already there); drop in housing prices; a 1% drop in consumption; a "strained" financial system; deficits for 2009 of $1.2 trillion or 8.3% of GDP;  a decline in federal revfenues by 6.6% from 2008; and the longest and possibly deepest recession since WWII.  The report noted the significant uncertainty in its outlook due to "the degree and persistence of turmoil in financial markets" where new financial instruments and practices and worldwide linkages made it diffficult to use historical patterns as the basis for predictions about future trends.  That uncertainty is heightened by the Fedearl Reserve's unprecedented interventions, and the Treasury's attempts to improve the solvency of financial institutions (and other industries) through TARP funds.

Then there's the CBO October 2009 documentation of changes in the distribution of earnings for male and female workers between 1979 and 2007, including a look at the annual earnings of workers between the ages of 25 and 54 (without counting defined benefit retirement, 401(k) contributions by employers, or health care). 

• men earned more than women at every position (10th, 50th and 90th percentiles of their earnings distributions) but the differences did decrease some in 2007 compared to 1979
• Even within the high end, earnings of the 99th percentile were increasing more than earnings for those at the 95th percentile, just between 1989 and 2005.
• About 50% of the men and women remained in the same distributional grouping in 2005 that they had been in in 2000.  
• Real earnings (inflation adjusted) for the 10th, 50th, and 90th percentiles declined between 2007 and 2008:  men in the 10th percentile made 14% less in 2008 than their counterparts in 2007--the largest year-to-year decline for that group since 1979--while men at the median and 90th percentile groups earned 3% less than their counterparts in 2007.   (Not surprisingly, hourly wages for men near the 10th percentil were lower in 2007 than in 1979 even while they worked longer hours--1790 rather than 1700.)   For women, the respective figures are 4%, 3% and 2% (their earnings were, of course, lower to start with).
• Men and women in the top percentiles, however, earned much more--with men in the 95th earning $123,400 in 2005, in increase of 24% over 1989 (in inflation adjusted numbers) and men in the 99th percentile earnings $278,100, and increase of 30% over their 1989 counterparts.  For women, the numbers are $79,400 (37% increase) for the 95th percentile and $139,100 (60%  increase) for the 99th percentile.
• And, not surprisingly, the share of earnings going to those at the top is increasing--the top 1% of working men got 13% of all earnings in 2005, up from 10% in 1989.
• We are jailing more and more of our population--in 1979, .26% of male U.S. residents were in prison, but in 2007 that figure had more than tripled, to almost 1%.

So how should we use this information in thinking about tax policies?  One of the proposals on the table over the last couple of weeks has been a proposed extension of the $8000 new home buyer credit.  The original credit seemed oxymoronic to me.  We already had a financial crisis caused in part by overinvestment in housing by people  who couldn't afford their loans, and inflated pricing reflecting the various subsidies for housing and the construction industry that are especially beneficial to the wealthiest taxpayers (home mortgage interest deduction (for both primary residences and vacation homes) on up to $1 million dollars of acquisition debt; home equity interest deduction on up to an additional $100,000 of home-secured debt;  property tax deductions; exclusion of up to half a million in GAIN on sales of residences).  Then we added had a financial crisis caused by runaway banks' ability to shift securitization losses to investors and give wacky loans to people at usurious rates while speculating on everything from corproate debt to securitizations with credit default swaps and other exotic derivatives.  So of course we decided to add to the pile of tax benefits to home ownership with the $8000 new buyer credit (with no repayment necessary for 2009 purchases, assuming used as a home for three years).  At least that temporary credit was for those who had never owned a home before and had an income restriction that limited its benefit to the lower four quintiles (credit began to be phased out for couples with $150,000 and phased out entirely at $170,000).  But Congress is said to be considering extending that to those who already own homes, and no matter what their income.  The current program costs about $1 billion a month, and the extension would cost significantly more (especially if it also included an increase in the amount to $15,000, the industry's preference).  See Industry Makes Case for Home Buyer Tax-Credit Extenision, Wall St. Journal (Oct. 7, 2009); Homebuyer Tax-Credit Extension gains Lawmaker Support, Bloomberg.com, Sept. 16, 2009;  teamJodi (July 2009), with a rundown of bills under consideration already in July for expanding the credit.   What can they be thinking?  How to add to an already worrisome income inequality problem while exacerbating the crisis that started it all?  Again, if you look at the income data, it seems to shout for another solution--allowing modification of home mortgage loans in bankruptcy, and ending the artificial lifeboat for the real estate industry.

What these pushes by the realtors and builders for a tax break that mostly benefits their industry confirms is that we have too much lobbying going on.  From health reform to giving money away to rich people who buy houses, our policies seem to be shaped much more by the influence of paid lobbyists than by what the people want.  (65% of Americans want a strong public option, but it is not even on the table for some in Congress.  Probably the views on the home tax credit is more of a mixed bag--if you expect to buy or sell, you might support it; if you think we need to end favoritism for the home building industry, you might oppose it.)  Put simply, though, we have too little real deliberation among our representatives about the long-term good of the country, rather than the short-term benefit for some industry group or another.  These CBO statistics need to be more widely shared, reported in the media, and commented upon by bloggers and others so that we understand the way the economy has been working under the policies we have put in place over the last few decades, to disfavor those in the middle and lower distributions.

Economic Stimulus (Part XIV): the nutty House and even nuttier Senate home buyer credit

I had an early afternoon coffee with a tax practitioner friend of mine.  As we sat down, we noted the progress on the economic stimulus package.  And since we are both tax lawyers, the first thing we both jumped to was--the wacky tax cut provisions in the stimulus bill.  They won't stimulate the economy, they don't make sense, they are giveaways that are very costly, and they have generally been tried before and failed.  The one we both honed in on as among the worst of the packages--the Senate's version of the homeowners credit.

As I've tracked the various proposals for an economic stimulus package, I have consistently (I think) noted the problem of tax cuts being treated as "better" than spending.  Spending, actually, targets the stimulus exactly to the point where wanted, whereas tax cuts are at best somewhat diffuse, since the recipient of the benefit may or may not use that benefit in a way that stimulates the economy for others.  At worst, tax cuts are a waste, because the money is stowed away in an offshore account of the affluent and taken out of the US economy altogether.

At the core of the economic disaster that currently entangles this country are years of ill-targeted tax cuts, ones that benefited businesses and taxpayers generally, including substantial benefit for the affluent, combined with excessive military spending and lax government oversight.  The Reagan-era "free marketarianism" attitude that supported those developments claimed that markets could operate well without government interference and that power structures created by such "free market" processes were not themselves disruptive of the ability of people to achieve a forward-thinking, sustainable economy. 

This has all been proven wrong by the disastrous results of maximum application of these wrong-thinking policies.  Deregulation led to speculative banking that undercut the creditworthiness of the entire financial system.  Tax cuts for the affluent didn't grow the economy--they just gave the affluent more money to stash away in offshore tax havens for the benefit of the affluent.  Tax cuts to businesses didn't grow the economy or create jobs--businesses will rationally accelerate spending to take advantage of the current cut, or accelerate repatriation to take advantage of the current repatriation tax break, etc., but businesses are not likely to really grow unless the businesses have a viable business strategy for a product that is in customer demand and is produced for a reasonable price.  Instead, the cuts will just lead to shareholders getting more and already overpaid managers and executives being paid more (and not being taxed on it very much either, since rates stop increasing well below the typical executive pay).  Businesses will lobby for tax cuts no matter what the current statutory rate or actual effect tax rate is, until the statutory and effective tax rates are reduced to zero.  Politicians will listen to these arguments, even if they aren't well grounded, because businessmen  oil the political machine and because politicians know these influential businessmen (and their lobbyists) a lot better than they know the ordinary taxpayers in their home areas that work hard for a living and have little to show for it.  After the eight years of the Bush Administration and a mostly Republican-controlled Congress with hegemonic military ambitions and crony-friendly fiscal policies, we got tax cut after tax cut, very little job creation, puny economic growth, and ultimately a year-long (and still counting) recession at the end.

We voted for change.  Are we getting it?  When you look at the stimulus bills passed by the House and currently before the Senate, you have to stop and scratch your head and say, what change?  An awful lot of what is going on is the same old "you scratch my back and I'll scratch yours" failed political cronyism that passes tax cuts for the affluent and leaves standing failed policies on education, the environment and energy; that passes tax breaks for business and leaves standing failed structures for accountability for corporations receiving bailouts or tax breaks.

So my friend and I agreed--the home buyers tax credit is one provision that should be dumped in conference.  But since there's a version of it in both the Senate and the House bill, it will probably be with us no matter what.  

In the House, it's a credit of 10%, up to $7,500, for first time buyers and it's refundable, so that even buyers who are low income and don't owe any federal income tax will receive a check for the credit, if they are under the income limit ($75,000 for singles and $150,000 for couples).  That a pretty expensive ($3 billion) incentive for home buyers.  At least it's limited to the middle to lower class buyers, and at least its limited to a fairly small amount.  But it isn't a good economic stimulus and it's helping the wrong folks.  It's not a good stimulus because we'd be getting a lot more bang from the buck out of helping people whose primary residences are in or very near foreclosure.  Helping them to stay in their homes will help neighborhoods stabilize, which will help other homes sell, which will help businesses nearby, which will help jobs in the area, which will encourage more people to move in.   The people who will buy a house because of this credit are very very few.  It will go to people who were already in the process of buying a house because they could afford it and could get credit.  it won't stimulate people to buy a house who weren't already in the house-buying business.  Helping some very, very small group of people buy a home that wouldn't otherwise is just not much of a stimulus.  Furthermore, it is not fair to taxpayers generally.  What's fair about helping people who just happen to be in a position to buy a house for the first time during this crisis?  nothing.  What's fair about helping people who have enough money to buy a house rather than people who have to rent to have shelter? nothing.  what's fair about providing a taxpayer subsidy to some first time homebuyers but not providing a taxpayer subsidy to some first time renters?  nothing.  What's fair about this proposal? nothing.  Furthermore, it is economically distorting and likely to be easily abused--homeowner sells his house to his brother or friend who gets the tax break and shares the benefit with homeowner in the price paid for the house or who then turns around and rents the house back to the owner, with the two sharing the tax benefit.  That is the main activity that will be stimulated by the provision--flipping!

And the Senate version?  Much worse.  It's a lot bigger (double, in fact, at 10% up to $15,000).  It's not refundable, so those who earn less than enough to pay $15,000 in taxes won't get the full benefit--even if broken into two years of credits, it requires payment of $7500 in taxes a year, which means you'd still have to make about $90,000 to get the full benefit.  And it doesn't have any income limit.  Result?  This credit is just another "redistribution upwards" provision for the affluent, who are the main groups actually buying homes today. And it doesn't even go to just first-time homebuyers.   In that light, the cost is ridiculous--$39 billion to provide a taxpayer giveaway to anybody who happens to buy a house, with the main benefit going to the affluent who were buying anyway.   Yeah, it'll maybe also mean slightly more commissions for all those real estate brokers, who will now get bigger commissions than otherwise, but why should that group be singled out for job help. (Aside:  Real estate is so loaded with tax breaks as is that it's the entitlement mosh pit of the tax code--developers can use section 1031 exchanges to make money their whole lives long without paying taxes, then pass it all on at death with a step up in basis;  between sections 1031, 121, 163(h), the taxpayer-friendly treatment of nonrecourse debt in partnerships and elsewhere, and the other real-estate friendly provisions in the code, real estate is the profession to be in if you want to be subsidized by other taxpayers providing you with government services that you don't have to pay much for.)  With double the amount at stake and no "first timer" requirement, it will lead to even more of the "sell your house to your wife or friend" rip-offs.  It's the TARP bailout reembodied in a rip-off entitlement for the affluent who are buying homes now, that won't do a damn thing (pardon my English) to help those who are struggling to stay in homes when they tried to be prudent but are suffering from job losses, savings deterioration, and lack of state aid. 

The homeowners' credit is, in other words, a "homeowners shuffle" that will be an incentive for people that don't need one that won't do much at all to help the economy other than to prop up a failing industry (real estate development) that has already been a long-term recipient of tax subsidies (which is one reason it is a failing industry).  But it will likely win GOP senators favor with their favorite constituents, the affluent.

Conferees--get your act together.  Eliminate this provision altogether, if you want a stimulus bill that stimulates instead of just helping the affluent.  If you don't eliminate it altogether, at least stick with the House version, which is not quite as ludicrous as the Senate version.  

Aside: There's lots more wrong with the stimulus package tax provisions.  Most of them should be eliminated, except for the make work pay credit for people at or below the median US income.  Here are various documents that may help you get a hold on the stimulus proposals.

• Senate Finance: Summary of finance Provisions as Amended on the Floor through 2/7, plus Expectted Elements of the Collins-Nelson Amendment
• Senate Finance: Near 100 Percent of Finance Effects Will Come In First Two Years
• Senate Finance: Floor Statement of Senator Max Baucus (D-Mont.) Regarding American Recovery and Reinvestment Act (Feb. 9, 2009) (arguing for passage of the Collins-Nelson substitute which trims the COBRA subsidy, health information technology funding, the general credit carry-back, Recovery Zone bonds, lowers the income limit for the Make Work Pay credit, and the child tax credit, and "expand[s] the Homeownership Tax Credit beyond first-time homeowners and double[s] the amount of the credit")
• Senate Finance: Text of Committee provisions (this is the 1/30/09 text that has been superseded in part through amendments)
• Donmoyer, Senate's Tax Credit Favors Higher-Income Homebuyers, Bloomberg.com, Feb. 7, 2009
• Calculated Risk, The Homebuyer Tax Credit, Feb. 7, 2009

Economic Stimulus (Part VII): tax cuts + entitment cuts = /= a sustainable economy, but ending (senses of) entitlements maybe?

[edited 1/30/09 to correct payroll tax description]

The right-leaning think tanks and commentators have long claimed that the long-term solution that will guarantee a viable U.S. economy involves two things--tax cuts and entitlement cuts.    Look at the Cato Institute, Heritage Foundation, Claremount Institute, Tax Foundation, Americans for Tax Reform, or any of the many other right-leaning "think tanks" .  Some of these claim to be nonpartisan, but are nonetheless clearly right-leaning in the positions espoused.  Many of these "think tanks" might better be called "dogma distributors".  In my view, these proposals distort the options and misrepresent the likely results.

I. Re Tax Cuts:

Right-leaning proposals for tax cuts argue for two types of reductions of government revenues that are especially beneficial to the affluent:  cuts on capital income (low taxation of capital gains, treatment of dividends as capital gains, low taxation on stock options as compensation, treatment of "carried interest" as capital gains even though it is most clearly compensation income, etc.) and cuts on corporate business taxes (across the board lowering of rates, accelerated depreciation and expensing provisions, advantageous treatment of stock option compensation to high-paid executives, allowance of cross-crediting of foreign income that can drastically reduce the US tax rate, allowing repatriation of foreign income with little or no taxation, advantageous transfer-pricing, sourcing, apportionment and treaty rules for highly manipulable types of income like royalties for intangible properties developed in the US but moved to other countries , etc.). 

The justifications offered for these tax cuts are usually couched in language about entrepreneurship and the American way.  They say that cutting taxes on capital puts money into the hands of entrepreneurs, creating new businesses and jobs; that cutting taxes on corporations lets them compete better in the world markets; and similar "American dream" friendly language. But the justifications don't hold water.  The investor class tends to hoard its assets in order to enrich itself, with little concern about broad-based economic growth.  The assets may end up in secret Swiss bank accounts, fraudulently hiding from US taxation and doing nothing to create new businesses or jobs.  Conversely, the real entrepreneurs (Bill Gates in his garage, not Bill Gates in his multimillion dollar mansion outside Seattle) are struggling with the bits and pieces of savings and loans that they can pull together from friends, family and local banks--they're not benefitting from the capital gains cut for the affluent.  Similarly, the justifications for corporate tax cuts espouse greater productivity and jobs creation but support dividends to affluent owners and high bonuses to affluent managers, low paychecks for typical workers and destruction of worker pensions and other benefits.  Corporate expensing isn't likely to result in purchase of excess equipment, and funds freed up from corporate tax cuts are about as likely to be invested overseas (in low-tax jurisdictions where tax credits that are cross-credited amount to a further tax break at home) than to be invested in new job creation here at home.  Competition may be enhanced, but where and to what purpose? Likely the tax breaks provide even more impetus for the big multinationals to beat out the little businesses here and abroad, a trend that may not be part of a sustainable global economy in the long run.

Of course, another impact of government revenue reductions in the form of tax cuts for the affluent is the reduced monies available to spend in areas of the greatest need--urban mass transit programs, support for medicaid for the poor, etc.  So tax cuts for the affluent are likely to end up being simultaneously translated into benefit cuts for the poor and lower middle class.  That is especially true when one realizes that most proposals for zero taxation of capital gains and corporate income also propose reduction of "entitlements" that are particularly important for the elderly and poor among us.

2. Re Entitlements

Entitlement changes, cuts or outright elimination is a long-term goal of most of the right-leaning think tanks.  Privatization of Social Security and even further privatization of health care benefits are explicit goals, moving the systems to ones that generate profits for insurers and others while cutting benefits for the sick and elderly poor. 

Entitlements, when it comes to the poor, is read broadly.  Being able to earn any income and not pay any income tax because of the standard deduction and personal exemptions and earned income tax credit amounts to such an entitlement.  The claim is that, in order to be invested in America and "responsible", every American, even those at the very low end of the income distribution, should pay at least some percentage of their earned income in taxes (some suggest a minimum of 5% from those at the bottom who struggle for their daily bread. 

Of course, the most conspicuous arguments about "entitlements" are directed towards Social Security and Medicare, social safety net programs that are funded through regressive payroll taxes, in the case of Social Security, taxes that are assessed on every dollar earned up to about a $100,000 cap-- an amount that puts the earners into the upper 30% of the income distribution--while dollars above that cap are not assessed anything to support Social Security.  Statements abound that Social Security is already insolvent or bankrupt.  Of course, those statements are wrong, since Social Security is still running a surplus that has been used to mask the depths of the federal deficit (which handily helps justify tax cuts for the affluent).  Health care costs are skyrocketing, though it is not clear that the "entitlements" problem and the "health care costs" problem are inseparable.  We might well use government clout to intervene in a poorly performing market where health care profitmakers are permitted to make life-or-death decisions about care available based on their profit taking goals.  Or we might well decide that spending a larger proportion of the US gross domestic product on providing accessible and decent health care to every American is an appropriate goal, so that we should make changes in our health care delivery system, such as moving to a single-payer, single-provider system that acknowledges that health care provision is at least a quasi-government utility.  But the entitlement naysayers distort both the current situation (claiming inevitable bankruptcy) and the future options (failing to provide clear information about most western democracy's universal health care) in order to push the dogmatic agenda of privatization and cutting of government benefits provided through these "entitlement" programs.

For all these reasons, and more, item 1 plus item 2 does not equal (=/=) a sustainable economy.

But there is another type of entitlement that we ought to be talking about, that tends to be completely disregarded when those right-leaning think tanks mention entitlements.  It shouldn't be.

3.  The other type of entitlement.....

Meanwhile, there is another type of "entitlement" that is completely disregarded by the same proponents of "welfare reform", "entitlement reform" and generally cutting benefits aimed at those in the non-affluent income groups.  That can be best understood by looking at the way the TARP funds (troubled asset relief program) were administered by Paulson and the Bush administration.

TARP came about as an idea for dealing with the credit crunch and the huge losses on the books of banks that had issued subprime mortgages without appropriate risk analysis, securitized those mortgages in vehicles that made it more and more difficult to track how defaults affected the financial system, gambled with credit default swaps built on a rickety foundation lacking appropriate assumptions about risk, and packaged it all with a speculative mentality that grabbed for huge profits without exercising appropriate judgment.  Bankers and shareholders got rich (or richer) out of the risky speculation.  Investment bankers and traders on the floors hauled home million-dollar bonuses annually, considering it their just reward for their high-flying risk-taking abilities.  They were gambling and making millions, bragging about it and browbeating lawyers who  dared to get in their way on a risky deal that they wanted treated a certain way for tax purposes.  (I know from personal experience--I was a Wall Street tax lawyer from late 1995 through the first half of 2001.)  Those bankers--all of them, not just the CEOs making multimillion pay packages for taking risks and ultimately running their banks into huge losses--were  part of a speculative, get-rich-quick, greed-is-good, we're-the-king-of-the-world culture that dominates Wall Street.

Why do I say "dominates"?  Didn't the credit crunch and near collapse of the financial system take the starch out of their collars and teach them proper humility?  Haven't they recognized that their profligate ways have had a huge negative impact on their country, their fellow countrymen, and the world in general--especially the poor and lower middle class? 

Apparently not.  First, Paulson exercised none of the power that he should have and could have exercised in doling out $350 billlion of taxpayer money to these same loser banks. There were almost no strings attached to the bailout.  A few limitations on executive compensation for those at the very top was about it.  Dividends or multibillion dollar bonuses could still be paid.  Banks were not required to use their lending power to support ordinary Americans' ability to stay in their homes and small businesses' ability to keep operating. 

And they haven't.  Banks have scoffed at any obligation to the public interest.  Instead, banks with big handouts from the government have seen those handouts as just another way to carry on their "greed is good" agenda.  Several of the bailout recipients are helping Pfizer buy Wyeth--creation of a bigger Big Pharm that will have even more control over pricing of essential pharmaceuticals worldwide.  Not likely, in my view, to be a consolidation that promotes the public good.  But none of the bailout recipients are doing much to help ordinary Americans avoid foreclosure.And they are paying dividends and huge bonuses, in spite of running up huge losses and receiving huge government handouts.  The headline in today's New York Times tells it all: What Red Ink? Wall St. Paid Hefty Bonuses, Ben White, NY Times, Jan. 29, 2009, at A-1. 

[Wall Street financial companies paid out] an estimated $18.4 billion in bonuses for the year.  That was the sixth-largest haul on record. ...Wall Street workers still took home about as much as they did in 2004, when the Dow Jones Industrial Average was flying above 10,000 on its way to a record high.  Some bankers took home millions last year even as their employers lost billions.

Later in the article, White notes that New York's comptroller, Thomas DiNapoli, has calculated that the brokerage units at New York financial companies lost $35 billion in 2008. 

The acceptance of taxpayer bailout monies and payout of bonuses--even at less extraordinary amounts than during Wall Street's recent heyday-- is hard to justify-.  It is even "disconcerting" says Lucian Bebchuk at Harvard.  There is no "performance reward" argument for payouts--in fact, there's a strong argument for clawing back "performance" bonuses based on the phantom gains from earlier years.  There is no "need to pay more to retain them" argument for payouts--in fact, there's a buyers market for brokers these days, as layoffs and financial wreckage continue to cause enormous job loss.  Why would you pay to retain the guy that took the gamble that got you into the soup in the first place, anyway?  As Bebchuk said "This was neither the sixth-best year in terms of aggregate profits, nor was it the sixth-most-difficult year in terms of retaining employees."

 Whether bailout monies went directly to pay the bonuses or not is irrelevant, in my view.  Money is fungible.  Bonuses paid by companies that take taxpayer monies are insupportable.  Period.

So are those Wall Street bonus recipients embarassed by their awful performance, the need for their companies to recieve bailout monies, and their absurd bonuses and ready to turn it back to the companies in chagrin?  Not one whit. Here's the conclusion to the Times article.

On Wall Street, where money is the ulimate measure, some employees apparently feel slighted by their diminished bonuses.  A poll of 900 financial industry employees released on Wednesday by eFinancial Careers.com, a job search Web site, found that while nearly eigght out of 10 got bonuses, 45 percent thought they deserved more.  Id.

Now, there's an entitlement I would feel very comfortable eliminating.  It's not just because of my memory of the bullying culture that predominates on Wall Street, or the hubris of the sense of entitlement that permeated every encounter with the typically arrogant young white males who raked in million-dollar bonuses for thinking up schemes to help taxpayers avoid paying taxes.   It's the fact that the culture that pays those bonuses to people who think they deserve them for risk-taking creates a systemic risk for the entire financial system, which ultimately burdens ordinary Americans in their daily lives.  It's time to really end that arrogant, speculative culture.  Requiring any company that receives TARP funding to forego any payments of bonuses or dividends until the American taxpayers are 100% repaid would be a start. 

Economic Stimulus Plans (Part I)

As an economic stimulus package grows nearer, it's time to consider the various proposals and the party posturing in context.  Not unexpectedly, those groups that have long lobbied for tax reductions (especially for big business and the wealthy) are still lobbying for tax reductions.  Even companies that got TARP money from the taxpayers are busy lobbying the government for more tax reductions.  (That should have been one of the first strings attached to those funds, among many others.)  Even more unsurprisingly, the group that tends to be featured on the Wall Street Journal's editorial pages remains as convinced as ever (at least, in their public persona) that tax cuts are the way to go.  You know, that's the crowd that has argued for tax cuts for every imaginable reason, the cure-all for every governmental illness. 

So, who has got the right ideas about this stimulus plan, and what should Congress and the Obama Administration do to solve this mess that eight years of Bush and company left us with?  This posting is the first in a series over the next few days about the economic crisis and what measures make the most sense to address it. 

Let's start with the basics.  Just what is the problem we face, and how should our thinking about it be directed?

First, the credit crisis at which the TARP (troubled assets relief program) has been directed is real, but not the only piece of the problem.  The heart of the problem is the impact of the recession on ordinary Americans who are losing jobs, losing their homes, losing their savings and losing hope.  Whatever we do, we should spend our precious resources in ways that ultimately help people.

Second, any program that will be effective will be massive.  We are not in a "slight" downturn but a significant, deep and possibly long-lasting recession.  It will take massive doses of economic medicine to cure the patient.  Acting on too small a scale will likely have much too little impact to be noticed.

Third, there are both short-term and long-term needs.  We do need to "jump-start" the economy to try to spur us out of the worst depths, but we cannot think only short-term else the same problems, in slightly different forms, will come back to bite us again.  In addition to some programs designed to have a quick impact on the economy, especially in ways that help ordinary Americans who are hurting the most, we need to think about the kinds of programs that will create a long-term, viable, sustainable economy that will serve the American people well.  In other words, growth itself is not the object, but rather economic growth that is both broad-based and sustainable.   

Fourth, tax cuts--especially the business and capital and high-income favoring tax cuts of the Bush years--are generally not a viable solution for these problems.  Eight years of Bush and company was eight years of an economic philosophy based on cutting government revenues on a seemingly unending basis, with an explicit goal by some of "starving government" and "ending entitlements (read--aid to the poor) as we know it" and with the assistance of deceptive marketing touting unrealistic rosy scenarios about the impact of the tax cuts on the economy and intentionally misleading statements about those who would gain the most.  Remember Bush praising the 2001 tax cuts and saying that "average" American families of four would receive about $1800?  That number sounded good to lots of people who hadn't really though we needed tax cuts (there was no majority public interest pushing for tax cuts at the time of the (at least) $1.3 trillion dollar 2001 cut), but "average" is almost meaningless when you are putting multibillionaires like Bill Gates and Warren Buffet in with lots of low-paid janitors, housecleaners and the underemployed.  Lots of ordinary families got only $100 or so in tax cuts, not $1800 (while Bush and Cheney got tens of thousands of tax cuts out of that one bill).  Remember the American Jobs Creation Act of 2004 that really didn't do much at all to create jobs?  Remember that very low-tax-rate repatriation provision, that let companies bring earnings from abroad without tax on the ungrounded assumption (no requirement in the legislative language) that more money from lesser taxes means more jobs?  The result was that many of the companies that brought back the most money under the low tax provisions laid off employees.  Although the companies were not supposed to dividend the money out to shareholders, they did a bunch of stock buybacks, so that the low-taxed money went to their (frequently) high-wealth shareholders, who may well have then invested that low-taxed wealth overseas, causing ultimately even more job loss here.  We have, that is, seen a good bit of evidence over the last eight years of the lack of stimulative effect from tax cuts that go heavily to the wealthy and big business, as well as the lack of predictive power of the Laffer curve's so-called "hypothesis".  Tax cuts that reduce government revenues do not magically so stimulate growth that they replace the revenues they removed, nor do they stimulate the economy by spurring higher rates of growth than otherwise might be projected.  Tax cuts, in other words, generally don't create jobs.

Fifth, In an economic crisis, it is the people who cannot cope, or who are struggling mightily to cope, who need the most direct help. That means that tax cuts should be aimed exclusively at those people, since those cuts, delivered by a reduction in withholding from wages that puts more cash on a regular basis into their hands, will (i) help people who are faced with dire economic situations survive while at the same time (ii) pump that much more money directly into the economy at the local level across the country in the neighborhoods most in need of an economic lifeline, thus extending the economic jumpstart to the small businesses and communities most in need of the same.  And that means that some of the direct cash appropriated for projects must go to help that same group of people (with the same expected spreading effect within the local neighborhoods), through expansion of unemployment compensation and health care funding for low-income recipients, aid to states that permit the states to dispense assistance to low-income residents, and similar funding.

Sixth, in thinking about long-term impacts, we must ask polycentric questions and find the right solutions, looking to a sustainable future.  That is, we cannot be so focused on economic growth that we disregard the impact of our policies on economic inequality (since it is broad-based growth, not growth concentrated in the top 2% of the income distribution, that will mean a better standard of living for ordinary Americans) or on those areas in which significant changes in our policy approaches are necessary for a sustainable economy over the long term--i.e., environmental, labor, and health priorities. Thus, substantial increases in expenditures for  academic research in alternative energy and other high-value, low-impact technologies is essential, as are expenditures that expand use of existing, known high-value, low-impact technologies.  (Cf. Jeffrey Sachs, Common Wealth (both blog and book) for more on sustainable economic growth spurred by development of high-value, low-impact technological research, and note that sustainable development is not just a US-centric goal but essential to the Millennium Development Goals.  See, e.g., The Earth Institute at Columbia University for more on this.)

Seventh, in the deliberative process, the old rules permitting Big Oil, Big Pharm, and Big Finance privileged access to the decision-making process must not apply.  Lobbying by the old influential industries should be highly public and widely publicized--every instance of access should be catalogued on a public website, and every meeting of administrators or congresspersons with representatives of industry should be scrutinized for undue influence.  Just consider Big Finance and the disaster of its speculative run-up of profits and spectacular losses thrown on the public, or Big Oil and the way the neo-cons have supported military spending and war to feed the view that the US must exercise hegemony over the middle east oil fields. 

The Senate's Benefit-Reduction Plan

The Senate Budget Committee met October 26 for its final vote on the budget reconciliation package that will go to the floor for a full vote next week.  I watched a good part of the "debate" on C-Span.  It was an experience in alternative universes.  First, the Republican Chair presented a rosy chart of the constant growth of the tax revenues, due almost entirely in his account to the wonderful tax cuts that Republican federal government has enacted.  Tax cuts worked, he proclaimed, because they put money back in the hands of the wealthy entrepreneurs that establish businesses and are the heart of the economy.  He praised the work of Republicans to create sanity out of a federal government gone mad with entitlement spending, using the term "deficit reduction package" over and over again to describe this season's budget building effort.  To hear his speech, one would think that the country was operating in fiscally sound conditions, using its resources and avoiding wasteful expenditures.  Other Republican speakers repeated the "deficit reduction package" mantra.  For the first time, this universe's inhabitants proclaimed, this government is taking responsibility and working to reduce the deficit.

The minority ranking member Conrad outlined the other view of the universe second, providing chart after chart methodically decimating the "deficit reduction" claim of the majority.  He illustrated the move from surpluses under Clinton to deficits under Bush.  Noting that the future will show deficits reaching out to the horizon and growing deeper over time, he showed how the corresponding chart for the national debt reaches upward to the heavens, from our current $8 trillion to $11 trillion shortly and continuing upward, especially if interest rates increase (as they are likely to) resulting in higher and higher debt service burdens.  While the Republicans touted $35 billion in budget cuts (mostly to programs that serve the poor, see below), they disregard the bigger hole created by $70 billion in new tax cuts for the wealthy, mostly being funded by borrowing money from China, Japan and the UK, with the US looking forward to a kind of neo-colonial status as foreign countries own more and more of our assets.  (Some of this group don't even bother to disseminate on this scorer any more.  Connie Mack appeared on last Sunday's talk shows pushing multi-millionaire estate tax relief standing on a rickety two-legged stool of claims (1) that the estate tax costs people their family farms (simply wrong) and (2) that the federal government can costlessly pay for the billions in lost tax revenues by simply borrowing even more heavily from China and Japan!)

For a description of the budget bill without any acknowledgement of the two universes described above, look to the Wall Street Journal's Oct 27, 2005 article "Deficit-Cut Plan Advances in Senate" by David Rogers (at A6).

Here's another bit of the dark side of the rosy universe drawn by the majority members of the Committee.  The final budget reconciliation bill will likely provide the final authorization for opening up the Arctic National Wildlife Refuge to Big Oil's devastation, sold to the public under the promise of cutting energy prices even though it will take ten years to begin production and in spite of what we know both about Big Oil profiteering and the need for conservation rather than the pipedream of continued increases in output to meet China's ravenous appetite and our own undisciplined consumption.  This is the universe of take America's heritage from the people to give to the already rich Big Oil.

The bill will likely cut Medicare and Medicaid--at a time when more of our children have no health care whatsoever and vast majorities of the American people say universal health care should be a high priority even if it means higher taxes to achieve it.  Instead, the Senate Committee's package cuts billions from these programs, but it does redirect $10.8 billion in these Medicare "savings" (read--reduction in health care provided to the poor and lower-middle-income Americans) to increase physicians' reimbursements (a 1% increase, instead of a 4.4% scheduled cut)!   This is the universe of take from the poor to give to the rich. 

The bill will likely cut food stamps funding, at a time when poverty is increasing in this country as etched on our consciousness by the Katrina evacuees' desperate situations.  As many as 300,000 low income individuals may be denied benefits under the House Agriculture Committee's version of the food stamp cuts, while the House Energy and Commerce Committee approved billions in savings from Medicaid.  See David Rogers, House Panel Votes to Cut Food-Stamp Funding, Wall Street Journal, Oct. 29, 2005, at A4.  This is the universe of take from the poor and let them eat cake.

The final budget reconciliation bill will also likely provide another opportunity for this Congress and administration to reneg on their promise to rebuild the Gulf Coast and help Katrina's impoverished victims, the two salient priorities that Americans grasped so viscerally after the hurricane hit.  More and more, Congress is finding they need not spend as much as they had expected on Katrina's victim sor make the necessary sacrifices (bridges to nowhere in Alaska come to mind) necessary to fund wetland restoration in Louisiana.  Various projects have been proposed, from small experimental projects as described here, to vast restoration of the Mississippi delta, described in a multiple-page story in Sunday's New York Times (not yet available online).  Congress has not been willing to fund these projects, yet without them the marshlands of the Mississippi River delta are losing 25 square miles a year to erosion.    This is the universe of take from our natural resource heritage, and use it to fund boondoggles to keep current politicians in power.

Congress is also shifting the funds it has already authorized for emergency use after Katrina, as you can read in this October 29 New York Times story.  It indicates that only $2.2 billion of the White House's request to  transfer $17 billion of approved hurricane relief funds from FEMA to other agencies will be used for Housing and Urban Development programs for low-income Gulf Coast residents.  A good portion of the $17 billion redirected funds will be used by the military to repair military installations and ships (possibly done under contracts already in place with Halliburton and similar companies).  This is the universe of take from the disadvantaged, and give to crony corporations.

As the budget reconcilian process winds it way to a close, one can only hope that the current Congress will step back and realize that the decisions it makes now affect the coutry and its citizens for the long term.  If we continue to refuse to face the need for investments in infrastructure, from restoring wetlands to investing in expanding human capital through education, we will pay with an inability to compete in the brave new world of the 21st century.  If we continue to withdraw safety nets from the middle and lower classes while the boons of economic growth go almost entirely to the upper quintile we will face a social crisis of unforeseeable dimensions. 

Taxation is the way that we fund the priorities we have established for ourselves.  In a democracy, these decisions must be taken with imput from the people and attention to their demands for health care, wildlife protection, and attention to the quality of life concerns all share.  It is time for the country to deliberate about these measures, rather than holding mock rhetorical battles based on  alternative universes that share no common ground.