ataxingmatter

Not on the President's Budget or the House GOP's rampage against ordinary folks; On the Inequality Gap in the US

I'll write soon on the Obama budget proposal, I promise.  Right now I am trying to let my snarkiness fume off, as I wonder how anyone could think Obama is a liberal when he has so bought into the right wing's propaganda-heavy effort to use their (fake) concern about the deficit to justify the destruction of the progressive state established under FDR.  What they are aiming for is the complete dismantlement of Social Security and Medicare, while they satisfy Big INsurance in the dismantling of the modest effort we've managed towards heatlh care reform.  They want to freeze public worker pay for years and support efforts by states to renounce their obligations towards public employee pensions and health care/  They've already voted for increasing the tax burden on the working poor when they passed an extension of the absurd Bush tax cuts (primarily benefitting the wealthy and big corporations) while refusing to extend the Obama Making Work Pay program (primarily benefiting the working poor): that tax increase for the poor/tax cut for the rich bill passed in December meant a significant tax increase for 51 million Americans in the bottom of the income distribution was used to pay for more and more egregious handouts to the filthy rich (people and corporations) such as the extension of the 2003 dividend tax rate at 15% and the extension of the Bush tax cuts, and the ridiculous extension of the R&D credit, the section 179 expensing, and similar provisions. 

Meanwhile of course, the House GOP is planning to cut funding for all those things it has hated through the years because it represents what the liberal half of America thinks is just ordinary American caring for one another.  They plan to zero all funding for family planning--that isn't because those services aren't needed, it is because their aim is to target all the stuff they don't like.  See House GOP Declares War on Planned Parenthood, Mother Jones, Feb. 9, 2011.   They want to cut things they count as wasteful--let's see, that would be pollution control and environmental safety--probably including banning the EPA from regulating deadly carbon monoxide (that stuff that makes the air a killer for us, which of course must not be a pollutant since Big Business is the main producer of it, in the GOP unscientific model of the universe), food safety, law enforcement, education spending, high-speed rail (see Samuelson's ridiculous op-ed in the Washington Post today), nutrition support for poor pregnant women (can't have an abortion before birth on federal dollars, but you can't get food so your baby will be healthy either!).  For more than you need on all this, see Challenging Obama, House GOP calls for deep cuts, Espo & Taylor, AP, Feb. 9, 2011. They want to force the entire country to abide by their moral set--a kind of establishment of fundamentalist religion via the House's funding provisions.  And remember, this is the same group that passed a $1.3 to $1.6 trillion tax cut during Bush's first year that was entirely financed by borrowing, so that they could give a huge tax cuts to the wealthy.  This ain't got nothing to do with the deficit.  It has everything to do with seizing a moment of public ignorance to use to undo worthy programs and keep spending on the Reagan misguided bloated and continually over used military budget.

So folks, after my snarkiness recedes a little, I'll try to write about the budget, the House's idiocy, and the typical commentary on it.  Right now, I can't bring myself to say a word about them.

In the meantime, here's something worth looking at.  Before It's News, "9 Pictures of the Extreme Income/Wealth Gap", Feb. 14, 2011.

The writer claims that if people only understood the enormous concentration of wealth in this country and its deletrious impact on  politics, democracy and people, they'd stand up and demand (a la Tunisia and Egypt?) that our politicians do something about it.  I suspect that is true.  That is the main reason that the mainstream media--especially the Fox News and Rupert Murdoch Wall Street Journal type right-wing propaganda centers make sure that they talk all about the 'entitlements" that (they claim) are breaking the fiscal back of the country as those socialistic things we do for public employees and poor people etc, and fail to mention the far greater number of "entitlements" for the wealthy that are what is really breaking all our backs (from the huge proportion of the benefit of the tax expenditures in the Code to the way we build roads, situate police, and service needs of propertied people). 

Here's a noteworthy paragraph from the article.

How Much Is A Billion?

Some Wall Street types (and others) make over a billion dollars a year – each year. How much is a billion dollars? How can you visualize an amount of money so high? Here is one way to think about it: The median income in the US is around $50,000, meaning half of us make less and half of us make more. If you make $50,000 a year, and don’t spend a single penny of it, it will take you 20,000 years to save a billion dollars. . . . (Please come back and read the rest of this after you have recovered.)

What Do People Do With SO Much?

What do people do with all that money? Good question. After you own a stable of politicians who will cut your taxes, there are still a few more things you can buy.

Remember that we had some fund managers with multiple billions of profit in one year.  And we have typical MNE corporate CEOs making 7 or 10 or 20 million annually.  The CEO with a $20 million annual salary makes more in a day than his average workers will take home in an entire year.  Does the CEO really add that much--is it true that the enterprise couldn't exist, couldn't function without that person in that office, that the productivity of the workers would stagnate?  One has to doubt that, since what we hear is that CEOs are often the causes of huge losses, as they over-acquire and over-leverage their enterprises to up the ante on their own performance pay.

And of course we have had fund managers getting compensation (in their "2 and 20" or "5 and 50"--20% or 50% of the profits of the partnership they manage) with both deferral and capital gains preferences, in the case of private equity funds and real estate partnerships in particular but also in many cases with the hedge funds.  My My, that's a nice perk for the very wealthy.   But do they contribute so mightily to the US economy as to be worth this kind of excess?  No way.  Paulson--remember, the guy that garnered all the praise for having foreseen the mortgage loan crisis and shorted those CDOs that he talked a bank into filling with bad loans, making $20 billion for his fund in the year of the breakdown?  That naked short is no service to the economy.  The demand for bad loans drove the production of them, and the bad loans are at the heart of the mortgage loan meltdown that has millions of ordinary Americans out of their home looking around them wondering what happened to their own American dream.  Naked short speculation was nothing but devastating and Paulson is no here.  (See Yves Smith, Naked Capitalism, for more, among others.)

So what kind of things can these oligarchs who reward themselves at our expense afford, according to the website?  A billion'll buy you, for example:

• a thousand expensive Maybachs, a car costing $1 million apiece
• 137 years of nights in the Burg Al Arab in Dubai at $20,000 to $30,000 a night
• ten $100 million yachts
• 25 Gulfstream G550 private jets, at  about $40 million a pop
• 40 private islands, castles included (at about $24.5 million each)
• 125 estates at $8 million each 
• 200 watches that cost $5 million each

The point of all this is that these prices themselves are ridiculous, fostered by the huge wealth now available to America's super-elite, the result of the "inequality bubble" that has put more and more of the product of millions' of people's hard labor in the hands of an oligarchic few.   There are people at the top who "are amassing multiples of billions, paying very little in taxes and using it in ways that harm the rest of us."    Resources are concentrating, heavily, at the top, in ways that are fostered by the tax policies and the spending policies supported by the GOP. 

"Between 1979 and 2008, the top 5% of American families saw their real incomes increase 73%, according to Census data. Over the same period, the lowest-income fifth (20% of us) saw a decrease in real income of 4.1%. The rest were just stagnant or saw very little increase. This is why people are borrowing more and more, falling further and further behind. (From the Working Group on Extreme Inequality)."

***

[One of the bad results of such inequality is the psychological effect.] People need to feel they earned that they have earned what they have, and develop theories about why they have so much when others do not. Bizzare and cruel explanations like Ayn Rand's psychopathic theories about "producers" and "parasites" take hold. Regular people become little more than commodities, blamed for their misery ("personal responsibility") as they become ever poorer.

 

 

Post-Election Blues: the GOP, Dems, and Corporatism

One of the worrisome results of the 2010 mid-term elections is the increasingly radical fringe that is now installed in the House (and in state houses and in some Senate seats).  Witness the possible head of the House Energy and Commerce Committee, Shimkus of Illinois (Republican), who has asserted that it's a waste of time and effort to worry about global warming, because he happens to believe that God has promised not to flood Earth and so it just won't happen.  See Stromberg, In the GOP's House, God Won't Allow Global Warming?, Washington Post, PostPartisan (Nov. 12 2010).  (This is like the wishful thinking that the biggest oil spill in history hasn't really done any harm to the oceans--ignoring, of course, our inability to measure the impact in most cases, our ignorance of the long-term effect of the dispersant chemicals used, and our willful blindness to existing problems on beachers, in marshes and in the warmer waters near the mainland.)  Instead, Shimkus and his ilk will likely try to use the House's investigative powers to put a stop to sound regulatory advances at the Environmental Protection Agency and other departments.  

Meanwhile, the irreality train of Sarah Palin's influence on right-wing politics rolls on forward, with her infomercial running on "The Learning Channel" (a clear misnomer in this case, unless learning how insipid Palin and her family can be counts as "learning") as a backdrop for her continued influence in the 2011-12 Congress and the 2012 presidential election.  This is a person who takes pride in meaningless homilies, quit the only challenging job she has ever held when it either got too stressful (various ethics challenges) or not remunerative enough (various fashion challenges), has a hit-or-miss education that she hasn't bothered to improve with self-educational efforts (like reading 2-3 of our major national papers or reading various nonfictions works, etc.), and is content using the "sling dirt whether true or not, support it with lots of corporate money, and hope some of it sticks" techniques developed in the Reagan campaign and perfected by Bush's "turd blossom" karl Rove.  Americans will continue to hear that "real Americans" care about the things Palin cares about and that the cures for what ails us are more of the same policies that made us sick in the first place, stated as simplistic slogans that evoke dreams of personal liberty and frontier rigor, and nightmares of government corruption and Pentagon $7000 toilets.  As a fellow blogger Maxine Udall has noted:

Whether we like it or not, our technical solutions are competing in a morality play scripted by interest groups and mama grizzlies who in 25 words or less conflate small government and something they imagine to be "free markets" with individual liberty, a key justice principle. Most sound techocratic solutions are difficult to convey, must less motivate, in 25 words or less (and the motivation is often moral as well as technical: more for most, more for less, prices as reliable signals of marginal social cost, reducing unemployment, increasing inflation to discourage saving and stimulate spending ... you get the idea). But the larger problem, I think, is that allegedly "amoral" economists view the moral sequelae of sound economic policy, such as banksters' gains (at taxpayer expense), as "side issues" that are irrelevant to restoring the economy, while some of "we the people" view it as one of the most important issues. We end up with....the Tea Party (or, at least, with a large portion of the population who are extremely resentful and angry at being unemployed and underwater while the economy romps upward at least for those whom we bailed out).  Technocratic Solutions and Moral Dilemmas  (the preceding, by the way, is just a very small excerpt of an interesting piece on the problem with what I have called "mathaholic"  economics and the failures of the Chicago School's approach to setting policy based on a theory so infused with unrealistic assumptions that the policy prescriptions amount to suggesting that Alice drink a counter-potion to undo her shrinking in size and fall through the rabbit hole).

 

And then there are the right-wingers arguing for a full austerity budget in the US, which supports, primarily, the idea of cutting Social Security and Medicare benefits while letting military costs continue to rise unabated and for reducing corporate taxes so that Big Business (read--U.S. multinationals) can "compete" more successfully globally without the "burden" of US taxes.  See my earlier post on the Peterson-Pew "deficit crisis" mentality and the Bowles-Simpson commission.  And then look at Robert Samuelson, How to Avoid Japan's Economic Mistakes, Washington Post (Nov. 15, 2010).  Samuelson asserts that the time for stimulus is long past and the only thing to do is to get the private sector going.  He claims to base this urgent assertion on Japan's experience, when it continued to borrow to fund public spending, but overall growth has been anemic.  He asserts Japan's problem is two fold:  1) a "dual economy" where robust exports had to make up for anemic domestic consumption, an economic model which folded with the yen's appreciation in the 1980s and 2) an aging, declining population with low wages and insecure jobs.

His prescription of course, is the same old right-wing prescription--less regulation, more support for big business to remove "uncertainties" (which has become a euphemism for lowering taxes/helping US MNEs to "compete").

So Japan's economy is trapped: A high yen penalizes exports; low births and sclerotic firms hurt domestic growth. The lesson for us is that massive budget deficits and cheap credit are at best necessary stopgaps. They're narcotics whose effects soon fade. They can't correct underlying economic deficiencies. It's time to move on from the debate over "stimulus."

Economic success ultimately depends on private firms. The American economy is more resilient and flexible than Japan's. But that's a low standard. Neither the White House nor Congress seems to understand that growing regulatory burdens and policy uncertainties undermine business confidence and the willingness to expand. Unless that changes, our mediocre recovery may mimic Japan's.

Samuelson conveniently skips over three important things--two a big difference between the US and Japan, and the other a similarity.  First, Japan had a historically high savings rate and, though that has gone down with Japan's economic decline, it meant that Japan didn't have the kind of domestic spending pattern that could sustain a low-export economy for any length of time.  So making interest rates low didn't help, and government spending couldn't be sufficient to overcome.  Second, the US has already embarked on various "quantitative easing" solutions that should have a positive impact--the loosening of the money supply will provide more money floating through the economy, allowing private and public job creation to take place more easily. 

Third, both countries share the stagnation of middle class wages--and what is worse in the US is that we have at the same time huge increases in inequalities as the "investor/manager class" continues to reap all the rewards of the economic system and be favored by the tax system so that it reaps most of the subsidies provided that way as well (the huge part of the benefit of the extra large housing mortgage interest deduction is enjoyed by the wealthiest Americans, who itemize and who have sufficiently large and numerous homes to easily use the full deductible interest limitation of $1.1 million combined acquisition and home equity loans; the benefit for various manager-level retirement plans is enjoyed primarily by the rich; etc.).  Until that problem is resolved, it will be unlikely that the US will recover the kind of broad-based growth that provides a sustainable economic environment and quality of life for all.

The reason all of this is worrisome, of course, is that the two-party system (with the avid assistance of the Tea Partiers) is heading towards unanimity on the biggest problem facing us at this time, and their answer is the wrong one, one that fails to understand the long-term damage to the economy of rampant increases in inequality along with stagnation or worse for the middle class.

 The problem is the corporatist agenda--"Big Business" using its money and power to write the laws to suit it, and the owners and managers of Big Business using their money and power to ensure that all of the rewards of the economic process go to the top, while programs intended to buffer the ill winds that blow for the middle class and low income Americans are decimated.  (An agenda made all the more easy because of the right-wing-dominated Supreme Court's recent decisions, including Citizens United.)  Money has become the be all and end all of politics, and Big Businesses--especially the big financial institutions-- generally have the money to buy the politicians and the laws that they like.  Courts and legislatures favor business over individuals.

Obama is not apart from this--he has never been a real progressive, and his policies are in the same tepid, center-right position that Clinton occupied or even slightly to the right.  As a commenter on a Washington Post article on Palin's TV infomercial noted,

[Obama largely] insists on continuing Bush's policies, or insufficiently curbing them. It is policies that serve the rich that are destroying us; these are policies that are traditionally identified with the Republicans, but in recent decades, the Democrats have learned to bow and scrape for big money from the lobbyists and either party is as abjectly servile to the wealthy as the other.

*****

[T]hose managing [Palin] as a media creation are using her to push the perceived center further to the right than it already is, which will allow real candidates for the Republican nomination to recycle the radical orthodoxies of the far right and still seem "moderate." Candidates for the Democratic nomination will be required to similarly hew further right, so as not to seem like the "socialists" or "communists" they have already been labeled by the rightwing lunatic fringe.

Palin makes big bucks and doesn't have to actually learn or do anything, while becoming the philosophical lodestar for the right, and our entire political system is transformed into a battle not between left and right but between right and extreme right.  Robert 1014

There is no reason to expect that tax cuts for the wealthiest 20% of the country will do anything to support job creation for the rest of us or to help stem the tide of the recession.  But the GOP will push for tax cuts for their primary constituents no matter what the cost. There is no reason to think that changing our tax system to assist US multinationals in grabbing a larger market share in Asia or Africa in the name of "competitiveness" will do anything to help ordinary Americans in the middle class here at home.  But both parties will continue the disastrous mix of tax cuts for corporations and policies that pull back on anti-trust and make unionization more difficult in the name of helping companies compete.   Obama and the mostly spineless Dems who don't ever stand up for their purported policy positions--whether in contesting the appointment to the Supreme Court of radical rightwingers like Alito and Roberts or in battling with the GOP for a public option in health care reform or in fighting to preserve a highly progressive income and estate tax--will likely just roll over and play dead while the wingnuts on the right move our country more and more into the radical right of the Bircher Society, Clausen, and Milt Friedman's radical "free market" agenda that socializes losses and privatizes gains.

If Dems go Down--outlook for taxes, financial industry, military and war, unions and public employees...

I voted this morning in the mid-term elections.  Did you?  I am nonetheless a frustrated citizen who is deeply worried about the future of my city, my state, and my country.   And while I am deeply disappointed in the Dems' ability to translate progressive ideas in to working legislation and change, I am even more deeply disappointed in the loss of a moderate GOP voice and the way most of the GOP candidates embrace the corporatist agenda.

While I understand and even empathize with some of the anger and frustration expressed by the Tea Party groups, I am very worried about their impact on this election in light of their apparent lack of comprehension about the essential problems facing us and their failure to understand that it was the four decades of Reagan-inspired policies of deregulation, militarization, privatization and tax cuts that got us deep into these problems culminating in the Great Recession of the Bush Administration and the too-lax TARP bailout provisions for banks.  (The bank bailout was, I believe, necessary by that point, but it could have been handled--as I argued at the time--by methods that would have exacted a much higher price from bank managers and shareholders, without the Paulson-originated, bank-friendly provisions that allowed bankers to retain (privatize) their gains while casting on us (socializing) their losses.) 

The Tea Partiers, in other words, have muddled ideas that forecast wrong-headed policies on taxes, finances, income inequality, the role of unions in protecting the U.S. middle class, and the role of the big multi-national corporations in influencing government to favor their own businesses and the rich who own or manage them (via lobbying and especially since the Supreme Court's Citizens United case, via the use of huge sums of money to influence elections and essentially buy legislation made to order).  The Tea Party groups in particular misinterpret the corporatist agenda that pits large corporations and their wealthy managers and shareholders against the vast majority of hard-working, middle class Americans and that casts unions (in spite of their undeniable flaws and failures)  almost as evildoers, rather than what they actually are--the only successful means that the middle class has to create a level playing field so that workers can get their fair share of productivity gains mostly produced by them.  Further, the Tea Party groups seem incapable of recognizing that their visibility and influence is being bought by those very powers that consistently work to suppress middle class gains--the anti-tax, anti-union, pro- "free market" purported think tanks and lobbyists and wealthy businessmen and the right-wing media empires of huge corporations such as the Sinclair stations, the Murdoch media empire (Wall Street Journal, Fox News, etc.)-- such as the Koch brothers and Dick Armey's so-called Freedom Works. 

"Free market" is in quotes because there is no such thing as an absolutely free market: to the extent that we shift the balance too far towards business "freedom" and too far away from consumer--and environment--protecting restraints, we take away everyone's freedom to live decent lifestyles in a sustainable economy within a sound environment.  Markets are wonderful, but the ability of businesses to compete "freely" in fact requires a number of restraining and opposing influences to avoid the inevitable development of self-perpetuating monopolies and oligarchies from asymmetries of information combined with the natural biases and follies of humans (including the corruption from money and power, the self-interested actions that can cause significant detriment to others from sheer greed), not to mention the vulnerability of ordinary people left to suffer from the brute-force harms of such "free" markets.   Government regulation/remedies (administrative and judicial) and worker unions are two necessary restraints on unbridled corporatism. 

So let's hypothesize that many of the right-leaning GOP and Tea Party candidates are elected.  Here's my prediction of the policies that will be pushed by this right-wing coalition. 

1. Taxes:  likely passage of various bills reducing corporate taxes either temporarily or permanently, including 100% expensing, repeat of the 2004 almost tax-free repatriation of foreign profits, further extension of tax-free restructuring provisions (the Bush Treasury through regulations practically gave away the store, and there appears to be a wholesale commitment to continuing the rush to make gain recognition as a part of a tax-free reorg a thing of the past, and make loss recognition as a part of a tax-free reorg a thing of the present); likely attempt to make the Bush tax cuts permanent for everyone including the wealthiest amongst us or at least to extend them for another 2 years until the 2012 election possibly restores a GOP president to make them permanent; likely renewed attempt to repeal or sharply reduce the estate tax that even in its pre-Bush form was paid by a tiny minority of estates each year and paid at a very low effective tax rate by many of those few that paid it; discussion of tax cuts by the GOP/Tea Partiers won't address the role these cuts play in creating deficits or in reinforcing a harmful level of income inequality that threatens the very heart of democratic governance.  We definitely won't get legislation cutting the carried interest entitlement out of a right-dominated Congress--the capital gains and deferral advantages that private equity and hedge fund managers glean through their interpretation of the partnership rules for "profits-only" interests would be allowed to continue, generating multi-million dollar low-taxed income and encouraging a continuing distortion of the allocation of endeavor towards this high-income, low-tax-producing work and away from other endeavors that would be better for the economy (such as engineering rather than financial engineering, etc.).  In other words, we can expect a resurgence of the many-times-now-proven-wrong-"freshwater"-economic-free-marketarian and Laffer-style budget and tax ideas, carried out even more extremely!
2. Dodd-Frank financial institution regulation:  attempt to undo or deeply eviscerate many of the protections for the financial system disliked by the Big Banks, particularly the (limited) ban on proprietary trading, potential for naked credit default regulation, and  the existence and powers of the Consumer Financial Protection Agency (which is the primary part of the bill that addresses the way that big banks use their clout to collect from customers at every opportunity while making it enormously hard for customers to fight back when they are treated unfairly by the banks)
3. Social Security:  drive to dismantle post-war protections for the poor and elderly, through partial or whole privatization and reduction of benefits; use of the worries about the deficit as the power for wielding the ax cutting old age security benefits (in spite of refusal to forego any of the Bush tax cuts which will cost $5 trillion over ten years, if extended). Job creation will be touted as a rationale for most of this, though it is a very unlikely outcome.  (There will be no further stimulus package of public infrastructure spending which would have a decent chance of saving, creating jobs.)
4. Health care:  drive to dismantle the progress made towards a fairer health insurance system out of a distorted understanding of the way that non-insured individuals require insured individuals to cover their expenses and a failure to comprehend the way that health insurance companies benefit from the ability to arbitrage 50 states' rules to select those that serve them best and serve ordinary Americans least
5. Environmental and Global Warming Efforts: drive to dismantle anything already done to address the significant harms from global warming and environmental pollution (including toxic chemicals in our land, air and waterways); attempt to open the Arctic National Wildlife Refuge to oil drilling; attempt to give all the rest of the US reserves to the oil companies along with even more tax cuts for the natural resources extractive industry (which will be touted as "incentives" for development); attempt to peel back protections for endangered species, particularly wolves and small creatures whose protections are seen by the right as "threatening" lucrative developments in wilderness settings; attempt to ensure that the National Forest Service serves the forestry industry with even more roads and cheap sales, rather than putting forest and wilderness protection goals above commercialization/privatization of the national forests
6. Gun laws:  attempt to peel back gun registration provisions--moving even closer to the absurd "wild west" model apparently sponsored by activist right-wingers on the Supreme Court providing for open carrying of handguns in bars, coffee shops, stores and public meeting places
7. Unions/public employees:  attempt to ensure that the corporatist agenda succeeds in the workplace by continuing the process of distorting American's views of the role of unions in protecting workers from corporatist power and by weakening even further American workers' ability to organize and by giving employers even more "rights" in the context of a union drive; in particular, at the state level we can expect drives to cut public employee pension benefits and cut state funding of pension plans, and at the national level we can anticipate continued demonization of federal employees as lazy bureaucrats protected by public employee unions from merited discipline and firing
8. Elections:  refusal to pass laws forcing full disclosure of all corporate donations related to elections on the corporations' financial statements, SEC filings and on publicly available filings of all 501/527 organizations receiving corporate donations; refusal to write disclosure rules forcing public information regarding major individual or other noncorporate donors to organizations engaged in election campaigning
9. Military/war:  little or no commitment to removing the impediments for gay servicemen and women;no commitment to cutting military expenditures and even likely some support for pushing the Pentagon to continue with expenditures that it has already determined are inappropriate and wasteful; little commitment to pushing for a pull-back from foreign invasions/occupations and even possible push for renewed "surges" in Afghanistan; likely commitment to increasing military support for Israel in spite of its continuing violation of international law on colonization of occupied territories; likely push for aggressive response to Iran, including warmongering

Worth noting:  if the election results in the GOP controlling the House and the Dems the Senate (and presidency, of course), we will likely have gridlock.  The GOP agenda won't be likely to be enacted because of that gridlock.  Accordingly, everything above is in terms of where their attempts, commitments will be, not what they will succeed in doing.  But what will they actually do?  Mark Thoma, Economist's View, Gridlock? Not in Politics (Nov. 2, 2010), speculates that they will "take advantage of this by introducing legislation they know won't pass but scores political points by forcing Democrats to vote against it...then use the noise machine to talk about how terrible this is for America.  We'll see Tax Cuts for Working Americans (where you give a few pennies to the masses, much, much more to the upper echelon, then, since there are so many people getting small breaks, claim that the majority of the tax cuts go to the middle and lower classes), the Deregulation of Apple Pie Act (which somehow turns into an attack on the FDA, financial regulation, etc., etc.,), we'll see poison pills attached to legislation that must be passed to operate government...."  Thoma also castigates the Dems (appropriately, I think) for failing to "take its arguments to the public and convince them that they were, in fact, fighting for their interests. ... Instead, they allowed the other side to take the initiative and demagogue the policies without much of a challenge."  When will the Dems ever learn?

Newt Gingrich's Vision of a religious, brutally capitalistic, and corporatist America

Newt Gingrich wrote an op-ed in the Washington Post April 23, 2010, How American became a 'secular-socialist machine', in which he purported to rebut Norman Ornstein's defense of the Obama Administration against the radical right's smears asserting that the administration is a "secular-socialist machine."  The Gingrich op-ed defense of the smear is yet another smear.  First, he conflates historically powerful political "machines" like Tammany Hall or perhaps Chicago back in its one-man rule, where a single man could order people throughout governmental hierarchies and expect them to follow his will, with with astute political negotiations by claiming that the US Congress's passage of a stimulus bill in within a few weeks of Obama assuming the presidency represented machine politics.  Yet without that stimulus package, weak as it was because of the Republican effort to convert most stimulus to more tax cuts for big corporations, the US economy would likely be stagnated, with no jobs and no growth prospects.  The package was passed after considerable debate and public discussion of the pros and cons-- a transparency that would cause a political machine to shudder its last gasp.  It was a majority decision in Congress and bore the stamp of the Congressional negotiations in the shape of the details.  His use of the term "machine" is like the freshwater economists' use of the term "efficient markets"--the winning out of pipe dream theories over the reality on the ground.

Second, he uses the term "socialism" to mean, apparently, "any government action I don't like."  In a socialist economy, the government owns permanently and runs for the public good the primary means of production.  Communist China before the opening in the latter part of the 20th century was run as a socialist economy (and as a political dictatorship), with "state and town enterprises" that provided jobs, homes and permanent care to the workers.  Socialist policies, of course, can co-exist with capitalism.  Both European and American capitalist economies typically include some number of socialistic measures to dampen the harsh realities and strong failure potential of "pure" capitalism, where the "dog eat dog" greed over everything mechanism will otherwise bring brutal consequences for large majorities of ordinary folk who don't start wit sufficient capital (human, physical and financial) to have a significant stake in the race for profits.  We have thus tempered our economic arrangements with social justice mechanisms from the beginning, when churches and communities gathered together to help the most vulnerable, and we have done so since the beginning of the 20th century through our tax policies (progressive taxation that purports to take more from those that have the most in order to have enough to achieve state goals without sacrificing ordinary folk at the bottom of the income distriution), through our corporate policies (anti-trust mechanisms that break up large corporations that gain too much power) and through our human capital policies (Social Security, Medicare, Medicaid, arts funding, education funding, disease control and research, etc.). 

Gingrich plays on people's ignorance about our own history, economic systems generally, and the importance to the US of our tempered capitalism when he mislabels as socialisms the government's establishment of temporary mechanisms to deal with the fact of the government's temporary ownership of private enterprise as a result of a bailout necessitated by the Reagan revolution's actions to deregulate/privatize/militarize/and cut taxes or the reinstatement of the pre-Reagan status of aid to students through direct government loan programs administered by colleges rather than through guaranteed indirect loan programs administered by colleges but through banks that receive a substantial subsidy direct from the government (and were another place where banks resorted to financial shenanigans to keep getting higher interest rate reimbursement from the government than they were entitled to).  The irony is that the bank subsidies under the indirect loan program have much more socialistic elements in them than the direct loan program, since the government is directly paying banks essentially for doing nothing but acting as conduits for government money.  Gingrich also labels as socialist government regulation of industry pollutants like carbon output.  This response of government to a strong majority's preference for protection of the population in ways that individuals clearly cannot protect themselves is the epitome of democracy in action to achieve public good, even at the cost of some limitations on private enterprise.    Gingrich argues with absurdities--"if government regulates every aspect of our use of power, it has regulated every aspect of our lives.  What is that if not socialism?"  Bunk.  The government doesn't pretend to regulate every aspect of our use of power--it doesn't tell you whether you can turn a light on or a fan or an air conditioner.  It does regulate appliances that use power (not enough) and it does regulate the production of power (not enough--witness the Gull Oil Macondo Well Disaster).  Environmental protection is the essence of government responsibility to its people, the same as military defense.That is action in the political system, that happens to have consequences for the economic system, in that no enterprise can do whatever it wants to make money if it hurts everybody. the entire polity.

Gingrich's third term "secular" describes the kind of government this country has had from the beginning.  While there has been a strong religious element in American life, we have recognized the need to prevent  a merger or even a perceived merger of religion and government, the need to maintain a separation between the state and religion.  That vision developed in the states--particularly in Massachusetts and Virginia, and then the Founders incorporated it into the First Amendment to the Constitution in which they strove to protect the kinds of individual liberties that they had fought for in the Revolutionary War.  That protection is not just against establishing a "a national religion", as Gingrich suggests, but to protect the people--whether religious or non-religious--from any entanglement between church and state.  Gingrich uses the term "secular" as though it were an epitaph; I can only shudder to think of living in the "religious" state that he would apparently prefer.

Gulf Oil Spill: time to revise resource tax policy; how about a BEST surcharge?

The oil spill in the Gulf continues, wreaking hazard along the Gulf coast and threatening the Atlantic coastline as well.  Birds, fish, sea flora and fauna are all threatened.  Tourism and fishing face enormous economic costs.  Our public lands will take years, perhaps decades, to recover.

Corporatism in all its ugly colors is on ready display in this disaster.  The drilling used a single sleeve pipe instead of the stronger and less likely to leak double-walled version that is ordinarily used.  They hurried the sealing of the well rather than cycle through the extra day necessary, worried about the fact that the well had already taken longer than intended, with each day costing thousands extra and the rig ready to move on.   They apparently disregarded signs of leaking gas and rushed testing at the end.  But worst of all, neither BP nor TransOcean was prepared to deal with a deep-water disaster.  By BP's own admission, it "didn't have the tools" it needed to handle a deep-sea explosion, and obviously hadn't invested the millions (billions?) it should have in research and experimentation on deep-sea disasters.  It looks like profits was the only driving force--no matter what the cost in potential environmental disaster and human lives.

Yet we provide enormous  breaks to natural resource extractive industries.  Their responsibility for damages is limited.  (Congress is considering changing this now--it should do so immediately, and hold BP and Transocean retroactively accountable for the full long-term cost of the damage they've done to our world.)  We provide the resources at almost no cost--piddling royalties at best.  We give layers of tax breaks, including the "percentage depletion allowance" that reduces the taxable income on the theory that eventually the company will have no more product and go out of business.  Times, styles, customs and tastes change--but almost every company tied to a specific product will eventually lose out, and it would be foolish to provide that company a tax break for its expected future losses.  Tax has always been related to current profits rather than life cycles.  But not for the extractive industries.

BP, of course, faces potential criminal charges for its conduct. See this article in Salon.com (June 3, 2010); US Opens Criminal Inquiry, NY Times June 1, 2010. Hopefully, the mere existence of a criminal investigation will act as a deterrent to other extractive companies, signalling the importance of preparation for dealing with potential environmental and economic hazards.

Changes, though, are necessary in the way we deal with extractive industries.  Much greater transparency and accountability in the industry are required.  Accountability requires more intensive regulation, and a sharper focus on compliance/enforcement within the agencies responsible.  The Minerals Management Service is known for collusion with its overseen industries--this has to end.  Salazar, Secretary of the Interior, is too much a friend of business and not enough a supporter of the environment--he should be replaced.

Transparency should include clear reporting on the way companies pay (or don't pay) for the resources from which they profit, and how the compensation within the firm rewards those at the top and fails to ensure adequate focus on research to deal with problems.  Senators Lugar and Cardin have suggested full disclosure by companies about amounts they pay to governments for access to natural resources (discussed as an amendment to financial reporm legislation).  See Lissakers (from Revenue Watch Institute), The Cleanup Can't Stop at the Shore, Huffington Post, May 18, 2010.  Guess what--lobbyists object to disclosure, saying it would "increase operating costs and hobble competition."  Id.  That's bullshit.   Those costs have to be accounted for in the companies' financial statements and therefore whatever is spent (taxes, royalties, fees) is readily ascertainable by the companies.  It is time that it was readily ascertainable by the American public.

Accountability requires more intensive regulation, and correction of the relationshipo between the Minerals Management Service and the industry, to ensure that companies at least do what is currently required of them by law.  Companies should be held strictly liable--with joint and several liability among drillers, cementers, oil rig owners--for all cleanup costs as well as long-term environmental and economic damages.  Congress should enact such a law immediately, with retroactive force covering BP, Transocean and Halliburton.  We can no longer treat resource extraction the way we did in the 1800s--this is a different time, and the potential harms are much greater.  Companies, not American taxpayers, have to assume the risks of losses in connection with their profit-making activities.

Perhaps, too, it is time to rethink our tax policy towards environmentally harmful industries to ensure that the industries take into account the cost of current "externalities" such as risk of lives and risk of harm to the environment and economy (as in the tourism and fishery industries being harmed by the Gulf oil spill).  Obama  called for rethinking the tax breaks for the extractive industries at a speech at Carnegie Mellon, noting that the catastrophic spil demonstrates the need to move towards clean energy.  See Obama Calls for Roll Backs on Big Oil tax breaks, Apollo Alliance Daily Digest, June 3, 2010; Obama Calls for Rolling Back Oil Company Tax Breaks to Net Billions for Alternative Energy, Huffington Post, June 2, 2010. 

What steps could be taken?  Consider the following:

• roll back current tax expenditures benefiting the oil and gas and other extractive industries
• increase royalties for extracting resources from the US commons (including nullifying all current leases and requiring renegotiation based on environmental safety records and current expenditures for research and development to support life and environmental safety)
• enact a windfall profits tax
• enact an "BEST" (bailout the environment and states tax) surcharge --a 5% surcharge on natural resource extracting industry companies' financial statement profits as reported under GAAP or IFRS, whichever is higher, to be redistributed via funding of national and state parks and state coastline preservation efforts, protecting smaller businesses with revenue thresholds ($30 million or more, perhaps).
• charge extractive resource companies an annually adjusted excise tax, calculated as a rolling percentage of the last three-years' penalties plus three-years' lobbying expenses, so that a company will tend to pay a higher tax when it expends more money lobbying and based on the number and severity of penalties incurred for safety and regulatory violations.  BP had about $14 billion of profits in 2009 see statenent from BP), and spent $16 million in 2009 to lobby Congress (see en.wikipedia.org/wiki/BP).  For the first quarter of 2010, BP had profits of about 6 billion.  BP has had a number of egregious safety violations, but fines are too small in relation to those profits--a "mere fly-speck on the company's balance sheet." Morse, BP Profits from Gulf Spill, Huffington Post, May 3, 2010.   As Whatley has indicated, "when a corporation falls short of regulatory standards it does not do so accidentally.  Rather, it is a calculated choice based on risible enforcement efforts and piddling penalties passed by legislators on the take." See Capitalist Hagiography has little room for saints, Huffington Post, May 3, 2010.  This excise tax would mean that the more money a company devotes to lobbying and the more piddling penalties that it is required to pay, the more real money it will have to cough up.

Some background about previous efforts to remove excessive tax benefits for extractive industries.   Senator Robert CAsey (D-PA) in 2007 proposed an excess profits tax, when Exxon Mobil reported huge profits from the high price of oil.  See Sen. wants to tax Big Oil's 'excess' profits, AP, Apr. 26, 2007.  The House in 2007 and 2008 at least had the gumption to vote to remove tax breaks (amounting to about $18 billion over ten years) that US oil companies enjoy. See House Repeals Tax Break for Big Oil, washingtonpost.com, Jan. 19, 2007 (noting that bill would have repealed the 2004 lowering of corporate tax rates for big oil and barred new federal leases unless they renegotiated problematic leases from 1998 and 1999 that did not require any royalties whatsoever for Gulf oil production, all measures that were opposed by the Bush administration, which didn't think the improperly drafted leases should have to be renegotiated by Big Oil);  House Votes to Tax Big Oil, Fund Renewable Energy, NPR.org, Feb. 28, 2008.  Action was defeated in the Senate, however, where Senate Republicans ensured that big oil would dodge the windfall profits tax bullet and continue to receive the many tax benefits in the Code.  See Democrats' Oil Tax Plan Fails in Senate Vote, foxnews.com, Jun. 10, 2008 (noting the GOP's defeat of a Democratic energy package that would have rescinded existing tax breaks and imposed a 25% tax on "unreasonable" profits of the largest US oil companies--Exxon Mobil, Chevron, Shell, BP America, and ConocoPhilips--which made $36 billion in the first three months of 2008; the tax would have been avoidable if the companies invested in alternative energy programs or refinery expansions).