Monday, April 19, 2010

Republicans to Accept Bribes to Oppose Wall Street Reform

As you've probably heard, the Republican Senate Caucus is going to the mat to block Wall Street Reform from being passed:
The fate of financial reform in the Senate remains very much in flux tonight, with Democrats facing the stark reality that Senate Minority Leader Mitch McConnell has once again managed to unite his caucus in opposition to the Dems' top legislative initiaive. But Democrats remain determined to bring their bill up for a key test vote as early as Monday, and have statements from a number of Republican senators to point to as evidence that they will prevail sooner rather than later.
This seems like a popular issue. Politicians get to demonize Wall Street, tell their constituents all sorts of stories about Wall Street excess, tell them how irresponsible bankers flushed away millions of jobs and trillions of dollars and caused the greatest economic downturn in over 75 years...It seems like a win-win issue for any politicians who jumps on the regulatory bandwagon! Why in the world would anyone side with Wall Street for such a fight?

About 25 Wall Street executives, many of them hedge fund managers, sat down for a private meeting Thursday afternoon with two of the most powerful Republican lawmakers in Congress: Senate minority leader Mitch McConnell of Kentucky, and John Cornyn, the senior senator from Texas who runs the National Republican Senatorial Committee, one of the primary fundraising arms of the Republican Party.
[The Republican Leaders] also said that they have a shot at taking control of the House by adding 40 additional seats to their current total. In New York State alone, the senators predicted a six-seat pickup.
But in order to assure those gains, and add even more, McConnell and Cornyn made it clear they need Wall Street's help.
Again with the bribes. Republicans meet with bankers, and tell them that it would be a shame if Wall Street Reform were to pass. If only there was some way for these hedge-fund managers to show that they are serious about supporting the Republicans in the upcoming election.

The Democrats are, rightfully, pointing out this conflict:
Since Republicans appear to be conducting backroom negotiations with these same people who took our economy to the brink of collapse, the public deserves to know what secret deals and carve-outs Republicans are offering Wall Street executives in exchange for their support.
For some reason, though, they are reluctant to use the correct terminology here: When an elected official takes money in exchange for a favor, it's called a bribe.

Democrats aren't immune to this, either. Harry Reid and Chris Dodd have collected plenty of cash from Wall Street types over the years. Payments like that can't not have an effect on the legislation that they are now pushing through. Perhaps we need some rules in place to bar people from serving on or chairing committees that oversee the businesses of their biggest contributors.

Or, you know, maybe we should institute sensible campaign finance reform that ends this system of quid-pro-quo.


Sunday, April 11, 2010

Bribing Congress

Politicians, like most every person, act largely in their own self-interest. When they do, it takes the form of them trying to preserve their jobs or set themselves up for election to a higher office. I don't begrudge politicians for acting this way, either. Although it's rarely a conscious thought, I know that one of my top goals at work is to not get fired.

The biggest problem, however, is how politicians can best ensure their reelection. In 93% of all races, the person who raises the most money wins the election. Members of Congress aren't ignorant of this fact, and spend their time accordingly:
One can’t understand the dysfunction of the contemporary Senate, stresses Daschle, without understanding the deranged state of American political fund-raising. It’s a massive, Sisyphean distraction, a slog into which senators pour thousands of hours that could be spent reading, negotiating, or talking to constituents. And some of this time-consuming process has been the direct result of various campaign-finance reforms themselves. Lawmakers can’t make fund-raising phone calls from their Senate offices, for example, “which means you have to uproot yourself, go to your political office, go vote, and then go dial for more dollars again,” says Daschle. “That’s almost a daily occurrence.” He estimates that today’s lawmakers spend at least 10 percent of their time fund-raising. As their elections draw near, he says, the number climbs to 40.
Members of Congress spend so much time raising money because they know that that is their ticket to reelection. They need to raise that money to pay for advertising. As Al Gore aptly put it in The Assault on Reason:
The inherent value or validity of political propositions put forward by candidates for office is now largely irrelevant compared with the image-based advertising campaigns they use to shape the perceptions of voters. And the high cost of these commercials has radically increased the role of money in American politics--and the influence of those who contribute it.
If raising money is the key to getting reelected, then members of Congress are wise to keep those who donate the most money happy. To maximize their chances at keeping their job, they do the logical thing--vote the way their donors pay them to vote. The larger the donation, the greater the chance that the politician will do everything they can to make the donor pleased with their work. If people bundle max donations and also donate to the national, state, and local parties, their influence grows. If donors use a corporation or PAC to run their own ads of support outside of the campaign finance laws they can inject even more money into the campaign system.

This scenario makes campaign donations de facto bribes. What is the difference between someone giving their Congressman money to vote a certain way and giving the money to his political campaign? In either case the member of Congress owes his benefactor a favor in exchange for helping him get paid.

I don't get upset at politicians when they act in a manner that hurts the country but helps their corporate sponsors. They are simply saying what they are paid to say. They are only voting the way they are paid to vote.

There is no doubt that he who pays the piper will always call the tune. In this way, the root of all political problems in this country is campaign finance. Politician who are supported by the health insurance industry will work against real, comprehensive health insurance reform. Those who are paid to support the banking industry will do everything they can to make sure that Wall Street is unregulated and profitable. When a politician is given cash from the defense industry, they are far less likely to support any sort of Defense spending reform.

Given that politicians will always be beholden to those who pay their campaign bills, the question we should ask is "Who do we want them to be indebted to?" The answer, I believe, should be the general public. Influence should not be won based on how much money people can contribute; It should be won based on how many votes are cast.

What we need is a campaign finance system that puts a premium on the number of supporters a candidate has, not on the wealth of the supporters. My dream campaign finance system would involve:

1) A primary season using IRV where top two vote getters, regardless of party, move on to the general election. The top X number of candidates are funded through government grants equal to Y dollars per person in the election district. Political parties are forbidden from spending money on the primary phase of the election. Candidate viability can be determined by petition signatures or by getting a certain number of small-dollar donations. Small-dollar donations can be allowed.

2) In the general election, the top two candidates move on in a traditional, first-past-the-post system. Donations per person are capped at $250 per person per candidate. Donations to and from political parties are similarly limited.

3) Corporations are forbidden from buying advertisements that mention a candidate, party, or election. Issue ads are forbidden within 90 days of a primary or general election.

There are some proposals in Congress that are worth supporting that don't go quite as far. The Fair Election Now Act, for example, would give government grants that match small donations 4:1.

To kick off the next push for campaign finance reform, however, we'd need a Constitutional Amendment that gives Congress the explicit power to regulate campaign finance issues. The Citizens United ruling has thrown Congress's power on this issue into doubt, so only a Constitutional Amendment will suffice. Chris Dodd's proposed amendment is a great start that would give Congress broad powers to take campaign finance reform in a number of directions:
SECTION1. Congress shall have power to regulate the raising and spending of money with respect to Federal elections, including through setting limits on—
(1) the amount of contributions to candidates for nomination for election to, or for election to, Federal office; and
(2) the amount of expenditures that may be made by, in support of, or in opposition to such candidates.

SECTION2. A State shall have power to regulate the raising and spending of money with respect to State elections, including through setting limits on—
(1) the amount of contributions to candidates for nomination for election to, or for election to, State office; and
(2) the amount of expenditures that may be made by, in support of, or in opposition to such candidates.

SECTION3. Congress shall have power to implement and enforce this article by appropriate legislation.
I do realize that this would only be the first step. Making Congress use these powers against the wishes of their corporate sponsors would be difficult, but giving them these powers in the first place is a must.

Our campaign finance system often feels like an old boat that's continually springing a new leak. No matter how much we patch it, we find that we're still taking on water. The solution isn't to keep on plugging up the holes; The solution is to buy a new boat.


Wednesday, April 7, 2010

How Income Taxes Work

America has a very peculiar system for the government incentivizing behavior. More often than not, instead of funding programs or giving rebates directly to people, we give tax credits. While it would be simpler to give an $8000 check to first-time homebuyers, the federal government instead gives new homeowners an $8000 tax credit. In the end it's the same $8000, but the former can be classified as a "government hand-out", while the latter is a "tax cut." You can see why one phrasing is preferred over the other.

Needless to say, this makes for a ridiculously complex tax code. There are thousands of possible deductions created from years of Congress wanting to incentivize this or that behavior. One area where the tax code remains simple, however, is the basic income tax.

Take these numbers from the IRS, detailing how much each level of income is taxed:

To take an example, suppose your taxable income (after deductions and exemptions) was exactly $100,000 in 2008 and your status was Married filing separately; then your tax would be calculated like this:

This puts you in the 28% tax bracket, since that's the highest rate applied to any of your income; but as a percentage of the whole $100,000, your tax is about 22.37%.
The problems arise when these mathematical details are not explained properly, giving the impression, for example, that someone making $500,000 is taxed 35% on their entire income, not just on the portion greater than $373,650.

All too often the media and political figures talk about the income tax in terms of how it affects "people", not how it affects "income levels". Take this story from the USA Today:

WASHINGTON — Fresh from raising taxes on upper-income Americans to help expand health insurance coverage, President Obama and Democratic lawmakers are targeting them again.

When Congress takes up Obama's proposed $3.8 trillion budget this year, it will include extending President George W. Bush's tax cuts for middle-income families enacted in 2001 and 2003. Tax cuts for individuals with income above $200,000 and couples above $250,000 would be eliminated.

This story is misleading and the paper should issue a correction. All tax cuts for couples making over a quarter-million will not be eliminated--they will still pay the lower rates on their incomes that fall below $250,000. The only tax hike is on the money they make past $250,000.

This is a pet peeve of mine: Disingenuous (or ignorant) folks who say that our progressive income tax system is unfair because some people are taxed at a different rate than others. That's entirely untrue. Every single person in the country is taxed at the same rates; everyone is covered equally under the tax laws. Everyone has their incomes below $8,375 taxed at a 10% rate. Everyone has their next $25,625 taxed at 15%. And so on.

People who argue for a flat tax are really not arguing that every person should be treated equally; they are really arguing that every dollar should be treated equally. Your first buck should be taxed at the same rate as your 250,001st, they say. I think that's nonsense. Given the costs of universal necessities--clothes, shelter, food--the government should go easy on money needed to cover the basics. And these lower tax rates should (and do!) apply to every person, regardless of their total income. But it's silly to think that an additional $10,000 for a multimillionaire has the same worth as the same amount given to a poor individual. After a certain point, the law of diminishing returns kicks in and additional money is worth less and less. At that point, why shouldn't these additional, almost worthless dollars be taxed at a higher rate?

I wish this point were emphasized more often in the media. And proponents of the progressive tax system should use the proper semantics when discussing this issue.

Friday, April 2, 2010

What's the Matter with Senate Republicans?

Some Democrats in Congress are a stickler for bipartisanship. Rather than having the courage of their convictions, they seek the "political cover" that only bipartisanship can provide. Like I said yesterday, when a bill is truly bipartisan, no one can be blamed if the new policy fails. Politicians find that their careers are longer when they are know for nothing in particular. Faceless members of Congress tend to last longer than those who create a ruckus (and enemies). In the interest of keeping their jobs, most practice a "go-with-the-flow" mentality. Whether you're in the majority or minority, that means not rocking the boat by challenging the status quo.

It's no surprise then that when Democrats propose big policy overhauls--such as the Affordable Care Act, Financial Reform, or the START treaty--they seek Republicans support to help provide political cover just in case the Democrats find their new policy to be unpopular. When everyone is responsible, no one is.

Some Democrats, such as Robert Wexler, Nancy Pelosi, or Al Franken, believe that it doesn't matter what kind of backing their supported policy has--as long as it's enough to get it passed. If a new policy is good for the nation, it doesn't matter whether it has 109 Democrats and 109 Republicans supporting it or just 218 Democrats. At the end of the day, all that matters is that it's passed.

Chris Dodd, Max Baucus, and Barack Obama aren't like that. They pride themselves on getting bipartisan support for their proposals. We saw that last summer, when Max Baucus held long meetings with Republicans on the Senate Finance Committee regarding the Democrats' number one domestic priority:
Mr. Obama, in his news conference last week, praised the three Republicans in the Senate group — Michael B. Enzi of Wyoming, Charles E. Grassley of Iowa and Ms. Snowe. Mr. Grassley, the senior Republican on the Finance Committee, and Mr. Baucus share a history of deal-making, and group members said they share a sense of trust despite the partisan acrimony that pervades the Capitol.

Mr. Enzi, who sits on both the Finance Committee and the health committee, has a long record on health issues but found Democrats on the health panel unwilling to compromise.

And Ms. Snowe, one of two centrist Republicans, often teams with Democrats as she did on the economic stimulus plan this year.

After the group insisted it needed more time, the majority leader, Senator Harry Reid of Nevada, conceded that a floor vote would have to wait until after the summer recess. “If this is the only bill with bipartisan support,” Ms. Snowe said, “that will really resonate. It could be the linchpin for broad bipartisan agreement.”
In the end, only Senator Snowe voted the measure out of committee, but she quickly reversed herself and voted against every other iteration of the bill.

Baucus justified giving up his bipartisan dream because Grassley couldn't bring along extra Republicans to support the very watered-down measure. Even when he gave the Republican caucus half a loaf, they still batted it away. Grassley's word held no sway, and soon he abandoned the legislation he helped craft:
A few months ago, Republican Sen. Chuck Grassley of Iowa positioned himself to be the key GOP player in negotiations to advance President Obama’s top domestic priority — overhauling the nation’s health care system.

As ranking minority member on the Senate Finance Committee, Grassley has been a leading voice in the committee’s bipartisan “Gang of Six” that had been struggling to hammer out a bill before Congress recessed for August.

But Grassley’s evolution — from legislator once complimented by Obama for his willingness to work across the aisle to one of the president’s chief critics on health care — is a sign that the chances for passing a bipartisan health care bill have all but disintegrated. And as Grassley has pivoted from defending bipartisan work on a Senate bill to criticizing a competing House bill, he has increasingly sown confusion over just where he stands in negotiations to overhaul health care.
Senator Dodd has been following a similar pattern recently regarding financial reform. The House has already passed a moderately strong financial reform bill. Dodd has crafted a bill of his own and, ignoring the lessons learned during the health care fight, and did everything he could to get Republican support:
Dodd and Corker had spent weeks trying to hammer out an agreement on financial regulations, including new consumer protections for financial products.

"We have made significant progress and resolved many of the items, but a few outstanding issues remain," Dodd said in a statement.

President Barack Obama supports a standalone Consumer Financial Protection Agency (CFPA). But the proposal ran into stiff resistance in the Senate and fervent opposition from financial industry lobbyists and the U.S. Chamber of Commerce.

In addition to consumer protections, Corker said another key sticking point remains regulation of financial derivatives.

Dodd said that he continues to pursue a bipartisan "consensus" package, but he believes pushing forward to committee debate is "the best course of action to achieve that end."

“I have been fortunate to have a strong partner in Sen. Corker, and my new proposal will reflect his input and the good work done by many of our colleagues as well," Dodd said. “Our talks will continue, and it is still our hope to come to agreement on a strong bill all of the Senate can be proud to support very soon."
Dodd worked over Senator Bob Corker, making concessions in the futile attempt to get his support. While Corker says he was close to supporting the bill, Dodd walked away from negotiations because Corker was unable to bring a single other Republicans on board. Corker could not promise Dodd that his weaker legislation would receive any Republican votes. Corker even attacked the Republican caucus for not supporting his efforts at crafting a bipartisan bill:
"We had an opportunity to pass out a bill out of our committee in a bipartisan way, and then stand on the Senate floor and hold hands and say that we would keep amendments that were unnecessary and improper from coming onto this bill," Corker said. "Instead of that, it's been decided that we are going to try to negotiate now ...

"I think it's going to be far more difficult now that this has passed out of committee ... I think we have made a very, very large mistake, and I regret that."

Banking committee Chairman Christopher Dodd (D-Conn.) told HuffPost that "what [Corker] said was his Republican leadership abandoned him."

"They decided they wanted to say 'No' again," Dodd said. "So we went ahead ... If you don't even want to offer yours, I couldn't -- if anyone wanted to offer amendments, I would have been there. They made a decision not to. That was their call. Not mine. And listen, I understand why they wanted to do it."
This is beginning to be a familiar tale: Democrats want to compromise, but they are unable to find a single Republican to take that up on their offer. And if there is one Republican interested, they are never able to bring along a large portion of their caucus.

Despite this treaty having extensive bi-partisan support among senior foreign policy officials – such as George Schultz, Henry Kissinger, Richard Lugar (R-IN), Colin Powell –ratification is far from assured. There are real questions over whether the Senate GOP will seek to obstruct the ratification of the treaty. Treaties require a two-thirds majority, therefore eight or nine Republican votes are needed to ratify this treaty. If the Senate GOP wants to kill it they can. Therefore if ratification becomes a fight – it will not be a fight between Republicans and Obama, it will be a fight within the Republican caucus – between moderates and the far right.

In a sign of how extreme the GOP Senate leadership has become, Bloomberg reported, following word the treaty was done, that “Senate Republicans would object to linkages similar to the one in the 1991 treaty.” In other words, what was acceptable to Ronald Reagan and George H.W. Bush, would not be acceptable to Senator Jon Kyl (R-AZ).
Even Dick Lugar, the most senior Republican in the Senate, can't bring support on board for a treaty that seems entirely reasonable.

I think this shows exactly how strong a hold the far-right has on the Republican party. Rather than evaluate legislation on its merits, it's being judged based on its sponsors. While bipartisanship for bipartisanship's sake can be a damaging thing, blind partisanship can be just as bad, if not worse. Policy between the two parties are to be expected and can be a great thing, but reflexive revulsion to anything your political opponents propose, no matter how mainstream the idea, is ultimately damaging to the country. If anything that is proposed by the Democrats has 41 members of the Senate instantly opposed to it, it's very difficult to get anything done.

Of course, this strategy can seriously backfire on the clueless Republicans when the Democrats practically beg them to let them compromise:
Barack Obama badly wanted Republican votes for his plan. Could we have leveraged his desire to align the plan more closely with conservative views? To finance it without redistributive taxes on productive enterprise – without weighing so heavily on small business – without expanding Medicaid? Too late now. They are all the law.

No illusions please: This bill will not be repealed. Even if Republicans scored a 1994 style landslide in November, how many votes could we muster to re-open the “doughnut hole” and charge seniors more for prescription drugs? How many votes to re-allow insurers to rescind policies when they discover a pre-existing condition? How many votes to banish 25 year olds from their parents’ insurance coverage? And even if the votes were there – would President Obama sign such a repeal?

We followed the most radical voices in the party and the movement, and they led us to abject and irreversible defeat.
This can be damaging for the Republicans for two reasons:

1) The law is the law. The Affordable Care Act, and soon financial services reform, will not be repealed. Republicans let the possibility of a weaker bill slip through their fingers.

2) If the new laws becomes popular, they will never be able to take credit. The voters will know exactly who to reward (or blame).

If the Democrats can learn their lesson that negotiating with this batch of Republicans is a futile exercise that will never yield meaningful results, they stand to reap great rewards. They should learn their lesson well...because it's obvious that the Republicans never will.