How to Make Government Work

Dec. 11 2012 5:26 PM

McConnell’s Debt-Ceiling Nonsense

Sometimes it’s worthwhile to zero in on an egregious misstatement before it passes into the ether. Consider this gem from last Thursday.

Minority Leader Mitch McConnell took to the floor of the Senate to further perpetuate a myth about the debt ceiling. While discussing a bill that would permanently allow the president to raise the debt ceiling, McConnell had this to say:

By demanding the power to raise the debt limit whenever he wants by as much as he wants, he showed what he's really after is assuming unprecedented power to spend taxpayer dollars without any limit at all.

Two points here. When the GOP nearly threw the country into default during the summer 2011 debt-ceiling standoff, the party contended that raising the debt ceiling encourages more spending. But that of course is not what the debt ceiling does. The debt ceiling does not permit future spending, but rather it deals with the debt accrued by past government spending—including the wild and unfunded spending of the previous Republican administration.

Second, even if this bill were to pass, the power to raise and spend money would still lie solely with Congress. That is in the Constitution: The executive branch can only spend as much money as Congress tells it to. Sen. McConnell knows all this, which is why he proposed last year the very idea President Obama endorsed this year.

Dec. 10 2012 2:47 PM

America Desperately Needs Stimulus Spending, Not Budget Cutting

The jobs report last Friday was confusing, to say the least. Yes, the core unemployment rate fell to 7.7 percent, but a major reason for that was a drop in the size of the workforce—now a mere 63.6 percent of the population, far below what it has been over the past decade. While 146,000 jobs were created, the employment market remains anemic, demand is still low, and median income is still trending flat to down.

All of which raises the question that some continue, properly, to ask: Why the hysteria over the deficit? Shouldn’t we be seeking more stimulus—and a higher deficit? Shouldn’t we be sticking to the macro-policies that brought us out of the trough of 2008-09? Of course we should, especially since the twin fears of stimulus spending—rising interest rates and inflation—are nowhere on the horizon. The White House included a modest $50-billion stimulus in the package it delivered to Speaker Boehner last week. That element of the plan was met with derisive laughter from Republicans. It’s a pity the White House didn’t make a more aggressive argument for the importance of it.

The world has conducted a massive macro-economic experiment since the cataclysm of 2008. In Europe, the fans of austerity have had their chance, and the results have been a disaster. Take a quick look at John Cassidy’s report on British economics in The New Yorker: “It’s Official: Austerity Economics Doesn’t Work.

While the fiscal-cliff showdown looms, let’s not forget the larger crises of the economy: inadequate demand, stagnant wages, and continuing distribution of incremental income primarily to the top 1-2 percent of income earners. One final data point: In a superb Atlantic article about the potential rejuvenation of American manufacturing, Charles Fishman makes the point that new manufacturing jobs are paying about $13.50 an hour. That is better than no jobs at all, but it is not the path to a middle-class resurgence.

Dec. 6 2012 3:51 PM

What Kind of Party Votes Against Protection for People With Disabilities?

You wouldn't think it would be difficult to ratify a U.N. treaty that is based on an existing U.S. law. But then again, you might not have met the modern Republican Party, where ideological zealots rule.

On July 26, 1990, President George Bush signed the Americans with Disabilities Act. The bill had passed the House and the Senate with only 34 legislators combined opposing it.

This week, 38 Republican senators voted nay on a U.N. treaty that would extend the ADA to the rest of the world. They included six senators who had voted yay on the original bill in 1990.

The treaty was adopted by the United Nations six years ago and has since been ratified by 126 countries … just not the United States.

Even a last-minute appeal by former Sen. Bob Dole, himself a disabled veteran, as well as every major veterans group and even the Chamber of Commerce, could not sway Senate Republicans.

This is what has become of the Republican Party—a party whose votes are driven by an appeal to the lowest common denominator and by paranoid fears of the U.N. that are devoid of any fact whatsoever.

One of the reasons cited by Senate Republicans for their unwillingness to ratify a seemingly uncontroversial treaty providing protections to people with disabilities is that they didn't believe big decisions should be made by a lame-duck Congress.

Really? And these are the same folks we are supposed to be in serious negotiations with about the impending “fiscal cliff”?

Even Mitch McConnell should be able to acknowledge the hypocrisy in that one.

Over the course of the fiscal cliff negotiations, one thing has become crystal clear: The schisms in the Republican Party are growing more and more pronounced.

I have long said there are three distinct groups under the GOP's tent: theological warriors, who want to impose their social views on the rest of society; Tea Party zealots, who say with a straight face that they want the government to get out of their Medicare; and remnants of the pro-business moderates. While their fiscal views aren't mine, the moderates are the last reasonable voice in the current Republican Party.

Only this last group is willing to compromise, and only they combine their ideologies with the practical necessities of governing. And this group is bit-by-bit peeling itself away from the doctrinal and extreme views of the rest of the party.

The most important question remains, though: Are there enough of them to make a deal and rein in the GOP circus?

One could understand Harry Reid's frustration in trying to negotiate with Republicans when he vented, "It's difficult to engage in rational negotiation when one side holds well-known facts and proven truths in such low esteem." Reid is spot on.

Dec. 5 2012 10:22 AM

Why Capital Gains Tax Should Go Up, and Go Up a Lot

Former Secretary of the Treasury Robert Rubin has come out in support of tax reform

Photo by Chip Somodevilla/Getty Images.

The fiscal cliff negotiations aren’t just about plugging holes in the deficit: They are about restoring fairness to our tax code. This should go beyond merely raising the rates on the top 2 percent of income earners—the current line in the sand drawn by the White House. 

Two of the fundamental economic problems we need to confront are the increasingly disproportionate percentage of income earned by the top tier, and the underlying lack of demand that is inhibiting economic growth. Fortunately both of these trends can be at least partially reversed in the negotiations now underway, because the tax code—which is surely going to be reformed as part of this process—is one of the best tools we have to confront each of these problems. A couple of data points: First, in 2010, 93 percent of the income that was added to our economy accrued to the top 1 percent of families. Second, corporate earnings as a percentage of GDP are at an all-time high—totaling 1.75 trillion in the third quarter of this year, while wages as a percentage of GDP are at an all-time low—just about 43 percent of GDP.

These data highlight a problem even more serious than our deficit or debt: The lack of demand from middle-class consumers is hindering economic growth, and wage stagnation is leading to the slow decline of the middle class.

It is therefore nice to see that some of the wise members of the old guard—including Robert Rubin, Larry Summers, and John Podesta—have come forward to support tax reform that would move us distinctly in a more progressive direction. They want the capital gains rate to rise to 28 percent—still below the 35 percent now applicable at the top for ordinary income, but above the 15 percent preference it now gets. And they want dividends to be taxed as ordinary income. Along with eliminating the preference that is still given to so-called carried interest, these steps would make the tax code substantially more progressive.

These measures are necessary but not sufficient. Still, it is gratifying to see that a proposed movement toward equalization of capital gains rates and ordinary income tax rates is no longer an issue that evokes cries of horror from establishment economic thinkers. If there is one critical way to level the playing field, it is eliminating the preferences that capital has given itself in the tax code. 

Dec. 3 2012 7:20 PM

Tax the Traders! It Would Solve Economic Crisis and Stop Reckless Trading.

Traders work on the floor of the New York Stock Exchange.
Traders work on the floor of the New York Stock Exchange on Nov. 15.

Photo by Spencer Platt/Getty Images.

Both the White House and House Republicans, publicly at least, are digging in their heels deeper and deeper in the so-called negotiations over what we call, alternately, the fiscal cliff, the fiscal slope, the austerity bomb, or the cable-talk-show topic of last resort.

Whatever logic either side pretends to have is irrelevant to the other side, because each is speaking a different political language and indeed a different economic language.

I agree with the White House on the substance of the debate, and I think the administration’s hand gets stronger over time. But as anyone who has been through negotiations will tell you, sometimes you just need a new idea to change the dynamic.

This one is not so new; it has been around for a long time, supported by a wide range of economists, including Nobel laureate James Tobin, as well as advocates, including Ralph Nader in the Washington Post this weekend, and elected officials: a tax on financial transactions. It will give us gobs of revenue. It will fall on a sector that has generated enormous and unwarranted profits for a very few, who at the same time have benefited from huge bailouts and regulatory help and largely escaped any responsibility for their central role in creating the financial cataclysm that we are still struggling with.

Here is the idea: A tax of less than half a percent on every $100 of stock sales or sales of other financial instruments including bonds, derivatives, and options. The tax could raise anywhere from $170 billion to $350 billion per year depending how it was applied. Extend that over 10 years, and we are raising almost what the White House and Republicans agree needs to be raised in order to accomplish the objectives of a grand bargain.

But there is an added benefit here: Trading in the equity and debt markets has gone wild over the past few years. High-speed trading and speculation have overtaken the economically legitimate reasons for our desire to have highly liquid markets: the capacity to raise capital and then allocate it efficiently among sectors and companies. The trading that has emerged over the past few years is not serving that purpose—it is a casino enterprise driven by hidden pools and computer algorithms that do not seek to hold capital for longer than an instant.

To the extent that a financial-transfer tax drove some of those trading practices out of the marketplace, that would be another good outcome.

We are all used to paying a sales tax when we buy things—almost 9 percent here in New York City. The application of this concept to the financial sector could solve our need for revenue, bring some sanity back into the financial sector, and give us a way to raise the revenue we need to run the government in a fiscally responsible way. Maybe this is the old idea that we need folks in D.C. to pay attention to again.

Nov. 30 2012 10:52 AM

Murdoch’s British News Operation Has Now Been Fully Exposed. What About His American One?

Forget the “fiscal cliff” and the Benghazi kerfuffle for a few minutes. Let's talk British press scandals—in particular the breaches of trust, integrity, and law within Rupert Murdoch’s media empire.

On Thursday, Lord Justice Leveson released his report on the conduct of the British media, especially focused, of course, on the Murdoch-owned enterprises that have been implicated in the scandals that have erupted over the past several years.  To say it is not a pretty picture is to state the obvious.

Here are some the figures detailed in the report.

  • With respect to interception of mobile-phone messages, 17 arrests have been made.
  • With respect to payments to public officials, 52 arrests have been made, including 27 journalists.  
  • With respect to data hacking and improper access to personal computer records, 17 arrests have been made.
  • There were more than 800 known victims of phone hacking by British media interests.

Based on these findings, it is safe to say that dangerous and highly politicized corruption encompassed the media, law enforcement, and the top ranks of British politics. There was a real-life conspiracy that sacrificed the civil rights of citizens, the political integrity of the government, and any semblance of journalistic integrity.

Beyond the rank illegality and rampant corruption, the report concludes that there was also a reckless disregard for accuracy within the media. "In an industry that purports to inform, all misinformation should be a matter of concern—and distortion far more so. Where that strays into sustained misrepresentation of groups in society, hidden conflicts of interest, and irresponsible science scares, the risk to the public interest is obvious."

My conclusion: The Murdoch approach to news has been authoritatively unmasked and discredited. We all saw it on Fox News during the 2012 campaign. We’ve all seen it for years in his newspapers. And now Leveson has detailed it in his inquiry for all to see as well.

The shoddy ethics of Murdoch's British news operation has been exposed. There is now a huge question mark that hangs over his American news empire. Will his American interests be investigated in the same fashion? At this point, it’s beyond the proper thing to do. It is necessary.

Nov. 28 2012 5:53 PM

Boehner Wants To Hold Obama Hostage on the Debt Ceiling Again. Here’s How to Stop Him.

The fiscal cliff/austerity bomb is being covered in horrendous and tedious detail by every cable station and newspaper, but looming just ahead is a potentially more dangerous accounting deadline. The Debt Ceiling. Yes, it’s deja vu all over again.

But I have a plan for President Obama. This time, he can turn the tables on House Speaker John Boehner.

We all recall the trap the White House fell into last year, completing a round of budget negotiations with the Republicans, only to be held hostage again when the GOP then refused to raise the debt ceiling without winning additional concessions. It was, as Rep. Peter Welch has said, professional malpractice not to wrap the debt ceiling into the first round of negotiations.

So don't do it again. The debt ceiling will necessarily and inevitably be hit and breached early next year. Yet when President Obama told Speaker Boehner at their Nov. 16 meeting to raise the ceiling by year's end, Boehner reportedly replied, "There is a price for everything."

No, there doesn't have to be. Sometimes what is necessary and good policy should just be done. The ceiling will be breached because the fiscal track we are on created another huge deficit this year—as every member of Congress knows and has implicitly supported by agreeing to the expenditures and revenues that are now in place. The debt ceiling will be exceeded because of Boehner's policies, policies that have driven government revenues down to about 15.5 percent of GDP—well below historical norms, and far below the expenditure levels of about 22 percent of GDP.

Never mind that Speaker Boehner called the debt ceiling "his leverage." And never mind that Speaker Boehner voted five times during the Bush presidency to raise the ceiling, to the tune of nearly $4 trillion. This time, unless he wants a default by the government he has a moral obligation to support raising the debt ceiling—now.

So here is the offer the president should make, and how he should say it: “Mr. Speaker, last year I tolerated an unacceptable and improper effort by your House to extract concessions on an issue that should be a simple, procedural vote. I will not do that again. I have made many proposals to avoid the fiscal cliff, but you have not responded with anything tangible. Unless you immediately raise the debt ceiling sufficiently to get us to Jan. 1, 2015 based on current deficit projections, we are ceasing all negotiations. I am happy to have the Bush tax cuts expire on Jan. 1, and then have you explain to the public that you have raised the taxes on all Americans and are playing games with our national debt obligations merely because you are unwilling to act responsibly.”

It is time to take the debt ceiling off the table as a negotiating ploy, time to call their bluff, recognize that time is on our side, and turn up the heat on a Republican house leadership that has a weak hand.

Play hardball Mr. President. It feels good, and you’ll win.

Nov. 28 2012 12:29 PM

How Obama Can Still Accomplish a Huge Amount—by Sidestepping Congress

Health care reform, the marquee legislative accomplishment of the Obama administration's first term. was passed before we entered the world of divided government. Today, Republican control of the House makes any transformational law exceedingly unlikely. Progress that requires both House and Senate approval is likely to be incremental and driven by unusual political circumstances—for example, the current imperative that Republicans agree to some form of immigration reform, lest they truly morph into a party of only angry white men, or the obligation to compromise on fiscal issues before the austerity bomb detonates on Jan. 1. 

The reality of split government puts a premium on creativity within the administration. President Obama needs to put the right people in charge of the agencies and then have them push the bounds of administrative power to change policy through those agencies.

President Obama has a pretty good track record of this. Some of the administration's most important first-term accomplishments were administrative or rhetorical: the decision not to deport teenagers, support for same sex marriage, and tougher auto-efficiency standards.

Administrative power should not be underestimated. All you need is the right people and the willingness to take a few risks. And here, with a hat tip to Timothy Noah, who wrote a superb piece for the New Republic focusing on this, are some places where Obama can act without Congress:

On climate change: Use the EPA's power to apply to existing power plants, over time, tough standards on carbon emissions.Also, cancel the Keystone pipeline.

On immigration: Expand the waiver program that now applies only to kids. There are categories of adults who are almost as sympathetic and who should be spared deportation.

On finance: Get the SEC and the other federal agencies to push their rule-making to ensure that finally we give mortgage relief to homeowners whose mortgages exceed the value of their homes. This would undo the harm done by Edward DeMarco, who for years has been able to resist this.

On gun control: Use the government's leverage as the largest purchaser of guns to get gun companies to voluntarily put common-sense limits on the sale of multibullet magazines and semi-automatics.

There is much that can be done even with a Republican house. President Obama should go for it.

Nov. 26 2012 3:59 PM

Buffett Says the Rich Should Pay a 30 Percent Minimum Tax

Sometimes "who says it" is just as important as "what they say." So it is with Warren Buffett's op-ed about taxes and fiscal reality in today's New York Times. This is the "Oracle of Omaha,” acknowledged the best investor of the past 50 years, the wise man of finance, a man outside the political and ideological battles of Washington. What Buffett says is straightforward and obvious:

1. Raising the marginal tax rate to Clinton-era levels will not have any impact on investment decisions. Indeed economic growth was robust during periods of much higher marginal rates—benefiting both the wealthy and the middle class. Recall that this was the same conclusion that the Congressional Research Service reached in a report Republicans recently tried to suppress.

2. Cuts in tax rates have given, as Buffett puts it, "a huge tail wind" to the super rich. These folks paid an average tax of 26.4 percent in 1992, but only 19.9 percent in 2009, on average income of $202 million.  As Buffet says, this is an "outrage."

3. There should be, according to Buffett, an absolute minimum tax of 30 percent on income between $1 million and $10 million, and 35 percent above that.  No loopholes, no hidden games, keep it simple.

4. The most important point. Over the long haul, government should set its goals at spending 21 percent of GDP, and raising 18.5 percent in revenue, leaving a gap—an annual deficit—of about 2.5 percent of GDP. That is manageable with a growing economy. And these figures are close to our historical norms. The crisis of the past few years has been that revenue fell to 15.5 percent of GDP while spending crept up to 22.4 percent.

An annual deficit of 7 percent of GDP is not manageable. But notice, the most significant deviation has been the revenue decline, not the spending increase! We should spend about 21 percent of GDP, but are spending 22.4 percent. We should collect 18.5 percent in revenue, but are collecting only 15.5 percent.

So listen to the wisest investor in America: Raise marginal rates, run a consistent but manageable deficit, and stop worrying about those at the top of the income spectrum.

It sounds very simple and reasonable, especially coming from Warren Buffet.

Nov. 20 2012 4:35 PM

The Good Guys Won

Maybe it is the proximity of Thanksgiving that has gotten to me, but here is a really positive take on the year in politics: The good guys won. And I don't just mean the president got re-elected. There was more to it, so let's take a closer look at two specific aspects of the political landscape. First: Democracy was elevated. Yes, that may sound crazy after all the bile and nasty TV ads that buffeted us this year. At the fringe the ugliness was there, as it will always be unfortunately. But at its core—there was a healthy and sophisticated debate about the vision and role of government and our social compact.  President Obama and Gov. Romney brought very divergent views about the role of government to the table —and the public got that. Even though Gov. Romney tried very hard to slide to the middle in the first debate, the specific programmatic positions he had taken over the course of the campaign couldn't be ignored, and that created a true choice. The question—who built that—captured the debate at one level, and the public said loud and clear: We all did. Not just any one person, not just any one company. We all contributed to the fabric of the nation. The debate was healthy—and the outcome was right.

Second: At a more theoretical level, think of this tension as Keynes vs. Hayek and Rawls vs. Nozick.  What do I mean by that? The worldviews of Obama and Romney are really proxies for the theoretical debate about Keynesian economics vs. the more libertarian views of Frederick Hayek.  Obama's support for a government stimulus and expenditures to invest are traditional Keynesian; Romney's shrink-government-at-all-costs view is akin to the hands-off approach of Hayek and the Chicago school. Keynes won, as well he should have. Likewise, John Rawls' view of a government that is concerned about the well-being of the least well-off member of society is akin to Obama's interest in a progressive income tax where the wealthier pay more, and ensuring access to health care and food stamps for those who are needy.  Romney's statements about the 47 percent—even if one credits that he is more compassionate than those words might suggest—are more akin to the libertarian world of Nozick, where one eats what one kills, and if there are shortfalls, private charity not government should fill the void. When the choice was made, Rawls won over Nozick. As well he should have.

So  why do I feel so positively about the last year, politically speaking? There was a discernible, clear choice presented to the public. The choice could be seen and understood at many different levels of abstraction—from "who built that" to a philosophical debate.  And the process of choosing and debating these issues pulled in the attention of the public—and we participated—and that is what democracy is all about.