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Presidents, the Tax Burden, and Economic Growth

by Mike Kimel

Presidents, the Tax Burden, and Economic Growth

This post also appears at the Presimetrics Blog. It contains some information that has appeared in a few different Angry Bear posts, but I think I’m starting to manage to put it into a more coherent narrative. And as I’m able to do that, I’m able to move slowly to the next part of the story.

A couple of weeks ago I had a post on the Presimetrics blog, also on the Angry Bear blog looking at economic growth rates and political parties. The post shows that from 1929 (that’s as far back as GDP goes) to 2009, growth in real GDP per capita was faster when the president was a Democrat than when the President was a Republican. Furthermore, growth was faster for Democratic Presidents who faced a Democrat-majority Congress during their entire term than for those who did not face a Democrat-majority Congress for at least part of their administration. Similarly, Republican Presidents facing Democratic majority in Congress during their time in office tended to better than Republican Presidents facing Republican majorities for most or all of their term. It isn’t a message you’ll hear very often, but it is the only one that is compatible with the data, as you can easily check yourself.

In this post, I want to look at one of the major distinctions between Democrats and Republicans, and that is tax policy. Let’s start by looking at the Federal tax burden (total Federal government current receipts / GDP) by President. The data comes from the Bureau of Economic Analysis’ National Income and Product Accounts (NIPA) tables. Federal government current receipts were pulled from line 1 of NIPA Table 3.2, and GDP comes from NIPA Table 1.1.5, line 1. (Note – this is slightly different than the way we do it in Presimetrics but it is nice to change things up now and make sure that results don’t change.)

The graph below ranks the Presidents by the annualized change in the tax burden. The change is measured from the year before a President took office (the “baseline” level) to his last year in office.

Figure 1.

(As is my practice in these posts I tend not to include the years through after 1938 for FDR because otherwise someone is going to claim that whatever happened while FDR was in office was due entirely to World War 2.)

The graph shows that there is some correlation between the parties and changes in the tax burden. Every single Republican president for whom there is data reduced the tax burden. Conversely, every Democrat except Truman has raised the tax burden. Obama, at least during his first year, is on track to follow Truman and lower the tax burden.

The next graph shows growth rates in real GDP per capita (obtained from line 10 of NIPA Table 7.1)

Figure 2.

The graph shows very clearly that Presidents who hiked the tax burden produced faster economic growth – by far – than the Presidents who cut the tax burden.

And should there be any tea-partiers reading this, yes, in his first year, Obama cut the tax burden. A lot. The so-called stimulus package involved a lot of tax cuts. But as I’ve already noted, to get out of a recession, government spending has historically been much more useful as a stimulus than tax cuts.

Here’s another way to look at things:

Figure 3.

The graph below repeats Figure 3., but it includes a few labels if you want to know which point represents which President.

Figure 4.

In any case, it’s pretty clear that if lower taxes provide any benefits to economic growth, those benefits are extremely well disguised. In fact, it appears that lower taxes are a prescription for slower, not faster economic growth. (Try reconciling the data with Republican, libertarian, or Austrian economic theory.)

Now… I do not believe that higher taxes, in and of themselves, are a cause of faster economic growth. In the book we suggest a few reasons why higher tax burdens might correlate with faster economic growth. But since the book went to press, I’ve had a bit of time to think about ways to test some of these ideas, and I’ve come up with a few new thoughts as well. I hope to try out a few of these ideas in blogs in future posts.

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Kyl continues working for the ultra wealthy

by Linda Beale
for the complete post go to Ataxingmatter

Estate Tax–Kyl continues working for the ultra wealthy

Jon Kyl doesn’t think much about the government helping the unemployed who have been laid off because of the financial crisis, triggered by greedy excesses at the nation’s biggest banks and mortgage lenders. He’s afraid that providing additional unemployment compensation will keep people from working–as though it is laziness and not trying circumstances that has forced people out of jobs and on the public dole. Kyl clearly doesn’t get it. He must not know the people I know, who were laid off from jobs here at auto supply companies in southeastern Michigan and have tried everything they could to find work, even trying to start their own businesses. That last is hard, when banks won’t lend and folks don’t have the basic cash to do it.

But Kyl does work hard for his friends. He would like to repeal the estate tax, so the country’s millionaires and billionaires wouldn’t ever have to pay their fair share of the tax burden. Most of them pay almost no taxes during their lifetimes–especially if their wealth is inherited and most of their income is financial. They get preferential rates for the taxes they do pay, they devise all kinds of scheme to defer payment (using loans to monetize assets that need not be sold til after death), and yet are the primary beneficiaries of the governmental stability and economy that ordinary folks’ taxes pay for. The Republicans set the estate tax to return in 2011 at the pre-Bush tax cut rates and exemption levels.

Why can’t Congresspeople act like grown-ups. They bawl about deficits and say we absolutely have to cut Social Security benefits, even though we know that a very small tax increase (or even a very small difference from the conservative trustee estimates) can solve that problem (if there is one). But we can’t do any further stimulus, they say, even though we have millions out of work and ordinary people are hurting while bankers and shadow bankers continue to make millions off the cheaper cost of fuinds handed them because of the governmental bailout–because it would cost too much. Yet at the same time that they whine about the deficit, cry crocodile tears over the cuts they so regretably find themselves forced to make in Social Security, they can contemplate another giveaway entitlement package for the ultra wealthy–one that will cost $15 billion a year.

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Five Million Jobs?

guest post by Sandwichman

Five Million Jobs?

“It is remarkable, in view of the virtual unanimity of opinion among economists as to the general shape of the relationship between hours and output, that the effect of hours shortening has received so little attention in published projections. It is often completely ignored even in their description.” – Edward F. Denison, “Employment and Hours of Work: Their Contribution to Past Growth and a Projection of the Future” in The Sources of Economic Growth, 1962.

In the early 1960s, Edward Denison, the founder of growth accounting, estimated that roughly one-tenth of the economic growth that occurred between 1909 and 1958 in the U.S. could be attributed to the “effect of shorter hours on [the] quality of a man-hour’s work.” That would have translated into approximately three million jobs created — except Denison also assumed that the optimal working time for output was 48.6 hours a week, 52 weeks a year (the 1929 annual average)! So he subtracted “the effect of shorter hours on [the] quality of a man-year’s work” from his estimate of growth, leaving an implied net loss of around 200,000 jobs over the 48-year period. What those calculations show, more than anything, is how sensitive any employment projections are to the framing assumptions. We will soon have occasion to tweak these assumptions to generate a range of employment estimates, but first a word about the long-term trend in hours of work.

Joseph Zeisel, writing in the Bureau of Labor Statistics Monthly Labor Review in 1958 called the long-term decline in the industrial workweek, “one of the most persistent and significant trends in the American economy in the past century.” That is, it had been a persistent and significant trend up until around 1940. After a brief spike during World War II, however, the length of the average workweek in manufacturing quickly receded to pre-war levels and then remained essentially unchanged for 65 years, with only minor, short-lived fluctuations reflecting the ebb and flow of the business cycle. By March 2010, the average manufacturing workweek lasted six minutes longer than it had in August 1945.

The chart above shows the decline in weekly manufacturing hours from 1850 to 1950, the levelling off of hours after World War II and a trendline extrapolating from the 1850-1950 rate of decline. In the broader economy, annual hours of work continued to decline after World War II, but at a slower rate than they had previously.

Furthermore, the increased participation of women and students in the workforce, a sectoral shift of employment away from manufacturing and toward services and the expansion of part-time work contributed to the post-war decline in annual hours. Annual hours for full-time workers showed even less movement. The chart below shows “potential” and actual annual hours from 1909 to 1958 as reported by Denison and annual hours from 1950 to 2009 as reported by the Conference Board’s Total Economy Database.

Had the annual hours of work continued to decline at the rate they did from 1909 to 1958, average annual hours in 2009 would have been about 14% lower than they were. What might the effect on job creation have been? Recall that Denison’s estimates were based on his assumption that the optimal length of the workweek for total output was 48.6 hours, 52 weeks a year. He also supposed that maximum productivity would occur at 33.9 hours a week. Below that latter figure, output was assumed to fall faster than hours as hours declined. But is it reasonable to assume that the optimal hours for both output and hourly productivity would remain the same from 1909to 2009? No.

Not unless we are prepared to defend the proposition that technology has remained unchanged or that the optima are unaffected by technology.
To estimate the job creating potential of shorter hours, I assume that the trend of hours of work from 1909 to 1958 approximates the amount of working time that would be optimal for output. This suggests that in 1909 the optimal workweek was indeed 52 hours and in 1958 it was 39.6 hours. Projecting that trend indicates an optimal workweek of 29 hours in 2009 (or, alternatively, 32 hours a week with five weeks’ vacation). Since a longer than optimal week subtracts output from the optimal potential, we can estimate that about six and a half percent of potential output was wasted by excessive hours of work.* That is to say, people were too worn out to produce as much as they otherwise could have. In terms of jobs lost, this represents over five million jobs.

I’ve used some fairly conservative benchmarks to anchor the trendline. If I had chosen 1940, instead of 1958, as the endpoint, then the trend would have indicated an optimal working year of 1400 hours and around 11 million potential jobs foregone. Also, Sydney Chapman’s theory of the hours of labor shows that hours determined in a hypothetical competitive market tend to be longer than optimal with regard to output. So even the pre-1940 trend may overstate the length of working time that would be optimal. The assumption that the given hours of work in 1909 and 1958 were optimal is, in effect, unrealistic. But to produce any estimate at all it is necessary to make such an unrealistic assumption. In the period since World War II, a significant payroll tax and regulatory bias against reducing the standard full-time hours of work has emerged, more or less “freezing” weekly hours at the forty-hour standard established in 1938 by the Fair Labor Standards Act.

Remember, these are not work-shared jobs, created by redistributing a given number of hours of work. They are productive jobs associated with an expanded output. Whether or not that additional economic growth would be a good thing is another matter I will examine in due course. For the present, however, what I want to call attention to is the seeming indifference of conventional economists to a rather considerable untapped potential source of job creation.

*An explanation of how maintaining excessively long hours over the long run actually detracts from total output can be found in Sydney Chapman’s 1909 Economic Journal article, “Hours of Labour.” Initially, an extra hour of working time (beyond the hypothetical long run optimum) adds an increment of output to the daily total, but over time, say a few months, the accumulated fatigue leads to a diminished pace throughout the day and a lower total daily output. The optimum is thus determined by the amount of time and effort can be sustained over the long run.

To estimate how much output is subtracted by excessive hours, we use an idealized, smoothed work curve that assumes a rise in hourly productivity through the early hours of the day followed by a plateau and decline of productivity as fatigue sets in. These changes can be represented by a sine curve, which is convenient for calculation of the area under each segment of the curve, representing the variation in hourly productivity. For example, the diagram below represents work curves for 1909 and 1958. As indicated, the output per worker in 1958 was a bit more than twice the output per worker in 1909. That greater total output, however, occurred in a much-reduced number of hours of work: 2704 hours in 1909 and 2060 hours in 1958. If we assume that annual hours in both 1909 and 1958 were optimal, given the respective levels of technology, then increasing annual hours in 1958 to the 1909 level would have reduced total output in 1958 by around 22%.

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Untapped mineral deposits in Afghanistan

The NYT reports a new status for Afghanistan’s future if accurate:

The United States has discovered nearly $1 trillion in untapped mineral deposits in Afghanistan, far beyond any previously known reserves and enough to fundamentally alter the Afghan economy and perhaps the Afghan war itself, according to senior American government officials.

The previously unknown deposits — including huge veins of iron, copper, cobalt, gold and critical industrial metals like lithium — are so big and include so many minerals that are essential to modern industry that Afghanistan could eventually be transformed into one of the most important mining centers in the world, the United States officials believe.

An internal Pentagon memo, for example, states that Afghanistan could become the “Saudi Arabia of lithium,” a key raw material in the manufacture of batteries for laptops and Blackberries.

Update: hat tip Naked Capitalism for the fact that this ‘find’ was reported in February here.

Update 2: Andrew Grantham reports copper mining to include a railway to China in 2008. And one Bloomberg update on rail progress to ‘extract’ copper to markets if the resource is to be more than just potential.

Update 3: There are at present no railroads to China, although one was commissioned 2008. And the dream of a route for both trade from Afghanistan and a route for Central Asian oil/gas to a city like Gwadar (see rdan in 2007) in the south through Balochistan has gone nowhere.

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It’s not hard to understand why Asia’s worried about Europe

On the forefront of the Chinese economic releases this week was the trade data, where headlines shouted +48.5% Y/Y export growth in May. This report didn’t go unnoticed in Washington, as renewed obsessions with the Chinese peg against the US dollar fired up again.

But the Chinese release overshadowed the Philippines April trade report, which in my view, illustrates more transparently the slowdown in external demand that is likely underway across the region. In the Philippines merchandise exports increased 27.4% over the year in April, which was half the rate of the Bloomberg consensus and that in March, 42.7% and 43.8%, respectively.

A negative export growth trend has been established – explicitly in the Philippines and likely going forward in China (see Goldman Sachs report below). And these countries have strong trade ties with Europe – the Eurozone was 15% of 2009 world GDP (PPP value) according to the IMF.

Therefore, recent nominal appreciation of the Philippine peso and Chinese yuan against the euro, and expected real appreciation – Europe’s self-imposed economic contraction stemming from harsh fiscal austerity measures will drag prices downward – may very well hamper the economic recovery for key Asian economies via the export channel.

Export growth in the Philippines has been slowing to top trading partners.

The chart illustrates the contribution to overall export growth from the Philippines six largest trading partners – together these countries account for roughly 50% of total exports. The contributions to the Philippines export income growth has been slowing or flat for some time to China, Singapore, and Germany. Slightly more worrisome is the Netherlands contribution having turned negative for two consecutive months.

The Netherlands and Germany account for roughly 13% of total export demand from the Philippines. The euro has depreciated 8% against the Philippine peso since April 2010 (through June 11 and see chart below), and the lagged effects of the nominal depreciation will continue to pass through to exports.

In China, though, a resurgence of export growth among its top trading partners bucks the trend seen in the Philippines.

The chart illustrates the contribution to overall export growth from China’s six largest trading partners – again, these countries jointly demand roughly 50% of total Chinese exports. China’s May report was indeed strong: the US added a large +8.3pps to overall Chinese export growth in May, and Hong Kong contributed another robust +6.2pps of growth. In contrast to the Philippines April numbers, The Netherlands contribution to Chinese export growth remained strong, contributing 1.5pps in May.

Chinese exports are quite volatile in the beginning of the year. I suspect that Yu Song and Helen Qiao at Goldman Sachs are right, that export growth will initiate its trend downward starting in June:

“We believe the very strong exports growth in May is likely to be a temporary phenomenon, much like the very weak exports data recorded in March, and expect June data to show a visible normalisation,” said Yu Song and Helen Qiao at Goldman Sachs.

In their Goldman report (no link) Yu Song and Helen Qiao argued that the Chinese numbers remain clouded by the following distortions:

  • “The exports acceleration was likely to be partially induced by a potential cut to the export VAT rebate for some commodity exports: There have been a number of domestic news reports that this might happen soon as a part of the broader policy package to reduce pollution and energy consumption.
  • But it probably also reflected changes in the domestic economy: Our proprietary GS Commodity Price Index (GSPCC) (Bloomberg ticker: ALLX GSCP) suggest that the domestic prices of main commodities have been mostly trending down in May which might have encouraged more exports in this area.
  • Strong export activities might also be impacted by the Lunar New Year effects as many exporters resumed production after taking time off during the holiday season which often last for weeks. [although they say this cannot be validated until a further breakdown becomes available later this month].”

The recent nominal depreciation of the euro against the Chinese yuan and the Philippine peso, 11% and 8%, respectively, since April 1 2010, will pass through to both Chinese and Philippine exports at a lag. And further real depreciation – the nominal exchange rate adjusted for relative prices of goods and services – of the euro against the yuan and the peso is almost certain. Europe’s self-imposed fiscal austerity measures will crimp economic growth and deflation is bound to take over across Europe and relative to Asia.

As such, recent external shocks from Europe will likely show up Chinese and Philippine trade data in coming months. Doesn’t look good for Asia, especially for those economies like the Philippines and China for which exports provide a robust growth impetus.

We’re nowhere NEAR out of the woods yet.

Rebecca Wilder

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It Is Up to Us to Decide What Government’s Role Will Be There and Elsewhere

reposted from The Bell
An op-ed.

Obama Has Lead Us to the Shore; It Is Up to Us to Decide What Government’s Role Will Be There and Elsewhere

President Obama and the federal government garnered widespread criticism for failing to act quickly enough and do enough to staunch the flow of crude oil spewing from a BP drilling site nearly a mile below the Gulf of Mexico’s surface. Republican opponents quickly labeled it “Obama’s Katrina.”

David Brooks of the New York Times takes another tack, arguing, “The real parallel could be the Iranian hostage crisis.” His cohort, Frank Rich, frets, “It might not only wreck the ecology of a region but capsize the principal mission of the Obama Presidency.” Rich goes on to define that mission as turning around American distrust of government and portraying it as a (potential) force for good in our lives.

So, last Friday, Obama traveled to Louisiana to stand on one of its beaches and examine the spill’s effects for himself as well as hold a press conference to reassure the public once again everything that could be done was being done. By all accounts, he was not particularly successful.

“I take responsibility,” Obama said. “It’s my job to make sure that everything is done to shut [the well]. The federal government is fully engaged, and I’m fully engaged.”

This was a good start, according to Newsweek’s Howard Fineman, but it still fell short of what was necessary. The problem was not the message or even the messenger but the lack of passion in its delivery. Per Fineman, “Voters expect [Obama] to convince them that he cares, that he’s focused . . . He didn’t inspire any confidence, especially in contrast to those pictures from the Gulf.”

Brooks expands on this expectation but questions its validity. “[Americans] demand that the President ‘take control.’ They demand that he hold press conferences, show leadership, announce that the buck stops here and do something. They want him to emote and perform the proper theatrical gestures so they can see their emotions enacted on the public stage.”

Obama’s mea culpa certainly failed to impress his many critics on the matter. The President said he was wrong to trust BP so much, both in terms of estimating the size of the leak and the company’s ability to contain it quickly and effectively. “That’s not a self-critique at all but classic passive-aggressive behavior,” sneered James Taranto in the Wall Street Journal.

Yet while some conservatives saw the federal government placing its foot on BP’s neck as an insufficient a response, others disparaged this approach for exactly the opposite reason. Rand Paul, Republican Senatorial candidate from Kentucky and Tea Party darling, caused eyebrows to rise nervously within GOP circles when he blamed Obama for being too harsh on BP.

“I think [Obama] sounds really un-American in his criticism of business,” Paul told an Associated Press reporter. “And I think it’s part of this sort of blame-game society in the sense that it’s always got to be somebody’s fault instead of the fact that maybe sometimes accidents happen.” Senate Minority Leader Mitch McConnell of Kentucky acted quickly to pull Paul out of the limelight and Republicans angrily denounced the media for taking advantage of the new candidate.

On the other hand, columnist Charles Krauthammer of the Washington Post is no political ingénue and his latest column makes it clear Paul’s sentiments are not a misstep but an unfortunate revelation into conservative thinking. Krauthammer blames the disaster on “environmental chic,” reasoning that rabid conservationists drove oil companies off land and near-shore drilling into deep water. The problem might have been avoided had unrestricted drilling been permitted in the Arctic National Wildlife Refuge. Then Krauthammer espouses his own “accidents happen” philosophy.

“There will always be catastrophic oil spills. You make them as rare as humanly possible but where would you rather have one – in the Gulf of Mexico, upon which thousands depend for their livelihood, or in the Arctic, where there are practically no people? All spills seriously damage wildlife. That’s a given. But why have we pushed the drilling from the barren to the populated, from the remote wilderness to a center of fishing, shipping, tourism and recreation?”

Conservatives keep insisting Obama “just doesn’t get it” and perhaps he does not. Yet the fundamental dichotomy at the heart of their criticisms suggest maybe they do not get it either; perhaps the whole nation does not.

Brooks sums up the problem. “[Americans] want to hold [Obama] responsible for things they know he doesn’t control. Their reaction is a mixture of disgust, anger, longing and need. It may not make sense. But it doesn’t make sense that the country wants spending cuts and doesn’t want cuts, wants change and doesn’t want change. At some point somebody’s going to have to reach a national consensus on the role of government.”

Brooks posits such irrational demands flow from a growing nervousness over “America’s inability to take decisive action in the face of pervasive problems.” Bob Herbert, also writing in the New York Times, suggests this helplessness is self-inflicted.”

“For a nation that can’t stop bragging about how great and powerful it is, we’ve become shockingly helpless in the face of the many challenges confronting us . . . The American public [needs] to begin coping in a serious and sustained way with an energy crisis that we’ve been warned about for decades. If the worst environmental disaster in the country’s history is not enough to bring about a reversal of our epic foolishness on the energy front, then nothing will . . . When are we going to stop behaving so stupidly?”

Last year, Bobby Jindal, Governor of Louisiana and rising GOP star, responded to Obama’s first address to Congress by, among other things, belittling research into environmental and other dangers from volcanoes as ridiculous and unaffordable. When oil from the BP leak began threatening his state’s shores, he started begging the federal government to spend and act without limits.

Republicans and too many Americans in general do not seem to see any more hypocrisy in this than they did opposing “socialistic” healthcare while simultaneously screaming over potential cuts to Medicare. They criticize Obama for failing to fix the BP leak but when faced with a disaster that resulted from far-too-cozy relationships between Big Oil and federal regulators, they argue for less regulation and “Drill, Baby, Drill!” They claim to embrace risk-taking associated with entrepreneurial capitalism but when they and their families are the ones at risk, they expect government protection.

As E.J. Dionne noted in the Washington Post, “Deregulation is wonderful until we discover what happens when regulations aren’t issued or enforced. Everyone is a capitalist until a private company blunders. Then everyone starts talking like a socialist, presuming that the government can put things right because they see it as being just as big and powerful as its Tea Party critics claim it is. But the truth is that we have disempowered government and handed vast responsibilities over to a private sector that will never see protecting the public interest as its primary task.”

It is the attitude of “not in my backyard” on a national scale. Unfortunately, the Gulf of Mexico is the nation’s backyard and, as Dionne concludes, the current mess there is ultimately “the product of our own contradictions.” During his press conference, Obama related how his older daughter, Malia, poked her head in the bathroom while he was shaving that morning and asked, “Did you plug the hole yet, Daddy?”

In many ways, she speaks for a generation of Americans so immature as to demand a birthright of abundance without the slightest desire to make sacrifices even approaching those of the forbearers who earned that birthright for them.

Krauthammer and other conservatives have cast Obama in the role of King Canute of England, who once had his throne placed at the sea’s edge and commanded the waves to cease, only to have them continue lapping about his ankles. The BP leak, they say, reveals Obama’s hubris in declaring his election “was the moment when the rise of the oceans began to slow and our planet began to heal.”

They overlook two important things. First, Canute did not engage in spectacle because power and success blinded him to his own mortality. Instead, he wished to provide a lesson to his over-confident subjects about the limitations of even the greatest leaders to do great things alone. Second, Obama jubilant declaration began with the proviso, “If we are willing to work for it, and fight for it, and believe in it . . .”

Obama did not go to Louisiana expecting the tides to obey him. He simply went to the disaster and offered to do his best to lead us in dealing with it. It is our choice whether we want to give the man on the beach the tools, support, and assistance needed to begin addressing the problem or whether we will continue asking him to make everything better at no cost and then jeering at him when he proves unable to walk on water.

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Oh, But Justice Souter, These Days Judging Is VERY Easy

Rdan here…In a 2007 case, the conservative majority overturned voluntary racial integration programs in Seattle and Louisville, Ky. Earlier this year, in the Citizens United campaign-finance case, the court’s conservatives struck down a federal law that prohibited corporations from spending on federal elections. Both relied on interpretation of vaguely worded constitutional guarantee.

by Beverly Mann
crossposted with Annarborist

Oh, But Justice Souter, These Days Judging Is VERY Easy

“It saddens me to think that it took Justice Souter 19 years of heavy constitutional lifting and departure from the court before he could turn to the American people and explain clearly that much as we might want judging to be easy, it never can be.”—Dahlia Lithwick, in Slate

Well, actually, these days judging has become exquisitely easy—unless, that is, the particular case, say, pits two large corporations, each of them represented by a high-profile, big-name lawyer, usually a partner at a mega law firm. Or pits the prosecutor’s office against some former CEO or CFO who is represented by a big-name lawyer, usually a partner at a mega law firm. Then, the judge, judges or justices must actually judge—as that word, used as a verb, is billed in middle school civics class and elsewhere.

Otherwise, judging is now simply a formula, one that has nothing to do with a fair reading of the Constitution or of statutes but that has absolutely everything to do with docket-clearing and with aggressively limiting access to court, at least to challenge the constitutionality of a statute, government policy or government act, by someone who is not claiming a Fifth Amendment “takings” violation, religious discrimination, “reverse discrimination, or violation of the Second Amendment right to bear arms—virtually the only constitutional rights that, according to the chief justice and colleagues Scalia, Thomas, and Alito believe trump states’ (and local governments’) rights to violate the constitutional rights of individuals.

An origianlist/textualist interpretation of the Constitution’s Supremacy Clause seems to work well for litigants who invoke the constitutional rights at issue in those cases, but only ever so rarely for those who invoke any of the other constitutional rights that accrue to individuals—or that a textualist reading of the relevant parts of the Constitution would seem to suggest, but that apparently do not.

For people invoking those rights, there will always be some procedural flaw—in the way the lawsuit’s complaint was drafted; in legal “standing” to bring the case, or in some other “subject matter” jurisdictional or quasi-jurisdictional respect; or by virtue (so to speak) of the ever-metastasizing doctrines of sovereign immunity and “qualified” immunity. Or in whatever. The stated grounds are just formality, and fungible.

So, no, Justice Souter. And, no, Dahlia. While it’s true that judging never should be easy, these days it almost always is. I mean, how hard is it, really, to look at whom the plaintiff is; whom his, her or its lawyer is, or whether or not the plaintiff even has a lawyer (self-representation being a crime inevitably punishable not just by dismissal of the lawsuit but by defamatory and demeaning diatribe); and to look at whether the case presents an opportunity to further Republican Party interests?

Not very.

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Is this the return to older values?

Savvy consumer of the St. Louis Today on line edition points us in the direction Pete Peterson might be suggesting from this post:

Debtors prisons might have gone the way of medical leeching and boneshaker bikes, but that doesn’t mean consumers in some states can’t end up in the clink if they fall behind on their bills.

Today, the Minneapolis Star Tribune reports on what appears to be the rising number of arrests of debtors who have been thrown behind bars for missing court-ordered debt payments or for not appearing in court after being sued by debt collectors.

The startling story reveals how debt-related arrest warrants in Minnesota have jumped 60 percent in the last four years, with 845 cases last year. That’s not a large segment of the state’s total arrests, but that doesn’t offer much comfort to those consumers who have been hauled into jail for court offenses stemming from debts as small as $250.

Some responsible, on-time bill payers might not be overly sympathetic to the jailed debtors’ plights, but they should keep this in mind: Often, the expense of arresting and jailing the consumers exceeds the amount owed. And that price tag, of course, is picked up by the taxpayers.

The laws allowing for the arrest of someone for an unpaid debt are not new.

What is new is the rise of well-funded, aggressive and centralized collection firms, in many cases run by attorneys, that buy up unpaid debt and use the courts to collect.

Update: Rdan here…Yves Smith takes the high road on ‘ruthless’ in PR push against strategic defaulters underway…is there a debtor’s prison in your future?. This is Peterson’s choice of words.

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The Four Pillars of Conservatism: it is not as Incoherent as it seems

by Bruce Webb

Family values/patriarchy; Property rights/inheritance; Public order/tradition; External defense/xenophobia.

Taken individually and in combination I think they serve to explain the essential unity of the various divides of modern conservatism into paleo-Cons, neo-cons, social values Cons, religious Cons, and perhaps most for my purposes the alignment of top level economic strata: bankers and factory owners with what are in economic terms their natural enemies: shopowners, small farmers, and even those factory workers. If we were all at heart Homo Oeconomicus, each seeking to maximize our our own self-interest, why would those groups accept an economic system openly rigged against them. (It is not like at any point in history or high or popular literature that bankers have been popular figures, instead they are Snidely Whiplash tying Sweet Nell to the tracks so as o get her property.

More below the fold.

First I don’t think that these four principles though perhaps are not exhaustive can be denied to be common among all conservative movements, although the stress falls at different levels. The question is whether there is a historical model that supplies an underlying unity here? I suggest there is, with the caution that it may only apply to the European and American models, though personally I see it as fairly explanatory in Asia as well.

This model was set out out by Fustel de Coulanges in his 1864 The Ancient City (1 MB). As a sourcebook for history it is not much consulted anymore, we know stupendously more about the religion of the classical and pre-classical era than we did in 1864, a date when when modern arcaheology and classical philology were still in their veritable infancies, and the discipline to which it actually best fell, that of Sociology, was not yet in formal existence as such. But examined with fresh eyes it offers a powerful key.

For Fustel the central unit of the society was the Household, the familia, the family, which was centered physically and spiritually around the hearth, the family fire. The hearth was not only the source of light and heat, it was the abode of the family spirits, in Latin the Lars and Penates, and it and them had to be propitiated by private family rites, to which the head of household was the Priest. Fustel meant this literally, that every family religion was in principal different, though of course the Family in the larger senses, the Kin, would naturally share most elements by inheritance from common ancestors.

Now it is a common feature of most world historical religions that they require precision in prayer and ritual, any error in recitation or performance potentially causing failure or worse, This is one reason why our oldest surviving languages are sacral in nature: Latin, Biblical Hebrew, Old Church Slavonic, Sanskript all survived in unchanged form among the priests and rabbis even as they spun off multiple modern descendants. For the Household change in these prayers and formulae were not just bad they were potentially disasterous, ‘new and shiny’ was fine for the children, ‘tried and true’ was the rule for the Householder.

But as crucially important as was the hearth, the center, equally important, and subject to its own set of religious and cultural practices were the household boundaries, first the threshold to the house, then the yard, typically marked by a wall or hedge. Each dileneated an area of special authority for the Householder, in Old English his ‘mund’ or ‘guardianship’, in origin related to I.E. ‘man-‘ hand.

These concepts are not obsolete today, we have a variety of sayings and concepts that incorporate them ‘hearth and home’ (in America mostly used to sell fireplaces, but a feature of British literature and poetry), ‘a man’s home is his castle’ and the age long rule that raising your fist to anyone in your host’s home is a direct insult to that host, he had extended the protection of the household over his guests, you can take your fighting off premises.

Anyway I could extend examples endlessly and will in comments, but I think this provides a pretty powerful explicatory model. Conservatives start with the principle of protecting the household. First and foremost that requires maintaining the traditions, particularly the religious ones, they are what provide continuity of the Family as a whole. Second that requires maintaining the authority of the Householder over the Family both as people and as fixed areas of building and land. Third while the obligation of obedience flows up, the Householder equally shares the obligation of maintance to all under his protection, and do what he can to secure that after he dies to at least enough family members to preserve the Family. Fourth the Householder is under obligation to defend the gate to his yard. But while a man may be king of his own castle, it is rarely an island, there are a lot more people outside the gate than inside.

The solution here is as age-old as the Family itself, it is the collective protection offered by the Tribe. And in Fustel’s model we have a simple replication. The Tribe will itself have its central hearth (just as each medieval village will have its smithy and bake oven), it will have it own set of religious practices, it will have its own yard whose terminus or limes will typically be marked by a wall which all householders are pledged to defend in time of need. And tribal leadership however constituted will extend its own mund over all that are withing those limes, just as the householder does over his guests, and woe to those who would violated either threshold, a ‘gate-crasher’ is not committing a innocent jest, instead that is a serious and even deadly crime.

Unflinching commitment to these four pillars; Primacy of Family/Property Rights/Tradition/External Defense can give rise to some outcomes that seem repugnant to those of a Social Democratic lean. In particular there are no natural obligations to any outside your Family or Household as defined by its Yard, simple humanity or the existence of a current surplus may lead you to feed the starving or cloth the freezing but not at expense of the Family, where that interest is decided and controlled by the Householder. On the other hand paying dues to the lord or taxes to the king is just the cost of paying them to organize the exterior defense of the town/tribe and/or not loot you directly, either way it serves to protect the integrity, physical and otherwise of the House and Family. Under this over-arching world-view the Other and the stranger are always a threat, at least potentially, to your House, and the borders of your Tribe or Village are literally sacrosanct, and marked by such at annual rituals.

Why would fairly low income conservatives oppose inheritance taxes even when they know they would never be exposed to them? Because they are a violation of pillar two Property Rights/Inheritance, each Householder has his own obligation which should not be impinged on externally. Why do conservatives loudly defend individual liberty in principle but endorse strict patriarchal control by the Householder? Because such liberty belongs to the Family and to family members outside the gates, once in the gate, and even more through the threshold and in the presence of the hearth, the Head of House takes control.

Social Democracy takes its organizing principle along the lines of “We are all on this Earth together” to which the Conservative replies “The Hell we are, Family first”. And before Liberals and Social Democrats rise ourselves up in indignation, we might remember that rich kids in Sweden almost certainly have better ski trips and summer vacations in Spain than do poor kids, even in the best of Social Democratic societies the tradeoffs between Family and Society only go so far.

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Neal Bill: US companies use of affiliated reinsurers to avoid taxes

by Linda Beale

Neal Bill: US companies use of affiliated reinsurers to avoid taxes

US insurers are complaining about the Neal Bill, HR 3424, introduced Jul 30, 2009, which would disallow a deduction to a US company for “excess non-taxed reinsurance premiums” with respect to US risks that are “paid to affiliates” (quoted language is from the long title to the bill). The bill amends section 832 of the Code by adding a limitation on the deduction for reinsurance premiums. The limitation only applies for “excess” premiums that are paid to offshore affiliates where the money is not taxed as subpart F income or where the premiums aren’t taxed because of treaty reduction.

The US industry that has benefited from being able to deduct excessive amounts paid to affiliates is up in arms. Quelle surprise, that the corporatist community will claim that all mayhem will ensue if it loses a cherished way to reduce its corporate income tax payments. So much of the time, however, the parade of horribles is a figment of the companies’ (and their lobbyists’) imaginations.

The claim by the “risk and insurance management society (RIMS) is, of course, that the bill will hurt consumers. See Coalition for Competitive INsurance Rates, Letter to Members of Congress, June 7, 2010. The letter claims that the bill will “create a discriminatory reinsurance tax that will harm consumers.”

Funny how things that are good for the fisc and mean less profits for multinational corporations are always cast as harming consumers, as in the financial institutions’ lobbying campaign against any modification of mortgage loans in bankrupcty, which is a way to protect banks’ balance sheets and profits, but is cast as a way to protect homeowners’ ability to get mortgages. Such arguments are usually bunk. Is this one?

The letter argues that the bill will help large US insurers who don’t have overseas affiliates while hurting US insurers that do have international operations, and says that Congress should focus on making the country’s companies “more competitive” rather than taking “punitive” action. This is a typical competitiveness claim. The multinationals are claiming that they will be hurt if they are not able to take advantage of their cross-border entities to cut their federal income tax bill by moving their profits to their offshore affiliates by paying that offshore affiliate an excessive premium for covering risks. Most such “competitiveness” claims are just a different way to make the old “free market uber alles” argument–companies are saying that in order to succeed, they MUST be allowed to arrange their affairs however they see fit, especially if it means moving money offshore and avoiding federal income taxation. This kind of competitiveness argument holds no weight. It reduces to an argument that “competitiveness is important; companies that make more profits are more competitive with other companies that make more profits; since making more profits enhances competitiveness, the government should allow us to avoid taxes so that we can make more profits and enhance competitiveness.”

The companies also argue that the bill would hurt the US ability to manage risk. But look what is happening here. This is a tax imposed only when a US-based company transfers an insurance risk that it has assumed TO AN AFFILIATE that just happens to be offshore. The US company claims a deduction for the reinsurance premium (often perhaps inflated because of the failure of transfer pricing mechanisms to adequately oversee transfer pricing issues); the income of the affiliate doesn’t get taxed in the US. That is most decidedly NOT a risk transferral procedure, since the same affiliated group of companies bears the risk. It is the income that is moved to a position outside US taxation. Tax reduction, not risk reduction, is the primary impetus of the affiliate reinsurance regime.

The letter tries to make the risk reduction argument by implying that the disallowance of this tax reduction technique will keep multinational insurers out of the US market, thereby leaving more of the insurance risk held within the US. In other words, as the release by RIMS puts it, the argument is that the bill will be “a great threat to insurance capacity in the US.” There is a big stretch from disallowance of affiliated deals that reduce US taxes to undoing of the US insurance market. If the US insurers can make profits without the use of the offshore reinsurance gambit, then so can the US companies with multinational affiliates. They can continue to use unaffiliated reinsurers and deduction those premiums, just as US insurers can do. There is nothing in this deal that would stop them from being competitive with US-only insurers, and nothing that would prevent them from remaining in the market. They simply wouldn’t be able to use the extra gambit of affiliated “reinsurance” to increase their profits compared to US insurers by reducing their US tax bills. The purpose of reinsurance is to diversify risks. So while the letter cites a study claiming that the bill would reduce “reinsurance capacity” by 20% (and thus cost consumers billions), that claim is questionable since it relies on treating affiliated “reinsurance” as though it were risk-diversifying reinsurance. So the competitiveness and risk arguments both sink on the same grounds.

The letter claims that the bill is supported by US-only insurers because they “seek to gain via a protected market that would allow them to charge higher prices.” But if US companies have been able to make money even with the “competition” provided by multinationals’ ability to cut their taxes by using offshore affiliates as reinsurers, then so can the multinationals, and the competition should mean that neither increases prices.

Will there be an increase in consumer costs because the insurance multinationals cannot take advantage of offshore affiliates to evade US taxation on their US-based insurance premiums? Perhaps. We do not fully understand the incidence of taxation, so it may be that some of the tax cost will be borne by consumers as the companies attempt to maintain the same profits that were possible with the tax avoidance technique. But maybe not, since the companies, as they themselves note, will be competing with US-only companies that can only reinsure with real unaffiliated reinsurance companies. They’d have to decide that the regular US companies’ profits aren’t high enough to be worth entering the market, which seems a stretch.

The letter also claims that the bill is discriminatory to foreign reinsurers and therefore violates the WTO and treaty commitments. But there is no limitation on deduction just because a US company uses a foreign reinsurer. This bill generally limits the deduction between affiliated companies when a company in the US uses an affiliated foreign reinsurer. Regulating pricing among affiliated companies isn’t discrimination, as evidenced by the transfer pricing “clear reflection of income” standard in section 482.

[hat tip to my colleague Mike McIntyre]

Lifted from comments: As an aside, insurance contracts (as is the case of all financial transactions) are characterised by one party receiving an immediate benefit, and the other party receiving the promise of a future benefit. Allowing the party who receives the immediate benefit to reside in a different jurisdiction from the party who is supposed to receive the delayed benefit raises some interesting questions about compliance and enforcement of contracts.

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