Relevant and even prescient commentary on news, politics and the economy.

The Cliff’s Notes for my post from yesterday subtitled “Does Romney’s Economic Plan Violate State Sovereignty?”*

The post garnered only one comment, from kharris, who complained that the post was incomprehensible and asked whether it was intended as facetious, and whether I could give a Cliff’s Notes version of it.  I can and did.  I wrote:

[The] post was not intended as facetious, although I’m sure it will be taken that way by the few people who read it.

Basically, the 26 state attorneys general are claiming in that lawsuit that the part of the ACA that relies on a significant increase in Medicaid, funded mostly by the federal government but partly by the states, violates the Tenth Amendment, which the political right claims gives states autonomy amounting to sovereignty not much different than the sovereignty of foreign countries vis-à-vis the U.S. government.

Their claim is that while the state governments are legally entitled to withdraw from the Medicaid program, politically that’s not a feasible option, because Medicaid is a popular program.  This means that the ACA’s requirement that the states spend more in order to remain in the Medicaid program and receive the federal funds they currently receive, the states will have to spend more of their own money on Medicaid in order to meet the requirements of the ACA.

The states claim that this additional requirement is large enough to require states to have to substantially reduce the appropriations for other priorities, such as education, and that therefore the ACA’s Medicaid expansion basically controls the budget process of state legislatures, and in this way unconstitutionally infringes on state sovereignty under the Tenth Amendment.

Enter Romney, and the economic/budget plan he announced last Friday, in which he would cut taxes across the board by 20%, cut corporate taxes by even more (I think), eliminate the estate tax, increase defense spending, leave Medicare and Social Security untouched, and “return Medicaid to the states,” and “send” the other safety-net programs for the poor “to the states” as well.  In other words, he plans to end federal funding for Medicaid and all the other programs.

Which according to the states’ argument in the ACA litigation, would violate the states’ sovereignty under the Tenth Amendment.

So, no, the original post was not intended as facetious.  The post was hard to understand, in part at least because the legal argument of the 26 states is ridiculous.  Yet the Supreme Court agreed to consider the states’ argument.

But a more important point is this: The economic/budget plan that Romney announced last Friday in an attempt to gain Tea Party support in Michigan would cut taxes by 20% across the board, eliminate the estate taxes, cut corporate taxes still further, and balance the budget, if it does, by entirely removing federal funding of all safety-net programs for the poor and telling the states that they should pick up the slack. More than half the states are claiming to the Supreme Court that this would violate the Tenth Amendment, because at least one of these programs, Medicaid, is too popular for it to be politically feasible to end it. 

The Supreme Court almost certainly won’t buy the argument, but what matters is that the states have made the argument.  And have made the point.

Also what matters, of course, is that someone who’s running for president on a claim to be exceptionally astute on business/economic/budget matters should have resisted the urge to put forward a budget proposal that bizarre and easily deconstructed by, well, almost anyone.
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*Ooops. Romney did discuss cutting Social Security benefits in that speech last Friday, by raising the retirement cap.  Seems I was almost as distracted by the empty stadium as most of the news media was, and missed that.  But Gail Collins noticed, and noticed that rest of the news media didn’t notice.

Collins also discusses the payroll tax cap.  And Seamus, of course. 

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International Law, As Established At Nuremberg*: The ACTUAL Grounds On Which the Supreme Court Will Rule For Shell Oil’s Parent Company In Kiobel v. Royal Dutch Petroleum

In her post earlier today on Kiobel v. Royal Dutch Petroleum, the sort-of-CitizensUnited-like case argued yesterday in the Supreme Court, Linda discusses the issue that was supposed to be the one that the Court would decide, because, well, that was the issue that the lower appellate court, the Second Circuit Court of Appeals, decided.  The issue is whether under the Alien Tort Statute, which was enacted in 1789 and allows “aliens” to file civil lawsuits in the U.S. for violations of the “law of nations,” allows aliens to sue corporations, or instead only individuals, for violations of human rights as defined under clearly-established international law.

The Second Circuit court said it doesn’t, and, as the excerpt from that opinion that Linda posts shows, the appellate panel used as its justification the judges’ own moral judgment that since individuals (i.e., the corporation’s top executives) make the corporate decisions to leverage the corporation’s resources to accomplish these heinous acts, only those individuals, and not the ill-used corporation itself, should be suable.  And that therefore, only those individuals, and not the ill-used corporation itself, will be suable in U. S. federal courts under the ATS.

This notwithstanding that the statute itself says nothing at all about whocan be sued under it; it states only what acts the actor can be sued for.  And notwithstanding that the Second Circuit panel’s stated grounds for the ruling, if not necessarily the result (the dismissal of the lawsuit), conflict with the Supreme Court’s ruling two years ago in Citizens United v. FEC.  Which parlayed the First Amendment free-speech right of individuals into a right of corporate CEOs to leverage those rights of its individual human shareholders into a First Amendment speech right of the CEO to use corporate funds to advance his or her political preferences.

The plaintiffs in the case, 12 Nigerians, allege that Shell Oil aided and abetted the Nigerian government in committing horific violations of human rights against protesters of the company’s operations in that country in the 1990s.  According to the several reports I’ve read about yesterday’s argument, Anthony Kennedy, author of the Citizens United opinion, said at the very outset that he agreed with Shell’s statement in its brief that international law does not recognize corporate liability. Case closed.
But Elena Kagan (not a personal favorite of mine, for reasons that I’ll leave for another post, but someone who does demonstrate the ability to recognize distinctions in procedural/jurisdictional law in response to Kennedy’s indications that he cannot, and who is not shy about showing it; this is the second time in about a year that Kagan has done that during an oral argument) pointed out that international law addresses the acts that violate universally accepted human rights, but is silent on who can be sued for committing those acts.

And Samuel Alito and Stephen Breyer agreed. “Let’s assume that the French ambassador is assaulted or attacked in some way in the United States, and that that attack is by a 10 corporate agents. Would we say that the corporation cannot be sued under the Alien Tort Statute?” Slate’s Dahlia Lithwick quotes Alito as asking Kathleen Sullivan, Shell’s lawyer.  Who responded, “Yes, because there is no assaulting ambassador norm that applies to corporations.” Oh?  Does the State Department’s Foreign Service know this?  

Lithwick also quotes Sullivan as saying that “Nuremberg, if it established nothing else, established that it is individuals who are liable for human rights offenses.” She must be right that that’s what the Nuremberg trials established, since the Nuremberg prosecutors didn’t indict Volkswagen and try to have it executed. 

Breyer suggested that pirates should incorporate themselves, under the name “Pirates, Inc.”  A company in which I want to buy stock, if it ever goes public. Under international securities law.  As established at Nuremberg.

Nuremberg, by the way, didn’t establish “nothing else.”

Lithwick suggests that a majority of the justices will not say that corporations cannot be sued under the ATS.  Given the 5-4 ruling in Citizens United, the juxtaposition of the two opinions would be too damaging to the Court’s standing among the public.  I agree; after all, the First Amendment doesn’t say that corporations have First Amendment speech rights, nor mention corporations at all, but that didn’t stop the majority of justices from …  well ….

But neither do I think the Court will say that the ATS does allow lawsuits against corporations for violations of internationally recognized human rights. I think a majority will decide not to decide that issue at all, in this case.  Instead, a majority will say what Alito said at another point: that the statute was not intended to allow people who have no connection to the United States to sue under the statute for violations of human rights by anyone—human or corporate—that himself/itself has no legal-status connection to the United States and that occurred outside the United States.  The Nuremberg defense will have to await another day to succeed or not.

Alito’s French-ambassador-assaulted-in-the-U.S. hypothetical was not a random fact selection. The purpose of the statute, it was made clear during the argument, was to grant ambassadors to the U.S. the right to sue in U.S. court for violations of human rights committed in the U.S—rights they have long had here anyway.  But this is a very old statute, and apparently predates those rights.  The statute itself doesn’t say that it’s limited to circumstances involving victims or perpetrators who have with legal ties to the U.S.  But, whatever.  

I expect that the Court will fill in those blanks.  Although I won’t bet on it. I’ll save my money instead for the Pirates, Inc. IPO.

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*Just to be clear: The first part of the title—the part before the colon—is intended as sarcasm.  It’s a takeoff on Kathleen Sullivan’s weird claim about the meaning of the Nuremberg trials.

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Michigan Primary Results

Mitt Romney won the Michigan Republican primary yesterday by a margin of 41.1% to 37.9%, the remainder going to the rest of the overpopulated field – Herman Cain, Jon Huntsman and others were on the ballot. Romney and Santorum each gained 11 delegates.

This Huffpo article has an interactive map showing results by county.

The spread in the results is interesting. Along the west coast of the Lower Peninsula is Michigan’s bible belt. Santorum carried most of those counties by Margins of 10 to 20%. Kent county, which contains the city of Grand Rapids, it the exception. Santorum won that county by only 42.4% to 40.3%. This illustrates the other part of the Michigan dynamic. Romney did better in urban areas, while Santorum did better in places where cows or deer outnumber the people. Santorum won many more counties, but lost the total vote count.

This population effect shows up in the victory margins of the counties that Romney won. In the 5 by 2 band of counties that Romney won in the southern part of the state, Romney’s take generally decreases while Santorum’s generally increases as you move west. Then, when you reach the bible belt, it flips to Santorum. Along the Ohio border is a band of sparsely populated counties that Santorum swept. Monroe, Lenawee and Branch counties have towns of significant size in them, and in those counties Romney did better by a couple of percentage points.

Ron Paul got between 10 and 12% of the vote almost everywhere. This illustrates something about the modern Republican party. It is an unholy alliance of far-right Christian fundamentalists, pro-business (pseudo-fiscal) conservatives and libertarians – and the cracks are starting to show. If nothing else, the endless campaign of Republican debates has cast these differences into bold relief.

Logically, the fundamentalists and libertarians should hold each other in contempt. The libertarians and the pro-business faction can agree on many things, but not isolationism and the gold standard. To the business crowd, the fundamentalists are prey.

For decades, the Republicans have drawn the religious right into their fold with emotional hot button issues that have very little actual relevance, like abortion and gay marriage. The recent campaign against birth control has been an over-reach that is finally causing a back-lash.

 In my dreams, the Republican party tears itself apart, and becomes a marginalized political minority. The Michigan results give me hope that this dream might become reality.

H/T to my lovely wife.

Cross posted at Retirement Blues.

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The Supreme Court’s corporate monsters–if money buys them "free speech" rights, can it help them avoid giving others human rights?

by Linda Beale

The Supreme Court’s corporate monsters–if money buys them “free speech” rights, can it help them avoid giving others human rights?

The Supreme Court decided in Citizens United that corporations could intevene to influence elections–giving money and aide to their selected candidates. This was an inordinate broadening of corporate “personhood”, claimed to be necessary under the warped First Amendment precedents of the Supreme Court that count “money” as speech and thus consider that limitations on money spent to influence elections as a limitation on speech.

Yet most economists and tax professors argue against the corporate tax–which has been in place longer than the individual income tax–on the grounds that taxes distort and that the claimed “double taxation” of corporate income distorts the allocation of capital. See, e.g., Tax Foundation, 2004 paper on integrating corporate and personal income taxes; seminal 1985 integration piece from NBER. Much of the argument boils down to an a prior assumption that “only people can pay taxes.”
(Of course, we used to think that only people could engage in campaign speech or bribe politicians for quid pro quo policies or otherwise influence the course of society. We were naive.)


As a result of this “received wisdom” about economics and corporate taxes–mostly based on the mathematically correct but practically challenged Chicago School approach to understanding economic systems (by assuming away most of the real world, including life, death, and everything in between)– corporate lobbyists and their allies in Congress have been pushing for decades to eliminate corporate taxation through integration of the corporate and individual tax schemes or at a minimum to drastically reduce the liability of corporations for federal income taxes.
Every presidential candidate has one scheme or another to reduce corporate taxes, with even Obama falling prey to the continuing influence of the Wall Street facilitators like Timothy Geithner in the Treasury and Larry Summers. See Citizens for Tax Justice, President’s Framework Fails to Raise Revenue (pointing out that there is no reason not to fix the loopholes in corporate tax to help address the deficit without having to lower corporate rates, and noting that although Obama at least called for making his rate reduction framework for so-called corporate tax reform revenue neutral, his plan fails to raise about a trillion dollars to make up for the corporate taxes that it gives up). As CTJ notes, many organizations have called for the opposite–to raise revenues from corporations that have been paying very little in taxes, especially since the 2003 Bush “reforms” that granted most of the items on corporations’ wish list for tax cuts.

Last year, 250 organizations, including organizations from every state in the U.S., joined us in urging Congress to enact a corporate tax reform that raises revenue. These organizations believe that it’s outrageous that Congress is debating cuts in public services like Medicare and Medicaid to address an alleged budget crisis and yet no attempt will be made to raise more revenue from profitable corporations. Id.

Nonetheless, most candidates call for making the corporate income tax territorial and thus making it even more lucrative for US multinationals to move more of their corporate businesses (and jobs) abroad. Most call for reducing the rates on corporations to a historically unprecedentedly low level–making it even more likely that the US trade deficit and corresponding budget deficit will continue to grow, even at a time when these self-nominated fiscal “conservatives” are claiming that the current deficit requires monumental sacrifices from ordinary people in the way of reduced medical care and old age security (the effort to cut back drastically on the benefits payable under Medicare and Social Security).

Most treat the owners of corporate equity as though they were some kind of revered engine of growth, when in fact they are usually merely rich people who are interested in reaping as high a profit as possible from sales of corporate shares but very little interested in entrepreneurship, and as likely to engage in quick trades (the profits of which go into their pockets and not into the working capital of the corproations) as to hold long-term based on analysis of corporate business fundamentals. Most don’t accompany their form of integration with eliminating the category distinction between capital gains and ordinary income.

Most “corporate reform” plans call for continuing most of the absurd provisions that have larded the pockets of corporate management over the last few decades, such as

  • accelerated depreciation and expensing (including all the depletion allowances for the heavily subsidized oil and gas extractive industry, even while it complains about the petty little incentives put in place in recent years for environmentally sound energy generation–accelerated expensing creates “phantom” deductions that reduce taxable income well below economic profits), and
  • the “research & development” credit, which was first enacted as a stimulus that was to be in place for a very short period of time but has been extended in fits–even retroactively for several years–as corporations demand making every single “stimulus” tax break they get permanent.

(As readers of this blog know, I see little merit in the R&D credit. Corporations can already deduct way too much “phantom” expenses–excess interest expense that allows them to operate with too much leverage, facilitating equity firm buyouts by leveraging up the purchased entity to pay off the equity strippers. Further, as with so many of the GOP’s favorite programs of tax subsidies for multinationals and the upper crust, it hasn’t bothered to conduct studies to see if the R&D credit indeed results in more research done in this country. Clearly, a retroactively enacted credit does NOT incentivize research.

Probably the times it’s been enacted without being retroactive haven’t either–it takes extensive labs and equipment to do research, and such labs and equipment have to be purchased far ahead of when they pay off. Most of the R&D that the credit supports is likely to be of the “tweak-a-patent” variety that seeks merely to find a way to extend a monopoly profit from a particular profit–something the patent law should frown upon.)
So the drumbeat for lower corporate taxes–at a time when corporations are paying less as a proportion of GDP than they did in the time of our most sustained economic growth–continues unabated from the right joined by only slightly less enthousiastic accompaniment at the White House and think tanks like the Tax Policy Institute.

Meanwhile, the Supreme Court, having anointed corporations with a kind of personhood that lets them intervene in elections even though they have no vote, has taken for consideration a case that challenges the rights of individuals to hold corporations accountable as people are held accountable for human rights violations. The case is Kiobel v Royal Dutch Petroleum (2d Cir. 2010), in which Nigerian plaintiffs seek to hold Royal Dutch/Shell liable for violating the Alien Tort Statute (“ATS”), 28 U.S.C. § 1350, which upholds international norms of human rights.

The Second Circuit held that US courts cannot entertain such suits, holding that jurisdiction under the Alien Tort Statute against corporations requires an international norm approving sanctioning corporations for torts and that requires more than the mere fact that most countries treat corporations under their domestic law as capable of committing torts. The court in the Second Circuit opinion makes a point much like economists tend to make about taxes–essentially implying that “only people commit heinous acts”.

From the beginning, however, the principle of individual liability for violations of international law has been limited to natural persons—not “juridical” persons such as corporations—because the moral responsibility for a crime so heinous and unbounded as to rise to the level of an “international crime” has rested solely with the individual men and women who have perpetrated it. Second Circuit in Riobel.

While people are the “deciders” of corporate decisions, nonetheless the corporate form permits corporations to engage in conduct that individuals alone cannot engage in–from amassing huge resources to carrying out massive enterprises that pollute and steal human dignity. To ignore that reality of corporate wrongdoing, especially in an age that has anointed corporate personhood with rights that seem furthest from ones that corporate entities should be permitted to enjoy, would be folly.

For further discussion of the implications of the case, see Peter Weiss, Should corporations have more leeway to kill than people do?, New York Times (Feb. 24, 2012).
Suffice it to say that this case raises the specter of full-blown corporatism overtaking the entire U.S. economic and social system. If the Supreme Court accompanies its “personhood for free speech/election intervention rights” with “not people so can’t be touched for human rights violations”, there will be even fewer ways to hold multinationals accountable, and they will forge even stronger relationships with autocratic dictators who treat their citizens like slaves and their environments like garbage pits. Meanwhile corporations will continue to intervene in our elections at will (usually the will of their ultra-wealthy managerial class), using the extraordinary power of the resources at their command.

We will all be the worse for any decision that would allow multinationals to expand their quasi-sovereign rights without saddling them with a strong obligation to comply with international norms respecting human rights. Rights without obligations are invitations to corruption.

crossposted with ataxingmatter

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Twenty-Six Republican State Attorneys General v. W. Mitt Romney (subtitle: Does Romney’s Economic Plan Violate State Sovereignty?)

Okay, folks.  The title of this post is not really also the title of a lawsuit.  Not formally, anyway.  But it could suffice as the title for the final hour of the six hours of oral argument in the Supreme Court late next month on the constitutionality of the Patient Protection and Affordable Care Act. 

A.k.a., Obamacare. 

More specifically, and more seriously—very seriously, actually—Romney’s newly-announced budget plan undermines the argument of the 26 Republican state attorneys general who, in the name of their states, are contesting the constitutionality of the part of the ACA that expands the Medicaid program so that it will operate as a key mechanism by which to provide healthcare coverage to those who cannot afford to buy healthcare insurance.

The legal issue, like the other legal issues that will be argued that week that are not known as the “individual-mandate” provision, and that therefore have not been discussed ad nauseam in the media, is very inside-baseball-ish stuff.  But unlike most of those other issues, which (like this one) the Court has accorded a designated time allotment separate from the individual-mandate issue, this issue is not merely a procedural one having to do with, say, who has “standing” (the legal right) to challenge the constitutionality of the provision, or whether the law can be challenged at all before it becomes effective in 2014.

No, this issue, like the minimum-coverage provision, a.k.a., the individual-mandate provision, cuts to the heart of much, or most, of the statute.

The specific case that the Supreme Court agreed to hear is the one decided last August by the Atlanta-based 11th Circuit Court of Appeals, the federal regional appellate court for several Southeastern states, based in A.  In a 2-1 opinion, the panel that decided the case held the individual-mandate provision unconstitutional—a ruling that conflicted with a 2-1 opinion issued two months earlier by the Cincinnati-based 6th Circuit Court of Appeals. 

The 6th Circuit opinion, the first one issued by an appeals court addressing the constitutionality of the ACA, was notable both for its author, Jeffrey S. Sutton, a conservative G.W. Bush appointee, and for the fineness of its constitutional analysis.  Specifically, the distinction between the Commerce Clause, the clause under which Congress had enacted the ACA and the clause under which the constitutionality of the individual-mandate provision was being challenged, and the Fifth Amendment’s due process clause, which the challengers were not expressly invoking but that Judge Sutton recognized was the appropriate constitutional provision to assert in light of the nature of their argument.  The Commerce Clause, he said, was not. 

The 11th Circuit opinion, for its part, was notable in that the judge who joined the majority-opinion writer, Joel F. Dubina, a conservative G.H.W. Bush appointee, in holding that the individual-mandate provision does exceed Congress’s legislative authority under the Commerce Clause because the provision violates the Fifth Amendment’s due process clause, or something, was Clinton appointee Frank M. Hull.  The majority also held that the remainder of the statute was “severable” from the individual-mandate provision; that is, the rest of the statute could survive the demise of the individual-mandate provision because the other provisions were not so intrinsically dependent upon or related to the individual-mandate provision that they couldn’t function without the stricken provision.  (The Supreme Court will hear 90 minutes of argument on this “severability” issue.)

Among the provisions that the entire 11thCircuit panel upheld as constitutional was the expanded-Medicaid provision.  Which Romney has now implicitly said is constitutional under the Spending Clause, the constitutional power under which Congress enacted that part of the ACA.  And which, more relevant here, Romney has said implicitly, does not violate the Tenth Amendment, which reads, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people, and which serves as the rallying cry for the neo-conservative states’-rights, state-sovereignty crowd.

Let me explain.  Or, better, let Judge Dubina and Romney explain. Separately, of course.

First, Judge Dubina.  He explains that “Medicaid is a long-standing partnership between the national and state sovereigns that has been in place for nearly half a century [and that] Medicaid is a jointly financed federal-state cooperative program, designed to help states furnish medical treatment to their needy citizens.”  He then notes that state participation in the program is voluntary, and that under the Medicaid Act as it currently exists, the states must, in order to participate, “meet various guidelines, including the provision of certain categories of care and services [and that some] of these categories are discretionary, while others are mandatory for participating states.”

He explains that the ACA expands the Medicaid program, that this expansion “serves as a cornerstone for expanded health care coverage.” And that the 26 attorneys general who have made their states plaintiffs in this lawsuit claim that the ACA’s “expansion of the Medicaid program, enacted pursuant to the Spending Clause, is unduly coercive under South Dakota v. Dole,” a 1987 Supreme Court opinion, which created what is known as the “coercion doctrine.”  Judge Dubina explains that, too: The coercion doctrine holds that “Congress may not employ the spending power in such a way as to ‘coerce’ the states into compliance with the federal objective.”  He also explains why the panel concluded that, in enacting the expanded-Medicaid provision, it did not.

First among those reasons is that as with the original Medicaid Act and earlier amendments to it that increased the states’ obligations, states retain the option to withdraw from the program.  The states acknowledge this fact—that they can, as matter of law, withdraw from participation in the program—but argue that as a matter of political reality, they cannot. Participation in the Medicaid program is simply too popular in each state, the results of withdrawal too distasteful, to make a state’s withdrawal from the program politically tenable.  Yet, they say, the additional state-funded mandate intrudes too much into each state’s right to determine their own budget priorities (spending and taxing), because the money must either be taken from other legislative priorities or from higher or additional taxes. 

The states are, in other words, hooked on federal Medicaid funds, and their state legislators are unwilling to withdraw the drug.  Er, the federal financing.  This violates the states’ sovereignty under the Tenth Amendment.  Indirectly.  But directly enough.

To which Judge Dubina responds that the initial Medicaid Act warned the states that Congress might make changes to the program, down the road.  But of course, well, cocaine addicts were warned of the addictive statute of that drug, and they took that first step anyway.  So this i-was-conned-into-it excuse won’t suffice.  Probably.

But Dubina also mentions that the ACA does not actually say that refusal to participate in this portion of the Medicaid program would require the state to withdraw from the entire Medicaid program; the states probably would see only some of their Medicaid funds withdrawn.  But this is of little consolation to an addict.  Or a states-rights asserter.

But then Dubina states the coup de grâce: The question of continued state participation in the Medicaid program is a political one, not a Tenth Amendment one.   Participation by the states in the federal Medicaid program continues to be voluntary, not compulsive, whether or not the states are addicted politically to receipt of the federal Medicaid money.

That is a statement of law with which Mitt Romney wholeheartedly agrees.  He made that clear last Friday, when speaking to the assembled members of the Detroit Economic Club.  Unveiling his amended deficit-reduction plan, he said:

Second, we will return federal programs to the states. I will send Medicaid back to the states and cap that program’s rate of growth. And I will do the same for other programs, like food stamps, housing subsidies and job training.

Okay.  Only if federal funding for these safety-net programs is eliminated or dramatically cut—as the math would require, given the draconian tax cuts that Romney also promised in that speech—would this policy of “returning” these programs to the states impact the federal budget significantly, or at all.

So, next month, when Solicitor General Donald Verrilli is arguing to the Court in that final hour of argument on the constitutionality of the ACA, I hope that, exhausted as he may be, he remembers to invoke the name of that most expert of constitutional scholars on the issue of the coercion doctrine: Mitt Romney.

And I hope that down the road, during the campaign, President Obama remembers to mention that Romney’s plan to balance the budget includes ending federal funding for Medicaid, food stamps, housing subsidies and job training—and suggesting that the states pick up the tab.

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by Mike Kimel

I haven’t written anything about Greece, largely because I’ve never been there, haven’t looked at Greek data, and otherwise until now have had no reason to think I have something useful to say about it. But reading this Tyler Cowen post, I realized that perhaps I have an insight to share because Greece seems to bear a curious resemblance to Argentina and Brazil, two countries with which I do have a fair amount of familiarity. Tyler’s post quotes Megan Greene who shares this anecdote:

A friend and I met up at a new bookstore and café in the centre of town, which has only been open for a month. The establishment is in the center of an area filled with bars, and the owner decided the neighborhood could use a place for people to convene and talk without having to drink alcohol and listen to loud music. After we sat down, we asked the waitress for a coffee. She thanked us for our order and immediately turned and walked out the front door. My friend explained that the owner of the bookstore/café couldn’t get a license to provide coffee. She had tried to just buy a coffee machine and give the coffee away for free, thinking that lingering patrons would boost book sales. However, giving away coffee was illegal as well. Instead, the owner had to strike a deal with a bar across the street, whereby they make the coffee and the waitress spends all day shuttling between the bar and the bookstore/café. My friend also explained to me that books could not be purchased at the bookstore, as it was after 18h and it is illegal to sell books in Greece beyond that hour. I was in a bookstore/café that could neither sell books nor make coffee.

Ms. Greene starts her post with this line:

I travel to Athens about once every six months and speak with as many contacts as I can, including top policymakers, bankers, journalists, economists and academics.

Now, with all due respect to Ms. Greene, who I don’t from Adam, I suspect she may be making an error similar to one that I used to see Americans and Europeans who flew into Buenos Aires or Sao Paulo. That error is to confuse laws on the books and complaints by the locals with reality. This is the view that a foreign consultant based in New York or London or Paris gets:

A number of contacts described their experiences trying to open a business or buy property, which involved high fees, several trips to different tax offices and months of navigating bureaucracy. This gets at the very heart of how Greece landed up in its current condition and why rapid change is unlikely. Entire professions such as notaries, lawyers, tax men, architects and inspectors have for years had automatic income in that they have formed the layers of bureaucracy involved in doing business in Greece. At least half of the MPs in Greek parliament hail from these industries, and consequently are incentivized to perpetuate the bureaucracy that impedes opening up, running or finding investment for businesses.

Now, you could change the word Greece for Argentina or Brazil and you could have been telling this same story at any time since, I would imagine, the 1920s. You could tell the story about Brazil right now, despite the fact that its one of the hot economies these days. (If you don’t believe that, find yourself a Brazilian and ask them to explain the concept of a “despachante” to you, assuming they are able.) Which is to say that, yes, you do need to jump through a fair number of hoops at various stages of running a business. But that is far the whole story. Before I get to the mistake, let me provide one more bit of information, something that these days we all know about Greece even if a lot of people were surprised to learn it about a year ago, namely, this:

According to a remarkable presentation that a member of Greece’s central bank gave last fall, the gap between what Greek taxpayers owed last year and what they paid was about a third of total tax revenue, roughly the size of the country’s budget deficit. The “shadow economy”—business that’s legal but off the books—is larger in Greece than in almost any other European country, accounting for an estimated 27.5 per cent of its G.D.P. (In the United States, by contrast, that number is closer to nine per cent.)

I can tell you this, again from my experience in South America: if the Greek central bank is admitting to foreigners that the shadow economy is 27.5% of its GDP, the real number is actually quite a bit higher. Now, think about it. If the Greek government can’t even collect taxes, an act high on the priority list of just about every government that was ever created, exactly how is it stopping a bookstore owner from selling books and/or coffee? But if you think that’s overly simplistic, let’s consider Ms. Greene’s anecdote again. Boiled down to the basics, it comes to this:

While the bookstore can’t sell its own coffee, nor is it allowed to sell books after 6 PM, the bookstore (and its coffee shop) is open for business in the evenings.

Now, from that one can only conclude that either the owner of the bookstore is an imbecile or there is a way that the bookstore can make money despite the laws on the books. (It is, of course, possible for both things to be true.) Now, here’s how things would work in Argentina or Brazil. There are indeed a bunch of hoops to be jumped through to start and run a business, legally at least. Many of them are ignored by everyone, the authorities included. Which of those rules a new business owner safely ignores depends on a number of factors, including the extent to which they have to deal with banks, whether they need to import or export anything, and the amount of real estate they need to operate. So yeah, it takes a lot longer to legally set up shop in Argentina than Singapore or Denmark, say, and the laws in Argentina, as written at least, are more draconian. But even so, it is often easier to get into and stay in business in Argentina than in Singapore or Denmark. After all, if you don’t have your paperwork in order in Singapore, if you don’t follow all the rules and regulations, someone will be there to shut you down. In Argentina, on the other hand, its hard to name the branch of law enforcement that is funded well enough to care. My guess is the same thing is true in Greece. I wouldn’t be surprised if the bookstore owner in Ms. Greene’s anecdote drives a new BMW and hasn’t paid taxes in years.

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Rick Santorum’s tax policies and more–imposing his moralizing choices on all

by Linda Beale

Rick Santorum’s tax policies and more–imposing his moralizing choices on all

Rick Santorum is a man who seems to hold sincerely held religious beliefs. The problem is that he thinks everybody that matters holds (or should hold) the same beliefs that he does, or at least should be forced to live in a country that operates by the principles that follow from those beliefs.
Santorum has accused Obama of operating from a “phony theology” (one not based on the Bible). That suggests that Santorum thinks a president is supposed to impose a biblical theology on all presidential work–and that Santorum intends to impose his own “correct” theology if he were to be elected president. See Santorum Questions Education System and Criticizes Obama, New York Times (Feb. 18, 2012). That approach fits with Santorum’s idiosyncratic views on how religion is supposed to influence public life: Santorum has made a point of claiming that he does not hold with the founding principle of separation of church and state–a principle enunciated by Thomas Jefferson, ascribed to by Abraham Lincoln, and articulated splendidly by John F. Kennedy. See Joan Walsh, Santorum’s JFK Story Makes Me Want to Throw Up, Salon.com (Feb. 26, 2012).

This issue is worth pointing out clearly. Here’s what Santorum said

I don’t believe in an America where the separation of church and state is absolute. The idea that the church can have no influence or no involvement in the operation of the state is absolutely antithetical to the objectives and vision of our country. (emphasis added)

And here’s what the statesman Kennedy said when confronting the concerns of the Southern Baptist Convention that a Catholic in office would implement the laws under the dictate of the Pontiff in Rome rather than the U.S. Constitution.

I believe in an America that is officially neither Catholic, Protestant nor Jewish; where no public official either requests or accepts instructions on public policy from the Pope, the National Council of Churches or any other ecclesiastical source; where no religious body seeks to impose its will directly or indirectly upon the general populace or the public acts of its officials; and where religious liberty is so indivisible that an act against one church is treated as an act against all.


What does Santorum’s theology look like and how will it influence public policy under a Santorum presidency? Santorum apparently thinks public schools are a bad idea (he’s likened them to “factories”) and that all children should be able to be home schooled (and indoctrinated in a parent’s religious preferences) at taxpayer cost. See Santorum Questions Education System and Criticizes Obama, New York Times (Feb. 18, 2012); Santorum Exposed: why is Santorum spending your tax dollars on his family (noting that Santorum took $100,000 from Pennsylvania for an online program for his home-schooled kids, even though he resided in Virginia at the time). He thinks kids get “weird socialization” in public schools. Rick Santorum, Kids Get Weird Socialization in Schools, Huffington Post (Feb. 22, 2012).

We already have weakened public schools by permitting taxpayer funds to pay for “nonreligious” items at religious private schools, such as text books and transportation. Since money is fungible, that payment merely subsidizes more religious expenditure on religious education and deprives children in public schools of much needed resources to deal with the huge lingering infrastructure problems of our public school systems. We don’t need to go even further in that direction by moving religion into public schools wholesale, or moving even more children into ideological indoctrination through taxpayer-funded schooling.

Santorum’s theology is backward on women as well, seeming to think more women should be anchored in the kitchen with numerous progeny pulling on apron strings that signify the most satisfying role for women (in his book). One worries how that would play out in a Santorum presidency that could cut off funding for disfavored activities through executive orders, and his public statements bode ill for how it would pan out. Santorum apparently thinks the feminist revolution is bad, because it has made it harder for women to choose to stay at home. See Santorum faces questions on women in the work force, New York Times (Feb. 12, 2012).

 In contradistinction to the importance of individuals’ rights under the First Amendment, he seems to think that every religious institution should be able to impose its beliefs on its workers (no matter what their beliefs are): under Santorum, a woman working in any capacity for the Catholic Church could not be covered in her health care plan provided by her employer for contraception. See Social Issues Rule Day in Candidates Race, AP (Febl 12, 2012) (noting Santorum’s comment that the contraception rule forces churches to do something against their basic (institutional) tenets). He thinks voters should be aware of his religious faith and should consider that in determining whether to vote for him. And his religious faith doesn’t believe in birth control, so he wants to be sure that the tax code provides a huge tax exemption for each child in multi-child families–but not a refundable tax credit that would be of real use to a poor working mother with one child to care for. See Santorum letter, Raise the exemption for children, not the child tax credit, Wall St. J (Feb. 25, 2012) (claiming that he wants an $11,100 personal exemption per child for working families but is against a child tax credit that would be refundable, so is “innocent” of “expanding welfare”).

Santorum’s theology doesn’t seem to find it problematic when a government system systematically redistributes resources upwards to the benefit of the wealthy. His tax plan would result in zero taxation on unearned income, the primary type of income of the wealthy. Welfare for the rich is apparently fine and dandy under Rick Santorum’s version of morality.

crossposted with ataxingmatter

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American Enterprise Institute’s Arthur Brooks on budgets and taxes

by Linda Beale

American Enterprise Institute’s Arthur Brooks on budgets and taxes

Arthur Brooks of the American Heritage Institute had an op-ed in Friday’s Wall Street Journal, “Obama’s Budget Flunks the Marshmallow Test” (Feb. 24, 2012), at A13, in which he claimed that “unfunded entitlements to the middle class, runaway deficits to be repaid in the undefined future, and immense tax increases on the entrepreneurial class” meant that the Obama budget proposal would damage national prosperity and even worse, harm “our national character”.

He spends a lot of the op-ed talking about experiments that showed that youngsters who were able to defer gratification tended to be more successful in life (higher SAT scores, finishing college, more money, etc.) He suggests that the “national character” problem is that we have too many people who think the government should “shove marshmallows in our collective mouths” and “protect[] us from the consequences of our actions.” The implication, of course, is that anyone receiving Social Security and Medicare is harmed by those “entitlements” and being moved “away from the national entrepreneurial ethos, teaching dependency and changing our relationship to the state.”


This is the typical right-wing argument that the safety net is really harmful to people and we’d all be better off returning to the turn of the 18th century when people had to pull themselves up by their own bootstraps and government policy was intended oh so clearly to benefit the wealthy class. By “unfunded entitlements” one assumes that he means to refer to Social Security, Medicare, unemployment benefits and other measures that we have decided as a society make sense. Social Security, of course, is not “unfunded”–we committed to funding it, and therefore borrowed the funds paid into it by workers. We are morally obligated to tax ourselves to pay the pensions we have promised. Brooks (like the GOP and its other “think tank” friends) apparently wants citizens to overlook the moral obligations to those who worked hard all of their lives and paid into Social Security and Medicare and blame the recipients for being unable to defer gratification.
Meanwhile, we are supposed to overlook the subsidies –from the mortgage interest deduction to the charitable contribution deduction for phantom gain we’ve never paid tax on to the preferential rates for unearned income–and pity the upper crust that bears the “immense tax increases on the entrepreneurial class.”

But this is wrong twice. First, the Obama proposals are not “immense tax increases”. They are in fact mostly just allowing the law as written to come into place, rather than continuing extensions of the “temporary” tax cuts installed in the Bush era . As a result of letting the 2001-2003 Bush cuts finally lapse for this high-income group as currently slated to do, we would have a very modest and reasonable restoration of some of the tax rates that existed for the upper crust, a group that has profited enormously from tax policies of the last decades that have favored their type of income over the type of income that the vast majority of working Americans receives.

 Second, these upper crust elites are not an “entrepreneurial class”. A few of them are, and so are some of the poor. When a private equity fund attacks a stable, profitable but not exciting company, leverages it highly, rakes off the borrowed funds as rentier profits, then splits up the company, firing workers, sending it into bankruptcy to break up the union, and walks away, that is not being entrepreneurial. It is being exploitative in ways that destroy communities and companies that provided steady employment. When the upper crust buys and sells shares on the market, they are not being entrepreneurial–they are just engaging in trades of shares. When the wealthy live on the income from their wealth and buy expensive baubles and paintings and names on opera houses, they are not being entrepreneurial, they are just consuming the income from their wealth. Even on those rare occasions when the wealthy invest some of their excess income (and the top 1% has lots of that) directly in a business, they are as likely to (more likely to?) do that in Singapore as in the United States.

And all the while Brooks complains about letting the sunset on the Bush tax cuts for the wealthy tax place as scheduled (just returning us to more or less the reasonable tax rates on the upper class that existed before Bush), he bitches about the deficit. This is the typical right-wing rant. Only cutting earned benefits is viewed as a reasonable way to attack the deficit–and the right tends to cast the recipients of earned benefits as undeserving, as lacking in moral fiber, as Brooks does here. Letting taxes on the upper crust return to something like (but still less than) the taxes in 2001 before the Bush tax cuts is treated as horrible–even though there’s no foundation for claiming that it damages prosperity, much less interferes with real entrepreneurial activity.

The deficit is, ultimately, a real problem. We should think about how to address it long-term and begin to take action to do so. For starters, we should consider how to rejuvenate the US domestic manufacturing sector so that we import less from China and India and export more to them. We should create more government incentives for, and provide more startup funding to, intracity and intercity rail systems, to bring the US into the twenty-first century in public transportation. We should take more steps towards a solvent health-care system, instead of continuing to add on the rentier profits of the insurance companies to the rentier profits of the for-profit hospitals and the exorbitant pay of the MDs. Moving towards a single-payer system should be the first item on the agenda of every person who seriously raises concerns about the deficit. We should cut our military spending starkly in a measured, long-term fashion–not just reduce the annual increases to the budget. We should increase taxes on multinational corporations that have been raking in profits but paying almost no taxes for the last decade. And we should tax the wealthy on their unearned income (and their earned income) at least at the same rates that we tax the rest of us–i.e., we should eliminate the preferential rate for unearned income and the absurd “carried interest” provision that allows private equity managers to pay taxes at half the rate that ordinary workers pay on their compensation.

When Brooks supports removing the instant gratification giveaways (like accelerated depreciation and expensing in the corporate tax code and preferential rates for unearned income and the charitable deduction for value rather than investment in individual tax provisions) that are overly generous to Big Business and the wealthy, then he can come back and we can talk about what further should be done to set the country on a surer national footing.

crossposted with ataxingmatter

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… And Whom Would President Romney Pay Off? Do Tell!

Car sales “are growing so fast that Detroit can barely keep up,” according to an AP report published this evening bearing a Detroit dateline.  “Three years after the U.S. auto industry nearly collapsed, sales of cars and trucks are surging. Sales could exceed 14 million this year, above last year’s 12.8 million.”
The report says that as a result, carmakers and their suppliers are adding shifts and hiring thousands of workers around the country.  Most of the added jobs in the upper Midwest are for the Big Three carmakers and their suppliers. 

That’s the good news.   But two of these carmakers, and many of the suppliers in the Midwest and elsewhere in the country, would have collapsed in 2009 but for the government bailout of those two carmakers.

So the good news is really bad news, Romney told Fox News today, in sticking to his anti-bailout stance.  “The president ‘was paying off the people that supported him and that, by the way, are trying to get him re-elected,’ Romney said,” according to the AP report.

What?  No longer a Detroit-would-have-been-better-off-without-the-bailout claim?  Just an Obama-was-paying-off-the-UAW-and-only-incidentally-saved-the-US-auto-industry-and-hundreds-of-thousands-of-jobs defense? 

I dunno.  This doesn’t sound to me like a winning complaint for the general election.  Especially since the obvious question is: And whom will you be paying off as president, Mr. Romney?

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