Thursday, April 21, 2011
With A Stroke Of His Pen Obama Strikes Back At Citizens United
By Rmuse
A little over a year ago the Supreme Court of the United States made a controversial ruling that says corporate funding of independent political broadcasts in candidate elections cannot be limited. The case known as Citizens United v Federal Election Commission allows corporations to use their general funds to buy campaign ads that was prohibited under federal law, and opened the door for unlimited contributions by corporations as well as unions. The high court cited the 1st Amendment’s guarantee of the right of free speech, and it was the first time a corporate entity was treated like a person. Detractors of the ruling cried foul and correctly pointed out that, “The Supreme Court has handed lobbyists a new weapon. A lobbyist can now tell any elected official: if you vote wrong, my company, labor union or interest group will spend unlimited sums explicitly advertising against your re-election.” The ruling also opened the door for foreign governments to affect the outcome of United States elections.
There was an attempt to assuage the damage from Citizens United in the form of the Disclose Act that passed in the Democratic controlled House last year but failed in the Senate because Democrats couldn’t muster the super majority needed to overcome Republican’s filibuster threat. The failed legislation provided tough new disclosure rules for groups that invest in the election process. President Obama summed up the necessity of the Disclose Act calling it “a critical piece of legislation to control the flood of special interest money into our elections,” and, “that it mandates unprecedented transparency in campaign spending, and it ensures that corporations who spend money on American elections are accountable first and foremost to the American people.” Since Republicans are enamored with the notion of unlimited special interest money without transparency or accountability, it was not surprising they threatened to filibuster the measure. The 2010 midterm elections confirmed Americans’ fears with money from special interest groups and corporations flooding the airwaves with fallacious assertions and inaccurate characterizations of everything from the health law to socialist tendencies of Democratic candidates. It appeared that since the Disclose Act failed, elections would be bought by the highest bidder for years to come, but a report today gives some hope that democracy is not dead in America; yet.
On Wednesday it was reported that President Obama was drafting an executive order that would require companies pursuing federal contracts to disclose political contributions that have been secret under the Citizen’s United ruling. A senior fellow at the Heritage Foundation, Hans A. von Spakovsky, lambasted the proposed executive order saying that, “The draft order tries to interfere with the First Amendment rights of contractors.” Mr. von Spakovsky dutifully made all the right-wing, neo-con arguments including bringing Planned Parenthood and unions into the discussion. The draft order did not exempt any entity from disclosure rules and presents a reasonable requirement on contractors seeking government contracts. Several states have similar “pay to play” laws to prevent businesses from using unlimited donations to buy lucrative state contracts from slimy legislators. Thus far the only legislator who has railed against the proposed order was Senate minority leader Mitch McConnell (R-KY). McConnell called the proposal an “outrageous and anti-Democratic abuse of executive branch authority,” and went on to say, “Just last year, the Senate rejected a cynical effort to muzzle critics of this administration and its allies in Congress.”
McConnell is working under the assumption that the draft order is an attempt to restrict free speech, but there is nothing in the order remotely resembling free speech violations. The exact wording of the president’s executive order says, “The Federal Government prohibits federal contractors from making certain contributions during the course of negotiation and performance of a contract.” There is no free speech issue and the order applies to union contractors as well as non-union contractors. There is no special dispensation of muzzles or prohibitions on political support; only certain contributions during negotiations and performance. Republicans must hate the idea of corporations like Halliburton or Koch Industries losing the ability to contribute unlimited money to legislators for special treatment in securing government contracts, especially no-bid contracts like the ones Dick Cheney’s company’s received in Iraq and Afghanistan. In lieu of veracity, McConnell accuses President Obama of muzzling critics and suppressing free speech when in fact, the order will bring increased transparency and accountability to the process of awarding contracts. Republicans made it their goal to increase transparency and accountability in government in the lead up to the midterm elections, so McConnell should be thrilled that President Obama is helping them achieve their goal.
The real objection Republicans and the Heritage Foundation have with the order is that it removes the possibility of corporate money influencing government more than it already does. The Citizens’ United ruling was a gift to Republicans who do the bidding of corporations in exchange for campaign contributions and it became obvious after reports that two Supreme Court Justices attended a secret Koch Industries strategy meeting prior to voting to extend free speech rights to corporations just in time for the 2010 midterm campaigns.
The midterm elections saw a record amount of campaign contributions from anonymous sources that were illegal for years until the high court broke with precedent and gave personhood to corporations. The rash of Republican governors’ victories and subsequent corporate favoritism and tax cuts at the expense of poor and working class Americans is evidence that there is a serious need for accountability and transparency in campaign financing.
The response from McConnell and the Heritage Foundation is not unexpected and is most likely the tip of the iceberg as far as criticism and false indignation are concerned. The screed from Hans A. von Spakovsky of the Heritage Foundation is a preview of the propaganda right-wing outlets like Fox News and their pundits will spew on an hourly basis once the order becomes common knowledge.
Conservatives are not known for their veracity, and based on von Spakovsky’s portrayal of the order, there is no telling how Fox, Limbaugh, Beck and myriad Republican presidential hopefuls will spin the story, or to what end their faux outrage will take. One thing is certain; Republicans will make the order tyrannical and un-Constitutional before the dust settles and that should be a signal that the president’s proposal is appropriate and in keeping with democratic principles of fairness. Of course, any attempt at ensuring fairness in government is contrary to Republican principles of corruption, fear mongering, and doing the bidding of the Heritage Foundation.
http://www.politicususa.com/en/obama-citizens-united
Wednesday, April 20, 2011
ACLU: Michigan cops stealing drivers' phone data
April 19, 2011 4:15 PM PDT
The Michigan State Police have started using handheld machines called "extraction devices" to download personal information from motorists they pull over, even if they're not suspected of any crime. Naturally, the ACLU has a problem with this.
The devices, sold by a company called Cellebrite, can download text messages, photos, video, and even GPS data from most brands of cell phones. The handheld machines have various interfaces to work with different models and can even bypass security passwords and access some information.
The problem as the ACLU sees it, is that accessing a citizen's private phone information when there's no probable cause creates a violation of the Constitution's 4th Amendment, which protects us against unreasonable searches and seizures.
To that end, it's petitioning the MSP to turn over information about its use of the devices under the Freedom of Information Act. The MSP said it's happy to comply, that is, if the ACLU provides them with a processing fee in excess of $500,000. That's more than $100,000 for each of the five devices the MSP says it has in use.
The ACLU, for its part, says that the fee is odious, and that a public policing agency has a duty to its citizens to be open. "This should be something that they are handing over freely, and that they should be more than happy to share with the public--the routines and the guidelines that they follow," Mark Fancher, an attorney for the ACLU, told Detroit's WDIV.
As of yet there's no suit, but one is likely if the MSP sticks to its proverbial guns and refuses to hand over information about how it's using the cell phone snooping devices, without being first paid off. If litigation does come, the outcome may set a precedent that would have far-reaching effects, and might make a device that most of us carry a pocket battleground in the war of digital privacy.
http://news.cnet.com/8301-17938_105-20055431-1.html
IMF warns of oil scarcity and a 60% oil price increase within a year
In a benchmark scenario of its latest World Economic Outlook (April 2011) the International Monetary Fund (IMF) analyses what it calls oil scarcity (after “energy security” another code word for peak oil?) and warns of a 60% increase in oil prices within a year and almost 90% within 5 years due to a reduced growth in global oil supplies (assumed to be + 0.8% pa, down from a long term 1.8%) and low oil price elasticities of oil demand between 0.02 (short-term) and 0.08 (long term). Even in the best case scenario in which oil price elasticities increase almost 5 fold (greater substitution away from oil), oil prices are simulated to go up by 60% in 5 years.
Summary table of scenario simulation | |||
| Scenario | Input parameter | Oil price increase | GDP |
| Benchmark Fig 3.9 | Oil supply growth down to 0.8% pa | Immediate spike of 60%, 200% in 20 years | - 3% |
| Scenario 1 Fig 3.10 | Oil price elasticity of demand 0.3 | Immediate increase of 50%, but “only” 100% in 20 years | - 1% |
| Scenario 2 Fig 3.11 | Oil supply decline -2% pa | Immediate increase of 200%. In 20 years 800% increase but non-linear impact not covered by model | - 10% |
| Scenario 3 Fig 3.12 | Contribution of oil in output 25% instead of 5% | Long-term reduction of oil price increase by 25% | - 6% |
The IMF report can be found here:
http://www.imf.org/external/pubs/ft/weo/2011/01/pdf/text.pdf
All graphs in this article are from chapter 3 “Oil scarcity, growth and global imbalances”
(I) Oil supply context and outlook until 2015
Starting point for the IMF is the observed change in the 1.8 % oil supply growth trend from 1983 which ended in 2005.
The outlook for the next years has been taken from the Medium Term Oil Market Report of the IEA:
The graph shows negligible net additions in years 2011 to 2013. OPEC’s incremental barrels in 2013/14 are supposed to come from the Saudi oil field Manifa, heavy-sour crude for which a special refinery is under construction.
Aramco Manifa oil field will start in 2013, chief says
9/12/2010
Saudi Arabia’s Manifa oil field is on schedule to start pumping 500,000 barrels a day in 2013 and Saudi Aramco is planning chemical and refinery plants to process the kingdom’s crude, the company’s chief executive officer said.
“It’s planned ultimately for 900,000 barrels per day but the market doesn’t need 900,000 barrels now,” Khalid Al-Falih said today in Dubai. Manifa had been slated for completion next year before oil demand slumped amid the global recession.
No need for 900 Kb/d? That tells you everything about future OPEC capacities
(II) Oil demand price and income elasticities
With trend changes in oil supplies and oil prices in mind the IMF analyses the oil demand price and income elasticities of the past, both short term and long term (past 20 years):
(III) How to calculate oil price increases in a period of oil scarcity
On the basis of the above, the IMF assumes for the next 5 years (p 99,100)
(a) Because capacity increases are the main drivers of supply growth—the short-term price elasticity of supply is very low, with most estimates ranging between 0.01 and 0.1—supply increases will likely be equally modest, except for the buffer provided by OPEC spare capacity. The latter is currently estimated at some 6 million barrels a day. Assuming that between two-thirds and four-fifths of that spare capacity will eventually be tapped, cumulative oil supply growth during 2011–15 could amount to 6 to 8 percent, or 1¼ to 1½ percent annually on average, if the price of oil remains broadly constant in real terms.
(b) The current WEO forecast is for an annual average world GDP growth rate of about 4.6 percent over the period 2011–15.
and calculates as follows:
(1) GDP growth x income elasticity = 4.6 % x 0.68 (table 3.1) = 3 % oil demand growth
(2) Gap between oil demand growth and supply growth 3 % – 1.5% = 1.5 % pa gap
(3) Oil price increase = % gap / demand price elasticity = 1.5% / 0.02 (Table 3.1) = 75%
That of course is shocking. In order to come out of this catch 22 between GDP growth and limited oil supply growth the IMF then embarks on simulating 4 scenarios, whereby oil is used as a 3rd parameter (apart from capital and labour) in the economy’s production functions.
General assumptions in modelling:
- Oil price elasticity of oil demand in both production and consumption: 0.08 (long term) and 0.02 (short term)
- Oil cost share in production: 2-5%
- Oil supply growth below historical trends
- Oil supply response with a low price elasticity of 0.03
- Initially, 40% of oil revenue to be used for intermediate goods inputs, later real extraction cost will increase at a constant 2%
- In oil exporting countries governments will not spend oil receipts immediately but accumulate them in US dollar and use them at 3% pa
- Short term oil shocks (impact on financial markets, confidence effects) are NOT included
(IV) Benchmark scenario
Assumption:
- Average oil supply growth rate of 1.8% is reduced by 1% to 0.8 % pa
Result of benchmark simulation:
- Immediate oil price spike of 60%
- 200% oil price increase over 20 years
- Reduction of GDP in oil importing countries, but surge in goods exports to oil exporters
- Wealth transfer from oil importers to oil exporters, whose currencies appreciate
- Reduction in real interest rates as the oil exporter’s additional oil revenue leads to higher savings
- Emerging Asia benefits from lower world interest rates for their investments
- US and Euro current accounts deteriorate
(V) Scenario 1: greater substitution away from oil
Assumptions:
- Higher, optimistic long term oil price elasticity of demand is 0.3
Result of scenario 1 simulation (dotted red line):
- World oil prices increasing by only 100 % (instead of 200%) in 20 years
- Fall in GDP reduced by 2/3
The IMF concludes: “This simulation highlights the fact that fairly high demand elasticities would be required to negate the effects of lower oil availability” .(p 104)
(VI) Scenario 2: greater declines in oil production
The IMF may be very well aware that the assumed 6 mb/d OPEC spare capacity may not actually exist. This could be the reason why this oil decline scenario is done.
Assumptions:
- The oil supply growth rate is reduced by 3.8% (instead if 1% in the benchmark), leading to a decline of -2% pa (=1.8 % trend – 3.8 = – 2%)
Results of simulation:
- 200% immediate increase in oil price and 800% over 20 years
- Long-term output and current account effects are 3-4 times as large as in the benchmark
- Changes of this magnitude may have non-linear effects which the model does not handle
(VII) Scenario 3: greater economic role of oil
This scenario considers research from economists indicating that certain technologies are possible and remain usable only when there is a ready supply of oil.
Assumptions:
- The contribution of oil to output is increased from 5% to 25% in the tradables sector and from 2% to 20% in the nontradables sector
Results of simulation:
- Deterioration of GDP by factor of 2
(VIII) IMF’s summary and conclusion
“The alternative scenarios indicate that the extent to which oil scarcity will constrain global economic development depends critically on a small number of key factors. If, as in the benchmark scenario, the trend growth rate of oil output declined only modestly, world output would eventually suffer but the effect might not be dramatic. If higher oil prices brought about easier substitution away from oil, not just temporarily but over a prolonged period, the effects could be even less severe. But if the reductions in oil output were in line with the more pessimistic studies of peak oil proponents or if the contribution of oil to output proved much larger than its cost share, the effects could be dramatic, suggesting a need for urgent policy action. In the longer term, the worst effects would be experienced by regions whose production is highly oil intensive, such as emerging Asia, and/or with weak export links to oil exporters, such as the United States. (p 106/7)
This rather optimistic summary comes along with a number of conditions which must be met for the model to work:
- In general the transition to a new equilibrium in the balance between oil supply and demand must be smooth
- Financial markets absorb the huge flood of petro-dollars
- Business responds flexibly to higher oil prices and re-allocates resources accordingly
- Lower real wages do not spark social unrest
The IMF is fully aware of the limitations of their model and that it could be too optimistic:
- “Unlike in the model, real economies have many and highly interdependent industries. Several industries, including car manufacturing, airlines, trucking, long-distance trade, and tourism, would be affected by an oil shock much earlier and much more seriously than others. The adverse effects of large-scale bankruptcies in such industries could spread to the rest of the economy, either through corporate balance sheets (intercompany credit, interdependence of industries such as construction and tourism) or through bank balance sheets (lack of credit after loan losses).
- Finally, the simulations do not consider the possibility that some oil exporters might reserve an increasing share of their stagnating or decreasing oil output for domestic use, for example through fuel subsidies, in order to support energy-intensive industries (for example, petrochemicals) and also to forestall domestic unrest. If this were to happen, the amount of oil available to oil importers could shrink much faster than world oil output, with obvious negative consequences for growth in those regions” (p 109)
- Such benign effects on output [-0.25% in GDP], however, should not be taken for granted. Important downside risks to oil investment and capacity growth, both above and below the ground, imply that oil scarcity could be more severe.
- Moreover, unexpected increases in oil scarcity and resource scarcity more broadly might not materialize as small, gradual changes but as larger, discrete changes. In practice, it will be difficult to draw a sharp distinction between unexpected changes in oil scarcity and more traditional temporary oil supply shocks, especially in the short term when many of the effects on the global economy will be similar.
- In addition, it is uncertain whether the world economy can really adjust as smoothly as the model envisages. Finally, there are risks related to the scope for the substitution away from oil, on both the upside and the downside. The adverse effects could be larger, especially if the availability of oil affects economy-wide productivity, for example by making some current production technologies redundant. (p 110)
Most of the above points have been discussed by peak oil aware analysts for years. It is a big step forward that the IMF has now brought this to the attention of the financial community who will hopefully be able to read between the lines and separate optimistic outlooks from reality.
(IX) Policy implications
The IMF advises, in very diplomatic language and on a macro-economic and structural level:
“Fundamentally, there are two broad areas for action. First, given the potential for unexpected increases in the scarcity of oil and other resources, policymakers should review whether current policy frameworks facilitate adjustment to unexpected changes in oil scarcity. Second, consideration should be given to policies aimed at lowering the risk of oil scarcity, including through the development of sustainable alternative sources of energy.” (p 110)
But this is more interesting:
“Regarding policies aimed at lowering the worstcase risks of oil scarcity, a widely debated issue is whether to preemptively reduce oil consumption— through taxes or support for the development and deployment of new, oil-saving technologies—and to foster alternative sources of energy. Proponents argue that such interventions, if well engineered, would smoothly reduce oil demand, rebalancing tensions between demand and supply, and thus would reduce the risk of worst-case scarcity itself.
(X) Comments:
- The 6 mb/d spare capacity assumed in the introductory calculation is not there, as shown in the case of Saudi Arabia in this post:
2/3/2011
WikiLeaks cable from Riyadh implied Saudis could pump only 9.8 mb/d in 2011
http://www.crudeoilpeak.com/?p=2669
- The model does not consider the impact of peaking and then declining oil production in major oil producing countries. For example, in the above graph of the world’s oil production history we see the oil crises in 1973 and 1979. The OPEC embargo after the Yom Kippur war was only successful AFTER the peaking of the US production in 1970. And that was the non-linear impact:
German highway patrol stopping motorists to check their driving permits (trips deemed “essential”)
during Sunday driving bans in November 1973 on an otherwise empty autobahn
http://www.abendblatt.de/multimedia/archive/00158/konjunktur4_HA_Wirt_158883b.jpg
And the Iranian revolution was preceded by the peaking of Iranian oil production BEFORE the fall of the Shah.
- Oil price movements will not follow straight lines but will zigzag around trend lines as we have already experienced in the last years
- The panels in Figs 3.9 – 3.12 do not show inflation and employment. Due to higher oil prices inflation is going to increase, especially in oil importing countries.
- It is not clear why oil supplies should increase again after 25 years – as mentioned in figure 3.9
- It is also not clear to which oil price level the increases relate to: is it $100 oil?
- The focus should be on the first 5 years in those scenarios which is a reasonable time during which many implied parameters in the models may still be valid. We really do not know how the world will look like in 10 years, not to mention 20 years.
- The above scenarios show that the lowest oil price increase and the smallest negative impact on GDP can be achieved by increasing the oil price elasticity of demand. This means:
(1) Any project which increases oil demand like toll-ways, new airports, new car dependent sub divisions and shopping centres will NOT be increasing this elasticity and thus contribute to a lower GDP than would otherwise be the case. These projects should be immediately abandoned.
(2) Given the short time during which oil prices are estimated to explode the only way to increase price elasticity for petrol is car pooling. This in turn means the financial end for toll-ways – unless tolls are charged per passenger and not by car. Past peak oil ignorance has trapped us now.
(3) There is no more time to transition the car fleet before big oil price increases make current long distance commuting by car unaffordable.
(4) All new infrastructure projects must be designed to lower the demand for oil, fast and at the lowest possible construction cost. That can only be achieved by electric trolley buses & light rail in urban areas, night trains between capital cities and rail freight
Conclusion: The IMF’s World Economic Outlook gives us a glimpse into the future of run-away oil prices and the short time frame during which these prices will reach unaffordable levels. While the IMF’s summary at the beginning of the oil scarcity chapter suggests that the oil supply outlook poses no “major constraint” on global growth, details in all scenarios presented demonstrate that dramatic changes are ahead of us
http://www.crudeoilpeak.com/?p=3054
9 Things The Rich Don't Want You To Know About Taxes
Association of Alternative Newsweeklies
April 14, 2011
For three decades we have conducted a massive economic experiment, testing a theory known as supply-side economics. The theory goes like this: Lower tax rates will encourage more investment, which in turn will mean more jobs and greater prosperity -- so much so that tax revenues will go up, despite lower rates. The late Milton Friedman, the libertarian economist who wanted to shut down public parks because he considered them socialism, promoted this strategy. Ronald Reagan embraced Friedman's ideas and made them into policy when he was elected president in 1980.
For the past decade, we have doubled down on this theory of supply-side economics with the tax cuts sponsored by President George W Bush in 2001 and 2003, which President Obama has agreed to continue for two years. You would think that whether this grand experiment worked would be settled after three decades. You would think the practitioners of the dismal science of economics would look at their demand curves and the data on incomes and taxes and pronounce a verdict, the way Galileo and Copernicus did when they showed that geocentrism was a fantasy because Earth revolves around the sun (known as heliocentrism). But economics is not like that. It is not like physics with its laws and arithmetic with its absolute values.
Tax policy is something the Framers left to politics. And in politics, the facts often matter less then who has the biggest bullhorn.
The Mad Men who once ran campaigns featuring doctors extolling the health benefits of smoking are now busy marketing the dogma that tax cuts mean broad prosperity, no matter what the facts show.
As millions of Americans prepare to file their annual taxes, they do so in an environment of media-perpetuated tax myths. Here are a few points about taxes and the economy that you may not know, to consider as you prepare to file your taxes. (All figures are inflation adjusted.)
1: Poor Americans do pay taxes.
Gretchen Carlson, the Fox News host, said last year "47 percent of Americans don’t pay any taxes." John McCain and Sarah Palin both said similar things during the 2008 campaign about the bottom half of Americans.
Ari Fleischer, the former Bush White House spokesman, once said "50 percent of the country gets benefits without paying for them."
Actually, they pay lots of taxes -- just not lots of federal income taxes.
Data from the Tax Foundation shows that, in 2008, the average income for the bottom half of taxpayers was $15,300.
This year, the first $9,350 of income is exempt from taxes for singles and $18,700 for married couples, just slightly more than in 2008. That means millions of the poor do not make enough to owe income taxes.
But they still pay plenty of other taxes, including federal payroll taxes. Between gas taxes, sales taxes, utility taxes and other taxes, no one lives tax free in America.
When it comes to state and local taxes, the poor bear a heavier burden than the rich in every state except Vermont, the Institute on Taxation and Economic Policy calculated from official data. In Alabama, for example, the burden on the poor is more than twice that of the top 1 percent. The one-fifth of Alabama families making less than $13,000 pay almost 11 percent of their income in state and local taxes, compared with less than 4 percent for those who make $229,000 or more.
2: The wealthiest Americans don't carry the burden.
This is one of those oft-used canards. US Sen. Rand Paul, the tea party favorite from Kentucky, told David Letterman recently that "the wealthy do pay most of the taxes in this country."
The Internet is awash with statements that the top 1 percent pays, depending on the year, 38 percent or more than 40 percent of taxes.
It's true that the top 1 percent of wage earners paid 38 percent of the federal income taxes in 2008 (the most recent year for which data is available). But people forget that the income tax is less than half of federal taxes and only one-fifth of taxes at all levels of government.
Social Security, Medicare and unemployment insurance taxes (known as payroll taxes) are paid mostly by the bottom 90 percent of wage earners. That's because, once you reach $106,800 of income, you pay no more for Social Security, though the much smaller Medicare tax applies to all wages. Warren Buffett pays the exact same amount of Social Security taxes as someone who earns $106,800.
3: In fact, the wealthy are paying less taxes.
The Internal Revenue Service issues an annual report on the 400 highest income-tax payers. In 1961, there were 398 taxpayers who made $1 million or more, so I compared their income tax burdens from that year to 2007.
Despite skyrocketing incomes, the federal tax burden on the richest 400 has been slashed, thanks to a variety of loopholes, allowable deductions and other tools. The actual share of their income paid in taxes, according to the IRS, is 16.6 percent. Adding payroll taxes barely nudges that number.
Compare that to the vast majority of Americans, whose share of their income going to federal taxes increased from 13.1 percent in 1961 to 22.5 percent in 2007.
(By the way, during seven of the eight Bush years, the IRS report on the top 400 taxpayers was labeled a state secret, a policy that Obama overturned almost instantly after his inauguration.)
4: Many of the very richest pay no current income taxes at all.
John Paulson, the most successful hedge fund manager of all, bet against the mortgage market one year and then bet with Glenn Beck in the gold market the next. Paulson made himself $9 billion in fees in just two years. His current tax bill on that $9 billion? Zero.
Congress lets hedge fund managers earn all they can now and pay their taxes years from now.
In 2007, Congress debated whether hedge fund managers should pay the top tax rate that applies to wages, bonuses and other compensation for their labors, which is 35 percent. That tax rate starts at about $300,000 of taxable income; not even pocket change to Paulson, but almost 12 years of gross pay to the median-wage worker.
The Republicans and a key Democrat, Sen. Charles Schumer of New York, fought to keep the tax rate on hedge fund managers at 15 percent, arguing that the profits from hedge funds should be considered capital gains, not ordinary income, which got a lot of attention in the news.
What the news media missed is that hedge fund managers don't even pay 15 percent. At least, not currently. So long as they leave their money, known as "carried interest," in the hedge fund, their taxes are deferred. They only pay taxes when they cash out, which could be decades from now for younger managers. How do these hedge fund managers get money in the meantime? By borrowing against the carried interest, often at absurdly low rates -- currently about 2 percent.
Lots of other people live tax-free, too. I have Donald Trump's tax records for four years early in his career. He paid no taxes for two of those years. Big real-estate investors enjoy tax-free living under a 1993 law President Clinton signed. It lets "professional" real-estate investors use paper losses like depreciation on their buildings against any cash income, even if they end up with negative incomes like Trump.
Frank and Jamie McCourt, who own the Los Angeles Dodgers, have not paid any income taxes since at least 2004, their divorce case revealed. Yet they spent $45 million one year alone. How? They just borrowed against Dodger ticket revenue and other assets. To the IRS, they look like paupers.
In Wisconsin, Terrence Wall, who unsuccessfully sought the Republican nomination for US Senate in 2010, paid no income taxes on as much as $14 million of recent income, his disclosure forms showed. Asked about his living tax-free while working people pay taxes, he had a simple response: Everyone should pay less.
5: And (surprise!) since Reagan, only the wealthy have gained significant income.
The Heritage Foundation, the Cato Institute and similar conservative marketing organizations tell us relentlessly that lower tax rates will make us all better off.
"When tax rates are reduced, the economy's growth rate improves and living standards increase," according to Daniel J Mitchell, an economist at Heritage until he joined Cato. He says that supply-side economics is "the simple notion that lower tax rates will boost work, saving, investment and entrepreneurship."
When Reagan was elected president, the marginal tax rate for income was 70 percent. He cut it to 50 percent and then 28 percent starting in 1987. It was raised by George HW Bush and Clinton and then cut by George W Bush. The top rate is now 35 percent.
Since 1980, when President Reagan won election promising prosperity through tax cuts, the average income of the vast majority -- the bottom 90 percent of Americans -- has increased a meager $303, or 1 percent. Put another way, for each dollar people in the vast majority made in 1980, in 2008 their income was up to $1.01.
Those at the top did better. The top 1 percent's average income more than doubled to $1.1 million, according to an analysis of tax data by economists Thomas Piketty and Emmanuel Saez. The really rich, the top 10th of 1 percent, each enjoyed almost $4 in 2008 for each dollar in 1980.
The top 300,000 Americans now enjoy almost as much income as the bottom 150 million, the data show.
6: When it comes to corporations, the story is much the same -- less taxes.
Corporate profits in 2008, the latest year for which data is available, were $1,830 billion, up almost 12 percent from $1,638.7 in 2000. Yet even though corporate tax rates have not been cut, corporate income-tax revenues fell to $230 billion from $249 billion—an 8 percent decline, thanks to a number of loopholes. The official 2010 profit numbers are not added up and released by the government, but the amount paid in corporate taxes is: In 2010 they fell further, to $191 billion -- a decline of more than 23 percent compared with 2000.
7: Some corporate tax breaks destroy jobs.
Despite all the noise that America has the world's second highest corporate tax rate, the actual taxes paid by corporations are falling because of the growing number of loopholes and companies shifting profits to tax havens like the Cayman Islands.
And right now, America's corporations are sitting on close to $2 trillion in cash that is not being used to build factories, create jobs or anything else, but act as an insurance policy for managers unwilling to take the risk of actually building the businesses they are paid so well to run. That cash hoard, by the way, works out to nearly $13,000 per taxpaying household.
A corporate tax rate that is too low actually destroys jobs. That's because a higher tax rate encourages businesses (who don't want to pay taxes) to keep the profits in the business and reinvest, rather than pull them out as profits and have to pay high taxes.
The 2004 American Jobs Creation Act, which passed with bipartisan support, allowed more than 800 companies to bring profits that were untaxed but overseas back to the United States. Instead of paying the usual 35 percent tax, the companies paid just 5.25 percent.
The companies said bringing the money home -- "repatriating" it, they called it -- would mean lots of jobs. Sen. John Ensign, the Nevada Republican, put the figure at 660,000 new jobs.
Pfizer, the drug company, was the biggest beneficiary. It brought home $37 billion, saving $11 billion in taxes. Almost immediately, it started firing people. Since the law took effect, it has let 40,000 workers go. In all, it appears that at least 100,000 jobs were destroyed.
Now Congressional Republicans and some Democrats are gearing up again to pass another tax holiday, promoting a new Jobs Creation Act. It would affect 10 times as much money as the 2004 law.
8: Republicans like taxes too.
President Reagan signed into law 11 tax increases, targeted at people down the income ladder. His administration and the Washington press corps called the increases "revenue enhancers." Among other things, Reagan hiked Social Security taxes so high that, by the end of 2008, the government had collected more than $2 trillion in surplus tax. George W. Bush signed a tax increase, too, in 2006, despite his written ironclad pledge to never raise taxes on anyone.
It raised taxes on teenagers by requiring kids up to age 17, who earned money, to pay taxes at their parents' tax rate, which would almost always be higher than the rate they would otherwise pay. It was a story that ran buried inside The New York Times one Sunday, but nowhere else.
In fact, thanks to Republicans, one in three Americans will pay higher taxes this year than they did last year.
First, some history. In 2009, President Obama pushed his own tax cut -- for the working class. He persuaded Congress to enact the Making Work Pay tax credit. Over the two years 2009 and 2010, it saved single workers up to $800 and married heterosexual couples up to $1,600, even if only one spouse worked. The top 5 percent or so of taxpayers were denied this tax break.
The Obama administration called it "the biggest middle-class tax cut" ever. Yet last December, the Republicans, poised to regain control of the House of Representatives, killed Obama's Making Work Pay credit while extending the Bush tax cuts for two more years -- a policy Obama agreed to.
By doing so, Congressional Republican leaders increased taxes on a third of Americans, virtually all of them the working poor, this year.
As a result, of the 155 million households in the tax system, 51 million will pay an average of $129 more this year. That is $6.6 billion in higher taxes for the working poor, the nonpartisan Tax Policy Center estimated.
In addition, the Republicans changed the rate of workers' FICA contributions, which finances half of Social Security. The result:
If you are single and make less than $20,000, or married and make less than $40,000, you lose under this plan.
But the top 5 percent, people who make more than $106,800, will save $2,136 ($4,272 for two-career couples).
9: Other countries do it better.
We measure our economic progress, and our elected leaders debate tax policy, in terms of a crude measure known as gross domestic product. The way the official statistics are put together, each dollar spent buying solar energy equipment counts the same as each dollar spent investigating murders.
We do not give any measure of value to time spent rearing children or growing our own vegetables or to time off for leisure and community service.
And we do not measure the economic damage done by shocks, such as losing a job, which means not only loss of income and depletion of savings, but loss of health insurance, which a Harvard Medical School study found results in 45,000 unnecessary deaths each year.
Compare this to Germany, one of many countries with a smarter tax system and smarter spending policies.
Germans work less, make more per hour and get much better parental leave than Americans, many of whom get no fringe benefits such as health care, pensions or even a retirement savings plan. By many measures, the vast majority live better in Germany than in America.
To achieve this, German singles on average pay 52 percent of their income in taxes. Americans average 30 percent, according to the Organizations for Economic Cooperation and Development.
At first blush the German tax burden seems horrendous. But in Germany (as well as Britain, France, Scandinavia, Canada, Australia and Japan), tax-supported institutions provide many of the things Americans pay for with after-tax dollars. Buying wholesale rather than retail saves money.
A proper comparison would take the 30 percent average tax on American workers and add their out-of-pocket spending on health care, college tuition and fees for services and compare that with taxes that the average German pays. Add it all up and the combination of tax and personal spending is roughly equal in both countries, but with a large risk of catastrophic loss in America, and a tiny risk in Germany.
Americans take on $85 billion of debt each year for higher education, while college is financed by taxes in Germany and tuition is cheap to free in other modern countries. While soaring medical costs are a key reason that, since 1980, bankruptcy in America has increased 15 times faster than population growth, no one in Germany or the rest of the modern world goes broke because of accident or illness. And child poverty in America is the highest among modern countries -- almost twice the rate in Germany, which is close to the average of modern countries.
On the corporate tax side, the Germans encourage reinvestment at home and the outsourcing of low-value work, like auto assembly, and German rules tightly control accounting so that profits earned at home cannot be made to appear as profits earned in tax havens.
Adopting the German system is not the answer for America. But crafting a tax system that benefits the vast majority, reduces risks, provides universal health care and focuses on diplomacy rather than militarism abroad (and at home) would be a lot smarter than what we have now.
Here is a question to ask yourself: We started down this road with Reagan’s election in 1980 and upped the ante in this century with George W Bush.
How long does it take to conclude that a policy has failed to fulfill its promises? And as you think of that, keep in mind George Washington. When he fell ill, his doctors followed the common wisdom of the era. They cut him and bled him to remove bad blood. As Washington's condition grew worse, they bled him more. And like the mantra of tax cuts for the rich, they kept applying the same treatment until they killed him.
Luckily, we don't bleed the sick anymore, but we are bleeding our government to death.
http://www.altweeklies.com/aan/9-things-the-rich-dont-want-you-to-know-about-taxes/Story?oid=3971382
Walker Says Wisconsin's Broke, But the Facts Say Otherwise
April 19, 2011 - 12:51pm
The Institute for One Wisconsin, a non-partisan organization, released a report (pdf) last week that says that "despite claims from Governor Scott Walker, Wisconsin is not 'broke.'” Their research found that the state's Gross Domestic Product (GDP) has risen in the past twenty years, and though the state is overall quite wealthy, the bulk of that wealth has shifted to the richest people of the state, while Wisconsin's tax structure "is built around the middle class."
How does this shift in wealth make the state look as though it was broke? One Wisconsin stated that "this discrepancy has led to tax revenues failing to keep pace with Wisconsin's GDP, an over tax-burdened middle class, and budget shortfalls, instead of surpluses." While tax cuts for the wealthiest of the country and state have been extended, the tax burden has now been handed over to the middle class of the state, creating a disparity in people's falling incomes and rising taxes in the middle class.
The Institute for One Wisconsin is the research arm of One Wisconsin Now, a statewide progressive advocacy organization. “It is common sense and fair that people benefiting the most within the economy should pay an amount in taxes proportional to that benefit and that clearly is not happening in Wisconsin,” said Scot Ross, Institute for One Wisconsin's Executive Director. “Our research indicates Gov. Walker’s agenda of tax breaks for big business and the wealthy, raising taxes on the poor, and slashing funding for our public schools and other life bloods of the middle class will likely not solve the problems of Wisconsin’s overburdened middle class and exacerbate the gap between the wealthy and the middle class.”
Click here (pdf) to read the full report.
http://www.prwatch.org/news/2011/04/10631/walker-says-wisconsins-broke-facts-say-otherwise
Tuesday, April 19, 2011
Money Talks
April 11, 2011
Eight of the current Supreme Court Justices are known for their zeal in questioning lawyers. That tendency was on display last week during the oral argument over the constitutionality of an Arizona law known as the Citizens Clean Elections Act, a law that attempts to do a little something about campaigns in which one candidate has a great deal more money than the others. Roughly, the law says that the ones who are outspent should receive a modest subsidy from state funds. By the end of the questioning, however, it had become clear that a majority of the Justices will probably declare the Arizona law unconstitutional. In apparent frustration, Justice Stephen G. Breyer departed from custom and allowed himself a despairing comment about the Court’s treatment of campaign-finance laws, which he has long, and mostly futilely, defended. “It is better to say it’s all illegal than to subject these things to death by a thousand cuts, because we don’t know what will happen when we start tinkering with one provision rather than another,” he said.
The modern history of American campaign-finance reform began about a century ago, in the Progressive Era, when the Tillman Act of 1907 outlawed direct contributions to political campaigns by corporations. Congress tightened some regulations in response to the Watergate scandal, but, with the Buckley v. Valeo decision, in 1976, the Court began relaxing the rules. In that case, the Court asserted for the first time that an individual’s decision to spend money in support of a political cause was, like giving a speech or carrying a campaign sign, protected by the First Amendment. It is this metaphor—that money is speech—that is driving the current Court’s revolution in campaign-finance law.
In many other respects, this Court’s commitment to free speech is admirable. Earlier this year, Chief Justice John Roberts gave voice to the best American tradition of tolerance when he (along with seven colleagues) overturned a damage award against a fringe religious group. The Westboro Baptist Church, which, as it happens, is more of an extended family than an actual church, had launched one of its odious anti-gay publicity stunts near a funeral at which a mother and father were grieving the loss of a son in Iraq. Understandably, perhaps, a judge had awarded five million dollars in a civil suit brought by the father, but the Court recognized that such a judgment threatened the free-speech rights of all unpopular groups. “Speech is powerful,” Roberts wrote, but it was the Court’s duty “to protect even hurtful speech on public issues to ensure that we do not stifle public debate.”
The problem is that there is more than one way to stifle public debate. The idea behind limiting campaign contributions and expenditures is to insure that the voices of the wealthy don’t drown out the voices of those who are less well off. A surreal moment during the Arizona argument summed up how peculiar the Court’s campaign-finance jurisprudence has become. Springing a well-planned trap, Roberts told the lawyer defending the Arizona law, “I checked the Citizens Clean Elections Commission Web site this morning, and it says that this act was passed to, quote, ‘level the playing field’ when it comes to running for office. Why isn’t that clear evidence that it’s unconstitutional?” To many ears, levelling the playing field hardly sounds like a sinister activity, worthy of the Supreme Court’s ultimate sanction. Indeed, as recently as 1990 the Court upheld a campaign-finance law because of “the corrosive and distorting effects of immense aggregations of wealth that are accumulated with the help of the corporate form and that have little or no correlation to the public’s support for the corporation’s political ideas.” But the Court explicitly overruled that decision last year in the Citizens United case. For better or for worse, Roberts is right: leveling the playing field is now verboten.
The implications of the Court’s approach are now becoming more clear. In the Citizens United case, the majority decreed, in an opinion written by Justice Anthony M. Kennedy, that corporations and other organizations could bypass the old limits by giving unlimited amounts not to candidates but to nominally independent groups that support them. (Corporations, of course, traditionally give more to Republicans.) But the logic of the decision—and the views expressed by the majority at the argument last week—suggests that in the future the Court will allow corporations to skip the third parties and give money directly to the candidates. It also implies that any limit on the size of contributions, by individuals or corporations, may now be held to be unconstitutional. The Court did suggest that requirements calling for the public disclosure of contributions might pass constitutional muster, but Congress shows no inclination to enact any such rules. President Obama’s DISCLOSE Act, which would have bolstered disclosure requirements, died in Congress last year. (Clarence Thomas, the silent Justice during oral arguments, believes that even disclosure violates First Amendment rights.)
During the 2010 campaign, Karl Rove pioneered the partisan exploitation of Citizens United by directing Republican donors to American Crossroads and American Crossroads GPS, his largely unregulated political operations. As he told Fox News, “What we’ve essentially said is, if you’ve maxed out to the senate committee, the congressional committee, or the R.N.C. and you’d like to do more, under the Citizens United decision you can give money to American Crossroads.” Rove’s organizations, which raised seventy-one million dollars in the 2010 cycle, have vowed to raise a hundred and twenty million for 2012. Crossroads GPS is supposedly limited to grass-roots activities and public-policy analysis—categories for which it is not currently required to disclose how much it raised or from whom. Needless to say, these categories are so broad that they can, in effect, function like campaign spending.
It is customary to point out that Citizens United also frees labor unions to make unlimited expenditures. Because unions generally favor Democrats, this observation is supposed to lend a gloss of bipartisanship to the Court’s reworking of a century of laws. But, these days especially, any notion of an equivalency of means between unions and corporations is, to put it mildly, far-fetched. So the vulgar truth about Citizens United, the doomed Arizona law, and related future cases remains: the five Justices appointed by Republicans are thrashing the four appointed by Democrats—to the enormous advantage of the G.O.P. Coincidence? You be the judge. ♦
http://www.newyorker.com/talk/comment/2011/04/11/110411taco_talk_toobin
Benton Harbor emergency manager strips power from all elected officials
The Emergency Financial Manager of the city of Benton Harbor has issued an order stripping all city boards and commissions of all their authority to take any action. The order, signed Thursday, limits the actions available to such bodies to calling a meeting to order, approving the minutes of meetings and adjourning a meeting. The bodies are prohibited under the act from taking any other action without the express authority of the Emergency Financial Manager, Joseph Harris.
Actions such as Harris’ are explicitly allowed under a newly approved law which granted sweeping new powers to emergency financial managers. That legislation had drawn large protests, including attempts by some protesters to take over the state capitol building. The sit-in resulted in numerous arrests.
Harris’ move comes as Detroit Public Schools’ emergency financial manager Robert Bobb announced that he would use powers granted to him under the act to change union contracts.
Watch for more from Michigan Messenger’s Eartha Jane Melzer.
Harris’ order is below.
http://michiganmessenger.com/48278/benton-harbor-emergency-manager-strips-power-from-all-elected-officials
