Washington Dysfunction: Buffett Rule Defeated (For Now)

Yesterday, the Senate voted down debate on the ‘Buffett Rule,’ effectively ending push by Democrats, including President Obama, the most vocal proponent of the law, to make the rule law. In a highly partisan vote, the measure was voted down 51-45, with only one Republican voting to continue debate, and one Democrat voting against the bill.

Republicans, with their blind intransigence to any sort of tax increase, do not see the bill as a viable solution to addressing either the deficit problem or unemployment. House Majority Leader Eric Cantor has a better idea (more on that shortly).

Republicans essentially have two points of contention with the ‘Buffett Rule’. One, they argue, is that the bill does not significantly address the mounting debt in the country, which is true. The bill will only raise about $46 billion over 10 years. And that money would likely go to small businesses in the form of tax breaks for hiring new workers. Their second contention is that the target group, those making more than $1 million per year, is unfairly asked to pay an even greater share of the overall tax burden. Republicans argue that the wealthy pay an enormous sum of federal taxes, while many in the middle and lower classes pay nothing at all. Again, that’s all true, but when the top 20% control 80% of the total wealth of the country, yet only pay 40% of the total tax burden, their argument loses some leverage. And what Republicans never account in their “the wealthy pay enough taxes” argument is that the middle and lower classes pay a substantially higher proportion of their tax burden in state, local, and payroll taxes.

Republicans do, however, have an alternative solution. House Majority Leader Cantor is expected to bring a bill forward this week targeting tax breaks for small businesses in an attempt to spur investment and hopefully new hiring. The problems with Cantor’s bill are that one: the $47 billion price tag is simply going to be added to the deficit, a seemingly anathema proposal to Republicans over the past two years, but now do not seem to think much of a problem since tax breaks always lead to new hiring and hence more tax revenue. Except they don’t… And that’s the second problem, the Republican alternative relies solely on optimism and that business leaders will invariably invest their tax breaks back into their business to grow. But without customers, businesses are not likely to do any such thing.

At least with the Democrats proposal, the money generated from the ‘Buffett Rule’ will provide additional tax breaks to small businesses by incentivizing new hiring. Republicans protestations that the ‘Buffett Rule’ does nothing to address the unemployment problem are simply not accurate.

But I think this latest squabble again encapsulates perfectly the growing dysfunction in Washington. Republicans propose a plan that adds roughly $45 billion on to the deficit. Democrats have a plan ready to raise roughly $45 billion over the same time period. Why is it so difficult for any of the over 400 members of the House, or the 100 members in the Senate to see they need only put these two bills together? The costs offset. Republicans get their small-business tax breaks to spur investment (a popular position with the American people). Democrats get to raise taxes on the wealthy and address ever-so slightly the deficit problem (popular positions with the American people).

But I don’t foresee this happening. By doing so, Republicans would inadvertently admit that you can spur investment and growth by taking slightly from the rich and giving to the poor(er).

Dems Target Romney Tax Loophole

In a companion piece to my earlier post, Democrats are also looking to close a tax loophole that allows hedge fund managers to avoid paying the standard 35% tax rate on their capital gains, a loophole used by presidential candidate Mitt Romney. The loophole would reduce the deficit by $23 billion over the next ten years.

"Under current tax law, certain kinds of financiers, including private equity investors and some managers of hedge funds, are allowed to treat bonuses like long-term investment income, called carried interest, taxable at the maximum 15 percent capital gains rate. Others have to pay up to 35 percent taxes on their labor income. The cost to the U.S. Treasury is more than $1 billion a year."

Continue reading here.

Where Your Tax Dollars Go

The National Priorities Project last week released an easy-to-read guide to where exactly the government spends our tax dollars. In light of the vitriol of austerity now, now, now in order to fix our debt problem, this seems an apropos piece of data to examine when talking about, if anything, should be cut from the federal budget in order to balance the budget and bring down our national debt. When it comes to those most ardently pursuing austerity measures, they want to cut the programs and institutions least costly. In effect, it's not so much about balancing the budget and reducing our debt, it's just about cutting programs for the vulnerable in order to further subsidize corporations and the wealthy.

You can read the whole article here.

Sucker PAC'ed

President Obama today reversed his long-standing position on super PACs and his supporters donating to them. For a long time Obama has spoken of the dangers of the super PACs and the potential threat they pose to our elections and to democracy as a whole. Since the Citizens United decision back in January 2010, PACs have been able to raise unlimited amounts of money to spend in political campaigns without having to disclose their contributors, nor do the politicians affiliated with these PACs have to admit to any collaboration with them. These PACs have dwarfed the standard PACs of the past, and hence have now become "super" PACs simply based on the financial muscle they can now flex in influencing voters through attack ads. Some have argued that this wouldn't happen, but it's pretty clear the impact super PACs are going to have on the 2012 Presidential election already as evidenced by the brutal Republican primary currently taking place.

Now that Obama has changed his stance on the issue, how will this fair for his campaign and the democratic base. Over at The Huffington Post, Sam Stein writes an intuitive article on the potential impacts it could have on the left and Obama's supporters in general. And I have to agree mostly with what he is saying here. It does not seem likely that the base will abandon the President at all (especially given the choice of potential candidates coming out of the right). Sure, they're going to be angry with the President for a little while, but they will likely see this as consolation for the very nature the Citizens United decision has cast over the country. Just look at what the Koch brothers announced at a dinner this past weekend. The thing is, this presidential election is going to be costly and it's going to be downright ugly. The republicans have already shown their hand. They're attacking one another maliciously. Once the dust settles there, and all these super PACs focus their attention on the left, it's going to be worse. I for one will be happy the President has some allies in his corner to help. I don't like it, certainly, but he can't bring a knife to a gun fight.

But here is what I would hope the President does. He needs to continue to denounce super PACs and the Citizens United decision in general. He needs to reestablish his push for campaign finance reform, even though now it may seem hypocritical and he may have a hard time selling the public in general. But I think if he doubles-down on campaign finance reform he can at least appease the dissatisfied voters that are going to pop up because of this decision. And it's not really being hypocritical. Just because he wants to amend the rules of the game he's playing, doesn't mean he can't play by the rules already established. Mitt Romney made such a case for his 13.9% effective tax rate. After receiving initial criticism for for how little Romney actually pays in taxes, and that he has money in offshore tax havens, he argued not to begrudge him, he's just using the rule of law. And it's true. But Romney has made no mention that he wants to balance the disparities of the tax code (his tax plan will actually make it worse). President Obama still has the chance to do this, to make this argument against his opponents trying to draw him as hypocritical for this decision. Play the game by the rules. If you see a better way for the game to be played, make your voice heard and the people will follow.

Lots of Tax Talk

Sarkozy Tackles Wall Street Tax - On Monday, French President Nicolas Sarkozy took a large step towards implementing a financial transactions tax, a tax largely supported by many world leaders, and publicly backed by German Chancellor Angela Merkel.  Sarkozy, a conservative up for re-election, has been pushing for the tax for some time, but the tax has not received the backing of all the European Union, most notably UK Prime Minister David Cameron, who does disagree with the measure, but would veto the bill in the UK unless the tax is implemented worldwide. Now, feeling the pressure of his campaign and what looks like an attempt to take a more populist stance prior to the election, Sarkozy is saying that even without the full consent of the EU, France is willing to go it alone.

Citing deregulation of the financial markets and rampant, unhindered speculation as some primary causes of the global economic downturn, Sarkozy is arguing that traders “repay” their country for the damage that was done. Sarkozy says there is an inherent “moral issue” with the tax, a levy on financial trading transactions that he claims will generate billions of dollars for France, as well as many other countries still reeling from the global recession, and effectively cut down on the sheer number of trades, which many analysts cite as endemic to the market insecurities and directly caused the May 2010 “flash crash” on Wall Street. The EU finance ministers are set to discuss how effect the tax could be at a summit in March, however, Sarkozy’s administration is planning to introduce a bill as early as February. The US opposes taxes on financial transactions between banks, despite wide public support for them.

Obama Strengthens Jobs Agenda - Speaking of taxes and morality, stateside, President Obama met with business leaders yesterday in the White House to discuss the “moral” case for American companies to keep, or bring jobs back to American workers. “So my message to business leaders today is simple: ask yourselves what you can do to bring jobs back to the country that made our success possible,” in a statement that seemed to paraphrase just slightly JFK’s “Ask Not…” speech. The President is proposing $12 million in his 2013 budget as incentives to companies who invest in America from overseas. For companies that don’t, the President wants to end tax breaks and cut off the corporate welfare so many businesses receive from the federal government. With the economy as the number one issue on voters’ minds as the 2012 election gears up, President Obama is looking to show the public that he is still very much focused on jobs and the economy right now.

Warren Buffett Challenges Congress - And Warren Buffett is talking taxes again as tax season looms. Last August, Mr. Buffett wrote in an op-ed to the New York Times lampooning the disproportionate tax structure in the US. Buffett, with a net worth of $45 billion, says he effectively pays a lower tax rate than his secretary. In response, Senate minority leader Mitch McConnell (R-KY) quipped that if Buffett were feeling “guilty,” he should “send in a check” to the IRS. There was even a “Buffett Rule Act” introduced in the Senate to add a line on tax forms for the rich to donate extra in order to pay down the national debt. Buffett’s response: he’s offering a 1-to-1 match on all voluntary contributions from Congress (3-to-1 for Sen. McConnell’s case). In TIME magazine’s cover story this week, Mr. Buffett waxes benevolent, “It restores my faith in human nature to think that there are people who have been around Washington all this time and are not yet so cynical as to think that [the deficit] can’t be solved by voluntary contributions.” You can read the full article and more about Buffett’s wager in this week’s issue of TIME on newsstands Friday.