bush

Sidney Shapiro: Do Regulations Cost $1.75 Trillion? Not Exactly

February 9, 2011

Having voted to repeal health care legislation, House Republicans have now taken aim at government regulations, describing efforts to protect people and the environment as “job-killing.”

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Dal LaMagna: "Hail Mary" or "Hail Arianna"?

February 8, 2011

Ken Auletta at the New Yorker is saying that the AOL acquisition of the Huffington Post is Tim Armstrong’s “Hail Mary” pass for AOL. Since yesterday’s announcement AOL’s stock has been failing towards its yearly lows of $19.52 now at $20.50 as I write this. I say this is a “Hail Arianna” pass that will be caught. How can one person make the difference in the fortunes of a company? Think Steve Jobs of Apple, Larry Ellison of Oracle, Bill Gates of Microsoft, Larry Page of Google, and Mark Zuckerberg of Facebook. Arianna is now the president of the Huffington Post Media Group an AOL Company with a domestic audience of 117 million people. I was an original investor in Arianna Huffington’s Huffington Post back in March of 2005. Why? I wanted to see an effective progressive voice operating online. Back then Arianna was a consummate blogger who relentlessly and effectively articulated many of our frustrations with the Bush administration particularly its march into Iraq. Back then Arianna met Ken Lerer a genius strategist and teamed up with him to create the Post. Ken helped built the infrastructure around Arianna turning the blogger she once was into an institution. Last year Arianna met Tim Armstrong the new CEO of AOL and now he teams up with her supplying the infrastructure that multiplies the reach of the Post fivefold. Yes, I made a very nice return on my investment. I am using part of it to aggressively buy up AOL stock and while saying my Hail Ariannas.

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Jodie Allen: Who’s Really to Blame for the Housing Crisis?

January 31, 2011

The nominally bipartisan Financial Crisis Inquiry Commission released its findings last Thursday in tripartite form. One section, the output of the Democratic end of the panel, will focus on the Wall Street and banking sector abuses that contributed to the ongoing crisis. A second take on the troubles, the product of three centrist-leaning Republican panel members, focused on global influences. But the third, by the American Enterprise Institute’s Peter Wallison, repeated the now familiar GOP mantra that the entire blame falls on Democrats and their nurturing of Fannie Mae and its brother-in-housing-market-crime, Freddie Mac. No doubt Fannie and Freddie have plenty to answer for when it comes to squandering taxpayer dollars. But as New York Times columnist Joe Nocera pointed out last month, Wallison’s views on the two government-backed mortgage guarantors have undergone a strange sea change in the last few years. Back in the pre-crisis years of the Bush administration, Wallison would typically fault Fannie and Freddie not for liberal-leaning efforts to encourage home buying among the financially challenged, but for not doing enough to foster widespread home acquisition. A typical Wallison criticism in 2004: “”Study after study have shown that Fannie Mae and Freddie Mac, despite full-throated claims about trillion-dollar commitments and the like, have failed to lead the private market in assisting the development and financing of affordable housing.” Nor was Wallison, a lonely voice among his fellow conservative Republicans. Here, for example, is Stephen Moore, president of The Club for Growth, a preeminent supporter of supply-side tax cuts, writing on the subject in his 2004 book, Bullish on Bush . “Homeownership is at the heart of the American dream,” Moore wrote, while applauding “the decline in mortgage rates [that] has spurred a boom in refinancing that allowed many families to tap tens of thousands of dollars in equity, while in many cases still lowering their money payments.” Gee, and here I thought all that refinancing played a big role in creating the housing debacle! Quite the opposite, Moore assured us: “The result was an economic stimulus that has played a large part, along with Bush’s tax cuts, in fueling the rapid economic growth of the last two years. But the most important impact of lower mortgage rates is that more Americans are for the first time able to own their own homes.” Very touching. So maybe it wasn’t entirely the fault of those mushy-hearted Democrats after all? In fact, I seem to recall that both Moore and Wallison had far higher-level support for their home-ownership boosterism. Didn’t one George W. Bush, then the nation’s president, spend a fair amount of time on the hustings promoting his “Ownership Society”? Indeed, the very subtitle of Moore’s book asserts that this same Bush plan “will make America stronger.” Well, let’s let the president speak for himself. Here he is at a 2003 dinner in the Wings Over the Rockies Air and Space Museum: “This administration will constantly strive to promote and ownership society in America. We want more people to own their homes. I’m troubled by the fact we have a minority home ownership gap in America…” None of this is to say that measures aren’t needed to restrain the public as well as the private financial sectors. But it might be somewhat easier to enact sensible reforms if the fingers of blame were pointed in a more equitable direction.

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Robert Reich: The President Ignored the Elephant in the Room

January 26, 2011

The president’s new emphasis on the importance of investing in education, infrastructure, and basic research in order to build the nation’s long-term competitive capacities is appropriate. For the last three decades the federal government’s spending on these three essentials has declined as a percentage of its total spending, arguably threatening America’s technological and economic leadership. But the president’s failure to address the decoupling of American corporate profits from American jobs, and explain specifically what he’ll do to get jobs back, not only risks making his grand plans for reviving the nation’s “competitiveness” seem somewhat beside the point but also cedes to Republicans the dominant narrative. The address he gave last night could have been given (indeed, was given) by Democrats in the 1980s when Japan seemed to threaten America’s preeminence. Bill Clinton’s 1992 campaign manifesto, “Putting People First,” laid out the case. Only now the competitive threat comes from China. A similar call for economic patriotism and public investment emerged in the 1950s and 1960s, when the competitive threat was the Soviet Union. John F. Kennedy challenged America to get to the moon ahead of the Soviets. Before him, Republican president Dwight Eisenhower committed the nation to building the interstate highways system — forty-one thousand miles of four-lane (sometimes even six-lane) freeways to replace the old two-lane federal roads that meandered through cities and towns — in order to speed troops, tanks, and munitions across the nation in the event of war. And a National Defense Education Act to educate a generation of mathematicians and scientists to catch up with the Soviets in space. President Obama made the parallel explicit: Half a century ago, when the Soviets beat us into space with the launch of a satellite called Sputnik, we had no idea how we’d beat them to the moon. But after investing in better research and education, we didn’t just surpass the Soviets’ we unleashed a wave of innovation that created new industries and millions of new jobs. This is our generation’s Sputnik moment. Reviving these ideas, and the feelings they provoke, is politically astute. A call for national unity and economic patriotism is places the President above partisan rancor, and gives him a rationale for a strong and effective government at a time when Republicans want nothing so much as to shrink it. But the new theme also poses a danger of appearing to ignore the elephant in the room — the nation’s continuing scourge of high unemployment that shows little sign of abating any time soon. It’s one thing to challenge the nation to reembark on the equivalent of a race to the moon when most people feel confident about their own family finances, but quite another when economic security is as endemic as now. The president understandably wants Americans to feel upbeat about the economic recovery — “two years after the worst recession most of us have ever known, the stock market has come roaring back Corporate profits are up. The economy is growing again,” he said — but little of this has yet trickled down to ordinary people who continue to be plagued by a huge debt load, business’s unwillingness to create full-time jobs, and a still fragile housing market. The Great Recession wasn’t due to America’s loss of “competitiveness” relative to the Chinese or anyone else. In fact, American corporations are now enormously competitive, racking up some of their highest profits in history. But much of their success is occurring outside the United States. GE, whose CEO, Jeffrey Immelt, was just tapped to head Mr. Obama’s new advisory council on jobs and competitiveness, has more foreign employees than American. General Motors now sells and makes more cars in China than at home. Republicans and their supply-side economists say the nation got into trouble because government became too large, and the answer is therefore to cut spending, cut taxes, and shrink the deficit. The president, having apparently given up on Keynesian pump-priming, has no retort except to invest for the long term. What the president should have done is talk frankly about the central structural flaw in the U.S. economy — the dwindling share of its gains going to the vast middle class, and the almost unprecedented concentration of income and wealth at top — in sharp contrast to the Eisenhower and Kennedy years. Although the economy is more than twice as large as it was thirty years ago, the median wage has barely budged. Most of the gains from growth have gone to the richest Americans, whose portion of total income soared from around 9 percent in the late 1970s to 23.5 percent in 2007. Americans kept spending anyway by using their homes as ATMs but the bursting of the housing bubble put an end to that – leaving them without enough purchasing power to reboot the economy. So the central challenge is put more money into the pockets average Americans. This narrative would be politically risky (opening Mr. Obama to the charge of being a “class warrior”) but at least honest. And it would allow him to connect the dots — explaining why his new health-care law is critical to reducing medical costs for most working families, why tax reform requires cutting taxes on the middle class while raising them on the rich, why the Bush tax cuts shouldn’t be extended for the wealthy, why deficit reduction must not sacrifice education and infrastructure (both important to rebuilding middle-class prosperity) and why any cuts in Social Security or Medicare must be on the backs of the wealthy rather than average working families. Importantly, it would give him a convincing counter-narrative to the Republican anti-government one. Government exists to protect and advance the interests of average working families. Without it, Americans have to rely mainly on big and increasingly global corporations, whose only interest is making money wherever it can be made. Robert Reich is the author of Aftershock: The Next Economy and America’s Future , now in bookstores. This post originally appeared at RobertReich.org .

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Tina Dupuy: Government Workers Are the New Illegal Aliens

January 25, 2011

Did you know the government can’t create jobs? Nearly two years ago on CNN, former Republican National Committee chairman Michael Steele said, “Not in the history of mankind has the government ever created jobs.” And then, “Trust me.” When Steele said those words, he was widely panned. It was dismissed on the right as a gaffe and debunked on the left as grossly inaccurate . It was laughable… when Steele said it. Cut to: Meet the Press last Sunday. Erin Burnett CNBC’s Squawk on the Street host said, “Government can’t create jobs.” It was left unchallenged by any of the other panelists and host David Gregory. Karen Hughes who worked in the Bush administration, her government j-o-b added, “Well… the president seems to have had a revelation that it’s actually business that creates jobs.” Then to top it all off the Democratic Congressman James Clyburn — agreed. “No, we can’t create jobs, and we shouldn’t. We want them created in the private sector. ” Over 16.5% of Americans are employed by the government , about 22 million of the 135 million payroll jobs. And they’re not just pencil-pushing, useless cushy benefit collectors — but scientists. There are no private sector astronauts. None. Firefighters are government employees as are police. “More cops on the streets” means more government trained and compensated people in your community. The district attorneys, judges and bailiffs draw an Uncle Sam signed paycheck. The government? Law and order. The second largest employer in the country is the United States Postal Service. Try telling the lady raising her family by delivering your overdue notices that the government can’t create jobs. According to the Department of Labor, the private sector has been steadily adding jobs and the public sector has been cutting jobs at the fastest rate in 30 years . Especially local government jobs: teachers, sanitation workers and librarians. So the government does, in fact, create jobs. It also slashes them. Cities and states have been balancing their budgets by cutting back on everything. Most infamously Camden, New Jersey is eliminating half of their police force . To those who work for a living, a job is a job. To those who sloganeer for a living, cutting jobs means magically creating them. It seems government workers are the new illegal immigrants. They are the new group who are treated like parasites on the system; their jobs are illegitimate and disposable. Lawmakers gleefully talk about eliminating government employees’ livelihoods. The rhetoric would have us believe those aren’t even jobs . It’s not the banksters and hucksters on Wall Street who wrecked our economy. No, now they’re the only ones who can save us! It’s not a general revenue slow down tied to a collapse after the Saturnalia of liar loans and real estate cheats. It’s those comfortable public servants who are bleeding us dry! We’re told we’re bankrupt because of well-paid government employees with “Cadillac health insurance plans.” Yes, we still refer to posh things as an American made car from a company, GM, which the U.S. government saved and made profitable again. So everyone who makes an actual Cadillac can thank the government for their job. Out of our $3.5 trillion annual budget we dole out around $1.5 trillions on “defense” spending. It really should be considered “offense” spending these days, but I digress. There are some accounting tricks with mandatory and discretionary spending. But added up: it’s $1.5 trillion . What is the military? Jobs. Careers too. Plus a retirement plan and socialized medicine. It’s a jobs program the government created . It’s also a big wasteful unaccountable sieve for tax dollars. If the GOP-controlled House is really looking to weed out pork (which they arguably are not) they would check out the bacon haven we call the Pentagon. But, better to stick with the empty and symbolic than tackle the difficult.

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Cheryl Wills: Entrepreneurs Counting Down to 2011

December 28, 2010

In all of the debates and discussions about how the recession has ravaged Wall Street, few seem to be focused on entrepreneurs who have been soldiering on in the worst of times. These are the working-class folks who didn’t get a golden parachute or a hefty severance package. Stay in business or starve – that is their daily reality. These are the employers who lost sleep over after telling tearful mothers and fathers that they could no longer afford to keep them on payroll. These are the bosses who went from working 12 hour days to suddenly working around the clock – desperately holding on to clients and their sanity. Martin Gover knows this all too well. He is the Founder, President, Chief Executive Officer and so much more of Momentum Sports Management, Inc. A superstar in the field of agents, he became famous for pairing his celebrity roster of athletes and entertainers with corporations and charities. But his New York City-based business suffered a devastating one-two punch that left him reeling for years. The first blow was immediately after 9/11. Just months before the World Trade Center attacks, the New York City police officer resigned from the force to pursue his dream job and quickly saw his newly formed business go down the toilet. Gover says, “It was horrific on multiple levels but I hung in there.” But the Bush-era recession nearly torpedoed him for good and he fled the Big Apple and relocated most of his business to Las Vegas. He says it was a ‘do or die’ decision. Martin Gover is getting his groove back and he says he’s finding his footing back in New York City with new clients and growing opportunities. Soul food king Carl Redding is also getting his groove back – but he had to leave his old stomping grounds to find it. He sold his legendary Harlem restaurant Amy Ruth’s and fled for greener pastures in Atlantic City in 2010. Redding’s Restaurant is a full-service comfort food restaurant in downtown Atlantic City with 60 employees. Redding says, “I am sure that the recession has had an effect on my business because I can see the hurt and despair on the faces of people in the community.” Redding is optimistic that 2011 will mark a healthy turnaround for his restaurant. Lee McDonald is also hoping for a turnaround. Her two-year-old Maryland based business the Renaissance Group was founded in 2008 – just a few short months after the U.S. entered the recession. The marketing, public relations and event planning firm got hit extra hard because she primarily works with individuals, small businesses and non-profits. McDonald says, “Unfortunately when line items are trimmed from the budget, we are the first to get cut.” But she says 2011 looks promising because new clients are coming on board and the existing ones are staying put. For 32 years, Vera Moore has been holding steadfast to her vision of being the next big cosmetics queen. And just when she nailed the opportunity of a lifetime, getting prominent placement in a major chain, the recession tightened its grip and Moore had to fight to stay afloat. Moore says, “We had to keep everything lean and mean as customers cut back their spending.” It wasn’t pretty, but Vera Moore believes the worst is over and she can’t wait to kiss 2010 goodbye. Moore’s family business has five employees and her skincare and cosmetic products are featured in twelve Duane Reade “Look Boutique” stores. But the cosmetics maven is still putting her best face forward. Drug store giant Walgreens just acquired Duane Reade and Vera Moore hopes her eponymous brand will see even greater exposure with 20 more locations. So here’s to 2011 – entrepreneurs are hoping for a silver lining and a chance to exhale.

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Video: Durbin Says More Disclosure Needed on Credit Card Fees

December 17, 2010

Dec. 17 (Bloomberg) — U.S. Senator Richard Durbin, an Illinois Democrat, discusses proposed rules by the Federal Reserve that could cut debit-card transaction fees by 90 percent. Durbin, speaking with Peter Cook in Washington on Bloomberg Television’s “InBusiness,” also discusses Congress’s decision to pass an $858 billion bill that extends for two years all the Bush-era tax cuts. (Source: Bloomberg)

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HuffPost TV: WATCH: Roy Sekoff Says Obama ‘Just Not That Into’ Tax Cuts For The Rich

December 17, 2010

Roy Sekoff appeared on “The Ed Show” Wednesday night to discuss the reasoning behind Obama’s willingness to extend the Bush-era tax cuts to the richest Americans. The bottom line? “Sometimes the simplest answer is the right answer,” Sekoff said. “[Obama] is just not that into forcing the wealthy to pay their fair share.” Sekoff cited the White House’s unyielding fight on other issues, such as the START treaty, as evidence. “They’re fighting on the hill tooth and nail to pass the START treaty,” he said. “The White House is doing things they’ve never done for tax cuts. They’re pounding the pavement. They’re twisting arms. They’re calling out Republicans. And you know what? It looks like they’re going to get their way on that one. It shows that when they want to fight, they can do it.” Sekoff offered a somber analogy to sum up his feelings on the matter: “I feel like I’m a divorced guy looking at the old home movies of the president I used to love…what happened?” WATCH: Visit msnbc.com for breaking news , world news , and news about the economy

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Joseph A. Palermo: Tax Deal Will Normalize the Bush Era

December 15, 2010

Taken in isolation the “bipartisan” tax cut deal seems like a reasonable measure in the midst of a serious economic recession. But put in its wider political and economic context it is an unmitigated disaster. It’s a disaster because it is based on “supply-side” premises that Obama appears to have fully embraced. And it’s a disaster because the wrecking crew that’s coming to Washington in January will point to the billions added to the deficit as yet another excuse to demand even deeper cuts in every federal program that might remotely benefit working people. Any “gains” in income for most people the tax breaks might create will be more than nullified by the draconian cuts in health and human services, education, even infrastructure projects that are certain to follow. At the state and local level there will be more lay-offs of public employees, more shutting down of public sector institutions, more budget cuts, as the onslaught against any program that might improve the living standards of working people escalates. Worse still, the tax deal drives a bulldozer right through the middle of the payroll tax stripping billions out of Social Security and Medicare that will be used to justify even more cuts. The Republicans will demand that the payroll tax reduction be made permanent — and Obama will give it to them. Younger workers will be funneled into 401ks manipulated by Wall Street, the retirement age will go up, COLAs will be a thing of the past, and the monthly stipends of the elderly, the disabled, widows and orphans, will be reduced. It’s not surprising that the Democratic base is outraged and disappointed. Obama raised expectations to a new high in 2008 with his soaring rhetoric that sounded at the time to be a clarion call for a reaffirmation of core liberal-Democratic values (after so many years in the wilderness and the country suffering for it). People didn’t put their faith in Obama, but their hope; and hope is a much more tenuous bond. They feel betrayed because they didn’t think they were voting for business as usual in Washington, but business as usual is what they got. Whatever President Obama accomplished during his first two years in office, with most of the heavy lifting thrown on Nancy Pelosi’s shoulders, his decision to normalize the sweeping changes in American governance of the George W. Bush period will likely neutralize any lasting positive effects for Democrats. Even George W. Bush conceded that Wall Street “got drunk.” Yet somehow he passed the hangover onto us. It turned out to provide the perfect context of crisis for rolling back social programs the Republicans never supported. Sweet. Bush was never a “conservative.” A conservative would have repealed the tax cuts after 9-11 created new challenges from international terrorism sure to cost billions, as well as the need to rebuild New York City and the Pentagon and reform the national security institutions. The tax deal of 2010 is a bizarre “bipartisan” enshrining into law of Bush’s fiscal recklessness of 2001. Obama has normalized the Bush era by accepting his premises about the “war on terror,” failing to close Guantanamo or hold anyone accountable (even John Yoo) for torture. He normalized the Bush era by escalating Bush’s futile counterinsurgency war in Afghanistan, making it all the more difficult for the United States to disengage later on. And now, if the “bipartisan” tax deal goes through he will normalize (and even institutionalize) Bush’s supply-side economics that never ceases in its drive to bestow boons to the richest people and corporations in the country. Bush’s tax trap set nearly a decade ago sprung right on schedule to ensnare a Democratic president. It’s slightly ironic that a President who big corporations have targeted with hundreds of millions of dollars to destroy would turn around and give them and their CEOs everything they ever wanted. Stuffing more cash into the already bulging pockets of billionaires and millionaires, after a 30-year period that has created Gilded Age levels of inequality, is unwise public policy sure to come back to bite Obama later. Yet he skips happily into the mouth of the wolf.

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Andrew Fieldhouse: Any Payroll Tax Cut Should Be Designed Not to Hurt Lower-Income Workers

December 15, 2010

Under the tax cut package negotiated by President Obama and Senate Republicans, a one-year 2 percent payroll tax cut would be substituted for the extension of the Making Work Pay (MWP) refundable tax credit proposed in the President’s budget request for fiscal year 2011. Many liberals have objected to the payroll tax credit on political grounds because it potentially undermines the dedicated funding source for Social Security, but there is also a compelling economic argument against this trade-off. While the payroll tax cut comes at a much higher price tag and would thus have a greater net impact on job creation, the cut would actually lower disposable income for all tax filers earning less than $20,000 a year. Dedicating the revenue associated with the payroll tax cut to an expanded MWP refundable credit would address both concerns. Alternatively, if political constraints require a tax cut rather than a refundable credit, we recommend adding a “hold harmless” provision to the payroll tax holiday to protect lower-income earners from seeing their disposable income reduced. The “hold harmless” provision would be relatively inexpensive, carry a particularly high “bang per buck” (by increasing disposable income of those individuals with the highest marginal propensity to consume), and help alleviate the rise in poverty associated with the recession. The MWP refundable tax credit — the largest tax provision of the American Recovery and Reinvestment Act — refunds 6.2 percent of earned income up to a maximum credit of $400 for individuals ($800 for joint filers). Making Work Pay also included a phase-out of 2 percent of income on earnings above $75,000 for income ($150,000 for joint filers), so individuals earning over $95,000 ($190,000 for joint filers) would not receive any credit. The payroll tax cut, on the other hand, would temporarily reduce payroll taxes from 6.2 to 4.2 percent (on the employee side only) for all tax filers. The taxable earnings threshold for Social Security payroll taxes is currently set at $106,800 — above which no Federal Insurance Contribution Act (FICA) taxes are charged — so the maximum credit under the payroll tax cut would be $2,136. Because of the higher cap and lack of a phase-out threshold for higher-income earners, the payroll tax cut would increase disposable income for almost all tax filers. The payroll tax cut would, however, hurt individuals earning less than $20,000 relative to the MWP credit because of the slower phase-in rate and lack of refundability. For example, a tax filer earning $10,000 would see a $400 credit under MWP (having hit the maximum credit amount) but only a $200 credit under the payroll tax cut. The breakeven point for a lower-income tax filer would be $20,000, where the value of the 2 percent payroll tax cut would rise to the $400 maximum credit under Making Work Pay. Thus, compared to the president’s proposal to extend Making Work Pay, the payroll tax cut serves as a tax increase for all earners making less than $20,000. Economic theory suggests that adding a “hold harmless” provision would see a very high “bang per buck” and would pump even more stimulus into an economy that desperately needs to create jobs. Econometric evidence is also supportive of the higher economic return on refundable tax credits than many other short-term countercyclical policies. Moody’s Analytics chief economist Mark Zandi estimates that the payroll tax credit will see $1.09 in economic activity for every dollar spent, a less cost effective stimulus than the Child Tax Credit ($1.38), Earned Income Tax Credit ($1.24), or MWP ($1.17) refundable credits. By way of contrast, extensions of the Bush income tax cuts would generate only 35 cents on the dollar and the “accelerated depreciation” business expending credit would yield only 24 cents on the dollar. We estimate that the additional estate tax relief ($25 billion more expensive than reinstatement at the 2009 parameters) would have a much lower — indeed negligible — impact on economic activity and employment. While many liberals would have designed a tax relief and stimulus package quite differently (particularly with regards to the estate tax), the projected economic impact of the package is nonetheless compelling in many respects. For instance, the Center on Budget and Policy Priorities (CBPP) estimates that the expanded EITC, the CTC, and the payroll tax cut will keep 2.4 million Americans — half of them children — out of poverty. Given that poverty climbed to a 15-year high of 14.3 percent in 2009 and is likely to climb higher in 2010, cutting the disposable income of working Americans earning less than $20,000 annually would unconscionably worsen poverty in America. CBPP estimates that continuing the refundable MWP tax credit instead of enacting a nonrefundable payroll tax cut would keep an additional 500,000 Americans out from under the poverty line. Based on the Tax Policy Center’s distributional analysis of the two tax cuts, we estimate that a “hold harmless” provision for low-income workers would cost roughly $6.5 billion. The Congressional Budget Office estimates that the payroll tax cut would cost $112 billion, so both the tax cut and the “hold harmless” provision could be funded under the $120 billion placeholder in the negotiated tax cut deal. While costly extensions of the Bush tax cuts for the wealthy and additional estate tax relief may be the concessions to Republican lawmakers needed to move any additional stimulus, including middle class tax relief, there is no defensible reason to concede a tax hike on those earning less than $20,000. Short of replacing the entire payroll tax cut with a more progressive and stimulative refundable tax credit, a “hold harmless” provision would make for sound economic and social policy.

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Tax Cuts For Rich Move Forward In Senate

December 13, 2010

WASHINGTON — The Senate on Monday voted to move forward on a a two-year extension of the Bush tax cuts as well as a package of tax cuts and credits for the middle class, ethanol subsidies and a 13 month reauthorization of unemployment insurance. The vote follows months of insistent bipartisan concern about the size of the federal deficit. The vote is being held open to accommodate senators arriving in town, but the package already had 66 votes in favor of moving forward shortly after 4:15. Eight senators stood against the deal: Republican John Ensign (R-Nev.); Democrats Jeff Bingaman (N.M.), Sherrod Brown (Ohio), Russ Feingold (Wisc.), Kirsten Gillibrand (N.Y.), Pat Leahy (Vt.) and Mark Udall (Colo.); and Bernie Sanders (I-Vt.), who spoke for hours against the bill on Friday. UPDATE: As of 7:30 p.m. ET, the final vote stands at 83-15 (2 not voting). Of the 15 votes against, nine came from Democrats, five from Republicans and one from Sanders. The bill, with the unusual name of Reid-McConnell, originated in negotiations between President Barack Obama and congressional Republicans. House Democrats last week resolved to urge their leadership not to bring the bill to the floor, but lower-chamber leaders have been signaling that the House will consider the Senate product — though there will be attempts to amend it. “It’s clear it’s the right thing to do for middle-income Americans,” said Sen. Max Baucus (D-Mont.), chairman of the chamber’s finance committee. Baucus said he was confident the bill would make its way through the House. “It will pass,” he said. House Democrats are particularly offended by the estate-tax portion of the compromise, which funnels some $25 billion to some 6,600 families . The provision exempts the first $5 million in inheritance from taxation and reduces the rate on the rest. Rep. Jim McDermott (D-Wash.) said he objected to the unfairness of the package. It “gives $68 billion to the trust-fund babies with security, it’s going to last two years. To the unemployed, he gives $56 billion.” Extending tax cuts for two years, said McDermott, while giving unemployment insurance for one, shows a legislative chamber with its priorities far askew. When the deal was first announced, it was greeted with fury by some Democrats. “I’m going to argue forcefully for the nonsensicalness and the almost, you know, moral corruptness of that particular policy,” said Sen. Mary Landrieu (D-La.), walking into a meeting with Vice President Joe Biden and Senate Democrats to discuss the deal on last Tuesday. “This is beyond politics. This is about justice and doing what’s right.” On Monday, though, Landrieu said she would “reluctantly” vote to support cloture and move forward with the bill. “I’ll be voting yes today, but I’m hoping there will be some amendments,” she said before the vote. Landrieu was the 66th “aye.” Landrieu is working with Sen. Jeff Merkley (D-Ore.) to try to get a vote on an amendment that would end the tax cuts for the wealthy and apply the revenue to Social Security. But even if it’s considered, the amendment does not have enough votes to meet the filibuster-proof threshold of 60 that has become a standard requirement for legislation in the Senate. Asked what happened to her anger from last week, Landrieu said it remained — but it was only for the tax cuts for millionaires, not the entire package. “I’m still outraged about it,” she said.

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Obama Tax Cut Deal Projected To Cost More Than Stimulus

December 10, 2010

WASHINGTON — President Barack Obama is predicting congressional approval of the tax-cutting compromise he has reached with Republican leaders, but he’s not ruling out that unhappy Democrats will make some changes in the mammoth legislation. In an interview with NPR released Friday, Obama said that despite a rebellion by many Democrats against his tax deal, it will pass because “nobody – Democrat or Republican – wants to see people’s paychecks smaller on Jan. 1 because Congress didn’t act.” The pact would extend cuts in income tax rates for all earners that would otherwise expire next month, renew long-term jobless benefits and trim Social Security taxes for one year. Democrats have objected that it is too generous to the rich, especially its provisions cutting estate taxes for the wealthiest Americans. House Democrats voted in a closed-door meeting Thursday not to allow the package to reach the floor for a vote without changes to scale back tax relief for the rich. Asked about those objections, Obama said there will be talks between House and Senate leaders about the package’s final details. “Keep in mind, we didn’t actually write a bill,” he said of his agreement with GOP leaders. “We put forward a framework. I’m confident that the framework is going to look like the one that we put forward.” Rep. Michele Bachmann, R-Minn., one of the House’s highest-profile conservatives, said that Democratic discontent highlights the difference between the two parties. “The compromise that was forged wasn’t rich enough for Speaker Pelosi and the Democrats,” Bachmann said on NBC’s “Today” show, referring to Nancy Pelosi, D-Calif. “They want the taxes up even higher. And that’s really where the line of demarcation is in this discussion.” Speaking separately, Tim Kaine, chairman of the Democratic Party, said Democrats objecting to Obama’s tax deal may be showing voters in their districts that they have “some spine” and predicted that the two-year extension of the lowered income tax rates would eventually help Democrats. “By extending it two years, and I think this is going to happen, you’re putting the debate about tax cuts for the wealthiest right in the heart of the presidential election. I think the president feels very confident he can make the case,” Kaine said on CBS’ “Early Show.” The measure appears headed for Senate approval after negotiators added a few sweeteners to promote ethanol and other forms of alternative energy. Tax provisions designed to increase production of hybrid automobiles, biodiesel fuel, energy-efficient homes, coal and energy-efficient household appliances would be extended through the end of 2011. There is no precise timetable for passage in the Senate, but a test vote was set for Monday afternoon that appears likely to demonstrate overwhelming support for the legislation. Supporters say it would help accelerate a sluggish recovery from recession. “This bill is not perfect, but it provides the economic boost middle-class families and small businesses in Nevada and across America need,” said Senate Majority Leader Harry Reid, D-Nev. “Middle-class families and small businesses will see their taxes go down.” At the insistence of Republicans, the measure includes a more generous estate tax provision. That infuriated Democrats already unhappy with Obama for agreeing to extend tax cuts at incomes of more than $200,000 for individuals and $250,000 for couples. In all, the package would cost about $855 billion, according to a preliminary congressional estimate. “If we pass this agreement as written, it says we are going to continue the Bush policy of trickle down economics for at least two more years, and in my mind, that is absurd,” said Sen. Bernie Sanders, a Vermont independent. Vice President Joe Biden has told Democrats in closed-door meetings this week that they are free to oppose the agreement but it might unravel if they do. “If it’s take it or leave it, we’ll leave it,” said Rep. Lloyd Doggett, D-Texas, after a closed-door meeting in which rank-and-file Democrats chanted, “Just say no.” Despite significant criticism from fellow Democrats, Obama has said the sweeping measure is necessary to help the struggling economy recover from the worst recession in decades. Senate GOP leader Mitch McConnell has said he expects most Senate Republicans to support the tax bill. Prominent House Republicans back it, too. Among the energy tax provisions added was an extension through 2011 for the current 45-cent per gallon subsidy for ethanol, at a cost to the Treasury estimated at nearly $5 billion. The issue is of particular interest to lawmakers from Midwestern states with grain crops. “While this legislation is not as long as we had hoped, it is a commonsense approach that will ensure American ethanol production continues to evolve and new technologies commercialized,” said Bob Dinneen, president of the Renewable Fuels Association.

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Small Business: Tax Cut Deal Won’t Spur Hiring

December 10, 2010

CHICAGO (By Deborah L. Cohen): Extending Bush-era tax breaks won’t be enough to encourage business owners like Brad Schulman to begin hiring. “They’ve got a noose around small business,” said Schulman, founder of Northbrook, Illinois-based Green Planet Bottling (www.greenplanetbottling.com) , a maker of eco-friendly plant-based water bottles. “I’ve got no money to reinvest.” Schulman is a proponent of extending tax relief across the board, arguing it would act as a psychological boost to the small business community. But he added other policy changes must occur before he expands his 10-man operation, which has been growing steadily despite the down economy and is set to post revenue in excess of $5 million this year. Foremost, there must be substantial moves to improve small companies’ access to capital at a time when banks are still reluctant to lend, Schulman said. A life-long Democrat, the 45-year-old broke ranks and voted Republican in last month’s midterm elections. He added he won’t be enticed to hire new employees now based on the prospect of better tax returns in the future. “That thought process will remain front and center because we need to keep the lights on,” said Schulman. This week President Barack Obama unveiled a deal with Republicans that would extend the Bush-era tax rates for all Americans. The compromise followed a largely symbolic bill passed late last week by the Democrat-controlled House of Representatives that limited extended tax cuts to dual-income households earning below $250,000, the threshold originally promoted by the Obama administration. HOT-BUTTON ISSUE The tax issue has been an emotional one for many in the small business community, ranging from struggling mom-and-pops to the more well-heeled entrepreneurs that Democrats argued could afford floating additional tax dollars to the Feds. Longtime small business advocacy groups such as the National Federation of Independent Business and the Small Business & Entrepreneurship Council lobbied for extended relief with no income limits. On the other side, a network of business owners called Business for Shared Prosperity is opposed to extending the cuts for those in the top income brackets. “I think it makes financial sense and I think it’s also the right thing to do in terms of my personal philosophy,” said David Bolotsky, a Business for Shared Prosperity petitioner and the CEO of New York-based Internet gift retailer UncommonGoods (www.uncommongoods.com ). “We’re focused on the long term in terms of growing the business, so a change in the tax rate is not going to alter what I need to do for competitive and strategic reasons to grow the business,” said Bolotsky, 47, who declined to share financials. Others were less political but equally opinionated about what they perceived as an issue that would have little bearing on their day-to-day decisions. They include John Jordan, a long-time Washington-based publicist who has run his own one-man shop since 2003. He said paying higher taxes would not have influenced his business decisions in the coming year. Jordan, who also supports letting the cuts expire for wealthier owners, said his combined household income exceeded the $250,000 Obama relief threshold. “I don’t gain or go after clients, or try to reach retainers with an eye toward marginal tax rates,” said the 47-year-old. “You do what you gotta do. You don’t worry about running the tax numbers.” MOVING PARTS Tax attorney and small business expert Barbara Weltman is skeptical that members of Congress understand what it takes to keep a small company going in a rough economy. “If a business owner has to pay higher taxes on net earnings, it’s that much less available to do other things we want businesses to do – hire, buy equipment, expand,” she said. “I just don’t think they understand how businesses work.” Weltman, herself the owner of two small businesses, favors longer-term solutions that will remove the uncertainty plaguing many small companies. She supports making permanent extensions of the tax relief at all income levels and longer-term tax reform. “These year-by-year extensions don’t make it possible for people to plan,” she said. “Congress has to meet and deal with this over and over again.” Schulman agrees there are still too many moving parts in the current economy to prompt significant capital outlays for his business. The value of his home – among his largest assets – dropped 30 percent during the recession. Meanwhile, Green Planet Bottling is facing higher healthcare costs and the first of his two teenage children is set to head off to college next year. “Why would I want to invest money in a down market unless I know it’s close to being an up market?” said Schulman. “I’m still not hiring anybody. They got to take the noose off of me.” Copyright 2010 Thomson Reuters. Click for Restrictions .

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FLASHBACK: Obama Slams Bush Tax Cuts For ‘Millionaires And Billionaires’ (VIDEO)

December 7, 2010

NEW YORK — Over the past three months, Obama described the Bush-era program that he’s now adopting as his own as “tax cuts for millionaires and billionaires” no fewer than 50 times, according to a review of his stump speeches, weekly addresses, and comments to campaign donors and members of the news media. The rhetoric was deliberate: Obama was trying to cast Republicans as the party of the wealthy while his fellow Democrats represented the middle class. He used that rhetoric at campaign events across the country, from Los Angeles and Las Vegas to Des Moines, Iowa, and Richmond, Virginia. During at least three pre-election rallies, Obama, playing to crowds filled with die-hard supporters, railed against the tax cuts for the wealthy, eliciting rounds of boos from the audience, according to White House transcripts. Video produced by HuffPost’s Ben Craw Obama repeated the “millionaires and billionaires” line once again on Monday in announcing the deal, but with a slight twist: Rather than rejecting Republicans’ call for a full extension of the tax cuts, he simply expressed opposition to their demand of making it permanent. Obama didn’t make that distinction on the campaign trail. But in addition to the class-warfare rhetoric, Obama described the tax cuts as unaffordable and ultimately ineffective. On Sept. 25, during his weekly radio address Obama referred to the initiative as “tax breaks we cannot afford.” A few days later, during an event the White House billed as a “backyard discussion” at the home of a family in Albuquerque, New Mexico, Obama said the nation would “have to borrow the $700 billion” — the estimated cost of the cuts over 10 years — “from China or the Saudis or whoever is buying our debt, and then we’d pass off on average [a] $100,000 check to people who are making a million dollars, up to more than a billion dollars.” Obama wanted to make sure that his audience understood that either the U.S.’s main rival for decades to come would be financing the tax cut, or the nation that sells the U.S. most of its oil. He used the reference to China and Saudi Arabia a few times. And while Republicans and some Democrats have claimed that no one — even the wealthy — should have their taxes raised during a recession because that could stunt the recovery, Obama cast aside those fears, arguing on Sept. 29 that “98 percent of Americans wouldn’t see any benefit from it.” On Monday, the White House tone towards the tax cuts changed from hostility to acceptance. On a conference call with reporters, senior administration officials declined to explain why. If passed by Congress, the tax initiative would expire in two years. The Federal Reserve forecasts the unemployment rate to hover around 8 percent at the end of 2012. Prior to the current recession, unemployment hadn’t reached the 8 percent level since January 1984. There have been two recessions since then: 1990-91 and 2001. It’s unclear how the White House will be able to let the tax cuts lapse with 8 percent unemployment. Senior administration officials declined to comment when asked. ************************* Shahien Nasiripour is the business reporter for The Huffington Post. You can send him an e-mail ; bookmark his page ; subscribe to his RSS feed ; follow him on Twitter ; friend him on Facebook ; become a fan ; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455. Ben Craw is the video editor for The Huffington Post. He can be reached at bencraw@huffingtonpost.com.

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Dean, Ex-Obama Advisers Lament President’s Tax-Cut Deal

December 7, 2010

WASHINGTON — Obama’s decision to craft a deal with Republicans on the Bush tax cuts may have been, as administration officials insist, the product of economic and political necessities. But it has created deep reservoirs of distrust with the president’s ability to handle high-stakes negotiations and has compelled even former staffers to level blunt criticisms about the White House’s politics. “I think the president made a huge mistake in supporting any extension of tax cuts,” said Steve Hildebrand, the deputy national director of Obama’s presidential campaign and a strategist who has long grown sour on Washington. “We can’t afford it as a country, and we should recognize that. We need his leadership and bipartisan congressional leadership on it. And the whole idea of negotiating with Republicans who won’t negotiate in good faith, it is not the direction the president should be taking.” Hildebrand — while hesitant to discuss politics over policy — was reacting to the deal reached Monday evening that would extend the Bush tax rates for two more years in exchange for a 13-month extension of unemployment benefits and other tax cuts provisions the president has long favored. He wasn’t the only former Obama hand to speak critically about such an exchange, but the first since the administration announced the deal. That none of the measures would be paid for was a major problem, Hildebrand and other Democrats stressed. Writing hundreds of billions in tax cuts was simply incompatible with supporting long-standing safety net programs, let alone protecting the country’s long-term fiscal security. “We clearly have to deal with the deficit; it is probably the biggest problem facing the country,” said former DNC header Howard Dean. “But you can’t deal with the deficit from a political point of view if you say to Democrats, we are going to cut Social Security and Medicare and, by the way, give tax cuts to those who make a million dollars a year.” Antipathy, however, was saved as much for the process of securing the final tax cut package as for the substance of the package itself. Suggesting that the deal could die in the House, Dean echoed a question other Democrats offered in the hours after Obama’s announcement: Was enough secured in return? “I’m not so sure you can get the House to agree to this in conference committee,” he said. “And what about the president’s other priorities: Don’t Ask Don’t Tell, START, DREAM Act? I mean, do we not get anything for the $700 billion?” Certainly, Democrats got something, perhaps even more than expected. Discussing the arrangement with the Huffington Post, senior administration officials stressed that even the labor federation “AFL-CIO did not think…we could keep” the 13 months of unemployment insurance. The actual cost of the provisions that the White House secured, meanwhile, was pricier than the cost of extending the Bush tax cuts for the rich — $215 billion (including UI) versus $95 billion, all over two years. And so it wasn’t entirely surprising that some more progressive-minded columnists and economists opined favorably (albeit with caveats) about the final package. As Ezra Klein noted , “the end result is between $200 and $300 billion more in tax breaks, tax credits and unemployment insurance” that is, effectively, a stimulus. And yet, for skeptical lawmakers, it was hard to ignore how bungled the entire process seemed to be. What could the president have gotten had he stood a bit firmer in negotiations? “I don’t like this at all,” Rep. Jerrold Nadler (D-N.Y.) said. “The president has not put up much of a fight.” Moreover, why should the caucus trust the White House to re-litigate this same battle when the tax rates expire two years from now? “My view is that if you’ve got a problem, deal with it now and you don’t kick it down the road for later,” Rep. Peter Welch (D-Vt.), who is whipping members to oppose the deal, told the Huffington Post. “Two years from now, we are going to have the reality of a Republican majority in the House, and we know their point of view on this. They will be for more tax cuts and higher deficit…this was our best chance.”

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Dave Johnson: Do Tax Cuts Help the Economy?

December 1, 2010

In the news: Congress debates extending an extra tax cut for the rich, Obama’s “deficit commission” proposes tax cuts to cut the deficit. Both of these assume tax cuts help the economy. But do they? What is the record? In this morning’s public hearing of the National Commission on Fiscal Responsibility and Reform (deficit commission), Rep. Paul Ryan repeated the conservative mantra: “Economic growth comes from lower taxes.” You may have heard this before. In fact, you may not have been able to avoid hearing this, repeated over and over, until you are running in circles with your hands over your ears. You can’t get away from it. In the Congress, Republicans and some conservative Democrats are demanding that the special Bush-era extra tax cut for the wealthy be extended, repeating (over and over and over and over and over) that you must not raise taxes in a recession, because it will hurt growth. It is certainly a convenient argument, if you are really, really wealthy. But is it based on reality or ideology? A look at the record can provide some answers to that question. To start, here are three charts I have been using that show what happened after previous tax cuts: First, as top tax rates declined, so the the GDP: Second, a different look at growth since the 80s tax cuts using 12-quarter rolling average nominal GDP growth: Third, the effect of tax cuts for the rich on the country’s debt: Economist Mark Thoma yesterday at MoneyWatch, ” Did the Bush Tax Cuts Lead to Economic Growth? “: What impact did the Bush tax cuts have on economic growth? The evidence is not favorable. For example, according to this Census report (see table A1), median household income in 2007, adjusted for inflation, was lower than it was in 2000. Employment growth was particularly weak… real wages and salaries grew at a 1.8 percent average… as compared with a 3.8 percent average. ( Click through to read .) It’s Possible for Tax Cuts to Reduce Economic Growth Furthermore, even the part of the tax cuts used for investment purposes may not result in enhanced long-run growth… the growth disappears as soon as the bubble pops. In fact, this type of investment leads to reduced growth relative to what could have been achieved with other investments. Thus, to the extent that tax cuts helped to fuel the housing bubble, they actually harmed rather than helped long-run growth. ( Click through to read .) The Bottom Line Like it or not, tax increases will be required. If allowing the Bush tax cuts to expire for the wealthy is the only acceptably equitable way to raise taxes in this political environment, then there is little evidence that this will be harmful. ( Click through to read .) It is obvious that the Reagan and Bush tax cuts for the wealthy have hurt us in many ways. They hurt the economy. (See charts above.) (Also, just look around you.) They caused massive debt . They hurt government’s ability to do its job. They caused extreme concentration of wealth. They changed us from a democracy to a plutocracy: government of, by and for the wealthy. They kept us from maintaining and modernizing our infrastructure . But this was the plan all along , wasn’t it? Click here to Tell Congress: Don’t extend the Bush tax cuts for the wealthy . Click here to read the The Citizens’ Commission On Jobs, Deficits And America’s Economic Future ‘s report on how to create jobs, grow the economy and reduce the borrowing. This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture . I am a fellow with CAF. Sign up here for the CAF daily summary .

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We Dare You To Find A Lower Rate: Wall Street Borrowed From Fed At 0.0078 Percent

December 1, 2010

NEW YORK — For the lucky few on Wall Street, the Federal Reserve sure was sweet. Nine firms — five of them foreign — were able to borrow between $5.2 billion and $6.2 billion in U.S. government securities, which effectively act like cash on Wall Street, for four-week intervals while paying one-time fees that amounted to the minuscule rate of 0.0078 percent. That is not a typo. On 33 separate transactions, the lucky nine were able to borrow billions as part of a crisis-era Fed program that lent the securities, known as Treasuries, for 28-day chunks to the now-18 firms known as primary dealers that are empowered to trade with the Federal Reserve Bank of New York. The program, called the Term Securities Lending Facility, ensured that the firms had cash on hand to lend, invest and trade. The market was freezing up. Effectively free money, courtesy of Uncle Sam, helped it thaw. The European firms — Credit Suisse (Switzerland), Deutsche Bank (Germany), Royal Bank of Scotland (U.K.), Barclays (U.K.), and BNP Paribas (France) — borrowed $5.2-6.2 billion in Treasuries 20 different times. The one-time fees they paid on each transaction ranged from $403,277.78 to $481,110. Deutsche led the way with seven such deals. On each transaction, the fee paid for the 28-day loan is equal to a rate of just 0.0078 percent. The first of these sweetheart deals began April 17, 2008. They ended nearly a year later on March 5. On that day, Goldman Sachs borrowed about $5.8 billion and paid just $450,000 for the privilege. Goldman was one of four American firms that also paid that rock-bottom rate. Citigroup, defunct investment bank Lehman Brothers, and Merrill Lynch, which was gobbled up by Bank of America in a government-pushed transaction, benefited from the save-Wall-Street-at-all-costs approach. Goldman and Citi got the 0.0078 percent rate on five separate occasions, tops among U.S. banks. The transactions highlight the extraordinary steps taken by the Fed — and encouraged by both the Bush and Obama administrations — to save Wall Street from its own mistakes. Households and small businesses have not been as lucky. The Fed’s crisis-era programs “provided liquidity to particular institutions whose disorderly failure could have severely stressed an already fragile financial system,” the Fed said in a statement Wednesday posted on its website. A spokesman did not respond to an e-mailed request for comment. This year, Wall Street is poised to break yet another record for employee compensation and bonuses. Thanks to near-zero percent interest rates — also set by the Fed — firms are able to continue making easy money with minimal risk. *This story was updated at 8:30 p.m. ET. An earlier version of this article misstated the rate paid by the firms, the number of transactions, the amount of the fee, which varied by transaction, and incorrectly defined the rate itself. The rate, which was a fixed fee and not a traditional interest rate, was 0.0078 percent, not 0.0077 percent. There were at least 33 such transactions, not 31. And the actual fee paid ranged from $403,000 to $481,000, rather than a fee of about $384,000 for all of the transactions. ************************* Shahien Nasiripour is the business reporter for The Huffington Post. You can send him an e-mail ; bookmark his page ; subscribe to his RSS feed ; follow him on Twitter ; friend him on Facebook ; become a fan ; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.

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Jacob S. Hacker and Paul Pierson: The High Costs of Cheap Talk

November 30, 2010

Perhaps the best that can be said about President Obama’s preemptive sacrifice to the deficit-reduction gods — a two-year freeze on pay for non-military federal workers — is that it represents small change. Amid widespread calls for big immediate cutbacks that could endanger a painfully weak recovery, the president’s proposal might seem a modest offering to calm the screeching deficit hawks. But the price isn’t as small as the numbers suggest. In one fell swoop, the president has validated three dangerous myths that, if accepted, are likely to consign the United States to years of economic struggle and a continued widening of the huge gap in our society between the richest and the rest. Myth #1: Public-sector workers are the root of our economic problems Anyone who watches Fox on a regular basis might be forgiven for thinking that the biggest problem facing our nation is overpaid public workers. So it’s worth pointing out that study after study has shown that public workers are generally underpaid. Yes, federal employees don’t receive the bottom-floor wages seen in private service jobs — a border patrol agent may well make more than a private security employee — but neither do we see the exorbitant pay at the top. As the economist Nancy Folbre puts it, “Some oinking can definitely be heard out there in the labor market, but anyone willing to follow the numbers can tell that the biggest piggies are not those employed by the federal government.” But these statistics are somewhat beside the point. The deeper problem is that there’s no credible case that the pay of public-sector workers has anything to do with our current crisis. After all, if public-sector workers are overpaid today, they were also overpaid a year before the economy tanked. By contrast, we know that many of the private-sector “piggies” on Wall Street had a lot to do with our current crisis. Their pay, however, is not freezing, but getting hotter and hotter. Myth #2: The number one priority is to cut spending now to reduce the deficit Most Americans think that getting the economy back on track is far more important than the tackling the deficit. In Washington, however, fiscal austerity–or at least lip service to it–has become the defining test of seriousness. Perhaps it’s easier to feel this way when your family, friends, and neighbors are not among the millions of Americans who are out of work or working part time despite wanting a full-time job. How else can we explain why Congress cannot muster sufficient support to extend unemployment benefits to the two million Americans whose benefits are set to expire at the end of this month even as its leaders are poised, with the president’s tacit support, to extend the Bush tax cuts for the wealthiest Americans — at a cost that vastly, vastly exceeds the savings produced by a federal spending freeze? Getting the deficit under control requires an economic recovery. After all, this was the story of the 1990s. The real work of tackling the national debt is figuring out a long-term plan that will bring spending and revenues in line over the coming decades, and this work will only succeed against the backdrop of a reasonably strong economy. In the current context, deficit fixation is actually a dangerous distraction from the real and present danger that our economy will slip into stagnation. Myth #3: There’s no will or ability to challenge the runaway gains at the top of the economic ladder even as middle-class Americans lose ground Many who accept arguments #1 and #2 nonetheless call for “political realism.” They say we have to take into account that there’s not sufficient political support for any proposal that involves tackling inequality or raising taxes, even taxes on those who have done the best over the last generation. The blueprint released by the bipartisan cochairs of the president’s deficit commission–which will slash spending on Medicare, Social Security, and vital public services while tilting the tax code in favor of the top — appears to buy into just this sort of depressing realism. Perhaps this is also the president’s rationale for reinforcing the two bad arguments just discussed; he has to bow to the new priorities. But it is simply not the case that Americans’ priorities are Washington’s. Even among the more conservative electorate that went to the polls in November, the majority was against extending the Bush tax cuts for the richest, and the number one concern by far was the economy. Making the case for a strong response to our present crisis and criticizing those who talk about the need for immediate restraint yet continue to shower tax cuts and other goodies on the most fortunate wouldn’t just be good economics. It would also be good politics. Too bad it’s a course the president seems reluctant to take.

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Lori Wallach: Obama Trade Policy Perils: Korea FTA Talks Resume Tomorrow

November 29, 2010

That the Obama administration did not agree at the G-20 summit to push the same NAFTA-style Korea free trade agreement (FTA) that former President George W. Bush signed in 2007 is understandable. It’s projected to increase the U.S. trade deficit, is wildly unpopular in both countries, and replicates the most threatening NAFTA provisions that promote offshoring and financial deregulation . And, its chapter on labor rights bans references to the International Labor Organization (ILO) Conventions that establish, well, the internationally recognized labor rights. The real question is why the Obama administration would have been willing to sign off on the Bush agreement in Seoul if only the Koreans had agreed to some more market access for U.S. cars and cows. And why they might go for a deal based on those narrow fixes when talks resume tomorrow near Washington. …especially since a large bloc of senior Democratic legislators, unions and other Democratic base groups made clear months ago that a short list of critical deNAFTAization fixes were necessary to avoid a nasty battle in Congress. Recent polling has shown that perhaps the one issue that unites Americans across diverse demographics is opposition to more-of-the-same trade policy. The elections confirmed this , with an unprecedented number of candidates from both parties campaigning on fair trade themes. In its current form, the Korea deal is definitely more-of-the-same . But you wouldn’t know it from the media coverage. You’d think that all anyone cares about are market access issues related to automobiles and beef – and that refusing to move another Bush NAFTA-style FTA somehow undermines Obama’s efforts to double exports in five years. That, despite a recent study showing that, in fact, U.S. exports to countries with which we have NAFTA-style trade deals have grown at half the pace of exports to other countries. I hope they fix the lopsided auto market access provisions and, while they’re at it, the textile terms, which are also unfairly uneven. But dealing with cars and cows is far from sufficient to make the deal acceptable policywise, much less to avoid the foreseeable political disaster if Obama makes Bush’s NAFTA-style trade deal his own. The administration must remove the offshoring-promoting foreign investor protections that provide special privileges to firms that relocate and the new rights for Korean firms to use UN and World Bank tribunals to attack domestic regulatory policies and demand U.S. taxpayer compensation for regulatory costs. A major exception must be added to safeguard recent U.S. and Korean financial reforms from the Bush text’s deregulation requirements. The footnote banning reference to the ILO conventions has to be removed as well. In short, Obama should follow through on his campaign promises . He explicitly identified the Korea FTA’s labor provisions and the “investor-state” enforcement mechanism as problems that needed addressing. Getting rid of the investor-state private corporate enforcement of the deal’s new foreign investor rights is especially critical. Korea is a major capital exporter with about 270 establishments currently in the U.S. that would be newly empowered to raid the Treasury and attack domestic policies using foreign tribunals. These provisions elevate corporations to the same status of sovereign governments by providing them with the right to privately enforce a public treaty. So far, over $326 million in compensation has been paid out by governments to corporations under NAFTA’s similar terms. The cases include attacks on natural resource policies, environmental protection, and health and safety measures. Korea has just as much of an interest in fixing these provisions as we do, and there are indications that Korean officials would be amenable to doing so. Certainly, the Korean public is as upset over them as we are. Anyone who saw the tens of thousands of Korean protestors on the streets during the G-20 FTA talks this month is aware that inking Bush’s NAFTA-style deal does not improve U.S. standing or relations in Korea. That a bad Korea FTA deal was not completed in Seoul means the Obama administration has time to make the handful of other essential changes to Bush’s agreement and avoid a politically disastrous flip-flop on his campaign promises for trade reform. The question is: Will President Obama seize this opportunity to tackle our jobs crisis by starting to reform our failed trade policy like he promised as a candidate? His promised trade reform is a sure winner policywise and politically.

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Jonathan Weiler: Face Value: Deficits as Code for Tribal Fears

November 25, 2010

It’s obvious, of course, that the right’s new concern with deficits is not really about deficits, per se (any more than their new-found concern with government tyranny can be viewed with a straight face). Little fuss was heard from right-wing precincts during the Bush years, when the decider quickly burned through Clinton-era surpluses and ran up large deficits by pursuing reckless fiscal and military policies. And it would be hard to square American conservatives’ conferring of sainthood on Ronald Reagan with their now profound, deep, over-riding concern with deficits, given that Reagan oversaw dramatic increases in deficit spending . If deficits are the ultimate measure of irresponsibility, out-of-control government and a failure to live prudently and within one’s means — all values conservatives claim to hold dear — lionizing as the very embodiment of greatness and true leadership a President who behaved fiscally irresponsibly would simply make no sense. For some in Washington and its media environs, deficits do mean, roughly, something related to spending too much money. Erskine Bowles, co-chair of the deficit commission, believes that there is a threshold for spending money beyond which very bad things will happen( though Bowles has failed to come up with a coherent rationale for explaining what that threshold is ). And people like CNN ‘s Gloria Borgen, who recently insisted that the voters’ message on November 2 was that they wanted deficits reduced ( despite data showing how utterly laughable that claim is ) probably have nothing more in mind when it comes to deficits than what they hear at cocktail parties. But for the movement that has made the biggest issue out of deficits, the Tea Party, broadly speaking, deficits mean more than arbitrary numbers on a balance sheet or stupid mischaracterizations of what Americans actually care about. And because they’ve so powerfully shaped political discourse in the past eighteen months, it’s worth understanding what the underlying meaning of their concern with deficits is really all about. Yes, Wall Street, bondholders, banking interests and central bankers care about deficits for their own reasons, and these matter, of course, for what’s on the political agenda ( including Bowles himself ). But as a galvanizing emotional issue, deficits are a big deal in 2010 because they pack the kind of emotional punch and dog-whistle politics that once made crime and welfare such potent wedge issues. Deficits have become code. And the code is quite clear, once you think about it for a moment — that when government acts, it always acts to help the undeserving and, in doing so, hurts real Americans who are faithful to real American values. In this code, America is awash in free-loaders and law-breakers — poor, illegal, grubby-handed “losers” who are ruining everything that once made America great. Deficits are government’s way of indulging, coddling and abetting these losers. Crime and welfare had an obvious “face” — an African-American face. And politicians from Nixon, to Reagan to the elder Bush self-consciously exploited that racial code to win elections, as Lee Atwater , among others, openly acknowledged. But the code is more diffuse now. It’s not strictly about race any longer. It’s about every sort of un-nerving difference. Yes, swarthy skin is still a surefire way to set off the terror that has galvanized the Beck-istas and the dittoheads — Muslims and illegal immigrants being easy focal points of the hatred du jour. But it all runs together now — embodied in what Sarah Palin during the 2008 campaign, when she spoke of the “real” America — a place of exclusion, fear, resentment and desperation to defend their besieged communities from the tax collector and all those menacing representations of difference on whose behalf the tax collector serves. This is why, as I’ve said before, though Obama’s skin color, name and background are highly relevant to the right-wing’s insane and misplaced hatred of him (he’s cut taxes for nearly everybody, presided over record corporate profits, expanded our military operations and continued the most repressive features of the Bush national security apparatus) — the skin color issue also misses the deeper-seated motives behind that hatred . Had Hillary Clinton been president and pursued similar deficit-spending policies, she would have been subject to similar attacks. It’s what deficits represent that matters most — a hand out to people who are worthy of nothing but hatred and contempt, who have bespoiled “our” fragile community, who are responsible for the dread and insecurity we feel – because what those deficits mean is that the government will help and defend “them,” but not “us.” In sum, deficits are code for government taking sides in a tribal war, with the one good tribe — the real Americans — under siege from all the tribes of venality, dissipation and filth. We can debate the significance of long-term deficits for our economic well-being and, yes, I am well aware that, in the long run, most economists agree that this is a significant policy problem that we need to tackle. But this fairly technical policy debate is not what’s mobilizing the tea party to scream about deficits in 2010, after having watched quietly while their putative conservative heroes acted with fiscal abandon from 1980 on. Spending money on their own kind is one thing (and the Reagans and Bushes can be reliably counted on to do that) — an affirmation of the natural, acceptable state of things. Spending it on all those “others” out there is something else entirely. People are entitled, of course, to believe that they and their kind are more deserving than others. But we’re under no obligation to take their anger about deficits at face value, when it’s so clear that something much deeper lurks behind the crying over spilled red ink. Jonathan Weiler’s second book, Authoritarianism and Polarization in American Politics , co-authored with Marc Hetherington, was published last year by Cambridge University Press.

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Republicans Criticizing Elizabeth Warren’s Lack Of Transparency Had No Problems With Dick Cheney

November 24, 2010

Recently enough that you may still recall it, a secretive, paranoid man who had previously headed a major multinational energy company found himself vice president of the United States. This man deliberated privately with the heads of major oil companies as his administration set up a new energy policy that, perhaps coincidentally, wound up being strikingly generous to oil companies. The same man played a crucial role in leading the nation into a disastrous and costly war in a country that — again, perhaps coincidentally — held the world’s second-largest oil reserves. When, at the time, a few annoying sticklers for detail suggested there were problems with this flavor of policymaking, that perhaps it would have been better to hold deliberations in public so that people other than the heads of giant energy companies could have a say in the nation’s handling of energy, they were derided by this man and members of his party as naive and idealistic. Why clutter up the proceedings with citizens, journalists and other nudges who do not know how to get oil out of the ground? Leave things to the experts, we were told. So it is nothing short of astonishing to absorb the current spectacle. Republican members of the House — the same people who defended national troglodyte Dick Cheney in his effort to block public scrutiny on oil policy — are now criticizing the way Elizabeth Warren is making preparations for a Consumer Financial Protection Bureau, as if it were some sinister plot to destroy the republic. The White House’s appointment of Warren “circumvented the advice-and-consent process and undermined one of the key checks and balances in our Constitution,” declared Rep. Spencer Bachus (R-Ala.), the ranking member of the House Financial Services Committee, and Rep. Judy Biggert (R-Ill.) in a letter addressed Monday to the inspector general at the Treasury. “Treasury Department officials have provided little or no transparency with respect to their activities such as which organizations are meeting with Treasury officials.” Far be it from anyone to defend the Obama Treasury against charges that it lacks transparency. From its handling of its feckless homeowner-aid program, sold as a fix to the foreclosure crisis, to its administering of the Wall Street bailouts begun by its predecessors, this Treasury has been a maddening and combative model of misinformation, evasion and outright dishonesty. Again and again, it has sided with Wall Street over the public’s right to know, protecting Goldman Sachs and Bank of America in much the same way Dick Cheney lavished his nurturing ways on Halliburton and Exxon. But this idea that Republicans in Congress are now pursuing the public interest in challenging Warren’s authority, trying to derail her devious plot to make the world safe for people with credit cards and bank accounts, is nothing short of hilarious. It is a brazen exercise in what regular people call balls, one that must be admired for its sheer, breathtaking nature. Vice President Cheney, you will recall, had previously run Halliburton, a company that makes its money helping multinational energy firms extract more precious black liquid from the earth. This gave him an Oklahoma-sized conflict of interest when it came to deliberating on energy policy. It was fair to assume he would not be a particularly aggressive proponent of tighter energy-efficiency standards or an advocate for capping carbon emissions to limit climate change. He also played a central role in the nation’s national-security apparatus just as the deliberations — and perhaps that is a generous word — commenced on the ultimately horrible decision to invade Iraq. Cheney not only had personal truck with the heads of the oil majors, a clubby relationship with people who had every financial incentive to push for greater consumption of oil, but also the reasonable expectation of financial enrichment himself on the other side. Much as Larry Summers and Robert Rubin used their time at the Clinton Treasury to open up fresh profit-making opportunities for high finance in ways contrary to the public interest before landing on Wall Street, where they made enough to live like Maharajahs, Cheney could certainly have set himself up for a lucrative return trip to the oil patch. In short, the less-than-transparent way he handled energy policy could reasonably have been expected to hide some sweet goodies for powerful companies whose interest might have deviated from the public’s. Elizabeth Warren, the woman tasked with creating the CFPB, on the other hand, is a longtime law professor, an author of respected books on the breakdown of the American middle class, and a darling of consumer advocates. Are Republicans suggesting that she is using her current position to set up a consumer protection bureau that is so to the liking of consumer advocates that she could some day cash in with a plum job at, say, the National Consumer Law Center? Are they intimating that she stands to benefit in some way by using her new agency to damage the public interest? And how to square the Republican demands to know where she is drawing counsel with the Bush administration’s stonewalling on efforts to glean Treasury Secretary Hank Paulson’s conversational partners as he was crafting plans to send $700 billion in bailout funds to his old compadres on Wall Street? In the most generous reading, the Republicans really believe the rhetoric in their broadside and are clinging to a cultish reverence for free markets, one so extreme that they are adamant that the same bankers who brought the economy to its knees should enjoy the freedom to try it again. But don’t bet on that reading. The demands for transparency from a party that has only recently regained an appreciation for constitutional jurisprudence is merely the latest example of its oppose-everything mantra, a dynamic we are stuck with right up until the next presidential election. It is a cynical ploy premised on the belief that American memories run short — so short that we have already forgotten how today’s ardent protectors of due process are the same people who allowed Dick Cheney to run energy policy like an elaborate Christmas morning for oil companies.

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Millionaires To Obama: Tax Us

November 20, 2010

More than 40 of the nation’s millionaires have joined Patriotic Millionaires for Fiscal Strength to ask President Obama to discontinue the tax breaks established for them during the Bush administration, as Salon reports.

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Video: Siegel Doubts 10-Year Treasury Yields Will Fall Further

November 19, 2010

Oct. 19 (Bloomberg) — Jeremy Siegel, a finance professor at the University of Pennsylvania’s Wharton School, talks about the outlook for the U.S. Treasury market. Siegel also discusses the Bush-era tax cuts and the Troubled Asset Relief Program. He talks with Julie Hyman on Bloomberg Television’s “Street Smart.” Larry Shover of Efficient Capital Management also speaks. (Source: Bloomberg)

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David Fiderer: The Fannie Mae Accounting Scam Promoted by the Chairman of the S.E.C.: A Case Study

November 19, 2010

There are myriad accounting tricks to deceive the public, but Christopher Cox chose one of the simplest. The Chairman of the S.E.C. moved billions of dollars from one side of the ledger to the other side, but didn’t mention how he had shifted the numbers. He then filed a lawsuit charging Fannie Mae with concealing $11 billion in losses, despite the fact that those losses had actually been disclosed in Fannie’s public financial statements, in a category called “Accumulated Other Comprehensive Income (Loss).” He bamboozled Congress, the press, the public and the U.S. District Court into thinking that Fannie was not transparent about what it was doing. Nothing better exemplifies the extent to which he politicized the regulatory function of his agency. Cox didn’t act alone. The S.E.C. collaborated with Office of Federal Housing Enterprise Oversight on a two-year investigation into Fannie Mae’s books. Disregard for Generally Accepted Accounting Principles “resulted in Fannie Mae overstating reported income and capital by a currently estimated $10.6 billion,” said the OFHEO . The 340-page OFHEO report and the 23-page S.E.C. complaint allege all sorts of accounting infractions, but neither specified where the multibillion-dollar losses actually came from. This was back in the halcyon days of May 2006, when Fannie’s regulators insisted that it was excessively conservative in its lending policies. The S.E.C. complaint alleges a panoply of accounting violations, but almost all of them are rounding errors, nickel and dime stuff in the context of a trillion dollar balance sheet and billions of dollars in reported earnings. For instance, the S.E.C. said Fannie misrepresented its financial position because it accrued 30.4 days of interest each month, instead of using the actual number of days. It also said Fannie had defrauded investors by making $100 million in excessive provisions for loan losses. Virtually all of the $11 billion shortfall was attributed to improper designation of financial hedges. Here’s the critical paragraph in the S.E.C. complaint: The Company disregarded the requirements of [Financial Accounting Standard] 133 and qualified transactions for the “short-cut” method based on erroneous interpretations and an unjustified reliance on materiality. By failing to comply with the requirements of SFAS 133, the Company failed to qualify for hedge accounting. This failure led to the Company publicly issuing materially false and misleading financial statements for the periods covering the first quarter 2001 to the second quarter 2004. The vast majority of the anticipated restatement of at least an $11 billion reduction of previously reported net income is a result of Fannie Mae’s improper hedge accounting. The S.E.C. makes two critical points: 1. Fannie improperly failed to mark-to-market certain financial positions, and 2. The S.E.C. reviewed those financial positions and found that the net positions created billions of dollars in losses. Testifying before Congress, Cox characterized the $11 billion number as, “the lower bound of the estimate.” The whole case revolves around the application of FAS 133 . When it was first implemented, FAS 133 gave companies a lot of latitude as to how they could recognize noncash mark-to-market gains or losses. One company might choose to recognize the change in value on its income statement. Another company might characterize the same item as an adjustment to shareholders equity, rather than on the income statement. The adjustment would be disclosed as, “Accumulated Other Comprehensive Income (Loss).” Either way could be acceptable under FAS 133 — it is literally six of one, half dozen of another — and any junior analyst would adjust for those differences when evaluating financial performance. The essence of the S.E.C.’s case is its contention that Fannie committed fraud by recognizing the gains and losses as direct adjustments to equity instead of putting them on the income statement. That’s a common form of window dressing, but the only people who would be misled would be those who don’t know how to read financial statements. And even if you think the distinction is valid, it was dishonest of the S.E.C. and the OFHEO to withhold the fact that the changes in net income were derived by reversing out items elsewhere in the financial statements, and the fact that Fannie had publicly disclosed its FAS 133 losses. For 2001 and 2002, Fannie recognized $11.8 billion in losses in the category of Accumulated Other Comprehensive Income (Loss). They included, for 2001, a $4 billion loss for “Transition adjustment from the adoption of FAS 133,” plus another $3.4 billion loss for “Net cash flow hedging losses on derivatives hedging debt.” In 2002, Fannie recognized another $8.9 billion loss in “Net cash flow hedging losses on derivatives hedging debt.” All of this is set forth, clear as day, on page 124 of its 2003 10-K . Nobody, or at least nobody who is minimally competent, could miss it. Also, when Fannie was forced to unravel all the financial positions it had deemed as hedges, the net result showed billions in dollars of gains , not losses. By reversing the previously recognized AOCI losses, plus by recognizing the market-to-market gains in AOCI, shareholder equity for year-end 2002 had almost doubled, from $16.3 billion to $31.9 billion. When Fannie Mae released its restated financials in December 2006, six months after the overblown media narrative about Fannie Mae’s accounting problems had calcified into the zeitgeist, almost no one looked at the numbers and asked where they came from. By every standard metric — cumulative net income, shareholder equity, corporate cash flows — Fannie’s financial position turned out to be far stronger than originally reported. But that’s not how the media perceived it. The company, which already settled with the S.E.C., was loathe to challenge or embarrass its regulators and gave only selective data in its press release : “The cumulative impact of the restatement was a total reduction in retained earnings of $6.3 billion.” The dominant narrative, that Fannie was a corrupt, out-of-control enterprise, seemed to be set in stone. When Cox and Lockart announced their phantom $11 billion losses, politicians were quick to make comparisons to Enron and Worldcom. “It’s fair to argue that this is perhaps more significant or more grave than Enron,” said Senator Richard Shelby. “Though, perhaps the biggest difference at the moment is that the guys at Enron have been convicted.” As it turns out, no one misrepresented Fannie’s financial position more egregiously than Cox and OFHEO Director James Lockhart. None of the foregoing suggests that Fannie is anything but a financial basket case today. But its losses are not from trading, but from credit losses on bad loans. Why is any of this important today? Because pundits and politicians like to conflate issues. When the OFHEO first argued that timing differences fee amortization represented “systemic risk” in October 2004, Barney Frank and other Democrats argued several things: That any earnings manipulation should be punished, that the OFHEO had not quantified any FAS 133 gains or losses, and that the shifting of income from one period to the next is not the same thing as a direct threat to safety and soundness. Bush administration regulators pushed Fannie and Freddie into high-risk loans, which is why Republicans are eager to claim that Fannie’s chief enabler was a congressman in the minority party helped draft GOP-sponsored legislation for increased government oversight. Also, Lockhart’s deputy, a holdover from the Bush administration, is Fannie’s chief regulator and has an incentive to sanitize his predecessor’s feeble record.

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Were The Bush Tax Cuts Good For Growth? Not So Much

November 18, 2010

Liz Peek at FoxNews.com congratulates me for writing about the importance of economic growth. So in the spirit of maximizing growth, I want to pose a question: Why should we believe that extending the Bush tax cuts will provide a big lift to growth?

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David Fiderer: The Bush Tax Cuts and the Republican Cult of Affirmative Action

November 14, 2010

“Poor me!” decried Warren Buffett. “I’m forced to pay more income taxes than everyone else in my zip code! Why should everyone else get a free ride?” Because of his affirmative action mindset, which measures tax burden according to headcount instead of income, he was unable to evaluate fiscal matters in a mature, adult fashion. Of course the real Warren Buffet has none of the imbecility evidenced by right wing storefronts like The Heritage Foundation or The American Enterprise Institute , which promote the same claptrap about the superrich being victims of economic discrimination. “The U.S. tax system is already highly progressive,” claims the Heritage Foundation , in text adjacent to a big chart filled with bright pretty colors. “The top 1 percent of income earners paid 40 percent of all federal income taxes in 2007, while the bottom 50 percent paid only 3 percent. More than one-third of U.S. earners paid no federal income tax at all.” Again, it’s all about taxes and headcount, with no mention of income, or income distribution, or fiscal prudence. These guys can’t walk and chew gum at the same time. Two Groups of Taxpayers: Each Earned $1 Trillion To explicate the many levels of deception embedded in these rightwing websites, we can look at some real numbers, and use real financial analysis. The starting point is adjustable gross income, not headcount, because, duh, income taxes are imposed on income. There are two groups that earned equivalent amounts of taxable income, just over a $1 trillion, each representing about 12% of the national total in 2007. We’ll call them Group A and Group B. Group A is the top 0.1% of earners (not the top 1%, the top 1/10 of 1%), all of whom earned in excess of $2.1 million that year. Group B represents the bottom 50% of earners that year, all of whom earned less than $33,000. By definition, the headcount for Group B is 500 times larger than that for Group A. But don’t be fooled into thinking that most of 70 million Americans in Group B earned anything close to the princely sum of $33,000 in 2007. Their average income is less than half that amount. (If you find these numbers surprising, you obviously have not read Arianna’s latest book, Third World America .) Source: IRS Of course, the levels of taxable income seriously understate the disparity in wealth between these two groups. Many wealth transfers escape current taxation, because assets are passed through inheritance with a stepped up tax basis . The rich pay all the taxes and other lies. In terms of dollars and cents, Group A paid six times the total income taxes paid by Group B. “Aha!” say the right wing crackpots. “The rich pay all the taxes and everybody else gets a free ride.” Ariel Fleischer likened the situation to a pyramid scheme, something cooked up by Bernie Madoff. It’s a standard ploy of Fleischer and his ilk: Project your own dishonesty on to others. Fraudsters like Madoff or Enron’s Jeffrey Skilling, or Ariel Fleischer all use the technique. They spew a lot of mumbo jumbo to conceal the truth about where the cash goes. Remember, in the real world, if you lose track of the cash, you are clueless. And in the real world, the notion that Group A pays out significantly more cash to the government than Group B is a great big lie. That’s because the cash paid out in Social Security taxes is used to subsidize the current operating deficit. This fact is indisputable. Look at any the last 20 versions of The Budget and Economic Outlook published by the CBO, or look at historical tables from the OMB or any budget that has come out of the White House since the 1980s. They all say the same thing: The “Off-Budget” results, aka Social Security, show surpluses. The “On-Budget” results, aka government operations, show deficits. The two are netted, so the On-Budget deficits don’t look so bad. The reason it was done this way was because, as noted before, here and here , the Bush Administration thought that Social Security benefits were a revocable promise . And of course Bush eagerly sought to formalize that revocation . Whether you agree or disagree with Bush, here are the facts: In 2007, the On Budget Deficit was $642 billion. In 2007, the Social Security Surplus was $183 billion. In 2007, the Federal deficit was $459 billion. Source: OMB Historical Tables, p. 23 The numbers are irrefutable and all cash is fungible. So if you look at how all the cash is paid into the same budgetary pot, which is the only honest way to do it, then the truth emerges. Group A’s cash contribution of $227 billion is is not six times higher, but only 1.37 times higher than Group B’s cash contribution of $166 billion. And Group A’s tax rate was only 1.4% higher than the national average. (See note on calculations below.) Sources: IRS and OMB Again, we are not talking about fairness here, only financial transparency. Real capitalists don’t coddle millionaire crybabies. If you know something about business or finance, or if you are mature enough to live on a budget, you stay focused on the bottom line. You are always asking: How do I match up my cash revenues with my cash expenditures? There’s never one single answer, because in the real world nothing exists in a vacuum. To maximize revenues and minimize costs you evaluate how a combination of factors work together over the short term and the long term. In other words, if you are serious about fiscal discipline, nothing is off the table. And if you hold a capitalist mindset you know that life is not fair. And while it’s nice to try to be fair and compassionate, performance is the thing that matters. Capitalists believe in rewarding success and punishing failure. As noted here before, we have ten years of performance data on the Bush tax cuts, and they failed by every possible criterion. And by every comparative measure, the tax policy under the Clinton Administration was a stunning success. Real capitalists like Warren Buffet believe we need to go back to what’s been tested and proven in order to determine how the government can boost revenues most efficiently. Suppose we had returned to the proven success of the Clinton Administration, and applied 2001′s average national income tax rate of 14.23%, instead of the actual 2007 rate 12.68%. How would government revenues have been impacted? Revenues would have been boosted by about $136 billion, i.e. the deficit would have been reduced by $136 billion. Of course a real capitalist does not base his decisions on mere averages; he focuses on how to get the most bang for the buck. Think of it this way: If Tiffany’s wants to expand its business, it’s not going to open new stores in Appalachia; it will go where the money is. So lets get back to Group A and Group B. Which group offers the most bang for the buck? On a percentage basis, the Bush tax cuts treated both groups about the same; both saw a percentage reduction of just over 30% in their income tax withholding. For Group A the average tax reduction was about $500,000; for Group B the average tax reduction was about $186, or 50 cents a day. The real numbers illustrate one reason why, comparatively speaking, the rich are getting richer. Even for millionaires, $500,000 a year is a lot of money that they get to keep while the country’s finances fall into a sinkhole of debt. So when we consider how to deal with the federal deficit, which group offers more bang for the buck? The 141,000 taxpayers in Group A, for whom the Bush tax cuts increased the deficit by about $70 billion? Or the 70.5 million taxpayers Group B, for whom the Bush tax cuts increased the deficit by about $12 billion? To real capitalists, like Warren Buffet , the answer is obvious. And it’s time to stop coddling these affirmative action crybabies who say we need special protections for the rich because they pay more than their fair share. And real capitalists have no patience for unregenerate liars like Mitch McConnell who say that tax cuts pay for themselves by stimulating economic growth. They never have and there’s no evidence that, under our current tax structure, they ever will. * * * Note on calculating Social Security Contributions: Here’s how the FICA tax contributions for Group A and Group B were calculated. The FICA tax rate is 12.4% , of which half is withheld from your paycheck and the other half is paid directly by your employer. In a free and competitive marketplace, the tax paid directly by your employer would otherwise be available to be paid out as direct compensation to you. That’s why it’s appropriate to view both halves as a financial burden on employees. In 2007, the 12.4% social security tax was imposed on all wages up to $97,500 , or a maximum of $12,090. So I assumed that each of the 141,071 taxpayers in Group A paid $12,090 in FICA taxes, or $1.7 billion collectively. I applied the 12.4% rate to all of the taxable income in Group B, resulting in a $134 billion tax contribution. Of course some of the members of Group A may not earn any wages and simply live of their investments, as opposed to the people in Group B, who have nothing left over to invest.

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Video: Warner Proposes Compromise on Extension of Bush Tax Cuts

November 12, 2010

Nov. 12 (Bloomberg) — U.S. Senator Mark Warner, a Democrat from Virginia, talks about the likelihood of a compromise over extension of the Bush-era tax cuts. Warner, speaking with Peter Cook on Bloomberg Television’s “Fast Forward,” proposed allowing tax cuts for the wealthiest Americans to lapse and using the additional revenue for “targeted business-tax cuts” to encourage companies to hire more workers. (Source: Bloomberg)

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Robert Reich: Obama’s First Stand

November 10, 2010

The president says a Republican proposal to extend the Bush tax cuts to everyone for two years is a “basis for conversation.” I hope this doesn’t mean another Obama cave-in. Yes, the president needs to acknowledge the Republican sweep on Election Day. But he can do that by offering his own version of a compromise that’s both economically sensible and politically smart. Instead of limiting the extension to $250,000 of income (the bottom 98 percent of Americans), he should offer to extend it to all incomes under $500,000 (essentially the bottom 99 percent), for two years. The economics are clear: First, the top 1 percent spends a much smaller proportion of their income than everyone else, so there’s very little economic stimulus at these lofty heights. On the other hand, giving the top 1 percent a two-year extension would cost the Treasury $130 billion over two years, thereby blowing a giant hole in efforts to get the deficit under control. Alternatively, $130 billion would be enough to rehire every teacher, firefighter, and police officer laid off over the last two years and save the jobs of all of them now on the chopping block. Not only are these people critical to our security and the future of our children but, unlike the top 1 percent, they could be expected to spend all of their earnings and thereby stimulate the economy. Conservative supply-siders who argue the top 1 percent will stop working as hard if they have to return to the 39 percent marginal rate of the Clinton years must be smoking something (probably an expensive grade). Their incomes of the top are already soaring (Wall Street is reading a 5% boost in bonuses, executive salaries and perks are back on the trajectory they were on before the collapse, and the stock market is booming), so it’s hard to argue much hardship. Besides, only earnings over $500,000 would be affected because — remember — we’re talking about the marginal tax rate. In addition, the Clinton years weren’t exactly bad years, economically, for the top 1 percent. Finally, the Bush tax cuts didn’t trickle down anyway. To the contrary, between 2001 and 2007, the median wage dropped. And Bush’s record on jobs was pitiful. The politics are even clearer. Over the next two years, Obama must clarify for the nation whose side he’s on and whose side his Republican opponents are on. What better issue to begin with than this one? The top 1 percent now takes in almost a quarter of all national income (up from 9 percent in the late 1970s), and its political power is evident in everything from hedge-fund and private-equity fund managers who can treat their incomes as capital gains (subject to a 15 percent tax) to multi-million dollar home interest deductions on executive mansions. If the President can’t or won’t take a stand now — when he still has a chance to prevail in the upcoming lame-duck Congress — when will he ever? Robert Reich is the author of Aftershock: The Next Economy and America’s Future , now in bookstores. This post originally appeared at RobertReich.org .

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Larry Beinhart: Why the Stimulus Package Failed

November 9, 2010

The stimulus package failed because it consisted mostly of tax cuts. Tax cuts are among the very worst ways to create jobs and certainly the most expensive. The stimulus package authorizes 787 billion dollars. According to the official website ( Recovery.gov ) $565 billion has actually been spent or credited. There are three categories of “stimulus.” Citing amounts spent, they are: $243.4 billion in tax cuts. $154.5 billion in contracts, grants, and loans. This is what we actually think of as a stimulus, construction and research projects. $166.8 billion in entitlements. This is mostly money to the states to help with unemployment insurance. Estimates of jobs “saved and created” by the package range from 800,000 to 2.4 million (both from the Congressional Budget Office), with other estimates at 1.25 million (IHS/Global Insight), 1.06 million (Macroeconomic Advisors), and 1.59 million (Moody’s). Let’s use Moody’s estimate (sort of the high middle, and independent) and round it off to 1.6 million jobs “saved and created.” That’s $353,125 per job. I’m sorry, but that’s ridiculous. It’s obscene. If you have an essentially unlimited line of credit, as the government essentially does, it would appear relatively easy to create jobs. “Hey, you, over there on the unemployment line, wanna work cleaning up our national parks? Yeah, we’ll give you a twenty dollar rake, some biodegradable garbage bags, and twenty bucks an hour.” That happens to be 47 cents an hour over the average wage. No national parks or monuments in your neighborhood? All right, there are lots of empty lots and abandoned homes due to the housing market collapse. “Let’s clean ‘em up. Same deal. That’s forty thousand a year. You can live on that.” Presumably the government will be decent about it and pay the usual benefits — social security, unemployment insurance, workman’s comp, and so on — which adds $8.11 an hour. That’s a little less than $17,000 a year, making a total cost of $57,000 per year, per job. Jobs don’t exist in a vacuum, not even sweeping the streets by hand with a broom. There has to be a certain number of overhead costs. Not counting salaries of supervisors and such (which would be part of the job creation numbers), not counting benefits (already in there), 15 percent is a very generous number, for another $8,550, a total of $65,550 per job. So that’s what a “created” job should cost. About $65,000. If you actually want to “create jobs,” that’s how you should do it. Go out and create them. But that’s not how we do things. We were not goddamn Communists. Or even socialists. We’re capitalists. So we give out contracts to private enterprises and grants to universities and other institutions. Construction projects, one of the primary forms of job creation has lots of costs beside labor. They have machinery, materials, a variety of business expenses (accounting, insurance, legal, etc.), the purchase of land and so on. Labor accounts for 20-30 percent of a construction contract. Let’s take the low end, 20 percent, and assume that a construction job is one of those $65,000 wages plus benefits for a full year jobs, and the cost of that job then becomes $325,000. That’s pretty close to the $353,125 per job number we got using the Moody’s estimate. Except that all those other construction costs (excluding land purchase, which should be less relevant here) involve additional labor. For example, materials are manufactured, a certain portion of them here, in the US. Truckers transport them. Building supply company employees handle them. Machinery is built (some portion of it here), and maintained (all of it here). The construction company pays it’s staff and the professionals (lawyer and accountants), and so on. All those people buy food (keeping supermarket workers employed), buy other stuff, pay their bills, and so on. This is the famous Keynesian multiplier effect. It’s also very difficult to calculate how many non-site, indirect jobs does a construction project support with all its other spending. In the figures we’re using, that 80% of the costs. It’s reasonable to say that at least half of that goes into people’s pockets as it moves down the line. If we figure it that way, it should probably cost about $130,000 per job. Let’s go back to the breakdown. First let’s take out the aid to the states for unemployment insurance assistance. Obviously that doesn’t add jobs. It helps people. It goes to keeping the community afloat, but it doesn’t create a whole lot of jobs. Let’s take out the tax cuts. Just as an academic exercise, for the moment. That leaves projects, grants, and loans. $154.5 billion. If we have 1,600,000 jobs created and saved, and divide it into the money spent on projects, it comes out at $96,562 per job. That actually makes sense. It’s expensive. But it makes sense. Direct job creation, or job creation through contracts (like road building), has a multiplier effect. Each job creates more jobs, both through the support jobs and through the spending by the people who are employed. Job creation through tax cuts works the opposite way. The price per job is multiplied many times over. In this last election cycle, Carl Paladino was running against Andrew Cuomo for governor of New York. One of the charges that Cuomo leveled against him was that he got $1.4 million in tax breaks but created only one job from that. The implication was that Paladino was a sleazy rip-off artist. At best. He may be, but it is only a particularly vivid example of how the tax cuts to job creation equation actually works. We are still arguing about extending the Bush Tax Cuts. The Bush Tax Cuts cost about two trillion dollars. They were originally labeled and promoted as “jobs and stimulus” packages. Let’s take him at his word. Over the course of his two terms 1.1 jobs were created. That didn’t even keep up with population growth. It also cost $1,818,182 per job. Close to the same numbers that Paladino was working with. The Obama White House, a prisoner of the prevailing ‘tax cuts stimulate the economy and create jobs’ theology, passed a stimulus bill that was 40 percent tax cuts, 30 percent unemployment insurance, and only 27 percent actual stimulus. That’s why it didn’t work. That’s not even the bad news. Here’s the bad news. The tax cuts are still in effect. The odds are they will be extended, even for the very wealthiest. Here’s worse news. There’s only one thing stupider than cutting taxes to create jobs. It’s to cut spending. In the recent NY governor’s race, for example, both leading candidates promise to cut spending. That means cutting jobs. That’s happening state by state all around the country. Not only does cutting jobs mean, in a very direct one-to-one way, fewer jobs, it has a negative multiplier effect. It means there are fewer people with money to spend on the things that create jobs for other people.

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JPMorgan Internal Document Predicts ‘Gridlocked’ Congress ‘Without Any Landmark Legislation’

November 9, 2010

The financial titan JPMorgan Chase is betting on the next congressional session to be historic in its lack of productivity, according to a leaked internal document. On Tuesday, the money-in-politics research group Center for Responsive Politics published a document from JPMorgan’s government affairs office that gives some interesting hints as to how Wall Street views the fallout of last week’s elections. The viewpoint is bleak. “[T]he 112th Congress could be remembered as a gridlocked one without any landmark legislation,” the document’s author writes. In the House, Republicans will likely hail their wave of support as a mandate from voters to reject the comprehensive reform measures that passed over the past two years. House Republicans will look to pass a series of spending cuts, tax cuts and repeal measures — to create a distinct alternative in the mind of the electorate from the administration and reinforce their image as the party of fiscal restraint. The Senate will likely be gridlocked on nearly every substantive policy issue, unable to move legislation under the rules of the body that require 60 votes to move forward procedurally on controversial issues. The tense partisan battle will ensure a series of cloture votes and procedural motions meant to make the opposing party take difficult political votes. jpmdoc On the specific items, JPMorgan seems ready for nasty partisan fights, though in several instances they foresee areas of agreement between the two parties. On the issue of extending the Bush tax cuts, for instance, the firm predicts a “one-year extension… for all filers” to pass during the lame-duck session, though the author goes on to note that the lawmaker responsible for corralling the votes in the Senate — Sen. Max Baucus (D-Mont.) — will have a difficult task owing to Sen. Orrin Hatch’s (B-Utah) growing concern over a primary challenge in 2012. The firm also expects the Republicans to attempt to de-fund health care reform (not a surprise) as well as financial regulatory reform (more of a surprise). The latter will be done, the author predicts, by using “the appropriations process to slow implementation of Dodd-Frank by underfunding the new federal agency staff needed to get those programs off the ground.” The entire document is worth a read if, for nothing else, because it offers a rare insight into how the financial community views the drama unfolding in our nation’s capital. It’s impossible to know whether the sentiments expressed by JPMorgan’s government affairs arm are based on simple observation or insider knowledge. Mostly, they are fairly obvious and carefully worded takes on the major policy debates. But what’s telling is that for all of the talk about Wall Street wanting certainty in Washington, at least one major firm seems resigned to a legislative process that’s even more difficult to predict as it moves forward.

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Obama Presses To Finish Trade Deal With South Korea

November 8, 2010

WASHINGTON — The White House is intensifying negotiations with South Korea on revising a free-trade agreement negotiated by the Bush administration, even though the accord still faces opposition from Democratic politicians, labor unions and the Ford Motor Company.

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Unemployment Rate Holds Steady In October — But Economy Adds 151,000 Jobs

November 5, 2010

WASHINGTON (AP) — The economy generated a net gain in jobs for the first time in five months in October, as businesses stepped up their painfully slow pace of hiring. But the unemployment rate, measured by a separate survey of households, remained stuck at 9.6 percent for the third straight month. The Labor Department said Friday its survey of employers showed a net gain of 151,000 jobs last month, the first increase since May. Private employers hired 159,000 workers, the best since April. Economists welcomed the report, which showed much stronger job gains than Wall Street analysts had expected. “This is not a gangbusters report but it is very important,” said Carl Riccadonna, an economist at Deutsche Bank. “It shows us that the momentum in employment is building.” Employers also extended the average work week to 34.3 hours, up by one-tenth. The additional jobs and longer work week should boost Americans’ incomes and provide fuel for more consumer spending, which drives about 70 percent of the economy. The additional income, combined with the Federal Reserve’s decision Wednesday to pump more cash into the economy and the potential extension of the Bush tax cuts, could “jump start a virtuous cycle,” Riccadonna said. More income may encourage more spending, leading to more hiring by healthier companies, he added. The department also revised August and September’s payroll figures higher. The private sector added 103,000 more jobs in those two months than previously estimated. So far this year, the economy has added 874,000 jobs and over a million in the private sector. But that comes after the nation lost more than 8 million jobs in 2008 and 2009. And about 14.8 million people say they were unemployed, a figure that hasn’t improved much since the beginning of the year. The job gains were concentrated in relatively few sectors: retailers added 27,900 positions, likely in preparation for the holiday season. Temporary agencies added 34,900. Restaurants and bars hired 24,400 people. Government at all levels shed only 8,000 jobs, a much better showing than September’s steep drop. The construction industry added a small number of jobs, while the manufacturing sector shed 7,000 positions. Factory employment has been roughly unchanged since May. The economy needs to add at least 100,000 net new jobs a month just to keep up with population growth. It will need to generate many more than that to cut into the unemployment rate, which has now topped 9.5 percent for 15 months. The economy is growing, but at a weak pace. The Commerce Department said last month that gross domestic product, the broadest measure of the nation’s output, increased by 2 percent in the July-September period. That isn’t fast enough to encourage much hiring. High unemployment helped stoke voter anger in congressional elections earlier this week. The Republican Party took control of the House and made significant gains in the Senate. On Wednesday, the Federal Reserve announced a plan to buy $600 billion in Treasury bonds in an effort to accelerate economic growth. Those purchases are intended to lower interest rates on mortgages and other loans and spur more borrowing and spending.

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Sarah Stephens: Embargoes

October 22, 2010

On October 19, 1960 President Eisenhower put in place an embargo against Cuba that has lasted to this day. Fifty years later, the Obama administration is enforcing these sanctions in some high profile areas with greater vigor than even the Bush administration. Now we’re learning that while the United States likes to impose embargoes, it doesn’t really like being subject to them. So it’s worth spending a moment considering what happens when the sanctions shoe is on the other foot. China is in a trade tiff with the United States. China is accused of subsidizing its exports of green technology into our market. Such actions are at variance with its membership in the World Trade Organization, and now the U.S. Trade Representative is investigating the complaints. China is retaliating against the U.S.T.R.’s scrutiny. Despite its denials, it is beginning to impose what experts are calling an “embargo” on shipments of “rare earths” to the United States and elsewhere. Rare earths — not the 60s-era soul band out of Detroit — are critical materials used to manufacture items as diverse as cellphones, wind turbines, guided missiles and pharmaceuticals. While rare earths are actually abundant, China monopolizes the mining of them. An embargo of rare earth exports would violate international trade law, and a decision to withhold them internationally would shut down the world economy. Consequently, China’s rare earth retribution is stirring an extremely uneasy reaction. The Defense Department is studying the national security risks of dependence on China. Congress is considering loan guarantees to jump-start the mining of rare earth here in the U.S. U.S. Representative Mike Coffman says “The administration needs to join with other countries and have a united front to tell China this is not appropriate.” He calls the embargo “extremely disturbing” and is urging President Obama to ensure our national security interests are not beholden to the Chinese. Paul Krugman in the N.Y. Times goes a step further calling China “a rogue economic superpower, unwilling to play by the rules.” Strong stuff, indeed, and not a single U.S. policy maker, expert, or industrialist has called on the Obama administration to capitulate or to give China exactly what it’s asking for despite the risks to our economy posed by its rare earth embargo. They’d be run out of town if they did. Investigations, hot rhetoric, and government programs to circumvent the effects of an embargo — understandable reactions as China, the third largest economy in the world, tries pushing around the world’s largest economy in an effort to obtain trade concessions from us. This brings us to Cuba, the world’s 66th-largest economy, subject to a U.S. embargo for five decades; an embargo covering not just rare earth but everything with limited exceptions for food and medicine. The purpose of the U.S. embargo against Cuba is every bit as clear as China’s rare earth embargo against us; as President Obama restated this week, the goal is to bend Cuba to the will of the United States, until it reforms its economy and political system to our satisfaction. But Cuba, like its neighbor to the North, is unwilling to capitulate and undermine its sovereignty. So, the U.S. embargo continues. Next week, as it has for the last eighteen years, the U.N. General Assembly will consider a resolution condemning the U.S. embargo against Cuba. In 2009, 187 countries voted for the resolution. Just three voted against it: Palau, Israel (itself subject to embargoes and boycotts since 1948), and the United States, which is now smarting from the shortage of rare earth. If past is prologue, this year’s resolution will pass the General Assembly overwhelmingly, and the Obama administration — which promised to move beyond unilateralism in foreign policy — will essentially be left again standing alone. This next U.S. vote to preserve our failed Cuba embargo will send a disturbingly familiar signal to the world community. One can only imagine the message received in Beijing.

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Dave Johnson: Canton, Ohio Town Hall: We Can Make It, Build It, Grow It Here

October 20, 2010

The Canton, Ohio “Keep It Made In America” Town Hall meeting was at the Kent State University Stark Campus this evening. Lieutenant Governor and Senate candidate Lee Fisher spoke. His opponent, Rob Portman, (U. S. Trade Representative under George W. Bush) was also invited to speak to this meeting discussing how to recover the 2.4 million manufacturing jobs that were lost to China in the Bush years, but had other commitments and was unable to attend. The crowd was welcomed by Stark County Commissioner Steven Meeks, who let us know that “Stark State College is creating curriculum that addresses needs of unemployed, and is growing 30% every year. Just announced a $2.1 million grant plus $8 million from Stark State, creating a Wind Energy Research and Development Center to test wind turbines.” This partnership will train employees but will also bring wind energy business to the area. After Scott Paul of the Alliance for American Manufacturing introduced the organization and explained the town hall, Congressman John Boccieri, OH-16 spoke, saying, “We can make it, build it, grow it here.” Later, “I thought the Chamber of commerce was supposed to protect jobs in the US not in Beijing. I fail to see how they believe that this is good policy for our country.” Next up was Senate candidate, Lt. Gov Lee Fisher. (Summarized from notes): “Do we go back to the same people who gave tax breaks to large companies to send our jobs out of the country? To treaties that allowed these countries to dump cheap, unsafe unhealthy products, endanger our health and our economic health, put people out of work and companies out of business and industries vanished? People think it’s OK the steel workers are upset, the auto workers are upset. It isn’t. The key is to build alliances that go beyond steel, let’s talk about technology. The guy who founded Intel, Andy Grove, wrote recently that he no longer believes that free trade is the right way to go. In 1975 when first personal computer was invented, 125,000 people employed in the US. Today 125,000 are employed. This is the same but in Asia 1.5 million are employed in this business. This is not just steel, glass auto, textiles, electronics, this is about solar panels, advanced batteries, wind turbines. We need to wake up the rest of America, you already get it that’s why you’re here, but the key to our victory is waking up the rest of American before it’s too late. ” Interestingly, Fisher is running against Rob Portman, U. S. Trade Representative under George W. Bush. Portman was also invited to speak to this town hall discussing how to start recovering the 2.4 million manufacturing jobs that were lost to China in the Bush years but had other commitments and was unable to attend. The Panel Canton’s town hall panel of local experts was Scott Paul of AAM moderating, with, * Dave McCall District 1 Director for the United Steelworkers * Athony Denoi, Plant Manager ATI Alegheny Ludlum (Stainless steel, other specialty steels) * Max Blachman – Office of Ohio Senator Sherrod Brown From notes: Blachman – Sen Brown elected 92 to Congress, fighting for American manufacturing and workers ever since. Ran for Senate said let’s make Ohio the Silicon Valley of manufacturing. Sen Brown had an op-ed in yesterday’s NY Times . (Note – a good read , it starts out, “TEN years ago this fall the Senate sold out American manufacturing.”) Steps to take – enforce trade laws, China created tremendous and unfair imbalance McCall – We need a manufacturing policy. Level playing field. China currency. VAT – every country has a VAT except us. A company that makes something in India pays 20% tax, but when you ship the government gives the tax back, so companies in other countries get as much as a 20% break and China gets that break on top of currency manipulation and other schemes so that’s now 60%. … Just try to get 1 pound of steel into China, you can’t. You can’t sell there, they are exporting their unemployment to us. … Why has this been going on for a decade, decade and a half? Because a whole lot of people have very short term thinking, don’t care, want to make their dollars now, want to get out. … It’s time to give some protections to our American companies. They need to be profitable, so it is fair and balanced for companies and steelworkers as well. DeNoi – We are in business because of specialty steel that goes into special places like nuke reactors, transformers. To make good steel you need: Good equipment good people know how to make it. China doesn’t have #3, intellectual property, if we lose that China can make it. Silicon Steel, best grade, now China says they can do. It’s part of their energy strategy, for China to make their own. Titanium, we know how to make and others do not. Give us a level playing field we can compete globally. I keep on hearing industrial policy, it is a strategy , they are looking 5 10 20 years down the line. Has to be more than policy, has to be a serious strategy for long term/ McCall – on IP rights, I remember a guy testified before the China commission some years ago, who produced roof tiles for all KFC places in US. KFC got a contact from Chinese government to build 100 KFC stores in China. This guy, family business, invested in new technology, 40 employees. Business was good. KFC got this contract, the first load of shingles he sent got locked up on the dock and the government wouldn’t release it to be built on those restaurants until he gave them the formula and processes, KFC said we got to have these shingles, so he had to give up property rights. Now a company in China produces all those shingles , he is out of business. Q from audience: “How do we get consumers to understand and support Buy American?” McCall – Look what happens when we fight back. Cooper Tire built a plant in China, China said for 5 years you must export. So they have a price advantage, dump the tires here. So we filed a trade case and won , they put on a tariff, now they are dumping in Europe but not in US, so in Ohio now Cooper plant hires, 100 new jobs . Q: “What is the government and manufacturers going to do to help put people 55 and older forced into retirement, back to work?” Blachman – Sen Brown SECTOR act, labor grants to communities, allow labor an business and Community College or other anchor institution to come together with workforce investment board to fashion a curriculum to train for available jobs in new industries, fuel cells, advanced batteries, like what is happening at Stark Research Center on this campus. One-stop services often do not provide those specific skills needed to succeed in these industries. This passed the House, Senate filibustered DeNoi – challenge is to get a good educated workforce out there, we try to hire, give them tests, it is hard to get the skill set needed to work in steel. They have to have computer skills, math skills, problem-solving skills, we are having a difficult time finding it so we hire mature workers in this area because of that. Paul – if you see a factory on TV it’s an action setting, abandoned factory, rusted chains coming from the ceiling, fire coming out of the floor and a dead bodies is thrown from the second floor, that’s what people see when they see factories. Now is clean, highly technological, exciting, and you have an opportunity Q: “What three things if you could talk to the President.” DeNoi: 1) Level playing field 2) Long term strategy 3) Buy American Silverware, it is not made here anymore. Gas grills. So this was the last Town Hall I will be attending. There are more on the schedule and they are GREAT, and you learn a lot. Take a look at the schedule and see if you can make it to one . And I am sure there will be another round coming. I will be thinking for a while and then writing a wrap-up post that take a bigger-picture look at what I learned this last week. So check back. This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF. Sign up here for the CAF daily summary .

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Video: Malpass Sees U.S. `Lost Decade’ on Weak Dollar Policy: Video

October 15, 2010

Oct. 15 (Bloomberg) — David Malpass, president and founder of Encima Global, talks about Federal Reserve monetary policy, the U.S. dollar and the outlook for the Bush-era tax cuts which are set to expire at the end of this year. Malpass talks with Matt Miller on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

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Bob Burnett: The Jobs Crisis: Hard Times and Tough Choices

October 8, 2010

Here in California, I’ve been calling voters, asking them to vote no on Proposition 23 — the Texas Oil attempt to roll back our enlightened environmental law (AB32). I’ve been impressed both by voters’ determination to defeat Proposition 23 and their reports of hard times. Many voters say they are hurting financially. It doesn’t come as a surprise. The Bureau of Labor Statistics reports that the U.S. unemployment rate is holding at 9.6 percent. But when you add the number of “discouraged” workers, who’ve quit looking for employment, and the number of who are working part time because they can’t find full time work, the total number of unemployed and underemployed rises to 16 percent. And that’s probably low considering the number of people who are stuck in jobs they hate but are afraid to leave — not to mention the number of folks who put in long hours but don’t earn a living wage. Last month the National Bureau of Economic Research declared that “the great recession” ended in June of 2009. Most Americans find that hard to believe when hard times continue. Indeed, financial guru Warren Buffett observed: “We’re still in a recession… We’re not gonna be out of it for a while…” Buffett defines a recession differently from the National Bureau of Economic Research, saying it ends “when real per capita gross domestic product returns to its pre-downturn level.” What Buffet didn’t say is that no one can predict when real per capital gross domestic product will rebound. Berkeley economist Robert Reich believes that during the Bush Administration ordinary consumers lost such a high percentage of their buying power that they no longer have the capacity to pull the U.S. out of the recession. (Columbia economist Joseph Stiglitz agrees.) This long-lasting recession has had four consequences: high unemployment and a steady loss of decent jobs; low-interest rates; savage restriction of credit; and rising income inequality . The gap between rich and poor Americans is increasing and the middle class is wasting away. As a consequence, ordinary consumers have less discretionary income. The U.S. economy depends upon steady consumption by working-class Americans. Conservative economic theory incorrectly assumes that rich folks buying yachts and vacation homes catalyze the consumer economy. That’s not happening; wealthy Americans have as much income as they have ever had but their purchases of Ferraris or diamonds aren’t boosting the economy. Average Americans aren’t consuming because they either don’t have the money or are saving it because they are fearful. Working folks aren’t consuming so businesses aren’t hiring. It’s an understandable but deadly cycle. There’s a fundamental loss of trust. That’s why Americans are depressed. Once upon a time, Americans prided themselves on their “can do” attitude. We shared the belief that no matter how difficult the problem we could solve it by banding together. That’s the spirit that prevailed during World War II when America united to defeat the Axis powers. And that same spirit is still seen in communities wherever there’s a hurricane or earthquake or horrific fire; we still have the capacity to form the “benevolent community” that works for the common good. Unfortunately, as regards the jobs crisis, America has lost its “can do” attitude. Economists Paul Krugman and Robin Wells address this in their NEW YORK REVIEW article The Way Out of the Slump : “In the months immediately following the failure of Lehman Brothers, policymakers seemed to understand that we had entered a world in which the usual rules no longer applied–a world in which running huge budget deficits was an act of prudence, not folly… But that understanding faded fast. Unconventional policies are as badly needed as ever; but policymakers have lost their nerve.” (Their assessment is shared by financier George Soros .) Even before the results of the November 2nd elections are in, the U.S. is in gridlock. Politicians know we’re facing hard times but they’re unwilling to make the tough choices required to jump-start the economy. It’s time for liberals to roll up their sleeves and get back to first principles. We must be clear about our values and what’s required to solve the jobs crisis: Every American has the right to a decent job paying a living wage. If the marketplace won’t supply these jobs, then government has to be the employer of last resort. There must be a jobs-oriented stimulus package that not only supports America’s teachers and public safety workers but also strengthens the U.S. infrastructure, in general. (Bring back the WPA!) We can pay for the new stimulus package by increasing taxes on both the wealthy and financial institutions. The Federal government has to be involved in economic policy. It has to intervene and create the jobs that the greedy, shortsighted private sector hasn’t provided. (Even if this means restricting trade with countries like China.) Hard times require tough choices. We have to have folks in Washington who are willing to turn the U.S. in a new direction, where everyone who wants to work has a decent job. We need congress people with liberal values.

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CBO Estimates $1.3 Trillion Deficit For 2010

October 8, 2010

WASHINGTON — The federal deficit for the just-finished 2010 budget year was a little under $1.3 trillion, the Congressional Budget Office estimated Thursday. The CBO puts the deficit about $125 billion below the $1.42 trillion record posted for 2009. That means the government borrowed 37 cents out of every dollar it spent as tax revenues continued to lag while spending on food stamps and unemployment benefits went up as the economy slowly pulls out of the recession. The CBO figures are based on preliminary data but should be very close to the Treasury Department’s official tally due in a week or so. The report provides a fresh reminder of the government’s fiscal problems, a major issue in midterm elections less than a month away. It’s a slight improvement from prior CBO estimates. The near-record deficits come as Democrats and Republicans are battling over extending Bush-era tax cuts. The chief difference between the combatents – about $700 billion over the coming decade – is whether to extend tax cuts for individuals making more than $200,000 and families making over $250,000. Both sides generally agree on extending $3.3 trillion in other Bush tax cuts. Republicans and a few Democrats want to preserve the tax cuts for upper-income taxpayers. Democratic leaders opted to avoid the confrontation and the risk of being branded tax hikers and adjourned the Congress for the matter to be resolved after the elections. The decline in the deficit from last year’s record is due to $108 billion in repayments and other revenues from the unpopular Troubled Assets Relief Program, the 2008 bailout of the financial services sector. The ultimate cost of the $700 billion bailout is turning out to be considerably less than previously estimated – just $50 billion under latest Treasury Department estimates – but the success of the TARP program hasn’t made it any more popular with voters. The continuing weakness in the economy means that income and Social Security tax revenues both dropped relative to 2009, despite the fact that the economy has begun to grow again after the worst recession since the 1930s. Income tax revenues are down 1.6 percent and payroll taxes are down 3.2 percent, reflecting continued weakness in job growth. At the same time, unemployment benefits jumped 34 percent as the jobless rate hovered near 10 percent nationwide and Congress renewed benefits for the long-term unemployed. The 2010 deficit equaled almost 9 percent of the size of the economy, far more than the 3 percent or so that economists say is sustainable over the long term. Estimates vary, but the deficit is expected to drop to perhaps $800 billion or so in a few years before unsustainable spending on federal retirement programs – Medicare and Social Security – kick in. Deficits of $1 trillion in a single year had never happened until two years ago. The $1.4 trillion deficit in 2009 was more than three times the size of the previous record-holder, a $454.8 billion deficit recorded in 2008. One bright spot in 2010 was an almost 40 percent increase in corporate tax receipts.

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Afghan Security Contractors Trashed In Senate Report

October 7, 2010

WASHINGTON — Heavy U.S. reliance on private security in Afghanistan has helped to line the pockets of the Taliban because contractors often don’t vet local recruits and wind up hiring warlords and thugs, Senate investigators said Thursday. The finding, in a report by the Senate Armed Services Committee, follows a separate congressional inquiry in June that concluded that trucking contractors pay tens of millions of dollars a year to local warlords for convoy protection. Sen. Carl Levin, chairman of the Senate panel, said he is worried the U.S. is unknowingly fostering the growth of Taliban-linked militias at a time when Kabul is struggling to recruit its own soldiers and police officers. “Almost all are Afghans. Almost all are armed,” Levin, a Michigan Democrat, said of the army of young men working under U.S. contracts. “We need to shut off the spigot of U.S. dollars flowing into the pockets of warlords and power brokers who act contrary to our interests and contribute to the corruption that weakens the support of the Afghan people for their government,” he added. The Defense Department doesn’t necessarily disagree but warns that firing the estimated 26,000 private security personnel operating in Afghanistan in the near future isn’t practical. This summer, U.S. forces in Afghanistan pledged to increase their oversight of security contractors and set up two task forces to look into allegations of misconduct and to track the money spent, particularly among lower-level subcontractors. The Defense Contract Management Agency has increased the number of auditors and support staff in the region by some 300 percent since 2007. And in September, Gen. David Petraeus, the top war commander in Afghanistan, directed his staff to consider the impact that contract spending has on military operations. But military officials and Republicans on the Senate Armed Services Committee warn that ending the practice of hiring local guards could worsen the security situation in Afghanistan. They say providing young Afghan men with employment can prevent them from joining the ranks of Taliban fighters. And bringing in foreign workers to do jobs Afghans can do is likely to foster resentment, they say. Also, contract security forces fill an immediate need at a time when U.S. forces are focused on operations, commanders say. “As the security environment in Afghanistan improves, our need for (private security contractors) will diminish,” Petraeus told the Senate panel in July. “But in the meantime, we will use legal, licensed and controlled (companies) to accomplish appropriate missions.” Levin says he isn’t suggesting that the U.S. stop using private security contractors altogether. But, he adds, the U.S. must reduce the number of local security guards and improve the vetting process of new hires if there’s any hope of reversing a trend that he says damages the U.S. mission in Afghanistan. His report represents the broadest look at Defense Department security contracts so far, with a review of 125 of these agreements between 2007 and 2009. The review concludes there were “systemic failures” in the management of the contracts, including “widespread” failures “to adequately vet, train and supervise armed security personnel.” The panel’s report highlights two cases in which security contracting firms ArmorGroup and EOD Technology relied on personnel linked to the Taliban. Last week, EOD Technology was one of eight security firms hired by the State Department under a $10 billion contract to provide protection for diplomats. A statement released by EOD Technology said the Lenoir City, Tenn.-based company had been encouraged to hire local Afghans and that it provided the names of its employees to the military for screening. The company said the military has never made it aware of any problems with its handling of the contract. In the case of ArmorGroup, the Senate panel says the company repeatedly relied on warlords to find local guards, including the uncle of a known Taliban commander. The uncle, nicknamed “Mr. White” by ArmorGroup after a character in the violent movie “Reservoir Dogs,” was eventually killed after a U.S. raid that uncovered a cache of weapons, including anti-tank land mines. ArmorGroup, based in McLean, Va., lost a separate contract this year protecting the U.S. Embassy in Kabul after allegations surfaced that guards engaged in lewd behavior and sexual misconduct at their living quarters. Susan Pitcher, a spokeswoman for Wackenhut Services, ArmorGroup’s parent company, said the company only engaged workers from local villages upon the “recommendation and encouragement” of U.S. special operations troops. Pitcher said that ArmorGroup stayed in “close contact” with the military personnel “to ensure that the company was constantly acting in harmony with, and in support of, U.S. military interests and desires.” The allegation that contractors rely on warlords for local hiring is not new. Last June, a Democratic House investigation led by Massachusetts Rep. John Tierney concluded that trucking companies had “little choice” but to pay local warlords “in what amounts to a vast protection racket.” Army criminal investigators are examining the allegations, specifically looking at whether companies hired under a $2 billion Pentagon contract to transport food, water, fuel and ammunition to troops were paying up to $4 million a week to insurgent groups. In August, Afghan President Hamid Karzai announced that private security contractors would have to cease operations by the end of the year. The workers, he said, would have to either join the government security forces or stop work because they were undermining Afghanistan’s police and army and contributing to corruption. U.S. officials responded that they shared the goal but wanted to move slow enough that military efforts weren’t impacted. Levin says he blames lost money to the Taliban on a lack of government oversight until this year. He previously has blamed the Bush administration for not devoting enough resources to the war in general. Led by Arizona Sen. John McCain, committee Republicans endorsed the investigative findings in a voice vote last month. But in a statement included in the report, they said Levin’s investigation “falls short of providing a more robust discussion of how slim our options were at the time.”

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Video: Feldstein Predicts Dollar to Weaken, Boosting Exports: Video

October 7, 2010

Oct. 7 (Bloomberg) — Martin Feldstein, an economics professor at Harvard University, talks about the outlook for the U.S. dollar. Feldstein, talking with Tom Keene on Bloomberg Television’s “Surveillance Midday,” also discusses the U.S. budget deficit, savings and the Bush-era tax cuts. (Source: Bloomberg)

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Zach Carter: Robbing The Middle Class: Republican ‘Pledge’ Lets Wall Street Off The Hook

October 5, 2010

I didn’t expect to see serious economic policy discussions in the ” Republican Pledge To America ,” but even by Washington, D.C. standards, this document is staggeringly disingenuous. Not once in the entire 48-page screed do Republicans mention the words “Wall Street,” “subprime,” or “foreclosure.” It’s a deliberate effort to obscure the fact that today’s economic mess is the direct result of financial malpractice on Wall Street–and that Republican economic policies would encourage more of it. As my CAF colleague Richad Eskow has noted, this Pact to Rob The Middle Class has plenty of other problems–but fundamentally, it’s supposed to be a discussion about government spending and the federal budget deficit. For anyone to even pretend to discuss those issues without mentioning the past decade’s Wall Street excess is simply laughable. The increases in government spending under President Barack Obama have been an attempt to counter economic damage wreaked by Wall Street under President George W. Bush. They haven’t been enough, but they’ve helped–just ask economist Mark Zandi, former adviser to Sen. John McCain’s presidential campaign (.pdf file). But after watching a deregulated Wall Street pump out trillions of dollars worth of ridiculous predatory mortgages and then amplify their bets tenfold in the unregulated derivatives market , Republicans now promise to hold up any new government regulation that “costs” the economy more than $100 million. This is pure insanity. Any serious Wall Street regulation will cost every megabank far more than $100 million over the 10-year span devoted to budget projections– that’s the whole point of serious financial regulation . Republicans are defending the basic housing bubble accounting scam: book huge, illusory short-term profits with reckless lending and gambling– when those bets blow up, stick taxpayers with the bill. You can measure the short-term costs to bank profitability, but you can’t measure the costs of future financial collapse. Plenty of free-market activists thought decades of deregulation had worked until markets cratered in 2008. At that point, we lost eight million jobs, and the amount of government debt held by the private sector increased by 40 percent of GDP . Without Obama’s stimulus package, the cost in jobs would have been far higher. This rabid deregulatory agenda applies to every rule yet to be written under the Wall Street reform legislation that Congress approved this summer. Since the basic strategy of that bill was to kick all major decisions to regulatory agencies, the Republicans are sending a clear signal to their Wall Street friends: Republicans will work with bank lobbyists to dismantle the entire Wall Street reform bill. They even pledge to freeze federal hiring to prevent regulators from putting more cops on the beat fighting Wall Street fraud . As for further, stronger reforms? Nothing. A promise to “permanently” end bailouts. These promises are always empty. They mean nothing without serious regulations to rein in financial excess. The United States bailed out banks and their creditors prior to 2008 (under Republican regimes), and will do so again the next time megabanks get into trouble. Without strong regulations, smaller banks, or both, the bailout cycle is inevitable. But Republicans have not only pledged to set Wall Street loose, they’ve vowed not to clean-up the economic mess that megabanks create. That’s what their much-ballyhooed cap on federal spending means. When Wall Street sets the economy on fire, we’ll let it burn–if that means home, your job, or your retirement, then so be it. Both political parties court Wall Street campaign cash, and Republicans have been extremely successful at securing that funding. Take a look at the 90 most flagrant Wall Street Cronies in Congress –everyone who voted for the bank bailout in 2008, but opposed reforming Big Finance in 2010 (full table at the end of the post). The list doesn’t include every Wall Street servant on Capitol Hill, only the most obvious offenders. T his Coalition of Wall Street Cronies includes 81 Republicans, and just about every member of the Republican leadership who showed up to roll out the “Pledge To America.” In the House, it includes Minority Leader John Boehner, R-Ohio, and Minority Whip Eric Cantor, R-Va., while the Senate brings in Minority Leader Mitch McConnell, R-Ky., Minority Whip Jon Kyl, R-Az., Republican Conference Chairman Lamar Alexander, R-Tenn., Republican Policy Committee Chairman John Thune, R-S.D., and National Republican Senatorial Committee Chairman John Cornyn, R-Texas. The full list of Financial Miscreants is at the end of this post. What does “The Pledge” actually say about the financial crisis? Repeatedly disproven drivel : “Fannie Mae and Freddie Mac . . . triggered the financial meltdown by giving too many high risk loans to people who couldn’t afford them.” That’s not what happened . Private-sector banks issued subprime loans. Private-sector investors bought up these garbage mortgages in the form of mortgage-backed securities and collateralized debt obligations (CDOs). They lobbied hard to keep consumer protections at bay and to lift leverage limits that prevented them from betting too much on the housing market. After a few years of crazy, irrational profits in the private sector, Fannie and Freddie caught on to the scam, lobbied the Bush administration to adjust their regulations, and began buying up mortgage-backed securities in order to compete with Wall Street. This behavior was disgusting, but it did not cause the subprime crisis, the housing bubble or the Wall Street crash. All of those were created and catalyzed by Wall Street. Fannie and Freddie’s basic function–buying up mortgages and securities–made them totally divorced from any losses at big banks. They didn’t push the crisis onto the banks, they belatedly chose to take part in the crisis created by banks. Even today, only about 14 percent of seriously delinquent mortgages at Fannie and Freddie are subprime. None of this turns Fannie and Freddie executives into good guys–they were reckless scumbags who cost taxpayers billions. But if you’re going to demand major structural reform of Fannie and Freddie (and you should), then you should demand much further-reaching reform of the Wall Street casino that actually wrecked the economy. Best of all, Republicans pledge to “fight efforts to use a national crisis for political gain.” If the Republican “Pledge” isn’t a cynical exploitation of a national jobs crisis for political gain, I don’t know what could possibly qualify as cynical exploitation. Conservatives created the crisis with deregulatory economic policies, and now want to use the crisis not to fix things, but to deregulate further . I’ve been very critical of both President Obama and Congressional Democrats for being overly timid about financial reform and refusing to take the prospect of another near-term crash seriously. This is not a partisan defense of Democrats– to be sure, some of them are still behaving very badly . This is a defense of financial sanity, something that the Republican Party has just pledged to erase. Wall Street’s Cronies are listed below. Senator 2010 Wall Street Cash Career Wall Street Cash Sen. Lamar Alexander (R-TN) $1,600,000 $4,900,000 Sen. Robert Bennett (R-UT) $1,500,000 $2,600,000 Sen. Kit Bond (R-MO) $333,600 $3,300,000 Sen. Richard Burr (R-NC) $1,500,000 $3,300,000 Sen. Saxby Chambliss (R-GA) $2,500,000 $3,500,000 Sen. Tom Coburn (R-OK) $451,700 $1,200,000 Sen. Bob Corker (R-TN) $3,100,000 $3,300,000 Sen. John Cornyn (R-TX) $3,200,000 $4,700,000 Sen. John Ensign (R-NV) $1,300,000 $2,600,000 Sen. Lindsey Graham (R-SC) $1,100,000 $2,000,000 Sen. Judd Gregg (R-NH) $233,200 $1,100,000 Sen. Orrin Hatch (R-UT) $1,400,000 $2,600,000 Sen. Kay Bailey Hutchison (R-TX) $1,400,000 $4,700,000 Sen. Johnny Isakson (R-GA) $1,500,000 $4,200,000 Sen. John Kyl (R-AZ) $2,800,000 $3,800,000 Sen. Dick Lugar (R-IN) $412,200 $2,500,000 Sen. John McCain (R-AZ) $947,600 $34,000,000 Sen. Mitch McConnell (R-KY) $4,300,000 $5,300,000 Sen. Lisa Murkowski (R-AK) $268,200 $909,700 Sen. John Thune (R-SD) $1,600,000 $3,900,000 Sen. George Voinovich (R-OH) $435,200 $2,800,000 21 Republicans 0 Democrats Senate Total $31,881,700 97,209,700 House Member 2010 Wall Street Cash Career Wall Street Cash Rep. Rodney Alexander, R-La. $106,500 $422,300 Rep. Spencer Bachus, R-Ala. $611,600 $4,400,000 Rep. Gresham Barrett, R-S.C. $20,400 $806,700 Rep. Marion Berry, D-Ark. $24,900 $663,700 Rep. Judy Biggert, R-Ill. $395,000 $1,900,000 Rep. Roy Blunt, R-Mo. $1,200,000 $3,800,000 Rep. John Boehner, R-Ohio $1,300,000 $3,700,000 Rep. Jo Bonner, R-Ala. $90,400 $702,200 Rep. Mary Bono Mack, R-Calif. $190,000 $733,400 Rep. John Boozman, R-Ark. $257,700 $491,000 Rep. Dan Boren, D-Okla. $123,100 $722,200 Rep. Rick Boucher, D-Va. $92,700 $1,400,000 Rep. Charles Boustany Jr, R-La. $226,300 $934,600 Rep. Kevin Brady, R-Texas $157,000 $840,500 Rep. Henry Brown, R-S.C. $35,700 $494,000 Rep. Vernon Buchanan, R-Fla. $336,800 $1,400,000 Rep. Ken Calvert, R-Calif. $180,300 $940,300 Rep. Dave Camp, R-Mich. $588,000 $1,700,000 Rep. John Campbell, R-Calif. $413,400 $1,200,000 Rep. Eric Cantor, R-Va. $2,100,000 $4,400,000 Rep. Mike Castle, R-Del. $749,100 $3,200,000 Rep. Howard Coble, R-N.C. $23,400 $502,500 Rep. Tom Cole, R-Okla. $110,000 $686,000 Rep. Mike Conaway, R-Texas $161,500 $711,800 Rep. Ander Crenshaw, R-Fla. $86,100 $717,000 Rep. Henry Cuellar, D-Texas $90,600 $606,900 Rep. Charlie Dent, R-Pa. $177,900 $881,000 Rep. Chet Edwards, D-Texas $324,200 $1,900,000 Rep.Vernon Ehlers, R-Mich. $8,500 $292,200 Rep. Jo Ann Emerson, R-Mo. $143,900 $904,400 Rep. Mary Fallin, R-Okla ($1,000) $340,700 Rep. Rodney Frelinghuysen, R-N.J. $86,200 $840,300 Rep. Jim Gerlach, R-Pa. $251,600 $1,800,000 Rep. Kay Granger, R-Texas $140,000 $1,100,000 Rep. Wally Herger, R-Calif. $171,500 $1,100,000 Rep. Peter Hoekstra, R-Mich. ($1,000) $300,600 Rep. Bob Inglis, R-S.C. 0 $572,800 Rep. Peter King, R-N.Y. $173,900 $1,600,000 Rep. Mark Kirk, R-Ill. $1,900,000 $4,200,000 Rep. John Kline, R-Minn $170,900 $989,100 Rep. Jerry Lewis, R-Calif. $31,800 $748,000 Rep. Daniel E. Lungren, R-Calif. $147,700 $622,500 Rep. Howard McKeon, R-Calif. $132,100 $1,100,000 Rep. Gary Miller, R-Calif. $144,500 $902,000 Rep. Harry Mitchell, D-Ariz. $130,900 $558,000 Rep. Sue Myrick, R-S.C. $93,600 $1,200,000 Rep. Soloman Ortiz, D-Texas $40,200 $381,700 Rep. George Radanovich, R-Calif. $24,900 $462,000 Rep. Mike Rogers, R-Ala. $128,200 $1,000,000 Rep. Hal Rogers, R-Ky. $50,200 $468,000 Rep. Ileana Ros-Lehtinen, R-Fla. $127,000 $986,000 Rep. Paul Ryan, R-Wis. $531,500 $1,900,000 Rep. Jean Schmidt, R-Ohio $121,900 $519,700 Rep. John Shadegg, R-Ariz. $39,700 $1,200,000 Rep. Bill Shuster, R-Pa. $30,700 $403,600 Rep. Mike Simpson, R-Ind. $20,500 $266,900 Rep. Ike Skelton, D-Mo. $112,500 $524,200 Rep. Lamar Smith, R-Texas $258,900 $1,300,000 Rep. Mark Souder, R-Ind. $40,500 $405,800 Rep. Zack Space, D-Ohio $169,300 $476,300 Rep. John Sullivan, R-Okla. $79,200 $494,800 Rep. Lee Terry, R-Neb. $202,600 $1,400,000 Rep. Mac Thornberry, R-Texas $42,500 $603,400 Rep. Patrick Tiberi, R-Ohio $555,500 $2,800,000 Rep. Fred Upton, R-Mich. $81,700 $929,400 Rep. Greg Walden, R-Ore. $180,700 $732,400 Rep. Zach Wamp, R-Tenn. 0 $715,700 Rep. Joe Wilson, R-S.C. $155,500 $580,200 Rep. Frank Wolf, R-Va. $90,400 $1,100,000 60 Republicans $15,873,400 $72,443,800 9 Democrats $1,108,400 $7,233,000 House Total $16,981,800 $79,676,800

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Herbert M. Allison: The Untold Story of TARP

October 3, 2010

TARP has become a dirty word in our nation’s political discourse. Few terms elicit such anger from voters and politicians. In many ways, that’s understandable. No one wanted to bail out Wall Street. No one wanted to use taxpayer dollars to rescue an industry that helped cause the worst economic crisis in a generation. It was unfair. It was appalling. But it was necessary. We had no other choice. Two years ago, we stood at the brink of an economic catastrophe. Ordinary American families were questioning whether their money was safe in banks. A growing financial panic threatened to sink our nation into an economic downturn that rivaled the Great Depression. A bi-partisan majority in Congress responded by enacting the Troubled Asset Relief Program. The debate over this issue was heated. On October 3, 2008, when TARP became law, one member of Congress even went so far as to say, “I don’t think it is too much of a stretch to say this may be the day America died.” Two years later, with TARP officially set to expire today, it’s an appropriate time to look back and evaluate that program’s effectiveness. And now that the fog of an intense financial panic has lifted, it’s clear that the critics and cynics were wrong. TARP has proven remarkably successful at stabilizing the economy and laying the foundation for future growth. Today, our economy is healing. Because of the enormity of the challenges we faced, unemployment is still unacceptably high and growth has not yet reached an acceptable pace. But we’re on the path to recovery. Businesses have added jobs for eight straight months. Private investment and confidence in banks have returned. The cost of borrowing for businesses, municipalities and individuals has declined dramatically. The TARP investments that the Bush and Obama administrations made in GM and Chrysler, as well as the hard decisions that those companies made to adapt and compete, turned those automakers around and saved at least one million jobs. Since GM and Chrysler emerged from bankruptcy, the auto industry has added 76,300 jobs – the strongest growth in 10 years – and for the first time since 2004, all of the big three American auto companies are operating profitably. In fact, independent experts have estimated that overall, without the federal government’s response to the financial crisis, including TARP, there would be nearly 8.5 million fewer jobs today and the unemployment rate would exceed 15 percent. The question, then, is why does TARP remain unpopular, despite its success? I believe, in great part, it’s because a number of myths about the program stubbornly persist. Many people think that TARP cost $700 billion. But Treasury is now confident that the lifetime cost to taxpayers will be less than $50 billion. Repayments have continued to exceed expectations. Three-fourths of the TARP funds provided to banks have already been returned. And the exit strategy AIG announced last week puts taxpayers in a considerably stronger position to recoup our investment in that company. Many people think that TARP funds only went to Wall Street. But more than 450 small and community banks participated in TARP, which helped them deliver credit to local small businesses and families. Additionally, more than 3.3 million struggling homeowners have had an opportunity to stay in their homes or find more affordable alternatives because of foreclosure prevention programs either financed by TARP or created as a result of TARP in the private sector. Many people think that TARP created a precedent for future bailouts. But President Obama and Treasury Secretary Geithner worked tirelessly with Congress to enact the Dodd-Frank Act, which will ensure that the American people are never again put on the hook for the reckless acts of a few financial firms. That law gives the government new tools to shut down and dismember failing institutions rather than bail them out with taxpayer dollars. Unfortunately, the untold story of TARP’s success has been lost in the heated rhetoric of today’s politics. TARP was enacted in an all-too-rare moment of bipartisan cooperation in Washington – with support from both sides of the aisle, including from Republican leaders Representative John Boehner and Senator Mitch McConnell. The Bush Administration began the implementation of TARP and the Obama Administration is finishing the job. Now, many of those who supported TARP have decided that, politically, they need to be against it. But removed from the pressures of a November election, these individuals should be proud of the hard choices they made to help save our economy from a devastating collapse. And perhaps someday they’ll say what is now, for them, the unspeakable: TARP was a success. Herb Allison served as Assistant Secretary for Financial Stability from 2009 until September 30, 2010 at the US Department of the Treasury, where he oversaw the TARP program.

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Lloyd Chapman: Bush Administration Policies Continue to Short Change Small Businesses Out Of Billions

October 1, 2010

Federal policies established during the Bush Administration are still allowing billions of dollars a month in federal small business funds to be diverted to thousands of the largest companies in the world. Information from the Federal Procurement Data System – Next Generation (FPDS-NG) compiled by the American Small Business League (ASBL) found that during the last two years, Bush era policies have allowed as much as $180 billion a year in federal small business funds to be diverted to many of the largest corporations in the world. Some of the firms that have received small business contracts include Boeing, Lockheed Martin, Northrop Grumman, Raytheon, Dell Computer, Xerox, SAIC, General Dynamics, Bechtel and John Deere. Textron, a Fortune 500 defense contractor with 43,000 employees and over $14 billion a year in annual sales received over $775 million in federal small business contracts in a single year. In addition to a “who’s who” of corporate giants in America, Bush policies are still allowing many of the largest firms in Europe and Asia to receive U.S. government small business contracts. Ssangyong Corporation headquartered in Seoul, South Korea landed more than $250 million in U.S. small business contracts. Finmeccanica SpA located in Rome, Italy received over $280 million in small business funds. Other European corporate giants that have landed federal small business funds include British Aerospace (BAE), Rolls-Royce and French defense giant Thales Communications. Since 2003, over a dozen federal investigations have found hundreds of billions of dollars in federal small business contracts that have been diverted to thousands of large businesses around the world. In 2005, the Small Business Administration (SBA) Office of Inspector General described the problems as, “One of the most important challenges facing the Small Business Administration and the entire Federal government today.” ( http://www.asbl.com/documents/05-15.pdf ) President Obama recognized the magnitude of the abuses and promised American small businesses he would end them when he stated, “It is time to end the diversion of federal small business contracts to corporate giants.” ( http://www.barackobama.com/2008/02/26/the_american_small_business_le.php ) Research by the Senate Committee on Small Business and Entrepreneurship found that every one percent increase in federal contracts to small businesses would create over 100,000 new jobs. Research by the ASBL indicates ending the diversion of small business contracts to large businesses could increase federal contracts to small businesses by over 18 percent and could create over 1.8 million net new jobs.

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Federal Reserve ‘Will Be Gone’ In 25 Years, Top Financial Mind Predicts, Despite Geithner’s Vote Of Confidence

September 30, 2010

A mere half-hour after Treasury Secretary Timothy Geithner praised the “necessary” and “very substantial” actions of the Bush and Obama administrations to “break the back of the financial crisis,” one of the world’s leading financial minds said Thursday that the United States is in the same economic predicament today as it was in 2007, predicting that within 25 years the Federal Reserve “will be gone.” Nassim Nicholas Taleb, renowned derivatives trader, university professor and author of “The Black Swan,” warned a gathering in Washington of the growing risk the nation has taken on as a result of poor decisions by the Fed and policymakers, including trillions of dollars in taxpayer money funneled into bailouts of private industry. “This transformation from private debt … to public debt” is “bad” from a risk standpoint and “immoral” from an ethical standpoint, Taleb — a member of the Derivatives Hall of Fame whose book became a bestseller — told a crowd at the Washington Ideas Forum, an event held by The Atlantic and The Aspen Institute. Deficits “will break the Fed” and it will be replaced, he predicted. “The Romans had a saying,” Taleb added: “The grandchildren should not bear the debt of the grandparents.” That debt is made more dangerous, Taleb said, by the increasingly complexities of the financial system, a problem that he said has not been ameliorated during the last three years. “Debt and complexity are not friends,” he said, because “complexity causes unpredictability,” and heavy debt burdens mean one false move, whether by an individual actor or a system, could spell disaster. Nobel Prize-winning economist Paul Krugman, a popular columnist for The New York Times, “doesn’t understand” the economic situation the U.S. finds itself in, Taleb claimed, nor do most economists. Because of the significant rise in debt, within 25 years “anything fragile will break,” Taleb said. That includes the Fed, he argued, because the Fed “fragilized this country.” “The Fed is what got us here,” he said, because of its inattention to risks in the financial system. “It’s like someone flying a plane without understanding how to fly.” Geithner appeared before the same crowd shortly before Taleb. His assessment of the economy and actions taken in response was essentially the exact opposite. The Treasury Secretary, who as the head of the Federal Reserve Bank of New York played a key role in the immediate response to 2008′s financial meltdown, told the crowd that without the “very substantial” financial force brought to bear “early and quickly” to fight the crisis, “nothing else would be possible.” “It’s worth just stepping back and recognizing that this country did do the necessary thing … in acting earlier to break the back of the financial crisis,” Geithner said in reference to controversial actions such as the Troubled Asset Relief Program and the stimulus bill. Referring to the $800 billion stimulus as “exceptionally large” and TARP as “overwhelming financial force,” Geithner said the two policy decisions are the two most important judgments made by the outgoing Bush administration and incoming Obama administration. Though private-sector economists generally conclude that the stimulus was a success, the unemployment rate has jumped from 8.2 percent to 9.6 percent since it was enacted into law on Feb. 17, 2009, Labor Department figures show. Economists argue that unemployment would have been much higher without the stimulus, though they acknowledge it would likely be lower if the stimulus had been larger. As for TARP, it helped the banking sector recover by instilling confidence in market participants — in part because the world now knew that the U.S. government was prepared to rescue large, systemically-important institutions by virtually any means necessary. The Fed’s multi-trillion dollar commitment to the financial sector and its near-zero interest rate policy likely helped, too. ************************* Shahien Nasiripour is the business reporter for the Huffington Post. You can send him an e-mail ; bookmark his page ; subscribe to his RSS feed ; follow him on Twitter ; friend him on Facebook ; become a fan ; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.

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Gregory Unruh: Green Jobs: Promise, Progress and Potential

September 28, 2010

I led a session at the Clinton Global Initiative (CGI) last week entitled “Green Jobs: Preparing for the Green Economy” and can summarize the outcome in three areas: promise, progress and potential. Promise Most agree that a green economy – and sustainable development more broadly – are society’s best hope for reconciling the world’s need for poverty-alleviating economic growth with the planet’s need for life-giving ecological vitality. And there is great promise in a green economy. Traditional industrial development has been incredibly wasteful of materials and energy. The typical coal-fired power plant, for example, loses over half the input energy as waste heat before the first electron zips out of the facility. To produce one ton of pharmaceutical pills requires over 100 tons of input materials, making a 99 percent waste rate on average. The good news is that we already have the know-how and technology to tackle most of this waste. What’s missing is a supportive economic, social and political context, along with trained and knowledgeable workforce to get the job done. Given the 9 percent unemployment rate in the U.S., the fact that dollar-for-dollar the green economy produces more jobs than traditional development makes it a no-brainer. Progress We have seen progress. The Commerce Department reports that there is already a $1 trillion green economy up and running in diverse business sectors like construction, recycling and forestry. Countries as different as China, Germany and India have shifted their policies and incentives to support and stimulate more green growth. Here in the U.S., there has also been bi-partisan support for environmentally friendly economic development. In 2007, for example, the Bush Administration included $125 million for green jobs in the Energy Bill. And last year, the Obama Administration made green jobs an important part of the American Recovery and Reinvestment Act. Some pundits, like The New York Times’ Tom Freidman, see the green economy as the next field of economic competition and are gaining the publics’ and politicians’ attention. Potential Despite the progress, it is clear that there is still vast untapped potential in the green economy. Official statistics show green business accounts for only about 1-2 percent of all economic activity. That’s a tiny sliver of the overall economic pie. But we know that this can grow rapidly. Germany, for example, was able to grow its green industries four fold in just a decade. Even business-as-usual projections show the green economy tripling to $3 trillion by 2020. Our CGI discussion highlighted innovation and experimentation in building the green economy going on in such disparate places as the inner city New York, rural India and Native American reservations. Despite the apparent differences, the challenges are surprisingly similar: supportive policies; capable workforces; attractive business infrastructures; community support. The commonalities give optimism that shared learning might be able to accelerate green economic development and allow us to capture the potential that the green economy promises. Cross-posted from Forbes

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David Feige: Let’s finally say it: The Dow favors Democrats and loves Obama…

September 27, 2010

It is an article of faith among the right wing punditocracy that the democrats are bad for business, bad for the markets, and bad for the economy. The numbers, though, tell a completely different story. And yet, we democrats seem powerless to counter this right-wing narrative. Rather than tout our accomplishments we seem to prefer to empathize with those still suffering. Let’s take, just for fun, one of the most widely regarded metrics–the Dow Jones Industrial Average. If we look at how the markets have performed in the first 21 months of various administrations, it turns out, the markets LOVE democrats generally, and that in fact, in the first half of his term, Obama has presided over the biggest market rally of any newly elected president in more than 45 years. But do we tout this huge improvement? Oddly no. Here’s the breakdown with the actual DJIA historical data… UNDER RONALD REGAN: DOW BEGAN: 970.99 DOW ENDED: 824.01 For a LOSS of 17.8 PERCENT UNDER GEORGE H.W. BUSH DOW BEGAN 2,239.11 DOW ENDED 2,427.48 For a moderate GAIN of 7.8 PERCENT BILL CLINTON: DOW BEGAN: 3,241.95 DOW ENDED 3,878.18 For a GAIN of 16.8 PERCENT GEORGE W. BUSH DOW BEGAN 10,581.90 DOW ENDED 7,698.81 For a whopping LOSS of 37.4% And finally… OBAMA DOW BEGAN 7,949.17 DOW ENDED: 10,819.31 For a GAIN of 26.5% Ok, so let’s all agree to just trust the actual numbers which make clear that democratic presidents have been great for the market, and that that Obama in particular has been wildly effective in shepherding in a massive recovery So from now on, instead of whining about how much better we need to do, let’s try, just for once crowing about the biggest market rally in the first half of a new president’s term in more than 45 years.

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Olbermann: GOP Uses ‘Small’ Business’ Tag To Help Save Huge Companies Billions (VIDEO)

September 23, 2010

The “small” businesses that Republican lawmakers say will suffer if the Bush-era tax cuts for the wealthy expire are not so small after all, MSNBC’s “Countdown” reported Tuesday. Some of these businesses, which include big names in engineering and finance, are “large” in terms of revenue, payroll and distribution, but “small” in terms of ownership, the report, by David Cay Johnston and Chris Hayes, has found. According to the Republican tax logic, a small number of owners is the sole criterion for a “small business.” Such businesses, which according to the Joint Committee on Taxation accounted for 94 percent of all U.S. businesses in 2007, include partnerships, sole proprietorships and S corporations , a designation that allows owners to report profits and losses on their personal tax return, rather than on the company’s. “‘Small business’ is a brand name,” MSNBC’s Keith Olbermann said. The report found that businesses with billions of dollars in annual revenue fall under the small business category. Bechtel, a global engineering and construction company that is considered a “small business” under this logic, took in $31 billion last year. Ferrellgas, a propane company, earned $2 billion in revenue last year. McIlhenny, another “small business,” which makes Tabasco sauce, made $250 million in revenue in 2007. Other names include auditing firm PricewaterhouseCoopers and private equity firm Kohlberg Kravis Roberts. Also on the list are the collection of “small businesses” owned by the billionaire Koch Brothers, who this year tied for fifth on the Forbes list of wealthiest Americans , and who were profiled last month by Jane Mayer in The New Yorker . Bloomberg first reported this unusual tax logic on Monday. The Republican “small business” designation, the report said, would apply even to individuals with no employees at all. It could include actors, athletes and authors — even President Obama . WATCH MSNBC’s segment: Visit msnbc.com for breaking news , world news , and news about the economy

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GOP Senators Supported Obama Tax Credit They Now Oppose

September 21, 2010

A group of ten Republican senators wrote to President Obama in February in support of the very tax credit program they now oppose, Bloomberg News reports. The letter, on Senator Orrin Hatch’s (R-UT) website, and signed by 10 senators including Hatch, asks the president to “embrace” an extension of the research tax credit, saying that would lead to job creation, new investment in high-tech industry, an increase in the amount of new patents and, they claim, a $90 billion boost to the annual GDP. “We urge you to help us enact a strong research incentive to keep us first in the world by endorsing the strengthening of the credit as well as its extension,” the letter reads. Earlier this month, Obama proposed a version of that very program as part of his new package of economic stimulus initiatives. And yet, Hatch, the lead signatory on that letter, said Obama’s plan would be “job killing.” “I don’t think anyone believes an administration that created these problems is going to be able to come up with effective solutions to get us out of them,” he told the Salt Lake Tribune in response to the president’s proposal. “That’s like putting Bernie Madoff in charge of fixing your company’s broken accounting system.” Bloomberg points out that in 2008, House minority leader John Boehner endorsed a plan, according to the congressman’s website , to allow businesses to get a tax credit for “tangible property in the year it is purchased.” Again, it’s practically the same plan Obama proposed this month , which Boehner is now opposing. Republicans have, for the most part, avoided engaging directly with the proposed tax credits, dismissing them on the basis that an extension of the Bush-era tax breaks for the wealthy is more urgent. Boehner said Obama is “missing the big picture.” “There’s tremendous pressure on the Republican leadership, since things look so favorable for picking up seats, not to give the Democrats some type of advantage,” Lee Edwards, of conservative think-tank Heritage Foundation, told Bloomberg.

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GM-Chrysler Bailout: Was It A Blank Check?

September 21, 2010

WASHINGTON — To hear President Barack Obama’s account of the government’s rescue of General Motors and Chrysler, you might think the Bush administration handed the automakers a big blank check – billions of dollars in loans with no strings attached. Obama, defending his administration’s relations with the business community on Monday, said the White House knew the bailout of GM and Chrysler would be unpopular with the public but was crucial to preserving 1 million jobs. He said his administration forced the auto companies to make drastic changes in return for the money, unlike his predecessor. “Now keep in mind the previous administration had been helping them, giving them billions of dollars, and just asking nothing in return,” Obama said in a CNBC town hall meeting. Not exactly. ___ EDITOR’S NOTE – An occasional look at assertions by public officials and how well they adhere to the facts. ___ President George W. Bush’s administration, only weeks before leaving office, gave GM and Chrysler $17.4 billion in loans after legislation to speed loans to the companies failed in Congress. The Dec. 19, 2008, terms signed by GM and Chrysler required them to reduce their debt levels, negotiate wage and benefit cuts for auto workers and submit detailed restructuring plans by Feb. 17, 2009, showing a path to “long-term viability, international competitiveness and energy efficiency.” By the end of the Bush administration, both companies were running out of money and there was no time for drastic restructuring. In all likelihood, forcing the companies into bankruptcy in December 2008 would have led to liquidation, making the Bush loans a lifeline to keep the companies afloat and buy more time for an overhaul. Some critics have questioned whether the Bush requirements were tough enough. The loan terms instructed the companies to file restructuring reports by March 31, 2009, including “any deviations from the restructuring targets.” That was to include an explanation why failing to meet the specific terms would “not jeopardize the borrower’s long-term viability.” But the companies still faced a looming checkmate: The Bush loans gave the Obama administration the ability to recall the loans if the conditions weren’t met, which would have essentially forced GM and Chrysler into bankruptcy. “We knew that we were the front part of the arrangement and that we would not be there to enforce the terms of the loan,” said Keith Hennessey, a former Bush economic adviser. “Our team wrote the terms of the loan to be tightly binding on the firms and specifically that the loans had to be repaid to the Treasury unless the conditions were met.” The Obama administration pumped billions more into the car makers but gained concessions from company stakeholders and pushed GM and Chrysler through quick bankruptcies last year. Both companies have shown signs of a comeback. GM has posted two straight profitable quarters and is expected to conduct an initial public offering later this year that would help the U.S. reduce its 61 percent stake in the company. Chrysler, placed under control of Italian automaker Fiat, has narrowed its losses and is considering a public stock offering sometime in 2011. Obama and White House officials have made similar claims about the auto bailout before. In a July 30 visit to a GM plant, Obama described three options to address the near GM and Chrysler collapse. “Option number one was to keep on doing what the previous administration had been doing, which is basically give about a billion dollars a month to the auto industry, but not really ask for any kind of change that would get it on the right track,” Obama said. White House chief of staff Rahm Emanuel said in a June interview with ABC News’ “This Week” that “in the case of General Motors, the prior administration wrote a check without asking any conditions of change.” Austan Goolsbee, the new chairman of the White House Council of Economic Advisers, said in a Fox News Sunday interview in June that the White House was confronted with the distressed automakers “because somebody else kicked the can down the road.” In his new book, “Overhaul,” Steven Rattner, who led Obama’s auto task force, credits the Bush team for giving the incoming auto task force “a little breathing room” to restructure the companies and for providing a framework of “expected sacrifices that paved the way for our demands for give-ups from the stakeholders.”

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Robert Reich: The Defining Issue: Who Should Get the Tax Cut — The Rich or Everyone Else?

September 19, 2010

Who deserves a tax cut more: the top 2 percent — whose wages and benefits are higher than ever, and among whose ranks are the CEOs and Wall Street mavens whose antics have sliced jobs and wages and nearly destroyed the American economy — or the rest of us? Not a bad issue for Democrats to run on this fall, or in 2012. Republicans are hell bent on demanding an extension of the Bush tax cut for their patrons at the top, or else they’ll pull the plug on tax cuts for the middle class. This is a gift for the Democrats. But before this can be a defining election issue in the midterms, Democrats have to bring it to a vote. And they’ve got to do it in the next few weeks, not wait until a lame-duck session after Election Day. Plus, they have to stick together (Ben Nelson, are you hearing me? House blue-dogs, do you read me? Peter Orszag, will you get some sense?) Not only is this smart politics. It’s smart economics. The rich spend a far smaller portion of their money than anyone else because, hey, they’re rich. That means continuing the Bush tax cut for them wouldn’t stimulate much demand or create many jobs. But it would blow a giant hole in the budget — $36 billion next year, $700 billion over ten years. Millionaire households would get a windfall of $31 billion next year alone. And the Republican charge that restoring the Clinton tax rates for the rich would hurt the economy — because it would reduce the “incentives” of the rich (including the richest small business owners) to create jobs — is ludicrous. Under Bill Clinton and his tax rates, the economy roared. It created 22 million jobs. By contrast, during George Bush’s 8 years, commencing with his big 2001 tax cut, the economy created only 8 million jobs. And as the new Census data show, nothing trickled down. In fact, the middle class families did far worse after the Bush tax cut. Between 2001 and 2007 — even before we were plunged into the Great Recession — the median wage dropped. It’s an issue that could also be used to expose the giant chasm that’s opened between the rich and everyone else — aided and abetted by Republican policies. As I’ve noted before, in the late 1970s, the top 1 percent got 9 percent of total national income. By 2007, the top 1 percent got almost a quarter of total national income. These figures don’t even count in taxes. The $1.3 trillion Bush tax cut of 2001 was a huge windfall for people earning over $500,000 a year. They got about 40 percent of its benefits. The Bush tax cut of 2003 was even better for high rollers. Those with net incomes of about $1 million got an average tax cut of $90,000 a year. Yet taxes on the typical middle-income family dropped just $217. Many lower-income families, who still paid payroll taxes, got nothing back at all. And, again, nothing trickled down. As I’ve emphasized, the U.S. economy has suffered mightily from the middle class’s lack of purchasing power, while most of the economic gains have gone to the top. (The crisis was masked for years by women moving into paid work, everyone working longer hours, and, more recently, the middle class going into deep debt — but all those coping mechanisms are now exhausted.) The great challenge ahead is to widen the circle of prosperity so the middle class once again has the capacity to keep the economy going. In other words, this is the right issue. It’s the right time. It allows Democrats to explain what the Bush tax cuts really did, why supply-side economics is bogus, and the economic challenge ahead. Even if Democrats feel they have to respond to the Republican charge that taxes shouldn’t be raised on anyone when the employment rate is 9.6 percent, they have a powerful fallback: Extend the Bush tax cuts for everyone through 2011, then end them for the rich while making them permanent for the middle class. Get it, Democrats? Please don’t blow it this time. This post originally appeared at robertreich.org

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Payroll Tax Cuts Gain Support — Including From Roubini

September 17, 2010

As President Obama’s recent proposal for new stimulus programs has elicited mixed reviews from financial pundits, there’s been growing support for another measure that the administration reportedly isn’t considering — payroll tax cuts. Prominent economist Nouriel “Dr. Doom” Roubini argues for such a cut in today’s Washington Post , saying a two-year reduction in the tax, whose burden is shared by employers and employees, would stimulate both hiring and spending. He adds that allowing the Bush tax cuts for the wealthy to expire would fully pay for this program. Here’s Roubini: “Most policy approaches, including the Obama proposals, have tended to subsidize the demand for capital rather than the demand for labor. That has the problem backward. In the second quarter, capital spending reached an annual growth rate of 25 percent. The argument that increased demand for capital leads to greater demand for labor (i.e., if you buy more machines you need workers to run them) has not held up. Firms are investing in capital goods, equipment and offshore offices that allow them to produce the same amount of goods with less — and lower labor costs. To avoid a chronic increase in the unemployment rate, we need to subsidize the demand for labor — achieving job creation — rather than making it cheaper to buy capital, as investment and other tax credits would do.” In the Wall Street Journal last week, Republican governor of Indiana Mitch Daniels also supported payroll tax cuts. The details of his plan are different: He proposes a one-year reduction, paid for by a host of cuts to government spending. His basic idea, though, is similar to Roubini’s, that the government’s first priority should be to fight unemployment directly. Here’s Daniels: “Moreover, the administration’s big-government policies — most notably health-care reform — are holding back job creation. Drowning in new or pending regulations and taxes, businesses, banks and investors are understandably sitting on dollars that could be putting Americans to work.” As the New York Times reported last week, economist Nigel Gault also supports payroll tax cuts. The chief U.S. economist at consulting firm IHS Global Insight said the president’s proposals for infrastructure spending and research subsidization could help, but they’re “not going to kick-start the economy.” A payroll tax cut, he said, just might. The NYT says the White House doesn’t like the payroll tax cut because it would sap money from Social Security and Medicare. Paul Krugman, for his part, has called that argument “old nonsense.”

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