The Real Threat Behind Obama’s Tax-cut Giveaway

As you have heard, the tax-cut compromise was enacted last night, and will become law as soon as President Obama signs it. I’d been on the radio all over the country explaining why it’s bad, but I guess Congress didn’t listen to me!

     I just want to make two points today, so I’ll keep this short. First, the House Democrats were really disappointing. Everyone expected them to add an amendment to increase the estate tax on estates over $3.5 million, giving them some chance to negotiate a better deal from the Senate. They were supposed to have the votes for that, but they didn’t do it.

      By the way, I keep hearing conservatives call it the “death tax,” as if that’s supposed to be bad. Why? In the UK, “death duties” were introduced by the Labour government of the 1940s, specifically to break up the hold of the old aristocracy on the countryside. It was wildly popular under that name! Maybe we should be more straightforward here.

     But on to my second point. Today’s Washington Post reports that:

Key lawmakers in both parties have embraced a deficit-reduction plan produced by Obama’s fiscal commission, which includes a tax overhaul that would lower rates across the board but raise additional revenue by closing dozens of long-standing loopholes, such as the mortgage-interest deduction claimed by many homeowners. Meanwhile, the relative ease with which Obama and the GOP were able to strike a deal over the Bush cuts has raised hopes on both sides for productive talks in the future.

     In other words, now that they’ve warmed up by preserving the Bush tax cuts and undermining Social Security with the “payroll tax holiday,” Obama, the Republicans, and the Democratic leaders in Congress are going to go on to pursue the wholesale attack on Social Security called for by the deficit-reduction commission. That may be the worst part of the whole deal.

     What do you think? And what do you think those opposed to the deal should do now?

What’s wrong with Obama’s tax-bill compromise

There are four basic issues with the tax deal President Obama announced Monday: economic stimulus, fairness, the federal deficit, and (surprise! It has nothing to do with the basic issues) social security. Let me take them in order.

1. Economic stimulus. In times of recession, government is supposed to put more money into the economy than it takes out — i.e., run a deficit. It can do this in two ways: spend more, or tax less. Spending more provides a more direct link to jobs, since jobs are created directly by the spending; it also allows government, through democratic processes, to determine what the public priorities are. We could spend a lot on a high-speed train network, renewable energy, education, and other things everyone agrees are desirable. Tax cuts for working people also lead pretty directly to jobs, since people are likely to use the money to increase consumption. Tax cuts for the rich are another matter — the rich can consume as much as they want already (that’s what “rich” means), so they will invest the money. In the 1980s, Reagan argued that there wasn’t enough investment money around to get the economy moving, so he turned to tax cuts as a “supply-side” stimulus. Whether or not that was right then, it is certainly not right now. The problem is just the opposite — because most available investments are risky, investors are sitting on their money. So tax cuts from the rich are not likely to lead to jobs at all.

2. Fairness. Ever since the Reagan administration, the capitalist class has been continuously increasing its proportional share of the national income. There are many parts to this: lower taxes for the rich, higher taxes for the poor; eliminating the estate tax, so that the children of the rich can be rich without having to work; limiting the power of labor unions, the major institutional force for greater equality, by weakening the labor laws (see Michael Goldfield’s book The Decline of Organized Labor in the United States); and now, the Citizens United decision permitting corporations to spend unlimited money to influence elections. This involves more than fairness – it’s also a matter of power. Money buys power, so as the rich get richer it becomes harder and harder for the rest of us to bring fairness back into the system. The progressive alternative was to give everyone a tax cut (that is, extend the existing tax cuts) on income less than $250,000 per year. The compromise accepts the Republican alternative to give those with higher incomes an additional, larger tax cut. This is contrary to fairness, and should be rejected. (The package does contain one progressive component, extension of the Earned Income Tax Credit. This is the only part of the tax package that gives more to the poor than to the rich.)

The Federal Deficit. As I said in the stimulus portion above, a deficit is a good thing right now, but it should be the kind of deficit that goes away with prosperity. Spending more on unemployment compensation is a good example; with prosperity, unemployment goes down and so does spending. But extra tax cuts for the rich are a permanent hole in the government’s ability to do positive things.

Social security. The most outrageous part of the deal is the “temporary” cut in payroll taxes. For years the establishment has been howling that the social security trust fund is going broke. It isn’t, but that’s the topic for another essay. However, it will go broke if we cut the flow of revenue into the fund. All the conservatives complaining about social security should be complaining about this – they are not, only because they understand that this payroll tax cut will achieve their real objective: destroying social security. As Jed Lewison has been pointing out on Daily Kos, there will be just as much pressure to extend the “temporary” payroll tax cuts when they expire as there is to extend the “temporary” Bush tax cuts today. Labor Notes has a good article with further analysis of this point.
Obama’s tax deal gets some temporary good things by making some bigger bad things permanent. I hope it is defeated.

Tax Cuts and the Deficit

It looks like the next big political debate will be about tax cuts. Why the Democrats didn’t want to have this debate before the election is beyond me — it would certainly have helped to make the point that they care about ordinary people. But for whatever reason, they let it go, and now have to try to get a vote in the House of Representatives structured the way they want it.

To put the whole case in a nutshell, what the Democrats want is what the country needs – tax cuts to put more money in the hands of those who 1) need the money, and 2) will spend it. That’s not the rich – they will invest it, and since we are still in the aftermath of a recession, with low consumer demand, it won’t make sense for them to invest it in something productive, making stuff that won’t be bought – so they will invest it in speculation, the stuff that brought on the recession in the first place.

Working people, on the other hand, will use the money to but things, like food, clothing, and housing. Since, again, we are in a period of low demand, that is just what is needed. For once, the Democrats are proposing more or less the right thing.

What what about the deficit? Won’t any tax cut at all make it harder to balance the budget? Yes, but – and this cannot be said too strongly — that is not a problem right now! Ronald Reagan, of all people, used to argue (following the work of economist Arthur Laffer) that cutting taxes would reduce the deficit because it would encourage growth. That didn’t work for Reagan, because he didn’t focus the tax cuts on people who would spend the money. But from the Keynesian point of view, cutting taxes is one way of running a deficit, and it’s really that deficit that is needed to create demand and get the economy growing. We should return to the concept of the”full employment budget” – tax and spending levels that would produce a balanced budget if we had full employment. In times of recession, tax revenues go down and spending (e.g., for unemployment compensation) goes up, while in times of prosperity revenues go up and spending goes down – so a full employment budget will produce deficits in times of recession and surpluses in times of growth, just what we want in the way of fiscal policy.

There are two complicating factors, however. One is that fiscal policy has to be supported by monetary policy. If the Federal Reserve is trying to fight inflation by reducing the money supply, fiscal deficits won’t work — they will put money into the economy through spending, but take it back out by borrowing to cover the deficit. A deficit needs to be combined with what we’re now calling “quantitative easing” – i.e., action by the Fed to create money to finance the deficit. This would be inflationary in the long run — but for the moment that is not a problem, since we are in a period of deflation.

Second, we probably do not have a full employment budget right now due to the ridiculously high level of military spending. This should be cut about 25%, which would solve many problems. Needless to say, getting all US troops out of Afghanistan and Iraq would help a lot with that! But there are plenty of other ways to cut it, as well.

The other problem is that the Republicans control the agenda of the House of Representatives, and have enough votes to support a filibuster in the Senate, and they are insisting that they will only allow a vote on a bill that includes tax cuts for the rich as well as for working people. I have a simple suggestion: the Democrats should offer a series of amendments that would prove irresistibly popular. The first would be what they are proposing now – tax cuts only for those with incomes below $250,000 per year. That’s pretty popular already, but if that fails how about cuts for everyone under half a million a year? A million? Ten million? I’d love to see Congress having to vote on a tax cut only for people with annual incomes over ten million dollars!

They could also propose even higher rates for those at the upper levels. How about a 95% tax on all income over $10,000,000? We had that (with a much lower cutoff) through the early 1950s, and it did not stop growth!

Just a few suggestions — I just hope that Congress, or the progressives in it, find the courage to fight this issue for.

Veterans Day vs. Armistice Day: What’s in a Name?

In 1954 the holiday formerly known as Armistice Day, which celebrated the Armistice that ended World War I, was renamed “Veterans Day” in the United States. This was ostensibly due to a belief that all veterans should be honored, not only those who fought in World War I. However, the change has greater significance.

Most importantly, Armistice Day glorified peace, while Veterans Day glorifies the sacrifices of war. Partly, this is because of the date: the end of the war, not the decisive battle or the turn of the tide (like D-Day, for example). Beyond that, Armistice Day kept alive at least some understanding of how the armistice came about: through the revolutionary uprising of the German people, which began with a naval mutiny in Kiel and Wilhelmshavn on October 29-30 and spread rapidly through the entire country, bringing the Socialist Party into power, electing revolutionary councils, forcing the abdication of the Kaiser, and proclaiming a republic in Germany on November 9. The military, which had been resisting Woodrow Wilson’s peace terms, now had no choice but to accept them, leading to the Armistice on November 11.

The revolution did not fare well. Socialists and Communists were unable to work together, leading to a left-wing insurrection in Berlin in January 1919 that was put down by the military, and the resulting murder of Rosa Luxemburg and Karl Liebknecht, the leaders of the Spartakusbund. The bad blood between these two left parties made it easier for Hitler to come to power, as they were unable to unite against him. All the same, November 11 marks the ending of a war by a popular revolution, and it is unfortunate to see this history forgotten behind the name of “Veterans Day.”

For more about the revolution, you can read Pierre Broue, The German Revolution, 1917-1923 or Paul Frohlich, Rosa Luxemburg.

Thoughts on the 2010 Election

I’m going to add to this later, but I have to say something about the election results! So here goes with a few bullet points:

  • The Tea Party had successes, but was a net loss for the Republicans. Hypotheticals are always uncertain, but it seems likely that the Republicans would have won the Senate elections in Delaware, Nevada, and West Virginia if the Tea Party candidates had not won the Republican nomination. That would have been a Republican majority.
  • Today’s Washington Post cites unspecified exit polls as finding that 23% of voters said that they were voting for the Tea Party while 18% said that they were voting against it.  That sizable left is not doing nearly as good a job at making itself heard.
  • The Right claims a victory when it ousts a moderate Republican, even if it means the Democrats win the election. By the same token, if to a lesser extent, the Left should consider the defeat of Blanche Lincoln a victory. True, she did win the primary, and true, she may well have lost anyway – but they did weaken her.
  • The underlying point of all this is that progressives need to move away from President Obama and start working for what they believe in in every election.

As I said, more later!

I expanded (briefly) on this analysis as part of the Presidents’ Roundtable at the Northeastern Political Science Association conference, Friday, November 12, at 3:45 PM in the Parker House. For a podcast of my remarks, see

November 10, 2010: See “Did the Tea Party Cost Republicans the Senate?” in Chris Cillizza’s Washington Post blog, “The Fix.”

The Persecution of Chuck Turner

Let me be clear from the start: if Chuck Turner took that money (and the jury says he did), it was wrong, and his conviction was proper-a tragic end to a great career.

However, Turner’s guilt or innocence is only a small part of the story. The bigger part involves the decision by Federal Attorney Michael Sullivan – a former Republican State Representative – to go after him. Bear in mind that even if we accept the prosecution’s case at face value, the following points are true:

1. This was not an investigation of a crime. No crime was committed until the investigation of Turner was under way.

2. Ron Wilburn, the guy who gave $1,000 to Turner, was paid $30,000 to do so by the federal government.

3. Wilburn has told the press that several other individuals were implicated by his evidence, but the only people prosecuted were two African American elected officials with progressive politics, Turner and then-State Senator Dianne Wilkerson. Logically this has to be true — elected officials can’t issue liquor licenses themselves, they have to get someone in City Hall to do it.

It’s hard not to conclude then that this was not an attempt to root out corruption in city politics, but an attempt to silence a strong progressive voice from Boston’s inner city.

In this regard, I have to take note of an editorial in today’s Boston Globe with the title “Chuck Turner’s World of Lies.” Here’s the concluding paragraph:

Turner, to be fair, isn’t a venal man. He doesn’t live it up on ill-begotten funds. But he has spread unreality among his supporters for decades. And that may be his greatest crime. In a Boston neighborhood that so desperately needs sensible leadership to address crime, joblessness, and poor education, Turner has fed his constituents a steady diet of political fantasy

Wow! It is the considered opinion of the Globe editorial board that to advocate ideas they disagree with is a serious crime! More serious than bribery, for example. It follows that Turner deserved to be punished whether or not he took a bribe – so perhaps it was justifiable to arrange for him to be offered one. With Boston’s leading newspaper advancing views like that, it’s no wonder that many of us are very skeptical indeed of the Turner prosecution.

Why banks would rather foreclose than save money

An article on the front page of yesterday’s New York Times explained something that has been puzzling me. If a house is worth less than the value of a mortgage, and a bank forecloses on it, they lose the difference between the mortgage and the price they can sell the house for. Since the foreclosure process itself costs them something, it would seem to make sense for banks to offer to reduce the mortgage. Doing so would save them the foreclosure costs, and would keep more people in their homes. However, banks seem very reluctant to do this. They lobbied, successfully, against a law letting bankruptcy judges rewrite mortgage terms, and they have generally been unwilling to rewrite them themselves.

Here in Boston, City Life/Vida Urbana has been organizing anti-foreclosure, anti-eviction campaigns for both tenants and homeowners. (Banks don’t like to manage rental properties, so when they foreclose they often try to evict all the tenants and leave the house standing empty.) They rally activists from around the city to try to blockade scheduled evictions through civil disobedience. These evictions are frequently called off at the last moment because the bank has agreed to sell the house to the tenants, or to rewrite the mortgage — so why don’t they do that all the time?

The Times article is about “short sales” – selling a house for less than the amount of the mortgage – not “workouts” (agreeing to let the owner pay less than the true mortgage amount), but some of the factors apply to both.

Most basically, if a bank forecloses on a house it can keep that house on its books as an asset at the face value of the mortgage, while if they rewrite the mortgage, or accept a short sale, they have to write off the loss. Their real assets are the same either way, but if they don’t have to account for the loss they appear to be doing better than they are.

Second, they are afraid of moral hazard – if people think they can get the mortgage reduced, they will not do as much as they could to make the payments. And there is some possibility of fraud – people will just say they can’t pay, or will sell a house to a relative and then buy it back later.

So the banks aren’t just being stupid, they have reasons for what they do. Unfortunately, the above logic leads them in a direction that is not in the public interest. It certainly does not serve the people being evicted; and it does not really serve the banks, because it makes them unstable. No bank wants to be the first to write off all its mortgage losses, because that will hurt their competitive position; but at some point they will have to do it, and until they do no one can tell what the bank and its stock are actually worth.

This isn’t just my leftist point of view – the neoliberal Economist has just called for Congress to pass a law to let bankruptcy judges write down mortgages, or to give foreclosed-on homeowners a right to wrent their own homes, or even a federal subsidy to keep the creditors from losing if mortgages are reduced. If even they – normally free market advocates – are calling for this, then it’s time to do something.

The President, the Constitution, and Don’t Ask, Don’t Tell

The ruling by federal district judge Virginia Phillips that the “don’t ask don’t tell” (DADT) law regarding gay people in the military could not be enforced Constitutionally (October 12, 2010) has put President Obama in an anomalous position. He says that he agrees that DADT is wrong; yet his administration plans to appeal the decision in court, in effect fighting for a policy he says he does not believe in. According to CNN, the rationalization for this seemingly contradictory stance is that the decision should be made by Congress, not the courts, and that “The Justice Department says that it defends all laws of Congress in court.”

Is that correct? Should a presidential administration go to court to defend laws it disagrees with? That depends, in my opinion, on what sort of disagreement it is. If President Obama just thinks that DADT is a bad idea, perhaps he should defer to the existing Congress-passed law, and try to get it repealed through the legislative process.

However, the court did not rule that the law is a bad idea. It ruled that it violates the Constitution, by denying gay members of the Armed Services equal protection of the laws. The President’s oath of office calls for him to defend the Constitution – so it could be argued (and has been by many presidents) that he should not enforce a law if he believes it to violate the Constitution.

No doubt the right of gays and lesbians to serve in the miliary will be more strongly established if it is established by Congressional action, or by a Supreme Court ruling, rather than a failure to appeal on the part of the Obama administration. However, the duty of the President is to enforce the Constitution as he sees it, and he should do so in this case.

The Senate Filibuster – Barrier to Democracy

Over the summer, I get behind on reading the New York Review of Books – so I just finished just got to Michael Tomaskey’s review of two books on the Senate filibuster:

During the (long!) time I’ve been paying attention to politics, I’ve seen the filibuster go from a badge of shame, used only by Southern segregationists to block civil rights laws, to a tool that was used, but rarely, on issues where a particular senator wanted to call attention to a matter of principle, to the current situation — where the press routinely reports, falsely, that it takes 60 votes to pass a bill in the Senate. (It does not – it takes 60 votes to close debate, but there are many bills where debate is closed by unanimous consent, even though some senators will then vote against the bill).

The change began in 1993, when Republican senators, led by Robert Dole (R-KS), declared that President Clinton’s mandate was illegitimate, since he had not received a majority of the popular vote, and set out to block all of Clinton’s initiatives through the filibuster. This tactic succeeded in making Clinton look ineffective, and helped produce the Republican victory of 1994, when they won a majority of the House for the first time in almost 50 years.

In 2009, the Republicans decided that the same strategy would work again, so they strove to block all President Obama’s initiatives, with considerable success. It is understandable that the Republicans would do this; the more interesting questions is what the Democrats will do about it.

The Democrats were able to pass the national health care bill through the budget reconciliation procedure, but this was possible only because they had previously (before the Massachusetts special election) overcome a filibuster to pass the original bill. But they now find almost all their legislation blocked in the Senate.

This need not be! There are several ways a determined majority can overcome a filibuster, even without 60 votes. The easiest would be to simply change the rules of the Senate, so that debate can be ended by majority vote. Traditionally, changes in the rules were themselves subject to the filibuster — but it is not clear that this is so when a new Congress reconvenes. The issue is whether the rule allowing the filibuster is already in effect before the rules are adopted. Some argue that they are, because the Senate is a “continuing body” – with two-thirds of its membership continuing from the previous Congress. Others have maintained that the Senate is in the same situation as the House – the rules must be adopted with each new Congress. Provided the Democrats still have a majority, and are willing to stick together, Vice President Biden could simply rule that the Senate is not a continuing body. The Republicans could then appeal the parliamentary ruling, but that ruling could be upheld by majority vote.

More drastically, Biden might accept the strong case that can be made that the filibuster is unconstitutional (since, among other things, it violates the one-person, one-vote principle). In that case, he would not have to wait until January, but could act right now, when the Senate comes back into session.

Failing a rules change, the Democrats could also make political gains by forcing the Republicans to really filibuster. These days we have a sort of virtual filibuster — the minority says “we are filibustering,” and the majority says, “Oh, all right then,” and drops the issue. That way, the public sees that Congress is not doing anything, but they don’t really see why. Imagine how it would different if Republican senators were standing up and reading phone books in order to block a minimum wage bill.

So it can be done! And it should be — there’s nothing democratic about minority rule. The real issue is why the Democrats don’t do it. I fear that the answer is that they (or too many of them) are corrupted by the benefits they can get from it themselves, the opportunity to serve a district interest (or a major contributor) by putting a hold on a bill until their concerns are met.  As long as this is the norm, we will continue to see an ineffective Congress. This will only change if public awareness of the filibuster rises to the level it had in the 1960s.

The Crisis of American Politics

Here’s the question I’m working on right now: given the collapse of the US economy a couple of years ago, why aren’t masses of people coming to the obvious conclusion that the capitalist economic system is unsustainable? Instead, we get the Tea Party demanding that the state regulate capitalism even less.

Here are some possible answers:

1. People are coming to that conclusion, but the media aren’t telling us about it. (E.g., the Tea Party convention got tons of coverage, the US Social Forum gathering in Detroit, which was much bigger, got almost none).

2. The collapse of the Soviet bloc has made the Left stop talking about socialism; as a result, hardly anyone even knows what socialism is — so that, for example, the government bailout of the big banks is perceived by many (especially, again, the Tea Party) as a “socialist” measure — because it involved the government. If people understood socialism as control of the state by the working class, they would see that this is just the opposite — control by the biggest capitalists.

Probably there are other answers as well — I will be looking for them (and at them) in the book I am writing now, working title: Minor Parties and the Crisis of the American Party System.