Cliff diving

On New Year’s Day, the Bush-era tax cuts will expire and mandatory cuts in government spending will go into effect, a double-whammy to the economy that is being called “the fiscal cliff.”  Republicans do not want the tax increases and Democrats do not want the spending cuts.  So Congress is negotiating with the President about compromises, reforms, and trade-offs, all in an effort to avoid what nobody wants, the country going off the cliff.

But might falling off the fiscal cliff, in the long run, be the best solution, despite the horrible short-term consequences?  Under that scenario, taxes would rise dramatically (giving the government more revenue, the Democrats’ dream) but also government expenditures would be cut dramatically (resulting in a smaller government, the Republicans’ dream).  The combination of higher revenues plus lower expenditures would solve the deficit.

Isn’t this a true bi-partisan solution?  Don’t we as a nation need to take our bitter medicine before we can get better?  Other countries, such as Great Britain, have gone through austerity programs as a necessary step to fiscal health.  Could we Americans handle austerity?

(I am not necessarily advocating this, simply proposing for now a mental experiment.  Some of you suggested this in yesterday’s discussion of “Breaking Pledges,” but it’s worth discussing in its own right.)

Breaking pledges

Republican lawmakers are bailing on the formal pledge they made not to vote for a tax increase.

Grover Norquist’s anti-tax pledge has been a sacred and unchallenged keystone of the Republican platform for more than two decades, playing a central role in almost every budget battle in Congress since 1986. But Norquist and his pledge, signed by 95 percent of congressional Republicans, are now in danger of becoming Washington relics as more and more defectors inch toward accepting tax increases to avert the “fiscal cliff.”

On Monday, Sen. Bob Corker (Tenn.) became the latest in a handful of prominent Republican lawmakers to take to the airwaves in recent days and say they are willing to break their pledge to oppose all tax increases.

“I’m not obligated on the pledge,” Corker told CBS’s Charlie Rose. “I made Tennesseans aware, I was just elected, the only thing I’m honoring is the oath I take when I serve when I’m sworn in this January.”

House Majority Leader Eric Cantor (R-Va.) also suggested Monday that Norquist’s anti-tax pledge would not dictate the GOP’s strategy on the fiscal cliff, raising questions across Washington about whether Norquist’s ironclad hold on the Republican Party has loosened. . . .

Even House Speaker John A. Boehner (R-Ohio) expressed dismay with Norquist’s pledge and his role in the GOP at the time. . . .

Last November, 100 House members, 40 of them Republicans, wrote a letter to Congress’s deficit-reduction “supercommittee” urging it to consider all options — a vague pronouncement that, at least in theory, endorsed tax increases forbidden by Norquist. A number of House members, including freshman Rep. Scott Rigell (R-Va.), said openly that they no longer felt bound by the pledge they had signed when running for office. Rigell was reelected this month. . . .

And now, with severe cuts in line if Congress doesn’t reach a deal on the fiscal cliff, coming to an agreement is paramount. Analysts have a hard time forecasting a deal that doesn’t include tax increases — especially after President Obama won reelection, having run in large part on letting tax cuts for the wealthy expire.

Some Republicans are bowing to that version of reality. Over the weekend and on Monday, Sens. Lindsey O. Graham (S.C.), Saxby Chambliss (Ga.) and Corker (Tenn.), along with Rep. Peter T. King (N.Y.), said they would be willing to violate the pledge under the right circumstances.

via Will the fiscal cliff break Grover Norquist’s hold on Republicans? – The Washington Post.

Now I can agree that it is foolish to bind oneself in a pledge like this.  There may well be a time when it is in the republic’s interest to raise taxes.  Perhaps this is such a time.  But it is still highly unethical to violate one’s word.  (And how about Scott Rigell not feeling bound by the pledge because he made it while running for office?  As if campaign promises, by definition, don’t need to be kept!)

But if lawmakers no longer believe in what they once pledged, they still are obliged to keep that pledge.   The honorable course of action would be to resign their office so that their governor can appoint someone who has not made the pledge.

More Obamacare rules

Now that Obamacare has passed the hurdles of the Supreme Court and Obama’s re-election, there is a mad scramble to make the necessary preparations before the health care program goes into effect in 2014.  The government is adding more requirements of what health insurance companies will have to cover while also allowing them to charge higher deductibles.

The Obama administration proposed new rules Tuesday that would loosen some of the 2010 health-care law’s mandates on insurers while tightening others.

Certain health plans, for instance, would be able to charge customers higher deductibles than originally allowed under the legislation. But all plans would be required to cover a larger selection of drugs than under an earlier approach outlined by the administration.

Similarly, the law permits insurers to set their premiums for tobacco users 1.5 times higher than those for non-smokers. But insurers wouldn’t be allowed to impose the surcharge on smokers enrolled in smoking-cessation programs.

The changes were included in the fine print of three regulations the Department of Health and Human Services proposed to flesh out key parts of the statute. For the most part, the regulations — which will be open for comment until Dec. 26 — would simply codify mandates in the law or in earlier administration guidance.

Those policies include a prohibition on insurers denying coverage to people with preexisting medical conditions. They also limit how much plans can vary rates based on, for example, a person’s age. Most provisions will take effect in 2014.

But Tuesday’s proposals also included a few significant tweaks.

The suggestion to grant insurers greater flexibility in setting deductibles, for example, reflected concerns that health plans would have a hard time meeting the law’s original requirements.

Specifically, the legislation prohibits plans sold to small businesses from setting deductibles higher than $2,000 for individuals and $4,000 for families. But the law also limits how big a share of total health-care expenses must be paid out of pocket by individuals or families, including through co-pays and co-insurance.

Insurers have complained that it could prove impossible to design a package of benefits that meets that requirements while keeping the deductible below $2,000.

Administration officials agreed. So the proposed new rule would exempt insurers from the deductible limit if that’s necessary to achieve the plan’s overall cost-sharing target.

Karen Ignagni, president and chief executive of America’s Health Insurance Plans, a trade group, said in a statement Tuesday that the “additional flexibility” is a “positive step.” But she added that “we remain concerned that many families and small businesses will be required to purchase coverage that is more costly than they have today.”

via Obama officials tweak rules for health insurers – The Washington Post.

You think?  With all of these requirements, how could insurance NOT cost more?  But if deductibles are going to have to go up considerably, won’t that mean lots of families that won’t be able to afford health-care after all?

The blue states’ tax break

In the negotiations to avoid falling off the “fiscal cliff,” Republicans are proposing cutting out tax deductions in exchange for lower tax rates.  I worry about the fate of charitable giving deductions and the impact eliminating them might have on  churches.  (One option being discussed is to just cap them for the wealthy, but many non-profit organizations–museums, colleges, and just about any entity running a capital campaign–depend heavily on big donors.)  Another potential casualty is the home-mortgage deduction, doing away with which may deal yet another blow to the housing market.

These may all make economic sense and, if rates are lowered, individuals may not take a tax hit.  But they will still have consequences.  Charles Lane looks at another IRS deduction that most of us appreciate, that for state and local taxes.  He shows, though, how the most liberal states have been using this provision to soften the blow of raising state taxes, forcing the rest of the country to subsidize their profligate spending:

Taxpayers have been allowed to deduct state and local income and property taxes since the federal income tax began in 1913. (Sales taxes have at times been deductible, too, but that’ s a relatively minor issue.) The theory is it’s unfair to make people pay twice for the public services they receive. That’s doubtful, though, since, despite some overlap, federal taxes support different services than state and local.

What the deduction does is enable higher-income states and localities to tax — and spend — more than they otherwise would, while shifting some of the cost to other states. It also encourages them to collect revenue in forms that are easier to deduct on federal returns.

Two states, California and New York, reaped almost 30 percent of the deduction’s value in 2009, the latest year for which I could find Internal Revenue Service data. Other states that benefit disproportionately include Connecticut, New Jersey, Illinois, Massachusetts and Maryland.

In 2009, 73 percent of the deduction’s benefits went to taxpayers with annual incomes above $100,000, according to the Congressional Budget Office; fully 20 percent of the benefits went to taxpayers with annual incomes above $1 million.

Starting to notice a pattern? Basically, what we have is a significant federal tax subsidy for “blue” state governments. These also happen to be the states having the most difficulty living within their means, what with their expensive urban school systems, bloated pension liabilities and all. Yet they have an incentive to close their budget gaps by raising income taxes rather than reining in spending, because the deduction helps them pass the tab to other states, most of them red.

California Gov. Jerry Brown addressed his budget woes through a referendum this year to boost the top income tax rate, just as Illinois Gov. Pat Quinn pushed an income tax rate increase through his legislature last year.

Now you’re beginning to understand how this seemingly innocuous tax break distorts financial flows within and among the 50 states, as well as between the states on the one hand and Washington on the other.

As for negotiations over a “grand bargain” between President Obama and the Republican House, the state and local tax deduction complicates that process, too.

The main bone of contention is the federal income tax rate on top earners, currently 35 percent. Obama says it is going to be hard to raise enough revenue without returning that rate to 39.6 percent, the level during Bill Clinton’s presidency.

Republicans insist that eliminating deductions and tax breaks could bring in more revenue without raising rates — while getting most of the money from the wealthy, just as the president wants to do.

In fact, the Tax Policy Center, a nonpartisan Washington think tank, has shown that eliminating all itemized deductions while leaving tax rates where they are now would raise $2.2 trillion over 10 years. That’s $600 billion more than President Obama is seeking from Congress.

Of course, not even the Republicans are proposing such a sweeping reform, which would certainly make the tax code more efficient — but also wipe out breaks for charitable giving and mortgage interest that enjoy wide red-state support, too. And the president himself has suggested limiting deductions in combination with rate increases, perhaps by capping the rate at which deductions may be claimed.

But because its impact is so heavily concentrated in blue states, the state and local deduction creates an asymmetry: Democrats have an extra reason to insist on raising rates, and Republicans have an extra incentive to demand loophole-cutting. Perhaps it’s just coincidence, but I have noticed that those most skeptical of the loophole-closing approach include Sen. Charles Schumer (D-N.Y.) and House Minority Leader Nancy Pelosi (D-Calif.).

So let’s all say a pre-Thanksgiving prayer for a successful negotiation — and remember that even a very grand bargain would still leave our state and federal tax and budget systems in need of major reform.

via Charles Lane: The best deduction to chop – The Washington Post.

Setting policies by means of SuperPACS

A case-study in contemporary policy-setting.  The Republicans put off Hispanics, which is arguably demographic suicide.  So how to change the anti-immigration stance associated with the party?  Reason? Discussion?  Debate?  Coming to a consensus?  No.  Start a super PAC that will give money to pro-immigration Republicans and sponsor primary opponents against Republicans who vote the wrong way.

Prominent Republicans are launching a new super PAC they hope will help begin repairing the political damage left by years of anti-illegal-immigrant rhetoric that has dominated GOP primaries and alienated crucial Hispanic voters.

The organization, to be called Republicans for Immigration Reform, aims to undermine what organizers call the “extremists” who have pushed party nominees to stake out far-right positions such as opposing a pathway to legalization for millions of illegal workers, students and children.

Even before it raises money and establishes target races for 2014, the group’s organizers told The Washington Post, it will help smooth the way for wavering Republican lawmakers to vote next year for an immigration overhaul. Such a measure suddenly gained momentum last week after GOP leaders watched President Obama’s dominance among Hispanic voters help carry him to an electoral college landslide.

Spearheading the group is Carlos Gutierrez, the Cuban American commerce secretary under President George W. Bush. He is joined by Washington lawyer Charlie Spies, co-founder of the pro-Mitt Romney super PAC Restore Our Future, which, illustrating the very trend that the new PAC aims to thwart, aired some tough ads during this year’s primaries accusing Romney’s rivals of supporting “amnesty” and being “too liberal on immigration.”

“There’s currently only energy on the anti-immigration reform side, and we want to be able to provide some cover for Republicans that vote in support of an immigration reform approach,” Spies said.

Spies and Gutierrez declined to cite a fundraising goal, but both enjoy close ties to corporate America, which generally favors looser immigration laws. A super PAC can accept unlimited donations. Spies’s pro-Romney group raised $142 million for the 2012 campaign, according to the Center for Responsive Politics.

“This is not small ball,” Gutierrez said. “We’re serious, and we are going to push the debates on immigration reform to a place where I believe the Republican Party should be in the 21st century.”

via New super PAC hopes to give cover to pro-immigration Republicans – The Washington Post.

Let us bracket the issue of immigration reform and whether Republicans need to loosen up on the question and make major efforts to attract Hispanics.  I myself agree that something on this order needs to be done.  So let’s not talk about that.  Let’s discuss this method of forming policy and making laws.

On any issue, we can now expect a SuperPAC to fund one side and probably another SuperPAC to fund the other side.  (I am not disputing their “rights” to do so.  Let’s not talk about that either.)  They work by rewarding, threatening, and punishing lawmakers with money, using campaign contributions–given, withheld, or given to an opponent–as a means of coercing support of a legislative agenda.

Doesn’t this replace democracy with plutocracy, so that money becomes the actual means of governing?  This strike me as a step beyond simply raising money for a campaign.  As we have seen, raising and spending money will not necessarily win you an election.  You get special interests making contributions but that may or may not determine how a lawmaker votes.  This tactic, by contrast, seeks to determine which candidates can run for office in the first place and fixes their position on an issue, which is determined not by the give-and-take of a rational process but by the SuperPAC that has quite literally bought their vote.

Balance of powers vs. balance of parties

In his column on attempts to the reform the filibuster, Ezra Klein points out that the Founders built into the Constitution a balance of competing arms of the government that would check and balance each other.  What we have now, however, is a system of competing political parties that check and balance each other.

It’s true the Founding Fathers wanted to make legislating hard. That’s why they divided power among three branches. It’s why senators used to be directly appointed by state legislatures. It’s why the House, the Senate and the president have staggered elections, so it usually takes a big win in two or more consecutive elections for a party to secure control of all three branches.

But the Founders didn’t want it to be this hard. They considered requiring a supermajority to pass legislation and rejected the idea. “Its real operation,” Alexander Hamilton wrote of such a requirement, “is to embarrass the administration, to destroy the energy of government and to substitute the pleasure, caprice or artifices of an insignificant, turbulent or corrupt junta, to the regular deliberations and decisions of a respectable majority.” Sound familiar?

The Founders also opposed political parties — though they went on to start a couple — and couldn’t have foreseen how highly disciplined parties would subvert the political system they designed. Instead of the branches competing against one another, as they envisioned, we now have two parties competing uniformly across all branches.

via Is this the end for the filibuster?.

Parliamentary systems require political parties.  The leader of the majority party becomes the Prime Minister.  Such forms of government work best when there are a number of parties that can then form coalitions and alliances.  I suppose our political parties were copied from those of England.

America’s constitution, however, does not require parties, and our national founders warned against them.

What would happen if we were to abolish all political parties?  As it is, the role of parties in elections has shrunk considerably with SuperPacs and independent campaign fundraising.  Why not turn that into a virtue?

Individual candidates and politicians would still form factions, caucuses, and interest-groups.  But these alliances would be fluid, varying from issue to issue.  There would still be individuals who ran as conservatives, liberals, and other ideologies in the legislature, and there might be organizations that supported them.  But a  Senator with libertarian sympathies could vote with  liberal colleagues on drug laws and conservative colleagues on free market issues.  Pro-life coalitions could include both religious conservatives and social-justice liberals.

I know it will be said, political parties are inevitable.  And, arguably, they once were.  But what do political parties do now in the age of the internet, political action committees, open primaries, and grass roots activism?  They serve as the gatekeepers of who gets to be on the ballot in the presidential campaigns.  But their political conventions have become mostly irrelevant.  Surely another mechanism could be put into place, such as a series of primary elections, beginning on the local level and continuing onto the state, regional, and national levels.  Couldn’t this re-vitalize our democracy and our representative form of government?


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