More Thoughts on Income Inequality

January 16th, 2016

Paul Krugman recently published a good summary of the historical discussions regarding income inequality.

Before diving into climate change, I thought it would represent a reasonable addendum to what has already been posted.

It does venture in a little bit into the territory of why we should reduce income inequality and how we should go about doing that.

First let’s explore the three generally accepted reasons for the current huge income inequality.

People get paid based on the value of their work. The reason some people get paid hundreds or thousands of time more than other people is because they are uniquely capable, skilled, and experienced. It is the old plumber joke. A man calls a plumber because he is having a problem. The plumber walks in, looks around for a minute, and hits a pipe with his hammer. The problem is fixed. The plumber hands the homeowner a bill for $100. The homeowner objects complaining that the plumber was only in the house for 10 minutes. The plumber takes the invoice back, adds these itemizations, and hands it back to the homeowner. Labor – $20. Knowing which pipe to hit and where to hit it – $80.

For the record, I have no problem with those with unique skills getting paid what the market will bear for those skills. Those include athletes, entertainers, and actors as well as brilliant developers and visionary entrepreneurs.

People get rich because they are in the right place at the right time. No better example of that than the recent Powerball lottery. That event produced roughly 5 people each worth $200M or so after taxes. Their chances of winning were ridiculously thin, but they won none the less because there are always winners. Not many who participated in one of our gold rushes struck it rich either, but the number of people who did participate spoke to the belief in this country that we all have an opportunity to strike it rich. But this sort of windfall has nothing to do with character, talent, or persistence. Just luck. That same luck is evidenced in the fact that parentage directly or indirectly accounts for a significant percentage of those who are wealthy today. This whole concept of “wealthy” luck was explored deeply in Malcom Gladwell’s Outliers book.

I have no problem with those who end up being wealthy because they were lucky. I don’t think that they have any standing to suggest that a higher tax rate will somehow reduce the small percentage of people who figuratively or literally win the lottery. But I agree that we have always been a “gold rush” country where we celebrate the good fortune of those who overcame enormous odds through blind dumb luck.

Executives at large corporations who get to set their own compensation programs. Financial speculators who benefit from information that the rest of the market doesn’t have. Fraudsters who get rich off schemes that fleece the naïve or greedy. Power brokers who are able to exchange political power for financial gain.

These are the segment of wealthy that I think are the most troublesome. That’s because they use their wealth to acquire political influence. They use that political influence to gain an unfair advantage. That process is corrosive in a democratic society.

So What
There is the claim that “it has ever been thus”. We’ve always had income inequality, the claim goes. What is so different now?

The difference is that the income inequality is now larger than it has been since the robber baron gilded age. The public’s disgust about the influence of wealth at that time elected reformers like Teddy Roosevelt and William Howard Taft. These wealthy civic-minded leaders realized that our democracy couldn’t survive if so much wealth was concentrated in the hands of so few people. That’s because our political system then, and our political system now, allows money to purchase political influence. Those that are driven to dominate industries through economic power see political power as just another opportunity to acquire an unfair advantage over their competitors. Reformers passed legislation to break up the trusts and monopolies built by folks like Morgan, Carnegie, Rockefeller, and Schwab.

I’ve documented how the same thing is going on in markets today. It is clearly more sophisticated, but it is no less insidious.

There are certainly those, like Mark Zuckerberg, who built his fortune on the strength of a great idea that created a whole new category of software. We can talk about his luck of being in the right place at the right time, combined with being born into a wealthy family that could afford to send him to the best schools, to getting accepted at Harvard at a time when the college-based social networks were just taking off. But for every Mark Zuckerberg, there are roughly 30 corporate execs just making a salary.

70% of the top .1% of fabulously wealthy wage earners are corporate execs, financial professionals, real estate speculators, and lawyers. It is this dramatic growth in executive salaries that has been the dominant force in creating a new gilded age.

What Should Government’s Role Be?
That leaves the fundamental question of the purpose of progressive taxation, government oversight in market rules making, and money in politics.

The extraordinary gap between the rich and poor, driven by power rather than luck or skill, demonstrates that money is already providing the “Power” wealthy inordinate influence in politics. The powerful have already reduced the impact of taxation on their annual income as well as increased their ability to preserve their wealth for their heirs. They have manipulated the rules of the marketplace to provide their companies an unfair advantage against both competitors and the public. Finally they have achieved this by becoming the primary funders for political campaigns of those politicians who are willing to do their bidding. Four hundred families have provided half the funding for the current presidential campaign. That is unprecedented.

Progressive taxation is not punishment for success. Instead it is a tool that a democratic society can use to balance the political power that naturally accrues to the wealthy. The purpose of that balance is not to discourage success, but rather to lower the barriers that the “Power” wealthy can put in place to make it more difficult for others to succeed.

Revenues generated from higher taxes on those that I characterize as “powerful”, can be used to build a stronger social safety net and provide access for all citizens to the tools (education, investment, and government subsidies) needed to participate in the start-up economy. The 50’s and 60’s were the period of our most rapid growth and technological progress. We also had much higher top tax rates and much lower income inequality. Sweden is a good example of a high-tax, low-inequality state today. They have high marginal tax rates on their top earners and a very healthy start-up economy. They use the revenue generated from these high taxes on top earners to build a strong social safety net. They claim that this strong safety net encourages more risk taking because it reduces the personal costs of failure.

Creating markets that operate more fairly than today’s markets protect investors and reward innovation in ways that our current markets don’t. Most start-ups get acquired today because big companies continue to have significant market advantages over small ones. Freeing up small companies from issues of tortuous patent infringement, contractual barriers to competition, and de-facto monopolies will benefit consumers and the economy in general.

Breaking the connection between money and political influence will deliver on the promise of our democracy. One person. One vote.

The issue is not wealth.

The issue is not talent.

The issue is not luck.

The issue is how we want our economy to function.

We currently have a wealth-based economy. Wealth-based economies are inherently less stable than consumer-based economies. Our wealth-based economy was not the natural outgrowth of the disruptive events of automation. It was the unnatural influence of money on government policies. Those government policies encouraged a dramatic increase in corporate executive compensation that was not justified by company performance, allowed insider trading and stock manipulation, and increased corporate power and protection which weakening the bargaining power of workers.

I submit that a wealth-based economy is also not sustainable in a democracy. That’s because the natural tendency of those who have wealth is to protect it. That “protection” inevitably becomes influence on government policies from taxation, to market rules, to executive compensation.

At some point, those who are not part of the wealthy class will begin to realize that they are playing a game that is rigged against them. Rewards don’t go to those who are willing to work hard and play by the rules. Rewards go those who make the rules.

In a democracy the rules should be made by and for the largest number of voters. Right now many of our rules benefit only a small minority – an oligarchy.

One of those rules will be a rejection of the myth that high taxes discourage investment innovation. There is no data to support that claim. Innovation suffers when markets are dominated by large companies and rules/monopolies prevent the emergence of disruptive technologies.

If we want to encourage innovation, subsidize education, promote new business formation, expand the social safety net, and invest in emerging technologies. That would increase the number of “Productivity” billionaires even with high marginal tax rates. We would return to the meritocracy of the 60’s where talent and determination opened the doors to opportunity. Today, parentage is the primary determination of success.

We would not reduce the number of “lucky” wealthy because taxes have no impact on luck. Those who are lucky will continue to be lucky and should in some ways be willing to give back to a society that afforded them an opportunity that they didn’t themselves deserve.

We WILL reduce the number of those who achieve their wealth through warping the marketplace to their own benefit. The savings will diversify our economy, reduce those companies that became “too big to fail”, and close all of the loopholes and shortcuts to prosperity that only the “smart” money could take advantage of. In other words, those who in the past depended on Power to secure their wealth will now have to work for it just like everyone else.

That may result in some of the fabulously wealthy becoming just wealthy. It may also reduce inequality, but inequality will always be with us. It will expand opportunity which has always been the basic promise of this country.

Conservative Myth – Income Inequality is Fine

December 10th, 2015

We’ve already gone through the question of whether or not an unregulated free market really exists in this country (it doesn’t) and whether that market is a fair distributor of wealth (it isn’t).

Just as a reminder. I’m not attempting to suggest any solution to the problem, but just addressing the conservative myths. I want to separate those two discussions, because so often the defense of a myth is the suggestion that there is nothing reasonable you can do to prevent it. We can get into solutions in future posts. Let’s focus these discussions on existence rather than remediation.

So now let’s dig a little deeper into the related conservative myth regarding their tolerance of income inequality. That myth has three parts.

The first, like many conservative myths, ignores the facts and suggests that income inequality isn’t really that bad for the individual. Everyone has a higher standard of living after all and so those who are concerned about income inequality are really just engaged in class warfare.

The second, is that a concentration of wealth in the hands of a few is good for the economy. It is the ultimate expression of a free market at work and it is the wealthy who create jobs, so any attempt to limit their ability to maximize their income is going to hurt the economy.

The third, is related to the second, but more philosophical. Wealth is the natural outcome of a free market. So progressive taxes and other methods which require the wealthy to pay more than everyone else is unfair. These methods punish success and by implication discourage others from making the same sacrifices that these special individual are willing to make.

Let’s take these in order.

Income Inequality is Harmless

Hopefully we all can agree that income inequality is great if you are part of the small group whose share of the income pie has been growing. We’ll talk about that group in more detail in the next two parts of this myth.

For the purposes of this portion of the discussion let’s focus on the rest of those who are primarily wage earners and whose incomes have been basically flat since roughly 1970.

Here’s how life has changed for this group.
1. Mom’s went to work. They did this to allow their families to remain in the middle class, or as an effort to get into the middle class. One wage earner used to be sufficient for a comfortable middle class life, but it isn’t anymore. The nature of middle class jobs changed for a number of reasons. One of those reasons is that executives began taking a bigger piece of the compensation pie. Up until the 1970’s, workers’ wages kept pace with productivity. After the 1970’s only executives benefited from increased corporate productivity.
2. Families got smaller. Middle class families could no longer afford four kids. The costs to raise kids went up in part because mom’s were no longer at home to help. Smaller families mean smaller schools, slower growth in the consumer economy, and long term fewer workers paying taxes and supporting Social Security and Medicare.
3. Commutes got longer. Middle class work weeks got longer. Middle class workers took less vacation. The United States in some ways turned into Japan in terms of the 24-7 nature of middle class jobs. As a result, the health of middle class workers declined as their stress levels went up.
4. The bargaining power of middle class workers decreased. Several factors at work here. One was an aggressive union-busting strategy championed by Ronald Reagan. Another was an aggressive outsourcing of manufacturing to right-to-work southern states and offshore low cost of labor centers. The third was decimation of the white collar workforce as a result of automation. Many middle management jobs simply disappeared as factory work contracted, clerical work disappeared, and software replaced paper and the workforce that managed that paper.
5. The cost of college skyrocketed as Republicans purposefully cut funding to higher education as part of the larger supply side economic fantasy. The middle class did get a tax break, but that modest increase in income fell far short of the cost to send their kids to college. So those families pulled money out of the only other asset they had, their homes. That asset was dramatically devalued in the financial crisis of 2008. The result is that those families are no longer able to pay for a college education. That burden has now shifted to students who leave college with huge debt burdens that previous generations did not have to deal with. The result of those burdens are being felt across the economy as college graduates spent a decade or more paying off debts rather than buying houses, starting families, or starting new businesses.
6. College education used to be the huge social melting pot where smart kids from modest means could make the jump to high paying jobs based on their willingness to work hard. Now college, particularly the elite colleges that are the gateway to the executive level jobs in this country, are only available to the children of those executives. The meritocracy of the 1950’s has been replaced by an oligarchy.

The Concentration of Wealth is Good for the Economy

I’ve dealt with this in previous posts. But here is a quick summary.
1. There is no trickle down economy. Wealthy people only buy from other wealthy people.
2. The wealthy get a substantial amount of their income from the stock market. As a result, their spending habits fluctuate based on the market. This makes for a far more volatile economy than one based on a large set of middle class consumers.
3. The wealthy are NOT job creators. Most jobs in this country are generated by medium size high growth companies. Most of these companies are privately owned. Those owners are not taking big salaries. They may have high net worth because of the value of their business, but all of their assets are tied up in their business. So they aren’t generally reporting high incomes. Too many small businesses fail or get acquired, so the gains of small business are pretty much offset by the loses. Big companies that can afford high priced CEO’s are the ones doing the acquiring. As a result, they lay off more people than they hire. So they also are not a long term significant contributor to job growth.

Wealth is the Natural Outcome of a Free Market

While it is true that in a free market income distribution is going to produce some wealthy people, we have already proven that in this country, markets aren’t free. Worse yet, markets have become warped by the political influence of wealth. Because we’ve allowed markets to become biased to benefit the wealthy at the expense of everyone else, we shouldn’t be concerned that an effort to remove some of this bias is “unnatural”.

While it is true that wealth is an incentive, there is no evidence that progressive taxes are a disincentive, or that a multi-millionaire is any less driven than a billionaire. If higher marginal tax rates were a disincentive to wealth, we would see it reflected in slower economic growth during times of high marginal tax rates and higher growth during times of low marginal tax rates.

During the period 1951-63, when marginal rates were at their peak—91 percent or 92 percent—the American economy boomed, growing at an average annual rate of 3.71 percent. The fact that the marginal rates were what would today be viewed as essentially confiscatory did not cause economic cataclysm—just the opposite. And during the past seven years, during which we reduced the top marginal rate to 35 percent, average growth was a more meager 1.71 percent.

Finally there is the myth that a progressive tax system removes the incentive for those who aspire to wealth to make the same sacrifices that those who achieved it where willing to make. The reality as we covered in the previous post is that great wealth in this country is much more an accident of birth than the product of hard work. Less than 20% of the billionaires in this country earned all of that income themselves. The other 80% inherited a substantial amount of money, in some cases more than a billion dollars.

That is not to say that those who achieve great wealth weren’t willing to work hard and make sacrifices. They were. But it wasn’t their hard work and willingness to sacrifice that distinguished them from those who didn’t achieve great wealth. The difference is that they were lucky. They stood at the table of life and rolled a 7. They were born into the right family at the right time with the right skill set to take advantage of a disruptive moment in our economy. There is nothing wrong with being lucky, but there is something wrong when we suggest that taxing the lucky will somehow diminish their ability or desire to take advantage of their good fortune.

But that still leaves one question unanswered. What sort of incentive does wealth provide for those who are already wealthy? Turns out that the major incentive is preservation of their family’s wealth through investments to minimize their taxes and secure the future for their children. Over the past 50 years or so, those investments have include political contributions to influence favorable rule making.

Again I’m not trying to make value judgments here, though obviously I do have an opinion. I’m just stating facts. For example, it is entirely natural for parents to try to make a better life for their children. By not paying closer attention to the influence that wealth has in this country, however, we are witness to the meritocracy of the 60’s becoming an aristocracy. That’s because those who benefited from the ability to make the jump from the middle class to wealth have had the means to change the system so that it benefits the children of the wealthy rather than all talented, gifted, and hard working children. There are still the same number of opportunities for Ivy League grads now that existed in the 60’s, but a much higher percentage of those grads are coming from wealthy families.

So it raises the inevitable question of which is more beneficial to our society, one billionaire or 20,000 middle class wage earners. In other words, what kind of a society to we want ?

Here are our choices. The society we have today concentrates wealth in the hands of a few who control the rules of the game for their own benefit. Those rule changes have greatly impacted the middle class which is in steep decline. The society we had during the most prosperous years in our history concentrated economic and political power is in the hands of a middle class. They received a fair share of the productivity gains that they delivered because of strong unions. That fair share was sufficient to allow them to provide their children all of the advantages and support required to also be part of the middle class. The result was a growing middle class that sustained economic growth through the 1970’s when the rules began to change.

Economic prosperity doesn’t trickle down, and neither does civic prosperity. Both are middle-out phenomena. When workers earn enough from one job to live on, they are far more likely to be contributors to civic prosperity — in your community. Parents who need only one job, not two or three to get by, can be available to help their kids with homework and keep them out of trouble — in your school. They can look out for you and your neighbors, volunteer, and contribute — in your school and church. Our prosperity does not all come home in our paycheck. Living in a community of people who are paid enough to contribute to your community, rather than require its help, may be more important than your salary. Prosperity and poverty are like viruses. They infect us all — for good or ill.

Inclusive economies always outperform and outlast plutocracies. That’s why investments in the middle class work, and tax breaks for the rich don’t.

Conservative Myths – Free Market

November 14th, 2015

One of the basic claims of conservatives and libertarians is that government intervention in capitalism distorts and ultimately inhibits the free market. More importantly, the implication is that the free market would somehow operate more efficiently if it were unfettered. Republicans have claimed among other things that an unfettered free market will cure poverty, solve global warming, reign in the growth of healthcare spending, and give everyone the opportunity to become wealthy.

So let’s dig into this myth as a precursor to a discussion about income inequality.

Markets, free or otherwise, are places where goods and services are bought and sold.

Markets require rules in order to operate. Sellers want to be assured that they are going to get paid. Buyers what to be assured that they get what they paid for.

eBay is a great example. They created their own market free from government regulation. It had anonymous buyers and sellers. Everything, at least in the beginning was priced based on competitive bidding. As long as there was more than one bidder, prices would always settle on what the real value of that product or service was at that particular point in time. Basic supply and demand. But even eBay had to have rules. They had to have a way to escrow payments to make sure that sellers got paid and buyers actually received what they paid for. They have to have a way to resolve disputes if products turned out to be misrepresented. They also had to protect sellers from unethical buyers who might want to blackmail sellers using bad reviews. eBay is as close to free market as you are going to get in this day and age, and they did it through consistent enforcement of a set of rules that were fair to both buyer and seller.

Government provides the rules that allow markets to operate in efficient and predictable ways. Those rules include contracts, bankruptcy, and fraud just to name a few. The notion that markets are somehow fettered by these rules is folly. In fact, it is very much the opposite as we will soon see.

This brings us to the next step in the myth of the free market. That is the notion that the marketplace is the fairest judge of the worth of both goods and labor. That might be the case if the markets were themselves fair, but if people cheat to gain an advantage it raises the real question of how fair that market is going to be.

Here are a few examples.

Insider Trading
Insider trading is taking unfair advantage of information that you may have that is not available to the rest of the market. The expectation of most people familiar with the term is that insider trading is illegal. The fact is, however, that CEO’s trading with their own stock are exempt from insider trading rules. Even worse, companies no longer have to disclose when they are trading in their own shares, whether that is buying back their own stock or when their senior executives exercise their options and then sell the stock. Rules put in place during the Clinton administration treat executive compensation that is performance-based (e.g. stock options) as tax exempt for the company. These rules have created a perfectly legal situation where a CEO can direct his company to buy back a sufficient number of their own shares to artificially drive up the price, and then sell off shares acquired through their executive compensation package before the stock has had a chance to fall back to the normal trading ranges. This is one of the ways that CEO’s of companies underperforming the stock market can still secure windfall profits for themselves. It is not illegal. But it is certainly cheating on the principle that compensation has anything to do with performance. What’s worse, it is not only cheating those who are investing in this company or its competitors. We tax payers are subsidizing these windfall profits that CEO’s enjoy because we make up the difference that their taxes would otherwise supply.

This is just one example of how large companies since roughly the 70’s have tilted their markets in their favor through manipulation of the rules governing the market. It is also an example of how tax rules put taxpayers in the position of redistributing pre-tax subsidies UPWARD in our economy.

Another example was the subject of a three part story in the NYT.

That covers contracts. Companies large and small now include terms of use contracts in all of their online and many of their hard goods packaging. The same language is in many supply contracts as well. Those terms of use preclude the user from participating in a class action suit. Instead the consumer or trading partner agrees to arbitration. The problem is that the arbiters who hear these cases have a built in bias to find in favor of the company. That’s because those who find in favor of the customer quickly find that they fall off the list of arbiters acceptable to the corporations. The result has been that third party arbitrations end up being resolved in favor of the company most of the time. This gives companies wide leeway to behave in predatory ways without fear of consequences.

Here’s another.

Generic Drugs
It is perfectly legal in this country for large pharmaceutical companies to pay producers of low cost generic alternatives to delay producing those drugs. The result is that healthcare costs in this country are artificially inflated because only the higher priced proprietary drug is available. Worse yet, we are the only country in the world that allows this practice. So our drug prices are also the highest in the world. The annual additional cost that the insured and the government bear is estimated to be $3.5B/year. This is another direct subsidy to big pharma.

Cable Monopolies
We also pay more for Internet service that any other country in the world because we have given the cable companies, who dominate the market, a monopoly in most areas. 80% of cable subscribers in this country only have one choice. As a result cable costs 3x more in the US than Europe where consumers have up to 7 providers to choose from.

Big Banks
Too big to fail banks now control 44% of the loans in this country. They are able to offer lower interest rates on those loans than smaller competitors precisely BECAUSE the financial markets know our government will not allow these big banks to fail.

Bankruptcy Law
Similarly the rules for bankruptcy favor corporations and banks over individuals. Corporations can use bankruptcy to walk away from pension obligations or union contracts. Individuals cannot use bankruptcy to walk away from student loan debt.

Ivy League Schools
Because wealthy people get big tax breaks to contribute to private institutions of higher learning like the Ivy League Schools. They also secure the guarantee of enrollment at those institutions for their children through “legacy” preference. The problem is that those tax deductions constitute a government subsidy provided by the rest of us tax payers that is estimated at almost $60K a year per Ivy League student. The tax payer subsidies to state schools generated primarily through direct payments rather than tax deductions is about $6K per student. So we are not only contributing to the wealth of the 1% through the tax avoidance strategies of their companies, we are also paying to educate their kids who will learn how to expand this strategy for their benefit when they follow in their parents footsteps.

I could go on for quite a while, but I think that you are getting the point.

There is no such thing as a free market because those who control the market would prefer that it operate in ways that benefit big corporations and disadvantage competition and customers.

The result is a massive subsidy that consumers, small companies, and the government provide in the form of anti-competitive rules and regulations. This upward pre-tax distribution of money is why many corporations spend more money on lobbying than they do on R&D.

Our markets are rigged to benefit the powerful and wealthy. The powerful and wealthy are perfectly happy to perpetuate the myth that they earned their wealth because they were smarter and willing to work harder than everyone else. The data, however, suggest otherwise. It shows that corporations with highly paid executives generally underperformed the market and their competitors.

The real story is that a high percentage of the wealthy and powerful got there because they started out on the inside through the accident of birth, learned the game at the same schools their parents attended and supported, and figured out how to expand their unfair advantages when they had their turn at the wheel.

The reality is that if we were able to stem the tide of this massive upward redistribution of wealth, we wouldn’t need nearly the amount of post-tax redistribution to the working poor through transfer payments. We would be able to pay our bills because the existing tax system would be generating a lot more money. We would be able to fix our roads, educate our kids, and feed our hungry.

Instead we are supporting an oligarchy who claims that they deserve what they stole because the “free market” decided that they should have it. While they are promoting the myth of the free market, they are using their wealth to buy political influence. They use that political influence to warp market and tax rules in their favor.

They say publicly that “government is the problem”, but behind the scenes this government is working just fine for them. That’s because they are getting what they paid for.

Conservative Myths – Dependency

October 29th, 2015

The basic construct of democracy is that candidates campaign for votes. The candidate that gets the most votes wins the office.

Since this is a representative democracy, candidates try to give voters a sense of how they are going to behave if they get elected. This gives voters an opportunity to select those candidates that they feel would best represent them.

What has happened over the years is that this country has divided into two dominant parties. It would be convenient to say that conservatives are served by Republicans and liberals by Democrats, but that is a fairly recent development. The Republicans of Lincoln were the liberal party and the Democrats were the conservatives. The politics of race transformed the South into solid Democratic territory as the result of the white backlash to the civil war. The Democratic Party itself under FDR became significantly more liberal, but continued to hold its southern wing together by ignoring the plight of southern blacks. Kennedy and Johnson lead the legislative charge for civil rights in the 60’s. Racial politics caused another seismic shift during the 70’s when Nixon’s Southern Strategy embraced angry white men unhappy with Johnson’s civil rights activism. That strategy was expanded by Reagan who widened the Republican tent to include the evangelical vote that helped elect Carter.

The result is that we now have two parties that are pretty far apart ideologically. Both have their sets of beliefs. This particular post is going to look at some of the myths that are at the foundation of conservatism. There are likely some myths at the foundation of liberalism too. I’ll try to find some of those too.

The myth is simple. Cash assistance for the poor prolongs their poverty. Reagan pledged to free the poor from the spider’s web of dependency by cutting their benefits. This allows those who believe in this myth to claim that eliminating benefits is really a compassionate act.

Fortunately there is no data to support this claim.

In fact, much to the contrary, cash assistance is common place in the rest of the world. 119 countries have at least one type of unconditional cash assistance. The US has none. In 52 additional countries the cash transfers require simple acts like enrolling your children in school. The only cash assistance available in this country is Temporary Aid to Needy Families. It has a huge bureaucracy whose sole role is to make sure that the aid is TEMPORARY.

MIT studied seven cash transfer programs in Central and South America and found “no systematic evidence that cash transfer programs discourage work”.

The World Bank 2014 report came to a similar conclusion regarding their cash assistance programs in Africa, Asia, and Latin America.

In this country, a UC Berkeley study found that welfare payments did not increase single motherhood.

Though welfare as we know it was eliminated by Bill Clinton in 1996, the claim that welfare produced generations of dependents also failed the fact check. 40% of welfare recipients were off welfare within two years. Two thirds were off welfare within 5 years.

What about benefits?
More cash welfare improves the longevity, educational attainment, nutritional health, and adult income of poor children.

How about the results of cutting welfare?
Initially it appeared to encourage a lot of people to get jobs. But as soon as the Clinton boom faded, so did the jobs. Whatever gains the poor made during that period now appear to be the result of a strong economy and the expanded earned income tax credit.

Zombie Politics
This is one of those ideas that simply won’t die. This myth is buried so deep in the conservative mind that facts really don’t matter.

Paul Ryan proposed eliminating the last remaining vestiges of federal assistance and replacing it with block grants to the states who impose tough work requirements on the beneficiaries.

There is no data suggesting that cash payments to the needy are abused.

There is no data suggesting that reducing payments somehow provides a greater incentive to work than poverty itself.

There is plenty of data that suggest that those who suffer most from poverty are those who have the least ability to change their condition – children. There is also data that shows investing in poor children produces adults that are less dependent on the government because they are healthier, better educated, and more likely to be tax payers.

So why do we persist in an idea that is both cruel and foolish?

Because conservatives are more afraid of someone getting something that they don’t deserve than they are of injuring someone who is innocent. As a result, those who represent conservatives have found that if they blame the poor for their condition, they get more votes than the candidates who suggest that welfare could be an effective strategy to combat poverty.

Hopefully the next generation will not be so short sighted and hard hearted.

The Empire Strikes Back

September 15th, 2015

There are plenty of frightening things about Trump’s campaign.

What is most frightening is his xenophobic appeal to nativism. It has given voice to an ugly white bigoted segment of society that has always been there, but was not discussed in polite company. These are the neo-nazi white supremacist racists who have enjoyed resurgence over the past eight years because a black man was in the White House. They were able to scream their bigotry in the public square because conservative Republicans claimed it was all politics. The worst stuff imaginable was suddenly fashionable among those who opposed the President because of his politics AND his race.

While they weren’t looking, however, conservatives have discovered that Trump is not just a racist, which they understand. He is also a populist. Worse yet, he is a rich populist, which seems an oxymoron, but doesn’t seem to disturb his followers. Even more terrifying to the conservative Republican establishment, his populism hasn’t just targeting illegal immigrants. It has also targeted bloated corporations who have had their way for too long and CEO’s who have been packing it in at the expense of their workers.

This is a very interesting turn of events. Ever since Reagan coopted the evangelical political movement awakened by Carter, Republican candidates have run on a whole platform of social issues. Once elected, however, they only delivered on the fiscal issues that were most important to their big money backers. Over the years everyone assumed that social conservatives actually cared about all of these fiscal issues too. Turns out that those supporting Trump don’t really care about the reducing taxes, expanding federal programs, and state’s rights. They understand the impact that big money has had on politics and are just as unhappy about large corporations and high income CEO’s as they are about illegal immigrants. Trump, running as a conservative Republican, hates free trade deals, loves Medicare and Social Security, wants to punish big companies that ship their jobs overseas, wants to tax CEO’s with cushy comp packages, and pledges to hold boards more accountable for their crony capitalism. In that regard Trump is MUCH closer to Bernie Sanders than he is any other candidate on the Republican ticket.

As Paul Krugman points out

The influence of big-money donors meant that nobody could make a serious play for the G.O.P. nomination without pledging allegiance to supply-side doctrine, and this allowed the establishment to imagine that ordinary voters shared its antipopulist creed.

But Mr. Trump, who is self-financing, didn’t need to genuflect to the big money, and it turns out that the base doesn’t mind his heresies. This is a real revelation, which may have a lasting impact on our politics.

The empire has inevitably begun to strike back.

The Club for Growth, that mainline supply side shill for political big money, is raising money to start running ads against Trump because of his tax policy.

Their hope is that they are going to be able to convince enough conservative Republicans that Trump is not their friend. This is going to be really interesting because the moment those ads begin to run I predict his poll numbers will improve. Rather than vilify Trump, these attacks from the conservative Republican establishment will validate what Trump has been saying all along. Those that have been sitting on the sidelines not sure that Trump is the real deal will realize that the Republican establishment, whom they also don’t trust, DOES take him seriously. They believe that he is dangerous. They recognize that he isn’t going to succumb to their influence. And finally, the establishment is terrified of what will happen to them if Trump is elected. This attack will be the sort of endorsement some of those on the sidelines have been waiting for. Trump will use these attacks to double down on his message of change. He will say, “If you really want to see changes, rather than the same old three card Monty that the Republican Party has been running, vote for me”.

If Trump is able to prove that these sorts of attacks will backfire and that organizations like the Club for Growth no longer have the weapon they claimed, the Republican Party will enter a brave new world. They will be required to really debate fiscal policy on the basis of what is best for the voters rather than what is best for their big money interests. If that occurs, we could really see a Presidential election where Bernie Sanders and Donald Trump both agree that the wealthy should pay more taxes, corporations should be penalized when they ship jobs offshore, trade pacts should benefit US workers, the social safety net should be strengthened because it benefits those that depend on it, and healthcare should be available to all at a cost that all can afford.

Compare this to the tax plans of the rest of the clowns on the Republican candidate bus.

Cruz, Paul, and Carson all favor a flat tax. Easy math says that the flat tax has to be somewhere around 25% in order to fund the government at current spending levels. Paul is at 14.5%. Carson at is 10%. Cruz hasn’t said. Beyond that, the flat tax is a huge give away to the wealthy who are paying significantly more in taxes today.

Huckabee is proposing a consumption tax. This federal sales tax would add $.23 to ever $1 spent on anything or an effective rate of 30%. The problem is that economic think tanks across the political spectrum say that it wouldn’t even come close to funding the government at its current level of spending.

Bush’s tax plan is the most interesting just because it is so weird. He has already promised that supply side economics will produce 4% growth for as far as the eye can see. But the details of the plan make that naïve prediction seem rational. Here are some quotes from a good article on the subject from

Bush’s plan offers an unlikely combination of solutions to the problem of slow growth.

He wants to cut the income tax rate and eliminate the estate tax and the alternative minimum tax — all policies that would benefit mostly the wealthiest Americans. At other times, he sounds like a populist, calling for the closing of loopholes that benefit corporations and hedge fund managers. And at others, he sounds like a policy wonk, arguing to shift tax policy in a way that encourages companies to build rather than borrow.

There’s no way to calculate yet what impact Bush’s proposals would have on the federal deficit, for example, or exactly how much more or less specific groups would pay in taxes. He hasn’t identified the corporate loopholes he would close or said whether closing them would fully offset his proposed cut to the headline corporate income tax rate.

The summary is that this is a politically motivated plan that borrows something from every other candidate including Clinton and Sanders, bundles it all up in a big confusing bag, and then wraps it in a bow of promised 4% growth. The reality once you strip everything away is that it is the same old voodoo economics that Reagan was forced to abandon, Bush I rescinded, and Bush II used to turn a surplus into a deficit.

The reality, at least for the moment, is that there are a lot of angry white voters out there who are unhappy with the Republican establishment. There are also a lot of frustrated progressive voters out there who are eager for a candidate willing to mount a full throated defense of progressive principles. Trump and Sanders are riding these respective waves. It is unclear whether those waves will propel both candidates to their party’s nomination, but the political establishment is becoming very uneasy with this populist uprising.

Talk is Cheap

September 3rd, 2015

The definition of character is the mental and moral qualities distinctive to an individual. I would suggest that character is the mental and moral qualities that DEFINE an individual.

We discover our character and the character of others when we are faced with hard choices.

Character is aspirational. It is not something that you are born with. It is something that you acquire through a lifetime of making difficult choices.

David Brooks just wrote an entire book that digs into the subject in some detail.

Our hope is that the primary season will give us an opportunity to discover more of the character of our potential candidates. That will give us a better understanding of how they will behave when they are inevitably faced with the hard choices that happen in every Presidency.

Here are two good examples.

The financial collapse of 2008 happened during the campaign for President. Obama reacted with a cool confidence the belied the political implications. He was willing to look at the best available solutions regardless of their party affiliation. He also was able to prioritize those things that were most important to do now, and those things that were most likely to have bipartisan support. McCain on the other hand seemed to panic. He was overwhelmed by the potential for failure as well as the huge risks this posed to his presidential candidacy.

The public’s perception of the difference in their reactions led to Obama’s victory. Some of Obama’s critics claim that the electorate didn’t know who they were voting for and would have made a different choice if they were better informed. I strongly disagree. This public test of character led those voters who hadn’t already made up their minds to choose Obama.

There are certainly some who will view Obama’s presidency as a failure, but he will leave office with an historic set of big achievements that will secure his place in history. Those including saving the country in general and the domestic auto industry in particular from the financial collapse, dramatically reducing the deficit through economic growth rather than wholesale cost cutting, successfully reforming healthcare, extracting us from two wars, refusing to engage our troops in new ones, and negotiating a nuclear deal with Iraq. None of those choices were a slam dunk. All had significant political risks and encountered significant opposition. In each case, he stayed the course. That’s character.

Bush won one of the closest elections in recent history. Unfortunately his “character” moment came early in his Presidency when he was informed of the 9/11 attacks while reading stories to school children. The “deer-in-the-headlights” look that came over his face at that point spoke volumes of his ability to perform under pressure. While he spoke of leadership, his administration was awash in cronyism and infighting. This came to full flower in the disaster that was Iraq, the deceptions regarding torture and domestic spying, the Valerie Plame coverup, and the tragedy of Katrina. Katrina has since become shorthand for one of these moments of failed leadership.

Let’s look at the character of a few of the current crop of wanna-be Presidents.

Trump is a narcissistic bully. In his case, he isn’t claiming to be anything else, so in some ways he passes the character test. He is going to do what is best for him. Those who don’t agree with him are losers. Those that he may harm in the process are losers. Losers in his opinion deserve their fate and he is not going to worry about them. If he manages to become President, I suspect we will all be losers.

Chris Christie’s claim to the office is also based on his tough-guy get it done narrative. But when you look at his character moments, something else comes into clear view. He is vengeful bully with “Bridge-gate” as only one example. His state is in terrible financial shape (though he claims otherwise), and now he is being “out-bullied” by Trump.

The Jeb Bush narrative was that he was a seasoned, smart, effective leader. We had a hint of his issues when he fumbled an obvious question about his brother’s failures in Iraq. The answer that he wanted to give was that he loves and respects his brother and is not going to criticize him in public. Then he could have laid out his plan for dealing with today’s Middle East realities. He didn’t have the character to give that sort of brave answer. Now, he can’t seem to find a way to respond to a bully who calling him, his wife, and his children names. Trump even challenged Jeb’s manhood by calling his campaign “low energy”. The result is that those who thought of Bush as a front runner are now questioning why he is even in the race. Turns out that the smart, effective, self-aware, self-confident leader story was fiction.

How about Walker? He was the bright shining star of the conservative movement. His character moment came when he was caught scrambling to get to the right of Trump on immigration. When one of his financial backers suggested that perhaps he had gone too far in opposing birthright citizenship, Walker quickly hustled back to safer ground.

Oh, and you remember that guy that at the start of the summer was reminding all of this Republican peers of the 11th commandment not to criticize another Republican. Now that he is no longer leading the pack, he’s decided that the 11th commandment no longer works for him.

Turns out that Walker wasn’t the star everyone thought he was. Instead he is a political opportunist who is being exposed and out-maneuvered by a political neophyte. In Trump terms, a loser.

How about Rubio? When he had an opportunity to reveal that there was substance behind his youthful good looks, we discovered that there was not much there. His strongest issue should be immigration, but every time that he has been challenged on that issue, he retreated to the safety of right wing conformity. Much like Romney, Rubio’s desire to be elected overwhelms the basic values he talks about in his speeches.

I’ve already outlined the character flaws in Rick Santorum who chose politics over religion.

What about Hillary? Her character appears to be tested on almost a daily basis. It also appears to be wanting because of choices she made during her stint as Secretary of State. Now as some of the “inside baseball” emails come out, it appears that there was considerable “Obama envy” among some of her staff. She obviously at least tolerated, if not encouraged this attitude. I don’t think that there is any doubt that she is tough. The doubt is whether or not she has the character to be able to make decisions based on what is best for the country versus what is best for her. Her front-runner status is again eroding as Bernie Sanders attacks her from the left.

Bernie has had his character moments too. But he has learned from them. Now his greatest assets are his passion and authenticity. One look at him will tell you that he is not the product of a focus group. His positions are consistent and provocative. It is unclear whether or not he will win the nomination, but in the character wars he is FAR ahead.

I could go on, but I think that it is clear that character-building is a process rather than a destination.

What is troubling in this race so far is that those with the best character appear to be those with the least chance of winning the nomination.

It will be interesting to see how this plays out over the next several months.

Trump and the Crazy Train

August 14th, 2015

There is certainly one thing that you can say about Trump – he is entertaining.

What people aren’t talking about is the fact that ALL of the Republican presidential candidates are in one way or another just as crazy as Trump.

Trump represents an interesting populist anti-establishment uprising that has surprised the party establishment, the media, and Trump. He is also the natural evolution of the “money votes” economy. Rand Paul was on the right track when he said that Trump is “used to buying politicians”. He has simply taken the next step of by passing the middle man and representing his own interests. Whether he is able to translate this into a nomination is yet to be seen.

He gained momentum by demonizing undocumented workers. He fanned the flames of xenophobia by claiming that Mexico was deliberately sending their most dangerous citizens to us to deal with.

All of the rest of the candidates were dragged along to support Trump’s claim that there is a crisis at the border. Rubio tried to distance himself from his previous support of a path to citizenship. Walker also changed his tune. Christie called his previous support a “garbage idea”. Even Trump had flipped from his earlier support of path to citizenship. Only Kasich, Hackabee, Carson, and Paul have resisted the urge to jump on the “we’re being overwhelmed with criminals” bandwagon.

The problem is that fact checkers call this claim false. Illegal immigration peaked in 2007 and has actually declined since. Deportations hit an all time high in 2013 of 400K. Most of those were convicted of crimes in this country. More robust border enforcement has not only dramatically reduced illegal immigration, but it has also discouraged undocumented workers from leaving this country for fear that they won’t be able to get back in. The result is a fairly stable population of undocumented workers in this country of 11M. Their children, at least those born here, will automatically be citizens. If these trends continue, within thirty years the number of undocumented workers will drop by 50% without any other actions on our part.

So the only value in building a bigger wall is that it will likely provide some jobs for those that the wall is intended to keep out.

How about abortion?

Trump flipped from his previous support of abortion.

Rubio lied about never supporting exceptions to abortion.

Bush questioned whether, “we need half a billion dollars for women’s health issues.”

Huckabee said he would ignore the Supreme Court and declare that a “baby inside the mother’s womb is a person at the moment of conception.”

Santorum, who has built his political career on his opposition to abortion, took the opportunity to question Carson’s character because Carson used fetal tissue in his medical research. “When you start to see some of these cracks, I think it may show whether the person is really someone who’s going to take on an issue and be strong on it when they get into the very difficult position of being President of the United States.” An interesting attack from the guy who recently failed a significant test of character when he had to choose between politics and his religious faith on the topic of climate change.

How about healthcare?

Trump flip flopped in his previous support for single payor.

All promise to repeal Obamacare and replace it with something better. NONE have said what that something better would be other than some discussion that health savings accounts would be nice.

How about the use of our military in the Middle East?

Rand Paul is the only one who would not put “boots on the ground”.

Fiorina lied when she claimed that the US wasn’t arming the Kurds. We are doing it through the Iraqi government.

How about the economy?

Jeb promises that he can deliver 4% growth off into the future based on his experience in Florida and his belief in supply side economics. The reality is that he presided over a huge real estate bubble in Florida. When it burst, shortly after he left office, 900K of the 1.3M jobs he claimed to create vanished. Funny the same thing happened to his brother’s supply-side experiment.

Many economists think that 4% is just out of our reach because of the demographic headwinds of the baby boomer retirement. You really have to believe in the fairy dust of supply side economics to project that we would touch 3% as a result of government policies.

Christie claimed some big job numbers, but his state ranked 44 out of 50 in job growth.

Walker did not elaborate on his failure to deliver the 215K jobs he promised would appear as a result of the massive tax cuts he gave business. Instead he talked about job growth and job participation numbers. What he didn’t say is that these were the same numbers that existed prior to his election.

Huckabee solves everything with a consumption tax. One of the advantages of that tax is that even “illegals, prostitutes, pimps, and drug dealers” would be paying this tax. He claims that tax will generate 6% growth. I have to admit that 6 is better than 4 which is certainly better than 2, but just changing the tax policy won’t do it. You have to get more workers which just isn’t going to happen unless there is also a radical change in immigration policy which is not part of Huckabee’s plan. Even if you got more workers, you would also have to have a significant change in productivity because wages would have to track this growth in order to get more money into the economy. Huckabee hasn’t even thought of this because his consumption tax shifts most of the tax burden to the poor. All he has thought about is that 6 is better than 4.

Then there is Doc Carson, who suggest that we should all tithe 10% of income instead of pay taxes. When asked whether or not it would work, he said that if it worked for God, it will work for us.


In this context it isn’t surprising that Trump is having the success that he has been having. The reality is that the only half-way serious candidate in this train full of clowns is Kasich. Not surprisingly he is the most moderate of the bunch and as a result, the least likely to get the nomination.

This speaks volumes about what the Republican Party has become. This is no longer the party of George HW Bush or even Ronald Reagan. It has become the party of paranoia and extremism as the old white angry men, who have been the party’s backbone, struggle with the reality that they are no longer in control. They failed to defend marriage from the onslaught of gay rights. They failed to prevent the rollout of what they see as another big entitlement program in Obamacare. Black people are demanding justice. Hispanics have discovered the power of the ballot box. Even the Pope disagrees with their abortion obsession. And women are no longer content with staying home and raising children. They not only demand a career, but also equal pay for equal work.

These guys are growing tired of the effort required to hold back the flood of scientific evidence supporting human-caused climate change. Their dam has sprung so many leaks that they are running out of fingers to plug them. Coal-based electrical generation is not only polluting, it is expensive. The most economical and highest performance car is all electric, made in this country, and sold direct over the internet. The world is changing under their feet and there appears to be little they can do to prevent it except perhaps support someone who is willing to give voice to their fears and frustrations – Donald Trump.

Marco Rubio Camelot Detour

August 13th, 2015

Marco Rubio has a problem. He has to find a way to distinguish himself in Republican primaries when the major emotional flow is fueled by xenophobia.

He was supposed to be the leader for the new generation of young Republicans. Good looking. Latino. Basically the Republican version of JFK. Unfortunately as Wart learned, the road to Camelot is not paved with gold or even good intentions. The road is a test of character. It is a test that Rubio has so far failed.

There were his frequent flips regarding immigration, the Iraq war, and national security spending.

His most recent flip regarding exceptions to abortion bans for rape, incest, or the health of the mother may be his most profound.

He has claimed that science now supports the assertion that a human life begins at conception. That claim is the basis for reversing his previous support of exceptions to abortion.

He appears to base this little bit of verbal gymnastics on the fact that a fertilized egg can only produce a human embryo. If that embryo is carried full term a baby is born.

Science explains this because of human DNA. It is this DNA that determines how the fertilized egg will grow and evolve. If human DNA is present in the cells of both the egg and the sperm, a human embryo will result every time.

What is wildly inaccurate though, is the claim that science supports his view that this fertilized egg is in fact equivalent to a human being. It is not. It is a fertile seed of a human being much in the same way that an acorn has the potential be an oak tree, but still needs a lot of growing to reach its potential.

Science does not take a position on when life begins. It has a method for determining the when something is alive. A human baby passes that test. A human embryo does not.

Rubio’s position is getting him some needed press visibility, but it is also going to damage him if he manages to make it to November 2016.

The country may be split on abortion rights, but women support abortion rights 50% to 41%. Obama coalition is built on women, minorities, immigrants, young people, LGBT, and educated professionals. If Hillary Clinton is the Democratic nominee, she is doing a pretty good job of holding that coalition together.

Rubio’s opportunity in the election cycle this year will likely be as a VP. Whomever ends up being the Republican nominee will choose between Rubio, Kasich, or may Fiorina.

What is interesting is that while Rubio is of Hispanic origin, Kasich is the one who supports a path to citizenship. Kasich, and not Fiorina, also supports abortion exceptions in the case of rape, incest, or the health of the mother. Rubio is from Florida. Fiorina is from California. Kasich is from Ohio. What state decided the last couple presidential elections? – Ohio.

So the path in 2016 for Rubio may not lead to Camelot. That’s because when it comes down to character, it turns out not to have anything to do with looks, ethnic background, or gender. It is a basic choice grounded in principle and tested under stress. The one person in the Republican field who appears to have passed that test won’t get the nomination for President, but is in a good position to get the VP nod – John Kasich.

Courts Decide

July 3rd, 2015

The Supreme Court recently did what they are empowered to do – make decisions based on their best interpretation of the constitution.

The Constitution provides for an independent judiciary for a reason. We are a nation of laws where the power of the majority does not trump the rights of the minority. Our federal judges are appointed to reduce political influence.

The court also decides issues that we can’t resolve at the ballot box.

During this time of deep political polarization, every decision produces a backlash of second guessers. The same court they agreed with yesterday somehow betrayed them today. You’ll likely see some of that across the Internet with appropriate doomsday predictions.

Americans deserve leadership that can actually fix our broken health care system, and they are certainly not getting now from Washington, DC. Jeb Bush

From the beginning, it was clear that ObamaCare would fail the American people and this has proven to be true across the country and in Wisconsin. Scott Walker

The reality is that while not perfect, Obamacare is meeting its goals. Over 10M insured and the healthcare growth rate has slowed to its lowest rate in decades. This despite the fact that 25 Republican states have refused to expand Medicare. Also NOT ONE Republican candidate has produced a detailed replacement plan that can be scored against Obamacare.

I will not acquiesce to an imperial court any more than our Founders acquiesced to an imperial British monarch. We must resist and reject judicial tyranny, not retreat. Mike Huckabee

This decision will pave the way for an all out assault against the religious freedom rights of Christians who disagree with this decision. This ruling must not be used as pretext by Washington to erode our right to religious liberty. Bobby Jindal

The states are the proper place for these decisions to be made, and as we have seen repeatedly over the last few days, we will need a conservative president who will appoint men and women to the Court who will faithfully interpret the Constitution and laws of our land without injecting their own political agendas. As a result of this decision, the only alternative left for the American people is to support an amendment to the U.S. Constitution to reaffirm the ability of the states to continue to define marriage. Scott Walker

What is funny is that the founding fathers created the judicial branch to protect the people from an imperial exec and legislative branch. Also at the time of the decision, 39 states had already approved gay marriage.

Those that complain about the court being politicized, recommend packing the court with conservative justices as the remedy. Yet, it was supposedly conservative justices who participated in the majority in both cases.

Then there were the appropriate predictions of the apocalypse.

Santorum said stopping gay people from marrying was about “the survival of our country.”

Sen. Ted Cruz said it was “the darkest 24 hours in our nation’s history.”

Santorum might be correct if the country were exclusively populated by gay men, but it’s not. We are, in fact, in the midst of a baby boom. So clearly there are plenty of people still willing to contribute to the next generation even if that generation includes some married gay people.

As far as dark hours, at least from an existential perspective, this one isn’t very high on the list. Pearl Harbor, 9/11, the murders of the Kennedy’s, MLK, and Licoln; the Great Depression, the Great Recession, the Civil War, and Valley Forge all come to mind well before we get to this most recent SCOTUS decision.

Here’s what was actually decided.

Affordable Care Act The dispute was over six of the 363,086 words in the law. The part of the law said that insurance purchased through “an exchange established by the state” qualified for subsidies. Narrowly interpreting the law in this fashion, according to the court, led to many more serious contradictions throughout the rest of the law. The court decided (6-3) that Congress intended ACA subsidies to apply regardless of how insurance was purchased. The court encouraged Congress to be more careful in the future and left open the option for future legislation on the subject.

Same Sex Marriage The court decided (5-4) that adults have the constitutional right to marry. States can’t limit that right based on sexual preference. This decision doesn’t affect state laws regarding children, monogamy, or bestiality. It doesn’t affect who churches decide to marry. It doesn’t compel any business to change their practices. It only requires states to provide marriage licenses to all adults who apply for them and meet the requirements of that state (not already married, no sexually transmitted diseases, etc.).

There are certainly those who feel that this decision violates their religious beliefs. I would only remind them that similar religious arguments were used to support slavery, oppose female suffrage, support segregation, and oppose interracial marriage. Very few legitimate churches support those views today.

The courts aren’t perfect, but they do serve a vital role in our democracy. While I welcomed these decisions, I too was deeply disappointed by others (e.g. Citizens United). We all have the right to disagree, but we also have the responsibility as citizens to respect this constitutional process. If you want change, vote.

Money Corrupts

June 19th, 2015

One example of modern day corruption is the estate tax repeal that the republican house recently passed.

I’m working on another post that digs into the whole topic of corruption in more detail, but here’s a quick overview to provide some historical context to this discussion.

The framers of the constitution felt that corruption was the single largest threat to democracy.

If you remember your history, the United States was not the first democracy. That was Athens. But democracy was still a novel idea when the colonies decided that they had to be independent of the King. One of the arguments against democracy was the natural instinct of self-interest. The other argument was that the rich and powerful in Europe had been able to undermine democracy. The livelihoods of so many people depended on the good graces of royalty, for example, that few opposed their rule.

The framers, however, believed that individuals would value liberty so highly that civic virtue would trump self-interest. They were not so naïve, however, as to assume that this willingness to sacrifice for the greater good would continue once those who experienced the revolution passed on. So they regarded anything that would subvert civic virtue, or even have the appearance of self-interest, as corruption.

It’s through that lens that I’d like to look at the repeal of the estate tax. This isn’t to suggest that this is the only example of modern corruption. It’s just an obvious one.

The estate tax charges the wealthiest .2% of American households when they pass on amounts in excess of $5.4M in the case of individuals and $10.9M in the case of couples to their heirs.

This estate tax has been part of the US infrastructure since 1797. Its explicit purpose is to prevent the sort of corruption that the founders associated with a permanent aristocracy. By making it difficult for one generation to share their wealth with another, it discourages the formation of families with enough money to damage civic virtue. Specifically the concern was that our representative democracy could erode to an oligarchy if the government didn’t specifically take steps to prevent the concentration of wealth in the hands of a few. James Madison warned that inequality in property ownership would subvert liberty, either through opposition to wealth (a war of labor against capital) or “by an oligarchy founded on corruption” through which the wealthy dominate political decision-making (a war of capital against labor).

Here are some of the justifications leading Republicans have used for eliminating the estate tax.

House Ways and Means Committee Chairman Paul Ryan, R-Wis. claimed that the estate tax is “absolutely devastating” to family farms, and further he claimed the repeal would remove “an additional layer of taxation” from assets that had already been taxed.

“It sounds to me like there’s a lot of wealth envy in this country,” Rep. Virginia Foxx, R-N.C. The bill abolishing the estate tax, she said, “will draw a line in the sand.”

The facts are that only 120 small businesses and farms (100 of them large farms) were hit by the estate tax in 2013. And for that tiny number affected, there are all sorts of provisions already in place to soften the blow: low valuation rules, delayed tax payments and other breaks and discounts. In fact some have characterized the estate tax and a fine for those who failed to pay their accountant, since careful planning can generally avoid this tax.

Also 55% of the value of estates worth more than $100M, according to Americans for Tax Fairness, are unrealized capital gains that have never been taxed. If the issue were double taxation, there is a much better way of addressing the issue than simply eliminating the estate tax.

Besides the obvious risks of increased concentration of wealth in the hands of a few, there are real budget implications of repealing this tax. The tax will bring in $269B over the next ten years. Republicans are going to say that putting this money back into the hands of the wealthy will increase other tax revenue by causing economic growth, but there are no facts to support this claim. What the data shows is that tax cuts to the rich only reduce the middle class, increase the ranks of the poor, weaken our economy, and increase our debt.

To put this gift to the wealthy in perspective, here are some of the other things that could be done with that amount of money.

  • Making community college free for everyone for ten years cost $60B
  • Making four year college free for all that qualify would cost an additional $15B
  • Plugging the current highway trust fund deficit which would support infrastructure improvement costs $164B over the same time period

If at this point you are asking what does all of this have to do with corruption, the house members who voted for this bill received a combined $56M in campaign contributions during the last election cycle from special interest groups specifically advocating the repeal of this tax.

This may not meet the narrow standard of corruption that the Supreme Court used to justify the Citizen’s United case, but it does justify the fears that our framers had regarding the corrupting influence that money has on our democracy.