Author Archives: Staff

Apr 17

Tax Deductions and Government “Handouts”

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Justion Wolfers wrote a piece for Freakanomics laying out the argument that tax subsidies such as the mortgage interest deduction, are no different that other government “handouts.”

Instead of looking at all the breaks for mortgage interest, health care, retirement savings and so on as deductions, picture the government writing you a check for each item. This equivalence between tax deductions and government spending leads economists to call them “tax expenditures.” Reformers have hit on an even more pointed description: spending through the tax code.

The tax system is also equivalent to a collection of individual mandates, like the one in the Obama health-care law, with penalties for Americans who fail to buy insurance. For many people, that’s how our system works. You and your neighbor might have the same income, but if, unlike your neighbor, you fail to have a mortgage or buy as much health insurance, then you have to pay higher taxes.

The piece also points out a contradiction in the position of tax cutting zealots like Grover Norquist.

The very idea of a “tax expenditure” depends on the assertion that any dollar the federal government chooses not to take from you by force it has in fact given to you. The federal government owns your life’s work and its rewards and allows you to keep some—in its generosity. If a mugger fails to completely empty your wallet he or she has kindly “given” you that money.

Oddly, liberals tend not to include the “tax expenditure” of allowing some citizens to pay less than the present top rate of 35% of their income in taxes, but their logic would demand they do so. It would be the largest “tax expenditure.”

Attacking “tax expenditures” is an effort to avoid focusing on real expenditures by the federal, state and local governments. Nice try by the left, but not a serious way to deal with the costs of government spending.

I first saw this during the Carter years. WE see it again for the same reason. The big spending of the left is again becoming a political liability.

Grover Norquit’s response is as old as manipulative and disingenuous politics itself. He would love his followers to believe that the government has no right to take one cent of what you earn to build roads, bridges, or a national defense. He believes–well he claims to believe–that all taxes are theft, and uses this specious rhetoric to rally those who simply do not know any better. In Grover Norquist’s world, we would build our own schools, highways and battleships much like an Amish barn-raising.

Wolfers also sets forth how regressive our system of tax expenditures through subsidies actually is in practice.

Taken together, individual income tax expenditures are the equivalent of sending $686 each year to those in the bottom fifth of the income distribution, $3,175 to those in the middle fifth, and $30,714 to those in the upper fifth. The average member of the top 1 percent gets nearly a quarter of a million dollars a year.

The answer, according to Wolfers, is to replace the deductions with a check. In other words, mail each taxpayer a check instead of allowing the deductions and other tax breaks to be offset against income or tax liability. In that case, the public would be able to see more clearly the subsidies received and put a stop to the ridiculous belief that subsidies are somehow different than direct payments.

Apr 17

Former Merrill Lynch Banker Supports Volcker Rule

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Roger Vasey, a former head of Merrill Lynch’s global debts markets submitted an editorial to the Wall Street Journal in which he adds his voice to the growing chorus of activists, economists, and former Wall Street insiders who believe that a strong Volcker Rule is necessary to prevent another financial catastrophe that the taxpayers would ultimately fund. The reason that taxpayers would be on the hook can be traced back to the destruction of the Glass-Steagall Act under Bill Clinton.

Wall Street bankers have lobbied to further limit the already near impotent version of the Volcker Rule contained in the Dodd-Frank Wall Street Reform Act. The rule, named after former Federal Reserve chief Paul Volcker bans banks from engaging in risky proprietary trades with taxpayer-backed funds. The banks fought the rule prior to it being signed into law and relentlessly fight it to this day. The bankers argument is that the rule constrains their ability to compete with foreign bank and to lend to business, among other things.

The Volcker Rule—part of the Dodd-Frank financial reform law—is necessary to correct a mistake that poses a danger to our economy. [...]

The number and complexity of various financial vehicles has grown over the years, but the principle remains the same. If the potential loss from a bank’s overall position across its securities holdings cannot be projected accurately under various deteriorating market conditions, and effective limits on that position established and monitored accordingly, that position should not exist.

And no financial institution with explicit or implied taxpayer support should be in the proprietary trading business.

Vasey emphasized his belief citing his own significant experience that it is possible to earn considerable profits employing less risky investment strategies. He explained that the the reason that investment banks acted less irresponsibly prior to the dismantling of the wall between investment banks and deposit institutions was due to the fear that the very same debt accumulation and inevitable unraveling that imploded the economy in 2008 would put their own funds at risk. He also pointed out that in the time period leading up to the most recent financial collapse, that investment banks were making riskier and riskier investments, knowing that the behavior would be backstopped by the federal government.

Apr 03

Federal Reserve Still Punishing Savers and the Elderly

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The Federal Reserve recently published the minutes of the Federal Open Market Committee meeting held on March 13, 2012. With one exception, Ben Bernanke and each of the Federal Reserve Regional Presidents signed on to a plan which will continue to hold interest rates at historic lows. The federal funds rate will likely be maintained at 0%-1/4% through the end of 2014. The consensus is that inflationary pressures will remain subdued for the foreseeable future, but that recent spikes in energy costs will boost overall inflation higher for the short term, with core inflation continuing in the 2% range. The group also sees hopeful signs in the unemployment numbers and economic activity generally, but not enough to begin easing interest rates upward. The world’s largest central bank also plans on continuing to purchase long term government securities in conjunction with the above in an effort to further push long term interest rates down.

While one can understand why the Federal Reserve continues to pointlessly hold tight to the idea that staggering low interest rates must be kept in place–it’s the widely believed best method to stimulate economic growth and business investment–the policy is punishing senior citizens and responsible savers immeasurably. Bank account, money market, and Certificate of Deposit rates remain pitifully low as a direct result of the Federal Reserve’s action.  Seniors on fixed incomes and Social Security have seen meager cost of living adjustments. Moreover, through saving in liquid bank and credit union accounts and employing the prudent investment strategy of limiting their exposure to the volatility of the stock market, these seniors are effectively having their buying power pummeled backward.

There is little evidence that continued easing policy at the Federal Reserve is producing the same effects it once had immediately following the onset of the great recession. There is no evidence that the free money being provided to banks is ultimately being used to hire new workers, rather than to bolster bank balance sheets and meet leverage requirements. A federal funds rate of 0% punishes the very least able to absorb a hit in the interest income and Social Security they need to survive from month to month. Furthermore, it all but forces the young to open larger stakes in the stock market than they may have otherwise done, seeking investment return in the only available arena. If the Federal Reserve has true concern for unemployment, it is time to find another strategy to lower the overall unemployment rate and increase job market participation rates. For these reasons, it is time for the Federal Reserve to embark upon a new path, a path that does not punish those least able to handle the consequences.

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The recently passed National Defense Authorization Act permits the US government to detain anyone, including Americans, indefinitely, without charge or trial, anywhere, at any time, forever. Naomi Wolf over at Project Syndicate explains why many fear that the NDAA will be used to stifle journalists and others fighting for social and economic change.

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Here is the breakdown on the roll call vote for the so-called JOBS Act. If nothing more, this vote made clear how few Democrats truly support the people when the people are in conflict with Wall Street. You can read a more detailed explanation of the JOBS Act in a prior post here.

Super Nanny

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From the too strange to be true department, the nannies of the 1% are also part of the 1%. A recent New York Times piece delves into the the strange world of elite nannies. What time is the cleaning crew coming, this baby just made a mess, and there is no fucking way I’m cleaning it. I’m a nanny not a maid service.

As one of New York City’s elite nannies, Muneton commanded around $180,000 a year — plus a Christmas bonus and a $3,000-a-month apartment on Central Park West.

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Matt Taibbi over at Rolling Stone has an interesting piece discussing the large banks and their plan to buy up large swaths of foreclosed and nearly foreclosed homes from Fannie Mae and Freddie Mac. The story first ran in the Wall Street Journal. Essentially, the plan is to buy up foreclosed homes that the banks once owned. The banks, as you might recall, ran up the prices on homes, and subsequently sold off the mortgages to Fannie Mae and Freddie Mac. So, now the banks will be permitted to buy back those same homes at a steep discount. However, the banks don’t plan to sell the homes, instead they will rent the homes back to the occupants, former owners, or anyone else off the street and reap huge profits in the current rental market.

Just when you thought it couldn’t get any better for the banks, the government-run Fannie Mae and Freddie Mac want to get into the bank welfare game.

Mar 19

Top 10 Easy Things You Can Do to Influence Politics

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Do you ever sit and think, you know what, I’d like to become more involved in politics or my local community? You can bet that powerful people and large corporations are using their vast resources to influence politics every day of every year. Below are a few simple things you can do to act as a counterbalance.

Top 10 Easy Things You Can Do to Influence Politics:

  1. Vote: It really isn’t that much to ask is it? Many nations require military or other service of not just men, but everyone. Jury duty—admittedly not my favorite–once every two years and showing up to vote once or twice each year is all the United States asks of you. Write in a friend, vote for the guy or gal least likely to win, just vote. You will feel better about yourself, I promise.
  2. Neighborhood Watch/Neighborhood Council: Join your local neighborhood watch or neighborhood council, or just attend regular meetings. You will meet people who are involved in local politics and you never know, you might make a friend or two. You might also feel a greater stake in your local community, and it will rub off on your family and friends.
  3. Write: Write your member of congress. Write your local city council or state or federal officials. Does your street need repaving? Do you feel that Social Security should not be changed? Do you think that your town has one too many McDonald’s? Everyone has an opinion about some political issue. Write it down and send your thoughts to the official or representative. You might be surprised by the results.
  4. Attend Town Halls: Your local city council or member of congress likely holds town hall meetings periodically. Attend one of them and ask questions, or just listen. You will meet people and you might just have fun.
  5. Volunteer: Volunteer on a campaign. Volunteer at an animal rescue shelter. Volunteer to be a poll worker. On the other hand, you could just volunteer somewhere that shares your beliefs and attempts to influence politics concerning an issue that is important to you. The benefit is that you will meet people like you, and you are already are quite fond of you, so more of you is even better.
  6. Stop complaining: No one wants to listen to someone who does nothing but complain or spew negativity. If you want to influence people to believe what you believe about an issue, approach it thoughtfully and state you case clearly. You will be far more difficult to ignore.
  7. Sign or create petitions: Do you have an issue that is important to you? If so, look online for petitions that support your ideas of the change that you would like to make. Search Change.org or other sites. You could even draft your own petition. Do you want to save that 200 year old tree from being cut down to make room for a new mini-mall? Start a petition.
  8. Stop saying “I can remember when . . .” We can all remember a fonder time, a time when we all had lots of money and the kids roamed the neighborhood playing kickball and hide and seek without fear. All the neighborhood house owners left Halloween candy on the front stoop and no one took more than their fair share. When you needed a new roof everyone pitched in and built it. First, it was never the way you remember. Second, it does nothing to move your beliefs forward. Say something that makes it more likely that the future will resemble what you mistakenly believe the past was like.
  9. Frequent local small businesses: Local small businesses are much like you; they want what is best for the local community, city, and state. Local businesses also engage local, state, and federal elected officials about many of the same issues that are important to you. Local business owners tend to spend their profits right there in your community. The large chain stores and restaurants don’t care about you or your community, they care about sales and profits.
  10. Watch less TV: It does not matter what you do instead of watching television, but it will undoubtedly be more productive than doing so. You can even work on doing any of 1-9 above. In fact, I recommend that highly.

Mar 19

Obama Fundraising vs. Romney Fundraising

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The Obama campaign announced its February 2012 donation numbers today, with the campaign raking in $45 million last month. Of course, the Republicans immediately cast the numbers as low, but what was important, at least to us, is that nearly 350,000 people contributed to the Obama 2012 effort with an average amount of $59.04. 105,000 people contributed for the first time. Mitt Romney hauled in $11.5 million in February, from far fewer individual donors than Obama.

While conventional wisdom is that the candidate with the most money nearly always wins, and wins by a greater margin the greater the difference in expenditures, the 2012 Romney campaign is proving the opposite. Romney has outspent Rick Santorum by a huge margin, 12-1 in some states, and Romney has not netted the results one would anticipate given the disparity in cash between the candidates. Exclusive of Super PAC spending and contributions, which come primarily from a small number of large donors, Rick Santorum has spent $5,224,376 while Mitt Romney has spent $55,986,173.  The disparity however has not translated into votes at the ballot box. For example, Rick Santorum did not spend a penny in Mississippi, and won, while Romney outspent Santorum 12-1 in Michigan, and barely eked out a victory. This story of of the diminished per capita value of campaign spending has repeated itself in nearly each of the primary states thus far. Romney is spending nearly four times as much as Santorum per vote. Romney has also somehow managed to severely enrage potential female contributors, with nearly 70% of every dollar he has raised coming from men. Obama has received nearly 45% of his contributions from women.

More interesting is that nearly 60% of Romney’s contributions have come from those writing checks for the maximum amount of $2,500. Those donors can’t contribute again. Santorum on the other hand has received nearly 60% of his donations in amounts less than $200, with only 16% of contributors maxed out. What this tells us is that money isn’t the only story this election season. Obama has similar percentage numbers on his side, with only 20% of his contributors maxed out, and nearly 55% below the $200 level. He isn’t Rick Santorum however, so he has 100% less crazy, and the advantage of being an incumbent President. Romney will win the nomination of the Republican Party before long, but how would his campaign have fared if he hadn’t had the ability to outspend Santorum to such a degree?

The February numbers indicate, to us at least, that Obama is in a powerful position going into the fall. If he is able to continue to grow his core numbers of contributors each month, or maintain status quo in the 150,000-200,000 range, it will strengthen an already strong grass-roots system extraordinarily likely to assist him in getting out the vote and campaigning on a micro level this fall. This is important because nearly 90% of Romney’s contributions have come from “large donors” unlikely of doing anything to get out the vote other than hobnobbing with other large donors. It is also important because no matter the Koch Brothers bluster, Obama is likely to raise hundreds of millions of dollars in Super PAC money to compete with the Republicans. Once the Republican primary race is over, the individual donors will have nowhere to contribute but to Romney, and as such the total numbers for each candidate with equalize. The story this November may ultimately revolve around one campaign with tons of cash and no real grass-roots network versus another campaign with tons of cash and an army of volunteers. If Romney has proven anything this primary season, it is that money matters, but crushing amounts of money do not always provide the commensurate results. If the trend described above continues into the Romney versus Obama campaign, we like Obama’s chances.

 

Mar 16

Hello, Amazon.com?

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Running for President must be really good for business. Newt Gingrich, a man with no chance of winning the Republican nomination, has vowed to stay in the race through the convention. Citing his “176,000″ contributors as the driving force behind the campaign.

His position is a tad strange due to the fact that it is widely known that nearly his entire campaign has been bankrolled by one man.

I smell a book deal and a sweet lobbying gig.

The Road We’ve Traveled

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The earliest bio-camiagn documentary ever released will begin airing tonight at 8:00 pm EST. Obama’s “The Road We’ve Traveled” can be seen below, and probably just about everywhere else fairly soon.

Update March 16,2012: Well, there is no arguing that the Democrats have a much better team of creative folks, both on the web and in video production than the Republicans. Regardless of some clever slight of hand with regard to the pivotal players and their overall competency during the crisis, the video was well done, regardless of your position on his campaign.

Mar 15

Obama was Right

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Apparently the information that President Obama acted upon, or attempted to act upon, in 2009 led him to the proper conclusion: Break up Citi. He wanted to prove a point to the banking sector that it would in fact take strong action if a large bank became too capital-weak to operate in any meaningful way. While accounts differ, there remains great suspicion that Timothy Geithner either flat-out refused to follow Obama’s instructions, or dragged his feet through the process ultimately killing the plan.

Either way, in the most recent “stress” tests released by the Federal Reserve, it appears Citi is still struggling. It in fact failed in its ability to handle another adverse event. This, after taking more money from the taxpayers than any other bank in the United States, if not the entire world.

So, some four years later, it appears that Obama’s instincts were correct. If only he had these same instincts prior to surrounding himself with Wall Street insiders and economic hacks just following his election in 2008. For that, there is no excuse nor forgiveness.

Other banks which failed included Ally, which also received a special exemption in the most recent foreclosure settlement because it couldn’t muster enough capital to pay its $250 million fine.

You can read a prior article discussing what the banks should pay here.