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Fixing the problem of NSA spying

There’s been lots of talk about the problem of NSA spying the last few days, and some partisan braying about it.  But the real question is: what do we do now?  The reality is that the majority of Congress stands overwhelmingly in favor of these programs, and Presidents of both parties have supported these programs, which makes it highly unlikely that they’re going to be stopped completely.  What are practical things that can be done to ensure that the privacy impacts of these programs are limited while still giving the government the data it needs to investigate potential terrorist plots?

Realistic policy options fall into two categories:  1.) reduce what data can be collected and 2.) improve transparency.

Reducing the data the NSA can collect

Changing the data the NSA can collect would require Congressional action to modify the relevant statutes in place (principally Section 215 of the PATRIOT Act), and three primary ideas for accomplishing this have come forward:

  1. Allow the data collection to continue but require a warrant based on probable cause to access any of the records for a U.S. citizen.  This approach was introduced as legislation by Sen. Rand Paul (R-Kentucky), and would raise the legal standard for accessing the collected data.
  2. Limit data collection to eliminate purely domestic calls.  Raised as an alternative to the 2008 FISA Amendments Act, this would limit the collection of data to calls where at least one of the callers was foreign, except in cases where a definitive connection to terrorist activity could result in a warrant to acquire that data.
  3. Limit data collection to a suspicion-based standard.  Instead of doing a dragnet of all calls made, data collection could only occur records based on a reasonable suspicion of terrorist activity — of someone suspected of being a terrorist or spy, someone called by a terrorist suspect, or potentially somewhat broader searches, such as calls made from a building where terrorist activity is suspected of taking place.

Improve transparency of current programs

If none of the options above are taken to limit the data collected, perhaps the least we could expect is a better understanding of what sort of data collection is being done in our name.  Here are some of the options available to accomplish this:

  1. Declassify Foreign Intelligence Surveillance Court (FISC) decisions interpreting Section 215 of the PATRIOT Act.  Introduced today as a bill in the Senate by a bipartisan group of eight Senators, including Minnesota Sen. Al Franken, this bill would compel the release of these decisions, so the legal logic could be evaluated and debated.  President Obama could also choose to do this via executive order.
  2. Release more details about how these programs work.  Can the NSA listen in on calls?  If so, when and why?  What is the standard for accessing the collected call metadata?  How long is the data stored?  Has the data ever been accessed for “routine” police work, or is it access limited to solely terrorism/national security related issues?  How are the programs audited for potential abuse?
  3. Permit court challenges towards these programs to move forward.  Multiple lawsuits have been filed against the government over warrantless wiretapping and data collection, but all have failed to reach the trial phase.  This is because the government (under both the Bush and Obama Administrations) have fought these cases on a standing issue.  What this means is that the government has alleged that the persons bringing the lawsuit can’t prove that their data was collected or their calls listened to, so they can’t prove they were harmed by the activity.  With no harm, they don’t have standing to sue in court.  The Verizon allegations — which cover millions of Americans — may make it impossible for the Department of Justice to continue these sorts of claims going forward.  If the Administration feels they are on solid legal ground with these programs, they should allow these cases to go to trial and win them definitively.

None of these six ideas provide a definitive firewall between government and your personal data, but they are practical approaches that could work incrementally to improve the current situation.  Getting them accomplished, though, will require application of political pressure on politicians in both parties.  Calls and e-mails to your Senators and Representatives will help keep the ball moving forward.

WhoWatchesTheWatchmen

Watching the Watchmen: the bipartisan failure on privacy

The revelations about the NSA spying program have set off a firestorm of partisan finger-pointing (such as this from late last week).  The reality, though, isn’t terribly complex.  Both parties are responsible for selling your privacy down the river with these sorts of programs.  There have been five key votes since 2001 that have been responsible for these programs.

The pattern shows that it doesn’t matter who’s in charge of the Presidency or Congress.  Washington D.C. will vote to take away your privacy, while fighting to make more and more of their actions secret.  The solution to this issue can’t be solved by switching which party is in charge — but rather by a sustained effort to keep pressure on both parties to do the right thing.  We must remain vigilant.

Below is a chart that shows the bipartisan failure on this issue, including votes by Minnesota’s Congressional delegation.  Click on the chart to see a larger version.

bipartisanfailure

Data sourced from THOMAS.gov

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Congress, take back the wheel: NSA collection of phone numbers isn’t new

The news headlines are all aflutter this morning about the Guardian UK’s publication of a Foreign Intelligence Surveillance Court order requiring Verizon to turn over on an ongoing basis the metadata (phone numbers, time and length of calls, location, etc. — but no subscriber information) of all calls where at least one party was in the United States.

The practical impact of such a request is that the federal government has a record of every phone call made on the Verizon network, with enough information to identify who the caller is in at least 95% of the cases.  (Based on the metadata, it’s rather easy to figure out the identity of the caller.)

The court order in this case was signed by U.S. District Court Judge Roger Vinson, a Reagan appointee.

The sad reality, though, is that these programs that collect huge amounts of data aren’t new. They’ve just been largely ignored by the media — in both the Bush and Obama Administrations.  We know, for instance, that the federal government began similar activities shortly after 9/11 and the program in its current form has been ongoing since 2006.  The government’s ongoing efforts to keep such programs as secret as possible have thwarted attempts by the media and civil liberties groups to get to the bottom of the story.

What we see today is the result of a sad bipartisan abdication of responsibility by the United States Congress.  In the wake of 9/11, they passed the PATRIOT Act, which gave the executive branch broad powers to conduct such surveillance.  The PATRIOT Act passed Congress with broad bipartisan support in 2001 (Senate vote was 98-1, House vote was 357-66.), and was reauthorized in 2005, 2009, and 2011.

(As an aside, the powers in the PATRIOT Act were far broader than those requested by President Clinton in the wake of the Oklahoma City bombing.  Congressional Republicans were nearly universally opposed to Clinton’s plan and never let it out of committee.  Six years later, Republicans represented just two of the 67 Congressional “no” votes for the PATRIOT Act.)

Section 215 of the PATRIOT Act gives the federal government broad powers to ask for such information.  Unlike a traditional warrant where the standard is probable cause that the target was involved in a crime, the government only needs to show “reasonable grounds” that the requested information was “relevant to an authorized investigation . . . to obtain foreign intelligence information. . . or to protect against international terrorism or clandestine intelligence activities.”

Once the 2006 revelations of the first iteration of this data collection program came out, Congress did take action:  to make it perfectly clear that they saw the program as fully legal.  In 2007 and 2008, Congress passed bills that placed the program under the supervision of the Foreign Intelligence Surveillance Act, expanded its reach to cover purely domestic calls, and gave telecom companies retroactive immunity from damages resulting from the breach of privacy.  Reauthorized in 2011, these powers are now scheduled to sunset in 2017 if no Congressional action was taken.

After 9/11, a terrorism act of unprecedented boldness and effectiveness, it may have made some sense to give the executive branch the expansive powers of the PATRIOT Act to collect information to adequately respond to the Al-Qaeda threat.  Nearly 12 years later, though, we have a clearer picture of the threats we face and the tools we need to respond to them.  We also have gained perspective on what we may be giving up in order to secure the notion of security.

It’s time for Congress — politicians on both sides of the aisle need to work together on this one — to take back the wheel from the executive branch on these sorts of issues and craft some reasonable limits that prevent wholesale collection of data from individuals of the nature seen in this example.  This is Congress’s job, and we should expect them to get it done.

And while we’re at it, let’s not also forget who else has this data in question:  Verizon.  Now, there’s little we can do to prevent them from collecting said information other than not use their service or talk to someone who does, but what we can do is make sure that they — and other telecom companies — have to follow strict standards about how it is used.  Companies are using this information already, selling it to other companies and using it to market their own products to you.  Congress should be vigilant to make sure your data is not abused and your privacy not encroached upon.

cityhall

Get to the appoint: Chaska Ward 1 looking for a new councilor and other news

Chaska City Councilor Scott Millard resigned his seat effective at the end of the May 20 City Council meeting, and the Council has chosen to appoint a replacement to hold the seat through the end of Millard’s term.  The seat will be up for election in 2014.  Ward 1 residents who are interested in the position are welcomed to pick up an application package at City Hall (inexplicably, there’s no information on this process on the city website’s homepage).  Applications are due back by June 12, and applicants will interview with the Council on June 17.  The appointment will be made at the July 1 City Council meeting.  Don’t know if you live in Ward 1 (the southwest ward)?  Check out this map to see where to fall among the city’s four wards.  Per the Chaska Herald, former Ward 1 Councilor Gino Businaro has indicated he intends to apply.

In other news:

  • State Senator Julianne Ortman (R-Chanhassen) is attending the 2013 National Security Seminar at the U.S. Army War College this week.  Certainly such news can (and will) be viewed within the prism of other rumors.
  • Last week was a crazy week for politics in the Sixth Congressional District (which covers Carver and central and western Carver County) as both U.S. Rep. Michele Bachmann and DFL challenger Jim Graves pulled out of the 2014 race.  Former State Representative, current talk show host, and 2010 governor’s race loser Tom Emmer seems poised to jump in the race, making him the leading contender for the GOP nomination.  Meanwhile, no names have emerged on the DFL side thus far.  The Sixth is the strongest Republican district in the state, so there’s a thin bench of state legislators to pick from.  St. Cloud’s Tarryl Clark, who lost to Bachmann in 2010 before failing to secure the DFL nomination in the Eighth Congressional District in 2012, is sure to come up as a possibility.  State Auditor Rebecca Otto also lives in the Sixth, but is considered unlikely to run.  Graves would have likely stood a stronger chance to win the seat given the fundraising he’s already accumulated, which makes his decision curious.  Politicians who fear defeat are unlikely to make a difference in the long run, so perhaps Graves’s decision is less of a loss to Democratic hopes than thought.
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It’s not news when the train doesn’t wreck

With the central element of the Affordable Care Act (ACA) — the health care exchanges – slated to go online in October, there’s been a lot of concern about how these exchanges will be implemented.  17 states (including Minnesota) have elected to build their own exchanges, 27 states are defaulting to the federal exchange, and seven states are doing a hybrid model based on the federal exchange.

Opponents of the law, naturally are going all gloom-and-doom on the implications (even going so far as to take a quote by Democratic Senator Max Baucus where he worried about a “train wreck” out of context to further their cause).

But what if it doesn’t turn out to be a train wreck after all?  There have been some interesting developments in recent weeks that lead one to believe that strong, proactive management of exchanges by states can lead to positive results.

In Maryland, the largest insurer in that state (Care First) proposed a shocking 25% increase in premiums for 2014, which was widely cited as a troubling statistic for the ACA.  But nearly every other insurer in the state has proposed premium increases below 10%.  Care First either stands to lose a significant amount of market share, or they’re going to have to lower their rates.

In California, meanwhile, proposed premiums on their health care exchange have come in significantly lower than predicted.  2009 Congressional Budget Office projections anticipated that a “silver” plan (one that covers 70% of expected health care costs) would have a yearly premium of $5,200, while an actuarial firm projected an annual premium of $5,400.  When the actual prices were released yesterday, the actual average yearly premium for a “silver” plan is going to be about $3,300, or 35% lower than the CBO projection.

Oregon’s health care exchange is seeing similar patterns to Maryland.  After releasing the costs for all of the plans that will be on its exchange earlier this month, two large insurers have asked to come back and lower their prices after discovering that some competitors were pricing the same coverage for less than half the cost.

Meanwhile, we’ve seen evidence that health care inflation has been slowing substantially.  Provisions of the ACA have contributed to this trend and further policies, such as increased use of competitive bidding for Medicare-paid medical equipment slated to roll out between now and 2016, should only continue it.

These sorts of things should provide us here in Minnesota with hope that our health exchange — named MNSure — will be able to deliver coverage to citizens at a reasonable cost.  Minnesota has always worked hard to give our citizens access to health care and that should only get better under the ACA.

From a political perspective, we too should also remember that what voters tend to value about these sorts of programs is the real-world impacts on their lives.  Opponents of Medicare thought that implementation problems (that did happen) would end up undermining the program and resulting in its repeal.  Opponents of Medicare Part D thought the same thing.  In both cases, what opponents of those programs discovered is that voters ultimately liked the fact that they were guaranteed health care as a senior citizen and that they liked programs that helped them pay less for their prescriptions.  Outright repeal of these programs today is essentially unthinkable.

Ultimately, I think we’ll find the fact that the ACA ensures that you’re always going to have access to our health care system in a reasonably affordable way is going to outweigh any implementation problems at the beginning of the program. In fact, if states that are actively managing their exchanges end up producing better results, it may become a political liability for states that have chosen to actively fight implementation of the law.  After all, if dysfunctional California can build a working exchange with lower-than-expected health insurance premiums, why can’t Texas?

[Image courtesy of the Alexandria Echo Press, is of a 1904 train wreck in Osakis.]

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Shooting Ourselves In The Foot: Breaking Down The Sequester

Barring a last-minute deal between President Barack Obama and Republican Congressional leaders, it appears that the sequester — $85.3 billion in spending cuts for this fiscal year (and a total of $1.2 trillion in cuts over the next decade) — will be implemented beginning March 1.

What will the sequester mean?  Let’s take a look.

Details of the cuts

$85.3 billion represents about 2.4% of total government spending.  But the impacts of the sequester will be far more impactful than that, because of the programs that are exempted from the spending cuts.  Additionally, five months of the federal fiscal year has already passed, meaning that the full year value of the cuts have to be taken in a seven-month timeframe.

Half of the spending cuts will come out defense.  $42.7 billion represents 7.8 percent of the defense budget on an annual basis, but compressing those cuts into seven months will result in a 13% cut in defense spending the rest of the year.  There are no significant exceptions to the defense spending cuts, meaning that essentially all items in the defense budget will get an across-the-board cut.  This includes operations in Afghanistan and military aid for Hurricane Sandy relief.  Additionally, President Obama has indicated he will protect soldiers from receiving pay cuts, which means all other programs will see yet larger cuts to make up the difference.  Finally, restrictions in the sequester language mean that the Administration is prohibited from cutting the pay of civilian defense employees and must instead reduce headcount.

The other half of the spending comes out of three categories:  domestic discretionary spending, domestic mandatory spending, and Medicare.  Together, these categories make up the remaining $42.7 billion.  Let’s talk about what is excluded from these three categories first — the list is long and includes Social Security, non-administrative expenses in the Veterans Administration, refundable tax credits (like the Earned Income Tax Credit), Children’s Health Insurance Program, standard unemployment benefits, Medicaid, and most other programs supporting low-income families.  These programs represent over $2 trillion in annual government spending, meaning that all of the cuts are being taken against spending that represents about 40% of the federal budget.

Domestic discretionary spending cuts will total $26.4 billion, representing a 5.2% cut on an annual basis and an 8% cut over the next seven months.  These cuts will hit areas of the budget including education funding for programs like Head Start, will require closing the air traffic control towers at several state airports, federal funding for “Meals on Wheels” programs, and grants for environmental projects.

Domestic mandatory spending will be cut by $5.1 billion, also representing a 5.2% cut on an annual basis and an 8% cut over the next seven months.  These cuts will impact farm subsidies, extended unemployment benefits, and some federal health care programs, such as the Indian Health Care program.

Finally, Medicare will see $11.2 billion in cuts, representing a 2% cut.  Medicare cuts will not impact beneficiaries of the program, but rather reflect a cut in provider and Medicare Advantage reimbursement rates.

What Will Happen?

The budget cuts in the sequester are really just about the worst kind of cuts that could be made.  First off, they are arbitrary and across-the-board.  The President has no discretion on how to distribute the cuts, meaning that effective programs are cut at the same rates as programs that have less impact.  Second, there are too many exceptions.  The cuts, as noted above, represent a small portion of the total budget, but since a majority of the budget is excluded from the cuts, the programs that are hit are hit hard.

These cuts are also going to have major negative impacts on employment and economic growth.  The Bipartisan Policy Center projects a loss of 1 million jobs and 0.5% of gross domestic product.  Other estimates claim job losses in excess of 700,000.  Implementing the sequester is going to seriously damage a still fragile recovery and sluggish labor markets.

Worst of all, the combined effect of all of these impacts mean that we are unlikely to get any meaningful deficit reduction as a result of the sequester.  Slower economic growth means that the economy will produce less tax revenue, making the deficit situation worse than before.  As evidence of how this is possible, one need only look at what is occurring in Europe.  Following rounds of budget cuts, the United Kingdom (which is on the verge of a triple-dip recession), France, and Spain have all missed their deficit reduction targets.  Fed chairman Ben Bernanke warned of the same possibility before the House Financial Services Committee today.

Additionally, the fact that health care and entitlement programs are essentially left off the chopping block means that these cuts do practically nothing to change the long-term debt picture, because that is where the majority of spending (and spending growth) will happen over the coming decades.

The upshot here is that the failure of our political system to take the right path regarding our financial future has us on the verge of a serious self-inflicted blow to our economy.  One might think that the risks here would be enough to get folks looking beyond their own narrow political interest.  But apparently not.  There’s a reasoned approach to be had here, maintaining levels of spending today to preserve the economic recovery while instituting reforms in the medium- to long-term in order to bring debt levels down to a sustainable level.  Who’s going to set aside their party’s political interests to protect the jobs of hundreds of thousands of Americans?

General Sources:

Bipartisan Policy Center (explainer)

Washington Post (state-by-state impacts)

Francisco de Goya's And There's Nothing To Be Done.  Courtesy:  Metropolitan Museum of Art.

And There’s Nothing To Be Done

Our nation finds itself in the midst of two significant discussions right now.  The first is about how to resolve the so-called “fiscal cliff”, the wholly manufactured end-of-the-year crisis created by the utter inability of our elected officials in Washington to get the basics of their job completed in a reasonably competent manner.  The second is about what to do in response to the spate of mass shootings that have taken place in the second half of this year, culminating in the slaughter of 26 in Newtown, Conn. a couple of weeks ago.

What strikes me about both conversations is that one side of the aisle has shown a tendency to throw out ideas they don’t like solely on the basis that such ideas don’t solve the entire problem.  Take, for instance, Mark Thiessen’s column in today’s Washington Post.  Thiessen argues that since President Obama’s proposed tax increase on high-income Americans won’t close the deficit completely that we shouldn’t do it.  Or, better yet, we should raise taxes on everybody just to teach them a lesson!

Sorry, taxing the rich won’t solve our problems — that’s nothing but fiscal snake oil the president has been selling. He is demanding $1.3 trillion in higher taxes on the wealthy over 10 years. Imagine he got it. We are adding nearly that much to the national debt every single year. Taxing the rich would not put even a minor dent in our debt. It would pay for less than three weeks of federal spending every year. The only way to pay for the current expansion of government is to raise taxes on the middle class.

So let’s do it.

But such arguments have also found a home in the debate about whether or not there should be additional gun control measures should be enacted following Newtown.  Here’s an example of such an argument from the National Review’s Rich Lowry:

How many guns are in the United States? The answer is 280 million. In a country with that many guns, how is gun control possibly going to succeed? If you ban a small subset of new guns for sale, what are you going to do about the rest? Let’s say you succeed beyond anything that is remotely possible. Let’s say you somehow stop the new sale of guns altogether and somehow decommission half of existing guns. What are you going to do with the other 140 million guns?

There are numerous problems with such specious lines of argument.  The first, and most obvious one, is that proponents of such ideas are not and have not suggested that these solutions — be it taxing the rich or banning high-capacity magazines — are complete solutions to the problem.

But these arguments are even more dishonest in another way.  As we’ve discussed before, these sorts of arguments are just other ways of framing the debate to protect entrenched interests at the expense of everyone else.  Thiessen and conservatives may be opposed to Obama’s tax increase on the wealthy, but their proposals are equally (or even more) inadequate in addressing the nation’s fiscal challenges.

For instance, over the last month, Speaker of the House John Boehner has included in his proposals provisions that would change the way inflation benefits are calculated for Social Security recipients and he also proposed increasing the eligibility age for Medicare from 65 to 67.  Combined, these two proposals would reduce the deficit over the next decade by less than Obama’s tax increase on the wealthy.  And, of course, Boehner’s proposals would have very real consequences for the low- and middle-income people impacted by them.  The Social Security change alone would decrease payouts to recipients by 0.3% per year.  After a decade, recipients would have lost 3% of their payouts.  That’s significant, given that 40% of retirees have 90% or more of their income from the program.

Meanwhile, those who oppose any additional gun control measures have thrown nearly anything and everything out to bolster their case.  Just look at the National Rifle Association.  In the 1990s, they called federal law enforcement officers “jack-booted thugs”.  Today, they’re calling for the federal government to fund armed guards in every school in the country.  And, they call for a database of the mentally ill without calling for a database of gun owners to cross-reference it against.  Putting the Second Amendment ahead of the rest, I suppose.

Closer to home, you have state representatives who ignore facts that don’t support their frame of reference.  The notion that the potential presence of an armed individual deters such mass attacks is bogus, even if you ignore the Columbine example.  In recent years, we’ve seen shootings on an Army base and in the state with the least restrictive concealed-carry laws in the nation and on a college campus that had its own police department and SWAT team.  And, just today, inside a police station.

The challenges we face are far too large to be dragged down by reasoning that is so small.  We can have an informed and reasonable debate and talk about a wide variety of solutions without engaging in debate that is intellectually dishonest to its core.  We should expect better of all of our elected representatives.  We may not be able to solve every problem completely, but some progress is better than none.  So let’s get on with it, already.

(Image above is Francisco de Goya’s And There’s Nothing To Be Done, courtesy of The Metropolitan Museum of Art, which depicts scenes from the Spanish War of Independence.)

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Elites agree: it’s time for you and your kids to pay for their failures

Today’s POLITICO has one of those only-in-the-Beltway kinds of stories that make you wonder if there’s any signs of life there at all.  Reported by Jim VandeHei and Mike Allen, it’s a synthesis of elite opinion (lawmakers and staffers from both sides of the aisle, as well as business executives) about what needs to be done to get our economy back on track once and for all.  Now certainly, there’s some good stuff in there — expanding immigration for high-skilled workers, for instance, is something that is long overdue.  But let’s be clear here.  The elite agenda for “fixing” our economy calls for significant doses of sacrifice from the middle class and working poor and precious little sacrifice from them.

Let’s start off with the sacrifice that the elites are willing to make — an increase in taxes for those making over $250,000 a year.  This would raise the top marginal tax rate (on income over $250,000) from 35% to the Clinton-era rate of 39.6%.  That’s certainly something, although one could fairly argue that returning to the tax rates that coincided with the best period of economic growth this country has had in the last 20 years might not be the worst thing in the world.  But let’s look at what isn’t on the table.

Changes to capital gains taxes?  Nope.  They’ll continue to get their much lower rate, meaning that folks like Mitt Romney or Paris Hilton who live off of investment income will continue to pay tax rates in the 15% range — lower than many middle-class and working poor families.  Not only that, but hedge fund and private equity investors will still get to treat their regular earnings as investment income instead of wage income, saving some individuals millions in tax liability every year.

Taxes on financial transactions or financial speculation?  Nope.  In the wake of the financial market meltdown in 2008, some suggested using a transaction tax on stock or bond transactions or higher rates on short-term capital gains as a means to both discourage speculative activity that makes the markets more volatile as well as creating a fund to deal with the damage created by current (and future) market failures.  These are still not on the table.

Breakup of the largest financial institutions?  Nope.  The 2008 market meltdown required government intervention to prevent the collapse of institutions deemed “too big to fail”.  What largely happened in these cases is that other large banks ended up buying the failing banks.  So an industry that was already unduly concentrated and prone to risk has become even more concentrated and even more prone to risk (despite some of good provisions in Dodd-Frank).

All of these items would represent real sacrifice for the elites in our society, but they’re not on the table.  What are they asking of the middle class and the working poor?  Oh, not much, except the gutting of perhaps the two most effective government programs at providing income security and health care to Americans.  Banks and financial institutions get bailouts when they make bad decisions.  Now the government is poised to give you insecurity when you retire after decades of hard work.

Sacrifice for thee, not for me

Medicare is the largest contributor to the future deficit problem due the explosion in both the number of seniors citizens and the continuing rise in health care costs (at a rate much faster than inflation in the rest of the economy, which means it will have to be part of the solution.  But there’s smart ways to reform Medicare and stupid ways to reform Medicare.  As befits our current political dialogue, the ones that are being debated are the stupid ones.

One of most likely changes to Medicare is an increase in the age of eligibility from 65 to 67.  At a base level, this doesn’t sound like that big of a deal.  Well, the problem is that in trying to save the federal government a little money, we’re going to end up spending a lot more overall.  Increasing the age to 67 would save the federal government about $5.7 billion a year, but would raise individual out-of-pocket expenses by $3.7 billion, and increase the insurance premium expense for employers by $4.5 billion.  Already, we’ve made the overall system less efficient by $2.5 billion, but we’re not done yet.  Adding 65- and 66-year-olds to the general health insurance pool is going to make everyone else’s health insurance more expensive (because the overall population will be sicker) — that’s another $2.5 billion.  Finally, states are going to have additional health expense on some of these seniors totaling about $0.7 billion.  If you total it up, the financial cost to society of changing the Medicare eligibility age is twice as large the savings we would see in the deficit.  That’s not a good trade-off.  (And that’s before we look at some of the non-financial impacts.)

There are smart ways to save money — significant money — in Medicare going forward.  We can end fee-for-service payment policies and replace them with paying providers for results.  We can give Medicare enhanced power to negotiate prices with suppliers — particularly for prescription drugs.    We can research the statistically most effective and cost-efficient ways to treat conditions and encourage providers to use those guidelines.  These are the types of reforms that we should be pursuing.

Perhaps even more galling in the context of the current budget debate is the fact that Social Security is getting dragged into the mix.  Social Security contributes nothing to our nation’s current budget deficit.  In fact, Social Security ran a $69 million surplus in 2011 and is projected to run surpluses for the next decade.  We have 20 years before the Trust Fund is exhausted (under current projections), and the simple act of removing the cap on the payroll tax would resolve at least 95% of the projected deficit going forward.  And if we did nothing, the cost of filling the gap after the Trust Fund is exhausted is less than 1% of GDP — a relative pittance compared to Medicare.

Instead, we’re seeing the same shortsighted tactics on Social Security as we are on Medicare.  What’s on the table is an increase in the retirement age from 67 to 70, and changing the way inflation is calculated so that such increases would be smaller than they are today.  These changes would have severe negative impacts on future retirees, but they would only raise 1/3 of the money that removing the payroll cap on the wealthy would.  Yet, no one’s really talking seriously about major reform to the payroll tax cap.

Big bad ideas

These reform plans for Medicare and Social Security are based on two big ideas, both of which are misguided.  The first bad big idea is “People are living longer, so increasing the eligibility ages is no big deal!”.  And while that’s true, it’s not true in the same way for everybody.  Wealthy Americans have seen their life expectancies improve by six years since 1977, while folks in the lower half of the income distribution have seen only an increase of one year in that time period.  These workers are more likely to be in blue-collar industries that are more reliant on physical labor.  Working in those jobs in their upper-sixties with questionable health insurance just isn’t a winning proposition.

Source:  The Incidental Economist

Source: The Incidental Economist

The other really bad big idea in these plans is “We have to protect current seniors”.  It’s certainly true that low- and middle-income seniors shouldn’t be expected to see substantial changes to these programs.  But if this is the kind of crisis that makes one of our political parties willing to risk defaulting on our bonds, maybe rich seniors should make some sort of contribution to solving the problem?  Certainly, there are wealthy seniors (and seniors-to-be) who could afford to pay co-pays for Medicare or take some means testing on their Social Security check today.  It hardly seems fair to think that the bill for this financial mess should be borne primarily by the children and grandchildren of those who ran up the credit card in the first place.  If we’re not willing to require any sort of contribution by today’s seniors (and seniors-to-be) to solving this crisis, aren’t we in fact admitting that it isn’t a crisis and just a problem that needs to be addressed in a reasoned manner?

Passing the buck and the bill

And it gets worse yet.  Many of the elites pushing these sorts of “solutions” to the problem are simultaneously pushing for so-called tax reform that would lower corporate taxes.  David Cote, the CEO of Honeywell, has been one of the key public faces behind Fix the Debt, a business organization that has made a large effort to influence the debate.  Cote loves to talk about tax reform as a part of this process, but what he doesn’t like to talk about is that he’s really trying to eliminate the corporate income tax.  If corporate taxes are eliminated, guess who’s going to get the bill to make up the lost revenue?  (Hint:  It’s not David Cote.)

I’m not opposed to tax reform.  But tax reform shouldn’t consist of a series of handouts to one group while demanding sacrifices from another.

And guess what else isn’t on the table as part of these negotiations?  Any real attempt to focus on the unemployment problem.  Basically, at this point we’re left to hope that if the elites get their way and extract the appropriate sacrifice from everyone else that the certainty created by such maneuvers will suddenly convince business owners to start creating jobs.  Of course, that notion in and of itself is misguided.  Businesses don’t create jobs out of certainty — they create jobs because there is demand for their product and services.  To create demand for their products and services, we need to have a population that has jobs and disposable income to spend.  Cutting Medicare and Social Security while squeezing government spending through austerity does nothing to improve the employment picture or improve household income.

We have a medium- to long-term deficit problem that needs to be addressed.  The important thing we need to remember is that it’s far more important to do the right thing for all of our citizens than to just earn political scalps by “raising taxes on the wealthy” or “cutting entitlements”.  These problems are about more than numbers on a spreadsheet — they have real world impacts that CEOs or lawmakers or writers for Washington D.C. political journals will never have to deal with.  It’s time for the voices of those who don’t attend Georgetown cocktail parties to be heard as part of this process as well.

corptaxtrend

Popping the bubble: more data that bursts commonly-held GOP tax beliefs

We’ve talked about this on more than one occasion, but the data shows that many conservative/Republican talking points on tax policy just don’t reflect reality.  Let’s look at some (relatively) new data on this subject that continues the trend.

A recent study by the Congressional Research Service (CRS) looked at the effects of the top marginal individual income on various measure of economic growth.  As the study itself concluded:

The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie.

However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. As measured by IRS data, the share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. At the same time, the average tax rate paid by the top 0.1% fell from over 50% in 1945 to about 25% in 2009. Tax policy could have a relation to how the economic pie is sliced—lower top tax rates may be associated with greater income disparities.

Here are two graphs from the study that give a little more color on that conclusion.

 

This graph plots GDP growth against the top marginal and capital gains tax rate going back to 1945.  Note that the trendline on both graphs is essentially flat.  That represents the fact that as the tax rate increases, GDP growth is unaffected.  In fact, the right graph (which looks at the capital gains tax rate) shows that higher capital gains taxes correlate to higher GDP growth.

This graph shows how the lower top marginal tax rates work to change the distribution of income — favoring the most wealthy in society.  Each graph shows that lower tax rates result in higher concentrations of income at the top of the income scale.

What happened when the CRS tried to release this study?  Senate Republicans had it killed.  After all, if their narrative is found to be untrue, it pretty much undercuts their entire reason for existence at this point.

Well, that, and the unending Republican desire for cutting taxes on corporations. Well, a Congressional Budget Office study from earlier in the year shed some light on that situation.  In 2011, corporate taxes as a percentage of profits hit a 40-year low.

Some of this drop in recent years can be attributed to temporary measures (such as a change in depreciation rules) that were part of the stimulus package, but overall, the tax environment for business has been getting more friendly over recent decades — not less.

Republicans and Democrats should work together to find solutions that will make our tax code simpler and fairer — and I believe there are significant areas of agreement to be found there.  But if we’re going to have solutions that really work for all Americans, we need to start with a real understanding of the facts and not persist with myths, talking points, and empty rhetoric.

Brodkorb’s blog goes from boring to lazy

Former Minnesota state Senate staffer Michael Brodkorb’s new blog, politics.mn, debuted back in August.  It seemed to be  promising.  After all, Brodkorb was highly influential in the Minnesota Republican Party until his dalliances with Senate Majority Leader Amy Koch got himself fired and ended (for now) her political career.  Before becoming part of the party engine, Brodkorb ran his own influential blog, Minnesota Democrats Exposed.

Since its launch, though, Brodkorb’s new blog has mostly trafficked in regurgitated conventional wisdom (Kurt Bills is running a bad campaign?  Really?) and random fact-checking.  It’s been bland and boring, something that I don’t think anyone really expected.  Brodkorb presumably knows this stuff inside and out, so either he’s not as smart as everyone claims he is or he’s holding the juicy stuff. (Maybe his ongoing lawsuit over l’affaire Koch is tempering things, or perhaps Brodkorb really has turned over a new leaf.)

But the most recent post on the site, an “analysis” of Rick Nolan’s campaign for Congress in the 8th District turns the corner from boring to lazy.  The premise is intriguing:  are there things in Rick Nolan’s previous public service that are hurting his campaign this year?

And it all starts out well enough, with a recounting of Nolan’s history, including his well-documented and very public support of Ted Kennedy’s run against incumbent President Jimmy Cater (and Minnesota’s own Vice President Walter Mondale, who Brodkorb seems to be hinting still may be against Nolan).  Brodkorb also approvingly cites press releases from Nolan’s 2012 opponent, Rep. Chip Cravaack detailing missed votes by Nolan and statements 35 years apart that are in contradiction with one another.  OK, fine.  How is that impacting things today?

Well, the only evidence of Nolan having trouble today is the defection of two officials who supported one of Nolan’s opponents in the 2012 primary to Cravaack.  Why did these two officials choose to endorse Cravaack?  Must be the Kennedy issue or the other issues cited above, right?  Maybe Walter Mondale told them to switch sides?

Nope.  In fact, the two officials switched their support to Cravaack because of a specific current issue — mining.  Not a mention of Nolan’s past history at all.  Is there a lot of evidence that 8th District DFLers are hopelessly divided over Nolan?  There doesn’t seem to be.  Nolan easily won the DFL endorsement battle, which meant he was victorious among the very activists you would expect to have long memories about such things.

This post wasn’t “analysis” at all.  Rather, it was a chance to toss up some Chip Cravaack talking points about things in Nolan’s past, point out something unrelated and shout “Dems in disarray”.  That play was worn out years ago.  Sorry, Mike, we hoped for better.

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