Decade of Stimulus Yields Nothing but Debt: Caroline Baum

Decade of Stimulus Yields Nothing but Debt: Caroline Baum

When George W. Bush took up residence in the White House in January 2001, total U.S. debt stood at $5.95 trillion. Last week it was $14.3 trillion, with $2.4 trillion freshly authorized by Congress Tuesday.

Ten years and $8.35 trillion later, what do we have to show for this decade of deficit spending? A glut of unoccupied homes, unemployment exceeding 9 percent, a stalled economy and a huge mountain of debt. Real gross domestic product growth averaged 1.6 percent from the first quarter of 2001 through the second quarter of 2011.

It doesn’t sound like a very good trade-off. And now Keynesians are whining about discretionary spending cuts of $21 billion next year? That’s one-half of one percent. And it qualifies as a “cut” only in the fanciful world of government accounting.

The Budget Control Act of 2011 will save $917 billion over 10 years relative to the Congressional Budget Office’s baseline. It leaves the tough work to a bipartisan congressional committee of 12, to be appointed by the leadership in each house. If this supercommittee fails to agree on a minimum of $1.2 trillion of additional savings over 10 years, automatic spending cuts -- evenly divided between defense and nondefense -- will kick in.

Is there any reason to think the same folks who couldn’t agree on a grand bargain this past month will join hands and find commonality in the next three, with one month off for vacation?

Rosy Scenario

Even if the committee agrees on the prescribed savings by Nov. 23 and Congress enacts them by Dec. 23, as required, laws passed today aren’t binding on future congresses.

Throw in the fact that revenue and budget forecasts tend to be overly optimistic, and there’s even less reason to think Congress has put the U.S. on a sound fiscal path.

In a July 2011 working paper for the National Bureau of Economic Research, Harvard economist Jeffrey Frankel identified a pattern of over-optimism in official forecasts, a bias that gets bigger in outer years. (Who can forget the CBO’s 2001 estimate of a 10-year, $5.7 trillion budget surplus?) A fixed budget rule, such as the euro area’s Stability and Growth Pact with its mandated deficit-to-GDP ratios, only exacerbates the tendency.

“Political leaders meet their target by adjusting their forecasts rather than by adjusting their policies,” Frankel writes.

First Installment

The deal hashed out in Washington at the eleventh hour this week does nothing to curb the unsustainable growth of entitlement spending -- on programs such as Medicare, Medicaid and Social Security. Medicare outlays have risen 9 percent a year for the last 30 years in a period of stable demographics, according to Steven Wieting, U.S. economist at Citigroup Inc. The automatic spending cuts outlined in the budget act would limit reductions in Medicare expenditures to no more than 2 percent a year.

By the end of 2012 or start of 2013, the federal government will be back at the trough with a request for additional borrowing authority. The debt will keep rising, and the ratio of publicly held debt to GDP will increase from 62 percent last year to as much as 90 percent in 2021, according to some private estimates, depending on what Congress does about the expiring tax cuts, the Medicare “doc fix” and the alternative minimum tax.

The CBO’s estimate of $2.1 trillion in savings over 10 years is well short of the $4 trillion Standard & Poor’s says is necessary to stabilize the debt and avoid a rating downgrade.

‘Architectural Change’

No matter. Some prominent Keynesians are advocating more spending now for an economy that is sputtering. Alas, there is little appetite in this country, and less in Congress, for more spending in light of the questionable results. A lost decade doesn’t seem like a good return on an $8.35 trillion investment. (For purists, only $6 trillion of the increase was in marketable debt, the kind of good old deficit spending Keynesians love.)

Maybe it’s time to try something new and different. In 2002 I wrote a column titled, “How About Some Tax Reform Along With Tax Relief?”

How about it? Get rid of the loopholes. Better yet, scrap the entire tax code, which would decimate the lobbying industry. Implement a flat tax or a national sales tax. The time has come for what former Treasury Secretary Paul O’Neill calls “architectural change.”

Can the Code

The current tax code is burdensome, inefficient and costly to administer. O’Neill says it costs the Treasury an estimated $800 billion annually, divided equally between administrative costs and uncollected revenue.

Eliminate the corporate and individual income tax, he says, and replace them with a value-added or consumption tax, with tax refundability for lower-income households.

“We should focus the tax system on raising revenue for the things we as a society need,” O’Neill says.

Of course, what society needs is a matter of opinion. Without strong economic growth, the options are more limited, the choices more difficult. Fiscal stimulus can have only a short-term impact. The government taxes or borrows from Peter to pay Paul, reflecting a temporary transfer of resources, nothing more.

What does the nation have to show for chronic short-term thinking and policies like these? Long-term problems and a mountain of debt.

A Cosmic Visitor's Take on Tax: David Cay Johnston (Brilliant and moving)

http://www.tax.com/taxcom/taxblog.nsf/Permalink/UBEN-8JGJYF?OpenDocument

It is a human tendency to assume the world we are born into is as it should be -- a Panglossian assumption that colors our understanding of the abstract, like tax policy.

To get grounded in what is, without assuming it is natural, let's try a thought experiment. Imagine you are a researcher from a distant planet, part of a team sent to stealthily observe and report your findings. Telemetry has revealed the watery and volcanic nature of our planet, so you focus on the organized activities of Earth's top sentients. Your protocol requires you to identify the biggest common enterprises first and then work your way down.

So what would lead your report? What is the biggest human enterprise? Industry? Digital activity? Military? Healthcare? Food production? No, the biggest enterprise, by far, is tax.

Tax accounts for close to 30 percent of economic activity in the United States, 40 percent or more in much of the modern world, and in some countries more than half the economy.

Not being from another planet, it may come as a surprise to you that tax is number one. After all, tax has become a vile word in America, an epithet and a feared label. And because it's a vile word, rational discussions about tax and how to get the most benefit for the least levy are about as likely as a team of extraterrestrials conducting stealth research.

But there it is, number one. Because we devote so much to tax, we must love taxes, right? Or at least what taxes buy. Either that or we are crazy because it doesn't make sense to put first that which you hate. Yet our focus as a society is on far smaller components of our economy.

Take profits. Profits are Lilliputian compared with the gargantuan size of tax. Interest is only about three-fourths the size of profits and virtually unknown as a source of income to those below the top 2 percent of earners.

Or consider new vehicle sales, a giant business whose total domestic revenue when you count both cars and light trucks equals less than four months of federal income taxes, which in turn are less than a fourth of all taxes in America.

Yet anyone taking the measure of America or the world from popular media, be it television or magazines, would think tax was nothing and automobiles were huge. Indeed, from the ads in print and on the air, one could easily be misled into thinking that beautiful people with costly ornaments rank very high in importance, while taxes are unheard of.

This results in a series of paradoxes:

1. Humans devote the largest single part of their economies to taxes, yet generally hate taxes and avoid thinking about them in serious ways.
2. The countries with the highest overall taxes tend to be better off and report the highest degree of happiness, but there is a global trend to reduce taxes.
3. Washington is full of claims that high taxes are killing business, yet manufacturers rush to leave America for a high-tax country called China.

These contradictions are, with apologies to Winston Churchill, a riddle wrapped in a mystery inside an enigma.

When words and deeds are so far disconnected, it suggests a kind of craziness. And craziness does not beget rationality or good decisions. And an amalgam of irrationality and bad decisions is a prescription for a very bad economic headache.

Now let's ponder where taxes come from, geographically speaking, and where wealth is held, although not necessarily made. Imagine your report back to the home planet includes hologram-type three-dimensional images of Earth, virtual globes with spikes and valleys to show the contours of economics.

The world of wealth would include vast flat expanses -- Africa, Siberia, large parts of Australia and Brazil -- and lots of spikes at Bermuda, the Caymans, and cities like London, Beverly Hills, Calif., Zurich, and Monaco.

Even in a nation as wealthy as America, the spikes would stand out against a mostly flat landscape, wealth being highly concentrated not just in a relatively few hands, but in a relatively few places. Lower Manhattan would be a sharp spike rising far above the planet, while vast areas of Appalachia, the South, Midwest, Rockies, and the western parts of New York state would be mostly flat. Wyoming would be as flat as Kansas, except for the sharp spike rising from Jackson Hole.

A parallel hologram of where taxes are paid, however, would not look the same. Even if the globe scales were proportional to global shares, the tax globe would not rise nearly so high in its spiked places.

The Caymans and Monaco would be spikes on the wealth globe, flat on the tax globe, although both would be flat on a third virtual globe showing population.

How much does our crazy, disconnected debate about taxes have to do with the mismatch between these twin three-dimensional images of where wealth resides and taxes arise? How much does it have to do with the fact that Kiplinger's, Money, Smart Money, and dozens of other magazines operate from an antitax bias, as shown by their focus on how to cut your individual taxes rather than on taxes as a whole? How much does it have to do with policies that have made a growing minority of Americans exempt from federal income taxes, although that portion of the populace will shrink some starting next year?

There is an old truism that what you think about is what matters to you. The same is true about your money. Taxes must matter, or else why would we spend so much time on them?

Yet we treat taxes and public finance like a reliable and familiar spouse ignored in favor of the excitement of an illicit affair, our hearts and minds focused on the baubles and not the substance of life.

In three years of writing this column, I have enjoyed the time and reason to think deeply about the role of tax in life, in sustaining our democracy, and about the growing mismatch between our debased national debate on taxes and how we make society work.

The top conclusion I have come to, the one that like our imaginary intergalactic researchers report must come first because it matters most, is that America with all of its greatness, its freedoms, and its potential, is, like democracy itself, the child of tax.

Two centuries of debate and thoughtful consideration by the ancient Greeks gave us the moral basis for progressive taxation and, in turn, the radical ideas that people could govern themselves and that just because a man had money he was not entitled to a larger voice in the body politic.

Seven years under a central government without the power to tax or regulate commerce destroyed the first American republic and created the need for the second, with its strong powers of tax and regulation.

We are abusing our child -- which is to say we are abusing America -- with all of the hate-filled, nonsensical, demagogic talk about tax that dominates one of our political parties and intimidates the other.

We have forgotten the wise words of Edmund Burke, the founder of modern conservatism, who in his 1793 letter made the telling observation that "the revenue of the state is the state."

We seem to think we can raise generations to hate tax, when hate is never a good emotion. We spread tax illiteracy, with no regard for how it undermines America, the liberties of the people, and the very idea of self-governance. If you doubt that, just remember the total disconnect between what the Boston Tea Party was about and what modern Tea Partiers say is their cause.

Tax is not a pleasant subject and never will be. Neither are the responsibilities of child care, like calming bedtime fears about imagined monsters lurking in the shadows. Parents who perform these duties, showing their love by their actions, make for productive adults, while those who shirk the unpleasant realities of parenting often discover what a nightmare a child can grow up to become.

We need to nurture America. We need to do the hard work of changing our tax system to fit the times, of comforting those afflicted by change, and conquering the imaginary monsters perpetuated by politicians consumed by anti-tax ideology and the pursuit of power. We need to remember all six noble purposes in our Constitution's preamble, and we need to take care of our common property, forgetting neither our purposes nor our investments in the commonwealth.

Without taxes there is no America. Taxes are the foundation of the commonwealth, of the goods and services that make society work, and on which private wealth is built. Unless we build a sturdy foundation, we cannot prosper, we cannot remain free. Skyscrapers built on sand will fall.

Too few Americans know these simple truths. When too many fail to even care about them, our society will begin to die, until one day students will open a history text to a chapter that begins with these awful words:

The United States of America was. . . .

Tax Analysts is one of the few places in America where tax is treated as not just a serious subject, but a legitimate one. In the pages of Tax Notes and its sister publications, a lively, sometimes heated, but always thoughtful and respectful debate goes on about how to tax, how much to tax, and how to make the system fair, transparent, and sustainable.

In my 44 years as a journalist, no set of editors I worked with have proved themselves to be as dedicated to open debate, and fearless, as the people at Tax Analysts. It has been an extraordinary privilege to work with these editors, to contend with them, and to learn from them.

My work has brought threats of ruinous litigation from highly paid bullies. The Tax Analysts editors never flinched. They just looked the bullies in the eye and politely told them they would correct any error, and run any letter of complaint, leaving the bullies with no place to go but back into their corporate jet.

That is the right way to deal with bullies, yet much of the mainstream press is now cowed and fearful, not asking hard questions and, worse, not approaching difficult subjects with the nuance and repeated examination vital to developing public understanding.

Anyone who reads the weekly overview of Tax Notes can tell that its editor, Jeremy Scott, does not share my view of the world. Yet every change, and every suggestion of change, Scott (and assistant editor John Bell) made was only to make my points clearer and stronger. The same approach was true in my dealings with editors of State Tax Notes andTax Notes International. That kind of integrity is too rare in American journalism these days, where ideology rather than empirical fact drives a growing number of organizations left and right.

As I head off to a new adventure as a columnist for Reuters, I hope that readers here will keep putting time into reading the journalism of Tax Analysts. I also hope you will do your part to improve the quality of the debate on tax. Americans deserve a rational, vigorous, and civil tax debate, and America requires it to endure.

Your thoughts? E-mail me at JohnstonsTake@tax.org.

ECONOMY  

 

AlterNet / By Paul Rosenberg

Vision: How to Make Media Reflect the Popular Views of Americans, Not Those of Elites

We should demand that the media cover the views of the majority.

May 30, 2011  |  

 

 “Liar! Liar!” “He's lying!” That's how Wisconsin GOP Rep. Paul Ryan's constituents responded at a town hall meeting in Kenosha a week after House Republicans passed Ryan's draconian budget plan to privatize Medicare and slash taxes for the wealthy.

 

Ryan seemed genuinely shocked, totally unprepared for the grassroots outrage and for good reason: the gap between Washington elites and the American people seems to have reached an all-time high. While Ryan's plan was lauded as “brave” and “visionary” inside the Beltway, poll after poll showed that the American people wanted none of it.

62 percent believe the government should focus on creating jobs, even if it means increasing the deficit in the short-term, according to a Lake Research Partners poll in March, 2011.

•  76 percent believe cutting Medicare to help reduce the budget deficit is mostly or totally unacceptable, and 67 percent believe the same about Medicaid, according to a Wall Street Journal/NBC poll in February, 2011.

68 percent believe that phasing out the Bush tax cuts for families earning $250,000 per year is mostly or totally acceptable to help reduce the budget deficit, according to the same poll.
65 percent oppose changes to Social Security as a way to reduce the budget deficit, according to a Pew Research poll in March, 2011.

Yet, despite similar results in dozens of polls over the past few months, none of it seemed to penetrate the Beltway bubble.

The American Majority Project, a coalition of three groups, is spearheading an effort to change that, and put the American people back into the center of public debates about the future of our country. In a statement published on Huffington Post, Roger Hickey, co-director of Campaign for America's Future (CAF) announced the partnership with the Center for Economic Policy Research and the media watchdog, Fairness and Accuracy in Reporting.  

Hickey wrote that CAF was “sending letters to all the major media demanding that the views of the American Majority be represented in the news programs, print articles and opinion pages, and the non-stop daily and Sunday talk shows in which the debate about America's future is being conducted as we move toward the showdown over the budget. We are demanding representation in the media proportional to the size of the American Majority.”

Hickey went on to say, “We are also supplying the media with an extensive list of economists, experts and advocates who share the majority view that deficits are not now the major threat to US prosperity, and that getting revenue back into the budget is far less damaging (and more just) than cutting spending and crippling important programs for the poor and the elderly.”

"Washington is preoccupied with draconian spending cuts because the pundits, news shows and politicians engage in group-think. And billionaire financier Peter Peterson has taught them what to think – that America has a deficit crisis,” Hickey told me later.

“But outside the beltway, the polls show the American majority cares more about high unemployment and the slow economy than the deficit. And the American majority rejects most of the budget cuts being pushed by the Washington crowd. Strong majorities would rather reduce the deficit by growing the economy, raising taxes for the wealthy and corporations, and by cutting military spending.”

 The polls cited above are but a few of the many CAF collected to support this argument.

Perhaps the Beltway elites could be partially excused if these popular views had suddenly sprung out of nowhere, without rhyme or reason. Or if the growth of government recently was explosive, unprecedented or arbitrary. Or if there wasn't a centuries-long history of elites fighting the will of the people over progressive taxation and enhanced social welfare. But none of these is the case. In fact, it's taken a tremendous effort by elites to block out three well-established historical facts, which add tremendous muscle to the effort CAF, CEPR and FAIR are spearheading: 

1) That government grows in size as economies mature to meet the needs of the people.  This is known as "Wagner's Law," first articulated by Adolph Wagner, perhaps the leading conservative economist in Bismark's Germany.

2) That such government spending is profoundly popular in America, not just with liberals, but with self-described conservatives as well.  The recent polling opposed to the Ryan Plan has decades of similar results behind it.

3) That there's a direct relationship between democracy, progressive taxation and enhanced social welfare on the one hand, and elite rule, regressive taxation and reduced social welfare on the other. This is why even today, blue states are more prosperous than red states, even though blue states tend to subsidize red states by giving more to the federal government in taxes than they get back in spending.

Let's look at each of these in turn.  

Wagner's Law

“Wagner's Law” says there is a long-run tendency for government expenditure to grow relative to national income. Once economic development becomes sufficiently advanced, increased government activity is required to meet society's needs that private enterprise cannot.

This has been demonstrated various different ways. A particularly clearcut demonstration comes from data collected by the Organization for Economic Cooperation and Development. In 1955, both the US and the OECD average total tax levels were about 24 percent. From then till 1970, both tax rates rose about 14.5 percent. Since then, however, the US increased just 3.7 percent compared to 30.5 percent for the OECD average.

Although Wagner's Law still applies to the U.S., the increase has slowed dramatically, and one reason isn't hard to identify: The emergence of Richard Nixon’s Southern Strategy. Given an either-or choice between clinging to symbolic racial privilege or supporting continued advancement of social spending a la Wagner's Law, Nixon bet on racial divisiveness. But it only slowed Wagner's Law. It did not abolish it or make the desire for more social spending go away.

Decades of 'Big Government' Support

Let's consider how long the American Majority views have been in place. One could go back to 1936, when the GOP thought it had a sure winner by running against Social Security. As soon as the government started taking money out of workers' paychecks, FDR and the New Deal would be doomed or so they thought.  Instead, some of the earliest polling ever conducted by George Gallup showed overwhelming support, in the 80 percent range. This was reflected by FDR's landslide 1936 victory, taking 60 percent of the vote and every state except Maine and New Hampshire.

But detailed understanding did not emerge for another 30 years. During the 1964 election, Gallup fielded a comprehensive survey designed and analyzed by two close friends and pioneers of public opinion research, Lloyd Free and Hadley Cantril. Their results were published three years later as The Political Beliefs of Americans: A Study of Public Opinion . They discovered an overall ideological preference for free enterprise and limited government, with 50 percent of respondents identified as conservative based on a set of five questions, versus just 16 percent liberal.  

But everything flipped when they turned to questions about specific spending items. In what they called “operational” terms, liberals outnumbered conservatives by a whopping 65-14 percent. What's more, almost half (46 percent) of ideological conservatives were operational liberals, while another 28 percent were middle of the road. Their conflicted views have played a major part in our recent history. While they represented 23 percent of the nation as a whole, Free and Cantril pointed out that they made up 41 percent of the Southern states that voted for Goldwater that year, the harbingers of what the GOP has since become.

Another three decades later, political scientist James Stimson called this divided state of mind “almost schizoid” in his book Public Opinion in America: Moods, Cycles, and Swings. Stimson analyzed hundreds of public opinion survey items, and determined that questions related to operational liberalism formed the primary issue dimension in American politics, with liberal attitudes generally prevailing, even when the electorate is in its most conservative mood.  

An excellent source of such questions is the General Social Survey (GSS), fielded every year or two since 1972. There are a number of national spending items in the GSS, about which people are asked if we're spending too little, too much, or about right. Even self-identified extreme conservatives -- just three percent of all respondents -- are more inclined to say we're spending too little, rather than too much, on everything from classic New Deal/Great Society social spending items like Social Security, to older and newer “liberal” priorities, such as education and the environment, as well as infrastructure items like "highways and bridges."

In short, the Ryan Plan for extreme spending cuts isn't just cutting against the public mood of the moment, it's cutting against the views of even extreme conservative voters for at least four decades now. But when I asked Stimson about the Ryan Plan in a long-term perspective, he didn't talk about poll numbers at all. He talked about buying a car.

“Imagine that instead of taking out a loan for a new car that you had instead put away money for it on every payday, month after month, for say, 40 years,” Stimson said. “And then on the day you were finally ready to take home your purchase someone had said 'We are spending too much on cars, we need to change them in ways that will save money' and so your long-sought new car was downgraded to an economy model (and your 40-year savings no longer covered the full price). 

“How would you feel? Would you think yourself greedy if you wanted the car you had actually paid for? That is the story of Social Security and Medicare. Tens of millions of people have paid in on every payday of their lives and now they want what they were promised when they paid.” 

The Racist Roots Of Libertarian Tax Policy

This bring us to the third fundamental historical fact supporting the American Majority Project: The direct relationship between democracy, progressive taxation and enhanced social welfare on the one hand, and elite rule, regressive taxation and reduced social welfare on the other. 

In America, overt racism in the 1960s and '70s was key to submerging the progressive, democratic forces that had advanced American social welfare so dramatically since the dark days of the Depression when the Democrats took power in 1933. But by the 1980s, things had changed. From then on, racial appeals appeared mostly in coded form. Ronald Reagan campaigned against imaginary “welfare queens,” not against blacks in general.

Yet, as the anti-black racism grew more subtle, the confederate ideology grew more bold -- “states' rights,” “personal responsibility,” “strict constructionism”  -- all the excuses used to keep blacks “in their place,” first under slavery, then under segregation, only grew more prominent as overt racism receded. And the more that overt racism receded, the more legitimate these excuses so compatible with ideological conservatism appeared to become as principles in themselves.

None of this extinguished support for more government spending. But it did severely cripple the political ability of Democrats to deliver what people wanted. This further empowered Republicans to bring other issues to the fore, particularly wedge issues focused on fragmenting those who most supported the Democrats.  

Both Clinton in 1993 and Obama in 2009 tried to act in the spirit of Wagner's Law: expanding the government role in health care to increase efficiency and reduce overall costs. Their proposals stopped well short of the optimal universal programs found in Europe, Canada and Australia, but their potential success threatened the GOP's virtual strangulation of Wagner's Law. So tremendous efforts were made to defeat both proposals, and mobilize broader opposition which brought Republicans sweeping national and state-level gains in the following midterm elections.

The GOP's most recent effort has featured the emergence of the “Tea Party” narrative, identifying opposition to Obama and Wagner's Law with the Boston Tea Party.  But this narrative is profoundly false, as explained in Robin Einhorn's 2006 book, American Taxation, American Slavery.

“Americans are right to think that our antitax and antigovernment attitudes have deep historical roots,” Einhorn wrote in an online essay discussing her findings. "Their mistake is to dig for them in Boston. We should be digging in Virginia and South Carolina rather than in Massachusetts or Pennsylvania, because the origins of these attitudes have more to do with the history of American slavery than the history of American freedom. They have more to do with protections for entrenched wealth than with promises of opportunity, and more to do with the demands of privileged elites than with the strivings of the common man. Instead of reflecting a heritage that valued liberty over all other concerns, they are part of the poisonous legacy we have inherited from the slaveholders who forged much of our political tradition.

In the book, Einhorn first sets the backdrop for understanding colonial American taxation by briefly examining Britain and France, both dependent on schemes that primarily taxed the poor. In contrast, Virginia, the leading Southern colony, had a deeply corrupt and primitive tax system compared to Massachusetts, so much so that it was completely unprepared to finance its part in the Revolutionary War. Thus, not only was the Boston Tea Party a rebellion against taxation without representation, rather than a rebellion against taxes per se, it was a rebellion by people who already paid much more taxes and more progressive taxes than their counterparts in the South. Indeed, the South was much more similar to Britain and France in terms of having a corrupt and regressive tax system, dominated by an unproductive elite, actively hostile to the very idea of the general welfare, much less spending tax money on it. 

'States Rights' Means Taxing the Poor

Today, Tea Party rhetoric also echoes the “states' rights” rhetoric of Southern elites from time immemorial. But this, too, turns out to be deeply regressive. The illusion is that the states, being closer to the people, are more responsive to the people's needs and desires. In some ways this is certainly true. But it's also true that the people have a more level playing field nationally, through broad institutions, such as unions, defending their interests against powerful elites. Nothing shows this more clearly than the distribution of tax burdens.

While federal income taxes, which are generally progressive, tend to dominate the national dialogue on taxes, state taxes tend to be sharply regressive, as laid out in detail in "Who Pays?" a 50-state survey of state and local tax rates from the Institute on Taxation and Economic Policy, released in 2009. The introduction stated in bold: "The study’s main finding is that nearly every state and local tax system takes a much greater share of income from middle- and low-income families than from the wealthy."  

Specifically, the average for all states was an 11 percent tax rate for the lowest-income quintile (20 percent) of the population, declining steadily to 8.5 percent for the fourth quintile, and just over 5 percent for the top 1 percent of taxpayers. So, those who could least afford to pay taxes paid more than twice the share of those who could most easily afford it. Some states were much worse, such as Washington State, which lacks an individual income tax. Its ratio was six-to-one, rather than two-to-one. 

Forward, To the Past

By cutting benefits and cutting taxes on the wealthy and corporations, the Ryan Plan and similar state-level efforts are seeking to take us back to a past that Americans have struggled against for centuries. Most people probably don't realize this, of course. It's enough that they feel like Stimson's anecdotal car-buyer: “Would you think yourself greedy if you wanted the car you had actually paid for? That is the story of Social Security and Medicare. Tens of millions of people have paid in on every payday of their lives and now they want what they were promised when they paid.”

But those in the media have a responsibility to know more, to tell the difference between history and myth, to make it possible for the rest of us to make informed decisions, and to have our voices heard and taken account of. That is the role of media in a democracy. It is why freedom of the press is so vital for us. And it's why the American Majority project is so vital for the American majority.

“Watch the media and see if your views are represented,”

Hickey said, in conclusion. 

“If not, demand that the media cover the views of the majority.”

Lawrence O'Donnell Exposes ALEC (Yes!) MUST WATCH

Submitted by Miranda on May 18, 2011 - 7:41am

Cross-posted on the People For blog
Last night, People For’s Andrew Gillum went on the Last Word with Lawrence O’Donnell to discuss the new Right Wing Watch: In Focus report on ALEC, the group that helps corporate donors get legislation they like placed in statehouses.
Read the report and watch the clip:

Visit msnbc.com for breaking news, world news, and news about the economy

ALEC: The Voice of Corporate Special Interests In State Legislatures

Table of Contents

• Introduction
• Who Founded and Funds ALEC?
• Who’s Behind ALEC?
• How Does ALEC Work?
• What Does ALEC Lobby For?
• Undercutting Health Care Reform
• Corporate Power and Workers’ Rights
• Tax Policy
• Private School Vouchers
• Voter ID and Election Laws
• Obstructing Environmental Protection
• Conclusion

Introduction

When state legislators across the nation introduce similar or identical bills designed to boost corporate power and profits, reduce workers rights, limit corporate accountability for pollution, or restrict voting by minorities, odds are good that the legislation was not written by a state lawmaker but by corporate lobbyists working through the American Legislative Exchange Council.  ALEC is a one-stop shop for corporations looking to identify friendly state legislators and work with them to get special-interest legislation introduced. It’s win-win for corporations, their lobbyists, and right-wing legislators. But the big losers are citizens whose rights and interests are sold off to the highest bidder.

Who Founded and Funds ALEC?

The American Legislative Exchange Council (ALEC) was founded in 1973 by Paul Weyrich, who helped build a nationwide right-wing political infrastructure following the reelection of Richard Nixon. In the same year, he helped establish the Heritage Foundation, now one of the most prominent right-wing policy institutes in the country. One year later, Weyrich founded the Committee for the Survival of a Free Congress, the predecessor of the Free Congress Foundation. In 1979, he co-founded and coined the Moral Majority with Jerry Falwell, and in 1981 he helped establish the ultraconservative Council on National Policy. 

ALEC’s major funders include Exxon Mobil, the Scaife family (Allegheny Foundation and the Scaife Family Foundation), the Coors family (Castle Rock Foundation), Charles Koch (Charles G. Koch Charitable Foundation and the Claude R. Lambe Charitable Foundation), the Bradley family (The Lynde and Harry Bradley Foundation) and the Olin family (John M. Olin Foundation). These organizations consistently finance right-wing think tanks and political groups.

Members of ALEC’s board represent major corporations such as Altria, AT&T, GlaxoSmithKline, Johnson & Johnson, Koch Industries, Kraft, PhRMA, Wal-Mart, Peabody Energy, and State Farm. Such corporations represent just a fraction of ALEC’s approximately three hundred corporate partners. According to the American Association for Justice, over eighty percent of ALEC’s finances come from corporate contributions.

Who’s Behind ALEC?

ALEC’s activities reflect its founding, funding, and control by corporate interests. According to the American Association for Justice, “the nuts and bolts of lobbying and crafting legislation is done by large corporate defense firm Shook Hardy & Bacon.” This firm plays a significant role in managing ALEC’s legislative and governmental advocacy programs.

The American Bar Association Journal describes Shook Hardy & Bacon as the “darling of corporate America. ” Their tenacious defense of the tobacco industry “made Shook Hardy the firm many of the world’s biggest companies turn to at the first hint of trouble with one of their products.” A New York Times report on Shook Hardy said “tobacco is their middle name,” and the firm’s lawyers have been viewed as “industry propagandists, apologists and co-conspirators.” Shook Hardy represents clients from the pharmaceutical, energy, food, banking and tobacco industries, like Pfizer, Bayer, Eli Lilly, Cargill, Kraft, Bank of America, Philip Morris, Lorillard Tobacco, and British American Tobacco. ALEC’s monthly periodical Inside ALEC demonstrates the significant role of Shook Hardy, as members of the law firm contributed essays criticizing environmental protection efforts¹, endorsing corporate immunity from lawsuits², and defending abusive insurance company practices³. 

The clout of corporations and corporate-backed groups comprising ALEC is unmistakable: Victor E. Schwartz, a Shook Hardy partner and head of its Public Policy Group, chairs ALEC’s Civil Justice Task Force; Tom Moskitis, the American Gas Association’s Director of External Affairs, chairs the Energy, Environment and Agriculture Task Force; Bob Williams, founder and senior fellow of the corporate-funded Evergreen Freedom Foundation, chairs the Tax and Fiscal Policy Task Force; Bartlett Cleland, director of the corporate-financed Institute for Policy Innovation, chairs the Telecommunications and Information Technology Task Force, and Emory Wilkerson, associate general counsel for State Farm Insurance, chairs the Commerce, Insurance and Economic Development Task Force.

Simply put, “corporations can implement their agendas very effectively using ALEC,” as stated by Edwin Bender of the National Institute on Money in State Politics.

How Does ALEC Work?

ALEC serves as a means for corporations to advise, lobby and sway legislators. By paying hefty dues and sponsorship fees, corporations are able to participate in ALEC ventures, forums and legislative advocacy work and also underwrite conferences, task forces and meetings with politicians. Corporations use ALEC to formulate, present and promote model legislation to elected officials who are ALEC members and sometimes hold leadership roles in the organization. 

“Our members join for the purpose of having a seat at the table. That’s just what we do, that’s the service we offer,” explains Dennis Bartlett, an ALEC task force head who is also the executive director of the American Bail Coalition. “The organization is supported by money from the corporate sector, and, by paying to be members, corporations are allowed the opportunity to sit down at the table and discuss the issues that they have an interest in.”

ALEC propagates a wide range of “model legislation” that seeks to make it more difficult for people to hold corporations accountable in court; gut the rights and protections of workers and consumers; encumber health care reform; privatize and weaken the public education system; provide business tax cuts and corporate welfare; privatize and cut public services; erode regulations and environmental laws; create unnecessary voter ID requirements; endorse Citizens United; diminish campaign finance reformand permit greater corporate influence in elections.

In order to draft and promote their “model legislation,” ALEC operates task forces that bring representatives from corporations together with lawmakers. Each ALEC task force is chaired by both elected officials and “private sector” members. According to Jesse Zwick of the Washington Independent, “ALEC’s task forces are better known for crafting legislation that coincides, rather than conflicts, with the interests of its private-sector members. Famous for hosting lavish conferences for state legislators who possess no staff of their own, the group pampers lawmakers while providing them the opportunity to collaborate on legislation often previously researched and introduced by the policy shops of its corporate members.”

According to ALEC, in 2009, of the 826 “model bills” that were introduced in state legislatures, 115 of those bills were enacted into law. That number is sure to grow following the major Republican gains in the 2010 elections.

ALEC was influential in crafting and passing a Texas law, dubbed the “Successor Asbestos-Related Liability Fairness Act, that shielded Crown Cork and Seal, a business that in 1966 acquired a company that used asbestos in its products, from lawsuits from the company’s workers. Even though Crown agreed to pay the company’s liabilities, it wanted immunity from paying damages to workers facing asbestos-related diseases. Crown Cork and Seal turned to ALEC to help shape the Texas law, which put an extremely low cap on liability for companies like Crown who acquired companies which committed wrongdoing, known as a “successor immunity” law.” Mark Behrens, an attorney for Shook Hardy, worked as a lobbyist for both ALEC and Crown to encourage allied lawmakers to introduce and pass the bill. The American Association for Justice writes that “this so-called ‘successor immunity’ has all the hallmarks of an ALEC special interest bill. It is plainly designed not with public policy in mind, but rather a specific industry (or in this case, a specific company).” The Texas Supreme Court ultimately found the cap to be an unconstitutional retroactive protection for Crown that inhibited the rights of people to rightfully sue corporations for damages, but similar ALEC-derived laws are still on the books in other states.

In Arizona, an investigative report by NPRfound that ALEC significantly helped one of its clients, the Corrections Corporations of America (CCA), influence the state’s new immigration law. The CCA is a for-profit prison company whose “executives believe immigrant detention is their next big market,” and thought that a law which “could send hundreds of thousands of illegal immigrants” to prison would “mean hundreds of millions of dollars in profits to private prison companies responsible for housing them.” As a dues-paying member of ALEC, the CCA was able to write, present and lobby Arizona policymakers for a draconian immigration bill at an ALEC-hosted conference. “Four months later, that model legislation became, almost word for word, Arizona’s immigration law,” and many of the bill’s cosponsors later received significant campaign contributions from the CCA.  ALEC also helped the CCA by pushing “truth in sentencing” laws that restrict parole eligibility for felons, and consequently increase the number of prisoners.

What Does ALEC Lobby For?

Since the organization claims to only “exchange” legislation, ALEC is not technically a lobbying firm, and does not need to register. However, ALEC’s tactics and operations are strikingly similar to those of registered lobbyists with corporate benefactors.

Undercutting Health Care Reform

After the passage of health care reform, ALEC’s top priority has been to challenge the law by encouraging members to introduce bills that would prohibit the law’s insurance mandate. ALEC’s Health and Human Services task force is led by representatives of PhRMA and Johnson & Johnson, and representatives of Bayer and GlaxoSmithKlein sit on ALEC’s board. The group’s model bill, the “Freedom of Choice in Health Care Act,” has been introduced in forty-four states, and ALEC even released a “State Legislators Guide to Repealing ObamaCare” discussing a variety of model legislation including bills to partially privatize Medicaid and SCHIP. The legislative guide utilizes ideas and information from pro-corporate groups like the Heritage Foundation, the Goldwater Institute, the James Madison Institute, the Cato Institute, the National Center for Policy Analysis and the National Federation of Independent Business.

Corporate Power and Workers’ Rights

ALEC works fervently to promote laws that would shield corporations from legal action and allow them to limit the rights of workers. The group’s model legislation would roll back laws regarding corporate accountability, workers compensation and on the job protections, collective bargaining and organizing rights, prevailing wage and the minimum wage. ALEC is a main proponent of bills that undermine organized labor by stripping public employees of collective bargaining rights and “right to work” laws.They also push “regulatory flexibility” laws that lead to massive deregulation. It is no surprise that the director of ALEC’s Commerce, Insurance and Economic Development Task Force previously worked as a Koch Associate at the Charles G. Koch Charitable Foundation.

Tax Policy

As states face challenging budget deficits, ALEC wants to make it more difficult to generate revenue in order to close shortfalls. Bills include the “Super Majority Act,” which makes it so complicated for legislatures to change tax policy that California voters overturned the law; the “Taxpayer Bill Of Rights,” which brought fiscal disaster to Colorado; and measures to eliminate capital gains and progressive income taxes. The main beneficiaries of ALEC’s irresponsible fiscal policies are corporations and the wealthiest taxpayers.

Private School Vouchers

Despite constitutional problems, negative impacts on public schools, bias against disadvantaged students, and comprehensive studies in cities like Washington DC, New York, Milwaukee, and Cleveland which demonstrate that private school voucher programs failed to make any improvements to the education system, ALEC sees vouchers as a way to radically privatize the public education system. Under the guise of “school choice,” ALEC pushes bills with titles like “Parental Choice Scholarship Act” and the “Education Enterprise Act” that establish private school voucher programs.

Voter ID and Election Laws

ALEC is directly tied to the emerging trend among state legislatures to consider voter ID laws. Using false allegations of “voter fraud,” right-wing politicians are pursuing policies that disenfranchise students and other at-risk voters,--including the elderly and the poor--who are unlikely to have drivers’ licenses or other forms of photo ID. By suppressing the vote of such groups, ALEC’s model “Voter ID Act” grants an electoral advantage to Republicans while undermining the right to vote. In addition, ALEC wants to make it easier for corporations to participate in the political process. Their Public Safety and Elections taskforce is co-chaired by Sean Parnell of the Center for Competitive Politics, one of the most vociferous pro-corporate election groups, and promotes model legislation that would devastate campaign finance reform and allow for greater corporate influence in elections.

Obstructing Environmental Protection

At the bidding of its major donors like Exxon Mobil and Koch Industries, ALEC is behind state-level legislation that would hinder the ability of government to regulate and curb polluters. ALEC has previously said that carbon dioxide “is beneficial to plant and human life alike,” and promotes climate change denialism. The group’s model legislation assails EPA emissions guidelines and greenhouse gas regulations, destabilizes regional climate initiatives, permits free-reign for energy corporations, and pushes for massive deregulation. Unsurprisingly, ALEC’s “Energy, Environment and Agriculture” task force is led by Tom Moskitis of the American Gas Association and Martin Shultz of Brownstein Hyatt Farber Schreck, a major lobbyist firm for oil and gas companies like ConocoPhillips. The group receives funding from ExxonMobil, Shell, Chevron, Texaco, Amoco, the American Petroleum Institute, and the American Electric Power Association.

Conclusion

Americans are increasingly recognizing and speaking out against the disproportionate power of corporations in shaping public policy and steering politicians, and ALEC is a prime example of how Corporate America is able to buy even more power and clout in government. Rather than serve the public interest, ALEC champions the agenda of corporations which are willing to pay for access to legislators and the opportunity to write their very own legislation.  It helps surrogates and lobbyists for corporations draft and promote bills which gut environmental laws, create a regressive tax system, eliminate workers’ rights, undermine universal and affordable health care, privatize public education, and chip away at voting rights.  It's no wonder that so many big corporations view ALEC  as a wise investment.  ALEC represents an alarming risk to the credibility of the political process and threatens to greatly diminish the confidence and influence ordinary people have in government.

Endnotes

1. Phil Goldberg, “State-Sponsored Global Warming Litigation is Weighing Down on American Business.” Inside ALEC. March 2011.
2. Victor Schwartz and Cary Silverman. “Rage Against Federal Pre-Emption.” Inside ALEC. June 2009.
3. Victor E. Schwartz. “How “Bad Faith” Becomes Bad Law.” Inside ALEC. November/December 2009.