Category Archives: Random Blogging

Perverse Incentives

I know this chart has probably been floating around the Internet for a while, but I recently came across it, and it really made me think.

The chart lists 30 major corporations, their profits for 2011, the amount of taxes each paid that year, and the amounts they paid lobbyists. A majority of those listed  paid zero taxes on massive profits, thanks to various provisions of the tax code. Many of them actually got money back, again, courtesy of those same arcane provisions. Virtually all of them spent millions of dollars lobbying the federal government; in every case, the amounts spent to influence policy far exceeded the amounts paid in taxes.

What’s wrong with this picture?

There are often sound reasons for using the tax code to encourage behaviors that benefit the greater society. If we want more energy, for example, and we recognize that the costs of exploration and the risk of coming up dry are high, it makes sense to provide a tax incentive to ameliorate that risk. If we want businesses to modernize, to invest in equipment that will make them more productive, offering them the ability to write off those investments over the useful life of the equipment is reasonable. There are many other examples.

The problem comes when the incentives bear no reasonable relationship to the behaviors they are intended to encourage–when those well-compensated lobbyists manage to persuade lawmakers to favor their clients by inserting special provisions in the law or special treatment in the tax code. In the case of oil and gas, for example, companies have not only benefitted from obscenely favorable tax provisions, but have negotiated leases of public lands on terms that have been widely criticized as giveaways.  Here in Indiana, Leucadia–a politically well-connected energy company–will benefit from a 30-year agreement with the state that effectively shields the company’s new coal gasification plant from unfavorable market conditions. 

Leucadia is hardly an isolated example. There’s a reason someone coined the term “crony capitalism.”

The well-connected and powerful have always been able to influence policy. To a certain extent, it’s an unavoidable aspect of human society. But in 21st Century America, we are dangerously close to corrupting the system, eviscerating checks and balances, and institutionalizing a caste system. Recent studies have documented America’s depressing loss of social mobility. Headlines routinely report the self-dealing of Wall Street bankers and financiers, along with the outrageous salaries and bonuses that bear no relationship to their performance. Jack Abramov, the disgraced lobbyist whose name has become synonymous with K-Street and Washington deal-making, is trying to rehabilitate his reputation in interviews sharing “chapter and verse” of influence-peddling in the nation’s capital, and the picture he paints is not pretty.

Local business-people, shop-owners, mom-and-pop enterprises and other middle-class Americans go to work every day, follow the rules, and pay their taxes when due. They don’t have agents working the halls of the legislature to get them special deals. They don’t have hundreds of thousands of dollars to contribute to Super-Pacs, and Citizens United didn’t free them to donate megabucks to buy a Congressman or two.

Shouldn’t the major corporations that are profiting so handsomely also be paying taxes to the country that makes those profits possible? Those companies depend upon workers educated in our public schools. They rely on our courts to enforce their contracts. Their trucks drive on roads paved by American taxpayers. Tax-supported police and fire-fighters protect their warehouses. Why do they prefer to pay millions to lobby for special advantage rather than simply using that money to pay their fair share of the costs to maintain our physical and social infrastructure?

What are the incentives that lead those who are already rich and privileged to seek even more by gaming the system?

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Deficits

I remain convinced that America has two deficits–one fiscal, and one informational. The economic deficit is important, but the deficit in basic understanding of the world we inhabit is arguably the bigger problem.

Case in point, as Steve Benen reports at Maddowblog: debates about the deficit.

As it happens, the budget deficit is getting smaller. In fiscal year 2010, which was President Obama’s first full fiscal year in office, the budget deficit was $1.3 trillion. In fiscal year 2013, the Congressional Budget Office projects the deficit will be $845 billion. That’s a 35 percent decrease in terms of dollars, and it’s even bigger—41 percent—if you are computing the deficit as a share of the GDP. The percentage drop is even bigger—roughly 50 percent—if you start from fiscal year 2009, which overlapped the final year of the Bush presidency and the first year of Obama’s.

The fact that the deficit is declining is not reason to ignore it, of course, but its size and trajectory are important factors–or should be–in any economic analysis, including proposals about appropriate measures to address it.

The problem is, when Bloomberg News commissioned a survey asking Americans whether they believed the budget deficit was growing or shrinking, just six percent answered the question correctly. Ninety-four percent had no clue. (Of the clueless, 62 percent actually thought the deficit was growing.)

So far as I know, Bloomberg didn’t ask a related question, of equal importance. It would be interesting to determine the percentage of Americans who could explain the difference between the deficit and the national debt.

For that matter, it would be interesting to know what percentage of our elected officials could correctly answer either of those questions.

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Live and Let Live in a Connected World

Watching the Indiana legislature is sort of like driving past a big wreck….hard not to slow down and stare, even when you know you should look away. The debate over a measure intended to close down “clinics” (aka Planned Parenthood) by requiring them to build mini-hospitals and force patients to undergo two trans-vaginal ultrasounds got me thinking more generally about the nature of law in our contemporary society.

I often tell students that the underlying premise of the Bill of Rights is “live and let live.” There was a libertarian philosophy that heavily influenced our approach to government, a respect for the individual right to personal autonomy, best summed up as: people have a right to live their lives as they see fit, so long as they don’t harm the person or property of a non-consenting other, and so long as they are willing to extend an equal right to self-determination to others.

The seeming simplicity of that construct belies the difficulty Americans have had in applying it. The confounding issue is the nature of harm (and sometimes, as in the so-called “abortion wars,” the definition of “person”).

Smoking is a good example. If you are an adult, the government has no business interfering with your choice to engage in a bad habit. When it became known that passive smoke is harmful, however, the government was justified in stepping in with regulations intended to protect non-smokers from the effects of your bad habit. Seat belts are a more dicey proposition; there is an argument that drivers who fail to buckle up sustain more injuries in accidents, thus driving up the insurance premiums for everyone else, but that’s a pretty speculative harm on which to base a fairly substantial intrusion.

The problem is, as a society, we are becoming more and more connected. Increasingly, the actions of one person affect many others, and if those actions threaten some sort of harm, we look to government to intervene. Worse, the Puritans who have always been a part of American culture remain with us, insistent scolds who want government-as-moral-nanny-state, government that both protects us from ourselves and prevents us from sinning (as they define sin).

We may never agree on where to draw the line. Government surely has the right to tell us we can’t rob the local liquor store, and it just as surely has no right to insist that we eat our broccoli, but between those poles lies great conflict.

We need to become much more thoughtful about the nature of the harms that justify government interventions in our lives. I understand the ongoing debates about abortion–those debates spring from very different beliefs about “personhood.” Seat belts, not so much.

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Hard to Argue with This

You can hardly pick up a newspaper or magazine, or log onto a website these days without encountering an article that advises the Republicans party on ways to address the party’s current dilemma. Some are well-reasoned and thoughtful, many are nothing more than thinly-disguised apologetics. Commentary magazine has recently published one of the better analyses. Among their prescriptions: an admonition to be intellectually honest.

The article made clear that the author agreed with conservative economic approaches. But as it noted, the likelihood of anyone listening to the GOP on these issues “requires changing an image that the GOP is engaged in class warfare on behalf of the upper class. Republicans could begin by becoming visible and persistent critics of corporate welfare: the vast network of subsidies and tax breaks extended by Democratic and Republican administrations alike to wealthy and well-connected corporations. Such benefits undermine free markets and undercut the public’s confidence in American capitalism. They also increase federal spending. The conservative case against this high-level form of the dole is obvious, and so is the appropriate agenda: cutting off the patent cronyism that infects federal policy toward energy, health care, and the automobile and financial-services industries, resulting in a pernicious and corrupting system of interdependency. “Ending corporate welfare as we know it”: For a pro-market party, this should be a rich vein to mine.”

No kidding. The hypocrisy on this issue–defending corporatism while marginalizing the poor and opposing any effort to help them–has been widely mocked. This preference for corporate welfare has made the general public view all GOP economic prescriptions with suspicion.

Perhaps the most penetrating observation in the article, however, was this one:

Republicans need to express and demonstrate a commitment to the common good, a powerful and deeply conservative concept. There is an impression—exaggerated but not wholly without merit—that the GOP is hyper-individualistic. During the Republican convention, for example, we repeatedly heard about the virtues of individual liberty but almost nothing about the importance of community or social solidarity, and of the obligations and attachments we have to each other. Even Republican figures who espouse relatively moderate policy prescriptions often sound like libertarians run amok.

This may be the area where current Republican rhetoric is most out of sync with the culture. America is experiencing a still-nascent but growing return to balance, to a renewed recognition of the importance of community and the common good. “I’ve got mine” is an unattractive motto for a political party at any time, but it is extremely off-putting to people looking for ways to forge a caring polity.

The article makes several other points worth pondering, not the least of which is that the country desperately needs two mature, responsible political parties. And right now, we don’t have them.

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