Republicans Filibuster Stimulus Plan

The Senate Democrats have crafted a stimulus package of their own, ignoring for the moment the bill passed by the House. Their bill, which passed out of committee yesterday, has an additional $30 Billion in spending over 2 years. The Senate Republicans reacted in the only way they know how. They filibustered it.

According to the New York Times:

Senate Democratic leaders said on Thursday that they were short of the 60 votes needed to advance a $161 billion economic stimulus package toward approval in the Senate.

Why do they need 60 votes?

Sixty votes are needed under Senate rules to shut off debate on a measure and move to consideration of the measure itself, a step known as cloture. Without cloture, opponents of a Senate bill would be able to prolong the debate indefinitely.

So the Republicans have decided that they don't want to vote on the bill, probably because they know it would pass, and they can't have that. How would it look for the Democrats to be able to gloat that they were able to pass a bill to help Americans in this time of crisis? (I'm not arguing that it would help, that's just what the Dems would claim.) And in an election year, at that.

Plus, the Republicans see this as an opportunity to gain ground in a completely unrelated fight --Bush's illegal wiretapping.

They also said that they had yet to reach agreement on extending the Bush administration’s terrorism surveillance program, which Republican leaders have set as a condition for allowing the stimulus bill to move ahead.

Why won't the Republicans stop with the partisan politics long enough to work with the Democrats in giving the economy a much-needed boost? Why must they constantly put party concerns above all else? Why won't they allow the stimulus bill to receive an up-or-down vote, like they were crying about over and over the one time the Dems blocked a judicial appoinment (or maybe it was two times)?

The Not-So-Fair Tax

When Mike Huckabee won the Republican Caucus in Iowa last week, a cheer went up from one particular fringe group: the Americans For Fair Taxation. They proclaimed that "The Fair Tax Wins In Iowa!" I've heard Huckabee mention the "Fair" Tax before, so I decided to investigate.

The "Fair" Tax would eliminate the payroll taxes that most Americans have deducted from their checks. Personal income tax and social security taxes would no longer be withheld. More interestingly, the "Fair" Tax would eliminate taxes such as the estate tax, gift tax, capital gains tax and all commercial real-estate transaction taxes. My assumption going in was that the "Fair" Tax was a scheme to shift the tax burden from the wealthy to the middle class and poor, and it appears that the primary goal is to create a system where wealthy people can accumulate wealth without paying taxes on it, and then pass it along to their heirs without them having to pay taxes on it.

I wanted to do a thorough evaluation of the "Fair" Tax, but there is so much to it that I'd have to dedicate all of my time to deciphering the reports that the Americans For Fair Taxation have paid to have produced. Instead, I chose one claim that struck me as particularly dubious and decided to look into it.

One of the things mentioned over and over in the literature is that the "Fair" Tax is progressive. They claim that they have worked in a way to make it less of a burden on poor people, as opposed to a standard flat tax, which would disproportionately target the lower income brackets. The way they fix it is to send everyone a check once a month, equal to the 1/12th of the "Fair" Tax payments on purchases up to the poverty level. A single person, for example, would get a check for about $196 per month. That way, nobody is paying taxes on life's necessities, or so they claim.

I wondered how it could be that a sales tax that would produce a 30% increase in the cost of all goods and services that people buy (excluding "used" items) could possibly be a larger burden on the wealthy. So I checked out one of the reports that the "Fair" Tax people paid for, titled "A Distributional Analysis of Adopting the FairTax." What I found was not very surprising at all.

"Oh, people can come up with statistics to prove anything, Kent. Forty percent of people know that." -Homer Simpson

From page 4 of the report:

We argue that current expenditure is a better measure of an individual’s well-being than current income. This is because current expenditure is more closely related to lifetime income than is current income and is less subject to temporary shocks. Current expenditure is also a better measure of wealth, since people may live off their savings while undergoing a temporary drop in income. Therefore, we conclude that the FairTax, with the prebate, is more progressive than the current tax law.

There, in a nutshell, is how the "Fair" Tax crowd can claim their plan is progressive. If you spend more money, your "well being" is greater than if you spend less money. (Would anyone other than the rich come up with that?) By their logic, if you take two people who each earn $50,000 per year, the one whose expenditures are $70,000 per year is twice as well off as the one whose expenditures are $35,000 per year. Magical conservathink. Spend yourself into debt to be better off.

On page 19 of the report, in section IV. Distribution on a per Capita Basis, there is an interesting finding:

As noted before, even people in the poorest income per capita deciles have relatively high levels of expenditure per capita. The introduction of the FairTax would not favor these people; they would gain little from the abolition of taxes on income (because their incomes are low), but would pay the FairTax (because their expenditures are substantial), as shown in column (M). This effect is attenuated when the dynamic expenditure-expanding effects of the FairTax are taken into account, but the poorest half of the population (as measured by income per capita) would be worse off due to the FairTax. A similar conclusion emerges from an examination of the pattern of income per capita, shown in columns (Q) through (V) in Table 9. [Emphasis Added.]

So the group's own report states flat out that when you look at the numbers on the basis of income rather than expenditures, the "Fair" Tax actually hurts the poorest half of the population. How is that progressive, again?

And then, to perhaps water down the bitter taste from the report's conclusion, they add:

Note the very low average income of those in the poorest income per capita decile – just $1,243 in 2001 – which is surely a poor measure of the well-being of this group of the population.

Because really, how could you judge someone's well-being by the fact that they live in abject poverty? As long as they're spending lots, then they're A-OK.

The Lesson Of Greed

While reading about the impending crunch that is going to hit us as a result (in large part) of the subprime mortgage fiasco, I reviewed a newsletter from John Maudlin back in August, The Panic of 2007. In it, John explains how there is plenty of blame to go around, and several parties to share it. One thing he says is this:

But then in 2004 loan practices began to change and had got completely out of hand by 2006. In 2005-6, about 80% of subprime mortgages were adjustable-rate mortgages, or ARMs, also called "exploding ARMs." These loans are so-named because they carry low teaser rates that often reset dramatically higher, increasing the borrower's monthly mortgage payments by 25% or more.

Interesting. Subprime mortgages are given to people who are more likely to have difficulty making the payments. So what do the mortgage brokers do? They push these people toward the loans with low "teaser" interest rates. That way, the broker gets the closing (and the commission) and is out of the picture by the time the rate jumps and the borrower defaults and the bank forecloses.

Another item that caught my eye:

The loan application and review process for 'no-doc' loans was so lax that such loans are referred to as 'liar loans.' In a recent report by Mortgage Asset Research Institute, of the 100 loans surveyed for which borrowers merely stated their incomes on loan documents, IRS documents obtained indicated that 60% (!) of these borrowers overstated their incomes by more than half.

I had no idea that there is such a thing as a "no-doc" loan, or the "stated income" loan. Apparently, these loans allow people to get a mortgage without actually having to verify their income. They simply tell the bank how much they make. I'm sure that these loans were created for a legitimate purpose. The flaw, though, is the part of human nature that causes these to be referred to as "liar loans."

The bottom line is that deregulation and lack of oversight do not work. I understand that it has been a conservative wet-dream since at least the Reagan era to rid the country of all government interference in business, but time and time again, we see that businesses can't be trusted to regulate themselves. The concept of deregulation may look good on paper, but conservatives never seem to account for the one factor that always screws things up: greed.

The subprime catastrophe is the perfect example of the downward spiral of greed. Greenspan held interest rates at unreasonably low levels due to Bush's greed (It masked the failing economy so Bush could be "re"-elected.) Home buyers and speculators started buying more house than they should have, especially once home prices started climbing faster and faster. Banks eased the process of getting a loan because there was a lot of money to be made.

Eventually, of course, the sputtering economy caught up with the housing market and now we're seeing the beginning of the destruction that a lack of regulation and oversight brought to the mortgage industry.