Flip side of ending tax breaks for Big Oil
Dennis Byrne December 14, 2010
"End Big Oil's tax breaks, now!"
That's the cry of anti-business progressives, and you know what? They're right. Do it.
It's also the view of President Barack Obama's National Commission on Fiscal Policy and Reform. You've got to dig deep into the recently issued 66-page report, and if I read it correctly, the report, called "The Moment of Truth," would dump all business "tax expenditures."
Tax expenditures are what economists call the tax "loopholes" that bestow favorable treatment on select companies and industries: tax credits, tax deductions, tax deferrals, special tax rates and too many other legal evasions to list here.
As such, it's not like the government is writing a check — with your money — to give directly to "deserving" companies. They're more like backdoor subsidies that'll reduce a company's tax bill. Which, of course, increases our tax bills.
The "oil depletion allowance" may be the most familiar of these giveaways, although they ended for larger producers and were trimmed for smaller ones in the 1970s. You can get a feel for what tax expenditures are by checking out a House and Senate Joint Committee report, "Estimates of Federal Tax Expenditures for Fiscal Years 2007-2011."
They are accounting breaks involving inventories and depreciation; exclusion of investment income on life insurance and annuities; expensing of oil and gas exploration costs and development; cost depletions, special rules for mining reclamation reserves; expensing of timber-growing costs, credits for low-income housing. And so forth.
Only the Lord and K Street lobbyists can explain it all. Billions and billions; so many that the list doesn't bother to enumerate what it calls "small amounts," meaning anything less than $50 million annually. This truly is a case where a billion here and a billion there adds up to real money. No joke intended.
The deficit reduction commission would eliminate the more than 75 tax expenditures for business … all of them. Dumping these "special subsidies," the commission concluded, would help reduce the deficit and the corporate tax rate. The commission would establish a single rate — between 23 percent and 29 percent — that would replace the multiple brackets that run up to 35 percent.
The commission calls the current corporate tax structure a "patchwork of overly complex and inefficient provisions that creates perverse incentives for investment. Corporations engage in self-help to decrease their tax liability and improve their bottom line. Moreover, corporations are able to minimize tax through various tax expenditures inserted into the tax code as a result of successful lobbying.
"Without reform, it is likely that U.S. competitiveness will continue to suffer. The results of inaction are undesirable: the loss of American jobs, the movement of business operations overseas, reduced investment by foreign businesses in the U.S., reduced innovation and creation of intellectual property in the U.S., the sale of U.S. companies to foreign multinationals, and a general erosion of the corporate tax base."
Cognizant of the political hurricane that would blow through Congress, the commission recommends the enactment of "fail-safe" legislation that would automatically trigger painful changes if lawmakers don't pass a bill by 2013 meeting specific revenue targets that the reforms would produce.
The 18-member bipartisan commission approved the report 11 to 7.
On the commission were two Illinois Democrats; Sen. Dick Durbin voted with the majority and Rep. Jan Schakowsky against. Congress isn't required to turn the recommendations into legislation, so supporters of the recommendations will have to be strong, to stand up to the special interests that run from the ethanol lobby to affordable-housing advocates, from Big Oil to renewable energy enthusiasts, from small refiners to businesses that don't fire victims of natural disasters such as Hurricane Katrina. Which giveaways are loathsome and which are praiseworthy depends on your politics perspective. Care to bet on how many people would be ready to sacrifice their own tax breaks for the sake of eliminating them all?
This sounds like a lot of businesses with their hands in the till, but it's practically nothing compared with how well individual Americans benefit from the tax breaks they get. Big Oil can't come close to some of them, such as the $100 billion in mortgage deductions. The commission would kill those individual breaks too.
So, if slicing into corporate tax expenditures would be cutthroat, image the legislative bloodbath over cutting those individual expenditures.
But that's another story.
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Fooled by Obama
Don't keep thinking he's a liberal because he's not
Steve Chapman December 12, 2010
Smart women know that if a guy is sending mixed signals — promising to call but never getting around to it, making dates and then canceling, professing warm feelings but not introducing you to his friends — it can mean only one thing: He's just not that into you.
Liberals keep wondering why Barack Obama so often disappoints them. But if he truly cared about not disappointing them, he wouldn't. He disappoints them because his heart is somewhere else.
It took a while, but thanks to the tax deal he reached with Republicans, it seems to be dawning on those in the left wing of the Democratic Party that he is not one of them and never will be.
They were aghast when he agreed to keep the Bush tax cuts for upper-income households, while settling for an inheritance tax rate of just 35 percent. House Democrats promptly rejected the agreement wholesale.
For a long time, liberals suppressed their doubts by blaming Republicans, or Wall Street's excessive influence or Obama's political advisers. Eventually they decided the president, though well-meaning, was naive, inept or afraid to fight. They did not, however, examine the underlying presumption: that Obama shares their beliefs and goals.
No doubt they took heart from his background as a community organizer, his idealistic rhetoric and his left-wing pastor. They were also encouraged by conservatives who denounced him as a fanatical socialist on a mission to transform America into a replica of France or Cuba or Berkeley, Calif.
The last two Democratic presidents, Jimmy Carter and Bill Clinton, were white Southerners who hewed close to the center. In Obama, an African-American from Chicago, those on the left end of the spectrum expected something more to their taste.
So the tax cut deal came as a bitter surprise. But why? Obama has made it plain that he sees liberal priorities as sometimes congenial but always expendable.
He signed a stimulus package far smaller than liberals wanted. He dropped the "public option" from health care reform while protecting the interests of insurance companies. He bailed out big banks.
He stuck to George W. Bush's policy in Iraq and escalated the war in Afghanistan. He hasn't gotten around to closing the Guantanamo detention camp. He signed a free trade deal with South Korea.
Fervent liberals claim there's nothing in the middle of the road but yellow stripes and dead armadillos. But that's where Obama consistently travels.
A few weeks ago, liberal Democrats were up in arms about the recommendations of deficit commission co-chairs Erskine Bowles and Alan Simpson. House Speaker Nancy Pelosi called the plan "simply unacceptable." Vermont Sen. Bernie Sanders, an avowed socialist, denounced it as "absurd."
What no one seemed to notice is that the commission came about only because of an executive order by Obama, who also appointed the leaders. Could it be that Obama selected them because he knew, and liked, what they would propose?
Jonathan Chait of The New Republic noted that their plan is "tilted, overwhelmingly, toward Republican priorities," and that "three-quarters of the savings come from spending cuts." He made the excuse that to appease Republicans, "the commission had to cater to their whims by crafting a plan that lies almost as far as can be toward the right-wing side of potential choices."
Could be. Or it could be they catered to the whims of Barack Obama.
Conservatives have always assumed that because he learned from radical Saul Alinsky, knew former Weatherman Bill Ayers and sat through sermons by Jeremiah "God damn America" Wright, Obama must sing "The Internationale" every morning in the shower. Giving up that conviction is not easy.
Even after he cut the tax deal with Republicans, Wall Street Journal columnist Daniel Henninger claimed the president is "a Class Warrior with every fiber of his being" — comparing his policies to those of Franklin Roosevelt in his 1936 attack on "economic royalists."
But under FDR, the top income tax rate was 94 percent. Obama proposed a top rate of 39.6 percent. That's higher than under President George W. Bush, but lower than the 50 percent top rate in 1986 — when the president was a notorious class warrior named Ronald Reagan.
Liberals and conservatives have one thing in common: They have both persisted in believing that Obama, in his heart of hearts, is a man of the left. But by his fruits, they — eventually — shall know him.
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Save the North Koreans!
Jonah Goldberg December 9, 2010
If North Koreans were pandas, would we have let them suffer so?
In October 1993, Edward N. Luttwak wrote a brilliant essay for Commentary magazine asking a similar question: "If the Bosnian Muslims had been bottlenose dolphins, would the world have allowed Croats and Serbs to slaughter them by the tens of thousands? If Sarajevo had been an Amazonian rainforest or merely an American wood containing spotted owls, would the Serbs have been allowed to blast it and burn it with their artillery fire?
"The answers are too obvious, the questions merely rhetorical. And therein lies a very great irony. At long last a genuine spirit of transnational benevolence has arisen, fulfilling the highest hopes of the rare pioneering globalists of the 19th century and before. No longer does this disinterested benevolence abruptly stop at the boundaries of state, nation or culture. Instead it now encompasses all of life both animal and vegetal across the entire globe, with only one exception: Homo sapiens."
Luttwak overstated how good animals have it, alas. But his point was well taken. And to America's credit, it wasn't long after Luttwak's essay that the United States and NATO (but not the United Nations) finally did something to curb the slaughter in the former Yugoslavia.
But that's probably little solace to the people of North Korea.
The West ultimately intervened in the Balkans for several reasons. The slaughter was in "Europe's backyard," and images of the sunken eyes peering from emaciated souls kept in concentration camps on European soil couldn't be ignored. The memory of World War II and the Holocaust crept into every debate. Moreover, the violence and cruelty emerged fairly suddenly, making it "news" instead of the status quo. No one could deceitfully claim — as President Bill Clinton would in the case of the Rwandan genocide — that we didn't know what was going on. And, perhaps most important, ending the aggression was relatively cheap and easy. The U.S. sent no ground troops and suffered "only" one American life lost in combat.
None of that applies to North Korea. The Hermit Kingdom's regime has kept images of concentration camps and mass starvation limited. The gulag archipelago of political prisons doesn't get much airtime, nor do the women forced into having abortions or, in some instances, compelled to deliver their babies only to watch them suffocated because they contain "impure" Chinese blood. You see, the North Koreans contend they are the "master race" and have strict eugenic laws against what they see as race-mixing.
And yet, North Korea's plight is not news. It's been the status quo for two generations. Everyone knows that it is an anachronistic, totalitarian police state, and yet the spirit of "never again" finds little purchase in the Western conscience. Indeed, with the exception of some heroic human rights organizations, such as the U.S. Committee for Human Rights in North Korea, the debate is defined almost entirely by what some call "realism." If North Korea could be trusted to abandon its nuclear ambitions and mischief — an absolute impossibility — one gets the sense that vast swaths of the foreign policy establishment would be happy to call it a day.
After all, America, we are told again and again, is overextended. And we all know that the concept of regime change — the only conceivable remedy for North Korea's plight — is out of favor.
The simple truth: Deterrence works. The madmen running North Korea have made it clear that they will at least try to drown the peninsula in blood if their rule is threatened.
Stopping Pyongyang's nuclear-weapons program is rightly a priority because of the threat it poses to the U.S. and our allies. But it should also be a priority because, if we don't, the regime may stagger on for another half-century of barbarous cruelty.
Eventually this dynasty of misery will end and North Koreans, starved, stunted and beaten, will crawl back into the light of civilization. My hunch is that it will not be easy to meet their gaze, nor history's. No one will be able to claim they didn't know what was happening, and very few of us will be able to say we did anything at all to help.
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FIFA fills in the blanks on its map — and Russia and Qatar's checks Philip Hersh December 2, 2010
On International Sports
Watching the presentations the past two days of the two successful men's World Cup bids, Russia (2018) and Qatar (2022), I was struck by how much each relied on an argument so persuasive in Rio de Janeiro's winning bid for the 2016 Summer Olympics.
It's an argument that asserts a moral imperative to bring the world's two largest sporting events to regions they never have been, as had been the case for the Olympics and South America.
It is an argument designed to appeal to both a sense of fair play as well as a sense of ego in leaving a groundbreaking legacy among those who vote for host cities or countries, even if evidence once again suggests that several voters may have been more interested in lining their own pockets than anything else.
Both Russia and Qatar used maps showing the World Cup had been in almost other region than Eastern Europe and the Middle East. Rio's had showed a gaping Olympic hole over South America.
Qatar's bid chairman said the international soccer federation (FIFA) executive committee members had "an appointment with history." Russia's deputy prime minister said "Let us make history together." Rio had made the same appeal.
"Some things that work, you use again," Mike Lee, chief consultant to the Rio and Qatar bids, told me by telephone Thursday.
One will never know the exact reasons why the 22 FIFA voters chose Russia and Qatar on secret ballots Thursday, but each voter can stand behind the ethically convenient one of spreading the wealth — and the game.
The question now is how long that argument will keep carrying, especially since China wants a World Cup while Africa and India wants an Olympics, all sooner than later.
"I'm not sure that's what played out here," U.S. Soccer Federation president Sunil Gulati said after the United States lost to Qatar 14-8 in the decisive fourth round. "I agree that was an important part of the presentations."
So what might other factors have been?
• FIFA and the IOC love working with authoritarian regimes that will go along with all requests, no matter how costly.
Russia still seems like a dictatorship run by puppet master Vladimir Putin, who promised to throw limitless state resources and rubles at the World Cup project, just as he did in backing Sochi's successful bid for the 2014 Winter Games.
Qatar is a family business, an absolute monarchy in which the Al-Thani family runs everything. Such control over the small country's fabulous wealth means FIFA will not worry about Qatar's ability to fulfill all its organizational promises.
• It's not a good idea to raise corruption charges against the self-important, self-elected pooh-bahs who vote for hosts.
When Swiss IOC member Marc Hodler blew the whistle on host city vote-buying practices in the IOC, it doomed Sion, Switzerland's otherwise superior bid for the 2006 Winter Games, no matter that many felt the billionaire Agnelli family bought those Olympics for their hometown of Turin, Italy.
The Sunday Times of London and the BBC both recently reported allegations of vote trading, vote buying, bribery and kickbacks among FIFA executive committee members. The result? Humiliation for England's 2018 bid, long considered a favorite, with a first-round elimination and just two votes for the country credited with codifying the game's rules and spreading it around the globe in the 20th Century.
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Warning to empty-nesters: Boost saving, not spending
Gail MarksJarvis
3:22 PM CST, December 10, 2010
Almost half of American households are on course to struggle through retirement because they haven't been saving enough money while working and raising their children.
But it doesn't have to be this way.
Many parents have the ability to save significantly once their children are grown and leave home, but they squander the opportunity, according to research by the Center for Retirement Research at Boston College.
Clearly, saving is difficult while raising children. The researchers note that food, clothing, karate classes and college can consume almost every penny from paychecks. But, eventually, parents reach a point where they aren't spending on schooling or piano lessons any longer, and that's when they hurt themselves needlessly.
Leftover money too often seems to burn holes in pockets. Instead of saving it, parents spend it.
This works against the parents in two ways, say researchers Norma Coe, Zhenya Karamcheva and Anthony Webb.
Parents miss a relatively painless way of saving, or stashing away money they weren't used to spending anyway while raising children.
Further, because they consume more after children are grown, parents get used to a cushier lifestyle just before retirement. That makes it tough to live on a budget during retirement and puts them on course to run out of money while they still want to be active.
About 43 percent of households are at risk of being unable to maintain their preretirement standard of living, the researchers say.
Various pieces of academic studies have reached different conclusions about how many Americans are in danger of financial trouble in retirement. While the Center for Retirement Research claims that almost half of Americans will face tough times, others conclude that only about 4 percent will have deficient savings.
But the divergence in findings depends largely on assumptions about how people save. Although studies have noted that many families save little in their early working years, they assume that these families will increase their savings in 401(k) plans and IRAs after raising children.
The researchers at the Center for Retirement Research recently tested that assumption. Using data from the national Health and Retirement Study and Social Security Administration, they tracked consumption before and after children left home.
They found a marked increase in spending once children left. Households with children living at home spent $4,700 to $5,800 a person per year on nondurable goods from 2001 to 2007. That was a lot less than adults without children, who were spending on average $8,800 to $10,300.
Once children left home, the parents apparently decided to give themselves a break. The newly freed parents spent about $2,000 more a year per person on average than the parents who still had children at home.
The analysis "provides evidence that households increase per-capita consumption when children fly the coop," the researchers said. "We estimate that households whose children leave increase their per-capita, nondurable consumption by 51 percent relative to households who never have children. As a result, many are at risk of entering retirement with insufficient wealth to maintain the level of consumption they enjoyed while the children were in the house."
Some parents might not realize what they are doing to themselves. Research by Annamaria Lusardi, a Dartmouth College professor, shows that most people have no idea what they will need for retirement.
Yet, there is a rule of thumb in financial planning: Spend no more than 5 percent of savings during the first year of retirement and then increase the amount only slightly each year to cover inflation.
Under this rule, parents with $500,000 in savings could spend $25,000 for the first year of retirement and boost the amount to about $25,750 the next year.
And how could a couple get to $500,000 after saving little while raising kids? Say parents are 50 and have been spending $12,500 a year sending children to college. With only $65,000 in their 401(k), they could start devoting $12,500 each year to the retirement plan. If they earned 6 percent a year on mutual funds invested half in stocks and half in bonds, they would have about $500,000 by age 67.
To see if you are on track to live retirement the way you are living now, try the "ballpark estimate" calculator at choosetosave.org/ballpark.
