What The Hell is Going on in Congress: Payroll Tax Cut Edition

Satan might need to bundle up, as it is going to be a cold day in hell. That's right the Democrats want to cut taxes!


So you may have heard about the tax cut fight on Capital Hill, but don't worry the world is not turning upside down. Democrats want to cut SOME taxes, Republicans also want to cut taxes but in a different way. The fight breaks down like this:

Ten days ago Sen. Casey (D, PA) introduced s.1917 (Affectionately know as the "Middle Class Tax Cut Act of 2011"). The bill would have reduced the payroll tax rate by 3.1% for both employees AND employers. The media is reporting that the cuts would be 'paid for' by a 'Millionaires Surtax' which is defined as an additional 3.25% surtax on adjusted gross income over $1million dollars. This is actually not true, the surtax does not kick in until after 2012. Which means that the first year would be paid for, according to the bill, by transfers from the General Fund. What does it mean to transfer from the General Fund? Two words: Deficit spending.

Looking deeper into the bill, you see that the payroll tax cut applies only for the year 2012 (Jan 1-Dec 31, 2012). The Millionaire surtax has no sunset provision. Which means that Sen. Casey wants to pay for a TEMPORARY tax cut, which he intends to pay for with a PERMANENT tax increase. Oh, and he wants to borrow the money now (Remember the Debt Celling debate?) to pay for the tax cut.

But of course this ignores the real injustice of S.1917. The bill raises taxes after 2012 but PROVIDES NO CONTINUED PAYROLL TAX CUT!!! The bill is the premiere election year bill, saying 'I will cut your taxes for now, but I don't know about in the future. We'll see how things look after this upcoming election..."

Of course Casey's bill went down in flames for the reasons outlined above. But that did not stop the man as he reintroduced the bill as S. 1944. While it is very similar to the bill above it does have some notable differences. The Millionaire surtax has a sunset window of 2022. Also the bill has new provisions like

• A 50% tax on unemployment compensation income for couples that make more than $1 million dollars a year. This seems odd that Casey would go after unemployed millionaires, but you go where the money is. In any case the maximum benefit that can be paid is in Rhode Island ($689/wk) so this amounts to a 1.5% tax on unemployed millionaires (on $38,500/yr benefits).
• Casey's bill also bans millionaires from from collecting food stamps. If millionaires can collect food stamps, this is an odd country indeed. (In other news, Casey's bill also imposes a 100% on vampires and dragon owners!)
• Increase the loan rates charged to lenders from Fannie and Freddy. How this got to be part of the bill I have no idea.

In total Casey's bill would increase the deficit by almost $140 Billion this year. While the tax increases pay for the 1 year tax cut, it takes 10 years to pay for them. Plus the tax revenues from it go into the general fund, which means that congress can treat the new income as spending money, and not money to pay for a tax cut several years ago.

So you might be asking 'What do the republicans have?" Well at the moment...not much. Sen. Dean Heller (R, NV) proposed a 2% cut which went down in a ball of flames because it didn't make up the lost revenues with ANY offset in spending or taxation. It's a bad bill, even by congressional standards (If those exist). The bill was swiftly defeated by 20-78 vote, so I won't really go into the details. But trust me, it's bad.

The House Republicans are working on a plan. (Which you can read about in this incredibly poorly written article on Fox News,See if you can spot the errors. I found three.) The plan is still taking shape, so I will withhold judgment. But given the ideas outlined in the article above, they seem to have forgotten the point of the bill (Here is a hint, it involves taxes and a cut.)

So this has been a look inside the sausage factory. You know they could just cut the tax, deficits be damned! Or here is a novel idea, we could just eliminate the income tax and usher in a glorious world of Utopian happiness. Or in a sensible world we could just reduce federal spending to 2005 levels, where we would balance the budget and have the extra $140 billion for the tax cuts. But this all seems like quite a bit of effort for a 2 or 3% decrease in a tax for one year.

Why I support Ron Part 2: Dr. No, or "How I Learned to Stop Worrying and Love Iran"

Foreign Policy

There are few things in this country that are more dysfunctional than foreign policy. When I watched the Republican foreign policy debate on Saturday, I heard a bunch of 'conservatives' talk like internationalist liberals. For a party that opposes 'big government' and hates government spending, we sure do like to spend money on foreign nations. I especially like Rick Perry's contention that 'All Foreign Aid should start at zero" as if this was a conservative policy. I think that a conservative policy would be "All Foreign Aid stays at zero" would be a conservative policy. Just giving money to foreign nations makes us want to meddle in their affairs. It's like if the bank were giving you money, they would want to make sure that you didn't buy arms or drugs with it...Wait, banks don't give out money. Foreign policy also turns liberals into tried and true fiscal conservatives, as they care about every penny of government spending and waste that goes on in foreign wars. Further it makes Atheists and Christians sound alike, when we talk about the 'Threat of Islamists." This is a crazy mixed up jumble.

What did the Republicans talk about (Not the sane ones, Huntsman and Paul were sidelined as 'Isolationists," we will get to that in a second)

1) The IAEA report and the threat of Iranian nuclear weapon.

Cain, Romney, Perry, Bachman, and Santorum seemed to fight over who could get the closest to declaring war on Iran without actually going over. They kept saying "Read the IAEA report on Iran's nuclear Activities."

Ok, I am going to stop right there. REPUBLICANS are trusting a U.N. REGULATORY BODY!!! That's right the IAEA is called a 'watchdog' but really they are as bureaucratic as any U.N. agency. So Republicans are appealing to an international government regulator. That absurdity should make anyone laugh. I laughed.



But even more absurd was them telling people to read the report, because I did. The report seems to indicate three things (You can read it http://www.guardian.co.uk/world/interactive/2011/nov/09/iran-nuclear-programme-iaea-report):

1) Iran stopped its structured nuclear weapons program in 2003.

2) Iran continues some work on a nuclear program which may or may not be directed at building weapons, and may be directed at scientific research.

3) Even though Iran has opened up almost all of its research facilities and volunteered information about activities that IAEA did not even know about, the IAEA still demands Iran provide even more reports about its program.

Go ahead, read the report. Find something shocking. I dare you. I will even make it easy for you.

Paragraph 52: Iran has developed a computer model of high explosives! I wonder if the agency will totally undercut the shock value of this about a a paragraph latter...

...Which would seem bad if not for...



...Paragraph 54: Iran contributes to national and international scientific liturature of high explosive computer modeling.

But we all know that Iranians don't do science...except to..er...create nuclear bombs! In fact I have heard that Iran has hundreds of reserch facilities all over their country with potential implications for nuclear weapons construction, they are called 'Science Labs' and they are cunningly concealed in 'schools' to protect them from US attack.

How about this part Annex Paragraph 4 "In October 2003, Iran informed the Director General that it had adopted a policy of full disclosure"

But there are more shocking moments. Like the fact that from 2002-3 Iran initiated the secret Project 111 (Annex 59), which was an attempt to fit a ballistic missile with a nuclear warhead (Annex 63)...or possibly a regular warhead (Annex 63)...which they stopped in 2003 (Annex 59).

Yes, the IAEA constantly complains that Iran is "not in compliance with the Safeguards Agreement." but I would point out that the U.S. is not in compliance with the safeguards agreement on nuclear sharing (https://secure.wikimedia.org/wikipedia/en/wiki/Nuclear_Non-Proliferation_Treaty#United_States-NATO_nuclear_weapons_sharing), Because we won't allow any international government to tell us what to do. But do as we say Iran...or else!

But this really is the very problem with foreign policy. The US keeps asserting its sovereignty when it suits us and then claiming some international agreement or framework when another country does something we don't like.

This is foreign policy. 

So what is a sane person to do? Well we could do what Thomas Jefferson suggested "peace, commerce, and honest friendship with all nations, entangling alliances with none."  That Isolationist!

But at least the Republicans have shown their clear difference with Obama. I mean what is he suggesting against Iran:

http://www.businessweek.com/ap/financialnews/D9R09OLO0.htm

Sanctions and possibly more. Just like the Republicans.

Or we could just lift the sanctions on Iran, Have American culture flood the country, and make them trade partners. If we were buying billions of dollars of oil from them, do you think they would continue to build a nuclear bomb?

But nooooo, we have to continue on the same path they we did in Iraq. Worry about WMD's, sanctions, then a several trillion-dollar war that we can never seem to stop.

For 1 second, look at China. They were a Communist Government with a nuclear bomb. But Nixon went and offered them the hand of friendship and diplomacy. Now they are a huge US trading partner. Sure we have issues with China, but they are not related to them blowing up the world. What if Nixon had developed a hardliner stance against China's WMDs instead of opening up to them?

Ron Paul is not Tricky Dick, but he is willing to engage other nations like Nixon engaged China. That is not Isolationism, it is the opposite, it is treating other nations like equal partners. Not treating them like subjects that can be dictated too.

Republican Scorecard and Debate Review.

So the Republicans had a debate. I decided to assign them letter grades based on completely subjective factors. But it should give you an idea how the debate went.


Mitt (B+):

Romney came out strong with some incredibly boring points punctuated by some nearly fatal missteps. First he tried calling for a private 'bailout' of banks which he quickly corrected to a 'private solution.' Then there was his disastrous answer to health-care questions which lead to him haphazardly defending Romneycare. I will admit that I didn't catch everything Romney said because even in short format, Mitt tends to put me to sleep. His problem is that he is nice and boring, which voters (at least 23%) seem to like, so it may not hurt him. In fact being boring in this debate was a huge plus to him.

Romney's pluses for the night include agreeing with other candidates. He seemed to be making bedroom-eyes at Newt, which seemed to me to indicate that he considers Newt to be VP material. But I think Romney should worry more about what Newt thinks of him, as Gingy is far more likely to be selecting a VP in the near future. Other debate commentators praised Mitt's ability to stay 'on message' although his message is so complicated that I don't consider this a plus. But Mitt did not flub many lines and was able to look somewhat cool.

Cain (B):

In firm contrast to Mitt's snooze-fest was Herman Cain's BOLD solutions (He said it was BOLD about 26 times). Herman Cain is a man of few ideas. Tonight he solidified his status as a one trick pony, as his solution to all political problems seemed to be 9-9-9. He had no response but 9-9-9 and 'not guilty' to any question asked. Well... that's not fair. He did mention HR 3000, but that was only to give himself a health-care plan. And he did mention privatizing Fanny and Freddy (Although given that they are semi-private like the FED, I don't know about that solution). But 9-9-9 is his legitimate baby (ba-dum-ching). Even when moderators said "The Answer is not 9-9-9" he responded that it was a panacea.

Some have criticized Cain for his "Princess Nancy" comment (Headline: Cain attacks 5th woman!). But I have to admit, I laughed...then cringed when I realized who had said it. Cain appears to have realized that as well. Also, I keep hearing from him that people should not be tried in the court of public opinion...unless they accuse him of sexual harassment. Then I guess it is ok to make attacks on their character with no evidence.

Paul (A):

Good Lord, talk about the man with the ideas. First their was Gingy stealing his FED audit, then Romney stealing his HSAs, then Santorum claiming he invented HSAs, Gingy again stealing his Social Security Privatization, almost everyone stealing his block grant Medicaid and SS, and then there was Perry stealing his idea to cut cabinet level departments (I'll get to that latter). Paul is clearly the man with the ideas that everyone wants, and yet he seems to not get much traction. Ron seems to be such a great idea man that Gingy seemed to be making eyes at him I was a little disappointed in Paul for a bit here. He has the great ideas, but he keeps harping on monetary policy, which wasn't great for a short format debate.

But he did get some great ideas out, mostly through other people. His talk about the doctor-patient relationship was the most innovative solution to the problem of health-care. I would love to see a restoration of Doctor-Patient relationship for most healthcare with some kind of catastrophic insurance policy that only covers extreme health events. I really believe that would lower everyone's cost of health-care. Dr. Paul M.D. also made some great points about spending and the hidden taxes within it (see my article on the FED).

Gingy (B+):

Yes, I gave the former speaker a Pet Name. But only because it would make him furious. I still don't like Gingy, mostly because he is still a slimy politician. But I cannot much fault his debate performance. Ok, I lied I can.

Gingy got one out-of-the-blue question, and he flubbed it. He was asked about his 'consulting' with Fanny and Freddy, and he claimed that he was hired as a historian! Of course I don't think that his short period as a History Professor at North Georgia College in the 70's was why major mortgage buyers wanted him on their team. It was far more likely that they wanted him to lobby congress. But this is nothing compared to his claim that he predicted the housing bubble! Which he then proceeded to do nothing about.

Newt's (a.k.a. Gingy) also reverted to attacking the moderator. The fights were sometimes entertaining. When he responded to Maria Bartiromo's question with "30 second is not enough" only to have her counter with "Take as much time as you need" was a great little tiff. Also it gave him the opportunity to talk about his favorite issue "LINCOLN DOUGLAS DEBATES!" I'm sure that spending time talking about debate formating to a public that is loosing jobs and home value might seem callous, but I would kinda like to see that.

But Gingy did have the best debate. He had some innovative ideas. Like referencing the College of the Ozarks, which wasn't really a plan, but it sounded like he was moving to a work-study model for colleges. Also he seemed, and I say this lightly, the most presidential. He really sounded like he knew what he was talking about on most issues. Even if he is a slimy politician, he does understand policy better than Cain or Romney. I would not be surprised to see his poll numbers go up after this.

Perry (Incomplete):

OH GOD!!! WHY!!!

If you are ever a campaign manager, and you have a candidate like Rick Perry, do not let him ever go off cards!

Perry was doing alright. He really was. He gave really short answers. Like 10 seconds apiece. While some others were fighting the timekeepers, Perry never really used his full time for most of the debate. And he was getting through! He was milking his simple messages and sound bites for all they were worth (Plant a Big O'l Flag! America is OPEN FOR BUSINESS!). I thought Perry was going to make it...he almost made it...almost.

And then..OH God! It was awful. As he tried to explain his abridged version of Ron Paul's plan to cut federal agencies. And then...well you can watch...




I don't need to explain anymore. In fact...I can't talk about this anymore. Perry might want to consider getting out of this.

Santorum (C-):

Santorum must have Gingy's gift for foresight as he foresaw both the housing bubble and the health-care crisis. But his new issue is American Manufacturing. While everyone was saying that government shouldn't pick winners and losers, Santorum was picking a winner! Himself. Santorum sees in manufacturing a chance to rally the troops in his home state of Pennsylvania. Bring back manufacturing so that people who aren't smart enough for college can do something, that is is the Santorum way! He wants to cut subsidies to all industries...except manufacturing. And he wants to end regulation that costs more than $100 Billion Dollars. This seems like a weird number, I am sure that he has some regulations in mind. But I have no idea what those regulation ARE because he did not explain.

Bachman (C):

Bachman sounds like she is hoping to get a current events show after this whole Presidential race thing. Every answer seemed to begin with a recitation of current events. But that was likely a plus as I would rather her talk about anything but policy. First she attacks the 1986 Tax Code Simplification signed by Ronald Reagan. And then she starts talking about bankrupting Fanny and Freddy (Which she just admitted holds 90% of American mortgages). But Bachman seems to understand her base better than anyone but Dr. Paul, as she was constantly pandering to the 65+ crowd all night by talking about how much she likes Social Security. Maybe they will watch her Fox show after she drops out of the race.

Huntsman (B):

John is a great guy, who is going to go nowhere. John is the guy who feels your pain, but can't do much about it. He is the one candidate that admits that enacting sweeping legislation won't be easy, but that is not a strong message. He doesn't seem to realize that he cannot connect to voters by saying that government needs to 'keep doing what it's doing' as most people want significant changes in government. He did get in good digs at Romney over the US manipulating its own currency. But John all your ideas are better in Ron Paul form, just endorse him.

Why I support Ron, Part 1: End the FED

The Federal Reserve

If you think that talking about the Federal Reserve and monetary policy is both boring and a little crazy, believe me, I was with you for much of my life. The thing that drove me away from Ron Paul supporters in 08 was that they talked about "Ending the Fed." This sounded like an ephemeral and strange issue that was the realm of obscure economist and the tin-foil-hat crowd. If you remember only "supply and demand" from college econ, as I did, you would likely think this is a non-issue.

But that is the strange thing about supporting Ron Paul. The more I look into the issues, the more I see that the things he talks about are things that really matter. His campaign is as much about raising awareness of these issues as it is about him being elected president. So I am going to tell you why I find this relevant, and I am going to state things as plainly as I can because I am not an economics person (In fact I don't even know what that would look like, glasses maybe?).

1) The Fed (and the President) are making us poorer.

How do you define your wealth? Is it in the amount of money you have or the laughter of your children? Well, if you are like me you don't have children...so I guess I am left with money. I kinda always assumed that money was a mostly fixed quantity, a dollar is a dollar. But have you tried to use a dollar to buy anything recently? I tried to buy a soda from a vending machine the other day, it was $1.75! Are these the same prices I had when I was a kid? Of course, you who didn't sleep through economics have already figured out why I can't buy anything (except from McDonald's) for a dollar; inflation.

I knew about inflation but I never really understood why it was important. I though it was just the natural course of economics to have some inflation. The government printed more money in response to a growing economy...blah, blah, blah. But what I didn't understand was this; Inflation wasn't a byproduct of economics, it was actually a goal of the Federal Reserve. The Fed wants to keep an 'elastic' money supply. To do this, they need to keep printing money when the economy grows, and then reduce the money supply when the economy shrinks. But they don't always keep with the market. Even more, since our money does not have theoretical limit, instead of money increasing in value with the expansion of the economy, the price of money is kept low. While low money cost might be good if you wanted widespread lending or you are trying to sell cheap goods overseas (like we demand China stop doing), the fact is that inflation makes us poorer. In times like we live in now, in which most of us have flat or no wages, cheap money makes us poorer. Our money is worth less, and our wages are not inflating to compensate.

So you would think in a depressed economy that the FED would slow down the money supply, but the FED doesn't actually care about you. Recently, President Obama realized that he could have the FED buy all kinds of things because it can print money. So the FED printed up all kinds of money and bought $600,000,000,000 of mortgage backed securities (AKA Toxic Assets) from banks. To put this in perspective, $600 billion is about 4.2% of our GDP. The banks wanted the FED to take these assets off their hands because they were likely losers. The FED, for reasons you will see in part 2, was more than happy to oblige. But to buy these assets, the FED had to print money, thereby inflating the money supply. Obama gets a big win, as he can claim that the Federal Deficit did not go up. But America gets a deflated money supply.

So that would be enough, but the FED keeps buying things. The FED is currently promoting its 'quantitative easing' or QE. What is QE? Well it's like the above, but instead of buying mortgage backed securities it buys government bonds. Congress loves this idea, because money from bond purchases go into the money Congress can spend. Even more, Congress can spend money AND reduce the deficit because the bond purchase counts as revenue. The only cost is that when Congress does this, our money is worth less. From April to June of 2011 the FED bought $600 billion worth of Treasury Securities and they keep buying more. Everyone wins...well if you are Congress, Obama, or the FED. If you are just a citizen with money that is less valuable you kinda get screwed.

Oh and we are still doing quantitative easing, we are just more quiet about it. Oh and Obama's new student loan program, guess who is going to assume that debt? Guess how we are going to pay for it? but Obama can claim that it doesn't 'add one cent to the deficit."

But I don't blame the FED for this. You see they can't help it, it is in the nature of the beast.

2) The FED made in Hell.

You may wonder why the FED is this way.

You see back in 1907 there was a big financial panic where the stock market fell 50% in one year. Renowned Industrialist (and robber baron) J.P. Morgan and other bankers had to shore up the banking system with pledges of their own money. Morgan did not like having to put his own money at risk, and thought "Wait I can put the government's money at risk instead of mine!" Shortly thereafter Morgan's close friend Nelson Aldrich (No relation) proposed a central bank that would control the nations money supply. Aldrich wanted a non-political (i.e. private) central bank, progressive democrats wanted a public central bank under the control of congress. In grand bipartisan fashion they resolved to adopt the worst of both, and the Federal Reserve was born.

The Federal Reserve is a semi-private corporation created by the U.S. Government. It is private in that a board of directors in that private banks elect part of the FED, it is 'semi-private' in that parts of the Fed are appointed by the President. The private banks of the United States appoint 6 of the 9 directors at each of the 12 Federal Reserve banks. Now the structure of the Fed is a little complicated so I will try and explain it. The President, with the advice and consent of the Senate appoints the Chairman of the Fed and the 9 member Board of Governors (BOG). Now there are 12 Federal Reserve banks across the country which each have a 9 member board of directors. Banks appoint 6 of these directors, and the BOG appoints the other 3 at each bank (108 directors in total). The 12 Federal Reserve Banks then appoint 5 of their 12 board presidents to the Federal Open Market Committee...OH SCREW IT!!! This is very complicated, just look it up on Wikipedia.

Suffice to say, the inmates are running the damn asylum. Private banks have their hands all over the Federal Reserve banks, and the President has his hands all over the BOG. This is a marriage made in the worst parts of Hell. The Fed is the worst kind of corporation. It has the imprimatur of the Federal Government on its actions, but it has all the freedom of a private bank to do whatever the hell it wants. It has none of the accountability or transparency of the Federal Government (Which is not saying much) and none of the market or tort liability that a private bank would have if it was screwing the American public. In fact we cannot 'vote with our dollars' because they HAVE ALL THE DOLLARS! The government has given the power to regulate banks and print money to an unaccountable organization. Which wouldn't be so bad if it weren't screwing us, but it is screwing us....

I know I got a little emotional there for a second. But this is why I think people go a little crazy about the FED. It is an insane system. It wholesale gives control of our money to an organization which is at the same time 1) Accountable to banks and 2) Unaccountable to voters. And we let it go on without so much as report on what they are doing with all this money and power.

But this all gets worse when you consider the incentives of the FED. The FED has an incentive to appease banks and the President. So if the the President wants to create a massive federal program, like a bank bailout, he can have the FED assume the loans. If banks need someone to shore up their finances, the FED guarantees their assets and infuses them with cheap money. It is a crazy system, and it has to end. END THE FED