Mark Schmitt

Security Is Opprtunity

Regular readers know that I've always seen the Bush Social Security plan as, more than anything else, an attempt to create a showdown between big concepts: Opportunity and Security. Let the Democrats be stuck with Security -- dull, backward-looking, wear-your-mittens, protect-the-losers government security programs. The Republicans, win or lose, become the party of Opportunity -- a little risk in return for progress, dynamism, information-age, "Dow 36,000," take-responsibility-for-yourself, find-the-winner-within-you shiny new Opportunity.

(I'll let the Lakoff fans graft their "nurturing mother"/"strict father" archetypes onto those alternatives. That's not my game.)

That this dichotomy has unraveled as thoroughly as the proposal itself is clear from a recent change in Bush's rhetoric and that of privatization supporters. Trying to salvage something not laughably inconsistent from their many turns of phrase in the last two months, they have taken to describing Social Security itself as "wobbly" and uncertain, while private accounts are secure and "safe" because the government can't take them away. Of course, this is all nonsense from a pre-New Deal netherworld in which the government must never provide any security because what the evil, alien government gives the evil, alien government can taketh away.

But rather than rebut that silliness in detail, let's just note that it is the death rattle of the entire ideological gambit. Because the whole point was supposed to be about risk: ownership and risk, opportunity and risk, personal responsibility and risk. Capitalism and risk. For ten years or more, Americans have been asked to choose between risk and security, and every time, risk has seemed to win. Now, in the ultimate battle between risk and security, the first one in which the choice was made explicit, security won without a shot being fired.

This is one major point (or perhaps my interpretation of it) of Greg Anrig's excellent article from last week: The President's Gift:
The Social Security privatization battle gives liberals more than just a good shot at a legislative victory. It gives them a chance to define themselves, which I highly recommend reading in full. Anrig writes:

Elizabeth Warren, Amelia Warren Tyagi, and Jacob Hacker have demonstrated in recent books that American families across all but the highest rungs of the income ladder today confront a wide array of intensified financial pressures imposed by the market forces that conservatives extol. The list includes rising health-care costs, decreased job security, less stable family incomes, unprecedented levels of household debt combined with negligible personal savings, less reliable pensions, and escalating child-care expenses. Because economic globalization and other free-market dynamics are the very source of those strains, the conservative response -- let the market take care of it -- is worthy of ridicule.

A credible and appealing liberal response to those widespread anxieties should be explicitly connected to the public?s evident enthusiasm for Social Security. To protect families against significant and unexpected hardship due to the heightened risks of the marketplace, progressives want to build a broader system of insurance expanding from Social Security?s cornerstone.

I worry that Democrats, trapped once again in the blinders of "policy literalism," will not fully understand this broader message. The conclusion they will draw is that Social Security is popular, Democrats protect Social Security, Republicans tried to cut Social Security. They will run predictably alarmist ads next fall that are all about Social Security, not about security. And once again, as in 2002 and 2004, they will have no message at all for all the people "across all but the highest rungs of the income ladder [who] confront a wide a array of intensified financial pressures."

That's worry #1, easily solved if people like Anrig who get it and are in some position to influence public debate pound this point home aggressively.

Worry #2, though, is still the security/opportunity tradeoff. Security is not sufficient as a way "for liberals to define themselves." It's not enough, and in fact, it's not what liberalism is. There is something to the idea that there is a difference between the industrial economy and the information age economy, and the difference is that fewer workers feel they are passive pawns in a large company that will govern their life. They feel, or want to feel, that they can make their way in an economy that is changing and challenging, that demands skill and rewards initiative and risk. They want a government that does more than catch them when they fall, but that helps them move forward, and eventually capture some of the rewards that go to capital in this economy.

I think liberals, then, need to find a way to capture both sides of the security/opportunity tradeoff. And it is not hard to do. It involves making clear that security is the platform for opportunity. Security means giving people what they need to make their way with confidence, and to take chances, in a risky, dynamic, uncertain economy. So, for example:

** Social Security, by providing a guaranteed base income in old age, adequate to escape poverty if little more, allows everyone to take much greater risks and reap greater rewards with the rest of their retirement savings.

** Unemployment insurance -- if it worked properly -- would allow you to take a job at a startup company without worrying that the company might fail, or to take some time to learn a new skill after losing a job.

** FHA loans and mortgage insurance allow people to stretch their savings and become owners of real property. Such security programs were central to the creation of the largest middle class in the world's history in the postwar decades, the high tide of liberalism.

** Broadly available health insurance that's attached to the individual rather than the job allows you to quit a job that's going nowhere and take a chance on something new.

** Asset-building strategies such as those proposed by my colleagues (as opposed to the Bush tax preferences for the rich that masquerade under the same name) can eventually give people the most powerful piece of security that any family can have: $10,000 in the bank.

And I could go on but I need to keep this post from spiralling out of control. The point is that liberals and Democrats cannot pause for a minute to enjoy the victory on the program called Social Security. As Anrig says, we have to first convert the victory into a message of commitment to economic security more generally. And second, we need to show that such security is not an alternative to the opportunity society or the ownership society, but deeply intertwined with making the promise of ownership and opportunity broadly available.

The Budget Process and the "Death of Deliberative Democracy"

I have now read most of the report on "The Death of Deliberative Democracy" in the House of Representatives, put out by Rep. Louise Slaughter, and it's very nicely done. It spends a lot of time on the more familiar anti-democratic practices in the House -- the practice of bringing bills to the floor under closed rules that allow few amendments, the abuse of the conference process, but it also brings up issues that I had never heard mentioned, the most interesting being the fact that they now use all of Wednesday for bills on the "Suspension Calendar" -- noncontroversial items such as naming courthouses -- leaving only one day of the week for actual legislative debate.

But there is one aspect of the death of deliberative democracy that the report does not touch on -- partly because it's less of a concern in the House than in the Senate -- and that is the abuse of the budget process. Consider what happened this week, almost unnoticed in the midst of the bankruptcy bill, the Bolton nomination, the slow death of the Social Security phase-out: the House and Senate budget committees each produced the first versions of the Budget Resolution, the document that starts the process. The budget resolution doesn't go to the president; it doesn't have the force of law. If you read it, the bill itself is just a set of numbers, in numbered categories known as "budget functions" that don't quite correspond with cabinet departments or congressional committees, followed by "Reconciliation Instructions" to various committees.

This is a good example of a situation where Reading the Bill provides no information at all. The instructions to the committees, under the heading "SUBMISSIONS TO SLOW THE GROWTH IN MANDATORY SPENDING AND TO ACHIEVE DEFICIT REDUCTION," read like this one:

EXPIRING TAX RELIEF.?The House Committee on Ways and Means shall report a reconciliation bill not later than 14 June 24, 2005, that consists of changes in laws within its jurisdiction sufficient to reduce revenues by not more than $____for fiscal year 2006 and by not more than $____ for the period of fiscal years 2006 through 2010.

The italics are mine, and the numbers are blank in the version on the committee's web site. Presumably they were handwritten in the morning of the markup. The second number, I believe, is $45 billion.

It's really important to understand how this mechanism works: Sometime as late as the night before the markup, someone writes a number into that second blank space. The budget committee then passes the resolution on a party-line vote, in the course of a few hours, tossing around numbers in the hundreds of billions almost as casually as I wrote about total revenues as a percent of GDP earlier today. The resolution then goes to the House, where no amendments will be allowed. The Senate follows its own, similar, process, and while amendments to the resolution are allowed, the time is strictly limited and most will be voted down on party line votes. The resolution will then go to a House-Senate conference and the conference report will then return to the House and Senate, with no opportunity for amendment. (In at least one recent year, the House and Senate couldn't agree on a conference report, and pursued their separate plans.)

After that, it's up to the committees to comply with the "instructions" in the resolution. As indicated above, the Ways and Means Committee is ordered to cut taxes. They can debate all they want about how to do it, but they are ordered to do it. In other cases, the instructions create very specific requirements. In the Senate resolution, for example, the Energy committee is instructed to come up with a certain amount of revenues. Since that committee doesn't control taxes, there are very few ways they can do that. The one they have in mind is to sell oil leases in Alaska, thus putting the issue of drilling in ANWR onto the protected budget resolution.

After the committees comply with these instructions, the bills they pass are packaged back together into a "reconciliation" bill, which again goes through the House and Senate under restrictive rules, goes to conference -- where altogether new elements may be added -- and returns for final passage.

Now, where in that process is there an opportunity for real debate and bipartisan participation? Nowhere. A decision is made the night before the Budget Committee markup about what number to write into one of those open slots. From there, a series of "we have no choices" choices are generated, that might lead to further tax cuts or to opening ANWR. Only a significant number of Republicans declaring that they will vote against the whole thing can derail this process.

It's possible to understand this process as a way of reducing deficits, which was the procedure's original intent. As it did in the Reagan, Bush I and Clinton eras, it forces Congress to make choices in the aggregate that it does not want to make in the particular. But used as a procedure to cut taxes and increase deficits, and to push through other unrelated policies such as ANWR, it is simply an outrageous assault on democracy.

Yglesias on Revenues and GDP

Rather like finding a Picasso sketch in the back of your grandmother's attic, these points by Matt Yglesias appeared in the comments on my post about Matt Miller's "Secret Number" column, and are worth highlighting. Since he says he doesn't want them for any of his three other outlets, I'll pull them up here:

It's an interesting piece, but it's too bad that Miller elides the issue of "keeping overall taxes as a share of GDP at levels that don't hurt economic growth" with the issue of "without pushing taxes beyond levels Americans are likely to support." The levels Americans are likely to support is, of course, a variable that Matt Miller has a small share of influence over. The level at which the tax burden starts crushing economic growth is another matter. When Miller responds to 28 percent of GDP with "yikes!" but no analysis of why that's such an objectionable number, he merely contributes to the continuation of the status quo where we need to have serious controversy over whether 21 percent of GDP will somehow strangle the economy.

And, of course, one also needs to keep state and local taxation in mind, since right now total public sector revenues are at 31.2 percent of GDP, which is a lot higher than 16.3. Assuming no change at the state and local level, raising federal taxes to 28 percent would bring the total to 42.9 percent.

Plenty of countries with reasonably strong economic growth have higher tax burdens than that. Some countries -- like France at 50.7 percent of GDP -- have way higher tax burdens. But perhaps we think French economic performance is not-so-great. Still, we look at Germany with total taxes of 43.9 and see that it's not doing any better despite the substantially lower tax burden. Iceland is at 46.0 and posted 5.9 percent real GDP growth in 2004 following 4.1 percent real GDP growth in 2003. The low tax USA was 3.0 percent and 4.4 percent respectively. Poland, at 42.3 percent grew 3.8 percent and 5.4 percent.

So I don't see any real reason to think Miller's "Yikes!" number is actually some sort of impossible policy nightmare that we must fight at all costs. The trick is convincing people of that fact.

Very well put. (Matt Y assures me that he does not have economic and public spending data for Iceland on the top of his head but that "it happened to be on my desk," which is plausible but begs the question, "How did it get there?" Just what is Tomasky making those kids do??) Why is it automatically "Yikes" for the public sector to take up 28% of GDP. Sure, that's more than we've spent over the last two decades, but Miller is presumably looking out beyond the next decade, although he doesn't say. Why shouldn't we have much higher government spending, if that's what the circumstances demand? And who is to say that such a percentage circulating through the public sector would necessarily slow economic growth in the future. Wouldn't letting the retirees of that era slide into near-poverty also slow economic growth?

Matt Y doesn't say this, but the thought that his comments led me to is that Matt M's mistake is trying to look at budgetary and demographic trends in a very big picture way, deep into the future, and then interpreting that data through the very narrow political and economic constraints of the present. Yes, if you tell me that we're going to need 28% of GDP for federal taxes in FY 2006, my reaction is "Yikes," too. But why should that be so frightening ten or twenty years from now? We've just seen a swing of 5 percentage points in this figure in four years, without notable economic benefit; why is it hard to imagine a significant swing in the other direction? I know some fairly conservative people in finance who talk about building into their assumptions a significant shift toward public spending and investment in the coming decades -- they see it as inevitable, not a political choice, and not necessarily a bad thing.

On revisiting this, I'd also like to ask Miller to show his work. He refers to Alice Rivlin and Belle Sawhill's forthcoming book as the source, via "triangulating," for his 28% figure. I believe this book is a follow-up to the work they did last year in the Brookings Institution project called "Restoring Fiscal Sanity," the executive summary of which is here. In that report, they presented three scenarios, which had a Three Bears quality to them -- the "Small Government Plan," in which life is solitary, poor, nasty, brutish and short even with tax increases, the "Large Government Plan," which is the equivalent of what Miller calls "the full progressive monty," and the "Better Government Plan," which includes some very significant sacrifice on entitlement spending. Pick a card, any card. But rereading Rivlin/Sawhill's report from a year ago, even the straw-man "Large Government Plan" only reaches 20.9% of GDP in 2014. That number might be slightly higher now as the cost of the Medicare drug plan has been acknowledged or with new data on health inflation, but it shouldn't be radically different. We need to know more.

And, finally, a brief comment that was totally true: This whole thing is really about health care. If we got health care right, in a way that brought Medicare under control as well as extending coverage to those who need it, we wouldn't even bother talking about abstractions like revenue as percent of GDP.

What's the Number?

Matt Miller has a new column in Fortune, which I don't usually read, so I'm a little late on this, but it takes up a topic that we're likely to hear more about in the future: Just what percentage of GDP do we need in taxes, over the long term, to pay for what we expect from government?

The column is available to the un-Fortuneate here.

Miller puts the issue in rather starkly political terms:

The challenge for Democrats, and for anyone else seeking a coherent view of political economy in the era ahead, is this: How do we propose to make the health and pension programs for seniors sustainable while also paying for needed nonelderly initiatives? And how do we do all that while keeping overall taxes as a share of GDP at levels that don't hurt economic growth (without pushing taxes beyond levels Americans are likely to support)?

"I don't think that conversation has yet taken place in the heads of most Democratic economists," says Robert Litan, a former Clinton aide who heads up policy research at the Kauffman Foundation. Many who urge tax hikes to fix Social Security assume we can also raise taxes later to achieve those other goals. But they've never laid out a macro budget that adds this all up. Still, there has to be number locked inside their heads that captures how high taxes as a share of GDP should go to cover the full progressive monty. Think of it as the Democrats' secret number.

So what is it? Triangulating from chats with economists, plus a glimpse of a coming book edited by Isabel Sawhill and Alice Rivlin of Brookings that will (finally) frame these issues explicitly, I'd say the number is somewhere around 28% of GDP.

Well! Federal taxes today are at 16.3 % of GDP, historical lows not seen since the 1950s. At the end of Clinton's tenure, taxes reached nearly 21% of GDP, a historical high. As the boomers retire, everyone knows taxes are going up. Newt Gingrich recently told me so himself. But 28% of GDP? Yikes.

Revenues as a percentage of gross domestic product is a very strange, abstract concept to base policy around. Outside of the extremes (Kim Jong Il=100%/Grover Norquist, foraging for nuts and berries=0%), it's hard to know how to argue for one alternative over another. I found myself in a debate the other day which degenerated into shouting out percentages, and finally settling on X.5%. (The X is priveleged insider information, but it's not "28," trust me.) It's a very weird experience -- what are you really discussing?

But we're going to be discussing it a lot. It's the sum of all the promises we've made and all their implications. Matt's is a very good way to put it. And to see how far Democrats are from acknowledging it, consider, for example, that the Center for American Progress, where Miller himself hangs his hat, recently put out a tax plan, which pointed with pride to the fact that it would raise revenues to only 17.2% of GDP on average over the next ten years. (Miller's time horizon is presumably much longer, though.)

I think it's a little unfair of Miller to call this "the Democrats' secret number." It's the number of anyone who doesn't want to cut existing programs and who believes that eventually we will have to deal with health care. What's the Republican secret number? Who knows? And what's the gap between the Republican secret number on spending and the Republican secret number on what they think revenues should be?

In short, what Miller is saying is that even if we didn't need to recover the 5% of GDP lost to the Bush tax cuts, even if we stop the giveaway of trillions more, even if we dealt in some reasonable way with the modest long-term Social Security funding problems, the years ahead are going to be a long ugly slog of compromises and cuts. That's exactly what reasonable economists were warning about in 2000, and we should have heeded the warning then.

The Right-Wing Blog Operatives

There seems to have been some weirdly negative reaction to Garance Franke-Ruta's article on right-wing bloggers and internet activists, especially on one of my favorite new sites, Personal Democracy Forum. I thought it was a very interesting article, with a lot of good research, as was Michael Crowley's piece on how these blog-operatives bully local media.

The criticism of Franke-Ruta's piece seemed to be mostly provoked by people who thought she was making a big point, which they disagreed with -- e.g. right-wing bloggers bad/left-wing good, or bloggers aren't real journalists. Maybe there was a little too much language indicating she was trying to make a generalized point, but mostly it was just a story -- that is, journalism, check it out -- about some people and the things they did. James D. Guckert, Maryland GOP slime artist Joseph Steffen, the Powerline guys, the Daschle-v-Thune bloggers and some other right-wing operative-bloggers have a somewhat similar M.O. -- they're not quite who they appear to be, they operate somewhat under the radar screen, they are financed in dubious ways, they collaborate in a fairly deceptive way with political operatives. And she put these stories together at a level of detail I had never seen before, allowing me to see some parallels. I'll leave it to her to answer specific charges of inaccuracy, but on the whole, the story was very revealing.

This is related to the issues of political coordination raised in previous posts here. One good suggestion that came up in comments was that there might be a kind of code-of-conduct for blogs, to disclose any relationship with a political campaign. I think that's an idea worth considering. Perhaps Bloglines or technorati or a similar aggregator site that people want their stuff to appear on could mark certain blogs as adhering to a basic code of ethics, or answering certain core questions that a reader might want to know, not limited to political campaign affiliations: Is producing this blog part of your job responsibilities? Do you make a living in a company/industry/campaign that is related to the topics you write about? Do you have other affiliations relevant to your blog? etc. It would be a certification somewhat similar to the "Real Name" badge that can be used on Amazon reviews.

I've come to think that there are a number of reasons blogs can be a superior forum, for both readers and writers, than most op-ed pages. Flexibility of format is one advantage; another is that readers feel they know more about where the author is coming from, which is always the key to reading critically. I can put the opinions of, say, Brad DeLong in perspective, in part because I know his credentials, but also because I feel like I know him a little bit, his assumptions -- certainly far more than I would know from an author ID on an op-ed: "the author is a professor of economics at Berkeley and a former Treasury Department official." Like the vast majority of bloggers, I let enough of my life in that people know what my job is as well as previous jobs. They probably know that I've worked on one political campaign as an adult, and for eight years drew a paycheck from George Soros's Open Society Institute -- so I'm waiting for the right-wing to start labeling this "the Soros-Funded Decembrist," as they recently have started doing with David Brock's Media Matters For America, even though Brock is explicitly NOT funded by Soros or his foundation. (In fact, I'm beginning to wonder who I have to sleep with to make it onto David Horowitz's "Discoverthenetwork.com"? I might have to switch over to the dark side so I can at least get a slot on John Holbo's hilarious DiscovertheNutwork.com)

Anyway, all that aside, I guess this is nothing more than the old "On the Internet No One Knows You're a Dog" problem, but it does seem like the right is a little better at using the medium as an extension of shady attack politics, as opposed to straight-up, DailyKos-style attack politics. Both Franke-Ruta and Crowley capture some of that weird subculture.

The Most Important Right?

Kevin Drum sets me up to make one of my favorite rhetorical points. Writing about the question of voting rights for people who have completed their sentences for felony crimes, and responding to an inane point from National Review Online, he says,

If you asked me to name the most fundamental rights of U.S. citizen -- the absolute minimum core that we could have and still call ourselves America -- I'd name three: freedom of speech, the right to a fair trial, and the right to vote. The government should not be in the business of limiting any of these things except in the most extreme cases.

It's not just Kevin's opinion that these are fundamental rights. There is actually an "official" answer to this question. If you become a naturalized citizen of the U.S., one of the questions on the test is likely to be, "WHAT IS THE MOST IMPORTANT RIGHT GRANTED TO U.S. CITIZENS?"

If you answer, freedom of peaceful assembly, or freedom to worship as I please, or either of Kevin's other two, you're Wrong. Back on the boat, Sergio! The official Most Important Right, according to our government, is, The right to vote.

I assume what they mean by this is that this is the most important right that one gains upon becoming a citizen that one did not possess as a legal permanent resident, but it isn't at all clear. But Kevin's point is correct: if this is "the most important right," why should it be taken away for life on a felony conviction? Long after a person has completed a sentence, and regained most (though not all) of his or her other rights, this right is still denied in Florida, Texas and many other states.

And this raises other questions as well: If the right to vote is "The most important right," why is it the only right that you have to register your intent to exercise months in advance? We should not only allow felons to vote -- frankly, I would allow people to vote while incarcerated, as learning the habits of citizenship is part of preparing to reenter the community -- but also allow immediate voter registration on the day of the election, or abandon the concept of voter registration entirely. Show up with any proof of residence and citizenship, and you can vote. Your name is immediately entered into a state-level computer system so that you can't vote again that day, and won't need ID in the future. There's no reason it can't be that simple, and if this is truly "The Most Important Right," we would do it.

The "Everyone Uses Turbo Tax" Fallacy

Matt Yglesias yesterday picked up on a point I made in parentheses the other day: That a flat tax (that is, a system with a single marginal rate) is not necessarily a simple tax, and a progressive tax (multiple marginal rates, rising with income) is not necessarily complex. The complexity, he notes, comes from the complicated definition of income. He points out that for anyone who uses Turbo Tax, the number of rates is invisible.

And a commentor noted that you don't even need Turbo Tax to make a progressive tax system simple. You can just use the tax table and fill in the number on the proverbial postcard, as long as the definition of AGI is not too complicated. But Turbo Tax also hides some of the complexities in that definition, and in the different rates for dividend and capital gains income that have been introduced into the tax code in the last three years.

The Washington Post, in a personal finance story over the weekend, described the current tax code well:

The [four tax bills of 2001-2004] have taken a tax system that was already complicated enough and turned it into a kaleidoscope of annually changing brackets, limits and rules.

Provisions blink on and off like lights in Times Square. Benefits scheduled to expire are extended -- or allowed to expire and then extended. Benefits scheduled to phase in are suddenly accelerated, but their scheduled expiration date is left in place.

Simplification has always been one of the key principles of tax reform, but the argument that "everyone uses Turbo Tax" takes some of the steam out of the argument. That's unfortunate, not only because the tax code has become staggeringly complex, but because simplification helps strengthen some of the other elements of reform, especially the argument for the type of fairness known as horizontal equity -- treating similarly situated taxpayers similarly. Abandoning simplicity as a goal also means that tax reform, unless it cuts taxes for a significant portion of the population, which is not possible now, doesn't have much to offer average voters.

But I would still put a high priority on simplification in one area: simplification for low-income workers. Over the last few decades, we've shifted much of our social policy to the tax system, partly because tax breaks are politically easier to sell than direct spending, but also as part of shifting from a broad social safety net to a system of support linked to work. The payoff to work as opposed to welfare is now, in theory, much higher than in the past, and the combination of the Earned Income Tax Credit, the Child Credit, the Dependent Care Tax Credit, and the refundable Additional Child Tax Credit can put real dollars in the pockets of low-income working families.

It does so at a cost: enormous complexity for low-income families, the people least likely to use Turbo Tax, and who shouldn't need to use Turbo Tax. The four different credits intersect in complicated ways, and treat income in unusual ways. Even within Turbo Tax you can see the complexity for low-income families. It used to be that in the course of doing my taxes, usually on paper, I would look at some forms or deal with various questions from the software that looked very complicated, and realize with relief that I don't need to deal with that because that's for rich people. Now I look at forms like the Additional Child Tax Credit, and breathe a sigh of relief that I don't have to deal with that nightmare because it's for poor people. Whether tax rates rise with income or not, I think it's reasonable to expect that complexity should be much less at the low end than at the high end. Yet the opposite is case since 2001.

This complexity also sucks away a huge amount of the value of the tax credits that have become the main way to support low-income working people. The complexity drives people to tax preparation services, which not only charge their own fees (average, $120), but also encourage people to take Refund Anticipation Loans, which as far as usury goes, makes the credit card industry look like UNICEF.

As I was writing this I started to look into Refund Anticipation Loans, which I knew were not a good thing, but I didn't know the half of it. According to the National Consumer Law Center, 12.15 million taxpayers took these 7-14 day loans in 2003, paying effective interest rates that ranged from 70% to over 700%. Half of the people who took these loans were recipients of the Earned Income Tax Credit. Almost 80% had household incomes below $35,000. A majority didn't realize it was a loan. Tax preparation fees combined with RAL fees average about $250. When you consider the big deal that was made about a $600 child credit, you can see how much is lost through this scam.

It's worth noting that these "loans," unlike the credit card debt at issue in the bankruptcy bill, are made at zero risk to the lender,

One approach this scam is to try to stop tax preparation firms like H&R Block and Jackson-Hewitt from promoting these schemes, or to force them to reduce their fees, which apparently ACORN and the Children's Defense Fund are succeeding at doing. The firms probably rationalize that if they can keep collecting the tax prep fees, they can live without some of the RAL business. But we can also strip away the demand for these services. A basic principle for tax reform should be that family earning less than the median income, principally from wages and salaries, should not need any help preparing their taxes. That could be achieved with a single unified credit incorporating the various aspects of the four main credits, as well as others, in the simplest formula possible. (Max Sawicky has been pushing this for years.) Among other benefits, it would ensure that the government gets its money's worth for this investment, rather than sending a huge portion of it to the tax preparers and refund lenders.

Could the "Daschle v. Thune" blog be regulated?

One question that has come up in the comments about the FEC and blogs is whether the Daschle v. Thune blog, whose operator turns out to have been paid by the Thune campaign, could potentially be regulated. Last night, in an e-mail exchange with a reporter, I said that Daschle v. Thune was probably the only kind of blog that there was even a remote possibility of regulating, under the most maximal regulatory scheme possible. Thinking about it more, I'm not even sure that's possible.

Remember that even when dealing with television ads or paid internet advertising, the only issue is coordination. Even buying ads that expressly advocate voting for a candidate would not regulated as an in-kind contribution subject to limits unless it was coordinated with the campaign.

So Daschle v. Thune is the rare case of a blog that appears to have been seriously coordinating with the campaign. The payments are evidence of coordination. On the other hand, the fact of the payment means that the Thune campaign paid for the blog with hard (that is, regulated) campaign money. That's how we know about it, because it appeared in their campaign reports. So if the campaign was really paying for the blog, then the bloggers were vendors, not contributors. There is an ethical problem here -- probably one that can also be found in the commercial world -- but not a campaign finance problem. If the bloggers were paid for some other service  to the campaign, they could still be doing the blog without any coordination with the campaign. And even if it was coordinated with the campaign, and it was just a blog that people reached by choosing to go to the Daschle v Thune blog, I don't see how it could be regulated as a form of advertising, because it's not.

Someone else asked me to say more definitively that McCain-Feingold didn't require or permit regulation of blogs linking to campaign web sites, rather than talk mostly about Brad Smith's motivation. Sorry, I should have done that: McCain-Feingold does not require regulation of links on blogs, or any other activity by independent bloggers.. No member of the FEC, including Smith, has said that they favor such regulation, including Smith. If this changed and  they did enact a regulation that went so far as to treat links on a blog as a campaign contribution, a court would throw it out, on either statutory or constitutional grounds.

On MyDD, Jerome Armstrong links to a very definitive press release from Mark Glaze of the Campaign Legal Center, and a book chapter on political communication and the internet by Trevor Potter, himself a former FEC chair. (I knew Trevor had written something on this recently, but I hadn't been able to find it yesterday.) Jerome remains unconvinced:

this has everything to do with coordination. Whatever regulations are placed upon advertising and soft money online, there must be no regulation whatsoever that would prevent or restrict any form of coordination between bloggers and campaigns. To create barriers to such coordination would effectively destroy online, networked, grassroots political action on behalf of political candidates, parties, and committees. This is the second pillar of netroots action, and the pillar that currently distinguishes the left wing netroots from the right wing netroots.

He's right that coordination is the only potential basis for regulating any internet communications. But after that, I have no idea what he's talking about. Coordination is the key that distinguishes the left wing from the right on grassroots/netroots activity?? I think it's exactly the opposite, as with the Daschle v. Thune example and certainly the Swift Boats. I don't know everything that went on last year, but I think there's very little, if anything, that Kos or Jerome did that would meet any reasonable definition of coordination with campaigns. They were sometimes trying to echo campaigns, and help them as outsiders, and drive people to the campaign sites, but that's not coordination. And I'm sure people talked to each other. But that was also a very minor part of their appeal. Strategizing together with the campaign about the text of an ad, and then blasting that ad all over the internet, would be coordination. But that's not blogging, that's something else.

It is very tempting, as one gets into the paradoxes raised by trying to limit the influence of money in politics without limiting speech, to want to throw out the whole thing. Maybe Brad Smith had a point all along. And I confess, I've been working on campaign finance reform issues for almost ten years now, and there are many moments when I feel this way. It's not an insane position. But bloggers should ask themselves: Have you written anything about Tom DeLay? Are you glad to hear that his bagmen are on trial? Do you think he belongs in jail too?  If you answered yes, then perhaps you don't want to live in a world where anything goes in the world of money and politics.

Will the FEC Ban Blogging?

I've been encouraged to comment on this interview with Bradley Smith, chair of the Federal Election Commission, in which he suggests that the agency might have to regulate blogging as a form of political spending. Before I got a chance to write a comment, I noticed -- via Josh Marshall -- this blog post contending simply that Brad Smith is a liar.

That's mostly right. Even without calling him a liar, it's enough to note that Smith, a Trent Lott appointee to the commission, opposes all campaign finance reform and the very existence of the agency that he chairs and that pays his salary. If he says that the FEC might have to regulate bloggers linking to campaign web sites, it's certainly not because he wants to or thinks the FEC should regulate such activity, or any other. It's because he wants to make the argument that the current trend in regulation might lead to that point. And he would find it useful in his own deregulatory campaign to get the internet activists worked up about a threat to them (us). He's not saying this because the FEC is actually about to enact this regulation.

This is reminiscent of those "Congress is about to tax the internet" scares of a few years ago.

Two points of context: Smith's argument here is clearly with Federal Judge Colleen Kollar-Kotelly. And his fight with her is about far more than just internet communications. Over the past two years, first a Smith-led majority on the FEC gutted the major provisions of McCain-Feingold while ostensibly writing regulations to enforce them, then a 3-judge panel that included Kollar-Kotelly upheld the law, and then Kollar-Kotelly ruled that the FEC had overstepped its bounds in writing regulations that in some cases altered the language of the statute. The ruling that the FEC's broad internet exemption was not justified by the law was part of a much broader rejection of the agency's attempt to rewrite the law. Smith is arguing here that if Kollar-Kotelly's view that the FEC can't rewrite the law prevails, the results will be that bloggers will be restricted.

And if that gets bloggers charged up to call their members of Congress and attack the FEC, that's fine. It all serves Smith's interest in getting rid of the agency and the laws it enforces.

Alternatively, Smith's comments can be read as a plea for some help from Congress. Forgetting that he is an ideological opponent of all regulation and treating him merely as an earnest bureaucrat trying to do his job, he is basically complaining that Congress punted on the Internet issues (true) and that they should provide some definition, lest his agency be forced to do it for them.

And that is fair enough. As the internet becomes more and more a mainstream channel of political communication, it cannot be left totally unregulated. And regulation here does not mean banning it, but determining what should be treated as a political contribution, and what should be treated as an independent activity. If you buy a list of 1,000,000 e-mail addresses and send them verbatim Bush campaign literature, that has to be treated as an in-kind contribution to the campaign. Likewise if you buy pop-up ads on popular sites with the candidate's slogans, that would be an in-kind contribution.

(The reason I referred to "verbatim campaign literature" and "the candidate's slogans" is because those would both indicate coordination with the campaign itself. That is the only issue here. If there is no coordination, then your actions as an individual are entirely unlimited. Not only can you blog as much as you want about the greatness of George Bush, you can even buy an ad in USA Today to make your argument, or buy an ad in the middle of the CBS Evening News. If you are not incorporated and collecting contributions, and you are not coordinating with the campaign, there is no issue here at all.)

On the other hand, is linking to a candidate's web site in the course of a blog post, which might be favorable, unfavorable, or neither, a kind of contribution? Of course not, but what Smith is saying is that they don't really have any guidance from Congress that would allow them to exempt it. If it's not the media exemption, which cannot really apply to purely partisan sites such as, oh, let's use Mr. Guckert's former employer as an example, then what is the legal basis on which they can exempt it? Clearly, this is an issue that Congress should deal with and should have dealt with in McCain-Feingold. These are big policy choices that an agency should not be expected to make in the course of writing regulations.

Zephyr Teachout, formerly of the Dean campaign, had some thoughts on this that she developed for a talk at Duke Law School. Her argument that the FEC should worry about small-potatoes coordination less, and more on transparency and encouraging small contributions, is a good one, but as Judge Kollar-Kotelly's smackdown points out, it is not up to the agency to decide which parts of the law to enforce. So some of Teachout's argument is really addressed to Congress, and to the campaign finance reform movement.

My own view, which I should probably work out at length somewhere else, is that the internet poses some challenges for regulation because the form of communication it embodies can be so different from ordinary political communication. Our system of regulating campaign finances doesn't say much about how the money is spent, but let's face it: it's about the TV age. It assumes that the influence of money comes from bombarding a couch potato with 30-second, unanswered blasts, which might be vicious attacks or soft positive ads. (Mail, radio, and robo-calls are also part of the concern, but in all cases they are one-way broadcast-like communications.) To the extent that communication on the internet takes a similar form (pop-up ads, for example), it should be subject to the same regulation.

On the other hand, to the extent that communication is two-way, and that people are obtaining information voluntarily, and they can verify and look more deeply into claims and counter-claims, I think that form of communication is very different and may call for a different kind of regulation. But this is not something that has really been dealt with or envisioned in campaign finance law before, and it's not something the FEC can deal with on its own.

But in the short term: Don't worry about it.

Sullivan on Taxes

One voice I've really come to appreciate since he's had a blog is Andrew Sullivan's. He's a good example of how a blog shows off the full richness of a person's personality or thought, so that I appreciate his arguments more than I did when I only read them occasionally, or even when I knew him a little bit in the early 1990s. (Our closest interaction was when he was trying to persuade me in 1991 that Bill Clinton would win the Presidency and be the best president of our lifetimes, and I didn't even think Clinton would win the Democratic nomination. I think we've shifted positions on that one.) I disagree with him plenty, but always find his perspective compelling and challenging, especially on terrorism, and sometimes persuasive, and on gay marriage, very moving.

But on taxes he mystifies me. Yesterday he wrote:

The president could have punted on social security reform and focused on a flat tax as his major second term agenda. If the result were simply flatter taxes, it would be better than no social security reform. ...My own view is that progressive taxation is immoral. The government should treat all its citizens as equally as it can. Punishing people for being successful is morally wrong and counter-productive. We should at least treat hard work neutrally, rather than punitively. (Inherited wealth is another matter, which is why I favor keeping the estate tax.) It's really the same principle behind ending affirmative action and allowing gay marriage: government neutrality in a diverse society, where our differences cannot and should not be micro-managed,

Every sentence in that paragraph is not just wrong, but the sort of argument you expect from a college freshman who just read 50 pages of Free to Choose and Atlas Shrugged.

First, I think I've pointed this out before, but there is absolutely no reason to expect that an administration that has deliberately added more complexity to the tax code than any since the 1986 Tax Reform would advocate a flat tax or any other version of real simplification. They have never talked about it, except in the vaguest terms. The idea that Bush tax reform might involve any kind of simplification is purely wishful thinking.

(It is also worth noting that having progressive rates is not incompatible with simplicity, just as a flat tax can be complex. We could have a four-rate tax system in which you could file your return on a postcard. The complexity and unfairnesses in the current system come not from rates, but from exemptions and deductions, from treating income from different sources differently, and from creating special provisions that phase out and in at different income levels and in different years. All of these complexifications are the hallmarks of Bush tax policy.)

Second, why is progressive taxation "immoral"?? Why is it "equality" to tax everyone at the same percentage? Why not tax them the same amount? Progressive taxation is based on ability to pay, which increases logarithmically. It's patently obvious that the hardship of paying 15% for someone earning $20,000 is far greater than the burden of the same percentage for someone earning $200,000. Sure you can create a low-income exemption, but right there, you don't have "equality" of percentage or a flat rate. I don't mean to get into the weeds here, but once you accept that neither a fixed flat amount -- a head tax -- or a fixed flat rate is fair, then there is no obvious moral definition of what equality is, and a strong case for a mildly progressive scale. (For example, two or three rates, none higher than 35%, with all income taxed equally.)

Again, there may be policy reasons to prefer one structure of rates over another. I tend to favor a fairly low top rate, no higher than 35% or so, with all income treated equally, because I think higher marginal rates would hurt the economy or, more likely, increase both legal and illegal evasion. That is just an educated policy preference, though. It would not occur to me to call another preference on the same question "immoral." (Although an explicitly regressive tax, with higher rates on lower incomes, would surely be immoral.)

Third, just what evidence is there of a direct correlation between "hard work" and earnings. Do we really believe that people who make $35,000 work so much less hard than people who make $200,000? Even Robert Nozick's "Wilt Chamberlain example" contends that a social arrangement in which Wilt Chamberlain makes ten times as much money as anyone else could be just, as long as his earnings were the result of free exchange, but did not depend on arguing that The Stilt's greater earnings were based on working harder than the guy who cleaned the Lakers' locker room. Sure, some high-paying jobs, such as doctors, depend on hard work and sacrifice in early stages; others require 80-hour weeks throughout a career. But plenty of high-paying jobs don't, and many low-paying jobs do. And the vast majority of people in the real world are simply at the mercy of good fortune to find the best job they can with the natural skills and education that an unfair world gave them.

(I wonder how political philosophy professors today deal with the fact that their students have never heard of Wilt Chamberlain, who retired in 1973. Do they have to start calling it "the Carmelo Anthony example"?)

I wouldn't necessarily pick on this if I found it on Powerline or some other wingnut blog. But here's a brilliant, serious, decent person, not flacking for anyone, and this is a strange blind spot, both on the philosophical point and the naive belief that George Bush would ever favor any kind of tax simplification.