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(AP Photo/Susan Walsh)
The Wall Street Journal has news of some actual developments in the ongoing fiscal cliff negotiations: this morning, it reported that President Obama will add corporate tax reform to his offer to House Republicans, in an effort to bring them along and invite a buy-in from the pesky CEOs crowding up the airwaves during most of this saga.
The Journal says “The White House’s corporate-tax suggestion wasn’t specific” but that “White House officials, in making the suggestion, cited a corporate-tax plan the administration unveiled in February.” The plan the White House outlined earlier this year, if you don’t recall, was to lower the corporate tax rate from 35 percent to 28 percent while closing corporate tax loopholes to a degree that enough revenue is raised to offset the rate reduction.
So you can immediately see the first problem with Obama’s proposal—since it’s revenue-neutral, it asks corporate America to contribute nothing to a final deficit reduction passage.
Citizens for Tax Justice immediately flagged Obama’s revenue-neutral plan as problematic when the White House released it earlier this year. CEOs like to whine that the statutory corporate tax rate in America of 35 percent is the highest in the world, but CTJ studied the Fortune 500 companies that had profits in each of the past three years and found that their average effective tax rate was actually just 18.5 percent, thanks to a variety of loopholes, exemptions, and offshoring. Thirty of those corporations had negative tax rates, meaning they actually got money from the Treasury over that three-year period.
CTJ thus concluded “The first goal of corporate tax reform should be to increase the overall amount of tax revenue collected from U.S. corporations.” But Obama’s plan doesn’t do that.
Worse, his plan would quite likely give the corporations an even lower final tax bill once it’s implemented—or rather, not implemented. Obama’s corporate tax plan suffers from the same problems as Romney’s income tax plan: it lowers rates, which is immediate and likely permanent, but doesn’t actually specify enough loopholes to make up the revenue. CTJ studied Obama’s February proposal and found that is specified only about a fourth of the loopholes that needed to be closed in order to offset the rate reductions and “only gives vague suggestions” about where the other 75 percent of the revenue would come from.
It’s quite likely that corporate America and its allies in Congress would fight mightily and successfully to preserve their special tax benefits, and this same Journal story notes that when Obama released his earlier corporate tax plan, “Many [business groups] were supportive of the proposal to lower rates but worried about which industries might get hurt by an accompanying elimination of tax breaks.”
Note also that Obama’s corporate tax plan proposes some sort of “territorial tax system” in which corporations could bring profits earned overseas back home at some rate lower than the current law requires, which is 35 percent. This is something the CEOs now lobbying Washington on the fiscal cliff badly want—as we outlined earlier this month, it will reap them tens of millions in benefits. Obama’s plan, CTJ notes, says corporations won’t be able to bring the profits back at a zero percent rate—though no country allows that—but notably does not specify what the rate should be. Given that Republicans have been pushing for an essentially insignificant 1.25 percent rate on repatriated profits, Obama’s lack of specificity is troubling.
This, in short, is a big win for corporate America if enacted. And CEOs that have been meeting with White House officials are quickly getting behind it—The New York Times reported today that many of them are willing to back a plan that raises personal income tax rates as long as they get this corporate tax “reform.” This is rational, especially since many of the country’s wealthiest don’t earn payroll income, but rather are paid through capital gains and dividends and thus wouldn’t be terribly affected by income tax hikes.
But say Obama actually succeeds at pushing through truly revenue-neutral corporate tax reform: given the painful safety net cuts being discussed, some progressives might argue that at least the corporate tax stuff is preferable, considering Obama has to give up something in the negotiations.
Maybe. But not so fast—it’s not necessarily an either/or. More like a “both.” The Journal article notes what has already been widely reported: if Republicans relent on top income tax rates, the White House will move to cut safety net programs deeper than what’s been discussed already:
The administration’s new proposal made no major concessions on entitlements such as Medicare, which it is withholding until Republicans give up ground on tax rates.[…]
Some Democrats regard Republicans’ eventual concession on taxes as a foregone conclusion, and they have begun to talk among themselves about which concessions on entitlement programs they might be asked to make. The three leading proposals floated by Republicans include increasing the eligibility age for Medicare, requiring wealthier people to pay more for Medicare and changing the formula for calculating Consumer Price Index adjustments to slow the growth of Social Security benefits.
This is truly damaging stuff. As we have noted, raising the Medicare eligibility age—which Obama didn’t rule out yesterday in an interview with ABC News—saves the government $5.4 billion but shifts $11.4 billion in costs onto seniors, their employers, and states. A new Center for American Progress study out this week finds that if the Medicare age is raised from 65 to 67, as many as 5.4 million seniors would have to either postpone retirement, buy expensive private insurance, or get on Medicaid.
As for changing the Consumer Price Index formula, that amounts to a deep benefit cut as well, and one that strikes low-income Americans disproportionately. Dylan Matthews has an extensive look at it here, but in short it amounts to a 5 percent benefit cut for people on Social Security which only gets bigger over time. It would also increase tax revenue, but in a very regressive way: it hikes taxes on families making between $30,000 and $40,000 annually at a rate six times higher than it does for millionaires.
So step back and take the long view: Obama could easily end up agreeing to a deal that asks corporate America to contribute nothing—revenue-neutrality is the selling point of his corporate tax plan—and could even end up giving them extra benefits. Meanwhile, Americans who rely on the safety net would have to make substantial sacrifice, and moreso if they’re not wealthy. If this gets put down on paper and put before Congress, expect a nuclear war to start on the left.
Corporate tax rates must be lowered in order to create economic growth: this is a key argument made by CEOs and their political allies while they push for a fiscal cliff deal. That was in the Bowles-Simpson plan, and members of Fix the Debt are pushing for that too, along with a territorial tax system.
But top Republicans and Democrats agree the best thing for the economy in the long term is to simplify the Tax Code, reduce rates and end loopholes—not just for individuals but also for corporations. This is tough, complex stuff, but a consensus is slowly emerging.
Never mind for a moment the obvious problem with lowering tax rates as a means of fixing the long-term debt. Would allowing corporations to pay less taxes really mean more hiring?
Luckily we have some interesting case studies. Several of the CEOs pushing this idea actually run companies that pay extremely low corporate tax rates, well below the statutory 35 percent rate—or pay none at all. So, via the invaluable Institute for Policy Studies, let’s see what kind of job creation these folks did while enjoying very low corporate tax rates:
1. Randall Stephenson, AT&T
Average effective federal corporate income tax rate, 2009-2011: 6.3%
U.S. job layoffs since 2007: 54,000
2. Lowell McAdam, Verizon
Average effective federal corporate income tax rate, 2009-2011: -3.3%
U.S. job layoffs since 2007: 30,000
3. David Cote, Honeywell
Average effective federal corporate income tax rate, 2009-2011: -14.8%
U.S. job layoffs since 2007: 4,000
4. Kenneth Frazier, Merck
Average effective federal corporate income tax rate, 2009-2011: 13.2%
U.S. job layoffs since 2007: 13,000
5. Terry Lundgren, Macy’s
Average effective federal corporate income tax rate, 2009-2011: 20.7%
U.S. job layoffs since 2007: 7,000
Looking at these numbers, there isn’t much of a correlation between low corporate tax rates and hiring, to say the least. And beyond these specific examples, the idea that business aren’t hiring because of burdensome tax rates is belied by the fact there are record-breaking corporate profits at the moment, and yet unemployment remains stubbornly high.
One could actually propose an alternate theory, where corporate greed leads to both a desire to pay less taxes, and a proclivity to reduce headcounts whenever possible. It’s a rational strategy for them, but it doesn’t mean we should help to advance it.
While CEOs fight for lower corporate taxes, Michigan Governor Rick Snyder is crushing union workers. Allison Kilkenny reports on resistance in Lansing.
During the run-up to the election, the monthly jobs reports were relentlessly mined for tidbits that could predict the outcome of the election. These often-esoteric extrapolations got pretty ridiculous—the election wasn’t going to be determined by slight fluctuations in labor force participation.
The Bureau of Labor Statistics report released today, however, carries true political import. As Congress and the White House attempt to hammer out a year-end deal, today’s numbers show that unemployment remains a critical problem, and that recent progress was a little bit too good to be true—so any final deal must provide short-term stimulus and delay any austerity measures.
The top-line looks good: 146,000 jobs added, which exceeded most projections, and a drop in the unemployment rate to 7.7 percent, which is the lowest it’s been since 2007. But a deeper look reveals much more depressing indicators. The labor market shrunk as 350,000 people stopped looking for work, which contributed to the lower unemployment rate. The private sector contributed virtually all of the job growth, and the retail industry was the biggest contributor—good for now, but these are likely retailers amping up for the holiday season, and thus not a reliable hiring engine going forward.
Moreover, the rosy gains of the past couple months were overstated: today’s report revised the prior two months’ report downward by 49,000 jobs. We’re still a long, long way from full employment at this rate. And if done the wrong way, a fiscal cliff deal could retard progress even further.
Also today, the IMF released a study showing that spending cuts during economic downturns in the United States could have a “statistically significant and sizeable impact.” It found that for every dollar in spending cuts enacted, the United States could lose $1.80 in economic activity. (Belying the GOP talking points, it also found that revenue increases would have an impact on growth that is “very small and not statistically significant.”)
The White House, much to its credit, recognized this fact and made a strong opening offer in which it called not only for deferring the coming sequester cuts, but enacting $50 billion in extra stimulus spending for fiscal year 2013 as well as a mass mortgage refinancing program. This is exactly the right move—if anything, more is needed—and the administration should use today’s numbers to highlight the urgency of that position.
Significantly, the White House also called for a $30 billion extension of the unemployment insurance program, which today’s report shows is desperately needed, since, as the National Employment Law Project notes, “long-term unemployment will continue to push Americans into new extremes of poverty and economic insecurity.”
The federal unemployment insurance program for people out of work six weeks or longer will expire at the end of the year absent Congressional action, meaning that between Christmas and New Year’s 2 million Americans will lose their benefits. A million more Americans will lose their unemployment insurance in the first three months of 2013 if nothing is done.
This would be a severe hit to the economy—reducing economic growth by $48 billion, thus costing millions more jobs to be lost and furthering a vicious downward economic spiral. Retailers alone, the biggest jobs engine in this month’s report, would lose $16 billion in sales next year if the unemployment insurance program isn’t extended.
Spending $30 billion to create $48 billion in economic growth while also throwing a lifeline to many desperate Americans would seem like a no-brainer, but that doesn’t mean it will get done. The rumored Republican strategy at this point is to pass the middle-class tax cuts and nothing else—no unemployment insurance, no stimulus spending nor anything else involved in the cliff negotiations. They would come back to the table in January to negotiate all this anew, with what they believe is more leverage.
This strategy would leave many unemployed Americans in full-on panic mode: unlike the tax increases or spending cuts, which can be delayed and if nothing else felt gradually, the loss of unemployment insurance is an actual cliff: people stop getting checks immediately. Today’s jobs report underscores the magnitude of that tragedy.
For more on unemployment leading into the holiday season, check out Greg Kaufmann latest.
Most of what’s happening now in the fiscal cliff saga is just posturing—each side is trying to appear open to compromise while at the same time assuring its base that sacred principles will be respected.
But this morning, Politico reported what could be the early contours of an actual deal that’s taking shape behind the scenes. There’s a huge caveat to this story, written by Mike Allen and Jim VandeHei, because it couldn’t be any more vaguely sourced. Allen and VandeHei refer only to “top officials,” “veterans of this budget fight,” and so on, so it’s impossible to discern who is feeding them this information and why.
But assuming for a moment it’s true, there are some details sure to give progressives indigestion. In exchange for Republicans agreeing to tax increases—including rate hikes—on the top two percent of earners, this is what is allegedly being talked about for entitlement reform:
There is only one way to make the medicine of tax hikes go down easier for Republicans: specific cuts to entitlement spending. Democrats involved in the process said the chest-pounding by liberals is just that — they know they will ultimately cave and trim entitlements to get a deal done. […]
Sen. Dick Durbin (D-Ill.) told “Morning Joe” on Tuesday that he could see $400 billion in entitlement cuts. That’s the floor, according to Democratic aides, and it could go higher in the final give and take. The vast majority of the savings, and perhaps all of it, will come from Medicare, through a combination of means-testing, raising the retirement age and other “efficiencies” to be named later.
These are truly damaging concessions. While means-testing might only reduce benefits of wealthy seniors, it begins a transition where Medicare is less an earned-benefit program and more of a welfare program, which would certainly leave it more vulnerable to political attacks down the line.
But the truly terrible idea here is raising the Medicare eligibility age. It’s something Obama reportedly offered in 2011 during the debt ceiling negotiations, and it was every bit a bad idea then as it is now. Yale political science professor Jacob Hacker has called it “the single worst idea for Medicare reform.”
The key facts to understand about raising the Medicare eligibility age: not only does it shift substantial costs onto seniors, it also doesn’t save the federal government any notable amount of money. It’s a lose-lose proposition.
By kicking seniors aged 65 and 66 off of Medicare, the government would at first seem to save $5.7 billion. Of course, this is nothing more than cost-shifting: those seniors would then have to pay $3.7 billion out of their pockets in 2014, according to the Kaiser Family Foundation. And some would likely be unable to find private insurance at that age if they’ve already retired. For those that are still employed, their employers are projected to spend an additional $4.5 billion to insure those who would otherwise be on Medicare.
So you’ve screwed over seniors and their employers, but at least the federal government saved some money, right? Not so fast. Because 65- and 66-year-olds are among the healthiest of all Medicare beneficiaries, what you’ve done is removed pay-ins from the people least likely to need expensive care. The risk-pool math looks worse, and the Congressional Budget Office has concluded that raising the Medicare eligibility age “would have little effect on the trajectory of Medicare’s long-term spending.”
When the Affordable Care Act goes into effect, that could help seniors excluded from Medicare until 67. It would keep them from getting denied for pre-existing conditions, and offer subsidies for care. But that would also likely drive up premium prices in the health care exchanges, because while 65- and 66-year olds are more healthy than the average Medicare beneficiary, they are decidedly less healthy than your average American. And the federal government will be the one kicking in those extra subsidies.
Some Democrats, like Senators Dick Durbin and Kent Conrad, would be open to raising the Medicare age down the road, once the ACA is fully implemented. But even then, you’re not saving the federal government any real money.
Many other Democrats and progressives have said no to this idea, however. House Minority Leader Nancy Pelosi says she’s not open to it, nor is Budget Committee chair Representative Chris Van Hollen. And outside Congress, powerful progressive groups are willing to throw down the gauntlet to stop it.
Adam Green of the Progressive Change Campaign committee told Salon today that if Democrats agreed to raising the Medicare eligibility age, it “would essentially start a nuclear war on the left.” MoveOn.org said it would support primary challengers to any Democrat that supported it. This could be a very dangerous proposition for the targeted Democrats: raising the Medicare age polls terribly among Americans of all political stripes, and notably Democrats, where it’s about 70-30 against.
Again, thanks to this morning’s very vague report, we don’t know to what extent this is actually on the table, or if it really is at all. Were it to happen though, it’s important to stress that raising the eligibility age is a lose-lose for the federal government and for seniors. The only winners are those with the ideological goals of shrinking the program—and the insurers picking up new customers.
Yesterday, nine CEOs met with Washington lawmakers to discuss their stake in fiscal cliff negotiations. George Zornick reports.
CEOs from several big corporations meet with House Republican leaders on November 28, 2012, in Washington. Photo courtesy of the Office of the Majority Whip.
A merry band of corporate executives is zig-zagging Washington today, meeting with almost every principal player in the “fiscal cliff” negotiations. The CEOs are meeting with administration officials at the White House, with House Speaker John Boehner, and with House Minority Leader Nancy Pelosi.
According to most press accounts, these business titans are “pressing for a solution to the so-called fiscal cliff” (Bloomberg), while “touting the virtue of bipartisanship and shared sacrifice” (The Washington Post).
But what’s important to understand—what every press account of these meetings should note—is that they’re not, in practice, proposing any sacrifice from their companies in particular nor their industries in general.
Key planks of their proposals, explicitly articulated by the Fix the Debt campaign and other industry coalitions pushing for a deal, include a lower corporate tax rate—even though many of these companies pay little or no corporate taxes as it is. Then there’s a territorial tax system, which would allow corporations that have profits parked overseas to bring them back home without paying any taxes. (Right now, they’d be obligated to pay the normal 35 percent corporate tax on those profits if they were repatriated). Some, but not all, of the CEOs also want the Bush tax rates extended for all earners.
That’s not exactly “shared sacrifice.” A report from the Institute for Policy Studies notes that the 63 CEOs behind “Fix the Debt” would reap $134 billion in tax windfalls for their companies just from a territorial tax system alone. That naturally would increase, not decrease, the deficit, so somebody’s got to pay—hence the Very Serious pleas to “reform” Medicare and Social Security.
“These CEOs paint a stark picture of hypocrisy,” said Scott Klinger, co-author of that IPS report, in a statement. “They’re simply taking advantage of the so-called ‘fiscal cliff’ to push the same old agenda of more corporate tax breaks while shifting costs onto the poor and elderly.”
To put a finer point on it, here is what the nine CEOs tooling around Washington today stand to gain in the fiscal cliff negotiations—how much their company would gain from a territorial tax system, and how much the individual CEO would gain if the Bush rates on top earners are extended.
The figures on taxable CEO compensation and unrepatriated offshore earnings are from that excellent IPS report, unless the company was not included. (It detailed only members of “Fix the Debt.”) In that case, I consulted the company’s SEC filings, and linked to it. The effective tax rate figures are either from this Citizens for Tax Justice report, or if it wasn’t included, from other sources which are also linked. (See a more detailed breakdown below the infographic.)
Ken Frazier, CEO, Merck & Co.
Merck’s unrepatriated offshore earnings: $44.3 billion
Estimate windfall from territorial tax system: $15.5 billion
Merck’s effective corporate tax rate from 2008-2010 (standard is 35 percent): 11.5 percent
Frazier’s 2011 taxable compensation: $5.4 million
Frazier’s yearly savings if top Bush rates are extended: $237,352
Muhtar Kent, CEO, Coca-Cola
Coca-Cola’s unrepatriated offshore earnings: $23.5 billion
Estimate windfall from territorial tax system: $8.2 billion
Coca-Cola’s effective corporate tax rate from 2008-2010 (standard is 35 percent): 14.1 percent
Kent’s 2011 taxable compensation: n/a
Kent’s yearly savings if top Bush rates are extended: —
Douglas Oberhelman, CEO, Caterpillar Inc.
Caterpillar’s unrepatriated offshore earnings: $13 billion
Estimate windfall from territorial tax system: $4.55 billion
Caterpillar’s 2011 effective corporate tax rate (standard is 35 percent): 25.6 percent
Oberhelman’s 2011 taxable compensation: $10.2 million
Oberhelman’s yearly savings if top Bush rates are extended: $459.851
Marissa Mayer, CEO, Yahoo! Inc.
Yahoo’s unrepatriated offshore earnings: $3.2 billion
Estimate windfall from territorial tax system: $1.12 billion
Yahoo’s three-year effective corporate tax rate from 2008-2010 (standard is 35 percent): 8.7 percent
Mayer’s 2011 taxable compensation: n/a
Mayer’s yearly savings if top Bush rates are extended: —
Thomas Wilson, CEO, Allstate
Allstate’s unrepatriated offshore earnings: $0
Estimate windfall from territorial tax system: $0
Allstate’s 2011 effective corporate tax rate (standard is 35 percent): 17.9 percent
Wilson’s 2011 taxable compensation: $4.1 million
Wilson’s yearly savings if top Bush rates are extended: $175,793
Lloyd Blankfein, CEO, Goldman Sachs
Goldman Sachs’ unrepatriated offshore earnings: $20.6 billion
Estimate windfall from territorial tax system: $3.3 billion
Goldman Sachs’ effective corporate tax rate 2008-2010 (standard is 35 percent) 20.8 percent
Blankfein’s 2011 taxable compensation: $15.6 million
Blankfein’s yearly savings if top Bush rates are extended: $706,104
David Cote, CEO, Honeywell International
Honeywell’s unrepatriated offshore earnings: $8.1 billion
Estimate windfall from territorial tax system: $2.8 billion
Honeywell’s effective corporate tax rate 2008-2010 (standard is 35 percent) -0.7 percent
Cote’s 2011 taxable compensation: $55.2 million
Cote’s yearly savings if top Bush rates are extended: $2.5 million
Mark Bertolini, CEO, Aetna
Aetna’s unrepatriated offshore earnings: $0
Estimate windfall from territorial tax system: $0
Aetna’s effective corporate tax rate 2008-2010 (standard is 35 percent) 28.8 percent
Bertolini’s 2011 taxable compensation: $9.5 million
Cote’s yearly savings if top Bush rates are extended: $423,208
Frank Blake, CEO, Home Depot
Home Depot’s unrepatriated offshore earnings: $2.4 billion
Estimate windfall from territorial tax system: $8.4 million
Home Depot’s effective corporate tax rate 2008-2010 (standard is 35 percent) 35.6
Blake’s 2011 taxable compensation: n/a
Blake’s yearly savings if top Bush rates are extended: n/a
Notably, none of the corporations represented in Washington today except Home Depot actually paid anything close to the corporate tax rate of 35 percent. Most would benefit handsomely from a territorial tax system, though not all—the interests of these companies don’t always align perfectly. Some, like Honeywell and Yahoo!, wouldn’t gain anything from reductions to Medicare and Social Security—the demands from those CEOs to cut spending on those programs is perhaps nothing more than a cover for their windfalls elsewhere. Others, like Goldman Sachs and Aetna, surely would benefit from a reduction in these programs.
What’s clear, though, is that the sacrifice preached by these CEOs is most certainly one-sided.
CEOs aren’t the only ones with a lot to gain from these negotiations. Lee Fang reports that a congressman heavily involved with the “fiscal cliff” talks has already been hired as a lobbyist.
Before Securities and Exchange Commission chair Mary Schapiro announced she would step down, progressives were organizing a campaign to ensure President Obama picks a strong replacement. Now that Schapiro has made it official, those efforts are at a full boil.
CREDO Action launched a petition asking President Obama to “[a]ppoint an S.E.C. chair who will hold Wall Street accountable” which has gained over 41,000 signatures as of this morning. The clear thrust of the petition is that the appointment of a new SEC is a key inflection point in the battle to reform Wall Street—perhaps one of the last big opportunities President Obama will have:
Wall Street has countless well-paid spinmeisters and well funded public relations efforts that have sought to absolve Wall Street crooks of any responsibility for the financial collapse. According to their Orwellian version of history, the people who gambled in the Wall Street casino with taxpayer money didn’t do anything wrong. And according to their vision, the best thing the government can do to get the economy on track is just get out of Wall Street’s way. That would be a dangerous perspective for one of Wall Street’s top cops. Tell President Obama: Appoint a real champion for Wall Street accountability to the S.E.C.
The petition names several ideal choices, piggybacking off some recent suggestions by economist Simon Johnson in The New York Times: former prosecutor and TARP inspector general Neil Barofsky tops the list, which also includes former Delaware Senator Ted Kaufman, former Senate aide and leader of the pro-reform group Better Markets Dennis Kelleher and former FDIC chair Sheila Blair.
In George Zornick’s previous post, he writes “Mary Shapiro’s Departure Creates an Opportunity for a Stronger SEC.”
Securities and Exchange Commission (SEC) Chair Mary Schapiro. (AP Photo/Charles Dharapak)
Securities and Exchange Commission chairman Mary Schapiro’s departure, expected for months and announced today, creates an opportunity to vigorously pursue a new era at the agency of tough enforcement and the implementation of strong new rules on Wall Street behavior.
But who should that new chairman be? The White House said it will elevate Elisse Walter, a current commissioner, to the chair’s spot, but that can last only until the end of 2013 because the administration is not naming her permanent chair and not seeking Senate confirmation. It is likely, I’m told, that a different chair will be named, possibly within weeks.
Advocates of strong financial reform say that to understand what is needed in a new SEC chair, one needs only to look at where, and how, Schapiro fell short. And in their view, she fell quite short.
“We think that she was slow and unambitious in using the Dodd-Frank Wall Street reform to institute strong, important, necessary rules,” Bart Naylor, a former chief of investigations for the Senate Banking Committee and now a financial policy advocate at Public Citizen, told The Nation. “We [also] think that she failed to prosecute criminal referrals to the obvious misdeeds on Wall Street that we witnessed during the financial crash. We hope the president will name somebody that is ambitious, aggressive and assertive as her permanent replacement.”
These are the twin goals that most reformers agree the SEC must embrace in the years ahead: making sure Dodd-Frank is implemented strongly without undue influence from the financial industry, and pursuing enforcements that create a real disincentive on Wall Street towards destructive behavior. The fact that the House of Representatives remains a presumably closed door to any significant financial reform over the next two years, at least, only elevates the importance of the SEC.
While Schapiro did overhaul the SEC’s enforcement division, appointing former federal prosecutor Robert Khuzami to lead it and filing dozens of cases related to the financial crisis, it was consistently criticized for failing to win big penalties and failing to prosecute high-ranking executives.
One year ago, for example, a federal judge in New York presiding over a proposed SEC settlement with Citigroup related to the pre-crash sale of mortgage-backed securities blasted the agency in court for agreeing to paltry dollar amounts where no wrongdoing is admitted. Judge Jed Rakoff said he couldn’t tell what the SEC gained from a $285 million settlement with the bank “other than a quick headline,” and for an amount that “is pocket change to any entity as large as Citigroup.”
Naylor suggested that a seasoned prosecutor be named as new SEC chairman, and one dedicated to actual prosecution of high-level executives. “We hear and we can see the evidence that the so-called culture of Wall Street is one that is self-justifying. There is no embarrassment about the enormous paychecks that are being given for essentially socially useless if not destructive work,” he said. “And I think the clearest path, if it’s not an obvious path, to addressing that culture is a steady diet of perp walks.”
Implementation of Dodd-Frank has not been a strong suit of the SEC under Schapiro either. As of November 1, the agency was to have finalized eighty-two Dodd-Frank rules. It has finalized thirty-two, or about 40 percent, failing to even propose rules for eight of them (chart via Davis Polk):
And the rules that were implemented were often weak. For example, this summer the SEC finally implemented a rule on executive compensation. But instead of actually creating standards for compensation, the SEC delegated that responsibility to the stock exchanges and gave them “considerable leeway.”
“The Schapiro legacy, is what I would call ‘delayed and diluted’ on Wall Street reform,” Naylor said.
The most important piece of the Dodd-Frank legislation yet to be implemented is the Volcker Rule to restrict banks from making speculative investments with customer money. That, by the way, is officially dead until the White House either names a new chairman or adds another commissioner, since Schapiro’s departure on December 14 will create a four-person commission presumably deadlocked on partisan lines.
So the White House must act quickly, and there will no doubt be massive industry pressure on Obama not to appoint someone who pushes for fair rules and tough prosecutions. Naylor, though, said he was heartened by recent White House appointments to the FDIC and OCC, and noted that Wall Street has less leverage now: “This time, industry can’t threaten Obama’s re-election,” he said.
Several other important positions will soon be up for grabs. Last week. William Greider proposed Ben Bernanke for Treasury Secretary.
Anti-pipeline protesters outside the White House on November 18, 2012. Photo by Nick Myers
by Nick Myers, Nation DC intern
During his first term, demonstrations outside the White House helped prompt President Barack Obama to delay approval of the Keystone Pipeline—and they returned this weekend to remind him of their opposition.
The protest was led by Bill McKibben as part of 350.org’s “Do The Math” tour. Around 3,000 people rallied in Freedom Plaza outside the White House, according to organizers, before taking to the streets on a march that surrounded the building. Demonstrators carried a black, 500-foot tube emblazoned with “STOP THE XL PIPELINE”—the same one brought during the protests last November—to the president’s doorstep while chanting “Hey, Obama! We don’t want no climate drama.”
“For the second time in thirteen months we encircled with White House with people,” McKibben said after the march. “We did not forget.”
Though climate change played an almost non-existent role in the 2012 election cycle, the battle may heat up as the president enters his second term.
Proponents of the Keystone XL project—which would bring dirty tar sands oil from Alberta, Canada to Nebraska and then the Texas coast—are pushing Obama from the other direction. A bipartisan group of eighteen senators, fronted by Republican John Hoeven of North Dakota and Max Baucus of Montana, delivered a letter to Obama on November 16 that urges the president to move forward and approve the pipeline.
But mass citizen action is underway to combat the Beltway pressure. Already, 350.org, the Sierra Club and other environmentalist organizations have protest actions planned, including a nationwide campaign to convince college campuses and others to divest from fossil fuel companies and a major rally in Washington, DC, on Presidents Day.
“Part of me is constantly being reminded that we should not have to be here this afternoon,” McKibben said, lamenting the immense financial backing that the fossil fuel industry has to promote its agenda. “If the world worked the way it was supposed to, we wouldn’t have solved the problem but we’d be well on our way.”
Last week, voters in Colorado passed a bill that changed state laws to allow possession of one ounce of marijuana and six plants, while Washington voters changed state laws to allow residents over 21 to purchase up to an ounce of weed from licensed dealers.
The problem, of course, is that federal law still prohibits marijuana possession, and the Obama administration has shown it’s willing and able to raid marijuana operations that have been sanctioned by state law.
It’s not yet clear how the feds will respond to the new laws in Washington and Colorado—the US Attorney’s office in Colorado says it is “reviewing the ballot initiative” and has no comment “at this time.” But Wednesday, two high-profile members of Congress publicly asked the Obama administration to respect the state laws, making them the first members to speak out strongly in support of the local laws.
Representatives Barney Frank and Ron Paul—who no doubt inhabit mostly opposite sides of the ideological spectrum—sent Obama a letter asking him to refrain from prosecution of people following the Colorado and Washington laws. (The duo has already introduced a bill to end the federal ban on marijuana).
The letter reads, in part:
We have sponsored legislation at the federal level to remove criminal penalties for the use of marijuana because of our belief in individual freedom. We recognize that this has not yet become national policy, but we believe there are many strong reasons for your administration to allow the states of Colorado and Washington to set the policies they believe appropriate in this regard, without the federal government overriding the choices made by the voters of these states.
Respect for the rights of states to set policies on those matters that primarily affect their own residents argues for federal noninterference in this case, as does respect for the wishes of the voters—again, on matters that primarily affect those in the relevant electorate. Additionally, we believe that scarce federal resources—law enforcement, prosecutorial, judicial, and penal—should not be expended in opposition to the wishes of the voters of Colorado and Washington, given the responsibility of all federal officials to find ways to withhold unwise or unnecessary expenditures.
We believe that respecting the wishes of the electorates of Colorado and Washington and allowing responsible state authorities to carry out those wishes will provide valuable information in an important national debate. Our request does not mean any permanent waiver of the ability of the federal government to enforce national laws should there be negative consequences of these state decisions—which we do not believe are at all likely—and thus we have as a result of these two states’ decisions a chance to observe in two states the effect of the policy that we continue to believe would be wise for the country as a whole. Those who disagree with us should welcome the opportunity to put their theories to a test.
Citizen action is picking up too. David Sirota has started an official petition to the White House, asking it to respect the new laws. And Attorney General Holder has at times appeared to soften his stance on harsh drug enforcement.
But significant obstacles obviously remain. The law, as issued by the Supreme Court, is on the other side of the marijuana activists.
And this week, Latin American leaders seem to be stepping up pressure on the Obama administration to make a decision. The leaders of Mexico, Belize, Honduras and Costa Rica called on the United States to “review” their marijuana policy, because the new state laws will make marijuana enforcement in their countries much more difficult as legal demand in the United States increases.
“Obviously we can’t handle a product that is illegal in Mexico, trying to stop its transfer to the United States, when in the United States, at least in part of the United States, it now has a different status,” said a member of the Mexican president-elect’s transition team.
Marijuana activists welcomed the news, as an international review of drug laws was an explicit goal of the Washington and Colorado efforts. But there’s a flipside: since the Latin American leaders appear to be threatening to curtail enforcement of marijuana laws, this might quickly pressure the United States into enforcing federal law against the desires of Colorado and Washington residents.
Either way, the pressure—from Congress and from foreign leaders—is mounting. The administration will likely have to make a decision soon.
California voted to amend the state’s “three strikes” rule, another step against the War on Drugs. Read Eugene Jarecki’s take.
(AP Photo/Carolyn Kaster)
Progressives have plenty of reason to be concerned about the upcoming fiscal cliff negotiations. There was the ugly “grand bargain” Obama reportedly agreed to in 2011, which would have kept all of the Bush tax rates while raising $800 billion in unspecified tax code simplification (yes, this is basically the Romney plan) while cutting deeply from domestic spending, Medicare and Social Security. And even in recent days, top Democrats like Senator Chuck Schumer have been saying they would be willing to “compromise” on the Bush rates, and leave them alone while raising revenue elsewhere.
But the White House is apparently tossing down the gauntlet—on taxes and entitlement cuts. Wednesday morning, The Washington Post reported that Obama’s opening bid on taxes is to raise $1.6 trillion in revenue, via not only the expiration of the Bush rates on earners over $250,000 but also the Buffet Rule, the restoration of the estate tax to 2009 levels, deduction limits and closing tax loopholes.
And at the White House on Tuesday, Obama, Vice President Biden and the president’s economic team met with a coalition of liberal groups and assured them the administration would hold the line on both taxes and protecting safety net beneficiaries, according to several attendees interviewed by The Nation.
“I was actually very pleasantly surprised. I feel like I was not expecting it to be a particularly good meeting,” said one attendee. “I feel like the president was extremely committed on the tax issues, in kind of ‘throw-down mode’ on those.”
“It was clear that you couldn’t get there on the deductions,” said the attendee, thus undercutting the plans floating around Washington in recent days. “There was some exchange on the deductions. I think that was where there was no give…. there was real strength on the amount that needs to be generated by tax increases.”
The liberal groups, mainly unions, think tanks and advocates for safety net beneficiaries, met with Obama and Biden along with senior adviser Valerie Jarrett, director of the National Economic Council Gene Sperling, Treasury Secretary Timothy Geithner, acting director of the Office of Management and Budget Jeffrey Zients and economic adviser Jason Furman, according to those present.
It was notable, then, that the meeting included essentially the entire Obama economic team and wasn’t just a glad-handing event with the president. Members of that team have already echoed what was said on taxes in the meeting—Geithner told reporters at a conference later in the day that “I don’t see how you do this without higher rates. I don’t think there’s any feasible, realistic way to do it.”
Of course it’s not just tax rates the liberal groups are concerned about—deep cuts to the safety net are also in play. But Max Richtman, president of the Committee to Protect Medicare and Social Security and who attended the meeting, said he felt reassured by what he heard.
“What I can say with certainty is that I, and I think everybody that was invited, walked out of that room feeling better than they did when they walked in,” Richtman said. “We got a clear statement from the president that he made commitments about protecting seniors and the middle class in the campaign and he’s committed to fulfilling that commitment.”
Social Security has not contributed to the deficit and shouldn’t be slashed in the fiscal cliff negotiations, Richtman told the president and his team, and Obama agreed, according to his account. “He agreed that it was not bankrupt and it should be used as a bargaining chip in negotiations—that if there were changes to Social Security they should be done with the purpose of improving the program, extending the life of the program. That is a big deal for us.”
Richtman also said that he was relatively reassured that Medicare beneficiaries would remain protected under any deal the White House agreed to. “All of the people from the administration seemed to express a commitment to protecting the beneficiaries of Medicare,” Richtman said. “I think if there are any changes, I’m not saying we’d be for them—but they’d be around the edges, and we hope would be on the provider side. At the same time we know that if providers are cut too much, it’s going to lead to access issues for beneficiaries.”
If Medicare was able to negotiate prescription drug prices, it could save substantial money—as much as $156 billion over ten years. Richtman said he raised this issue with the president and his team. “They didn’t say no, they didn’t say yes, but I think I made the strongest case I could for that,” he said.
Other attendees were similarly slightly wary about what’s coming for Medicare cuts—but were quite encouraged by what they heard about Medicaid. “I was heartened on Medicaid, I was unsure on Medicare and Social Security. Meaning that there weren’t clear, definitive, absolutely-never answers,” said one attendee.
“The cuts agenda was really where I was most worried about where we were and where they were [heading into the meeting],” the attendee continued. “And I would not say we got any ironclad commitments on anything, it wasn’t really that kind of a meeting, but it was better than I thought in terms of understanding the issues around the how the Medicaid cuts would be devastating, and why Social Security should not be part of this deal.”
Additionally, attendees described a very proactive approach from the White House on not only delaying harmful cuts but actually investing in the economy as part of any final deal.
“I think there were very clear and good signals around the jobs components of this, in terms of both more demand and more spending in 2013 and 2014, given that we’re in a recession, and more of the cuts coming in the out years,” said one attendee. “Also [there was] a commitment to infrastructure and some of the other jobs-related things in the American Jobs Act. That was positive.”
Publicly, meeting attendees sounded very positive notes after the meeting. “We appreciate that the President again promised not to balance the budget on the backs of the middle class and the poor,” said Justin Ruben of MoveOn.Org in a statement. “I was pleased that the President reiterated his commitments to higher taxes on the wealthy, job creation, and protecting middle class and low-income people from any cuts to vital programs,” said Deepak Bhargava of the Center for Community Change, also in a statement. AFL-CIO President Richard Trumka was also all smiles outside the White House.
Privately, some attendees were a little more candid—but still cautiously optimistic. “The general message was, we don’t want to balance this on the middle class and the poor. The general thrust was right, but they’re not negotiating with us,” said one attendee. There are still of course tough negotiations with House Republicans ahead, and it remains to be seen if Obama will stand firm throughout.
“I’ve been concerned for months that we are headed towards a disaster, in terms of yes, tax increases on the rich, but commensurately bad changes to the entitlements and further cuts on domestic discretionary [side],” the attendee continued. “I’m still worried, because it’s hard to see how you end up on the other side of this without some real damage being done, given the desire to have $4 trillion total [in cuts]. I’m still worried. But I think the president’s opening is at least muscular.”
For more on what a "grand bargain" would mean for low-income Americans, check out Bryce Covert's breakdown here.