George Zornick | The Nation

George Zornick

George Zornick

Action and dysfunction in the Beltway swamp. E-mail tips to george@thenation.com

Romney's Donors Share His Love of Offshore Tax Havens

Mitt Romney’s mysterious financial holdings have been the topic of furious discussion this week, after a Vanity Fair investigation detailed how significant amounts of the Republican presidential candidate’s fortune may be parked in offshore bank accounts in low- or no-tax countries, allowing Romney to not only obscure how much he is actually worth but avoid paying the federal taxes he would otherwise owe.

While it’s extremely unusual for someone who wants to be president to abuse offshore tax havens like this, it’s an all too common practice for many major American companies—and is most popular in the financial sector from which Romney comes.

And perhaps not so mysteriously, some of the biggest abusers of offshore tax havens—along with some of the chief facilitators of this practice—seem to have gravitated to Romney’s re-election effort. Of the his campaign’s top eleven contributors, seven are financial firms with significant offshore tax haven activity.

Of the four that do not have extensive tax havens themselves, two are accounting firms that do prolific business in helping set up those havens, and one is a Swiss bank where employees are currently under a federal investigation for helping to facilitate potentially illegal abuse of offshore tax havens.

So while Romney is currently downplaying his use of offshore tax havens, maintaining those evasion structures is no doubt a top priority of the people and industries funding his campaign:

(Note that these companies did not give checks directly to the campaign, which is forbidden, but rather the money comes through the company’s political action committees and employees.)

As you can see, Wall Street is a big contributor to the Romney campaign, and is also heavily invested in the practice of moving money to tax havens. The Vanity Fair piece notes that “one cannot properly understand Wall Street’s size and power without appreciating the central role of offshore tax havens.” With massive inflows and outflows of cash and incentives to avoid paying taxes on it, along with strong legal and public relations incentives to sometimes hide the source of the money, offshore tax havens are invaluable to the financial sector.

Citigroup, the Romney campaign’s sixth-highest contributor, is the worst American abuser of offshore tax havens, according to the Government Accountability Office—with a stunning 1,240 foreign subsidiaries. Morgan Stanley and Bank of America, both top Romney contributors, are also in the top ten offshore tax haven abusers listed in the GAO report, which examined offshore tax haven use by the country’s largest 100 companies.

Among Romney’s top donors there’s also PricewaterhouseCoopers and Deloitte, two of the “Big Four” American accounting firms. They all play a crucial role in setting up offshore tax havens for clients and no doubt derive massive incomes from it. As John Christensen, director of the Tax Justice Network, has explained, “The Big Four are deeply embedded in the tax haven world. They’re major players in shaping the laws and regulations of these places and encouraging clients—high net worth individuals and corporate clients—to maximize their tax avoidance through such places.”

Then you have Credit Suisse—an actual Swiss bank where employees are under investigation by the Department of Justice for helping clients set up accounts in offshore tax havens. According to an indictment, “as of late 2008 Credit Suisse was maintaining thousands of secret accounts for U.S. customers with as much as $3 billion in assets.” Tax havens are legal, but failing to declare them to the IRS is not, and the Credit Suisse clients, apparently with the help of bank employees, were not. The indictment charges that bank employees “knew and should have known they were aiding and abetting U.S. customers in evading their U.S. income taxes.”

So that is ten of the Romney campaign’s top eleven donors deeply involved in the practice of creating offshore tax havens for the purpose of shielding money from income taxes and scrutiny. (The only one apparently not involved in that practice is the law firm Kirkland & Ellis, which most famously defended BP in litigation over the Deepwater Horizon spill).

Offshore tax havens are as damaging to the federal government and American taxpayers are they are lucrative for the culprits. They deprive the government of as much as $100 billion per year in tax revenue, according to one study by the US Public Interest Research Group, which means it costs the average taxpayer $434 per year.

But with so many offshore tax haven abusers and facilitators bankrolling his campaign—not to mention his personal penchant for the practice—how likely is it President Romney would push for reform?

Nation DC intern Soumya Karlamangla contributed research to this report.

Obama: No More Tax Breaks for Top Earners

President Obama appeared at the White House on Monday to push for an extension of the Bush tax cuts for one year, except for earners above $250,000—there, the president is “100 percent committed” to letting those tax cuts expire, in the words of senior campaign adviser Robert Gibbs.

Let’s get this out of the way up front: there’s no way Congress reaches a deal on this before the November elections, nor even makes a meaningful effort. Republicans think they could win control of the Senate, so there’s no reason to negotiate now from a weaker position, and Democrats believe the same about their chances to retake the House.

Rather, tax justice is clearly something Obama’s team believes can be a powerful election-year narrative. (A belief no doubt shared by Republicans, for inverted reasons).

But that doesn’t mean the new push isn’t extremely meaningful. The idea is to claim one side of the debate about raising taxes in general, and tax cuts for the wealthy in particular, and then see how the election pans out—and then claim a mandate afterwards. That’s the framing Obama explicitly claimed at the White House today—he said, “In many ways, the fate of the tax cut for the wealthiest Americans will be decided by the outcome of the next election.”

Furthermore, Democrats are trying to (accurately) convey the insanity of the Republican absolutism on taxes—that no taxes should be raised anytime on anyone—to weaken the party’s just-say-no approach going forward. By highlighting a broadly unpopular tax cut for the wealthy, Obama can portray Republicans (again, accurately) as both unreasonable and slavishly dedicated to protecting the rich. Said Obama at the White House:

Nowhere is that stalemate [in Washington] more pronounced than on issue of taxes. Many members of the other party believe that prosperity comes from the top down, so that if we spend trillions on tax cuts for the wealthiest Americans, that that will somehow unleash jobs and economic growth. I disagree. I think they’re wrong. I believe our prosperity has always come from an economy that’s built on a strong and growing middle class.

Obama also noted that “I’m not proposing anything radical here,” which is true. Allowing the Bush tax rates for earners over $250,000 would affect only 1.9 percent of the population (and ironically, most heavily in blue states, not red).

Actually, though the White House isn’t pushing this fact, Republicans and Democrats are simply arguing about is how big of a tax cut to give the top 1 percent. Since Obama is advocating a one-year extension of the Bush rates for income up to $250,000, that means the top 1 percent are still getting a break on their first quarter-million dollars of income, relative to just letting everything expire. It’s just that Republicans want to give them a much bigger break: (via Citizens for Tax Justice):

Average Tax Cut Under GOP Approach vs. Obama's Approach in 2012

Obama made a point to pre-empt common attacks on allowing the Bush rates for top earners expire by Republicans who, rather than explicitly defend the wealthy, like to say that the expiration would hurt small businesses. But Obama noted that 97 percent of small businesses wouldn’t be affected, something that even House Speaker John Boehner has acknowledged in the past. Obama also noted that the expiration for top earners is a poor form of stimulus, which is also true. Even making all the Bush rates permanent is a less effective form of stimulus than infrastructure spending, unemployment benefits, federal work-share programs and increasing food stamps—all measures Republicans oppose. Again via CTJ:

Bush Tax Cuts Create Far Less Economic Growth Than Spending Measures

There’s a lot to like in the White House’s new push. It’s not pre-conceding defeat, as it did when the expiration first came up in 2010. It’s taking a position to the left of Congressional Democrats, who want to let only the rates for annual earners over $1 million to expire. The president is explicitly saying he will claim a mandate on raising taxes for the wealthy if he wins re-election, which is crucial heading into the late-year “Taxmageddon” negotiations.

Also, quite notably, Obama only wants to extend the middle-class tax cuts for one year, where in the past he pushed for a permanent extension. The entirety of the Bush tax cuts will cost $5.4 trillion if extended in full from 2013-2022—more than double the previous decade’s cost, since they were phased in slowly. At some point, there’s going to have to be a complete tax overhaul that takes into account the true and deep cost of all the Bush tax cuts. By promising a one-year extension only, Obama is settling the table for comprehensive tax reform—and moving left while doing so.

June Jobs Report: The Slump Is Real

One of the refrains we heard when job numbers started to dip from early-year highs was not to put too much stock in one month’s reports. The White House is still saying that today—on the dismaying news that the economy added only 80,000 jobs and the unemployment rate remained unchanged—but it’s now clear that the spring slump is real and ongoing. The economy needs to add 95,000 jobs each month to keep up with natural population growth and it’s just not doing that. We’re averaging 75,000 new jobs each month in the second quarter, compared to 226,000 in the first. 

The key context here is that even when the job numbers were trending upwards, it wasn’t nearly enough. The economic well-being of millions of Americans fell off a steep cliff during the great recession, and the misery continues for most people regardless of these much-watched fluctuations. From the Center on Budget and Policy Priorites, here’s how that looks:

And again, today’s jobs numbers confirm that we can’t even hang our hats on some modest gains. We’ve settled into a very slow growth trend. Here are some data snapshots from today’s numbers:

  • The public sector added 4,000 jobs, but gains elsewhere masked 14,000 jobs lost in the public education sector.

  • The manufacturing sector added 11,000 jobs, but has also settled into slower growth—it was averaging 41,000 in the first quarter.  

  • The African-American unemployment rate surged last month, though this was due mainly to more African-Americans looking for work.

  • Men continue to reap a disproportionate share of the jobs gains, and it’s not just because the manufacturing and construction are doing a bit better. Dean Baker notes that since December of 2009, men have gotten 474,000 retail industry jobs while women have lost 49,000. Of the 192,000 transportation industry jobs, men have gotten 190,000. The finance sector added 123,000 for men, while the number of jobs for women fell by 65,000.

  • Older workers are also seeing more job gains, with people over 55 getting 169,000 new jobs in June and accounting for 57.9 percent of the overall job growth in the past year.

  • Both average weekly hours worked and wages bumped upwards, which is welcome news. As Jared Bernstein notes, with continued low inflation and decreased gas prices, paychecks are accumulating more purchasing power.

The politics of jobs data in an election year are unavoidable. As expected, the Obama campaign is counseling restrained optimism, while Romney is bashing the bad report, calling it a “kick in the gut.”

I will only note that while the incentive to bash a bad monthly report is obvious, Romney should be careful. There’s an emerging consensus among analysts that, while the situation is certainly bad, the recent jobs reports may be understating job growth. Dean Baker sees drops or low growth in the health care, construction, educational services, and transit and ground transportation as anomalous. He predicts that a correction could mean job gains of around 150,000 for the second half of the year. If Romney insists on living by monthly drops, he could die by improving gains headed into November.  

Banks Release Weak Living Wills

One method by which the Dodd-Frank legislation attempts to prevent too-big-to-fail banks from destroying the economy are the execution of “living wills”—detailed plans written by the financial institutions and approved by regulators that explain how the bank can be safely and quickly unwound in the event of a crisis. The ostensible purpose is to avoid the panic seen in 2008 when massive firms were suddenly in critical condition: federal regulators, and often the firms themselves, had no idea how bad the problem was and no real roadmap for safely dismantling the company.

From the outset, many critics questioned the efficacy of living wills, noting among other concerns that financial firms have no incentive to write a clear dissolution plan—they would naturally prefer to be bailed out, and if the plans are inadequate and regulators are unable to execute them, then that’s probably what would happen.

This week, the Federal Reserve and the Federal Deposit Insurance Corporation released the public portions of the living wills from nine large institutions: Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley and UBS. And the early concerns of critics seem to have been well-founded.

While each bank claims in the documents that it can be dismantled smoothly, there is precious little detail. The banks “used technical generalities in their conclusions without specifically addressing the unpredictable and vicious nature of a credit crisis,” notes Reuters.

For example:

Bank of America Corp…said in its plan that “certain assets and liabilities would be transferred to a bridge bank that would, subject to certain assumptions, emerge from resolution as a viable going concern.”

JPMorgan Chase & Co concluded that its plan “would not require extraordinary government support, and would not result in losses being borne by the US government.” And, Goldman Sachs Group Inc said it would find a broad range of potential buyers for its assets, including global financial institutions, private equity funds, insurance companies or sovereign wealth funds.

Granted, the public releases are summaries of more detailed plans submitted to the regulators, but there’s no indication in them of real plans here. It is well and good to say you would simply find a “broad range of buyers” for your company’s assets, but this is presumably happening when the company is in serious trouble. Lehman Brothers failed because, despite desperate attempts, it couldn’t find any buyers for its deeply troubled assets.

Wall Street reformers were unhappy with the newly released documents. “After sucking trillions of dollars from taxpayers in bailouts and subsidies as well as wrecking the world economy, America’s largest banks should offer more in their living wills than excerpts from their shareholder reports and self-promoting bromides about their safety,” said Bartlett Naylor, financial policy advocate for Public Citizen’s Congress Watch division in a statement. “If the shallow, detail-thin public plans are any indication as to what regulators will find in the plans submitted to them, Washington should return them to the banks marked ‘F.’ ”

Indeed, the regulators can reject the plans if they deem them too weak, and can even order higher capital requirements or divestment of some assets. Whether they do so will be one of the key financial reform stories to watch over the coming months.

But even if strong plans are created, it still might not be enough to prevent massive taxpayer bailouts. Another central criticism of the “living wills” idea is that, no matter how well-written, they would be useless in a systemic catastrophe.

The plans are written from the perspective of a “one-off” event, meaning that the bank and only that bank is in trouble. But the more likely scenario is some kind of systemic failure similar to what happened in 2008, and then you’re really going to have trouble finding buyers. “The presumption of a one-off event is not realistically valid,” one banking analyst told Reuters. “ You can have one company blow itself up, but more often than not there are systemic problems.”

In his excellent paper arguing for and end to Too-Big-To-Fail banks, Harvey Rosenblum of the Dallas Federal Reserve touched on this issue. “In all likelihood, TBTF could again become TMTF—too many to fail, as happened in 2008,” he wrote, adding that “For all its bluster, Dodd-Frank leaves TBTF entrenched.”  

Tea Party Govs Say 'No' to Medicaid Expansion

Governor Rick Scott expresses his disappointment about the Supreme Court’s decision concerning the healthcare bill at a news conference on Thursday, June 28, 2012, in Tallahassee, Florida. (AP Photo/Steve Cannon)

Nearly 1 million Floridians will be denied access to Medicaid they would have otherwise received under the Affordable Care Act if Governor Rick Scott gets his way. The Supreme Court ruling last week on the law made it easier for states to opt out of an expansion, and Sunday night the governor’s office e-mailed a statement from Scott that “since Florida is legally allowed to opt out, that’s the right decision for our citizens.”

According to the Kaiser Family Foundation the Medicaid expansion in Florida would have covered 951,622 people that currently don’t have insurance. The federal government would have picked up the entire tab for the first three years, and by 2020 would still be paying 90 percent. But Scott—a former CEO of a large hospital chain who rode to Tea Party stardom and the governor’s mansion by being a rabid opponent of “Obamacare”—apparently finds the political posturing more important.

Similarly in South Carolina, Governor Nikki Haley—another Tea Party darling elected along with Scott in 2010—said her state would opt out as well. “We’re not going to shove more South Carolinians into a broken system,” said a Haley spokesman. The expansion there would have provided coverage to 330,932 people.

These are no doubt worrying developments, but it’s important to note that this could amount to nothing but saber-rattling by politicians dedicated to the Tea Party cause. It’s not up to either Haley or Scott to reject the expansion—it must be done by the state legislatures, and while both are controlled by Republicans and the leadership of the governor matters, it’s far from a done deal. The Medicaid expansion won’t take place until 2014 and there are many factors that could keep the expansion on track in both states, and the others that are contemplating an opt-out.

Let’s start with the raw logic of participating in the expansion, which I will grant up front clearly has no place in the decision making of Scott and Haley, nor in the Tea Party–driven hysteria around the law. But here it goes anyway: if you’re interested in fiscal conservatism and maximizing value to taxpayers, it’s a good call to participate in the expansion.

According to the Urban Institute, in 2008 $10.6 billion in state and local dollars went to providing emergency healthcare for the uninsured. The ACA is projected to expand coverage to 33 million people by 2022, in large part through this Medicaid expansion, and so participation will ultimately help rein in state budget deficits over the long term. And the ultimate cost for participating is only a 2.8 percent increase in state Medicaid spending.

Also: taxpayers in South Carolina, Florida and elsewhere will be funding the Medicaid expansion through their federal taxes anyhow. It’s just a question of whether they will then be denied the benefit of those tax dollars—and then get screwed even further when state budget problems get worse because of the higher levels of uninsured, and vital services are cut.

But again, Scott and Haley clearly hold Tea Party rhetoric and positioning supreme and won’t engage with these facts. What might yet stop them, however, are powerful hospital lobbies.

As Abby Rapoport chronicles, when the administration was negotiating with the hospital industry to support the ACA it actually got them to agree to a cut in Medicare and Medicaid rates—and the reward was a Medicaid expansion. Charity care is a massive drain on the hospital industry and they want more people on the Medicaid rolls.

But now hospitals in South Carolina and Florida are looking at a rate reduction without the corresponding increase in Medicaid coverage.

Hospital lobbies are always powerful in state politics, and could yet convince state legislators to buck the ideological governors and support an expansion. Combine the big industry money with a powerful narrative about denying coverage to hundreds of thousands of people, plus the diminishing returns of rallying against Obamacare—particularly after the fall elections—and by 2014 it’s possible Florida, South Carolina and other states will end up participating. They’re just going to make a lot of noise first.

Facts Get in the Way of GOP's Fast and Furious Investigation

House Oversight and Government Reform Committee Chairman Representative Darrell Issa, R-CA, at the House Rules Committee, on Capitol Hill in Washington, Wednesday, June 27, 2012, to argue procedures as the House of Representatives prepared to vote on whether Attorney General Eric Holder is in contempt of Congress because he has refused to give the Oversight Committee all the documents it wants related to Operation Fast and Furious, the flawed gun-smuggling probe involving Mexican drug cartels. (AP Photo/J. Scott Applewhite)

Have you been ignoring the Fast and Furious scandal? It’s okay. I will confess that for probably too long, I tuned out the brouhaha as just another tempest in the News Corp. teapot and relegated it to the dimly lit area of my brain where Bill Ayers, Vince Foster, Solyndra and others reside.

But with the House of Representatives voting Thursday to hold US Attorney General Eric Holder in contempt—the first time in American history this has happened—the story can’t be ignored any longer.

Yet when one digs into the facts of the scandal—and a terrific piece of journalism in Fortune this week is a great help—it becomes clear that Fast and Furious has been blown completely out of proportion by Republican leaders, and a terrible yet all too common tragedy on the United States’ border with Mexico has been fashioned into an ugly political weapon.

Here’s a condensed version of what Republicans say happened. (I will do my very best here to be completely faithful to their telling; feel free to also check out the Fast and Furious page put together by the majority on the House Oversight and Government Reform Committee, which has led the charge against Holder).

According to Republicans, in fall 2009 the Bureau of Alcohol, Tobacco, and Firearms began a dangerous effort to stop the flow of guns into Mexico under the auspices of Operation Fast and Furious. The ATF officers used a method of investigation called gun-walking, in which they recruited straw buyers in Arizona to purchase and transmit guns south of the border in order to build a stronger case against the bad guys. Officers logged the purchases and gun serial numbers, applied for wiretaps, but never tried to intercept the weapons.

This allowed drug cartels to obtain potentially hundreds of dangerous weapons under the direct eye of federal authorities, a bad idea that turned tragic in December 2010 when US Border Patrol Brian Terry was murdered by bandits wielding a gun that was walked under Fast and Furious.

So the thrust of the GOP storyline is overzealous gun-grabbers at Obama’s ATF took risks that led directly to the murder of a Border Patrol agent.

But the piece in Fortune, in which reporter Katherine Eban interviewed many of the agents involved for the first time ever, completely demolishes this version of events. (It’s worth a full read).

Eban reveals that the ATF never intentionally walked the guns, save one important exception that we’ll get to momentarily. Instead, they were unable to obtain warrants to arrest the purchasers. Prosecutors were extremely wary of arresting straw buyers, either for fear of retribution from the NRA—who hammered ATF in 2005 for seizing guns from a straw buyer—or because they were gun aficionados themselves. One local prosecutor was reportedly seen behind a table at a gun show and was philosophically opposed to those arrests.

So, unable to arrest the buyers, the agent running Fast and Furious resigned his unit to simply tracking the purchases in hopes of using the evidence later. This is a world away from purposefully letting the guns go, and Eban chronicles numerous efforts by the ATF agents to overcome bureaucratic and legal obstacles and arrest the buyers—they just weren’t able to do it.

The one exception is agent John Dodson, who used $2,500 in taxpayer money to buy six guns from a local dealer, passed them to a trafficker, and then took a long vacation. This is the only proven instance of gun-walking under Fast and Furious—and Dodson, incredibly, was the “brave whistleblower” who exposed the entire operation.

Eban reports that Dodson hated his boss Dave Voth because Voth supposedly “treated him like shit.” Dodson disobeyed a direct order from Voth not to walk guns in this manner—and then, a few months later, went to CBS News with allegations that the ATF “ordered” him to walk guns and that in fact it was a common practice there.

CBS News never fully checked out his story, and never talked to Voth—and still hasn’t retracted the piece. Yet neither Dodson nor anyone else has ever proven there were orders to perform gun-walking, nor proven any other episode other that Dodson’s own. (Voth was deeply shocked by Dodson’s actions—a “blow he couldn’t fathom,” according to Eban, who added that he began losing weight and sleep. “There would be no way,” Voth is quoted as saying, “to foreshadow this.”)

What made things worse for the administration—and what made it a target of the House investigation—is that after saying there was no gun-walking at ATF, it flipped, admitted there was, and apologized. There was good reason to initially claim there was no gun-walking, since Eban documents how nobody high up at ATF knew about it, much less people at the Department or Justice or the White House. (Obama has said he learned about Fast and Furious on the news).

But when confronted with the evidence of Dodson’s own gun-walking, the administration appears to have panicked. (See also Jones, Van and Sherrod, Shirley). High-ranking officials resigned and apologies were made.

The documents that Issa is now after focus on that period in 2011 between when the administration said there was no gun-walking and then changed its mind. The express implication is that there was a cover-up—that Holder and possibly the White House knew about gun-walking all along (maybe even encouraged it) and only admitted the practice when forced.

Representative Darrell Issa’s committee has pushed and pushed for documents relating to that period, receiving almost 7,000 pages—none of which contain any evidence of a cover-up.

The committee pushed until they finally hit the bottom of the barrel, requesting documents that the administration says are privileged and can’t be released. This relies on a perhaps overly broad interpretation of executive privilege that should trouble advocates of transparent government—but also a well-established one Issa knew would be invoked.

Holder has directly accused Issa of deliberately “provok[ing] an avoidable conflict between Congress and the Executive Branch,” and it’s easy to see why Republicans would be motivated to hold an Obama official in historic contempt only months before elections. Republicans already harbor a deep antipathy towards Holder anyhow, for everything from DOJ’s failure to defend DOMA to strong action to combat voter ID laws.

It now seems unlikely this will go anywhere—following the contempt vote, the US Attorney for the District of Columbia will consider whether to prosecute, but it’s hard to imagine much of a case here. In addition, Republican leaders seem wary to go very far with Issa’s crusade for fear it makes them look petty. House Speaker John Boehner and his leadership team initially didn’t want a contempt vote, and when they finally scheduled one, it was buried only hours after the biggest Supreme Court decision in years.

On Wednesday, conservative pundit Charles Krauthammer appeared on Fox News and tried to temper the network’s flogging of the story, saying it made Republicans look bad and predicting leaders would “get off this train as soon as they can.” The public doesn’t seem to be on board either—a Fox News poll with some very suggestive language still only found 38 percent of voters think there’s a White House cover-up. Despite what Issa thinks, Watergate this ain’t.

Ruling Could Allow Republicans to Deny Medicaid to Millions of Poor Americans

The Affordable Care Act didn’t survive entirely as passed—somewhat lost amidst the intense focus on the individual mandate was a ruling that part of the law’s Medicaid expansion was unconstitutional. The Supreme Court’s modification of the law probably won’t have a fundamental, long-term impact, but does make it easier for rogue Republican governors to exempt their states from participating in the expansion—and could cost millions of low-income, uninsured Americans a chance at government health care.

First, a brief refresher on what the ACA did to Medicaid: as you may know, the program is run jointly by the states and the federal government to provide health care to (very) low-income Americans. States set up their Medicaid system according to federal regulations and get most of the money from the feds, while funding some of the program themselves. Healthcare reform aimed to expand coverage, in part, by expanding Medicaid to cover people up to 133 percent above the poverty line (as compared to 63 percent now)—that is, at or below income of $30,700 for a family of four. This expansion would extend coverage to 16 million additional people by 2019.

To facilitate this expansion, the law offered states 90 percent of the cost, coupled with severe penalties if they chose not to participate—states would lose almost all existing federal grants for the program. This made it extremely unlikely that any governor or legislature, no matter how red, would essentially trash Medicaid in their state by opting out of an expansion.

Twenty-six states then challenged that part of the law, arguing that it unconstitutionally coerced them to join a federal program.

What the Court ruled, after much internal maneuvering, was that while the federal government could offer incentives for states to expand Medicaid, the penalties for not doing so were indeed unconstitutionally coercive.

The invaluable SCOTUSblog chronicles the horse-trading that took place. Liberal justices Sotomayor and Ginsburg believed the entire expansion was constitutional and should be upheld in full. On the other hand, Justices Scalia, Alito, Thomas and Kennedy believed the entire expansion should be struck down—this is consistent with their opinion that the law should be invalidated in full. Meanwhile, Chief Justice Roberts, joined by Justices Kagan and Breyer, believed that withholding the money was unconstitutional, but offering the incentives to expand was not.

The logjam was broken when Sotomayor and Ginsburg technically joined the Roberts group—they voted that if indeed withholding federal funds was unconstitutional, then only that part of the law should be struck down. Hence the result—states will get almost full funding for a Medicaid expansion if they join, but will see no penalty for not doing so.

Long-term, this is unlikely to have any effect—what state would turn down a Medicaid expansion where the federal government pays for 90 percent of it? A decade from now, it’s incredibly hard to imagine that happening.

But the question is whether in the short-term, red-state governors will slide through the crack opened by the Supreme Court to pull out of the expansion, as the Republican Party still finds it politically valuable to fulminate and rebel against the dreaded Obamacare.

The stakes here are not small. A ProPublica analysis of an Urban Institute study found the twenty-six states that sued the federal government contain 8.5 million uninsured people who would be covered under the expansion—more than half of the total number expected to benefit.

The decision is only hours old, and as yet, no Republican governor has announced that he or she will reject the Medicaid expansion. But if anyone does it will have real impacts on many uninsured in that state—in Texas, for example, Rick Perry could yank Medicaid away from 1.8 million people who would get it under an expansion. The biggest question for healthcare reformers and the uninsured going forward is whether Perry and his cohorts will actually pull the trigger.

Read more of The Nation's coverage of the ruling on the Affordable Care Act:
David Cole on how and why Chief Justice John Roberts held up the individual mandate.
Ben Adler on the Republicans' renewed attacks on Obamacare.
John Nichols on the ongoing push for Medicare-for-all.

Outside the Court, GOP Revs Up Base While Progressives Cheer

Representative Keith Ellison, left, smiles as Democrats hold a press conference outside the Supreme Court on Thursday. Photo by George Zornick

The deeply hated “Obamacare” survived almost entirely intact, and—once they finally understood what happened, after furiously refreshing their smartphones or participating in a wonky game of telephone—the assembled Tea Partiers outside the Supreme Court appeared shellshocked. The group prayers and chants of “Freedom forever, tyranny never!” briefly fell silent.

Soon, their elected leaders appeared to tell them how angry they ought to be. Tea Party star Representative Steve King, who has previously warned that the Affordable Care Act was an attempt to “nationalize our soul,” said that “What I’m seeing is making me sick to my stomach.” Representative Jeff Landry called it a “tragic day for our republic.” Representative Louie Gohmert—who believes that healthcare reform “is going to absolutely kill senior citizens” and will “put them on lists and force them to die early”—made a thinly veiled call to impeach Obama, members of Congress who support the reforms, and even Supreme Court justices--and he made that call explicit moments later, away from the microphones. (Representative Phil Gingrey spoke next and quickly disavowed any push to remove Supreme Court justices.) Michele Bachmann called the decision incomprehensible and sad.

The crowd quickly came back to life, with loud proclamations that they would not obey the now-constitutional mandate. This energy and anti-Obamacare fervor was crucial to the Republican takeover of the House in 2010, and the Republicans outside the Supreme Court were eager to rev it right back up again.

Accordingly, House majority leader Eric Cantor quickly announced that the House will hold a vote on a full repeal of healthcare reform on July 11. This was the Republican plan regardless of what happened—repeal anything left standing—and this vote would have proceeded unless the Court rendered it unnecessary by striking down the entire law (which, notably, four justices advocated in their dissent).

Mitt Romney, speaking nearby—after his campaign announced it had already raised $200,000 in the brief period after the ruling, a sign that their strategy could be working—pledged to push for a full repeal if elected president.

Meanwhile, Democrats celebrated. The Congressional Progressive Caucus was joined by Senators Tom Harkin and Chris Coons for a press conference on the steps of the Court that was upbeat but somewhat restrained, and in a fitting parable for how the entire healthcare debate played out, was almost completely drowned out by Bachmann shrieking into a megaphone a few yards away.

The Democratic message was clear: this is a big victory, but there’s still work to be done on healthcare reform. “This law is a critical step in the right direction; I have likened it to a starter home, suitable for improvement,” said Harkin in a statement. “I look forward to working with my colleagues to make sensible changes as we continue to implement the law.” Representative Keith Ellison, co-chair of the Progressive Caucus, heralded the final enshrinement of a healthcare reform after presidents from Franklin Roosevelt to Bill Clinton tried and failed to enact it—yet promised that the CPC would continue to push Congress “forward, never backward.”

Schneiderman Targets US Chamber in Tax Fraud Investigation

We don’t know much about how the US Chamber of Commerce funds its political campaigns. In fact, that’s the essential feature of its operations—as a 501(c)(6) trade organization, the chamber has no obligation to disclose who funds its electioneering campaigns, and so corporations can give massive amounts of money to the chamber without having any fingerprints on the resulting attack ads that hammer Democrats and push for industry deregulation.

But it’s a funny thing—every time we get a glimpse into how the chamber operates, there are whiffs of impropriety.

For years, good-government groups have been raising red flags about potential tax fraud that the chamber may have committed in 2003 and 2004, in which it may have used $18 million illegally funneled through charitable groups to support a campaign to roll back the Sarbanes-Oxley financial regulation, “reform” tort laws, and defeat Democrats in the federal elections. Now, New York Attorney General Eric Schneiderman has taken up the cause, and issued wide-ranging subpoenas Wednesday targeting those transactions. The New York Times aptly calls this the “first significant [investigation] in years into the rapidly growing use of tax-exempt groups to move money into politics.”

There are three players in this alleged scheme—the US Chamber of Commerce itself and these two organizations:

  • The Starr Foundation. This is a 501(c)(3) charitable group that, during the period in question, was headed by AIG chairman Maurice Greenberg. In the mid-aughts—before he was forced to resign from AIG amidst an investigation by another New York attorney general, Eliot Spitzer—Greenberg was a vocal opponent of financial regulation and Sarbanes-Oxley in particular, saying the law had a “chilling effect on the economy” and would discourage financial firms from “risk-taking.” He also vowed to wage “all-out war” to push for tort reform that limited class-action lawsuits. (As an insurer, AIG had good reason to hate big lawsuits, and in 2003, AIG lost $1.8 billion and blamed “egregious jury awards and settlements for litigation.”)

  • The National Chamber Foundation. This is also a 501(c)(3) charitable organization, affiliated with the US Chamber of Commerce, that bills itself as a think tank that “drives the policy debate on key topics and provides a forum where leaders advance cutting-edge issues facing the US business community.” Interestingly, however, 86 percent of the NCF’s assets are outstanding loans to the chamber itself.

As 501(c)(3) organizations, the Starr Foundation and NCF are strictly prohibited from engaging in political activities. But an exhaustive analysis of the two groups’ public filings by the good-government group US Chamber Watch revealed a very intriguing flow of money in 2003 and 2004.

First, the Starr Foundation gave over $18 million to the NCF in a series of grants over those two years. At the same time, NCF gave the Chamber $18,137,127 in loans.

While receiving this money, the chamber was launching a massive lobbying and advertising campaign that quite notably dovetailed with many of Greenberg and AIG’s political priorities, including rolling back Sarbanes-Oxley and creating nationwide tort reform.

US Chamber Watch alleged a clear pattern of misconduct. Its theory was that the Starr Foundation, run by the head of AIG, funneled $18 million of "charitable" money to the US Chamber to advance AIG’s political goals, using the NCF as a go-between to disguise the intent. It is expressly illegal for charitable money from 501(c)(3)s to be used for political goals, but that may be what happened.

(While it’s clear why the Starr Foundation would want to hide the potentially illegal political giving, it’s not yet clear to me why Greenberg couldn’t just have AIG give the money directly to the chamber, which alas would have been totally legal. If the theories are true, perhaps Greenberg had additional money parked at the Starr Foundation that he thought would augment the money AIG was already likely giving the chamber, and in his zeal to fight financial regulation, pushed it through these transactions).

This whole theory might fall apart if the chamber repaid the $18 million in loans to NCF—that could mean the chamber ultimately used its own money for the political campaigns. But in 2010 a chamber spokesperson admitted to the New York Times that the money was “listed…as a loan only in the most technical sense” and “was never intended to be paid back.” The chamber paid no interest on the loan until 2005 and didn’t start paying back principal until after US Chamber Watch started filing complaints with the IRS.

Schneiderman’s office is looking into how the $18 million was accounted for by the chamber and if it was a legitimate loan. He has issued an array of subpoenas targeting e-mails, bank records and other documents.

The ramifications could be huge if the US Chamber of Commerce, easily the biggest lobbying force in Washington, is found to have been engaged in tax fraud. The NCF could have its tax-exempt status retroactively revoked and could ultimately be shut down.

The investigation also dovetails into larger questions of political activities by tax-exempt organizations. The Obama campaign recently filed an FEC complaint about electioneering by Karl Rove’s nonprofit Crossroads GPS, and for years good-government groups have been filing similar complaints with the IRS.

Congress Approaches a Deal to Keep Student Loan Interest Rates Low

Screwing over young voters is not a particularly wise idea, and much less so with only four months until a presidential election. (It should go without saying that it’s also terrible policy).

College, student loans, student debt, CongressAccordingly, Republicans and Democrats in the Senate are approaching a deal to keep federal subsidized student loans—in which the government pays students’ interest while they are still in school—from seeing a 100 percent interest rate increase on Sunday, from the current 3.4 percent to 6.8 percent.

The crucial context here is that Republicans really don’t think the government should subsidize student loans at all, but have been brought along by political realities.

During the debt ceiling showdown last summer, House majority leader Eric Cantor proposed that the government should stop paying loan interest rates while students are in school, and that the burden should fall to students themselves. That would effectively end the Stafford subsidized program at issue now. The conservative Club for Growth is still advocating an end to the program, and will be scoring the vote.

House Republican leaders initially said they would try to prevent the rate increase, but were pushed forward when Democrats started beating them up—and when even Mitt Romney said he supported an extension of the low rate.

Accordingly, House Speaker John Boehner whipped up a bill that would extend the low rate and pay for it by raiding preventive care programs created by the healthcare reform, which Republicans derisively refer to as an “Obamacare slush fund.” Thirty House Republicans still voted against that proposal, but it passed.

Last month in the Senate, Harry Reid matched the partisan pay-for with one of his own: he proposed a bill that extended the low rate and paid for it by ending a loophole that allowed very wealthy Americans to hide their income and pay less payroll taxes.

The stalemate stood here for weeks, and slowly evolved towards a compromise. Republicans dropped the idea of raiding preventive care money, Democrats dropped the proposal to close the tax loophole, and now we’re looking at pay-fors involving pension funding and tinkering with the post-graduation interest accrual for students. A vote could come as early as today in the Senate.

That’s welcome news, but I can’t help but wonder if Democrats gave in to easy in the name of getting a deal done. They had two winning political issues on their side—helping students and taxing the wealthy. Would Republicans have dared to sacrifice help for students, particularly on the altar of less funding for preventive healthcare? We’ll never know.

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