James Pethokoukis

Politics and policy from inside Washington

It would be nice if Obama’s SOTU included some of this stuff

Jan 25, 2011 22:13 UTC

The folks at Americans for Tax reform have assembled a pretty solid list of ideas.  Since Obama is apparently going for growth in an attempt to get reelected, he might want to take a gander at a few of these:

1.  Cut the corporate income tax rate.  The United States has the highest corporate income tax rate in the developed world.  This puts American employers at a disadvantage to our international competitors, and costs U.S. jobs.

2.  Move from “worldwide” to “territorial” taxation.  The U.S. is one of the few developed nations that not only seeks to tax all profits earned within her borders, but also the profits of her taxpayers earned all around the world.  Most other countries are closer to a “territorial” system.  The U.S. should move toward this type of system, which would make the complex maze of international deferrals and credits unnecessary.

3.  Make full business expensing permanent.  As part of the tax increase avoidance deal in December, Congress and the President agreed to one year of full business expensing (as opposed to multi-year deductions called “depreciation”) for new business machinery and equipment.  This should be expanded to real property and made permanent to further equalize the tax treatment of investment versus consumption.

4.  Call on Congress to repeal Obamacare taxes on families making less than $250,000 per year.  Obamacare contained nearly two-dozen new or higher taxes, at least seven of which are directly-levied on families making less than $250,000 per year.  At the very least, those taxes which violate President Obama’s “firm pledge” not to raise “any form of taxes” on any family making less than $250,000 should be repealed first.

5.  Remove uncertainty from small employers and investors by making current tax rates permanent.  The top personal rate of 35 percent is also the rate at which a majority of small business profits face taxation.  The capital gains and dividends rate of 15 percent has been priced into the value of every American’s IRA and 401(k) balance.  To restore certainty to the economy, businesses and families need to plan with steady and permanent tax rates.

6.  Call for a moratorium on new federal regulations.  According to the annual “Cost of Government Day” report issued by Americans for Tax Reform Foundation and the Center for Fiscal Accountability, regulations impose a cost of $1.5 trillion annually on our economy.  There were over 60,000 pages added to the Federal Register in 2009.  Americans had to work nearly 75 days just to pay for the regulatory burden of government.  At the very least, no more damage should be allowed to occur, starting with harmful Obamacare regulations.

7.  Admit “stimulus” failures and rescind the unspent funds. This could save taxpayers almost $200 billion. Famously threatening that absent an influx of cash in the form of government “stimulus” unemployment would crest 8 percent, two years of economic stagnation and unemployment holding steady above 9 percent shows the plan to be a failure by the White House’s own standard. Admit defeat and move on to proven pro-growth policy.

8.  Promise to veto any further state government bailouts.  Refuse to reward the fiscal recklessness of the states by pledging to end state bailouts. Due in part to the snake oil of “stimulus” funds, states expanded rather than restrained their bottom lines during the economic recession, and are facing a cumulative $72 billion overspending problem, on top of a $3 trillion hole dug by unsustainable pension promises. If the President is serious about fiscal restraint, he should make clear states are responsible for their own spending habits.

9.  Keep your promise on earmarks. According to Citizens Against Government Waste, earmark spending has topped $36 billion over the past two years of the Obama Administration, to say nothing of the trillions of dollars of spending that have been enabled by greasing the palms of elected officials.

10.  Support lasting reform to permanently shift the bias away from spending. Prudent measures such as allowing taxpayers to read bills online for five full days before they receive a vote would ensure lawmakers are diligent stewards of taxpayer dollars.

Did Wall Street nix GOP push to let states go bankrupt?

Jan 25, 2011 17:49 UTC

As they used to say in the Soviet Union, “It’s no coincidence.” At least, I suspect is isn’t. Yesterday, House Republican Majority Leader Eric Cantor came  out strongly against the idea of changing the federal bankruptcy code to let states declare bankruptcy, an idea being pushed by some Republicans, including Newt Gingrich:

“I don’t think that that is necessary because state governments have at their disposal the requisite tools to address their fiscal ills,” Cantor said. ”They’ve got the ability to enter into new negotiations if there are any collective bargaining agreements in place. They’ve got the ability to adjust levels of spending as well as revenues at the state level.”

Yes, but filing for bankruptcy would allow states to restructure government union contracts. Even the threat of doing so could make negotiations easier. That’s arguably how it worked for U.S. automakers. Despite incremental concessions over the years due to the vague threat of bankruptcy, only the reality of an actual bankruptcy, instigated by Washington, achieved sweeping change — whether at General Motors and Chrysler, which filed, or Ford, which avoided doing so. States don’t have that ability right now.

But let’s speculate a bit, let’s try and connect a few dots:

1. In 2010 election cycle,  Wall Street campaign contributions shifted to Republicans from Democrats. For instance, Goldman Sachs, via its PAC and employees, allocated 59 percent of political contributions to Republicans in 2010 against just 26 percent in 2008.

2.  Wall Street does not like the idea of states being given the power to file for bankruptcy. Such a move might spook markets, or spook them even more:

The municipal bond market, which has recently been rocked by fears of possible defaults, could suffer another blow, driving up borrowing costs further, if the legislation gained traction. The idea is “clearly not beneficial to an already fragile municipal market,” said Chris Mauro, municipal strategist for RBC Capital Markets, in a statement.

It might hurt their holdings of state bonds. Overall, banks own some quarter-trillion bucks worth of state and local debt.

3. Also, some Wall Street firms make a lot of money off the public pension system and don’t want to get on the wrong political side of the issue. Take the Blackstone Group, a private equity firm.  More than a third of its investors are public pensions. Here is the text of  a press release it put out last week:

Blackstone’s view on public employee pensions is clear and unambiguous: We believe a pension is a promise. Working men and women should not have to worry about their retirement security after years of service to their communities. We oppose scapegoating public employees by blaming them for the structural budget deficits that cities and states face. We at Blackstone are committed to helping public employees retire with confidence in the strength and reliability of their pensions.

4. Billionaire Blackstone CEO Steve Schwarzman is a big Republican moneyman who famously likened Democratic efforts to impose higher taxes on private equity firms to Adolf Hitler’s invasion of Poland. “It’s a war. It’s like when Hitler invaded Poland in 1939.”

5. Many Republicans would love to cement their rekindled financial relationship with Wall Street heading into 2012 when they have a good chance of retaking the Senate.

Now there is a reasonable argument against giving state’s this new power. But the anti-bankruptcy GOPers have yet to supply it. Perhaps other forces are at play. If not, more explanation is needed.

COMMENT

For those of you citing the Contracts clause and arguing that this would be unconstitutional:

“No state shall . . . pass any law . . . impairing the obligation of contracts.”

This would be a federal law–as bankruptcy courts are arms of the federal judiciary. When you hear about “Chapter 7 bankruptcies,” for example, we are talking about Chapter 7 of Title 11 of the United States Code. The Contracts Clause does not restrict the ability of the federal government to interfere with existing contracts.

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