President Barack Obama's new budget has much of his own base up in arms, particularly over $230 billion in proposed cuts to Social Security. On Thursday, House Minority Leader Nancy Pelosi (D-Calif.) convened a meeting of House Democrats to hear a closed-door debate on the proposal, which would cost retirees hundreds of dollars a year by tying the growth of monthly Social Security benefits to a new, lower measure of inflation called chained CPI. It was unclear whether the meeting changed any minds, but it certainly highlighted the divisions between the president and his party.
Speaking to reporters after the debate, many Democrats complained that Obama put the cuts on the table far too early. Rep. Louise Slaughter (D-N.Y.), the top Democrat on the House rules committee, likened Obama's negotiating skills to the eagerness of a five-year-old. "When I was a kid, I couldn't play hide and seek," she said. "The pressure was just too much on me. I would hop up and say, Here I am! This is the way this negotiation is taking place. We're trying to get a grand plan out of Republicans. It would be better instead of hollering up, Here I am! to get that agreement first, before you put it in your budget."
Rep. Nydia Velázquez (D-N.Y.) said she could envision putting chained CPI in the budget, but only as a product of negotiations, not as an initial offer, and only as part of a grand bargain with additional revenues, and investments in other progressive priorities. "We don't know what the other side is willing to offer," she said. "We cannot give anything on a silver platter."*
Other Democrats were outright opposed to the president's plan. Rep. Keith Ellison (D-Minn.) looked positively distraught. "I can only say that the Progressive Caucus is dead set against it," he said. Rep. Jan Schakowsky (D-Ill.) said she had no idea why Obama is embracing what was initially a Republican idea. "Chained CPI was a bad idea when [GOP Speaker of the House John] Boehner had it, and it's a bad idea now," she said, adding that measure would hurt seniors much more than the recent tax hikes on high-earners hurt them. Dean Baker of the Center for Economic and Policy Research has calculated that switching to chained CPI would cut about 2 percent of seniors' retirement income over 20 years. By contrast, the hit that the rich got from Obama's New Year's tax increases was only 0.6 percent.*
Rep. Sheila Jackson Lee (D-Tex.) said she hopes her party doesn't cave and line up behind the president. "This is so serious because…it will last forever," she said. "If we institutionalize the chained CPI, we will literally throw generations into poverty."
Pelosi suggested that many in her caucus thought chained CPI should be preserved as an option for making Social Security solvent in the long run, not as a way to pay down the national debt. "The deficit is not about Social Security," said Rep. Rush Holt (D-N.J). "What puzzles me is why the president would do this."
But nearly every House Democrat who spoke to reporters after the event suggested that, other criticisms aside, Obama's chained CPI proposal is bad politics. "Our brand is the party that brought you Social Security," Holt said. Slaughter added that she has been swamped with calls by unhappy constituents opposing the president's idea. "I'm at a loss for words," she said. "There are so many people living hand to mouth, day to day."
Correction: An earlier version of this article misspelled Rep. Velázquez and Rep.Schakowsky's names.
President Barack Obama’s new budget proposal, released Wednesday, would raise $16 billion in revenue over 10 years by getting rid of one of the ways millionaires and billionaires pay lower taxes than their secretaries. It's called the carried interest tax break, and it allows the wealthy to pay a lower rate on some of their income. But ending the carried interest exception will be tough, and not just because a budget compromise with Republicans is unlikely: Previous proposed legislation to kill the tax break was riddled with loopholes.
The carried interest tax break works by letting private equity and hedge fund managers treat some of the income they earn from managing clients' portfolios as if they had invested it themselves. That allows folks like Mitt Romney to pay a 20 percent investment income tax rate on their money management fees, instead of the normal 39.6 percent tax rate on earned income. This special rich person perk costs the government some $1.3 billion a year. That's one reason why Obama and many Democrats slam the tax break as unfair and have targeted it for repeal.
"There continues to be no rationale whatsoever for people to pay at a vastly lower tax rate when they are managing other people’s money," Rep. Sander Levin (D-Mich.), who has introduced all of the carried interest legislation in past years, said in an email. "This is an issue of fairness that we should address as we seek a balanced approach to deficit reduction that involves both additional revenues and spending cuts."
But getting rid of the tax break may not be such an easy task, given the tortuous history of the movement to deep-six it. The fight against carried interest is Levin's baby. He first introduced a bill to ax the loophole in 2007, and has introduced two more versions since then, all of which have stalled.
President Barack Obama's budget proposal, released Wednesday, would cut Social Security benefits by slowing their growth, a concession to Republicans who demand entitlement cuts in any budget. But what if there were another way to beef up Social Security's finances? Good news: There is. It would involve extending the payroll tax—which feeds the Social Security money pot—to rich people. But according to a new report by the policy shop Remapping Debate, most Dems would rather not talk about that.
Right now, the payroll tax only applies to income up to $113,700. Any income above that is exempt. According to the Social Security Administration, eliminating the payroll tax exclusion of incomes above $250,000 would ensure the program solvency for almost 50 years. Eliminating the exclusion entirely would ensure solvency for close to 65 years.
Plus, it would be more fair. "As it currently stands, payroll taxes apply to every dollar of earnings for a janitor making the minimum wage, but a professional athlete making $1 million a year pays only payroll taxes on approximately one-tenth of their earnings," Senator Tom Harkin (D-Iowa), who has introduced a bill to phase out the payroll tax cap, told Remapping Debate.
Harkin isn't alone: 12 other senators have put forth proposals in this Congress to eliminate or adjust the payroll tax cap. But as Remapping Debate found out, the other 42 Democrats in the Senate don't seem interested in getting behind the proposals.
The group reached out repeatedly to the senators' offices for a couple of weeks in March, and what they got was a lot of meh. Sens. Ben Cardin (D-Md.), Sherrod Brown (D-Ohio), Mark Warner (D-Va.), and Tammy Baldwin (D-Wisc.) were 100 percent into the idea. Others gave vague responses about "being open" to changes; four declined to comment; some said they were too busy. For the majority of Senators, there was no reply at all. Even superstar Main Street advocate Sen. Elizabeth Warren (D-Mass.) had no comment.
"For all the talk of the Social Security system running out of money," writes Samantha Cook in the report, "it is well established that raising or eliminating the cap on the wages subject to payroll taxes would guarantee a healthy Social Security system for many decades, and do so without cutting benefits or raising the retirement age." Apparently that can wait.
Many liberals oppose the president's proposal to balance the budget on the backs of the old. But a good chunk of the establishment left is sticking by the president's side, arguing that the cuts aren't so bad, and that any budget compromise with this Republican House will involve swallowing a bitter pill or two.
Obama's budget would squeeze old age benefits by changing the way inflation is calculated so that increases in future monthly Social Security payments grow more slowly. Right now, benefit increases are tied to the Consumer Price Index, which tracks the prices of a bunch of consumer products. First Republicans, and now Obama, have proposed changing that to something called chained CPI, a different calculation that ends up producing a lower rate of inflation by accounting for consumers switching to cheaper substitutes when a product's price jumps. The president's proposal includes exemptions for the oldest and poorest beneficiaries, but it would cost all other retirees hundreds of dollars in lost benefits every year. The White House estimates the measure will save $230 billion over 10 years.
When President Obama took office in 2009, he promised to curb the influence of special interests. Yet his new lobbying rules and a Bush-era law passed in the wake of the Jack Abramoff scandal appear to have done little to curb lobbying—and may have created new loopholes for influence peddling. Even as the number of lobbyists has decreased, spending on lobbying has gone up, which experts attribute to a growing number of lobbyists operating under the radar.
A recent report by the Center for Responsive Politics (CRP) found that there were close to 15,000 officially registered lobbyists in 2007; by last year that number had dropped to slightly more than 12,000. In 2007, total spending on lobbying approached $3 billion, and by 2012 it had jumped to around $3.3 billion. "An amazing amount of money continues to go up, even as the number of people [lobbying] goes down," says James Thurber, a professor of government at American University who has served on the American Bar Association's lobbying reform task force. (The report attributed a small decline in lobbying spending in the past two years to a number of factors, including the economy.)
What's happening here? Monte Ward, the president of the American League of Lobbyists (ALA), estimates that lots of folks are still lobbying; they're just not telling the government. "With all the restrictions the administration has placed on lobbyists, I think some have decided it's not worth registering," he says, adding that they're doing the same job, but just "getting in under the radar." Tim LaPira, a political science professor at James Madison University who focuses on lobbying law, says the well-intentioned Bush and Obama policies "actually created a gross disincentive to want to be open and public about what it is you're doing."
Reform advocates say lobbyists are weaseling around the definition of lobbying activities. The Honest Leadership and Open Government Act of 2007 states that if influence peddlers spend less than 20 percent of their time lobbying on the Hill (or in "preparation"), they don't have to register as lobbyists. LaPira says this is "silly": "Most doctors I know don't spend 20 percent of their working hours in the operating room, but that doesn't mean they're not surgeons." William Luneburg, a professor at the University of Pittsburgh School of Law who coauthored the American Bar Association's lobbying manual, agrees. "You can do a hell of a lot of lobbying for somebody when you're only doing 19 percent of your time for the client," he says.
A good example of the less-than-20-percent lobbyist is former Sen. Tom Daschle (D-S.D.), who, after nearly 20 years in the House and Senate, went on to serve as a "special policy adviser" to the law firm Alston & Bird. The firm doubled its lobbying income during Daschle's first year there. Former Speaker of the House Newt Gingrich made hundreds of thousands of dollars not lobbying for Freddie Mac, claiming he was paid $300,000 a year to be a "historian."
Some lobbyists slide under the threshold by changing how they "interpret" their job duties, says LaPira: "There's no way of knowing exactly how many minutes of the day any one lobbyist spent on any one thing." Likely due to these slippery tactics, the CRP report says, almost half of lobbyists who were active in 2011 but not 2012 are still working for the same employer. Of those who changed firms, more than a third moved to employers in similar industries.
"In all likelihood, there are many, many, many, more people in Washington doing policy advocacy, broadly defined, than people doing actual lobbying," LaPira says. Thurber, who helped Obama craft his lobbying rules, has advocated a more inclusive definition of lobbying, which would lump in folks in the advertising and PR industries, as well as grassroots activists, coalition builders, and think tanks that do advocacy. That would total some 100,000 people, he says. He adds that a more accurate number for the amount spent on lobbying could be up to "three times each year's reported expenditures."
Some lobbyists argue that the recent restrictions on them are unwarranted. Wayne Weidie, a senior governmental affairs adviser at the lobbying firm Adams & Reese, told the CRP, "I think some of the restrictions post-Abramoff were just overkill. Congress was just protecting itself from itself. Nobody buys anyone's soul with a glass of iced tea." ALA president Ward disagrees. He says he wants "an open and transparent process," and notes that his organization backs several lobbying reforms, including lowering the 20 percent threshold, getting rid of various exemptions, and requiring ethics training for lobbyists.
Absent these kinds of fixes, the public doesn't really know what forces are shaping the policies that affect them, says LaPira. "The public should have a right to know who's working to advocate for their own interest and for interests that they…may not agree with." Right now, he says, "We don't really know what's happening."