2010 - %3, November

Taxing the Rich

| Tue Nov. 23, 2010 9:39 AM PST

Jim Puzzanghera of the LA Times writes today about whether small businesses are likely to reduce hiring if tax rates are raised on people making more than $250,000 a year. As he points out, big companies normally pay taxes at the corporate level:

But companies can also file as S corporations or partnerships. The business income flows to the owners or partners and is reported on their individual returns, so profits are taxed only once.

....[Rick] Poore, whose DesignWear Inc. takes in about $2.25 million a year [...] supports the expiration of the top-level tax cuts, pointing out that the costs of employees and equipment, such as a new automatic garment press he is purchasing, reduce his taxable income...."That's how small business works. We reinvest in our businesses. We try to minimize the amount of taxable income we have," he said.

Some small-business groups, such as the Main Street Alliance, a national network of state-based small-business coalitions, also support letting the top-level tax cuts expire. "Its disingenuous for people to say this is going to have such a horrible affect on small business if they let these expire," Poore said. "Either they're honestly ignorant of how this really works or they're being intellectually dishonest."

There are unquestionably small businesses who would be affected by the tax increase. But aside from the fact that only a tiny number of small businesses would have to pay the higher rates — perhaps 1-2% — it's important to understand how this works. As Poore says, in an S corporation, business income is passed through to the owner. So a tax increase doesn't affect the revenue of the business at all, and doesn't affect its incentives to invest in equipment or additional workers. What it does affect is the amount of income passed through. In other words, it modestly affects personal income, just as you'd expect.

If you think that would be a disastrous thing, fine. I disagree. But it has a very limited impact on the incentive of the business qua business to expand its operations. Those incentives are driven almost entirely by whether there's likely to be higher demand for their products in the future. Right now, financial uncertainty is high, and that's why business expansion is low. It has very little to do with new healthcare regulations or higher personal tax rates.

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BP's Atlantis Still Operating, Despite Warnings

| Tue Nov. 23, 2010 9:06 AM PST

Nine months after members of Congress requested a thorough investigation of BP's other major Gulf project, the Atlantis, lawmakers are still waiting for that report. The results of the investiation are now six months late, and the Bureau of Ocean Energy Management, Regulation, and Enforcement says they'll have to wait a little while longer. 

We've been covring the Atlantis for several months now. A whistle-blowing former contractor on the Atlantis first raised concerns that the platform is missing documents crucial to safe operation in 2009, and members of Congress asked the Department of Interior to investigate back in February, several months before the Gulf spill. But the Interior Department division charged with overseeing offshore drilling, the Bureau of Ocean Energy Management, Regulation, and Enforcement, has now pushed back the release of their report several times. It is now six months overdue. In the meantime, documents released in the recent months have provided still more evidence that the platform was not in compliance with federal laws. Today, The Hill reports that the investigation is still underway.

In a Nov. 3 letter to Rep. Raul Grijalva (D-Ariz.), who has been dogging this issue, BOEMRE head Michael Bromwich said that while the agency has made "significant progress," the report has been delayed indefinitely as "new information came to light" while they were finalizing it. "It is critical that this investigation be thorough and comprehensive," Bromwich continued, without giving any specifics about what BOEMRE uncovered.

Despite the now multiple complaints an ongoing investigation, the platform continues to operate—and is doing so in deeper waters and producing more than triple the amount of oil that spilled from the Horizon site each day.

CREW Slams Holder, DOJ

| Tue Nov. 23, 2010 9:04 AM PST

The more things change, the more they stay the same. At least they do at the Department of Justice, according to Citizens for Responsibility and Ethics in Washington (CREW)

The watchdog group sent a letter to the DOJ today, calling out Attorney General Eric Holder and the Obama administration for dragging their heels on several of the group's Freedom of Information (or FOIA) requests. Holder and the DOJ's lack of transparency, CREW argues, runs counter to the president's campaign promises to run a more open administration than his predecessor.

The letter cites CREW's requests for information on a investigations involving the Bush administration, including the Dick Cheney's involvement in the Valerie Plame affair and former Office of Legal Counsel deputy John Yoo's infamous memos giving the president the legal greenlight to authorize torture.

CREW writes in a release that the "DOJ continues to operate—as it did during the Bush administration—under a presumption of secrecy" and is "deliberately withholding information about what DOJ is up to and why."

CREW's letter comes not long after Wil Hylton's sobering profile of Holder in the December issue of GQ. It describes a politically compromised DOJ, buckled by a fear of relitigating the past and incurring the wrath of congressional Republicans eager for evidence of White House overreach. "The president has promised transparency," says CREW's chief counsel Anne Wiesmann, "and the Department of Justice should be leading the way not trailing the herd."

DC Ticker on ABC News: Pistole, Sell; Huckabee, Buy

| Tue Nov. 23, 2010 8:21 AM PST

I've previously explained the DC Ticker I compile most days, which is now being featured weekly on ABC News' website show, Political Punch, hosted by Jake Tapper. Here are the picks featured on the latest PP:

John Pistole, sell — More squeezing or less at airport screening? TSA chief John Pistole has been sending conflicting signals.

* Mary Cheney, buy — The ex-veep's other daughter is making a bid to be a GOP powerbroker, helping to organize a political committee for Maria Cino, a former Bush administration official angling to replace Michael Steele as RNC chair.

* Sarah Palin, buy — Hasn't she supersaturated the political marketplace yet? Short answer: no. Her new book is out this week, her new TV show is up, and Bristol Palin went much farther on DWTS than could be expected.

* Mike Huckabee, buy — The 2012 presidential wannabe was in Iowa courting social conservatives, just as several Iowan evangelical groups have merged into a single outfit—which could make it easier for Huckabee to rally that crucial Iowa voting bloc.

You can receive the almost-daily DC Ticker report by following my Twitter feed. (#DCticker is the Twitter hashtag.) Please feel free to argue with my selections—though all decisions of the judges are final. And please feel free to make suggestions for buy or sell orders in the comments below or on Twitter (by replying to @DavidCornDC).

DC Ticker is merely an advisory service. It and its author cannot be held liable for any investments made in politicians, policy wonks, or government officials on the basis of the information presented. Invest in politics at your own risk.

Low Expectations for Climate Talks

| Tue Nov. 23, 2010 8:10 AM PST

This year's round of negotiations through the United Nations Framework Convention on Climate Change (UNFCCC) kicks off next Monday in Cancun. I'll have more on what to expect there in a piece tomorrow and will be reporting from Cancun. Last year, world leaders headed to talks in Copenhagen with the hope of producing a new global treaty. That didn't happen, though they did emerge with a non-binding political accord whose fate is still unclear. Now negotiators will decide what comes next.

US climate envoy Todd Stern briefed the foreign press on what to expect on Monday. "It is now widely understood that a legal treaty this year is not in the cards," said Stern. He emphasized a need to reach agreement on some key components of a deal, rather than on forcing a decision on the total package. "None of this would preclude or prejudge an eventual legal treaty when the time is right, but our view is that we should be making concrete progress now."

His full remarks are here. An excerpt:

The challenge, I think, before us in Cancun and the one that we have been, frankly, focused on all year is to find a way to build on the progress made last year in the Copenhagen Accord through the direct intervention of many of the world’s leaders, including President Obama. Even though it fell short of what many had hoped for, the accord took an important step forward in addressing climate change. Progress was made on all the key elements of the negotiations, and much of it in direct, face-to-face discussions among our leaders.

Whole Foods CEO: Yes, We Have No Obamacare

| Tue Nov. 23, 2010 4:00 AM PST

Last August, John Mackey, the founder and CEO of Whole Foods, sparked outrage in the liberal blogosphere and a customer boycott by publishing a full-throated critique of Obamacare on the op-ed page of the Wall Street Journal. He argued that the country should "move in the opposite direction—toward less government control and more individual empowerment," and held up Whole Foods' own health plan as an alternative: "Our plan's costs are much lower than typical health insurance, while providing a very high degree of worker satisfaction."

But it turns out that Mackey's claims, which also fueled conservative opposition to the Democrats' health-care bill, were misleading. In a memo that he sent to all employees last month, obtained by Mother Jones, Mackey concedes that Whole Foods is actually sinking under the weight of its health care expenses. In the past seven years, he writes, the cost of the company's health care plan as a percentage of its sales has gone up 60 percent. This year's tab is "equal to about 10% of the total Team Member compensation of $2 billion," Mackey complains. "On average over the past three years we have spent more on health care costs than we have made in total net profits!"

Far from being a model of do-it-yourself health care reform, then, Whole Foods' costly insurance plan illustrates why Mackey's opposition to the Affordable Care Act was misguided. Like other major grocery store chains, Whole Foods is facing rampant inflation in health costs. (Unlike Whole Foods, however, Safeway supported key parts of the ACA.) Experts blame this on a lack of incentives for doctors to control costs and the 44 million uninsured Americans who burden the system. The health care bill passed in March is meant to address those problems, in part, by mandating that everyone purchase insurance, subsidizing coverage for the neediest, and creating exchanges in which individuals can pool their resources to purchase affordable coverage. A report by the Business Roundtable, an association of CEOs from large companies, estimates that the bill could lower health care costs by as much as $3,000 per employee by 2019.  

Yet Mackey, an avowed libertarian, appears to see only one upside in the passage of health-care reform: The opportunity to use it as a scapegoat for Whole Foods' increasing health costs. In the memo, he informs his employees that their insurance deductibles will be increasing to $2,000 for the company's medical plan and $1,000 for its prescription plan, a spike that he blames entirely on the federal government: "This is very important for everyone to understand: 100% of the increases in deductibles and out-of-pocket maximums in 2011 compared to 2010 are due to new federal mandates and regulations." (His emphasis.)

But Whole Foods CEO isn't being honest with his employees about the real cause of the company's escalating health costs. Most of the ACA's key provisions don't go into effect until 2014. Major parts of the bill that kick in sooner, such new rules governing "mini med" plans offered by fast food chains, wouldn't directly affect Whole Foods. And even then, the bill allows companies to petition for temporary exemptions from the new rules. "It really strains credibility to say that all of Whole Foods' cost increases are due to the Affordable Care Act," says Karen Davenport, the director of health policy at the Center for American Progress. Last year, for example, the average price of an individual health insurance plan rose 5 percent—part of a continuing hike in medical costs that began more than a decade before the ACA was passed.

A spokeswoman for Whole Foods confirmed the Mackey memo's authenticity but declined to answer any questions about the company's health care plan.

Whatever the reason for Whole Foods' health care woes, its solution is simple: Cover fewer workers. Another internal Whole Foods document obtained by Mother Jones, "Guidelines for a Part-Time Work Force," notes that part-time workers are less likely than full-timers to qualify for or sign up for the company's health plan—a major reason why part-timers cost less. "Whole Foods currently has 17% of their team members as part-time," the document notes. "The ideal situation is to have 30% part-time. By shifting the workforce by 13% we expect to substantially improve the company expenses by 2011."

In short, Whole Foods' solution is to become part of the problem Mackey is complaining about. By increasing the portion of its workforce that goes without insurance, it is burdening the health care system and driving up costs for everyone else. That's exactly the type of vicious cycle that the ACA is intended to break. Starting in 2014, the law requires uninsured Americans, like Whole Foods part-timers, to purchase coverage through their employers or through nonprofit exchanges. If the exchanges work as envisioned, they'll provide affordable care for the neediest while lowering insurance premiums across the board. Now that, as much as any organic, free-range Thanksgiving turkey, would be a reason to be thankful.

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We're Still at War: Photo of the Day for November 23, 2010

Tue Nov. 23, 2010 3:30 AM PST

U.S. Army Pvt. Michael Cozad 2nd Platoon, Charlie Troop, 389th Cavalry Squadron, 4th Infantry Brigade Combat Team, 10th Mountain Division watches the rooftops for enemy snipers Charkh District, Logar Province, Afghanistan Nov.13, 2010. (U.S. Army Photo by Sgt. Sean P. Casey 982D Combat Camera ABN/ Released)

No Mandate for Republicans

| Mon Nov. 22, 2010 10:50 PM PST

You could hardly expect me not to post about this, could you?

A majority of Americans want the Congress to keep the new health care law or actually expand it, despite Republican claims that they have a mandate from the people to kill it, according to a new McClatchy-Marist poll.

....The results signal a more complicated and challenging political landscape for Republicans in Congress than their sweeping midterm wins suggested. Party leaders call the election a mandate, and vow votes to repeal the health care law and to block an extension of middle-class tax cuts unless tax cuts for the wealthy also are extended.

"The political give and take is very different than public opinion," said Lee M. Miringoff, the director of the Marist Institute for Public Opinion at Marist College in Poughkeepsie, N.Y., which conducted the poll. "On health care, there is a wide gap between public opinion and the political community."

Unsurprisingly, the poll finds that most provisions of the healthcare reform bill are quite popular. The main exception is the individual mandate, but as we've discussed a million times, you can't keep all the popular stuff unless you have the mandate too.

In less good news, the public is evenly split on repealing Don't Ask Don't Tell. I've seen plenty of other polls showing broad support, so this might be an outlier. Alternatively, it might be that support for repeal drops once it become an immediate issue getting a lot of attention. We'll see.

Quote of the Day: Persian Hospitality

| Mon Nov. 22, 2010 10:39 PM PST

From Keith Humphreys, quoting a friend on Persian cultural norms of hospitality:

Iran is a place where if you walk up to a street demonstrator who is holding up a sign reading “death to the west” and ask for directions to a particular restaurant, you may well get the response “Oh, that place isn’t very good. And anyway, I want you to meet my family and have a proper Iranian dinner. I’ll be done here in a sec, as soon as the cameras leave — do you mind if we walk, it’s only a few blocks, but I can get us a ride, if you are tired.... 

This introduces a post that questions whether high levels of personal hospitality are in fundamental conflict with high levels of customer service in the commercial sector. He thinks they probably are.

My TSA Anti-Rant

| Mon Nov. 22, 2010 7:09 PM PST

I am so going to regret writing this post. For those of you who used to respect me, please just chalk it up to food poisoning or early onset Alzheimer's or whatever. But here goes.

I hate the TSA screening process. Everyone hates the TSA screening process. You'd be crazy not to. It's intrusive, annoying, and time-wasting. It treats us all like common criminals even though most of us are just ordinary schlubs trying to get on a plane and go somewhere.

But guess what? The fact that you personally are annoyed — you! an educated white-collar professional! — doesn't mean that the process is idiotic. I've heard it called "security theater" so many times I'd be rich if I had a nickel for each time it popped up in my browser, but although the anti-TSA rants are often cathartic and amusing, they've never made much sense to me. All the crap that TSA goes through actually seems pretty clearly directed at improving the security of air travel. So here we go, a brief Q&A session about TSA procedures:

Q: Why do we have to take our shoes off?
A: To prevent terrorists from packing explosives into their shoes and bringing down an airplane.

Q: Why do we have to go through those new body scanners?
A: To prevent terrorists from packing explosives around their bodies and bringing down an airplane.

Q: Why the 3-ounce limit on liquids?
A: To prevent terrorists from bringing liquid explosive precursors through the gate, mixing them together in the onboard lav, and bringing down an airplane.

Q: Nobody's ever brought down an airplane this way. Why worry about it?
A: Nobody thought a bank could bring down the entire global economy before 2008, but guess what? Banks kept trying and eventually they figured out how to do it. Ditto for terrorists, who learn from their mistakes. Maybe next time they'll try a slightly bigger shoe. Or a better explosive. Or a more efficient trigger. And then the plane comes down. Do you really want to risk your life on the proposition that terrorists will never figure out how to make this stuff work even if we give them enough chances?

Q: But other countries don't do all this stuff.
A: That's because Islamic terrorists mostly target American planes. It's fine for Switzerland to be a little less cautious, not so fine for us.

Q: The Israelis don't do all this stuff either. Why not adopt their methods?
A: Because even experts don't think we could scale up the Israeli system for use in the United States. What's more, the Israeli system is only convenient for Israeli Jews. It's a huge pain in the ass for everyone else.

Q: Shouldn't we focus more on intelligence and less on physical security?
A: Sure. But I'd guess that our intelligence just isn't good enough to rely on it exclusively.

I'm not trying to defend everything TSA has put in place. Some of the stuff they do, like the penknife and nail clipper bans, really is stupid. And maybe backscatter scanners don't work. I'm certainly open to the idea. But honestly, most of what they do is pretty easy to understand: they're trying to make it so hard to get weapons and explosives on board airplanes that no one bothers trying — and the few who do can't pack a big enough punch to do any damage. For the most part, it seems to be working. The price we pay for this is plenty of annoyance, but again: do you really want to get rid of the annoyance and bet your life that terrorists will never figure out how to make a better shoe/underwear/liquid bomb? I'm not so sure I do.

And now for a political note: this is GOP catnip. For seven years, Republicans insisted that every security procedure ever conceived was absolutely essential to keeping the American public safe, and anyone who disagreed was practically rooting for an al-Qaeda victory. Now a Democrat is in office and suddenly they're outraged over some new scanners. Helluva coincidence, no? But this is no surprise: this issue works for them on every possible level. In the short term, it gives them something to pound Obama about. In the medium term, it gets the chattering classes chattering about something other than the fact that Republicans have no remotely plausible plan for improving the economy. And in the long term, if a plane does come down, they will absolutely crucify the Obama administration for its abysmal and cavalier approach to national security. (Remember the dry run that Drudge and Fox News conducted over the underwear bomber?) And if you think we can fight back by reminding them that security was reduced because of their outcry, you are sadly delusional. That argument won't get two seconds of air time.

But what about our civil liberties? Maybe you think that even if TSA's procedures are slightly useful, they aren't useful enough to justify all the intrusion. Instead, we should just accept the risk of an occasional plane falling out of the sky. Think again: if a plane comes down, you can just kiss your civil liberties goodbye. Today's TSA procedures will seem positively genial compared to what takes their place with the full and eager support of the American public. Given that reality, if you're really worried about civil liberties you should welcome nearly anything legal that protects air travel from explosives, even the things that are really annoying and only modestly useful.

So that's that. I know that pretty much everyone in the universe disagrees with me about this. And obviously I'm not averse to pruning away some of TSA's dumber policies, making the security lines quicker and more efficient, and trying to get better at the largely invisible policing stuff that everyone agrees is essential. At the same time, while TSA's security procedures might have plenty of problems, they really do seem quite sensibly oriented toward the quite sensible goal of keeping explosives off of airplanes. I'm really not sure why everyone thinks this is nothing more than security theater.