Kevin Drum - October 2010

Where Your Taxes Go

| Fri Oct. 1, 2010 8:47 AM PDT

A Third Way report made the rounds yesterday touting the idea of providing taxpayers with a "receipt" when they pay their tax bills every year. They provide an example, which looks like this:

Put aside the technical details for the moment. I don't know for sure if all their calculations are right. I don't know why national defense is left off their sample receipt. Medicare and Social Security are funded from a different set of taxes than everything else and therefore have to be calculated differently. I don't know how you'd divvy up the share of revenue from corporate income taxes, excise taxes, etc. For now, though, let's assume we could work out all that stuff to everyone's satisfaction.

My question is this: who would be in favor of this and who would be opposed? Would everyone's receipt show the same items, or would everyone get, say, the same top five or six and then a random mix of other stuff? Who would decide how to break things out? Would liberals be afraid that people might look at the welfare-related spending and be outraged? Would conservatives be afraid that people might look at the startlingly low numbers for everything after the Big Five (Social Security, Medicare, Medicaid, Defense, interest on the debt) and lose some of their outrage over federal spending?

Technical details aside, this is the kind of idea that everyone should support. Taxpayers should know where their tax dollars are going, after all. And yet, I'll bet that neither party would actually be in favor of this. Why do you suppose that is?

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Turning Down the Volume

| Fri Oct. 1, 2010 8:26 AM PDT

Fellow MoJoer Nick Baumann draws my attention to a report suggesting that the U.S. Senate isn't completely worthless after all. Here's the evidence:

Legislation to turn down the volume on those loud TV commercials that send couch potatoes diving for their remote controls looks like it'll soon become law. The Senate unanimously passed a bill late Wednesday to require television stations and cable companies to keep commercials at the same volume as the programs they interrupt.

....Managing the transition between programs and ads without spoiling the artistic intent of the producers poses technical challenges and may require TV broadcasters to purchase new equipment. To address the issue, an industry organization recently produced guidelines on how to process, measure and transmit audio in a uniform way.

The legislation, sponsored by Sheldon Whitehouse, D-R.I., requires the FCC to adopt those recommendations as regulations within a year and begin enforcing them a year later. Rep. Anna Eshoo, D-Calif., is the driving force behind the bill in the House.

It's not a done deal yet: the bill still has to go to conference and then get a final vote in both House and Senate. But apparently no one expects that to be a problem unless someone throws a tantrum and decides to shut down the Senate because Barack Obama insulted their dog or something.

Anyway, this is indeed one of my great pet peeves. It's sort of like the Do-Not-Call list: I don't really care about principled arguments on either side. I don't care if this regulation should be considered liberal, conservative, libertarian, fascist, or anything else. I just want the damn volume on advertisements to go down. If the only way to do it were to put a few network chiefs in front of firing squads just to send a message to the rest of them, I'd probably favor that too. Just get it done.

Finally a Winner in Iraq

| Fri Oct. 1, 2010 7:57 AM PDT

We might finally have a winner from the March election in Iraq:

Powerful Shiite cleric Muqtada al-Sadr has agreed to support the bid by Iraq's prime minister to retain power, aides said Friday, in a move that could speed an end to the seven-month political impasse and bring dealmaking that may give key concessions to al-Sadr's anti-American bloc.

The decision by al-Sadr would mark a significant boost for Prime Minister Nouri al-Maliki's Shiite-led coalition to secure enough parliament seats to form a new government.

....Al-Sadr's move apparently sets aside past animosity with al-Maliki for a chance to gain a greater voice in a possible new government. Al-Sadr — who has been in self-exile in Iran since 2007 — has denounced al-Maliki's government for its close ties to Washington and a joint security pact that allows U.S. military presence through at least the end of next year.

So we get the same old Maliki government, but with a greater role for Muqtada al-Sadr. I can't say this fills me with hope for Iraq's future, but I suppose it fills me with relief that they're at least going to have a government of some kind. Stay tuned. 

Wall Street's Sigh of Relief

| Fri Oct. 1, 2010 3:00 AM PDT

How will we know if the financial reform bill passed in July has worked? A few months ago I mentioned four metrics to watch for:

  • Borrowing rates for large banks
  • Derivatives trading
  • Leverage ratios
  • Industry profitability

Of these, the most important and the easiest to measure is the last one: industry profitability. Once you cut through all the chaff and all the technical details, you're left with a simple truth: a safer, less leveraged banking sector is inherently less profitable than the casino trading and finance-oriented one we have right now—the one that accounted for an astonishing third of all corporate profits in the United States during the Bush era. If profits stay at pre-bubble levels, it almost certainly means that financial reform failed.

It's too early to tell how reform will turn out, of course, but recently we got a disturbing glimpse. The people in the best position to know how the new regulations are going to affect the banking sector are the bankers themselves, and bankers don't seem to be very worried. Researchers at an IBM think tank, the Institute of Business Value, did a survey of top financial executives recently and asked them how the new regs were likely to affect them. Results are at the right: a mere 13% of them thought industry returns would decrease significantly. The vast majority thought returns would be the same or only slightly less.

It's a small sample—only 54 executives—and maybe they're just being overoptimistic. But it's a bad sign that they aren't a little more worried. (Another bad sign: asked about their top concerns, the #3 answer was figuring how to get around the new regulations.)

Of course, there's more to banking regulation than just Dodd-Frank. There are also the new capital standards recently adopted by the Basel Committee, and at first glance they seemed gratifyingly stiff. But they were announced two weeks ago, on Sunday the 13th, and when markets opened on Monday the 14th bank stocks shot up. Yet again, the people who are in the best position to judge the real effect of the new regulations didn't seem too worried.

For now, then, things don't look so good. Both Dodd-Frank and Basel III are improvements, but the best evidence so far—namely the reaction of people with money at stake—suggests that it won't be long before Wall Street is back to business as usual. It's been an opportunity lost.