Kevin Drum - October 2010

Google's Tax Bill

| Fri Oct. 22, 2010 1:17 PM EDT

After reading a recent Bloomberg article about how Google reduces its corporate tax rate by shuttling money between Ireland, the Netherlands, and small Caribbean islands, Tim Fernholz wonders if this betrays Google's "Don't Be Evil" motto:

So is this action evil? If Google's definition of not being evil is 'doing more than the average corporation to support the public interest,' then sure it is. It's one thing to take advantage of legitimate tax law, but exploiting these loopholes for the sole purpose of paying less tax violates the spirit of the law, if not the letter. That would be fine if Google was content as a typical business, relentlessly pursuing profit with no thought to the public interest. They simply shouldn't pretend they're somehow better than the Exxons and Goldman Sachs of the world.

Put me down on the "not evil" side. There are, obviously, some tax dodges that are egregious enough to qualify as pretty close to evil. But declaring revenue in whatever country gives you the best tax treatment? No matter how many clever names we make up for this, the fact is that virtually every company with foreign operations does this. It's just routine. Google's motto is "Don't Be Evil," not "Don't Be An Idiot."

More generally, I think that taking full legal advantage of tax laws is rarely unethical. We all do it. I think that the mortgage interest deduction is bad policy, for example, but I never miss an opportunity to declare it. Ditto for any other deduction I can get away with, regardless of how I feel about it from a philosophical point of view. I'd be happy to see the tax code changed, but in the meantime I certainly don't feel bad for refusing to be a high-minded sucker while everyone else follows the actual existing law.

The scandal here isn't that Google is doing what it does. The scandal is that our tax laws allow it. Articles like the Bloomberg piece on Google serve a purpose, but that purpose shouldn't be to pretend that Google is doing anything wrong. The purpose should be to wake people up to how our tax code works. Answer: not very well. If there's any evil here, it's in Congress, not Silicon Valley.

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Fixing the Budget

| Fri Oct. 22, 2010 12:39 PM EDT

Reihan Salam is unmoved by Michael Kinsley's argument that the country is broke and we need to modestly raise taxes on high earners to fix things:

Before asking taxpayers — any taxpayers — to dig deeper, I’d gently suggest that we look at public bureaucracies. If the Milwaukee Public Schools spend twice as much as choice schools to deliver the same results in terms of reading and math scores, I'd say MPS can dig deeper, ideally by restructuring compensation and giving workers more autonomy. If one-fifth of public dollars spent on infrastructure are essentially wasted, as Barry LePatner argues in his brilliant new book Too Big To Fall, which I'll discuss in greater detail soon, I'd say the bureaucracies we've placed in charge of public construction projects can dig deeper, ideally by doing a better job of sharing data and using life cycle assessments. If we could reduce Medicare expenditures by 8% per year by creating a competitive pricing system, I'd say the federal government can dig deeper by making a commonsense reform that will leave the quality of Medicare unchanged if not markedly improved.

I'm fine with this as a general idea. But let's look at these three examples. (1) There's no magic to cutting school spending. We can do it by paying teachers a lot less and wiping out programs for disabled kids. That might not be as good an idea as it sounds like — and in any case has very little to do with the federal budget. (2) Focusing more on infrastructure maintenance is probably a good idea. But it's hardly a panacea. (3) Competitive pricing reduces Medicare expenditures 8%, not 8% a year. And that's only assuming that the AEI study that produced this number is right.

My point here isn't that Reihan is wrong about making government more efficient. Of course he's not. It's that whenever you dig into this stuff, there's always less than meets the eye. My guess, for example, is that our infrastructure spending ought to go up, not down. We probably need to spend more on maintenance and more on new projects. And reducing Medicare expenditures is a huge problem, not a quick efficiency fix. Efficiency is a legitimate issue, but Medicare's problem is mainly that we pay people too much and demand too much medicine. What's more, proposals like AEI's for increasing Medicare efficiency are all frankly speculative. We should give them a try, but we should also treat them with the same skepticism that we'd treat any untested new idea.

The plain fact is that budget numbers simply never add up without tax increases. Not even close. We took a nice holiday from history for eight years under George Bush, cutting taxes and increasing spending and figuring that everything would come out fine in the end. But it didn't, and the bill is coming due.

How should we pay it? Well, the income of the rich has doubled or more over the past 20 years and their tax rates have gone down. Restoring their old tax rates, which quite plainly didn't produce economic stagnation, is part of the answer. Making government more efficient is a good idea too, though actual ideas for doing this usually stumble pretty badly when anyone tries to put them into practice. And getting Medicare under control is Job 1. But that's sure not going to happen any time soon after the Republican demagoging of Medicare cuts that's marked the current election season.

Tax increases are coming eventually for both the rich and the middle class. It's the only way to make the sums work. And since the rich have seen their incomes rise so much and have benefited the most from tax cuts in the past, their taxes are going to go up more. Nothing else really makes sense.

Our Media Future

| Fri Oct. 22, 2010 11:48 AM EDT

I don't care much about whether Juan Williams deserved to be fired, but this part of the Bill O'Reilly segment that got him in trouble is actually pretty revealing. Here's the setup from O'Reilly's monologue:

OREILLY: Today on “The View,” the ladies addressed the shootout I had with them last Thursday when I said that building a mosque near Ground Zero is inappropriate because Muslims killed us there. That caused Whoopi Goldberg and Joy Behar to walk off the set. Of course, what I said is absolutely true, but is insensitive to some. In a perfect world, you always say Muslim terrorists killed us, but at this point, I thought that was common knowledge. I guess I was wrong.

And here's the subsequent discussion with Williams:

WILLIAMS: Wait a second though, wait, hold on, because if you said Timothy McVeigh, the Atlanta bomber, these people who are protesting against homosexuality at military funerals, very obnoxious, you don’t say first and foremost, we got a problem with Christians. That’s crazy.

O’REILLY: But it’s not at that level. It doesn’t rise near to that level.

WILLIAMS: Correct. That’s — and when you said in the talking points memo a moment ago that there are good Muslims, I think that’s a point, you know?

O’REILLY: But everybody knows that, Juan. I mean, what, are we in 3rd grade here or what?

WILLIAMS: No, you don’t — but you got to be — this is what Barbara Walters was saying —

O’REILLY: I got to be careful, you just said it. I got to be careful. I have got to qualify everything 50 times. You know what, Juan? I’m not doing it anymore. I’m not doing that anymore.

Italics mine. So O'Reilly has simply decided that he doesn't feel like referring to "Muslim terrorists" anymore when the subject is Muslim terrorism. Too much work, I guess. He's just going to say "Muslims" and have done with it.

By analogy, I guess I can now say that Bill O'Reilly has an "immigrant problem" and be done with it. Sure, he says his problem is really only with "illegal immigrants," but whatever. Everybody knows that already, and I don't really feel like qualifying everything anymore. Hopefully O'Reilly doesn't mind.

Feel free to come up with other examples in comments. There's a million of 'em, and they do wonders for keeping public conversation in a permanent state of roiling hatred. I can't wait until we're all doing this all the time. It should be awesome.

Our Coming Mega-Drought

| Fri Oct. 22, 2010 6:00 AM EDT

Here are a few recent data points for you: (1) The New York Times reports that "skepticism and outright denial of global warming are among the articles of faith of the Tea Party movement." (2) In the National Journal, Ron Brownstein notes that "The GOP is stampeding toward an absolutist rejection of climate science that appears unmatched among major political parties around the globe, even conservative ones....Of the 20 serious GOP Senate challengers who have taken a position, 19 have declared that the science of climate change is inconclusive or flat-out incorrect." (3) It's not just Senate candidates. ThinkProgress notes that an analysis by Wonk Room "finds that 22 of the 37 Republican candidates for governor this November are deniers of the scientific consensus on global warming pollution." (4) The Wall Street Journal reports that "extreme drought" has taken hold in parts of nine states stretching from the Southeast to the lower Midwest.

As it happens, this southern U.S. drought is probably not caused by global warming — not mostly, anyway. Like most droughts until now, its primary cause is natural climate oscillations (this year's La Niña) and bad luck (no hurricanes so far this season). But don't count on that continuing. In a new paper that reviews the recent literature on drought, Aiguo Dai of the National Center for Atmospheric Research in Boulder concludes that we're headed for serious and sustained droughts in much of the world. And not in the far future, either. As the maps on the right show, vast swathes of the world are going to be far drier than they are today in a mere 20 years. "A striking feature," Dai says of his analysis, "is that aridity increases since the late 20th century and becomes severe drought [] by the 2060s over most of Africa, southern Europe and the Middle East, most of Americas [], Australia, and Southeast Asia."

In other words, virtually all of the world except for China and Russia will experience increased drought by 2030 and severe drought by 2060:

This is very alarming because if the drying is anything resembling Figure 11, a very large population will be severely affected in the coming decades over the whole United States, southern Europe, Southeast Asia, Brazil, Chile, Australia, and most of Africa....Given the dire predictions for drought, adaptation measures for future climate changes should consider the possibility of increased aridity and widespread drought in coming decades. Lessons learned from dealing with past severe droughts, such as the Sahel drought during the 1970s and 1980s, may be helpful in designing adaptation strategies for future droughts.

The Sahel drought killed upwards of a million people, and since then the steady increase in drought conditions in sub-Saharan Africa has probably contributed to ongoing crises in Darfur, Chad, and elsewhere. Now imagine what the world will be like when droughts are twice as bad, last twice as long, and cover not just sub-Saharan Africa but upwards of half the landmass of the planet. That's not really something you can adapt to.

And here's some even worse news: these projections are based on midpoint global warming projections from the last IPCC report. But those projections are looking increasingly understated, and the next IPCC report is almost certain to raise its temperature forecasts. So as bad as Dai's drought news is, the reality is probably even worse.

This isn't something that's a century in the future. If we don't do anything about it, it's more like 20 years away. Tea partiers and their Republican enablers can play make believe all they want, but their kids and grandkids are going to pay the price for it. Global climate catastrophe is looking closer and closer all the time.

The Chamber of Commerce's Hobby

| Fri Oct. 22, 2010 12:45 AM EDT

The New York Times writes today about the vast tidal wave of secret cash that the U.S. Chamber of Commerce is spending this year to support the Republican Party:

Dow Chemical delivered $1.7 million to the chamber last year....And Goldman Sachs, Chevron Texaco, and Aegon, a multinational insurance company based in the Netherlands, donated more than $8 million in recent years.

....The chamber makes no apologies for its policy of not identifying its donors. It has vigorously opposed legislation in Congress that would require groups like it to identify their biggest contributors when they spend money on campaign ads....“The major supporters of us in health care last year were confronted with protests at their corporate headquarters, protests and harassment at the C.E.O.’s homes,” said R. Bruce Josten, the chief lobbyist at the chamber, whose office looks out on the White House. “You are wondering why companies want some protection. It is pretty clear.”

....The chamber asserts in filings with the Federal Election Commission that it is simply running issue ads during this election season. But a review of the nearly 70 chamber-produced ads found that 93 percent of those that have run nationwide that focus on the midterm elections either support Republican candidates or criticize their opponents.

And the pace of spending has been relentless. In just a single week this month, the chamber spent $10 million on Senate races in nine states and two dozen House races, a fraction of the $50 million to $75 million it said it intends to spend over all this season. In the 2008 election cycle, it spent $33.5 million.

I don't know about the rest of you, but here in California I've been watching the Chamber's "voter education and issue advocacy effort" for the past several weeks, and it sure looks an awful lot like the only issue they care about is making sure that every last resident of the Golden State loathes Barbara Boxer. But I guess everyone needs a hobby. The rest of their secretly funded hobby is illustrated by the Times in handy chart form below:

Why Is Obama Fighting to Keep DADT?

| Thu Oct. 21, 2010 7:05 PM EDT

After a district court judge ruled the military's Don't Ask Don't Tell policy unconstitutional last month, the Obama administration went to court to defend it. Why? Officially, they say it's because they feel obligated to defend all properly enacted federal laws as long as they're even arguably constitutional. If that tradition were to die away, and presidents simply declined to enforce laws they disagreed with, chaos would ensue.

But is that the real reason? Partly, yes. But I suspect it actually has more to do with past promises Obama has made to various DADT stakeholders, especially those in the military. Basically, the deal he made with Secretary Gates and the Joint Chiefs is this: I'll let you control the process, write the rules, and move things along at a deliberate pace. In return, you'll promise not to publicly oppose repeal. The tradeoff is simple: DADT repeal will take a little longer, but it will end up having the support of the military leadership and will therefore be less contentious and more permanent. This is a win for both Obama and the military.

For better or worse, deals like this are just the way politics works. If Obama chose to drop the court case and let DADT be abruptly repealed before the military had its ducks in a row, the Pentagon leadership would probably take it as a personal betrayal by a commander-in-chief who had given his word on how this would all play out. That's not something a president can afford.

This, by the way, is probably also the reason that the public option wasn't added to the healthcare reform bill during the reconciliation process. Aside from the fact that Nancy Pelosi might not have had the votes in the House for it, Harry Reid had (again, for better or worse) agreed to drop the public option months earlier in return for support of the main bill by centrist senators like Ben Nelson and Joe Lieberman. Having done that, and having gotten their votes based on that agreement, he couldn't turn around a few months later and put it back into the bill just because he didn't need their votes any longer. No party leader can pull a stunt like that and expect to retain the confidence of his caucus.

So Obama is stuck. He gave his word to the military leadership, and he has to stick to it whether it's politically beneficial or not. What's more, I suspect that he really does think that everyone will be better off if repeal happens via the political process and with the full support of the military brass. His decision to appeal the district court decision was, as they say, heavily overdetermined. He had what he considered three good reasons, and any one of them would have been enough.

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Climate Change Folly

| Thu Oct. 21, 2010 2:36 PM EDT

Politico reports that the EPA is about to propose modest greenhouse gas emission limits for heavy trucks and buses. Stephen Spruiell comments:

It’s going to be very, very difficult for Congress or industry to get the EPA to stop doing this. I’m fairly sure that the president can veto or ignore any law or resolution aimed at curtailing the EPA’s power on this front, and we know where the Court stands. My concern is that even if the GOP takes the White House in 2012, the EPA will have set so much of this process in motion that it will be difficult or possibly pointless to undo.

Obviously Spruiell is unhappy about this, though I'm pretty sure these regs are only superficially related to climate change anyway. Basically, they're just an extension of the usual CAFE mileage standards, but ever since the Supreme Court ruled that the EPA was required to regulate greenhouse gases CAFE has become a joint DOT/EPA effort. That's a pretty thin veneer, though. Improving mileage automatically reduces carbon emissions, so EPA's involvement really has very little practical effect.

Still, Spruiell is right in general: EPA is going to start regulating greenhouse gases, and they're going to do it because congressional conservatives unanimously rejected a climate bill that would have preempted EPA action and set up a better, more predictable1 framework for reducing carbon emissions. So now we're going to start getting piecemeal EPA regulations that even liberals don't really want. Conservative compromise could have produced a bill that, literally, would have been better than the status quo by everyone's yardstick. The business community would have liked it better than EPA regs, liberals would have liked it better, and conservatives would have liked it better. But compromise is death with the tea party breathing down your neck, so instead we end up with the worst of all possible worlds. Nice work.

1Yes, more predictable. Ironically, for all the yammering that conservatives are currently doing about businesses cowering in fear because of the jackboot of Barack Obama's regulatory dystopia, they rejected a bill that would have removed EPA uncertainty and replaced it with known, reasonably measurable rules.

The Foreclosure Mill Scandal

| Thu Oct. 21, 2010 1:14 PM EDT

A few weeks ago, after Ally Financial halted all its foreclosure proceedings because it had discovered "important but technical defects" in its paperwork, all hell broke loose. Home foreclosures, it turned out, were routinely based on documentation that was sloppy at best and fraudulent at worst, and the stories since then have just kept getting worse and worse.

But those stories all started with an expose of "foreclosure mills" that was written last August by our own Andy Kroll. His look at this shadowy industry begins with the case of Ariane and Tom Ice, who were investigating foreclosures by one of Florida's biggest mills, run by multimillionaire attorney David J. Stern:

A Florida notary's stamp is valid for four years, and its expiration date is visible on the imprint. But here in front of Ice were dozens of assignments notarized with stamps that hadn't even existed until months—in some cases nearly a year — after the foreclosures were filed. Which meant Stern's people were foreclosing first and doing their legal paperwork later. In effect, it also meant they were lying to the court — an act that could get a lawyer disbarred or even prosecuted. "There's no question that it's pervasive," says Tom Ice of the backdated documents — nearly two dozen of which were verified by Mother Jones. "We've found tons of them."

...The Ices had uncovered what looked like a pattern, so Tom booked a deposition with Stern's top deputy, Cheryl Samons, and confronted her with the backdated documents—including two from cases her firm had filed against Ice Legal's clients. Samons insisted that the filings were just a mistake, so the Ices moved to depose the notaries and other Stern employees. On the eve of those depositions, however, the firm dropped foreclosure proceedings against the Ices' clients.

It was a bittersweet victory: The Ices had won their cases, but Stern's practices remained under wraps. "This was done to cover up fraud," Tom fumes. "It was done precisely so they could try to hit a reset button and keep us from getting the real goods."

If you want to know where it all started, read the whole thing. When you're done, you'll no longer wonder how all of this could have happened. It was baked into the cake from the start.

Sarah's World

| Thu Oct. 21, 2010 12:46 PM EDT

I suppose I'm going to have to cave in and start blogging more about the midterm campaigns. If I don't, I'm just not going to have much of anything to write about. So here's the latest on "Hurricane Sarah," who apparently is creating quite a reputation for leaving chaos in her wake wherever she goes. For example:

Late last Friday afternoon, Palin’s political aide, Andy Davis, contacted officials with a competitive House campaign. The former governor would be available Tuesday, Davis said. As with Grassley, the reaction of the House campaign was to have Palin do a fundraiser. “What [the candidate] needs more than anything else is money,” said a GOP source familiar with the situation.

No-go, replied Davis, indicating that not only did she not want to raise money, but she also didn’t want to do a rally. The preference was for something “low-key,” so Davis suggested visiting a factory or going door to door. But in doing so, the candidate would have to limit the exposure of the event. They could bring only one “trusted local reporter” along, Davis said, according to a source familiar with the exchange.

Without much media attention, such a grass-roots event would have done next to nothing for the candidate, said the source close to the situation. But the campaign — a lean operation, like those of most House candidates — scrambled to put together another plan that would accommodate Palin. They sent it to Davis on Saturday.

The campaign didn’t get word until Monday morning, the day before the event was to take place, that Palin’s schedule had changed. She couldn’t come. Palin offered no reason for the no-show. After the experience, the campaign, filled with conservatives who thought well of Palin, began referring to her as “Princess Sarah,” said the source close to the situation.

That's from Jonathan Martin, who reports that Palin is "kind and courteous" when she actually shows up, but is demanding and erratic when it comes to deciding when, where, and how she'll show up in the first place. Martin's conclusion from all this is that it's a bad sign for a potential presidential run, since she's pissing off important people and demonstrating an inability to do logistics that no presidential campaign can afford. Maybe so. But Sarah always writes her own rules, and maybe the lesson of 2012 is going to be that logistics don't matter anymore. Maybe star power is everything.

Living Near Fumes

| Thu Oct. 21, 2010 12:04 PM EDT

How dangerous is it to live near areas of heavy traffic congestion? Janet Currie and Reed Walker of Columbia University have done a clever study to try to get a handle on this. They took a look at the incidence of low birthweight in babies born to mothers who lived near busy toll plazas before and after E-ZPass was introduced. Their idea was that E-ZPass reduced congestion, and therefore mothers living near toll plazas ought to benefit from it. And they did:

We find that reductions in traffic congestion generated by E-ZPass reduced the incidence of prematurity and low birth weight among mothers within 2km of a toll plaza by 6.7-9.1% and 8.5-11.3% respectively, with larger effects for African-Americans, smokers, and those very close to toll plazas....The results suggest that traffic congestion is a significant contributor to poor 
health in affected infants.

As you can see from the chart, E-ZPass reduced the incidence of low birthweights by half for mothers who lived within a couple hundred yards of a toll plaza. The effect decreased with distance, and at about a kilometer out the effect went away, presumably washed out by the ordinary background traffic congestion in the area. Results are similar for premature births. The public policy conclusions are a little unclear here, aside from the fact that E-ZPass is good and breathing auto fumes is bad, but it's useful to put a number to this stuff.

(Via Austin Frakt, by email.)