Kevin Drum - 2012

Does Money Corrupt the Political Process?

| Wed Feb. 22, 2012 3:07 PM EST

In Citizens United, the Supreme Court ruled that the only justification for limiting campaign expenditures was "corruption or the appearance of corruption." And since independent expenditures, including those from corporations and unions, don't have any kind of corrupting influence, there's no justification for limiting them.

Many of you will have two responses to this:

  • Really? That's what Citizens United said? I never heard about that.
  • Really? That's ridiculous. How can the court just unilaterally declare that unlimited money doesn't lead to corruption?

Both of these are legitimate reactions. The first because the court's handwaving on corruption got a lot less attention than all the fuss over Citizens United granting corporations free speech rights on a par with individuals. And the second because the court didn't really bother justifying its belief that independent expenditures don't corrupt the political process. It just said there wasn't enough evidence of corruption to survive strict scrutiny and left it at that. However, Rick Hasen notes that a recent case involving a Montana law that limits campaign expenditures prompted a statement from Justice Ruth Bader Ginsburg suggesting that she wants to use the case to expose this for the specious reasoning that it is:

The Montana court [] upheld a state ban on corporate campaign spending, finding that Montana's history of corruption justified the ban…Everyone expects the Supreme Court to reverse the Montana case, likely on a 5-4 vote. But the big question is how the court will do so.

…Justice Ginsburg agreed that staying the Montana ruling was the right course, because lower courts are bound to apply Supreme Court precedent even if it is wrong; it is for the Supreme Court to fix its own wrong precedents. But then she added these words in a statement for herself and Justice Stephen Breyer with respect to the stay: "Montana's experience, and experience elsewhere since this Court's decision in Citizens United…make it exceedingly difficult to maintain that independent expenditures by corporations 'do not give rise to corruption or the appearance of corruption.' A petition [to hear the case] will give the Court an opportunity to consider whether, in light of the huge sums currently deployed to buy candidates’ allegiance, Citizens United should continue to hold sway."

…The statement in Citizens United that independent spending cannot corrupt or undermine the public's confidence in the electoral process is a fiction which defies common sense. In fact, the greatest danger of super PACs is not that they will influence the outcome of elections, but that contributions to these groups will skew public policy away from the public interest and toward the interest of the new fat cats of campaign finance. The public, too, seems greatly concerned about money this election season.

It's probably unlikely that the Montana case will lead to a reversal of Citizens United. But at least it will force the court to tackle the least defensible part of its reasoning head on.

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Industrial Production in Europe is Either in Freefall or It's Not

| Wed Feb. 22, 2012 1:06 PM EST

I just happened to see these two charts back-to-back this morning, so here they are in one spot. The first shows that industrial production in Europe is continuing a steep decline. The second shows that industrial orders have picked up a bit after a big fall in September. So which is more important? More informative? More predictive? Is Europe crashing or is Europe stabilizing a bit after a scary spell last year? Is the difference an artifact of a decline in exports? Exchange rate woes? Something else? As usual, it would be great if we just had another few months of data. It always is. 

No, American Corporations are Not Being Crushed Under the IRS Jackboot

| Wed Feb. 22, 2012 11:59 AM EST

James Pethokoukis is the latest conservative to demand that Treasury Secretary Tim Geithner resign. Finally, something left and right can agree about! Lefties all hate Geithner too.

So what's his offense this time? Answer: a plan for cutting corporate income tax rates that's far too timid. Here are a few of the eight reasons this is a terrible idea:

The Obama-Geithner plan would lower the statutory corporate tax rate to 28 percent from 35 percent....So instead of having the second highest corporate tax rate in the world, the United States would probably be fourth behind Japan, France, and Belgium.... To pay for the lower tax rate, Obama would eliminate "dozens of tax loopholes and subsidies"....Obama and Geithner apparently still don’t understand how harmful corporate taxes are....Obama and Geithner apparently still don’t understand who bears the burden of corporate taxes. It’s workers....Obama and Geithner would take the top individual tax rate to 40 percent, leaving a 12 percentage-point gap with the corporate tax rate. This creates a huge incentive for tax sheltering.

Wow! That's quite a bill of particulars. But you know what's amazing? In this entire thousand-word blast Pethokoukis apparently doesn't have room to explain the distinction between statutory tax rates and effective rates. But it only takes a sentence or two, so here it is. The statutory rate is the top rate in the tax table. Right now it's 35% for corporations. The effective rate is what corporations actually pay after their accountants are done combing the tax code for deductions and loopholes. The former is one of the highest in the world. That latter has been falling for years and is now one of the lowest.

That's right! The actual federal income tax paid by corporations is one of the lowest in the world. Even if you think statutory rates are more important, surely this is germane to the conversation?

I say this as someone who's on record as favoring a complete abolition of the corporate income tax — primarily because tax receipts from corporations are so low that I'm not sure they're worth the bother anymore. Of course, I also acknowledge the need to make up the revenue elsewhere, since I don't believe the supply-side fairy will magically do this for us. This would indeed create tax sheltering issues that might be insurmountable. Or might not. But in any case, you need to make up the revenue. It won't happen automatically, no matter how often Arthur Laffer pretends it will.

UPDATE: Pethokoukis hauls out several strained studies that try to prove American corporations actually pay some of the highest taxes in the world. Sorry. The only way to do an apples-to-apples comparison is to look at corporate tax revenue as a percent of GDP and to let a neutral party apply a consistent methodology. The OECD does exactly that every year. Here's a chart showing the corporate tax burden from 1982 through 2005. The United States is a little below the middle of the pack.

And here's their latest chart. Our corporate tax burden has fallen dramatically since 2005, and if you read all the way to the end you'll now find the United States at the very bottom.

Chart of the Day: The Rise of the Machine

| Tue Feb. 21, 2012 9:51 PM EST

Ezra Klein directs our attention today to the chart on the right, from a mobile analytics company called Flurry. Their basic story is simple: the blue bars show how much of our media consumption time is spent on various platforms (TV gets 40% of our time, print gets 6% of our time, etc.), while the green bars show how much money advertisers spend on these platforms. The verdict is clear: mobile devices command 23% of our time but are getting only 1% of the advertising dollars.

Now, this data comes from a company that has a vested interest in hyping the mobile audience, so obviously you want to take it with a grain of salt. By way of comparison, Josh Marshall recently told us that TPM gets about 20% of its hits from mobile devices, and this is from an audience that's very tech savvy and very mobile-friendly. But if it's only 20% for TPM, the number for the population-at-large isn't likely to be more than 10%. Or maybe even 5%.

(Of course, there's a difference between hits and time spent. Maybe mobile users spend a lot more time per visit than web users or radio listeners. But I'd need to see some evidence for that.)

In any case, clicking through to various links, it appears that there are about 100 million smartphone users in the United States and they spend about an hour a day on various apps (that's not including phone, text, and email). Of that, about 80% of the time is spent on games and social networking. So even if the mobile market isn't quite as large as Flurry would like us to believe, it's a pretty big and growing market any way you slice it.

But now I'm curious: How much time do you spend with your mobile phone? And what do you spend that time doing?

Romney Set to Release New Tax Plan

| Tue Feb. 21, 2012 4:44 PM EST

Larry Kudlow has some news today:

Team Romney tells me there will be a bolder tax-cut plan released either at the debate tomorrow night (if Mitt gets it in) or more formally at his Detroit Economic Club speech on Friday. I’m embargoed from releasing details until tomorrow. But I can say that the new plan will be across-the-board with supply-side incentives from rate reduction, and that it will help small-business owners as well as everyone else.

Exciting! Presumably Romney has taken my criticism of his earlier plan to heart: it's just not friendly enough to the super rich. "Sure, he lowers tax rates on millionaires by 9 percentage points, and you may think that's a pretty sweet deal for the rich. But come on. Newt Gingrich would lower them by 24 percentage points. (No, that's not a typo.) Rick Perry lowers them by 20 percentage points. Herman Cain lowers them by 15 points. Frankly, Romney is hardly even trying here."

I have no doubt that "bolder" in this this context means "more tax cuts for corporations and the wealthy," so apparently Romney is going all in. Should be great stuff. I can hardly wait.

American Political Campaigns are Really Expensive

| Tue Feb. 21, 2012 3:23 PM EST

After reading half a dozen blog posts this morning about mega-billionaire Sheldon Adelson and his support of Newt Gingrich, I got curious about campaign financing laws in other countries, something I know nothing about. In Britain, it turns out, paid political advertising on television is banned (though the parties get a bit of free TV time during election seasons), party expenditures are limited to about $50 million during the year prior to an election, and individual candidates are limited to expenditures of about $10,000 each. But what about third parties, the bane of American campaigns these days? Here you go:

Individuals or groups that aim to promote or disparage electoral candidates are also subject to controls and restrictions on the campaigning that they can do. They may incur expenditure [] by holding public meetings or organizing public displays, or by issuing advertisements, circulars, or publications. They can spend up to £500 (approximately US$700) at a general election “presenting to the electors the candidate or his views, or the extent or nature of his backing or disparaging of another candidate.”

$700! Take that, plutocrats!

Roughly speaking, these limits mean that total campaign expenditures for a general election in Britain amount to $100-150 million or so (it depends a bit on exactly what you count). We have about 5x their population, so this would translate to something in the neighborhood of $500-750 million if the same rules applied here. That compares to actual expenditures of about $5 billion on federal offices during the 2008 campaign.

I don't have any real point to make here. This is just a pure information dump. Anyone with serious knowledge of British (or other) campaign law should feel free to chime in if I've gotten anything seriously wrong here.

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Working for a Living Not Such a Great Deal Anymore

| Tue Feb. 21, 2012 2:35 PM EST

Karl Smith predicts that this chart will "make the rounds," and since Karl is always right I guess I'd better post it. Here it is:

Technically, the point of this chart is that prices go up at about the same rate as labor costs, but no more. If you try to raise prices too much, competition will eventually force you to lower them. Likewise, if you try to push labor costs down, workers will go elsewhere and you'll eventually have to increase wages to attract new employees. Generally speaking, labor gets a fairly steady percentage of economic output, and as productivity goes up, wages go up.

Until about 2000, that is, when wages began to stagnate but prices rose steadily anyway. Output continued to increase, but none of the increase was going to workers. Karl's thesis is that the Industrial Revolution was a one-time deal and it's over now:

We are returning to an environment where productivity gains do not accrue to unskilled labor because they are imbedded in the brains of the innovators....What this chart hides, but I believe is also true is that capital is facing a similar collapse....For now, it is still in the interest of innovators to tap public equity markets and doing so means that they come under some — but not absolute — pressure to pay a dividend.

However, I have a hard time believing this will not come to an end. The money available in private pools will be sufficiently large that innovators can strike side deals that let them walk away with almost all the profits.

Savers will get nothing.

Is this true? I don't know. The big brains will have to fight it out. The reason I'm posting this chart is because it's a new addition to my collection of evidence that our current economic problems started not in 2008, but in 2000 — or, possibly, in the mid-90s, but masked for a few years by the dotcom boom. Something fundamentally changed around then, and you can see this in a whole host of economic indicators.

But what? There are plenty of theories, but I'm not sure which ones to believe. However, I've sort of semi-promised my editors a magazine piece on this subject sometime in the year 2014 or so, so I'm continuing to collect this stuff.

Hearts and Minds Not Being Won in Afghanistan

| Tue Feb. 21, 2012 1:54 PM EST

The Washington Post reports that mobs of angry Afghans converged on Bagram Air Base today, outraged over reports that American workers had burned copies of the Koran. Gen. John Allen has apologized profusely, but what really happened here? The Post explains:

U.S. officials said that the copies of the Koran were mistakenly included in a bundle of material bound for an incinerator on the base. The books were quickly removed once Afghan employees told American soldiers that burning them would be deeply sacrilegious.

But that intervention happened only after the pages of some books were charred. Afghan employees of the base carried those remains outside the Bagram’s front gate as evidence of what had happened, galvanizing a growing crowd of protesters. “The people who do this are our enemies,” said a 27-year-old who has worked at a warehouse on the base for two years. “How could I ever work for them again?”

So some soldiers made a mistake, it was immediately corrected, but nonetheless "pages of some books were charred." Riots ensued.

There's really nothing to be learned here about American waste disposal procedures on foreign bases. It was a screwup. Screwups happen. I don't have the slightest doubt that Allen will make it crystal clear to everyone in his command that this had better never happen again.

Rather, the lesson to be learned is that stuff at this level is inevitable. You will never run an operation so perfectly that nothing like this ever occurs. And yet, this is precisely the kind of thing that is routinely used to gin up outrage at a moment's notice. We think we can somehow win the hearts and minds of Afghans, but how can we do that when an incident like this can easily ruin a year's worth of good works? Even with the most perfectly run operation, incidents like this are going to happen at least once a year.

We are not going to win their hearts and minds. In the past half-century American military operations have never successfully won anybody's hearts and minds. It's time to acknowledge this and leave Afghanistan.

Our Screwed-Up Tax System

| Tue Feb. 21, 2012 11:52 AM EST

Bruce Bartlett writes today that the federal tax code violates principles of both horizontal and vertical equity. The table below illustrates his point:

Reading across the chart, people who make roughly the same amount of money can pay wildly different tax rates. In the middle quintile, tax rates vary from 1.7% to 23.5%. In the richest quintile, tax rates vary from 12.1% to 29.3%. That's a violation of horizontal equity, the principle that people who make similar amounts of money ought to pay roughly similar taxes.

The red ovals illustrate the violation of vertical equity, the principle that people who make more money ought to pay higher tax rates. Although the federal tax system is generally progressive, there are startling exceptions. The most heavily taxed segment of fourth quintile, which represents incomes of around $80-100 thousand, pays higher rates than the most lightly-taxed segment of the fifth quintile, which represents incomes of $100+ thousand.

The reason for this is partly because we tax different kinds of income very differently, and partly because the tax code is littered with targeted deductions and tax credits that some people can claim but not others. If you make a lot of money from dividends and capital gains, you pay a much lower rate than someone who makes a similar amount from wages. If you own a big home, you get to take a mortgage interest deduction not available to someone who doesn't.

In theory, tax rates are lower on capital gains and dividends because this raises the stock of capital, which is good for the economy. But as Bruce dryly points out, "The empirical question of whether sharply lower taxes on capital, and hence the wealthy, has actually raised saving, investment and productivity is one I will revisit. Suffice it to say that since 2003, when the current tax rates on capital gains and dividends were instituted, the economy offers little, if any, evidence on this score." He has more at the link.

Greece Gets Another Reprieve

| Tue Feb. 21, 2012 1:41 AM EST

After receiving €110 billion in bailout money two years ago, Greece received another €130 million today. Before it was approved, however, the eurozone finance ministers received a confidential report with some grim news. The Financial Times got hold of a copy:

The 10-page debt sustainability analysis, distributed to eurozone officials last week but obtained by the Financial Times on Monday night, found that even under the most optimistic scenario, the austerity measures being imposed on Athens risk a recession so deep that Greece will not be able to climb out of the debt hole over the course of a new three-year, €170bn bail-out.

It warned that two of the new bail-out’s main principles might be self-defeating. Forcing austerity on Greece could cause debt levels to rise by severely weakening the economy while its €200bn debt restructuring could prevent Greece from ever returning to the financial markets by scaring off future private investors.

....The report made clear why the fight over the new Greek bail-out has been so intense. A German-led group of creditor countries — including the Netherlands and Finland — has expressed extreme reluctance to go through with the deal since they received the report.

It's not clear to me why this report changed anyone's attitude toward Greece. Of course the austerity measures being imposed on Greece are going to send them into an even more wrenching recession. And of course no one in their right mind is going to loan money to Greece for many, many years to come. This can't possibly have come as a surprise to anyone, could it?

If Europe wants Greece to survive as part of the eurozone, its member countries are probably going to have to commit to a nearly open-ended flow of fiscal transfers, just as California is implicitly committed to an open-ended flow of fiscal transfers to Mississippi:

A “tailored downside scenario” in the report suggests...Greece would need about €245bn in bail-out aid, far more than the €170bn under the “baseline” projections eurozone ministers were using in all-night negotiations in Brussels on Monday....Even under a more favourable scenario, Greece could need an additional €50bn by the end of the decade on top of the €136bn in new funds until 2014 being debated by finance ministers on Monday night.

I'm willing to bet that even these scenarios are unduly rosy. A more realistic analysis would probably produce even grimmer news, but that's the price of a fixed-exchange-rate area. If the eurozone's rich countries aren't willing to sign up for this, they probably should have just cut the cord now and thrown Greece to the wolves.

UPDATE: Felix Salmon is blunter than I am: even the "tailored downside," he says, "still looks astonishingly optimistic." His whole piece is worth a read. It explains the deal in pretty lucid terms.