Where Your Money Goes

According to the White House, here's where your money went if you paid $10,000 in income tax last year. Click here if you want to get a receipt for the actual amount you paid. Fun!

It's Fundraising Day!

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NATO's Canary in the Coal Mine

Fred Kaplan isn't feeling too much sympathy for all the European leaders complaining that NATO isn't doing enough to assist the rebels in Libya:

Ultimately, the Europeans are sleeping in the beds they made. They've been talking about an independent defense force for a couple decades....Yet they haven't invested the money needed to support their strategic ambitions, knowing they can always fall back on the Americans in a pinch. I don't think this is why Obama is limiting the U.S. mission in Libya, but one effect is that it sends a message: No, you can't, not anymore, not for everything.

Like Fred, I don't think this is why Obama is limiting U.S. involvement either. But it's a useful side effect. Europe has been tap dancing for a long time over whether or not they're really committed to NATO as an actual war fighting alliance, and Libya might force them to finally make up their minds.

The Power of Shamelessness

Everyone is mocking Republican Majority Leader Eric Cantor for this tweet:

Don't get me wrong: in a purely substantive sense, the mockery is well deserved. But in a political sense, it's not. Cantor's tweet is almost comically shameless, but it's also one of the reasons that Republicans continue to get credit for their economic policies even though their economic policies are routinely disastrous. It's because they're willing to be shameless and they don't really care if anyone calls them on it.

Paul Ryan's plan to shrink the federal government and gut Medicare is called....."The Path to Prosperity." Of course it is. Every Republican plan is called something like that. It's shameless! The Reagan boom? All due to lower marginal tax rates, just like they predicted. The Clinton boom years? A delayed reaction to the Reagan era. Healthy corporate earnings in the aughts? All due to Republican reductions in capital gains taxes. Privatizing Social Security? It's all about encouraging capital formation and growing the economy. Fighting bank regulation? They just want to reduce regulatory uncertainty and allow the economy to boom. Etc. etc. And there are always plenty of think tank analyses to back this stuff up with hard numbers.

It seems laughable, but it's not. If you say that your policies are responsible for economic growth enough times, people will believe it. Nobody really understands this stuff, after all. And the more confidently and shamelessly you say it, the more believers you'll have. So why shouldn't Cantor claim that Republicans are responsible for all the job growth since January? Liberal bloggers will mock, but that's nothing to be afraid of. Not as long as the steady stream of shamelessness keeps convincing people that Republican policies are putting us back on the right economic track. And it does.

Durbin to Dimon: Stop Whining

JP Morgan Chase CEO Jamie Dimon recently described Sen. Dick Durbin's amendment regulating debit card interchange fees as "counterproductive," "price fixing at its worst," and "downright idiotic." Felix Salmon directs us to Durbin's acid reply, which is well worth reading in full. But I want to highlight one of the more boring passages from Durbin's letter, which gets at the core reason for regulating these fees:

A strong bipartisan majority supported my amendment, which said that if Visa and MasterCard are going to fix fee rates on behalf of banks [...], those rates must be reasonable and proportional to the cost of processing the transaction. It is important to make clear that if Chase wants to set and charge its own fees in a competitive market environment, the amendment does not regulate those fees. The only regulated fees are those fees that banks let card networks fix on their behalf.

This is the guts of the case for regulating swipe fees: Visa and MasterCard are an effective monopoly, and they're able to set fees with virtually no competitive pressure. What's worse, their member banks collude to insure that fees stay high. After all, as long as everyone gets charged the same rate, it's in their interest to make sure that swipe fees are as high as possible. As Durbin points out, this leads to almost comically corrupt behavior, like banks actively encouraging their customers to use signature debit rather than PIN debit, even though signature debit is more fraud prone. Why? Because the interchange fees are higher:

Durbin's amendment is unquestionably second best policy. The first best policy would be genuine competition between banks that issue debit cards along with the freedom for merchants to pass along interchange fees to customers if they want to. That would very quickly set a market rate for interchange fees, one that would almost certainly be far lower than current rates.

But banks aren't willing to do that. They know perfectly well that it's Visa and MasterCard that are engaging in price fixing, not Durbin. Their monopoly position allows them to extract enormous rents from merchants and consumers, and they don't want to give that up. Monopolists never do. Thus the need for Durbin's amendment.

Saving Grandma

Should Medicare be a requirement? Or should seniors be allowed the option of foregoing medical coverage and just taking cash instead? Ezra Klein lays out the obvious objection:

As a society, we are not willing to let people die painfully in the street, even if they have previously made decisions that would lead to that outcome. In reality, what terrifies all of us is what happens after someone takes the cash and then gets sick.

Let’s run through the cash-grant world: At age 65, grandma decides to purchase no health-care plan, as she figures she’ll just get one when she gets sick, or maybe just get one next year, or perhaps she just doesn’t want to spend money extending decrepitude. But then she has a stroke and gets rushed to the hospital. Someone is paying for that emergency care. It might be the hospital. It might be the taxpayers. But it’s someone....[Or] perhaps you just build in a requirement that grandma has to at least purchase a catastrophic care plan. The problem with catastrophic care plans, of course, is that they often don’t cover the care you need. That’s why they’re cheaper. So the question is what happens when grandma needs more than the catastrophic care plan will provide — and when you’re dealing with seniors, that’s a “when,” not an “if.”

This is all true, but I think there's something else at work here that no one really likes to admit: not all medical care is emergency care. So if grandma gets sick and can't afford her non-emergency treatment — drugs, chemotherapy, hospice care, hip replacement, you name it — who's going to pay? "Someone," says Ezra, and he's right. And most likely that someone is her kids. Which is to say, you.

I think this is sort of the dirty little secret of universal care for seniors. Obviously we all pay Medicare taxes because we think we'll benefit from receiving Medicare ourselves in our old age. But there's also this: We would all rather pay a modest annual amount to cover everyone over 65 than be on the hook for an eventual decision to either (a) let grandma die of cancer or (b) bankrupt ourselves paying for grandma's proton therapy. This is, after all, about the most wrenching kind of decision you can imagine, and today the average worker pays less than $2,000 each year to avoid ever having to make it. That's a pretty good deal. But it's only a good deal if it genuinely relieves you of the prospect of having to decide whether to save grandma's life. If she's allowed to opt out, that prospect becomes very real all over again and the deal suddenly looks very crappy indeed. For that reason, grandma doesn't get a choice.

There are other reasons that it's a bad idea to let grandma opt out of Medicare too. But this one is probably both the most important and the least likely to be talked about.

Why Does Obama Want a Debt Ceiling Fight?

In the past, both Democrats and Republicans have used fights over the debt ceiling to embarrass the opposition party whenever it happened to be in power. Yawn. But they've never threatened to vote against raising the ceiling in order to extort goodies of one kind or another from the president. Obama, however, has indicated he's open to just this kind of extortion, and Republicans are eager to take him up on it. Jon Chait:

I don't really blame the Republicans for this, either. If Obama is going to begin by saying he'd like a straight vote on the debt ceiling but is willing to make policy concessions, what do you expect the Republicans to do? Keep in mind, the assumption that the Congressional minority can use the debt ceiling as a hostage to win substantive policy the president opposes is entirely novel. Obama has introduced this new development.

Jon calls this Obama's "insane hostage bargaining strategy," but I think we should at least admit the possibility that Obama is neither stupid nor insane. Sticking firmly to a negotiating position is hardly rocket science, after all, and all analogies to poker playing aside, it's hardly plausible that Obama doesn't get this. So surely the most likely explanation for his position is that he wants Republicans to make demands on him.

I don't know exactly why he wants this. Maybe he's itching for a fight. Maybe he thinks it will make Republicans look bad. Maybe he wants to cut spending but would rather give the appearance of having been forced into it. I don't know. But he's pretty obviously inviting Republicans to do this, not just stumbling into it accidentally. The only question is why.

Budget Cuts Disappear in a Cloud of Smoke

So, um, about that $38 billion budget cut:

A new budget estimate released Wednesday shows that the spending bill negotiated between President Barack Obama and House Speaker John Boehner would produce less than 1 percent of the $38 billion in promised savings by the end of this budget year.

The Congressional Budget Office estimate shows that compared with current spending rates the spending bill due for a House vote Thursday would cut federal outlays from non-war accounts by just $352 million through Sept. 30. About $8 billion in immediate cuts to domestic programs and foreign aid are offset by nearly equal increases in defense spending.

When war funding is factored in the legislation would actually increase total federal outlays by $3.3 billion relative to current levels.

So now we're down to $8 billion in actual cuts, all of it offset by increases to the Pentagon budget. But what about future years? Surely these savings will start to add up down the road? Not really:

In response to multiple requests for estimates of the effects of post-2011 outlays from H.R. 1473, CBO has developed additional information about the budgetary impact of H.R. 1473 in years beyond 2011.

....CBO estimates that enactment of H.R. 1473 would produce federal outlays over the 2011-2021 period that are between $20 billion and $25 billion lower than the amount of outlays that would be expected from having 2011 appropriations set at the same level as 2010 appropriations.

That's a cumulative number, which means the CBO estimates savings of about $2 billion per year over the next decade. Turns out that budget cutting is harder than it looks, even for Republicans. I predict that John Boehner is in a heap of trouble with the tea party wing of his caucus.

Just the Simple Truth

Have I mentioned my favorite part of Obama's speech yesterday? Here it is:

America’s finances were in great shape by the year 2000. We went from deficit to surplus. America was actually on track to becoming completely debt free, and we were prepared for the retirement of the Baby Boomers.

But after Democrats and Republicans committed to fiscal discipline during the 1990s, we lost our way in the decade that followed. We increased spending dramatically for two wars and an expensive prescription drug program — but we didn’t pay for any of this new spending. Instead, we made the problem worse with trillions of dollars in unpaid-for tax cuts — tax cuts that went to every millionaire and billionaire in the country; tax cuts that will force us to borrow an average of $500 billion every year over the next decade.

To give you an idea of how much damage this caused to our nation’s checkbook, consider this: In the last decade, if we had simply found a way to pay for the tax cuts and the prescription drug benefit, our deficit would currently be at low historical levels in the coming years.

But that’s not what happened. And so, by the time I took office, we once again found ourselves deeply in debt and unprepared for a Baby Boom retirement that is now starting to take place. When I took office, our projected deficit, annually, was more than $1 trillion. On top of that, we faced a terrible financial crisis and a recession that, like most recessions, led us to temporarily borrow even more.

Translation: Fuck you, Republicans.

And I'd say it's a well deserved flip of the bird. Republicans, as you can imagine, are less enthusiastic, and this bit of the speech undoubtedly accounts for most of the bile being tossed around on Fox and elsewhere today. But hey — sometimes the truth hurts. And all Obama did was speak the simple truth. In the past decade, Republicans slashed taxes, started two wars, approved a big unfunded entitlement, and presided over an economic collapse that cratered tax revenues and required massive government spending to counteract. That's pretty much 100% of our existing deficit problem right there. All we're doing now is trying to clean up the mess the GOP has left us.

Fair Shares and Tax Shares

Will Wilkinson wasn't impressed with President Obama's defense of progressive taxation yesterday:

It's rather less intuitive that fairness demands that the wealthy not only pay more in taxes, but pay a larger percentage of income. But let's accept that fairness does require it. Anyway, high-earners in America do pay higher rates. In 2008, the top 1% paid 38% of all federal income taxes, and the top 5% paid 58%. Indeed, America is the industrialised world's champion of income-tax progressivity! If any country's upper-crust pays its fair share, America's does.

Notice the bait and switch there? (If you don't, my blogging for the past eight years has been for nought.) First, there's the insistence on judging tax fairness solely by federal income taxes. But if you take a look at total tax burdens (federal/state/local), America's tax system is only very modestly progressive. Second, there's the switch from tax rates to tax shares. It's true that the top 1% pay a big share of all federal income taxes, and there's a good reason for that: it's because the top 1% earn a big share of all income.

For a better idea of what Obama was talking about, here's a handy chart that EPI sent around today. It shows average overall tax rates over time and the picture isn't very pretty. For the average schmoe (the bars on the right), tax rates have decreased only slightly. For the rich (the bars on the left), they've plummeted. And for the super-duper rich (the bars on the middle) they've gone down so much that on average they pay a lower tax rate than your average bank clerk.

So Will ought to be pretty happy. America's tax code is progressive, but it's not very progressive, and it's getting less progressive all the time. Given the explosion in wealth at the top over the past 30 years, asking them to go back to Clinton-era rates — which is all that Obama is proposing — hardly seems like a vast unfairness.