Who Pays Taxes?

On Tuesday night, Jon Stewart had a segment that summed up what's wrong with how the media talks about taxes. If you don't want to watch the segment, I'll summarize (briefly): All this week, cable news and many newspapers have highlighted a 2009 study by the Tax Policy Center that found that 47 percent of Americans have no income tax liability.

Why point to this study now? Well, tax day is Thursday, the media needed a good story, and the Drudge Report—which seems to serve as the assignment editor for 90 percent of the television producers in America—featured the story on its front page. As you may know, the Drudge Report has an agenda. And as you may suspect, the TPC study is misleading without context. Cable news is terrible at providing context. But this is one of those cases where excluding the context essentially makes the story wrong. Focusing on income taxes when you discuss Americans' tax burden ignores the fact that most Americans pay more in payroll taxes than they do in federal income tax. The truth is that only a very small percentage of Americans pay no federal taxes—and most of those folks are paying at least some state taxes. Here's Stewart:

When you're talking about tax "fairness," there are really only two stats that matter: the percentage of total taxes that each income group pays, and the percentage of total income that group receives. Behold*:If you watched cable news this week, you would think that the top 20 percent are being treated incredibly unfairly. You'd be wrong. Ezra Klein has a theory about why the media failed so epically:

I'm going to be charitable on this and assume that people are biased toward their own experiences rather than playing loose with the data. For upper-income folks—journalists, television executives, congressmen, think tank employees—the big hit is on income taxes, so they get pretty annoyed when they hear that lots of Americans don't pay any income tax. But their experience is not typical.

I normally admire Ezra's restraint, but in this case it's not warranted. Even if they're biased toward their own experiences, media figures are really falling down on the job by pimping this study free of context. Call me old-fashioned, but I think the media have a duty to avoid fanning the flames of social division. Giving people the impression that huge numbers of Americans don't pay any taxes is just plain irresponsible. It makes people really angry. Last year, when I traveled to Connecticut to cover the Senate race there, I met a man who believed that 50 percent of Americans didn't pay any taxes at all. Those "zero-liability taxpayers" should be disenfranchised, he said. That's some divisive talk.

As Stewart pointed out in Tuesday's segment, ExxonMobil may not have any US income tax liability for 2009. But that wasn't on the Drudge Report, so cable news didn't cover it. Mother Jones' Adam Weinstein did, however. He even talked to an ExxonMobil spokesman. Check it out.

*I have replaced last year's chart with the latest figures. This chart, like the previous one, comes from Citizens for Tax Justice report.

Oath Keepers, the controversial patriot group profiled in our March/April issue, is a national organization comprised of cops, firefighters, and soldiers who promise to disobey any order they personally consider unconstitutional. And while it's not the group's official line, at least some members say they are prepared to use force if that's what it comes to. So it's kind of a big deal for them to call someone else extreme.

But that's more or less the reason founder Stewart Rhodes has withdrawn Oath Keepers' name from a planned April 19 "Restore the Constitution" gun rally where Rhodes himself was slated to speak. Organized as an alternative to the Second Amendment March the same day in Washington, DC, this rally will be held in Fort Hunt, Virginia—which, unlike DC, allows people to show up toting firearms. The armed rally has come under fire for its timing and its aggresive tone: April 19 is a hallowed day in "patriot" circles, and not because of morning baseball; it's also the anniversary of the Oklahoma City bombing, the siege at Waco, and the battles of Lexington and Concord (not to mention Oath Keepers' one-year anniversary). In a statement posted yesterday on the group's website, Rhodes attributed the decision to aggresive positions taken by other attendees of the event:

[B]ecause of published statements by some participants in the upcoming Virginia rally, Oath Keepers as an organization feels that a confrontational stance, such as has been published, places this event, in public perception, outside the terms of our stated and published mission...Confronting the government is not included in the Oath Keepers stated and published mission and as an educational organization focused on the current serving, Oath Keepers refrains from confrontation in deed and rhetoric.

Sen. Blanche Lincoln (D-Ark.) is generating plenty of buzz in financial circles for her new bill to regulate derivatives, those tricky financial products, whose value is linked to the price of commodities or interest rates, used to hedge risk and also make risky gambles. Lincoln's ambitious derivatives reform bill would require nearly all derivatives trades to take place on an exchange, where details on prices and the make-up of the deals would be transparent. (Right now, these deals take place essentially in the dark, between buyers, sellers, and brokers who privately negotiate the terms of the deal. That makes it practically impossible for, say, an airline company buying a contract to hedge against fuel price increases to look at similar deals done before and get a sense for what it should pay.)

As Felix Salmon pointed out, if derivatives will be exchange-traded, that means they'll be cleared, too, i.e., the risk of default on those deals will be distributed across the many members of the clearinghouse, instead of falling all on one counterparty. It essentially protects against another AIG-esque collapse, when billions in derivatives losses were absorbed by the global insurer leading to its near-demise.

Lincoln's bill would also call for swaps outfits to be cut out of big investment banks and essentially made into separate operations. This, of course, would prevent crippling losses on a swap desk from dragging down the rest of the firm—again, a la AIG's Financial Products division mortally wounding the entire company. Lincoln would also make a narrow exemption for specific end users of derivatives—the airlines and farmers and utility companies looking to legitimately hedge risk—without letting the speculators squeeze through that exemption.

So, that's all great, right? If you support tough new derivatives reform—like many Congressional Democrats; Gary Gensler, chair of the Commodity Futures Trading Commission and the top administration officlal overseeing derivatives; and reform advocates—then you're ecstatic. If you're Wall Street, then you're pissed. Don't be surprised to see the likes of Goldman Sachs and Morgan Stanley—whose profits would likely diminish with exchange trading and clearing (with price transparency and competition, they can't set prices to their liking and rip off clients)—lobby furiously to kneecap Lincoln's bill.

As tough as the bill is, realistically, it's even tougher to envision it surviving the gauntlet of special interests and GOP lawmakers. Here's Felix on it:

...it’s also pretty clear that none of this is going to happen. Never mind Republican support: this is going to have a hard time even getting Democratic support. It’s all a good idea, but it’s far too radical: while it might have had more of a chance if it had been introduced during the height of the crisis, at this point the banks have got their mojo working again and will quite easily be able to ensure that the beating heart of Lincoln’s proposals is surgically excised before it even gets anywhere near a vote.

That said, if Lincoln and her allies can at least preserve the exchange trading and clearing requirements, that'll amount to a major victory. Dragging these trades into the light of day is paramount because the OTC market is inherently stacked against end users. Right now, so many of these deals are opaque, and a whole host of costs bundled into the transactions aren't disclosed or well understood. If derivatives were traded in the open, however, you'd shed light on all that and compress what's called the bid-ask spread—the difference between the highest amount the buyer wants to pay and the lowest amount the seller will take to offload their product. That's good for companies using derivatives—it lowers the cost for them.

All told, there's no chance Lincoln's bill will emerge weeks or months down the road untouched. But it's laudable that she set the bar so high, and if she and her allies can preserve the transparency measures, that alone will be victory for financial reformers.

Retiring Rep. Bart Stupak will surely go down in history as the congressman who nearly killed health reform before assuring its passage at the eleventh hour. But there’s another controversial piece of his history that's less well-known—one that might endear the Michigan Democrat a little more to his many progressive critics. The Brady Campaign to Prevent Gun Violence is celebrating Stupak for supporting a 1999 bill to restrict gun sales—and urging other legislators to back the current incarnation of the legislation.

Long a staunch gun-rights defender, supported by the National Rifle Association since coming to Congress in 1992, Stupak defied expectation by backing a House bill that closed the so-called "gun show loophole," requiring background checks for firearms sales from unauthorized dealers. The bill was proposed shortly after that the Columbine massacre, whose perpetrators had gotten their weapons via the loophole. While the measure never passed, the NRA didn’t forgive Stupak for backing it, pulling its support and campaigning against the Michigan Democrat in 2000.

"The gun lobby targeted Stupak for defeat, but he won handily," the Brady Campaign said in a statement Tuesday. “When candidates do the right thing, their constituents stand behind them and support them.” The group points out that in his retirement speech last Friday, Stupak said he prided himself for having "taken on the National Rifle Association up here."

Curiously enough, Stupak himself hasn't yet signed on as a co-sponsor of the current incarnation of the bill, which has gained bipartisan support from nearly 100 House members. Last year, in fact, Stupak introduced legislation that would actually make it easier for convicted felons to acquire firearms—a bill that the NRA endorsed. But Stupak will probably leave the House before the current bill comes up for a vote, so we may not get a chance to see if he'd be willing to defy the gun lobby a second time around.

The White House Office of National Drug Control Policy zapped out a press release on Wednesday morning noting that its director, Gil Kerlikowske (aka the Drug Czar) was testifying before a House subcommittee that the Obama administration is implementing a "new direction in drug policy." From the release:

With drug use accounting for tens of billions of dollars per year in healthcare costs, and drug overdoses ranking second only to motor vehicle crashes as the leading cause of accidental death, the Nation “needs to discard the idea that enforcement alone can eliminate our Nation’s drug problem,” Director Kerlikowske said. “Only through a comprehensive and balanced approach – combining tough, but fair, enforcement with robust prevention and treatment efforts – will we be successful in stemming both the demand for and supply of illegal drugs in our country.

“The forthcoming National Drug Control Strategy calls for addressing our Nation’s enormous demand for drugs by scaling up our public health policy response, integrating treatment programs into mainstream medicine, and recognizing that effective drug policy requires engagement at the community level,” Director Kerlikowske said.

He also noted that ONDCP would continue to work to “break down the silos between the prevention, treatment, and law enforcement communities– and the greatest use must be made of the finite resources at our disposal.”

The statement also pointed out that Obama's 2011 budget request seeks a 6.5 percent boost in funding for drug prevention and treatment programs.

But this new direction will not be heading toward legalization. As its director was testifying, ONDCP's website featured an article by Harvard grad student Viridiana Rios that argues against legalization:

As the situation in Mexico and along U.S. border towns has become desperate, calls for legalization are intensifying. The city of El Paso, Texas, passed a resolution calling for studying the merits of legalization as a means to curb violence, and the Arizona Attorney General has also discussed the option of legalization in front of the US Congress. California is considering a measure in November's election.

Might legalization help the situation?  My view is likely no.  Any legalization attempt focuses on the marijuana markets which are not the core of the violence problem. It is highly valued drugs such as cocaine or heroin the ones which organized criminals are fighting for, it is these drugs that fund terrorist and criminal groups around the world.

Even in the unlikely scenario of an all-drugs liberalization, it is unrealistic to expect a significant diminishing of the influence of Mexican cartels.

The Obama administration is heeding the calls for drug reform when it comes to prevention, treatment, and harsh criminal enforcement. But with moves to legalize marijuana in California and elsewhere seemingly gaining momentum, the administration's reformers are not in sync with the reformers outside the government.


Lance Cpl. Nathan Cherry, an airframe mechanic with Marine Heavy Helicopter Squadron 466, 3rd Marine Aircraft Wing (Forward), works on the tail of a CH-53E Super Stallion helicopter. Photo via the US Marines.

Davitt McAteer, who has spent 40 years fighting for safety reforms in the coal mining industry, will head an independent inquiry into the disaster at Massey Energy's Upper Big Branch Mine. Unlike some of the investigations that follow high-profile industrial disasters, McAteer's inquiry can be counted on to pull no punches. Whether his findings are acted upon and enforced, however, is another question. In an interview last week, McAteer told Mother Jones that the federal government all along had the authority to shut down the Upper Big Branch mine, which had "a record of terrible practices" and had been cited for numerous previous safety violations. The feds could have pulled the plug on Massey's operations until the safety problems were fixed, he said, "if they had the balls."

McAteer was appointed yesterday by West Virginia Governor Joe Manchin, but his inquiry, in which he'll lead a panel of experts of his choosing, is to be independent of separate state and federal investigations. "I want a transparent third party, that's not attached in any way, shape or form," Manchin told the AP. The governor, who like everyone who's held his position is friendly to the powerful coal mining industry in his state, now says he he wants to make sure state officials also have the right to shut down an unsafe mine. "If you have a serious violation that can cause what we had ... either I have the right to shut you down, or you have to act immediately," Manchin said. "I would rather err on the side of caution."

According to the Wheeling News-Register, Manchin also said "We owe it to the families of the 29 miners we lost last week to find out what caused this. And we owe it to them and every coal miner working today to do everything humanly possible to prevent this from happening again."  President Obama said something quite similar. But of course, these types of statements have been heard many times before. By now it is clear that even a hard-hitting investigation does not guarantee that changes will be mandated, implemented, or enforced. McAteer, who once headed up health and safety programs for the United Mine Workers and later served as an Assistant Secretary of Labor in the Clinton administration, was also tasked with leading the investigation that followed the 2006 Sago Mine disaster. His recommendations even helped bring about new mine safety legislation. But laws only work if they are enforced, and the mining industry has dragged its feet about implementing some changes. In addition, as has now been widely documented, the Mine Safety and Health Administration wrote up Massey dozens of times for recklessness and "high negligence." Massey fought back against the citations and fines, and all the while kept on sending its workers into the mines. The MSHA never once used its power to shut down the Upper Big Branch mine—or any other mine, for that matter.

Without government enforcement to give them teeth, these mine disaster investigations have limited power to bring about any serious change for the better. It might be a different story if they had subpoena power, and used it; in this instance, that would almost certainly lead to criminal charges. Massey can only hope the investigations don’t end up putting company officials before a federal grand jury. If that were the case, any indictments would go before federal  judges, not to state courts, where the judges in the past have proven to be susceptible to bribes of one type or another. Last year, the U.S. Supreme Court ruled against a West Virginia judge whose decisions, the court said, had been unduly influenced by a $3 million campaign contribution from—none other than Massey coal. 

Read the latest on the MoJo-WikiLeaks feud here.

It's been a very good week for WikiLeaks. Last Monday, the whistleblower site released a classified video shot by an American attack helicopter as it mowed down a group of men on a Baghdad street, two of whom were unarmed Reuters journalists. The video has been watched no fewer than 5.7 million times and the debate over whether it depicts a war crime, a justifiable action, or a tragic example of the fog of war, is still going strong. "WikiLeaks" became a top Google search term as a site once frequented primarily by journalists and activists became a major media player. And the attention seems unlikely to abate soon: WikiLeaks says it's about to release footage of an American missile strike in Afghanistan that killed dozens of civilians.

Much of the attention on WikiLeaks has focused on its mysterious mastermind, Australian hacktivist Julian Assange. He's been hailed as a fearless fighter for transparency, but his emergence from the shadows has also revealed him to be as prickly about unwanted disclosures as any of his powerful targets. When David Kushner wrote about Assange's fascinating blend of passion and paranoia as well as WikiLeaks secretive inner workings on this website last week, Assange fired back, claiming the story was "full of errors" and "extremely irritating tabloid insinuations of the type that might be expected from a poor quality magazine." Amusingly, his comment has become the most popular one in the history of MotherJones.com, with 43,000 recommendations and counting.* (Assange hasn't elaborated on the supposed inaccuracies in the article.)

Meanwhile, Kushner's article has inspired several profiles of Assange, including one in the Sunday Times of London that liberally cribbed quotations and original reporting from his story. Yet WikiLeaks tweeted that it was "mostly, not entirely, correct." Clearly the Times mostly swiped the accurate parts of our story.

When we published a special drug issue last year, the Mexican cartels were intensifying border violence as the scrabbled for territory in urban hubs like Ciudad Juarez and Nuevo Laredo. Nearly a year later, the landscape has changed dramatically. The once-small splinter group called Los Zetas is now a cartel in their own right, and a powerful one. The Zetas are growing so dominant that the long-time rival Gulf and Sinaloa (and according to some reports, La Familia Michoacana) cartels have actually joined forces to fight them, merging into a super-cartel known as the New Federation. Last month, the New Federation put a message to the Mexican people on YouTube, saying that "Without the 'Z' you will live without fear... If you are a Zeta, run because the MONSTER is coming... the new alliance have raised their weapons to fuck the Zetas because they have undermined the drug trafficking business with their kidnappings, extortions, etc. To sum it up, they don’t give a shit about the freedom and tranquility of the Mexican people."

I'm not sure exactly how the New Federation thinks they're such guardians for the Mexican people's peace, but it's kind of amazing they've come together as the Gulf and Sinaloa's heads have (allegedly) been behind the murders of each other's family members, dons, and foot soldiers. Desperate times call for desperate measures and Los Zetas, known for gruesome incidents like when they beheaded 12 people at a Yucatan ranch in 2008, have become too powerful to be ignored, controlling a territory that now goes down into Central America with training camps in Guatemala.

As STRATFOR reports, the cartels' escalating and continued gun battles, including the recent Gulf-Sinaloa alliance against the Zetas, is having economic effects on Mexico, from discouraging tourism to the "willingness of foreign companies to invest in Mexico's manufacturing sector." STRATFOR writer Scott Stewart makes the valid point that in attempting to break up the cartels, Felipe Calderón may have broken them but with the result of increased violence as the organizations react to structural changes:

This weakening of the traditional cartels was part of the Calderon administration’s publicized plan to reduce the power of the drug traffickers and to deny any one organization or cartel the ability to become more powerful than the state. The plan appears to have worked to some extent, and the powerful Gulf and Sinaloa cartels have splintered, as has the AFO. The fruit of this policy, however, has been incredible spikes in violence and the proliferation of aggressive new drug-trafficking organizations that have made it very difficult for any type of equilibrium to be reached. So the Mexican government’s policies have also been a factor in destabilizing the balance.

If a politician says something, and no one challenges it, does that mean it's true? Conservative website WorldNetDaily is suggesting as much: in a breathless article published Sunday, WND reports that a Kenyan lawmaker, James Orengo, "told the nation's parliament last month that Barack Obama was born in Africa and is therefore 'not even a native American.' The fact that no other members of parliament "mention[ed] or attempt[ed] to correct Orengo's comments about Obama," according to WND, and "several other sources—including National Public Radio—have claimed Obama's birthplace as Kenya prior to his election as president," you have to think that this raises serious questions about Obama's eligibility to serve.

Or, you know, not.

I'm sure other folks have pointed this out, but reading a WND article on Obama's birth country is like reading a primer on logic errors. If you only pay attention to the times that people and news outlets have referred to Obama as being born in Kenya, the evidence might seem overwhelming. But you're ignoring the countless times that news outlets and politicians didn't refer to Obama as being Kenyan-born. The bottom line is that just because some guy says something—even on NPR's website or in Kenya's parliament—doesn't mean it's true.