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“Polarized, Inefficient and Unproductive”: Congressional Brinkmanship Threatens Economic Recovery

Congress’s job approval rating has slowly ticked up over the past six months—reaching a whopping 16 percent in the first half of July, with 78 percent disapproving. However, even these dismal numbers may be giving Congress too much credit, especially if legislators don’t act soon to avoid the looming fiscal cliff.

The scenario is eerily reminiscent of last spring, when political deadlock over the federal budget threatened a government shutdown before an 11th-hour deal was struck. Such political wrangling risked the loss of 800,000 jobs and the curtailment of crucial public services such as mortgage, passport, and loan processing—not to mention a massive disruption of a fragile economic recovery.

And another similar scenario just a few months later was the battle over the federal debt ceiling, gambling the possibility of another government shutdown. The haphazard deal reached during that policy fight, which failed to produce long-term practical solutions, laid the groundwork for what the country faces today.

The risks of the impending fiscal cliff are similar, if not graver. If current fiscal policy is allowed to take effect, the United States economy will simultaneously experience across-the-board income tax hikes and deep, automatic spending cuts of billions of dollars at the end of this year. According to the nonpartisan Congressional Budget Office, these policies combined will contribute to lower incomes and higher unemployment numbers, slowing economic growth in 2013 to a mere 0.5 percent—and sending America into a double-dip recession.

The general assumption is that lawmakers will not let it get to that point; spending measures will be passed and tax cuts will be extended—though how much and for whom remains undecided. We all need to be asking when this is going to happen.

The 112th Congress has been called the most polarized, inefficient, and unproductive Congress in the 236-year history of the United States; and if they’re trying to fight that image, it sure is hard to tell. Legislators have shown little political will to act before the November presidential elections, dangerously close to the December 31 deadline when the first of a series of tax cuts will expire.

Such political brinkmanship is detrimental to the business environment and to a weak economic recovery. Small businesses are particularly hard hit by the uncertain climate created by Washington, and the threat of substantial tax increases has done nothing to ease fears. According to a Chamber of Commerce poll in July, over half of small business owners cite economic uncertainty as their top concern. Only 20 percent of those surveyed expected to hire in 2013.

This is bad news—with real implications for American prosperity. Small businesses are the key to economic recovery, spurring the majority of job creation. But to hire, business owners need the assurance of a stable investment environment in which they can secure returns. Regardless of whether America falls off the fiscal cliff, Congress’s behavior is already having detrimental effects on business and employment expectations. Amid discouraging jobs and industry reports, this political game is not something we can afford.

Lawmakers must realize that their gridlocked partisanship is hurting a nation already struggling. The 112th Congress has five months left in its term. Is it too naïve to hope things might change?

 

By: Steve Zelnak, U. S. News and World Report, August 3, 2012

August 4, 2012 Posted by | Congress | , , , , , , , , | Leave a comment

“Romney Dog Whistle”: Obama’s Philosophy Is “Foreign To The American Experience”

Mitt Romney doubled down on his characterization of President Obama as a “foreigner” during an interviewwith CNBC’s Larry Kudlow Monday afternoon, insisting that the president believes that the government is responsible for the success of entrepreneurs and small businesses.

Romney’s comments continue to misrepresent Obama’s remarks at a July 17th event, during which Obama suggested that society as a whole contributes to the economic accomplishments of the individual. Republicans have seized on the remarks to advance the myth that the president espouses an “un American” governing philosophy:

KUDLOW: Why do you think President Obama, what did he mean, if you’ve got a business, you didn’t build it, someone else made that happen? He claims it’s being taken out of context. What do you think it means? Do you think this is Obama anti-business, anti-entrepreneur? Or do you think maybe he has been treated unfairly? […]

ROMNEY: This is an ideology which says hey, we’re all the same here, we ought to take from all and give to one another and that achievement, individual initiative and risk-taking and success are not to be rewarded as they have in the past. It’s a very strange and in some respects foreign to the American experience type of philosophy. We have always been a nation that has celebrated success of various kinds. The kid that gets the honor roll, the individual worker that gets a promotion, the person that gets a better job. And in fact, the person that builds a business. And by the way, if you have a business and you started it, you did build it. And you deserve credit for that. It was not built for you by government…. So his whole philosophy is an upside-down philosophy that does not comport with the American experience.

In reality, Obama’s contention that — “when we succeed, we succeed because of our individual initiative, but also because we do things together” — is something Romney himself has agreed with. For instance, during his speech at the Opening Ceremonies of the 2002 Winter Olympics, Romney said, “You Olympians, however, know you didn’t get here solely on your own power. For most of you, loving parents, sisters or brothers, encouraged your hopes, coaches guided, communities built venues in order to organize competitions.”

He echoed the same sentiment last week, saying, “I know that you recognize a lot of people help you in a business. Perhaps the bank, the investors. There is no question your mom and dad, your school teachers. The people who provide roads, the fire, the police. A lot of people help.”

 

By: Igor Volsky, Think Progress, July 23, 2012

July 24, 2012 Posted by | Election 2012 | , , , , , , , | Leave a comment

“Larger Deficits, More Inequality”: The House Republicans’ Head Scratching Economics

Whether you worry about the sluggish recovery, budget deficits, or widening inequality, you should be scratching your head at what the House of Representatives is up to this week.

On the one hand, the House will likely pass the small business tax cut sponsored by House Majority Leader Eric Cantor, which adds $46 billion to the deficit, largely benefits very high-income taxpayers, and has little potential for creating jobs. On the other hand, the House Agriculture Committee has approved a proposal, as part of its deficit reduction mandate, to cut $36 billion from the Supplemental Nutrition Assistance Program—formerly food stamps—a program that goes mainly to low-income households and is one of the best policies we have for creating jobs in a weak economy.

In Tuesday’s post on the New York Times Economix blog, Bruce Bartlett, who held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Reps. Jack Kemp and Ron Paul, asks the question, “Do small businesses create jobs?” He appropriately cites the research showing that politicians’ worship of small businesses as jobs creators is misguided, and that it is start-up firms, not small firms per se, that are the job creators. Moreover, many of those who would benefit from the tax cut are affluent doctors, lawyers, and stockbrokers—hardly the local mom and pop store that most people imagine when they hear the phrase “small business.”

Bartlett is scathing on the Cantor bill:

There may be policies that would increase the number of business start-ups and aid employment this way. But an across-the-board tax cut for every small business, defined only in terms of employment, is nothing but …[a] giveaway unlikely to create any jobs whatsoever.

Bartlett’s indictment is backed up by standard “multiplier” or “bang-for-the-buck” analyses from the Congressional Budget Office and private analysts like Mark Zandi, chief economist of Moody’s Analytics. In contrast to an increase in SNAP benefits, which they find to be among the most cost-effective measures for stimulating economic growth and job creation in a weak economy, both the Congressional Budget Office and Zandi find business tax cuts similar to the Cantor bill to be among the least effective. The economic growth and job creation impact per dollar of nutritional assistance spending is six to eight times larger than that of an across-the-board tax cut.

Here is what the House is doing with these two measures: It is adding $46 billion of tax cuts, nearly half of which will go to those making more than $1 million, to the budget deficit. According to the official Joint Committee on Taxation estimate, about $45 billion of it will be received in 2012-13, when the economy could in fact use a boost to jobs. At the same time, any stimulus from the tax cut will be wiped out by the $8 billion of the $36 billion SNAP cut that also would occur in 2012-13.

The bottom line on these actions is that they produce larger budget deficits, more inequality, and no net new jobs. So when I see the House moving in exactly the opposite direction of what is fair and makes economic sense, I’m inclined to ask: “Is it really more politically appealing to cut taxes for millionaires and increase the budget deficit than to maintain food benefits for the poor that also give an extra boost to the economic recovery?”

 

By: Chad Stone, Chief Economist at the Center on Budget and Policy Priorities, Washington Whispers, U. S. News and World Report, April 19, 2012

April 20, 2012 Posted by | Deficits | , , , , , , , , | Leave a comment

“Corporations Are People”: How Everyone Else Pays for Big Business’s Tax Breaks

Some politicians might believe that “corporations are people,” as former Gov. Mitt Romney declared last year.

At tax time, however, corporations enjoy better treatment than ordinary folks. While millions of individual Americans file last-minute income tax returns this month, some major corporations won’t pay a dime despite reaping record profits.

From 2008 to 2010, the 280 most profitable U.S. corporations sheltered half of their profits from taxes, thanks to tax subsidies totaling nearly $224 billion, according to a 2011 analysis by Citizens for Tax Justice. A dozen large companies, including Exxon-Mobil, Boeing, and General Electric, reaped $175 billion in profits, but their combined tax rate was negative 1.4 percent, thanks to $64 billion in subsidies from oil depletion allowances, write-offs from overseas profits, and other loopholes, according to the study.

These subsidies didn’t just come about by accident—at least 30 Fortune 500 firms pay their lobbyists more than they pay in taxes. Most small businesses can’t afford lobbyists, so it’s no surprise that the benefits of tax loopholes flow mainly to Wall Street, not Main Street.

Thanks to these loopholes, probably no major company pays the full federal corporate tax rate of 35 percent. The highest three-year average effective rate paid by any of the 12 large corporations in the Citizens for Tax Justice study was 14.2 percent—less than many middle class families.

That’s the kind of sweetheart deal most taxpayers—and most small businesses—can only dream about. We do, however, get to pick up the tab for these costly tax breaks. For starters, when corporations shirk billions of dollars in federal taxes, middle class taxpayers must bear more of the cost of national defense, healthcare, and other necessary programs.

Then there is the effect on state and local services, most notably education.

Most states mirror federal tax loopholes, and many states also provide tax subsidies for companies just to locate within their borders. Total state and local tax subsidies to business add up to about $70 billion a year. That windfall for big business comes at the expense of students. Over the past three years local school districts have cut 238,000 education jobs, which means more students crammed into larger classes and fewer opportunities for extra tutoring or after-school programs. Middle class families have also had to foot a larger share of the bill for higher education, as total state funding has declined 3.8 percent over the last five years.

Small businesses also pay a price for corporate handouts. Not only is the tax burden shifted to companies that can’t afford to game the system, but small businesses rely on public education to train skilled workers and teach them how to think critically. When Spencer Organ Company, Inc. was founded in 1995, many of the people who applied for jobs not only had basic reading and math skills—they also had been exposed to music education and had learned to use tools in shop classes, knowledge that is useful in the organ restoration business. Today, after years of curriculum cutbacks, most students have not had those opportunities, a shift that translates to higher training costs for this small business.

Our nation built the most prosperous economy in history during the 20th century, and public education was a foundation of that success. We all have a responsibility to provide similar opportunities for future generations to succeed, and our biggest corporations must do their fair share. After all, the same people who own stock in these companies also have a stake in America’s future.

By: Joseph Rotella and Dennis Van Roekel, U. S. News and World Report, April 5, 2012

April 6, 2012 Posted by | Taxes | , , , , , , , | Leave a comment

‘Multiple-Employer’ Health Plans: Using Federal Law As A Shield From State Insurance Investigators

Federal officials hope to crack down more effectively on operators of “multiple employer” health plans  that have defrauded small businesses and their workers of hundreds of millions of dollars, often leaving them stuck with unpaid medical bills, according to new rules proposed Monday by the Obama administration under the health care legislation.

Known as Multiple Employer Welfare Arrangements, or MEWAs, such plans have a checkered history under operators who used federal law in the past as a shield from state insurance investigators. The plans are set up for small businesses to provide their workers with lower cost coverage by pooling premium contributions from the employers and workers together for benefits that are paid from the arrangement.

Yet an unintended consequence of the Employee Retirement Income Security Act of 1974, which has restricted states from regulating multiple employer arrangements, allowed these plans to dodge state insurance examiners, often after high fees were paid and money was then unavailable to pay medical claims and other benefits.

In the last two decades, the Department of Labor said it had initiated 800 civil and more than 300 criminal investigations, but often had been unable to prevent the operators of the plans from draining assets of the plans through a variety of schemes that included “excessive administrative fees or outright embezzlement resulting in harm to participants and their families,” the agency said in a statement.

Under the rules proposed Monday, the Secretary of Labor would have the authority to issue a “cease and desist order” when federal officials believe fraud is taking place. The secretary can also freeze assets, stop marketing and certain other business practices.

“For the first time, the federal government has some tools that we have never had to get at these MEWAS early before the money is gone and everybody is left in the lurch,” said Phyllis C Borzi, assistant secretary of labor for the Employee Benefits Security Administration. “Once we have these new tools, hopefully the losses will go down because we will be able to intervene before the money is gone.”

There have been many high profile cases of defrauded MEWAs, like that of TRG Health Plan, which had more than 11,000 plan subscribers and operated in more than 40 states and left behind more than $17 million in unpaid medical claims when it was terminated 10 years ago. The labor department alleged TRG’s operators diverted assets to accounts of an affiliated marketing firm, failed to charge adequate premiums and did not have sufficient assets to pay benefits.

Often, small employers, unions or trade associations will turn to a MEWA for affordable benefits because an insurance company will not cover those who may have an older population of workers or employees who might be in poor health. So analysts say operators of MEWAs bilked the most vulnerable of Americans in search of affordable coverage for themselves and their workers.

Take the National Writers Union, which turned to a MEWA known as Employers Mutual when their insurance carrier dramatically raised rates. The plan, based in Nevada, sold benefits to 22,000 policy holders and was unlicensed in states, claiming its structure did not require it to be licensed. The plan left behind more than $24 million in unpaid claims, a 2004 General Accounting Office report said.

“Whenever people are desperate for affordable coverage, they look for alternatives and unscrupulous individuals target those kinds of people,” said Mila Kofman, the former superintendent of insurance for Maine who is professor at Georgetown University’s Health Policy Institute. “Many have been hauled into federal court but the U.S. Department of Labor didn’t have tools to act quickly.”

Federal officials estimate more than 2 million Americans are enrolled in hundreds of MEWAs but they cannot be certain because they don’t know.

Another crucial part of the proposed regulations are that MEWAs have to register with the Department of Labor before operating or be subject to various penalties. The lack of licensure or registration made MEWAs a fertile opportunity for frauds.

“We don’t even know how many of these there are,” Ms. Borzi said.

Following a 90-day public comment period, the proposed rules will become final, probably by mid-2012.

The insurance industry, which is not known for welcoming new regulations, welcomed the labor department’s proposals.

“We are pleased the government is going to have these added powers,” said Alissa Fox, senior vice president of the Blue Cross and Blue Shield Association. “These entities are avoiding oversight and harming consumers. It hurts consumers and we are concerned when consumers are being hurt by entities that are not going to be paying these bills.”

 

By: Bruce Japsen, The New York Times Prescriptions, December 5, 2011

December 6, 2011 Posted by | Health Care, Insurance Companies | , , , , , | Leave a comment

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