What Does the Government Shutdown Mean? That We're Not Focusing On Real Tax Issue

Don’t you just love this time of year? The leaves are changing colors, the air is crisp, and Washington is fighting another fiscal battle. Unfortunately, the annual signs of autumn are now accompanied with the Democratic vs. Republican budget showdown. Republicans voted to defund Obamacare, the president has refused to negotiate on raising the debt limit, and our government shut down Tuesday.  How can anyone doubt that the ever-elusive “grand bargain” will never happen?

What gets lost in all this political posturing is the fact that the United States is in desperate need of deficit and tax reform. The last time Congress enacted a comprehensive tax reform, Top Gunwas still in theaters. For those of us too young to remember, the year was 1986, and the president was Ronald Reagan. Democrats and Republicans in Congress worked together with President Reagan to pass the Tax Reform Act of 1986. In today’s Congress that sort of compromise and bipartisanship is unheard of. The Tax Reform Act of 1986 helped propel the American economy forward, paving the way for the boom of the 1990s. Our nation needs a tax code for a 21st century economy.

My goal is to borrow ideas from both sides of the political spectrum in order to find common areas where compromise can be made, and the Tax Reform Act of 1986 will be my main reference for policy ideas.  

President Reagan and Congress raised the maximum long-term capital gains rate from 20% to 28% and lowered the maximum ordinary income tax rate from 50% to 28%. They did this based on the principle that equal incomes should pay equal taxes. This principle should play a major role in any current discussion of tax reform. Is it fair that Warren Buffet pays a lower effective tax rate than his secretary?  A majority of Americans do not think so. Recall the uproar during the 2012 election over the revelation that Mitt Romney paid an effective tax rate of 14%. Since the wealthy receive most of their income from capital gains, and not ordinary income, it is only sensible they pay a similar rate. 

Today, the top capital gains rate (20%) is about 20% lower than the top income tax rate (39.6%). Many economists may argue that this is necessary to encourage investment by the wealthy. This may be true, but there is definitely room for Congress to raise capital gains taxes while still creating incentives for investment. One way to promote investing is to revive a 1985 proposal to index capital gains to inflation, which would provide a tax break to investors. For example, if inflation is 10% during the time one owned an asset, then the first 10% of capital gains would be tax-exempt.  This is just one of the numerous strategies that Congress could use to promote investment while closing the gap between capital gains and income taxes.

Increasing the capital gains tax serves as a positive step towards bringing more equality into our tax code. For those deterred by rhetoric about the battle of the 99% versus the 1%,  a higher capital gains tax is a more sensible, moderate way to reduce some of the tensions created by this perceived income inequality. Currently, the long-term capital gains rate is the same 20%, whether you make $1,000 or $1,000,000 in gains. A progressive capital gains rate (maybe one that mirrors the income tax brackets) may be another innovative policy Congress should consider.

What did all that money buy? An argument for campaign finance reform

            This election cycle was the most expensive in history.  Candidates, Super Pacs, and political parties spent around $6 billion on federal, state, and local elections.  The Obama and Romney campaigns spent a little under $2 billion dollars combined.  In the post-Citizen’s United era the media-political industrial complex flourishes like never before.  A majority of the spending bought TV ad space, especially in the swing states.  I spent one weekend down in Miami and I saw political ads every commercial break.  300,000+ ads aired in Ohio alone.  And yet what did all this money by?

            Sheldon Adelson, the godfather of Newt Gingrich’s campaign and single largest donor in the 2012 election, spent over $50 million.  And what does he have to show for it?  Every candidate he backed at the state level lost, except one (I believe he lost 9/10) and Sheldon contributed $20 million to the failed primary campaign of Newt.  Too many $50 million is more than we will make over many lifetimes, but it is pocket change to Sheldon.  He stated he would spend over $100 million to defeat President Obama, so by his standards he went cheap this election cycle. 

            Karl Rove was another grand spender of this election cycle.  He planned to defeat President Obama and win back the Senate for Republicans via Crossroads GPS and American Crossroads.  These groups spent over $300 million combined!  And once again I ask, what do they have to show for it?  Democrats actually gained seats in the Senate and by any metric Karl Rove, Crossroads GPS, and American Crossroads were failures. 

            So what did we learn from this election?  Money cannot buy victories?  The consequences of Citizen’s United and unlimited political contributions by corporations and unions were overstated?  Some people are making that exact argument; that this election cycle shows we don’t have to worry about campaign finance reform and political spending. 

            However, if this election has shown anything, it is that individuals and corporations will spend exponentially large amounts of money to help the candidates they support.  And it just so happens that the most fervent contributors also possess the most extreme views.  As Democrats and Republicans have moved to the radical left and right, the last thing we need are more extreme candidates. 

            Today it is way too easy for a Karl Rove or a Sheldon Adelson to fund a campaign against a candidate he does not agree with; or for Grover Norquist and American’s for Tax Reform to fund a challenger to a Republican Congressman who did not sign the Taxpayer Protection Pledge to not raise taxes - under any circumstances!  

            These are not the candidates America needs.  We need more moderate, bipartisan candidates, and not for far left / far right candidates who refuse to compromise.  And we need 3^rd party candidates who have real chances at winning elections.  So until I start to see billions of dollars spent on independent campaigns, I will argue against Citizen’s United and for campaign finance reform. 

            The real loser’s in the post Citizen’s United era are the American people because more political spending leads to more extreme candidates, which leads to less compromise and governance, which leads to more cynicism and punditry in the media, which leads to more political spending by radical individuals.  

The election is over!! Now what happens...

            The election is over!! Thank God!! If I saw one more ridiculous political ad on TV I might have puked.  This long, bitter campaign feels like it took forever.  Obama and Romney were campaigning since the 2010 midterm elections, if not earlier.  And people wonder why our Congress and government get nothing done?  In England candidates for Prime Minister campaign for 6 weeks and in France Presidential hopefuls campaign for 3 weeks.  Unfortunately that is not how things work in the United States.  Our media thrives with prolonged campaigns.  Just imagine what they would talk about on Fox News or MSNBC if our campaigns were only a few weeks! (Heaven forbid they focus on real news and informing the electorate rather than fear-mongering and partisan politics.)  Imagine what our leaders in Congress could get done if they didn’t have to focus so much time on fundraising and getting reelected. 

            Luckily for the American people the campaigns are over and the elections finalized.  Now we can finally focus on solving America’s problems.  Now is the time to put aside partisan politics.  Now is the time for the sacrifices and reforms that America needs.  And now is the time for Congress to give us a plan for the future, to lift the uncertainty of the fiscal cliff, and to allow our economy to flourish! 

            The election night rhetoric sounded promising.  Mitt Romney urged his supporters and party to work with the Democrats.  Barack Obama spoke not of red states or blue states, but of the United States.  Harry Reid offered his support to work together with Republicans in the Senate.  John Boehner said we must raise the bar and offered the President his help in garnering Republican support for increasing revenues as long as Democrats are willing to decrease spending and reform entitlements.  It seems like a grand bargain is coming after all!

            But all this sounds familiar to the 2011 debt ceiling debacle that created the fiscal cliff.  We hope this time ends with real reform rather than childish finger pointing.  So what did this election change you may ask?  Well not much to be honest.  President Obama was reelected, Democrats still control the Senate, and Republicans maintained their majority in the House.  This was a status quo election; even though, almost every American isn’t happy with the status quo. 

            My hope is that the message has been sent to our government.  They must do something to solve all the issues our great nation faces.  As I have stated before, the only thing holding back the United States is Washington.  I believe the economy is ready to take off.  Corporations have the cash and the desire to spend and hire, and they just need a plan.  Look at any consumer or housing index and you see that the American people are regaining their confident in the economy.

            So the ball is in your court Mr. President, Senator Reid, Speaker Boehner, and all of our elected representatives in Washington.  I urge you to listen to the people of our nation and put aside ideology and politics.  Put aside egos and agendas.  Put America first and work together to help us prosper once again!

The Importance of Voting

            The American people will vote tomorrow, but the election is far from over.  From what I have read the Obama and Romney teams are gearing up for a post-election legal battle.  I think this election will be eerily similar to the 2000 election debacle.  A lawsuit has already been brought against the state of Florida for halving the early voting time (from 14 days to 8 days) and the extremely long lines in heavily democratic counties.  In Ohio there is controversy over Secretary of State Jon Husted’s decision on provisional ballots.  Husted shifted the burden of recording the form of ID on provisional ballots from the poll worker to the voter.  This could potentially put in jeopardy thousands of votes.  As a result voting-rights advocates filed an emergency motion with a federal judge in Ohio.  So what does this all mean?  It means the results of the Ohio electorate can spend weeks or months in court.  Similar to Florida in 2000, each side will fight for recounts, for their votes to count, and for their opponents votes to be disqualified. 

            Besides making the 2012 election a debacle, and once again making American democracy a global spectacle, there is another issue at hand.  From voter ID laws to shortening early voting time to controversy over ballots, there is an attempt to limit the size and scope of the American electorate.  A smaller, less diverse electorate will directly benefit the GOP.  The Republicans have been losing the race with America’s fasting growing demographics and they know it. 

            It is no surprise that Republic Governor of Florida, Rick Scott, has fought to decrease early voting by a week, or that numerous Red states have fought for stricter voter ID laws.  Pennsylvania House Majority Leader Mike Turzai planned on using strict voter ID laws as a strategy to help Mitt Romney win his state.  He explicitly stated that voter ID would allow Governor Romney to win Pennsylvania.  Luckily for US, our system has worked and numerous judges struck down that law and others throughout the nation.  The judges argued that the laws inhibit the elderly, the poor, and minorities (usually democratic voters) from exercising their right to vote.  

            The problem I have with the GOP is they succeed when Americans are denied their right to vote.  The ironic part is that I believe most Americans are moderate Republicans (socially liberal, fiscally conservative, advocates of small government).  The message of the GOP has gone so far right that they alienated large groups of Americans.  Now I truly believe Mitt Romney is a moderate Republican, which is why I contemplated voting for him, but it is unfortunate that he had to feign being a conservative to win the primary.  But that issue is for another day. 

            The United States of America is supposed to be the bastion of democracy in the world.  Millions have died for rights that many of us take for granted.  Just take a look at Syria and Libya and see how people will give their lives for democracy.  Unfortunately, many institutions in the US have misplaced their attention.  Both parties should work to make sure every single eligible voter participates in elections because only when we practice what we preach will the United States be legitimate in promoting democracy around the world.  To try to prevent individuals from voting is the most Un-American thing one can do. 

            And to reiterate that point, it is the responsibility of every American who can vote to do so.  We owe it to everyone who died, is dying, and will die for the right to choose his or her government.  I can’t stand it when people say, “I’m not voting, the system won’t change,” or “voting is a waste of time.”  We take voting for granted, just like any other freedom, because we have never lived without it, but ask anyone who cannot vote how important they think it is.  So whether you vote for Obama or Romney or any other candidate all that matters is that you vote!  If you don’t like the current system then vote for 3^rd party candidates.  No vote is ever wasted so get out and make your voice heard! 

             

The Fiscal Cliff

           Ahh the fiscal cliff, the result of last summer's debt-ceiling debacle.  Rather than try to work together and solve our nation’s debt problem, our fearless leaders in Congress kicked the can down the road once again.  Democrats and Republicans in Congress decided our debt crisis could not be solved until after the election.  Unfortunately for the American people, the Tea Party needed to be sure we “solved” this issue before they allowed the US Government to raise the debt ceiling and pay off the bills we already incurred (which has no affect on future spending). 

            The solution Congress came up with was automatic tax hikes and spending cuts that take effect on January 1^st, 2013.  To make matters worse, these sequestrations happen across the board without rhyme or reason.  The general consensus among economists is that if the fiscal cliff is not lifted the US will head into another recession.  If you paid attention to the presidential campaigns, watched the debates, or followed the numerous Congressional elections you might not have any idea about the fiscal cliff or how to solve it.  As I stated before, we had 3 presidential debates and not once was there a serious discussion about the fiscal cliff. 

            We are concerned about the anemic growth in the post-financial crisis economy.  Many Republicans point to the slow growth in 2012 as why Obama should not be re-elected.  It is important to understand the detrimental effects the fiscal cliff has on our economy.  This summer, for the first time ever, Standard & Poor’s downgraded the credit rating of the United States.  Other agencies plan on doing the same if we do not solve the fiscal cliff or our debt issues.  With the national debt at $16 trillion, another downgrade could lead to higher interest rates, which would equate to billions of dollars a year in payments.  Unfortunately for us, there is another, more complicated, effect of the fiscal cliff.

            The stock market is up, the housing marketing is rebounding, and consumer confidence is rising.  So where are the jobs?  Uncertainty is a huge obstacle to corporations large and small.  Uncertainty prevents many CEOs from making decisions about the future.  The failure to deal with the fiscal cliff has sown the seeds of uncertainty in CEOs throughout our nation and the world.  I’ve read reports from SPDR funds, Envestnet, and numerous big banks and investment firms urging Congress to do something, anything that will provide them with some direction.  The financial sector just needs some direction from the government so they know where to invest their money. 

            And it is not just the financial industry.  American corporations hold about $1.7 trillion on the books and my guess is that they are dying to spend some of that cash.  Defense contractors, such as, Lockheed Martin, Northtrop Grunman, and General Dynamic are sitting with cash on their books to brace themselves for cuts in defense spending.  The CFO of Siemens, the German industrial giant, has admitted that they are delaying new investments and expenditures until the fiscal cliff is resolved.  The CEO of Legrand, a global manufacturer, has stated that they are holding off on hiring until we are in a more stable environment. 

            It is time for Congress to stop holding back our recovery.  Consumer confidence and spending is bouncing back, and Congress needs to provide businesses with a clear direction so they can begin to benefit from this.  Some may argue that Obama’s policies have slowed down our recovery, but I believe the real culprit is the uncertainty created by our horrible Congress.  Whoever wins the election will need to tackle the fiscal cliff in order for America to truly recover and transition into economy of the future.  So as I finish this post I will leave you with this.  The CEO of JP Morgan, Jamie Dimon, said last week that many on Wall Street would be fine with a rise in taxes as long as it was part of a concrete plan to deal with the fiscal cliff and our debt issues.