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More on ALEC: Beware the influence of ALEC in Oklahoma

Sun ,03/08/2014

This article by the author  was first posted in the Oklahoma Policy Institute’s blog.  

The American Legislative Exchange Council (ALEC) has a great influence on our Oklahoma state politics, but many Oklahomans ALEC2have heard little about the organization. On the surface,  ALEC is an organization made up of corporations and state-level elected officials which meets three times a year to write “model legislation” for states. Officials can then take the model legislation back to their state for consideration. That sounds like a good process, except that what goes on under the surface of ALEC is kept secret.

In May of 2013, ALEC met in Oklahoma City. While corporate representatives from ALEC met with our legislators, a group of citizens protested across the street. The protesters, as well as members of the press, had been barred from attending by security guards. The agenda of the meeting was secret and an elaborate drop box system was created to avoid FOIA requests. Now, over a year later, there is still little known about the meeting or its influence on our legislators.

Rep. Gary Banz, who organized the 2013 event, described it as “a giant coaches clinic for legislators” and said that, though ALEC has been criticized for its secrecy, “The bottom line is if it’s not on our website, it’s not an issue or area that we have embraced.” That’s not quite right.  While ALEC’s website lists some of its policies and model laws, a part of the website is off limits for non-members. The public, journalists, and small business owners are excluded from ALEC membership by steep fees and by a screening process which insures new members are in harmony with ALEC’s mission. ALEC’s membership and funding sources are kept secret .

Much of what is known about ALEC has been discovered by leaked documents and by citizen’s watchdog groups, such as SourceWatch.  ALEC is a 501(c)(3) organization which is not required to reveal its donors or its funding. It has 300 corporate and 1,800 legislative members, but it will not release its membership lists. Rep. Banz said 70 Oklahoma legislators are members, but  SourceWatch lists only 38, leaving 32 members’ identities secret.

Because of the secrecy, it is hard to know what legislation comes from ALEC. Legislators can copy the bills, change them to disguise their source, and present them as their own. Most voters, the press, and even legislative colleagues often do not realize that the legislation came from ALEC. Sponsoring ALEC legislation ensures politicians they will receive support for their re-election campaigns. ALEC’s legislation is often supported by one-sided research, talking points, and op-ed articles designed to convince voters that the politicians are really looking after their best interests.

Many of ALEC’s model laws claim to promote freedom, fairness, and reform, but the end result is often that average citizens lose out in the process.  Citizen’s watchdog groups, such as Common Cause and SourceWatch, are critical of ALEC, saying its bills undercut health care reform, undermine environmental regulations, promote school and prison privatization, limit workers’ rights, restrain legislatures’ abilities to raise revenue through taxes, and mandate strict election laws that disenfranchise some voters, among many other issues.

As Bill Moyers argues in his documentary, United States of ALEC, ALEC is undermining our system of democracy. The strength of the United States is its unity, but some corporations are working through ALEC to undermine that unity at the state level so they can escape regulation and avoid taxes. ALEC is designed to give more power to corporations, claiming that businesses making decisions in their self-interest will lead to the most good for everyone, but the reality is that it does the most good for the already wealthy. We live in a state with enough resources to ensure that every citizen has food, shelter, medical care, education, and an opportunity to contribute back to society. That won’t happen if our state legislature is unduly influenced by ALEC.

What to do about ALEC is the hard question. ALEC hides its members and its funding sources, and it operates as an educational organization to escape lobbying restrictions. There are apparently 32 ALEC members in our state legislature who have not been identified. My plan is to give ALEC as much publicity as possible and to make it a campaign issue by asking candidates to pledge they will not join any organization which will keep them from representing the best interests of Oklahoma citizens.

J.C. Moore is a retired science teacher, a member of the the American Geophysical Union, and co-founder of OKcitizensfirst.org.

McCutcheon vs FEC: Destroying Democracy $1 Million at a Time

Wed ,09/04/2014

“Americans need to take responsibility for government” - Steve Fair

Steve Fair’s article  in the Tulsa World, by that title,  was meant to describe how we should  address the McCutcheon versus FEC Supreme Court ruling. However, it turned out to be a rationale for putting more money into politics and blaming the citizens for allowing it. The ruling  furthered the damage done by Citizens United, which essentially ruled money was the same as speech, corporations were entitled to free speech, and corporations could express their political opinion by donating money. McCutcheon versus FEC essentially removed the restrictions on how much could be donated.

McCutcheon vs. FEC  was supported by the Republican National Committee and applauded by Chairman Reince Priebus: “Today’s court decision is an important first step toward restoring the voice of candidates and party committees and a vindication for all those who support robust, transparent political discourse.” However, when someone speaks, we know who is speaking, while much of the money in politics is funneled through 501C(3) foundations and other tax-exempt organizations, which hides the identity of those giving the moneyand the amount given.  So much for transparency.

Mr. Fair had three points to his article:

First, the Supreme Court got it right. The First Amendment trumps federal campaign laws. Americans have a constitutional right to participate in the political process at whatever level they want, whether it be volunteering for a candidate or contributing money to their campaign.

Second, it is indisputable that money rules in the political process. Candidates at all levels now must raise large sums of money to “get their message” to voters. State legislative and county candidates must solicit donors for money in order to be competitive in the political arena.

Third, big donors and political consultants are not to blame for money in politics. A common misconception is if big donors and political operatives were taken out of the process, big money in politics would dry up. That is simply not true. The reason we have so much money in politics is because we have an unengaged and ignorant electorate.

Equating money with speech means that those who donate large sums money have a much louder voice than the ordinary citizen. Money did have a role in the political process before, but it was limited so that an average citizen could at least make a reasonable donation. This ruling, and Citizens United , means that money will have even a larger role. Republican presidential candidates are already trekking to Las Vegas to be anointed by Sheldon Adelson. The third point  blames an “unengaged and ignorant electorate” which seems to echo our Republican leader’s perception of American voters. Does it mean you’re “unengaged” if you can’t donate millions and that you are “ ignorant” if you can’t sort through all the propaganda, misinformation, and lies created by those with money.

Quid pro quo corruption:  Chief Justice John Roberts tried to justify the decision when he wrote in the majority opinion. “We have, however, held that this interest must be limited to a specific kind of corruption — quid pro quo corruption — in order to ensure that the government’s efforts do not have the effect of restricting the First Amendment right of citizens to choose who shall govern them.”

By requiring proof of quid pro quo corruption,i.e. outright bribery, the decision fails to address the problem of indirect bribery. An example of that is the effect of ALEC in Oklahoma politics. ALEC is composed of about 300 corporations and special interest groups who supposedly help our legislators write model laws. Those laws, of course reflect the interests of the corporations and the special interest groups, often over those of the citizens. The legislators who are members and support ALEC’s goals are guaranteed the support of the special interests and their money in the next election. Not only does ALEC provide money, but it also provides propaganda support such as letters to the editor of newspapers and op-ed pieces that favor the special interest’s viewpoint - and praise the politicians who support them.  And, ALEC does not thrive on openness as it keeps its agendas, meetings, members, and proposed legislation secret.

Mr. Fair finished by emphasizing again that the voters are at fault,  “ Ignorant voters believe candidate propaganda, and whichever candidate in a race that is the most effective at ‘marketing their message’ wins.  America is a country founded on the principle of self-governance. If we have poor government, it’s our fault. If we have too much money in politics, it’s our fault. It’s time Americans took responsibility for the mess we call our government and quit blaming the system. ” He says,  “ First, don’t just swallow a candidate’s  propaganda without researching the facts. Stay engaged in your government at all levels 24/7/365. Second, hold elected officials and our government accountable. Trust, but verify. Once elected, watch what they do and not what they say.’’

Mr. Fair is right that much of the influence of money in politics could be overcome if voters were more informed, but they can’t research everything they read in the paper or hear on television. It is unrealistic to ask, as he does, that citizens spend 24/7/365 working to ensure that what they read is true. Only politicians and pundits have that kind of time to spend on politics.

Justice Stephen Breyer, writing for the minority, said the decision “understates the importance of protecting the political integrity of our governmental institutions. Today’s decision eviscerates our nation’s campaign finance laws, leaving a remnant incapable of dealing with the grave problems of democratic legitimacy that those laws were intended to resolve.” It is too bad that some Republicans see money as a way to gain power and the spoils of power, rather than seeing it as an impediment to democracy, which it is.

Frank Kennedy, in a post in the Tulsa World summed it up quite nicely,” Freedom of speech, guaranteed in the First Amendment, is not unqualified: one cannot falsely yell fire in a crowded theater. Nor should corporations and billionaires, under the guise of free speech, be able to nullify the concept of one man, one vote with mountains of cash to politicians. It is the job of the Supreme Court to decide among contending rights which have priority. This time the Roberts court got it wrong.” Again.

(c) 2014 J.C. Moore

Where Do Our Tax Dollars Go?

Fri ,21/03/2014

The federal debt has been one of the most divisive issues in Congress, leading to cuts in public welfare, near default on our debts, and a sequester agreement which has hurt almost every segment of our economy. Yet, we have not adequately addressed two of the largest expenses, which could be reduced without sacrificing our security or our safety net programs.  The graph below reports the way our country spends its money.

spending

Interest on the public debt is one of our largest expenses and one that could easily be addressed. That could be addressed by restoring a progressive tax rate, by cutting tax loopholes,  and by removing subsidies to profitable industries and the wealthy. Congress cannot seem to act on raising taxes as many of the Legislators have signed on to Grover Norquist’s pledge not to raise taxes.  Senator Tom Coburn, in his Back in Black report , has identified many of the porkbarrel programs that could be cut if Congress had the will to do so.

The second area could be cut is military spending. The graph below shows the military spending by country. The United States spends five times as much as any other country, and as much as the next 10 countries put together on defense. We certainly need to defend our country, however, we still invest a tremendous amount of money in military hardware which is mostly useless against our greatest threat, which is terrorism. Why do we do so? President Dwight Eisenhower warned us in his farewell speech,

My country wants to be constructive, not destructive. It wants agreement, not wars, among nations.  In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex.”

Defense

The military–industrial complex refers to the policy and monetary relationships which exist between legislators, the armed forces, military contractors, and the military industrial base that supports them. These relationships include political contributions, political approval of military spending, and lobbying to support military bureaucracies and weaken oversight of the industry. We have not followed Ike’s advice, as we have allowed the military-industrial complex, in the name of providing security, to gobble up a large share of our national spending. We need to shift our resources to intelligence and diplomacy to combat terrorism, and away from the much more expensive, and much less necessary, conventional military spending.

It should be possible to eventually reduce our expenses for social programs, but not while we are still recovering from a recession which has greatly increased the need for public assistance. To justify that I will quote Eisenhower again:

To blend, without coercion, the individual good and the common good is the essence of citizenship in a free country. Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.” 

(c) 2014  J.C. Moore

More on ALEC

Tue ,25/02/2014

This is a continuation in the series  Who Is ALEC ? and Academic Freedom and Democracy – ALEC Style, as it is important to keep the light on ALEC. On the surface, the American Legislative Exchange Council provides model legislation for state and national legislatures. Its membership boasts 300 corporations and special interest groups, and about 2000 state legislators, governors, US Congressmen, and US Senators. ALEC sponsors meetings where corporations and their representatives entertain our legislators and help craft “model legislation”. From the corporation’s viewpoint, it is “dream legislation” – and ALEC is the organization that helps their dreams come true. What corporation wouldn’t want legislation designed to limit liability, provide subsidies, weaken regulations, criminalize whistleblowing, lower taxes, provide an edge over competing technologies, or to transfer public funds to them by privatizing education, health care, workers comp, public pensions, and prison systems?

About 1000 model bills are available from ALEC. Legislators can copy the bills, change them to disguise their source, and present them as their own. Most voters, the press, and even legislative colleagues often do not realize that the legislation came from ALEC. ALEC’s hidden hand was exposed when a Florida lawmaker introduced a resolution urging “Congress to Cut the Federal Corporate Tax Rate” that carelessly included ALEC’s mission statement. Sponsoring ALEC legislation insures politicians they will receive support for reelection campaigns. ALEC’s legislation is supported by biased research, talking points, and slick ads to convince voters that the politicians are really looking after their best interests. 

 The press, average citizens, and small business owners are excluded from ALEC by steep fees and screening to insure harmony with ALEC’s mission. An elaborate system insures that information cannot be obtained by Freedom of Information Act requests. Much of ALEC’s secret activity is coordinated through Americans for Prosperity, a Libertarian think tank, which now has offices in all 50 states. ALEC takes great pains to keep secrets, as several corporations have withdrawn when their participation was discovered. Clearly, transparency and full, honest disclosure is need.  However, ALEC has 401(C)3 status, which makes it tax exempt and allows it to hide its agenda and the identity of donors. Although ALEC claims it is not a lobbying group, it is hard to see how claiming they are “coaching” and “educating” legislators exempts them from laws requiring disclosure of lobbying activities.

ALEC’ s most shameful activity is attempts to suppress the votes of those not likely to support its agenda – the poor, the elderly, minorities, college students, and working people. Paul Weyrich, the founder of ALEC, once explained why, saying “our leverage in the elections goes up, quite candidly, as a number of voters go down.” One of ALEC’s favorite tactics is to accuse detractors of being leftists or liberals to discredit them with religious groups and Conservatives. However, the network of think tanks and donors that support ALEC are not Conservative, but Libertarian, and their low regard for the for the truth  or the poor or is hardly Christian.  Citizens United gave corporations a large voice with their money, but it could not give them a heart or a soul.

 According to  Bill Moyer , ALEC is undermining our democracy. The strength of the United States is its unity. Corporations, through ALEC , Libertarian think tanks, and the far right wing of the Republican Party, are working to destroy that unity so they can escape regulation and avoid taxes. We live in a country with enough resources to insure that every citizen has food, shelter, medical care, education, and an opportunity to contribute back to society. That won’t happen as long as our legislatures are willing to let some citizens go without so others can have more. The best situation is a balance in power between business, labor and government. However, modern-day Libertarians want to give all the power to businesses, claiming that businesses making decisions in their self interest will lead to the most good for everyone, but the reality is that it makes the most good for the already wealthy.

Aristotle, the Pope, and Income Inequality

Thu ,02/01/2014

 

Aristotle, when comparing forms of government, pointed out some of the problems in a democracy. When the poor gain too much power, they will enrich themselves out of the public treasury and the nation will become poor. If the wealthy gain too much power, then the nation will become an oligarchy and the poor will suffer. Oligarchs insist that citizens be treated differently based on wealth, and they argue that wealth is a sign of virtue and merit, and that the poor are poor because they lack those qualities.  Aristotle concluded that: “A large middle class is absolutely essential for a stable and well-run government because the middle class do not covet rule, are not envious, foster friendship because of their similarity, and can act as neutral arbitrators between the rich and the poor.” –  Aristotle’s Politics

There is ample evidence that the middle class in United States has declined sharply, while the country has moved toward oligarchy, allowing the wealthy to enrich themselves at the expense of the middle class, the poor, and also the nation. The chart below shows how the income is now divided in the United States, with the top 1% owning 38% of the wealth and the top 20% owning 82% of the wealth. Not only is the distribution of wealth much worse than what people consider ideal, it is even much worse than what they think it is.

Wealth in Amer 2

According to Senator Bernie Sanders:

“While the very rich get richer, the middle class continues to disappear and we now have more people living in poverty than ever before.  Despite huge increases in technology and productivity, tens of millions of workers are finding it harder to feed their families, pay for health care, send their kids to college or put aside savings for retirement.” In recent years,  95% of all new income has gone  to the top 1%, we have seen a huge increase in the number of millionaires and billionaires. While the average American is increasingly unrepresented in  the political process, the very wealthy are spending hundreds of millions of dollars to justify their wealth and to convince voters to elect candidates who will further their interests.”

The  wealthy consider the money an investment which has paid off handsomely. It has bought tax breaks, loopholes, and subsidies. Many wealthy Americans are even reaping the lions share of many federal programs that were intended to help the poor and disadvantaged. 

Trickle Down economics  is behind the redistribution of wealth that began during the 1980’s, as shown in the chart at the right. Super rich incomeWhen President Reagan came into office in 1980 the top tax rate was 60%, a rate which the wealthy thought was much too high. Arthur Laffer developed the supply side arguments that led to taxes being cut using the Laffer Curve . Mr. Laffer convinced the Reagan Administration that lowering the tax rate would give the job creators more money to invest, which would stimulate the economy and lead to greater tax revenue. Reagan cut the top tax rate to 28%, which put more money in the hands of the wealthy, but little of it trickled down. The economy grew at 3.5%, a lower growth rate than when tax rates were higher, the wealthy got wealthier,  and the national debt almost tripled. The graph at the right shows a narrowing of the income gap when the Clinton administration raised taxes and a widening gap after the 2003 tax cuts.  

Following Laffer’s trickle down theory put the U.S. on a slow spiral into debt,  austerity, and income inequality. Tax rates are now clearly too low  and, according to the Laffer curve, raising taxes should stimulate the economy. Certainly, raising taxes sufficiently would end our national debt problems and the shameless practice of using the national debt for political purposes. However, Congress thinks the problem is that we have not cut taxes enough, and Paul Ryan has proposed a Congressional budget that would further decrease tax rates. Paul Ryan has proposed  reducing the top tax rate to 25%. The nonpartisan Tax Policy Center estimated Ryan’s budget would add $5.7 trillion to the deficit over the next decade and would increase the after-tax income of the top 1% of citizens by 18%.  His budget is a case of ideology trumping practical economics.

 Jobs: Congressman Ryan is still working under the assumption that trickle down economics works, and he argues that further tax cuts would create jobs. That argument is discredited by Nick Hanauer, a billionaire who has helped start many companies. He explained on Ted.com that the rich aren’t the job creators, as job creation now comes from demand, and the demand would come from a large  numbers of middle class consumers, a person making 1000 times as much as the average citizen does not buy 1000 times as much stuff. When someone calls themselves “job creators”‘, they are making a claim as Aristotle pointed out, on their virtue – the status and privileges they think they deserve.  Mr. Hanauer says the 15% taxes that capitalists pay on interest, dividends, and capitol gains and the 35% the ordinary citizen pays on their job earnings is hard to justify. He points out that of the inequality has been justified by the fallacy that ” as taxes on the rich go up, job creation will go down”. His data shows the opposite to be true. Tax vsjobsHe concludes that demand grows the economy, and taxing the rich to pay for investments that benefit all is the best thing we can do for the middle class, the poor, and for the rich as well.

The Pope recently spoke about the problem of economic inequality as it is worldwide. Many countries are in debt because of policies that favor the rich, and the remedy is too often austerity programs that hurt the poor. In his recently published Exhortation, Pope Francis warns the world against the idolatry of money and the false promise of trickle-down economics.
“Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about great­er justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system.”

 ”While the earnings of a minority are grow­ing exponentially, so too is the gap separating the majority from the prosperity enjoyed by those happy few. This imbalance is the result of ide­ologies which defend the absolute autonomy of the marketplace and financial speculation.”" Con­sequently, they reject the right of states, charged with vigilance for the common good, to exercise any form of control.  To all this we can add widespread corruption and self-serving tax evasion, which have taken on worldwide di­mensions. ” In this system, which tends to devour everything which stands in the way of in­creased profits, whatever is fragile, like the envi­ronment, is defenseless before the interests of a deified market, which become the only rule.” – Pope Francis

The IMF: Clearly, there are both sound economic and moral reasons that countries need to act for the common good by correcting income inequality. While the Pope acts to change hearts, the countries’ leaders need to act to make fairer economic policies, raise taxes, and cut out loopholes. The Guardian of financial orthodoxy, the International Monetary Fund, typically calls for nations in difficulty to slash public spending to reduce their deficits. But in this year’s Fiscal Monitor report, subtitled “Taxing Times”, the Fund advanced the idea of “taxing the highest-income people and their assets to reinforce the legitimacy of spending cuts and the fight against growing income inequalities.” There is both a moral and an economic imperative to do so.

(c) 2014 J.C. Moore

 

Climate Change: A Letter to Congressman Lucas

Sat ,07/12/2013

This is a letter I sent to Congressman Frank Lucas (R – OK) on August 5, 2013. I asked him at his town hall meeting on November 7, 2013 if he had received it, and he could not recall it. It was a 15 page letter which contained anecdotal evidence plus the latest evidence from climate research in full color pictures and graphs. In case he misplaced it, I have reproduced the letter here in hopes he might run across it while looking for my write-up on his town hall meeting. It would seem that this information would be of vital interest to him as he is Chairperson of the Agriculture Committee, charged with the security of our food supply. 

 

Dear Congressman Lucas,

I’m sure you’re aware of the Pearson drought index which shows that most of Oklahoma, much of the Southwest United States, and much of the Earth’s land area where food is grown  is under moderate to severe drought conditions. It seems that lately the coastal areas of continents have been receiving more rainfall while the interiors have been experiencing more drought. I’ve lived in Oklahoma most of my 70 years and in my recollection, it seems that we are now seeing heavier rains in the spring and longer and more frequent droughts in the summer.

  My family has lived in Oklahoma since statehood and I have a number of anecdotes about how the climate is changing. Our Thanksgiving family photo in 1998 was taken in front of one of my Dad’s apple trees, which still had green leaves. He remarked at the time that he had never seen frost come so late, and he was 88 at the time. A few years ago our plant hardiness gardening zone was changed from a 6 to a 7, acknowledging later frosts and warmer winters. Armadillos are now abundant in Oklahoma, though there were none here when I was growing up.

 Anecdotes do not serve as proof, but they do raise questions about what the theories and evidence is saying. The greenhouse gas theory is solidly based upon the laws of physics. Though greenhouse gases comprise only 1 to 3% of the atmosphere, depending on the humidity, they are responsible for the Earth being about 33°C warmer than its would be without them. It seems reasonable that an increase in the greenhouse gases would cause the Earth to warm. Though water is by far the most abundant greenhouse gas, its concentration in the air is limited by its saturated vapor pressure. Carbon dioxide, though less abundant, absorbs strongly in the infrared and is not restricted in concentration as water is. Studies of the ice ages have identified carbon dioxide and changing solar irradiance as being the main factors in determining the Earth’s temperature.

 We are now putting about 30 billion tons of carbon dioxide into the air each year and measurements show that the concentration in the air is increasing. The increasing partial pressure of CO2 is causing more to dissolve in the oceans, decreasing their pH by about 0.1 pH unit.  That doesn’t sound like much, but the oceans are a carbonate buffer system and that translates into the oceans now being more than 20% acidic, threatening, shellfish, corals, and the plankton which convert much of the ocean’s carbon dioxide back to oxygen.

Biologists have observed that some species are migrating northward and to higher altitudes. There is evidence that glaciers are receding and that ice at the poles is declining. The declining extent of sea ice in the Arctic seems to be affecting the jet stream, which greatly affects our weather patterns. Though it is not possible to prove that global warming is the cause of any one weather event, it likely has an effect on most of the weather events that do occur, since the amount of energy and moisture in the air are the main determinants in weather events.

 There are always uncertainties in scientific measurements, and even greater uncertainties in predictions about the future. It is always possible to dispute any one piece of evidence based upon those uncertainties, but when a large number of independent measurements lead to a similar conclusion, the confidence level increases – but never reaches 100%.  I hope you will examine the evidence presented in the rest of this letter and agree that the preponderance of the evidence shows that we should take some action to address climate change.

 Republicans have a history of being strong advocates for science, environmental responsibility, and sound fiscal policy. Nixon created the EPA, Reagan signed the Montréal protocol limiting fluorocarbons and used cap-and-trade to reduce greenhouse gas emissions blowing into Canada, and archconservative Barry Goldwater once said that, ” The persistent myth that conservation and environmental protection are liberal causes continues to be perpetuated by the media, liberals and many self-professed ‘conservatives’. The truth is that conservation and environmental stewardship are core conservative values”.

 I hope you will examine the evidence presented in the rest of this letter and consider taking a leadership role in addressing the climate change issue in a manner that is consistent with Republican principles. In many ways, the world’s food supply is at risk.

The rest of the letter contained the images and descriptions from this article: http://jcmooreonline.com/2011/08/31/bits-and-pieces-10-global-warming-in-pictures/.

(c) 2013 J.C. Moore

Laffer Economics: The Long Spiral into Debt

Wed ,28/08/2013

The Laffer Curve: Laffer economics, or supply side economics, is based on the idea that cutting taxes will provide more money for investments and job creation. That in turn should increase economic growth, resulting in an increase in tax revenue. The idea was not new to Arthur  Laffer, but he used it to greatly shape the United  States’ economic policies during the Reagan Administration and to this day.  Laffer used the curve  below to argue his case:

LafferIt is based on the idea that at a zero tax rates, the government collects no taxes – and at a 100% tax rate,  the economy would collapse, resulting in zero tax collected.  If taxes are too high, then cutting them will cause a move to the left on the curve, toward higher tax revenue. The top tax rate when Reagan came into office was 60%.  Laffer used his curve to convince the Reagan Administration that lowering the tax rate would move the country to the left on the curve, stimulating the economy, and increasing tax revenue.  Did it work?

Empirical data: Laffer, and those favoring  supply-side economics, often point to the 3.5%  growth in GDP during the Reagan years as validating their theories. However, the GDP growth was less under Reagan and George W. Bush, when tax rates were low, than under administrations where the tax rates were higher.  The table below compares economic indicators among administrations:

President Top Tax Rate  GDP Growth  Job Growth    Public Debt
D. Eisenhower 90% 4% 7.20%      +14.9% GDP
Ronald Regan 28% 3.50% 16.40%        +7.1% GDP
Bill Clinton 39.60% 3.90% 19.60%       -13.6% GDP
George W. Bush 35% 2.50% 1.40%        +5.6% GDP
Source Historical CBO Records Bureau of Labor        CBO

Laffer was certainly wrong about tax cuts leading to GDP growth and increasing tax revenue. Certainly, the public debt grew substantially when taxes were lower. Public debt was high during Eisenhower’s administration because of war debts and because he built the interstate highway system that accelerated economic growth under following administrations.

What went wrong?   Basing economic decisions on Laffer’s theory involves accepting the assumption that tax rates are the main factor driving economic growth, an assumption not borne out by the empirical evidence. Also, Laffer did not present evidence showing that the maximum in his curve was at 50% . Some economists argue that the curve should  actually look like this :

Laffer2

If that is the case,  cutting the tax rate from 60%  would not necessarily stimulate the economy, but certainly would decrease tax revenue, as happened.  Taxes need not be as high as the optimum rate,  but they should be high enough to pay the country’s debts .

Recent tax cuts: Despite its failures, Congress is still trying to justify tax cuts using Laffer’s Theory. A recent survey of 40 economists found that not one agreed with Mr. Laffer that reducing the top tax rate would lead to economic growth over the next five years. A University of Chicago poll  taken in 2012 found that of 40 leading economists, not one agreed with the statement: “  A cut in federal income tax rates in the US right now would raise taxable income enough so that the annual total tax revenue would be higher within five years than without the tax cut. “  The results of the survey is listed below:

Laffer survey

  Still, Paul Ryan has proposed  a budget that would reduce the top tax rate to 25%. The nonpartisan Tax Policy Center estimated Ryan’s budget would add $5.7 trillion to the deficit over the next decade and would increase the after-tax income of the top 1% of citizens by 18%.  His budget is a case of ideology trumping practical economics.

 State tax cuts: Arthur Laffer now sits on the Board of Directors of the American Legislative Exchange Council (ALEC).  One of  ALEC’s  goals  is to pass laws at the state level which allow wealthy citizens and corporations to avoid regulation and taxes.  Laffer’s research has been used by members of ALEC to try to justify state tax cuts by claiming  that the nine states that have no income tax had the highest rates of job creation, as shown in his chart below:

 

Laffer5

 It looks impressive, but most of the growth was in Texas and in a carefully chosen time period when job growth was strong because of oil revenues and population growth.  Besides carefully picking his data, Laffer also ignored other economic indicators - and didn’t do a comparison with high tax states. If Laffer were correct, the nine States  with the highest income taxes should have failing economies. However, that is not the case, as shown below:

 

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  The nine states with high income taxes had higher economic growth , a much smaller decline in household income, and almost exactly the same unemployment rate. Laffer’s research was biased and would never stand up to peer review, yet many states have used it as a justification for income tax cuts for the wealthy.

 Summary: Laffer’s theories are highly popular with the wealthy who want to lower  their income taxes, and with those who want to reduce the size of the Federal government.  While Arthur Laffer may be charismatic, his theories are not borne out by empirical evidence and we should not make economic decisions based upon his theories or his articles. While money may trickle down, it flows upward and pools at the top.  Cutting top tax rates has led to a more regressive tax structure, shifting more of the tax burden to sales taxes, property taxes and a myriad of government fees. Following Laffer’s economics has led to a great disparity in wealth in United States and a crushing national debt.  Arthur Laffer’s legacy is not economic growth, but a long spiral downward into debt and austerity and a tremendous increase in the number of poor Americans. Forbes put it best a couple of years ago - ”Economist Arthur Laffer has had a long, distinguished career. Unfortunately one of the things that has distinguished it is that he has often been extremely wrong.”

 

Bits and Pieces 14: Misinformation Trumps Facts on the Economy

Fri ,23/08/2013

  • There has been a tremendous amount of worry about the US deficit, but most of it is stirred up by propaganda that ignores the economic data. Here is what the Nobel prize-winning economist, Paul Krugman, had to say about the deficit.
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Here is the data that shows what he means.

 

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The Motley Fool reported on a recent Google consumer survey which asked the question, “How do you think the US Federal Government’s yearly budget deficit has changed since January 2010?” With 665 responses from around the country spanning a wide variety of demographics, here’s what it found. Respondents thought the deficit had:

Increased a lot      41%

Increased a little   14%

About the same     24%

Why are so many people getting it wrong? They get misinformation from their Congressional Representatives, who should know better. Many of the Representatives  probably do, but why tell the truth if misinformation works to their advantage?

(c) 2013  J.C. Moore

Who Is ALEC ?

Mon ,15/07/2013

On the surface, ALEC is the American Legislative Exchange Council, an organization that provides model legislation for our state and national legislatures. The membership of ALEC is composed of 300 corporations, a number of special interest groups, and many politicians including about 2000 state legislators, governors, US Congressmen, and US Senators. ALEC sponsors meetings where the corporations and their lobbyists entertain the legislators and help craft what they call “model legislation”. From the corporation’s viewpoint, it is “dream legislation” – and ALEC is the organization that helps their dreams come true. What corporation wouldn’t want legislation designed to limit their liability, give them subsidies, shield them from regulation, criminalize whistleblowing, lower their taxes, provide them an edge over competing technologies, or to transfer public funds to them by privatizing health care, workers comp, public pensions, and prison systems?

The press, average citizens, small business owners are excluded from ALEC’s membership and their meetings.  There are steep fees to join, except for legislators, and ther are requirements to insure that members are in harmony with ALEC’s mission. They try to keep keep their membership, agendas, and minutes of their meetings from public scrutiny and most information about them is gained from leaks. An elaborate system has been set up to see that information cannot be obtained from legislators by Freedom of Information Act requests. Often, legislators meet with CEOs and corporate representatives, while citizens gather across the street to protest corporate greed. Much of ALEC’s secret activities are coordinated through Americans for Prosperity, a Libertarian think tank that now has offices in all 50 states.

Over the years, about 1000 model bills have been written, primarily by corporate lawyers with some input from legislators. State legislators copy these bills, change them to disguise their source, and present them as their own. It is like plagiarism with the author’s permission or copying someone elses homework rather than doing the necessary research. The legislation does not arise out of the needs of the state or the nation, but from the need of the corporations to increase their profits. The members of ALEC take great pains to keep the process secret and a number of corporations have withdrawn from ALEC over bad publicity when their participation was discovered.

With so many lawmakers involved, it is hard to keep secrets, particularly when many legislators are proud of their corporate relationships. And then, Murphy’s Law sometimes exposes ALEC’s hidden hand. A Florida lawmaker, Rachel Bergen, introduced a resolution to lower corporate tax rates, but was rather embarrassed when she forgot to remove the mission statement of ALEC.

 

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Oops, the wording was hastily corrected, but the mistake alerted the press to the source of the proposal. Thom Hartmann took note of this error and proposed that all legislation that came from ALEC  should have a similar disclosure. How would it look if a House Bill to approve the Keystone XL pipeline came with this disclosure?

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Would a law to gut Wall Street regulation and the Consumer Protection Act pass if it came with this disclosure?

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Congress has voted 37 times, at last count, to repeal the Affordable Care Act. Would that motion carry again if the bill had this disclaimer?

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Probably. Many politicians have more loyalty to those who fund their campaigns than to the citizens. Supporting ALEC legislation carries an understanding that by sponsoring their bills, politicians will receive support for their reelection campaigns. ALEC’s legislation is supported with biased but academic sounding research, talking points, and slick ads to convince voters that the politicians are really looking after their best interests. Most voters, the press, and even legislative colleagues often do not realize that the legislation came from ALEC.

Clealy,  transparency and full and honest disclosure is need.  However, ALEC has 401(C)3 status as a charity, which makes it tax exempt and hides its motives and the identity of its donors. Although ALEC claims it is not a lobbying group, it is directly lobbying our state and national legislatures while getting around laws that limit lobbying and require disclosures of lobbying activities. One of the most shameful of ALEC’ s activities are attempts to suppress the votes of those not likely to support their agenda. Paul Weyrich, the founder of ALEC was once captured on tape, as shown at 3:49 in this video, explaining that he didn’t want everyone to vote, saying “our leverage in the elections goes up, quite candidly, as a number of voters go down.” That was a long time ago, but Alec is still supporting voter suppression laws that make it more difficult for the poor, the elderly, minorities, college students, and working people to vote.

Though mainly supporting corporate interests, ALEC legislation often gives a nod to religious groups and to conservatives to win their support. One of its favorite tactics is to accuse detractors of being leftists or liberals to discredit them with conservatives and Christians. However, the network of think tanks and donors that support Alec are not Conservatives, but they are Libertarians . It is also hard to see how an organization that has such little regard for the poor or for the truth can be considered Christian.  Citizens United may have given corporations a large voice with their money, but it could not give them heart or a soul. Besides hiding their funding sources, their agenda, and the identity of those supporting them, ALEC, according to  Bill Moyer ,  is undermining the principles upon which the United States was founded.

The strength of the United States is through its unity. However, Libertarians have been working very hard lately, through ALEC , their think tanks, and the far right wing of the Republican Party, to destroy that unity so they can escape regulation and avoid taxes. We live in a country that has enough resources that we could make sure that every citizen has food, shelter, medical care, education, and an opportunity to contribute back to the society. But that won’t happen as long as Congress follows the wishes of those who are willing to let other citizens go without so they can have more. The best situation would be to have a balance in power between business, labor and government. The modern-day Libertarians want to give all the power to the businesses. Their overarching philosophy is that businesses who make decisions in their self interest will lead to the most good for everyone, but the reality seems to be that it makes the most good for the wealthy.

(c)  2013 J.C. Moore

Debt and Taxes in Pictures and Graphs

Sat ,09/03/2013

We all have different ideas about what is a fair tax policy and a fair distribution of wealth.  Below are some pictures and graphs  which  show that conventional wisdom may not give us a clear picture of the facts – and that we may need to reconsider what is actually fair.

State Taxes: Last year, Oklahoma cut  state taxes and is considering another tax cut. The graph below is the data for Oklahoma from the Institute on Taxation and Economic Policy .  It shows that those in the lowest income group pay the highest percentage  of their income in taxes.  The 2012 Oklahoma tax cuts skewed the distribution even more, as 75% of the tax cuts went to the top 20%  in income.  You may look  up the data for your state at the link above. The tax cuts in Oklahoma, and perhaps in your state, were justified by using Laffer’s economic theory, though the theory apparently fails in practice.

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Distribution of Wealth:  The graph  below compares what people consider the ideal distribution of wealth, with how they think wealth is distributed. Both are very different from the actual distribution of wealth. Taxation and spending policies have greatly contributed to this distribution of wealth.

 

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National Debt:  Taxation and spending policies greatly affect our national debt. The graph  below, from the CBO, shows how the surplus projected in 2001, the top red line, was decreased by the weakening economy, tax cuts, and spending decisions. The stimulus accounted for  6% of the decrease and Obama’s policies for 8%.

 

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Tax Rates: This chart gives some historical perspective on the top marginal tax rates. Those in the top  income bracket     have been enjoying the lowest tax rates since World War II.

 

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Spending:  The conventional wisdom is that our current deficit is because of  increasing government spending. That is not borne out by the data.

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The Deficit: Though there have been many claims about our growing deficit,  the deficit has actually been shrinking as a share of the GDP.

 

Deficit Obama

 

Ancient Wisdom: Aristotle thought that nature, and even politics, could best be understood by observations and reason. In the fifth century BC, Aristotle compared the democracy in Athens with other forms of government and warned against a major flaw in democracy. If the poor gain too much power, they will vote too many benefits for themselves and will deplete the treasury.  If the rich gain too much power,  they will use that power to further enrich themselves, leaving too many of the citizen’s poor. Aristotle thought democracy was only a viable form of government if there was a strong middle class.

Economics is not the only issue in most elections, and many people vote for a candidate based on social issues, sometimes without considering that  the candidate may make decisions against their best economic interests. Perhaps it’s time we put divisive  social issues aside for awhile, and work on restoring the economic balance in our society. Our education system, our infrastructure, our health, and our economic well-being all depend heavily on our taxation and spending policies. Although economic imbalance may be becoming a threat to our democracy, that can be changed if we will become informed and

 

Vote

 

(C) 2013 J.C. Moore