The Filibuster Blues

Posted on November 27, 2012 by billmanzi

Republicans are screaming bloody murder over the potential rules changes on the filibuster being proposed in the U.S. Senate by Harry Reid and the Democrats. A look at the actual proposal shows that it honestly does not amount to a hill of beans, and the Republicans are likely screaming bloody murder in order to make sure that the proposal does not actually go any further. As we take that look we also shockingly find a substantial amount of hypocrisy on this issue from both Mitch McConnell and Harry Reid. I am sure you are as shocked as I am.

Majority Leader Harry Reid has proposed that the filibuster be ended only for motions to bring bills to the floor. The filibuster would remain for the consideration of the bills themselves. Yes you heard that right. The filibuster is being deployed in order to stop the Senate from actually considering bills. Reid’s proposal will leave in place the ability to filibuster the bills themselves, and will not reduce the votes needed to invoke “cloture”. (Stopping the debate). The idea that the filibuster is being employed to stop bills from actually coming to the floor is in my view totally ludicrous. The Reid proposal would also bring back the requirement that those employing the filibuster be required to actually take the floor and speak. I have heard some Republicans actually say they do not have a problem with that (Tom Coburn). I believe that the filibuster should require actual effort, something that is usually absent in the U.S. Senate.

Another Republican objection centers around Reid’s intent to make these rule changes by a simple majority vote, rather than by a two thirds vote. Some of the biggest hypocrisy comes on this question, and it comes from both sides. That hypocrisy, in my view, is one of the fundamental problems with government these days, and shows how little respect is given to the intellect of voters. What we find is that each Party changes their position on these procedural issues depending on whether they happen to be in the majority in the Senate. Many great columns on this in the last few days. Lets look at Ezra Klein’s take on this.

McConnell is referring to the Democrats’ proposal to change Senate rules with 51 votes rather than 67. But his outrage isn’t particularly convincing. As Senate whip, McConnell was a key player in the GOP’s 2005 effort to change the filibuster rules using — you guessed it — 51 votes. As he said at the time, “This is not the first time a minority of Senators has upset a Senate tradition or practice, and the current Senate majority intends to do what the majority in the Senate has often done–use its constitutional authority under article I, section 5, to reform Senate procedure by a simple majority vote.”
Now, Reid, at the time, was steadfastly opposed to changing the rules with 51 votes. He condemned the idea as “breaking the rules to change the rules.” So McConnell isn’t the Senate’s only inconsistent member on this point. But the fact is that McConnell was right the first time: The reason that Republicans believed they could change the rules with 51 votes in 2005 and Democrats believe they can do the same today is that they can.

You remember the “nuclear option”? That was when the Republicans (circa 2005) threatened to end the Democrat’s filibuster rights on Presidential judicial nominations. (The Dems were using the filibuster to block or slow the judicial nominees of President Bush). The Republicans backed off when the “Gang of 14” negotiated an agreement on those nominations. (Lots of “gangs” in the Senate). Bottom line is the Republicans were more than willing to consider limiting filibusters in the interest of moving along some of the business of President Bush. They were frustrated with dilatory tactics by Democrats. Today it is Democratic frustration with Republican obstruction. And to be fair the Republicans have pushed the envelope hard, vastly increasing the utilization of the filibuster over the past two years (over 100 filibusters according to “No Labels”). The Senate just cannot move, and the gridlock is seriously impacting our ability to respond to issues of vital national importance. Reid’s proposal likely does not go far enough, but it is a start. I believe that is true today, and I would have the same position if the Republicans had the majority. Elections have consequences.

And since we are on the Senate the entire ridiculous process of advise and consent on presidential nominees should be streamlined with the idea of giving Presidents the staff they need, and the judiciary the judges needed, without waiting years in some cases for hearings and votes. Anonymous holds ought to be done away with, and the Senate should actually do some work and get these nominees vetted and voted within 90 days. Tell a Senator that and you would likely hear howls of outrage, and how that time-frame could never be met. And the way they work they might be right. Planning fundraisers, attending lunches, starting work late and leaving early makes it quite difficult to get any real work done. Our dysfunction in the Senate is not entirely due to filibusters, but also has plenty to do with the aversion to work shown by so many Senators. Can you imagine any entity, faced with the fiscal problems coming due on December 31st, leaving for holiday vacation? Spare me the nonsense about staff negotiations continuing during the Thanksgiving break. They are not engaging in serious work despite the pressure facing us as a country. It has become so standard that they are not even criticized for it any longer. That constitutes my Senate rant.

Some pretty good coverage of the filibuster issue for the last few days. All you ever wanted to know about the filibuster:

Ezra Klein takes on Mitch McConnell.

The Caucus blog over at the New York Times looks at the filibuster dispute.

Politico looks at the Republican threats over the filibuster rule change.

The New York Times gives some historical perspective, including the willingness of both sides to “fill the tree”, a euphemism for denying the minority opposition the right to offer amendments to bills. That is a major bone of contention between Reid and McConnell, as Reid has “filled the tree” on more than a few bills. Just as his Republican predecessors have done.

The new website of a group of Democratic Senators, including Elizabeth Warren, that are advocating for “filibuster reform”.

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Happy Birthday Joe DiMaggio

Posted on November 25, 2012 by billmanzi

One of the all time baseball greats was born on November 25th, 1914. DiMaggio broke the hearts of Red Sox fans for many years, and was one of the greatest players in baseball history. His marriage to Marilyn Monroe captivated the nation, and though he is gone his legacy lives on. He holds the record for consecutive games with a hit at 56, a record that many feel can never be broken. He was immortalized in song as well, by Simon & Garfunkel. And what a great song it is. “A nation turns its lonely eyes to you”!

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Politics, Presidents, and Making the Wheel Turn

Posted on November 24, 2012 by billmanzi

One new David Brooks column on Abraham Lincoln, and a review of Robert Caro’s LBJ books by Thomas Meaney, in “The Nation”, have made for some great Thanksgiving reading. Connected? I think so.

Brooks, in his column, masterfully writes of the inherent contradictions of those who successfully navigate our political system. His focus is Lincoln, and the new Spielberg movie on Lincoln’s life. Brooks talks about the distaste for politics that many feel today, but takes pains to show that much good can come of that craft by showing what a master practitioner can accomplish. I have not yet seen the movie, and have just started reading the Doris Kearns Goodwin book “Team of Rivals” but Brooks hits home some points that need to be made. Brooks talks of the “compromise” our system requires, and he is not speaking of compromising political ideals, but of actually compromising yourself to achieve noble ends. What does he say about Lincoln?

It shows that you can do more good in politics than in any other sphere. You can end slavery, open opportunity and fight poverty. But you can achieve these things only if you are willing to stain your own character in order to serve others — if you are willing to bamboozle, trim, compromise and be slippery and hypocritical.

The challenge of politics lies precisely in the marriage of high vision and low cunning. Spielberg’s “Lincoln” gets this point. The hero has a high moral vision, but he also has the courage to take morally hazardous action in order to make that vision a reality.

To lead his country through a war, to finagle his ideas through Congress, Lincoln feels compelled to ignore court decisions, dole out patronage, play legalistic games, deceive his supporters and accept the fact that every time he addresses one problem he ends up creating others down the road.

Lincoln, as a President trying to achieve a legislative end, (passage of the 13th Amendment barring slavery), had to get into the legislative weeds to achieve success. The legislative weeds are not for the faint of heart, even back then. Brooks points out all of the necessary, difficult things (low cunning)that are required to achieve that legislative success. Brooks references the “need to deal with other people”, and those other people come to the table with all sorts of different agendas. Brooks has it right. It is one thing to speak in moralistically superior tones about “being above that”, but when you hear that nonsense you can usually count on the person speaking it having no legislative accomplishments or experience. Since Lincoln’s time that aspect of this business has not changed all that much. Legislative accomplishment is as much about people as it is about issues, and requires extraordinary time to be put in to fully “understand” those people. Lincoln’s greatness stemmed from his fundamental understanding of people, and how best to utilize others to promote what we all understand today as a morally superior cause. Quite clearly the consensus in Lincoln’s time was not so clear, and his tactics created much angst. Today he would probably be the recipient of some harsh editorial criticism. The old saying that the more things change, the more they stay the same comes to mind.

Proof of that axiom comes by way of Lyndon Baines Johnson, the former Majority Leader of the U.S. Senate, former Vice President, and President. LBJ was a master legislative craftsman, likely the greatest Majority Leader that has ever walked the halls of the Senate. Robert Caro has spent over 30 years researching LBJ, producing some of the greatest books I have ever read. “The Path to Power”, “Means of Ascent”, “Master of the Senate”, and “The Passage of Power”, with the final volume being worked on as we speak. The best of this great group is, in my opinion, “Master of the Senate”, which shows LBJ turning the Senate from a unmanageable legislative body with little by way of achievement into a body that produced impressive legislative results. Those results, more often than not, came from Johnson’s raw manipulation of people and process. Those manipulations included deceiving both the southern segregationist wing of the Democratic Party, as well as the northern liberal bloc. Johnson bent both sides to his will, and moved legislation through the Senate that, without exaggeration, no other man could have done.

The Passage of Power details Johnson’s ascension to the Presidency, and his monumental legislative achievement in moving the Kennedy Civil Rights program through Congress. Caro details how the sausage was made, and while it was not pretty it laid bare the differences in approach to legislating these matters between LBJ and JFK. (I come at this as a JFK man, but the truth is the truth.) Upon assuming the Presidency Johnson quickly identified the timing problems inherent in the Kennedy approach, and swung into action. Timing problem? LBJ had been schooled in the Senate on the knee of the master, Senator Richard Russell of Georgia. Russell, an arch segregationist, had beaten back civil rights legislation in the Senate for decades by slowing the progress of many other pieces of critical legislation, holding them hostage until he had won his inevitable filibuster of the civil rights bill of the session. Russell’s holding of the other legislation was always invisible, with southern committee chairs finding multitudes of reasons nominally not related to civil rights for holding bills up. LBJ, to his chagrin, found the “traffic buildup” in front of the 1963 Civil Rights Bill to be monumental, including most of the annual Appropriations Bills, as well as the Kennedy Tax Cut bill, and Kennedy Education bills, as well as President Kennedy’s nominations that required Senate approval. These “hostages” would not be released until Richard Russell had beaten back yet another Civil Rights bill. Johnson also faced the fact that the Civil Rights bill had not even passed the House in November of 1963. It was stuck in the House Rules Committee, where the Chairman, in concert with his fellow Southerners, was indicating that no action could be taken until January of 1964. Under that time frame LBJ knew what to expect: From “The Passage of Power”:

“We’re going to have to do it now,” he told Katherine Graham in another call. “If we don’t, they’re going to start quitting here about the eighteenth of December, and they’ll come back about the eighteenth of January. Then they’ll have hearings in the Rules Committee until about the middle of March. And then they’ll pass the bill and it will get over [to the Senate], and Dick Russell will say it’s Easter and Lincoln’s Birthday, and by the time he gets them [the civil rights bill], he will screw them to death because he is so much smarter than they are.”

But LBJ, once schooled by Richard Russell, was now the one giving out the lessons. Despite the legislative backup, despite the fact that the Southern legislative general was Richard Russell, and despite having NO TIME, LBJ got all of the bills, including Civil Rights, passed. Like Lincoln LBJ used tactics that many considered deplorable. But he saw the larger moral imperative, and took actions that provided African-Americans with rights that had always seemed out of legislative reach. Without LBJ that day of reckoning would have been delayed, to the detriment of our nation, for some unknown period of time.

Caro relates a conversation recalled by Agriculture Secretary Orville Freeman with Richard Russell in “The Passage of Power”:

“He said that Lyndon Johnson was the most amazingly resourceful fellow, that he was a man who really understood power and how to use it,” Freeman recalls. And then, Freeman recalls, Russell said, “That man will twist your arm off at the shoulder and beat your head in with it.” “You know,” Russell said, “we could have beaten John Kennedy on civil rights, but not Lyndon Johnson.”

The irony of the fact that LBJ rose to power in the Senate largely through the efforts of Richard Russell could not have been lost on Russell.

Legislating is a science, and in Lincoln and LBJ, we see two American giants, flaws and all, achieving great ends by mastering that science. Great ideas and flowing rhetoric win elections. But real progress usually comes through application of that difficult, and compromising, art known as legislating.

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Happy Thanksgiving!

Posted on November 22, 2012 by billmanzi

A very Happy Thanksgiving to all! I hope you enjoy a wonderful day with family and friends. Would it be Thanksgiving without Arlo Guthrie and Alice’s Restaurant?

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Attack of the Pods

Posted on November 21, 2012 by billmanzi

Please don’t ask why this post is here on a political web site! I just love coffee! Some interesting gift ideas.

http://live.wsj.com/public/page/embed-3897AF15_BADE_47B4_AD77_1AD07FE15944.html

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Two Stepping to the Cliff

Posted on November 21, 2012 by billmanzi

The issues involved in the so called “fiscal cliff” have been written about ad infinitum. With the first general meeting held at the White House and all coming out spouting optimistic platitudes the level of optimism has gone way up. But the issues are not only large in quantity but do not lend themselves to quick resolution. There is no question that some of the issues involved are indeed solvable today (AMT Patch, Agreement on Sequester Delay, Agreement to kick the “tax reform” question down the road, payroll tax holiday issue, and the unemployment benefit question). Both sides appear to have settled in on a “two-step” process that would allow delay of as much as possible, with some “good faith” down payment to show everyone how serious they all are about: (pick one)

1) Simplifying the tax code

2) Protecting our Defense Budget

3) Making the rich pay their fair share

4) Solving the Deficit Problem

5) Putting Medicare, Medicaid and (Social Security?) on a “sustainable path” forward.

I do believe that all involved are as committed as they can be to kicking as much of this down the road as possible. The problem comes on the down payment on increased revenues. Both sides are stuck on extension of the Bush tax cuts, and how a “two step” process will treat that problem. It does not seem, from my perspective, that the President can agree to extend, even for the shortest term, the Bush rates for those at the top. The Republicans, in my opinion, cannot agree to what the President needs without some concessions on “entitlements”. There simply is not enough time before December 31 to reach a substantive accord on entitlements.

Of course there are some pretty smart staffers from both teams in the negotiating room, and maybe they will come up with something that solves this problem. One alternative mentioned is shifting the threshold number on the Bush tax cuts from $250,000 to $1,000,000, meaning that only those earning one million and above would be subject to the increase in marginal tax rates. That approach may have some promise, but it still leaves the Speaker with the issue of what he gets in return. And while the President certainly is holding, in my opinion, all the cards on the tax rate issue I had mentioned in an earlier post the issue of the debt ceiling being raised, and how the President would try to incorporate that issue into these negotiations. Politico, in a story yesterday, mentioned exactly that, and pointed to the Speaker’s reluctance on that score. From Politico:

Then there’s the debt ceiling, which is increasingly creeping into the year-end discussion. The nation’s borrowing limit needs to be raised in the first quarter of 2013, according to the Treasury Department. Obama would like to see the debt limit boosted as part of an overall budget deal, say Hill insiders, but Boehner is unwilling to give ground on that issue if he feels Democrats are not really serious about negotiating a compromise.

So the President is not holding all the cards, and raising the debt ceiling just introduces another layer of complexity to an already difficult negotiation. The President is reportedly cool to the idea of just driving over the cliff, but I think, as pointed out in my earlier post, that it may be, for Speaker Boehner, the only viable option. All the noise on driving over the cliff is coming from the Democrats, but it may be Speaker Boehner with his foot firmly on the gas pedal.

http://c.brightcove.com/services/viewer/federated_f9?isVid=1

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New Transportation Taxes Coming.

Posted on November 19, 2012 by billmanzi

With Massachusetts looking at mid year budget cuts due to missing it’s revenue benchmarks, and with transportation scheduled for review in the coming month(s), it appears likely that there will be a strong push by the Governor and the legislative leadership for tax increases in the next fiscal cycle.

The Speaker has left the door open for a tax package by not taking the anti-tax pledge that he usually takes in advance of a session. The Governor continues to call for an “adult conversation” on the way we finance government, and the MBTA and our road and bridge system is badly under-financed. The tea leaves are not that difficult to read, with the only question being which tax vehicle will be brought forth and supported by leadership. I believe that you have to make the gas tax the “betting favorite”, since our transportation system will be one of the major reasons given for the need. Will there be an attempt made to charge people on a per mile basis? The Commonwealth, in a filing with the federal government related to the Green Line Extension, cited several possibilities for new revenues. The federal government has indicated that it will not fund its share of that Green Line extension unless the Commonwealth showed how it would fund its own share. (Total project cost of $1.3 billion, with $557 million picked up by the federal government, and $778 million by the State) Leaving aside the issue of why we are expanding transit with no way to pay for our existing maintenance the Green Line project has forced the Commonwealth to at least list some of the funding possibilities for the future. The State House News Service managed to secure a copy of a letter from the Federal Transit Administration to the State in which these funding sources, previously mentioned as possibilities by the State, were talked about. What were they? From the Metrowest Daily News.

Several “large new, uncommitted funding sources” have been identified by the state for the project, according to the response letter to Davey. They include a proposal for the state to take back the MBTA’s $1.6 billion in debt obligations; a new $.01 per-mile statewide tax on vehicle miles dedicated to the Commonwealth Transportation fund; and the allocation of casino gaming revenues to the MBTA, the letter says.
If those don’t garner support, the state would consider increasing MBTA fares or parking fees, raising the motor vehicle registration renewal fee or the motor vehicle sales tax. The state is also considering “indexing the $160 million annual contract assistance from the Commonwealth to growth in sales tax revenue.” Another plan calls for a “commercial parking tax” or indexing the fuel tax to inflation.

So the Commonwealth is on record as already examining the above listed options. The Governor says that we should just wait for his plan, but where is the fun in that? Edward Glaeser, writing in the Globe, advocated tolling on a per mile basis, with a peak hour pricing differential for Massachusetts roads as a partial funding solution.

I think it is safe to say that there will be a new tax plan based on some combination of the above options brought forward that will be a lifeline to the MBTA, and have as of yet undetermined benefit for non-mass transit transportation. The local Transit Authorities will likely see some benefit in order to try to build some political support statewide, but I believe it will still be a heavy lift politically. But if House and Senate leadership are on the same page politically then you would have to make passage of a new tax package a betting favorite. It should make for a very interesting session.

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No Massachusetts Tax Reductions on January 1, and…..

Posted on November 18, 2012 by billmanzi

The relatively modest reduction in the state income tax rate scheduled to occur on January 1, from 5.25% to 5.2%, will not occur, as the financial yardsticks necessary for implementation have not been met.

As you may recall voters opted to lower the income tax rate from 5.95% to 5% by ballot question, but that lowering was intercepted and modified by the State Legislature. Reductions were conditioned on state revenues hitting benchmarks established by the Legislature, which happened once previously (lowering the rate from 5.3% to the current 5.25% last year). What is that revenue formula? From the State House News Service:

Under the formula, the income tax rate would fall to 5.2 percent on Jan. 1, 2013 if growth in fiscal 2012 inflation-adjusted baseline revenues over fiscal 2011 exceeds 2.5 percent and if, for each consecutive three-month period starting in August and ending in November 2012, there is positive inflation-adjusted baseline revenue growth as compared to the same consecutive three-month period in 2011.

According to state finance documents, Pitter in September certified that fiscal 2012 inflation-adjusted baseline revenues grew by 2.77 percent from fiscal 2011, exceeding the initial trigger for the tax cut.

But in a letter dated Thursday, Pitter said that after revenue growth exceeded triggers for two straight months, baseline revenue fell by 1.29 percent for the three-month period ending on Oct. 31, 2012.

Based on the above the income tax rate for Massachusetts residents will hold at 5.25%. The potential cut was worth about $125 million for the Commonwealth.

Beyond this issues state revenues are falling short of the overall budgetary benchmarks, which will force the Governor to make some mid-year budgetary adjustments to reflect the lower revenue numbers. And the Governor and Legislature are due to deal with the funding issues plaguing the transportation system, especially the MBTA, in the next month or so. That transportation review, and the falling revenue numbers, may mean….. (coming in the next post).

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Tax Expenditures in the News

Posted on November 17, 2012 by billmanzi

What more exciting subject could there be besides “tax expenditures” to write about today? I can think of nothing else that I would rather do over this weekend than study the new report from the Massachusetts Taxpayers Foundation on Massachusetts tax expenditures. Lets dive right in.

As budgets become tighter and tighter these so called tax expenditures are being examined everywhere. As a candidate for elective office this past year it was a major issue in my race, with all of the primary candidates from the Democratic side, myself included, pledging to examine such expenditures in the state budget and eliminate those that did not make sense. These so called tax breaks for larger corporations, in many cases ostensibly given to protect jobs, have been creating controversy for some time. Take a look at this from the Boston Globe in 2010.

The Great American Jobs Scam,’’ a book by Greg LeRoy, executive director of Good Jobs First — a Washington-based non-profit that promotes corporate accountability in economic development — chronicles what happened in 1995 in Massachusetts. That’s when Lexington-based defense contractor Raytheon Corp. threatened to move its defense operations out of the state if it didn’t get an extensive package of tax cuts. With about 16,000 Raytheon jobs on the line, along with thousands of other industrial jobs when the tax break was extended to other firms, lawmakers bought the spin that this was “a jobs package, not a Raytheon package.’’ Within five months of getting what it wanted, Raytheon offered buyouts to 4,400 workers. Two years later, the company had reduced its Massachusetts headcount by 4,100 people. Since the 1995 law said the company had to sustain its dollar payroll, not its headcount, Raytheon was free to lay off lower-paid production workers and replace them with higher-paid, white-collar workers.

Tax cuts for other companies followed, most notably, for Fidelity Investments, which waited for a job requirements clause in the law to expire before it shifted its workforce outside Massachusetts. Meanwhile, movie producers who film in Massachusetts are getting lucrative tax credits. In return, they provide jobs for a few scant weeks and most of the salaries they pay go to movie stars who live in California or elsewhere.

In 2011 those tax breaks for Fidelity Investments, a company who eventually moved some jobs out of Massachusetts, came under heavy scrutiny. Again, from the Globe:

State Senator Mark Montigny, chairman of the Post Audit and Oversight Committee, noted that the state government has created various tax incentives for one sector after another over the years, ranging from filmmakers to biotech companies to green energy firms. But Montigny said there has been too little follow-up reporting on how much money the companies received and whether they produced the amount of jobs expected.

“It almost seems like the flavor of the month,’’ said Montigny, a New Bedford Democrat. “The one thing that happens is that these tax breaks continue, and in fact accumulate.’’

The Massachusetts Department of Revenue annually produces a “Tax Expenditure Budget” that details these items annually. How do they define “tax expenditures”? From the FY 2013 “Tax Expenditure Budget’ from D.O.R.

Tax expenditures are provisions in the tax code, such as exclusions, deductions, credits, and deferrals, which are designed to encourage certain kinds of activities or to aid taxpayers in special circumstances. When such provisions are enacted into the tax code, they reduce the amount of tax revenues that may be collected. Massachusetts General Laws (MGL), Ch 29, Sec 1 defines tax expenditures as “State tax revenue foregone as a direct result of the provisions of any general or special law which allows exemptions, exclusions, deductions from, or credits against, the taxes imposed on income, corporations, and sales.”

With heightened scrutiny on these items, and with a broad definition of them that includes personal income tax exemptions, as well as sales tax exemptions on top of the corporate breaks given, the Massachusetts Taxpayers Foundation, headed by Michael Widmer, has issued a new report on tax expenditures in Massachusetts. What is in the Foundation report? A very interesting read.

The Foundation lays out, rather extensively, the current numbers for personal income tax, sales tax, and corporate exemptions, and makes a compelling case on the personal and sales tax side that the numbers are not as great as they appear. Under current definition all exemptions together total over $26 billion, but that definition includes the exemption from the sales tax of food and medicine, the exemption from sales tax of real property transactions, and on the personal side the exemption given to pension plan and health care contributions. The essential argument made by the Foundation is that while the numbers appear great there is a lot less to capture than it would initially appear. The argument is buttressed by the fact that the very definition of “tax expenditure” has been modified by the Legislature, and the Foundation paper gives their estimate of what that modification will bring. (Cuts the “tax expenditure” number in half.) As usual it is an outstanding job by the Widmer team at the Foundation on the numbers.

The paper is a must read for those looking to understand Massachusetts tax exemptions on the sales and personal tax side. The real areas of discussion (and controversy) however have taken place on the corporate side of the tax ledger. The Foundation shows annual corporate tax expenditures of $1.3 billion, which is about 10% of the overall total of $13 billion (new formula number). The paper makes the case that about $595 million of that total comes from tax code issues, (accelerated depreciation, apportionment of taxable income for multi-jurisdiction corporations, and loss carry-forwards). They make a compelling case on these three items, but I am not sure yet I agree that accelerated depreciation schedules are a “standard” item. (worth $242 million). “Apportionment” is a complex subject, but I think there are some that would make the case that some additional scrutiny could come on that issue.

The paper zeroes in the remaining corporate tax expenditures after removing the three mentioned above, and shows that number at $416 million.

Research Credit $110.9 million
Film Credit $82.6 million
Investment $56.5 million
All Others$166.1 million

Among these the Film Credit is the only one criticized in the paper. It is a strong candidate, based on merit, for elimination. Whether politics lines up with merit is quite another thing. The research credit, and the investment credit, are dealt with without going too far into the relative merits. The “other” category is simply glossed over, with reference to the 8 credits that comprise this category. Here is the report description of “other”.

Eight other credits comprise $166 million in tax expenditures, ranging from $47.5 million for the historic building tax credit to $500,000 for the conservation land tax credit. For the brownfield, economic development,historic rehabilitation, and low income housing credits, if the property is no longer used for the purpose the credit was intended, the state may require the company to repay its credits. Similarly, for the life sciences incentives, if a corporation’s job targets are not substantially met, a portion or all of the credit must be repaid to the state.

The Foundation mentions in the report that “static scoring” is used on corporate tax expenditures, and that the dynamic impacts of potential job creation and economic activity created by some of the corporate tax breaks are not factored in to the DOR “tax expenditure” scorecard. But I would guess that such a look will be a part of any legislative review of some of these items. It certainly should have been a part of any consideration of the changes when they were made. I think that any further review at the legislative level will include potential sunsets to corporate breaks, as well as a harder look at the dynamic impacts mentioned, and whether they justify the “costs” of the breaks. The Foundation, as mentioned, looked at that type of analysis only for the film tax credit, and showed a hugely inefficient allocation of Massachusetts tax resources. It would be great to see additional data on the corporate side to justify (or not) the other tax breaks mentioned. The Massachusetts Taxpayers Foundation does superb work, and they have great credibility on tax and fiscal issues. As Massachusetts begins to examine the potential for tax increases you can bet some of these corporate tax expenditures will be in the legislative cross hairs. And that cost-benefit analysis will be a key to whether some of them survive.

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Everybody Better Sober Up

Posted on November 15, 2012 by billmanzi

The Democrats have won a smashing victory this past cycle, and with that victory will come great expectations. Naturally there are a whole host of issues that many Democrats feel have been neglected for the past four years, and they will be looking for action. I have a funny feeling that there is going to be some level of disappointment with the results.

The first flash point is the most obvious one, the fiscal cliff. But the cliff is an amalgamation of a whole bunch of separate issues that have managed to converge on us at the same time. The cliff debate has been publicly focused on “revenues”, with the President laying down a marker of a ten year revenue number of $1.6 trillion, and Republicans generically appearing open to some “revenue” through loophole closings. On this matter Democrats and the President hold all the cards, as no action means the rates for everyone go up on January 1. But despite all the focus being on that issue, and only that issue, there is substantially more to be determined. The sequester cuts need to be unwound, with Republicans very concerned about the Defense cuts, but Democrats will be looking to avoid some of the non-defense cuts as well. And for those who believe that the debt ceiling is not part of this mix they better think again. It is a point of leverage for the House, as they will need to vote for any increase. The President will be looking for a larger deficit reduction deal that will have to include the debt ceiling being raised as a part of that package. I can assure you, election or not, that Speaker Boehner will not just be giving up that chip easily.

What else, besides the Bush tax cuts, are at stake? Plenty. Start with the AMT Patch. The Alternative Minimum Tax (AMT) was originally designed to stop top earners from shielding most, or all, of their income with legal federal deductions. As it began to ensnare more people, including middle class taxpayers, Congress has enacted “patches” that protect these folks. What type of numbers are we talking about? Currently about 4 million taxpayers are hit with the AMT. With no “patch” for 2012 that number will climb to 30 million, and would likely hit 40 million within a year or so. Want to give away that new found Democratic majority? Ignore that at your peril.

Treatment of Capital Gains and dividend income will change dramatically. While there is a major impetus for fairer (read: higher) taxes on capital gains and dividends the simple expiration of existing law certainly is not the best way to achieve that. This is a major bargaining chip for the President, but it makes the negotiations with the Republicans a bit more complicated.

So you have major spending cuts, including defense, tax rate increases, AMT Patches, and deficit reduction, including some “entitlement reform”, along with the debt ceiling issue, all rolled into one. And you have some Democrats thinking that the President is just going to snap his fingers and get a package that is 100% satisfactory to Democrats. For people that hold that view disappointment lies right around the corner.

Beyond the fiscal cliff there are of course other priorities that have been neglected. Unions looking for card check? Don’t think you are going to be getting that through the Republican House. Tax reform that further hits business? No chance. Carbon tax? Unless it is part of the fiscal cliff deal you have zero chance of getting it through the House. And to be honest it just will not sell with Republicans, even as part of the fiscal cliff deal.

So I am the skunk at the garden party! Do I see the glass as being half full for any Democratic initiatives? I think that areas where the President can act through his executive authority will bring progress on a host of issues. Legislatively the timing has never been better for comprehensive immigration reform, which will be able to garner Republican votes in the House. Judicial nominations? A big win for Democrats, as the President will be able to nominate judges that will protect and preserve important rights, and will likely share his values over new challenges, including Republican efforts to impose new hurdles on voting rights. In the final analysis, despite the fact that the fiscal deal will ultimately contain items of distaste to Democrats, the issue of the extension of the Bush tax cuts for upper income folks is settled. In favor of the President.

I believe that in his heart of hearts the President is fed up with the constant stream of Republican attacks. As a political matter, no matter how distasteful, we can understand the campaign attacks. But to have the McCain/Graham cabal launch these continuing and bitter attacks on Ambassador Rice after the election leaves the President no alternative but to get tough. And I do not believe, despite his big victory, that he was looking to do that at this point. Bad will begets bad will, and it is a rough way to start the post election interactions between the parties. But that slight dose of bad will will make it that much harder to achieve a common sense compromise on the critical fiscal matters facing the country, and more likely that we will have to go over the cliff before we can reach agreement. I hope I am wrong, but right now it looks like more than a few people in Washington better sober up, and Democrats should be prepared to give the President the room he needs to make the best deal he can.

My earlier post here.

http://live.wsj.com/public/page/embed-EE994540_68DA_4374_81FE_287A76422E5C.html

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