Editorial May 9, 2014

TheWeekinCongress.com

Editorial

“This strange economic mephisto dance would at least dictate caution when making spending decisions…”

Forget everything you think you know about budgeting your household economy. Ditch the concept that has been lingering around since 1993 that Congress should budget the way a family sitting around the kitchen table would do. Here’s one example why; a family with limited revenues will decide where to cut expenses. Government, trying to meet the needs of over 300 million Americans doesn’t necessarily have that option. If the government gives that family a tax break, thereby putting more money on the family’s revenue side, some family problems will be solved. But the tax break that equals more money in the pocket of the family is seen in Federal budgeting as spending because the tax revenue would no longer be in the Treasury.

Public debt, then, should be no surprise when you consider the extensive tax breaks available to most economic brackets are also spending. So we are in a situation where we want to reduce spending; revenues for spending come from taxes; taxes are cut; yet the cuts themselves are spending.

This strange economic mephisto dance would at least dictate caution when making spending decisions and that brings us to HR 4438 considered this week in the House. Here is a bill with reasonable goals; simplifying the process for calculating research tax credits with the idea that the actions will create jobs and stimulate economic growth. The question the bill text explores is will it work? And the answer is, ‘Not sure.’ ‘Not sure’ about a bill calculated to increase the deficit by $156 billion over ten years due to loss of revenue due to the bill’s tax reductions.

The bill text itself says this about the possible outcome if it were to become law; “Studies that have attempted to quantify the effect of research expenditures on factor productivity are also subject to a significant amount of uncertainty. It is difficult to find objective measures of productivity, and of the stock of knowledge created by research expenditures, that can be used in econometric analyses.” Further, the bill states, “Finally, in the short-run, the net reduction in tax receipts resulting from the bill could provide for a small increase in overall demand, thus resulting in some economic growth. In the longer term, the resulting increase in deficits would result in higher interest rates, reducing the positive investment incentive effects.”

What we know about HR 4438, then, is that it will give tax credits.

There is a time to cut taxes (revenues) to stimulate the economy (increasing the tax revenue base) and it was done in the early days of President George Bush with his ‘Bush tax cuts’. We saw a stimulated economy as the result of those taxes being invested. But those who invest such sums are wise to market downturns as are financial advisers. The time comes when those freed up taxes are not invested in a way that stimulates economic growth but are stashed here or there for protection against a market out of control as we saw leading up to the Great Recession in 2008. That was the time to restore those taxes so the government could survive the downturn and help those who were damaged by the economy through no fault of their own…and that would include businesses as well. But the tax cuts remained, shifting the nation’s revenues out of the Treasury into preservation accounts of a relatively small group of taxpayers with wealth.

Taxes are a necessary evil we all disdain but the insistence that if we just keep cutting those taxes the money will eventually end up back in the economy, stimulate it and we will all have what we want is flawed. Such is the thinking, or lack thereof, of HR 4438 which brings to mind an old saying, ‘When told the reason for daylight savings time the old Indian said, “Only the government would believe that if you cut a foot off the top of a blanket and sew it on the bottom you will have a longer blanket.”##

The Justices and the Scramble for Cash

 

By Lee H. Hamilton

 

“The Supreme Court decision seems to be insensitive to what money is doing to the political system.”

 

Hamilton

Hamilton

Many trends in American politics and government today make me worry about the health of our representative democracy. These include the decline of Congress as a powerful, coequal branch of government, the accumulation of power in the presidency, and the impact of money on the overall political process.

Recently, the Supreme Court’s five-member majority declared that it’s unconstitutional to limit the aggregate amount an individual can give to candidates, political parties, and political action committees. Campaign contributions amplify free speech, these justices maintain, and campaign finance laws violate the First Amendment: any limit on the ability of individuals to contribute to candidates is a restraint of free speech. The only legitimate cause for the government to step in is to fight blatant, obvious corruption; it should not act to limit access and influence by well-to-do donors. The result of this decision will almost certainly increase the impact of money on the political system.

The problem is, money doesn’t have to be handed over in an envelope filled with one-hundred-dollar bills to be harmful. The Supreme Court decision seems to be insensitive to what money is doing to the political system.

Big money is here to stay in politics. Those of us who wish it were otherwise have lost that argument — at least for the near term.

But we weren’t mistaken about the impact of free-flowing campaign cash on the system. Politicians need large sums of money to run for office, and they spend a lot of time raising it. They are keenly attuned to generous donors. Inevitably, this gives more political influence to the relative handful of wealthy donors (only a few thousand at best) who choose to “invest” in politics and often, though not invariably, get what they want. The influence of voters without the financial means to command attention is diminished.

Lawmakers, of course, insist that big donors get nothing in response for their contributions except, perhaps, for a little face time. I am skeptical of that claim. Money buys access that people without money don’t get, and access is nothing less than an opportunity to affect legislation. It is a rare politician who can remain entirely uninfluenced by large political contributions to his or her campaign. After all, members of Congress seek assignments to committees that are known to be useful for fundraising, and those wealthy individuals and interests spend large sums on wooing and electing politicians for a purpose: to get public policy favorable to their views and interests.

Over many years both inside and outside Congress, I saw very little outright corruption, but on a frequent basis I could see money’s disproportionate influence on the decisions of government and its distortion of our representative democracy. With their decision the justices may have expanded personal liberty, but they’ve done so lopsidedly: boosting the liberty of ordinary individuals who cannot afford to give to political campaigns gains them nothing in the way of political influence.

The Court’s decision further empowers a few rich people and disempowers many ordinary people. This is not a desirable direction for our representative government. Our system should encourage a government responsive to all citizens, not just a few.

What can we do? I would prefer that the President and Congress step in and design rules of campaign finance that would reverse the growing influence of money on our campaigns, but that does not appear likely to happen. Indeed, even now opponents of campaign finance laws are preparing challenges to the remaining limits on individual contributions and to the easily avoided disclosure laws we already have. I’m certain they’ll get a sympathetic hearing in the Supreme Court.

Paradoxically, this may be our best hope. Because I also believe that Americans are growing tired of the outsized impact that great wealth enjoys in politics, and that a backlash to the Court’s decisions is taking shape. My sense is that growing numbers of ordinary voters are recognizing that money is a poison in our system. I fervently hope that support for public financing and for muscular disclosure laws will grow with time, because our politics will be more democratic, more honest, and more free if we reduce the impact of money on elections.

Lee Hamilton is Director of the Center on Congress at Indiana University. He was a member of the U.S. House of Representatives for 34 years