“Soaking the Rich” – A discussion

As my readers surely are aware, I spend a great deal of time researching and writing on the issues of the day. I do this, not so much to convince anyone of the soundness of my views, but rather to lay a foundation for these views, for to hold views without a foundation, in fact and logic, is empty rhetoric. However in addition to writing for my blog, I often get into discussion with various people, which are worth sharing.

So today allow me to share with you a discussion that was based on an article that was written by Christopher Caldwell, a senior editor at The Weekly Standard the magazine founded by William Kristol. In order for you to follow this discussion it will be necessary for you to read the article, which you can find here.

This prompted a letter from Dean Machin, Dept of Philosophy, University of Warwick, Coventry, UK reading as follows:

Sir, Christopher Caldwell’s article was dispiriting and uplifting in equal measure. First was the hackneyed argument that increasing taxes on the rich will not “suffice” to address the US’s (or indeed any state’s) debt problems. Of course this is true, but as there is no single measure that will achieve this end the point is irrelevant. Second, he is right about the disproportionate political influence of the rich. So, here’s a proposal: make the rich choose between increased taxes or no political influence. Let them vote (as if they care about that). But ban lobbying, funding political parties, meeting politicians and controlling media outlets. Good consequences may follow and this proposal would go some way to returning politics to the control of the people who are doomed to be affected by it; and away from those individuals who are footloose and mobile.

Now I find the letter more revealing than the article by Caldwell. 

Mr. Manchin writes:

First was the hackneyed argument that increasing taxes on the rich will not “suffice” to address the US’s (or indeed any state’s) debt problems. Of course this is true…

But it is not true and it reveals one of the major flaws in the rebuttals that liberals make in responding to spurious allegations. They accept their facts as true, without asking themselves whether they are, in fact, true. That is a poor way to effectively rebut an argument.

The American Enterprise Institute, the organization that speaks more than any other for the wealthy, tells us in an article entitled, “Guess Who Really Pays the Taxes”: “The top 5 percent pay well over half the income taxes.” and further down under (2) “The wealthiest 1 percent of the population earn 19 per­cent of the income but pay 37 percent of the income tax.” According to Forbes magazine “The 400 Richest Americans Pay An 18% Tax Rate” and according to the Tax Foundation “the top 1 percent of tax returns paid 36.7 percent of all federal individual income taxes” (see the third full paragraph in the article).


If we look at the tax projections of the Office of Management and Budget for 2013 (click to enlarge) we see that they estimate receipts from the income tax of $1 trillion 344 billion. 

37% of that is $497 billion or almost half of a trillion. Over ten years that comes to $5 trillion. If by making capital gains income and interest income taxable at the same rate as earned income (i.e. income earned by working) and such other adjustments as necessary, we increased their contribution to the common weal by 50% or an effective income tax rate of 27% (and there is no reason why it should not be much higher) we would add to the treasury another 2 1/2 trillion, probably enough to wipe out the deficit without any cutting. I said that there is no reason why it should not be much higher because there is ample precedence for a much higher tax rate. Under the Republican Eisenhower Administration (1953-1961) the top tax bracket was 91% on incomes over $200,000, and it remained there until 1964 when the top rate was changed to 77% on incomes over $400,000 and 66% on all income over $100,000, which adjusted for inflation comes to $2,895,000 and 3/4 of a million respectively. See here. These high rates of taxation did not prevent the US from enjoying prosperity, but they did prevent the incredible skewing of wealth upwards.

But the important point here is that the allegations by a senior editor at The Weekly Standard have no basis in fact, and yet were readily accepted by Professor Machin.

But let us go back and look at Mr. Caldwell’s argument further. He says: “The rich pay less because capital gains and carried interest get taxed at a low rate. As Mr. Buffett puts it, “those who make money with money” are treated better than those who “make money from a job.” In saying this, Mr. Buffett subscribes to the religious understanding of money that was universal in the Christian world before the rise of Florentine banking (and of Protestantism) and has been restated in our own time by practitioners of Islamic finance. People are alive but money is not, which makes it wrong – because it is life-denying – to prefer the latter.”

There is only one thing wrong with this – neither Mr. Buffett nor any one else has made this argument, so why is this straw man being rebutted.

Caldwell concedes that there is a problem with the super rich. He sees a problem from “their influence over the political system.” But he dismissed the influence from campaign contributions by asserting that, “even more comes through the deductibility of “charitable” contributions. Yet it is interesting to note when the President recently suggested that the rich should not be able to deduct these contributions, the scream from Mr. Caldwell’s cohorts was deafening.

But most of all they load the question through the constant refrain that those who want all to contribute to the common weal, are advocating a policy of “Soak the Rich”, which isn’t at all what anyone wants to do.

As I said in my contribution to this discussion at the time the discussion went forward:

I have seen a number of Letters to the Editor that show a misunderstanding of what the graduated income tax is all about. It is definitely not about "soaking the rich." It is about raising enough revenue to allow the government to meet its obligations without putting a burden on people that is greater than what they can afford. I have seen one Letter to the Editor that claimed that those making less than 1 million dollars annually are not rich and therefore tax increases should not be applied to those in that income category. This totally misses the point. Who is rich and who is not is irrelevant. We tax those who can better afford it because that is the source where money can be found without imposing a hardship. As people have more income they can afford to pay more and therefore should. 

We are supposed to be a society that follows the Protestant ethic of valuing work, yet we tax income obtained through work at a substantially higher rate than that obtained from return on Capital. I have never seen any justification for this and this is what Buffet is addressing, for it is that distinction which makes our graduated income tax a hoax and allows the rich, and particularly the very rich, to pay less in taxes as a percentage of their total income, than their secretaries.

                       

Milton Friedman, who I assume is the intellectual inspiration for Republican policies, advocates a flat tax, but includes in income both Capital Gains and Dividends without any distinction or favorable treatment.

                       

We will never have a meaningful graduated income tax until all income is treated equally.

                       

Thus it is not a question of soaking the rich. It is a question of obtaining money from those who can afford it in proportion to their ability to pay; thus the graduated income tax with many brackets. Reducing the brackets is not desirable because it gets us away from affordability. Nor does it create meaningful simplification.

                       

Ditto on exemptions. Many are bad. Corporation for example should not be allowed to choose between LIFO and FIFO for income tax purposes. This distorts their true income and allows them to manipulate it. FIFO should be the standard. This alone would increase corporate taxes allowing them to be lowered somewhat. But I have a real problem taking away the charitable deduction, because without it too many worthy causes would suffer.

                       

The oil depletion allowance and the ethanol subsidy should go, but not the deduction on municipal bonds which cities depend on, nor the deduction on mortgages on first homes, but yes on second or more homes. Nor should we allow the deduction on refinancing mortgages, unless it is shown to be for home improvements. What about 401Ks? They favors higher incomes, but have taken the place of standard pensions, so we need to keep them. But we have so many tax deferred accounts now including the education, medical, etc. deferments, that we should be discussing the merits of various deductions, before we wake up to a mass elimination of good ones and the retaining of those that favor higher incomes. It may be that we should keep all of that type, but limit their total exemption to a fixed amount, e.g. $20,000 per annum.

                       

None of the columnists have even touched on this. We need to start a conversation because this is definitely on the horizon.

Comments are welcome and will be distributed with attribution, unless the writer requests that he/she not be identified.

In Defense of Romney – Discussion

On January 19^th I posted my commentary "In Defense of Romney."

In response thereto Pam Tisza of Branchburg, NJ wrote:

You did not comment on Senator Bernie Sanders bill to counteract the big money in the elections---or did I miss it ????

To which I replied:

No, I didn't and I am not sure what bill you are referring to. Do you mean his introduction of a Constitutional amendment to overrule Citizen United? If so, I am glad he did that, but it is not very newsworthy, since it is not likely to go anywhere. I expect it will not even get out of committee and if it does it will not get a majority, at least at this time around, and it need 2/3 of both houses in order to go to the states for ratification, where it needs 3/4 of the state legislatures (both houses) to become part of the Constitution, given that Democrats now control 35 total chambers while Republicans are the majority in 60 chambers. See here. There are three tied chambers with the addition of the Virginia State Senate.

Article. V. of the Constitution provides:

"The Congress, whenever two thirds of both Houses shall deem it necessary, shall propose Amendments to this Constitution, or, on the Application of the Legislatures of two thirds of the several States, shall call a Convention for proposing Amendments, which, in either Case, shall be valid to all Intents and Purposes, as Part of this Constitution, when ratified by the Legislatures of three fourths of the several States, or by Conventions in three fourths thereof, as the one or the other Mode of Ratification may be proposed by the Congress;…”

If you were referring to something other than the above, please advise. In fact please let me have your further comments in any case.

Her rejoinder was:

Thanks for correcting me. I went back and read the original e-mail I got on this and they mention "constitutional amendment”; but then go on as if it is a bill. Poor reading on my part. I agree with you. Nice idea--no hope.

I must add that despite the fact that at present there is no hope of enacting such an amendment, many liberal organizations are organizing petition drives in support of such an amendment, which is a good idea. It must be kept in front of the public.

Albert Nekimken of Vienna, Virginia challenged me on my views with respect to the activities of Bain Capital, writing:

I don't share all of your enthusiasm about Romney's version of private equity capitalism, but I agree with your view that all income from all sources should be taxed at the same rate. As for the corrosive effect of money on politics, the Harvard professor, Lessig, who (in his new book) proposes that ALL political campaigns be publicly financed through a $1 per taxpayer, voluntary contribution on his tax return, which seems like the most promising solution. 

You were correct to emphasize the dire issue of the high cost of education today--and rising. This is killing social mobility. Student debt (now inextinguishable even in bankruptcy) is the next huge bubble ready to burst. Indebted and unemployed students cannot repay these debts. So long as educational institutions are able to coerce/convince students to incur debt as a condition of enrollment, there are/will be no brakes on the rise in cost. When the bubble bursts, many schools will go with it.

To which I posed the following question:

I am interested in your views on "Romney's version of private equity capitalism.” Do you think it is destructive? Do you think parts of it should be illegal? If so what parts? If you can, please be as specific as possible.

And added:

As for Lessig's proposal, we already have a provision in the tax code for deducting, not $1 but $3 for Presidential campaigns. The tax code provides, for a Presidential Election Campaign Fund which helps pay for Presidential election campaigns. The fund seeks to reduce candidates' dependence on large contributions from individuals and groups and seeks to place candidates on an equal financial footing in the general election. Tax Return 1040 provides: “If you want $3 to go to this fund, check the box. If you are filing a joint return, your spouse can also have $3 go to the fund. If you check a box, your tax or refund will not change."

However this check off has come out of favor. "...participation in the tax checkoff program has declined each year, from a high of 28.7% for 1980 returns, to 7.3% for returns filed with the Internal Revenue Service (IRS) in 2010." See here.

There is a limit in how much one is allowed to spend to get matching funds. In 2008, presidential primary candidates who accepted public funding had a maximum entitlement of $21,025,000 (50 percent of $42,050,000). (Ibid) It was because of this limit that Obama waived the public funding in 2008 to much criticism. He felt he could raise and spend much more than the limit.

As I understand Lessig, all he is advocating is essentially to extend this system to Congress. I would favor this, but unless there is a limit on contribution and spending, it would end up the same as the Presidential fund. As long as Citizen United stands, and I am not hopeful of an overrule in less than two decades, we are stuck, money will rule.

On improving mobility, making decent education available to all, regardless of economic status, is the ultimate class leveler and vouchers can never achieve this. Here too we need to reverse the financing curve. The poor need more financing than the rich, not less. Even in school buildings many are antiquated. No corporation would or could operate in such antiquated buildings. But as long as money rules this will not happen. I hate to say this, but I am not optimistic.

Nekimken responded:

You likely saw the article in today's New York Times entitled “Taxes at the Top” and another one entitled "Romney’s Estate Tax Cut Would Save the Koch Brothers Up to $8.7 Billion Each" but I call them to your attention in case you missed them, it because they bears on the question at hand: Romney's wealth. 

To tell the truth, I have mixed feelings about the role of private equity in modern capitalism. On the one hand, I believe it does serve a useful tool of Schumpeter's "creative destruction" by feeding on weak companies like insects on the forest floor, paving the way for new growth. 

On the other hand, much private equity activity appears to be motivated, not by any long-term desire to turn around failing companies by making new investments and providing new management in order to make them successful and grow and, presumably, to create new jobs, but by a desire to create a transaction that results in a quick profit. 

On the contrary, most of this activity seems to be motivated by a short-term desire to strip assets from a failing company, reduce staff, and (often) to loot the company pension fund. Often private equity owners load a newly acquired company with fresh, unsustainable debt that can be made to "disappear" in bankruptcy, or in a future sale at an inflated price to a bigger fool. 

As a result, much of what private equity firms do falls into the category of "financial engineering" that serves no useful purpose except to make a few "engineers" very wealthy. Unfortunately, I can't think of any coherent and effective way to prevent this. 

The situation is so complex that I don't believe there is any way to regulate this area of finance in order to prevent them from plundering weak companies and destroying jobs. Better would be to reform tax policy (i.e., tax all income from all sources at the same rate), reform bankruptcy and pension laws, and protect employees more effectively, perhaps by making company owners pay severance and re-training expenses for employees who lose their jobs--as is the case in Europe. 

I hope this is helpful.

I concluded this discussion with:

I really don't know enough about how a company like Bain operates to agree or disagree with your description of "financial engineering." However, while your description of the European system of "making company owners pay severance and re-training expenses for employees who lose their jobs--as is the case in Europe" has appeal, I fear that it may be counter-productive. It has long been charged that these potential burdens make employers reluctant to hire in the first place, and I fear that there is truth in this.

Comments are welcome and will be distributed with attribution, unless the writer requests that he/she not be identified.

In Defense of Romney

In my last post entitled "Congress and the Public - Kudos to Sarah Palin," which was distributed on Friday the 13^th, I addressed three issues: the huge amount of money influencing, one might say controlling, our public servants; the lies that dominate our public discourse, so as to bring government into greater disrepute; and the insider trading that is prevalent in Congress.

Paul Negri of Clifton, NJ expressed the view that what is behind the money cursing through our political, and indeed our economic system, and is the reason for scandals such as the insider trading in Congress is “greed and opportunism, (and that these) to a greater or lesser degree, are part of human nature, … and develop more in those who have, through circumstance, the best access to ways and means to self-advancement. The question is how do we push the equation to the lesser, rather than the greater, degree?”

I think the answer has to be through effective legislation, which in our present system can only be brought about by the use of money in the cause of fighting the misuse of money, at least until such a time, when money does not dominate our public discourse. One example that illustrates this, is the Gay Marriage issue in NY. Gay Marriage was legalized recently in New York because some courageous Republicans broke party ranks, and supported its legalization. As a result the Conservative Party of New York State threatened to withhold from them their endorsement and the considerable amount of money that goes with it. Now backers of Gay Marriage have countered by promising to offset the withdrawal of money by their own financial contributions. See here. Something similar can be done with respect to insider trading in Congress. Single issue campaigns are always more effective than broad ideological ones, and here it might be possible to draw money from all sides of the political spectrum, demanding of our law makers that they sign a pledge to support a bill drafted by the organization along the lines of the Palin recommendations.

But greed is not always bad. There is little doubt that greed is what drives our capitalist system, and it does not inevitably lead to the destructive greed of a Gordon Gekko in the movie “Wall Street.” But that is why we need laws and regulations. Left unchecked the engine of creation becomes an engine of destruction. The entrepreneur, while lauding competition, hates competition and seeks monopoly, which is why we have anti trust laws that have not been enforced adequately lately. The investor while lauding good research, seeks a leg up, by seeking or selling insider information, which is why we have laws against that, which have not been enforced until lately.

The banks seek to exploit their credit card customers, making them think that they can spend more than they make, and encouraging them to pay back tiny installments, so that they run up their interest debt at outrageously high interest, and then if they overlook one monthly payment hit them with even higher interest rates and penalties, so that their debt often ends up a multiple of their original one, and then using their money clout in Congress to deny them that, which every business has available, i.e. bankruptcy protection and also using its financial clout to prevent the capping of interest rates from becoming usurious. Even the Mafia never charged more. See here and here.

But what Mitt Romney did at Bain Capital is quintessentially good, beneficial capitalism. It is the essence of “Creative Destruction” so ably described by Joseph Schumpeter, the conservative Austrian economist. See here. Its essence is that inefficient entities must be made efficient or be eliminated, and in the long run the economy as whole will benefit, and while some jobs may be lost in the process, in the long run more will be created. It is ironic that the Right, which claims to be the apostle of free enterprise, should attack Romney for practicing the essence of Capitalism. But I guess the saying that “all is fair in love and war” applies! Is it inter-party war?

What has come out of this, however, is that it illustrates just how unfair our tax system is. The Republican Party has long argued that our “graduated tax system is unfair” in that it taxes the rich more than those with small, or at least much smaller incomes. But what we are seeing is that the system is indeed unfair, it taxes the rich at a rate that is barely distinguishable from the rate applied to much smaller incomes. Romney has now admitted that even though his income is in the millions annually, his tax rate is close to 15%. See here.

I wonder how many of my readers have an effective tax rate of 15%! When Warren Buffett caused a sensation by declaring that his secretary paid taxes at a higher rate than he did, the Right Wing blogosphere went wild with denunciations, and they all stayed on message. One even had a headline, “AP fact check: Secretaries don’t pay more taxes than their bosses," except when the article is accessed no reference to an AP fact check can be found. What percentage of their “income” the rich pay in taxes depends on how “income” is defined. Is it “earned income”, is it “taxable income” or is it total income the way most people would define it?

What causes this anomaly is that as people go up the income ladder more and more of their income comes from capital gains income and dividends. Thus the top 1% of earners on average get 43.4 % of their total income from Capital Gains, Interest and Dividends compared to the next highest quintile who only get 21.4% of their income from Capital Gains, Interest and Dividends, and the lowest quintile only get 1.3% of their income from Capital Gains, Interest and Dividends. The result is that the top 1% who make an average annual income of $1,873,000 pay an effective Income and Payroll tax rate of 20.6% (a lot more than Romney pays) as compared to the top 20% who make a fraction of that at $264,700 (which puts them in the upper middle class) pay almost the same tax rate at 20.1%. See here.

This is neither fair nor sensible. No tax reform, no matter how much the tax is graduated, can deal with this unfair anomaly, unless all types of income is taxed the same. In a country that prides itself on its Puritan work ethic, the discrimination against those who earn their income by working, as opposed to those who earn it by investing, is difficult to understand, and even more difficult to justify. This is even more evident when we consider that most of the rich started out in life with a substantial inheritance, which they could then use to generate more capital and it is further aggravated by our tax law, which forgives even capital gains taxes on inherited stock or other appreciated assets. See here, which is well worth reading.

Romney claims that, “What I got from my parents when they passed away I gave away to charity and to my kids. And so what I’ve earned has been earned through my education, my values, living in the greatest country in the world, through some luck and through hard work.”

Even if that is true, and the reader will forgive me if I am skeptical, he at the very least got an education that most people can only dream of. How often can the child of a blue-collar worker possibly obtain such an education? How likely is a child of a blue collar, or even of the average white collar worker, going to afford a pre-school education beginning at the age of two at $20,000 a year, giving that child a jump by the time it starts grade school. Then when public school begins, how likely is it that it can afford private school at more than the $20,000 mentioned? And even if a “Romney” goes to a public school, you can be sure that it will be an excellent one. On the other hand, with our system, where schools are frequently financed by local property taxes, the schools in a well to do neighborhood will be properly financed, while those in a disadvantaged area will never have what they need to support a first class education. And how many, with all these obstacles will get to, and through college, with their even greater financial burden. Some will. I did. But I would not have made it through college and eventually law school if my college had not been tuition free, something that has long since passed from the scene. 

But none of this should disqualify Romney, except that he is an exponent of this system and an exponent of making it even more unfair.

But most of all I object to his inauthenticity. His father must be turning in his grave, for that former Governor of Michigan, and once Presidential aspirant, put the greatest value on authenticity. See here.

Phoniness is not leadership. Opportunism is a serious character flaw. Inauthenticity is, or should be, disqualifying.

Comments are welcome and will be distributed with attribution unless the writer requests that he/she not be identified.

Congress and the Public - Kudos to Sarah Palin

In my last post entitled "Discussions With My Readership" I quoted Judge Edwin S. Bernstein Esq. of Boynton Beach Florida as pointing out that: “our basic problem is the influence that money has on elected officials.” A truer word could not be said, but it is not the fault of the Congress. It is the system that keeps every Congressman or Senator, beholden to those who finance their campaigns and in fear of those who will bankroll their opponents. We have seen this recently in the Republican primaries, where a number of “Independent Groups” who for whatever their reasons want the nomination to go to Mitt Romney unloaded on the surging Newt Gingrich and had his poll numbers down in a matter of days. $4,470,935 had been spent by these groups and other non-profits to oppose him (Gingrich) as of the end of last week. But just when all seemed lost for Gingrich, casino king and America’s eighth-richest person Sheldon Adelson has given $5 million to Winning Our Future, a political action committee that supports Gingrich’s campaign, according to The Washington Post. And the money comes just in time for the former Speaker of the House, who just placed fourth in the Iowa caucus. Gingrich’s Super PAC will reportedly use the money to run advertisements that directly attack Romney for destroying jobs and profiting from failed companies while at the head of private equity giant Bain Capital. See here.

This is in the Presidential race, but Congress is just as much if not more beholden to the deep pockets. Recent estimates reveal that many members spend anywhere from 25 percent up to 50 percent (and sometimes more) of their time fundraising. 

Whether that is the reason, or at least one of the reasons, that Congress is held in such low esteem is hard to tell from the polls. What we do know is that the public holds Congress in what can only be described as contempt. According to Gallup’s latest poll, 11% approve of the job Congress is doing and 86% disapprove. 

The reasons for this are many. But the gridlock, the gamesmanship, and the brinksmanship are certainly a major reason. Many, too many in my opinion, react with throw all the bums out, which strikes me as simplistic and downright foolhardy. The only way to reform a corrupt system is to spend the time to know what each and every member of Congress stands for and to be selective.

What we do know is that Republicans are not entirely unhappy with this result. They are anti-government, (being anti government used to be the purview of anarchists who were feared and hated, so much so that the Zacco and Venzetti case is a landmark of the hysteria surrounding that movement) and so a bad opinion of government serves their end. If gridlock, by filibustering, brings about a bad opinion of government, that serves their end. If governing badly creates hostility to government that serves their end, but of course, not if it costs them votes.

So let us examine more of the reasons for the contempt Congress is held in. Part of it is the result of a concerted campaign of lies intended to besmirch Congress. Thus I recently received an e-mail, (one of many in the same vain that I have received over the years.) I went through it – and found that almost every word was a lie and yet a good friend had forwarded it to me with approval. The public’s naiveté never ends.

I urge my readers to first read the e-mail in full without any comment from me. You can find it here. 

Now let me address the lies. The portions from the e-mail to which I have reference appear in italics. My comments thereon appear in bold letters.

How Can We Make This Happen?

Warren Buffett, in a recent interview with CNBC, offers one of the best quotes about the debt ceiling:

I could end the deficit in 5 minutes," he told CNBC. "You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election. The 26th amendment (granting the right to vote for 18 year-olds took only 3 months & 8 days to be ratified! Why? Simple! The people demanded it. That was in 1971 - before computers, e-mail, cell phones, etc. Of the 27 amendments to the Constitution, seven (7) took one (1) year or less to become the law of the land - all because of public pressure. Warren Buffet is asking each addressee to forward this email to a minimum of twenty people on their address list; in turn ask each of those to do likewise. In three days, most people in The United States of America will have the message. This is one idea that really should be passed around.

Most of the above was not said by Warren Buffett. He did say: “I could end the deficit in 5 minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election" but it was said in jest. See here. What Buffet did say in all seriousness and it is very sound is, "the debt ceiling should be done away with, arguing it is nothing more than an “artificial limit” that ends up wasting time in Congress. See here.

As for eliminating the deficit, that is not so easily done. It was done under the Clinton Administration, but eight years of the Bush Administration’s tax cutting and unnecessary spending, ending in the greatest recession since the Depression of the ‘30s makes it a very difficult task. Ending the Bush Tax cuts would make a large dent, but would not do the job alone. Cutting alone would require doing away with Social Security, Medicare, Medicaid, the SEC, the Fed, the FDA and all the programs of Teddy Roosevelt, Woodrow Wilson, Franklin Roosevelt and Lyndon Johnson. As I have said before and will again, adjustments to Social Security and Medicare are absolutely necessary, but the draconian approach of doing away with these programs, as is proposed in the Ryan budget is neither necessary nor desirable. And As I have also said before the Ryan budget actually increases the deficit by $6 trillion. See here.

Now allow me to take the rest of lies one by one.

Congressional Reform Act of 2011    
    

 1. No Tenure / No Pension. A Congressman/woman collects a salary while in office and receives pay when they're out of office.

                                               

This is the law now.

2.  Congress (past, present & future) participates in Social Security.

                         

This is the law now.                                               

All funds in the Congressional retirement fund move to the Social Security system immediately. All future funds flow into the Social Security system, and Congress participates with the American people. It may not be used for any other purpose.

                                               

The congressional Retirement system is no different than that given by most corporations to their employees and is the same as that given to all federal employees. Members of Congress receive retirement and health benefits under the same plans available to other federal employees. They become vested after five years of full participation. Members elected since 1984 are covered by the Federal Employees' Retirement System (FERS). Those elected prior to 1984 were covered by the Civil Service Retirement System (CSRS). In 1984 all members were given the option of remaining with CSRS or switching to FERS. 

As it is for all other federal employees, congressional retirement is funded through taxes and the participants' contributions. Members of Congress under FERS contribute 1.3 percent of their salary into the FERS retirement plan and pay 6.2 percent of their salary in Social Security taxes. Members of Congress are not eligible for a pension until they reach the age of 50, but only if they've completed 20 years of service. Members are eligible at any age after completing 25 years of service or after they reach the age of 62. Please also note that Members of Congress have to serve at least 5 years to even receive a pension.

The amount of a congressperson's pension depends on the years of service and the average of the highest 3 years of his or her salary. By law, the starting amount of a Member's retirement annuity may not exceed 80% of his or her final salary. See here.

The Social Security Trust Fund is intact. It is invested in U.S. Treasury Securities, from where it collects interest and the Securities are the safest in the world.

3. Congress can purchase their own retirement plan, just as all Americans do.

That too is the current system.

4. Congress will no longer vote themselves a pay raise. Congressional pay will rise by the lower of CPI or 3%.

This too is the current law or something close to it. Congressional cost-of-living adjustments are calculated using a formula based on changes in private-sector wages and salaries as measured by the Employment Cost Index. However, Congress can refuse such raises. A bill nixing Congress' automatic 2011 pay raise was signed into law by President Barack Obama. The move marks the second consecutive year lawmakers have opted not to receive their automatic cost-of-living increase. The law governing congressional pay raises requires members to vote against getting a raise. Otherwise, the increase takes effect automatically. But keeping pay for members low is not desirable. Rich members don't need their salary at all, while it discourages people who are not rich from serving in the Congress.

5. Congress loses their current health care system and participates in the same health care system as the American people.

Members of Congress are covered by private insurance under the same system that covers all federal workers. Members of Congress have good health insurance by any standard, but it’s not free and not reserved only for them – and it’s not government insurance. House and Senate members are allowed to purchase private health insurance offered through the Federal Employees Health Benefits Program, which covers more than 8 million other federal employees, retirees, and their families. 

6. Congress must equally abide by all laws they impose on the American people.

That is the law at present. Members of Congress are not exempt from any laws that apply to others. 

7. All contracts with past and present Congressmen/women are void effective 1/1/12. The American people did not make this contract with Congressmen/women.

There are no contracts with members, or past members of Congress. If there were any, their voidance by legislative fiat, like all contracts by anyone, would violate the due process clause of the Constitution.

Now there other valid reasons to be critical of Congress and I urge readers to demand of their representatives in both the House and the Senate to take action as recommended by Sarah Palin. Yes, I said Sarah Palin. Kudos to Sarah Palin for her totally valid demand for reform of the Congress, which was exposed by the TV program 60 Minutes. You can watch the relevant portion of that program here. 

And then read the article by Sarah Palin here.

Write to your members of Congress and ask them to act on Palin’s recommendation, which I think to our media’s discredit has not gotten the publicity, which it deserves. The media is only interested in politics as a sporting event.

Discussions With My Readership

I posted my last commentary on December 12, 2011. For those who may want to re-read it, it can be found under the title "The Deficit Reduction Committee I and II (Discussion)."

In that post Robert Malchman, Esq. of Brooklyn, NY reacted to a rebuttal that I had made to a column written by Charles Krauthammer with: "using your skills on someone like Klownhammer is like using a flamethrower on a strawman." In response thereto, I offered to consider a column by Ross Douthat entitled "An Argument Against Redistribution," which has more meat to it for rebuttal. However, I concluded with an invitation for additional comments, and many came. Therefore, before I venture on new ground, let me share with you the comments, some of which covered new grounds, and the exchanges to which they led.


Former Judge Edwin S. Bernstein Esq. of Boynton Beach Florida spoke to me on the telephone and said some things that disturbed me, prompting me to write the following rebuttal:

Apropos our telephone conversation, you aroused my curiosity about where my parents were born, causing me to use Google to see what I could find. I told you my mother was born in Zalishchyky, which could possibly be called a shtetl. According to its web site: it has a population of 13.000 people. The 1772 census listed 159 Jewish families in Zalishchyky. The Germans sent 200 Jews to the Kamionka (Kamyanka) labor camp; about 40 others were sent to a nearby army camp and forced to dig mass graves. Soon the other 800 were brought there and gunned down. 

           

However, my mother had left there with my grandmother when my mother was quite young and settled in Vienna, Austria. My mother was born in the late 19th century. During 1772 - 1918 Zalishchyky belonged to the Austrian empire (later Austrian-Hungarian empire when the double monarchy was introduced in Austria). This is important to me, because my mother always claimed that since at the time of her birth the city was part of Austria, she was born in Austria. But the US authorities classified her as Polish because at the time of desired immigration to the US (1938-1939) it was part of Poland. 

           

This was crucial and almost cost her life because the Austrian immigration quota was a favorable one, and if she had been classified Austrian she could have come to the US with her children in 1938, instead of having to wait until 1939 for her Visa, which she obtained while a refugee in Italy.

A similar story applies to my father, who was born in Lemberg, which was also part of Austria when he was born, but which was part of Poland in 1938. Its population in 1869 was 87,109 of whom 26,694 were Jews; in 1890 it was 127,943, including 36,130 Jews; in 1900 there were 44,801 Jews in a total population of 159,618, probably too large to be called a shtetl. 

           

Same immigration classification by the US. Had my mother not had a Visa forged, he would have died in the Buchenwald concentration camp.

           

With all our claims (US) of being hospitable to immigration, such quotas and exclusion acts make it a motley tale.

           

On our political discussion, I am very disappointed that you do not seem to be reading my blog postings. They would frequently prevent you from adopting "facts" that are wrong. I write them not to express opinions, which in most cases my readers share, or at least have similar opinions to mine, but to make sure my readers are familiar with relevant facts, toward which end I spend many hours doing research. 

           

For example I was bothered by some of the comments you made, e.g. that we ought to cut foreign aid, which arises from a neo-isolationism that has gained popularity both on the Left and Right. Please take the time to click on the following.

           

As you will readily see we are not a generous nation. Less than one per cent of our federal budget goes to foreign aid. US aid, as a percent of personal income, is second to last among wealthy nations. We give about 25 cents per American per year in foreign aid. Our total aid in dollar amount is $47.7 billion of which economic assistance is $33.9 billion, and that includes helping African babies avoid the scourge of Aids, Malaria, etc and helping hurricane, earthquake and tsunami victims. Would you argue we should not extend such help? Military assistance comes to $13.7 billion. Of that almost $4 billion goes to Israel and another $1.5 billion goes to Egypt to persuade it to keep the peace with Israel. See here.

           

As for interest on our debt, our treasury notes pay an astounding less that 1% on 30 year notes (see here) and less than 3% on average. See here.

           

As a result the present debt is not a significant problem, but projections into the future are troublesome. At the moment Republicans are using it as a wedge to try to destroy our safety net and regulatory structure. Every one of their budgets and proposals actually would increase the debt, not decrease it. (This is documented at length on my blog postings.)

           

Republicans keep arguing that the government should act more like a business, but not a single business functions without incurring debt, (which is why our banking system is so crucial and why it they had to be rescued) nor do individuals. Very few could buy a house without incurring debt, and most need to incur debt to buy large items such as a car. Borrowing, so as to do that which brings a bigger return than the interest on the debt, such as infrastructure, makes sense, always has, and always will.

           

On the other hand, Social Security, Medicare and Medicaid are not sustainable without some changes. Republican changes would amount to ending them, but Dems must make changes that will not necessarily be popular, but without changes these programs will not survive. I have written on this subject on my blog in the past, and will, in due course, discuss it in greater detail.

Some time later Bernstein commented on my post entitled "The Deficit Reduction Committee I and II (Discussion)" writing:

As always, I enjoy reading your blog and its comments. As I have said all too many times, our basic problem is the influence that money has on elected officials. This is especially true in Defense spending, where a grateful representative urges retaining unnecessary defense hardware to please his contributors - and his friends in Congress reciprocate. The cure is a Constitutional Amendment limiting contributions to elected officials. It is highly unlikely that this will occur. In its absence, perhaps the answer is something I have opposed in the past – term limits. 

To which I responded:

I hadn't planned to address the issue of money in politics in the near future, but since you raise it, and since it is one of the most corrosive influences in our government, I will address it soon, maybe in my next post.

                       

At this point let me just say that the problem is not just the "the influence that money has on elected officials." It has a much broader sweep than that. It infects our military procurement officers; it infects our regulatory agencies; it infects the staff of our officials; it effects our judges right up to the Supreme Court. You are Right that the cure is a constitutional amendment limiting contributions to elected officials, or at least giving Congress the power to do so. We need a Constitutional amendment stating that corporations are not persons, as persons are referred to in the Constitution, and that nothing in the Constitution shall limit Congress' power to regulate Corporations.

                       

We need an amendment that says money is not speech, and nothing in the Constitution shall limit Congress power to limit or regulate the collection, receipt, or expenditure of money in the political process, except the equal protection clause.

                       

Obama meant well when he decreed that lobbyists shall not serve in his Administration, but it should be the other way around. We need laws that forbid anyone who has served in the government from ever thereafter accepting employment from any individual or corporation who was effected by any act during such person's tenure in government, or from accepting any gratuity or fee from such person or persons for the remainder of their life.

                       

The delayed bribe for government services rendered is a greater problem that the money spent during campaigns.

                       

As for term limits, they accomplish nothing, and in fact are counter productive. The elimination of good people from government service by term limits is a great loss. It takes time to learn the job and term limits remove experienced people just when they become most effective, without any reason to believe that their successors will be an improvement. Stability is a valuable trait. I would, in fact, like to remove term limits from the Presidency.

                       

You are right it is all but impossible to accomplish these things, but they are so important that I think an effort in this direction is warranted. It may take years, or decades but it is so important, that the debate needs to begin. 

                       

How long did it take to gain women's suffrage? How long to emancipate African-Americans, and they are still not truly emancipated. 

If I address this as a full commentary, I will go into the many ways money corrupts, many of which are far from obvious.

                       

But it isn't only money; it is the gerrymander. We need federal rules that set the criteria for creating districts. Each with an equal population (within say 2%) contiguous, without dividing subdivisions such as towns or counties and providing that minorities be represented within (say 5%) of the population, and that the lines be drawn by computer based on these criterion.

                       

Of course, the filibuster must be abolished. It is ridiculous for us to be told that the vote was, e.g. 59 in favor - 39 opposed - the bill is defeated. Why do we have gridlock? It is the most important reason though there are others. The rule about not attaching non-Germaine items to a bill needs to be enforced.

Comments are welcome and will be distributed with attribution unless the writer requests that he/she not be identified.