Monday, January 21, 2013

House Will Vote On Clean Debt Limit Bill on Wednesday

The House is going to raise the debt limit on Wednesday but will not actually be voting for a debt limit increase. Rather, to spare their poor members the embarrassment of actually having to raise the debt limit, the language of the bill will suspend the debt limit law until May 19, 2013, on which date the new debt limit will be whatever debt has accumulated between now and then.

When the bill is enacted, there will be no limit on how much debt can be issued until May 19. On that day, there will be a new, higher, limit in place. That new limit will include all the debt issued between now and May. It will also include the debt that will have been issued to cover the debt that has been deferred since January 1 through the "extraordinary measures" that were used by the Treasury to avoid default.

Putting aside the cowardice of the Republicans in their refusal to actually vote on a debt limit increase that has a big number in it, this is great news. This vindicates the President's determination to not negotiate with those who would hold America hostage, those who would jeopardize payments to Social Security recipients, those who would jeopardize the full faith and credit of United States debt in the world bond markets, those who are so irresponsible that they cannot accept their basic obligations as members of United States Congress.

This debt limit suspension bill does not include anything else except what is hoped to be a cudgel to be used on the members of Congress themselves. The bill provides that if by April 15 both the House and the Senate have not agreed on a joint budget resolution, then all pay of the members of the House and Senate will be held in escrow until such time as they agreed to a budget resolution. Interestingly, April 15 is the date that both Houses are supposed to agree to a joint budget resolution under the Budget and Impoundment Control Act of 1974.

By actually providing for payments of salaries to be made, but for them to be paid into an escrow account rather than distributed to members of Congress, the bill is designed to avoid the Constitutional prohibition against "varying" the salaries of the members of Congress during the term for which they were elected.

The interesting thing about it is that, to the extent it actually places pressure on members of Congress, it will have much less impact on the members of the Senate who by far are richer and much more able to live very comfortably without their Congressional salaries. It is also somewhat amusing that, once again, the Republicans think a ploy needs to be adopted to force the Members of Congress, including their own, to do their jobs.

Monday, January 14, 2013

Why The Debt Limit Fight Will Be A Political Face-Off With No Gimmicks Or Constitutional Crisis

In dealing with the upcoming debt limit crisis, President Obama will approach it in a fundamentally different way than he did back in 2011. But for a variety of very good reasons he will make it a straight up political face-off between the President on behalf of the people of the United States against a minority of Republicans in Congress who have recklessly threatened to put the country in default.

As he said in his press conference today "There are no magic tricks here, there are no loopholes." This reiterates what the President stated on Friday, through the Treasury, that he will not use the platinum coin option. That statement echoed his decision in 2011 that he would not use the 14th Amendment option. By these determination he has made clear will not circumvent the debt limit law by the use of one of several tactics that, while arguably legal, would be viewed by some as gimmicks, or that could develop into a significant Constitutional crisis. Moreover, he understands that the use of any of those options would merely delay the final day of reckoning. The debt limit must be increased and it is Congress' responsibility to do so.

To understand those issues we must first look at the debt limit law itself. There is a provision in the United States Code that limits the amount of money the United States can owe at any one time, and thus the amount it can borrow. It reads

31 USC 3101(b) The face amount of obligations issued under this chapter and the face amount of obligations whose principal and interest are guaranteed by the United States Government (except guaranteed obligations held by the Secretary of the Treasury) may not be more than $14,294,000,000,000, outstanding at one time, . . . .

That limit is modified by the provision of law enacted as part of the 2011 debt limit confrontation which gives the President the authority through successive acts to further raise the debt limit to $16.394 Trillion.

The Treasury reached that $16 Trillion limit at the end of 2012. Here is a comprehensive Congressional Research Service Report report explaining the history and operations of the debt limit. Since the end of the year, Treasury has used some "extraordinary" powers, such as canceling Civil Service Retirement Fund obligations, to keep paying the bills.

There have been three options under discussion. It has been argued the President could use the authority to mint a platinum coin in a trillion dollar denomination and use those funds to continue to pay the Treasury's bills. The second alternative was to use his authority to issue scrip that would be used to pay the debts of United States until the debt limit that could be raised and real dollars borrowed. The third option was for the President to simply say that he has the authority under the 14th Amendment, or some other constitution provision, to issue debt notwithstanding the fact that the issuance would exceed the amount of the debt limit law.

The President did not choose the first two options because, whether or not one thinks he has the legal authority to issue a platinum coin or issue scrip, the President knew that both internationally and domestically taking either of those actions would be viewed as a gimmick, a magic trick. More importantly, either of those actions would merely be kicking the can down the road. They would be giving the Congress an excuse to not raise the debt limit because the President would have continued to keep the country operating and the Republicans would have been let lose to fight the President in the courts and through impeachment hearings.

The third option was for the President to assert that the 14th Amendment gives him the authority, if not a requirement, to avoid default notwithstanding the debt limit. But this assertion would create a significant Constitutional crisis, a crisis between the President and the Congress as well as between the President and the Supreme Court.

Asserting this position is not the same as a conflict between two statutes, where the President interprets one statute as overriding another. Many people have suggested this possibility by arguing that the Congress has passed Appropriations Acts and that they require the President to spend the money appropriated, a requirement which conflicts with the debt limit law. That argument has little merit. There is no statute that says money that is appropriated must be spent if there is no money available. In fact, if you look at every appropriations Act the lead off language is ,
"That the following sums are appropriated, out of any money in the Treasury not otherwise appropriated, . . . . . "

"Any money in the Treasury." Very soon, if Treasury cannot borrow money and put it in the Treasury, there will only be two dollars in the Treasury for every three dollars of bills coming due.

Appropriations acts simply do not authorize let alone require the expenditure of funds that the Treasury does not have. There is no conflict between Appropriations Laws and the Debt Limit law. One tells Treasury how to spend money in the Treasury. The other limits how much can be borrowed to put money in the Treasury. This question is totally different than the question of whether the President can refuse to spend appropriated funds when such funds are available, which the Supreme Court has ruled to be unconstitutional.

Simply put, we are talking about the President having the power to unilaterally decide whether he will comply with laws that are duly enacted by Congress and signed by the President. Except for Nixon, no President has done that in this way since Lincoln suspended the Habeas Corpus provisions of the Judiciary Act of 1789. The action was challenged by a prisoner but Lincoln ignored a court decision which ruled the action Unconstitutional. Eventually, however, Congress essentially ratified his action.

It is important to point out that this is not the same as the President's decision to not defend the Constitutionality of DOMA, the Defense of Marriage Act. In the case of DOMA, the Constitutionality of the law had been challenged in court. The President decided that the law was no longer Constitutionally defensible and argued that position in court. However, he also announced that he would continue to enforce DOMA until the courts struck it down.

Also, this is not like the President's decision regarding Libya and the War Powers Act. While all Presidents have questioned the Constitutionality of the War Powers Act, all have generally complied with it. In the case of Libya, the President argued that he complied with the requirement for him to consult with Congress and that, in any event, the Act did not apply because we were not involved in hostilities. Whether one agrees or disagrees with the President's positions, he clearly did not take the position that he even though the Act applied he could violate it based on his determination that it was not Constitutional.

In contrast with those situations, in the case of the debt limit the President would be directing the Treasury to ignore a law that clearly applied to its actions based on his unilateral; determination of its Constitutionality. He would be doing so even though the law has not been challenged let alone held to be Unconstitutional by a court.

Virtually all legal scholars believe that the President has a duty to enforce the law regardless of what he thinks about it because all laws that are duly enacted are presumptively Constitutional. This is a basic tenet of our legal system that was referred to in the 6th Circuit Decision upholding the Affordable Care Act

The minimum coverage provision, like all congressional enactments, is entitled to a “presumption of constitutionality,” and will be invalidated only upon a “plain showing that Congress has exceeded its constitutional bounds.” . . . The presumption that the minimum coverage provision is valid is “not a mere polite gesture. It is a deference due to deliberate judgment by constitutional majorities of the two Houses of Congress that an Act is within their delegated power . . .(citations omitted).

No Court has held that the President has the power to issue a binding ruling that any law, such as the debt limit, is Unconstitutional. Rather the courts have held that such power resides in the Supreme Court. Since the 1803 case of Marbury v Madison it has been accepted that only the Court can declare a law Unconstitutional. Unless that happens or until it is repealed, the debt limit is the law of the land.

Having rejected all other options, the President has decided to engage in a direct challenge to the Congress. He is not going to play games or kick the can down the road. And he certainly isn't going to give them ammunition to argue that he has exceeded his Presidential authority, which would create a sideshow of its own involving court cases and Congressional hearings. This is actually the boldest step he could take it is also the step most likely to succeed because it is a pure political challenge involving the power of a President who is just been reelected against a very unpopular Congress. As such it is by far the most likely to succeed.

Saturday, January 12, 2013

White House Responds: No Secession Today Boys

The White House has issued its response to all the secession petitions filed on its website. In the politest way possible the petitioners were given a gigantic red raspberry. In addition, the White House took the opportunity to point out that secession runs counter to the precepts that undergird our democracy, has been ruled to be illegal by the Supreme Court and, tragically, has been tried once before at a cost of 600,000 lives.

Writing a response to the people who view secession as a viable option surely must have been a real challenge for the rational, professional, knowledgeable, and educated folks working at the White House. But they were up to the challenge and did a masterful job with this one. While the full text is set out below, I thought it useful to highlight what are arguably the most important points.

The White House pointed out that first and foremost we are a self-governing nation in which people have the power through the ballot box. Elections are the process that has been used for over 200 years for people to elect their representatives and seek to change their government. Destroying the Union or leaving it are not legitimate options. These thoughts are captured here,

Our founding fathers established the Constitution of the United States "in order to form a more perfect union" through the hard and frustrating but necessary work of self-government. They enshrined in that document the right to change our national government through the power of the ballot -- a right that generations of Americans have fought to secure for all. But they did not provide a right to walk away from it.

The White House then points out that not only is the ballot box the forum for resolving disputes, but that 150 years ago secession was tried with terrible results.

As President Abraham Lincoln explained in his first inaugural address in 1861, "in contemplation of universal law and of the Constitution the Union of these States is perpetual." In the years that followed, more than 600,000 Americans died in a long and bloody civil war that vindicated the principle that the Constitution establishes a permanent union between the States.

And for those who think that maybe states can secede without the Civil War, the White House also points out that when the Supreme Court addressed this issue it clearly held that secession is not a legal option for states.

And shortly after the Civil War ended, the Supreme Court confirmed that "[t]he Constitution, in all its provisions, looks to an indestructible Union composed of indestructible States."

The Supreme Court case referred to is Texas v White, a case which should be mandatory reading for all would be secessionists. Here is a money quotation,

When, therefore, Texas became one of the United States, she entered into an indissoluble relation. All the obligations of perpetual union, and all the guaranties of republican government in the Union, attached at once to the State. The act which consummated her admission into the Union was something more than a compact; it was the incorporation of a new member into the political body. And it was final. The union between Texas and the other States was as complete, as perpetual, and as indissoluble as the union between the original States. There was no place for reconsideration or revocation, except through revolution or through consent of the States.

Of course none of this will assuage the anger and anxieties of the would be patriots in Texas and elsewhere who express their patriotism by wishing to dissolve the Union. They will only be satisfied when a person who looks like them, thinks like them and acts like them becomes President of United States. Of course to find that country they may have to leave the United States and band together to form the Disjointed Republic of Dimbulbistan.

Here is the full text of the White House petition response.

Peacefully grant the State of Louisiana to withdraw from the United States of America and create its own NEW government. and 8 other petitions
Our States Remain United
By Jon Carson

Thank you for using the White House's online petitions platform to participate in your government.

In a nation of 300 million people -- each with their own set of deeply-held beliefs -- democracy can be noisy and controversial. And that's a good thing. Free and open debate is what makes this country work, and many people around the world risk their lives every day for the liberties we often take for granted.

But as much as we value a healthy debate, we don't let that debate tear us apart.

Our founding fathers established the Constitution of the United States "in order to form a more perfect union" through the hard and frustrating but necessary work of self-government. They enshrined in that document the right to change our national government through the power of the ballot -- a right that generations of Americans have fought to secure for all. But they did not provide a right to walk away from it. As President Abraham Lincoln explained in his first inaugural address in 1861, "in contemplation of universal law and of the Constitution the Union of these States is perpetual." In the years that followed, more than 600,000 Americans died in a long and bloody civil war that vindicated the principle that the Constitution establishes a permanent union between the States. And shortly after the Civil War ended, the Supreme Court confirmed that "[t]he Constitution, in all its provisions, looks to an indestructible Union composed of indestructible States."

Although the founders established a perpetual union, they also provided for a government that is, as President Lincoln would later describe it, "of the people, by the people, and for the people" -- all of the people. Participation in, and engagement with, government is the cornerstone of our democracy. And because every American who wants to participate deserves a government that is accessible and responsive, the Obama Administration has created a host of new tools and channels to connect concerned citizens with White House. In fact, one of the most exciting aspects of the We the People platform is a chance to engage directly with our most outspoken critics.

So let's be clear: No one disputes that our country faces big challenges, and the recent election followed a vigorous debate about how they should be addressed. As President Obama said the night he won re-election, "We may have battled fiercely, but it's only because we love this country deeply and we care so strongly about its future."

Whether it's figuring out how to strengthen our economy, reduce our deficit in a responsible way, or protect our country, we will need to work together -- and hear from one another -- in order to find the best way to move forward. I hope you'll take a few minutes to learn more about the President's ideas and share more of your own.

Jon Carson is Director of the Office of Public Engagement

Sunday, January 06, 2013

Letter To The President: Cutting Tax Spending and Fixing Long Term Social Security Deficit

President Barack Obama
White House
Washington D.C. 20500

Dear Mr. President,

I have a proposal for how you can deal with the upcoming push to continue to get a grand bargain, hopefully outside the context of the debt limit. The Republicans want to you to focus on cutting costs, saying that taxes have been decided. You should agree but only if all costs are looked at - those that involve the Treasury writing a check and those the involve the Treasury writing a back door check by telling a taxpayer he can reduce what he owes. We must focus on cutting all expenditures, those made by directly by appropriations acts and those made indirectly through the tax code.

There is no doubt that tax expenditures have been under discussion. But I have a proposal for how to do reframe that debate and implement changes that I have never heard discussed. It is an approach which would be much easier to understand, sell, and implement.

Everyone knows tax policy is hard and complex, but it can be made easier. If you have three goals: cutting spending made through the tax code (tax expenditures); making the tax system fairer and more progressive; and reducing or phasing out subsidies that have passed their useful life, here is a "relatively" simple way to achieve all those goals.

Eliminate all deductions by converting them into tax credits, unrefundable of course. Value those credits at 10%, which is the lowest tax rate. (That gives you some room to negotiate up on some if necessary.) Doing this will achieve many important things.

* It lowers the deficit by cutting wasteful costs we are making through tax expenditure without raising rates.

* It leaves every truly middle class tax payer, those earning within 50% of the income mean, in roughly the same place or better than they are today.

* It gives every taxpayer the same subsidy for doing the same thing. The wealthy will not get a back door check from Uncle Sam for 35% of the interest cost on their mortgage, while the working guys only get a benefit of 10% of their mortgage interest expense. The same for charitable deductions and all the rest. This cures an unacceptable unfairness in the code and runs counter to any legitimate public policy interest.

* It simplifies the code, eliminating the really complicated things like the recently reinstated Pease Plan which partially limits the value of deductions in an unnecessarily complex way.

* Finally it gives you a mechanism to phase out tax expenditures that have passed their time. If those phase outs are done at 1 to 2% per year per year will be as easy to tolerate as the phased out tax benefits enacted in the Reagan years that eliminated for instance the deductibility of non-mortgage consumer debt.

Look, I know everything has complexities but those things can be worked out. I also know that institutions and people have a “not invented here” mindset that make them resistant to change. But this really can work. And once your your folks analyze it you will see that I have only scratched the surface of the benefits it offers.

* * * * * *

Personally, we hoped all the Bush tax cuts would have expired, knowing that would have cost us several thousand dollars but ones we never knew we were missing in the nineties. I have spent a career dealing with economist and their charts and tables and respect their work, but I understand the limitations of that work are real. One need only look at how they totally under predicted the effects of the great recession when folks like me, who were tying to sell a house and seeing the swift and deep collapse of the market could readily see the impact it was going to have on not just housing but the entire overleaveraged financial system. It was clear to anyone not looking at recession charts of the last three decades that we were facing something much worse than what had been seen since the depressions. Conversely, those same experts have not accurately seen that now the rate of growth is increasing faster that they thought. Since they have been burned by under prediction in the past they don’t want to burned by over prediction now.

That is a long way to say we could generate far more tax revenue without hurting the economy than is being thought, and could use it for necessary expenditure as well as deficit reduction, which is going to be the key Republican mantra over the next four year. Not only that, higher revenue, with part used for more infrastructure spending as well as long term investment and the rest used for lowering with lowering the deficit will help us grow faster.

I have one final thought on Social Security and Medicare. I think the long term Social security issue could be solved by not only lifting the the wage tax cap but by making all dividends and capital gains subject to the full 12.4% rate. A version of this was done in the ACA for the Medicare tax. You could even add a new small benefit percentage in the calculation so the the super rich would see a bit of return on these contributions. I think you will find that this change would pretty much eliminate the projected Social Security shortfall. It would also have the salutary effect of getting the total tax rate on unearned income closer to par with the total tax rates paid on wages

* * * * * * *

We live in a great country but since the eighties we have been making it less great by increasing income inequality, and living off the legacy of public expenditures made by our fore-bearers. As a consequence we are sadly seeing a less just, stable and economically dynamic country.

I am confident you are the Leader that can continue on the course to turn this around. I first really heard it in the Osawatomie speech, which was brilliant and moving. I continue to hear echoes of that speech to this day. I hope what I am proposing here will be yet another way for you to present concrete proposals that will further the necessary aims you have for our Nation.

Yours Very Sincerely,

Gary L. Norton
Durango, CO 81303

I added a small postscript inviting him for a visit to our house in a beautiful part of the country. He hasn't been here but Michelle has and he should just ask her.