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Obama weighed in on the current Apple-government dispute, saying that access should be made necessary.
From Reuters:
U.S. President Barack Obama on Friday made a passionate case for mobile devices to be built in such a way as to allow government to gain access to personal data if needed to prevent a terrorist attack or enforce tax laws.
Speaking at the South by Southwest festival in Texas, Obama said he could not comment on the legal case in which the FBI is trying to force Apple Inc. to allow access to an iPhone linked to San Bernardino, California, shooter Rizwan Farook.
But he made clear that, despite his commitment to Americans’ privacy and civil liberties, a balance was needed to allow some intrusion when needed.
“The question we now have to ask is: If technologically it is possible to make an impenetrable device or system where the encryption is so strong that there is no key, there’s no door at all, then how do we apprehend the child pornographer, how do we solve or disrupt a terrorist plot?” he said.
“What mechanisms do we have available to even do simple things like tax enforcement because if in fact you can’t crack that at all, government can’t get in, then everybody is walking around with a Swiss bank account in their pocket.”
The Justice Department has sought to frame the Apple case as one not about undermining encryption. A U.S. Federal Bureau of Investigation court order issued to Apple targets a non-encryption barrier on one iPhone.
The FBI says Farook and his wife were inspired by Islamist militants when they shot and killed 14 people on Dec. 2 at a holiday party in California. The couple later died in a shootout with police.
“Setting aside the specific case between the FBI and Apple, … we’re going to have to make some decisions about how do we balance these respective risks,” Obama said.
“My conclusion so far is you cannot take an absolutist view.”
Obama was speaking at the South by Southwest festival in Austin about how government and technology companies can work together to solve problems including making it easier for people to vote.
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Based on data from H&R Block as we are halfway through filing season, it is apparent that compliance with the Obamacare penalty is still a difficult task.
This is the second year that the penalty has been levied; for 2014 taxes, the fee was $95 or 1 percent of qualified income — whichever was greater — and for 2015 taxes it is $325 or 2 percent of income, whichever is greater. The average penalty is $383, while last year it was $172, which corresponds roughly to the rise in penalty costs.
However, about 3/5, or 60% of filers “who received advanced tax credits to help them buy private plans on Obamacare’s web-based exchanges must pay a portion back to the IRS because they underestimated their actual income for 2015.” Interestingly, this is an increase from last year’s figure of 52% who had to repay a portion of their advanced subsidy. Thus, compliance and income estimation is getting worse, not better, after two tax seasons.
The average subsidy amount of that Obamacare enrollees must pay back has also increased slightly this year — $579, up from $530 last year.
In contrast, about 33% of taxpayers overstated their income and received additional subsidy funds from the IRS; the average amount was $450. Those that got the number correct and saw no adjustments was a paltry 3%.
The confusion is sure to continue with next year’s filing season. The minimum penalty for no insurance will double again to $695 or 2.5% of income, whichever is higher. H&R Block calculations show that for an average family of four earning $60,000 would pay $975 this tax season (2015), compared to about $400 last year (2014), while next year the penalty would rise to $2,000 (2016).
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Every year, the various tax agencies calculate how many Americans do not pay a federal income tax. The 2015 tax year number estimates that 77.5 million households, which is 45.3%, according to the research Tax Policy Center. This number is only for federal taxes and does not include state income taxes.
There are two main reasons for the lack of federal taxes: either the household has no taxable income, or their tax liability is reduced and offset by tax breaks.
The research also calculated the various income levels from the richest and the poorest.
“The top 1 percent of taxpayers pay a higher effective income tax rate than any other group (around 23 percent, according to a report released by the Tax Policy Center in 2014) — nearly seven times higher than those in the bottom 50 percent.
On average, those in the bottom 40 percent of the income spectrum end up getting money from the government. Meanwhile, the richest 20 percent of Americans, by far, pay the most in income taxes, forking over nearly 87 percent of all the income tax collected by Uncle Sam.
The top 1 percent of Americans, who have an average income of more than $2.1 million, pay 43.6 percent of all the federal individual income tax in the US; the top 0.1 percent — just 115,000 households, whose average income is more than $9.4 million — pay more than 20 percent of it.”
Federal taxes are not the only taxes that Americans pay. Income, payroll, corporate income, state, local, property taxes, estate taxes, and excise taxes (which include taxes on gasoline, alcohol and cigarettes), are all various forms of taxation that are spread out and paid by households daily.
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A recent commentary on business tax policy by Richard Rubin in the Wall Street Journal had some very glaring errors and suggestive, misleading language.
For instance, Rubin discusses inversions in a way that makes them sound unjust and problematic –calling them a “discrete business-tax problem” that Congress has been unable to properly address. However, this is a patently false statement. Business inversions are perfectly legal, and sometimes the only just remedy for an anti-business climate that unfairly disadvantages American companies abroad by demanding both domestic and foreign tax revenue.
He later goes on to suggest that ultimate question plaguing and dividing Congress is: “Is the U.S. collecting enough money from wealthy individuals?” But when did class warfare become the driving force for government and economic decisions? Why is this the lens by which so many view various policies? Such a question is absolutely ridiculous to even consider. Why is the U.S. in the business of “collecting enough money” from “wealthy individuals?”
Thomas Sowell said it best when he remarked, “I have never understood why it is “greed” to want to keep the money you have earned but not greed to want to take somebody else’s money.” Such a question posited by Rubin is outrageously greedy.
His description of the 1986 IRC reforms was a total mischaracterization. Rubin writes, ”
“Until 1980, when the top individual rate was 70% and the corporate rate was 46%, the two systems were largely separate. Big businesses paid the corporate income tax, then when shareholders got capital gains or dividends, they paid again on the same profits. Small businesses paid as individuals.
The 1986 tax overhaul flipped that calculation, dropping the top individual tax rate to 28% and the corporate rate to 34%. New businesses saw little reason to become traditional C corporations that pay the corporate tax–unless they planned to go public. That has left the corporate tax as the domain of the largest companies. Meanwhile, states liberalized business-formation laws and Congress loosened eligibility rules for S corporations that don’t pay the corporate tax.”
Yet it’s he’s not exactly correct. With the IRC reforms of 1986, Reagan reduced the tax rates to 28% in exchange for getting rid of the tax shelters. As a result, the amount of federal income collected was more at 28% and a clean tax code than at 70% and 91% and tax shelters, because at 28%, it really wasn’t worth the time, cost, and effort to hide money.
Rubin also fails to explain the egregious set up for corporate taxes known as “double taxation.” It is
THE reason why these businesses file as non-corporate entities — so that they can avoid it. Here’s how it works:
Some companies, say a Fortune 500, pay taxes at corporate rates. The highest corporate rate is 35%. Right now, if a corporation pays taxes and reinvests its profits, there is no extra tax. But if it profits are given to the owner, they are taxed again on that amount–- which is knows as double taxation. Those business owners who wish to avoid the double taxation instead pay at individual rates, the highest of which is now 39.6% (which surpasses the corporate tax rate.)
Rubin mocks this set-up, writing “still, many pass-throughs think they are disadvantaged because the top individual rate of 39.6% exceeds the 35% corporate rate.” But they are disadvantaged. Why should businesses be taxed twice, anyway? Trying to circumvent an unfair, heavy handed tax-code on one end results in being penalized by a higher margin at the other end.
We get a further glimpse at what is driving some tax overhaul proposals. Orrin Hatch has suggested eliminating the second layer of “double taxation,” which is somewhat dismissed by Rubin when he points out that some situations might “exempt more income than necessary.” Getting enough revenue, then, is still the key driver at least on the Democrat side. This is reiterated a paragraph later when Rubin reveals that another overhaul proposal, to “deduct capital costs immediately and get a 25% rate” is also unacceptable — because “Democrats won’t tolerate the foregone revenue–and benefit to high-income households–tied to those plans.”
Why is getting enough revenue, and getting it from high-income households, the motivating force behind tax proposals these days? Why are so-called economists and analysts yielding to these class-warfare and fair share litmus tests when pontificating on tax policy? Businesses are the backbone of our country. Policy should focused on growing the economy, not punishing those who are successful. How can we honestly and morally consider taking more money from those taxpayers and business owners who have been able to create wealth and employment successfully — and just give it to the government and politicians who manage to continuously and egregiously squander income?
Rubin’s erroneous analysis was a disappointment to read in the pages of the Wall Street Journal.
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New Jersey governor Chris Christie has announced his endorsement of Donald Trump for President. Is he really so clueless? Perhaps he is just so annoyed because he lost to the real candidates that he is having a temper tantrum.
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On January 28, 2016, the Wall Street Journal ran a press release from August 10, 2004 in their “Notable & Quotable” section. The press release was fascinating, both in subject and source. The release, from the University of California, Los Angeles, announced the results of a study on the Great Depression, and found that government interference in the economy hampered and prolonged the Depression recovery.
As UCLA is not really considered a bastion of conservative or economic thought, the fact that such a study emerged is quite important — and obviously respected enough that the WSJ chose to re-run it in their pages. It echoes of Amity Schlaes important book on the topic, “The Forgotten Man.” It also resonates as a parallel to our current economic slump and anemic recovery.
I went digging for the original press release , and was eventually able to find it. The release discusses the study and its conclusions more in depth. I have reprinted the release below, in its entirety.
From a University of California, Los Angeles news release, Aug. 10, 2004:
“Two UCLA economists say they have figured out why the Great Depression dragged on for almost 15 years, and they blame a suspect previously thought to be beyond reproach: President Franklin D. Roosevelt.
After scrutinizing Roosevelt’s record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.
“Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump,” said Ohanian, vice chair of UCLA’s Department of Economics. “We found that a relapse isn’t likely unless lawmakers gum up a recovery with ill-conceived stimulus policies.”
In an article in the August issue of the Journal of Political Economy, Ohanian and Cole blame specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933.
“President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services,” said Cole, also a UCLA professor of economics. “So he came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies.”
Using data collected in 1929 by the Conference Board and the Bureau of Labor Statistics, Cole and Ohanian were able to establish average wages and prices across a range of industries just prior to the Depression. By adjusting for annual increases in productivity, they were able to use the 1929 benchmark to figure out what prices and wages would have been during every year of the Depression had Roosevelt’s policies not gone into effect. They then compared those figures with actual prices and wages as reflected in the Conference Board data.
In the three years following the implementation of Roosevelt’s policies, wages in 11 key industries averaged 25 percent higher than they otherwise would have done, the economists calculate. But unemployment was also 25 percent higher than it should have been, given gains in productivity.
Meanwhile, prices across 19 industries averaged 23 percent above where they should have been, given the state of the economy. With goods and services that much harder for consumers to afford, demand stalled and the gross national product floundered at 27 percent below where it otherwise might have been.
“High wages and high prices in an economic slump run contrary to everything we know about market forces in economic downturns,” Ohanian said. “As we’ve seen in the past several years, salaries and prices fall when unemployment is high. By artificially inflating both, the New Deal policies short-circuited the market’s self-correcting forces.”
The policies were contained in the National Industrial Recovery Act (NIRA), which exempted industries from antitrust prosecution if they agreed to enter into collective bargaining agreements that significantly raised wages. Because protection from antitrust prosecution all but ensured higher prices for goods and services, a wide range of industries took the bait, Cole and Ohanian found. By 1934 more than 500 industries, which accounted for nearly 80 percent of private, non-agricultural employment, had entered into the collective bargaining agreements called for under NIRA.
Cole and Ohanian calculate that NIRA and its aftermath account for 60 percent of the weak recovery. Without the policies, they contend that the Depression would have ended in 1936 instead of the year when they believe the slump actually ended: 1943.
Roosevelt’s role in lifting the nation out of the Great Depression has been so revered that Time magazine readers cited it in 1999 when naming him the 20th century’s second-most influential figure.
“This is exciting and valuable research,” said Robert E. Lucas Jr., the 1995 Nobel Laureate in economics, and the John Dewey Distinguished Service Professor of Economics at the University of Chicago. “The prevention and cure of depressions is a central mission of macroeconomics, and if we can’t understand what happened in the 1930s, how can we be sure it won’t happen again?”
NIRA’s role in prolonging the Depression has not been more closely scrutinized because the Supreme Court declared the act unconstitutional within two years of its passage.
“Historians have assumed that the policies didn’t have an impact because they were too short-lived, but the proof is in the pudding,” Ohanian said. “We show that they really did artificially inflate wages and prices.”
Even after being deemed unconstitutional, Roosevelt’s anti-competition policies persisted — albeit under a different guise, the scholars found. Ohanian and Cole painstakingly documented the extent to which the Roosevelt administration looked the other way as industries once protected by NIRA continued to engage in price-fixing practices for four more years.
The number of antitrust cases brought by the Department of Justice fell from an average of 12.5 cases per year during the 1920s to an average of 6.5 cases per year from 1935 to 1938, the scholars found. Collusion had become so widespread that one Department of Interior official complained of receiving identical bids from a protected industry (steel) on 257 different occasions between mid-1935 and mid-1936. The bids were not only identical but also 50 percent higher than foreign steel prices. Without competition, wholesale prices remained inflated, averaging 14 percent higher than they would have been without the troublesome practices, the UCLA economists calculate.
NIRA’s labor provisions, meanwhile, were strengthened in the National Relations Act, signed into law in 1935. As union membership doubled, so did labor’s bargaining power, rising from 14 million strike days in 1936 to about 28 million in 1937. By 1939 wages in protected industries remained 24 percent to 33 percent above where they should have been, based on 1929 figures, Cole and Ohanian calculate. Unemployment persisted. By 1939 the U.S. unemployment rate was 17.2 percent, down somewhat from its 1933 peak of 24.9 percent but still remarkably high. By comparison, in May 2003, the unemployment rate of 6.1 percent was the highest in nine years.
Recovery came only after the Department of Justice dramatically stepped up enforcement of antitrust cases nearly four-fold and organized labor suffered a string of setbacks, the economists found.
“The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes,” Cole said. “Ironically, our work shows that the recovery would have been very rapid had the government not intervened.”
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Charles Koch applauds Bernie Sander’s recognition of cronyism in government, and he is right. Cronyism has no place in our system. Koch makes a particular note about ethanol integrity — which he opposes in spite of ethanol mandates — against the likes of Harry Reid and others who try to denigrate the Kochs.
Koch’s article in the Washington Post is worthwhile to read in its entirety; it’s not pro-Bernie, but raises important and correct notes about the function of government as well as economics.
~
“As he campaigns for the Democratic nomination for president, Vermont Sen. Bernie Sanders (I) often sounds like he’s running as much against me as he is the other candidates. I have never met the senator, but I know from listening to him that we disagree on plenty when it comes to public policy.
Even so, I see benefits in searching for common ground and greater civility during this overly negative campaign season. That’s why, in spite of the fact that he often misrepresents where I stand on issues, the senator should know that we do agree on at least one — an issue that resonates with people who feel that hard work and making a contribution will no longer enable them to succeed.
The senator is upset with a political and economic system that is often rigged to help the privileged few at the expense of everyone else, particularly the least advantaged. He believes that we have a two-tiered society that increasingly dooms millions of our fellow citizens to lives of poverty and hopelessness. He thinks many corporations seek and benefit from corporate welfare while ordinary citizens are denied opportunities and a level playing field.
I agree with him.
Democrats and Republicans have too often favored policies and regulations that pick winners and losers. This helps perpetuate a cycle of control, dependency, cronyism and poverty in the United States. These are complicated issues, but it’s not enough to say that government alone is to blame. Large portions of the business community have actively pushed for these policies.
Consider the regulations, handouts, mandates, subsidies and other forms of largesse our elected officials dole out to the wealthy and well-connected. The tax code alone contains $1.5 trillion in exemptions and special-interest carve-outs. Anti-competitive regulations cost businesses an additional $1.9 trillion every year. Perversely, this regulatory burden falls hardest on small companies, innovators and the poor, while benefiting many large companies like ours. This unfairly benefits established firms and penalizes new entrants, contributing to a two-tiered society.
Whenever we allow government to pick winners and losers, we impede progress and move further away from a society of mutual benefit. This pits individuals and groups against each other and corrupts the business community, which inevitably becomes less focused on creating value for customers. That’s why Koch Industries opposes all forms of corporate welfare — even those that benefit us. (The government’s ethanol mandate is a good example. We oppose that mandate, even though we are the fifth-largest ethanol producer in the United States.)
It may surprise the senator to learn that our framework in deciding whether to support or oppose a policy is not determined by its effect on our bottom line (or by which party sponsors the legislation), but by whether it will make people’s lives better or worse.
With this in mind, the United States’ next president must be willing to rethink decades of misguided policies enacted by both parties that are creating a permanent underclass.
Our criminal justice system, which is in dire need of reform, is another issue where the senator shares some of my concerns. Families and entire communities are being ripped apart by laws that unjustly destroy the lives of low-level and nonviolent offenders.
Today, if you’re poor and get caught possessing and selling pot, you could end up in jail. Your conviction will hold you back from many opportunities in life. However, if you are well-connected and have ample financial resources, the rules change dramatically. Where is the justice in that?
Arbitrary restrictions limit the ability of ex-offenders to get housing, student or business loans, credit cards, a meaningful job or even to vote. Public policy must change if people are to have the chance to succeed after making amends for their transgressions. At Koch Industries we’re practicing our principles by “banning the box.” We have voluntarily removed the question about prior criminal convictions from our job application.
At this point you may be asking yourself, “Is Charles Koch feeling the Bern?”
Hardly.
I applaud the senator for giving a voice to many Americans struggling to get ahead in a system too often stacked in favor of the haves, but I disagree with his desire to expand the federal government’s control over people’s lives. This is what built so many barriers to opportunity in the first place.
Consider America’s War on Poverty. Since its launch under President Lyndon Johnson in 1964, we have spent roughly $22 trillion, yet our poverty rate remains at 14.8 percent. Instead of preventing, curing and relieving the causes and symptoms of poverty (the goals of the program when it began), too many communities have been torn apart and remain in peril while even more tax dollars pour into this broken system.
It is results, not intentions, that matter. History has proven that a bigger, more controlling, more complex and costlier federal government leaves the disadvantaged less likely to improve their lives.
When it comes to electing our next president, we should reward those candidates, Democrat or Republican, most committed to the principles of a free society. Those principles start with the right to live your life as you see fit as long as you don’t infringe on the ability of others to do the same. They include equality before the law, free speech and free markets and treating people with dignity, respect and tolerance. In a society governed by such principles, people succeed by helping others improve their lives.
I don’t expect to agree with every position a candidate holds, but all Americans deserve a president who, on balance, can demonstrate a commitment to a set of ideas and values that will lead to peace, civility and well-being rather than conflict, contempt and division. When such a candidate emerges, he or she will have my enthusiastic support.”
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With Bernie Sanders doing well against Hillary Clinton for the Democrat nomination, it’s a great time to look at some of the specifics of his tax plan. The Tax Foundation studied the affects of the major changes (listed below). Their analysis found that Sander’s plan will reduce typical income by more than 15% while simultaneously hiking taxes by the trillions and shrinking the GDP by nearly 10% over the next decade.
First, Sander’s plan highlights:
Individual Income Tax Changes
–Adds four new income tax brackets for high-income households, with rates of 37 percent, 43 percent, 48 percent, and 52 percent.
–Taxes capital gains and dividends at ordinary income rates for households with income over $250,000.
–Creates a new 2.2 percent “income-based [health care] premium paid by households.” This is equivalent to increasing all tax bracket rates by 2.2 percentage points, and would raise the top marginal income tax rate to 54.2 percent.
–Eliminates the alternative minimum tax.
–Eliminates the personal exemption phase-out (PEP) and the Pease limitation on itemized deductions.
–Limits the value of additional itemized deductions to 28 percent for households with income over $250,000.
Payroll Tax Changes
–Creates a new 6.2 percent employer-side payroll tax on all wages and salaries. This is referred to by the campaign as an “income-based health care premium paid by employers.”
–Creates a 0.2 percent employer-side payroll tax and 0.2 percent employee-side payroll tax, to fund a new family and medical leave trust fund.
–Applies the Social Security payroll tax to earnings over $250,000, a threshold which is not indexed for wage inflation.
Business Income Tax Changes
–Eliminates several business tax provisions involving oil, gas, and coal companies.
–Ends the deferral of income from controlled foreign subsidiaries.*
–Changes several international tax rules to curb corporate inversions and limit use of the foreign tax credit.*
Estate Tax Changes
–Decreases the estate tax exclusion from $5.4 million to $3.5 million.
–Raises the estate tax rate from 40 percent to a set of rates ranging between 45 percent and 65 percent.
–Changes several estate tax rules involving asset valuation, family trusts, gift taxes, and farmland and conservation easements.*
Other Changes
–Creates a financial transactions tax on the value of stocks, bonds, derivatives, and other financial assets traded by U.S. persons. The rate of the tax ranges from 0.005 percent to 0.5 percent, depending on the type of asset.*
–Limits like-kind exchanges of property to $1 million per taxpayer per year and prohibits the use of like-kind exchanges for art and collectibles.*
Now, The Weekly Standard analysis:
Now that Bernie Sanders has routed Hillary Clinton by 22 points in New Hampshire, the American people might be curious to learn more about some of his specific policy proposals, starting with his tax plan. The nonpartisan Tax Foundation has scored Sanders’s plan and has found it would cause the after-tax incomes of those in the middle of the income spectrum—those with incomes between the 40th and 60th percentiles—to drop by between 16.3 and 17 percent. In other words, Sanders’s tax plan would reduce the typical American’s income by a sixth.
This would result partly from Sanders’s raising of taxes on the middle class (and on everyone else), and partly from the ill-effects that his myriad tax hikes would have on the economy. In terms of tax increases for the middle class, Sanders would add a new 6.2 percent employer-side payroll tax that his campaign calls an “income-based health care premium paid by employers,” which would be passed on to employees in the form of lower wages. He would also add a new 2.2 percent “income-based [health-care] premium paid by households,” which the Tax Foundation writes “is equivalent to increasing all tax bracket rates by 2.2 percentage points.” It turns out that government-run “single payer” health care requires a whole lot of payers.
In all, the Tax Foundation finds that Sanders’s tax plan would be a $13.6 trillion tax hike—27 times as large as Hillary Clinton’s proposed $498 billion tax hike.
Sanders’s plan would also shrink the U.S. gross domestic product by 9.5 percent over ten years in relation to what it otherwise would have been, according to the scoring. That means it would decrease the size of the economy by about $2.6 trillion—or about $8,000 for every American, or $32,000 per family of four. If a rising tide lifts all boats, Sanders’s plan seems designed to sink the whole American fleet.
While middle-class Americans’ incomes would fall by a sixth under Sanders’s plan, the incomes of the top one percent would fall even more, dropping by a quarter. That might provide some solace for Sanders supports—if everyone is less prosperous, everyone should at least be more equal.
If you’d like to read the full Tax Foundation study, go here.
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The IRS announced this morning that a hardware failure occurred sometime yesterday afternoon; because of this, tax processing systems are not currently not functioning correctly.
As a result of the failure, the IRS is unable to accept tax returns filed electronically, and may also have difficultly processing refunds; however, they do not believe that “major disruptions” will occur long-term. By-and-large, 90% of taxpayers should still be able to get their refunds within 21 days.
If you visit IRS.gov, the website is up and running by some features are unavailable, such as “Where’s My Refund?” The outage will likely continue throughout the day today. Taxpayers who use services and companies that file their electronic return will see their return filing on hold until the system is properly restored.
UPDATE:
E-filing had been restored but the cause remains unknown. The IRS has assured taxpayers that hackers don’t appear to be involved; an IRS spokesman said it looked to be a “power or electrical issue” but did not provide any more substance on the matter.
According to Bloomberg, “The system failure occurred at a center in West Virginia, according to the person with knowledge off the matter. Agency officials were trying to determine if any other facilities were affected.
The IRS website lists several facilities in West Virginia; it wasn’t clear which might have been affected. IRS sites there include at least two “enterprise computing centers” in Martinsburg and Kearneysville and the Beckley Finance Center in Beckley. The finance center, part of the IRS’s chief financial office, processes payments for manual transactions and electronic payment files and helps handle the agency’s general ledger, according to the website.”
The IRS is sure to argue that budget cuts are the reason why such an episode occurred, as basic taxpayer functions have eroded over the past few years. Of course, the IRS scandals that continue to plague the agency don’t help improve its image.
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As the federal debt hits $19 trillion, the Daily Caller is reporting that the government misled Congress over debt limit solutions during 2011 and 2013. A new report has just been issued by the House Financial Services Committee the outlines the behind-the-scenes machinations. You can read the report in full here.
The Daily Caller gives a full summary here; I’ve re-posted their article in its entirety below:
“Federal Reserve Bank of New York officials secretly conducted real-time exercises during the 2011 and 2013 debt-limit crisis that demonstrated the federal government could function during a temporary shutdown by prioritizing spending, even as Treasury Secretary Jack Lew publicly claimed many times that such efforts were “unworkable,” according to a new report by the House Financial Services Committee obtained by The Daily Caller News Foundation.
The staff report, to be released Tuesday, charges that Lew and other Obama administration officials deliberately misled Congress and the public during the federal budget and debt limit showdowns in both years. The committee will convene a public hearing on the report Feb. 2.
The report also states that the Obama administration crafted actual contingency plans to pay for Social Security and veterans benefits, as well as principal and interest on the national debt if the government was temporarily unable to borrow more money. The Committee concludes that over the last two years the Treasury Department has “obstructed” congressional efforts to get to the bottom of the administration’s real-time policy during the two showdowns.
The Constitution stipulates that only Congress can determine how much money the federal government can borrow. Presidents thus cannot unilaterally spend beyond congressional debt ceiling limits set. The committee — chaired by Republican Rep. Jeb Hensarling of Texas — charged that during both confrontations, the Obama administration held the country’s creditworthiness “hostage” by claiming default was the only possibility if the debit ceiling was not raised.
“These internal documents show the Obama Administration took the nation’s creditworthiness and economy hostage in a cynical attempt to create a crisis so the president could get what he wanted during negotiations over the debt ceiling,” Hensarling said in a statement to be released with the report Tuesday.
The report also revealed that the Treasury Department did not publicly divulge its plans to prioritize payments “for the express purpose of creating market uncertainty in an effort to pressure Congress to acquiesce in the administration’s ‘no negotiation’ posture on the debt ceiling.”
Wisconsin Republican Rep. Sean Duffy, the financial services panel’s oversight subcommittee chairman, said the administration “manufactured a crisis to put politics ahead of economic stability.”
The massive, 322-page report chronicles frank, behind-the-scenes discussions among Federal Reserve Board and Federal Bank of New York officials as Congress debated whether to keep existing debt limits or allow Treasury to borrow more money. The House committee and the Treasury Department have been fighting a bitter, two-year battle over Federal Reserve documents.
The report states that “Treasury apparently directed the New York Fed not to answer valid congressional oversight inquiries because Treasury knew the answers would expose the dishonesty of the administration’s public statements.”
A Treasury Department spokesman told TheDCNF, “Treasury has been committed to working cooperatively with the Committee to provide it with the information it needs,” including providing it with the New York Fed documents. The report is based on 3,878 pages of internal documents the committee eventually acquired despite Treasury’s opposition. The panel finally obtained the documents by subpoena. The report contains 41 separate appendices.
The revelations will likely add new intensity to the long-running public debate on the proper level of federal spending as the 2016 election campaign accelerates with Monday’s Iowa presidential caucus and next week’s New Hampshire presidential primary. Obama administration officials repeatedly declared that a complete government shutdown with no partial or interim payments was the only alternative to congressional approval of an increased debt ceiling.
In testimony Oct. 13, 2013, before the Senate Finance Committee, for example, Lew said the government could not “pick and choose” the funding of individual government programs once the debt limit ceiling was reached.
“I do not believe there is a way to pick and choose on a broad basis. The system was not designed to be turned off selectively,” Lew said.
The Federal Reserve documents revealed in the report show the Obama administration was in fact prepared to pick and choose which payments to make “in order to protect the creditworthiness of the United States.”
An internal e-mail from an official in the New York Fed’s Financial Institution Supervision Group states that regardless of the congressional outcome, “Treasury is adamant they will make [Principal and Interest] payments. Not considering possibility of missing debt payments.” The P&I payments are made to Treasury bond holders.
“At the same time that Treasury was insisting to Congress and the American people that prioritization is unworkable, Treasury and New York Fed officials were working behind the scenes on a prioritization plan,” the report charges.
In private, Federal Reserve Board Federal Reserve Bank of New York officials vigorously denounced the administration’s secrecy over its contingency planning, one calling it “crazy, counter-productive, and add[ing] risk to an already risky situation.”
Federal Reserve Governor Jerome H. Powell, for example, complained that the administration tactics were part of political brinkmanship. “Treasury wants to maximize pressure on Congress by limiting communications on contingency planning,” he said in an email.
The report noted that both the Federal Reserve Board of Governors and the Federal Bank of New York had “grave concerns with Treasury’s political decision not to inform the public of the administration’s debt ceiling contingency plans.”
The Federal Reserve Board staff “strongly encouraged Treasury to reveal its plan in advance” so that the private sector could prepare properly for a debt ceiling event but Treasury officials were “very reluctant to do so,” according to the report.
The Federal Reserve documents also depict officials at the Federal Bank of New York twice engaging in intense “tabletop exercises” about how government agencies could operate under a spending limit.
A March 16, 2011, table-top exercise included an hour-by-hour simulation of how 29 governmental agencies and market players would react when the federal government reached its debt limit.
At the time, the federal government would be within $25 million of its $14.3 trillion budget limit. The Secretary of the Treasury would invoke the Federal Reserve Debt Ceiling Crisis procedures, which provide that the “The President and the Secretary of the Treasury meet with the Fed Chairman at noon and agree that the Federal Reserve should pursue actions to honor and settle SSI, veterans benefits and P&I payments.” SSI refers to Social Security and disability payments.
A similar April 9, 2013, debt ceiling table-top exercise focused on a “scenario” in which “Treasury begins controlling the flow of payments” and in which ”SSI, veterans benefits and P&I payments [would] be prioritized over all other governmental obligations.” The debt ceiling was $16.3 trillion at the time of the second exercise.
The procedures also state that “based on direction from the President, Treasury will pay only selected type of payments and withhold other government payments.”
Both Moody’s and Goldman Sachs publicly suggested during the 2013 crisis that it was possible the government could assure markets by pledging to pay principal and interest, Social Social and veterans benefits.
When contacted by TheDCNF, the Treasury Department did not directly address the issue of prioritizing payments but forwarded an October 16, 2015 blog, which stated in part, “The New York Fed’s system would be technologically capable of continuing to make principal and interest payment,” but added, “this approach would be entirely experimental and create unacceptable risk to both domestic and global financial markets.”
Multiple think tanks, including the Mercatus Center, have released reports suggesting numerous alternatives to default if the debt limit ceiling is not increased.
The national debt limit has tripled under Obama and now stands at $18.9 trillion.”
