Fiscal Commission Fails to Garner Enough Votes for Final Report

In a portentous disappointment yesterday, the New York Times reports that the National Commission on Fiscal Responsibility and Reform voted 11-7 in favor of the report it released on December 1 but failed to gather the fourteen votes necessary to send the proposal to Congress for a vote.[1]

The Commission had eighteen members, six appointed by the President, twelve appointed by Congress, six from each chamber, split equally among the two parties. The President's appointees voted 5-1 for. At that rate, if the President had chosen all the members of the Commission, the plan would have probably passed. But the President doesn't vote in Congress, and Congress is the branch that will have to create the laws to implement the reform, and of course, the dissension on the panel came from among Congress's twelve appointees, six from each chamber, split equally among the two parties. Congress's total representation split down the middle, 6-6. The parties likewise both split down the middle, 3-3, but the two chambers did not. Like the President's appointees, the Senate appointees voted 5-1 for, but the House appointees, however, voted 5-1 against.

Notes

[1] The only reference to fourteen votes in the Executive Order creating the Commission is Section 5(b), which says, "The issuance of a final report of the Commission shall require the approval of not less than 14 of the 18 members of the Commission." Thus, "final report" appears to be some sort of term of art meaning the proposal of a President's commission that it submitted to Congress for consideration.

Fiscal Commission Proposal to Reform the MID Has Favorable Polling

As a part of its package to put the federal fiscal house in order, the President’s National Commission on Fiscal Responsibility and Reform is proposing to reform the mortgage-interest deduction (“MID”), White House, The Moment of Truth: Report of the National Commission on Fiscal Responsibility and Reform 31 (2010) [hereinafter The Moment of Truth], a device in the federal income tax that allows some individuals to deduct with some limits the amount of the interest they pay on their mortgage from their taxable income, see Internal Rev. Service, Publication 936: Home Mortgage Interest Deduction (2009), and that is designed to increase homeownership in the United States, see Roger Lowenstein, Who Needs the Mortgage-Interest Deduction?, The New York Times, Mar. 5, 2006.

The MID is associated with a number of well known problems. Most fundamentally, as recapitulated in a recent Urban Institute report, the MID doesn’t actually increase homeownership in any meaningful amount. Eric Toder, et al, Urban Institute, Reforming the Mortgage Interest Deduction (2010) [hereinafter Urban Institute Report]; see also Christian A.L. Hilber and Tracy M. Turner, The Mortgage Interest Deduction and its Impact on Homeownership Decisions (2010). The evidence from the United States and abroad has consistently found little-to-no correlation between the MID and homeownership levels. Id. at 3. In the United States, this occurs because only some homeowners can take advantage. In order to take the MID, the homeowner must itemize their deductions instead of taking the standard deduction, Publication 936, supra, at 1, in the hope that the total amount of their deductions itemized, including the MID and others, will exceed the standard deduction, and thus lower their taxable income more than the standard deduction would. See Internal Rev. Service, Publication 501: Exemptions, Standard Deduction, and Filing Information 25 (2009). Higher-income taxpayers are much more likely than lower-income taxpayers to itemize their deductions, Urban Institute Report, supra, at 3, as you have to have a certain amount of income in order to spend enough money and exceed the standard deduction; furthermore, the benefits of the MID accrue proportionately to income (the more income you make, the larger the tax break); and of course, the more income you make, the more likely you are to be able to own a home regardless of tax structure: thus, “[b]ecause most who benefit [from the MID] would own homes without the deduction, [the MID] mostly provides an incentive to live in more expensive homes, not to own instead of rent,” id. at 2. The Urban Institute report concludes that a tax credit, instead of a deduction, for all homeowners, not just those who itemize their deductions, would better serve the policy of increasing homeownership, if that policy is to be served at all, id. at 16.

Beyond a failure of purpose, a few other defects are worth mentioning.[1] By adding yet another line item to already overwhelming tax forms, the MID makes income taxes more complex, and, according to the Taxpayer Advocate, complexity is currently the most serious problem in the federal tax code. Taxpayer Advocate Service, 2008 Annual Report to Congress 3 (2008). In addition, because its benefits correlate positively to income, the MID is considered to be a regressive tax. See Alexander Hart, Is the Mortgage-Interest Deduction Really a Middle-Class Tax Break?, The New Republic, Nov. 16, 2010 (discussing the Urban Institute Report); Ezra Klein, Who Does the Mortgage-Interest Deduction Benefit?, The Washington Post, Nov. 16, 2010 (graphing the Urban Institute Report). And finally and perhaps most importantly, for being a failure of policy, the MID is very expensive, currently the single most costly tax-expenditure subsidy in the federal budget, and the Joint Committee on Taxation estimates that it cost the Treasury $86.4 billion in 2009 and will cost $134.7 billion in 2013. Joint Committee on Taxation, Estimates of Federal Tax Expenditures for Fiscal Years 2009-2013 33 (2010); Jeanne Sahadi, Mortgage Deduction: America’s Costliest Tax Break, CNN Money, Apr. 15, 2010.

In its report, the Commission offers a reform to deal with the problem. It decides, implicitly, that promoting homeownership is a policy worth serving, proposes to change the deduction into a credit for all homeowners, but scales back the benefits and cost of the credit, The Moment of Truth, supra, and puts the savings both to cutting the deficit as well as lowering the overall income-tax rate, id. at 30.

The Commission is not the first to consider reforming the MID. The problems associated with it are well known, and sensible economics has wanted to kill it off for sometime now, but the MID has traditionally been considered an untouchable tax policy, one so important to so many interests and constituencies as to be beyond reform or repeal. See Edward L. Glaeser, Killing (or Maiming) a Sacred Cow: Home Mortgage Deductions, The New York Times, Feb. 24, 2009; Edward D. Kleinbard, Sacred Tax Cows: It’s Them or Us, Huffington Post, Aug. 10, 2010.

The Obama administration’s recent rebuffed attempts at reform are illustrative. In its 2010 budget proposal, the administration proposed limiting the MID for upper-income Americans in order to pay for health-care reform. Office of Management and Budget, A New Era of Responsibility: Renewing America’s Promise 29-30, 123 (2009); Dep’t of the Treasury, General Explanations of the Administration’s Fiscal Year 2010 Revenue Proposals 75 (2009); Laura Meckler, $318 Billion Tax Hit Proposed: Upper-Income Americans Would See Deductions Cut on Charity and Mortgage Interest, The Wall Street Journal, Feb. 26, 2009, at A1. Congress rejected this proposal by explicitly omitting it from its fiscal year 2010 budget resolution, S. Con. Res. 13, Title V, Section 501, at 41-42 (2009); Congress Omits Limiting Mortgage Interest Deduction, Nation’s Building News, week of May 4, 2009 (viewed on Nov. 20, 2010), and then by declining to include it as a revenue offset in its ultimate health-care reform act, see The Patient Protection and Affordable Care Act, Pub. L. 111-148, 124 Stat. 119, 847-83 (2010). In its 2011 budget proposal, the administration again proposed limiting the MID and other deductions. Office of Management and Budget, Budget of the U.S. Government: Fiscal Year 2011 40, 168 (2010); Dep’t of the Treasury, General Explanations of the Administration’s Fiscal Year 2011 Revenue Proposals 129 (2010); Martin Vaughan, Tax Cuts to Expire for Top Earners, The Wall Street Journal, Feb. 2, 2010. As with the 2010 budget, the proposed limitation went nowhere in Congress. See James R. Hagerty, Bid to Curb Mortgage Tax Break Falters, The Wall Street Journal, Mar. 1, 2010.

While recent experience isn’t promising for reform, surprise data suggests that the MID might not be untouchable after all. A recent poll found a majority favoring eliminating the MID to help cover the deficit and lower income-tax rates. Alan Fram and Jennifer Agiesta, AP-CNBC Poll: Deficit-Cutting Ideas Not Popular, Associated Press, Nov. 30, 2010. When the first two attempts at reform by the Obama administration were rebuffed, they were rebuffed by Congress. Ultimately, considering the extraordinary weight of the issues involved, it is the American people who are going to have to decide how to fix the deficit, and the poll above suggests, contrary to conventional wisdom, that the MID could be ready for reform.

Notes.

[1] It's worth putting in a footnote to the paragraph on defects that the MID didn't cause the subprime mortgage crisis. If lower-income homeowners, the most likely to be subprime borrowers, don't take the deduction, then the deduction can't have driven them to buy the home they couldn't afford in the first place.

Fiscal Commission Releases Report: "The Moment of Truth"

The President’s National Commission on Fiscal Responsibility and Reform released its report yesterday, entitled, appropriately, “The Moment of Truth.” A national train wreck is coming. It’s happening, right now. The processes are already at work all around us, if only by default. Assuming that the structural imbalance of revenues and expenses in the federal budget are not brought back into line and soon, the net present value of the United States government over the next 75 years is -$89 trillion. Gov’t Accountability Office, The Federal Government's Long-Term Fiscal Outlook 7 (2010) (GAO-11-201SP). In other words, if we were to do nothing to change our situation and tame the deficit, we would need $89 trillion dollars in cash today in order to meet the current promises for tomorrow. This is a number so large that it lacks meaning. Something must be done, and the report is at the very least a good first step in the right direction. If you want to understand the gravity of what’s happening to us and what it’s going to take to cope, check it out.

So After Only Six Years, the Circle Could Be Closing

0°: The 9/11 Commission found that federal agencies didn’t share intelligence information with each other in general and that intelligence sharing could have lead to the discovery of at least one of the 9/11 hijackers. 9/11 Commission Report 416-17 (2004). These findings led the commission to make the following recommendations to facilitate intelligence sharing:

“Recommendation: Information procedures should provide incentives for sharing, to restore a better balance between security and shared knowledge.” Id. at 417.

“Recommendation: The president should…coordinate the resolution of the legal, policy, and technical issues across agencies to create a ‘trusted information network.’” Id. at 418.

180°: In response to this crisis, Congress enacted these recommendations in § 1016 of the Intelligence Reform and Terrorism Prevention Act of 2004. See Pub. L. 108-458, 118 Stat. 3638, 3665-70 (2004); and 6 U.S.C. §§ 481-86.

~200°: In 2010, a young, Army intelligence analyst was arrested for, among other things, leaking classified hundreds of thousands of State Department diplomatic cables. Kevin Poulsen and Kim Zetter, U.S. Intelligence Analyst Arrested in Wikileaks Video Probe, Wired, Jun. 6, 2010. News analysts quickly noted that this lowly Army private’s access to the State Department’s secret files was only possible because of the information-sharing network recommended by the 9/11 Commission and enacted by Congress. Is Pvt. Bradley Manning Behind Leak?, ABC News, Nov. 29, 2010 (video link).

In response to this crisis, the information-sharing network is in what could be the early, informal stages of disintegration:

“In Washington, the State Department severed its computer files from the government’s classified network, officials said, as U.S. and world leaders tried to clean up from the leak that sent America’s sensitive documents onto computer screens around the globe.

By temporarily pulling the plug, the U.S. significantly reduced the number of government employees who can read important diplomatic messages. It was an extraordinary hunkering down, prompted by the disclosure of hundreds of thousands of those messages this week by WikiLeaks, the self-styled whistleblower organization.” Matthew Lee, US Cuts Access to Files as Interpol Seeks Assange, Associated Press, Nov. 30, 2010.

Empty Milestone

Oh yeah? Then I'll just throw even more microprocessors on my motherboard, and then I'll be the fastest, won't I?

Artificial Austerity

Ah yes, but is his wife going to move in with him?

Dueling UN Eminent-Domain Projects

The Middle East peace talks have faltered ever since Israel resumed building settlements in the disputed territory. The Palestinians appear to have lost faith in the process and are considering going to international bodies like the UN for a declaration of the existence and extent of a Palestinian state. This would seem like a good idea to me if I were Palestinian. After all, it worked for the Jews.

Shore Up the Nation's Balance Sheet with Tax Rebates to Individuals

Tax rebates to individuals have fallen out of American political favor in stimulus packages. The 2001 tax cuts in part included rebates to individuals, and the 2008 stimulus package did as well, but the 2009 stimulus package, on the other hand, did not, taking the form instead of tax cuts, intergovernmental transfers, grants, and loans. The administration initially wanted to include rebates, but they were eventually dropped from the package.

This is in great part due to the concern that individuals won't spend the rebate, but rather save it, which in America means paying down credit-card bills and other debt. The results are, of course, mixed, and they have been since the 1970's. Some of the rebate is spent, and some is saved. The portion that is saved though, frustrates the purpose of fiscal stimulus, which is to increase short-term aggregate demand. Spending stimulates; saving doesn't.[1]

Now, I'm no economist, but the thought has occurred to me: perhaps individuals saving, especially in the form of paying down credit-card debt, rather than spending a rebate is actually a good thing. Consider first that the average interest rate that an individual, at the moment, pays on credit cards is 15%. Then consider that the federal government, at the moment, only pays about 2.5% on ten-year treasuries. Thus, when an individual pays down his credit cards with government rebates, the nation is essentially refinancing its debt at a risk-free rate.[2] Finally, consider that American government, as the least risky  borrower in the world, can and apparently does expect to pay similarly low rates, at the very least for the better part of a decade, the end of which time is about the time that Moody's has said it would downgrade American debt if the government didn't get its act together.

At least in isolation, then, refinancing the nation's debt through rebates to individuals seems to be a national policy worth promoting over the next couple of years as a way to shore up the nation's balance sheet in preparation for what will be the truly monumental and excruciating task of reforming the structural imbalances in the federal government's budget.

Notes.

[1] I don't know if there's room to argue that a person with a better balance sheet will increase demand as well over the longer term, if at all, but it seems right to say so.

[2] This arrangement would seem to make equally good sense even if the rebate was used to increase already positive savings. Risk-free financing of a rebate that is used to increase an individual's already positive savings would essentially be the nation leveraging return on investments. For this all to work, of course, the returns on investment would have to exceed the risk-free rate and the increased taxes on investment imposed to repay the government loan.

Suicides Caused By Homosexual Acts

WASHINGTON, D.C. – Family Research Council President Tony Perkins responded to the recent suicides of Tyler Clementi, Justin Aaberg, Seth Walsh, Asher Brown, and others.

Perkins released the following statement:

“I have watched with regret the news about the recent suicides of Tyler Clementi, Justin Aaberg, Seth Walsh, Asher Brown, and others. All of us here at the Family Research Council share a deep, Christian belief in the sanctity of human life, and we mourn their unfortunate deaths.

“As unfortunate they were, however, they were not surprising. Research has shown that homosexuals, as a result of engaging in homosexual acts, experience mental illnesses like depression more often than heterosexuals, and there is no empirical evidence that this depression—like that experienced by Tyler, Justin, Seth, Asher, and others—is caused by so-called ‘homophobic discrimination’ in our society. What makes these suicides regrettable, then, is that they could have been prevented had these young men chosen not to engage in the acts that ultimately caused their deaths.

“The Family Research Council urges all homosexuals who are experiencing suicidal ideation to stop engaging in homosexual acts and seek therapy with a qualified counselor so that they can learn to cope with and eventually be cured of their unnatural condition,” concluded Perkins.

Open Letter to Zack de la Rocha

Dear Mr. de la Rocha:

I would like to say from the outset that I am a huge fan of yours. Rage Against the Machine's self-titled album is an absolute masterwork, and you deserve to be inducted into the Rock and Roll Hall of Fame. Thank you for contribution to the zeitgeist.

I was happy to see that you published your first piece as a Huffington Post contributor the other day. It's about time the mainstream media finally came around and recognized that you are a voice to be reckoned with. I was also happy to see that you got top billing. You are way more of a celebrity than that other guy, and you definitely deserve to have the bigger name in lights.

I suspect that you delegated the task of writing the piece to the other guy, however, because the piece contain multiple instances of multiple grammatical errors. For example, it doesn't hyphenate phrasal adjectives consistently.  It should read "fear-mongering state governments," not "fear mongering state governments," and "civil-rights organizations," not "civil rights organizations." The piece also neglects to set off independent clauses joined by a conjunction with a comma and fails to use the serial comma consistently. But the gravest error occurs when the piece abuses the semi-colon in the last paragraph with that quote from Batman Begins. A series of terms or phrases can only be set off with semi-colons if the series follows a colon, and the letter following a semi-colon must always be a lower-case, not capital, letter. As written, the sentence breaks both of these rules. It should instead read something like this, starting out with the rhetorical tautologies set off with commas, not semi-colons ("So long as there is injustice, so long as...," etc., etc.), following the series with a comma, not a period, and then finishing the buildup with the strong declarative ("The resistance of organizations, artists, writers, and governments will continue.").

The piece makes other errors, but I won't belabor the point by listing them all here. I will instead just conclude by offering my services as an editor, free of charge. The next time you delegate a writing task to someone of questionable skills or are just too busy making the greatest rock 'n roll that the greatest country in history—the United States of America—has ever seen, it would be my honor if I could help you put the finishing touches on your image and the polish on your work as you expand your audience reaching out to the bourgeois as a Huffington Post contributor or in any other capacity. In closing, thank you for your time and attention, and thank you for the rock 'n roll.

Looking forward to your next album,

Tommy Leibowitz

Proportion Perspective Paris

The unions and students in France are going all-out against proposed pension reforms. Paris has ground to a halt, and there is serious talk of a full-fledged "rebellion" against President Sarkozy. The reform? Sarkozy has proposed raising the retirement age by two years. Perhaps this is my American perspective talking, but the protests seem overwrought when compared to the reform.

Metaabsurdity

The only thing more absurd than a sixteen-year-old boy having someone ghostwrite a memoir is a grown man reviewing the memoir and belittling the boy for a failure of poetry. At least Mark Twain picked on people his own size.

Tyrants Replacing Tyrants

At a recent debate in London, Julian Assange lashed out at the liberal media for investigating his finances, the conservative media for pointing out the very immediate and human collateral damage caused by his organization's sloppy work, and the technological media for documenting his organization's internal struggles. He also refused to discuss facially credible accusations of bias. Assange seems more and more like the type of guy who'd claim a state-secrets doctrine if he had one.