by Dr. Jean Howard-Hill
posted October 4, 2008
As a candidate for Congress for the Third District, I want to continue an analysis of the Wall Street crisis so that the good people of the third district can better understand what the revised bill entails. Although the House revised bill was passed and signed by the President into law on Friday, what happened with the Senate’s revised version is a textbook classic of the out-of-control and sickening spending of Congress.
It was one thing for Congress and the President to rally the American people to go along with an emergency measure to stabilize the economy to prevent some of the negatives I outlined in detail in the preceding discussion on this issue. But for the Senate to have taken a crisis situation and add to it incentives that would gain the support of those who needed to be appeased, is both irresponsible and is a violation of congressional trust, which the American people must not allow to continue.
There was nothing sweet about the revised Senate bailout bill, which added what it called “sweeteners” that would sway those who opposed the bill to reconsider and support the emergency stabilization act that failed in the House on Monday.
There was much public outrage over the so-called bailout, but there should have a greater cry out over the process and practices of Washington. But before continuing the analysis of the Senate bill, it is important that you understand three terms: Pork or Earmark Spending, Special Interest Groups and Lobbyists. In my January 2008, campaign newspaper, Section B, I define these terms in detail, but for the sake of brevity, I will pull a portion of that information to summarize each.
Pork or Earmark Spending is a term used to describe the general practice of those in Congress, who go outside of the legitimate means for federal funding, by taking a piece of important legislation, and tacking on to it amendments that circumvent this process by funding special projects within their district. An example of this is the famous $233 million Alaskan bridge to nowhere, which does no more than run up the deficit.
Special interest groups can serve both a positive and negative purpose. It depends upon what is advocated by the group, and its impact upon the best interest of the people. What makes these groups not necessarily positive or in the best interest of the people is when their interest may only benefit a select few, or may be based upon profits, greed and the need to control or corner an area or market that negatively impacts the public good.
They also are formed within Congress. These groups are called Congressional Caucuses. There are more than two hundred such caucuses in Congress. These caucuses can serve good as well as not so good purposes, depending upon the nature and agenda of the group. They use their influence through the practice of “logrolling” which is the practice of offering support for a fellow member of Congress, in exchange for that member’s promise of support for their own bill, and is something that has become a part of the process in getting legislation through Congress. This presents a problem only when it leaves out of the equation the voice and will of the people.
Special interest groups, good or bad through their power and influence, use both direct and indirect techniques. Direct techniques consist of going directly to those to be influenced, such as members of Congress to get support. While indirect techniques seek the influence of the people to impact public policy. This is done by influencing citizens or rallying the troops. Posting ads, using rating systems, mobilizing constituents, asking constituents to approach elected leaders, demonstrating or boycotting, and by using the court system to exert power to advance their cause are all ways to exert indirect pressure on those who make laws, in an effort to influence their vote.
Whether we view a special interest group as good or bad, what they all have in common is the power to create, change, and affect public policy within the national and international political culture. Also whether special interest groups are external or internal to Congress, all special interest groups must be careful not to contaminate the power and privilege of the exercise of democracy.
Lobbyists are individuals who represent special interest groups and other entities that do so in hopes of buying votes and swaying influence; or in convincing members of Congress to vote on issues that they feel are advantageous to them or to their cause or interests. These groups are perhaps the most active because often they use the force of money, favors and influence to get the attention and support of lawmakers. They are the ones we see as active lobbyists who rally the troops on the Hill in Congress, often bearing gifts and rewards. They are among the “wine and dine” special interest groups that prey upon those in Congress who are susceptible to the influence of money. In order to get what they desire, these groups are not shy in exerting undue pressure on Congress, nor are they reluctant or stingy in seducing members of Congress through gifts, and benefits in exchange for influencing their vote on issues. Because of their own greed and quest for power, some members of Congress are swayed in directions which may or may not be in the best interest of those back home in which they were elected to represent.
Many of those lobbyists are retired or ex-politicians who because of prior contacts and influence, although they are no longer serving in office are lured into the service of special interest groups because of their prior influence and relationships with members of Congress. It is also because of the knowledge or expertise they may have acquired during their tenure in Congress that makes them important to special interest groups. As lobbyists with these kind of advantages, they become the point person on the hill to lobby on behalf of a specific Special Interest Group.
It is important to keep in mind the definition of these terms in order to understand what happened in the Senate with their revised version of Emergency Economic Stabilization Bill.
It also is important to separate those sweeteners into four categories, which for the sake of clarity of discussion are characterized as Group I – Relevant to Stabilization of the Economy; Group 2 – Sweeteners that are Worthwhile, But Not Related to Economic Stability; Group 3 – Sweeteners That Extend Existing Tax Reliefs to Special Interest Groups or Specific Segments of the Population; and Group 4 – Sweeteners That Are Pork Spending That Benefit Only Special Interest Groups
Group 1 - Sweeteners Relevant to Stabilization of the Economy
1. Increase of the FDIC from $100,000 to $250,000
No one can question that this provision was necessary. By increasing the amount that the Federal Deposit Insurance Corporation will insure bank accounts from $100,000 to $250,000 was necessary in order to keep depositors from withdrawing their money from banks and depositing it in foreign banks. It is called a “run on money”, which would have caused immediate and dire economic consequences to the economy because most of those deposits are not just sitting in banks. They are invested in short term and some in long term investments of stock. Having to retrieve that money at a time when the markets of Wall Street are plunging, creates an additional problem.
There also are down sides to this provision. We do have to keep in mind that the increase in federal deposit insurance will not be financed by the present assessment of a higher fee on federal deposit insured banks benefiting from it. Nor may member banks be charged more to cover the increase in coverage. However, there are no provisions in the bill that would prevent them from raising premiums. Instead, those same banks now will be able to have access to an open-ended line of credit from the U. S. Treasury Department subsidized by the taxpayers to cover their losses resulting from the increase in the limit to $250,000. It also would allow the Federal Deposit Insurance Corporation to not have to repay until at least 2010, at which time the temporary expansion ends.
2. Extension of the Alternative Minimum Tax
Depending upon what tax bracket you fall under, you may or may not see this provision as necessary to stabilize the economy. We also have to keep in mind that the income requirement to qualify as “middleclass” in the third district is not same as that of the national standard. Total household earnings of $50,000 for many of us is considered middleclass, while earnings of $250,000 may be defined as middleclass in other segments of the country.
Nevertheless, the extending of the Alternative Minimum Tax was added as an incentive to aid middle-class taxpayers to keep them from having to pay the “the income tax for the wealthy”. This is important because it is the middle class which plays the greatest role in stimulating and in keeping steady the economy through consumer spending. When you slow down, decrease or bring to a halt consumer spending within this class of taxpayers and consumers, you greatly impact the stability of the economy. Therefore, this provision was important because it gives 24 million households relief from an estimated $65 billion alternative-minimum tax schedule to take effect in 2008. This relief comes up for a vote every two years, but was tucked and folded into the fabric of the Emergency Economic Stabilization bill.
3. Tax Exemptions for Renewable Energy
This tax exemption for renewable energy impacts the economy by providing exemptions for companies that produce forms of renewable energy which cuts our dependency on foreign oil. This is a legitimate tax incentive, so long as it cuts that dependency and results in more affordable forms of energy. According to the Tax Foundation, the true estimated cost would end up being $100 billion in credits.
Group 2 – Sweeteners That are Worthwhile, But are Not Related to Economic Stability
1. Require Health Insurers to Treat Mental Health Issues the Same as Physical Illnesses
This provision would require health insurers to treat mental health patients in the same manner in which they would provide coverage for physical illnesses. It would require that equal treatment apply to health plans that cover more than 50 employees, and would cover an estimated 113 million people. This is important to the millions of Americans suffering from some form and degree of mental and emotional distress. It also is important to our military in dealing with postwar stress issues, who seek private insurance. However, it is not related to an emergency crisis of stabilizing the economy. The estimated cost is $3.4 billion over 10 years.
Group 3 – Sweeteners That Extend Existing Tax Reliefs to Special Interest Groups or Specific Segments of the Population
1. Extension of the Economic Development Credit for American Samoa
This pork add on would allow tax credit to specific corporations operating in American Samoa, by extending for two years the American Samoa Economic Development Tax Credit. At a cost of $33 million, as a possessions tax credit, these corporations are allowed to offset a portion of their U.S. tax liability on earned income from active business operations, sales of assets used in a business, and certain investments in American Samoa.
2. Tax Deduction for State and Local Sales Taxes for Non-State Income Tax Residents
This one last example, although it is still a pork add on, benefited Tennesseans by extending for 2 years, the IRS provision which allows residents of states that do not pay income tax, to deduct from their federal taxes, sales tax. Most of us in Tennessee would no doubt argue that for us, this does impact us economically. Nevertheless, it is a pork add on that should have gone the regular route of Congress for approval. The cost in lost federal revenue is an estimated $3.3 billion.
Group 4 – Sweeteners that Are Pork Spending That Benefit Only Special Interest Groups
These are just some of those add-ons that benefited special interest groups:
1. Excise Tax Exemption for Wooden Arrows Designed for Children Use
This pork sweetener would benefit Myrtle Point, Ore., manufactures, producers and importers of shafts that are used to make wooden arrows for use by minors. The current law places an excise tax of 39 cents on the first sale of these shafts. The amendment to the Act exempts manufactures, producers and importers of these shafts from the excise tax any shaft consisting of all natural wood with no laminations or artificial means to enhance the spine of the shaft used in the manufacture of an arrow that measures 5/16 of an inch or less and is unsuited for use with a bow with a peak draw weight of 30 pounds or more.
What do wooden arrows have to do with stabilizing the economy? Absolutely nothing! It is simply a part of the “old school” in Washington which without any shame or conscience continues to add on to meaning legislation special perks of pork that benefit that particular congressional districts, with taxpayers picking up the bill. The bill in this case is $2 million over a ten year period of your tax dollars.
2. To Maintain the IRS Seven-year Cost Recovery Period for Motorsports Race Tracks
Another example of this practice of pork spending was the add on of $100 million dollars to track owners to give them a tax write-off for the cost of their facilities over seven years under the IRS depreciation timetable. This was to prevent the IRS from extending the write off to up to 15 years, with the possibility of regrouping race tracks into another taxing category. Presently they fall under amusement parks which means that they would not be subject to more taxes, if they were required to deduct less taxes each year under an extended yearly deduction plan.
3. Increase in Limit on Cover Over of Rum Excise Tax to Puerto Rico and the Virgin Islands
Here’s one for the rum lovers! For a cost of $192 million, this pork add on extended a rebate against excise taxes charged on rum imported from Puerto Rico and the Virgin Islands until Dec. 31, 2009. Because there is a $13.50 per proof gallon excise tax applied to distilled spirits imported to the U.S., lobbyists have won the support of Congress to allow an increase of the present $10.50 per proof gallon to Puerto Rico and the Virgin Islands, retroactive to Jan. 1, 2008. This is not surprising since the spirit lobbyists are some of the most powerful on the hill.
4. Extension and Modification of Research Credit for Research and Experimentation
Under this add on, companies engaged in research and experimentation within the United States would have enjoyed a reestablished and two-year extended lucrative tax credit estimated at $19 billion to taxpayers. Among those companies that would have continued to benefit are already multinational companies such as Microsoft and Boeing.
5. Extension of Tariff Relief for Manufacturers of Wool products
This provision would benefit those within the clothing industry. It allows tariff relief to manufacturers and worsted wool fabric producers that use imported fabric, fibers and yarns as a part of their manufacturing process of garments. The estimated cost was around $148 million.
6. Tax Income Averaging for Exxon Valdez Litigation Plaintiff
This pork add on would benefit the plaintiffs of the Exxon - Valdez case by allowing them to average out their punitive damages awards over three years, rather than be saddled with a one-time tax on the amount awarded to them in this case. The cost was $49 million.
7. Tax Deduction for Domestic Film and Television productions
This provision gave benefits to the film and television industry. They would be allowed to fully deduct from profits, income for tax purposes the cost of production of qualifying films in the year the expenditures occur, so long as the productions were in the U.S. at an estimated cost of $478 million over 10 years.
Among some of the other provisions were deductions for charitable donations of food with an estimated cost of $149 million; and charitable deduction for contribution of books to public schools, estimated at $49 million.
Other than the creation of 1) two oversight committees that includes a Financial Stability Board that would include the Federal Reserve chairman, the Securities and Exchange Commission chairman, the Federal Home Finance Agency director, the Housing and Urban Development secretary and the Treasury secretary, and 2) a congressional oversight panel of five members appointed by House and Senate leadership from both parties, to which the Financial Stability Board would report, the Senate version was stuffed with “pure pork”.
It is not that some of these add on provisions were not worthwhile. But they needed to have been introduced properly through the regular congressional funding process, which takes the route of the appropriate committees, with ultimate approval for funding through the Appropriations Committee, rather than being tacked onto this crucial piece of legislation. By not going through the route of all of the committees, and committee hearings, many of the add-ons, were able to bypass and circumvent the rigor of the funding process. In fact, some had already failed, but were able to be resurrected to passage through the Emergency Economic Stabilization Act. This is a result of a process and practice in Washington which is normal for lawmakers. It is called pork and earmark spending. This is why those who dared to do this, thought it not shameful to do so, knowing that the nation and the whole world had their eyes upon them during these crucial economic times.
The $151 billion in tax breaks would have been offset by only $44 billion in tax increases and spending cuts. This would have resulted in an increase in taxes and adding onto the already astronomical federal deficit of $407 billion. According to the Congressional Budget Office this represents a $246 million increase within 2008 alone.
To those who would have to pick up the tab over the next 10 years or so, with the exception of those provisions that may have helped in stabilizing the economy, these were no “sweeteners”. They were nothing more than the shameful “bitter sweet” of congressional lawmakers adding $151,000 of “pork” to the tax bill for Americans.
We also have to look at the role lobbyists played in the stuffing of pork into the Senate revised bill and in the blame for the Wall Street crisis.
According to the Association for Justice (which also should be noted is a lobbyist group), the aggressive lobbying by groups such as the U.S. Chamber of Commerce also shares in the blame. This is based upon the positions they allegedly have taken in their fight to eliminate corporate accountability, by suing the Securities and Exchange Commission to block reforms and measures that were created to protect investors and mutual funds. Also they advocated for more deregulation and opposed prosecution of corporate executives. This charge, whether it is substantiated or not, stems from the lack of oversight, which is a function and role of Congress. But they certainly are not the only ones at blame.
Depending upon the sources, there are anywhere between 37,000 to 40,000 registered lobbyists in Washington, who earn salaries starting at $300,000. This reflects an increase of more than double the number of lobbyists since 2000. They work hard to influence Congress, which causes some members to look the other way or in the direction of those bearing gifts, forsaking their oversight functions and responsibility to the people.
Under the oversight function, Congress has the responsibility to oversee federal agencies. As a part of those oversight functions, it is able to control the federal bureaucracy by using the power of the purse by refusing to authorize or to appropriate funds for all federal agencies. It also has the power to regulate private businesses that contract with or receive directly or indirectly federal funds. In this way it exercises some degree of control known as “regulatory powers” over private entities, to make sure those doing business with the federal government, are kept in check, while also protecting private interest within the free market.
We also have to look at the process for enactment under emergency provisions. As an emergency piece of legislation that is needed to be passed for immediate relief to the present economic crisis, the process is troubling. None of the provisions of the House or revised Senate versions went through the regular route of passage for a law to be enacted. Although these add on provisions all involve the allocation of federal funds, they did not go through the Banking or Appropriations committees. This would have been the proper route in order to research, attach a more accurate fiscal note, and hold meaningful debate on the pros and cons of enacting this bill.
Congress also has “investigational powers” which give it the authority to conduct investigations, hold hearings to ensure compliances, order officers and employees of federal agencies or those private businesses who contract with or receive directly or indirectly federal funds to testify before congressional committees. It also can call for investigations by the Government Accountability Office and conduct oversight studies through the Congressional Budget Office.
Paramount to this is the notion that these "sweeteners" were added on to encourage reluctant House members to approve the Emergency Economic Stabilization bill. This should be troubling to all of us within the third district and in America. Why? Because it shows that Congress is no longer a law enacting body that uses its express and proper and necessary constitutional authority to perform its duties, but rather has evolved into a money corrupt society of “old school” politicians, who use their power to capriciously and carelessly use taxpayers’ money to serve their own political powerbase and to court special interest groups, who in turn benefit them through campaign contribution. This is wrong and was never intended to be a part of the political process.
Why was the Senate or members of Congress allowed to do this? Because we the people – the fourth and primary branch of government have not demanded they be accountable to us or to our government. Also, we have not taken the time ourselves to learn the duties, responsibilities and function of Congress. This is why, as an educator, just as I have taught my students in my American Government class, at the University of Tennessee at Chattanooga, I urge you to be informed. Know how government should operate. Know your rights, duties and responsibilities as citizens. Know what is expected from your elected leaders. Then hold yourselves and those you elect accountable and responsible for their actions. If we do this, crisis such as what we are facing can be avoided.
If for no other good, at least the bailout showed us what happens in Congress, and the need to put an end to this kind of irresponsible pork spending and influence of lobbyists.
Thank you for this opportunity to allow me to share what I love, which is teaching; and for those who may wish to have a refresher course in American Government, you may go to my website at ladyjforcongress.com or read Section B of my newspaper for a quick study on Congress and American Government 101.
As your Congresswoman, I will continue to do this to make sure you, the good people of the third district are always informed, and are able to hold me accountable as your representative in Congress.
Dr. Jean Howard-Hill
jean.howard.hill@gmail.com
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