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Posts Tagged ‘lobbying’

General Electric has received a lot of unwelcome attention for paying zero federal income tax in 2010, even though it reported $5.1 billion in U.S. profits. This is a good news-bad news situation.

The good news is that GE’s clever tax planning deprived the government of revenue. And I’m in favor of just about anything that reduces the amount of money that winds up in the hands of the most corrupt and least competent people in America (a.k.a., the political class in Washington).

The bad news, though, is that politicians can engage in borrow-and-spend vote-buying behavior, so depriving them of revenue doesn’t seem to have much impact on the overall burden of government spending.

Moreover, there are good ways to cut taxes and not-so-good ways to cut taxes. Special loopholes for politically powerful companies and well-connected insiders are unfair, corrupt, and inefficient.And I’ve already written about GE’s distasteful track record of getting in bed with politicians in exchange for grubby favors.

Ideally, we should junk the corrupt internal revenue code (and the corporate side of the tax code makes the personal tax code seem simple by comparison) and replace it with a simple and transparent system such as the flat tax.

That way, all income would be taxed since loopholes would be abolished, but there would be a very low tax rate and no double taxation.

Tim Carney of the Washington Examiner is one of the best economic and policy journalists on the scene today, and this excerpt from his column explains what is right and wrong about GE’s tax bill.

GE allocates hundreds of talented minds to attempts at lowering taxes. I don’t blame GE for that. It’s probably worth it — which is exactly the problem. In a world with a simpler tax code — or better yet, with no corporate income tax — GE would spend those resources creating something of value. Again, this is a case where government creates a chasm between what’s profitable (gaming tax law) and what’s valuable for society. Also, this story demonstrates once again how Big Government hurts small business much more than it affects Big Business, which can afford to figure out a way around taxes.

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The internal revenue code is nightmarishly complex, as illustrated by this video. Americans spend more than 7 billion hours each year in a hopeless effort to figure out how to deal with more than 7 million words of tax law and regulation.

Why does this mess exist? The simple answer is that politicians benefit from the current mess, using their power over tax laws to raise campaign cash, reward friends, punish enemies, and play politics. This argument certainly has merit, and it definitely helps explain why the political class is so hostile to a simple and fair flat tax.

But a big part of the problem is that tax lawyers dominate the tax-lawmaking process. Almost all the decision-making professionals at the tax-writing committees (Ways & Means Committee in the House and Finance Committee in the Senate) are lawyers, as are the vast majority of tax policy people at the Treasury Department and the Internal Revenue Service.

This has always rubbed me the wrong way. Yes, some lawyers are needed if for no other reason than to figure out how new loopholes, deductions, credits, and other provisions can be integrated into Rube-Goldberg monstrosity of existing law.

But part of me has always wondered whether lawyers deliberately or subconsciously make the system complex because it serves their interests. I know many tax lawyers who are now getting rich in private practice by helping their clients navigate the complicated laws and regulations that they helped implement. For these people, the time they spent on Capitol Hill, in the Treasury, or at the IRS was an investment that enables today’s lucrative fees.

I freely admit that this is a sour perspective on how Washington operates, but it certainly is consistent with the “public choice” theory that people in government behave in ways that maximize their self interest.

There’s now an interesting book that takes a broader look at this issue, analyzing the extent to which the legal profession looks out for its own self interest. Written by Benjamin H. Barton, a law professor at the University of Tennessee, The Lawyer-Judge Bias in the American Legal System explains that the legal profession has self-serving tendencies.

Glenn Reynolds, of Instapundit fame, interviews Professor Barton about his new book.

I freely confess that I’m looking at this issue solely through my narrow prism of tax policy. But since Barton’s thesis meshes with my observations that tax lawyers benefit from a corrupt tax system, I’m sympathetic to the notion that the problem is much broader.

One of the most quoted lines from Shakespeare’s Henry VI is, “let’s kill all the lawyers.” But rather than making lawyer jokes, it would be a better idea to figure out how to limit the negative impact of self-serving behavior – whether by lawyers or any other profession that might misuse the coercive power of government.

This is one of many reasons why decentralization is a good idea. If people and businesses have the freedom to choose the legal system with the best features, that restrains the ability of an interest group – including lawyers – to manipulate any one system for their private advantage. This new study by Professors Henry Butler and Larry Ribstein is a good explanation of why allowing “choice of law” yields superior results.

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The “appearance of impropriety” is often considered the Washington standard for corruption and misbehavior. With that in mind, alarm bells began ringing in my head when I read this Washington Times report about Jacob Lew, Obama’s nominee to head the Office of Management and Budget. Why did Citigroup decide to hire a career DC political operator for $1.1 million? As a former political aide, lobbyist, lawyer, and political appointee, what particular talents did he have to justify that salary to manage an investment division? Did the presence of Lew (as well as other Washington insiders such as Robert Rubin) help Citigroup get a big bucket of money from taxpayers as part of the TARP bailout? Did Lew’s big $900K in 2009 have anything to do with the money the bank got from taxpayers? Is it a bit suspicious that he received his big windfall bonus four days after filing a financial disclosure? Read this blurb from the Washington Times and see if you can draw any conclusion other than this was a typical example of the sleazy relationship of big government and big business.

President Obama’s choice to be the government’s chief budget officer received a bonus of more than $900,000 from Citigroup Inc. last year — after the Wall Street firm for which he worked received a massive taxpayer bailout.

The money was paid to Jacob Lew in January 2009, about two weeks before he joined the State Department as deputy secretary of state, according to a newly filed ethics form. The payout came on top of the already hefty $1.1 million Citigroup compensation package for 2008 that he reported last year.

Administration officials and members of Congress last year expressed outrage that executives at other bailed-out firms, such as American International Group Inc., awarded bonuses to top executives. State Department officials at the time steadfastly refused to say if Mr. Lew received a post-bailout bonus from Citigroup in response to inquiries from The Washington Times.

But Mr. Lew’s latest financial disclosure report, provided by the State Department on Wednesday, makes clear that he did receive a significant windfall.

…The records show that Mr. Lew received the $944,578 payment four days after he filed his 2008 ethics disclosure.

Lest anyone think I’m being partisan, let’s now look at another story featuring Senator Richard Shelby. The Alabama Republican and his former aides have a nice incestuous relationship that means more campaign cash for him, lucrative fees for them, and lots of our tax dollars being diverted to moochers such as the state’s university system. Here are some of the sordid details.

Since 2008, Alabama Sen. Richard Shelby has steered more than $250 million in earmarks to beneficiaries whose lobbyists used to work in his Senate office — including millions for Alabama universities represented by a former top staffer.

In a mix of revolving-door and campaign finance politics, the same organizations that have enjoyed Shelby’s earmarks have seen their lobbyists and employees contribute nearly $1 million to Shelby’s campaign and political action committee since 1999, according to federal records.

…Shelby’s earmarking doesn’t appear to run afoul of Senate rules or federal ethics laws. But critics said his tactics are part of a Washington culture in which lawmakers direct money back home to narrow interests, which, in turn, hire well-connected lobbyists — often former congressional aides — who enjoy special access on Capitol Hill.

Some people think the answer to these stories is more ethics laws, corruption laws, and campaign-finance laws, but that’s like putting a band-aid on a compound fracture. Besides, it is quite likely that no laws were broken, either by Lew, Citigroup, Shelby, or his former aides. This is just the way Washington works, and the beneficiaries are the insiders who know how to milk the system. The only way to actually reduce both legal and illegal corruption in Washington is to shrink the size of government. The sleaze will not go away until politicians have less ability to steer our money to special interests – whether they are Wall Street Banks or Alabama universities. This video elaborates.

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Apologies to Star Wars fans for the title, but it seemed very fitting considering the profound amoral mentality of the lobbyists who have launched a public relations campaign to defend earmarks. The key part of the story is excerpted below for your reading pleasure, but let’s focus on the “best” defense of earmarking. I’ve talked to some Republican politicians who argue the practice is legitimate because it means that elected officials rather than faceless bureaucrats are deciding how money is being allocated. That sounds semi-legitimate, but it overlooks three key problems. 

1. Earmarking facilitates higher spending. The politicians on the Appropriations Committees allow other members to insert special requests (earmarks) – but only if they agree to vote for the underlying bill. This “log-rolling” practice makes it much more difficult for fiscally responsible members to convince their colleagues to support smaller budgets. 

2. Earmarking is naked corruption. In the majority of cases, earmarks are inserted at the request of campaign contributors. In some cases, the contributors are lobbyists representing clients. In other cases, the contributors are the actual earmark beneficiaries. In either case, the process accurately could be described as bribery. 

3. Earmarking supports programs and activities that should not exist. The “bridge to nowhere” became a symbol of the earmarking process, but the underlying problem is that members of the Alaska delegation focused on steering as many transportation dollars to their state as possible when they should have been fighting to get rid of the Department of Transportation. 

Almost everybody in Washington loves earmarks. Politicians get to raise campaign cash. Lobbyists get rich charging clients. Special interests get money they haven’t earned. Congressional staff facilitate the process so they eventually can become rich lobbyists. The only losers are taxpayers and the Constitution. Anyhow, here’s the nauseating excerpt:

Lobbyists who pursue congressional earmarks are planning a public-relations campaign to defend the practice, as voters signal they no longer want lawmakers to direct millions of federal dollars to pet projects back home. The Ferguson Group, one of the largest earmark lobbying shops in Washington, is seeking donations from other appropriations lobbyists to establish a group that would promote the benefits of earmarks through a media campaign, according to documents obtained by The Hill. …“We have decided to form an informal coalition, tentatively called the Earmark Reform and Education Coalition, with the overall goal being to foster a rational conversation about earmarking among all interested parties, so that we can preserve what works and reform what does not.” …A third option is to partner with the American League of Lobbyists (ALL), according to Ferguson’s memo. Dave Wenhold, ALL’s president and a partner at Miller/Wenhold Capitol Strategies, said the organization has not decided on whether to join the campaign, but he defended earmarks as “the most transparent and accountable form of funding.”
http://thehill.com/business-a-lobbying/98223-earmark-lobbyists-defend-bringing-home-the-bacon

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