The Senate, at the time, was run by the Democrats, the House by the Republicans. Many commentators saw that conflict (the Senate Dems making the House R's look bad) as a partisan one. However, having worked on the Hill, I knew very good and well that it had nothing to do with the R's vs. D's, and had everything to do with the Senate vs. the House. As silly as it sounds, this was an opportunity for Congressional leaders to set partisanship aside, for something much more important on the Hill - to chalk up another point for the Senate over the House. Boston Red Sox vs. New York Yankees? Dallas Cowboys vs. Washington Redskins? Beavers vs. Ducks? Republicans vs. Democrats? Ha! I laugh. Senate vs. House has been going on for well over 200 years, and it has played out in all it's glory over the last couple days.
You think I'm kidding? Ask anyone who's ever worked on the Hill. The rivalry is fierce. Most on the Hill will agree the rivalry played itself out during the anthrax episode. Some, myself included, will agree that it played itself out again during this bailout process.
At this point, I will not argue the merits of the actual bailout package. As I stated clearly in previous commentaries, my gut instinct is to let folks (everyone) sleep in the beds they made. In the long run, that may actually teach the market not to get too irrationally exuberant the next time the immutable laws of the market economy dictate that the herd mentality of the market (you, me, Bob, wall street traders, and fat cats included) will thrust itself toward the latest market trend. Or, it might not. I don't know. What I do know is that I've heard enough certifiable smart people on both sides of the issue argue both sides of this issue. When that happens, and I don't know enough to override anyone, I call it a draw, and move on to the next topic.
The next topic is the President's proposal. Barely three pages long, but sweeping in implication and precedent, the President and his economic team were roundly criticized for the "blank check" nature of the proposal. I had a different theory than the "blank check." I figured the President knew that Congress was going to want to take a crack at it, and add what they thought should be the appropriate amount regulation and safeguards to ensure that the tax payers weren't going to get hosed in this deal. The House conjured up a bill, put it to a vote, and it went down in flames (this process deserves its very own commentary, but I'll spare you that).
Enter the Senate. They saw that the House put the meat on the bones of the President's proposal, but blew it in the end. So, the Senate put some more safeguards on it, then added a few other things to ensure passage.
__________________________
Let's talk about the big two add on's that most are aware of. (I'll set aside the insignificant ones like the wooden arrows thing because in the grand scheme of things, it's peanuts. Lame and annoying, but meaningless.)
Big Addition #1: the Tax Extenders package. Many criticize this one because it increases the overall "cost" of the bill to $800 and some billion (instead of the $700 billion). This criticism is based on the assumption that tax cuts are a liability to the federal treasury's balance book. The Wall Street Journal article below clearly demonstrates that tax cuts can actually bring in more money than "cost" money to the Treasury. The other problem with criticizing the addition of the "tax extenders" package is that this package of tax cut extensions (the tax cuts and incentives were set to expire) was something the Senate was already going to pass and move to the House anyway. In fact, last week, the Senate did pass it and send it to the House (the House killed it). This was a chance for the Senate to try it again, emphasizing the need for tax relief in tough economic times.
Big Addition #2: County Payments. Way back when the western states were brought into the union, deals were struck. In the case of Oregon, the federal government told the state, we're going to own over half of your land, and you won't be able to derive property taxes from us (the federal government), and thereby support your schools, law enforcement and other basic municipal needs. But we (the federal government) will sell timber cutting contracts to your local businesses, and require them to send a percentage of their profits to the county governments so they can operate. That was the deal. We're not cutting trees anymore (in any significant amount). People are unemployed, and the Counties have lost over 50-80% of the general budget (depending on the county). Those dollars went to schools, roads, and law enforcement. So, we cooked up this County Payments program that would cut a straight check to the local counties at an amount equal to the deficient timber operations taking place in their communities. In other words, if no trees were being cut, we'd give them all the money they would have gotten had we cut trees. If some trees were cut, we'd only give them some money. And if a normal amount of trees were cut, we wouldn't give them any additional money. This program kept the counties above water. Treading water. The County Payments is expiring. Counties are already starting to lay off entire road departments (not paper pushers - they're already gone, but the guys who actually fill the pot holes, etc). Sheriffs in some counties now only have 1 or 2 deputies. All of the counties in Oregon (including Multnomah) have been screaming for the extension of this program (in addition to the counties all over the western United States - though, Oregon is the biggest beneficiary). 3 Counties in Oregon, if memory serves, will go insolvent with out it. We passed the bill several times in the Senate only to have it stripped by House leadership (Pelosi - she's got a philosophical problem with tying any amount of federal money to something rooted in cutting trees. The cutting of trees, of course, is an discourse for another time). This bailout bill was the one vehicle that we could stick the county payments extension on, that we know the House couldn't strip it out of. Why?
This takes us back to the Senate versus the House. By all measures, the Senate version of the bailout bill is much better than the House version, which was easily better than the original proposal by President Bush. The Senate saw the House meltdown on their version, so the Senate dropped all talk of Republican vs. Democrat, and saw a chance to stick it to the House. (Hence, my subject line of Senate 2 - House 0.) The Senate acted swiftly and decisively by improving the House bill, passing it 74-25, then promptly adjourned and went home. All the Senators are on planes right now, flying back to their home states. By doing this, they are forcing the House to pass the Senate bill as it is, or be blamed for another meltdown and crisis.
The House will vote tomorrow, and no one is quite sure what the vote count is right now. But, if the House doesn't pass it, the House will look like collective fools. When the House blew it last time, Wall Street lost 777 points in one day (granted, it recovered some of that back the 2nd day). Accurately or not, the people of the nation blamed the House for that, and they'll do it again.
p.s. Pray for the Chicago Cubs. They're down two games in a best of five series. Any team can have a bad century. No team should have two.
__________________________
REVENUE REVELATION (The Wall Street Journal, New York )
House and Senate GOP conferees finally agreed yesterday on extending the 15% tax rate on dividends and capital gains for two more years through 2010. This means you can expect lots of media and liberal rhetoric about "the deficit" and "the rich," but the real news is how well these lower rates have been soaking the rich to fill government coffers.
The latest evidence is Treasury's monthly budget report for May that tax receipts were up by $137 billion, or a remarkable 11.2%, for the first seven months of Fiscal 2006 through April. That's more than triple the inflation rate. And it comes on top of the $274 billion, or 14.6%, increase in federal revenues for all of Fiscal 2005, which ended last September 30.
The current revenue rush also refutes the prevailing Washington consensus that the federal deficit is the result of the Bush tax cuts. In fact, this revenue tsunami is the direct result of the expansion that took off in earnest at about the time the 2003 tax cuts passed. Lower tax rates have since had precisely the result that supporters predicted, though don't look for that story on page one any time soon.
This explains why tax-cut opponents have tried to change the subject from the sluggish growth they first expected, to the "jobless recovery" that soon became the 4.7% unemployment rate recovery, to lagging wage growth that is also now increasing. The latest liberal themes are allegedly rising "inequality" and allegedly exorbitant executive compensation. These are subjects for other editorials, but their current political and media prominence means the critics are conceding that they can't credibly call the tax cuts an economic failure. So they have to find other election-year talking points.
This revenue wave has also come as a shock to the estimators at the Congressional Budget Office, whose May analysis is full of implicit amazement, not to say chagrin, since they predicted nothing of the sort. As recently as March, CBO was still advertising an expected increase in the baseline for individual income tax receipts of only $76 billion and merely $24 billion in corporate tax receipts for all of Fiscal 2006. Yet in only seven months, individual income tax revenues have already climbed by $56 billion and corporate receipts by $40 billion.
This revenue inflow also means that federal taxes as a share of the economy are now almost back to their post-World War II average of roughly 18%. That share will continue to increase if the economy continues to grow, as more taxpayers get wealthier and are thrown into higher tax brackets. The only reason the federal deficit continues to exist is because Congress continues to spend more than 20% of GDP.
So far in Fiscal 2006, spending is still rising by 7.6% overall. Defense is rising by only about 6%, but Medicare is speeding ahead at nearly 14%, thanks to the new prescription drug benefit. As ever, the real budget problem is spending, especially on entitlements. The solution there is restraint and reform, not higher taxes. At least Republicans can finally point to a policy victory this year, one that should push any big tax increase well past the next election. (May 10)
__________________________
REVENUE REVELATION (The Wall Street Journal, New York )
House and Senate GOP conferees finally agreed yesterday on extending the 15% tax rate on dividends and capital gains for two more years through 2010. This means you can expect lots of media and liberal rhetoric about "the deficit" and "the rich," but the real news is how well these lower rates have been soaking the rich to fill government coffers.
The latest evidence is Treasury's monthly budget report for May that tax receipts were up by $137 billion, or a remarkable 11.2%, for the first seven months of Fiscal 2006 through April. That's more than triple the inflation rate. And it comes on top of the $274 billion, or 14.6%, increase in federal revenues for all of Fiscal 2005, which ended last September 30.
The current revenue rush also refutes the prevailing Washington consensus that the federal deficit is the result of the Bush tax cuts. In fact, this revenue tsunami is the direct result of the expansion that took off in earnest at about the time the 2003 tax cuts passed. Lower tax rates have since had precisely the result that supporters predicted, though don't look for that story on page one any time soon.
This explains why tax-cut opponents have tried to change the subject from the sluggish growth they first expected, to the "jobless recovery" that soon became the 4.7% unemployment rate recovery, to lagging wage growth that is also now increasing. The latest liberal themes are allegedly rising "inequality" and allegedly exorbitant executive compensation. These are subjects for other editorials, but their current political and media prominence means the critics are conceding that they can't credibly call the tax cuts an economic failure. So they have to find other election-year talking points.
This revenue wave has also come as a shock to the estimators at the Congressional Budget Office, whose May analysis is full of implicit amazement, not to say chagrin, since they predicted nothing of the sort. As recently as March, CBO was still advertising an expected increase in the baseline for individual income tax receipts of only $76 billion and merely $24 billion in corporate tax receipts for all of Fiscal 2006. Yet in only seven months, individual income tax revenues have already climbed by $56 billion and corporate receipts by $40 billion.
This revenue inflow also means that federal taxes as a share of the economy are now almost back to their post-World War II average of roughly 18%. That share will continue to increase if the economy continues to grow, as more taxpayers get wealthier and are thrown into higher tax brackets. The only reason the federal deficit continues to exist is because Congress continues to spend more than 20% of GDP.
So far in Fiscal 2006, spending is still rising by 7.6% overall. Defense is rising by only about 6%, but Medicare is speeding ahead at nearly 14%, thanks to the new prescription drug benefit. As ever, the real budget problem is spending, especially on entitlements. The solution there is restraint and reform, not higher taxes. At least Republicans can finally point to a policy victory this year, one that should push any big tax increase well past the next election. (May 10)
