The Price of Civilization: Reawakening American Virtue and Prosperity (17 page)

It might be supposed that public opinion had forced Obama’s hand, but this is patently not the case. In the months leading up to the Obama-Republican agreement to extend tax breaks for the rich, the broad public supported a rollback of the tax breaks at the top. According to the Pew Research Center, a consistent majority of Americans from September 2004 to December 2010 called for repealing the Bush tax cuts on the wealthy or repealing the tax cuts altogether (see
Table 7.2
).

At the moment of truth during the lame-duck session of Congress in December 2010, only one-third of the public actually supported the extension of the tax cuts for the richest Americans, and nearly 60 percent opposed it. The minority viewpoint prevailed. The political system paid no heed to the public.

Obama and his top advisers have known from the start of the administration about the deep contradictions between Obama’s tax policies and his activist objectives on education, science, and infrastructure. They promised low taxes to get elected and have held to the line. In private the top advisers routinely acknowledge the need for higher tax revenues but declare that they are politically infeasible. Rather than explaining the basic truths to the public and defending a truly defensible position, they instead pander to the public and especially to their rich campaign contributors. Obama aims to raise perhaps $1 billion for the campaign war chest for 2012, which will require a political environment highly favorable to wealthy campaign contributors.

Table 7.2: Attitudes About Ending the Bush Tax Cuts

Source: Richard Auxier, Pew Research Center for the People & the Press, “Taxed Enough Already?,” September 20, 2010, and Pew Research Center, “Mixed Views on Tax Cuts, Support for START and Allowing Gays to Serve Openly,” December 7, 2010.

The proof of this pandering is the behavior of key advisers after they leave office. No sooner had Office of Management and Budget (OMB) Director Peter Orszag left the White House than he wrote about the need for higher tax revenues as a share of GDP, a position he never took publicly while OMB director.
¹¹
The head of the Council of Economic Advisers, Christina Romer, also called for tax increases—once she had left office:

Finally, the President has to be frank about the need for more tax revenues. Even with bold spending cuts, there will still be a large deficit. The only realistic way to close the gap is by raising revenue.
¹²

It’s a funny thing about being frank. We spend billions of dollars every two years to elect politicians who in turn bring top academic experts to Washington. Is that merely so that the experts can then hide the truth from the American people until those experts leave office and begin to write the truth once again?

Case 2: The Health Care Reform Debacle

The health care reform effort also exemplified the power of special interests. Obama worked very hard to make some progress in this area, and he achieved some progress, but at huge costs to public morale and huge sacrifices to corporate power. When the administration began its legislative efforts in early 2009, it decided not to put forward a plan, on the grounds that the last attempt to prepare a health plan, in Clinton’s first year of office, had gone down to defeat. A plan, it was argued, would leave too many hostages to the lobbyists’ whims.

Obama was determined to avoid a confrontation with two key corporate sectors, the health insurers and the pharmaceutical industry.
If he put forward a plan that would really control costs, for example, or that introduced government competition into the insurance market (through the so-called public option), the private insurance industry would bolt. Therefore, from the start, Obama winked at the industry and assured its lobbyists that there would be no heroics on the critical cost and competition issues. He did not say as much to his constituents and the general public, who were told repeatedly that cost control was central and that a public option was very much on the table. Similarly, Obama negotiated an early truce with the big pharmaceutical companies, assuring the industry that the United States would not explore new methods of drug pricing. This too was never clearly articulated to the public.

The entire health care debate then took on a surreal air for the next fifteen months. Obama could not table a plan because the outlines of the implicit agreement with industry ran counter to the views of much of his own party, and indeed a majority of the public at large. During 2009, the public repeatedly indicated in opinion surveys that it backed the option of a government-run plan to compete with private plans. According to CBS/
New York Times
polls, the margin was 66 percent to 27 percent in favor of the public option in June–July 2009; in a Pew survey, it was 52 percent to 37 percent.
¹³
Obama aimed to keep supporters of the public option satisfied by assuring them that such a policy was still on the table, while not explaining clearly to the public the outlines of the actual White House understandings with private industry.

The situation was even murkier because the costly part of the proposal—subsidies to expand health care coverage—meant additional annual outlays of around 1 percent of GDP in the latter years of this decade, but paying for this through tax increases on higher incomes was very unpopular with politically powerful groups. Eventually a hodgepodge financing package was cobbled together, including some planned future cutbacks in Medicare spending that are unlikely to be implemented when the time comes, as well as some modest increases in payroll taxes on high-income households and
excise taxes on high-premium private insurance plans held mainly by high-income households. (Revenues from the latter two sources are expected to raise around 0.1 percent of GDP in fiscal year 2015, 0.2 percent of GDP in fiscal year 2018, and 0.3 percent of GDP in fiscal year 2021.)
¹⁴

In the middle of the health care debate I asked a leading congress-woman about the miserable state of the health care legislation. She literally put her head in her hands and declared “The lobbies, the lobbies.” It felt to me like the final scene of
Heart of Darkness
, in which Kurtz mutters, “The horror! The horror!”

The health care debate, indeed, exposed once again that U.S. politics are narrowly channeled in a very deep groove of special interests.
¹⁵
Lost throughout the fifteen months of debate were the public’s trust and a coherent reform effort. By failing to put forward a coherent plan during the entire process, Obama left the public on the sidelines. He stumped energetically for “health care reform,” but few people (including myself) were able to keep track from week to week of what was actually in the reform legislation of the moment. Nor was the public honestly apprised of the merits and likelihood of key changes, such as a public option, systemic change for cost controls, or the various potential means of financing expanded coverage. The administration and Congress turned to their favorite experts along the way, but America lost the chance to hear systematically from the expert community about the merits and demerits of various alternative proposals. In short, we were told to avert our eyes to the “sausage making” on Capitol Hill but then forced to eat the sausage, like it or not.

Case 3: The Energy Policy Stalemate

America desperately needs a coherent energy strategy, since the country is being hemmed in on three sides: the global scarcity of oil; the intensifying competition over supplies in unstable regions of the world; and the environmental risks of a continued rapid rise in fossil fuel use. The president came into office promising to break
the logjam on climate change and to set a new course for U.S. energy security. Yet after more than two years in office, his progress on creating a new overall framework has been minimal. Bits and pieces of policies are coming into place—such as R&D for renewable energy, new funding for nuclear power, and modest funds for intercity fast rail—but there is no overarching strategy or clarity. When I asked Larry Summers to explain the administration’s plan to reduce carbon emissions by 17 percent as of 2020, as Obama announced in late 2009, he responded, “We don’t plan in America.” That may be true, but we also don’t achieve our energy and environmental objectives either.

Why don’t we plan an energy policy when it is so manifestly evident that we need one? Here, too, corporate power is the key reason. I witnessed this during another meeting at the White House, this time with the former energy “czar” Carol Browner. I thought that perhaps she would be interested in promulgating an energy plan. That did seem, after all, to be her assignment. Our conversation made it clear that she had a quite different role, almost purely dedicated to managing the corporatocracy. Rather than discuss energy policy with me, Browner went through a long list of senators, noting the special demands that each senator was making in return for a promised vote for anti–climate change legislation. One senator wanted special provisions for the auto industry; the next wanted more favorable benefits for states involved in offshore drilling; the third wanted special provisions for nuclear power; and on went the interminable list. Rather than a national policy, Browner was designing a grab bag of special perks in order to get a shell of a policy. In the end, the entire process failed; Big Oil and Big Coal torpedoed the legislation.

Case 4: The Financial Lobby Bailouts and Bonuses

The financial saga has been equally illuminating. The 2008 financial crash resulted from a confluence of forces: deregulation, monetary mismanagement, and reckless irresponsibility by the top management
on Wall Street, who lusted after profits with sheer disregard for their shareholders, workers, and clients. Behind it all, of course, were the astounding wealth and power of Wall Street, which epitomizes the translation of big bucks into power, power to achieve a massive bailout when the going got tough in 2008.

Not only was Wall Street bailed out, but the corporate leadership was allowed to continue to rake in megabonuses even as the firms were on Washington’s life support systems. During 2009, I exchanged views on several occasions with Larry Summers about the need to rein in the egregious bonuses, which had no merit in market forces or morality. He staunchly defended the administration’s “hands-off” position—hands off in the peculiar sense of giving the bailouts but then leaving the CEOs alone to pocket them. Absurdly, after the Treasury pumped tens of billions of dollars of bailout funds into AIG, Summers claimed that he couldn’t find a way to stop the company from paying megabonuses to the very traders who had caused the disaster: “We are a country of law. There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system.”

Suffice it to say that the limits were never found. The extraordinary political power of Wall Street arises from many quarters. The top decision makers such as Rubin, Paulson, Summers, Rahm Emanuel, Orszag, Jack Lew (Orszag’s successor at the Office of Management and Budget and a former Citigroup executive), Daley, and countless others have one foot in Wall Street and one in Washington. Wall Street was, of course, one of Obama’s main campaign financiers. Obama’s campaign was properly renowned for mobilizing Internet-based donations from small donors, but it is still the case that 65 percent of his donations came from individuals who gave $200 or more and 42 percent came from individuals who gave $1,000 or more. Obama depended on the heavy-hitter campaign contributors from Wall Street and elsewhere just like other more traditional candidates.
¹⁶

The links of Wall Street and Washington go far beyond the White House, the Fed, and the Treasury. The industry has established a remarkable army of lobbyists carefully detailed by the Center for Responsive Politics.
¹⁷
During 2009–2010, the financial services industry (including banks, investment firms, insurance companies, and real estate companies) “commissioned 1,447 former federal employees to lobby Congress and federal agencies,” including an astounding “73 former members of Congress, accounting for 47 percent of the 156 former members who have reported lobbying in the time period.” These seventy-three former members included “17 former congressional members [who] served on the Senate or House banking committees.” Moreover, “at least 42 financial services lobbyists formerly served in some capacity in the Treasury Department; and at least seven served in the Office of the Comptroller of the Currency, including two former comptrollers.”
¹⁸

Case 5: The Proliferation of Tax Havens

The globalization of capital markets has also made it far easier for companies to hide their profits in offshore tax havens. This is part of the “race to the bottom.” The use of tax havens has soared in the past thirty years, and what was once a dodge for wealthy individuals avoiding the IRS has become a systematic vehicle for hiding corporate income from taxation. Yet what is even more notable is that the IRS is often a willing handmaiden to these practices. A recent report on Google pulled the curtain back just a bit on these practices.
¹⁹
Google is an American-based corporation with earnings all over the world. Its main capital is its intellectual property (IP), specifically its powerful search engine. Under the U.S. tax code, the allocation of Google’s earnings around the world should reflect the reality that its core IP is U.S.-based. Specifically, when a Google foreign subsidiary sells search-engine services to a foreign client, the foreign subsidiary should transfer the bulk of those earnings back to the U.S. headquarters in the form of internal royalty payment for the use of the intellectual property. For allocating incomes
among Google’s international operations for U.S. tax purposes, the internal transfers should take place at a royalty rate that mimics an arm’s-length commercial transaction between unrelated firms.