Conceder In Chief?

December 31, 2012 - Paul Krugman NYTimes
OK, I’ve had my own sorta-kinda briefing on the apparent fiscal cliff deal, and I’m pretty much with Noam Scheiber. Viewed on its own, it’s a bad and upsetting deal but not as terrible as initial rumors had it. But the strategic consequences are likely to be very bad indeed, and in very short order too.


As background, it’s important to understand what Obama clearly could have gotten just by going over the cliff. Basically, he could have gotten the whole of the Bush high-end tax cuts reversed, which would mean close to $800 billion in revenue over the next decade. What he couldn’t get, or at least couldn’t count on getting, were various spending items. This included the extension of unemployment benefits and various “refundables” on things like the Earned Income Tax Credit, that is, pieces of tax legislation that end up having the government cut checks to families instead of the other way around.

So what Obama appears to have done is trade away part of the revenue from high-income taxpayers in return for some of the spending items he wanted. Extended unemployment benefits for a year, and the refundables either extended in perpetuity or for 5 years.

The revenue loss seems to be on the order of $150 billion, or maybe a bit less. The reasons it isn’t bigger is that while the threshold for the top marginal rate is moving up to 450K, the thresholds for other things — phaseout of deductions, higher taxes on dividends and capital gains — aren’t going up, they’re staying at 250K.

And at least one positive thing can be said: no giveaway on Social Security, Medicare, or Medicaid. Basically, no spending cuts at all.

If you want think about the longer-term implications here, they’re ambiguous. The deficit is no problem right now, but there will eventually be a collision between the rising costs of social insurance programs and the inadequacy of the revenue base. Something will have to give.

There were two big risks, from a progressive point of view, in Obama’s eagerness to get a Grand Bargain. One was that he would allow the Bush tax cuts to be locked in, making it very hard to get additional revenue; the other was that he would give in on fundamental benefit cuts. Well, he did #1, partially, but didn’t do #2 at all. This sets up a future confrontation: it will be very hard for progressives to raise taxes, but also very hard for conservatives to cut those social programs.

I suppose the best case you can make here is that raising rates on the top 2 percent was never going to be enough anyway, so Obama getting less from that than he should have isn’t that big a deal. And the nightmare in which he cut Medicare and/or Social Security, only to have Republicans run against those cuts in 2014, seems to have been averted.

OK, now for the really bad news. Anyone looking at these negotiations, especially given Obama’s previous behavior, can’t help but reach one main conclusion: whenever the president says that there’s an issue on which he absolutely, positively won’t give ground, you can count on him, you know, giving way — and soon, too. The idea that you should only make promises and threats you intend to make good on doesn’t seem to be one that this particular president can grasp.

And that means that Republicans will go right from this negotiation into the debt ceiling in the firm belief that Obama can be rolled.

At that point he can redeem himself by holding firm — but because the Republicans don’t think he will, they will play tough, almost surely forcing him to actually hit the ceiling with all the costs that entails. And look, if I were a Republican I would also be betting that he’ll cave.

So Obama has set himself and the nation up for a much uglier confrontation than we would have had if he had set a negotiating position and held to it.

Update: I should mention that on one issue, the estate tax, the problem is apparently with the Senate; there are, unfortunately, some heartland Dem Senators who are extremely solicitous of the handful of super-wealthy families in their states, so that Obama’s people don’t think they can get a majority for higher taxes here. It’s bizarre: states like New Jersey have far more large estates, not just total but per capita, than states like Montana, but it’s the Senators from the latter that are eager to preserve the inherited privileges of the few.

The Difference Between "Broadening the Tax Base" and Raising Taxes on the Rich

The President's Opening Bid on the Grand Bargain (III)

robert reich

The President says he wants $1.6 trillion in tax hikes. Republicans say they won’t raise tax rates but might be willing to close some loopholes and limit some deductions and tax credits. Is compromise in the air?

Not a chance. True enough, such “base broadening,” as Republicans like to call it, could conceivably generate $1.6 trillion in additional tax revenues over the next decade.

But, wait. Didn’t the President just win a second term? The major issue decided in last week’s election was that the rich should pay more. So, presumably, that $1.6 trillion should come out of the pockets of the wealthiest Americans.

“Broadening the base” has nothing whatever to do with the rich paying more. That’s because a lot of tax credits and deductions help the middle class and the poor.

If we end the Earned Income Tax Credit, for example, some of the poorest Americans will end up sacrificing. That tab was $63 billion last year.

Or if the “loophole” is tax-free employee health care, or the home mortgage tax deduction, or tax-deferred 401K accounts, most of the added tax revenues will come out of the pockets of the middle class.

So when Republicans talk about “broadening the base,” watch your wallets. Now that the President has set his goal on $1.6 trillion in additional taxes, the question is whether the rich are going to cough up $1.6 trillion more.

There’s no way that $1.6 trillion can come out of the pockets of the wealthy merely by capping the deductions the wealthy take advantage of.

If Republicans won’t budge on raising tax rates but insist on broadening the base, Democrats should take aim at the biggest tax loophole of all for America’s wealthy: the preference for capital gains.

Capital gains are now taxed at only 15 percent (the major reason Mitt Romney pays a rate of under 14 percent on over $20 million of annual income). Capital gains should be taxed the same as ordinary income. That way, under a progressive tax system, the wealthy would pay far more — on the way to $1.6 trillion.

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With the election behind us I had hoped we’d get beyond games of chicken. No such luck.
But first you need to understand that the game of chicken isn’t about how much or when we cut the budget deficit. Or even whether the upcoming “fiscal cliff” poses a danger to the economy.

The non-partisan Congressional Budget Office on Thursday warned that the automatic tax increases and spending cuts scheduled to start in January amount to too much deficit reduction, too soon. They’d put the economy back into recession, and push unemployment to about 9 percent. But the CBO also warned of an economic crisis ahead if the United States doesn’t stem the growth of the nation’s exploding deficit.

Get it? Reduce the budget deficit too quickly, and we’re in trouble. But fail to address the deficit, and we’re also in trouble.  It’s really a matter of timing. That’s why I think any deal should include a trigger mechanism that begins to cut spending and raise taxes when the economy has two consecutive quarters of 6 percent unemployment or less, and 3 percent annualized growth or more. 

In reality, though, the upcoming game of chicken isn’t about any of this. It’s over the clearest issue President Obama and Mitt Romney fought over: whether taxes should be raised on the rich.

Democrats and Republicans are now maneuvering to maximize their bargaining leverage when they sit down next year to decide this.

On Friday the President called on called on Congress to immediately make permanent the tax cuts for Americans who make less than $250,000 a year, while at the same time allowing tax rates to rise for wealthy Americans — and then making those rates part of a broader deal next year.

The President knows congressional Republicans won’t agree, but he needed to set out his central demand because it’s the one thing that can fairly be interpreted as a mandate from the election.

So what’s going to happen? Bear with me, because this gets interesting.

Some Democrats (and some White House strategists) figure they’ll have most bargaining leverage in next year’s deal if they do nothing now – allowing tax rates to rise automatically on everyone after the first of the year. Then they plan to offer Republicans a deal that reduces taxes on people earning less than $250,000 – which would be retroactive to January 1^st.

Republicans would have to choose between a tax cut on the middle class or no tax cut at all. Democrats believe Republicans would have to take the deal. Even Grover Norquist would be hard-pressed to come up with an argument against it.

Some Republicans, meanwhile, figure they’ll have more bargaining leverage if they keep things as they are until late January or February.

What’s magical about late January and February? That’s when the debt ceiling has to be raised again, which means that’s when Republicans can once again threaten to vote against raising it. (In theory, we’ll hit the ceiling at the start of January, but the government can juggle payments and take various “extraordinary measures” for another month or two beyond that – maybe even until March – before it could no longer be able to borrow enough money to pay its bills.)

This is the thinking behind House Speaker John Boehner’s proposal earlier Friday that all the tax cuts — including those for the rich — should be extended until next year, until there’s a deal. “I’m proposing that we avert the fiscal cliff together in a manner that ensures that 2013 is finally the year that our government comes to grips with the major problems that are facing us,’’ Boehner said.

So who blinks first? Democrats who don’t mind going over the cliff because they’ll get a better final deal – and the deal will be retroactive to January 1^st so it’s not really a cliff at all but more like a little hill? Or Republicans who want to extend the Bush tax cuts beyond January 1^st, until we get sufficiently close to the debt ceiling that they can once again threaten the full faith and credit of America?

As I said before, I had naively assumed the election would put an end to these games, but obviously not. Yet Obama and the Democrats are holding most of the cards now. Let’s hope they use them.

 

Unemployment And Marginal Tax Rates

What the Numbers Tell Us
by JOSHUA A. CUEVAS

We, as a nation, are now in our 5th year since the beginning of the greatest recession we’ve seen since the great depression (Federal Reserve Bank of Minneapolis, 2012). Indeed, at least one prominent economist and Nobel Prize winner has made the argument that we are in a second depression (Krugman, 2011). At the same time, perhaps predictably, U.S. school systems have been increasingly under funded with well over one hundred thousand teachers having been laid off nationally, even by the most conservative estimates (Kessler, 2012). But unemployment has been stubbornly high, above 8% for four years running (U.S. Department of Labor, 2012). People are out of work, therefore tax revenues are down, so schools, law enforcement, fire departments, etc. will have to survive on smaller budgets, while they are simultaneously expected to improve their services under increasingly austere conditions. Or so the argument goes. Tax revenues and tax rates cannot be augmented until we have a strong economy once again, so we will have to make due. We cannot possibly consider increasing taxes on anyone during a recession. This is a logical and persuasive argument, or so it would seem, one that many of us have heard trumpeted loudly in recent years.

This argument suggests that the strength of the economy is the driving force that determines the amount of revenue available to fund public services across the country. In other words, a stronger economy will bring in more tax dollars because more people will be employed. Simple enough. Except that for the last three decades, politicians, think tanks, and special interest groups have been making the case that lower taxes will strengthen the economy because it frees up capital for job creators and those in the private sector to then spend, thus keeping businesses thriving and people employed. This argument presupposes a cause and effect relationship. It suggests that low tax rates lead to more money circulating through the system, creating a stronger economy and lower unemployment. To test this claim we can examine, empirically, two essential parts of this equation: We can test the relationship between marginal tax rates and unemployment (with low unemployment acting as an indicator of a strong economy). We can ask the question; do low tax rates correlate with low unemployment and vice versa? If indeed they do, then it would lend validity to the argument that increased tax revenues should only take effect after the economy recovers and unemployment drops.

The Longitudinal Trend in Tax Rates: 1932 – Present

Before we answer this question it is worthwhile to examine recent trends in one part of this equation: marginal tax rates. Pundits, politicians, media personalities, and the person on the street may make the case that current tax rates are “sky high”, suggesting that Americans now pay a higher percentage of their incomes than the historical norms. But does the data support this notion? When we consider the top marginal tax rates since prior to World War II, the answer is an emphatic no (Tax Foundation, 2012). There has been a clear and continuous downward trend in the top marginal tax rates since 1932, and Americans now enjoy the lowest tax rates they have in three generations. The current marginal tax rate for those in the highest bracket is 35%, the same as it’s been for the last decade and the lowest it’s been in 80 years, with one brief exception that we will discuss shortly. When President Clinton was in office the highest bracket was 39.6%. Interestingly, when Reagan was president and tax reduction became a staple of the Republican platform, the highest bracket was 50% for most of his 8 years in office. The two decades prior to that it was 70%, and from 1963 back until 1945 it was 91%. In 1945 it was 94%. So the point is clear when you examine the actual numbers: Taxes have never in modern history been lower in the U.S., except for the following caveat.

There was an interesting anomaly from 1988 to 1992 when the highest tax rate dipped to between 28% and 31% (Tax Foundation, 2012). And what happened to the economy during that time of low taxes? There was a large recession beginning in 1990, one that pales by today’s standards, but a significant one by historical standards (The Economist, 2011). President G.H.W. Bush saw the harm this was doing to the economy and raised taxes, breaking his “Read my lips- no new taxes” pledge. This of course was one of the factors that caused him to lose the election in 1992. Prior to that, in 1982, there was another tax cut (Tax Foundation, 2012) and another deep recession (The Economist, 2011), leading to the two highest back-to-back yearly unemployment rates we have seen since the great depression- 9.7% in 1982 and 9.6% in 1983 (U.S. Department of Labor, 2012). Our latest tax cut went into effect in 2003 and within five years the Great Recession was well underway. It would seem that tax cuts correspond with big recessions. When you subtract the substantial amount of money that wealthy individuals and large corporations contribute to our federal government and the overall economy, bad things tend to happen to that economy.

But while the tax part of our equation shows a clear pattern- a consistent downward trajectory for 80 years, with tax cuts tending to correspond with recessions- the second part is less clear. Since World War II the unemployment rate each year has fluctuated with no discernable pattern to the naked eye, from a low of 2.9% in 1953 to a high of 9.7% in 1982, and a wide variety of levels across the years (U.S. Department of Labor, 2012). So it was determined that inferential statistics would be needed to analyze the relationship between the top marginal tax rates and unemployment since 1948, when the first unemployment statistics where available through the U.S. Department of Labor.

Analysis: Correlating Marginal Tax Rates and Unemployment

The data for the top marginal tax rates (Tax Foundation, 2012) and the unemployment rates for each year (U.S. Department of Labor, 2012) from 1948 to 2011 were compiled. These numbers were entered into a Pearson product-moment correlation analysis, two tailed, to test for the strength and direction of correlation and for statistical significance. The results indicated that there was a statistically significant negative correlation, r(64) = -.31, p = .013, in the relationship between top marginal tax rates and the unemployment rate in the 64 years from 1948 to 2011. This means that when taxes were high, during that same period unemployment tended to be low, suggesting a stronger economy. And when taxes were low, during the same period unemployment tended to be high, indicating a weaker economy. It is important to note that this is not a political argument; it is a mathematical one. This is what the numbers tell us when this statistical analysis is conducted.

Now there are a number of issues to consider in this analysis. First, 64 years is a relatively small sample size (N = 64). With a sample size this small we would often not expect to see a statistically significant correlation. In many cases there simply would not be enough data for the probability to reach .05, much less .013. But even with this relatively small sample size, the association between tax rates and unemployment did prove to be significant, which suggests that longer trend lines, perhaps 80 or 100 years, would reveal a more pronounced relationship between those variables. The more data you have, the clearer the relationship often becomes, as long as that relationship is not due to random chance. And this analysis suggests the relationship between the top marginal tax rates and unemployment is not due to random chance, or at least we are 98.7% certain that it is not.

Another thing to keep in mind is one of the first concepts we teach students in introductory statistics and research courses: correlation is not causation. We cannot make the claim that one variable in this equation causes the other variable, even though they clearly seem to be associated with one another. In fact, we know that unemployment rates do not cause the top marginal tax rates to be what they are at any given time. Top marginal tax rates are set (caused) by the laws implemented by state and federal legislatures. Even if one were to argue that law makers’ decisions on tax policies are influenced by unemployment rates, the election cycle and legislative cycle normally play out over a number of years, sometimes decades, when unemployment often fluctuates a great deal, so it is not reasonable to contend that unemployment rates cause the marginal tax rates to be what they are. However, it is quite plausible that top marginal tax rates have a causal effect on the unemployment rate, particularly since those tax rates have shown a steady and consistent downward pattern and may only change once or twice per decade. In other words, it is possible that the top marginal tax rates may be one of the primary factors that dictate the unemployment rate and the strength of the economy at any given time. But since we are dealing with a correlation, we cannot claim to have isolated that variable as a cause, and it is quite probable that other factors are in play despite the clear relationship between the two variables.

However, a correlation does not rule out causation, of course, and if there is causation in this relationship, then it can only be unidirectional. The unemployment rate cannot dictate tax rates. We know what causes tax rates to be what they are: laws enacted by legislatures. So if there is a cause and effect relationship present, it could only be in the opposite direction, with tax rates influencing unemployment rates. But a critic could legitimately argue that examining tax rates and unemployment rates during the same year is ineffective because if tax rates were indeed affecting fluctuations in the unemployment rate, the impact would not appear until the following year or later. A proponent of the hypothesis that low tax rates allow job creators to expand their businesses could credibly make a case that when tax rates are reduced it takes at least a year or two for the effects to be seen in the unemployment rates, making a year-to-year comparison invalid. Essentially, the possible positive effects of the tax reduction haven’t had a chance to take hold yet in the same year that rates are reduced. The critic could assert that while comparing tax rates to unemployment rates in the same year may show a negative correlation, subsequent years may show a positive correlation once the job creators have had a year or two to put that extra capital back into the system.

For this reason a Pearson correlation was conducted comparing the top marginal tax rates for each year to the unemployment rates the following year for every year from 1948 until 2010 (as of 2012 when the analysis was done, the tax rates for 2011 could not be compared to unemployment rates from 2012 because that data had not been released yet). Put another way, the tax rate from 1948 was compared to the unemployment rate for 1949 and so on until 2010 to account for the possibility that any effect of the tax rates may not appear until the following year. The results again indicated that there was a statistically significant negative correlation between the top marginal tax rate and the unemployment rate the following year, r(63) = -.267, p = .034. Just as in the first analysis, these findings suggest that when top marginal tax rates are low, the unemployment rate the following year tends to be high, and when tax rates are high, the unemployment rate the following year tends to be low.

The question remained as to whether this pattern would hold true if the top marginal tax rates were compared to unemployment rates two years after the fact. In essence, did tax rates appear to influence the strength of the economy two years after those revenues were collected? Based on the initial findings, and to extend the analysis even further, the decision was made to explore the relationship between the top marginal tax rates and the unemployment rates two years, three years, and four years after the fact. When tax rates were compared to unemployment rates two years later, a statistically significant negative correlation again emerged, r(62) = -.259, p = .042. When tax rates were compared to unemployment rates three years later, a statistically significant negative correlation was also revealed, r(61) = -.265, p = .039. For the analysis of four years after the fact, a negative correlation appeared, but in this case it was not statistically significant, r(60) = -.245, p = .059. This final analysis did not meet the criteria for significance for two reasons: First, with each subsequent analysis the sample size was reduced by one year. For instance, for the 2011 tax rates, unemployment figures do not yet exist for two years after that time, so 2011 had to be removed from that analysis and so on for each succeeding analysis.

Likewise, for 2010, unemployment rates do not yet exist for three years after that time. The second and more important reason for the lack of significance in the final analysis is related to the first. With each analysis, when a year was removed for lack of an unemployment statistic to compare it to, the year removed was the next most current one, so the tax data for the years 2011, 2010, 2009, and 2008 were removed with each respective analysis. This was noteworthy because these were all years with historically low tax rates (35%), and when those extremes were removed from the data set the results gravitated towards the historically higher tax rates and the correlation appeared less significant. There is no doubt, however, that when the data for 2012-2017 become available in the coming years and the current low tax rates are compared to unemployment rates for four and five years later from 1948 until the present, there will indeed be a statistically significant negative correlation, just as in the other analyses.

Interpreting the Results

What we see when examining the whole of this data is a consistent pattern: When the top marginal tax rates are compared to unemployment rates for the same year, one year later, two years later, and three years later, nearly identical results emerge. Not only is there a negative relationship in each case, with low tax rates correlating with high unemployment and vice versa, the magnitude of each relationship is nearly identical. So between 1948 and 2011, there appears to be a clear and consistent relationship between top marginal tax rates and the unemployment rate. And since unemployment rates cannot dictate tax rates, any influence must go in the opposite direction, with tax rates influencing the unemployment rates. Because we are dealing with correlations, there is a possibility that a third variable or more variables are also at play, particularly in a dynamic as complex as the U.S. economy. Indeed, it is almost a certainty that other factors are involved. But the unmistakable and highly uniform pattern revealed in the analyses reported here would lead us to believe that the relationship between top marginal tax rates and unemployment is in fact present, even if other factors are also involved.

What we can say with absolute confidence, though, is that there is no evidence here that low tax rates are associated with low unemployment, and by extension, a healthy economy. Similarly, there is no evidence that high tax rates are associated with high unemployment, and by proxy a weak economy. There is simply no empirical basis to make those claims based on this historical data. In fact, everything we see here suggests that just the opposite is true. Low marginal tax rates do not appear to be beneficial to employment rates, and if they are in fact detrimental to employment rates one would be hard pressed to make the case that they are helpful to the economy. In the most basic terms, a healthy economy is one in which the vast majority of citizens who want to work can find that work.

If one were to accept the common contention these days that we must wait until we again have a strong economy before we are able to collect the tax revenues needed to adequately fund public sector services, the data simply does not support that claim. These numbers tell a far different story. They instead suggest that while tax rates remain at historical lows we will continue to have a weak economy and high unemployment. There is no data to suggest that by keeping top marginal tax rates low it will improve the economy or decrease unemployment. For those who insist on low taxes at all costs, it would be worthwhile for them to look at the numbers and realize that pursuing low marginal tax rates, and gutting education and other social services in the process, is not the answer to a weak economy. It may be one of the causes of it, and certainly appears to be a prime factor in the equation. If we continue on the trajectory that we as a country have been on for more than 30 years of demanding lower and lower tax rates in the hopes that it will keep money in our pockets and food on the table, the data tells us we are more likely to have empty pockets and less on the table.

References
Federal Reserve Bank of Minneapolis. (2012). The recession and recovery in perspective [data file]. Retrieved from http://www.minneapolisfed.org/publications_papers/studies/recession_perspective/
Kessler, G. (2012, June 12). Spinning the number of teacher layoffs. The Washington Post. Retrieved from http://www.washingtonpost.com/blogs/fact-checker/post/spinning-the-number-of-teacher-layoffs/2012/06/12/gJQAgAMdYV_blog.html
Krugman, P. (2011, December 11). Depression and democracy. The New York Times, pp. A23. Retrieved from http://www.nytimes.com/2011/12/12/opinion/krugman-depression-and-democracy.html
Tax Foundation. (2011). U.S. federal individual income tax rates history, 1913-2011 [data file]. Retrieved from http://taxfoundation.org/article/us-federal-individual-income-tax-rates-history-1913-2011-nominal-and-inflation-adjusted-brackets
The Economist (2011, July 29). Recessions compared. The Economist online. Retrieved from http://www.economist.com/blogs/dailychart/2011/07/american-recessions-and-recoveries
U.S. Department of Labor, Bureau of Labor Statistics. (2011). Labor force statistics from the current population survey [data file]. Retrieved from http://www.bls.gov/cps/prev_yrs.htm/

Upward Redistribution

Why Tax Policy is Not at the Root of the US's Economic Problem

by DEAN BAKER


There has been much public discussion of who exactly pays taxes and who gets government benefits ever since Mitt Romney’s now-famous fundraising speech was made public. Almost all of this discussion has focused narrowly on what the government actually takes from people in tax revenue and what it pays out in Social Security, unemployment insurance, and other benefits. This is unfortunate, because tax and transfer policy is the less important way in which the government helps or harms people.

The set of rules the government puts in place that structure the economy redistributes far more income than its tax and transfer policy. Starting with an obvious example, the government has destroyed millions of manufacturing jobs through a trade policy that puts U.S. manufacturing workers in direct competition with low-paid workers in the developing world. This policy has also had the effect of driving down wages in other sectors as the displaced manufacturing workers are forced to compete for jobs in retail or elsewhere in the service sector.

Note that this is not free trade. There are millions of very bright people in India, China, and elsewhere in the developing world who could easily train to U.S. standards for doctors, lawyers and other highly-paid professions. They would be happy to work in the United States for half the prevailing wage in these areas, leading to large gains to consumers and the economy, but we chose not to structure our trade agreements to facilitate trade in this area.

We have also strengthened patent and copyright laws to make the monopolies granted stronger and longer. Currently we spend $300 billion a year on prescription drugs. If drugs were sold in a competitive market, we would save around $270 billion annually. This transfer from consumers to drug companies is about five times as large as the size of the Bush tax cuts to the richest 2 percent.
Labor-management policy is another important area through which the government redistributes income. In the last three decades this policy has been much more friendly to management and hostile to workers. For example, in the Chicago teacher strike, Mayor Rahm Emanuel had gone to court and threatened strike leaders with fines and imprisonment if they did not end their strike.

There are many other areas in which the rules set by the government redistribute income. In the last three decades, the direction of redistribution has been mostly upwards. If we want to have a serious discussion of makers and takers, we have to look at these rules, not just the tax code.

The 3 Worst Arguments for Legalizing Marijuana

Hey kids, don't make these rookie mistakes!

Mike Riggs | March 23, 2012


When Gallup first asked Americans how they felt about marijuana in 1969, only 12 percent of respondents favored the legalization of weed. That number has increased steadily with each passing decade, and in October 2011, Gallup reported that 50 percent of Americans favor the legalization of marijuana, the country’s most popular illicit drug.

The shift in popular opinion reflects not just decades of scientific research showing that marijuana is safer than both alcohol and harder drugs (including many prescription pills and cigarettes), but also the savvy PR efforts of drug reform wonks and activists. When even conservative Christians such as The 700 Club's Pat Robertson are calling for legalizing pot, you know that the war on the War on Drugs is not just winnable, but practically over.

But that doesn't mean all arguments in favor of legalization are equally good, effective, or factual. Here are the three weakest arguments for legalizing marijuana. As you work to convince the shrinking ranks of drug prohibitionists - we're looking at you, Mr. President! - don't make these rookie mistakes when arguing for changing the legal status of cannabis.

3. Legalizing Marijuana Will End Cartel Violence in Northern Mexico
The election of Mexican President Felipe Calderon in 2006 ushered in a new era of prohibition-fueled drug violence. Six years and 50,000 drug-war deaths later, the argument that repealing marijuana prohibition could stem the violence in Mexico and along the U.S. border is ubiquitous. The claim was a major selling point for Proposition 19 in California, which would have legalized marijuana and subjected its sale to taxation and regulation, and has been made repeatedly by drug reform advocates in the two years since.

“We have created an illegal marketplace with such mind-boggling profits that no enforcement measures will ever overcome the motivation, resources and determination of the cartels,” Libertarian Party presidential candidate Gary Johnson wrote in a 2011 op-ed for The Washington Times. Legalizing pot, he added, would deny the cartels “their largest profit center and dramatically reduce not only the role of the United States in their business plans, but also the motivation for waging war along our southern border.”

But there are objections to that claim. In October 2010, the RAND Corporation released a study saying that Mexican cartels derived only 16 percent of their revenue from marijuana. (As pointed out by NORML, that number conflicted with the ONDCP's estimate that 61 percent of cartel revenue comes from marijuana.)

In June 2011, Mexico analyst Sylvia Longmire argued that cartels have diversified to the point that legalizing marijuana might dent their war chests, but it won’t stop them; they’d still make money stealing oil from pipelines, pirating and selling contraband intellectual property, extorting small businesses, bribing politicians, ransoming kidnap victims, manufacturing and moving harder drugs such as cocaine, heroin, and meth, and trafficking undocumented immigrants and sex workers.

In 2011, David Borden, executive director of StoptheDrugWar.org, emailed me with objections to Longmire’s argument: “Some of the other criminal enterprises that cartels are involved in (enterprises they've been able to enter because of having drug cash and organizations built by drug cash) are less straightforwardly tied to demand, such as kidnapping for ransom, but they have their limits—for all we know they are already doing as much of those things as they think could be sustained, and the more profit they continue to make from drugs, the more money they are going to invest in all kinds of enterprises, both illicit and licit.”

“Will the cartels vanish from the face of the earth because of marijuana legalization?" Borden continued. "Probably not. Would even full legalization of all drugs accomplish that? Unclear.”

That lack of clarity is exactly why marijuana reformers should be careful when promising what legalizing pot can and can’t do for Mexico. The war on drugs has weakened the country’s political institutions, corrupted its military and police forces, and devastated its economy. While pot legalization in the U.S. would allow users to divest from the cartels' brutality, pitching marijuana legalization as anything other than a baby step toward peace and stability in Mexico puts drug reformers on tenuous grounds.

2. Marijuana Should Be Taxed and Regulated Because It Is America’s Largest Cash Crop
In 2006, ABC News reported that with “a value of $35.8 billion, marijuana exceeds the combined value of corn ($23.3 billion) and wheat ($7.5 billion).” That number came from a report published by Jon Gettman, director of the Coalition for Rescheduling Cannabis. Gettman arrived at this figure by multiplying the estimated number of metric tons of marijuana cultivated in the U.S. in 2005 (10,000 tons, or 20 million pounds) by a production value of $1,600 per pound.

Drug law reformers claimed Gettman’s report was evidence that eradication and enforcement efforts had failed. In the intervening years, however, the statistic has been used to make the case that taxing and regulating marijuana would solve many of America’s fiscal woes. The former argument is a sound one, the latter is not.

Here’s why: Gettman’s estimate of $1,600 per pound was conservative when compared to law enforcement agencies, which in 2005 cited the street value of marijuana at between $2,000 and $4,000 a pound. Marijuana cultivated in a post-prohibition market, however, would cost a fraction of that.

“To get a sense of the disparity in price between legal and illegal drugs,” Reason's Jacob Sullum wrote in 2007, “compare the production value of marijuana—about $1,600 per pound, by Gettman’s estimate—to the production value of tobacco, a legal psychoactive weed that U.S. farmers sell for less than $2 per pound.”

Let’s go back to 2005, make marijuana legal, and give it an astronomically high production value of $800 per pound, or half of Gettman’s black market estimate: It would have tied with soy beans in 2006 as America’s third largest cash crop, with an average production value of roughly $17 billion. If it had the same production value per pound as tobacco, or $2, its APV in 2005 would have been $44 million; or less than 10 percent of beans, 2005’s 20th most valuable cash crop.

So while pointing to marijuana as America’s largest cash crop is a good indicator of its popularity (and arguably, the safety of its use), it doesn’t follow that taxation and regulation of the drug in a post-prohibition market would be an unlimited boon to government coffers, especially when factoring in the costs of an aggressive regulatory framework.


1.) Marijuana Should Be Legal Because It’s Medicine
There’s no question that marijuana eases pain, stimulates the appetite, reduces nausea, and helps with a slew of other physical and psychological ailments. There is some question, however, as to whether promoting it as medicine is the best political strategy for making it fully available as a recreational drug.

Earlier this year, NORML Executive Director Allen St. Pierre wrote a searing critique of the medical marijuana strategy.

“If this were the 1920s, advocacy of today's ‘medical’ cannabis industry would sound like a lawyer back then fronting for the legal sellers of ‘prescription’ alcohol during Prohibition. Prescriptive alcohol was a sham then, and the ‘medical’ cannabis industry (not medical cannabis itself) is largely a sham now.”

“Cannabis consumers," he continued, "who NORML represents, want good, affordable cannabis products without having to go through the insult and expense of ‘qualifying’ as a ‘medical’ patient by paying physicians and/or the state for some kind of get-out-of-jail-free card. How intellectually honest is all of this?”

One response is that successful medical marijuana ballot initiatives protect people who use marijuana for genuine medical reasons from harassment and imprisonment. But the problems with those laws--such as who counts as a caregiver, and the number of prescriptions given to people who are using it recreationally--don’t reflect well on the political acumen of drug law reformers.

Legislators and regulators are wising up and changing tactics. Because most states that currently have medical marijuana laws make the bulk of their sales to people with chronic pain—the only ailment eligible for medical marijuana that doctors can't test for, and thus the ailment most likely to be cited by recreational users looking for safe access—Washington, D.C. decided to omit chronic pain from its list of ailments that qualify for medical marijuana. In the District, only people with cancer or a terminal illness will be able to get medical pot. In Colorado, where legislators claim only 20 percent of marijuana sales are to people with "legitimate" illnesses such as HIV/AIDS, cancer, Crohn's disease, and MS, legislators are looking for ways to limit the number of recommendations doctors can write to the other 80 percent of users.

In short, while medical marijuana laws initially gave more users safe access, anti-pot legislators now seem to know that the best way to limit marijuana sales is to treat it exactly like advocates claim to want: as medicine subject to a strict and invasive regulatory prescription scheme.

Study proves many U.S. corporations pay zero taxes

By Agence France-Presse
Thursday, November 3, 2011

Dozens of US corporations paid no federal taxes in recent years, and many received government subsidies despite earning healthy profits, a new study showed Thursday.

The report by Citizens for Tax Justice and the Institute on Taxation and Economic Policy, which examined 280 US firms, found 78 of them paid no federal income tax in at least one of the last three years.

It found 30 companies enjoyed a negative income tax rate — which in some cases means getting tax rebates — over the three-year period, despite combined pre-tax profits of $160 billion.

“These 280 corporations received a total of nearly $223 billion in tax subsidies,” said the report’s lead author, Robert McIntyre, director at Citizens for Tax Justice.

“This is wasted money that could have gone to protect Medicare, create jobs and cut the deficit.”

The study looked at 280 corporations from the Fortune 500 list, all of which were profitable in each of the last three years and provided sufficient data to analyst profits and taxes.

It found the average effective tax rate for the 280 companies in the study over the three years period was 18.5 percent, well below the statutory rate of 35 percent.

The study concluded that 78 of the companies had at least one year in which their federal income tax was zero or less.

Thirty companies had a negative income tax rate over the entire three year period on their combined pre-tax profits of $160 billion.

The study said banking giant Wells Fargo topped the list of corporations receiving the most in tax subsidies, getting nearly $18 billion in tax breaks in the last three years.

The report comes as US lawmakers are struggling to find ways to curb a bulging US deficit and are looking at possible revenue sources, despite opposition by conservatives to any tax increases.

Obama Millionaire's Tax: President To Seek New Tax Rate For Wealthy

 (I criticize Obama daily it seems, but I will give him props on this as long as he doesn't back off it and capitulate to the Corporatist Democrats and Republicans, Wall Street, corporate executives and billionaires like the Koch Bros.--jef)


By JIM KUHNHENN, Associated Press
Huffington Post - 9/17/11

WASHINGTON -- President Barack Obama is expected to seek a new base tax rate for the wealthy to ensure that millionaires pay at least at the same percentage as middle income taxpayers.

A White House official said the proposal would be included in the president's proposal for long term deficit reduction that he will announce Monday. The official spoke anonymously because the plan has not been officially announced.

Obama is going to call it the "Buffett Rule" for Warren Buffett, the billionaire investor who has complained that rich people like him pay a smaller share of their income in federal taxes than middle-class taxpayers.

Buffett wrote in a New York Times op-ed piece last month that he and his rich friends "have been coddled long enough by a billionaire-friendly Congress."

The measure would be in addition to $447 billion in new tax revenue that Obama is seeking to pay for his short-term spending and tax cutting plan to jump start the economy.

House Speaker John Boehner said Thursday he would oppose tax increases to reduce the deficit. Boehner has urged Congress' deficit "supercommittee" to lay the groundwork for a broad overhaul of the U.S. tax code.

The panel has almost unlimited authority to recommend changes in federal spending and taxes and is working against a deadline of Nov. 23.

Boehner said the panel has "only one option, spending cuts and entitlement reforms," a reference to government benefit programs such as Social Security, Medicare and Medicaid.

Any broad compromise that clears the bipartisan committee is almost certain to require Democratic agreement to savings from programs such as Social Security and Medicare, along with Republican acquiescence to additional revenues, although any such trade-offs are rarely discussed openly until the last possible moment in negotiations.

Obama's new tax proposal was first reported by The New York Times.

Sometimes It’s Easy: US Uncut Exposes Rush Limbaugh with One Simple Question

(There is something wrong with Rush, man. If he thinks it's cool for a corporation to not pay US taxes because they pay taxes to other countries, he must be back on the Oxy again.--jef)
 

By Mike Stark | Sourced from DailyKos  
Posted at September 3, 2011

 Carl Gibson, one of the founders of US Uncut, just steamrolled the drugged one. It was a thing of beauty. Rush would take a punch, hit the canvass, struggle to his feet, only to be flattened again. Eventually, as is always the case when right wing talkers find their asses handed to them, Rush cheated. He spoke over Gibson, cut him off, spewed a slew of irrelevant right wing talking points, hung up on him, and then spent the next 10 minutes flailing desperately in an effort to make his audience forget what Carl’s question was.

So… What was the question? Well, a bit of background is in order first. Did you know that 47% of American households pay no income taxes? Let me tell you, every listener to right wing talk radio has heard that tired old talking point hundreds of times. It’s the ear bug of right wing talk that establishes the foundation of their resentment politics. After all, somebody has to be paying for all those welfare checks, right?

I probably don’t have to mention it to this crowd, but it is true, of course, that Limbaugh and his lieutenants (and the cultists that tune in faithfully every day) ignore the fact that everyone that works pays payroll taxes to the feds (about 12% of every dollar they earn)… 

They don’t mention the federal tax on gasoline… Or state, local and sales taxes. The truth is that nobody escapes the tax man, and that many of the folks that pay no federal income taxes nevertheless lose a higher percentage of their earnings to taxes than the super-rich do.

So yeah, virtually every day, Limbaugh tells his listeners that they are paying income taxes so that leech scum underclass of America can be coddled by the nanny state. So Carl called and politely as can be, asked:

Carl:  “…several multi-billion dollar corporations paid their CEOs more than they pay the government in taxes. Now I know how you feel about folks, I mean individuals who don’t pay their taxes, but I want to know how you feel about corporations that don’t pay taxes. Do you have the same antagonism for them?”

Rush: “How do I feel about how he felt about corporations that don’t pay income taxes?”

Carl:  “No, corporations.”

Rush:  “No, you said you know how I feel about individuals that don’t pay taxes… How do I feel about that?”

Carl:  “Well, I’ve heard you refer to the 47% of Americans that don’t pay taxes.”

Rush:  “Well, that’s… uh… they’re not illegally avoiding taxes, they don’t have to pay taxes because they’ve been exempted. Their votes are being purchased.”

Carl:  “Well, they have to pay a third of their income in sales and property and payroll and excise taxes too… but..” 

Rush:  “Look, the only major corporation I know not paying US taxes is General Electric.” 

Carl:  “GE, EBAY, Verizon, Exxon Mobil, Chevron, Bank of America, Citibank, I mean I can go on…”

Rush:  “Are you trying to tell me that every one of those corporations pay zero US taxes?”

Carl:  “Zero US taxes Rush. Sometimes they get money back from the federal government.”

And on, and on, and on and on… 

Eventually, Rush came back from his break to inform his listeners that ExxonMobil paid billions in taxes!  It was just the caller's clever use of a technicality that allowed for him to make his claim.  It turns out that United States corporations can deduct the taxes they pay to other governments from their US tax bill.  

Are you kidding me?

Rush thinks it's OK for us to cut Social Security and Medicare while ExxonMobil pays nothing in taxes because they are sending money to other countries instead?  From there, Limbaugh just became a caricature of himself.  The plain fact is this:  Limbaugh had no good answer for Carl's question.  Limbaugh refused to say why he takes umbrage at the poor not paying federal income taxes while multi-billion dollar corporations that are enjoying record profits either pay no taxes, or even get refunds from the federal government.  

Listen for yourself (and you should - there's a lot of good stuff I left out):

There is No Moral Case for Tax Havens

Sunday, August 28, 2011 by the Independent/UK

They are the epitome of unfairness and injustice, leaving ordinary citizens to foot the bill for multinational corporations

by Paul Vallely

 

There is a building in the Cayman Islands that is home to 12,000 corporations. It must be a very big building. Or a very big tax scam. Tax havens are in the spotlight since the Chancellor, George Osborne, did a deal the other day with the Swiss authorities to slap a levy on secret bank accounts held there by British citizens. Opinions are divided on the move, which could net the Treasury £5bn, but which tacitly legitimizes bank accounts kept secret from the Inland Revenue. It is a de facto amnesty for those guilty of tax evasion crimes. And they will pay less than they would if they declared their income to the British taxman.

Are there any legitimate reasons why anyone would want to have a secret bank account – and pay a premium to maintain their anonymity – or move their money to one of the pink dots on the map which are the final remnants of the British empire: the Caymans, Bermuda, the Turks and Caicos and the British Virgin Islands?

The moral case against is clear enough. Tax havens epitomize unfairness, cheating and injustice. They replace the old morality embodied in the Golden Rule of reciprocity – that we should do as we would be done by – with a new version that insists that those who have the gold make the rules.

The old view, the neocon American Christopher Caldwell wrote recently, subscribes to a religious understanding of money that was universal in the Christian world before the rise of Protestantism, which acknowledges that people are alive but money is not, making it wrong for the latter to take precedence over the former – a notion as outdated as usury, he suggested tartly.

But what is the moral case for tax havens? We can dispense with the argument advanced by their administrators that if they didn't take the money it would simply move to more distant locations; that is the self-serving logic of a man who sells torture equipment to an oppressive regime. Apologists insist that tax havens protect individual liberty. They promote the accumulation of capital, fair competition between nations and better tax law elsewhere in the world. They also foster economic growth. So much so, the Institute of Directors has said, that Britain should not curb tax havens but emulate them, promoting the growth of more hedge funds in the UK.

Yet even if all that were true – and it is not – does it outweigh the ethical harm they do? The numbered bank accounts of tax havens are notoriously sanctuaries for the spoils of theft, fraud, bribery, terrorism, drug-dealing, illegal betting, money-laundering and plunder by Arab despots such as Gaddafi, Mubarak and Ben Ali, all of whom had Swiss accounts frozen.

The corruption spreads contagion, as the financial writer Nicholas Shaxson showed in Treasure Islands, his book about offshore finance which exposed secrecy, corruption and intimidation in places as seemingly innocent as that land of milk and money, such as Jersey in the Channel Islands.

But the moral bankruptcy of the tax haven runs deeper. Indeed it is intrinsic to its purpose. The British Virgin Islands is the global capital for the incorporation of offshore companies. Though it has a population of just 22,000, it has 823,502 registered companies which make vast amounts of money through the wonder of transfer pricing. It works like this. Suppose I manufacture a product in Africa and sell it in the UK. If I am a canny businessman I set up an intermediate company in a tax haven. It need do nothing except exist on paper. But through it I can buy all the products I make in Africa, dirt cheap, and then sell them, at a much higher cost, to my UK subsidiary. The African and British companies do not, thus, make much profit, so I have little or no tax to pay. All the money stays offshore, where taxes are low or non-existent. This is perfectly legal. But it distorts the world economy and means I pay no tax. I can also borrow where rates are lowest and keep my costs where they are most tax deductible.

That is why General Electric paid no taxes in 2010, despite $14.2bn profits. It's why Barclays, with 181 subsidiaries registered in the Caymans, paid relatively little UK tax on its worldwide profits. Rupert Murdoch's News Corp, with 152 subsidiaries in tax havens according to the US government, paid no net UK corporation tax between 1988 and 1999.

Half the world's trade flows through tax havens. Every multinational uses them routinely. So do banks. Almost 70 per cent of international trade now happens within, rather than between, multinationals. Christian Aid reckons that tax dodging costs developing countries at least $160bn a year – far more than they receive in aid. The US research center Integrity estimated that more than $1.2trn drained out of poor countries illicitly in 2008 alone.

Tax injustice is systemic to the tax haven. Barack Obama once understood that. During his election campaign he promised to crack down on corporate loopholes and tax havens. But he and other world leaders have not delivered on bursting open the seedy secret underworld of tax havens that nurtured the hedge funds, derivative trading and off-balance sheet lending that fueled the 2008 global financial crash.

Their malign influence continues, with hedge funds accounting for at least 30 per cent, and perhaps as much as 60 per cent, of current trading on the London and New York exchanges. There, they have quintupled short-selling. They have turned credit default swaps, designed as a protective insurance, into a way of betting on the failure of a company. The Caymans (population 50,000) is home to 70 per cent of hedge-fund registrations worldwide.

And, as rich people waive their taxes, poor people wave goodbye to their jobs. "The rich are different from you and me," Scott Fitzgerald famously said. "Yes," wisecracked Ernest Hemingway in response, "they have more money." Today the difference is that they pay less in taxes.

The real shame of Osborne's half-baked deal with Switzerland is that it has undermined the revised EU savings tax directive. That would have required an automatic exchange of information on income in bank accounts throughout the EU and in Switzerland, Lichtenstein and Britain's tax havens. All the EU member states, but two, had approved it. It would have dealt not just with individuals but also with companies, trusts, foundations and other complex structures.

Some say an attack on tax havens is an attack on wealth creation. It is no such thing. It is a demand for the good functioning of capitalism, balancing the demands of efficiency and of justice, and placing a value on social harmony.

The billionaire investor Warren Buffett recognized that in The New York Times when he scathingly asserted the US Congress is in thrall to the super-rich. Thanks to his clever investment managers he pays only 17.4 per cent in tax – half what his office workers pay. That does not just boost inequality. It undermines faith in the fairness and integrity of the international financial system. And that is a political time bomb.

Enough Budget Slashing, Let's Flip

Thursday, June 16, 2011 by OtherWords
A powerful solution to state deficits is to invert each state's tax structure.

by Shannon Moriarty

 

Our country once had a more widely shared appreciation for both public services and the workers who provide them, including firefighters, teachers, and police officers. Today, however, state legislatures across the country are singing a very different tune. Instead of raising new revenue to protect those services and workers, states are slashing from their budgets the things that make our nation strong.

Cutting to get out of a deficit is like digging to get out of a ditch. It puts everything we value at risk. But it doesn't have to be this way.

What if there were a solution to state deficits that would raise significant revenue, encourage investment, and create jobs — without cutting vital public services? And what if the revenue required by such a solution could be generated solely by making tax systems as fair as most Americans think they ought to be?
The solution is simple: we need to turn states' fiscal status quos upside-down — literally.

United for a Fair Economy's new report, Flip It to Fix It: An Immediate, Fair Solution to State Budget Shortfalls, demonstrates that one powerful solution is to invert each state's tax structure. We calculated how much revenue state governments would raise if they flipped their current effective tax rates at the 50th income percentile and had the top 20 percent of income-earners in each state pay taxes at the same rate as the poorest 20 percent.

The results of this fiscal flip are quite dramatic. By turning each state's tax system on its head — from regressive to progressive — states would raise an additional $490 billion in revenue, easily wiping away the combined $112 billion state and local government budget shortfalls. The lake of red budget ink that has stained capitals across the nation would disappear overnight.

The report shows the extraordinary regressiveness of our current state tax structures. In plainer terms, low- and middle-income taxpayers are paying a greater share of their incomes in taxes than the wealthiest taxpayers in every single state in the nation. Relying on such an unsustainable structure is economically unsound and bad for our communities. And as several recent studies have pointed out, flipping them would be consistent with the majority of Americans' perception of "fair."

Achieving the "flipped" system would require significant changes in our state tax structures. For example, states would need to rely less on regressive sales taxes and raise more revenue from income taxes, in part by levying higher tax rates on the wealthiest Americans.

Of course, the biggest hurdle to achieving this inverted model is a lack of political will. But state-level elected officials can no longer ignore the fundamental roots of their deficit problems. Slashing essential public services and jobs will only drag us further away from achieving the kind of tax fairness that most taxpayers are already demanding.

Despite Pledge to Curtail Corporate Earmarks, Politicians Pursue Them

Some Members of Congress Funnel Tax Dollars for Businesses Through Universities and Nonprofits
by David Heath, Tuesday, July 6, 2010, Huffington Post Investigative Fund

This March, House Appropriations Committee chairman David Obey pledged to stop colleagues from steering millions of dollars in no-bid contracts to businesses, a controversial practice used by politicians to please constituents and boost pet projects, and which sometimes benefits campaign donors.

Restricting so-called corporate earmarks, declared House Speaker Nancy Pelosi, would help end the “culture of corruption” in Washington by limiting the influence of lobbyists while ensuring that companies “no longer reap the rewards” from special favors.

In a joint statement that grabbed headlines – even though it applied only to one-tenth of all earmark requests – Obey and Norm Dicks, D-Wash., chairman of the defense appropriations subcommittee, declared that they “will not approve requests for earmarks that are directed to for-profit entities.”

But that apparently hasn’t stopped some members of Congress from trying – including eight of the 60 members on the appropriations committee. Instead of naming companies as direct recipients of earmarks, as they have in recent years, some members appear to be attempting to funnel money to those same businesses through nonprofit organizations.

Among the politicians are Dicks, Rep. James Moran, D-Va., and Rep. Marcy Kaptur, D-Ohio – all of whom made the requests just after being cleared last February in a House ethics investigation into whether they had traded favors for campaign donations.

In all, the Huffington Post Investigative Fund found 18 instances in which the eight members are seeking to keep alive previous grants to businesses by listing a university, research center or other nonprofit as the recipient this time around.

While some of the earmark requests appear to involve a sharing of federal dollars between the non-profits and the businesses, in at least two instances intended recipients acknowledged they intended primarily to allow money to pass through to corporations. In two instances, some of the same people work for the nonprofit and the corporate beneficiary.

Similar findings were reported today by The New York Times, which said it had identified “dozens” of such earmark requests totaling $150 million that would indirectly benefit profit-making companies. Obey’s spokesman, Ellis Brachman, said the committee can and will block any requests that violate the restrictions announced by Obey and Dicks in March. But the task is daunting if not impossible, given the sheer volume of requests for earmarks – tens of thousands of them amounting to some $16 billion in federal spending last year.

“No matter what they tell you, there is just no way they can police all that,” earmark critic Jeff Flake, an Arizona Republican congressman, told The Times. “They just don’t have the time or resources.”

No comprehensive list of earmark requests exists, so it’s difficult to tell how many members of the committees or in Congress overall are still pursuing earmarks benefiting companies.

Even on its face, the Obey-Dicks restrictions on earmarks were viewed as minimal at the time they were announced; only 1,000 of all earmark requests involve businesses. Some 90 percent of all earmarks are designated for organizations such as charities, nonprofits and educational institutions - spurring predictions that members of Congress, lobbyists and corporations would use these allowed earmarks to keep the money flowing to businesses.

House Republicans vowed for a year to restrict all earmark requests – not just those going to companies.

The Investigative Fund identified businesses that could benefit from earmarks naming nonprofits by reviewing military spending-related requests from members of the House Appropriations Committee. Specifically, the Investigative Fund simply compared for-profit earmarks secured last year with the language of earmarks requested by some of the same lawmakers this year.

While the named recipients varied, the description of the project being funded was similar if not identical in language, which is usually tucked into larger pieces of legislation.

Many universities collaborate with businesses on endeavors that are legitimate and produce meaningful results. But Flake scoffs at the notion that research collaborations with universities are acceptable when it comes to targeting money specifically as favors requested by individual members of Congress. Such collaborations are “coalitions of convenience for the facilitation of earmarks,” he told the Investigative Fund.

Appropriations Committee spokesman Brachman declined to discuss specific requests. But he said but each earmark would be reviewed separately. Obey, he said, “is very serious about the ban on for-profit entities.” The committee “will not fund earmarks going to for-profits,” he added.

Congressional aides, asked about the continuing requests despite the restrictions, told the Investigative Fund that rules have never been spelled out. The only guidance is a press release – the one released by Obey and Dicks.

Back in March, Steve Ellis, vice president of the Taxpayers for Common Sense, a nonpartisan watchdog organization on government spending, questioned in news media interviews whether Congress could restore public confidence by restricting only one-tenth of all earmarks. He wanted an all-out ban.

Steering money through nonprofits to for-profit companies won’t improve perceptions, he says now. “Trying to finesse your way around it with lawyerly excuses really feeds voter cynicism."

Officials at some of the nonprofits acknowledged in interviews that they expect to receive only a share of the money for collaborating with the companies in research. In a few cases, the nonprofit expects to keep little or nothing. And some of the nonprofits appear to have close ties to the company.

For example, Rep. James Moran, D-Va., last year secured an earmark to a health clinic and small company, HealtheState, that is trying to commercialize free medical-records software developed within the Defense Department. This year, Moran has asked for $2.5 million again, which would go to the clinic and a nonprofit called Prometheus Foundation.

The foundation lists as its contact, Jill Phillips, an officer at HealtheState. Last year, Phillips donated $4,000 to Moran’s campaign. The foundation’s Web site, which describes its primary mission as helping the “technology transfer” of the medical-records software, lists HealtheState as its partner.

Phillips could not be reached for comment. Moran’s spokeswoman he was “comfortable the funding request meets the appropriate guidelines” and that if the earmark is approved, “it will go to a most worthy non-profit in our district.”

Rep. Tim Ryan, D-Ohio, has requested $1.5 million for research on behalf of an arm of the Forging Industry Association, which is involved in metals manufacturing. However, the executive vice president of that trade group, Roy Hardy, says he doesn’t have any researchers on staff and so won’t be directly involved in the work.

An Akron, Ohio company, IQ Technologies, lobbied for the earmark with the help of helicopter manufacturers. Joe Powell, the company’s president, said he will use the money to test the company’s exclusive technology for making stronger helicopter parts.

Ryan’s spokesman said he believed partnerships between for-profits and non-profits would still be allowed. Ryan did not identify the company in his request, only the trade association

An Exempt Chairman?

The likely next chairman of the appropriations committee is Dicks. As the defense spending subcommittee’s chairman, he already is in the position to enforce the restrictions he endorsed last March in his press release with Obey, entitled, “Appropriations Committee Bans For-Profit Earmarks.”

But Dicks has himself continued to pursue money for research undertaken by a company in his district.

Since 2004, Dicks has sponsored more than $20 million in earmarks for the tiny startup, Intellicheck Mobilisa. In last year’s earmark request, he named the company, whose executives have donated $26,000 to his campaigns.

This year, the earmark names a subcontractor and collaborator as the intended recipient on the project – the University of Washington.

The research involves technology identified in the earmark request as a “Littoral Sensor Grid” – the same description for Dicks’ earmark directly benefitting the company last year.

The company, which sells a system that scans driver's licenses for retail stores and military bases, secured its first earmark to provide free wireless Internet to passengers on ferries. That morphed into a system for sending security and environmental data collected from waterborne buoys in the Seattle area, for which the company received a $4.5 million no-bid contract last September.

The University of Washington has received $1 million in each of the last two years to provide assistance in the research, according to the contract obtained by the Investigative Fund.

The latest earmark request is for $6.2 million. University spokesman Bob Roseth said it’s unclear how money would be split. He said the company wouldn’t necessarily be involved in the project next year, though he wouldn’t rule it out.

When asked how the company could not be involved in deploying its own technology – the “Littoral Sensor Grid” – Roseth responded, “that’s a fair question.”

A spokesman for Dicks said he wasn’t sure if the ban would allow the company to be involved in the project anymore.

Just weeks before requesting the earmark, Dicks had been among seven lawmakers cleared in a congressional ethics investigation involving suspicions they had traded earmarks for campaign donations. The House ethics committee uncovered evidence that company executives gave campaign donations in expectation of receiving earmarks. But the panel concluded in February that lawmakers were not involved themselves or had no idea of the expectations of lobbyists and companies.

The final report included evidence that one company, 21st Century Systems, had given Dicks a $1,000 campaign donation through its political action committee and was planning to give more, in hopes of getting an earmark. An internal company spreadsheet on campaign contributions to members of Congress proposed giving Dicks another $2,000 and in the next column listed an earmark it was seeking from Dicks.

Dicks told investigators that he does not review Federal Election Commission filings to see who’s giving donations to his campaign and that he awards earmarks only after careful review of their merits.

Earmark University

Also cleared in the investigation was Rep. Marcy Kaptur, D-Ohio, who told the ethics committee that she separates her fund-raising activities from her legislative duties. This year, Kaptur is sponsoring five earmarks for the University of Toledo that last year she directed to private companies.

A research executive at the university, Frank Calzonetti, said Kaptur's office asked earlier this year if the school would be willing to start collaborating with four of the companies seeking earmarks. University researchers were already collaborating with a fifth company, so Kaptur’s earmark this time lists the school as the intended recipient rather than the company.

The name of that company is Teledyne Turbine Engines, which once had a plant in Toledo that at its peak employed 1,100 workers. To save the plant from shutting down, Kaptur helped set up a collaboration with the university in 2003, directing millions in federal dollars to a new research effort.

Included in the ethics office report was a form used by Teledyne to justify contributions from its political action committee. It asks if the candidate is important to any of the company’s program, and in Kaptur’s case, the answer given is that she represents the district where Teledyne Turbine Engines is located and sits on the subcommittee that directs defense spending. The form then asks if the candidate being supported could influence the awarding of government funds. The answer given in Kaptur’s case was “absolutely.”

Teledyne’s legislative affairs director acknowledged in an interview with the ethics office that donations gave him access to lawmakers to discuss legislation and were awarded based on past support the member of Congress provided. In his interview with the ethics office, the company officer “says that it does go through your mind whether you are buying influence.”

In exonerating Kaptur, the ethics office said there’s no evidence that Kaptur was aware of Teledyne’s internal documents or the views of its legislative affairs director.

Now, again, Kaptur is sponsoring a $4.5 million earmark to research Teledyne’s turbine engines. Only this time, she’s lists only the University of Toledo as the intended recipient. Teledyne’s PAC and employees have donated $22,900 to Kaptur’s campaign in the past six years.

One company, American Systems Corp., spent roughly $140,000 on lobbying in the past year, including pursuit for what its public disclosure identifies as an “Enhanced Detection Adjunct Processor.” Kaptur is sponsoring an earmark using the company’s description but lists the recipient as the University of Toledo.

Kaptur declined requests to speak with the Investigative Fund. But she told The Times, in its story on earmark requests, that she’d been pleased alliances formed by defense contractors in Ohio enabled her to resubmit requests that had once been made directly to them. “I am a member who does fight for my region and my state,” the Times quoted her as saying, and adding, “I don’t fight mindlessly.”

Another member of the appropriations committee, Rep. Steve Rothman, is sponsoring a $9.8 million earmark for a start-up company with six employees. Last year, Rothman named Lightening Energy as the recipient. This year, the Congressman lists the unincorporated New Jersey Innovative Technology Consortium as the recipient.

Mark Merclean, the consortium’s sole unpaid staffer, said it is still up to Lightening Energy to do all the work to get the contract and to deal with Congress. “Now if a company gets an earmark, that’s great. It can still go through the consortium,” although the money would end up with the company, Merclean said.

Rothman also requested a $2 million earmark for the New Jersey National Guard. In the Senate, where there is no ban, Frank Lautenberg, D-NJ, is sponsoring what appears to be the same earmark but says the money will go to Telos Corp.

In another instance, Rothman is seeking $3 million for the National Center for Manufacturing Sciences, the same earmark that Lautenberg wants for a Hackensack-based company, ID Systems. Last year, Rothman himself named both Telos and ID Systems as the recipients of these earmarks.

Rothman’s office did not respond to questions about the earmark requests.

One company identified in the Investigative Fund’s reporting admits it set up a nonprofit entity to secure government contracts. Charles Lambert, an Air Force veteran, said that in December he created the nonprofit, Persistent Elevated Solutions, because his for-profit company, Colorado Springs-based Skysentry LLC, was not allowed to bid on an Environmental Protection Agency contract. Skysentry has received earmarks for years for testing lighter materials and more efficient batteries for blimps.

But this time he knew he had to seek a contract as a nonprofit. “There are various government agencies, like the EPA, that restrict bidding to nonprofits,” said Lambert. The company filed with the Ohio Secretary of State and paid a $125 fee to set up the nonprofit.

While Lambert acknowledged that the Army hasn’t shown much interest in funding the research, he estimated it could save the military billions of dollars. “Decision-makers in the Army are supportive but not anxious to kind of stick their necks out and support a new technology,” he said. Rather than restricting earmarks to nonprofit companies, he thinks Congress should vet them better.

“If I feel like I can stand on the steps of one of the presidential monuments and explain to the American public why I think it’s a good thing and anticipate that they are not going to react adversely, I’m not ashamed to go after some of these thing.

If Marijuana Production Were Legal: Projected Tax Revenues, by State

Love it or hate it, people smoke marijuana - lots of it. In some states marijuana consumption and possession have been decriminalized, and even legalized for medicinal purposes. But, have you ever wondered how large the economics of Marijuana were? Us too. As a result ,have decided to put together this graphic, which illustrates the popularity of marijuana consumption, the federal tax dollars spent to keep marijuana illegal, and the possible tax revenues that could be generated if marijuana production were legalized and taxed like any other agricultural product. It is especially interesting, with regards to the Great Recession: