Category Archives: Popular Discontent

I’m So Glad I Don’t Run a Restaurant

A pizzeria in Indiana was forced to close after its owner told the press that, in effect, they they would serve customers in their restaurant regardless of their religion or sexual orientation, but that if a gay couple wanted them to cater their wedding, they would refuse.

The owners were painted as evil practitioners of discrimination, cousins of Jim Crow.  Yet, at first, their position seems reasonable.

I wrote in these pages, back in 2012, that gay couples should be able to use civil marriage to secure their legal rights with respect to each other.  I was concerned, however, that the effect would be to redefine marriage into something other than what it has been for eons.

To me, refusing to participate in a wedding is not the same as refusing service to a customer.  A wedding is a celebration of a new marriage, and if the participants in the celebration are not in the spirit of the event, even if they’re contractors, then it won’t be the best sendoff for the new couple.  And it isn’t fair to the couple to have some of the participants there by force, especially when one could find another caterer, photographer, etc. who would be in the spirit of the event.

But then again:

  • Doesn’t being a professional mean executing your work with skill and grace, even if you’re not in the spirit?
  • How is telling a potential client ‘you can find another,’ or even, ‘I don’t really do these events, but here’s Mr. X, who will be able to serve you better than I can,’ different when addressing a gay couple as opposed to, say, a black couple?

The Indiana legislature passed a law last week affirming one’s right to one’s religious beliefs:

Sec. 8. (a) Except as provided in subsection (b), a governmental entity may not substantially burden a person’s exercise of religion, even if the burden results from a rule of general applicability. (b) A governmental entity may substantially burden a person’s exercise of religion only if the governmental entity demonstrates that application of the burden to the person: (1) is in furtherance of a compelling governmental interest; and (2) is the least restrictive means of furthering that compelling governmental interest.

Sec. 9. A person whose exercise of religion has been substantially burdened, or is likely to be substantially burdened, by a violation of this chapter may assert the violation or impending violation as a claim or defense in a judicial or administrative proceeding, regardless of whether the state or any other governmental entity is a party to the proceeding. If the relevant governmental entity is not a party to the proceeding, the governmental entity has an unconditional right to intervene in order to respond to the person’s invocation of this chapter.

I’ve read that five times and still can’t figure out what it’s practically useful for.  It seems to say that the government cannot infringe on one’s exercise of religion, except when they feel they have to.  And if one is sued, and uses as one’s defense that the law under which they are being sued infringes on their religion, they’ve invited the government to enter the case, presumably on the other side.

If I run a restaurant, and decide that I don’t want to cater gay weddings, this new law isn’t really helpful.

Nevertheless, the law unleashed a firestorm of opposition, even though there is a very similar Federal law on the books, so that this week, the Indiana legislature passed an update, explicitly declaring that ‘providers’ (i.e. any person or establishment other than an explicitly religious one) may not discriminate on the basis of ‘race, color, religion, ancestry, age, national origin, disability, sex, sexual orientation, gender identity, or United States military service,’ and may not use last week’s law (which otherwise remains in effect) as a defense.

I guess the message is: shut up and cater.

How Bad Is ‘Worst’?

The New York Post reported today that a plurality of respondents in a recent poll (33%) named President Obama as the worst President since World War II.  George W. Bush came in second with 28%, and Richard Nixon was a distant third at 13%.    So now I’m somewhat comforted to know that it’s not just me.

When I used to rail at Bush, I would call him derisively  ‘Our Fearless Leader.’  But I can’t call Obama that: he isn’t fearless, and I’ve never seen him actually lead.

People used to say that Jimmy Carter was our worst President.  B’ut his problem was that he was once a naval officer, and approached the Presidency the same way: address problems forthrightly, and take the necessary measures to deal with them, even though it may be difficult or painful.  Obama, in contrast, seems perfectly happy kicking the can down the road.

But if he’s that bad of a President, can we do something about it?  Some of the conservative Web sites that I read suggest that Obama should be impeached.  Its a charming thought, but, alas, I don’t see it happening.

We began the process of impeaching President Nixon because it appeared that he was using the power of his office to subvert our democratic system.  (Nixon resigned at that point, and we never got to the bottom of what actually happened.)  We impeached President Clinton (but failed to convict him) because of alleged personal crimes (he lied under oath).   While these crimes had no discernable impact on his ability to govern, they were nevertheless crimes.

We can reasonably say that President Obama is not respecting that part of the Constitution that requires him to ‘faithfully execute the laws.’  But the Constitution is deliberately vague on that point.  The Founders expected that a President might have to deal with conflicting constraints, and anticipated that he might have to use some professional judgement in executing the laws.  So the requirement is more of a guideline.

Moreover, impeachment was never meant as a remedy for policy decisions that one might disagree with, or alleged disrespect for the office, or lying to the American people (which for the typical politician comes almost as easily as breathing).  For those, the appropriate remedy is not to re-elect the man or his party.  But we did re-elect Obama in 2012, and by a substantial margin.

Some have suggested that the President could be charged with treason.  But that won’t work either.  In the absence of a declaration of war, the executive gets to decide who the enemy is.

In brief, our Constitution was never designed to deal with the case of a President who pursues his own agenda, with apparent disregard not only for the Constitution and the rule of law, but for common sense.  The Founders presumed that such a man would never become President.

But we elected him, not once but twice….

Waiting for the Sequestration Axe to Fall

I was going to call this “Waiting for the Furlough Axe to Fall”, but that draws too much attention to the 14 days without pay that I expect to take between mid-June and the end of September.  What we are forgetting is that the Budget Control Act of 2011 lasts for 10 years, so barring amendment or repeal of the law, I expect sequestration to have an impact on government spending through the end of September 2022.

Here are my assumptions for how things will go over the next few years:

1.  Items that are protected from sequestration, such as Social Security, food stamps, and Medicare/Medicaid will continue to be protected, though there is likely to be a change to how inflation is calculated to reduce the growth in Social Security payments.  Payments to providers for Medicare/Medicaid are likely to be  reduced.  There may be tightening of restrictions to qualify for food stamps/TANF as well as greater enforcement efforts.  States do have the option of using different income levels to qualify for benefits than what the federal government publishes. 

2.  We will have a drawdown of military forces, as happens every 20 years or so.  This will have several outcomes, such as cancellation of weapons programs and the offer of separation incentives for military and civilian personnel.  More money will need to be provided for repairing and maintaining military equipment at the expense of new systems.  Offering separation/retirement incentives just shifts costs to another account, though the cost is less than having the person remain employed full-time. The hiring freeze that is in place at DoD will remain in place for several years, with new hires requiring approval 2-3 levels above the hiring authority.

3. Further implementation of the Affordable  Care Act (ACA, i.e. “Obamacare”) will put additional stress on Defense and other programs to find savings to offset the cost of the expansion of Medicaid.  The federal government is supposed to pay for the ENTIRE cost of the Medicaid expansion for three years, with the states taking over a small protion of the cost after that. Right now, the main change is that people who contribute to a health savings account had their maximum contribution cut from $5000 to $2500.  This cost someone who made a maximum contribution about $600 in extra state and federal taxes. Health care premiums have been going up in price in anticipation of implementation of the ACA, in part because the ACA requirese that at least 85% of premiums be spent on actual health care services, not adminsitration costs.

4. Non-defense federal programs will at best tread water.  The emphasis will be  maintaining or completing existing programs rather than undertaking new initiatives. Remember, in the first few years, all that is being cut is growth from the “baseline budget”.  It’s in years 3 and later that more painful cuts will have to be made.

There was a lot of excitement over having to take 22 days of unpaid leave, an amount that has since been reduced to 14. I’d rather take unpaid leave than have to work the time with a 5.4% pay cut. Either way, I lose out on 5.4% of my salary, but at least furloughs allow me to maintain my hourly rate. I didn’t see this as the event that would have a major impact.  I was looking at future years, although from the prism of my current job.

Ideally, agencies should be planning for FY14, which begins in October, and being more forthcoming about what they expect to happen well in advance of the beginning of the fiscal year.  I would expect the number of support contractors to decline, but that might just be wishful thinking on my part. I can understand furloughing federal employees rather than contractors now because of the notification requirements under the WARN Act that would need to be met and the fact that not letting the contractors work as scheduled would put the contractor in a position to make a claim against the government for more than the money that would be saved.  There should be plans being made now to reduce costs that will have an impact on both procurement and personnel.

For instance, the Army needs to find $50 billion in savings in FY13.  Furloughing civilian employees for 22 days only gets them 10% of that amount because both military personnel and contractors are not subject to furlough. One step that the Secretary of the Army took was to defer depot  maintenance on equipment for the rest of the year.  Congress appropriated money to fund depot maintenance, much of which supports “reset”, which is fixing vehicles and equipment so that they are ready for the next deployment cycle.  I expect upgrades of military housing to be deferred, though necessary repairs will be made.

Until you begin digging into the budget, it seems like it should be no big deal to cut 5% or 10% from the budget, even with protecting a sizable chunk of the budget from cuts.  What we don’t see are the fixed costs of government. It isn’t as simple as saying, “Army, you can have 10% fewer people and systems.”  Most of the costs are incurred in operations and sustainment, not research and development or production, in part because weapons systems can last for decades.  How long have we had the Colt 1911 .45 caliber pistol? The B-52 bomber has been “extended” to last util something like 2042.

The need to generate savings in the “out years” may well hasten the reduction of the U.S.  presence overseas, though it won’t be fast in the sense of deploying the Army to Iraq was.   We have spent hundreds of billions building military bases in Iraq and Afghanistan that will be turned back to those countries.

I think that sequestration has the potential to have a far greater effect on the economy than the debt ceiling battles or the expected tax increases that were put into effect  early this year could have for a simple reason: sequestration removes the stimulus that was passed early in Obama’s first term, although by a different route and at a different rate.  I am not sure when that stimulus package is set to expire, but we do face the double whammy of sequestration and the end of that stimulus.

Isolationism 101

It is attractive to think that we can save money on a national level by withdrawing our military from other countries or cutting off foreign aid or ending offshoring of jobs. What we see reflects national priorities, and the country doesn’t matter too much.  If one goes to a British or German grocery store, tea, bread, and cheese are relatively cheap relative to U.S. prices in a British store and grains, vegetables and chocolate are relatively cheap in a German grocery. Walk into a U.S. grocery store, and chances are that you will be met with a display of soda and snack foods as the specials of the week.

The main thing that “free trade” does at the consumer level is to roll back or eliminate tariffs on imported goods.  The government misses out on the revenues that they would raise from the tariffs, but people will get somewhat cheaper goods. Another way to get cheaper goods is to reduce the cost of production.  This can take the form of reducing wages or using cheaper ingedients and even reducing the size of the package while keeping the cost of the package constant. This is not an exhaustive list.

One reason that countries or regions of the same country trade goods is because certain areas make certain goods better or more cheaply.  The prospective buyer sees value in the other region’s goods. At different times, foreign-made goods can be seen as either a superior or inferior good.  People are willing to pay more for a BMW than for a Kia. As long as we insist on cheap goods, it will be diffficult for jobs to return to the U.S. because goods of acceptable quality can be made elsewhere.

One can argue that the U.S. provides a huge subsidy to the rest of the world because we have such a large military and that we maintain a military presence in most countries. I don’t know how often the status of forces agreements that the U.S. has with other countries are renegotiated.  These are what allows us to maintain a military presence in the country. We were heading for the end of a status of forces agreement in the Phililppines some years ago when Mount Pinotubo erupted.  The Philippines wanted us out anyway, but the fact that the base was destroyed in the eruption probably allowed us to avoid any termination costs under an “Act of God” clause.

We used to have many more military bases in Germany than we do now.  The Army base at Heidelberg is scheduled to be turned back to the Germans, which is why US Army Europe headquarters was relocated to Wiesbaden. Maintaining bases in Europe isn’t cheap. There is no end to the litany of damages that the Germans seek to charge.  It’s a lot like what happens to you in England if you run over a sheep that is crossing the road:  you have to pay not just for the sheep, but for all of its offspring, so killing one sheep can cost you twenty times the value of the sheep in damages.

I expect the military to offer certain incentives to its personnel to leave or retire early within five years.  The last time around (1992-94), someone who volunteered to separate received a pro-rated pension for twice their length of service provided that they had more than 10 years of service , so someone wth 15 years of service got a pension for 30 years that was worth about 30% of their base pay. The separation incentive for a civilian is much less generous:  $25,000 and a five-year ban on federal employment. However, this matters less if you are immediately eligible for retirement.

People who want us to take a more isolationist stance often don’t look at the unintended consequences. We are going to abandon a lot of military bases in Iraq and Afghanistan, but it doesn’t deal with what to do with the people.  I’m happy to let the contractors take it on the chin, because they made at least 3-4 times what the soldiers did, plus got much of their income tax-free, as any cmtractor who works overseas does.  If you are a contractor who works overseas under a status of forces agreement, you get an exemption from U.S. income taxes of about $100K plus don’t have to pay taxes to the host country. If they didn’t have the sense to save their money, too bad for them. For every military slot that you cut, there is somewhere around 5 support billets that go along with it.

Unfortunately, it looks like federal employees will take the hit of budget reduction, at least this year. In part, this is a function of contracts having been signed, but in the case of Department of the Army, iis also a result of being “overstrength”.  Military personnel can’t be furloughed by order of the President, so civilians have to make up the budget cut. Other agencies expect far fewer days of furlough than the 22 days that Department of the Army employees have been told to expect.  22 days is the maximum amount of days that a federal employee can be furloughed without it being considered an adverse personnel action. 

Want to bring the troops back home?  Look for a spike in unemployment, both at home and abroad, because we employ foreign nationals overseas.  This is not an argument not to do it, but understand that the jobs that will go away will be good-paying jobs with benefits, not McJobs. It’s a macroeconomic problem that I can’t address adequately in a blog post, given the effect on the economy of military spending. When Congress wanted to get the B-1 bomber funded, they made sure to put a piece of the work in every congressional distrcit.

Tax Hikes for Job Creators

From a report in today’s New York Post:

What Dems’ Tax Hikes Really Mean

…But who are those “wealthiest Americans”? Illinois businessman Wilson F. Hunt Jr. recently passed on to me the details of how his small business, which he owns with his wife, will be ensnared in this scheme to soak the rich.

Because his company elects to pay taxes as a Sub-chapter S Corporation, all the company’s profits are reported on the couple’s individual income tax returns as the sole shareholders in the company. They paid almost $1.1 million in taxes in 2010, yet the couple paid themselves only a combined salary of $189,000.

The rest of the income was put into retained earnings, which the company could then use to expand its business the following year.

We can’t raise taxes on them!  Otherwise, they’ll go out of business and not create any new jobs!  Well, maybe….

Let’s do the math:

  • The report doesn’t say whether the $1.1M in taxes is just in Federal income taxes or for all of their income taxes.  If the $1.1M refers to Federal taxes, it means that the business earned profits somewhere around $3.5M.  I don’t know the Illinois state tax rules, nor whether they had to pay local taxes that got included in the $1.1M figure.  As a worst case approximation, if their business were in New York City, their business would have to earn about $2.2M to pay $1.1M in taxes.  (Yes, taxes in NYC are that high.)  To keep the example simple, and be true to the author’s purported intent, I’ll assume that the Hunts paid $1.1M in Federal income taxes.
  • While the business earned, say, $3.5M, the taxes paid don’t give us a clue as to how much revenue it took in.  It could have been $5M or $500M.
  • The business could have spent that $3.5M on plant and equipment, or hiring additional employees, and paid less tax.  But the Hunts elected not to do that.
  • If the business had been a Subchapter C corporation, which pays taxes for itself, it would have similarly had to pay a little over $1M in Federal corporate taxes.
  • If the ‘Bush tax cuts’ expire through Congressional inaction, the Hunts will have to pay about $1.22M in taxes instead of $1.1M.  Yes, it’s $120,000 more, which is not a trivial sum, but their business can demonstrably afford it.

I’ll agree that the tax code really bites when it comes to retained earnings.  A business that saves its surplus to use in future years gets whomped.  It’s not how business is supposed to work: you’re supposed to borrow to expand your business, so that you can write off the interest.  (I find this particularly painful: the bank won’t lend my business 25 cents, so I have to finance everything out of the till.)

My point is that I find it very hard to believe the Republicans’ assertion that tweaking tax rates up–or down–will have a significant impact on employment.  There are no vast piles of jobs waiting in the wings to be deployed when tax rates drop 10 percent.

Gay Marriage

This week, President Obama, our Non-Leader, came off the fence and indicated that he was in favor of marriage between two people of the same gender.

On one level, it seems eminently reasonable.  Civil marriage gives a couple a passel of legal rights with respect to each other: inheritance, joint tax returns, access to medical data, etc.  If two men or two women are in a committed relationship, and want to avail themselves of these rights, they should be able to.

But outside of the legal definition, and the couple themselves, is such a couple really married?

Marriage has existed for eons as a basis for family and children.  It’s true that not every married couple has children, but if you have a man and a woman who presumably like each other’s company sleeping together, you have to at least admit the possibility.

Today, heterosexual marriage is not the ‘basis’ that it used to be: some 40% of the births in the United States are to unmarried women.   Admitting marriage between two men or two women would further erode the status of marriage as a benchmark for families.

And this is what many people worry about: not so much the rights of gay couples, but the impact of redefining ‘marriage’ so that it is no longer exclusively heterosexual.

Unfortunately, railing against it won’t help.  The societal forces that led us to consider gay marriage won’t go away if we pretend they don’t exist.  The Rick Santorum solution–if we legislate the morality of the 1950s, we’ll all be happy and prosperous again–won’t work.

While I acknowledge that gay marriage is an idea whose time has come, I don’t have to like it.

The Occupy Agenda

One of my observations about the Occupy movement was that while it highlighted the growing disparity between rich and poor in this country, it didn’t have any practical suggestions for dealing with it.  But that wasn’t entirely true.  There was no agenda for directly addressing the problems, but there were two practical suggestions:

  • Get money out of politics;
  • Reform the banks.

These items were between the lines in a lot of discussions about the Occupy movement, and were a frequent subtext of many protesters’ placards, but never got much play in the media.

They’re worthy goals, although I can’t say that I agree with the methods the Occupiers would suggest to address them.

The essential concern of those who would want to get money out of politics is that, right now, we have politicians in the image of those who fund them: the very rich and the bankers.  I completely agree.

The usual solution is for government funding of campaigns.  But that won’t change the reality that politicians reflect their funding.  So instead of having politicians in the image of the bankers, we have politicians in the image of the previous government.  I’m not sure which is worse.

The bigger problem is the quality of political candidates.   In 2009, I was disappointed with Mayor Bloomberg.  He had finagled a change to the law enabling him to run for a third term.  He was actually doing pretty well, and had a decent shot at succeeding in a referendum to abolish term limits if it had been attempted in 2008.

But I voted for him anyway, because the other candidate, William Thompson, was worse.  Thompson represented the traditional approach to city government: raise taxes and pay off the unions.

A similar thing is happening now in the Presidential campaign.  The different Republican candidates all have their strengths and weaknesses.  But none of them is a compelling alternative to Obama, although some of them represent the lesser of two evils.  OK, maybe Ron Paul, but the party establishment seems to consider him an embarrassment.

Until we get better candidates, I’m not sure changes to campaign financing will help.

As far as reforming the banks, it sounds like a good idea: the regulated banks of the latter 20th century helped to make us prosperous, and when the regulations were removed, the banks promptly drove themselves into the ditch.  And indeed, new bank regulations were enacted into law this year.

But the regulations don’t seem to do very much, other than nibbling at the edges of minor inconveniences (like not having three weeks to pay one’s credit card bill), and making it harder for smaller banks to function (so that they can get swallowed by bigger banks).  Unfortunately, bank reform is in the hands of our… politicians.

Real bank reform, unfortunately, will have to wait for politicians capable of executing it.