The Hill reported today that the student loan industry is ramping up activity to oppose the Obama administration’s loan reforms, and “pushing alternatives to maintain a grip on some portion of the multibillion-dollar business”:

The industry is in the middle of a major push, with some prominent Democratic lobbyists on its side, to stall momentum for the Obama plan…Industry groups latched onto an estimate from the nonpartisan Congressional Budget Office (CBO) requested by Sen. Judd Gregg (R-N.H.) that showed under high-risk scenarios the House bill would save $47 billion over 10 years.

Currently, the government subsidizes student loan companies to originate and service loans, while guaranteeing loan repayment up to 97 percent, which generates huge profits for the loan industry with very little risk.

The administration’s plan, which has been approved by the House Education and Labor Committee, would cut the middlemen out and have the government lend directly lend to all students, instead of just some. According to traditional CBO scoring, this plan would save taxpayers an estimated $87 billion over ten years (or $47 billion, using the CBO’s “market risk” score requested by Gregg).

As Higher Ed Watch pointed out, by embracing the CBO score that Gregg requested, both Republicans and the student loan industry seem to have inadvertently “conceded that Direct Loans are much cheaper than [subsidized private] loans, and that continuing the FFEL program, rather than transitioning to 100 percent direct lending, would cost taxpayers an extra $47 billion over ten years.” Either way, the scores prove that direct lending is a less expensive way of providing financial aid to students.

As the New York Times’ editorial board wrote, the lender subsidy program is “wasteful and all-too-corruptible“:

It was created at a time when the college loan business wasn’t big enough to attract enough lenders. The subsidies long ago became unnecessary. But lenders, who reaped enormous profits, and free-market enthusiasts have zealously defended the program…The goal of the student lending program is to make college more attainable. By embracing these changes — and eliminating an unnecessary federal subsidy — Congress can promote that goal and save taxpayers nearly $50 billion over the next decade.

Indeed, the lenders have a vested interest in protecting their taxpayer guaranteed profits, but in terms of doing what’s best for students — and what’s best for the federal budget — it makes no sense to preserve the current system.

Last night, news broke that the “cash for clunkers” program — which provides vouchers of up to $4,500 to consumers who trade in gas-guzzling cars for more fuel-efficient models — was running out of cash due to much higher than expected demand. It took only six days for the program’s $1 billion budget to be exhausted.

Evidently, Rep. Michele Bachmann (R-MN) feels that a program proving to be more successful than anticipated reveals the government’s incompetence:

Rep. John Boehner (R-OH) said the same thing, stating that “there are a lot of questions about how the administration administered this program. If they can’t handle something as simple as this, how would we handle health care?”

The initial proposal for the cash for clunkers program included $4 billion in funding, which Congress decided to cut to $1 billion. But besides underestimating demand, it’s hard to see how implementation of this program was mishandled.

The popularity of cash for clunkers actually shows that consumers are willing to spend, if the incentives are there. With the economy as a whole slowing its contraction, but with consumer spending still falling, programs that provide the right incentives (thus causing stimulus and preserving and creating jobs) are a good thing.

As Derek Thompson pointed out, there’s currently an “historic pent-up demand for cars…And when the government sweetens historic demand with cash guarantees, it’s easy to burn through $1 billion in a week.” Some forecasts indicate that industry-wide sales for July “could top 10 million vehicles on the annualized basis tracked by analysts.” If that happens, it would be the highest sales rate of the year.

The House voted today to infuse $2 billion of stimulus money meant for renewable loan guarantees into the program, and the Senate will vote next week. It might be worth finding the money somewhere else, though. For instance, Treasury could reprogram TARP funds, of which there are about $80 billion uncommitted, by making a request to congressional appropriators.

I noted at the time that cash for clunkers is not the most efficient way to upgrade the fuel efficiency of the nation’s auto fleet, and the environmental impact is not going to be huge, but given the economic benefits and the help in combating some traditional pollution the program is worth continuing.

Update

Rep. Michael Burgess (R-TX) piled on:

 

As part of a compromise with the Blue Dogs, Chairman Henry Waxman (D-CA) has agreed to make some changes to the health care bill being crafted in the House Energy and Commerce Committee. One facet of the compromise involves raising the small business exemption on the employer health care mandate. Under the original bill, businesses with a payroll greater than $250,000 would be charged for not providing health insurance. The compromise pushes that to $500,000 in payroll, with the exemption not completely phased out until $750,000.

Of course, the Wall Street Journal editorial board is on the march against the very idea of an employer mandate:

To understand why, consider how the Pelosi jobs tax works…A tax credit would help very small businesses adjust to the new costs, but even a firm with a handful of workers is likely to be subject to this payroll levy. As we went to press, Blue Dogs were taking credit for pushing those payroll amounts up to $500,000 and $750,0000, but those are still small employers.

As Igor Volsky explained, “in the context of comprehensive reform, an employer mandate would preserve employer coverage and keep the employer contribution in the system.” The Congressional Budget Office said that the original House bill, which includes a strong employer mandate, would “drive 9 million people off of employer-provided insurance plans but that 12 million people who do not have such coverage now would get it — a net increase of 3 million people insured through their employers.”

Furthermore, the notion that this mandate would decimate small employers is nonsense. If the compromise comes to pass, 87 percent of businesses would be completely exempt from the mandate, since they have a payroll of less than $500,000.

Actually, even before the compromise, 77 percent of businesses would have been unaffected by the mandate. The only small employers that will be affected by the full scope of the mandate are firms with few employees who are making a lot of money. And chances are, businesses of that sort already provide insurance.

This is essentially a mandate on large employers, to ensure that they can’t simply drop their coverage, sending their employees into the health insurance Exchange or the non-group market. A huge influx of formerly covered employees into the Exhange would prove costly and overwhelming, since the Exchange is intended for small business employees and the self-employed.

By covering the very largest firms with this mandate, you actually ensure that a vast majority of workers are affected, as the 13 percent of firms with a payroll larger than $500,000 employ 81 percent of the country’s workers. So in the end, the bill is not about taxing small businesses, but providing America’s workers with stable access to health insurance.

The Associated Press reported that opponents of the Employee Free Choice Act (EFCA), feeling that they have dispensed with majority sign-up, are starting to “intensify their attack on another major provision [of the bill]: Binding arbitration if a new union and management can’t agree on a first contract within 120 days.”

A popular narrative from these opponents is that majority sign-up was actually just a red herring, meant to distract everyone from the arbitration provision that labor really wanted. “We suspected from the beginning that the binding arbitration was packaged with the elimination of the secret ballot in order to create a straw man they could take down later,” said Sen. Jim DeMint (R-SC). In that vein, the Chamber of Commerce had this to say about EFCA’s arbitration provision:

“Card check is the political poison in the bill, but forced arbitration is the real poison,” said Steven Law, general counsel of the U.S. Chamber of Commerce.

If arbitration truly is poisonous, then the Chamber must have built up quite an immunity over the years. After all, it has consistently favored binding arbitration, when such arbitration helps it avoid litigation in consumer disputes. Here’s some of the Chamber’s prior rhetoric:

– Lisa A. Rickard, president of the U.S. Chamber Institute for Legal Reform, wrote that the findings of an arbitration study “prove that arbitration continues to provide consumers with fair, inexpensive, and unbiased access to justice across the broadest spectrum of consumer disputes.” [3/11/09]

– The data is increasingly clear: for most consumers, arbitration is a better way to resolve disputes than being forced into court. [Chamber Press release, 7/15/08]

– Virtually any type of dispute between private individuals or entities can be addressed by arbitration, including, for example, contract, real estate, employment, and tort disputes. [U.S. Chamber Institute for Legal Reform, “Issues Resource Center”]

Overall, U.S. companies include mandatory arbitration clauses in 75 percent of consumer agreements. The Chamber seems to have no problem with that, but when arbitration translates into workers getting a fair shot at a contract, it’s suddenly poisonous.

Arbitration is a necessary part of EFCA because, all too often, employees vote to form a union, but can’t get a first contract due to their employer’s delay tactics. More than half of new unions still have no contract one year after they are certified, and 37 percent have no contract after two years. A full quarter of new unions wait more than three years to receive a first contract.

On Sunday, the Philadelphia Inquirer’s Kevin Ferris wrote a column describing Sen. Arlen Specter’s (D-PA) tiptoeing around the Employee Free Choice Act (EFCA). Specter is one of the senators working with Sen. Tom Harkin (D-IA) to salvage the bill, and Ferris wrote that Specter — who earlier in the year announced his intention to oppose the bill — needs EFCA to pass, as he “now needs labor support because of the expected primary challenge from U.S. Rep. Joe Sestak.”

In response to the column, Specter wrote a Letter to the Editor claiming that his stance on EFCA has been consistent:

I have no hesitancy in stating my own views. I have voted to have the Senate consider the modification of labor law to reform the way unions are certified and to provide procedures for negotiating first contracts. Earlier this year, I made a floor statement opposing giving up the secret ballot and suggesting the last-best-offer procedure on arbitration. My views on this subject have been consistent, and suggestions to the contrary by those intending to run against me are incorrect.

As Dan Hirschhorn at PA2010.com pointed out, “only Specter knows what his true views are, and while they may be consistent, his actions on the legislation have been anything but.”

Indeed, Specter was a co-sponsor of the bill and voted for cloture when the Senate considered it in 2007. However, earlier this year (before switching parties), Specter took to the Senate floor to announce that he would vote against cloture. Even after the party switch, Specter released a statement emphasizing that “my position on Employees Free Choice (Card Check) will not change.”

But last month, Specter addressed a crowd of union activists and told them “I believe you’ll be satisfied with my vote on this issue.” So the only thing Specter has really been consistent on is a consistent willingness to wobble back and forth on the issue.

Cross-posted on ThinkProgress.

The Chamber of Commerce threw a tantrum yesterday after President Obama nominated a union attorney to the National Labor Relations Board, a quasi-judicial body with the power to sanction unfair labor practices by employers and recognize newly unionized shops.  In a letter to senators laden with criticism, hyperbole and vitriolic rhetoric, the Chamber claims that SEIU Associate General Counsel Craig Becker represents “one of the most aggressive unions in the United States . . . which has a record of using questionable pressure tactics with the goal of forcing employers and workers to recognize unions.”  It labels Becker’s views of labor law as “extreme,” and warns of his “antipathy to the rights of employers;” and it “raises questions about Mr. Becker’s ability to impartially judge cases that may come before the Board.”

Two years ago, however, when President Bush was still nominating NLRB members, the Chamber delivered a very different letter to senators:

[A]n open and honest debate over the merits of Board decisions is a healthy exercise and should be encouraged. however, in recent years, we have seen a disturbing trend in the tone of the debate. Instead of disagreement, we have ad hominem attacks, instead of criticism, hyperbole, and instead of reasoned discussion, vitriolic rhetoric. Compounding this are reports based on shoddy research and half-truths that have been relied on by policy-makers, including members of this committee, in attacking the Board and its decision.

A month later, when President Bush announced that he was renominating labor-busting attorney Robert Batista to Chair the NLRB, the Chamber repeated these exact words, claiming that Batista’s critics were simply “demonizing” his record as Chair.

Few people have done more to undermine workers than Chairman Batista.  To give just one particularly egregious example, in a case called Oakwood Healthcare Batista stripped millions of American workers of their right to unionize by holding that an employee who provides even minimal direction to their co-workers can be classified as a “supervisor” (The right of actual managers to organize is not protected under federal labor law).  According to the Board’s two dissenting members, Batista’s decision could leave 23.3% of the workforce unable to unionize by the year 2012, even though none of Batista’s newly-minted “supervisors” enjoy any of the privileges normally associated with management.

Rather than pretend that they are the guardians of discourse when President Bush is in office and the defenders of reason now that he is not, the Chamber needs to simply admit that their guy lost the last election, and elections have consequences.  One of those consequences will be that an actual union lawyer will get a single seat on the nation’s most important adjudicator of labor disputes.  President Bush got to stack the NLRB with anti-worker union busters when he was in office.  Now that he is out of office, the Chamber will have to find a new way to break up unions.

Today, Sen. John Thune (R-SD) appeared on the Senate floor to decry the health care bill that has emerged in the House. During his speech, Thune claimed that “most” Americans and small businesses would pay “fifty cents of every dollar in taxes” if the House’s plan to implement a surtax were adopted:

Frankly, if you think about most Americans and most small businesses, when you start paying half, or fifty cents of every dollar in taxes, you’re getting to a point where it’s going to be very difficult for these businesses to say, you know, “why should I continue to try to create jobs?”…I think that’s the risk that we run with the job creators, the small businesses in the country, who are the economic engine and create as many as two-thirds to three-quarters of all the jobs in our economy.

Watch it:

First, let’s dispense with a few myths. The surtax would only affect 1.3 percent of taxpayers, not “most.” Only 4 percent of taxpayers that make any income at all from small businesses would feel the surcharge, which as Citizens for Tax Justice noted, should have “no effect on their hiring decisions.”

But Thune also seems to be a bit hazy on the concept of marginal tax rates (or he’s deliberately obfuscating the issue) when he says “fifty cents of every dollar” will be taxed. For those richest one percent of taxpayers, the surtax would be assessed on every dollar after the first one million dollars. In fact, right in the House bill, it says that the surtax will be on income “as exceeds $1,000,000.” It’s the 1,000,001 dollar that gets taxed at 5.4 percent, not the preceding one million.

Jonathan Schwartz at A Tiny Revolution calculated the actual amount that a millionaire will pay in higher taxes, responding to the notion that “a family earning a million dollars a year should now cough up $54,000 of that” due to the surtax:

Someone making $1,000,000 per year wouldn’t pay $54,000 more in taxes under this bill. They’d pay $9,000. That’s because the 5.4% surcharge would only apply to someone’s income over $1,000,000. Your tax bill wouldn’t suddenly go up by $54,000 if one year you made $1,000,000 instead of $999,999.

Thune is also ignoring the fact that top marginal tax rates in this country have historically been far higher than the rate proposed by the House, even with the surtax factored in. Of course, this is all coming from a senator who like to think of economic initiatives in terms of how many times the required money could be wrapped around the Earth.

Last week, House Financial Services Chairman Barney Frank (D-MA) delayed markup of legislation creating a new Consumer Financial Protection Agency (CFPA). Prior to the announcement of the delay, House Republicans Jeb Hensarling (R-TX) and Ed Royce (R-CA) had threatened a “barrage of amendments” to slow down the bill’s progress.

With CFPA not moving until September, the next item on the financial regulation docket is reforming executive compensation practices, particularly a provision known as “say on pay,” which would ensure that shareholders receives a vote on their company’s executive pay practices. But Republicans on the committee want this markup to wait as well:

In a letter on Friday, Republicans on the committee sought to delay the markup and votes on the bill, arguing that there has not been a hearing on the issue since the bill was introduced…The letter, signed by every committee Republican except Rep. Ron Paul (Texas), notes that 20 percent of the committee’s members are new and should be given more time to review the legislation.

This is weak tea from the committee members, considering that Frank introduced the legislation eleven days before the markup, and the draft that Frank introduced is based on the administration’s approach to compensation reform, which was released more than six weeks ago. In fact, MarketWatch reported that “the provision giving shareholders a say on top executive compensation is substantially similar to a measure the House approved in 2007.” So there’s been ample time for members to figure out what’s going on.

As The New York Times editorial board noted today, “the bonus-driven risk culture is reasserting itself now” on Wall Street, and thus there is ample reason for “fast-tracking the issue” of reforming compensation. Indeed, the Wall Street Journal reported earlier this month that Wall Street firms are already boosting compensation packages back to pre-crisis levels. After raking in big profits last quarter, Goldman Sachs and Morgan Stanley have “allocated a big chunk” of their revenues for compensation.

Perverse risk-taking, spurred by the way in which Wall Street designed its pay packages, contributed to the economic mess that we’re in, yet we have Wall Street revving itself back up while financial regulation legislation of all kinds languishes in Congress. It’s undeniable that further reform is necessary to better align compensation packages with the long-term viability of a firm, but “say on pay” has been successful in keeping executive compensation in other countries from skyrocketing like it has in America, and in keeping executives more accountable to the shareholders they serve. With executives now receiving one-third of all the pay in America, some more accountability is sorely needed.

Republicans, though, seem more interested in obstructing anything that moves in Congress these days. “We have accommodated one delay already,” said Steve Adamske, Frank’s spokesman. “They don’t want to vote on executive compensation.”

There’s a bit of a turf war brewing between the various federal regulators regarding the Obama administration’s plan for reworking the nation’s regulatory structure. In particular, the administration’s proposal for creating a new Consumer Financial Protection Agency (CFPA) has drawn the ire of the existing regulators, including Federal Reserve Chairman Ben Bernanke. Yesterday, Bernanke joined Comptroller of the Currency John Dugan before the House Financial Services committee, where both made their opposition to the new agency known.

In his testimony before the committee, Dugan explained that doesn’t approve of the CFPA because it will not restrict states from providing additional consumer protection (on top of federal regulation), and because he wants enforcement mechanisms to remain with existing bank regulators. Shortly after the hearing, he appeared on CNBC, where he said that the current system of consumer protection “works fine”:

In terms of the agencies’ authority, we have a system that works fine in terms of examination and enforcement of consumer protection for banks.

Watch it:

In one sentence, Dugan managed to sum up the entire problem with our current regulatory regime and the attitude of the regulators who run it. Sure, maybe the system “works fine” for banks, since no regulator stops them from highly-profitable predatory lending. But the system surely does not work for consumers.

Right now, consumer protection responsibilities are scattered amongst the various regulators, and is the primary concern for none. The Fed, for instance, didn’t rein in predatory lending in the mortgage industry, even though it was granted such authority in 1994. Yesterday, the Fed proposed new consumer protection guidelines, but is there any reason to think it will be any more diligent in enforcing them?

The Obama administration has proposed taking all consumer protection responsibilities from the existing regulators and consolidating them in one new agency, so that consumers are not consistently an afterthought. But the existing regulators are not pleased with losing some authorities. As Treasury Secretary Tim Geithner said, the regulators are trying to “defend the traditional prerogatives of their agencies.” “I think, frankly, all arguments should be viewed through that prism,” he added.

As the New York Times pointed out, these squabbles between Geithner and the regulators “left some lawmakers baffled, and played into the hands of industry lobbyists who are attempting to defeat major provisions of the plan and are skilled in playing regulators and lawmakers against each other.” House Financial Services Chairman Barney Frank (D-MA) has already pushed back work on the CFPA until after Congress’ August recess, and these regulatory food fights are only going to slow the process further.

Today, Fox News ran a segment on today’s minimum wage increase — which raises the minimum wage from $6.55 to $7.25 an hour — accompanied by a chyron stating “How The Hike Will Hurt.”

While not as egregious as Fox News, most media outlets today are presenting the minimum wage hike in a he said/she said manner, with workers happy to see an increase pitted against claims that the increase will result in lost jobs and higher unemployment.

For instance, USA Today wrote that “many already-struggling businesses face the burden of increased payroll costs,” while the Washington Post aired the grievances of the National Small Business Organization, which said that businesses will “have to make the difficult choice of going under or laying people off.”

But as Dean Baker pointed out, “there is little reason to believe that [the increase] will result in substantial job loss”:

The impact of a rise in the minimum wage on employment is one of the most heavily researched topics in economics. Virtually all of this research shows that it will have little or no impact on employment. It would have been useful if the news reports had mentioned this research instead of treating this topic as a he said/she said, implying that those who claim that it will lead to large rises in unemployment are on an equal footing with those who emphasize the benefits to low wage earners.

Indeed, those claiming that the increase will cost jobs are looking at the situation only from the supply side — higher costs to business inevitably means job loss. However, the minimum wage increase is going to provide vitally needed stimulus in a weak economy, putting money directly into the pockets of low-wage workers most apt to spend it, causing increased demand, which is good for business.

The wage increase will amount to $28 per week for a full time minimum wage worker, and will affect about 2.8 million workers. Due to the increase, there will be “a $5.5 billion increase in spending at home — money that will increase business income and create new jobs.”

It would actually take a minimum wage of $9.92 to match the buying power of the minimum wage in 1968. As McClatchy’s Holly Sklar pointed out, “in today’s dollars, the 1968 hourly minimum wage adds up to $20,634 a year working full time. The new federal minimum wage of $7.25 comes to just $15,080. That’s $5,554 in lost wages.” And the first federal minimum wage was actually enacted in 1938, when one in five workers was unemployed (compared to today’s 9.5 percent unemployment rate).

Many business owners from across the country actually support the increase. As Richard Ketring, president of VHS Cleaning Services in Ashland, WI said, “when we raise the incomes of the lowest paid employees the money is immediately spent and flows instantly into the economy…I support the minimum wage increase not only because it is the right thing to do, but it is good for business.”

Newt Gingrich’s American Solutions for Winning the Future blasted out a press release yesterday outlining Gingrich’s “new” jobs plan, entitled “Jobs Here. Jobs Now. Jobs First.” In the time-honored Gingrich tradition, the plan is essentially a basketful of giant tax cuts targeted at corporations, wealthy investors, and the heirs of the richest American families.

Gingrich claims that “the following four tax cuts will help create jobs here and jobs now and fundamentally shift power from politicians to small business.” He also told Politico that he “has lined up the support of several members of Congress to introduce legislation incorporating his tax plan.” So here’s what we would be getting if Gingrich’s plan were enacted (all calculations after the jump):

1. Cutting the corporate tax rate from 35 percent to 12.5 percent.

As was extensively discussed during Sen. John McCain’s (R-AZ) failed presidential bid, cutting the corporate tax rate simply does not create jobs. According to the Congressional Budget Office, a corporate tax cut “does not create an incentive for [businesses] to spend more on labor” and “is not a particularly cost-effective method of stimulating business spending.” This cut would cost about $2.1 trillion over ten years.

2. Abolish the estate tax.

Gingrich seems to be under the impression that Paris Hilton is a job-creating machine, as this tax cut primarily benefits ultra-wealthy families making up 0.2 percent of estates. According to the Center on Budget and Policy Priorities, “repeal of the tax would add $798 billion to deficits over the first decade in which its effects would be fully felt (2012-2021),” while the Tax Policy Center points out that “the estate tax can’t have much effect on hiring by small business because hardly any owners ever face the estate tax.”

3. Abolish the capital gains tax.

Gingrich has been trying to get this particular cut enacted since 1997, and claimed that it should be enacted because “this is the rate that Alan Greenspan testified was best for economic growth.” However, the notion that capital gains cuts spur economic growth is false. After the 2003 capital gains tax cut, growth in non-residential investment “only matched the historical norm.” Instead, this cut would overwhelmingly benefit the wealthiest taxpayers.

4. A two-year, 50 percent payroll tax reduction.

The payroll tax funds the Social Security and Medicare trusts, so Gingrich’s proposal hurts the fiscal condition of both programs. (The Making Work Pay tax credit in the Recovery Act accomplishes the same thing, without hitting Social Security and Medicare.) Meanwhile, the cut would result in $926 billion in deficits over the next two years. Gingrich claims that he will pay for this with $300 to $400 billion in repealed Recovery Act money and leftover TARP funds. But there is only about $80 billion left in TARP, so this would leave more than $400 billion in unpaid deficits. Plus, repealing the Recovery money is precisely the wrong thing to do now, as it is needed to do real, practical things for the economy.

In the end, Gingrich’s plan amounts to throwing money to mainly the well-off and hoping that it will have some positive effects. That’s not what is needed to get the country out of its economic rut.

Calculations: Read more

Yesterday, TARP Inspector General Neil Barosky released a report which crudely tallied up the cost of every economic rescue program proposed during the current crisis — including those that have been discontinued or never even began — to state that the total scope of all financial rescue programs comes to about $23.7 trillion. Cable news hosts ran wild with the report, using it to claim that taxpayers will “ultimately” wind up paying $23 trillion in “bailouts.”

The number continued to be cited on cable last night and this morning, with Fox News even claiming that $23 trillion will be the final cost of TARP alone. But Barofsky himself appeared on CNN to explain that the actual outstanding amount for the financial rescues is closer to $3 trillion, including loans that have yet to be repaid. Watch a compilation:

Barofsky’s report clearly states that “these numbers may have some overlap, and have not been evaluated to provide an estimate of likely net costs to the taxpayer”:

[S]ome of the programs have been discontinued or even, in some cases, not utilized. As such, these total potential support figures do not represent a current total, but the sum total of all support programs announced since the onset of the financial crisis in 2007.

But this doesn’t go far enough in explaining how unlikely we are to ever come close to spending so much money. As Floyd Norris explained in the New York Times, Barofsky’s estimate “assumes that every home mortgage backed by Fannie Mae or Freddie Mac goes into default, and all the homes turn out to be worthless. It assumes that every bank in America fails, with not a single asset worth even a penny. And it assumes that all of the assets held by money market mutual funds, including Treasury bills, turn out to be worthless.” If this doomsday economic scenario were ever to occur, the American currency would be rendered worthless.

Media Matters pointed out that both USA Today and the CBS Evening News used the same misleading number. And as Norris put it, publishing such a meaningless number makes Barofsky seem like nothing more than “an irresponsible headline hunter.”

Cross-posted on ThinkProgress.

The New York Times reported today that Democratic leaders, “bowing to unease among lawmakers and governors in their own party,” are reconsidering the House Ways and Means committee’s proposal to implement a surtax on the richest one percent of Americans as a way of financing a portion of health care reform.

There has indeed been a lot of pushback against the surtax proposal, which prompted Speaker of the House Nancy Pelosi (D-CA) to suggest that only households making more than $1 million should be subject to it, instead of the graduated scale starting at $350,000 that Ways and Means proposed.

But those feeling squeamish about the tax should take a look at this analysis in the Wall Street Journal, which shows how big a slice of the income pie the rich are currently receiving:

Executives and other highly compensated employees now receive more than one-third of all pay in the U.S., according to a Wall Street Journal analysis of Social Security Administration data — without counting billions of dollars more in pay that remains off federal radar screens that measure wages and salaries. Highly paid employees received nearly $2.1 trillion of the $6.4 trillion in total U.S. pay in 2007, the latest figures available. The compensation numbers don’t include incentive stock options, unexercised stock options, unvested restricted stock units and certain benefits.

In the five years ending in 2007, earnings for American workers rose 24 percent, while the highest-paid saw a 48 percent increase. So as Kevin Drum noted, “in other words, the executives got a 48% increase, the rest of us got approximately nothing, and it all averaged out to 24%.” And to top it all off, median pay raises for this year and next are set to be the lowest in decades.

Income growth in America for the last few decades has been overwhelmingly concentrated at the top. Between 1979 and 2006, the inflation-adjusted after-tax income of the richest 1 percent of households increased by 256 percent, compared to 21 percent for families in the middle income quintile. According to the Center on Budget and Policy Priorities, households in that richest one percent “had $617 billion more income in 2006 (or $656 billion more if measured in 2009 dollars) than they would have had if the 1979 income distribution still prevailed.”

Increasing taxes on this small percentage of people — who have done very well for a very long time — would raise revenue to put toward health reform, which is the single biggest problem for America’s bottom line. As Sen. Bernie Sanders (I-VT) said, “it certainly is okay for me to tell my friends on Wall Street, who just got a bonus of $600,000, they’re going to pay more in taxes so we can lower health care costs in America.”

Yesterday afternoon, Politico posted an article with the headline “Bailouts could cost U.S. $23 trillion.” The headline number, pulled from a report by TARP Inspector General Neil Barofsky, made it seem as if the overall cost of all the economic rescue programs will eventually total $23.7 trillion. The huge number made its way through the media like wildfire, and was cited over and over by the likes of Lou Dobbs and Sean Hannity. Watch a compilation:

However, what everyone using this number failed to mention is what it means and how it was calculated. In the report, Barofsky clearly wrote that the number was “designed to suggest the scale and scope of those efforts and not to provide a firm financial statement“:

These numbers may have some overlap, and have not been evaluated to provide an estimate of likely net costs to the taxpayer.

To arrive at $23 trillion, Barofsky simply added together every financial rescue program that has been proposed, including those that were discontinued or never even started. In the New York Times, Floyd Norris broke the number down further:

It also assumes that every home mortgage backed by Fannie Mae or Freddie Mac goes into default, and all the homes turn out to be worthless. It assumes that every bank in America fails, with not a single asset worth even a penny. And it assumes that all of the assets held by money market mutual funds, including Treasury bills, turn out to be worthless. It would also require the Treasury itself to default on securities purchased by the Federal Reserve system.

Norris added that “the sheer unreality of the number did not stop some members of Congress from taking the estimate seriously.” Indeed, Rep. Darrell Issa (R-CA) said that “if you spent a million dollars a day going back to the birth of Christ, that wouldn’t even come close to just one trillion dollars — $23.7 trillion is a staggering figure.”

It’s very unclear what Barofsky thought he would accomplish by publishing this number, since it’s indicative of basically nothing. And if the media are going to report such a worthless number, the least they can do is provide some context. Instead, they told everyone that taxpayers are on the hook for $23 trillion.

Three months after the idea met its demise in the Senate, Mike Lillis at the Washington Independent noticed that the Senate Judiciary committee has scheduled a hearing to reconsider cramdowns — a proposal to allow bankruptcy judges to modify the terms of mortgages:

Nearly three months after the Senate killed a House-passed proposal allowing homeowners to stave off foreclosure through bankruptcy, some upper-chamber Democrats are wondering if it isn’t time to revisit the issue. Leaders of the Senate Judiciary Committee, not satisfied that mortgage lenders and servicers have done enough to prevent foreclosure voluntarily, have scheduled a cramdown hearing for Thursday.

As I outlined last week, there are a number of plans circulating that would address the ever-increasing number of foreclosures and attempt to boost the sputtering administration plan to encourage mortgage modifications. The problem with the current plan is that lenders would rather wait to write down a loan’s losses or hope that a borrower makes a miraculous turn away from foreclosure, and there’s no stick to incentivize them into pursuing a modification. Cramdown was supposed to be that stick, but then it ran into the Senate.

The administration has recently started pushing lenders to voluntarily up the pace of modifications. It sent a letter to mortgage firms saying that “we believe there is a general need for servicers to devote substantially more resources to this program for it to fully succeed and achieve the objectives we all share.” Financial executives are coming to the White House on July 28 to discuss how the modification program has been implemented, and “the administration plans to grill servicers that have done few modifications or have had many complaints.”

However, all of this prodding is no substitute for a real stick, and Treasury has thus far been reluctant to endorse any other legislative remedies. “We have enough tools,” said Herbert Allison, the Treasury Department’s assistant secretary for financial stability. But Congress seems to be open to at least exploring new legislative efforts.

Cramdown does not have to be the stick that Congress settles on (and given the way that it went down last time, it probably won’t be). Right-to-rent, which would give delinquent borrowers the ability to surrender their property but rent it at market price for a set period of time, is one option. Lenders, reluctant to become landlords, might find this a good reason to modify loans.

Another option is taking away the tax advantage enjoyed by trusts that hold mortgage-backed securities “if the investors refuse to allow modifications.” And then there is mandatory mediation, a very successful program requiring that lenders and borrowers meet and try to work out an agreement before a foreclosure can proceed. In the end, the point is to incentivize modifications, and it’s encouraging to see Congress acknowledging that the current effort is falling short.

Minnesota Attorney General Lori Swanson

The bedrock of America’s legal system is an impartial judiciary; if judges are in the pocket of an industry, then laws regulating that industry simply cease to exist.  This is why the credit card industry absolutely loves a company known as the National Arbitration Forum (NAF), which for years has allowed this industry to effectively write and enforce its own laws against consumers.

The scam works like this:  beginning in the 1980s, the Supreme Court rewrote federal law to endorse a practice known as “forced arbitration.”  Under this practice, companies ranging from nursing homes to cell phone companies to employers can refuse to do business with anyone who doesn’t give up their right to sue or be sued in a regular court presided over by a neutral judge.  Instead, consumers and employees are shunted into a privatized, corporate-run judicial system, which overwhelming favors corporate parties.

No one has taken greater advantage of forced arbitration than the credit card industry–it may now be impossible for consumers to get a credit card in the United States without signing a forced arbitration agreement–and the industry’s most important partner in this shell game has been the NAF.  According to one study, which examined over 20,000 NAF cases between a credit card company and a consumer, the credit card company won an incredible 95% of the time.  In one case, NAF ordered a woman to pay the credit card company MBNA almost $8000 because she had the same name as another woman who owed MBNA money.  Conversely, when a Harvard Law Professor named Elizabeth Bartholet, who used to work part-time as an NAF arbitrator, handed down a single decision against a credit card company she was immediately stripped of her caseload by NAF at the request of the credit card industry.

The credit card industry’s halcyon days as judge, jury and victorious litigant may be numbered, however, thanks to a lawsuit brought against the NAF by Minnesota Attorney General Lori Swanson.  Under a settlement announced yesterday, the NAF will cease accepting any new consumer arbitration cases by the end of this week (NAF’s entire business will now be limited to arbitrating Internet domain disputes).  In other words, the credit card industry will need to find a new train conductor if they want to keep railroading consumers into lawless corporate tribunals.

For their part, NAF complained that they are being forced to shut down because “the Forum lacks the necessary resources to defend against increasing challenges to arbitration on all fronts, including from state Attorneys General and the class action trial bar,” but this simply shows that our court system worked.  Thanks to suits brought by Swanson and others, the cost of NAF’s lawbreaking finally became greater than the cost simply shutting down their corrupt business.

Unfortunately, NAF was vulnerable to this kind of attack because the evidence against it was so overwhelming–not every forced arbitration company has a Harvard Law professor prepared to testify about how they were strongarmed into shafting consumers–so it remains to be seen whether another, equally offensive company will emerge to fill the void (a bill, currently pending in Congress, would end the practice of forced arbitration in consumer and employment contracts altogether).  Even so, the near-total demise of NAF is one of the most important pro-consumer developments in decades; for the first time in years, credit card companies may actually have to follow the law.

On Thursday, the House Financial Services Committee plans to begin marking up legislation that will overhaul the nation’s financial regulations and create a new Consumer Financial Protection Agency (CFPA). It seems like the creation of this agency can’t come soon enough, as the New York Times reported today that many of the same subprime brokers “who dispensed risky mortgages during the real estate bubble have reconstituted themselves into a new industry” focused on selling bogus mortgage modifications.

However, Roll Call reported that Reps. Jeb Hensarling (R-TX) and Ed Royce (R-CA) have both said that they plan to obstruct the financial regulation legislation in committee:

GOP Reps. Ed Royce (Calif.) and Jeb Hensarling (Texas) plan to offer a barrage of amendments and rhetorical broadsides as the Financial Services Committee on Thursday begins marking up a bill to overhaul the rules governing the financial sector and create a powerful new regulator, the Consumer Financial Protection Agency. They stand little chance of defeating the legislation in committee — Democrats hold a double-digit advantage in seats on the Financial Services panel. But the conservative lawmakers will try to scale back the bill’s reach and use the markup as a forum for making their case for free markets and limited government oversight.

These are some of the same tactics that Republicans senators employed during their markup of health care legislation, offering unrelated amendments and an endless supply of free-market rhetoric to slow the process.

Roll Call noted that Hensarling is a protégé of former Sen. Phil “mental recession” Gramm and is “popular with the wealthy financial services industry, which could be a key source of campaign funds if he ever opts to run for the Senate.” In fact, Hensarling has received more than $2 million dollars from the finance, insurance, and real estate industries, which easily doubles the amount he’s received from any other sector. And Royce has done even better, taking in $2.5 million from the finance industry.

As the New York Times editorial board noted today, “banks and their minions in Congress have good reason to fear the proposed new agency.” It seems that Hensarling and Royce are ready to take the first stand against the agency on behalf of those banks.

Our guest blogger is Seth Michaels, Online Communications Coordinator at the AFL-CIO.

Today, the New York Times reported that a half-dozen senators have decided to drop the majority sign-up provision of the Employee Free Choice Act in favor of a requirement for “shorter unionization campaigns and faster elections”:

Several moderate Democrats, including Blanche Lincoln of Arkansas, have voiced opposition to card check, convinced that elections were a fairer way for workers to unionize. They were swayed partly by business’s vigorous campaign, arguing that card check would remove confidentiality from unionization drives and enable union organizers to bully workers into signing union cards.

You have to read almost to the end of the Times piece before learning that lawmakers continue to discuss various details of the bill — it’s not a done deal. There are details to be worked out in the legislative process, and meaningful labor law reform must include the three principles underlying the Employee Free Choice Act:

– Workers must have a free choice and a fair path to choose to form a union, free from intimidation.

– Real penalties must exist for employers who break the law.

– Workers who choose a union must be able to get a fair first contract

– Companies must not be able to engage in endless delays and stalling tactics to deny workers a collective bargaining agreement.

With President Obama’s backing — reiterated on Monday — and the support of the majority in Congress, this is the year to pass the most significant labor law reform since the 1930s. And let’s not forget that 73 percent of the public supports the Employee Free Choice Act, which would level the playing field for workers seeking to form unions.

The reason for such support is understandable. Corporate abuses are all too common, and companies can act with impunity against employees who are trying to form unions. Workers who try to exercise their basic freedom to form a union are faced with mandatory meetings, threats of wage or benefit cuts, threats of firings or plant closings and even illegal firings, because of weak law and negligible penalties. That matters to the lives of workers across the country. And even when workers do get through the company-dominated process, more than half wait more than a year for a first contract, and nearly one-third don’t have a contract two years later.

The Employee Free Choice Act has earned the support of small businesses, faith groups, civil rights groups, leading economists and a wide variety of community organizations, who all agree that a strong, progressive country with a healthy economy depends on the ability of workers to bargain for a fair share. Three-quarters of Americans support legislation to make it easier for workers to bargain collectively.

We can and will pass meaningful labor law reform this year. America’s workers can’t wait.

Early this morning, the House Ways and Means committee approved a health care bill that would implement a surtax on the richest Americans as a way of financing reform. Conservatives have seized on reports calculating what the top tax rate would be if the House’s bill becomes law to lament the plight of the richest one percent of Americans who stand to have their taxes raised. For instance, Fox New’s Megyn Kelly lit into Sen. Bernie Sanders (I-VT) today, claiming that this “astronomical” top rate will lead us down a slippery slope to 70 or 80 percent tax rates. “Where do you draw the line? Does 60 percent not shock the conscience?” she asked. Watch it:

Clint Stretch, a tax expert at Deloitte Tax, was quoted by USA Today saying that the House bill will push tax rates for the very wealthiest to “levels never seen,” so I think this all needs to be put into perspective. As I pointed out yesterday, the surtax would have no impact on 98.7 percent of Americans. The one percent that are affected received $715 billion in tax breaks from the Bush tax cuts, while the surtax will raise $544 billion. So this isn’t even going to make up for the massive tax cuts that this tiny population received from Bush.

Furthermore, while the top one percent’s overall share of income has been skyrocketing, its effective tax burden has been falling. Consider this chart, from Conor Clarke:

From 1950 to 1963, the top federal marginal income tax rate was 91 percent. It was in the 70′s until 1980 (albeit, different amounts of income were subject to the top rate). Even if the health care surtax is enacted, the Social Security payroll cap is lifted, and the Bush tax cuts expire in 2011, the rich would be paying 45 percent in federal income taxes. Meanwhile, after-tax income for the 95 percent of Americans who just received a tax cut courtesy of the stimulus package will not go up at all.

Rep. Mike Ross (D-AR) — a member of the Blue Dog coalition — is reportedly upset about the health care bill that’s come out of the House, and is banding with seven other Blue Dogs on the House Energy and Commerce Committee to vote down the bill if some changes aren’t made.

Among other things, Ross reportedly objects to the surtaxes included in the bill. “I don’t like the idea of raising taxes in the worst economic crisis since World War II,” he said.

First, the surtax wouldn’t kick in until 2011, and at that point, if we are still “in the worst economic crisis since World War II,” we’ll have far bigger problems to worry about than a tax increase. But more importantly, the Blue Dogs are waxing poetic about the horrors of the surtax, after having voted for the budget busting Bush tax cuts in 2001 and 2003 that constituted a huge gift to the very wealthiest Americans.

Of the seven Blue Dogs on from Energy and Commerce who are causing a fuss, four were around to vote on Bush’s tax cuts. Here’s how that went:

Remember, the surtax would constitute a 1 percent tax on households making between $350,000 and $500,000 per year, a 1.5 percent tax on those making $500,000 to $1 million, and a 5.4 percent tax on those making more than $1 million. It would have no impact on 98.7 percent of Americans.

But there is that one percent that would be affected, so let’s make some comparisons. Over the ten year window from 2001-2010, the Bush tax cuts gave the richest one percent of Americans about $715 billion in tax breaks. This comes out to about $518,000 per household over ten years or about $51,800 per year.

The House bill, meanwhile, would raise $544 billion from those same households over ten years, which is decidedly less than the $715 billion. So we’re not even talking about a level of taxation that would make up for the breaks that Bush handed out. There’s a legitimate debate to have regarding the surtax, but a simple knee-jerk reaction — particularly to an increase only affecting a group that’s done very well in terms of tax policy for eight years — is unproductive.