Our guest blogger is Sima Gandhi, a Senior Policy Analyst at the Center for American Progress Action Fund.

For years, right-wing lobbyist Grover Norquist has pressured candidates to sign a pledge promising never to repeal expensive tax subsidies for oil companies and other special interests, and hundreds of elected officials have, sadly, complied.  Earlier this week, however, Norquist lost a major ally in his quest to protect hundreds of billions of dollars worth of special tax expenditures—President Ronald Reagan’s chief economist.

In a Wall Street Journal op-ed this week, conservative economist Martin Feldstein writes that “[w]hen it comes to spending cuts, Congress is looking in the wrong place.” Instead of looking at direct spending programs, he argues that “If Congress is serious about cutting government spending, it has to go after [tax expenditures].”

Indeed, if the government cut all of its $1.2 trillion in tax expenditure spending—the special credits, deductions, and preferential rates that deliver subsidies to certain individuals and corporations—it would raise nearly enough to pay off this year’s estimated $1.5 trillion deficit. Or it could use the savings to cut tax rates by over 40 percent.

So Feldstein is right that Congress could massively slash the deficit simply by cutting off big industry’s tax subsidies—tax expenditures amount to nearly 25 percent of total government spending.  Unfortunately, he also correctly observes that there are political barriers to doing so:

Democrats are reluctant to cut such programs, because once built into the tax law they don’t have to be reauthorized each year, but remain on the books unless they are repealed… Democrats can thus cleverly avoid the traditional accusation of being the party of “tax and spend.” Republicans also are reluctant to cut these tax perks, because they regard the additional revenue collected by the federal government as a “tax increase”—even though the increased revenue is really the effect of a de facto spending cut. A Republican who would vote to cut or eliminate an ordinary spending program therefore won’t do so if it is packaged as a tax benefit.

How are tax expenditures, which transfer money by reducing tax liability, equivalent to direct government expenditures, such as a check? Let’s take an example. Suppose the government wants to incentivize businesses to make their facilities more accessible to the disabled. It could cut a check to businesses in order to subsidize the cost of building ramps, making restrooms wheelchair accessible, etc. Or, it could offer an “architectural barrier removal tax deduction” and a “disability access tax credit.” These tax credits, just like the check, transfer money from the government to businesses that make their facilities more accessible. The difference? Businesses get the money by paying lower taxes instead of through a government payment.

When it comes to controlling the deficit, and getting rid of government waste, lawmakers can no longer afford to ignore tax expenditure spending. It’s time to audit the tax code. This means measuring and evaluating tax expenditures, so that subsidies that don’t work are cut or reformed. And subsidies that do work are continued.

More importantly, it means integrating tax expenditures into the budget process. Tax expenditures, because they are largely ignored during the budget process, do not receive the same level of review and scrutiny that direct expenditures receive.  Politicians can no longer afford to ignore one-quarter of government spending every time it drafts the federal budget.

Last month, in Tax Notes magazine, Martin Sullivan laid out the dramatic drop in the effective tax rate of Transocean, which owns the failed Deepwater Horizon rig in the Gulf of Mexico, as it incorporated itself in tax havens like the Cayman Islands and Switzerland. Transocean’s tax avoidance helped it lower its tax rate by nearly fifteen points, despite the fact that it kept most of its operations in the United States.

“These tax-motivated restructurings occur with little or no real change in day-to-day business operations. Top executives, key personnel, and all significant business operations in the United States before the transaction remain in the United States,” Sullivan noted. But Transocean is far from the only company taking advantage of America’s loophole ridden tax code to park profits offshore and avoid taxes.

According to a new report from Business and Investors Against Tax Haven Abuse, an organization backed by Sen. Carl Levin (D-MI) that is seeking to end tax avoidance and evasion, multinational corporations and banks are ducking $37 billion annually in taxes:

Fifty years ago, corporate income taxes accounted for 23.2% of federal government receipts, and individual income tax payments were less than twice those of large corporations’ tax payments. Today, the U.S. Office of Management and Budget estimates corporate tax receipts will account for just 7.2% of federal revenues in 2010, with large corporations contributing less than one-sixth as much as small business and individual taxpayers to the Federal Treasury (small businesses most often pay taxes according to their owner’s individual tax rates).

Eighty-three of the 100 largest publicly traded U.S. corporations and 63 of the 100 largest federal contractors have at least one subsidiary in a tax haven, the report says. Companies as different as Goldman Sachs, Safeway, and Liberty Mutual all share a common penchant for tax dodging. Such widespread avoidance simply shifts the tax burden onto law abiding individuals and businesses, who ultimately have to pay more to make up for the lost revenue.

The report recommends, among other things, the implementation of Rep. Lloyd Doggett’s (D-TX) International Tax Competitive Act of 2010, which “would treat a company as a U.S. company for tax purposes if its management and officers with day-to- day control are located in the U.S., even if its paper incorporation is offshore.” I spoke to Doggett back in April, when he told me, “I always find it impossible to explain why a pharmacist in Bastrop, Texas, or a small retail store in San Marcos is having to pay higher rates on the income that their hard-working small business owners are earning than some multinational that can duck and dodge taxes in Bermuda or the Cayman Islands.”

Of course, doing anything to crack down on tax evasion means incurring the wrath of the Chamber of Commerce and Big Business community, which continually fearmonger about the effect of taking such steps to ensure that companies pay the tax rate that is on the books.

As ThinkProgress has documented, the lobbyist-run Americans for Prosperity (AFP) has been instrumental in orchestrating the Tea Party movement. The group coordinated “grassroots” protests around the country and provided organizations and communications support to the Tea Parties. AFP staffers are also regular presence at Tea Party rallies. The man behind AFP is David Koch, who is one of the richest men in the world thanks to his oil, chemicals, and manufacturing conglomerate Koch Industries. In 2009, AFP President Tim Phillips said he “launched our organization.”

Koch Industries and AFP have largely tried to keep their distance from the Tea Parties. From a May 2010 interview with the Frum Forum’s Tim Mak:

Most incredibly striking is Koch’s efforts to distance itself from the Tea Party movement. “We’ve been labeled tea party founders or funders – in fact, masterminds – but that’s not consistent with the facts,” said Fink. “To my knowledge, we have not been approached for support by any of the newer ‘tea party’ or other grassroots groups that have sprung up around the country in the past year or so.”

However, now that Tea Parties are becoming institutionalized, Fink is taking some credit. While still calling the Tea Parties “spontaneous,” he says that Koch would be happy to know that he helped “stimulate” these people into action and acknowledged the role of AFP:

Q: What about the accusations that you are driving these activities – that they’re corporate-sponsored ‘astro-turf’ rather than real grassroots movements?

A: That’s nonsense. … Tea parties reflect a spontaneous recognition by people that if they do not act, the government will bankrupt their families and their country. They’re absolutely right about that.

Now, if our work over the past 30 or 40 years has helped stimulate some of those citizens who are becoming more active, that’s great, but it’s a far cry from pulling strings.

What we have done is support the Americans for Prosperity Foundation, which has been active in various forms for nearly 30 years. … AFP and its state chapters have begun collaborating with tea party groups, and we’re in favor of any group willing to constructively address irresponsible government policies.

Koch Industries communications director Melissa Cohlmia has also insisted to ThinkProgress that “AFP is an independent organization and Koch companies do not in any way direct their activities.” However, both Koch and Fink serve as directors of the AFP Foundation.

AFP has used the Tea Parties to push causes that fit the agenda of its wealthy backers. Even though the estate tax hits only the very wealthiest estates — 99.8 percent are not subject to this tax — AFP was urging its members to lobby Congress to block a reinstatement of the estate tax.

Our guest blogger is Michael Linden, Associate Director of Tax and Budget Policy at the Center for American Progress Action Fund.

This week the Washington Post ran a sensible editorial highlighting the hypocrisy of Republicans who oppose a $33 billion extension of unemployment benefits but strenuously support an extension of massive tax cuts for very rich people that would cost 20 times more. Specifically, the Post called out Senate Minority Whip Jon Kyl (R-AZ), who, in a recent interview, tied himself into rhetorical knots trying to justify the obvious contradiction. The Post rightly pointed out that such a stand speaks volumes, “about the GOP’s refusal to practice the fiscal responsibility it preaches.”

The Post also, almost as an aside, mocked Kyl’s reliance on, “the tired and unsubstantiated argument that the tax cuts for the wealthy must be extended because otherwise ‘you’re going to clobber small business.’” Today, in a letter to the Post, Kyl responded, and his response really illustrates how weak the Republican position is on the merits:

The Post also questioned my assertion that raising taxes on upper-income Americans would ‘clobber small businesses.’ But facts are stubborn things. Small businesses generated roughly 64 percent of net new jobs in the past 15 years. Of the almost 120 million private-sector workers in the United States, slightly more than half work for small businesses. So if we’re trying to promote economic policies that create jobs, why raise taxes on the job creators? The nonpartisan Joint Committee on Taxation noted this month that half of all income reported by individuals in the top two tax brackets is business income.

Kyl first offered two data points (unsourced, of course) to illustrate how crucial small businesses are to the economy. That’s fine, but it’s also entirely beside the point. Kyl offers no evidence that any of the businesses he referenced would be affected by the expiration of the Bush tax cuts at all, and chances are extremely high that they would not, as fewer than 2 percent of small businesses owners file in the top two income tax brackets.

Kyl then tries again by referencing this JCT report, which states that “half of all income reported by individuals in the top two brackets is business income.” But did you notice anything at all odd about that sentence? Did you notice that the word “business” is not preceded by the word “small?” Maybe it’s because the very next sentence from the very same JCT report that Kyl relies on says:

These figures for net positive business income do not imply that all of the income is from entities that might be considered ‘small.’ For example, in 2005, 12,862 S corporations and 6,658 partnerships had receipts of more than $50 million.

So, what we are really talking about here is extremely wealthy people who claim millions and millions of dollars in income as “business income” and have no relationship at all to actual small businesses. In fact, that very same JCT report states that only 3 percent of taxpayers with any net positive business income at all will be affected by the expiration of the Bush tax cuts for the wealthy. The Post rightly dismissed Kyl’s argument as “tired” and “unsubstantiated,” because, as his reliance on cherry-picked data makes clear, that’s exactly what it is.

In the last week or so, a dizzying array of Republicans have made it their official stance that $33 billion to extend unemployment benefits must be fully paid for, but financing a $678 billion extension of the Bush tax cuts for the wealthy with deficit spending is just fine. “I think we need to be paying for all the spending that’s going on,” said Rep. Michele Bachmann (R-MN). “But when people can keep more of their own money that shouldn’t be considered a cost.”

Today, Sen. John Barrasso (R-WY) tackled this topic and started to go down the same road as the likes of Bachmann, and Sen. Jon Kyl (R-AZ), who was the first to set foot in this fiscal fantasy land. But he then pivoted to suggest that the Bush tax cuts for the wealthy should be funded with unspent stimulus funds:

Q: Are you for extending the Bush tax cuts to the wealthiest Americans, yes or no? [...] Are you paying for them? Or are you for adding to the deficit to continue those tax cuts?

Barrasso: There is so much unspent stimulus money that we ought to use that in a responsible way, which is to help keep taxes low.

Watch it:

This is problematic on two levels. First, it’s simply not true that there’s “so much unspent stimulus money” just lying around. According to the latest data, there is $362 billion in stimulus funding waiting to be allocated (see chart at right), so Barrasso is still $325 billion short of the money he would need to cover the $678 billion cost of extending the Bush tax cuts for just the richest two percent of Americans.

And a longer look at the chart reveals that $125 billion of the unallocated funding is already dedicated to tax cuts. Remember, despite conservative’s constantly portraying it as only federal spending, the stimulus cut taxes for 95 percent of Americans. So Barrasso’s plan to repeal the money amounts to a tax increase on the lower- and middle-classes, which Barrasso wants to then turn around and spend on tax cuts for the rich.

Barrasso didn’t explicitly call for raising taxes on the poor and middle class in order to pay for his preferred policy outcome (which is tax rates for the wealthy that are as low as possible), but that’s what his suggestion would do. A similar sentiment was made far more directly by Wall Street Journal Editorial Board member Stephen Moore, who called for raising the rate of the lowest tax bracket in order to bring down tax rates for the rich.

Tomorrow, President Obama will sign the Dodd-Frank financial regulatory reform bill, moving the task of creating a fair, stable financial system from the legislative phase to the implementation phase. And the highest profile step at the moment is appointing the first director of the Consumer Financial Protection Bureau.

Reportedly, the three leading candidates for the post are Elizabeth Warren, a Harvard Law professor and head of the Congressional Oversight panel for TARP; Assistant Treasury Secretary Michael Barr; and Eugene Kimmelman, deputy assistant attorney general in the Justice Department’s Antitrust Division. Warren is easily the highest profile of the three. The Progressive Change Campaign Committee, Sen. Tom Harkin (D-IA) and Rep. Carolyn Maloney (D-NY) have all circulated petitions supporting her nomination.

It’s obvious to see why Warren is the front-runner for the job. After all, the idea to create an agency solely tasked with policing consumer lending was hers, which she laid out in a 2007 journal article. But lately, there’s been a lot kvetching in Congress, not over whether Warren is qualified, but whether she’s confirmable:

“Elizabeth would be a terrific nominee,” said [Sen. Chris] Dodd, the Connecticut Democrat who leads the Senate Banking Committee. “The question is, ‘Is she confirmable?’ And there’s a serious question about it.”

Of course, if she’s a “terrific nominee” then why is there such a “serious question” about getting her confirmed? Dodd doesn’t deign to say.

The main complaint about Warren seems to be that she’s done her job as chair of the Oversight Panel too well, ticking off various members of Treasury and lambasting the financial services industry. But as Paul Krugman wrote, “Warren really is a pioneering expert on household debt and financial distress, who has also shown an ability to work effectively in an official position. Against that, whatever personal quarrels she may or may not have had shouldn’t count at all.”

In fact, the willingness to speak up against the Treasury Secretary (and the other bank regulators) when the occasion calls for it is an asset for the Bureau’s Director, as the Financial Stability Oversight Council, which is largely composed of the current regulators and chaired by the Treasury Secretary, can veto the Bureau’s rules. The Bureau Director has a seat on the council and can’t be too deferential if the Bureau is to actually implement rules with teeth.

Warren will also help in attracting qualified personnel to the new agency, which is another critical ingredient for ensuring that it doesn’t find itself immediately subservient to the already well-established bank regulators. As the Cambridge Winter Center’s Tim Duncan wrote, “the first Director will have to make recruitment from existing agencies and the outside world his or her top priority and be willing to go to the mat with other agency heads to secure experienced, high-quality people. The Bureau should not be tempted into hiring employees simply for the sake of filling in boxes on an organization chart.” The appeal of working for Warren will help a lot in this area.

Of course, Republicans will gripe about Warren’s nomination, and likely mount a filibuster. But they are going to complain about any nominee, since they are fundamentally opposed to the very creation of the CFPB. Just like the Dodd-Frank bill itself got stronger because of a public fight on the Senate floor, picking a fight over the nominee — and forcing Republicans to go to bat for the big banks against an incredibly qualified, consumer focused choice — could pay significant dividends.

Today, President Obama pressed Congress to approve a pending bill that provides tax credits to small businesses and sets up a lending fund to get credit to businesses that are having trouble finding loans. “We must continue our efforts to do everything in our power to spur growth and hiring. And I hope the Senate acts this week on a package of tax cuts and expanded lending for small businesses,” he said.

One of the reasons that the bill Obama referenced hasn’t made its way through the Senate is that Sen. Jon Kyl (R-AZ) has been threatening to bog it down with his proposed cut in the estate tax, which would send $91 billion in tax cuts to the richest of the rich. But Kyl is claiming that his obstruction of the small business bill is actually an attempt to protect small businesses from tax rates that he says are “going to skyrocket”:

If the Small Business Lending bill is intended to help small business create jobs, wouldn’t it make sense to provide small business owners with the certainty that their tax rates aren’t going to skyrocket at the beginning of next year?

It definitely does make sense to ensure that tax rates don’t “skyrocket” on small businesses, and Kyl is presumably worried that allowing the estate tax to reset to its 2001 level, as current law stipulates, will do just that. But even if we grant Kyl’s premise, all that’s needed to avoid that outcome is for the Senate to approve a bill to approve a bill which has already passed the House that will permanently set the estate tax at the 2009 level. However, it was Kyl himself who blocked that plan, in his zeal to cut taxes for the super rich.

In fact, just like Kyl’s position on the Bush tax cuts proves that he doesn’t really care about deficits, his position on the estate tax proves that he doesn’t really care about small businesses. After all, at the 2009 level, just 0.25 percent of estates will have any estate tax liability at all. And just 1.3 percent of that 0.25 percent will be composed of estates with significant small business assets.

The Tax Policy Center estimates that at the 2009 level, just 110 small businesses in the entire country will owe any estate tax in 2011. Of these, all but a handful will have sufficient assets to pay the tax, and the exceedingly few that don’t “have other options — such as spreading their payments over a 14-year period — that would allow them to pay the tax without selling off any” assets.

In all, less than one quarter of one percent of the total cost of Kyl’s tax cut would actually end up in the hands of small businesses; the rest would simply go to further enriching the rich. So either Kyl has no idea what the practical implications of his stated policy preference are, or he’s using small businesses as a convenient prop to knowingly push through tax cuts for the rich. Either way, his professed concern over an imaginary tax hike on small businesses is getting in the way of small businesses receiving actual relief.

Back in February, Sen. Jim Bunning (R-KY), backed by a handful of Republican Senators, took a well-publicized stand against an extension of unemployment benefits, repeatedly objecting to motions to move the extension and telling Democrats trying to approve the benefits, “tough sh*t.”

One month later, Sen. Jon Kyl (R-AZ) expressed regret that Republicans hadn’t supported Bunning en masse, saying, “we didn’t give him as much help as we probably should have.” And the Senate GOP seems to have taken that to heart, as today Bloomberg details how “almost every Republican” in the Senate is now jumping aboard the Bunning express:

It turns out U.S. Senator Jim Bunning was ahead of the curve. Four months after the Kentucky Republican made colleagues squirm by blocking an extension of unemployment benefits for Americans out of work long-term, the party has adopted his cause as its own…“Our party caught up with the people Bunning was already with,” said New Hampshire Republican Judd Gregg.

“This is the issue across the country,” said Sen. John Cornyn (R-TX). “We’ve had a few primaries and elections along the way and people understand the ferocity of the public’s view on this.”

Actually, it would seem that people don’t understand the “ferocity of the public’s view” when it comes to this issue, as a recent Gallup poll showed that 60 percent of Americans favor additional government spending in order to boost job creation. Just today, a group of leading economists released a “manifesto calling for more government stimulus and tax credits to put America back to work.” “The urgent need is for government to replace the lost purchasing power of the unemployed and their families and to employ other tax-cut and spending programs to boost demand,” they wrote.

The Republicans blocking these extensions claim to be doing so because they don’t want to add to the deficit. But even deficit hawks aren’t buying that rationale. “Attacking that is not attacking the real deficit issue,” said Bob Bixby, executive director of the Concord Coalition (which does nothing but advocate for balanced budgets). “Unemployment benefits seem to have been in the wrong place at the wrong time.”

Due to the Republican filibuster, almost 3.2 million Americans have seen benefits that they expected to receive unceremoniously yanked away, at a time when there are five workers for every job opening and 45.5 percent of the unemployed have been out of work for at least six months. Never before has Congress allowed benefits to lapse with unemployment so high.

Fortunately, Carte Goodwin, who is replacing the late Sen. Robert Byrd (D-WV) in the Senate, will be sworn in tomorrow, and with his vote, Democratic leaders are “optimistic” that they can “break the impasse and restore the benefits.” Today, President Obama pushed for the GOP to give up on its obstruction. “For a long time, there’s been a tradition – under both Democratic and Republican presidents – to offer relief to the unemployed. That was certainly the case under my predecessor, when Republican Senators voted several times to extend emergency unemployment benefits. But right now, these benefits – benefits that are often a person’s sole source of income while they’re out of work – are in jeopardy,” he said.

Last week, a handful of Republicans tried to claim — despite overwhelming evidence to the contrary — that tax cuts inevitably pay for themselves, so the $678 billion extension of the Bush tax cuts for the wealthiest 2 percent of Americans does not have to be offset. At the same time, Senate Republicans are standing pat against a $33 billion extension of unemployment benefits, because they say that it is too expensive.

As Michael Linden wrote, “Senate Republicans unanimously opposed extending jobless aid one day, citing concern over the deficit, but then turn right around and push for huge tax cuts for the very richest people in the country, which would cost more than 20 times as much.” And this crazy double-standard is also being espoused by the GOP’s candidate for Senate in Florida. Marco Rubio appeared on Chuck Todd and Savannah Guthrie’s MSNBC show today to say that an extension of jobless benefits must be paid for, but that extending the Bush tax cuts for the wealthy does not. “They will be paid for because they create economic growth,” he said:

RUBIO: I would vote for [a jobless benefits extension] if it’s paid for. You’d have to show how its going to be paid for and I think Republicans have been working to do that in Washington and certainly I would be part of trying to find that. [...]

GUTHRIE: So you mentioned that you want the unemployment extension to be paid for. Would you take that principle to other issues? For example, there’s talk, of course, among Republicans that the Bush tax cuts for the wealthiest of Americans should be extended, but it sounds like there’s not necessarily a plan to pay for those. Would you draw the line there?

RUBIO: Well, let’s understand what the bigger picture is and it’s about the debt. [...] We definitely need growth if we want to pay down the debt, and that’s why you need policies like making permanent the ’01 and ’03 tax cuts.

TODD: Okay, but I’m confused, would you support them if they were not paid for, if they were not balanced out by spending cuts?

RUBIO: Well, the question is they will be paid for because they create economic growth, especially in the long-term.

Watch it:

Sen. Jon Kyl (R-AZ) has said that “you should never have to offset” tax cuts for the rich, and it would appear from these comments that Rubio wholeheartedly agrees.

However, as the Center on Budget and Policy Priorities has pointed out, the claim that tax cuts inevitably pay for themselves “is contradicted by the historical record.” Even President Bush’s own economists don’t believe that tax cuts are free, as Andrew Samwick, Chief Economist for the Council of Economic Advisers in 2003-2004, said that “no thoughtful person believes that this possible offset [the Bush tax cuts] more than compensated for the first effect of these tax cuts. Not a single one.” Edward Lazear, Chair of the Council of Economic Advisers in 2007 added, “I certainly would not claim that tax cuts pay for themselves.”

As Paul Krugman wrote, “the notion that tax cuts pay for themselves has no empirical support. And yet the GOP leadership — which claims to be oh so worried about the deficit — is willing to stake America’s solvency on its belief that tax cuts are free.” In fact, the path of revenues following the Bush tax cuts is “pretty much what you would have expected if the Bush cuts had no supply-side effect at all.”

Potential hard feelings between Treasury Secretary Tim Geithner and Elizabeth Warren aside, the financial services industry is already gearing up to influence the next stage of financial regulatory reform, which is the design of new rules reining in Wall Street and the actual construction of the Consumer Financial Protection Bureau. There are plenty of regulations that have to be made, and plenty of discretion for regulators in crafting them, so bank lobbyists will have ample opportunity to influence a process that will be nowhere near as high-profile as was the regulatory reform fight on Capitol Hill.

But, first things first, the financial service industry is trying to influence who becomes the inaugural nominee for CFPB director:

“This is akin to a Supreme Court nominee for financial services,” Richard Hunt, president of the Consumer Bankers Association in Arlington, Virginia, said in an interview. “We are taking this very seriously.”

“All of that power is in the hands of one person. It’s going to be the closest approximation to a czar that Washington has ever seen,” said Joseph Lynyak, a law partner at Venable LLP who represents financial services companies. This conveniently leaves aside that the CFPB’s rules can be vetoed by the newly created Financial Stability Oversight Council — which is composed mostly of bank regulators — but it’s true that the CFPB’s director is going to have a lot of influence over in which direction the agency sets its initial course.

As Matt Yglesias wrote, “effective, high-prestige public agencies (the United States Navy, the Federal Reserve) attract a lot of motivated applicants and thus get on a self-reenforcing path of effective personnel and high prestige. But when you start something new, everything is wide open.” And as the Bush administration ably demonstrated, appointing heads of regulatory agencies who have no interest in actually regulating anything can turn those agencies into nothing more than a punchline.

For instance, remember SEC Chairman Chris Cox? Under him, the agency meant to be on the front lines of policing financial fraud became an afterthought and then released a laughable response plan long after the financial crisis was already well underway. But that was just par for the course for administration that had no interest in reining in financial services industry excess. The CFPB has the potential to be a game-changer for consumers, but only if it does not come under the thumb of the bank regulators or have a director unwilling to stand up to the banks themselves.

“’There’s always that possibility‘ that Wall Street lobbyists will succeed in weakening the bill’s provisions during the rule-making process,” said Senate Banking Committee Chairman Chris Dodd (D-CT). So in that sense, the work of financial reform is still very much underway.

Foreign oil giant BP is on a spending spree, buying Gulf Coast scientists for its private contractor army. Scientists from Louisiana State University, Mississippi State University and Texas A&M have “signed contracts with BP to work on their behalf in the Natural Resources Damage Assessment (NRDA) process” that determines how much ecological damage the Gulf of Mexico region is suffering from BP’s toxic black tide. The contract, the Mobile Press-Register has learned, “prohibits the scientists from publishing their research, sharing it with other scientists or speaking about the data that they collect for at least the next three years.” Bob Shipp, head of marine sciences at the University of South Alabama — whose entire department BP wished to hire — refused to sign over their integrity to the corporate criminal:

We told them there was no way we would agree to any kind of restrictions on the data we collect. It was pretty clear we wouldn’t be hearing from them again after that. We didn’t like the perception of the university representing BP in any fashion.

The lucrative $250-an-hour deal “buys silence,” said Robert Wiygul, an Ocean Springs environmental lawyer who analyzed the contract. “It makes me feel like they were more interested in making sure we couldn’t testify against them than in having us testify for them,” said George Crozier, head of the Dauphin Island Sea Lab, who was approached by BP.

These efforts to buy silence and cooperation come in addition to the $500 million Gulf Research Initiative, a Tobacco Institute-like program managed by a panel picked by BP to disburse scientific research grants in the coming years. Louisiana State University, University of Florida’s Florida Institute of Oceanography, and Mississippi State University’s Northern Gulf Institute have already accepted $10 million each.

In contrast, the federal government has failed to coordinate the massive research program needed to save the Gulf, preventing academic researchers from observing the data collected by the NRDA teams that include both government and BP contractors. “The science is already suffering,” Richard Shaw, associate dean of Louisiana State University’s School of the Coast and Environment said. “The government needs to come through with funding for the universities. They are letting go of the most important group of scientists, the ones who study the Gulf.” (HT: The Independent Weekly)

Yesterday, the Senate passed the Dodd-Frank financial regulatory reform bill on a 60-39 vote, meaning that, among many other things, a new Consumer Financial Protection Bureau will come into being. The agency fixes a critical gap in the regulatory framework, as there is no regulator specifically tasked with policing consumer products and ensuring that banks can’t rip off consumers with (usually highly profitable) predatory products.

A handful of names have been tossed around in the media as to who will be nominated to be the CFPB’s first director. The most oft-mentioned name is Elizabeth Warren, the Harvard Law professor who is currently heading the Congressional Oversight Panel for the Troubled Asset Relief program.

It was a 2007 journal article written by Warren that motivated lawmakers to propose creating the new agency in the first place. “Clearly, it is time for a new model of financial regulation, one focused primarily on consumer safety rather than corporate profitability. Financial products should be subject to the same routine safety screening that now governs the sale of every toaster, washing machine, and child’s car seat sold on the American market,” Warren wrote.

Last night, it was reported that Treasury Secretary Tim Geithner is opposed to Warren heading the agency. Assistant Treasury Secretary Michael Barr refuted that notion today, saying “I don’t know where that (report) came from.” “I believe and Secretary Geithner believes that she’s exceptionally well-qualified to run it,” he said.

Whetever Geithner’s personal feelings on the matter, Warren is eminently qualified to lead the CFPB. She explained her philosophy regarding the regulation of consumer products to me during an interview back in May 2009:

We need to think at the product level. All these lousy mortgages got sold, one family at a time. These were crummy mortgages, like selling plastic spoons that have carcinogens in them or toys that put out little children’s eyes. We sold them one product in a time. If we had had just basic safety standards in place from the beginning, then we never would have fed these into the front end of the financial system, where they then would have been bundled up and then sliced into tranches and rated and rebundled and sold and rated again.

House Financial Services Chairman Barney Frank (D-MA) backed Warren, saying “she is a brilliant advocate. She is sensible. She has a good sense how to operate. She is not some windmill-tilting ideologue.”

Barr himself has also been mentioned as a potential CFPB head, and would be an excellent choice, as he’s been intimately involved with the regulatory reform bill since the beginning. Illinois Attorney General Lisa Madigan, who was one of the first public officials to try to crack down on subprime lending, has also had her name tossed into the ring, but said that she preferred Warren. “She has long understood the need for such an agency to ensure that another financial crisis doesn’t devastate the futures of millions of hardworking Americans,” Madigan said.

BP received a new round of scrutiny yesterday when it admitted that officials had lobbied the British government in 2007 to “conclude a prisoner-transfer agreement that the Libyan government wanted to secure the release of the only person ever convicted for the 1988 Lockerbie airliner bombing over Scotland, which killed 270 people, 189 of them Americans.” BP was “worried that a stalemate on that front would undercut an oil exploration deal with Libya.”

The new details demonstrate that BP was willing to risk international security for pure profit motives. The UK ambassador to the U.S. issued yesterday stated that the British government “is clear that Megrahi’s release was a mistake,” but denied any link with BP. (The UK justice minister at the time, Jack Straw, had admitted that the BP-Libya deal was a factor in the government’s review of Al-Megrahi’s case.) The Senate Foreign Relations Committee will hold a hearing on the issue, and Sen. Charles Schumer (D-NY) said BP should freeze its operations in Libya because it “should not be allowed to profit on this deal at the expense of the victims of terrorism.”

As BP was privately lobbying the UK government, it was also publicly trying to improve the country’s image and extolling how beneficial an oil relationship between Libya and BP would be for Britain. ThinkProgress found an old BP Magazine (Issue 4 2007) that ran an entire article titled, “Libya: A Commanding Presence on the World Stage.” In the piece, a BP official essentially brushes aside the Lockerbie bombing:

“When you talk to people outside about Libya, Lockerbie is often the first thing they think of — terrorism. In actual fact, it’s probably one of the safest places I’ve been to with BP,” says BP Libya’s business support manager, Ian McGregor.

“Initially, most people ask about security. They think it’s very unsafe, or there are a lot of army and guns everywhere. To be honest, it’s the absolute opposite.” [...]

Speaking at the signing, Hayward hailed the agreement as the start of an enduring and mutually beneficial partnership, which will allow BP and Libya to deliver on their aspirations for growth.

“With its potentially large resources of gas, favourable geographic location and improving investment climate, Libya has an enormous opportunity to be a source of future energy for the world.”

BP is poised to begin deepwater drilling in Libya next month, a deal potentially worth $20 billion. Jim Mitchell of the Dallas Morning News writes, “I’m not so naive to think that BP is the only company that has put profits and business opportunity ahead of justice, but this is stunning especially since Lockerbie was such as heinous act and Abdel Basset Ali al-Megrahi the only convicted perpetrator for a crime that has provided little closure to families of victims.”

With the legislative calendar starting to dwindle, lawmakers are paying more and more attention to the scheduled expiration of the Bush tax cuts at the end of the year. Republicans across the board are advocating for the extension of all the cuts, and have explicitly said that extending the cuts for the richest 2 percent of Americans (which would cost $678 billion) does not have to be paid for.

President Obama has called for letting the cuts for the very richest expire, allowing the rates to reset to where they were under the Clinton administration. In an interview with Bloomberg News’ Judy Woodruff, former Federal Reserve Chairman Alan Greenspan went a step further, calling for all of the tax cuts to expire, essentially sending the tax code back to 2001:

WOODRUFF: On those tax cuts, they are due to expire at the end of this year. Should they be extended? What should Congress do?

GREENSPAN: I should say they should follow the law and let them lapse.

WOODRUFF: Meaning what happens?

GREENSPAN: Taxes go up. The problem is, unless we start to come to grips with this long-term outlook, we are going to have major problems. I think we misunderstand the momentum of this deficit going forward.

Greenspan’s right that addressing the long-term structural deficit is going to require raising some taxes, as getting the budget anywhere near balance entirely on the spending side would mean draconian cuts to popular programs that Americans support and rely on. But Greenspan was able to call for allowing the cuts while conveniently leaving out his role in getting them enacted in the first place.

As Matt Yglesias has pointed out, “in 2001 Alan Greenspan warned the country against the prospect of budget surpluses and debt reduction and argued that only large regressive tax cuts could save the country from this specter.” It is “far better, in my judgment, that the surpluses be lowered by tax reductions than by spending increases,” Greenspan said. Of course, the Bush tax cuts are now one of the biggest drivers of the country’s long term deficits, amounting to more than $3 trillion in deficits over the next ten years.

While Greenspan is now expressing concern that “we misunderstand the momentum” of the deficit, less than a decade ago, he was claiming that we misunderstand the momentum of the surplus. In fact, as the New York Times reported at the time, Greenspan said that “without a tax cut the surplus might be so big that it would force the government to begin buying stocks and bonds on Wall Street in as little as five years, a development he said would be harmful to the free enterprise system.”

In 2005, Greenspan said that “it turns out that we were all wrong” when it came to his 2001 support for the tax cuts (to which then Sen. Hillary Clinton shot back “just for the record, we were not all wrong, but many people were wrong”). He has also famously repented for his deregulatory zeal during the 1990′s, saying “those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.”

So, Greenspan at least seems to be coming around to the notion that the conservative economic philosophy is a big sham that doesn’t work in practice. Will the rest of the GOP ever follow?

Our guest blogger is Michael Linden, Associate Director for Tax and Budget Policy at the Center for American Progress Action Fund.

Stop me if you’ve heard this one. A Republican Senator walks into a bar and goes on and on about how bad the deficit is, and how much money the “Democrat” Congress has been spending and how President Obama has run up all this debt. The GOP Senator is so incensed about the state of the federal budget that he votes against extending unemployment benefits, even though the unemployment rate is at 9.5 percent. $33 billion, says the senator, is just too much to spend on the millions of people who are pounding the pavement looking for work.

Now here comes the punch line. The bartender asks the Senator if he’s in favor of $800 billion in tax cuts for the richest 2 percent of Americans, and the Senator replies that not only is he strongly in favor of more tax breaks for wealthy people, but, “tax cuts should not have to be offset.”

It’s not a particularly funny joke, because, sadly, it’s not a joke at all. This is the position of the Republican party. Senate Republicans unanimously opposed extending jobless aid one day, citing concern over the deficit, but then turn right around and push for huge tax cuts for the very richest people in the country, which would cost more than 20 times as much.

I’ll never understand how a Senator can feign such anxiety about the deficit one minute, push for budget busting tax cuts the next and still keep a straight face. I’ll also never understand how they keep getting away with it.

Before the Senate had even managed to vote on final passage of the Dodd-Frank financial regulatory reform bill today (which it approved on a 60-39 vote), House Republican leaders were publicly promising to repeal it. “I think it ought to be repealed,” said House Minority Leader John Boehner (R-OH). “We hope [the Senate vote] falters so we can start over,” agreed Rep. Mike Pence (R-IN). “I think the reason you’re not hearing talk about efforts to repeal the permanent bailout authority is because the bill hasn’t passed yet.”

This isn’t a surprising development, as House Republicans have gone gangbusters with threats to repeal health care reform ever since it passed. However, much like repealing health care reform would remove protections like the ban on discriminating against customers with preexisting conditions, repealing the Dodd-Frank bill would send the country back to a status quo in which an unshackled Wall Street built up huge amounts of systemic risk, with the full knowledge that a taxpayer-funded bailout awaited their almost inevitable implosion. Here are some provisions of the Dodd-Frank that will become law with President Obama’s signature, but that the GOP is already set to repeal:

– Ability to unwind failed banks without bailouts: Republicans constantly demagogue the bailouts that occurred in 2008 to stabilize the financial system (though they occurred under a Republican administration), but repealing the Dodd-Frank bill would take away new tools granted to regulators to unwind failing firms without taxpayer dollars. This week, former Treasury Secretary Hank Paulson said he “would have loved to have” the bill’s authorities during the crisis of 2008.

– Bringing derivatives out of the dark: The $600 trillion derivatives market is almost entirely unregulated, and helped bring about the demise of some of the big financial institutions, most notably AIG, that needed to be rescued by the government. The Dodd-Frank bill puts these instruments onto public exchanges and through clearinghouses, giving the companies clear price information and regulators transparent paths to follow while policing abuse. It also prevents banks from engaging in some derivatives trading with federally insured dollars.

– Reining in risky trading: Courtesy of the Volcker rule — named after former Federal Reserve Chairman Paul Volcker — banks are prevented from trading for their own benefit with federally insured dollars. Such trading, which amounted to gambling with the government’s backing, sustained upward pressure on the housing bubble. Repealing this rule would be a sign to Wall Street that the casino is back open for business.

Repealing the bill would also mean disbanding the new Consumer Financial Protection Bureau, which fills a huge gap in the regulatory system that allows banks to run wild with predatory products while consumers have no advocate (and which Republicans have complained about so much that they probably would be all too happy to see it disappear).

Now, this bill is not perfect, and could have gone much farther in terms of breaking up the biggest banks or getting rid of risky trading entirely. But repealing it would simply let Wall Street banks right back into the wild, wild west that was created by years of deregulation and financial innovation that boosted bank profits but had no societal benefit.

The Defense Department and the House of Representatives have been engaged in a bit of a spat recently over funding for a second engine for the F-35 fighter jet. DoD says that the alternative engine is a big waste of money and has recommended that Congress jettison the program, but the House decided to fund it anyway in the 2011 defense authorization bill. Secretary of Defense Robert Gates has pushed President Obama to veto the authorization if it ultimately includes the funding.

And the second engine isn’t the only item in the gargantuan defense budget that the DoD doesn’t want but that Congress insists on continually providing. Over the last four years, the Pentagon has requested precisely zero new C-17′s — a military transport plane — but has wound up with a whole bunch of them:

Despite the lack of a Pentagon request the past four years, Congress has appropriated $12 billion for 43 of the transport aircraft, including eight in the fiscal 2009 war supplemental spending measure and 10 in the fiscal 2010 Defense appropriations law.

As Congressional Quarterly pointed out, Congress’ insistence on funding a plane the Pentagon doesn’t want is “due in no small part to the lobbying efforts of Boeing Co., which builds the planes in California, Missouri, Georgia, Connecticut and elsewhere.” And Boeing is up to its old tricks yet again, “belatedly lobbying for the purchase of five more C-17s at a cost of about $1.3 billion” for this year.

“I am fully aware of the political pressure to continue building the C-17,” Gates has said. “So let me be very clear: I will strongly recommend that the president veto any legislation that sustains the unnecessary continuation.” As Principal Deputy Under Secretary of Defense Michael McCord and Principal Deputy Assistant Secretary of Defense Alan Estevez told a Senate subcommittee this week, “it is not in the national interest to continue adding more C-17s…In our view, the production line should begin shutting down.”

This isn’t just about the upfront cost of purchasing more planes, which is considerable. It’s about then paying to maintain the planes for years. The Pentagon actually spends $1 billion per year to maintain the 43 C-17s that it didn’t request, but received anyway.

Obama has called the continued purchase of additional C-17s “waste, pure and simple.” And yet, they turn up in the budget year after year, as lawmakers look out for their own parochial interests at the behest of defense contractors.

This week, Federal Reserve Chairman Ben Bernanke spoke at a Fed conference regarding the difficulty that small businesses are having accessing loans. “Though we believe that our and others’ efforts are making a difference [in easing credit], we also know more must be done,” he said:

The formation and growth of small businesses depends critically on access to credit. Unfortunately, those businesses report that credit conditions remain very difficult…Making credit accessible to sound small businesses is crucial to our economic recovery and so should be front and center among our current policy challenges.

In all, “lending to small business has dropped by some $40 billion since the second quarter of 2008 – going from more than $710 billion to less than $670 billion in the first quarter of 2010.” Of course, Bernanke is far from the only one who realizes that this is a problem, so the Obama administration and Congressional Democrats have been working on a bill that would create a $30 billion lending pool and provide $12 billion in tax credits and cuts for small businesses.

That bill, however, has been hung up by conservatives who want to implement the policy that they truly care the most about: tax cuts for the wealthy. Sen. Jon Kyl (R-AZ), who along with Sen. Blanche Lincoln (D-AR) has crafted a $91 billion cut in the estate tax for the richest 0.25 percent of households, “has persisted in pushing for a vote on his amendment, even if it means holding up the bipartisan small-business package.” Senate Majority Leader Harry Reid (D-NV) said yesterday that Kyl’s zeal to reduce tax rates on the richest of the rich “has become entangled with the small-business bill — making it harder to proceed.”

So, to sum up, there’s wide acknowledgment that small businesses can’t get the loans that they are looking for, and there’s a bill before the Senate designed to address that concern. But Kyl is so intent on spending billions to cut taxes for the very wealthy that he is holding it up.

Now, I’m not convinced that inducing small business lending via more top-down funding will necessarily do all that much, as it doesn’t fix the underlying problem for them, which is a severe lack of customers. But there are plenty of stories of small businesses that are looking for loans being unable to find them, and Kyl is indifferent to their plight, unless aiding them also means cutting taxes for the very rich.

As we’ve been extensively documenting recently, Republicans have created a sort of right-wing fantasy land when it comes to taxes, claiming that tax cuts pay for themselves and that extending them doesn’t count as federal spending. Senate Minority Leader Mitch McConnell (R-KY) even claimed that “there’s no evidence whatsoever that the Bush tax cuts actually diminished revenue,” even though there is an exhaustive amount of evidence showing just that.

Today, the Senate Finance Committee held a hearing to examine the issues surrounding the expiration of the Bush tax cuts, and particularly whether they should be allowed to expire for the wealthiest Americans like President Obama has proposed. The Finance Committee’s Ranking Member, Sen. Charles Grassley (R-IA) refused to go quite as far as his GOP brethren, saying “I’m not disputing the notion that extending these tax relief plans scores under the conventions of our budget process…So, in that sense, tax cuts are not free.”

However, Grassley nonetheless wants to preserve the Bush tax cuts for the wealthy (which will cost $678 billion while benefiting just the richest 2 percent of the country), and issued a challenge to those who want to let the rates expire:

On this side, we hear the small business people loud and clearly. They say they know their taxes are going up. They don’t know how high the rates will go. They are reluctant to commit to expanding their businesses in what they perceive to be a hostile and uncertain environment…To those who are pushing the higher marginal rates, I say the burden is on you to show that you are not harming our primary job creators, small business.

At least he didn’t say “there’s no evidence whatsoever” that allowing the tax cuts for the wealthy to expire will have a negligible effect on small business, right? Unfortunately for Grassley, his challenge is exceedingly surmountable, as he’s relying on the conservative trope that tons of small businesses face the highest tax brackets.

According to the Center on Budget and Policy Priorities, however, fewer than 2 percent of the small businesses in the country face either of the top two tax brackets, which are the ones in question, while 34 percent are in the lowest tax bracket. 14 percent of small businesses actually qualify for the Earned Income Tax Credit, which is only available to low-income working people.

Plus, “many of the roughly 650,000 filers with small-business income who face one of the top two tax rates are merely passive investors who have nothing to do with running the business”:

Under the Treasury definition [of small business], for example, the $84 of income President Bush received in 2001 from a passive investment in an oil and gas company made him a “small-business owner.” About 35 percent of “small-business owners” with incomes above $200,000, and about 58 percent of “small-business owners” with incomes over $1 million, received some or all of their business income in the form of passive investments. The Treasury definition also counts as “small-business income” the fees that CEOs are paid for sitting on corporate boards.

So it would seem that the burden has shifted back to Grassley. I, for one, would like to hear why he thinks spending $678 billion to benefit the richest 2 percent of the country is a worthwhile endeavor.

Our guest blogger is Michael Linden, Association Director for Tax and Budget Policy at the Center for American Progress Action Fund.

There have already been two posts today calling out Sen. Mitch McConnell (R-KY) for his recent utterly ridiculous statements regarding the Bush tax cuts. I’m going to pile on a bit, because this is the kind of thing that really should be getting even more attention.

When the Senate Minority Leader says something like, “there’s no evidence whatsoever that the Bush tax cuts actually diminished revenue,” in a sane world, that would disqualify him from ever being taken seriously on economic issues again. This is not some disagreement among economists over the effects of a future tax cut. Nor is this a philosophical debate between the left and the right.

Instead, what we have here is McConnell making a clearly false claim about recent history. Even a casual glance at a graph of federal income tax revenues would confirm that, yes, the Bush tax cuts had a massive negative affect on revenues. There is no room for interpretation. Before the tax cuts, income tax revenues were 10.2 percent of GDP. Three years later, income tax revenues were 6.9 percent of GDP. 6.9 is smaller than 10.2.

But the point of this post is not that McConnell is colossally wrong – though he is – it’s that his willingness to make such a dramatically false statement reveals something really ill about the current state of our national economic debate. When someone so high-profile not only makes such an easily disproven statement, but bases his larger policy positions on that statement, it should call into question that person’s entire platform.

Indulge me an imperfect analogy. Say you have a friend who goes on and on about how great this certain restaurant is. So one night you and he go out to this place and you discover that what he thinks is a great restaurant is actually just a huge vacant lot. That would be odd, but maybe you’d think, “I guess my buddy was mistaken about the location of the restaurant.”

Now, imagine that the next day, your friend sidles up to you and says, “Wow, wasn’t that restaurant so amazing last night? Let’s go back there again tonight!” Why would you accept any recommendations from this guy ever again? Not only does his “favorite place” not exist, but he won’t even admit what’s clear to everyone else.

Mitch McConnell is your crazy friend. He sings the praises of tax cuts of rich people – even though we know they don’t work – and then pretends that the ones we already passed didn’t hurt the federal bottom line. And this kind of problem is rife throughout the conservative world. Read more