Worst tax ideas of 2009

I often head over to the Tax Policy Center for commentary and analysis on current topics in the tax arena. They have a way of making a pretty dry topic interesting. So I've reprinted here a posting from their blog - Lump of Coal Award: The Worst Tax Ideas of 2009...

10. The Roth Rollover. Let’s see, allowing people to turn their tax-deferred retirement savings into fully tax-free investments starting on Jan. 1 will be a long-term fiscal catastrophe. And in the short run, the up-front taxes people must pay to roll into a Roth could depress the stock market and damage the shaky recovery. What’s not to like?

9. The Bo-Tax and the Tanning Bed Tariff. This is what happens when you need money and won't talk seriously about revenues.

8. Obama’s Middle-Class. This is a rerun from last year, but it is too good to leave out. The President thinks we will somehow reduce the deficit and fix the tax code without raising taxes by a dime for those poor souls making a quarter million dollars-a-year or less. Unfortunately, that's 95 percent of us. Can’t wait to see how he does it.

7. Taxing the Rich. Why not let a handful of wealthy taxpayers finance all your new ideas. So let’s drive the top rate north of 45 percent, even though no one will really pay it. On the other hand, except for Barbra Streisand and those other Hollywood types, they are mostly Republicans anyway.

6. The Estate Tax. Now you see it. Now you don’t. Wait, there it is again. So what if nobody has any idea how to do estate planning anymore. On the other hand, Congress has had only eight years to fix this mess.

5. Tax-free health insurance. If Congress is serious about controling medical costs, taxing expensive employer-sponsored insurance is a good way to start. But the unions have made this a litmus test issue, and neither Obama nor congressional Democrats want to take them on.

4. California. It claims to be the fifth largest economy in the world but can’t pass a serious budget, and can’t govern itself. It is the poster child for dysfunctional state governments and fiscal crises everywhere.

3. The homebuyer credit. Congress started the year by giving away $8,000 in subsidies to "first-time" homebuyers, as many as 74,000 of whom, it turned out, never quite got around to buying a house. Then, it extended the boondoggle to current owners who buy up. Bottom line: People who were already going to buy will get billions of dollars in government subsides. But you gotta make those real estate agents happy.

2. The Obama Tax Reform Panel. Not only will it fail to propose an improved tax code, it missed its own deadline. Nothing beats being both disappointing and late. “After the holidays,” the Obama people say. Does anybody care?

1. And the winner is, of course, the HAPPY Act. We've got a $1.5 trillion deficit and a Republican congressman named Thaddeus McCotter wants a $3,500 deduction for the cost of caring for our pets. Why? Because we love them.

Kind of like ROTC...

On Thursday, Senator Susan Collins introduced a bill to help bolster the federal government's acquisition workforce. The Acquisition Workforce Improvement Act of 2009 would pay tuition, room, and board for a three-year work/study program at Washington, D.C. area universities. Coursework and on-the-job training would focus on federal acquisitions (naturally); a quick read of the bill reveals some similarities in scope to a program in Harvard's Kennedy School of Government. Recipients of the scholarship would focus on academics for one year, then spend the next two years studying and working at various federal agencies. Graduates would earn a Master's degree and be granted federal employment, whereupon they would incur a three-year federal service requirement.

All in all, this looks like a good first step in getting qualified professionals into the acquisition workforce. One risk to this type of program is investing that time and effort into developing a young professional who takes the Master's degree and valuable job experience and jumps ship as soon as possible. True, that's a risk that might be worth the investment, as a number of individuals would certainly choose a career in the acquisition workforce and assume senior leadership positions down the road. But this bill would stand to gain from incentivizing the federal career path. Perhaps the three years of study could count toward seniority and pension benefits. When the individual hits the three-year study / three-year work point, it might be a little easier to decide to "stay fed" with only another 14 to get a defined pension.

The initiative has merit and should find a relatively easy ride to passage. This "ROTC for civilians" would do well to focus needed attention to an area that consistently underperforms. However, this should be viewed as only one small step toward improving the system. The appropriations process, including earmarks, and baseline cost and schedule estimating have inherent weaknesses that no bright young professional can fix alone. But it's hard to argue the value of a program that will no doubt attract promising talent to this vital part of the federal workforce.

What's in a name?

I'll take this opportunity to point out a recent intersection of wine and politics. After several years of consideration, including a fair amount of controversy, the Alcohol and Tobacco Tax and Trade Bureau (TTB) approved Calistoga as the newest American Viticultural Area (AVA).

So what does that mean? You might not have given much thought to the writing on your wine label beyond the name of the winery and the varietal (the type of grape(s)). To help consumers make informed decisions, and to give viticulturalists the opportunity to showcase the nuances of the grapes they grow, the federal TTB sets standards that govern when wines must carry the name of their origin and what name they can list.

You probably have noticed the name "California" or "Napa County" on your wine bottle. These are known as appellations and indicate where the grapes used to make the wine were grown. The TTB requires an appellation of origin be listed when the label includes, among certain other information, a vintage or a varietal. The winery may list an appellation of origin if at least 75% of the grapes to make the wine were grown in that place. So when a winemaker sources grapes from across California's Central and Northern Coasts to churn out 200,000 cases of wine at $8 a bottle, you will see "California" on the label (in at least 2mm print). If the winemaker chooses instead to use grapes grown mostly in Sonoma County, that is the name you will see. That wine might also cost a few dollars more, as Sonoma County as a whole tends to be a pretty good place to grow grapes and it has a certain amount of name recognition and cache (it's also a smaller area than the state, so fewer grapes in a favorable area increases the price per ton).

Moving on from appellation of origin, there is a more specialized naming system called viticultural area of origin. These are areas with distinct physical boundaries (mountains, hills, rivers, valleys, etc.) and characteristics (sandy, loamy, or volcanic soils, arid, cool, warm, high altitude, etc.) that give rise to distinct growing conditions and distinct flavors. AVAs can be quite small; some more popular names in California include Alexander Valley (32,536 acres), Rutherford (6,650 acres), Oakville (5,760 acres), and Stags Leap District (2,700 acres). If you're touring Northern California's wine country, you won't always know that you've left one AVA and entered another. The TTB considers applications for AVAs, and they require that at least 85% of the grapes used to make a bottle of AVA-designated wine must have been grown in that area.

The stakes can be quite high for getting a new AVA approved, as some wineries' reputations have been made based on their location in a well-known AVA. The areas I listed above also happen to include historic, well-known wineries including Beaulieu Vineyards, Quintessa, Caymus (all Rutherford), Opus One, Robert Mondavi, Silver Oak (all Oakville), Stag's Leap Wine Cellars, and Clos du Val (both Stags Leap District).

The historic area of Calistoga had never been granted an AVA. The application, spearheaded by Master Winemaker Bo Barrett of Chateau Montelena in Calistoga (who was also depicted in the enjoyable 2008 movie Bottle Shock) ran into trouble when two wineries, Calistoga Cellars and Calistoga Estate Vineyards, complained that approval of the AVA, and the ensuing labeling restrictions, would unfairly hurt their business. By virtue of the new AVA name prominently displayed on their labels, they will either need to start using at least 85% Calistoga-grown grapes in their wines or change the name of their winery. The TTB proposed a compromise that would have grandfathered in the two operations, but a massive effort by winemakers, vintners, and trade associations throughout the west coast squelched that idea.

Barrett says that he is already placing orders for labels that show a Calistoga viticultural area of origin.

Why does size matter?

Regardless of your view of the current versions of the House and Senate health care reform bills, I want to discuss one of the most common criticisms I've heard. Each bill is just over 2,000 pages, and if heated rhetoric of opponents is to be believed, this fact alone warrants purging this great country of the overstuffed turkeys the bills have become.

That criticism relies on an unspoken assumption that there is a correct page length for this legislation (and presumably any other legislation). Further, I must assume that those who mock the bill's size know the number of pages the legislation should require, but withhold the information to maintain an edge in the debate. I love the similarity to one of my favorite scenes in one of my favorite movies - Amadeus. Mozart had just finished performing an early opera for a packed house, including Emperor Joseph II. Afterwards, upon their meeting, the Emperor feels pressed to comment. As levying praise on this young, unorthodox composer might seem unstately, the Emperor instead says that there were "too many notes...just cut a few and it will be perfect." A disgruntled Mozart snidely asks, "Which few did you have in mind, Majesty?"

While I say that half-tongue-in-cheek, I do detest naysayers who will do no more for the debate than proffer an idea that requires no significant thought, but that makes for a convincing-sounding soundbite and has the ability to rally the masses who similarly have no interest in critical thinking. Let me be clear, I understand the motive, and I appreciate the intelligence of the tactic. One thing I really enjoy about politics is that I love to hate so many aspects of it.

But come on, man! For the most part, the people who dream up those tactics actually understand the nuances in the bill. I just wish the average American who serves as prey for the opinion-shapers would reject criticism that lacks substance and demand insightful analysis. And if that analysis is not offered by your opinion show of choice, then go straight for the facts by reading the bill itself or by reading the many crosscuts of analysis available on the Congressional Budget Office's website (www.cbo.gov).

When I used to teach the Rules of Golf, I heard people say over and over that reading the Rules is like reading the tax code - overly complex and difficult to understand. I always relied on the simple truth that I first read by Rules sage Richard Tufts: "Golf is a complex game and we must expect the Rules to reflect that fact."

A lot of legislation is very complex, and we should expect the length of bills to reflect that fact. A long bill is not, by definition, weak. So let's move past such trite observations and delve into the issues. That's where real education can begin and where real debate can take place.

Wine: Keeping the right temp

I realize I am approaching the realm of false advertising, as the name of this blog has become somewhat of a misnomer. So let's talk today about something I consider to be widely misunderstood in the world of wine: storing and drinking temperatures.

Let's start with enjoying a typical red wine - say, a California Cabernet Sauvignon. Many of you might have heard that for centuries, European homes were generally cooler than today's climate-controlled homes. Thus the notion of serving wine at room temperature (i.e., straight from the rack in the home or from the cellar) has become a little convoluted today. That Cab you have stored in your home is not meant to be chilled before serving, but it is also not meant to be stored at 75 degrees (or warmer, as often occurs in homes where wines get stored in the kitchen).

Now let's consider a typical white, such as a California Chardonnay. Raise your hand if you are storing your Chardonnay in your refrigerator. Now put your hand down and go remove it, unless you are planning to drink it tonight. There is nothing wrong with keeping a bottle in the refrigerator for a limited duration so it's ready to go when company arrives, but in terms of storage, most wines (red and white) rest well at the same temperature - somewhere between 50 and 60 degrees. The key is to avoid serving that Chardonnay straight from the refrigerator. Why is that? I recommend you perform a test, which will include drinking wine - so you should enjoy this.

Place your favorite Chardonnay in the refrigerator and get it nice and cold - probably 36 or 37 degrees by the time it reaches the ambient temp. Now pull it out, open, and pour a couple of ounces into a glass. After a swirl and sniff, take a sip and note the flavors as the wine rolls around in your mouth. Swallow the wine and follow the aftertaste. How do the acids mix with the flavors?

You should have enough wine left in the glass for another healthy taste. Now, cup the glass in your hands to warm it up. You can swirl the wine as you do this, which will continue releasing aromas and open up the wine. With only an ounce or two in the glass, it should not take more than a few minutes to get the wine warmed to around 45 or 50 degrees. Once you have done this, take another sniff and a sip. Note the differences from your first taste. It will likely taste like you opened a different bottle of wine. The flavors should be more striking. If you enjoy Chardonnay that never sees oak, the tart apples should be readily apparent; if you like your Chardonnay to spend a little time in oak, you should be able to easily identify the creamy butter among the fruit and mineral accents.

The lesson is that when served at the right temperature, you will have the opportunity to enjoy your wine as the winemaker intended. I once performed a variation of the experiment above with a 37 degree California sparkling wine and a 37 degree can of Coke. At that temperature, the differences in taste were almost imperceptible. So with your whites, store them with all of your other wine, just bring the temperature down to around 45 or so before serving (by placing in the refrigerator for no more than an hour). Storing them long-term in the refrigerator not only risks drying out the cork (it is way too dry in there), but can also expose the wine to food aromas that you would not want present in your wine.

Reds are a little easier, as I find that serving at around 65 to 70 degrees allows for picking up all the right aromas and tastes. If you are storing your wine at that temperature, then you are all set. Sometimes, that just means moving your collection to a dark, unused closet, or under the stairs. While it is not the ideal 55 degrees at which highly-valued wines are cellared for years or decades, it is a step in the right direction. What about the decorative bottle rack you have on your wall that you don't want to leave bare? You can place empty bottles in it - if you really want to go for show, hop on eBay or other internet sites where you can find empties of some of the most sought-after wines on the market. Imagine telling that overly-pretentious oenophile friend-of-a-friend who always crashes your parties that you popped open that 1997 Screaming Eagle on your rack last week to watch the Dolphins game.

As a final note, and to zero in on what led me to write about this, watch out for restaurants that serve wine at all the wrong temps. I ordered a glass of 2006 Hess Tri-County Cabernet at a chain restaurant not known for wine service. The glass was filled to within a half-inch of the rim - I can get over this, although it prevents me from getting a good swirl. But even worse, its temperature was surely approaching 80 degrees! This was quite a shame, because it is likely a good value - it seemed to have appealing layers of complexity, but they were a little discombobulated at that temp. I'll have to try again at home.

This week's elections

As a Florida resident living in Virginia, the only election of the "big three" I was really following was the race for Virginia governor, in which Republican Bob McDonnell won convincingly over Democrat Creigh Deeds (the other two big elections were for New Jersey governor and New York's 23rd district). As I was not eligible to vote for a Virginia candidate, I watched from the sidelines, and I must say that I am now eager to see how McDonnell will improve transportation in Northern Virginia without raising taxes and without impacting the state's education funding. I will be a Virginia resident soon, and I do not relish the prospect of my taxes being raised, so if this is the person who can fill the coffers of the currently-bankrupt state transportation construction fund without a tax increase, I say more power to him. Thus far, his primary proposals to raise money involve one-time gains, such as selling off the state liquor stores, so I am curious how he will secure a sustained revenue stream that will finance needed improvements. Stay tuned.

I think the bigger story, however, is not the large swath of independents who voted Democrat in 2008 and Republican this time. The "ideological shift" that so many on the left identified last year was no more real than the "Republican renaissance" being touted this time. No, the destruction of the Republican candidate for New York's 23rd district by far-right ideologues is most interesting to me. As a firm believer in market-based economics and efficiencies, I think that the Republican party has a lot to bring to the table. But I also think that elements of the far right that have become increasingly vocal and organized and that preach intolerance of gay rights, elimination in all cases a woman's personal choice to have an abortion, and teaching creationism alongside evolution as rooted in science has gone too far. The editor in chief of the web site redstate.com, Erick Erickson stated, "This is a huge win for conservatives...We did exactly what we set out to do - crush the establishment-backed GOP candidate." About Florida governor Charlie Crist's candidacy for U.S. Senate, Erickson said, "...if Crist wants to own the mantle of 'GOP Establishment Candidate,' let's tie it around his waist and throw him in one of Florida's many lagoons."

What I pick up from these statements, and the actions surrounding the NY 23rd election makes me nervous for the health of the Republican party. In a sliver of optimism, maybe what I am seeing is a shift that will open a couple of seats at the table for Libertarians. I must conclude that the many smart, educated conservatives that I know who can see the difference between constructive debate on the corporate tax system and carrying a rifle around a protest rally will become disenfranchised when more of their bretheren choose the latter as their modus operandi. Maybe a new breed of political interest will be spun off that recognizes that while it is easier to take pot shots at an elected representative based on looks or family history, it is more productive (albeit difficult) to learn and debate the issues - and dammit, sometimes we cannot take the easy way out.

In recognition of the U.S. Navy

Today I want to recognize the United States Navy's birthday (October 13) and the traditional Navy League observance of Navy Day (October 27), and to celebrate the storied history and many accomplishments that weave through the fabric of our national identity. I suppose I could go on and on recounting the battles, sacrifices, and heroism displayed by centuries of United States sailors; instead, this is a snapshot of a typical day in the Navy around the world. All of these events took place this past Saturday, October 24, 2009:

• On Oct. 24, 329,390 active duty officers, Sailors and midshipmen; 109,222 ready reserve Sailors, with 6,427 reserves mobilized, and 193,875 civilians are serving in the Department of the Navy.

• 285 active ships are in service. 138 (48%) including three carriers and five large-deck, amphibious ships are underway.

• 10,556 Individual Augmentees, 5,299 of which are mobilized reserves, are deployed on the ground around the world in support of overseas contingency operations.

• USS Makin Island (LHD 8) is commissioned at a ceremony at Naval Air Station North Island, Calif. Dubbed the "Prius of Navy warships," Makin Island is the final amphibious assault ship built in the Wasp class, yet is the first built with gas turbine engines and electric drive. The Navy projects that this advance will save nearly $250 million dollars in fuel costs over the ship's lifetime.

• USS George Washington (CVN-73) and Carrier Strike Group (CSG) 5, along with USS Cowpens (CG 63), USS Mustin (DDG 89), USS Shiloh (CG 67) and USS O'Kane (DDG 77) conduct strike training in the vicinity of Okinawa, Japan.

• USS Bonhomme Richard (LHD 6) completes the Timor Leste portion of Marine Exercise 2009. During the ten-day exercise, they conducted a series of military to military training with Timor Leste's armed forces and International Stabilization Force personnel to enhance interoperability and communication between the U.S. Navy and Timor Leste forces.

• The crews of USS Cleveland (LPD 7) and USS Rushmore (LSD 47) complete the Indonesian portion of Marine Exercise 2009, training with the Indonesian Marines in jungle operations, platoon live-fire and maneuvers, bilateral reconnaissance, the Marine Corps Martial Arts Program, military operations in urban terrain and the Amphibious Assault Vehicle.

• USS Anzio (CG 68), the Combined Task Force (CTF) 151 flagship, and the Turkish ship TCG Gokova (F 496) conduct anti-piracy patrols along the internationally recognized transit corridor north of Somalia. Meanwhile, other task force vessels USS Pinckney (DDG 91) and HMS Cumberland (F 85), monitor pirate activities along the eastern coastline of Somalia.

• USS Hopper (DDG 70) patrols the northern Arabian Gulf in support of Combined Task Force – Iraqi Maritime. Hopper is providing security and maritime domain awareness in the vicinity of Al Basra Oil Terminal, which is the main source of Iraq’s oil exportation program.

• Maritime Expeditionary Security Squadron Detachment 823, currently deployed to 5th Fleet to protect and defend oil platforms, trains with Iraqi Marines focusing on small boat attacks and swimmers attempting to gain unauthorized access.

• Navy Individual Augmentees (IA) at Camp Buering, Kuwait, prepare for duties in support of Operations Iraqi Freedom and Enduring Freedom. After their initial reception and gear issue, IAs receive training in areas like small arms and vehicle egress. All of these lessons help transform them from sea-going to boots on ground Sailors.

• 30th Naval Construction Regiment is deployed to Afghanistan, providing command and control of Naval Mobile Construction Battalion (NMCB) 22 and NMCB 74, an Air Force Expeditionary Rapid Engineer Deployable Heavy Operational Repair Squadron Engineer Group, and two Army engineer battalions. NMCB 74 is also providing a large detail of Seabees to support multiple special operations units operating throughout Afghanistan.

• Explosive Ordnance Disposal Mobile Unit 1 Platoon 1-0-1, operating in the vicinity of Al Asad, Iraq, assists U.S. Marines in the disposal by detonation of unserviceable ordnance, destroying more than 28,000 munitions.

• USS Tortuga (LSD 46) is en route to Subic Bay, Republic of the Philippines, for a port visit after just completing Amphibious Landing Exercise, training with Sailors from the Republic of the Philippines.

• The City of Corpus Christi (SSN 705) arrives in Laem Chabang, Thailand. The crew will be participating in theater security cooperation events during their port visit by hosting ship tours and conducting community service projects.

• The USS Nimitz (CVN 68) and embarked Carrier Air Wing 11 arrive for a scheduled port visit, marking the third time that a U.S. Navy aircraft carrier has docked pierside in Bahrain. The Nimitz Strike Group is deployed to U.S. 5th Fleet in support of Operation Enduring Freedom, as well as regional maritime security operations.

• Explosive Ordnance Disposal Mobile Unit 8 Platoon 801 participates in Exercise Northern Coast, a multinational exercise with the German and Swedish navies. The training is focused on mine countermeasures as well as counter improvised explosive device defeat.

• A seven-member detachment from the Navy’s Fleet Survey Team conducts a safety of navigation hydrographic survey of Port Gentil, Gabon, to update nautical charts for future visits by U. S. assets and commercial shipping.

• USS Wasp (LHD 1) is deployed to the 4th Fleet area of focus on Southern Partnership Station-Amphib with Destroyer Squadron 40 and a Security Cooperation Marine Air-Ground Task Force embarked. Southern Partnership Station is part of the Partnership of the Americas Maritime Strategy that focuses on building interoperability and cooperation in the region to meet common challenges.

• USS McClusky (FFG 41), a Navy Reserve frigate, conducts counter illicit trafficking operations in the Eastern Pacific, which consists of intercepting human and drug traffickers within the 4th Fleet area of focus. McClusky deployed from San Diego on October 2nd, and has already made one successful interdiction, recovering approximately 560 kilos of cocaine on Oct. 7.

• The attack submarine USS Virginia (SSN 774) is underway in the Atlantic Ocean for the first scheduled full-length deployment for a Virginia-class submarine.

• Two Returning Warrior Workshops are being held in Palm Desert, Calif., and Baltimore, Md., to assist some 400 Sailors returning from Iraq and Afghanistan as well as their families.

• Naval Base Point Loma in San Diego, Calif., continues good stewardship of the environment by saving more than 60 kW of energy with newly installed photovoltaic cells.

• Naval Air Station Whiting Field, Fla., celebrates its 66th anniversary of providing base support to naval aircraft, their squadrons, maintenance and support staffs and the Sailor and their families.

• Fleet replenishment oiler USNS Kanawha (T-AO 196) is off the coast of Egypt providing logistics support to ships participating in the amphibious exercise Bright Star 2009, a biennial combined exercise that includes 11 countries and 70,000 personnel.

• Three U.S. Navy ships conduct multiple theater security cooperation port visits in the Baltic region following exercise Joint Warrior. These visits included the USS Cole (DDG 67) in Helsinki, Finland; the USS Ramage (DDG 61) in Riga, Latvia; and the USS John L Hall (FFG 32) in Klaipeda, Lithuania.

• The current Africa Partnership Station (APS) platform, HMNLS Johan De Witt (L 801), a Royal Dutch ship with U.S. Navy Sailors embarked is in port Tema, Ghana, conducting training.

Quick thoughts on health bill

As the Senate Finance committee bill for healthcare reform continues to be debated...

- Note the penalty ($750) for choosing not to sign up for some sort of health insurance. Whether this fine is actually a tax is subject to some debate, but like many, I must conclude that people around the country will decide to forgo the cost of a health insurance plan and instead pay the fine (note that it is in the interest of the right to call it a tax and in the interest of the left to call it anything but. Without wading into partisan waters, I consider this penalty for inaction a fine). A healthy person who rarely has need for medical services could decide that a $750 fine is a better alternative to a $1,200 healthcare plan. Of course, that person assumes the risk of not having insurance when he or she requires emergency medical services - but don't people all around the country today take that risk, then burden federal and state budgets when they show up at a hospital's ER in need of care? Those people get the care they need, so do they really assume any risk by not purchasing insurance? Young adults generally visit the doctor less frequently, so they are more likely to choose the fine. This situation poses problems for many players in the healthcare sector.

- Some Senate Democrats are proposing a compromise to get some form of a public option (essentially, a health plan administered by the federal government) in the final bill. That is an option for states to choose whether to participate. This choice would likely be made through action by the state legislature and governor. The nuance you should watch for is whether that option is framed as an “opt-in” or an “opt-out.” In other words, which avenue will require legislative action? If the public option is made as an opt-out, those who oppose that additional health insurance plan will have the uphill battle to convince state legislators to act, or “opt-out” of participating.

- Whatever plan passes through Congress will not result in 100% coverage (see, for example, my first point above). A few months ago, the number of uninsured in the U.S. was quoted by the President and others to be around 45 million. That number included approximately eight million illegal immigrants who would not qualify for an insurance plan partially subsidized by the federal government. Republicans rightly called foul on using an estimate that appeared to inflate the number of uninsured by including a population that would not be eligible for the proposed solution. Now the key number is shaping up to be 25 million, which is the estimated number of people that will be without insurance under the Senate Finance Committee’s bill. That number includes the same illegal immigrant population, but now opponents are using it to inflate the size of the issue. To his credit, Republican Senator Jim Bunning, in his statement to the Finance Committee on September 22, used the 25 million estimate, but also said that about a third of that is illegal immigrants. Not everyone makes that distinction. So the same tactic from a few months ago is now being employed and all the roles are reversed. Isn’t political gamesmanship fun?

The Fiscal Gap: more is not better

Good news. The Government Accountability Office (GAO) came out with their Fall 2009 update to the Federal Government's Long-Term Fiscal Outlook today.

Bad news. Social Security and Medicare are still projected to bury us under a pile of debt over the coming decades.

This should not be a surprise, especially to those who read my earlier post following up on the soda tax discussion. I want to zero in on one of the starkest measures of how far behind we are falling - the fiscal gap. I mentioned in that earlier post that we as a country are $56 trillion in debt when taking into account expected obligations over the next 75 years (the promise that the government will pay for things like Medicare, Social Security, and interest on the national debt). With the GAO update, that number is now $62 trillion (adjusted for inflation to 2009 dollars). This increase does not have much to do with current increases in discretionary spending, including ARRA (the stimulus act) or TARP. It primarily arises from revised calculations that account for the economic downturn over the last year.

That $62 trillion number is the fiscal gap. It represents the amount of money (in 2009 dollars) needed just to maintain our current level of debt over the next 75 years. So for you deficit hawks out there, we need to cut spending, raise taxes, or both, over the next 75 years to the tune of $62 trillion just to maintain our current debt level relative to the country's gross domestic product (GDP, a measure of the country's total output of goods and services in dollars - $14.3 trillion in 2008). Revenues, spending, and debt are often spoken of relative to GDP, and are usually expressed as a percentage (GAO projects annual budget deficits in excess of 7% of GDP).

Note that the 75-year outlook assumes revenues (from things like payroll and corporate taxes) and discretionary spending (for things like national defense, federal highways, and national parks) remain at their 40-year historical average.

I think it's important to spread this knowledge, particularly when an obscure report like this is published. I recommend you to stay informed on this topic by also checking out the Peter J. Peterson Foundation. The Foundation's president, David Walker, was the United States Comptroller General from 1998 to 2008 and has spent the last several years getting this message out.

I know it's hard to get too upset about this, as the numbers are so big and the projection covers so many years that it almost moves into the realm of the abstract. But every year we delay real action on this problem, it just continues to grow. Our children and grandchildren will certainly see the effects of this problem, so the sooner we start working on it, the better for everyone.

A Brief Thought on the Nobel Peace Prize

The unfortunate aspect of President Obama being awarded the Nobel Peace Prize is all of the commentary that will be ensue about both him and the Nobel Prize committee. By assessing the worthiness of recipients, an individual tacitly asserts qualification to do so. However, I suspect that few of those individuals have ever felt compelled to offer commentary on any other recipient – how many people in the U.S. do you think even knew the Prize was being awarded?

About ten years ago, I learned about the 1992 recipient, Guatemalan cultural and civil rights leader and indigenous Maya Rigoberta Menchu, who struggled in the face of extreme violence to shed an international spotlight on the horrible ravages of civil war in her native country. I wondered at that time why I had never heard of her. This opened in me a world of interest about the people selected by the committee to receive the prize. Aung San Suu Kyi (1991), who you will read about in this space soon, is still held captive by the military regime in Burma that prevented her from taking office as Prime Minister, a post she won by election in 1990. Hers is one of the most heart-wrenching but inspirational stories I have found among recipients.


I will not pass judgment here on whether President Obama should have been named 2009's recipient. What credentials do I have to do so? Does it seem a little strange? Well, yes. It's a topic worth discussing. But as I sit in the lobby of a hotel in Idaho, I suspect the guy next to me, who has been ranting about how undeserving the President is, could not name last year's recipient (Finnish peace negotiator Martti Ahtisaari). At least he is voicing his opinion among a small group of people. The talking heads who will grace us with their commentary in the coming days will assume that air of legitimacy that demands people listen and respect their opinions. At least the partisan battles fought on the airwaves are generally carried out by the people who work in politics (or work in offering commentary on politics). I submit that many of the people who pass judgment on this year's Nobel Peace Prize recipient (both in public and private) are likely not familiar enough with the prize to come to the table with a full perspective. What we should all do is take this opportunity to learn a little more about past recipients. Whether the President truly is "worthy" of the prize is a subjective opinion - an opinion that, like others involving complex issues, should be reached with a concerted effort at self education. At that point, we can move past any debate - both sides can claim a legitimate victory.

Follow-up to soda tax

I want to revisit my last post to try to help people understand my dilemma in considering a new tax. You see, like most people, I do not want to pay higher taxes than I already pay, nor do I want to pay taxes I do not already pay. However, unlike most people, I am aware of the unsustainable path of the federal budget due to future social security, medicaid, and medicare liabilities (see my reference to p.31 of the CBO's long-term budget outlook in my last post). Hopefully, as a reader of this blog, you are learning a thing or two about this topic as well.

Unfortunately, the notion that we are on an unsustainable path is proffered by many to be attributable to recent events (think TARP under President Bush and ARRA under President Obama). Those people are wrong. Remember, the federal budget comprises two distinct pieces - discretionary and mandatory spending. The split between the two right now is roughly 60% mandatory / 40% discretionary.

Mandatory spending is mostly social security, medicaid, medicare, and interest on the national debt. Mandatory spending does not require annual authorizations or appropriations from Congress.

Discretionary spending is everything else. The Departments of Defense, Agriculture, Interior, Transportation, Health and Human Services, Treasury, etc. receive annual appropriations from Congress. That means if spending is very high one year, it need not necessarily be high the next. TARP and ARRA fit into the discretionary category. The key is that $1 of discretionary funding appropriated today does not put the government on the hook for spending that $1 every year, plus inflation and other cost of living adjustments.

So in terms of a long-term outlook, the spending categories on the mandatory side should be of great interest to most people. Those are the liabilities that, projected out over the next 80 years by our friends at CBO, will eventually keep this country from functioning properly. Liabilities associated with Medicare comprise the largest chunk of the upward curve.

So where does that put us? We can all get on our soap boxes and high horses and argue over the wisdom of putting $787 billion of public funds into the economy. But that's like shushing a talker at the movies when the theater is on fire. It feels good to talk politics, wasteful spending, earmarks, and such, but when someone throws out the present value liability of almost $60 trillion due to mandatory spending programs, nobody is really sure what to say.

Hopefully this post gives you a little more insight into my thought process. I don't want to cause panic, but is it a crime to yell fire! if the theater really is on fire? The way to help the country's finances back onto a sustainable path is to at least honor the elephant in the room with a passing mention. We must either get social security and (especially) medicare spending onto a sustainable projected path by reworking benefits or finding ways to raise money to pay for them. The answer is likely some combination of the two. My last post offered an idea that is tough to swallow. I'll keep working to find other solutions.

Obesity: A Taxing Problem

The New England Journal of Medicine published a Health Policy Report a couple of weeks ago that examines the health and economic benefits of levying a tax on "sugar-sweetened beverages" (SSBs - think non-diet sodas and energy drinks). The authors document the trend of increased SSB consumption and note the links to increased body weight; the article is generally well-written and cross-referenced, with numerous citations to other peer-reviewed journal articles.

One point of interest is the assertion that SSB consumers do not bear the full costs of their consumption decisions. Why is that? Let's consider it step-by-step:

1) Can we agree that a statistical link exists between SSB consumption and weight gain? If not, then you are free to exit with no hard feelings. As with any serious research question, you are likely to find rigorous research that comes to an opposing conclusion. By considering the breadth of research that has examined the question, I think the link exists. If you're still with me, let's move on.

2) Weight gain poses health risks to individuals. This can be in the form of heart disease, high blood pressure, and diabetes, just to name a few.

3) The cost of managing and treating the health risks of overweight individuals is wrapped up in the overall cost to provide health care to the population at large.

4) In 2007, government spending (state and federal) on health care comprised 40% of national health expenditures (as reported by the Department of Health and Human Services).

5) Some amount of the government spending goes toward managing and treating the health risks of overweight individuals. A July 2009 article in Health Affairs estimates that medical costs of obesity have risen to $147 billion per year.

6) Public funds (i.e., taxpayer dollars) are used to partially subsidize the cost of SSB consumption.

The average consumer is likely not aware of these costs, much less including them in his or her decision to spend $1.39 on a 20oz bottle of soda. I am not aware of any research that attempts to include the present value cost of health care in the price of a soda, but there's an interesting research topic for you go-getters.

The authors go on to propose a small excise tax on SSBs (approximately 1 cent per oz), based on research findings that consumption tends to decrease as costs increase. So not only would the tax shape behavior that would benefit peoples' health, it would open a revenue stream that could benefit child nutrition and other anti-obesity programs. This in turn could help shape other behaviors that add to the cost of health care in the United States.

How does the beverage industry view such proposals? Not surprisingly, it is generally opposed to the tax idea, establishing a de facto unified front for the stance that a small tax would indeed reduce consumption (if that were not the prevailing belief, why would the industry oppose the tax? - it is merely passed on to the consumer, keeping the manufacturing and distribution costs flat).

As a strong supporter of establishing healthy habits for nutrition and physical activity, particularly early in life, I generally support sensible initiatives that help shape healthy behavior. Not only can a healthier population reduce some of the staggering pressure on the country's health care system, but healthier individuals are more likely to live long, active lives without many of the complications that accompany obesity. However, the proposal to tax SSBs has some pitfalls that must be addressed.

The biggest drawback I see is an inability to agree on which SSBs to target. Some would suggest traditional sodas only; others say energy drinks should be included; still others would include fruit juices, which often can be linked to weight gain for the same reasons as SSBs. Based on what I know today, I would oppose a tax on orange juice, and thus could not vote for a measure that imposed an excise tax on fruit juices. However, I do think that a clear link between SSB consumption and weight gain exists and that by limiting a tax proposal to beverages with less than a certain amount of natural fruit juice (say, 50%), we could target those whose consumption is most directly linked to weight gain.

Next, as with any new revenues, the stream created by the SSB tax would be fresh meat for anyone with a new spending proposal, tax reduction, or tax exclusion (all actions that have the same net result on the deficit). If indeed the goal is to expand child nutrition or other obesity-prevention programs, the revenues created by the tax would need to be fenced from competing priorities. Further, the revenue should not replace current funding for obesity prevention, as has been known to occur in other sectors (e.g., lottery revenue promised for education that end up offsetting cuts to state education budgets).

If, like me, you have the eminently reasonable position that no new tax should be enacted without great deliberation, I suggest that you consider the as-yet undetermined cost of that bottle of soda today. As someone concerned about the crisis in health care spending related to projected Medicare and Medicaid liabilities (p.31), I think this proposal might actually carry some weight.

Blueprint to reduce deficit?

The Congressional Budget Office (CBO) published their annual review of Budget Options last month. This paper proposes numerous policy options and estimates their effects over five and ten year windows. Some view the document as a veritable treasure trove of ideas to reduce federal spending; indeed I imagine most everyone would find at least a few agreeable proposals among the hundreds of spending and revenue measures. However, in the world of federal budgeting, let's not lose sight of the unfortunate reality that many things are easier said than done.

I've been thinking about this since I set aside a newspaper editorial a few weeks ago. The authors selected six of the options as a way to reduce the federal budget deficit by $100 billion over five years. This approach sends the message that easy answers are out there and that legislators are just too obtuse (or lazy, or beholden to other interests) to see the light and take action. I submit that answers are indeed out there, but that enacting many of them would be viewed as a direct attack on a particular constituency. Any move to increase revenues (primarily achieved through levying taxes) or decrease spending will be accompanied by a vocal opposition. The issue turns bipolar when viewed as a liberal or conservative initiative, at which point constructive debate often ceases.

Consider one of the solutions presented in the editorial - the federal excise tax on motor fuels, which is 18.4 cents per gallon of gasoline. That rate has not changed since it was adopted on October 1, 1993. Adjusting the tax for inflation (adjusting the 1993 amount to equal spending power in 2009) would require an increase of 9 cents per gallon, which would increase revenues (and thus decrease the deficit) by an estimated $45 billion over the next five years. Raising a tax - must be a liberal initiative, right? Indeed, a number of Democrats support this idea. But many on the left also oppose it based on the notion that fuel taxes tend to be viewed as regressive; that is, they disproportionately affect lower-income consumers. As towns and cities further invest in capital projects to create urban centers marketed to young professionals with disposable income who can "live, work, and play" in one area, a tax on fuel will be even less burdensome on individuals in higher tax brackets. Conservatives generally oppose increasing the federal excise tax on gasoline as well. You can see how thorny this issue could become during debate.

The CBO report considers cases in which the federal excise tax on gasoline is increased by 50 cents and 25 cents, increasing revenues over 5 years by $291 billion and $146 billion, respectively. Given the considerable resistance expected to any initiative to raise the tax, are either of the CBO's proposals worth considering? Would either proposal pass? Note that this particular measure would not result in a real reduction to the deficit, as the increased revenue would be used to fund transportation infrastructure projects around the country. However, the newspaper editorial devotes one paragraph to this measure, focusing on the positive effects it would have on the deficit. The fact that it would not likely see outside a House subcommittee chamber is conveniently omitted.

I do firmly believe that we should revisit the current rate, if for no other reason than to assess the level of federal highway deterioration we are willing to accept as the Highway Trust Fund cracks under the pressure of maintaining current roads and bridges. The National Surface Transportation Infrastructure Finance Commission released a report in February 2009 that notes that current Highway Trust Fund revenues represent approximately 41 percent of federal spending needed to maintain the nation's highways and transit systems and only 33 percent needed to make improvements (p. 53). That is a scary statistic, especially considering the tragedy that can occur with neglect (e.g., the August 2007 bridge collapse in Minnesota). It is interesting to further note that the items that make it on the U.S. Department of Transportation's list of needed improvements (the list against which the current level of funding is applied to arrive at the 33 percent metric) must represent a benefit to cost ratio of 1.2. That is, the projected benefit of a proposed improvement must be valued at $1.20 or more for the DOT to invest $1.00. That actually eliminates from consideration any improvements that would just barely break even for taxpayers. On the upside, the shortfall in the Highway Trust Fund looks a little better with this approach.

Politics aside, my point is to show how complex one proposal can be. Now multiply that a couple of hundred times and you can see how easy it might be to cherry pick a few sensible-sounding proposals, but how difficult it might be to get a bill for any one of them signed into law. That is why a newspaper editorial that purports to "easily" identify $100 billion in savings is misleading the public into wondering why our elected representatives cannot do the same thing. My parting recommendation is that you get into the CBO's report and find some policy options that you think make good fiscal sense. Make sure you consider the pros and cons, some of which are addressed in the report. Let me know what you think.

Service(s) provided by U.S. Postal

The United States Postal Service (USPS) sponsored six trips to the podium in the Tour de France (albeit on the back of the same rider), so who's to say they can't provide us with reliable mobile phone service?

The United States Postmaster General, John E. Potter, gave his annual state of the business address yesterday. The state has not changed much in recent years - the post office continues to bleed red ink despite spending cuts that have saved the office $6 billion in 2009 alone. The agency was also ranked the third Most Trusted Company for Privacy in 2009 by the Ponemon Institute, led only by eBay and Verizon.

The General notes that USPS does not receive tax dollars for its operating expenses, relying instead on its sales of - well we all know what the post office sells.

The interesting thing here was his reference (again) to other products the post office could offer. While he did not expound on the idea this time around, we could read a bit into his statement to a Senate subcommittee a few weeks ago: "Other national postal administrations complement their traditional offerings with banking, cellphone, logistics and other services to generate the income necessary to offset the costs of their universal service obligation -- costs that cannot be met solely by the price of postage."

So we could end up sending a letter, making a deposit, and shopping for smartphone data plans all at the same place! If there's a General in charge, I'm willing to give it a shot.

And a side note as we head into the waning days of summer: Bogle Vineyards is a winery in Clarksburg, California, just south of Sacramento. They make a number of high-value wines, particularly ancient vine zinfandels. I recommend you head out within the next month or so to get a bottle or two of their annual Phantom offering, a knock-your-socks-off blend of zinfandel and petite sirah (with a little mourvedre for added spice and structure). While they produce thousands of cases each year (with a September release), it quickly becomes difficult to find. You'll thank me as you enjoy it with hearty soups this fall.

Let's back it up

Ok folks. I feel like I came on a little strong on that last one. Kind of like opening an '82 Lafite when you're just sitting down to appetizers with new friends. My goal here is to help make sense of some of the nuances of two of my favorite subjects, and I might have missed the mark. So let's back up a bit.

I'm going to introduce you to one of my favorite places to get interesting analysis on a wide range of topics - the Congressional Budget Office, or CBO. I want to make sure you are familiar with them because I will reference them from time to time.

The CBO is the non-partisan "scorekeeper" of legislation being considered by Congress. It was established as part of a sweeping 1974 act that reformed much of the Congressional budget process. Its existence as a non-partisan entity is important, as the cost of any piece of legislation, or its effect on the national debt, should be considered through as objective a lens as possible. Until CBO's establishment, the President's cadre of economists and analysts (known today as the Office of Management and Budget (OMB)) published their estimated costs of legislation. You can imagine that OMB's numbers tended to be calculated using slightly more optimistic assumptions than other analysts'.

Let's stop on that for a moment. I recommend that when the cost or effects of a proposed piece of legislation are thrown around (which happens all too often on cable TV and the Sunday talk shows), you should consider two things: 1) who did the calculation? 2) what assumptions were used? I say this because almost any complex bill can touch on so many different areas of the economy. This requires analysts to make myriad assumptions about a number of net effects and how those effects will influence other areas. The bottom line will say $1.2 trillion and you're left wondering how anyone had enough computing power to get there. Well, assumptions are a necessary part of calculating that number, but tweaking a few here and there can produce a vastly different result. Just remember to at least give a passing thought to what that bottom line represents.

The CBO strives to ensure that an objective analysis of costs of legislation is captured for public use. They even score themselves to let you know how they're doing.

In addition to legislation being considered in Congress, CBO performs analyses of the President's budget (the President's budget is required by law to be submitted annually to Congress by the first Monday in February) and responds to requests for analysis from members of Congress. For example, a letter from CBO Director Doug Elmendorf to Rep. George Miller on September 11 responded to a request for a review and estimate of the Student Loan Community proposal.

In conclusion (that's a little formal, isn't it?), I want to put something of a face on the organization that works hard to ensure that the public and our elected representatives have the best information possible to decide whether the fiscal effects of legislation align with our interests. So the next time a legislative debate appears to only have two sides - "it will bankrupt our country"/"it won't cost a nickel" - check with CBO. They probably crunched the numbers last week.

Primer on the Budget Resolution & Reconciliation

I'm going to tackle several issues here pertaining to the federal budget. Most will come across as somewhat simplistic, if for no other reason than because very few topics related to the budget can be given due explanation and analysis in a blog post (or in a newscast or with a poster board on a street corner).

Some have wondered why the President and lawmakers keep referring to several versions of the health care bill in Congress. This relates to this year's Congressional budget resolution for fiscal year 2010 (FY 2010) which begins on October 1. The budget resolution, which is (usually) passed each year after both houses of Congress agree on its provisions, sets a framework for drawing up the various appropriations bills and other budget-related bills for the coming fiscal year, including limits on revenue and spending. As a resolution (not a bill), the document does not go to the President for signature/veto.

This year's Concurrent Resolution on the Budget for FY 2010 (S.Con.Res. 13) is relatively standard as far as budget resolutions go. The tie in here, however, relates to Title II, Reconciliation. Title II includes two sections that address reconciliation in the Senate and House, respectively.

Without digging too deep into the whys and hows of reconciliation, this legislative maneuver originally had noble underpinnings to help reduce the deficit, and thus the national debt. A reconciliation instruction in a budget resolution usually comprises three items: the committee that will introduce a bill, the date by which the bill must be introduced, and the dollar amount by which the bill must reduce the deficit. Go check out this year's budget resolution for FY 2010 at the Government Printing Office website. The takeaway here is that reconciliation, rooted in the language of 1974's Congressional Budget Act, is meant to focus legislators on enacting measures that reduce the budget deficit.

Reconciliation is an important legislative maneuver, particularly in the Senate. A lot of people think that all legislation in the Senate requires a 3/5, or super majority to pass (i.e., 60 senators). In fact, most routine legislation requires only a simple majority to pass. It is the vote to end debate on the measure (or cloture) that requires 60. A bill introduced under reconciliation instructions is automatically subject to limited debate, thus the super majority vote for cloture does not come into play, and the measure can be put to a simple floor vote with 51 votes earning passage.

Now that you have reviewed Title II of the FY 2010 budget resolution, you see the reconciliation instructions. You also see that a total of five congressional committees, two in the Senate (Finance and HELP), and three in the House (Energy & Commerce, Ways & Means, Education & Labor) have instructions to report changes in laws to reduce the deficit by $1 billion for the fiscal years 2009-2014. This is why various versions of health reform have been discussed on the Hill and in the news. The Senate Finance Committee will be the last to bring their version to the party.

Let's take this a bit further. While the language of the budget resolution made the option available, the House and Senate are not required to introduce the bills related to health care under rules of reconciliation, which we discussed would avoid the need for 60 votes in the Senate to close off debate. Reconciliation is not likely on the minds of many Democratic Senators, anyway, as the rules of reconciliation prohibit measures that are extraneous to the goal of deficit reduction. That means if Senate Democrats want to insert a measure into a bill introduced under reconciliation that requires all American citizens to carry health insurance, the Republicans would call a point of order, as that measure alone does not contribute to deficit reduction. Thus, the legislation is better left to non-reconciliation channels to avoid the inevitable arguments over what constitutes deficit reduction.

Now a couple of interesting side notes about reconciliation. When the reconciliation language was introduced in the FY 2010 budget resolution, Republicans complained loudly about Democrats setting themselves up to "ram through" this legislation. A number of conservative media outlets would have us believe that Republicans would never stoop to such despicable gaming of the system. In fact, both sides of the aisle have used reconciliation to get measures through the Senate since 1980.

During the 2000s, Congress used reconciliation to enact major tax reduction measures. The immediate question you should ask is, "If reconciliation is supposed to lower the deficit, how can it be used to enact tax cuts?" Good question.

One part of the answer relates to sunset provisions. A 1985 amendment to the rules of reconciliation (championed by West Virginia Senator Robert Byrd and thus known as the Byrd Rule) prohibits reconciliation legislation from decreasing revenues or increasing outlays within a particular window. So, if a President and Congress want to enact tax cuts, and want to get the measure through the Senate without threat of a filibuster (i.e., endless debate needing 60 votes to overcome), just introduce the measure under reconciliation and insert a sunset provision that would have the tax cuts go away somewhere down the road. On paper, this has the profile of revenues spike back up in the future, and thus the aggregate of revenue minuses (in the near years) and plusses (in the out years) come out as one, deficit-neutral projection. This keeps the other side of the aisle from raising a point of order against the reconciliation legislation.

What do you think about using reconciliation to help enact revenue-reducing measures today by eliminating, on paper, those measures at some time down the road? Should a Democratic President be vilified for raising taxes if he does nothing but allow sunset provisions, signed into law by the previous Republican President, to take effect? I do not ask this as a politically-loaded question, and I ask you to avoid considering it through a partisan lens. This is a question that you might not otherwise consider while reading your news source of choice.

Finally...Should the Senate introduce its version of health care reform under rules of reconciliation? Do the sweeping measures that will inevitably be considered in any version of health care reform fall within reconciliation's narrow scope, or does reconciliation offer a convenient way to avoid garnering 60 Senate votes? While I think the answer on the Hill to both of these questions is already "no," keep this in the back of your mind as the debate progresses.

And as sunset provisions come into effect in the very near term, remember how reconciliation language got us there.

Let's Talk

Well, here it is folks. After fielding hundreds, if not thousands of requests to start organizing my thoughts and views in a blog, I have taken the plunge.

What can you expect from Wine & Politics? I suppose the name says it all. While I have had the opportunity to dabble in a number of different fields, becoming quite proficient in most of them, these are two that I particularly enjoy discussing. From this blog, you will pick up notes of statistics and behavioral economics before the palate is treated to critical analyses and insight on the workings of Congress and the Executive branch. The lingering finish will no doubt encourage you to raise your glass yet again in recognition of the great contributions that knowledge can offer to any debate.

Yes, I suppose that is what it boils down to - knowledge. I have my views, and I will use this spot to express them. But the greater good I can serve here is not to try to convince anyone my views are correct; rather, I want people to use knowledge to perform their own critical analysis of the topic du jour.

I have the inclination and motivation to scour prodigious volumes of information in search of the stuff that is truly important to understanding complex issues. By distilling that information (did you know that brandy is made by distilling wine?) for you the reader, I hope to make a positive contribution to the debate.

Finally, I hope that you and I disagree from time to time. If you consider the information I present and reach a different conclusion, you will help me prove that more than one sensible conclusion can be drawn from the same set of facts, and that an individual's experiences and principles form the framework for critical thinking.

Let's just all agree not to serve our Chardonnays straight from the refrigerator, okay?