This new video from our friends at Cato about the growing IRS scandal is well worth five minutes of your time. Features the ACLU’s Michael MacLeod-Ball, David Keating from the Center for Competitive Politics, and Cato’s John Samples and Gene Healy (Gene’s column on the same subject is also worth reading). Click here if the video embedded below doesn’t work.
Politics as Usual
Another federal appeals court has ruled that President Obama’s so-called “recess appointments” to the National Labor Relations Board were unconstitutional because the Senate was not in recess at the time: “We hold that the Recess of the Senate in the Recess Appointments Clause refers to only intersession breaks.” So ruled the majority of a three-judge panel of the Third Circuit Court of Appeals, in its 2-to-1 ruling in NLRB v. New Vista Nursing and Rehabilitation. Generally, our Constitution’s system of checks and balances requires Senate approval of Presidential appointees, but this requirement, found in Article II’s Appointments Clause, contains an exception for temporary recess appointments made during “the recess” of the Senate.
The appeals court noted that other courts such as the Eleventh Circuit have permitted recess appointments not just in “intersession breaks” but also “breaks within a session (i.e., intrasession breaks) that last for a non-negligible time.” But President Obama’s “recess” appointments would not be valid even under that broader reading of his powers (as I previously explained).
Obama’s appointments of the NLRB members would be valid only under a still broader, radically expansive interpretation of the Recess Appointments Clause that would gut the Senate’s power to review Presidential appointments. The NLRB and the Obama administration argue that recess appointments can be made whenever “the Senate is not open to conduct business” — presumably including when the Senate goes home for the evening or even takes a lunch break — and even includes “periods in which the Senate holds pro forma sessions” but is not available to vote on nominations. This argument is of “recent vintage,” noted the appeals court, and is plainly contrary to the Recess Appointments Clause’s “meanings at the time of ratification” of the Constitution.
(The court’s opinion, issued on May 16, is quite lengthy: the majority opinion totals 102 pages, while the dissent runs 55 pages.)
In an earlier ruling in Noel Canning v. NLRB, the D.C. Circuit Court of Appeals reached the same conclusion as the Third Circuit, finding that there was simply no “recess” in existence to authorize the President to make these so-called recess appointments. In its January 25 decision, the D.C. Circuit also noted that Obama’s appointments were invalid for an additional reason: the Recess Appointments Clause only authorizes appointments to fill vacancies that “happen” during a recess, and even the Obama administration admits that the vacancies occurred before, rather than during, any recess.The Obama administration has recently filed a petition with the Supreme Court asking it to review and reverse the D.C. Circuit’s decision. Its petition contradicts prior administration claims by admitting that the D.C. Circuit’s ruling will, if allowed to stand, also invalidate other Obama administration “recess” appointments, such as the appointment of Richard Cordray to head the powerful Consumer Financial Protection Bureau (CFPB). Cordray’s appointment was as invalid as the NLRB appointments, since he was “recess” appointed by Obama during the same non-existent recess.
Action is heating up on the next farm bill, as the Senate Agriculture Committee today completed its markup of their bill which will go to the Senate for consideration. The House is scheduled to release its markup on Wednesday. No surprise – the Senate bill is replete with subsidies and support programs that cost tens of billions of dollars.
Yesterday, in anticipation of the markup, eleven taxpayer and policy groups sent a letter to the House and the Senate with its listing of the “Terrible Twelve” – the twelve most egregious farm policies. The groups urged policymakers to reform or eliminate these costly and distorting programs:
- Direct payments
- Federal crop insurance
- Shallow loss program
- USDA Trade Promotion programs
- Sugar program
- Diary Market Stabilization Plan
- Target prices
- Rural broadband
- Mandatory assessments
- Cotton program
- Ethanol’s Feedstock Flexibility Program
- Biomass Crop Assistance Program
Last week, a coalition organized by CEI sent a letter to policymakers urging reform of the U.S. sugar program, which costs consumers an estimated $4 billion a year in extra costs.
Amendments are likely to be introduced on the floor in both the House and the Senate to reform some of these wasteful programs. But the farm programs are a classic example of concentrated benefits and dispersed costs. In addition, because nutrition and food stamp programs make up the majority of the costs of the farm bill, both urban and rural policymakers form an unholy bipartisan alliance to push farm bills through. Bipartisanship isn’t all it’s cracked up to be.
The IRS today acknowledged that it had wrongfully targeted Tea Party groups for heightened scrutiny. In trying to explain the agency’s mistake, IRS spokeswoman Lois Lerner reportedly stated “I’m not good at math” – an excuse that now seems to be going viral.
Given the smashing success of this phrase, we wonder whether the IRS will now use a few variations of it in the new Obamacare lawsuit that it’s facing. This lawsuit challenges the legality of the IRS’ unauthorized extension of the employer mandate to states that have refused to set up their own health insurance exchanges. The plaintiffs contend that Congress limited the employer mandate to participating states, and that the IRS has no power to rewrite the law.
Perhaps, rather than present a detailed legal defense of its position, the IRS will simply claim one or more of the following:
“We’re not good at taking no for an answer”;
“We’re not good at interpreting complicated sentences written by another government body, especially when that body is Congress”;
“We’re not good at dealing with states that aren’t team players, even if those states outnumber the states on our team.” (Thirty-three states have refused to participate in the exchange program); and/or
“We’re not good at Latin, so the phrase ‘ultra vires’ (‘beyond our powers’) is Greek to us.”
The only surprising part of this story is that the IRS apologized. Whichever party is in power, its critics can expect more IRS attention than usual. Since the executive branch is currently run by a Democrat, tax-exempt groups with phrases like “tea party” and “patriot” in their names were targeted. But the tables turn when a Republican is president. Charlotte Twight gives a historical example on p. 271 of her book Dependent on D.C.:
Republican President Richard Nixon in 1971 expressed his intention to select as IRS commissioner “a ruthless son of a bitch,” who “will do what he’s told,” will make sure that “every income tax return I want to see I see,” and “will go after our enemies and not go after our friends.”
President Bill Clinton, a Democrat, is also alleged to have abused his position to punish political enemies.
Conservatives are right to be outraged by today’s news. But they shouldn’t be surprised by it. Nor should they direct their ire at President Obama or the IRS staffers who initiated the unnecessary investigations. They should be outraged that politics has become such a high-stakes game in the first place that officeholders view this type of behavior as a legitimate political tactic. The problem is systemic, not partisan.
In the Daily Caller, historian and presidential biographer Charles C. Johnson writes that “Housing nominee Mel Watt helped create the subcrime crisis.” Watt has been nominated by President Obama to be director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. As John Berlau discussed earlier, Watt’s record also flunks privacy, transparency and government-accountability tests.
As Johnson notes, while in Congress, Watt “pushed government programs to help welfare recipients buy homes during the creation of the subprime mortgage bubble,” ultimately at taxpayer expense. “Watt, a 20-year Member of Congress from North Carolina’s 12th district, also had a hand in programs allowing borrowers with poor credit to buy homes with no down payment.” Later, “millions of bad borrowers defaulted on their loans, setting off a market crash that wiped out nearly 40 percent of the net worth of Americans.” As Johnson points out, “Watt, alongside then-Rep. Barney Frank, D-Mass., blocked Bush administration efforts to reduce Fannie and Freddie’s overexposure to subprime loans” in 2003. “In 2007, a full year after the real estate market peaked and began to plummet under the weight of millions of mortgage defaults, Watt and Frank co-sponsored a bill forcing Fannie and Freddie to meet even higher quotas for affordable lending and to invest in an “Affordable Housing Fund” for inner city communities.” As Johnson observes, “Many of those risky loans ultimately led to the housing bubble and financial crisis.”
Pressure on lenders and the mortgage giants to promote affordable housing — ratcheted up during the Clinton administration — led to the mortgage meltdown. Earlier, in the New York Times, I discussed the role played by the government-sponsored enterprises, Fannie Mae and Freddie Mac, in spawning the financial crisis and burdening taxpayers to the tune of hundreds of billions of dollars. The two mortgage giants bought up risky sub-prime mortgages partly to satisfy government affordable-housing mandates, as even the liberal Village Voice found in its investigative reporting. New York Times reporter Gretchen Morgensen, and AEI’s Peter Wallison, also have written about the role of the mortgage giants, and the affordable-housing mandates they put up with in exchange for their legally privileged status, in spawning the 2008 financial crisis.
Banks and mortgage companies have long been under pressure from lawmakers such as Watt — as well as regulators — to give loans to people with bad credit, so as to provide “affordable housing” and promote “diversity.” That played a key role in triggering the mortgage crisis, judging from a New York Times story. It noted that “a high-ranking [Congressional] Democrat telephoned executives and screamed at them to purchase more loans from low-income borrowers.” The executives of government-backed mortgage giants Fannie Mae and Freddie Mac “eventually yielded to those pressures, effectively wagering that if things got too bad, the government would bail them out.” But they realized the risk: “In 2004, Freddie Mac warned regulators that affordable housing goals could force the company to buy riskier loans.” Ultimately, though, Freddie Mac’s CEO, Richard F. Syron, told colleagues that “we couldn’t afford to say no to anyone.”
Later, after the loans went sour, taxpayers had to bail out Fannie Mae and Freddie Mac, at a cost of $170 billion. Unlike the private banks, these government-backed mortgage giants have not repaid their bailouts. Their dominant role was reinforced and expanded by the 2010 Dodd-Frank Act, which imposed mortgage rules on their competitors that they were exempt from, leaving them free to traffic in mortgages that better-managed private institutions cannot touch because of Dodd-Frank. Democratic lawmakers blocked attempts to reform Fannie Mae and Freddie Mac, as they continued to buy up risky mortgage loans at taxpayer expense. The Obama administration rewarded managers of Fannie and Freddie for promoting its political agenda with $42 million in pay.
Watt, a staunch partisan, would replace Ed DeMarco, the non-political current head of the FHFA. Under pressure from the Obama administration, DeMarco has signed off on some bailouts for certain mortgage borrowers, such as reductions in interest payments for certain borrowers, and debt forgiveness for certain delinquent mortgage borrowers willing to do short sales and get out of the house.
But DeMarco has resisted bailouts on a vast scale, such as massive principal reductions for people just because they are behind on their mortgage. Last July, he concluded any purported economic benefits of principal reductions would be outweighed by the costs of inducing borrowers who could pay their loans to default. DeMarco also was concerned about the unfairness of reducing mortgage principal for delinquent borrowers who lived beyond their means, when others who have sacrificed to stay current would receive no similar bailout. As a result, although the Obama administration engineered bailouts for delinquent borrowers (including speculators) whose loans were held by various private banks, there has not been a general bailout for borrowers whose mortgages are held by the government-backed mortgage giants Fannie and Freddie.
Some backers of the Obama administration have pushed for a trillion-dollar mass mortgage bailout, to try to drive up consumption and reduce saving, which they believe would provide a short-term boost to the economy (and the administration’s political fortunes). Never mind consumption is higher than before the 2008 financial crisis, but investment, business investment in particular, has lagged. (The Obama administration consistently has sought to raise taxes on investment income, and Watt repeatedly voted to raise taxes on investment income while in Congress).
Watt likely will dramatically expand bailouts, at taxpayer expense. As the Washington Post noted on May 3, Watt is a “favorite of congressional Democrats and liberal housing policy advocates whose top priority for Fannie and Freddie is not long-term but short-term: to underwrite more aggressive loan modifications, including principal reductions,” at taxpayer expense. (The administration has carried out only a limited number of bailouts at taxpayer expense, including bailouts that benefited irresponsible people who, despite ample incomes, saved so little money that they made only a tiny downpayment, and thus later ended up with negative equity in their homes.).
As the Washington Post notes, what is needed is “a permanent fix to the mortgage-finance system. That means winding down Fannie and Freddie and building new structures free of their design flaw — socialized risks and privatized profits. President Obama’s Treasury Department urged such a solution more than two years ago but has yet to propose legislation.” Mel Watt is unlikely to propose any such solution, since doing so might undercut his ability to pursue the failed policies he promoted in the past — policies that helped trigger the 2008 financial crisis.
In The Washington Post, Allan Sloan points out that while President Obama wants to cap American citizens’ IRAs at $3 million or substantially less—discouraging saving and investment in the process—Obama’s own-taxpayer-subsidized retirement benefits are worth more than twice as much, a generous $6.6 million. A sweet pension for me, but not for thee, seems to be Obama’s thinking. Discussing the president’s “proposal to limit the value of 401(k)s, pensions and other tax-favored retirement accounts to about $3.4 million” (or much less, as interest rates rise), Sloan notes that Obama want “to limit savers’ tax-favored accounts to only about half the value of what he stands to get from his post-presidential package. Based on numbers from Vanguard Annuity Access, I value his package at more than $6.6 million. . . .And that doesn’t include [his] IRA . . . Or the $18,000 (plus cost of living) a year he will get at age 62 for his service in the Illinois Senate.”
He also notes that “the point at which Obama wants to eliminate the ability of you and your employer to deduct contributions to your retirement account isn’t actually the $3.4 million in his budget proposal—that’s just an estimate. The real number is how much a couple age 62 would have to pay for an annuity that yields $205,000 a year. That $3.4 million—which applies to the combined values of your pension and retirement accounts—is subject to a sharp downward change in the future because annuity issuers charge significantly less for an annuity when interest rates are higher than they do today, with rates at rock-bottom levels.”
Obama has discouraged saving in other ways, such as raising taxes on capital gains and dividends, imposing a new Obamacare tax on investment income, and by giving costly bailouts to irresponsible people who, despite ample incomes, saved so little money that they could not “afford” more than a tiny downpayment, and thus ended up with negative equity on their home later on due to declines in the value of their home, qualifying them for the bailouts that certain favored underwater mortgage borrowers have received.
Two prerequisites for any nominee for government posts is dedication to transparency in government and a respect for the privacy of citizens. Before we get to any other issue about Rep. Mel Watt, D-N.C., President Obama’s expected nominee to be director of the Federal Housing Finance Agency, which oversees the government housing entities Fannie Mae and Freddie Mac, we must first get past his troubling record on two issues regarding these concerns in which he was on the opposite side of bipartisan good-government coalitions.
During the debate leading up to the passage of the Dodd-Frank financial regulatory overhaul in 2o10, Watt supported nearly all of the legislation’s costly mandates on the private sector. But he thought having the Federal Reserve go through a simple audit of its books by the Government Accountability Office, which nearly every other agency goes through, would place too much of a “burden” on this government entity. So Watt helped gut the provision supported by then-Rep Ron Paul, R-Texas, and Sen. Bernie Sanders, I-Vt., and a huge left-right coalition that included the Competitive Enterprise Institute, to audit the Fed.
Then the next year Watt became a co-sponsor of the Stop Online Piracy Act. When privacy concerns were raised, again from the left and right (and again including CEI), Watt pooh-poohed what he called the “hyperbolic charges.” SOPA was soon dropped because of online activism based on legitimate privacy and innovation concerns.
More to come on Watt’s other troubling views.
California Governor Jerry Brown, along with an entourage of high-profile business and financial leaders from the Golden State, recently traveled to China on a trade tour. The agenda included government and private sector partnerships in electric vehicle production, trash-to-electricity technology, and green energy research and development.
But the tour’s main purpose centered on garnering Chinese financial interest in what Jerry Brown hopes to be his defining legacy: high-speed rail for California. (Embarrassingly for Brown, China indicted its former top rail official on corruption charges during the governor’s junket.) China is currently sitting on $3.4 trillion in foreign exchange reserves. Traditionally, these have been invested in foreign government bonds. But in recent years, China has moved to diversify its holdings away from government bonds—which have been yielding historically low interest rates—and into more lucrative brick and mortar assets. Needless to say, the China’s banks and sovereign wealth funds would be fools to invest in Jerry Brown’s white elephant for several reasons.
First, the project’s estimated costs are ballooning before construction has even begun. Since a statewide ballot initiative in 2008 authorized the creation of a high-speed rail network, projected construction costs for the entire endeavor have ballooned from $34 billion. In a revised business plan published in 2011, the California High-Speed Rail Authority estimates construction will now cost $98 billion to $117 billion, and the estimated completion date of the full first section was pushed back by 13 years. In 2012, the rail authority claimed it found $30 billion in estimated savings, primarily by abandoning the initial full-build plan that would have required completely dedicated and electrified infrastructure and moving toward a “blended” model. Basically, this means the initial system will not be true 21st century high-speed rail, in that it will share tracks with electrified mass transit and trains relying on diesel motive power. The downward cost estimates are also the result of modified inflation projections that assume rates over the course of construction will be lower than previously assumed. These are the estimates before a single track has been laid.
A page 1 New York Times story today describes how the Obama administration, despite opposition from civil servants, radically expanded a legal settlement that had already become a “magnet for fraud,” paying out vast sums of money over baseless claims of discrimination at the Agriculture Department in the Pigford case. As the Cato Institute’s Walter Olson notes, its story “today breaks vital new details about how career government lawyers opposed Obama appointees’ insistence on reaching a gigantic settlement for claims of bias against female and Hispanic farmers in the operation of federal agriculture programs” over the objections of “career government lawyers.” As the Times reports,
On the heels of the Supreme Court’s ruling [adverse to claimants and favorable toward USDA], interviews and records show, the Obama administration’s political appointees at the Justice and Agriculture Departments engineered a stunning turnabout: they committed $1.33 billion to compensate not just the 91 plaintiffs but thousands of Hispanic and female farmers who had never claimed bias in court.
The deal, several current and former government officials said, was fashioned in White House meetings despite the vehement objections — until now undisclosed — of career lawyers and agency officials who had argued that there was no credible evidence of widespread discrimination. What is more, some protested, the template for the deal — the $50,000 payouts to black farmers — had proved a magnet for fraud.
The ever-growing settlement became “a runaway train, driven by racial politics, pressure from influential members of Congress and law firms that stand to gain more than $130 million in fees.”