I don't think you could find any better example of paying off one's political constituents at the cost of out groups than this:
Congressional Democrats and the White House have agreed to pay for a bill to freeze student loan interest rates for a year by raising taxes on so-called S Corporations, according to a top Senate Democrat and senior House and Senate aides, but Republicans said the tax increase may ensure the bill’s defeat in the Senate.
Apparently, the taxpayer-subsidized rate of 3.4% on student loans is set to go up to a less-subsidized 6.8% in a couple of months. So to keep this subsidy rolling, Congress is proposing to tax S-Corporations, mainly used by entrepreneurs and small businesses (disclosure: including mine) to avoid double taxation of business income.
I don't think its possible to come up with a real policy reason that money should be taken away from entrepreneurs and given to 18-year-olds so they can overpay for college, especially since most of the subsidy for student loans is captured by universities that have simply raised tuition to soak up each successive college subsidy program. Note that Congress is instituting a permanent tax hike on entrepreneurs in order to give just a 1-year break (ie through the next election) to students.
But this is the perfect political bill. It takes money from a group likely to be lost to the Administration in the next election anyway (e.g. entrepreneurs and small business people) and transfers it to a group that is very likely to vote for Obama if it votes at all, but needs to be energized to get to the polls. The Obama Administration was obviously watching the Occupy movement carefully, and noted that much of the angst seemed to be aimed at student loans.
Expect similar payoffs to other constituencies over the next few months. Oops, here is one already.
My new column is up at Forbes.com, and it is the first in a three-part series on Obamacare.
In order to protect the core of Obamacare, Congressional Democrats have recently begun to acquiesce to a few incremental changes to the legislation that fix some of the most egregious parts of the plan (e.g. the burdensome 1099 requirements). The implicit message is that yes, the legislation was rushed and has some flaws, but these flaws can be fixed by targeted tweaks around the edges.
Today I will begin the first of a three-part series explaining several reasons why any health care law that relies on the fundamental assumptions of Obamacare is doomed to fail, even if crafted by the smartest people through the best process. In this first installment, we will discuss information problems inherent in the law’s top-down approach. In the second segment, we will cover incentives issues that will breed a myriad of unintended consequences. In the final part, we will discuss the ever-powerful urge to rent-seeking among certain businesses that will likely turn Obamacare into the largest single corporate welfare program in the history of this country.
Apparently Senate Democrats have built a number of "entrenchment" provisions in the health care bill attempting to limit the ability of future Congresses to modify the law:
Jonathan notes that the health care bill includes certain "entrenchment" provisions, and asks, "can the current Senate bind future Senates in this way?" If I understand the bill correctly, it creates an independent board that recommends ways to limit Medicare payments. These recommendations go to the president, who in turn is supposed to submit them to Congress. Congressional procedures are likewise constrained. The Senate, for example, cannot debate the proposal for more than 30 hours; there are limits on House procedures as well. The idea seems to be to constrain filibustering and other parliamentary maneuvers that would defeat cost-saving legislation in the future. As Jonathan notes, the bill further provides that these constraints cannot be overturned by majority rule but require a 2/3 supermajority.
A couple of thoughts:
- I expect future Congressmen to be no less arrogant than current Congressmen, so there is little chance they will allow themselves to be bound by this
- Do Democrats really think that they have gone through such a thoughtful and deliberative process in creating this bill that no future Congress can improve on it?
- This has been tried, e.g. on balanced budget stuff. It never works. Even the 60-vote cloture rule could be tossed out in a second -- it is public opinion and concern for future periods when the ruling party in the minority that prevents change, not law
- This is particularly hilarious as while this bill was being debated, there was a commission of experts that did make a recommendation of the type they are looking for in the future - in this case to limit screening of breast cancers for women under 50. And Congress immediately overrode this recommendation with specific language in this very legislation. No way Congress will allow itself to be bound by some unelected commission in the Administration, particularly when the two are inevitably controlled by different parties.
Congressional Democrats announced today that they had agreed to a bailout plan for Republicans after last week's devastating election results. While exact details are unavailable, sources tell us that the Republicans will be given 4 seats in the Senate and 15 in the House. Nancy Pelosi said in a statement today: "We've established pretty clearly over the last several months that failed strategies and management should not necessarily have to result in losses in market share, particularly for well-connected Washington insiders."
Asked for comment, Democratic strategist James Carville was giddy. "This is brilliant. It really doesn't give up anything of substance to the Republicans. But it will sap the energy from the Republican Party for making any substantial changes, and make it more likely they will continue the failed strategies that led to this most recent loss. After their recent failures, the Republicans were on the verge of being forced to reinvent their whole organization. This bailout should reduce the likelihood of that substantially."
When asked if bailouts of AIG, General Motors, Ford, Chrysler, Freddie Mac, Fannie Mae, and Bear Stearns wouldn't similarly reduce the urgency to change failed approaches, Carville answered "no comment."