New Fed chairman

Bush is apparently going to appoint Ben S. Bernanke, his top economic advisor, to replace Alan Greenspan as the Fed Chair. While that title, under the circumstances, sounds a bit like calling someone Karl Rove's top ethics advisor, so far as I know Bernanke is fairly blameless. Rove is actually Bush's top economic policy (and everything else) advisor.

Greenspan's would be harder shoes to fill were it 5 years ago, when his reputation was much better than it is now. Still, he did seem to have an odd talent for intuiting macroeconomic micro-trends, so we will see how Bernanke meets what are likely to be tougher challenges.

Interesting side bit: Glenn Hubbard and Martin Feldstein, both among the leading conservative economists in the U.S. today, were not named although considered possible candidates. For Feldstein, I am wondering whether this will result in his having a more independent voice in public policy discussion than he has had over the last few years as a hardworking member of the Bush Administration's hallelujah chorus.

In the 1980s, Feldstein showed great courage and integrity in speaking out for fiscal prudence at a point when the problems were much less severe than they are today. He seems to have been retreating from that stance ever since. It has been as if Sergeant York, after capturing all those German soldiers, had spent the rest of his life wishing that he had just surrendered.

Perhaps Feldstein will feel freer to put his true Sergeant York hat back on, now that the glittering prize is not his. What else could he possibly care about that the Administration can provide or deny?

UPDATE: Secretary of the Treasury, perhaps? But who would really want that job at this point?

A great mind at work

Herewith Tax Reform Commissioner Connie Mack talking to the New York Times. Thank goodness my children, aged 9 and 12, are considerably more mature and wise than he is.

NY Times: Well, the U.S. government has to get money from somewhere. As a two-term former Republican senator from Florida, where do you suggest we get money from?

Mack: What money?

NY Times: The money to run this country.

Mack: We'll borrow it.

NY Times: I never understand where all this money comes from. When the president says we need another $200 billion for Katrina repairs, does he just go and borrow it from the Saudis?

Mack: In a sense, we do. Maybe the Chinese.

NY Times: Is that fair to our children? If we keep borrowing at this level, won't the Arabs or the Chinese eventually own this country?

Mack: I am not worried about that.

David Brooks begs credulity again

In his Sunday Times op-ed, David Brooks takes Bruce Bartlett to task for breaking with the man Brooks calls "the savior of the right." You guessed it, he means Bush.

I'm afraid that non-subscribers will think I'm making this up, but Brooks actually says:

"Almost single-handedly, Bush reconnected with the positive and idealistic instincts of middle-class Americans."

"Bush has ennobled and saved American conservatism. As the G.O.P. moves forward, its leaders will break into two camps, post-Bush and pre-Bush. The post-Bush conservatives will build on the changes Bush introduced and refine his vision of using government positively to give people the tools to run their own lives."

"He sought to mobilize government ... so people around the world can dream of freedom."

"[T]he G.O.P. has become the party of the middle class."

And lots more to the same effect. I guess Bush is far down enough that Brooks thinks he is being bold rather than sycophantic in writing this stuff.

What does Brooks have in mind, exactly? He refers to the "no child left behind" legislation, which recent research reveals has made no difference in school performance.

Medicare prescription drugs, perhaps? New Orleans? Placing incompetent hacks everywhere imaginable? Cutting taxes again and again while never vetoing a single pork barrel spending bill? I guess the Bridge to Nowhere is an example of "using government positively to give people the tools to run their own lives." Quite a $230 million tool for those 50 or so people out there.

These hopelessly out-of-touch Washington pundits, who don't know policy any more than they know anything else besides the right cocktail parties (no matter how many whimsical books they write), ought to realize that moments here and there of triangulating rhetoric, with the occasional dollop of enormously costly symbolic legislation, don't actually add up to anything except mountains of debt.

A final quote from Brooks concerns British conservative David Cameron, who "has learned the essential lessons of Bushism. He offered a positive, governing conservatism. He talked about helping moms afford child care and helping the people of Darfur survive. "

That's exactly it. "Offering" a positive, governing conservatism, and "talking" about childcare and Darfur.

More excitement?

This could be fun. The technical term for it is a two-fer.

Tales of FEMA

Yes, I know that this is way past beating a dead horse, but it was too amazing to pass up.

Recently posted on the NY Times website, in an article about how FEMA ignored warnings from their local people in New Orleans:

Later, on Aug. 31, [FEMA Regional Director Marty] Bahamonde frantically e-mailed Brown to tell him that thousands are evacuees were gathering in the streets with no food or water and that ''estimates are many will die within hours."

''Sir, I know that you know the situation is past critical," Bahamonde wrote.

Less than three hours later, however, Brown's press secretary wrote colleagues to complain that the FEMA director needed more time to eat dinner at a Baton Rouge restaurant that evening. "He needs much more that (sic) 20 or 30 minutes," wrote Brown aide Sharon Worthy.

"We now have traffic to encounter to go to and from a location of his choise (sic), followed by wait service from the restaurant staff, eating, etc. Thank you."

Fun reading

This certainly makes for fun reading. I suspect that Senator Schumer is off President Bush's Christmas list.

Don't make me laugh (or, on second thought, please do)

A reader, picking up on my comparison of DeLay's legal defenses against the money laundering indictment to taxpayers' using sham transactions to circumvent the clear intent of tax rules, brings the following to my attention, from a Washington Post article the other day:

Among the multiple grounds on which DeLay's attorneys have sought dismissal of the indictment is that "the law cover[s] the 'money laundering of funds' such as coins or currency, and ... the money transfers cited in the indictment involved 'checks' that were not 'funds.'

Latest on the Tax Reform Commission

The New York Times offers a fair amount of detail concerning the Tax Reform Commission's current intentions. No X-tax in it any more, by the way.

Here is the blow-by-blow with comments on each, followed by my general comments at the end:

1) Elimination of state and local tax deductions for individuals - This is probably correct on the merits given the correlation, however crude, between taxes and benefits received from government services. But political suicide in high-tax states that have lots of voters, and I wouldn't expect even Republicans in New York or California to be pleased. If defended as simplification, I'd note that the complexity of allowing the deduction, while not zero, is not terribly high.

2) Limiting the tax benefit for employer-provided health insurance - More political suicide. But here the change is not merely "probably correct on the merits," like the above, but enormously important to create some possibility, however slim, of slowing the runaway rate of rising healthcare expenditures. People who are less over-insured may be more cost-conscious, although then again this is not a very well-functioning consumer market (given lack of good information) even with more cost-consciousness.

3) Death to the alternative minimum tax (AMT) - obviously necessary, unless one instead greatly raises the exemption amounts and indexes it. But the plan might get less political credit for this from voters than its proponents might hope, because the threat of this tax is still a present not a future one for many Americans.

4) Charitable deductions allowed to all (rather than just itemizers), but only to the extent in excess of 1% of income. Probably a good change, eliminating the penny-ante items and given the lack of a good rationale for allowing it to itemizers only if one likes the deduction. Good for the churches, which to me is unfortunate, but that's just my bias.

5) Lower the amount of mortgage loan principal that can trigger deductible mortgage interest - hear hear, but not exactly likely to be popular. One small technical point, by the way - this is not entirely dissimilar to raising marginal rates for the wealthy, if one's extra income would be spent on a larger house that exceeds the ceiling.

6) Convert various deductions, such as that for mortgage interest, into fixed percentage credits - clearly a better approach than current law to items that aren't part of measuring income and that there is no particular reason to offer with higher reimbursement rates for high-income people.

7) Similarly, family adjustments (personal exemptions et al) are converted into credits. Similar rationale; too bad they aren't refundable (I assume).

8) Only 4 brackets instead of 6, top rate is 33% instead of 35%, lots of people at 15% - The number of brackets is really no big deal from a complexity standpoint. You just look at the table, and I don't think the tax planning aspects of fewer brackets are enormously significant in practice. Here is the nub of the Commission's political problem, which was built into their instructions rather than something they could help. Only a trivial rate reduction (at least apparently) for all the pain they are proposing to inflict. They couldn't cut rates anywhere near as dramatically as happened in 1986, because they had to use nearly all the revenue to pay for the AMT problem, which is still hypothetical not real for lots of people. We now have a verdict: did the AMT end up making tax reform easier or harder? The answer is harder, because it prevents the Commission from offering a more visible tax rate cut in exchange for the base-broadening.

9) Simplified and larger tax-free savings plans, with refundable credits for low-income savers. In general, I'd give this the thumbs up except that I am worried (even with the reduced mortgage interest deduction) about the following arbitrage: borrow against your home and get the credit, invest tax-free in the plans. Result: no more net saving, but the Treasury in effect writes you a check.

I wonder about how the revenue estimators treated the tax-free savings accounts, in determining that the plan is revenue-neutral relative to current law (as modified to extend the Bush tax cuts). I have a sickening suspicion that the estimators might have been told to look only ten years ahead, thus omitting the huge revenue losses in the out years from tax-free withdrawals. (My apologies to the Commission staff if I am wrong about this.) The real hilarity here, if you will, would come from the use of 10-year estimating to ignore the long-term cost, when the Bush Administration so recently was insisting on infinite-horizon forecasting of Social Security.

By the way, I wouldn't bet a nickel on the government's claim (if this plan were to be enacted) that the withdrawals will actually be tax-free. Fast forward ahead to 2020, if you will, when someone who is financially well-off is withdrawing funds from her huge tax-free savings account. Add in the detail that the government might be in desperate fiscal trouble, scrambling to renege on as little as possible of its near-term Social Security and Medicare commitments. What are the odds that the withdrawal will really be tax-free, no matter what Congress said in 2006 or so?

10) Now we get into the really complicated part. Two alternative plans for individuals:

a) No dividend tax, 8.25% capital gains tax on selling corporate stock, interest is taxed like wage income (i.e., up to 33%).

Although the Times account doesn't make this entirely clear, I am guessing this is matched with business taxation plan a: corporations get to deduct interest (though not dividends) and have economic depreciation as under a well-designed income tax.

I am not thrilled with this option. It leaves the debt vs. equity, interest vs. dividend distinction for companies to play games with, stripping out all the interest to go to tax-indifferent parties - unless the plan stops this somehow in a manner not clear to me at the level of detail in the Times article.

To my mind, the only reason for the capital gains tax on selling corporate stock is optics, IF we can be reasonably confident of taxing economic income reasonably broadly at the corporate level.

Or alternatively:

b) 15% tax rate for individuals on interest, dividends, and capital gain. Companies get to expense their investments, but no interest deduction.

Here the interest vs. dividend distinction, a much bigger thorn in the side of the income tax than is generally recognized, is greatly reduced. But note that there is still a double tax on corporate investment, extended to cover both debt and equity investment. And equity is still better than debt, from a tax standpoint, because companies don't have to pay out the dividends and give their investors the tax hit. (Assuming that the debt vs. equity distinction as applied tracks with whether there is mandatory income recognition at the owner level.)

I suspect that this plan is dead on arrival. The Commission was unable to come up with a politically feasible plan. I don't blame them for this, as I don't think I could have done any better given the constraints under which they had to work. The killer, politically (although it would have had little hope anyway) was having to impose visible base-broadening in exchange for tax reductions that were much less visible than rate reductions because they involved the AMT.

The result could be another bad setback for the tax reform cause, killing the issue until the next time around.

For the Bush Administration, this is certainly not the magic bullet to restore those sinking poll ratings. I would not be surprised if they were to bury this plan under the heaviest rock they can find.

UPDATE: To no one's surprise, business interests have begun lobbying against the Tax Reform Commission's report, without even waiting for it to be issued.

Heaven is reserved to the faithful

Bruce Bartlett has been fired from his position as a senior fellow at the conservative think tank, the National Center for Policy Analysis. His sin was writing a forthcoming book, entitled Impostor : How George W. Bush Bankrupted America and Betrayed the Reagan Legacy.

The title would tell you a bit about what to expect from the book even if you have not been following Bartlett's columns. According to the New York Times, he was fired after the Center's president saw the manuscript.

Needless to say, the Center denies firing him because of the book's point of view. Rather, they were concerned that it offers "an evaluation of the motivations and competencies of politicians rather than an analysis of public policy."

Yeah, right. Next thing you know, Bartlett will be accused of playing "the blame game."

By the way, Bartlett's conservative credentials are pretty strong. He served in the Reagan Administration, promoted supply side thinking, and has been a big consumption tax advocate for many years. He supports Social Security privatization. His basic critique of the current Administration, also a theme of mine although I do not line up on the same side of the ball more than 40 percent of the time, is that they aren't conservatives. This is hard to dispute if you interpret "conservative" in the traditional quasi-libertarian, classical liberal, small-government, free market sense. On the other hand, the Bush Administration clearly is "conservative" if you interpret the term to fit, say, Brezhnev in the 1960s Soviet Union or the Nazis in 1930s Germany.

Think tanks with conscious ideological orientations certainly have the right to drum out people who cease to be consistent with their point of view. Thus, I suppose it stands to reason that Bartlett would have been fired had he, say, decided that "socialism with a human face" was his thing. But it is sad if conservative organizations no longer tolerate what I would say is true conservatism in its best sense. And even if one disagrees with Bartlett from a conservative standpoint in evaluating the Bush Administration, it is disgraceful that dissent within the ranks is evidently not allowed. This is storm trooper conservatism, not the leave-me-alone conservatism that the likes of Grover Norquist pretend to support.

I also note the following sentence from the Times article: "In response to a question about whether the administration had pressed the organization about Mr. Bartlett, [the Center's President] relayed a reply through a spokesman saying he had never had any conversation about Mr. Bartlett with anyone in the White House."

Okay, maybe one shouldn't make anything of this. It was a natural question to ask, and if the answer was no then of course they would say so. [Although is it merely one of those carefully drafted non-denial denials? After all, one needn't personally have a "conversation" with anyone, least of all anyone officially "in the White House," in order to receive and follow White House orders.]

But then again, if the answer was yes they would also say no. So the answer inevitably fails to convey any useful information. Its only significance is its putting them on record so they are liars (hairsplitting aside) if it turns out to be false.

I wish I felt less cynical and skeptical about this point, since I have no actual information suggesting that this was a White House-associated political hit. But does anyone want to bet that it wasn't?

Very, very interesting

Perhaps it's just another trial balloon from the Tax Reform Commission, or perhaps it's for real. But in any event, a Ryan Donmoyer story, just posted in Bloomberg.com here, bears what proves to be the misleading heading: "Bush's Panel May Propose Version of Flat Tax in Final Report."

What makes it potentially misleading is that what they are said to be considering proposing is David Bradford's X-tax, not the familiar flat tax as such.

Technically, the headline is accurate, in that the X-tax is indeed derived from the flat tax. It is, at the least, a "variant" of the flat tax. But it isn't really a "version" of the flat tax, because it isn't flat.

True, the flat tax isn't flat either, since it has a zero bracket. But when you have multiple brackets like the X-tax, it is simply misleading to call it a "version of the flat tax." Not to malign Donmoyer or assert intentionality here, but it sends a signal about the distributional aspects of the proposal that simply is not accurate. The X-tax, depending on its design, can indeed be as progressive as the current income tax, or even more so given the ease of sheltering economic income under the current system.

So I hope Democrats, progressives, etc., will give this a serious look on the merits even though it comes from a Bush-appointed panel, and even though it is related to the flat tax (which they correctly regard as significantly less progressive than current law).

Fat chance, I suppose. On the hopeful side, Bill Gale of Brookings doesn't outright slam it, noting that the X-tax is "an effort to take the flat tax and make it more progressive." I appreciate that Gale may oppose it on the merits in good faith, and that's fine. But others on the liberal side, less well-informed and responsible, will no doubt start baying at the moon any minute now.

Meanwhile, those inclined to oppose the X-tax should note who DOES slam it in the article: Skadden attorney Pam Olson, who was the Treasury Assistant Secretary for Tax Policy, under the Bush Administration, from 2002 to 2004. Olson predicts that it will "land with a thud," warning that under it, as the article paraphrases, "U.S. companies would stop issuing bonds, municipalities would face higher borrowing costs, [and] the housing and life insurance industries would become less attractive to investors."

This is the usual interest group, business-as-usual pablum. No insult intended to Olson here, but clearly she appears to be representing those interests, as one would expect. Something for people not affiliated with those interests to keep in mind.

It is ludicrous to say that U.S. companies would stop issuing bonds under the plan. Would grass grow in the streets, too? Bond interest would no longer be deductible, since financial instruments are ignored by the X-tax. But the interest income wouldn't be includable to investors. So the change is a wash - except insofar as the companies have been issuing bonds to tax-exempts (which is exactly what they do most of the time) so that their business income ends up being totally untaxed. Is that what we need to stop grass from growing in the streets, when other economic activity is being taxed?

It actually is possible to keep municipalities from losing overall under the change. E.g., it's well known that direct federal grants and revenue-sharing do a better job than municipal bonds at delivering the subsidy to the governments, rather than to high-bracket investors. But ending the bond preference has long been an aim of tax reformers of all stripes. Note, by the way, that the bond interest still wouldn't be taxable - it merely would lose its tax advantage over corporate bonds (leaving aside the tax-indifferent investors point).

By the way, I would love to ask Olson why municipalities would face higher borrowing costs if corporations totally exit the bond market as she predicts. Seems to me that this would be a big boon to the municipalities, wiping out the rest of the supply curve.

As for housing and life insurance, anyone who thinks their relative advantages under current law are economically desirable has a pretty hard case to make.

Again, I don't want to be obnoxious here to an intelligent and nice individual, with whom I have various friends in common, who is just doing her job. But the Olson quotes really ought to alert Democratic/left/liberal foes of the Bush Administration that perhaps the Commission's X-tax proposal (if it really is made) is worth looking at after all.

My biggest concern about the proposal, by the way, is that the form in which a Republican Congress would actually enact it would no doubt be odious. But this is true of any proposal that they might consider while the DeLay-Abramoff-Norquist junta continues to rule. The point of the TRC's work, as I see it, is to set forth options for consideration a few years down the road if the Republicans return to sanity and bipartisan compromise once again becomes possible.

Still a grotesque disgrace

I continue to find the NY Times' behavior in the Judy Miller affair unfathomable. The difference between Judy Miller and Jayson Blair is analogous to the difference between an axe murderer and a jaywalker.

UPDATE: Here's something interesting from the Washington Post:

Craig Pyes, a former contract writer for the Times who teamed up with Miller for a series on al Qaeda, complained about her in a December 2000 [!!!!!] memo to Times editors and asked that his byline not appear on one piece.

"I'm not willing to work further on this project with Judy Miller," wrote Pyes, who now writes for the Los Angeles Times. He added: "I do not trust her work, her judgment, or her conduct. She is an advocate, and her actions threaten the integrity of the enterprise, and of everyone who works with her . . . She has turned in a draft of a story of a collective enterprise that is little more than dictation from government sources over several days, filled with unproven assertions and factual inaccuracies," and "tried to stampede it into the paper."

Sometimes paranoids are right

The Miers nomination has been such a huge blunder that one struggles to explain it. Probably, the explanations already out there are good enough (Card vs. Rove White House wars, Bush feeling adolescent defiance towards attacks on his cronyism, her lack of any paper trail, etc.). But here is an additional possibility that occurred to me. Its virtue is that it would suggest that Miers had a genuine advantage, from Bush's perspective, over any other possible appointee, thus making the risk (however ill-appreciated) of a hostile reception more worth taking.

Suppose the White House wanted a Justice who would not only vote its way on executive power issues (which is what Bush really seems to care about), but be a double agent, covertly consulting the White House during important cases regarding how to get 5 votes, what the other Justices were thinking, etc. Most prospective Bush appointees, even lockstep hard-line conservatives, probably would not dream of doing such a thing, and it would be dangerous even to ask them. [Maybe Gonzalez would do it, too, and Bush seems to have wanted to name him, but note that Gonzalez has a bit more prominence & career independence than Miers.]

Perhaps Bush knows that Miers is willing to play such a role.

No, no, no

Time to quarrel with the liberal bloggers, who pretty well capture my sentiments about the Bush Administration but are people I would disagree with on various issues under saner political circumstances.

What I take to be the principal emerging response among them to the trial balloon from the Tax Reform Commission (see my previous post) is well exemplified by this comment in Eschaton, entitled "How They Want to Pay for Paris Hilton's Tax Cut," and saying that "it's time to start getting Republicans on the record about this cunning plan."

Okay, the Republicans have so exploited the tactic of mindlessly repeating talking points ad nauseum that it's understandably tempting for Democrats to play the same game, and trot out good old Paris Hilton every five minutes. But is supporting the AMT, and opposing limits on wasteful upper-end health insurance tax benefits, as well as on tax breaks that promote borrowing and big homes, really a good place to deploy this strategy?

Making changes such as these is only possible in a bipartisan environment where the two major parties give each other cover for taking on sacred cows. I fully understand that this is not the time for bipartisan cooperation, in that Bush has proved for five years that he does not cooperate in good faith. But it would be nice if these sorts of ideas could still have a chance if and when the political environment changes. And that of course is my hope regarding the work of the Tax Reform Commission - not that anything good will come out of it right away (at present it is bordering on impossible to have anything good come out of the U.S. Congress), but rather that its work will shape high-minded bipartisan compromise possibilities a few years down the road. These, in turn, could involve either revenue-neutral tax reform or tax increases to keep the U.S. Treasury (not to mention Social Security and Medicare) afloat.

Tax Reform Commission

Among the changes to current law that the Tax Reform Commission (per Bloomberg News:) reportedly is going to recommend are the following:

1) Reduce the cap on home borrowing that produces deductible home mortgage interest expense from $1 million to $350,000. Also, cap the tax saving from the deduction at 25% of the amount deducted, even for people in the 35% income tax bracket.

2) Cap the employer deduction (or the employee exclusion? - It's not entirely clear which) for tax-free health insurance at $11,000, which is the value of the coverage the federal government provides to its own employees.

3) Repeal the alternative minimum tax (##1 and 2 are supposed to pay for a big chunk of this).

4) Possibly reduce or repeal taxes on investment income.

## 1 through 3 are almost inarguably good tax and social policy. It will be interesting to see if anyone in Congress, from either party, signs on. (It would really almost have to be people from both parties or neither.) For #4, a really crucial consideration is how this is integrated with deductible borrowing. If people can borrow deductibly to finance tax-free investment income, that is a pretty big problem. Reducing the home borrowing cap would help a lot on this front, however.

UPDATE: It occurs to me that the story about what the Commission is considering must be coming out now as a trial balloon. But perhaps the very fact that enactment any time soon is unlikely will spare it from being shot down. If the Democrats decide to attack this, I will certainly be disappointed in them.

A sense of relief

At heart, perhaps we are all still seven years old. Or maybe I should just speak for myself. Part of me is still the only Met fan on my block, growing up in the Bronx towards the tail end of the last pre-Steinbrenner Yankee empire, while the Mets were still as pitiful as they have often continued to be. "Ron Hunt is better than Bobby Richardson!" was the only argument I could even make, and somehow we all had the strange belief that our teams' ability and merits said something about ours.

Nonetheless, I am not unreasonable or vindictive. It's absolutely fine with me for the Yankees to make the playoffs say, once every three years or so, and to win a world championship once every fifteen years or so, even though these are above the per-team average.

When the Yankees threaten to win every single year, however, with their obscene $205 million payroll, playing teams with 40-man rosters that are only 25% as high (or in the Angels' case maybe 40 to 50%), it gets sickening, and it gets really old. I don't even enjoy it when they lose (unless it is especially humiliating for them, like last year), so much as I am relieved - thank goodness that's over; now I can enjoy the rest of the playoffs; why couldn't they have lost even earlier and spared me a lot of anxiety.

Let them compete under fair circumstances, and I would complain less (also they would win a whole lot less). The regulatory way of doing this is salary caps. The free market solution would be allowing unlimited team movement, which would cause more teams to enter the NY area until an equilibrium was reached where the expected return from a franchise in NY was no greater than that from one in Pittsburgh or Kansas City.

As conservative and liberal economists would readily agree, often there is nothing worse than a market that is half-regulated. Case in point: the savings & loans crisis of the late 1980s. Better to restrict S & Ls' permissible investment choices, even if in a narrow and hidebound way, than to let them invest however they like with the owners getting the upside and the US government (via bank insurance) getting the downside. In other words, even if a fully free market was best, a fully regulated market was better than one half-regulated and half not.

Similarly, let's make the Yankees compete either with less regulation (teams can go wherever they like) or else with more (salary caps) and see how well they do. My guess is that a playoff spot every three years and a championship every fifteen is way on the high side as an estimate.

Future biographers take note

While I respect John Roberts, in the end he is simply too much of an intellectual gadfly, flitting from this subject to that, but never digging in with any depth.

Harriet Miers, by contrast, found her great theme some years ago, and has been amplifying it ever since.

Some choice quotes from her in today's NY Times piece on her paperwork from out of Texas:

"You are the best governor ever - deserving of great respect."

"[You and Laura are] the greatest.”

"Texas has a very popular governor and first lady!" [A true writerly touch here, in her use of the exclamation point.]

"I was struck by the tremendous impact you have on the children whose lives you touch."

"Keep up all the great work. The state is in great hands. Thanks also for yours and your family's personal sacrifice." [I would have thought that “your and your family’s” is better grammatically. Shows how much I know.]

"Hopefully Jenna and Barbara recognize that their parents are 'cool' - as do the rest of us."

"Keep up the great work. Texas is blessed."

"All I hear is how great you and Laura are doing … Texas is blessed." [Another writerly touch in the repeated use of "blessed,” assuming these are indeed from different quotes. The latest Sunday Times Book Review notes Joan Didion's use of repetition in her latest book.]

U.N. Secretary General George W. Bush??

Yes, I know it sounds ludicrous. But he has always failed up before, since the earliest Harken Energy days, and it's hard to see where else he could go.

Money laundering and the economic substance doctrine in tax

One of the emerging DeLay defenses under the money laundering indictment is that he followed the law banning corporate contributions in Texas, because there were no such contributions. Thus, if Texas corporations gave $190,000 to the Republican National Committee, which immediately gave $190,000 to DeLay's gerrymandering jihad, supposedly the law has been followed.

The notion that this is no less illlegal than direct forbidden contributions, and constitutes attempted evasion of the Texas rules via money laundering, is identical to the economic substance doctrine in the income tax, whereby pointless paper-shuffling transactions that have no significance or purpose are disregarded as shams. In both areas, the doctrine is needed to stop people from making a mockery of the laws. Also in both, it means that people just have to go to the effort of differentiating the offsetting transactions a bit, with line-drawing questions regarding whether one has added enough sand to get away with it.

In the DeLay case as set forth in the indictment, it's not even a close call. Clearcut money laundering, cruder and more obvious, even, than the typical KPMG tax shelter.

Sounds like a good tax policy to me

From today's New York Times:

"Proposals to use tax breaks for rebuilding areas devastated by the recent hurricanes may provide only limited help to people and businesses that suffered actual losses, according to many economists. The biggest beneficiaries could turn out to be companies from outside the devastated areas that have big federal contracts to carry out cleanup and reconstruction work."

Amazing

Bush has never vetoed a single pork barrel spending bill, but he is threatening to veto a bill that would bar the use of "cruel, inhuman or degrading treatment or punishment" against anyone in United States government custody.

One often hears discussion of torture's permissibility as a means (e.g., to head off a nuclear disaster). But for some people, possibly, torture is actually an end.

An interesting empirical finding, but what we do with it is unclear

From Landry, Lange, List, Price, and Rupp, "Toward an Understanding of the Economics of Charity: Evidence from a Field Experiment," National Bureau of Economic Research Working Paper 11611 (September 2005):

In measuring factors that affect charitable donation rates, "we find that a one standard deviation increase in female solicitor physical attractiveness ... is roughly equivalent" in its positive effect on participation to moving from the least favorable to the most favorable incentive approach that they tried. "This result is largely driven by increased participation rates among households where a male answered the door."

Still, my favorite NBER empirical paper of all time remains Joel Slemrod's justly infamous paper in which he found that death is tax-responsive (people die more when it is more tax-favorable to do so). Joel carefully noted that his data did not permit him to determine whether the tax-responsiveness pertained to actual times of death or merely to reported times of death.

A good working definition of "compassionate conservatism"

From Robert Samuelson in the Washington Post:

"In practice, Bush has taken the most self-serving aspect of modern liberalism (its instinct to buy public support with massive government handouts) and fused it with the most self-serving aspect of modern conservatism (its instinct to buy support with massive tax cuts)....

"'Compassion' for Bush has consisted mostly of distributing new benefits to large constituencies in the hope of purchasing their gratitude and support....

"Spend more, tax less. That's a brazen political strategy, not a serious governing philosophy."

Cronyism par excellence

For all I know, Miers might not be too terrible as a Justice. But Bush is starting to remind me of Caligula, who named his horse a consul.

Forthcoming NYU events, part 2

The schedule for this spring's Tax Policy Colloquium at NYU, which I will be running with Alan Auerbach, stands at this point as follows:

January 12 – Daniel Shaviro, NYU Law School, “Households and the Fiscal System.” Guest commentator Anne Alstott, Yale Law School.

January 19 – Alex Raskolnikov, Columbia Law School, “An Economic Analysis of Tax Enforcement and the Self-Adjusting Penalty.”

January 26 – Neil Buchanan, Rutgers Law School, [probably a piece on long-term budgeting issues].

February 2 – Jason Furman, NYU Wagner School, “Coping With Demographic Uncertainty.”

February 9 – Stacy Dickert-Conlin, Michigan State University Economics Department, "Love at What Price? Estimating the Value of Marriage."

February 16 – Lee Anne Fennell, NYU Law School (visiting), "Taxation Over Time" (with Kirk Stark, UCLA Law School).

February 23 – Alan Auerbach, Berkeley Economics Department, [paper to be determined.]

March 2 – Joseph Bankman, Stanford Law School, and David Weisbach, University of Chicago Law School, “The Superiority of an Ideal Consumption Tax Over an Ideal Income Tax.”

March 9 – Anne Alstott, Yale Law School, “Revisiting the Fiscal Politics of the 1920s.”

March 23 – Howell Jackson, Harvard Law School, [paper to be determined].

March 30 – Victor Fleischer, UCLA Law School, “Risky Compensation.”

April 6 – Ed McCaffery, USC Law School, “Shakedown at Gucci Gulch: A Tale of Death, Money, and Taxes.”

April 13 – Mitchell Kane, University of Virginia Law School, [paper to be determined].

April 20 – Jeffrey Liebman, Harvard University, Kennedy School of Government [paper to be determined].

Forthcoming NYU Law School events, part 1

For those who are interested, I'm posting two schedules. The first concerns a conference to be held on May 4-5, 2006 at NYU (I should mention sponsorship by NYU, the American Enterprise Institute, the Burch Center for Tax Policy and Public Finance at Berkeley, and the Fund for Tax and Fiscal Research at Harvard Law School). Alan Auerbach and I are collaborating to do the heavy lifting in terms of setting it up.

Tentatively, and I admit not very interestingly, entitled "Key Issues in Public Finance," it is in fact a conference in honor of David Bradford, but one that is intended to be serious and substantive, looking primarily forward at issues that interested David.

The paper topics, each with an author and two discussants, are as follows

1) ISSUES OF BUDGET MEASUREMENT - author is Laurence Kotlikoff, Boston University; discussants are myself and Kent Smetters, University of Pennsylvania.

2) CONSUMPTION TAX IMPLEMENTATION - author is David Weisbach, University of Chicago; discussants are Edward McCaffrey, USC, and Joel Slemrod, University of Michigan.

3) ISSUES OF TRANSITION TO A CONSUMPTION TAX - author is Louis Kaplow, Harvard University; discussants are James Hines, University of Michigan, and Kyle Logue, University of Michigan.

4) THE NEW VIEW OF CORPORATE DIVIDENDS - author is Roger Gordon, UC San Diego; discussants are William Andrews, Harvard University, and George Zodrow, Rice University.

5) THE CHOICE BETWEEN INCOME TAXATION AND CONSUMPTION TAXATION - author is Alan Auerbach, UC Berkeley; discussants are Glenn Hubbard, Columbia University, and Alvin Warren, Harvard University.

6) FISCAL DECENTRALIZATION - author is Wallace Oates, University of Maryland; discussants are Harvey Rosen, Princeton University, and Charles McLure, Hoover Institution.

Conference volume tentatively set to be published by the Harvard University Press. I believe that interested people will generally be welcome to attend the conference.

1 + 1 = unindicted co-conspirators??

Read this and this, and there would seem to be a definite chance that, under Fitzgerald's theory of the Plame case, there was a criminal conspiracy involving, not just Rove and Libby, but also Bush and Cheney. This suggests the possibility that Fitzgerald will go beyond indicting Rove and Libby to name Bush and Cheney as unindicted co-conspirators.

This presumably would be accompanied by a formal referral to the House Judiciary Committee, not that they would do anything with it.

Quite a turn of the screw if it happens.

Chief Justice Roberts

Despite being a law professor, I'm really not all that interested in the Supreme Court. Questions such as, "What do you think of Justice Kennedy's view of federalism, as set forth in his concurrence in the Blah Blah case?" strike me as distinctly less intellectually rewarding than [fill in the blank - Watching paint dry? Too cliched. Memorizing Ramones lyrics? At least they're funny sometimes. Reading airport fiction? At least it might be titillating.]

That being said, it's fine with me that Roberts was confirmed by a large vote. While presumably not the person I would have picked, he does at least appear to be highly qualified (a rarity in Bush appointees to anything), not to mention a thoughtful individual rather than a mad dog.

Partisanship

In today's New York Times, David Brooks, in keeping with his self-placement as a quasi-independent-minded Republican, issues a quasi-criticism of Tom DeLay. Although Tom is a lovely man, we are told, he is simply too partisan. But this is an endearing flaw in a way, because it shows selfless enthusiasm to help the team. Brooks notes that DeLay is charged with shenanigans to help his team win, not with stealing money for himself.

Let's leave aside all those lobbying junkets, which certainly had something in it for ol' Tom. This is not actually all that endearing. Would partisanship and the selfless desire to help the team be a satisfying defense of Bin Laden, Joseph Goebbels, or Communists around the world during the Stalin era? The U.S. political system cannot and will not survive if enough people take partisanship to the lengths that DeLay has.

Brooks quasi-acknowledges this, and ends with a quasi-dig at the Democrats suggesting that they will be as bad in their turn as DeLay. I suppose one can't rule this out, but it would take some doing.

Just asking

Why does the New York Times keep saying that the recent Republican scandals include the arrest of a "former White House budget official" (David Safavian)? That makes it sound as if some person who once had been in the White House had later gotten into trouble. In fact, the guy resigned on a Friday and was indicted the folllowing Monday.

Every cloud has a silver lining (for someone)

From today's Washington Post:

[A relatively budget-conscious Republican Congressman], lunching with reporters at Charlie Palmer Steak, accepted that Congress would not find cuts to pay for the $62 billion spent so far on Katrina -- much less the $250 billion more that Louisiana wants from the feds. If "we find $20 billion in offsets, we'll probably declare victory," said the congressman, who spoke on the condition that he not be named.

As fiscal hawks surrendered, would-be government contractors were meeting in the Hart Senate Office Building to figure out how to get a share of the money. A "Katrina Reconstruction Summit," hosted by Sen. Mel Martinez (R-Fla.) and sponsored by Halliburton, among others, brought some 200 lobbyists, corporate representatives and government staffers to a room overlooking the Capitol for a five-hour conference that included time for a "networking break" and advice on "opportunities for private sector involvement."

Senate Majority Leader Bill Frist (R-Tenn.) sent his budget director, Bill Hoagland, who cautioned that federal Katrina spending might not exceed $100 billion. But John Clerici, from a law firm that helped sponsor the event, told the group that spending would "probably be larger" than $200 billion. "It's going to be spent in a fast and furious way," Clerici said.

Sipping coffee from china cups and munching on doughnuts, the corporate crowd heard Joe McInerney, president of the American Hotel and Lodging Association, predict: "I think we'll see Mardi Gras in New Orleans to some extent this year."

Bruce Bartlett on the fiscal situation

Others, such as Brad DeLong, have posted this as well, but Bruce Bartlett's statement before the Senate Democratic Policy Committee on 9/23/05 deserves to be widely read. The solution to the U.S. fiscal problems can only be bipartisan, and that means two are needed to play. Until the Republicans come to their senses and throw out the current crew, there will be no way of knowing if the Democrats are willing to cooperate as well.

Statement by Bruce R. Bartlett
September 23, 2005

Thank you for the opportunity to testify before you this morning. As you know, I testify as a Republican—I have served in senior political positions in Ronald Reagan’s White House and George H.W. Bush’s Treasury Department, and as executive director of the Joint Economic Committee, a cosponsor of this hearing. However, I do not represent the Republican Party or any organization with which I may be associated. I am here speaking only for myself.

I testify as someone who is very disenchanted with his party’s fiscal policy since 2001. Unlike the other witnesses, I am less concerned about the deficit per se or about the size of the tax cuts enacted over the last five years. Rather, what really bothers me is the increase in spending and expansion of government that my party has been responsible for.

I used to believe that the Republican Party was the party of small government. That’s why I became a Republican. I don’t believe that the federal government has the right to one penny more than absolutely necessary to fulfill its essential functions as spelled out in the Constitution. I think government is over-intrusive and could do what it has to do far more efficiently and at lower cost, which means with lower taxes.

Therefore, it bothers me a great deal when Republicans initiate new entitlement programs, massively expand pork-barrel spending, and show the most callous disregard for fiscal integrity. Not too many years ago, Ronald Reagan vetoed a politically popular highway bill because it contained 157 pork-barrel projects. The latest bill contained at least 5,000. Yet President Bush signed this $295 billion bill into law, despite having promised repeatedly to veto a bill larger than $256 billion.

For the life of me, I cannot understand why President Bush seems so incapable of using his veto pen. His father knew how to veto bills. He vetoed 29 of them in his four years in office. But in his first four-plus years, this President Bush has vetoed nothing. He is the first president since John Quincy Adams to serve a full term without vetoing anything. Curiously, Adams is also the only other son of a former president to become president—and his father, John Adams, didn’t veto anything, either.

When I complain about this to the White House, they tell me that it is very hard to veto bills when your party controls both Congress and the White House. But this explanation is simply implausible. Franklin D. Roosevelt had huge Democratic majorities, yet vetoed a record 372 bills. John F. Kennedy, Lyndon Johnson and Jimmy Carter also had large majorities of Democrats, yet Kennedy vetoed 12 bills during his short presidency, Johnson vetoed 16, and Carter vetoed 13.

I won’t bore this committee with numbers. You know them as well as I do. Suffice it to say that our fiscal situation is dire and growing worse by the day. My principal concern, however, is not with today’s deficits—even if they are swollen by Katrina and Rita-related emergency spending. What worries me is the retirement of the baby boom, the first of which turns 62 in 2008. I’m not saying that we are close to driving off a fiscal cliff, but clearly the implications of this event have not impacted on policymakers in any way whatsoever.

I have struggled with a way to illustrate the consequences of an aging population and its effect on the budget. This is the best I have been able to do. Social Security’s unfunded liability comes to 1.2 percent of GDP in perpetuity (1.4 percent without the trust fund)—about what is raised by the corporate income tax—according to that program’s actuaries. The comparable number for Medicare is 7.1 percent of GDP—about what is raised by the individual income tax. And remember that these figures are for the unfunded portion of these programs, so they are over and above payroll taxes.

The chilling conclusion, therefore, is that virtually 100 percent of all federal taxes, on a present value basis, do nothing but pay for Social Security and Medicare. Unless there are plans to abolish the rest of the federal government, large tax increases are inevitable.

Let me be clear that I am no advocate of higher taxes. I’m the one who drafted the Kemp-Roth bill back in the 1970’s and I have spent most of my career looking for ways to cut tax levels and tax rates. But that was predicated on an assumption those supporting tax cuts also wanted to downsize government. I never saw tax cuts as a substitute for spending cuts, but more as sugar to make the medicine go down. My ultimate goal was to reduce both taxes and spending.

Unfortunately, few in my party seem to share this philosophy any longer. For many, tax cuts have become a substitute for spending cuts. It truly amazes me how often I hear people on my side talk about cutting taxes as if this is the only thing necessary to downsize government. They seem genuinely oblivious to the fact that the burden of government is largely determined by the level of spending, not taxes. Nor do they understand that in the long-run, all spending must be paid for one way or another. Increasing spending today, therefore, absolutely guarantees that taxes will have to be raised in the future.

I am often criticized by friends on my side of the aisle for implicitly endorsing tax increases. I do no such thing. I am simply adding two and two and getting four while my friends seem to think there is some way of only getting three.

They also criticize me for implicitly abandoning the fight to cut spending and downside government. Again, I plead innocent. It is not I who has abandoned the fight, but my party. I don’t need to remind anyone here that the biggest spending increases in recent years passed Congresses with Republican majorities largely without Democratic votes. Nor do I need to remind anyone here that during the Clinton years we not only went from budget deficits to budget surpluses, but did so to a large extent by cutting spending—something my conservative friends seldom acknowledge.

Here’s the basic accounting. Defense spending fell by 1.4 percent of GDP between 1993 and 2000, and domestic discretionary spending fell from 3.8 percent to 3.3 percent. Even spending on entitlements fell for temporary demographic reasons, from 10.2 percent of GDP to 9.8 percent. Finally, interest on the debt fell, largely because of falling interest rates, from three percent of GDP to 2.3 percent. The result was an overall decline in spending of three percent of GDP, from 21.4 percent to 18.4 percent, the lowest level since 1966, before the Great Society geared up.

On the revenue side, individual income taxes rose by 2.5 percent of GDP, mainly as the result of rising incomes that pushed people up into higher tax brackets and higher capital gains taxes from the booming stock market. Corporate income taxes and payroll taxes added another 0.8 percent, for a total revenue increase of 3.3 percent of GDP. Thus lower spending and higher revenues constituted a fiscal turnaround of 6.3 percent of GDP, which explains how a deficit of 3.9 percent of GDP in 1993 became a budget surplus of 2.4 percent by 2000.

I don’t give President Clinton full credit for this performance. I think most of the credit goes to gridlock. Mr. Clinton wouldn’t support the Republican Congress’s spending and it wouldn’t support his. So for a blessed six years, government effectively was on automatic pilot. Sadly, unified government has led to an utter lack of restraint by my party that is simply inexcusable. It is extremely dismaying for me to hear House Majority Leader Tom Delay say that there is no fat in the budget and that Republicans have cut it to the bone. This is, quite frankly, ludicrous. My real fear, however, is that he may actually believe it.

I remain convinced that given the total lack of fiscal responsibility demonstrated by the Republican Party that very large tax increases are inevitable. I believe that the fiscal hole is now so large that it is unrealistic to think that we can just tinker with the tax system, as we did so often in the 1980’s, and raise enough revenue to pay for spending commitments that have been made. And under the circumstances, I have no faith whatsoever that spending will be significantly restrained—at least not by my side. They would first have to admit error and beg for forgiveness from people like me, something I don’t expect to be forthcoming any time soon.

Therefore, like it or not, we must travel the same route taken by the Europeans, who long before us made peace with the welfare state and tried to figure out how to pay for it with the least negative impact on economic growth and incentives. They all imposed a broad-based consumption tax called the value-added tax as an add-on tax to all the others. I think it is only a matter of time before we are forced to do the same thing and the longer we wait the more painful it will be when it is finally done. Unfortunately, we are more than likely going to have to be forced into it by a financial crisis of some sort. It would be better to avoid that cost and deal with our fiscal situation rationally. But I see no leadership on either side that would allow that to happen.

I don’t know when, where or how a financial crisis will develop. I only know that trends that can’t continue don’t. Since it is unlikely that the vast fiscal imbalance will be resolved with a whimper, it becomes a certainty that it will end with a bang. Among the areas ripe for triggering a crisis are a popping of the housing bubble, a crash of the dollar, a mistake by some big hedge fund, excessive tightening by the Fed and others too numerous to mention. It will take extraordinary luck and skill to avoid every boulder in the stream and I have little confidence that this administration has the personnel to even give us a fighting chance. There are too many Michael Browns at senior levels of the government today and too few Bob Rubins or Alan Greenspans.

Contrary to popular belief, I don’t think the American people are a bunch of children who only want hand-outs from the government and will only reward the party that promises them something for nothing. Experience and academic research confirm that they are more likely to support the candidate who treats the public purse with prudence and trust and not as a piggy bank to be routinely broken on a whim. In short, I think there is a political market for the party and the candidate who speaks honestly about the nature of the fiscal crisis that is looming. The payoff may not be immediate and the public trust has to be earned by more than just rhetoric. But if, as I believe, some event will eventually change the political landscape, voters will remember who spoke the truth and who mouthed the platitudes.

It’s dirty work, but someone has to do it. Since my party won’t do it, yours is going to have to. If it’s done right, your party will gain at the expense of mine and you will deserve the benefits and my party will deserve the electorate’s disdain.

Budget politics then and now

From Fox News of all the unlikely places:

The Washington Post reports that in 1987, President Ronald Reagan vetoed a transportation bill passed by Congress because it had 157 "earmarks"— money set aside for Congress members' pet projects that would ostensibly be considered too wasteful to pass as laws on their own merit.

Reagan made a show of his veto. It was a symbolic stroke against government waste, against the Democrats’ tradition of, for example, diverting every federal highway through West Virginia, then naming it after Sen. Robert Byrd.

Fast-forward to 2005. Republicans control the White House and both houses of Congress. Early on a Saturday morning in August — the day of the week, and the month of the year, least likely to attract media attention — President Bush signed into law a highway bill passed by his own party with more than 6,000 earmarked projects.

Bush signed the bill after sternly telling his party he'd veto any highway bill that spent more than $256 billion. He promptly "adjusted" that figure to $284 billion after complaints from party leaders. The bill Bush ultimately signed came at a price of $286 billion, $295 billion if you count a few provisions disguised to make the bill look cheaper than it actually is. Not exactly holding the line.

Two musical recommendations out of left field for the likeminded

The first is John Cale, "The Island Years," a compilation of 3 early to mid-70s albums. Much more conventional rock'n'roll than Cale's work with the early Velvet Underground, but very good nonetheless.

The other is "The Psychedelic Sounds of the 13th Floor Elevators," from 1967 or so. Despite the well-earned album title, this is not a time capsule (except perhaps if you listen to the lyrics, which I mostly haven't made out). Tough rather than hippy-dippy, with r & b roots that make it more a cousin of the Rolling Stones than of the Grateful Dead, albeit original and very much its own thing.

Not to wallow too much in the older stuff, I would also rate the New Pornographers' just-released "Twin Cinema" as good clean fun.

Excessive senses of entitlement

Bush isn't the only one; Derek Jeter is another.

In yesterday's game, he came up in the 9th inning with 2 outs, tying run on second. On the 1 and 2 count, he was leaning out over the plate, well into the strike zone. The pitcher threw a pitch on the inside half, clearly over the plate by several inches. Jeter jackknifed back like it was a brushback pitch. Called strike three, game over.

Jeter, in the locker room afterwards: "It was a ball."

Understatement of the day

From David Brooks in today's New York Times: Bush has "never resolved the contradiction between his compassionate spending policy and his small-government tax policy."

Why didn't I think of that?

Grover Norquist (aka Bathtub Boy) has suggested using tax cuts to pay for the Gulf Coast reconstruction.

The plan

From Mark Schmitt:

"While we're all [anticipating] ... even more cronyism with Karl Rove in charge of the reconstruction effort, let's not lose sight of the real reason Rove is the right man for the job.

"Ask yourself, what do you think Rove is thinking about right now? My guess: The 2006 election, and specifically, how they can set up a situation in which Democrats vote against or seem to oppose some sort of Gulf Coast reconstruction package."

As I read about Bush's speech, I actually found it distressing, hardened though I am by now, to think that there probably wasn't even the slightest modicum of good faith in his talk about rebuilding the Gulf Coast. Couldn't he limit his cynicism to doing a good job there, even if he wouldn't have bothered to otherwise, just because it might be good for him politically? But doing things well to get the credit is not how these guys operate. In the aftermath of a horrific disaster with people suffering and needing help, it is acutely painful to realize this.

I am reminded of the right-wing traitors in France 1940 who preferred losing to the Nazis to letting the left have any chance of holding power in a flourishing independent France. No foreign power here, but the vicious psychology is the same.

Never lose hope

According to the NY Times, Bush has ruled out tax increases to pay the Katrina bills, and says federal spending must be cut instead.

I guess this means he'll be announcing $200 billion in federal spending cuts for the current fiscal year any day now.

President Mobutu

Bush's political strategy to deal with the political fallout from Katrina is now clear. Demand vast seas of spending that are called responses to Katrina. Make it so large, so totally without financing (or offsetting spending cuts of any kind), and in some other way so unacceptable to the Democrats that he can posture as the one who wants to do something about Katrina while they don't. This is the analogue to calling them soft on terrorism. The money itself will be wasted or looted by cronies, and spent on political and ideological goals having little to do with Katrina, on at least an Iraq war scale and perhaps even beyond that, since there's more you can do with the money at home and since, so far as they are concerned, they got away unscathed with the fraud and waste in Iraq.

You could call it politically brilliant, but it isn't really. It's simply the audacity, hard for the rest of us to imagine, that comes with a complete lack of civic virtue.

Taking care of the really important stuff

From Robert Scheer in the LA Times, a snapshot of how the Bush Administration approaches disaster relief:

"After riding in a helicopter with the president and seeing machinery apparently working on the breached 17th Street levee, [Sen. Mary Landrieu of Louisiana] was shocked the next day to find the work mysteriously stopped. 'Flying over this critical spot again this morning, less than 24 hours later, it became apparent that yesterday we witnessed a hastily prepared stage set for a presidential photo opportunity; and the desperately needed resources we saw were this morning reduced to a single, lonely piece of equipment,' said the senator in a press release."

Departure of George Yin from the Joint Committee on Taxation

Courtesy of Paul Caron's TaxProf blog, I note that George Yin is leaving the position as Chief of Staff of the Joint Committee on Taxation that he has held since 2003, in order to return to the University of Virginia Law School. The departure is effective November 18, by which time I presume the powers that be (the heads of the House Ways and Means and Senate Finance Committees) will be eager to have found a new JCT Chief of Staff.

I am glad for George, since the pressures of being JCT Chief of Staff in the current tax policy environment strike me as rather high relative to the rewards (which clearly had to be psychic rather than monetary). I am also glad for myself and the others in our biz, who will welcome George back to the academic world. On the other hand, this may be bad news from the standpoint of tax policymaking in the U.S. Congress. George was undoubtedly a force for good, whether the influence he could exert through his position was great or small.

When the position of JCT Chief opened up a few years ago, I was concerned that the leadership of the tax committees would be eager to appoint a hack. I had two reasons for expecting this. The first was that, with both houses under the control of the same party, one of the past reasons for picking a reputable and independent chief - that he or she would be a trustworthy arbiter between the two Houses, rather than being politically beholden or motivated - might no longer apply. To be sure, JCT reputability and independence have survived past instances of one-party control. But the second reason was that the central Republican leadership in Congress, which often exercises a tight rein over committee chairs, strikes me as having, like the Bush Administration, very little interest in independent or (as liberal bloggers are fond of saying) reality-based) policy input from experts.

Given this, I was very pleasantly surprised, verging on shocked, when someone as honorable, reputable, independent, and expert in tax policy as George was picked for the job. Since they picked a good person once, maybe they will do it again. For that matter, if the Republican Congressional leadership is serious about the fundamental tax reform process that the Bush Administration purports to be serious about, then a reputable, independent expert is exactly what they need. But we will see. I suspect that many of the qualified candidates for the job would be skeptical that the position is worth taking unless they not only get good assurances but also believe that there will be a serious tax reform process - which there may not be, what with Katrina, Bush's apparent political decline, etc., even if the Republicans do seriously intend it.

Boris Bittker

Boris Bittker, the eminent tax law professor who was at Yale Law School for almost 60 years, died last week at the age of 88. He was an extraordinary man whose work continues to interest younger generations of tax academics despite all the changes in intellectual life over the last few decades.

I never knew Bittker personally, even though I attended Yale Law School while he was still teaching. I took all of my tax courses with Marvin Chirelstein, whose delightful wit made me think him the preferable choice. When I was a student there, Bittker had a reputation as a bit of a curmudgeon, although actually not in a way that did him personally any discredit. The story was that he was more or less tired of spending his time talking to people who didn't know or understand the subject nearly as well as he did. So in a way it was a tribute to his intelligence and knowledge, as well as his taste for more penetrating conversation than we callow twenty-somethings could offer him.

In a recent article of mine, concerning tax expenditures and published in a recent Tax Law Review, I invoked the old Isaiah Berlin phrase about the fox who knows many things and the hedgehog who knows one big thing. Bittker was the fox, and Stanley Surrey the hedgehog. Bittker is famous for his naysaying when people such as Surrey tried, as he saw it, to over-simplify in support of big themes. I do feel that Bittker was a bit too much of a nihilist, sometimes overly pooh-poohing important things in the interest of contrarian exactitude. But on the other hand, this is a man who, in the 1960s, before economics reasoning and training had greatly penetrated law schools, outpointed leading public economics figures in economics. I am thinking of the "comprehensive tax base" debate, where he hit them with the theory of the second best (under which minimizing total distortion need not imply minimizing the number of separately countable errors). But still I think he was on the wrong side of that fight overall. Another thing I said about him in that TLR article was that his response to Surrey, in their debate concerning tax expenditures, was a "yes, but" that read like a "no."

While Bittker sometimes pushed his contrarianism too far, obscuring important points because they needed to be qualified in this way or that, his stance was quite aesthetically appealing. He also had a distinctive voice as a writer, witty and controlled, that made a striking contrast with the usual run of the mill. He was a person who we contrarian younger folk, not always very impressed with the immediately preceding generation, admired even if, with the passage of time, we were going a different way.

Approaching budgetary calamity

Stan Collender, a leading budgetary expert, has the following to say about Katrina's likely influence on federal budgetary politics:

"A $500 billion deficit in fiscal 2006, which begins in about two weeks, not only would be not surprising, at this point it should probably be anticipated ...

"But a higher deficit isn’t the only thing that was changed by Katrina: Federal budget politics and procedures have clearly been altered as well.   Indeed, the revised rhetoric of the past week or so, the still dazzlingly and dizzyingly demands for all types of federal aid, and the weakened position of the Bush administration mean that Katrina is likely to be looked at as a defining moment for fiscal as well as physical reasons.
 
"The first big change is that the deficit is now even less of an issue in Washington than it was before Katrina hit.
 
"In the short term, which in this case will likely last at least all the way through fiscal 2006, concern about the deficit easily and continuously will be trumped by the need to respond to the situation in the Gulf states.
 
"Some Katrina-related spending, such as what is now expected to be a significant increase in the budget for the Federal Emergency Management Agency and other types of disaster planning and assistance, will be permanent rather than one-time changes.   And if history is any guide, some spending that should end relatively quickly -- such as aid for industries whose operations supposedly have been affected in some way by the hurricane, will continue long after Katrina has ceased to have any appreciable impact.
 
"The federal budget process will also be affected significantly, perhaps even overwhelmingly, because most of the additional spending will be approved throughout the year in supplemental appropriations.   As the Bush administration has shown with its funding for activities in Iraq, this additional spending does not need to be included in the president’s budget, and it almost certainly will not be assumed by Congress when it considers the congressional budget resolution each year.
 
"As a result, the official deficit forecasts are very likely to be wildly wrong.   The claims the White House and Congress make about the projected deficit when the president’s budget is released or budget resolution adopted will not, therefore, be as accurate or newsworthy as they have been up to now.
 
"And they haven’t been that accurate up to now.
 
"The growing use of supplemental appropriations may make both the president’s budget and congressional budget resolutions into nonevents.  This will be even more true if, as typically happens, emergency supplemental appropriations become legislative trains for spending that has little to do with Katrina or Iraq.  For example, there is little doubt that a good deal of ongoing funding for various departments and agencies will be approved in supplementals rather than in their regular annual appropriation.  This will allow everyone to claim he or she is holding the line on spending when the truth will be just the opposite.
 
"It will also severely limit the amount of oversight on what is being spent.   Especially when they are supposedly related to an emergency, supplemental appropriations virtually never receive the same level of review or scrutiny as other bills.   They are typically drafted, debated, adopted and signed quickly -- either because the funds are needed within a very narrow timeframe or because the leadership doesn’t want people to see what the bills actually include ...

"Barring some type of unexpected offsetting event such as Wall Street demanding the deficit be reduced, [the deficit] issue is simply gone for the foreseeable future."

Back to me. Given that we had about a $70 trillion fiscal gap before any of this happened, I would say that a calamitous Weimar Germany-style crisis involving hyper-inflation and the collapse of US government credit has become both significantly more likely to happen, and likely to happen sooner. Barring a dramatic change in the rate of healthcare expenditure growth, which would have to happen on its own since no one in Washington is addressing it, we have known for quite a while that the US is going to face fiscal collapse UNLESS Congress and the President address it responsibly in time, and in the interim retain credibility with financial markets as planning to address it responsibly.

That seems less likely than ever.

The Bush Administration's total lack of concern about this is truly astounding. The Reagan and Bush I Administrations were run by grown-ups who took much less adverse fiscal situations very seriously. But the current Administration never has addressed, and never will address, any crisis, no matter how predictable, until it has hit in full force (and even then not until it has My Pet Goat-ed for a while). "Bin Laden Determined to Attack in US" didn't do it. Warnings that Iraq would have postwar unrest and a likely insurgency didn't do it. And needless to say, days of warning about the hurricane, and even the first few days after the levees burst, didn't do it.

A budgetary crisis is completely predictable, but there will be no planning for it and absolutely no consideration given to heading it off until either (1) it is too late, or (2) some other Administration that has both the will and the political leeway to start addressing it is on the scene.

Bush's budget plans

According to an article in Time Magazine, Bush's main plan to dig himself out of political trouble on the New Orleans catastrophe is to "[s]pend freely, and worry about the tab and the consequences later. 'Nothing can salve the wounds like money,' said an official who helped develop the strategy."

Also - big surprise - "[t]here are no plans to delay tax cuts to pay for the New Orleans reconstruction or the Iraq war."

Why worry about paying for things when you can simply go on issuing debt and printing money?

Wrong way to play the audit lottery

Survivor 1 winner Richard Hatch has been indicted for tax fraud, including failure to report the $1 million prize that he won on the show. As a big Richard Hatch fan (as a TV character - I wouldn't actually want to have to deal with him), I must admit to feeling sorry for him. Also, given how many millions of people know that he won the million dollars, and given as well that Michael Brown of FEMA (who didn't know there were people in the Superdome) does not head the IRS, this was not exactly a case of immorally but rationally playing the audit lottery. It seems clearly to have been a case of self-destructive pathology (which is not to challenge in any way that the IRS is doing what it must in going after him).

Survivor is actually the only network show that I have watched regularly in the last couple of decades, and Survivor 1 truly was classic. One of the great pities, from a social science standpoint, is that they didn't film Survivor 2, and perhaps a couple more, before broadcasting Survivor 1. I guess I should be grateful that Steven Johnson's Everything Bad is Good for You offers at least a qualified defense of watching Survivor.

Budgetary impact of Katrina

I believe it's been estimated that Katrina will increase the annual federal budget deficit by $100 billion. I'm not sure if this is purely from expected outlays, or if it takes account of macro effects on existing programs (e.g., reduced income and payroll tax revenues from the hit to economic activity, more unemployment insurance payouts, etc.).

This of course is on top of what were already projected to be huge deficits. And it helps to show why budgetary targets and planning ought to take account of the possibility that there will be adverse shocks from time to time.

A further problem is that the Administration had been claiming it would cut the 2004 deficit in half by the end of Bush's second term. Most experts expected this target not to be met, other than through gamesmanship redefining the target so that it could ostensibly be met (a la monthly military recruiting targets). In addition, even if the target was met, the deficit was projected to explode again as soon as Bush was safely out of office.

Katrina not only means that the deficit reduction target can't be met, but also that there is now an excuse for not meeting it. If the Administration's behavior in 2001 is any guide, this suggests that they will regard the deficit reduction pledge as having been completely called off. So perhaps any deficit at all is now politically permissible, since the excuse "We would have done what we promised, except for Katrina" can be used even if Katrina is responsible for only a small percentage of the shortfall.

Since I have to get back to writing my fiscal language book, perhaps this is enough cheerful thoughts for one day.

Katrina and pending tax issues

Okay, back into my cage of discussing issues in my area of professional expertise rather than spouting off about public affairs. So here are some quick thoughts on tax policy issues affected by Katrina:

1) The Tax Reform Commission has postponed its final hearings and the date for release of its report. I didn't think that tax reform would be going anywhere anyway, so its chances of enactment in the near term weren't hurt by the effect on legislative agendas generally (the chance of something happening can't slip below zero). Given what I have heard about some of the really good people who are working out of the public spotlight on the report, I am hoping that the TRC will come up with something that exercises influence down the road, as a blueprint for reform that possibly has a consumption tax component. Perhaps David Bradford's X tax? (I am hoping that the Graetz plan, which I criticized in earlier posts, has lost steam as people became aware of its missing elements.) But even apart from all the other obstacles, such as interest group opposition and lack of strong public support, I think that a 1986-style bipartisan process would be necessary, which I certainly don't see happening any time soon.

There actually has been a minor shift towards bipartisanship lately. But it has been of exactly the wrong kind. The grotesque highway bill represented boodle for everyone in Congress, Democrats as well as Republicans, in contrast to recent tax bills and the energy bill that tended to reserve it for the Republican majority. Needless to say, the Democrats proved more than willing in the highway bill to be just as craven as the Republicans.

2) This brings me to topic 2, income tax policy responses to Katrina. My guess is that a bipartisan process of corruptly giving handouts to campaign contributors and calling it Katrina relief will rule the day. E.g., the Republicans give billions of dollars to energy companies and pretend that this is a response to Katrina. But rather than use their usual playbook of the last few years - putting a dishonest label on something and then trashing the Democrats if they oppose it ("They're against Katrina relief!"), perhaps this time the strategy, given Bush's political weakness on Katrina, will be to give enough Democrats enough pork that the bill will pass by bipartisan acclamation. So I anticipate a disgusting multi-billion dollar giveaway that masquerades as a response to the people hurt by Katrina and the need to rebuild but that in fact is nothing of the sort.

3) A further response to Katrina that has been floated is lowering the federal excise tax so that gas prices ostensibly won't rise as much. This is exactly the wrong response, given the widespread view among experts (extending, if I am remembering correctly, to the likes of Martin Feldstein) that higher gasoline taxes would be desirable, and would to a large degree be borne by foreign resource owners given US monopsony power in the worldwide energy markets as a big consumer. But if oil companies' economic experts conclude that a lower federal excise tax would be a windfall to them, rather than to consumers, one can bet that Congress will follow their bidding.

4) Estate tax repeal does seem to have been pushed back by this, notwithstanding Grover Norquist's pathetic and disgusting effort to portray it as a response to Katrina. Ed McCaffery has been writing about how Congress's fondest desire on the estate tax, shared on both sides of the aisle, is to keep on postponing the final decision so people have to keep on lobbying. As per my earlier post, I am pretty much on the fence regarding the estate tax, although repealing it without doing anything else to replace the revenues would be insanity in the present budgetary context. I have long thought that the most sustainable political equilibrium here would be to retain the estate tax but with a much higher exemption amount so that it really is a hit just on huge fortunes. And I think this is what a sane bipartisan process would likely yield, whether or not it is one's own preferred policy. But again, the only bipartisanship on view for several years has involved making looting and giveaways a bipartisan process.

It isn't really happening if it isn't reported

From Kevin Drum:

"GUN SHY?....Can you spot the common thread in these three reports?

Reuters: "The U.S. agency leading Hurricane Katrina rescue efforts said Tuesday that it does not want the news media to photograph the dead as they are recovered."

Bob Brigham: "We are in Jefferson Parish, just outside of New Orleans. At the National Guard checkpoint, they are under orders to turn away all media. All of the reporters are turning their TV trucks around."

Salt Lake Tribune: "'[FEMA has] people here who are search-and-rescue certified, paramedics, haz-mat certified,' said a Texas firefighter. 'We're sitting in here having a sexual-harassment class while there are still [victims] in Louisiana who haven't been contacted yet.' The firefighter, who has encouraged his superiors back home not to send any more volunteers for now, declined to give his name because FEMA has warned them not to talk to reporters'."

Yes, the Bush Administration has finally gotten the hang of managing the New Orleans catastrophe.

The Bush Administration's priorities

From today's Salon:

"From all across the nation, local fire departments have sent firefighters -- many of them trained in emergency medicine and search-and-rescue techniques -- to help the victims of Hurricane Katrina. The Federal Emergency Management Agency requested the help. But when the firefighters arrived in Atlanta, loaded down with the firefighting gear FEMA told them to bring, they were sent to a hotel to wait. Some of them have been waiting for three or four days now....

"As the Los Angeles Times reports, 'Hundreds of firefighters who volunteered to help rescue victims of Hurricane Katrina have instead been playing cards, taking classes on the Federal Emergency Management Agency's history and lounging at an Atlanta airport hotel for days. 'On the news every night you hear [hurricane victims say], "How come everybody forgot us?' said Joseph Manning, a firefighter from Washington, Pa. 'We didn't forget. We're stuck in Atlanta drinking beer.'"

"Well, not just drinking beer. The Salt Lake Tribune reports that FEMA put a team of 50 firefighters on a flight to Louisiana Monday morning. Their mission: Stand beside Bush as he toured the devastation -- just possibly not the best use for highly trained emergency workers...

"On Monday, the Tribune says, some firefighters began to take off their FEMA-issued T-shirts in protest [against being used as Bush photo props but not to help save victims of the hurricane.] A FEMA spokesman responded by questioning the firefighters' willingness to help in a time of need. I would go back and ask the firefighter to revisit his commitment to FEMA, to firefighting and to the citizens of this country,' FEMA spokeswoman Mary Hudak told the Tribune."

Bush is starting to give Kim Jong Il a run for his money.

What if George W. Bush had been President earlier in U.S. history?

1789 - Tax cuts lead to bond default, collapse of nascent U.S. economy.

1812 - Hello, British Empire. I don't even want to think about the Battle of New Orleans.

1848 - Mexico re-takes Texas and adds Louisiana, so today it would be their problem.

1861 - Union wins Civil War in 3 months, but that's because Bush is the Confederate President.

1890 - Congress passes the Sherman Protrust Act, banning small firms from competing with conglomerates.

1918 - Germans break through Allied lines after U.S. deployment follows the Rumsfeld Doctrine.

1940 - Philip Roth has already written about this.

1941 - Bush responds to Pearl Harbor attack by invading Mexico.

1946 - Marshall Plan botched; Soviet empire extends to the English Channel.

1979 - Iran quagmire.

1983 - Grenada quagmire.

1990 - Bush avoids the Iraq quagmire of 2003 by failing to retake Kuwait (Saddam's army was stronger back then).

The latest rationale for estate tax repeal

I am ambivalent about the estate tax, if we look at it as a long-term element of tax system design rather than evaluating repeal with no other changes. Straight repeal today strikes me as insane given the long-term budget picture, and as unfortunate in distributional terms because of its effect on overall progressivity. But if I were given the choice of a comparably progressive fiscal system with or without the estate tax (e.g., getting more out of a progressive consumption tax if we dump the estate tax), I would regard it as a close call. My own take on it, not entirely the usual one, is that it is a tradeoff between (a) the bad aspect, which is its imposing higher taxes on multi-generational households that have gratuitous transfers to heirs than on those that don't, and (b) the good aspect, which is the possibility (requiring further empirical verification) that behavioral responses to it might be surprisingly low if people find it difficult to plan rationally for their own deaths. Evidence for (b), by the way, comes from the low level of inter vivos gifts, relative to the optimal amount in a tax planning sense, from people who are certain to leave large bequests and don't face obvious King Lear-type issues.

Plus on the bad side we might have the high ratio of tax planning and avoidance costs to revenue raised, if the tradeoff is indeed worse here than in the income tax or the hypothetical progressive consumption tax.

So much for my basic take on the estate tax. Then there is Grover Norquist's take. This guy really is a barrel of monkeys. Missing no opportunity to exploit whatever tragedy is at hand, he apparently sent today a memo to U.S. Senators explaining why, in the light of the New Orleans tragedy, it is more important than ever to repeal the estate tax. The title of the memo is "Death Tax Repeal/Katrina." The money quote from the memo, courtesy of the dailykos.com website (which posted the pdf file):

"The 2003 tax cut lifted economic growth far beyond what most people expected. We know repeal of the Death Tax will also have a similar effect. And higher levels of economic growth is [sic] exactly what the residents of the Gulf Region need at this time to start the rebuilding process for their neighborhoods and more importantly for their lives."

Thanks, Grover. Nice of you to take time out from selling photo ops to see the President to take on the Gulf Coast tragedy.

Tax reform within the income tax

On a completely different note, although it is hard to think about other things during the calamity, tax reform is still ostensibly on the agenda (although I don't expect it to go anywhere). It occurs to me that I haven't previously mentioned one approach that I think deserves more attention than it has gotten: NYC attorney Edward Kleinbard's Business Enterprise Income Tax (BEIT) plan that emphasizes a "cost of capital allowance" (COCA). [Disclosure: he is a friend.]

The key idea in Kleinbard's plan, which he described in a Tax Notes article, dated 1/3/05 [106 Tax Notes 97], that Lexis subscribers can access
here, is to wipe out the debt-equity distinction in the income tax by making all capital that businesses (corporations or not) hold subject to an interest-like deduction, while all holders of such capital have an interest-like inclusion. The Treasury's CBIT plan of some years back would have eliminated the debt-equity distinction in the other logically possible way, by treating everything like equity (i.e., not deductible by the company or includable by the holder). These are the two basic ways to eliminate the problems resulting from the debt-equity distinction.

While the Tax Notes article emphasizes detailed description of the BEIT, casual observers may be more interested in an article prepared by Kleinbard for a forthcoming (September 23) Brookings/Urban Institute conference on taxing capital income, available as a pdf file if you scroll down a bit here. Two key features of this article are as follows. First, Kleinbard offers detailed reasons for preferring his approach to the CBIT approach. Again, the reason for paying attention to this comparison is not just that the CBIT was a prominent plan, but that CBIT and BEIT epitomize the only two logical ways of eliminating the debt-equity distinction while otherwise retaining a business-level income tax (and integrating the corporate and individual levels). But second, and more surprising to me, was Kleinbard's argument that a lot of the problems with the current income tax which make us feel it is unworkable come out of the debt-equity distinction, or more broadly the lack of consistent and coherent rules for taxing financial capital. Kleinbard argues that a business-level income tax actually is reasonably feasible so long as we get this one point right.

Past academic work has tended to emphasize instead the problems caused by the realization requirement, but Kleinbard argues that those problems get significantly less bad under his approach. His position deserves further attention and analysis whether one prefers a workable income tax to a consumption tax or simply thinks that we are stuck with it.

Horrifically slow response

When you have a President who wouldn't be qualified to run a corner drug store, this is what happens.

It is beyond obvious by now that the sole point of the Bush Administration's supposed domestic security focus has been as a political issue to win votes and hold power. If that is your sole concern, why on earth would you bother to do annoying work such as designing actual evacuation plans for cities that are at risk?

The long vacation

All these are courtesy of a former college classmate who sent them around in a discussion group e-mail.

DAVID LETTERMAN:
"President Bush is taking his summer vacation. It's a five-week vacation. This is his fiftieth vacation in the last five years -- that's about the national average isn't it? During his five-week vacation, he will continue to receive national security briefings. He won't be reading them, but he will receive them."

"President Bush is on a five-week vacation. How many folks get five weeks off a year? You know, if I want five weeks off I have to have open heart surgery, for God's sake."

"President Bush is at his ranch in Crawford, Texas, and here's the good news -- he says he will only stay until Crawford is capable of self rule."

"President Bush is vacationing in Crawford, Texas. He will be vacationing for five weeks. That's a long time. I don't think he has an exit strategy for his vacation either."

"Now is a great time for President Bush to go on vacation because Iraq is pretty much under control. But a White House spokesman said Bush is using his vacation to reconnect with regular people. So you know what that means -- he's drinking again."

"President Bush is on a three-week vacation down in Crawford, Texas, and it's what they call a working vacation. And staff say it is an important time because it's time for him to kick back. And I'm thinking, when does this guy kick forward?"

JAY LENO:
"So Congress is on recess and Bush is on vacation -- the town is empty. It's so lonely in D.C. right now the NRA and the oil lobby are just giving money to each other."

"As you know, President Bush is taking 5 weeks off. It's like he's still in the National Guard."

"It turns out President Bush can run again in the next election. Now I know you're only supposed to be allowed two terms, but the Supreme Court said if you count his vacation time, he's barely served one."

"Bush woke up this morning, saw his shadow and now -- six more weeks of vacation."

"President Bush talked tough today. He said he's not backing out, he's staying the course for as long as it takes. He's in it for the long haul. Not Iraq -- his 5-week vacation."

"President Bush is on week three of his marathon five-week vacation. In fact, he has been gone on vacation for so long that today in Washington, a judge ruled that a young couple with two children can now legally move into the White House because it appears to have been abandoned by its previous tenants."

"President Bush is now in the second week of his five-week vacation down there in Crawford, Texas. He's been taking a lot of criticism for this long vacation and his aides say he has his laptop with him so he can still play Solitaire and Minesweep -- so it's business as usual."

"A lot of people are every critical of President Bush for taking the entire month of August off for his vacation. But his staff points out, there's nothing at the White House he can't do at the ranch because the ranch is fully equipped. It's got the treadmill, the weight room, the jogging path, the big screen TV, they get Nickelodeon. It's got everything he would do."

JIMMY KIMMEL:
"The president jumped on a plane to start a five-week vacation. This will be the longest presidential vacation in 36 years. This means President Bush has now been on vacation for 27% of his presidency. That means the country could be 27% more screwed up than it already is."

CONAN O'BRIEN:
"President Bush still having his five-week vacation. Today President Bush announced he is going to leave his ranch in Texas to visit Idaho for two days. However, Bush told his supporters, 'Don't worry, I won't do any work there either.'"

Let the games begin (as there's no stopping them)

When a tragedy such as that in New Orleans happens, politicians' first thought, although they try to pretend otherwise, is "How can I gain some advantage from this?"

Bush, I think it is fair to say, is eager to use this as 9/11 Part 2 so he can revive his again-failing Presidency. Assuming he doesn't decide to blame the hurricane on Iran, he will try to look solemn (although he hasn't done too well on this one so far), reprise his 9/11-style site visits, play up the looter angle since law and order is as close to national security as he can come on this one, and do whatever he can to rebut the argument that he has over-stretched the National Guard in Iraq. The White House must be thrilled, regarding this opportunity as providential good fortune.

That's how politics is played.

The anti-Bush side, already appearing on various blogs, is that his Administration drastically slashed funding for New Orleans' levies and the like, in the face of warnings that hurricanes were getting worse each year, apparently in response to Iraq war needs, and also that the Administration's downgrading of FEMA impeded a coherent response. But the Democrats won't voice this publicly for some time, not because they wouldn't like to gain from doing so, but because they are scared that Bush will accuse them of politicizing the tragedy while pretending that he isn't doing so himself.

UPDATE: Scott McClellan at his press briefing today, faced with an awkward question about the fact that the White House had cut funding for the specific levies that failed, inevitably took the scoundrel's way out [it's just his job, nothing personal] and decried what he called "playing politics" with the issue. This makes for an interesting fit with the Administration's approach towards 9/11.

There is, of course, no better example of playing politics with tragedies than strategically and selectively saying that people shouldn't play politics with them.

Another amusing note is that Bush said today that no one could have anticipated that the levies would fail. In fact, a government report stated that this was one of the three most likely disasters in the US (along with a terror attack in NYC and presumably earthquake threats in California).