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April 15, 2013

WaPo's Cillizza: Romney Was Right on Tax Rates

Now that the election is over, Chris Cillizza makes a startling discovery:

Eighty-five percent of Americans — and 86 percent of registered voters — say that they approve of people “doing everything within the law to lower their taxes.” Nearly six in ten say they “strongly” approve of doing all you can to pay as little as possible. Those numbers are remarkably consistent across party lines with 90 percent of self identified Republicans expressing that view as well as 83 percent of Democrats and 82 percent of independents.

And yet, people regularly pillory politicians — particularly the wealthy ones — for doing what they can to pay as little as possible.

Remember Mitt Romney? The two-time presidential candidate, whose considerable wealth made the release of his tax returns a focal point of the 2012 campaign, insisted that he paid what was required but no more.

“I pay all the taxes that are legally required and not a dollar more,” Romney said at a debate in January 2012 just prior to releasing his 2010 and 2011 returns. “I don’t think you want someone as the candidate for president who pays more taxes than he owes.”

Eighty-five percent of the American public should have agreed with Romney. But, of course, they didn’t. Romney was cast as trying to game the system for the benefit of he and his wealthy friends. In a February 2012 Washington Post-ABC News poll, two in three Americans said Romney did not pay his fair share of taxes (the public was split over the question in the fall). And a majority of voters in the 2012 exit poll said that Romney’s policies would generally favor the rich and he lost that portion of the vote overwhelmingly.

Those American peoples... they can be so irrational. Where do they get these cockamamie ideas? I mean, it's not as though someone in authority - the President of the United States, maybe - criticized Romney for doing exactly what Obama does paying the lowest rate allowed by law:

The Obama campaign released an ad Friday attacking Republican presidential nominee Mitt Romney for paying 14 percent in federal taxes last year on the $20 million he made -- and for saying that's fair to others who pay higher rates and make far less.

And it's not as though the President cited a non-random (biased) survey as support for his claim that most millionaires think they pay too little in taxes, ignoring an earlier survey from the same group that concluded the opposite:

... another Spectrem poll, from a month earlier, has been cited by CNN Money as evidence that millionaires do not support the Buffett Rule. That survey found that only 24 percent of millionaires said that higher taxes on higher income was the fairest tax system.

And it's not as though the President repeatedly told voters that higher tax rates for the rich would substantially reduce the deficit:

President Obama admits it: His proposed “Buffett Rule” tax on millionaires is a gimmick.

“There are others who are saying: ‘Well, this is just a gimmick. Just taxing millionaires and billionaires, just imposing the Buffett Rule, won’t do enough to close the deficit,’ ” Obama declared Wednesday. “Well, I agree.”

Actually, the gimmick was apparent even without the president’s acknowledgment. He gave his remarks in a room in the White House complex adorned with campaign-style photos of his factory tours. On stage with him were eight props: four millionaires, each paired with a middle-class assistant. The octet smiled and nodded so much as Obama made his case that it appeared the president was sharing the stage with eight bobbleheads.

And if that’s not enough evidence of gimmickry, after his speech Obama’s reelection campaign unveiled an online tax calculator “to see how your tax rate stacks up against Mitt Romney’s — and then see what the Buffett Rule would do.”

How can a journalist point out what he calls an unrealistic and unfair standard and never once mention that the ideas he's lampooning were a central part of Obama's campaign platform? Ah, but there's method to Cillizza's convenient memory lapse:

It’s not just Romney who is held to a taxing double standard — not bad, eh? — by the public. President Obama released his 2012 taxes last Friday afternoon (the timing was not an accident), returns that showed he paid an effective tax rate of 18.4 percent last year. The Drudge Report, a popular conservative-leaning aggregation site, quickly went with a banner expressing incredulity at the 18 percent rate. Conservatives on twitter were similarly disgruntled.

Why the double standard? Perhaps because — at least in the case of Obama and Romney — politicians who run for president tend to be people of significantly more means than the average person. And, there is a general sentiment in the country that to whom much is given, much is expected.

Whatever the reason, the disconnect between the massive majority of the public who believe paying as a little as possible in taxes makes sense and the disdain with which they hold their politicians trying to do the same suggests that elected officials in future campaigns will continue to view the release of their tax returns as news to be buried not touted.

Amazing how the standards change when we're talking about the President. Behavior that was out of touch and elitist when we were talking about Romney suddenly become downright understandable!

Posted by Cassandra at April 15, 2013 07:41 AM

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Comments

I have no grudge against anyone who figures out how to pay as little as possible wrt taxes. What really chaffes my willy is that when all is said and done and they have exploited every loophole, tax break and deduction allowance leaving them only owing 18% in taxes, they still won't pay that relatively small amount! I give you our own Treasury secretary as the People's Exhibit A.
0>:~/

Posted by: DL Sly at April 15, 2013 12:13 PM

Why the double standard? Perhaps because — at least in the case of Obama and Romney — politicians who run for president tend to be people of significantly more means than the average person.

No, it's because politicians impose the taxes. This is a perfect example of an Aristotelian relevant difference: it's nonsense to talk of a 'double standard' here. One group is subject to the law, and the question is whether they ought to have every advantage of the law imposed upon them.

The other group writes the law, and therefore is reasonably subject to suspicion that they wrote it in a way that was advantageous to themselves. It makes perfect sense to ask why a millionaire President or Senator gets such beneficial treatment from the law compared with an ordinary person.

Posted by: Grim at April 15, 2013 01:55 PM

Demonstrating the highborn and the highborne have in common low patriotism.

Posted by: Joe "Cottages-To-Let" Biden at April 15, 2013 02:34 PM

it's because politicians impose the taxes. This is a perfect example of an Aristotelian relevant difference: it's nonsense to talk of a 'double standard' here. One group is subject to the law, and the question is whether they ought to have every advantage of the law imposed upon them.

I don't agree. The defining characteristic of representative government is that laws are not made by a dictator, but by the people's elected representatives. If the people wanted to make a law that creates one set of tax rules for Congress and another for the general population, they could pressure their elected representatives to do so.

I agree that it's not an unreasonable suspicion that legislators consider their own benefit when writing tax laws, but those benefits apply to all citizens, not only to Congress. This, for instance, is entirely the wrong question:

It makes perfect sense to ask why a millionaire President or Senator gets such beneficial treatment from the law compared with an ordinary person.

A millionaire President or Senator gets the SAME beneficial treatment from the law as a millionaire citizen of any other profession. There is no valid comparison between a "millionaire President or Senator" and a [non-millionaire] ordinary person precisely because the tax code treats people in different tax brackets, differently.

Posted by: Cassandra at April 15, 2013 02:59 PM

One more thing: your question (and the suggestion that millionaires benefit unfairly from tax laws) both presume that personal property laws somehow apply less once one hits a certain income threshold.

But earnings belong to individuals, not government.

I think we want to be very skeptical of any argument that weakens property rights or asks one group to pay more for the same government services than another simply because they happen to have resources that they - in the words of our President - "don't really need".

Posted by: Cassandra at April 15, 2013 03:02 PM

I don't agree. The defining characteristic of representative government...

Naturally we don't agree, but I think there is a clear distinction to be made between those who make the rules and those who merely live under the rules. The maker of the rule is under a special duty not to take advantage of that position for personal advantage, whereas the one who lives under the rules ought to have the advantages of whatever protections the rules apply.

For example, consider this excellent judge from Michigan. He had a rule that cell phone interrupting his court would get a contempt citation; when he forgot to turn his own phone off, he found himself in contempt and paid $25.

Now, if someone else in the court had -- just as accidentally -- forgotten to turn off their phone, we wouldn't have said he was blameworthy if he had chosen to issue a warning, or a citation without a fine. If he had not issued himself the fine, though, we'd have every reason to believe he was behaving badly. This is true even though we might well approve of him being lenient in another, otherwise similar case.

Parents are in the same position. You never want to be the one saying "Do as I say, not as I do!" If you make rules, you'd better be the #1 guy in line for living up to them.

Posted by: Grim at April 15, 2013 03:47 PM

Or, as an example of doing the wrong thing...

Posted by: Grim at April 15, 2013 03:54 PM

The maker of the rule is under a special duty not to take advantage of that position for personal advantage, whereas the one who lives under the rules ought to have the advantages of whatever protections the rules apply.

The problem with this is that taking the allowed deductions on your taxes isn't "taking advantage of your position for personal advantage". You'd have that benefit even if you weren't in the position because the benefit doesn't depend on your being a politician.

What you're really saying (which I agree with) is that everyone's supposed to follow the rules, but we should expect the rule makers to hold themselves strictly accountable to the laws they make. That's a very different thing than saying that it's wrong for politicians to get the same perfectly legal benefits of the laws they pass as we do.

Posted by: Cassandra at April 15, 2013 04:17 PM

I understand your point. I'm just saying that the issue that triggers the extra suspicion is not whether you followed the rules equally. It's whether the rules are what they are because that's what benefits you.

Congress writing a law that taxes investment income at lower raters than salaries is like me writing a law that taxes income from philosophy or military contracting at a lower rate than investments. This is because almost the whole of Congress makes its money off investments, in part because they can do exactly the kind of insider trading that the law under "doing the wrong thing," above, was designed to stop.

It's true everyone else would end up living according to the same law, but that doesn't change the fact that the law especially benefits the people who wrote it. People get annoyed about that kind of thing for good reason: it's a species of corruption.

Posted by: Grim at April 15, 2013 04:53 PM

Grim,

I'm just saying that the issue that triggers the extra suspicion is not whether you followed the rules equally. It's whether the rules are what they are because that's what benefits you.

The problem with that sort of reasoning is that it assumes guilt without evidence. It's circular reasoning (you profited from X, therefore X is the way it is because it profits you). There are plenty of very good reasons not to tax investment income like labor income.

And that's from a progressive!

While I agree that that sort of law may benefit some (not all) Congressmen, it also benefits society by encouraging investment in new businesses and other projects. You can't just assume corruption and ignore any fact that doesn't fit that narrative.

Posted by: Cassandra at April 15, 2013 05:14 PM

If I didn't know what a reasonable and good person you are, Cass, I would be inclined to raise my voice just now. :) You've just chided me for judging our Congressmen for insider trading without having evidence -- while we are discussing their repeal of a law whose sole purpose was to make available evidence that could demonstrate whether or not they were engaged in insider trading.

It's true! I have no evidence. The law that might have provided me with evidence just got repealed with no debate.

Posted by: Grim at April 15, 2013 05:25 PM

You've just chided me for judging our Congressmen for insider trading without having evidence -- while we are discussing their repeal of a law whose sole purpose was to make available evidence that could demonstrate whether or not they were engaged in insider trading.

Huh???

I thought we were discussing whether it's wrong for Congress critters to take tax deductions they would be entitled to take, even if they weren't Congress critters.

Posted by: Cassandra at April 15, 2013 05:27 PM

Perhaps there is a simple confusion here.

I thought we were discussing whether those who make the law ought to be held to a stricter standard than those who merely live under the law that is made. I had suggested that a stricter standard is right because there's an additional issue that has to be evaluated when you're talking about lawmakers: whether the law they are complying with was written for their particular benefit.

You had suggested that in a representative democracy, we should regard the acts of our politicians as expressions of those representing the will of the people, as opposed to some dictate of authority. I offered the following as an example of why the People might exercise extra suspicion toward laws that happen to benefit lawmakers, as opposed to how those laws affect ordinary citizens.

Posted by: Grim at April 15, 2013 05:37 PM

I thought we were discussing whether those who make the law ought to be held to a stricter standard than those who merely live under the law that is made.

We began by discussing this statement of yours:

One group is subject to the law, and the question is whether they ought to have every advantage of the law imposed upon them. The other group writes the law, and therefore is reasonably subject to suspicion that they wrote it in a way that was advantageous to themselves. It makes perfect sense to ask why a millionaire President or Senator gets such beneficial treatment from the law compared with an ordinary person.

I pointed out that politicians *don't* get more benefits from the tax code than the ordinary person - they get the same benefits. So this questions doesn't, in fact, make perfect sense because it doesn't accurately describe what's happening.

You then linked to something about a special purpose law that would hold Congress (perhaps) to a stricter standard than the general public. Though I have to say that I thought insider trading was already illegal. I'm not familiar with the bill in question, but it was repealed, after first having been passed by Congress.

Is it reasonable to suspect Congress of corruption simply because they repealed a law that would have (possibly) imposed stricter rules on them than on the general public? Not necessarily, unless we have read and fully understand the law. You think it's reasonable to assume that classes of people you don't care for are guilty until proven innocent, but I don't. I still think accusations of guilt or corruption should be supported by evidence.

Otherwise, they're simply a way of accusing anyone you don't like of malfeasance, which is a serious charge.

I had suggested that a stricter standard is right because there's an additional issue that has to be evaluated when you're talking about lawmakers: whether the law they are complying with was written for their particular benefit.

The world is full of stupid, feelgood laws that don't actually prevent the harms they are supposed to prevent. I'm not convinced that requiring Congresscritters to post all the details of their financial transactions online is a wise or effective countermeasure. I can think of all sorts of unintended consequences that would make such a law stupid, ill advised, and ineffective but until I studied the issue, I wouldn't be able to make an informed decision. And I'm pretty sure you haven't studied the issue enough to make an informed determination.

Sure, it feels good to accuse people on no evidence when you're already angry at them. But it's still not right, and such tactics don't strike me as likely to produce better government.

Congress passed the bill in the first place. Do we give them credit for having good motives then, and now turn right around and assume the worst? Or do we assume the worst of both votes? To use your Chesterton example, perhaps it would be wiser to learn why Congress passed the bill in the first place, and why they repealed it before accusing them of corruption?

Posted by: Cassandra at April 15, 2013 06:36 PM

To clarify, when I speak of accusing people on no evidence, I'm referring to voters doing so. Not you, personally.

You have, however, made the argument many times that you think people in general are justified in assuming the worst of politicians (regardless of their actual track records as individuals).

I have a problem with that as a standard. In general, we scrutinize anyone who profits from a deal more than someone who doesn't profit. That's OK, so long as all we're doing is being watchful.

But when watchfulness jumps the shark and becomes a presumption of corruption, I think that's wrong.

Posted by: Cassandra at April 15, 2013 06:45 PM

I pointed out that politicians *don't* get more benefits from the tax code than the ordinary person - they get the same benefits.

Well, except that they get to tailor the benefits. So yes, they get the same benefits: if I wrote the law so that it excepted philosophy from taxation, I would merely get the same benefit as you and everyone else. Nevertheless, there's an issue here that deserves our attention. :)

Though I have to say that I thought insider trading was already illegal.

Turns out, not in the case under discussion. What is illegal is for people within an industry to trade on insider knowledge. But for Congress to buy or sell shares in an industry based on insider knowledge of what laws or regulations Congress is about to enact or repeal is unregulated.

Now the STOCK law didn't go as far as to actually make that illegal. It just required Congressmen to explain what their investments were in public, so we could compare these to their votes. In other words, it helped us to understand as a voting public how much "tailoring" was going on.

You think it's reasonable to assume that classes of people you don't care for are guilty until proven innocent, but I don't. I still think accusations of guilt or corruption should be supported by evidence.

I'd love to have some evidence! In fact, I'd love to have evidence that proved Congress was innocent of the suspicion. Sadly, evidence is just what we're not going to get.

Sure, it feels good to accuse people on no evidence when you're already angry at them. But it's still not right, and such tactics don't strike me as likely to produce better government.

Again, how nice it would be to have evidence! That was the whole point of the STOCK law. You seem to want to oppose both the law that would provide evidence of whatever Congress is doing, and any judgment of Congress in the absence of evidence about what they are doing.

That leaves us unable to evaluate the 'tailoring' issue at all. You want to argue that this is fair, I gather, because of our usual principle of 'innocent until proven guilty.'

But that's a very good example of the problem, isn't it? How can we apply that standard evenhandedly in cases where you get to determine what evidence is available? Or what the crimes are of which you might be guilty in the first place? We can't get a warrant because they have neglected to make a law against insider trading on Congressional knowledge; and we can't evaluate the evidence as voters because they've repealed the law that would make the information available.

Thus, we are obliged to judge in ignorance of the evidence. The law doesn't apply to them, because they who make the law made sure that it does not. If we are not permitted to judge them guilty in the absence of evidence, then we must judge them innocent. The Senator wears a beautifully tailored suit, don't you think?

Posted by: Grim at April 15, 2013 06:55 PM

...if I wrote the law so that it excepted philosophy from taxation, I would merely get the same benefit as you and everyone else. Nevertheless, there's an issue here that deserves our attention. :)

That doesn't apply to the tax code income brackets, though. Nor to whether investment income is taxed at the same rates as ordinary income.

I'd love to have some evidence! In fact, I'd love to have evidence that proved Congress was innocent of the suspicion. Sadly, evidence is just what we're not going to get.

So you want a law that makes Congress prove it's not guilty of some imagined offense by publishing personal financial information online when they're already required to file those details? That's not reasonable. I wouldn't vote for a law like that, even though it doesn't really affect me. It's just plain idiotic.

Which no doubt explains why Congress passed it in the first place :p

That was the whole point of the STOCK law. You seem to want to oppose both the law that would provide evidence of whatever Congress is doing, and any judgment of Congress in the absence of evidence about what they are doing.

No, it wasn't from what I've just read.

Posted by: Cassandra at April 15, 2013 07:04 PM

Publishing financial transactions online does NOT prove insider trading. It's not evidence in any sense of the word because it doesn't establish that insider trading took place.

That's what you don't seem to understand, Grim.

Posted by: Cassandra at April 15, 2013 07:06 PM

Nor to whether investment income is taxed at the same rates as ordinary income.

Well, that's exactly the analogy I intended. I understand your counterargument -- that investments are good for society in a way that earning your money via salary is not. But I might make a similar argument that philosophy is good for society, and deserving of separate treatment.

That argument might even be right! Aristotle would say it was. But it wouldn't change the fact that voters ought to carefully consider how dispassionately I was pursuing their interests as their representative in making law based on that argument.

So you want a law that makes Congress prove it's not guilty of some imagined offense by publishing personal financial information online when they're already required to file those details? That's not reasonable. I wouldn't vote for a law like that, even though it doesn't really affect me. It's just plain idiotic.

Thank you, I appreciate the compliment. Yes, that's what I want. I want them either to abstain from investing in companies they regulate, or to provide evidence that the financial benefits they obtain from such investments are not unduly influencing their duties as lawmakers.

Filing the details in ways voters can't know about does nothing for that, especially since they've carved an exception for themselves in insider trading law. It's not for no reason that nearly half of Congress, but only one percent of Americans, are millionaires.

Posted by: Grim at April 15, 2013 07:17 PM

Publishing financial transactions online does NOT prove insider trading. It's not evidence in any sense of the word because it doesn't establish that insider trading took place.

Under the law, there's no danger that insider trading took place. The law doesn't regulate Congress' knowledge.

What I want is a standard that requires them to explain to the voters just how it was that they invested in a company they were about to boost, or one they were about to destroy. I don't propose criminal penalties, just that it be in front of voters so they have to answer questions about it.

Posted by: Grim at April 15, 2013 07:20 PM

By the way, when we say this is an imagined offense without evidence, let's be sure we understand that the imagination is not running wild, at least.

[B]etween 1985 and 2001 members of Congress enjoyed a considerable advantage over members of the public in their investment returns.... “A previous study suggests that U.S. Senators trade common stock with a substantial informational advantage compared to ordinary investors and even corporate insiders,” says the introduction to the report. “We apply precisely the same methods to test for abnormal returns from the common stock investments of Members of the U.S. House of Representatives. We measure abnormal returns for more than 16,000 common stock transactions made by approximately 300 House delegates from 1985 to 2001. Consistent with the study of Senatorial trading activity, we find stocks purchased by Representatives also earn significant positive abnormal returns (albeit considerably smaller returns). A portfolio that mimics the purchases of House Members beats the market by 55 basis points per month (approximately 6% annually).”
So, tailoring and this kind of Congress-specific insider trading is something we really ought to have in front of the voter. It's important, and it justifies a separate standard. The guy who's an ordinary citizen but earned a million or two? We figure he must have earned it.

The guy who went to Congress and suddenly got rich off abnormally-performing stock investments... when that abnormal performance in investments is the norm for the House and Senate? We figure he must have cheated. And if he wants us to do our figures otherwise, it's not unreasonable to ask him to prove it.

Posted by: Grim at April 15, 2013 07:50 PM

As to the first, tax avoidance is an American tradition. Mom, Apple Pie, and Tax Payment only if Required by Law. We all do this, it's our heritage. In that sense I suppose the Obama's are conservative.

As to the second, investments made by members of Congress. It is public knowledge how and what they invest in. However, do you remain convinced that if you invest in things that members of Congress do you might not be accused of insider trading?

I'm not convinced of that. Even though you use knowledge, that is publicly available, via Congressional records, you might have still benefitted by insider knowledge.

Once or twice removed from insider knowledge...

Sure it's OK. Ask Martha.

Posted by: Allen at April 15, 2013 07:55 PM

...or to provide evidence that the financial benefits they obtain from such investments are not unduly influencing their duties as lawmakers

IOW, you want them to prove a negative (prove they weren't engaging in insider trading). What could possibly go wrong .... especially in a media environment where > 90% of journalists are liberals.

Wow.

Posted by: Cassandra at April 15, 2013 08:24 PM

Shouldn't be too hard, if they aren't investing in the industry they are regulating. If they are, then yes, they ought to be able to provide a clear explanation of why we shouldn't regard their investments coupled with their regulation as problematic.

Posted by: Grim at April 15, 2013 08:27 PM

Your boy Romney did this, right? The answer he gave was that it was all done through a blind trust. That would be satisfactory as long as it was genuinely blind, although it would probably mean leaving aside the extra 6% annually from insider information (for House members -- the Senate does far better).

Posted by: Grim at April 15, 2013 08:29 PM

He's not "my boy", Grim.

[B]etween 1985 and 2001 members of Congress enjoyed a considerable advantage over members of the public in their investment returns....

That's one of the more spectacularly stupid statements I've read lately. No one in their right mind takes a biased sample (people who are capable enough to get elected to Congress), compares them to the general population, and is shocked.... SHOCKED to find differences in outcomes.

I'll be that if you compared portfolios from families with money to those from lower or middle income investors, you might find a few differences in ROI too.

And FWIW, Grim, we don't have money tied up in stocks and never have had. Just in case our motives are suspect too (obviously anyone who makes more money than the general population must be benefiting from some unfair process).

This is nasty, nasty stuff and I want no part of it. I'll gladly entertain actual evidence of guilt, but guilt by being-more-successful-than-Joe-Sixpack is a non-starter.

Posted by: Cassandra at April 15, 2013 08:39 PM

I disagree entirely, but you're welcome to what you want. I don't own stocks either, but if I did (or you did) I wouldn't think anything wrong with it. What's wrong is buying stocks knowing you're about to vote on legislation that will make that company rich, or selling stocks knowing you're about to vote to impose a stern regulation on an industry. There's no comparison with ordinary people.

But if the answer is that these are highly competent people who are just smarter than the rest of us -- these Joe Bidens, Dianne Feinsteins and the like -- then we're in bad trouble.

Posted by: Grim at April 15, 2013 08:50 PM

What the heck is the matter with stocks? Bought, em', lost my arse on em' worked for em', been offered em' in settlement, seen em' be valuable, seen em' been worthless.

For pity sake it's life.

Posted by: Allen at April 15, 2013 10:00 PM

What the heck is the matter with stocks? Bought, em', lost my arse on em' worked for em', been offered em' in settlement, seen em' be valuable, seen em' been worthless.

I don't think there's anything wrong with stocks.

I don't think there's anything wrong with being a successful investor either, but apparently having better returns than the general public is now evidence of insider trading :p

I don't actually have any problem - in principle - with rules barring Congress from profiting by information or deals unavailable to the general public.

The problem with Grim's objections here is that he was just fine with Rick Santorum doing just that. He brushed the whole thing off by saying, essentially, "Well I've never been much on rules myself".

But that's not really the point, is it? If you maintain that those who make rules for the rest of us should be held to stricter standards, then you can't very well apply a more lenient standard to lawmakers without undercutting your argument.

FWIW, I would actually be fine with barring members of Congress from certain types of transactions completely while they're in office. What makes no sense to me is letting them do certain things, subject to ridiculous disclosure schemes that at best expose them to precisely the kind of guilty-until-proven-innocent logic Grim keeps throwing out, and at worst make them vulnerable to identity thieves and politically motivated smear tactics.

The press have long been far more interested in torpedoing Republican politicians than in holding
Dems to account. If Grim wants laws that help the press in their ongoing campaigning for the DNC but do nothing to actually stop insider trading, he is free to support them.

Personally, though, I don't see how asymmetrical, politically motivated scrutiny of Congress helps the public.

Posted by: Cassandra at April 16, 2013 05:29 AM

All I'd like is them to be accountable to the public for how they use the public's power. If they are using it to get rich, that's a use of the power entrusted to them for their own personal advantage. If we as voters can't know that they are doing this, we can't hold them accountable at the ballot box.

If the argument is that voters shouldn't get to hold them accountable for this kind of conduct, well, we don't see eye to eye on what the vote is for in the first place. It sounds like you're more worried about the media being anti-Republican than

All I want them to do is be accountable to the voters for how they've used the power of the office entrusted to them by us. If we can't know what they're doing with the power, we can't hold them to account.

As I recall the context of the Santorum thing wasn't investment fraud, it was about him sending his kid to a school in a district where he did own a home, and paid property taxes, but which was not his primary home. Maybe you're thinking of something else, though: I haven't thought of anything related to the 2012 elections in a while now. But I'm applying the same standard to him as to others: I only ask of elected officials that, whatever you do, you explain it to the voting public. He did, and didn't win, although I think it wasn't because of this issue but rather the opposite: Americans were afraid he was too strongly moral for the kind of lives they prefer to live these days.

Barring Congress from investing in industries it regulates is quite a disability -- it really probably means that they can't invest at all, except possibly through a blind trust (or some similar scheme). That might be fine, if Congress will agree to such a rule.

If not, well, anyone who can reliably out-perform the market by six percent has a solid future in an investment firm. Well, assuming their ability to do it arises from their brilliance, and not from insider information about how Congress is going to regulate the industries in which they are investing.

Posted by: Grim at April 16, 2013 07:19 AM

That wasn't very well constructed, was it? Sorry about that.

In any event, the problem with the media only gets worse if we don't have sunshine. With sunshine we could look at everyone, and make our own judgments. We could hold our own representatives and Senators to account.

Without it, we have no independent capacity to do that. The law can't do it, because what they are doing is legal (since they have tailored the laws to make it legal). We can't do it, because the information we need is not public. The media is even freer to pick and choose what to make public, and what to sweep under the rug.

Posted by: Grim at April 16, 2013 07:34 AM

If the argument is that voters shouldn't get to hold them accountable for this kind of conduct, well, we don't see eye to eye on what the vote is for in the first place. It sounds like you're more worried about the media being anti-Republican than... [not finished]

That's not a reasonable reading of anything I said.

You haven't established that forcing them to publish personal financial data online will actually "hold them accountable". As I already stated, I'd rather see Congress banned from buying stocks altogether than construct invasive transparency schemes that don't actually do what they're supposed to do.

All I want them to do is be accountable to the voters for how they've used the power of the office entrusted to them by us. If we can't know what they're doing with the power, we can't hold them to account.

You're not going to know that from what this law was asking them to do, either. You'll only know what stocks they bought and sold. You won't know if they used insider info, so you won't know how they "used their power". At best, you'll be able to say, "GOTCHA! You made money on a sale of securities after being 1 of 500 or 100 other people who voted on something (maybe) that may or may not have had anything to do with stock prices on the day you sold or bought stock".

Not impressive.

re: Santorum, I'm thinking of the mortgage debacle where he got a $500K, 5 year mortgage on an income of $162K from a firm that doesn't lend to non-account holders (he wasn't one, so he didn't qualify) in violation of Senate rules. That's the textbook definition of getting a sweetheart deal not offered to the general public. The firm was a BIG contributor to his campaign, by the way.

How do you get a 500K mortgage from a bank that only lends to existing clients (and you're not one) and you already owe between 350-700K on rental properties - all on an income of 162K?

A few years later he bought a 2 million dollar home. More information here:

http://washingtonexaminer.com/how-rick-santorum-got-a-2-million-virginia-estate/article/1168636

Posted by: Cassandra at April 16, 2013 08:46 AM

That wasn't very well constructed, was it? Sorry about that.

Most of my comments these days aren't terribly well constructed. No worries :)

With sunshine we could look at everyone, and make our own judgments. We could hold our own representatives and Senators to account.

The average citizen is never going to do the research and in-depth investigation that would be required to know whether an individual Congresscritter had engaged in insider trading or not. That's the problem - it's illusory transparency.

Posted by: Cassandra at April 16, 2013 08:49 AM

You haven't established that forcing them to publish personal financial data online will actually "hold them accountable". As I already stated, I'd rather see Congress banned from buying stocks altogether than construct invasive transparency schemes that don't actually do what they're supposed to do.... The average citizen is never going to do the research and in-depth investigation that would be required to know whether an individual Congresscritter had engaged in insider trading or not. That's the problem - it's illusory transparency.

These two points go together, and if they are both right then we really need a more radical solution than banning Congress from investing. If you're correct about this, the small-r republican experiment in government is a failure.

But I am not sure you are right, at least not completely. You would do the kind of research I'm talking about, and you'd publish it. Others would do so too, if only some of them and for 'their side.' The only reason I know anything about this Santorum mortgage issue is that you brought it up, and reminded me of it just now after I had forgotten about it. I'm still not sure I understand the force of your claims about it, but that could simply be my own ignorance about the business of mortgage loans. One thing I've never done is take out a mortgage, so the process is one I know by second-hand description rather than immersion.

"GOTCHA! You made money on a sale of securities after being 1 of 500 or 100 other people who voted on something (maybe) that may or may not have had anything to do with stock prices on the day you sold or bought stock".

I don't think "Gotcha!" was the point. The point was to enable people to ask questions, not to proclaim victory. The problem now is that we don't know what to ask.

It's much akin to campaign donations, except the gain is even more personal. Now I'm not against campaign donations, no more than I'm against people owning investments. But I do think it's important to have a public record of them.

Case in point: there's an ongoing dispute in Congress between the Army and a company that makes a product called Palantir. The Army has developed a similar system internally, allegedly more compatible with existing systems, and would like to continue to develop it. Palantir (and some of its advocates in the services who have used it) would like the Federal Government to buy their product instead.

This is a reasonable debate for us to have, but in having it I think it is helpful to have also this chart of Palantir's lobbying expenditures. It's also helpful to know exactly whom they are lobbying, and how they are spending their money.

That's not to say that they might not be the better system, finally -- that requires evaluation and debate. But it is helpful to note the finger they're putting on the scales. The Army can't lobby Congressmen or donate to them. Palantir can. There's nothing really wrong with them doing it, but a question we should be prepared to ask is how much it is influencing the debate.

Posted by: Grim at April 16, 2013 10:34 AM

I can imagine a similar debate with a stock-purchase database in which a Congressman is asked why he invested in a corporation right before legislation that helped that corporation. He might have a good answer. "Ultimately we were being asked to invest taxpayer dollars in an American or a French firm," he might say, "and it was clear from the whip count that we preferred to invest in the American firm. While it's true I made some money off this, I think it was the right decision because it helps Americans create jobs. My investment will provide them with just a little more capital, so they can do that a little faster. In the process, I made money too. That's how it is supposed to work."

That's a good answer, I think. On the other hand the vote might have gone the other way, and the citizens might demand an account of why he had helped move jobs overseas at personal profit. I think he should be prepared to answer that question as well. Maybe it's a harder question to answer: "Well, the whip count showed the vote was going to go as it went, so I just figured I ought to make a little cash off it." His constituents might buy that, if they liked him for other reasons, but I think he ought to have to answer the question.

Posted by: Grim at April 16, 2013 10:40 AM

Grim, I can only say one thing. Trading on inside information is a crime. A crime that people are imprisoned for. Which includes a loss of liberty, and a loss of a number of rights; is it too much to ask that members of Congress not do this?

When did we ever immunize members of Congress from commission of criminal behavior? Yes, I know that the Constitution gives a certain immunity to the Legislature from the laws it passes, but no one ever assumed it was a license to commit basic crimes.

Posted by: Allen at April 16, 2013 11:51 PM

Well, it's a crime if there's a law against it. Turns out there's no law against Congress using its internal information to make investments. We could ask for a law... from Congress. Maybe someday we'll get one.

It may be a moral wrong, but it's no crime. Should it be? Well, as you say, people go to jail for very much the same thing if the inside information is from the industry.

Posted by: Grim at April 17, 2013 12:49 AM

Turns out there's no law against Congress using its internal information to make investments.

Grim, that's simply not true.

Posted by: Cassandra at April 17, 2013 08:00 AM

It was true before the STOCK Act. "The Securities and Exchange Commission (SEC) does not have the authority to hold employees of Congress or the Executive Branch liable for using non-public information gained from official proceedings for insider trading."

Now, what remains of that act after the revisions I haven't seen made public yet. It could be that some of the definitions survived, but we won't know to what degree they did until the text of the revised law is public.

Posted by: Grim at April 17, 2013 10:20 AM

Now, what remains of that act after the revisions I haven't seen made public yet. It could be that some of the definitions survived, but we won't know to what degree they did until the text of the revised law is public.

The parts that were removed had to do with the requirement to post personal financial data in an online, searchable database. I've read up on this but don't have time to write about it now.

The online posting requirement applied not just to Congress, but to nearly 30,000 federal employees.

From everything I've read, that part was stupid, stupid, stupid (did I mention stupid?) law - ill considered, didn't accomplish the intended goal, and violated pretty much every cybersecurity tenet out there.

Posted by: Cassandra at April 17, 2013 11:11 AM

I'm done. When the path to riches is through getting elected, or being a political appointee, then the experiment is over.

Grim, it might be morally wrong? You don't know why insider trading is poisonous? Why don't you just steal people's money and call it for the good?

To hell with it. They can catch me if they can.

Posted by: Allen at April 17, 2013 11:45 PM

Suppose I don't know. Why don't you explain to me just what makes it wrong?

Cass, I'm willing to believe that may be right, but so far I see only media reports and not the text of the new law. NPR seems to agree with you, but I'm sure you'll understand that I'd prefer to wait until I can read the new law myself.

Posted by: Grim at April 18, 2013 12:44 AM

Be darned if I can see why insider trading is wrong, though I can see why it sometimes is subjected to regulation--in which case, violating those regulations secretly is a form of fraud.

"Insider trading" refers to someone buying or selling investment securities when he has reason to believe he knows things that can give him a better guess than the public about whether the price is about to go up or down. Every investor who ever lived did a good bit of that all the time, if he wasn't simply throwing darts at a dartboard. In the area of publicly traded securities, we restrict the practice for insiders because we want to encourage the public to play at this investment game, too, and they won't do it if they think the cards are stacked in favor of the inside crowd. (I'm not guessing; check the legislative history.)

Also, we worry that ordinary investors shouldn't be investing without huge piles of standardized information, and one way to give companies a strong incentive to keep that information up to date is to require them to make each news bombshell public before they personally benefit from trading on it. Companies put huge effort into deciding what has to go in the annual and quarterly reports and what must be announced in a special 8K or at least put out in the form of a press release.

But if you take the publicly traded securities aspect out of it, imagine Joe Blow who wants to buy a painting. Is it wrong of him to place a bid if he knows a rich guy who confessed to him while drunk that he's suddenly developed a passion for the artist and will pay anything to collect his works? Must Joe Blow announce this knowledge to everyone at the auction? What if Joe Blow has been studying the art world for a long time, knows a lot of people in it, and has done a great job of putting all the background information together to form guesses about what's about to be hot and what's not? What if he's married to the artist and knows she's about to stop painting?

Posted by: Texan99 at April 18, 2013 11:28 AM

As someone married to an artist perpetually in danger of stopping painting, I have complete sympathy with that argument. :)

Posted by: Grim at April 18, 2013 12:42 PM

I don't really know much about electronic trading, but I'm glad someone questioned the immorality of insider trading.

I didn't want to comment b/c I've been terribly busy and am painfully aware of my ignorance on this subject, but since Tex gave me an opening, I might as well admit my dissmartitude and learn something. I can see instances where it would be clearly harmful, but also many others where it strikes me as just plain good luck. And legislatures aren't terribly good at writing nuanced legislation that distinguishes between the two.

I also have questions about the notion that Congress is privy to incredibly sensitive information that's unavailable to the public. Pretty much everything Congress does is written about, posted about online, covered by the media. And there are tons of lobbyists who know about it too.

We're not exactly talking about the CIA or NSA here - we're talking about the likes of Leaky Leahy and his merry band of loquacious brothers who couldn't keep a secret if it were delivered to them in a locked safe with 6" wide titanium walls.

I'm willing to be educated on this issue, but I don't see it as being nearly so clear cut as it's being made out to be. I would think that one potential issue would be the danger of starting a run on the stock of an already vulnerable company so that ordinary stockholders wouldn't have a chance of getting their money out in time. Another would be voting a particular way because you had a pre-existing conflict of interest (IOW, you vote in a way you would not otherwise vote in order to make a financial killing). Those scenarios seem clearly wrong to me.

But if the harm here is merely that you know something and that knowledge was acquired legally and isn't closely held or obtained under a guarantee of confidentiality and you don't do anything you wouldn't have done anyway except buy or sell stock, I'm having trouble seeing the moral issue.

What am I missing?

Posted by: Cassandra at April 18, 2013 01:24 PM

The moral issue is that those who are typically privy to confidential information also have an effect on that confidential information. That is, the people who are aware of a future merger also have a hand in making that merger happen (or not happen). That these decision makers can make a decision that benefits them personally at the expense of their shareholders is a breach of fiduciary duty.

With the proliferation of 401k programs and stock options the ties between "can act on information" and "make information happen" are much looser. Most Insider Trading prosecutions happen to "C" level executives, not middle managers who've overheard hallway conversations.

Posted by: Yu-Ain Gonnano at April 18, 2013 02:27 PM

those who are typically privy to confidential information also have an effect on that confidential information. That is, the people who are aware of a future merger also have a hand in making that merger happen (or not happen).

That makes perfect sense to me, and falls well within my two scenarios above. But I'm having trouble fitting a single Congressman or woman into that mold. One vote doesn't have that power. They'd have to act in concert.

That's what I'm not getting here.

Posted by: Cass at April 18, 2013 02:30 PM

The .gov example would be the Senator sitting on the committee that awards military hardware contracts. These Senators, after deciding to give the contract to Lockheed, then go buy a bunch of the stock because they know when the announcement is made, two weeks later, the stock will soar. This isn't a "pre-existing" conflict of interest. They very well have made the contract award completely above board.

Is the use of *your decision* to award a contract constitute fraud against the person you buy those shares from?

Would the seller see it that way?

Would the voting public have cause to doubt your committment to acting in their best interest? Or did you run to serve your own?

What about the college intern taking notes? He had no part in the actual decision making, so he didn't *cause* anything to happen.

Would people specifically seek out these jobs for the purposes of overhearing stock tips?

Would that cause people to lose faith in the integrity of the system?

Posted by: Yu-Ain Gonnano at April 18, 2013 02:50 PM

Note that in my scenario no one needed to "act in concert". In fact, any given congress critter could have voted to award the contract to a different company.

But does having lost the vote make it better?

Posted by: Yu-Ain Gonnano at April 18, 2013 03:02 PM

I've never appreciated watching public servants get rich buying up land where they know the new freeway is going to go. If nothing else, if makes you wonder whether they voted for the new freeway because it would help the city to put it there, or because they owned property there. That's a conflict of interest rather than a fraud on the market.

There are clear-cut cases of usurpation of corporate opportunity, and that's something to which legal liability attaches even outside the insider-trading framework. A corporate director or officer is not supposed to benefit personally from something that should have been a valuable opportunity for his company, and can be sued for breach of fiduciary duty if he tries it. But that's different from buying up the stock of his own company when it's about to become more valuable, which is an investor opportunity rather than a corporate one. A usurpation would be more like opening franchises in your own name in a new city that your company has just secretly identified as likely new market.

Posted by: Texan99 at April 20, 2013 03:32 PM

If nothing else, if makes you wonder whether they voted for the new freeway because it would help the city to put it there, or because they owned property there. That's a conflict of interest rather than a fraud on the market.

I believe Cass already addressed this case. If they owned the land first, then voted it would present a conflict of interest which she has already conceeded as a moral harm, but may be mitigated as it needs collusion to work: What if the other members had voted to put the freeway *somewhere else*?

Posted by: Yu-Ain Gonnano at April 22, 2013 09:22 AM

My point about all this -- which I still maintain -- is that the moral hazards associated with legislatures possibly enriching themselves are best addressed by sunshine policies. If the voters can see that you are getting rich while making the laws, you'll have to explain yourself to them. They may be OK with it: there's nothing necessarily wrong with getting rich, even off public service. But you should have to give an account of it, so they can judge whether you are incidentally getting rich while doing a good job, or whether you are doing the job you are doing inordinately because that is the kind of job that will make you rich.

Posted by: Grim at April 22, 2013 10:07 AM