This is a crucial week in Washington. Congress is back in session and the White House is holding a meeting Thursday with Congressional leaders to discuss issues.
One of the issues will be extending tax cuts to the wealthiest 2 percent of the taxpayers—tax cuts that will increase the deficit by $700 billion over the next 10 years and not be effective at all in creating jobs and helping small businesses.
How can you help stop this bad business decision?
Join me in a public briefing to learn more today at 2:45 p.m., sign a petition (see below) and call your elected officials. Thanks to Business for Shared Prosperity for their hard work and coordination on this effort.
JOIN THE BRIEFING CALL on Monday, Nov. 15 at 2:45 PM EST with Frank Knapp, CEO and President of the South Carolina Small Business Chamber of Commerce, and Steve Wamhoff, Legislative Director of Citizens for Tax Justice. Insight on the issues, legislative environment and tips for taking action.
► Call in #: (760) 569-7676, access code 818215. Monday, Nov 15 at 2:45 pm EST
SIGN/CIRCULATE PETITION: Urge Congress to let the high-end, budget-busting tax cuts expire for taxable income above $250,000.We can't afford to lose $700 billion to invest in small business job creation, education, health, infrastructure and renewable energy in the next decade.
► Sign the petition today
"Extending the high-end Bush tax cuts serves K Street lobbyists, not Main Street shop owners. Politicians should not use us to justify a very bad business decision." - Frank Knapp, CEO, South Carolina Small Business Chamber of Commerce.
TELL PRESIDENT & CONGRESS WHAT YOU THINK:
Sign the petition and follow it up with a personal call or letter for maximum impact.
► Phone the White House Switchboard 202-456-1414; Comment line 202-456-1111
► Congressional switchboard 202-224-3121.
► Write Your Senator at http://www.senate.gov/general/contact_information/senators_cfm.cfm
► Write Your Rep at https://writerep.house.gov/writerep/welcome.shtml
REPORT & TALKING POINTS: Restoring Top Tax Rates Makes Sense for Small Business.
Our short report tells why it makes good business sense to reset top tax rates to where they were between 1993 and 2000 during the longest economic expansion in US history.
► Read the Report, Use the Quotes and Talking Points
GET YOUR VOICE IN THE MEDIA
► Press Release: Business Leaders Call on President, Congress to Let Bush’s High-End Tax Cuts Expire
► Letter to the Editor: Write a short letter to the editor responding (pro or con) to an article, editorial or op-ed you see. Refer if you can to Business for Shared Prosperity. Letters to the editor are widely read!
► Recent Press: Frank Knapp, We Didn't Vote for This, The Hill
► Talk to the Press: The more people involved, the more areas we can cover. Contact Bob Keener at bobkeener@businessforsharedprosperity.org or 617-610-6766.
Thank you for signing the petition, speaking out and spreading the word!
Monday, November 15, 2010
Saturday, November 13, 2010
Health insurers thrive, but are patients?
I couldn't help posting this great analysis of health insurance company doublespeak that I saw in The State on Friday. Enjoy!
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By DAVID LAZARUS Los Angeles Times
It’s a good time to be a health insurer.
Three of the biggest names in the insurance game reported rock-solid profits last week. Aetna said its third-quarter net income jumped 53 percent over the same period last year, to $497.6 million. Well-Point said its profit rose 1.2 percent to $739.1 million. Health Net posted a net income of $62.7 million, compared with a loss of $66 million a year earlier.
Angela Braly, chief executive of Well-Point, attributed the company’s strong performance to “disciplined administrative expense control.”
Aetna CEO Ronald Williams was more expansive. He cited “a reduction in utilization of health care services after the surge we saw in 2009, combined with appropriate pricing and effective medical quality and cost management.”
Well, that sounds fine and dandy until you parse what exactly he’s saying.
That “reduction in utilization of health care services” basically means fewer people went to the doctor. Did we all suddenly become healthier? Not likely.
Jamie Court, president of Consumer Watchdog, a Santa Monica, Calif., advocacy group, said Americans are skipping doctor visits because they’ve switched to plans with higher deductibles or their employers have jacked up co-payments.
“People aren’t getting the care they need because they have to pay more out of pocket,” he said.
This raises an interesting question about the looming reform of the nation’s healthcare system, under which everyone will be required to have insurance. If available coverage is too pricey for people to use, will Americans be any better off, health-wise?
While most insurance policies will cover catastrophic events, it’s entirely possible that healthcare costs will be too high for the sort of routine care or preventive treatment that can head off illnesses before they become debilitating.
Then there’s that bit from Williams about “appropriate pricing.” What’s that mean?
“Rate increases,” answered Sabrina Corlette, a research professor at the Georgetown University Health Policy Institute. “It means higher rates, as well as more aggressive underwriting that excludes people for certain conditions or charges them higher premiums.”
In September, the California Department of Insurance approved a 19 percent rate increase for 65,000 Aetna policyholders. This followed rate increases of as much as 29 percent for Anthem Blue Cross, Blue Shield and Health Net, affecting more than 1 million policyholders.
According to the Kaiser Family Foundation, workers now pay 47 percent more for family health coverage they receive through their jobs than they did five years ago, while wages have gone up only 18 percent.
And what about “effective medical quality and cost management”?
Court at Consumer Watchdog said this is just another way of saying that insurers are denying more claims. “It’s code for some bureaucrat somewhere telling people that a treatment isn’t necessary,” he said.
The average health insurance agent now receives more than 200 requests annually from clients to provide assistance in pursuing a claim, according to a survey released this month by the National Association of Insurance and Financial Advisors, an industry group.
Most agents say they have to contact an insurer at least twice on behalf of a client, the survey found. Eleven percent say they have to make six or more calls in trying to help resolve a claim.
“The most effective cost management for insurers is to decline services,” said Ron Pollock, president of the advocacy group Families USA. “And when there’s a dispute, it’s often very difficult to get a satisfactory result from an insurance company.”
It’s a good time to be a health insurer. For patients, clearly, not so much.
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By DAVID LAZARUS Los Angeles Times
It’s a good time to be a health insurer.
Three of the biggest names in the insurance game reported rock-solid profits last week. Aetna said its third-quarter net income jumped 53 percent over the same period last year, to $497.6 million. Well-Point said its profit rose 1.2 percent to $739.1 million. Health Net posted a net income of $62.7 million, compared with a loss of $66 million a year earlier.
Angela Braly, chief executive of Well-Point, attributed the company’s strong performance to “disciplined administrative expense control.”
Aetna CEO Ronald Williams was more expansive. He cited “a reduction in utilization of health care services after the surge we saw in 2009, combined with appropriate pricing and effective medical quality and cost management.”
Well, that sounds fine and dandy until you parse what exactly he’s saying.
That “reduction in utilization of health care services” basically means fewer people went to the doctor. Did we all suddenly become healthier? Not likely.
Jamie Court, president of Consumer Watchdog, a Santa Monica, Calif., advocacy group, said Americans are skipping doctor visits because they’ve switched to plans with higher deductibles or their employers have jacked up co-payments.
“People aren’t getting the care they need because they have to pay more out of pocket,” he said.
This raises an interesting question about the looming reform of the nation’s healthcare system, under which everyone will be required to have insurance. If available coverage is too pricey for people to use, will Americans be any better off, health-wise?
While most insurance policies will cover catastrophic events, it’s entirely possible that healthcare costs will be too high for the sort of routine care or preventive treatment that can head off illnesses before they become debilitating.
Then there’s that bit from Williams about “appropriate pricing.” What’s that mean?
“Rate increases,” answered Sabrina Corlette, a research professor at the Georgetown University Health Policy Institute. “It means higher rates, as well as more aggressive underwriting that excludes people for certain conditions or charges them higher premiums.”
In September, the California Department of Insurance approved a 19 percent rate increase for 65,000 Aetna policyholders. This followed rate increases of as much as 29 percent for Anthem Blue Cross, Blue Shield and Health Net, affecting more than 1 million policyholders.
According to the Kaiser Family Foundation, workers now pay 47 percent more for family health coverage they receive through their jobs than they did five years ago, while wages have gone up only 18 percent.
And what about “effective medical quality and cost management”?
Court at Consumer Watchdog said this is just another way of saying that insurers are denying more claims. “It’s code for some bureaucrat somewhere telling people that a treatment isn’t necessary,” he said.
The average health insurance agent now receives more than 200 requests annually from clients to provide assistance in pursuing a claim, according to a survey released this month by the National Association of Insurance and Financial Advisors, an industry group.
Most agents say they have to contact an insurer at least twice on behalf of a client, the survey found. Eleven percent say they have to make six or more calls in trying to help resolve a claim.
“The most effective cost management for insurers is to decline services,” said Ron Pollock, president of the advocacy group Families USA. “And when there’s a dispute, it’s often very difficult to get a satisfactory result from an insurance company.”
It’s a good time to be a health insurer. For patients, clearly, not so much.
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Friday, November 12, 2010
We didn't vote for this
The opinion editorial below ran on the Huffington Post and The Hill yesterday.
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Whether Americans voted for Republicans or Democrats in the mid-term election, one thing is clear: Voters were demanding that Congress focus intensively on job creation on Main Street -- not lobbyists and campaign donors from big business and Wall Street.
Apparently, many in Congress and President Obama, if recent reports are true, either didn't get the message or simply don't care now that the voting is over.
The top legislative priority of the newly "Tea Party-empowered" during the lame duck session is hardly what Tea Party insurgents had in mind. The proposal is to (1) increase the national debt by borrowing $700 billion to $1 trillion over the next 10 years; (2) spend the money on big, non-job producing tax cuts for the wealthiest 2 percent of Americans; (3) use small business as the excuse.
This bad-business proposal is now being pushed in Congress and the media by those advocating extending the Bush-era tax cuts to the top two income brackets. While proponents acknowledge that less than 3 percent of the taxpayers who would receive the tax cuts actually have some business income, they insist that these approximately 900,000 taxpayers are the very successful small business owners who will stop hiring and purchasing if they don't get their tax cut. Wrong, wrong, wrong.
First, almost all real small business owners are middle-class Americans with middle-class incomes. Walk down any Main Street and you won't find small business owners netting over $250,000 a year in profit (dollars remaining after the cost of employee wages and other business expenses are deducted from taxable income).
These middle-income, Main Street small businesses are the ones we really need to help create the new jobs to lift us out of this down economy There is absolutely no evidence that the wealthiest small business owners create more jobs than those in any other tax brackets. As any small business owner knows, the number of employees does not correlate with profit.
So who are these mysterious high-income "small business" taxpayers in the top two brackets who Congress is considering borrowing hundreds of billions from foreign countries in order to give a tax cut?
Very few of them are what most would consider small business owners. They include partners in large corporate law firms, hedge fund managers, K Street lobbyists, high-powered consultants, Wall Street bond traders and the country's wealthiest millionaires -- all of whom claim some business income and thus are counted in IRS eyes as small businesses. These aren't "mom and pop" businesses, says Adam Looney, senior fellow at the Brookings Institution.
Not only are the vast majority of these 900,000 "faux" small business taxpayers not involved in job hiring decisions, the tax cut won't even cause them to significantly increase their personal spending to create the demand for new jobs.
The non-partisan Congressional Budget Office (CBO) evaluated 11 policy options in terms of boosting economic growth and creating jobs. It found that "policies that would temporarily increase the after-tax income of people with relatively high income... would have smaller effects because such tax cuts would probably not affect the recipients' spending significantly."
The wealthiest American's are more likely to save their money from a tax cut rather than spend it, according to Moody's Analytics, Inc.
If we really want to give a tax cut that will create jobs, then we could cut employer payroll taxes on businesses that actually increase their workforce. The CBO estimates this would have six to eight times as much job-creating impact as an income tax cut.
Alternatively we could create more customers for our small businesses through infrastructure projects, many of them long overdue upkeep or modernization, or keeping teachers and law enforcement officers working rather than laid off. The policy the CBO found with the biggest bang for the buck is extending unemployment insurance -- a direct infusion of money into local economies by people buying for their basic needs.
Increasing the nation's deficit while not saving or creating jobs is just more politics as usual in Washington where those with the most money get rewarded with even more money.
Congress needs to hear this loud and clear. These high-end tax cuts serve K Street lobbyists not Main Street shop owners. Politicians should not use us to justify a very bad business decision.
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We Didn't Vote for This
by Frank Knapp, Jr.
Whether Americans voted for Republicans or Democrats in the mid-term election, one thing is clear: Voters were demanding that Congress focus intensively on job creation on Main Street -- not lobbyists and campaign donors from big business and Wall Street.
Apparently, many in Congress and President Obama, if recent reports are true, either didn't get the message or simply don't care now that the voting is over.
The top legislative priority of the newly "Tea Party-empowered" during the lame duck session is hardly what Tea Party insurgents had in mind. The proposal is to (1) increase the national debt by borrowing $700 billion to $1 trillion over the next 10 years; (2) spend the money on big, non-job producing tax cuts for the wealthiest 2 percent of Americans; (3) use small business as the excuse.
This bad-business proposal is now being pushed in Congress and the media by those advocating extending the Bush-era tax cuts to the top two income brackets. While proponents acknowledge that less than 3 percent of the taxpayers who would receive the tax cuts actually have some business income, they insist that these approximately 900,000 taxpayers are the very successful small business owners who will stop hiring and purchasing if they don't get their tax cut. Wrong, wrong, wrong.
First, almost all real small business owners are middle-class Americans with middle-class incomes. Walk down any Main Street and you won't find small business owners netting over $250,000 a year in profit (dollars remaining after the cost of employee wages and other business expenses are deducted from taxable income).
These middle-income, Main Street small businesses are the ones we really need to help create the new jobs to lift us out of this down economy There is absolutely no evidence that the wealthiest small business owners create more jobs than those in any other tax brackets. As any small business owner knows, the number of employees does not correlate with profit.
So who are these mysterious high-income "small business" taxpayers in the top two brackets who Congress is considering borrowing hundreds of billions from foreign countries in order to give a tax cut?
Very few of them are what most would consider small business owners. They include partners in large corporate law firms, hedge fund managers, K Street lobbyists, high-powered consultants, Wall Street bond traders and the country's wealthiest millionaires -- all of whom claim some business income and thus are counted in IRS eyes as small businesses. These aren't "mom and pop" businesses, says Adam Looney, senior fellow at the Brookings Institution.
Not only are the vast majority of these 900,000 "faux" small business taxpayers not involved in job hiring decisions, the tax cut won't even cause them to significantly increase their personal spending to create the demand for new jobs.
The non-partisan Congressional Budget Office (CBO) evaluated 11 policy options in terms of boosting economic growth and creating jobs. It found that "policies that would temporarily increase the after-tax income of people with relatively high income... would have smaller effects because such tax cuts would probably not affect the recipients' spending significantly."
The wealthiest American's are more likely to save their money from a tax cut rather than spend it, according to Moody's Analytics, Inc.
If we really want to give a tax cut that will create jobs, then we could cut employer payroll taxes on businesses that actually increase their workforce. The CBO estimates this would have six to eight times as much job-creating impact as an income tax cut.
Alternatively we could create more customers for our small businesses through infrastructure projects, many of them long overdue upkeep or modernization, or keeping teachers and law enforcement officers working rather than laid off. The policy the CBO found with the biggest bang for the buck is extending unemployment insurance -- a direct infusion of money into local economies by people buying for their basic needs.
Increasing the nation's deficit while not saving or creating jobs is just more politics as usual in Washington where those with the most money get rewarded with even more money.
Congress needs to hear this loud and clear. These high-end tax cuts serve K Street lobbyists not Main Street shop owners. Politicians should not use us to justify a very bad business decision.
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Thursday, November 11, 2010
Anticompetitive health insurance practices
One of the most popular parts of the new federal health care law is the establishment of the state insurance exchanges—large pools of customers for which insurance companies would compete to sign up for health insurance. Leveraging large numbers of customers to drive down insurance premiums is a concept loved by all—Democrats, Republicans, Libertarians, Tea Partiers, big business and small business.
But the idea relies on the premise that there is real competition in the health insurance market that actually works to drive down costs. Apparently that isn’t the case.
Many of us have been aware that the dominant health insurance company in a market demands that it be treated as a “most favored nation” by providers. In other words, these dominant insurance companies would negotiate fee rates with hospitals and other providers and require those providers to charge higher fees to the patients of other insurance companies. They leverage their volume of insureds to get a better deal.
In this way the dominant insurance company can always have more competitive premiums. If the providers don’t agree to play, the dominant insurance company can kick the providers out of their network thus reducing the provider’s revenue due to fewer patients.
This tactic makes it more difficult for other insurance companies to compete and insures (pardon the pun) that the dominant insurance company stays dominant.
As bad as this “most favored nation” tactic is for consumers because it reduces competition, it apparently is even worse than that.
Blue Cross Blue Shield of Michigan is being taken to court by the U.S. Justice Department and is accused of anticompetitive behavior that encourages higher provider rates and thus higher premiums.
Specifically, Michigan’s Blue Cross is being charged with “paying hospitals higher prices for medical care in exchange for a promise they would charge competing insurers as much as 40% more than they charge Blue Cross.”
The reality is that without real competition in the health insurance market because the “most favored nation” tactic is allowed, there is no incentive for insurance companies to try to get the lowest price for health care services. In fact, the companies make more money when the service costs rise because their built-in profit margins are a percentage of their health service cost payouts.
Is Michigan the only state where this is going on and forcing the individual and small group markets to pay inflated premiums due to a health insurance company greed? I doubt it.
But the idea relies on the premise that there is real competition in the health insurance market that actually works to drive down costs. Apparently that isn’t the case.
Many of us have been aware that the dominant health insurance company in a market demands that it be treated as a “most favored nation” by providers. In other words, these dominant insurance companies would negotiate fee rates with hospitals and other providers and require those providers to charge higher fees to the patients of other insurance companies. They leverage their volume of insureds to get a better deal.
In this way the dominant insurance company can always have more competitive premiums. If the providers don’t agree to play, the dominant insurance company can kick the providers out of their network thus reducing the provider’s revenue due to fewer patients.
This tactic makes it more difficult for other insurance companies to compete and insures (pardon the pun) that the dominant insurance company stays dominant.
As bad as this “most favored nation” tactic is for consumers because it reduces competition, it apparently is even worse than that.
Blue Cross Blue Shield of Michigan is being taken to court by the U.S. Justice Department and is accused of anticompetitive behavior that encourages higher provider rates and thus higher premiums.
Specifically, Michigan’s Blue Cross is being charged with “paying hospitals higher prices for medical care in exchange for a promise they would charge competing insurers as much as 40% more than they charge Blue Cross.”
The reality is that without real competition in the health insurance market because the “most favored nation” tactic is allowed, there is no incentive for insurance companies to try to get the lowest price for health care services. In fact, the companies make more money when the service costs rise because their built-in profit margins are a percentage of their health service cost payouts.
Is Michigan the only state where this is going on and forcing the individual and small group markets to pay inflated premiums due to a health insurance company greed? I doubt it.
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Monday, November 8, 2010
Triple the impact of your holiday dollar$
With the holiday season fast approaching and customers getting ready to open up their wallets, this is really the time to remember your SC locally-owned small businesses.
Please join us in our “BuySC” nonprofit action campaign. Surveys continue to show that communities with programs encouraging buying from locally-owned businesses improve the sales for those businesses during the holidays. When customer awareness of these programs is high, they seek out locally-owned businesses for their shopping and purchases. It’s just that simple.
And not only do the locally-owned retailers benefit, their communities benefit in a very tangible way.
All studies indicate that your spending dollar has THREE TIMES the economic impact on your local economy when you buy from a locally-owned business than if that same dollar is spent at a big box store or national chain with out-of-state ownership.
You hold the key to growing your local economy and it is right in your wallet.
The nonprofit SC Small Business Chamber of Commerce isn't alone -- there are a number of "shop local" campaigns out there, from Lowcountry Local First and the SCDA's Certified SC Grown program to The 3/50 Project, which inspired our new Buy SC "Local Has It" quarterly action campaign.
TRIPLE THE BANG FOR YOUR BUCK in leading us out of these recessionary times without spending any more money during this holiday season and all year. Just make your purchases from a SC locally-owned small business.
If you need help, we’re building our BuySC.org website directory for consumers to find locally-owned small businesses. These business owners believe in the power of keeping our money in local economies.
If you believe and want to TRIPLE the impact of your money to help, start now. Shop with SC locally-owned businesses and watch your local economy grow.
Please join us in our “BuySC” nonprofit action campaign. Surveys continue to show that communities with programs encouraging buying from locally-owned businesses improve the sales for those businesses during the holidays. When customer awareness of these programs is high, they seek out locally-owned businesses for their shopping and purchases. It’s just that simple.
And not only do the locally-owned retailers benefit, their communities benefit in a very tangible way.
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| ®© Cinda Baxter, 2009. All rights reserved. Used here with permission. |
You hold the key to growing your local economy and it is right in your wallet.
The nonprofit SC Small Business Chamber of Commerce isn't alone -- there are a number of "shop local" campaigns out there, from Lowcountry Local First and the SCDA's Certified SC Grown program to The 3/50 Project, which inspired our new Buy SC "Local Has It" quarterly action campaign.
TRIPLE THE BANG FOR YOUR BUCK in leading us out of these recessionary times without spending any more money during this holiday season and all year. Just make your purchases from a SC locally-owned small business.
If you believe and want to TRIPLE the impact of your money to help, start now. Shop with SC locally-owned businesses and watch your local economy grow.
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Friday, November 5, 2010
More than just an election this week
I was a little pre-occupied this week so I’m late with this blog.
A little thing like an election sucked some energy out of me as it did most folks. But I was involved with some positive activities.
My declaration expressing support for the Environmental Protection Agency’s power to regulate greenhouse gas was filed along with similar support messages from 38 other state agencies, conservation groups and business organizations, such as Small Business Majority and Mainstreet Alliance.
A little thing like an election sucked some energy out of me as it did most folks. But I was involved with some positive activities.
My declaration expressing support for the Environmental Protection Agency’s power to regulate greenhouse gas was filed along with similar support messages from 38 other state agencies, conservation groups and business organizations, such as Small Business Majority and Mainstreet Alliance.
I, Frank Knapp, Jr., co-founder, president and CEO of The South Carolina Small Business Chamber of Commerce, make this Declaration in support of the response filed by the Environmental Defense Fund, the Natural Resources Defense Council, and other environmental intervenors in opposition to motions filed by various parties to stay various actions of the U.S. Environmental Protection Agency (EPA) relating to the control of greenhouse gas (GHG) emissions under the Clean Air Act. The purpose of this Declaration is to express The South Carolina Small Business Chamber of Commerce’s support for EPA’s decisions to move forward with controls on emissions of GHGs under the Act and to oppose motions to stay EPA actions in order to further delay implementation of the Act as to GHG emissions. Read more…I also submitted a letter to the Internal Revenue Service in support of a citizen’s complaint against the U.S. Chamber of Commerce.
On behalf of the South Carolina Small Business Chamber of Commerce, I am writing to urge you to take prompt action on the letter filed on October 18, 2010 by U.S. Chamber Watch, the Center for Responsibility and Ethics in Washington, and Corporate Ethics International. The letter describes a series of troubling transactions between the Starr Foundation, National Chamber Foundation (NCF), and U.S. Chamber of Commerce, and raises serious questions about whether these organizations knowingly structured their dealings to facilitate the covert use of charitable funds for significant non-charitable purposes – including electioneering by the U.S. Chamber and the payment of excessive compensation to its CEO, Tom Donohue – in violation of the federal tax rules. Read more…It was a busy week.
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Monday, November 1, 2010
Unmasking the danger of corporate political campaign funds
Now that Halloween is over and the elections are tomorrow, it is really the time to get scared. The opinion blog below should frighten the hell out of any red-blooded American.
The Baseline Scenario
Foreign Money, National Security, And The Midterm Elections
By Simon Johnson
Campaign contributions by non-citizens are a huge issue lurking behind the midterm elections; they will be even more important in 2012. Think about the economic dynamics:
1.Americans have a long-standing and well-founded aversion to foreign involvement in their politics, and it is well-established that this can happen in part through corporate “commercial” structures. Thomas Jefferson objected to Alexander Hamilton’s plan for a national bank in part because he feared this would become a stalking horse for the British in some form (see Chapter 2 of 13 Bankers for the context). Dubai Ports World was not allowed to invest in the United States – for reasons of perceived national security. You may or may not think that case was handled well, but we have the CFIUS process to vet foreign direct investment for good reason.
2.The Supreme Court has determined that corporations can make political contributions virtually without limit, apparently not understanding or not caring that (a) management has a fiduciary responsibility to shareholders, (b) globalization means more foreign shareholders on average (for privately held companies and funds, as well as publicly traded companies), and (c) at the margin, key strategic shareholders – the people who provide extra capital when the chips are down – increasingly tend to be foreign. Think about the role of Sovereign Wealth Funds in providing funds to our banking system in 2007-08, or the fact that Citigroup goes cap-in-hand to Saudi Arabia every decade or so.
3.During the Reagan years and again, even more, under the Second President Bush, the US ran a large current account deficit – reaching 6 percent of GDP before the 2008 crisis (and still around 3 percent of GDP). You may think this a technical detail that is largely irrelevant to the political process, but you would be wrong. We finance our current account deficit with capital inflows from abroad or, to put that more plainly: Foreigners buy and hold financial assets in the United States. Some of those assets are US government obligations but traditionally and increasingly non-US people have also acquired claims on corporate entities – including common or preferred stock.There are good economic reasons to allow foreigners to buy financial assets in the United States. We like to invest around the world and a high degree of reciprocity is only reasonable.
The US dollar is the “reserve currency” of choice – for the past 50 years this is where countries and careful individuals have chosen to keep their rainy day funds. This was a core idea behind the international trading system constructed after 1945. You may not like it, but what alternative exactly would you propose?
And there is nothing wrong per se with running a current account deficit – although it would be much better if we used the inflow of foreign capital to finance investment, rather than (as in the Bush years) tax cuts that just further encourage overconsumption.
Irrespective of how you feel about foreign capital inflows in economic terms, you have to face the political reality. As foreigners accumulate claims on the United States, they will increasingly diversify into corporate assets (in fact, this is the advice they get from their Wall Street advisers). Some of these corporate assets explicitly come with voting rights – but those are supposed to be voting rights over the corporation (or investment fund), not voting rights in political elections.
We have effectively enfranchised foreigners in US elections. This is clearly and absolutely not what the drafters of the Constitutions had in mind.
This dissonance between our claimed political values and the political reality will grow over time – unless you think our current account deficit will swing into surplus at any time in the future, the net inflow of foreign capital will continue.
The only way to deal with this is to require complete disclosure by all corporate entities (and similar “veils” like investment funds of any kind) regarding the contributions they make to any organization or individual involved in political messaging or campaigning.
To be sure, this would be onerous. Thomas Jefferson and his colleagues would have wanted it no other way. The US Constitution was not drawn up to protect the rights of foreign citizens. It defines who is and who can become an American – and the rights and responsibilities of those who would like to rule the United States.
And however you prefer to define our legitimate national security interests, how are they consistent with letting foreign citizens influence or even determine the outcome of our elections?
The Baseline Scenario
Foreign Money, National Security, And The Midterm Elections
By Simon Johnson
Campaign contributions by non-citizens are a huge issue lurking behind the midterm elections; they will be even more important in 2012. Think about the economic dynamics:
1.Americans have a long-standing and well-founded aversion to foreign involvement in their politics, and it is well-established that this can happen in part through corporate “commercial” structures. Thomas Jefferson objected to Alexander Hamilton’s plan for a national bank in part because he feared this would become a stalking horse for the British in some form (see Chapter 2 of 13 Bankers for the context). Dubai Ports World was not allowed to invest in the United States – for reasons of perceived national security. You may or may not think that case was handled well, but we have the CFIUS process to vet foreign direct investment for good reason.
2.The Supreme Court has determined that corporations can make political contributions virtually without limit, apparently not understanding or not caring that (a) management has a fiduciary responsibility to shareholders, (b) globalization means more foreign shareholders on average (for privately held companies and funds, as well as publicly traded companies), and (c) at the margin, key strategic shareholders – the people who provide extra capital when the chips are down – increasingly tend to be foreign. Think about the role of Sovereign Wealth Funds in providing funds to our banking system in 2007-08, or the fact that Citigroup goes cap-in-hand to Saudi Arabia every decade or so.
3.During the Reagan years and again, even more, under the Second President Bush, the US ran a large current account deficit – reaching 6 percent of GDP before the 2008 crisis (and still around 3 percent of GDP). You may think this a technical detail that is largely irrelevant to the political process, but you would be wrong. We finance our current account deficit with capital inflows from abroad or, to put that more plainly: Foreigners buy and hold financial assets in the United States. Some of those assets are US government obligations but traditionally and increasingly non-US people have also acquired claims on corporate entities – including common or preferred stock.There are good economic reasons to allow foreigners to buy financial assets in the United States. We like to invest around the world and a high degree of reciprocity is only reasonable.
The US dollar is the “reserve currency” of choice – for the past 50 years this is where countries and careful individuals have chosen to keep their rainy day funds. This was a core idea behind the international trading system constructed after 1945. You may not like it, but what alternative exactly would you propose?
And there is nothing wrong per se with running a current account deficit – although it would be much better if we used the inflow of foreign capital to finance investment, rather than (as in the Bush years) tax cuts that just further encourage overconsumption.
Irrespective of how you feel about foreign capital inflows in economic terms, you have to face the political reality. As foreigners accumulate claims on the United States, they will increasingly diversify into corporate assets (in fact, this is the advice they get from their Wall Street advisers). Some of these corporate assets explicitly come with voting rights – but those are supposed to be voting rights over the corporation (or investment fund), not voting rights in political elections.
We have effectively enfranchised foreigners in US elections. This is clearly and absolutely not what the drafters of the Constitutions had in mind.
This dissonance between our claimed political values and the political reality will grow over time – unless you think our current account deficit will swing into surplus at any time in the future, the net inflow of foreign capital will continue.
The only way to deal with this is to require complete disclosure by all corporate entities (and similar “veils” like investment funds of any kind) regarding the contributions they make to any organization or individual involved in political messaging or campaigning.
To be sure, this would be onerous. Thomas Jefferson and his colleagues would have wanted it no other way. The US Constitution was not drawn up to protect the rights of foreign citizens. It defines who is and who can become an American – and the rights and responsibilities of those who would like to rule the United States.
And however you prefer to define our legitimate national security interests, how are they consistent with letting foreign citizens influence or even determine the outcome of our elections?
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