Do Republicans Understand Debt Crissis?

Republicans don't seem to understand the difference between incurring debt and paying it off. The debt ceiling is about paying off existing debt. If we don't pay it, it is like not paying a credit card balance. The credit card company is going to charge you lots of fees and higher interest and will probably refuse to lend you any more money. What Republicans are worried about is continual charging on the card, running up a bigger and bigger balance. The answer is to stop charging, not to stop paying. Once you have a huge bill, it is hard to figure out how to pay it off. It is a much longer and tougher job than just making a payment each month. They need to keep paying the bill, and then work on a budget.

Republicans vs. Elizabeth Warren

The Huffington Post reports that the Republicans will keep both the House and the Senate in session. Basically, Obama asked for this yesterday. The question is whether they will do anything. Huff Post thinks somebody will just appear on the floor every few days and make some meaningless statement to keep the session active. If so, it will be meaningless for the debt crisis.

Another result, however, will be to prevent Obama from making recess appointments, in particular of Elizabeth Warren. I find it significant that the Republicans and big business are so afraid of her. I think she is just someone who supports the average American. It means to me that the Republicans and big business must really hate the average American. They succeed by following P.T. Barnum's saying that "There's a sucker born every minute."

Letter to Senators and Congressman

As you discuss tax reform, at the top of your list should be eliminating the capital gains tax. In general, capital gains should be taxed as ordinary income. It is the main reason that many wealthy people pay a lower tax rate than ordinary people. Warren Buffet often cites the example that his secretary pays a higher tax rate than he does. Basically the capital gains tax is welfare for billionaires.

Yesterday, former Reagan budget chief David Stockman called for reform of the capital gains tax on Fareed Zakaria's GPS program on CNN. He said that it made some sense when inflation was high, so that capital gains merely reflected inflation and not an increase in the real value of an asset. But today, there is virtually no inflation. The other justification is that it encourages new business. There is some basis for that. Perhaps, people who start their own businesses and true venture capitalists should get some kind of tax break to encourage them, although most venture capitalists are multi-millionaires. But someone who buys Apple stock at $200 and sells it a year later for $300 hasn't really encouraged entrepreneurship. A favorable view is that he made a good investment; a less favorable view is that he was just gambling and made a winning bet. Why should this country encourage gambling over doing a hard day's work as an engineer or waitress?

Earlier, I wrote you suggesting the gradual elimination of the home mortgage tax deduction, because it unreasonably favors homeowners over renters, especially if the homeowners paid no money down and have no equity in their homes. They are essentially renters, but get a homeowner's tax break. It might be fair to continue the deduction for people with substantial equity in their houses. Building up equity is the saving which the deduction was originally intended to encourage. But the subprime housing crisis illustrated the economic dislocation that the tax deduction helped create.

My Meeting with Kissinger

Kissinger's new book "On China" reminds me of the only time I met him. As a young Foreign Service officer on his second assignment, I was working in the State Department INR watch office, which monitored incoming intelligence reports. While he was Secretary of State during the Ford administration, Kissinger was holding Middle East peace talks. One quiet Sunday afternoon while Egypt's Sadat was in the US, we got a highly classified intelligence report that there was an assassination plot against him. We in the watch office and the operations center debated about whether we needed to tell Kissinger, who of course was in negotiations with Sadat. We decided we should tell him. He was in the State Department building, and his secretary said to come down and brief him.

Because the report was so highly classified, State Department rules were that you had to carry it in a locked briefcase, even if just walking a few yards from the Operations Center to the Secretary's office. So, I took my locked briefcase down to Kissinger's office. His secretary said he was meeting with Assistant Secretary Phil Habib in a small conference in the back of his office suite, where they were discussing the peace talks with each other. I went back and found them. I started unlocking my briefcase to show them report, and Kissinger said, "Just tell me what the report says." So, I said, "There is an assassination plot against Habib." Phil Habib looked up at me incredulously, and I said, "No, no, I mean against Sadat." And they said something like, "Okay, thanks." and that was it.

Sadat, of course, was not assassinated then and not for several years afterwards, but he lived under constant threats of assignation for all those years. As far as I know, Phil Habib only lived under an assassination threat for about ten seconds.