Volume VII, Issue II

JHU POLITIKATTACK OF THE DRONES:

BOMBING IN PAKISTAN

A US Predator drone flies over the Kandahar Air Field in southern Afghanistan. Drone strikes are now taking place in the northwest region of Pakistan as part of a covert US war. (SOURCE: Kristy Wiggles-worth/AP)

by Mike Bodner, ’14Contributing Writer

In northwestern Pakistan, death rains down from 25,000 feet. Last

week, two militants were driving in Waziristan when an AGM-114 Hell-fire missile obliterated their car, kill-ing them both. The missile was fired from an American unmanned aerial vehicle, or UAV. The two men are now the most recent casualties of an air campaign carried out by the Air Force and the CIA that has killed as many as 2,500 people since 2004. To some observers, these attacks are very successful disruptions of militant activity in Pakistan and Af-ghanistan. To others, they are gross violations of human rights and a sov-ereign state’s independence.

Seven years ago, the U.S. military realized that it had to find an effec-tive solution to a serious problem. Militants fighting in Afghanistan were easily evading capture by re- (continued on Page 2)

ISSUE IIINTERNATIONAL

IN THE SHADOW OF ARAB SPRING, A NATION EMERGES

by TJ Bozada, ‘12- Page 3

EUROPEAN DEBT CRISIS WORSENS AS FINANCE LEADERS STRUGGLE

by Collette Andrei, ‘14- Page 4

TAX RHETORIC AND THE “BUFFETT RULE”

by Matt Varvaro ‘13- Page 5

MILITARY BENEFITS AND NATIONAL DEFICIT

by Sindu Ravi, ‘13 - Page 6

jOHnS HOPKInS’ OnlyWeekly-Published Political Magazine

OIL PRICES AND PRESIDENT OBAMA: A CRISIS

by Rob D’Annibale, ‘15- Page 7

treating after battles into Pakistan, where they could rest and resupply. American forces needed a way to deny them a safe haven without fac-ing the financial and political rami-fications of opening a new war in another country. Drones, namely the MQ-1 Predator and MQ-9 Reaper provided a solution.

The government of Pakistan, then headed by Pervez Musharraf, allowed U.S. drones to take off from and bomb targets within Pakistan. The first drone disaster came quick-ly. Four predator drones fired at a mud-walled compound in the village of Damadola. The target was the man who now heads Al-Qaeda, Ayman Al-Zawahiri. Al-Zawahiri was left unscathed, but at least 18 civilians were killed. This strike strengthened the Pakistani perception that the United States does not put enough

care into avoiding collateral damage. Things deteriorated diplomatically when the United States stopped the exclusive targeting of high value targets. now, according to a senior Pakistani official, the United States is targeting “mere foot soldiers.” The Washington Post backs up his claim: according to the Post, of the over 580 militants killed in 2010, only two were on a U.S. list of most-wanted terrorists. Indeed, the strikes have increased exponentially since 2008. According to the new America

NATIONAL

OPINION

September 26, 2011 Volume VII, Issue II

1 www.JHUPOLITIK.Org

THE POLITIKEDITOR-IN-CHIEF

Hannah Holliday

Staff writersColette Andrei

Megan AugustineRachel Cohen

Cary GlynnBen GoldbergEric Feinberg

Daniel RoettgerAri Schaffer

Hilary Matfess

EDITOR-IN-CHIEF

Will Denton

Assistant editors

jeremy OrloffMatt Varvaro

pRODuCTION mANAgER

neil O’Donnell

FACulTy ADvISORSteven R. David

JHU POLITIK is a student-run political publication. Please note that the opinions expressed within JHU POLITIK are solely those of the author.

INTERNATIONAL REPORT

Foundation, from 2004 to 2007 there were nine drone strikes in Pakistan. By comparison, in 2011 alone there have already been 57. The number of strikes was great-ly increased during President Bush’s last days in office, and President Obama has increased the number further. According to Time Magazine, the sound of the drones’ buzzing has become a constant in Waziristan.

Attitudes toward drone strikes among Pakistanis are different depending on who is asked. The Pakistani government has a bipolar opinion of the attacks. On Sep-tember 19, Mustafa nawaz Khokhar, an adviser to the Prime Minister, warned that Pakistan’s Federal Ministry of Human Rights would bring the strikes issue before the U.n. in order to halt the strikes. His protests, how-ever, are slightly undermined by the words of the head of Pakistan’s army, General Ashfaq Parvez Kayani. In pub-lic appearances, Kayani has protested against the air-strikes, and called for the Pakistani government to lodge a complaint with the American embassy “in the stron-gest possible terms.” In private, however, the general has asked Washington for “continuous predator coverage” over the wilds of Waziristan. The government and mili-tary of Pakistan certainly find themselves in a precarious situation. By no means can they allow themselves to look

weak by permitting the Americans to bomb their lands. On the other hand, these rulers have been fighting a sev-en-year war in Waziristan against militants who want to tear down their government. They realize the need for reconnaissance and firepower that the drones provide. Of the 17,742 militants killed so far, as many as 2,601 have been killed by the drones. Even more have been killed thanks to intelligence provided by the drones. Still, the U.S.-Pakistan relationship is growing worse. just this Friday, Admiral Mike Mullen, chairman of the U.S. joint Chiefs of Staff, accused the Pakistani Inter-Services In-telligence (ISI), of giving assistance to the Haqqani ter-rorist group in their recent attack on a U.S. and nATO base in Afghanistan. This is the farthest any American official has gone in criticizing Pakistan’s aid to terrorists. Pakistani foreign minister Hina Rabbani Khar respond-ed that Mullen’s remarks put the two countries’ relation-ship in danger.

Between the negative opinion of the American drone war and emerging information about possible Pakistani aid to terrorist groups, tensions are high between the shaky allies. s

(Continued from page 1)

managing Editor

Randy Bell

Alex Clearfield

layout EditorAna Giraldo-Wingler




In the Shadow of Arab Spring, a nation Emerges

by Tj Bozada ’12Contributing Writer

This year has been marked by a changing geopolitical landscape. The Arab Spring began with Egypt and

continues with the present Palestinian Un bid for state-hood, civil unrest and government crackdowns in Ye-men and Syria, and the reconstruction of Libya. Yet one world-changing event went largely unnoticed amidst higher profile stories. This was the culmination of a failed colonial experiment, two civil wars—the latter be-ing the longest on the continent—and arguably the worst post-WWII genocide. After years of struggle, the Repub-lic of South Sudan seceded from Sudan on july 9, 2011.

The secession followed a 2005 American-backed peace accord that gave the region of South Sudan the ability to secede from the Sudan. In january of this year, nearly 99 percent of the Southern Sudanese voted for independence. Sudan’s president, Omar Hassan-Al Bashir, an indicted war criminal for the Darfur genocide, indicated that he would allow the secession peacefully. True to his word, Bashir decided to make Sudan the first country to formally recognize South Sudan. In some ways, statehood was only a first step for this region’s sta-bilization.

Many tensions still exist between South Sudan and Sudan. Conflicts remain over how the two will share the vast oil reserves of South Sudan and those of the region of Abyei, which lies on the border. While South Sudan holds as much as 75 percent of the oil in the two coun-tries, the infrastructure and pipelines are overwhelm-ingly in Sudan, a consequence of years of imbalanced wealth and spending.

Furthermore, there are still many non-Arabs in many areas of Sudan continuing to fight for reform within the country. During the years of conflict before the 2005 peace accord, these rebels were allied with the rebels of the South. One such region of conflict is the nuba Moun-tains. Following a government crackdown of rebels in the area, recent satellite images have found eight new mass gravesites since june of this year.

The rebel leader, Abdel Hilu, commenting on the South’s involvement in the struggle, said, “We have part-ed ways,” but added, “we are part of a larger organiza-

tion [that is] fighting for a new Sudan.” Sudan presented evidence to the U.n. that South Sudan was indeed finan-cially and militarily backing the rebels, but South Sudan has denied the claims.

Earlier this month, the Sudanese government began another campaign in “Blue nile State.” Opposition and rebel forces in this area also allied with Southern Suda-nese rebels in the past. Analysts fear the region is head-ing down the same violent path as the nuba Mountains.

Internally, South Sudan faces many obstacles to sta-bility. Africa’s 54th state is at the bottom of the develop-ing world. The majority of the citizens live on less than one dollar a day, over 10 percent of children never see the age of five, and as much as 75 percent of the adults are illiterate.

South Sudan lacks infrastructure throughout most of its territory, as oil profits were historically funneled into the northern regions of Sudan. Recognizing the financial need of South Sudan and its own responsibility to the fledgling country it helped create, the United States gave juba, the present capitol of South Sudan and its largest city, $300 million for housing and education, with the promise of future investments.

South Sudan must also find a way to deal with the tribal conflicts that occur within its borders. Late last month, 600 Southern Sudanese were killed in just one week of conflict between the nuer and Murle ethnic groups in the eastern state of jonglei. The Murle at-tacked a number of villages, burning huts, stealing cattle, and killing or abducting local villagers.

This attack was largely in response to a raid that oc-curred two months earlier, prior to independence. The nuer and Dinka ethnic groups attacked the Murle, kill-ing over 400 Murle, and stole over 4,000 cattle. From january to the end of june, 2,368 people have been killed in 330 incidences in South Sudan.

Yet there are signs of progress. Earlier this month, South Sudan announced plans to move the capitol from juba to the small town of Ramciel in the north. The de-cision came after the government was unable to find the 12-square mile space needed for government buildings in the present capitol. While moving the capitol for the re-centralization of government is a necessary step, it does not hide the reality that building the region into a functional country will take decades of hard work. s



(Continued on page 5)


European Debt Crisis Worsens as Finance Leaders Search for Solutions

by Colette Andrei ’14Staff Writer

This past weekend, European finance ministers met in Wroclaw, Poland to discuss solutions to the sov-

ereign debt crisis: a slow-moving but unshakable water-shed that has plagued the European Union (EU) since the fall of 2009. The meeting ended, however, without substantial plans toward solving the crisis or making the European central banking system and capital structure more stable, inaction that may lead to further worsening of the crisis.

The European debt crisis began in October 2009 in Greece after the announcement by its newly-elected Prime Minister George Papandreou that his predecessor had seriously disguised the size of the nation’s balloon-ing deficit. nevertheless, the roots of the crisis can be traced back into the previous decade, an era that expe-rienced a strong euro and incredibly low interest rates. Greece took advantage of this easy access to money by driving up the number of loans made to both consum-ers and the government, leading to a government debt of $400 billion. After the extent of the Greek debt was re-vealed, markets reacted by raising interest rates not only on Greece’s debt, but also on that of Spain, Portugal, and Ireland (the EU nations with the weakest economies at the time).

In the spring of 2010, the EU and the Internation-al Monetary Fund combined to issue a 110 billion euro ($163 billion) bailout package to Greece. Their hope was that this show of financial force would reassure markets about the solvency of euro zone countries. However, the new loans, combined with new austerity measures de-manded by Greece, Ireland, and Portugal, drove them into recession and did little to ease their debt burden. By summer 2011, it was clear that Greece would need an-other bailout package. Greece is currently awaiting the next installment of aid, without which the country will likely default on its debt. The release of an additional 8 billion euros ($11 billion), is scheduled for October. Eu-ropean officials have warned, however, that unless the nation pushes through further radical cuts in govern-ment spending, the package will be withheld, an act that will almost certainly lead to bankruptcy.

Europe’s tumultuous economic climate is what its finance ministers sought to address at their recent meet-ing in Poland. Present at the meeting was U.S. Secretary of Treasury Timothy Geithner, whose advice and warn-ings drew a tepid reaction from Europe’s finance minis-ters. Geithner issued an urgent plea for swift action to shore up the eurozone, a position that was echoed by the finance ministers of the two European nations that re-main outside the single EU currency. George Osborne, Britain’s Chancellor of the Exchequer, warned that time was running out and called for action over Greece, stressing the “weakness” in the European banking sys-tem. Anders Borg, Sweden’s finance minister, added that the EU needs to see more political leadership in light of the clear need for bank recapitalization.

Another direct consequence of the debt crisis is the fact that European banks are facing a fund-raising issue. Investors are weary of banks that could suffer losses if Greece defaults on its debt. Furthermore, the crisis has brought into question the underlying health of the Euro-pean banking system and whether national governments would be able to step in to rescue their banks if there was another financial catastrophe. With the region already on the verge of recession, less lending could depress growth in Europe even more.

In response to mounting pressure from internation-al lenders, the Greek government announced addition-al austerity measures on Wednesday, including scaling back the public sector and cutting pensions. The Greek government also released a plan for a new property tax that will be levied through electricity bills in order to thwart evasion and announced that it will cut wages for 30,000 civil servants, who make up 3 percent of the pub-

Christine Lagarde, the new head of the IMF, discusses the European debt crisis with other finance ministers at the recent IMF Policy Committee Panel. (SOURCE: CBS news)






lic workforce, for 12 months, after which their positions may be terminated. A growing number of Greeks are in-creasingly confused and upset about the new measures, which are deeply unpopular and have already incited protest. The nation’s two main labor unions called for two 24-hour general strikes; some teachers and civil servants have stopped working in protest.

As the European stock and bond markets appear ee-rily similar to those that preceded the U.S. recession in 2008, jean-Claude Trichet and Mario Draghi, the cur-rent and incoming chiefs of the European Central Bank respectively, urged European leaders to move quickly to ensure that the eurozone’s debt crisis does not become seriously worse. A series of negotiations, bailouts, and austerity packages have not been able to stop the slide of investor confidence or restore the growth needed to pull the struggling economies out of their debt traps. In order to shore up the eurozone and restore health and confidence to the European banking system, it is clear that European finance ministers must work together to make decisive decisions and act quickly at this critical

juncture. s

Palestinian Authority Approaches Un with Unilateral Bid for Statehood

by Rachel Cohen & Chloe Reichel ’14Staff Writer, Contributing Writer

This week, the Palestinian Authority, led by Presi-dent Mahmoud Abbas, will head to the United nations in an effort to achieve independent statehood for Pales-tine. While some observers see this move as unexpect-ed, others feel that it was inevitable. Two decades after the Madrid Peace Conference, one of the first attempts at negotiations between Palestinians and Israelis, little has changed in the arduous peace process.

In the revolutionary climate fostered by the Arab Spring, Mahmoud Abbas intends to circumvent the stalemate and go directly to the United nations. If Ab-bas brings the bid to the 193-member General Assem-bly, two-thirds of the countries will have to approve of it in order for Palestine to be upgraded from observer entity to observer state. Currently, the only nation that is an observer state in the Un is the Holy See in Rome.

This upgrade is largely symbolic; Palestine will not gain significant rights, although it may allow Palestine to join the International Criminal Court (ICC) and other organizations. Abbas has indicated that if Palestine can join the ICC, they might sue Israel for alleged war crimes in the Gaza Strip and West Bank.

Abbas has suggested that he will also go to the Secu-rity Council, the entity of the United nations that could grant Palestine full statehood. In order to gain statehood, the Security Council must approve of the bid with at least nine out of fifteen members voting ‘yes’ and with no vetoes. The United States will likely veto Palestinian statehood if these nine ‘yes’ votes are attained, but it is currently unclear if this will occur.

The legality of the decision to go to the Un for mem-bership is another controversial aspect of this issue. Some analysts say that this move, which falls outside the Oslo Accords, is a violation of international law. The Oslo Accords were bilateral agreements signed into law in 1993 providing a structural framework to conduct ne-gotiations for the Palestinian-Israeli conflict.

Many insist the Oslo Accords have lost credibility and legitimacy because they’ve been in place for 18 years and failed to bring about a solution. However, others ar-gue that framework of negotiation is the only way to en-sure lasting peace.

Israel is opposed to the Palestinian bid for statehood in the United nations. Though Israeli Prime Minister Benjamin netanyahu supports a two-state plan for peace between Israel and Palestine, he wants a two-state com-promise to be struck through negotiations, not unilateral action. Many Israelis fear that this action could establish a precedent of abandoning concessions and talks as a necessary parts of the peace process.

To this point, netanyahu said, “We are ready to enter negotiations if the Palestinians want to. At the end of the day I believe that after the smoke clears the Palestinians will come to their senses and sit down for negotiations that will bring peace for us and our neighbors.”

Husam Zamlot, a senior Palestinian official, dis-agrees with the Israeli claim that the Palestinian bid for statehood will hinder the peace process, saying, “We will still go to Un to seek recognition of the Palestinian state, because we see these tracks as complimentary, not con-tradictory … we’ve had enough of 20 years of unimple-mented agreements.”





INTERNATIONAL/NATIONAL REPORT

Zamlot argues that Palestinian actions are in accor-dance with the desires of the United States to see Isra-el divided into two states. While President Obama has voiced his support for a two state solution, he does not agree with the procedure that Palestinian leaders are ad-vocating. Similar to the Israeli view, the course of action, not the concept, is troubling to the president.

The Palestinian vote puts the United States in a dif-ficult position. Already many in Congress are calling for the United States to cut off all aid to the Palestinian Au-thority, outraged that the PA would proceed to the Un despite the United States’ disapproval. Currently the United States contributes a significant portion of the PA’s annual budget, over $500 million, with most of the money going to security operations that prevent vio-lence against Israel, and the remaining supports schools, hospitals, and civil society.

jeremy Ben-Ami, founder of jstreet, an American lobbyist organization that seeks to promote a two-state solution, is leading a campaign to preserve Palestinian funding. He argues, “While we don’t support the Pal-estinian effort at the Un, cutting funding will set back the efforts of peace by weakening Fatah and strengthen-ing Hamas, contributing to greater poverty in the West Bank, and put Israelis at risk.”

David Makovsy, the director of the Washington In-stitute for near East Policy’s Project on the Middle East Peace Process says, “If Congressional aid to the Pales-tinian Authority is suspended and Palestinian security officials engaged in this security cooperation go unpaid, the risk of terror attacks against Israel will grow. So who pays the price for such a cut-off? Let us not kid ourselves. We know what the consequences will be.”

The global implications of a US veto remain unclear, although many fear that the Arab world will be outraged. Turki Al-Faisal, a former ambassador to Saudi Arabia argues, “In addition to causing substantial damage to American-Saudi relations and provoking uproar among Muslims worldwide, the United States would further undermine its relations with the Muslim world, empow-er Iran and threaten regional stability.”

The next few weeks will be an eventful time for Middle Eastern politics. The outcome of the Un vote remains unclear—and the world will have to wait to see what unfolds. s

Military Benefits and national Deficit

by Sindu Ravi, ’13Contributing Writer

The rising national debt and the problems associ-ated with another attempt to speed up the econo-

my through an influx of capital are on every politician’s mind. In order to reduce the national deficit, Congress has been trying to squeeze savings from well-established programs such as Social Security and Medicare. The most current debate involving Congress’ efforts to cut down costs now emanates from the American military community, which includes both veterans and enlisted soldiers.

The combined pensions for all military members and their respective health care services cost $100 bil-lion annually. This figure does not even consider costs of weaponry, body armor, and all other war costs overall. Congress’ objective to even slightly minimizing military benefits seems bound to fail, given the popular public at-titude toward helping troops and the power of veteran groups. Yet, President Obama’s proposal in May for huge budget cuts totaling $400 billion over the next 12 years is supported by Defense Secretary Robert Gates, who says that health care costs are the primary expenditure in the department. According to Gates, supporting the military staff will become more difficult in coming years, consid-ering the huge growth of the sector, and if Congress were not to adopt these money-saving measures, the Defense Department would have to scavenge $900 billion. Sec-retary Gates also believes that reductions in cost from the defense budget need to come from military benefits rather than from the core programs and military person-nel, because a reduction of the latter would be disastrous to America’s security.

Under the current regulations involving military benefits, military members that retire after 20 years are eligible for pensions that amount to half of their military salaries. Additionally, they are entitled to lifetime health insurance through a special system called Tricare, which is significantly cheaper than civilian health insurance plans. Opposition against these military benefits stems from believing that the conditions are not only finan-cially hard to support but also unfair to the rest of the non-military population; though the price of health in-surance has risen over the years, the fees for this mili-





NATIONAL REPORT/OPINION

tary insurance has not. Support for these benefits stems from the idea that people who have volunteered to put themselves at risk deserve these benefits. With the with-drawal of American troops in Afghanistan and Iraq, the proposition of cutting budgets has diminished in sup-port nationwide.

A proposal from the Defense Business Board in the Pentagon to make the military pension system more like the 401 K benefit plan is one proposed solution. Under this new proposal, the Pentagon would make small mon-etary contributions to each military member’s account (both retired and currently active). The proposal would allow soldiers who served less than 20 years in service to leave with a small monetary package, but would deny benefits to retirees until they were 60 years old. This proposal reduces the Defense Board’s cost from the pro-jected $2.7 trillion to $1.8 trillion over the next twelve years and compels military retirees to pay more for their health insurance. As part of President Barack Obama’s plan to reduce the national deficit by more than 3 mil-lion, this proposal has a huge backing in Congress.

Many U.S. troops and veteran groups express fear over this proposal going through. As Representative Buck McKeon states, “Our troops that go outside the line over in Afghanistan every day should not be hav-ing to think about what their retirement is going to be [and] what their pension is going to be. Are they going to be able to stay in the military, the problems they’re having and effect this is having on their families? That is not fair.” The sentiment of being fair to veterans also re-sides with American Legion national Commander jim-mie Foster, who recently criticized Washington’s plan to reduce deficit, stating, “There they go again. Every time Washington wakes up with a deficit hangover after de-

cades of spending binges, those who study the serious problems of our national debt can’t resist the easy but unfair route of trying to balance the budget on the backs of veterans.” Despite all the tensions and disagreements regarding the issue, only the government, the public, and time itself will tell how the main goal of reducing deficit will play out in the lives of service members. s

Oil Prices and President Obama: A Crisis

by Rob D’Annibale ’15Contributing Writer

Will Obama be president in 2012? It’s a tough call. Our current economic crisis, wars in Iraq and Af-

ghanistan, and rising gas prices are obstacles he must overcome in order to secure his position as president for a second term. However, if voters continue to see the increase in prices of gasoline, the states may turn red – figuratively and literally. Michele Bachmann, a Republi-can congresswoman from Minnesota and candidate for the GOP nomination, declared that Americans “will see gasoline come down below $2 a gallon again” if she were elected president. While that may seem unimaginable, an American turnover to renewable energy is definitely more promising.

Currently, U.S. retail gasoline prices are averaging $3.60 per gallon. “The day that the president became president, gasoline was $1.79 a gallon,” Bachmann said. “Look at what it is today.” While the presidential hopeful continues to bash President Obama on the unprecedent-ed rise in gas prices, the president has made several ef-forts to reverse the horrific trend. “Instead of subsidizing yesterday’s energy source, we need to invest in tomor-row’s,” President Obama stated in late April of this year.

On March 31, 2010, President Obama announced that he was opening new areas in U.S. coastal waters to off-shore drilling for gas and oil. Arguments have been made that drilling in territories of the United States would allow for a lesser dependency on foreign oil. Although many people believe that America receives most of its oil imports from Middle Eastern countries, the fact of the matter is that Canada is the biggest supplier of oil for the United States of America. According to the Energy In-formation Administration, Canada exports 707,316,000 barrels of oil per year. What percentage of that is going

new service members may be among the first to feel the effects of Congress’ budget cutting. (SOURCE: www.joiningthemilitary.org)




OPINIONprices, this issue might be strong enough to push a Re-publican candidate to the presidency. sto the United States? 99 percent —yes, 99 percent.

It is important for the citizens of the United States to realize that our problem does not lie in the Middle East, but within our own government. While it is important that America gets off of its “addiction” to foreign oil, no matter what country it is coming from, changes must be enacted within our own government. Predictions have been made that our country’s offshore drilling would only increase our oil production by 1.6 percent, resulting in a 3-to-4 cent decrease in prices over the next fifteen to twenty years. This is not enough.

Fundamental and transformative changes to the oil and gas companies in America are not foreign ideas. President Obama has made promises to deal with the rising gas prices through various means. Besides in-creasing oil production, the president stated that inves-tigations will begin to take an in-depth look at illegal activities of traders and speculators. Recently, Solyn-dra, a company that manufactured cylindrical panels of CIGS (copper-indium-gallium-diselenide) thin-film so-lar cells and was heavily promoted by President Obama, has declared bankruptcy. Despite the economic implica-tions this story might have, it has stirred some news up regarding President Obama’s activity with the company itself.

Under President George W. Bush, Solyndra was de-nied a $535 million loan. Years later, the company asked again for the money under the Obama administration. It was approved. nevertheless, in light of recent events, President Obama has been the target of criticism. Mem-bers of the executive board of Solyndra made consid-erable monetary donations to Obama’s campaign. This conflict of interest calls into question President Obama’s promises made to the American public regarding his energy policy. The American public voted for Barack Obama believing that he would put aside all personal gains for the good of the American public. Will Obama remain president in 2012? Voters should be prepared to see how this current issue pans out.

Mitt Romney has pledged to offer a $20 billion pack-age to help out the auto industry with energy research and new technology. Michele Bachmann promises to cut federal regulations that drive up energy production and processing costs, and increase U.S. capacity to refine crude oil. During his term, Governor Rick Perry signed House Bill 3328 and Senates Bills 20 and 527, which will increase transparency in energy production. Will these candidates have what it takes to beat Obama in 2012? If the country fails to see an immediate change in gas

Tax Rhetoric and the “Buffett Rule”

by Matt Varvaro, ’13Assistant Editor

Last week, as he unveiled his ten-year deficit reduction plan, President Obama introduced what he calls the

“Buffett rule” in an effort to make higher-income Ameri-cans “pay their fair share” of taxes. The rule —inspired by renowned investor Warren Buffett’s public outcry over the fact that he pays a lower tax rate than does his secre-tary—states that individuals making more than $1 million per year “should not pay a smaller share of their income in taxes than middle-class families pay.” Unfortunately, the arguments used to justify the president’s proposal serve as a classic example of sound economic analysis taking a backseat to misleading populist rhetoric. It is therefore worth unpacking this rhetoric and taking a more honest look at the tax issue, which has fiscal and economic im-plications that are particularly important in light of our current economic condition.

Before getting to the substance of the tax debate, it is important to first address the talking point du jour,

Warren Buffett (net worth: US $39 billion), has recently come out in favor of increased taxes for the richest 1 percent of Americans. (SOURCE: www.klikupdate.com)





OPINION

namely, that the rich are not paying their “fair share” of taxes. Any standard of definition of the word “fair” would imply the equal treatment of all parties involved, without singling any one of them out for special treat-ment or punishment. Applied to the tax code, “fairness” would, by this definition, seem to dictate that everyone pay the same rate and thereby contribute tax revenues in proportion to their income. In other words, under a “fair” tax system, if the top ten percent of income earn-ers account for around forty-five percent of total income earned in the economy (as is the case in the United States, according to recent IRS figures), then their con-tribution to total income tax revenues should also be roughly forty-five percent. Of course, the progressive nature of the United States’ income tax system ensures that this is not the case. Instead, the top ten percent of income earners account for nearly seventy percent of income tax revenues, while the top one percent, despite earning about twenty percent of total income, contrib-utes almost forty percent of income tax revenues.

To restate the obvious, the progressive tax system, by design, guarantees that the rich pay more than their “fair share” of taxes; indeed, that’s the very point of charging people higher rates as they make more money. Therefore, instead of advocating that the rich “pay their fair share,” the more intellectually honest argument would be that the rich should “pay a greater share than they do now, even though their current share is already above and beyond what would typically be considered ‘fair.’” naturally, because such a slogan would not fit on the back of a bumper sticker, we are unlikely to hear it repeated in the next White House press conference or on the campaign trail.

In short, while the belief that the rich should pay a greater share of taxes is a perfectly valid position, it is a stretch to suggest that the share they pay now is unfairly low. This, however, does raise the question of why some individuals as rich as Warren Buffett pay a lower por-tion of their income in taxes than their secretaries pay.

One answer lies in the basic structure of our tax code, which taxes capital gains at a lower rate than it taxes income. The reason for this differential is fairly straightforward: not only is the money that an investor receives in the form of a capital gain or dividend pay-ment already taxed at the corporate rate, but income earned on a capital gain is contingent upon the per-formance of the asset in question. Thus, the lower rate compensates investors for the risk they take in relying

on the performance of stocks or other assets (as opposed to a stable, previously-negotiated wage or salary) as their primary source of income. Because these individuals do not actually earn an “income” – as the term is generally understood – they do not file at the traditional income tax rate, but rather at the lower capital gains rate. To state that people like Warren Buffett pay a lower rate than their secretaries pay is therefore like comparing apples and oranges. Furthermore, any effort to raise the capital gains tax or, equivalently, force investors to pay the income tax rate on capital gains would be destructive to economic growth and job creation as it would discour-age capital formation and reduce the incentive to invest, a particularly egregious outcome in the midst of a deep recession.

A second crucial reason why some wealthy individu-als like Buffett pay relatively low rates is that they take advantage of a number of deductions and write-offs on various expenses. This suggests that, contrary to popular rhetoric, the problem is not that the government refuses to tax the rich at high enough rates, but that the rich are able to exploit what have been referred to as “loopholes” in the tax code. The solution here is to eliminate those loopholes and lower marginal rates across-the-board, which would be conducive to economic growth by re-moving the economic inefficiencies that our tax code creates and reducing the billions of dollars that Ameri-can taxpayers lose every year in compliance costs. This would be a truly productive reform of the tax code, as it would generate more revenue to the federal govern-ment without imposing a net tax increase, which would impede economic growth.

While some wealthy individuals indeed pay relatively low rates, this is by no means the norm. According to the Tax Policy Center, households earning over $1 million per year pay, on average, almost thirty percent of their income in federal taxes, compared to the fifteen percent rate paid by households earning $50-75,000 and the six percent by households earning $20-30,000. Such figures tend to confirm the fact that, while politically advanta-geous, hollow rhetoric and poll-tested talking points are not acceptable substitutes for reality or for sound, pro-growth economic policy.

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Volume VII, Issue II

Documents

Transcript of Volume VII, Issue II