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Economic Reform Newsletter: Is the Debt Ceiling Constitutional?

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Hello fellow economic reformers:

"These are dark times there is no denying, our world has perhaps faced no greater threat than it does today..." - Rufus Scrimgeour (Bill Nighy)
Harry Potter and the Deathly Hallows Part 1

It's not just prescient films and writers of young adult fantasies (J.K. Rowling) that see storm clouds on the Horizon.  There is "no denying" the rioting in Greece, the near riots in the rest of Europe as governments swoon to their bankmeisters (bank masters) to repay debts that under a sovereign pre-Euroland system of states could never have been incurred, and the stooping to fit under lowering debt-ceilings everywhere - self-imposed, self-flagellating, self-defeating and otherwise notwithstanding.  You'd be forgiven for thinking we live in a cave, which, philosophically, perhaps we do.  More on the solutions, but first some new problems, seen through the prism of yet another self- something action: self-destruction.

Harrisburg is in trouble: all Georgist hands on deck!  It seems that to pay for their poor choices in garbage incineration (are they really poor choices, or do we have a poor economic model that does not reward a reduction in pollution through Pigovian means?).  Faced with the fire or frying pan choice of losing their city-sovereignty (even the State Capital is not immune!) or acquiescing to a group of "consultants" (who are these consultants working for?) pushing something called Act 47 that would end Harrisburg's 2-tier tax system, which charges 6 times the tax on land as on buildings, and thereby encourages, well, buildings , and (emphasis added)...
the city's property taxes outside the downtown would increase significantly higher than the team that created it has advertised, City Controller Dan Miller said.
The plan calls for a 0.8 mill increase, which the Act 47 team said would amount to about $50 more per year, or a 6 percent increase , for the average homeowner.
View full size The Patriot-News/file Harrisburg controller Dan Miller
But it also recommends Harrisburg blend its two-tier property tax rate, which means many property owners could see their property taxes increase by 56 percent , Miller said.
Here's how:
The city taxes land, and the houses and businesses on top of it, separately. The tax rate on the land is six times higher than that on a home or business.
Land is assessed at a much lower value than a building on top of it is, but land downtown is assessed at a much higher value than it is in other parts of the city.
If the property rates are blended, downtown property owners, the majority of whom are business owners, would see their taxes decrease. But property owners in other parts of town would see the opposite.
So says a report in The Patriot-News
So, how do the residents not privilaged to live downtown feel about this?
Rabbi Carl Choper asked Harrisburg's Act 47 team members Tuesday night if they thought about what a reduction of police officers on the streets would mean.
Choper, of the Jewish Home of Greater Harrisburg in Lower Paxton Twp., has had a recurring nightmare about the matter.
"We have a significant numbers of neighborhoods here where children kill children too regularly. I understand what made you suggest that police be reduced and foot patrols be reduced. But I wondered if you understood what that meant. And to put that next to the bondholders' interest, not principal, is just horrifying," Choper said.
JENNY KANE, The Patriot-News Harrisburg City Council President Gloria Martin-Roberts, left, listens to Evelyn Hunt of Harrisburg ask questions to members of the Act 47 committee during a public hearing Tuesday at Harrisburg High School.
Choper's comments expressed a universal theme of residents at Harrisburg's Act 47 public hearing at Harrisburg High School: The state's recovery plan chews up the city and protects bond investors.
J Harrisburg resident Les Ford asks questions to the Act 47 committee.
JENNY KANE, The Patriot-News

"I see a plan insanely influenced by companies that got us into this mess," said Scott Siciliano, 25. "I'm young, but I'm not stupid. I read the plan."
Siciliano was one of about 40 residents out of 200 in attendance who spoke against the plan. Residents consistently said the plan does nothing but put financial pain on the city.
Siciliano has lived in the city for about a year despite the bad fiscal news that has plagued it. He and his partner bought a house in Bellevue Park, and they would pay about 40 percent more in taxes should the city switch from a two-tier tax system to a blended rate, as the Act 47 plan suggests.
Greece is the word...everywhere.  On a small scale, we too can "see a plan insanely influenced by companies (read: banks) that got us into this mess."  Much as they would like to sustain it, and add even more, ever-increasing debt is not sustainable.  Worse, if the people pulling the strings (or their hired consultants) implement changes that will actually undercut the revenue base - as happened in California with proposition 13, and more recently with the 2% tax cap in New York state, and now, Harrisburg on the block - it will only accelerate the demise of the middle class, and the rise of modern-day feudalism, wherein large landowners are rewarded for being, well, large landowners.  Will large landowners take their new-found lower-taxed land and reward society by building more?  When have they ever?  Why should they?

Our own Georgist, Josh Vincent, of the Center for the study of Economics is fighting the lonely battle just to hold onto the gains Harrisburg has made in the last few years by moving towards LVT.  Josh writes (emphasis added):
"The rationale as stated in the report was light on specifics and very long on assertion. ..
During the public testimony section, I had decided to go to Harrisburg High School without an invitation although I had followed proper procedure in requesting time several weeks ago.   As it turns out, the chief consultant for the act 47 recovery plan, Ms Julia Novak and her staff, had not responded to anyone, so it was systemic, nothing against LVT.  
 
The stated reason for "blending" the property tax given by the panel was that they could not determine mathematically how to maintain the split rate while raising $1 million in extra revenue annually, so it was decided that administratively it was easier to revert to a flat rate.   The panel also determined that split rate LVT was detrimental to attracting bigger firms that would use the downtown and its periphery, and that a tax on land value was detrimental to both competitiveness and efficiency.
 
A citizen noted that if that was the case, why did other recommendations in the recovery plan include a 10-year total tax abatement on new commercial construction in the CBD? The paradox of ending a universal abatement while implementing a  "targeted" abatement was not lost on the panel, in my opinion, and Ms Novak -- who was the lead speaker for the Act 47 panel -- remarked that she was surprised that people felt so strongly about LVT, and that they were "hearing" the concerns."
Gee, I can't figure out how to raise a million dollars either, so why don't I just steal it?  That's the logic expressed above, but then denied when the true land-masters must be appeased with abatements.  See the attached report for more details on what would be given up should Harrisburg follow the Grecian example of more austerity for less revenue.

Summer is, as one local Pol's Chief-of-Staff put it to me and our Common Ground-NYC co-political-outreacher, "a time for thinking of big ideas."  Yes, it is true we will not be holding our bi-monthly CGNYC meetings, but the work, or the need for it, does not stop.  Subcommittee work continues, new members join the fight, and projects are begun, and, hopefully, new bills formulated for the new legislative session next Winter. 


State Banking update
There is a bill already out there in New York to decide on whether we will have banking in the public interest, and not banks interested in fleecing the public.  It is bill A06737 and it is sponsored by Sandy Galef (AD-90).  Although wrong on the property tax, she is right on State Banking...maybe.  The problem is, the bill currently has no votes scheduled for it, but has "been referred to the banks."  For what?  For them to marshal their arguments against it when it is called for a vote?  Well, we must marshal our voices our voices in support of the people's right to their own money - as tax revenues invested in a State Bank, and not in mostly money-losing Wall Street investments would be. 
Action Step: Write or call Sandy Galef's office in support of a State Bank for New York, not just a "study bill" where the results are promised in 2 years - or longer, since this bill has not even been passed yet .   Will we even have a viable state, or country, by then?

A New Forum for Economic Voices
The newly formed Institute for New Economic Thinking is rapidly becoming a source for new economic ideas that are, if not quite out-of-the-box, at least pounding on the sides.  An interesting 22-minute interview with Andrew Sheng, currently the Chief Adviser to the China Banking Regulatory Commission and Adjunct Professor at Tsinghua University, can be seen here.  About 2/3 into it he talks about sustainability and the impossibility of the current system living beyond the Earth's carrying capacity.  He doesn't quite embrace the Georgist solution, but oh-so-close.  

Is the United States even Allowed to Default?
As the debt ceiling holds the country hostage to the draconian and ultimately economically self-defeating demands of the Tea Party crowd to cut spending at all costs (including the country itself), a number of scholars are debating whether the United States is even permitted to default on its obligations.  Section 4 of the 14th Amendment reads:
The validity of the public debt of the United States authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.
The Congress as the instrumentality of sovereignty is endowed with certain powers to be exerted on behalf of the people in the manner and with the effect the Constitution ordains. The Congress cannot invoke the sovereign power of the people to override their will as thus declared. The powers conferred upon the Congress are harmonious. The Constitution gives to the Congress the power to borrow money on the credit of the United States, an unqualified power, a power vital to the government, upon which in an extremity its very life may depend. The binding quality of the promise of the United States is of the essence of the credit which is so pledged. Having this power to authorize the issue of definite obligations for the payment of money borrowed, the Congress has not been vested with authority to alter or destroy those obligations [294 U.S. 330, 354]   ...
The Fourteenth Amendment, in its fourth section, explicitly declares: 'The validity of the public debt of the United States, authorized by law , ... shall not be questioned.' While this provision was undoubtedly inspired by the desire to put beyond question the obligations of the government issued during the Civil War, its language indicates a broader connotation. We regard it as confirmatory of a fundamental principle which applies as well to the government bonds in question, and to others duly authorized by the Congress, as to those issued before the amendment was adopted. Nor can we perceive any reason for not considering the expression 'the validity of the public debt' as embracing whatever concerns the integrity of the public obligations.

So, "Congress has not been vested with authority to alter or destroy those obligations ."  This sounds pretty clear.  Congress must pay its bills and CANNOT default. 
Says Adam Winkler, a law professor at the University of California, Los Angeles, the 14th Amendment option has recently been much discussed in the field:
"Without any clear case law about the debt ceiling in particular, no one knows exactly how the courts would rule on that issue, about whether President Obama could ignore the debt ceiling," he said. "If he wanted to continue to service the public debt, he'd probably get away with it."
Which leads to a related question: Who's to stop him?
"To have standing to challenge a governmental action, you must show that you have suffered some injury from that action, and it's hard for someone to show such an injury...If Congress acted as a unified body, and claims that the president has usurped their authority, then it may have some standing."
"But, it would have to be a joint resolution. And this Senate would almost certainly block it."

The above quote is from the following Huffington Post article:
14th Amendment: Democratic Senators See Debt Ceiling As Unconstitutional

Bring Back the Greenbacks!
Now, Congress has another power, established in the Constitution (Article 1, section 8) and practiced also in the Civil War (dire times often create great innovations), and affirmed through later court rulings.  Congress can simply "coin Money" (small 'c', big 'M' in the constitution).  They can, as Lincoln did, create debt-free money in the form of Greenbacks (aka U.S. Notes).  When will the scholars start focusing on that ?  Says Wiki:
A United States Note, also known as a Legal Tender Note, is a type of paper money that was issued from 1862 to 1971 in the U.S. Having been current for over 100 years, they were issued for longer than any other form of U.S. paper money.
This Greenback money, accepted as the original Legal Tender, can work again today.  Money should be available in sufficient quantity to meet the productive capacity of the nation, not the credit-creation desires of private bankers.   If society understood this basic Greenbacker principle, it would go a long way towards solving our current "debt-ceiling" crisis - a crisis brought about by "those companies that got us into this mess."

Now, please do not think this author is advocating unsustainable spending.  I am actually much more fiscally conservative than either party in power, though I would balance the budget by ending the wars and holding Medicare to the rate of inflation (then figure out how to do that without trading quality care for cost - there are many, many ways to do that, beyond the scope of this newsletter), among other, smaller results measures (the current debates about cutting funding for Planned Parenthood, Science, the FDA, or Education - again - would be laughable because the savings are so puny, except for the fact that people's lives are at stake).  See how "I Balanced the Federal Budget! (And You Can, Too)."  Take the NY Times 40-question budget survey yourself, from the link in the article, and see if you can do what Congress can't. 
I'm betting you'll do much better.


 

Take action -- click here to contact your local newspaper or congress people:
Bring back the Greenbacks

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Scott Baker is a Senior Editor/Economics Editor and Writer at Opednews, and a blogger for Huffington Post.
Scott Baker is President of Common Ground-NYC (http://commongroundnyc.org/), a Geoist/Georgist group. He has written dozens of (more...)
 
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