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Archive for May, 2014

Gun Violence Too Close to Home

May 28th, 2014

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Until last weekend, I thought I understood better than most that so long as gun laws remain weak and rife with loopholes and our mental health system continues to let people fall through the cracks, gun violence can happen anywhere. After all, I’ve been to Newtown and met with the Sandy Hook parents in a neighborhood that looks just like the one where I grew up. And the Navy Yard shooting last fall that claimed 12 innocent lives took place only blocks from my Washington, D.C. apartment. But it didn’t really sink in until I woke up Saturday morning to discover that overnight six students at my alma mater were gunned down or stabbed to death in Isla Vista, California, with another 13 injured. It happened in the neighborhood where I lived for years as a college student at the University of California, Santa Barbara; in the neighborhood where my brother lives now as a post-doctoral researcher at that same university. Victims who were targeted for being young college women, just like my little sister—who only decided at the last minute to attend UCLA rather than UCSB.

In two weeks I am flying back to California to watch her graduate—but now six families just like mine will be attending funerals, not graduations. I don’t know what cracks the shooter fell through in our imperfect system that allowed him to pass a background check and purchase guns. But I do know now that current gun laws are not sufficient to keep me and family and friends safe.

Yet many Americans don’t have that knowledge. I envy them, in a way, because it means that senseless and preventable gun violence has never infringed so personally on their lives. But it is precisely that knowledge divide that makes common sense gun laws so hard to pass, despite strong public support in national polls.

Take Third Way’s latest poll, for instance—released less than two weeks before the mass murder at UCSB. On one hand, 84% of moderates—who make up more than a third of the American electorate—and 81% of all Americans supported expanding criminal background checks for gun purchases. But at the same time, 58% of moderates and 60% of all Americans also said that they already think current gun laws are sufficient to protect to them and their communities. Gun violence doesn’t happen in neighborhoods like theirs, they feel, so these laws don’t really affect them.

This tension between generally supporting background checks but believing that they are unnecessary for their families’ protection led to moderates dividing right down the middle when we asked whether the country needs more government ground rules on guns, or whether it should put more trust in individuals. Unlike liberals, who by an overwhelming 58 points said that we need more government ground rules, or conservatives who preferred trusting individuals by more than 40 points, only nine points separated the 53% of moderates who chose more ground rules over the 44% who said to trust individuals. Guns safety advocates and their champions in elected office too often overlook these conflicted moderates. Instead of talking past them, we need to talk to them—recognize that they are torn on this issue and that the half of American homes that own guns want safe neighborhoods just as much as the half that don’t.

This weekend, yet another community was forced to come to the terrible realization that without stronger guns laws and a better mental health system, nowhere is truly safe—even a beach town full of college students on a holiday weekend. I was lucky. It’s been five years since I graduated, or I might have been out with friends getting fro-yo at 9:30 on a Friday. My brother was out of town, ironically enough visiting my sister at her college campus for the weekend. But six kids weren’t, and now they aren’t coming home. Passing gun laws isn’t easy, especially given the disconnect many Americans feel exists between gun laws and their own lives. But it’s so much less painful than the alternative, as we saw again last weekend.

A Blank Slate, Not a Blank Check

May 22nd, 2014

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Sixty words have defined the last 13 years. In the days following the 9/11 attacks, Congress voted overwhelmingly to give the president broad authority to use force against those who had attacked us. But those 60 words, known as the Authorization for Use of Military Force, or AUMF, have been in effect for far longer, in more places, and invoked against more groups than anyone could have suspected in 2001. After bin Laden’s death and with the war in Afghanistan drawing to a close, now it is time to revisit the AUMF.

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The U.S. Corporate Tax Code is Bananas

May 22nd, 2014

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A much-too-high corporate tax is causing companies to flee for Europe.

If any U.S. company seems ripe for moving to an island tax haven, it’s Chiquita. Based in Charlotte, the company’s sale of bananas, grown largely in Central America, accounts for two-thirds of its profits. But Chiquita isn’t bound for the tropics. It’s headed to Ireland, where the climate may be hostile to banana trees, but the cool 12.5 percent corporate tax rate feels just right.

Later this year, Chiquita will merge with Fyffes, an Irish fruit distributor half its size. Usually the larger company buys the smaller one, but not anymore. Entirely because of taxes, a newly formed Irish company will control the merged companies. Chiquita will remain listed in the U.S., but its headquarters will move to Dublin, unlocking access to the favorable Irish tax code.

Chiquita’s move, called corporate “inversion,” isn’t new. It’s an old strategy that U.S. companies have rediscovered. Everyone in Washington — Democrats and Republicans — should be concerned. Though completely legal, new inversions this decade will costs the Treasury nearly $2 billion a year, and they move high-paying corporate jobs overseas, albeit in limited numbers. Inversion happens because our bloated corporate tax code is bad public policy, severely handicapping U.S. businesses relative to their foreign competitors.

Inversion first became popular in the late 1990s when companies like Ingersoll-Rand and Fruit of the Loom reincorporated in Bermuda and the Cayman Islands. Then Washington started playing whack-a-mole, but not doing it very well. IRS rules targeting inversion didn’t work, so in 2004 Congress passed a law making moves to offshore havens more difficult.

The law now requires an American company looking to move its headquarters overseas to use a merger or acquisition with a foreign company at least one-fifth its size. This mostly took the Caymans out of the picture, because only shell companies locate there. But Europe is a more attractive corporate destination than it was 15 years ago. Countries like Ireland, the Netherlands and the UK noticed that in today’s globalized world, a competitive corporate tax code matters more than ever. So they lowered their corporate tax rates and eased taxation of foreign-earned income.

Meanwhile, the U.S. tax code sat rotting on the shelf. Our 35 percent statutory rate is highest among the world’s developed economies. While few companies pay an average rate that high, numerous tax preferences raise compliance costs and skew incentives.

One example is the “lockout effect.” Because some corporate profits are taxed only when returned to the U.S., many U.S.-based multinationals keep piles of cash on the books of their overseas subsidiaries. If it’s not coming home, that cash may be deployed to purchase a foreign company. When the selling company is big enough, the U.S. buyer can invert and avoid even more taxes.

If inversion were limited to bananas, maybe we wouldn’t care. But oil and gas companies, drug companies and others have exported their U.S. headquarters in recent years. Altogether, since 2012, at least 14 U.S. companies have completed or considered inversion deals. This month’s on-again, off-again takeover talk between Pfizer and AstraZeneca is one example. U.S. companies look to inversion not because CEOs wake up one day and feel the pull of the old country, but because they are seeking to maximize profit in the face of foreign competition. The pace is likely to accelerate, because as much as we may decry it, inversion currently makes financial sense.

In response, President Obama proposed in his 2015 budget that Congress raise the inversion foreign ownership threshold to 50 percent. This month, Senator Ron Wyden, D-Ore., and Sen. Carl Levin, D-Mich., are crafting legislation modeled after Obama’s proposal.

These efforts show Congress is taking inversion seriously. But let’s also realize that our uncompetitive code is the root of the problem. Only when Washington fully reforms the corporate tax code will the pressure for companies to leave the U.S. tax system subside.

First, the 35 percent corporate tax rate must come down, at least to President Obama’s proposal of 28 percent and preferably further. The cut can be financed in part by eliminating some outdated tax breaks, but savings elsewhere may also be necessary. Second, the lockout effect has to end. Some foreign-earned income, particularly passive income, should be taxed currently no matter where it’s earned. And income from real business activity abroad should be lured home with a tax rate competitive with those of other developed countries. Third, the tax code needs to be simplified.

A simpler, more competitive corporate code shouldn’t be confused for a giveaway to corporations or the wealthy. Research suggests that if Chiquita were to spend less preparing and paying corporate taxes, its shareholders and its workers share the benefit. Most importantly, so would the broader U.S. economy, which would attract and retain more business and more jobs. It’s bananas for the U.S. to sit back and do nothing as good American companies decamp for Europe

This piece was originally published in U.S. News & World Report

Keep Your Friends Close, But Keep Russia Closer

May 20th, 2014

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As Russia’s stock market continues to plummet, so too has Russia’s stock among the American people. Polling from earlier this year indicates a majority of Americans view Russia “as unfriendly or an enemy,” the highest unfavorable rating since the fall of the Soviet Union.

Some in Congress are capitalizing on this discontent by inserting a section into an upcoming defense bill that suspends “contact or cooperation” between the Pentagon and its Russian counterparts. This break in relations would continue until Moscow left Ukraine alone and fulfilled its obligations under two military treaties.

Slashing military ties with Russia after its Crimean land grab might feel emotionally satisfying in the short term, but it’s ultimately counterproductive in the long term. After all, unilaterally halting the Pentagon’s contacts in Russia would undermine our ability to collaborate on shared interests, confront shared threats and manage global crises.

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Elites focus on inequality; real people just want growth

May 6th, 2014

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The economic debate is now sharply focused on the issue of income inequality. That may not be the debate Democrats want to have, however. It’s negative and divisive. Democrats would be better off talking about growth — a hopeful and unifying agenda.

Democrats believe income inequality is a populist cause. But it may be less of a populist issue than an issue promoted by the cultural elite: well-educated professionals who are economically comfortable but not rich. There’s new evidence that ordinary voters care more about growth.

Growth and inequality are not separate issues. Nobel Prize-winning economist Joseph E. Stiglitz wrote, “Politicians typically talk about rising inequality and the sluggish recovery as separate phenomena when they are in fact intertwined.  Inequality restrains and holds back our economic growth

The question is whether Democrats want to talk about punitive and confiscatory policies aimed at curbing the power of the wealthy and special interests or an agenda aimed at growing the economy for everyone.

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