Today’s Edition: No way to make sausage.

October 27, 2021

          This is no way to make sausage, much less draft the most significant legislation in a decade. With three days until the self-imposed deadline for completion of the Build Back Better bill, Democrats are offering novel solutions for raising revenue to pay for the bill. The reason, of course, is that the objections raised by Senator Sinema are a moving target. In the last three days, Democrats have proposed a “billionaire’s wealth tax” and a corporate minimum tax based on profits reported to shareholders, not on taxable income shown on tax returns. There is no consensus on either proposal at the moment. Even if such a consensus were achieved, the constitutionality of the billionaire’s wealth tax is the subject of fierce debate.

          Many readers responded to yesterday’s newsletter by noting that taxing wealth would be a difficult task requiring new reporting from banks, investment funds, and trusts. While true, the current proposal would apply to only 614 taxpayers with a net worth of more than a billion dollars. We know who those taxpayers are, where they live, and how they make their money—so the logistics of collecting the tax might not be beyond the abilities of the I.R.S.  The fact that Elon Musk launched a Twitter attack on the proposed wealth tax suggests that he knows what is coming if the tax is enacted. (Musk argued that he knows better what to do with his capital than the government does—proving that Musk doesn’t understand the differing roles of business and government.)

          One reader asked whether I thought the billionaire’s tax was constitutional. My immediate reaction was, “Of course, it is.” My reaction was too hasty. There is a century‑long legal debate over the authority of Congress to impose a “direct tax” on income. As explained by NPR’s Planet Money, during the first 100 years of our nation’s existence, federal courts held that Article I Section 8 of the Constitution authorized imposition of direct taxes on income. That changed in 1895, when the Supreme Court overruled federal precedent and held that Congress did not have the power to collect income taxes unless it followed the antiquated apportionment formula in Article I, Section 2 of the Constitution. Congress responded by passing the Sixteenth Amendment, which was ratified by the states in 1919. The Sixteenth Amendment granted Congress the authority to “to lay and collect taxes on income, from whatever sources derived. . . .”

          Is a “wealth tax” on unrealized gains an “income tax” permitted by the Sixteenth Amendment? Maybe. Maybe not. It depends on who you ask and how you define unrealized gains. (The Supreme Court has twice said that using “realized gains” to determine income is an “administrative convenience”—not a magical demarcation between income and gains.) Scholars have debated this issue for decades. See op-ed by Daniel Hemel in Washington Post, “A wealth tax is a good idea — if we had a different Supreme Court.” Hemel predicts that taxing unrealized capital gains will receive a hostile reception in the Gorsuch/Alito/Barrett Court.

          Here’s my point: Democrats are reaching for creative and untested solutions at the last minute because a single Senator—Sinema—refuses to raise corporate taxes to fund the Build Back Better legislation. This is no way to draft legislation. Proposing controversial measures for generating tax revenue at the last minute is like running with scissors—not a good idea. It may be time to put Senator Sinema to the test: Will she cause the simultaneous collapse of the infrastructure bill and Build Back Better agenda because she does not want to re-institute the corporate tax rates that existed before Trump’s 2017 tax cut for corporations? That approach may be too risky—a point we should remember if we are tempted to second-guess our strategy if the Supreme Court invalidates the billionaire’s wealth tax in 2023. There are no easy choices here, so the best course is to get on with the legislatives process and be done.

Biden waives executive privilege for a second time.

          Trump filed a lawsuit to block a transfer of documents from the House Special Committee to the National Archives. The documents relate to the events of January 6th. Biden responded to the lawsuit by explicitly waiving executive privilege—which he is entitled to do as the current holder of the privilege. See Talking Points Memo, “Biden Shoots Down Trump’s Executive Privilege Claim Once Again.” It would be unthinkable for a court to rule that a current president cannot waive the privilege as to documents generated under a prior presidency. So, Biden’s waiver will expedite the transfer of documents to the House Special Committee. Good result, thanks to President Biden.

Things are getting crazy in Florida.

          Florida Governor Ron DeSantis has asked the state legislature to return for a special session to pass legislation making businesses liable for medical harm that results from mandatory vaccinations. The legislature may also consider “withdrawing from the federal Occupational Health and Safety Organization (OSHA)”—a proposal that makes as much sense as considering whether Florida should withdraw from the United Nations.

          The Miami Herald published an editorial castigating Governor DeSantis. The editorial board wrote:  

          We thought things couldn’t get much worse in DeSantis’ handling of the pandemic, but we were wrong — then we were wrong again. Just when you think he’s done enough to undermine our chances of exiting a pandemic that has killed nearly 60,000 Floridians, he has a new trick up his sleeve. . . . He has every motivation to ignore the facts and continue to stoke COVID denial and anti-vaxx fervor. His policy proposals are usually followed by a fundraising pitch from his campaign to potential donors . . . .

          DeSantis must stand for re-election in 2022. Democrats and Independents in Florida must do everything in their power to defeat DeSantis in 2022—so that he enters the 2024 presidential primaries as damaged goods.

Don’t get your news through Facebook.

          Congressional subcommittees continue to hear testimony on the corrosive effect of Facebook’s newsfeed algorithms. Newly released documents show that Facebook assigned five times the weight to “angry” reader reactions than to reader “likes” of a story. The result is divisive stories receive greater circulation. Worse, an internal Facebook analysis showed that divisive stories were more likely to include disinformation—and Facebook did nothing in response. See Washington Post, “Five points for anger, one for a ‘like’: How Facebook’s formula fostered rage and misinformation.” Per the WaPo article,

          The company’s data scientists confirmed in 2019 that posts that sparked angry reaction emoji were disproportionately likely to include misinformation, toxicity and low-quality news.

          Here’s my point: Facebook is not a trustworthy news source. It is an advertising platform in which your personal information is monetized and sold to advertisers. Always check Facebook stories against external, reputable sources of content—and try to read original source documents whenever possible. We are living in a toxic and dangerous news-delivery paradigm. Until that changes, we must exercise control over what news sources we read. If you don’t do it for yourself, Mark Zuckerberg will decide what you read. Is that what you want?

Concluding Thoughts.

          We have been here before—i.e., just days away from promised simultaneous votes on the infrastructure bill and reconciliation package. Prior deadlines passed without the final collapse of both bills. If Democrats fail to reach a deal this week, don’t give up hope. Apart from the need to keep the U.S. solvent by expanding our borrowing authority at the end of November, the current deadlines are arbitrary. So, remain positive and don’t fall victim to the media hype. Remember, the story that pops up in your Facebook newsfeed may be Zuckerberg’s way of making you angry (angrier?) at your wife’s cousin—so that Facebook can sell more ads. Be patient, don’t react to every development, and read the relevant sections of the bill before jumping to conclusions.

          Talk to you tomorrow!