Liberals Overestimate Obama’s Leverage on the Fiscal Cliff

December 19, 2012Danny Vinik 5 Comments

The Fiscal Cliff is still unresolved.

Over the past couple of days, the White House has taken a lot of heat from liberals for agreeing to using chained-CPI in Social Security. Different writers have lashed out at such a deal and argued that the President is back to “negotiating with himself.” Many of these liberals see going over the fiscal cliff as better than the deal Obama is currently offering. They believe that going over the cliff will give Obama more leverage in the negotiations and allow him to extract a better deal from Republicans. However, I’m very skeptical of this for three reasons:

First, the President is in such a great position now because Republicans really don’t want the Bush tax cuts to expire for anyone. The President wants to extend the tax cuts as well, just not for those making $250,000 a year or more (his most recent offer upped this amount to $400,000). In his counteroffer, House speaker John Boehner agreed to raise rates on those making more than a $1,000,000.

But the rates on everyone automatically rise on January 1st (though its effects don’t occur for a few months). This where the President’s leverage comes from. He would sign a bill extending the tax cuts for the middle class, but Republicans won’t because they want to extend rates for the upper class (and small businesses) as well. That’s why the President can say:

It’s unacceptable for some Republicans in Congress to hold middle class tax cuts hostage simply because they refuse to let tax rates go up on the wealthiest Americans

The polling has largely backed up the President, with the American people blaming Republicans for not compromising.

The thing that many liberals have overlooked is that this can change quickly. Boehner’s offer to raise rates on those making over a $1,000,000 may not be much substantively, but it represents a big shift in the Republican party. For years now, the Republicans have adamantly refused to raise taxes. Period. End of question.

Now, the Speaker is finally offering to let taxes rise on the wealthiest Americans. The American people may see this as a major compromise for Republicans and believe that the President is now holding the middle tax cuts hostage. I haven’t seen any polling since Boehner submitted this offer to the President, but I’d be very interested in it. If we go over the fiscal cliff, it’s possible that Obama could receive much of the blame. That would certainly put him in a much worse bargaining position. Continue reading “Liberals Overestimate Obama’s Leverage on the Fiscal Cliff” →

Legalize Online Gambling

August 1, 2012August 1, 2012Danny Vinik Leave a comment

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The New York Times reported today that Pokerstars and Full Tilt Poker have come to an agreement with the U.S. government to pay hundreds of millions of dollars for illegal online gambling and fraud. Now, Full Tilt Poker had effectively set up a ponzi scheme, taking money from players and putting it in their pockets. Players saw the money in their accounts and Full Tilt said that they could withdraw it at any time, but it seems that was not the case.

These settlements seem fair since both companies certainly broke the law, but there is a bigger question lurking beneath them: what exactly is the problem with online gambling?

I know opponents of it point to the ease of access and the social problems it could create. But not just do I not think that is a valid reason for banning it, I don’t even think the reason holds up under scrutiny.

Opponents to online gambling are generally the same opponents of gambling in general. They have a strong dislike for it, believing it causes a vast array of social problems including the destruction of family values. This may well be the case, but it is also an extremely paternalistic point of view. Many Americans enjoy gambling and do so responsibly. Ever since the rise of Las Vegas in the early 1930s, gambling has been an accepted, if sometimes looked down upon, part of life.

The question then becomes whether online gambling poses such a greater risk to society than in-person gambling that it should be banned. On this, the answer is unequivocally no: online gambling may in fact pose less of a risk to society than its brick-and-mortar counterpart. Continue reading “Legalize Online Gambling” →

Executive Pay Grows Yet Again

June 18, 2012Danny Vinik 1 Comment

David E. Simon, CEO Simon Property Group

The top CEOs around the country saw their median pay grow to $14.5 million last year, even as stockholders began demonstrating their displeasure. The Dodd-Frank bill requires companies to hold a vote regarding executive pay at least once every six years. Many companies did so last year and stockholders voiced their displeasure. For instance, 73.3 percent of shareholders of Simon Property Group voted against the pay of its top executive, David Simon. Here’s the issue, though. The vote is non-binding. Companies have to take into account the stockholders’ vote, but they do not need to listen to it. Thus, Simon received $137 million last year, though a large chunk of it was in a stock package.

In many ways, CEO pay has fallen into a downward spiral. Companies are not just competing with each other for a limited supply of top-level executives, but they are competing with each other to pay those top-level executives the most. Many companies have begun using CEO pay as a form of prestige. A small company paying an outlandish amount for its top-level executives views itself as a more influential and important company than one of a similar size who pays just an average amount for its executives.

Each year companies pay their CEOs more, increasing their pay much more than the average worker and higher than inflation. Then the following year, in order to keep up with other companies, they raise their top-executive pay even more. Each year, the raises the executives receive outpace the raises that ordinary workers receive, f they happen. This just further increases income inequality. Do all CEOs really deserve a raise each year that is twice as a great in percentage terms as the ordinary worker? What if the company loses money? Can anyone really believe that CEOs deserve a raise then? But it happens and the American public has been rightfully outraged about it for year. Unfortunately, while Dodd-Frank at least gave stockholders the ability to vote on the issue, it didn’t give them any actual power. Thus, top-level executives continue to see their pay rise while the rest of America grumbles to itself.

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