As any regular reader of my blog know, the pandemic has caused me to occasionally wander out of my lane and speculate about COVID-19 and its effects (w/o any qualifying expertise). In particular, the effects on long term care (LTC) residents and facilities has interested me because of Minnesota’s abysmal record in containing the virus in its LTC facilities. On a related topic, this recent article on Genworth Financial, a big LTC insurer, in ThinkAdvisor caught my eye, especially its subtitle (“Increased mortality helped the company’s LTCI unit”).
The article doesn’t have much detail, but reports this bit based on a company conference call: “Genworth is not giving details about the effects of COVID-19 on the performance of the LTCI unit, but it did say an increase in deaths improved the unit’s performance.” I interpret that to mean that the high death rates nationally (over 40% of COVID-19 deaths were residents of LTC facilities; in Minnesota, the rate is 75%) are measurably reducing claims to pay long term care insurance.
This must be due to claimants dying from COVID-19. But the company tempered that by saying that COVID-19 may be dampening down new claims – deterring people from going into facilities (no surprise given the reported death rates of residents) or from hiring in-home care because of the inability to find willing care givers? In any case, the company reserved $37 million to address that potentiality. It’s unclear whether that is smaller or larger than the reduction in claims.
I guess this should have been expected, but it didn’t occur to me: COVID-19 might be mildly good, short-term financial news for LTCI underwriters. I suppose that could also translate into lower government expenditures for LTC under Medicaid programs. Since the Minnesota’s Medicaid program, Medical Assistance or MA, pays many multiple times what LTCI does in care costs could this actually amount to significant savings? From any type of longer term perspective, I can’t imagine it will; there is likely no ghoulish silver lining in this dark viral cloud. Several reasons that I can think of (again, as a rank amateur observer):
I would expect the government is providing or will be providing payments to facilities to help address COVID-19. LTCI doesn’t do that.
Much of LTCI goes to pay for assisted living rather than care in skilled nursing homes; MA rarely does, I assume.
Any reduction in the payment of LTCI claims means less income for LTC facilities from private, nongovernmental sources. Since the financial health of these facilities is bound up closely with government programs like MA, those effects will hit state government in some way.
COVID-19 likely will dictate changes in the delivery of LTC in facilities; better infection control is clearly needed. That will be expensive – fewer rooms with two residents, more staffing, more PPE supplies, etc. All that will translate into higher MA costs.
So, this is probably just another version of COVID-19’s bad fiscal news for state government.
This isn’t a topic I typically write about. But as a long-time, amateur Court-watcher, the recent CNN series of four articles by Joan Biskupic on the Court and Chief Justice Roberts’ role was fascinating and I felt compelled to post links, if only so I have an easy way to go back to them:
Series introduction, mainly about the DACA decision, but it also reveals that Roberts’ reluctance to go along with the other four Republican appointees’ desire to expand 2nd amendment rights was likely what led to the denials of cert in those cases.
Article on the internal politicking behind the decision extending civil rights protections to gay and transgender employees under Title VII. This tends to confirm what had seemed obvious, Justice Kagan is the Roberts whisperer (or in this case, a Gorsuch whisperer – meaning more generally that she is the liberal justice who works hardest at cultivating conservative justices, especially Roberts, the swing vote in most cases). It is also disheartening to me (as an intentionalist) that it may mean she really meant it when she said “we’re all textualists now” or something to that effect. She probably wasn’t just trying to get on Scalia’s good side.
Inside story of the cases involving the subpoenas of Trump’s financial records, the only one that has even a tenuous tax angle (i.e., it involves tax records).
Reading these stories raises the obvious question of who Biskupic’s source(s) are and whether any of them is a justice (somebody who wants to get back at Roberts?). This stuff has happened before. I remember avidly reading the Brethren as a young man, for example. But I wonder if this sort of leaking will become more normal. This op-ed by Daniel Epps, a former Kennedy clerk who I had not heard of, intelligently discusses some of the issues.
The other inescapable takeaway for me is how Trump’s presence casts an ugly shadow over seemingly everything, even the Court. One has to hope that this too will pass, as so many past threats to the Court have, whether self-inflicted (e.g., Dred Scott or Plessy) or external (e.g., Andrew Jackson). If he is reelected, all bets are off.
This post was updated on 7/23/20 to discuss the response of Professors Sarin and Summers to the CBO Report.
The IRS just released the 2019 Data Book, which is chocked full of interesting details for tax geeks like me. Commissioner Rettig observes in his letter, “The continued success of our country depends, in large part, upon the continued success of the IRS.” (p. v). If that is correct and I think it is, the Data Book provides reason to be concerned. The commissioner asserts that it contains evidence of the agency’s success, which is true. As he points out, “IRS employees worked around the clock to deliver tens of millions of Economic Impact Payments in record time, yet still kept the 2019 tax filing season on track.” (p. vii). That is reason to be proud, given what Congress has done to the agency’s budget over the last decade, as the Data Book documents.
How on-track the filing season is, though, is open to question. For example, the processing of paper returns was put on hold for a good length of time, as the latest report of the Taxpayer Advocate details (backlog of 4.7 million paper returns). This TPC blog post (Where’s my income tax refund?) points out that even electronic filers are encountering problems getting refunds. All that is likely due to the coronavirus and the need to send many IRS employees home to keep them safe. So, it may not be fair to blame congressional budget parsimony, although I still assume it was a contributing cause.
Causes for concern
A primary cause for concern is the persistent decline in examinations and audits. The graphic on the top of page 33 of the Data Book shows the sorry story. In 2010, the IRS did 1.7 million examinations with about 500,000 field exams involving face to face contact with an agent. The rest were correspondence exams, where the taxpayer responds to an IRS letter. By 2019, total exams had dropped to just under 800,000 or less than half the 2010 level. Field exams – where the agency collects often serious amounts of revenue on more complicated issues – dropped to fewer than 200,000, 40% of the decade-earlier level.
Looking at data detail in Table 17b shows matters to be starker. The table below shows the percentages of income tax returns examined for tax years 2010 and 2018 – I picked one category of high-income returns. Obviously, tax year 2018 is an open year, so IRS can still begin exams on these returns and, I assume, those percentages will rise a bit.
Type of return
Tax year 2018
Tax Year 2010
All returns
0.15%
1.01%
Income of $1 million but less than $5 million
0.05%
8.77%
EITC returns
0.60%
1.81%
2019 IRS Data Book, Table 17b
This situation is simply an invitation for the ethically challenged to play the audit lottery. The odds of doing so has gotten a lot better, especially for filers with incomes where winning the audit lottery also has a bigger payoff.
Page 34 has three graphs that must be new this year; at least, I had not noticed them before. They show the percentage of income tax returns examined by size of income for tax years 2010 through 2018 – essentially graphing data like that in the table above but for more income categories. As with the one category I selected, the declines for higher income returns are much steeper. Of course, they had farther to drop since they traditionally were audited at higher rates. So, the steep slopes might be slightly misleading. But only slightly.
The high exam rates for EITC is perplexing. I doubt focusing exam resources on EITC returns is revenue maximizing. Most of these are correspondence exams, so they are cheaper. Although the EITC rules are mind-numbingly complex, the exams are simpler than those for high-income returns. So, on balance, they must be less expensive – e.g., requiring less training of employees, less complicated fact gathering, fewer taxpayers with representatives, etc. But still I cannot believe that directing resources to EITC exams is the most cost-effective use of scarce agency resources.
This TPC post (“How Can The IRS Do Correspondence Audits When It Can’t Open Its Mail?”) by Janet Holtzblatt recounts some of history behind this, which I had forgotten. It started with an agreement between Bill Clinton and Newt Gingrich as part of the 1997 tax bill, which made the child credit partially refundable. Gingrich extracted, in return, an agreement by Clinton to reduce EITC erroneous refunds by $5 billion over a period of years. Inertia, thus, may explain the focus on auditing such high percentages of EITC returns, while allowing bigger declines in examinations of high-income returns.
The psychological fallacy of loss aversion may be a contributing factor too – leading to considering the loss of “government money” (erroneous refundable credits) as more important than getting taxpayers to fork over the full amount of tax they owe. As a financial and ethical matter, I do not see a difference. I know some legislators share the view that cheating the government out $10 of tax you owe is not as bad as falsely claiming $10 of refundable credits. It wouldn’t be a surprise if there is an unconscious agency bias in that direction, especially given inertia.
The Data Book has the details on the decline in agency resources – the graph at the top of page 71 shows the decline (in constant 2019 $) from just under $15 billion in 2010 to under $12 billion in 2019. FTEs have dropped by about 10,000 in the last five years.
It’s much easier now to get tax exempt org determination letters. In 2019, the IRS disapproved only 66 applications for tax exempt status, while approving 92,434 applications. In 2008, by contrast, 1,240 applications were disapproved and 69,943 approved. That shows the effects of the Tea Party “targeting” controversy – thank you, Lois Lerner, and thank you, GOP members of Congress. (Actually, I’m not excusing the IRS for rolling over in the face of congressional pressure, although I understand it.) It must take a really bad application for a tax-exempt determination letter to be disapproved now. I shudder to think about the amount of self-dealing and other bad stuff that is likely going on with some of the organizations that have been granted determination letters in the last few years.
Stuff I didn’t know or had forgotten
The IRS workforce is heavily female – 65% (compared to 44% of the federal civilian workforce).
Ethnic minorities make up almost half of the IRS workforce (49%).
It would be interesting to see the breakdowns by GS class; I’m guessing the percentages drop off a lot at higher grade levels.
CBO Report
The Congressional Budget Office is out with a new report on the IRS. Trends in the Internal Revenue Service’s Funding and Enforcement (July 2020). Its 40 pages go through the details of the decline in IRS funding and the consequences for its enforcement activities. The report is based on the data from last year’s IRS Data Book (i.e., 2018).
If you care about the integrity of the nation’s tax system, the report should scare you. Some details include:
The IRS budget has declined by 20% in real terms since 2010. Its funding has declined over the previous year in every year, except 2016 (not sure what the explanation is for that). (p. 1)
The IRS workforce has declined by 30% over the period. But it gets worse: “The number of revenue agents and revenue officers, highly specialized enforcement employees who handle the most complex examinations and collections cases, fell by 35 percent and 48 percent, respectively, between 2010 and 2018.” (p. 1)
The exam rates for individual income tax returns fell by 46% and for corporate returns by 37%. (p. 2)
“[T]he examination rate for higher income taxpayers fell, while the examination rate for lower-income taxpayers remained fairly stable. Nearly all examinations of lower-income taxpayers were initiated because of claims for the earned income tax credit.” (p. 3)
“The amount of additional tax recommended after examinations of individual income tax returns fell steadily over the 2010–2018 period.” (p. 13) It dropped from over $16 billion in 2010 to less than $10 billion in 2018. (p. 18)
As part of the report, CBO estimated how much increasing IRS funding would result in collecting more tax revenues. CBO estimated that appropriating $20 billion more to the IRS over 10 years (ultimately, $2.5 billion/year) would yield $60 billion in increased revenues over that period, but about $9 billion per year in the last years of the period. Enforcement efforts have a ramp up effect. (pp. 19 – 24) Thus, the net yield would be $40 billion. CBO also estimated a $40 billion increased funding option, yielding a net of $63 billion, which reflects the diminishing returns of increased funding.
These estimates are quite modest compared with those produced by Larry Summers and Natasha Sarin, which I blogged about last years (A Trillion Dollar Free Lunch?). Summers and Sarin estimate a $100 billion increase in funding for the IRS would yield $715 billion in additional revenues: a 1:7 ratio, rather than CBO’s 1:2 ratio for a lower funding level. So, who should you believe – CBO or a Harvard economist and former Treasury Security and U Penn law professor? I suspect the truth is somewhere in between, but much closer to CBO’s numbers.
Tim Taylor (the Conversable Economist) has a blog post about the CBO Report – as usual he has a good take and sensible comments. I had not seen his post before writing this, unfortunately. Reading it is a good way to get a good, short take on the CBO Report without plowing through it.
Sarin and Summers Respond
After posting this, I discovered (h/t Mark Haveman) that Professors Sarin and Summers had written a response to the CBO Report, available as an NBER paper (only the abstract is free unless you have access to an NBER subscription). The paper defends their earlier $1 trillion dollar estimate, not surprisingly. It is mainly a reiteration of the points in their earlier paper, the Tax Notes version of which I linked to above.
They make five points or implicit criticisms of CBO, although three out of their five points are items that CBO explicitly did not set out to address.
Point 1: CBO’s increased appropriations of $20 billion and $40 billion are too small. Sarin and Summers would prefer a $100 billion increase on the theory that IRS funding should be scaled to the amount of revenues collected, benched marked to 2011. There is a slight circularity issue, I think. Okay, but that’s not what CBO was doing.
Point 2: CBO does not consider the revenue yield of making compliance policy changes, such as more information reporting, or the high-return potential of IT investments. With regard to the former, that was not what CBO was doing in its report. As I have expressed before, more and better information reporting is a good idea, but it involves issues of administrative practicality and political considerations. That would be a different CBO report, potentially, or at least a much longer one. For IT investments, I assume if you gave the agency a big funding increase, they would allocate much of it to IT. Academics writing papers can assume powerful financial returns based on anecdotes (as Sarin and Summers do), but agencies like CBO and GAO can’t. There’s also a sorry history of big IT projects in government – both federal and state – over promising that is sobering. Many of them end up failing altogether.
Point 3: CBO assumes that there are diminishing returns to increasing funding; hence, the lower revenue ratio for the larger funding increase. Sarin and Summers don’t think even a $100 billion funding increase would experience much, if any, diminishing returns. I discussed this in my December blog post on their initial paper. I think their logic is faulty or questionable: just because the effects of reducing funding appear linear doesn’t mean that increasing funding back to that level or higher will also be linear. I would trust CBO on this on – this is the first of point made by Sarin and Summers that directly criticizes what CBO set out to do. I’m skeptical of their criticisms.
Point 4: CBO does not attempt to account for indirect effects of expanded IRS enforcement, i.e., the deterrence effect. This is a legitimate criticism and there is good empirical evidence that could be used to attempt to quantify it. Point, Sarin and Summers.
Point 5: CBO did not consider the effects outside of the 10-year budget window. True, but those are typical scoring rules that everyone lives by; Sarin and Summers naive estimate is supposedly also a 10-year estimate.
SALT Connection
There is an important SALT connection to Congress’s slow strangulation of the IRS. States tie their income and corporate taxes closely to the federal tax and, thus, rely heavily on the IRS for enforcement of their taxes. Given the overlap in the taxes and the national reach of many businesses and their investors, it is most efficient for the IRS to have primary responsibility for enforcement and compliance – especially for the most complex issues, typically associated with the returns of businesses and high income individual returns.
It is simply not practical or possible for most states to effectively examine and audit these returns – particularly on the basics of determining taxable income. (States traditionally focused more effort on state-specific issues, like apportionment and sourcing of income, and state tax expenditure provisions.) Even the biggest and most sophisticated states, like California and New York, have a hard time matching the resources and skills of the tax representatives of well-heeled taxpayers and large businesses. And it would be silly and duplicative for states to try and do so. For modest-sized states, like Minnesota, it is simply impossible.
Providing an effective and robust IRS is de facto, in-kind federal aid to state and local governments. Starving the IRS was a cut in that aid; it reduced state tax revenues just as surely as it did federal revenues. To the extent that states conclude that they must step in the breach and dedicate more resources to basic enforcement and compliance, the states will instead be providing state aid to the federal government. State audits that increase federal taxable income get referred to the IRS and result in federal deficiencies. (In the last few years I was working, I observed that Minnesota was doing just that – based on the constituent complaints that I handled, DOR was auditing stuff that had been largely left to the IRS in the past.) That is sub-optimal, if not outright perverse.
To make matters worse, rebuilding the IRS’s capabilities is not something that can be done quickly. It will require years to hire and train the personnel who, in turn, must work for years to gain the experience needed to become skilled revenue agents and officers. These positions are, by their nature, filled by civil servants who work most of their careers at the agency – as contrasted with the top level officials who frequently go through a revolving door from the government to large law firms, the Big Three accounting firms, and other consulting operations and back again. Those folks are important, but the real in-the-trenches work is done by career civil servants whose expertise, when gone, cannot be quickly replaced.
Last week, Minnesota Management and Budget (MMB) put out its July Revenue and Economic Update, which showed that state revenues through June were slightly higher than projected in the revised economic forecast (an “interim budget projection,” technically) from May.
It is risky to read much into this two-month experience (May and June revenues). Aside from the short time frame, a couple reasons to be cautious are:
As the MMB update explains, the coronavirus has resulted in a variety of special tax rules and situations that affect the data and the ability of MMB forecasters to know exactly what is going on.
We’re still basking in the glow of massive stimulus federal spending, a glow which will soon start to fade unless Congress enacts another installment. I don’t think anyone has a good grip on how much of the revenue is due directly or indirectly to the stimulus or what will happen to the economy as that support is withdrawn. For example, I would be curious to know how much of income tax withholding is attributable to unemployment compensation (I’m sure MMB economists know that) and how much the withdrawal of the CARES Act expansion of UI benefits will cause that to drop. To what extent is maintenance of wage and salary amounts due to PPP loans and other CARES Act programs? Of course, what Congress will do about more stimulus is anyone’s guess.
In any case, the update is mainly good news. Minnesota’s revenues are holding up surprisingly well, at least in the short run. That good fortune (relative to other states) is supported by national data from the Tax Policy Center showing how COVID-19 reduced state sales tax revenues by $6 billion in May. The TPC data compare (for states with sales taxes, obviously) the change in revenues from May 2019 to May 2020 – in other words for sales made in April, a maximum shut down month. Minnesota had one of the smallest drops, a less than 5% decline, compared with the national average drop of 21%. There are several potential explanations for Minnesota’s better performance that quickly come to mind –
The structure of Minnesota’s sales tax base may have caused it to be less affected than most states. TPC points out that the few states that taxed groceries typically had the smallest declines. All of the states with smaller revenue drops than Minnesota (other than Vermont) tax groceries. Minnesota doesn’t do that but its exemption of clothing (working from home and stay-at-home orders surely discourage buying new clothes, right?) and Minnesota’s heavier than average reliance on taxing construction materials and durables probably helped (construction projects in process didn’t stop midstream since construction was deemed essential in Minnesota’s stay-at-home order; home improvement stores remained open in Minnesota as essential).
The virus has likely hit Minnesota economy less hard than other states (e.g., those on the coasts with heavy initial outbreaks). That probably is the biggest factor.
Minnesota’s economy is less dependent on high-touch or close-contact sectors that were the most immediately and directly affected by the virus. I would think that states that are heavily dependent on tourism (looking at you, Florida) or transportation (e.g., heavily oil dependent states like North Dakota or Texas) would be in more trouble, both in the short run and the longer run. By contrast, Minnesota’s medical device (Medtronic, etc), finance (US Bank, Wells Fargo, Ameriprise, etc.), and food (General Mills, Hormel, Cargill, etc.) sector headquarters firms are probably less affected.
This really says little about the future course of the effects on the Minnesota economy when the stimulus – both that already in place and whatever future stimulus is enacted – goes away. In particular, the issue is the shape and slope of the recovery – how quickly does the state’s economy get back to its pre-COVID-19 level. In my opinion that is really uncertain. It will depend upon (1) how quickly states can get the virus under control, particularly given the recent surge and (2) how economic activity responds after the virus is under more control.
Both conditions are highly uncertain. Buying a little time (another month or two) might reduce that uncertainty. Or it might not. Back in April, I had assumed the picture would be much clear by mid-July and it would be better for the legislature to make fiscal decisions in mid-July as it now appears will happen. Now that we are at that point, it is not at all clear that we have a much better fix on the state’s fiscal prospects. Congress remains stuck (a big deal), the COVID-19 cases are surging (including in Minnesota, by the way), and other states are rolling back their decisions to open up the economy. In some ways, it feels like the clock has been set back to March. As this WaPo piece makes clear, that really isn’t the case; we’re in much better shape now than in March. It just doesn’t feel like it.
Nobody is asking me (and for good reason), but my advice would be to avoid making new fiscal commitments unless they are directly related to or needed to promote public health or otherwise respond to the virus. But I know that in the lead up to an election with the entire legislature on the ballot, the impulse will be to do the exact opposite:
Democrats will feel there is a need for new spending, driven in some cases by real and new needs (rebuilding Lake Street, for example).
Republicans will insist on tax cuts to get their agreement to the spending or to a bonding package, because that is built in their party DNA. (One former Republican legislator told me there is never a bad time to cut taxes – even when the state had a $6 billion budget gap in 2011; I think many/most of them would agree with that. As an aside, I don’t think you could have found a Republican member in the legislature when I started working in 1976 that would have agreed with that proposition. They were fiscal conservatives, not anti-government types in those days.)
Aside about the “need” for a tax bill: Given the federal changes Congress has enacted, passing a conformity or update bill is highly desirable to make it easier to understand the tax and to improve compliance and ease administration. But that could be done on a revenue-neutral basis by adjusting the rate schedule or other features to hold revenues constant. For some reason that is no longer even considered because it is erroneously perceived as some sort of tax increase and Republicans treat conformity bills as often little more than an opportunity to cut taxes.
I would note that there is some fiscal asymmetry going on here. The Democrats spending increases are likely much less permanent than the Republican’s tax cuts. (The spending – including the debt service for bonding package – is also like to be larger, though, I would guess.) Rescinding/reversing a tax cut would be a politically verboten tax increase. Failing to continue or renew the spending is likely easier to do do. To illustrate the point: During the 2020 session, Senator Gazelka and Senate Republicans proposed to not fund the second year of the employee collective bargaining agreements. (An entirely reasonable position from my point of view.) This was based on the premise that a marked deterioration in the state’s fiscal situation made that part of state budget, enacted in 2019, no longer affordable. By contrast, the 2019 state budget included tax cuts – e.g., a modest income tax rate cut, some income tax carve outs, and a cut in the state business property tax. I may have missed it, but I heard no one (not even lefty Democrats from safe districts) proposing to repeal those tax cuts (on a going forward basis only to make it comparable to canceling the employee pay increase) because they were no longer affordable. (Also, an entirely reasonable position from my point of view.)
The tax structure, once changed, tends to be taken as more permanent than most spending/appropriations. And tax increases – particularly on average taxpayers (not the rich or corporations) – are now considered politically toxic by both parties. The permanence of increased spending is not symmetrical with tax cuts, which suggests that Democrats needed to be careful in agreeing to tax cuts as a trade-off for spending increases.
One approach would be to make any new spending (other than bonding) and any tax cut contingent on Congress providing for a large amount of unrestricted aid to the state (say a minimum of four years worth of the fiscal effects of the increased spending and tax cuts). That would delay any potential benefits until Congress acts, risking that nothing happens (unlikely I think – it’s in Trump’s and the GOP Senate’s interest to have another stimulus bill that includes a generous state aid package). It would slightly reduce the chance that the legislature was simply digging itself into a deeper fiscal hole and would refocus attention where is should be – on the federal government which has the fiscal means to respond to the economic effects of the pandemic. A state simply does not.
This is another in my series of bad high school book reports on nonfiction books that I have read recently. It’s my effort to memorialize my thoughts in the vain hope of actually remembering a bit of what I read.
A Very Stable Genius was written by two WaPo reporters who cover the Trump White House. They obviously spent a lot of time interviewing various administration staffers – few of whom agreed to attribution. That, of course, should be no surprise given the retribution that will be visited on anyone who says anything less than flattering about Trump.
The book’s title is, of course, the way the president has described himself on several occasions – showing a total lack of self-awareness and any measure of modesty. However, the fact that he feels compelled to describe himself as “stable” is revealing in itself. The implication must be that his mental imbalance is a common narrative that must be rebutted. At least that is what I would conclude.
When it came out, the book got a lot of press, largely because of the disturbing anecdotes about the stuff Trump privately said or did. I generally avoid tell-all books or “real time biographies” but got sucked in by the coverage, figuring there might be more nuggets and actual insights about what makes the guy tick. To fair, I didn’t hold out much hope of the latter and mainly got sucked in by the prospect of more juicy nuggets about the internal idiocies and other goings on.
What I found interesting
The newspaper coverage and reviews of the book provided most of the salacious details that are in the book. Some eye-catching examples include Trump –
Telling Modi that his country didn’t border China
Failing to know the details of what happened at Pearl Harbor
Suggesting that Seoul could be “moved” (We should not be surprised by his suggesting to use antiseptic internally to kill the coronavirus, I guess. He obviously talks before considering whether what he is going to say passes even the most rudimentary test of logic or reality.)
Calling a collection of top generals “dopes and babies”
Considering our troops as essentially a mercenary force that should be paid to provide protection that is (I presume) being done to serve our national interest
Adoring authoritarian and ruthless foreign leaders while demeaning leaders of our democratic allies
Etc.
The book, of course, presents all of that and less shocking but equally revealing stuff in more detail (over 400 pages worth). Sobering for the leader of the free world.
Reading the book brings home just how this administration has careened from one crisis to another, most self-created. There were so many that without reading the book, I had already forgotten most of them:
The Flynn phone call and aftermath (ultimately yielding one of the most unusual examples of criminal procedure that I’ve observed)
Trump’s bragging to the Russian foreign minister and ambassador after firing Comey
Writing the false press release about Don Jr’s, Jared’s, and Manafort’s meeting with the Russian lawyer/agent
Asserting that Obama wire tapped him
Paying a porn star and a Playboy centerfold model to keep them quiet about their relationships with him
Having his campaign manager and personal lawyer each be convicted of federal crimes
Ivanka’s use of a private emails for government business – notwithstanding Hilary’s similar use being a (if not the) central point of the Trump campaign
Mueller probe and Trump’s repeated efforts to thwart it (detailed in volume 2 of the report) – one does wonder if there really was nothing going on with Russia, why did he engage in so many questionable (if not clearly illegal) efforts to end the probe? I suppose just because that’s his nature? His interactions with Putin are deeply troubling.
Badgering Jeff Sessions for recusing himself (admitted by nearly all experts on legal ethics to be required) and failing to act like Trump’s private attorney rather than the Attorney General of the United States
Press conference with Putin and refusing to include aides in the meetings with Putin
Family separation policy
Ham-handed way he dealt with North Korea relations and thinking he could personally charm Kim in giving up his nuclear weapons and their advantages for his regime
Withdrawing from Syria to placate Erdogan
The list could go on for pages
One becomes numbed; it seems there were enough to span and bring multiple ordinary administrations to their knees. And the book ends before the call to Zelensky and ‘s hi jinks!
If I have forgotten many or most of these events, I’m sure that the average Joe or Jane voter has as well and Trump is likely to be judged on more recent events (the economy, racial issues, and the response to coronavirus would be the best guess at this point). I found the book mildly useful only because it forced me to relive and think about those events. It provided little new insight into Trump’s character or competence – just more detail on and confirmation of what I was already fairly sure of. I will pass on any more Trump books, I swear, for a good long interval anyway. Sorry, John Bolton and Mary Trump, you won’t be getting my money. One doesn’t need to read books; news stories like this one by Carl Bernstein detailing Trump’s appalling behavior and incompetence in making phone calls to foreign leaders are more than enough to drop one’s jaw/taken one’s breath away/sicken/whatever.
What disappointed me
I had hoped the book would provide at least some more insight in Trump’s psychology; it didn’t. But that may be simply because there is no there there.
Several friends alerted me to the obituary for Dan who died on Independence Day. Dan was a fixture on the Minnesota tax policy scene for years, a giant really. The Strib obit does not do justice to how much he contributed to Minnesota tax policy and the accomplishments of his long and distinguished career – in the Department of Revenue, the legislature, the private sector, and academia. To help fill that gap, I will expand on it a little based on my experience working with and observing Dan.
More importantly to me, Dan was friend and colleague for most of my career – somebody who was easy to work with and a great teacher. Even though he knew more than I did, he was always gentle in enlightening me as to what I was missing.
Dan was an economist. I have found that as a profession, too many economists suffer from more than a healthy dose of ethnocentrism – particularly when it comes to how to analyze issues – and from a seemingly preternatural inability to communicate with non-economists. Dan was an exception on both scores. He never projected the aura that he knew or understood more than you did, but after a friendly discussion you realized he did. Dan had an unusual ability for an economist (I must say) to communicate economic concepts and theory so that a lay person could easily understand them. That served him well in dealing with legislators and (I am sure) governors and many others.
I observed and worked with Dan in multiple of his tax policy positions and roles, which gave him a seat at and a say from virtually all sides of the Minnesota tax policy table during his career. He served as:
Director of the Research Division at the Department of Revenue (DOR)
Dan’s most enduring contribution to Minnesota tax policy, in my judgment, was his role – primarily when he was director of MTA – in the campaign to reduce the ratio of effective property tax rates paid by commercial-industrial (C/I) and apartment properties to low-value homes. During the 1970s and 1980s, the legislature had consistently jimmied classification ratios (used to determine then assessed values) to shift the property tax burden from farms and homes to C/I and apartments. That helped to hold down property taxes on many homes at a modest (virtually no) cost to the state budget. C/I properties often paid effective tax rates that were 5X higher than homes. But in the long term such disparities have undesirable policy effects – e.g., discouraging real estate investment and stimulating local government spending.
Business and apartment owners, as well as some civic groups, were convinced it had to end. But stopping it, much less reversing it, was a tall political order. The appeal of cutting business and apartment property taxes is weak political tea, at best. (If you had asked me to bet on the outcome at the outset of the campaign, I would have lost the farm.) A long running effort – it took over a decade, a Bataan Death March for a lobbying campaign – generated results culminating in the 2001 property tax restructuring. Combined with the effects of lesser changes enacted during the Carlson administration in 1990s, the differential effective rates were reduced to something closer to 3X for C/I and 1.5X for apartment properties.
Throughout this whole campaign, Dan in his role at MTA was really (as far as I could tell) the brains behind the campaign – he crunched the numbers, generated the ideas, produced the analyses and so forth. Although he left the hands-on lobbying mainly to others, he was the one who could communicate to policy makers the gravity of the problem and come up with ways to solve it. Success, according to the aphorism, has a thousand fathers. But in this case, there is no question that Dan and the role he played was a necessary and critical component of the success. Without him, it would not have happened. Of course, many others played key roles as well.
The second of Dan’s big contributions that comes to mind was his role in rationalizing Minnesota’s local government aid (LGA) formula, a long running policy problem in the 1980s and 1990s. In his role as director of Senate Counsel and Research, he headed the group that produced the famous “Ladd Report,” which identified the many flaws in the LGA formula. The study (released in 1991) did not result in immediate policy changes; like many problems it festered for over a decade. But when the 2002-03 recession hit the state budget, Dan was commissioner of revenue. With a Republican in charge of the governorship and the House, the budget problems were going to be addressed mainly with spending reductions. That required large cuts in LGA and Dan was there, ready to use that opportunity to improve the formula. As a result of his efforts (and again, others) that is exactly what happened – a lower appropriation and a much better formula. He coordinated the effort to rewrite the formula, eliminating “grandfathers” and basing aid more closely on need and capacity to pay. Those fixes have largely endured. Most of the subsequent sparring in the legislature over LGA has not been over the formula (“throwing money out of an airplane” arguments have stopped) but over how big the appropriation should be. That is another of Dan’s important legacies.
Finally, I must relate an early experience I had in working closely with Dan, one that I think reveals his strengths and skills. In the late 1970s a big issue for the Republicans was to index the key parameters of the income tax. This came to fruition in the 1979 tax bill, which indexed the tax brackets, personal credits, and standard deduction. DFLers opposed the change because of revenue and other concerns. But the GOP’s big win in 1978 (the “Minnesota Massacre” election in DFL lore) had made it a political fait accompli. Dan was the director of research at DOR and I was a young House tax staffer at the time. I think both of us thought little of the change other than that it was an important and sensible policy change.
Shortly afterward, however, the first of the double dip recessions of the early 1980s hit, sending state income tax revenues into a tailspin. Much of the revenue drop was simply due to the drop in income from the recession, but DFLers were convinced that indexing was the culprit. I was skeptical of these nonspecific claims, dismissing them largely as political grousing arising out of their opposition to indexing. But Dan took the possibility seriously and came up with an explanation why there was some truth to it: At the time, the Minnesota income tax allowed the deduction of federal income taxes, which were not indexed for inflation. So, the then high-inflation environment imposed a steep federal inflation tax, which also reduced the Minnesota tax base through the federal tax deduction. By indexing state tax parameters but not adjusting for this effect, inflation provided an automatic state income tax cut. (Of course, believers in the federal tax deduction considered that to be entirely appropriate because taxpayers were paying higher federal taxes which reduced their ability to pay Minnesota income taxes.)
Once Dan explained the problem, it was a head slap moment for me – something so obvious, I thought, that we should have recognized it before indexing was enacted. It was (as so often is the case) a simple matter of algebra. But I/we hadn’t seen it, of course. It took Dan’s application of basic math to the tax parameter to see the interaction.
How to “fix” it was not obvious. But Dan devised a modestly complicated formula – the infamous Tax Net Income Adjustment Factor or TNIAF – to modify the federal tax deduction so it was allowed on an inflation-adjusted basis. It came to the DFL legislature to propose this (recall that Al Quie was the GOP governor who had championed indexing, so the administration was not about to propose changes that could be characterized as tax increases or crimping indexing). As a result, I converted Dan’s formula to bill language with his assistance and it was enacted into law. Somebody convinced the governor that the changes were acceptable because they helped fix the budget shortfalls. I had always assumed that Dan was involved in doing so but didn’t know that directly. It is a fair observation that in the current political environment that never would have happened.
That didn’t end the controversy with TNIAF, though. My drafting (I’ll take full responsibility although others, including Dan had signed off on it) was not perfect. As with converting any mathematical formula to English, the potential for ambiguity is high – it’s an order of operation issue that mathematical notation handles cleaning with its nesting conventions but with English it’s not so easy. TNIAF was no exception. After its enactment, the business lobby (then called Minnesota Association of Commerce and Industry or MACI, now the Chamber of Commerce) argued that the TNIAF statutory language could and should be read not to slightly increase the tax base, but rather to cut it in almost in half. I discovered this to my horror on the front page of Minneapolis Tribune while eating breakfast a day or two after adjournment of the legislative session. On my way to work, I drafted a memo to the Speaker that explained why MACI’s reading of the language was incorrect and immediately on arriving called Dan to agree on a plan of action. I sent my memo and he briefed the commissioner of DOR. I assume someone communicated with the governor to get his buy-in; I never asked Dan if he got roped into that. The commissioner put out a press release (or equivalent) that rejected MACI’s interpretation and everything went on as normal. The language was quietly modified in the next tax bill – we had regular special sessions in the early 1980s – to foreclose MACI’s absurd reading of the language and no one noticed or at least said anything. This little known and long forgotten episode captures both how Dan’s analytic skills served the state so well and how I was indebted to his favor for saving my bacon in a moment of high anxiety for a young and inexperienced legislative lawyer.
I always considered Dan a kindred spirit on two counts. First, in carrying out his various roles, he remained above the partisan fray, something I strived to do as well. I generally had a good fix on his basic policy instincts and views (largely plain vanilla basic principles), but never heard him talk about or had any clue as to his partisan political leanings, if he had any. This served him well in dealing with legislators. I assume that it was also a factor in his willingness to continue serving at DOR after being relieved of his duties as commissioner. (I assumed that occurred because he was insufficiently a “political spokesperson” type to keep the governor happy.) That allowed him to end his career, helping the DOR trains to keep running on time, a service to the public that many former commissioners would be unwilling to do.
Second, he shared my interest in and attraction to site value taxation. This resulted from his encounters with Mason Gaffney, a Georgist economist who was at UW Milwaukee when Dan was a student there. Site value taxation has undeniable policy attractions – it’s one of the few taxes that combines an effective zero efficiency cost with progressivity. Put another way, it avoids the almost iron law of tax policy that requires trading off equity against efficiency. That combination makes it theoretically attractive and has inspired many of its supporters to become zealous true believers. Dan and I shared an affinity for the tax in theory, but he was too well-grounded to become a true believer, much less a zealot. He recognized that ultimately it would never work (at least in its pure form) in the real world because of political, administrative, and transition barriers. But he and I talked about it many times and his knowledge and skills help me deal with legislators and others who were true believers (e.g., former Representative John Burger).
Dan’s passing is a sad time for the Minnesota tax policy community and Minnesotans generally who owe him a hearty thanks for his service. His friends and family should know that Dan leaves a lasting tax policy legacy and many warm memories of the kind and thoughtful way that he went about doing important jobs. We miss you, Dan.
The Treasury Inspector General and GAO report that stimulus payments (“recovery rebates”) were sent to 1.4 million dead people to the tune of about $1.4 B. The media, of course, have fun with stuff like that. Here’s a link to the NY Times’ story and WaPo’s.
That, of course, is the sort of story that gets a lot of people outraged and I suppose that it should not have happened, but it is probably understandable at some level. The agency was paying out a lot of money (about $270 B by the end of May according to GAO). The full GAO report available here has the details:
According to IRS officials, an IRS working group charged with administering the payments first raised questions with Treasury officials about payments to decedents in late March as Congress was drafting legislation. IRS counsel subsequently determined that IRS did not have the legal authority to deny payments to those who filed a return for 2019, even if they were deceased at the time of payment. IRS counsel further advised that the agency should exercise discretion provided for in the CARES Act to apply the same set of processing rules to recipients who had filed a 2018 return but not yet a 2019 return. IRS officials said on the basis of this determination they did not exclude decedents in their programming requirements.
GAO, COVID-19 : Opportunities to Improve Federal Response and Recovery Efforts (June 25, 2020).
The report goes further to say that IRS payments (other than actual tax refunds, obviously) go through a software filter using Social Security death records to prevent paying dead people. (Seems sensible to me.) In this case, however, “Treasury officials also stated that the CARES Act mandated the delivery of the economic impact payments as ‘rapidly as possible.’ To fulfill this mandate, Treasury officials said Treasury and IRS used many of the operational policies and procedures developed in 2008 for the stimulus payments, and therefore did not use the death records as a filter to halt payments to decedents in the first three batches of payments.”
That was the rule for the first three batches of payments (the $270 B referenced above). But by the fourth batch, they apparently thought better of it and began applying the death records filter. GAO describes it aptly as follows: “Treasury and IRS, in consultation with counsel, determined that a person is not entitled to receive a payment if he or she is deceased as of the date the payment is to be paid.” That apparently was enough to overcome Congress’s concern paying as “rapidly as possible” – well by then two months had passed, so the payments could no longer be considered rapid?
This simply points out the complexity of carrying out these mandates. I recall the Minnesota state rebates (sales tax and property tax) in 1997 through 2001 and the legal and administrative complexity involved, something few appreciated other than those with the actual responsibility to design and carry them out. We had a lot more time and ended up making some similar mistakes – fortunately they were smaller and didn’t generate headlines about paying decedents.
I normally avoid podcasts and webinars – reading is so much faster and a more efficient way to acquire information – but I was glad that I made an exception for this one, The economic impacts of COVID-19: Real-time evidence from private sector data, by Raj Chetty, hosted by the Benheim Center for Finance at Princeton.
Chetty is well known economist (I believe he is back at Harvard after at stint at Stanford) who has done a number of notable and path breaking studies. He and a team of economists and grad students have assembled a real time set of economic data constructed from private sector data – from credit and debit card transactions, job postings, small business revenues, education data, and so forth – made available by a variety of companies.
Unlike traditional government economic data constructed from surveys or administrative data with inherent lags (monthly or quarterly reporting), the private sector data is available immediately (daily). That allows real time analysis of what is going on. In addition, because the data represent the universe or close to it, not a sample, they allow analysis at much lower geographic levels (e.g., zip codes) and for shorter time periods. Those are two big advantages over traditional government data. Of course, issues include how reliable the data are and how closely they track traditional government data. The Webinar addresses those issues.
This effort is similar to what Google and many other businesses have been doing with their data – mainly for their internal business purposes (i.e., to make money), but occasionally for the public good as well such as using Google search data for public health purposes. Many have advocated that those methods should be applied to help understand and address public policy problems. That is what Chetty and his team are doing. The data base are available for download or to simply play with using their web tools at the tracktherecovery.org website.
Chetty and his team used this data, as suggested by the presentation title, to look at the economic impacts of COVID-19 and to evaluate the policy responses to it – e.g., stimulus checks, PPP loans, effects of reopening businesses, and so forth. Much of it is predictable (to me anyway), but some of it is eye opening – particularly the one day spending response to the big issuance of stimulus payments. For someone from Minnesota, the presentation uses Minnesota and Wisconsin data to evaluate the effects of reopening businesses. Spoiler alert: not much, although the graphs do show a very small diversion in consumer spending (Wisconsin being slightly higher) in the period after the court decision invalidating the governor’s executive order. (The vigorous partisan arguments on this issue probably represent much ado about nothing – reflecting little more than the parties deep animosity for each other and a seeming tribal need to fight over something.) The PPP loans don’t appear to have much effect.
As an aside, it confirmed to me the illogic and wastefulness of untargeted stimulus, such as providing stimulus checks to higher income households or to any and all businesses.
The Webinar is worth spending an hour and 25 minutes on, in my judgment. Probably more efficient that wading through the jargon and mathematics of the articles academic economists typically produce (disclosure: I have not attempted to find the article that was the basis for the webinar, but plan to do that).
Last week, the Minnesota Supreme Court rejected Representative John Lesch’s appeal seeking to dismiss a defamation suit against him on grounds it was barred by his constitutional and statutory immunity as a legislator, a contention both the district court and court of appeals had rejected. Olson v. Lesch¸ Minn. Sup. Ct. slip op. A18-1694 (May 27, 2020).
This is the first Minnesota Supreme Court opinion that addresses which legislators’ actions are protected by the Minnesota Constitution’s speech and debate clause, as well as the statute providing legislator with immunity. For that reason, it is important, but the substance of the decision is unexceptional; it came out about as I expected.
The case stemmed from a “personal and confidential” letter that Lesch wrote to Melvin Carter, the then mayor-elect of St. Paul, the city in which Lesch’s legislative district is located. The letter initially referred to Lesch’s role as a longstanding House member, but mainly addressed Carter’s announced intent to appoint Stephanie Olson as city attorney and Lesch’s concerns about her qualifications or lack of them. In doing so, she alleges he defamed her.
Because there were no Minnesota cases addressing what actions by legislators constitute protected speech and debate, the court looked to federal case law. It characterized that case law as “helpful” – not exactly providing clear guidance as to how much one can rely on it in interpreting the Minnesota clause. Id. p. 8. (There are a fair number of federal cases – especially lower court cases – so an expression that the two constitutional provisions are effectively identical in their scope and intended protection would have provided some more guidance and certainty.) The court’s opinion cites the U.S. Supreme Court case holdings that extend protection of the clause beyond classic speech and debate to include dealing with business before the legislature but that also limit immunity to matters with the “legitimate legislative sphere.” I have always considered that phrase and federal courts’ application of it to be the best guide to the scope of the Minnesota clause’s protections.
The court concluded that Lesch letter, essentially delving into local government personnel decisions, did not fall within the legitimate legislative sphere, at least given its context. In the court’s view (helped along by the letter’s language), it was more personal in nature than being done to pursue legislative business. Given the U.S. Supreme Court case holding that a defamation case against former Wisconsin Senator Proxmire for a claim arising out of one of his “golden fleece” awards could proceed, that result was unsurprising. Proxmire’s “awards” were announced at press conferences (not exactly “legislating”) but their underlying theme or substance – identifying and investigating wasteful government spending – falls within what most would consider a core legislative responsibility. But the Court concluded that the clause did not confer defamation immunity for speech outside of the traditional legislative process (in the chamber or committee meetings, e.g.) and an individual member’s press conference did not qualify as an “informing function” of the legislature (e.g., as a committee report would or a committee press release related to its actions might). A likely subtext was that the Court perceived Proxmire’s press conferences more as political in nature than legitimate legislative activity. Hutchinson v. Proxmire, 443 U.S. 111 (1979).
The court rejected Lesch’s contention that he was engaged in “oversight” in sending the letter – in particular, I guess, determining if the mayor-elect was complying with Minnesota data practices laws (one of Lesch’s primary areas of legislative responsibility based on his committee role). The court appeared to reach that conclusion based on both the language of the letter and the absence of any official authorization for or relationship to Lesch’s actions. My instinct is that it was mainly the letter’s language and its strong implication it was “personal” in nature.
The case is, however, legally important in the clarifying that the statutory legislative immunity under section 540.13 is broader than the constitutional immunity. That statute confers civil immunity on legislators for actions done “in pursuance of their official duties.” For example, most would consider constituent services in securing government services to be an official duty of a legislator, but federal case law typically holds it is not speech and debate under the constitution. Unfortunately, the opinion (because the facts of the case did not require it in the court’s view) does not do much to elucidate exactly how much farther the statute extends than the constitutional provision or in what ways.
In the court’s words, “The statute immunizes any act done by a legislator that helps that legislator perform her legislative function.” Lesch p. 14. The court, however, concluded that whatever Lesch was doing in writing the letter it was not related to a “legislative function,” which is one of the statute’s requirements. It reached that conclusion based on the letter’s language and substance which explicitly characterized itself as “personal” and failed to tie its purpose to any legislative function. Indeed, in the court’s view, the letter’s language makes it clear that Lesch had no intent to use information elicited “for any legislative duty.” Id. p. 16. Justice Lillehaug in a concurrence considered this to be a fact question to be resolved in lower court and the court’s pronouncements dicta. Id. p. C-2 – C-4. The court rejects Lillehaug’s contention in a footnote as being inconsistent with the terms of the letter. Id. p. 15 fn. 6.
My reactions
Speech and debate clause. The court’s holding on the speech and debate clause is about what I expected based on Proxmire. Lesch’s case seems weaker than Proxmire’s was, at least to me. In Lesch, the object at which the action was directed (a personnel decision by another level of government) is not a traditional subject for state legislative action (unlike Congress overseeing a federal grant in Proxmire), creating an obvious challenge for Lesch to overcome in arguing his letter fell within the sphere of legislative activity. He had to strain to come up with a legislative connection for his actions, relying on a generalized notion of legislative oversight. The court didn’t buy it.
Although the case appears to confirm the obvious, it provides a statement that Minnesota will follow black letter federal case law in applying the Minnesota speech and debate clause. I would have found that useful during my tenure at House.
For the 35+ years I served as counsel to the House of Representatives, I was occasionally pressed into service as an amateur litigator. Many of the cases involved asserting legislative immunity under the Speech and Debate clause to stop litigants’ efforts to compel House members or staff to provide nonpublic documents or compel testimony, almost always in some way related to enacted legislation or official House actions. Thus, there was rarely any real question whether the matter was within the legitimate legislative sphere.
In most cases, I was able to convince the opposing lawyers that the speech and debate clause blocked their efforts. That was typically accomplished by pointing to the text of the state constitution, showing how it was nearly identical to the federal provision, and, then, citing federal cases applying it in a broad and absolute way, so long as the matter was within “the legitimate legislative sphere.” The latter – unlike Lesch – was true because the lawsuits I dealt with all related to enactment, application, interpretation, or validity of legislation.
Lawyers in a nontrivial number of cases (maybe 10 over my career) refused to recognize that Minnesota would follow federal case law and would not withdraw their subpoenas. That required filing motions to suppress discovery or to quash the subpoenas, which were always granted in some manner. Doing so, however, was a major source of distraction and some anxiety because I rarely ventured into a courtroom and had only a passing acquaintance with the rules of civil procedure. Being able to point to a specific Minnesota case, like Lesch, probably would have convinced more of the lawyers. Unfortunately, you can never convince everyone; some wild hair lawyer will become convinced that some angle makes his or her case different. But the holding in Lesch will be useful, even if the result was totally predictable.
Personal note: in two cases I handled, trial courts refused to quash subpoenas and required depositions to be taken with protective orders that prohibited any questions related to matters within the legitimate legislative sphere. Such questions, of course, were the only matters relevant to the subject matter of the litigation (at least as far as I could see), but discovery is generally subject to only the very loosest of relevance limits. The resulting depositions were at best silly and a waste of time for all concerned – an endless of stream of objections to nearly all questions that could have led to production of admissible evidence of relevance to the lawsuit. One of the two cases was a deposition of the then Speaker of the House, Martin Sabo. (The case challenged the validity of the law financing the Metrodome.) I am sure the opposing lawyer’s primary goal was to make a point to his client and/or to harass government officials, behavior that the court effectively abetted. The purpose of the clause is to provide protection from that sort of nonsense. But as a young, inexperienced lawyer (I was 27 years old), I provided incompetent representation by not appealing –somewhat daunting because it would have gone directly to Supreme Court in those days with uncertain prospects for success (why should the court intervene in a discovery matter where the trial court had issued a protective order?). It was easier to just waste a few hours in a meaningless deposition – calculations that both the opposing lawyer and the trial court I’m sure made. But it made a mockery of the supposed protections the clause is intended to provide, in my judgmdent. It was one of a handful of decisions that I made over the course of my career than I have repeatedly second-guessed with more than a little regret.
Immunity statute. I have two basic reactions to the courts’ opinion on the statutory issue. On the one hand, the court’s description of the statute’s breath seems overly broad to me – anything that “helps” a legislator perform her functions could cover a lot of actions, some of which I doubt the legislators who voted on the statute (more than a century ago) likely thought they were immunizing. On the other hand, I think Lillehaug has the better argument, if that broad scope is what applies. A legislator should be allowed some leeway to develop facts that show what she or he was doing was intended to help perform an accepted legislative duty. It is unclear to me how you can impute purely non-legislative motivations based solely on letter’s contents. (A cynical way to view the opinion is that Lesch simply forgot to include some boilerplate statement to that effect – he may have thought he was doing that in referring to data practices?)
For example, I could imagine making an argument something like this: Minnesota’s fiscal arrangements make many local governments (cities, counties, and school) dependent on state aid appropriated or powers granted by the legislature. A typical view of many legislators is that one of their key functions is to fight for their local governments in the legislative battle over how much to appropriate and, then, how to divvy up state aid (LGA, school aid, CPA or whatever). Effectively, they function as de facto lobbyists for their local governments and, in that role, they have a strong interest in good quality local government personnel or, even more important, avoiding high level local staff who would hurt the reputations of their local governments in the legislature. Lesch could argue that by ensuring high quality city personnel decisions or avoiding a disastrous appointment (apparently his view of the matter), he was helping to protect St. Paul’s reputation at the legislature so he better perform of the function of fighting for aid and powers for St. Paul during legislative deliberations. (I assume that Lesch made no argument like this – although I didn’t look at his brief, the court makes no reference to it.)
The court’s expansive view of the scope of the immunity statute, it seems to me, opens up the possibility of making arguments like that and why Justice Lillehaug could persuasively argue that Lesch should be allowed to develop facts at trial why in writing the letter he was intending to act “in pursuance” of his legislative “duties.” At one level it comes down to matter of intention or motive, which seems odd. I think the court’s opinion would tend to a view that immunity is more of a legal question for the court, rather than something to submit to a jury or other fact finder. That, of course, was the actual result in the case. But the court’s formulation of a standard and focus on things that “help” a legislator carry out a legislative functions appears to contain a subjective element – why did the member engage in the action at issue? My view is that a narrower scope for the statute (closer to the legitimate legislative sphere) with its application strictly being a legal question for the court would be a better approach. If the statute is intended to provide protection for the independence of legislators, a test that depends upon resolution of factual disputes (going to trial?) would seem to provide thin protection. As Lillehaug suggests anything that depends upon the legislator’s motivation or intentions probably will devolve into factual disputes in borderline case. Robust immunity should allow a member to easily avoid defending lawsuits for carrying out their duties. My instinct (w/o spending a lot of time or effort thinking about it) is that a test should make an individual legislator’s purpose or motives irrelevant and, instead, focus on the nature and character of the actions and whether they are reasonably expected to done in carrying out legislative duties. Unfettered “oversight” (Lesch’s assertion) provides special problems, since it could immunize all sorts of mucking around in Minnesota government, including some actions most or nearly all would consider to not be legislative in nature. The legislature could always clarify the statute by being more explicit about what exactly legislative “duties” means.
Private sector, defined-benefit pension plans are going the way of the Dodo bird; most companies have abandoned them for 401(k)s or similar defined contribution plans. The reason is obvious: doing so shifts responsibility for the saving and investment management (with its attendant risk) from employers to employees. An upside for employees: if you change jobs, your retirement savings are portable, which is not so easy with traditional, defined-benefit plans.
Who knew Minnesota and Iowa are the last bastions of traditional pensions in the private sector? I didn’t until I read this WaPo story. The reporter used Census Data (PUMS for those familiar with census data bases) to ferret out this interestingly tidbit for someone from Minnesota interested in retirement policy.
Most of the story, worth reading, delves into the question of why these two states are holdouts. The story rejects a number of hypotheses: Minnesota’s large number of big headquartered companies (Iowa flunks); Minnesota and Iowa “nice” (naw); lots of insurance companies (both states do have high concentrations but no clear reason why that should matter); unionization rates (neither state is high); more ESOPs (again, Iowa flunks), etc.
The article lands on a conclusion that the two states’ high labor force participation rates (both states have the highest national rates with many two-earned couples) and the need to be competitive on compensation to attract employees. I guess the idea is that defined-benefit plans are particularly attractive to employees.
My observations
My reaction is that seems a bit off. I can’t imagine that defined-benefit pensions are an attractive recruitment tool, because they require a prospective employee to assume that he/she will remain with the company for years to see the benefits. That would not seem to have appeal to most recruits, I’d think, especially millennials.
I know when I was entering the workforce, such a policy would not haves been attractive to me. A big attraction when I took my job at the House decades ago was Unclassified Plan coverage, the state’s defined contribution plan, rather than by the regular employee (defined benefit) plan. (The competing offers were in the federal government with traditional pension coverage.) I expected my employment tenure probably would be short (figured I would go into private practice) and knew that my 1-year stint as a judicial clerk had caused me to forfeit the employer contributions and most investment earnings. I figured the designers of government plans just skewed benefits to favor “lifers.” Unexpectedly, of course, I ended up a lifer.
By contrast, a defined benefit plan should be more attractive as an employee retention tool – incumbent employees who are happy and inclined to stay will find them beneficial and the plan will tend to handcuff them to the firm. The article quotes Myles Shafer, the U of M business professor who has studied Minnesota’s unlikely role as a headquarter location for an unexpectedly high number of Fortune 500 companies. He concludes that it is difficult to attract employees to the Twin Cities, but when you do, they are more likely to stay.
I would think that continuing to use (of course, at a much lower rate than decades ago) defined benefit plans reinforces the retention effect. Of course, employment satisfaction and more couples where both spouses have professional jobs, making out-of-state moves less attractive, also helps. If employees are inclined to stay at a firm, they may value the defined benefit plan more heavily and if employers want to avoid the challenge of luring new employees here, they may concur. Those combined preferences likely reinforce the tendency to not abandon the plans as much as elsewhere. Employees’ willingness to stay may be more of a cause than an effect – more Minnesota and Iowa employers have held on to the plans because that is what their employees want. But it must make recruitment more challenging.
The article quotes an employee of a building maintenance service firm (providing janitorial and similar services, I assume) that has a traditional plan. Employees of firms like that (lower paid, nonprofessionals) would benefit from not being stuck with deciding how much to save and managing their investments in 401(k)s, in my mind. (Professionals are fine in defined contribution plans, by contrast.) My assumption has been that many of those types of employees were covered by no employer plan at all, not even a 401(k), because the firms are small businesses, pay is low, and employees need the cash, rather than long off retirement benefits. Of course, that was based solely on my biases and not any data.
The current low-interest rate environment (10-year treasuries are now yielding 0.6% and 30-years 1.3%!!) will make maintaining these defined benefit plans even more difficult and I expect that more erosion (including in Minnesota and Iowa) in the number of private plans will occur. Every recession typically causes more terminations. That will make the public plans even bigger outliers and make maintenance of them more difficult politically (why should public employees have these plans if almost no one else does?), as the recession simultaneously makes their already weak finances even more tenuous. Of course, it really is a matter of sensible design of employee compensation, which is rarely talked about intelligently because it is mixed up with the need to satisfy improvident promises to retirees and senior employees made by elected officials during boom times.
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