Watchdog Email Update November 17th, 2017

November 17th, 2017

Quote of the Week: “The rule of law is the basis for any democracy. And without the rule of law in democracy, you have chaos.”
– Meles Zenawi

Quote of the Week: “We can’t leave anybody behind, which is why they came up with the 25 rate for pass throughs. The problem is, neither the House or the Senate version really honored that commitment to pass-through businesses, which I argue are a huge engine of economic growth.”
– Sen. Ron Johnson (R – WI)

Quote of the Week: “Governor Dayton has made everything we do in Minnesota so entirely partisan that it has become nearly impossible to work with him.”
– House Speaker Kurt Daudt

What’s happening to tax reform in Washington is emblematic of the deep malaise affecting our federal government.

Tax reform has become an incredibly difficult, perhaps impossible, lift because the tax code long ago was transformed from a device to raise revenue into a 74,608 page monstrosity that is little more than a bag of goodies for favored political interests.

It’s a toxic stew of market-distorting credits, deductions, and carve outs that create all sorts of make work for lobbyists, lawyers, and accountants.

While this publication applauds Republicans for taking a meaningful run at reform, what they are contemplating isn’t all that could be done.

We have cringed daily as a bevy of Republican lawmakers take to social media to loudly declare that we should all breathe easy, as they have successfully fought to keep some goodie in the current bill.

It’s all good, my fellow citizens! We have kept the tax credit for investing in craft breweries!

Take comfort! You can still take that deduction for adopting abandoned poodles!

Every credit and deduction should be eliminated and the new revenue used to reduce rates in an objective fashion, across the board, in a revenue-neutral fashion.

Having said that, the perfect shouldn’t be the enemy of the good.

There are many good public policy outcomes in the current bill.

For example, lowering the corporate tax rate to a competitive level will encourage some (more on that in a moment) corporations to do more business in America and keep and move more revenues on shore.

But one of the most attractive features of the bill is also one of the most troubling.

The bill in its current form treats different businesses differently with respect to proposed rates.

In short, “pass through” businesses will remain on a higher tax rate structure (top rate of more than 39%) while “C” corporations will enjoy a top rate of 20%.

There is no good public policy reason for not granting all business entities the top rate of 20%.

In fact, the likely result is simply a rush to the lawyer’s office to reform into a “C” corporation from a pass through, like an LLC.

Kudos to Senator Ron Johnson of Wisconsin for standing up for pass throughs, which are generally small business found on main street.

This isn’t about protecting some spiff or carve out. It’s about basic fairness and pointing out the inanity of treating an LLC different from a “C” corp, which is nothing more than a legal and accounting fiction.

Any business in America can make the basic election regarding their corporate form.
On behalf of the many small business owners who read this publication, we thank Senator Johnson for his advocacy – and his common sense.

Editor’s Note: As this edition goes to publication, the House has passed the bill on a nearly party-line vote of 227-205.

That’s good.

On one other note, beware a Democrat scare tactic regarding the bill.

They claim the bill “raises taxes” on lower income earners and cite non-partisan reviews of the bill.

What they don’t tell you is that the bill reduces subsidies, particularly Obamacare subsidies, for individuals. Would you believe that reduced subsidies are scored as “tax increases” on those individuals? Only in Washington would losing a government hand-out equal a tax increase.

The Minnesota Supreme Court further embarrassed itself this week by issuing a ruling that absolutely punted the ball and excused the court from answering the central constitutional question before it regarding the governor’s veto of legislative funding.

The Court ruled 5-1 that yes, the governor has the authority to issue line item vetoes of legislative appropriations.

The Court next held that it didn’t have to decide if the veto effectively abolished the legislative branch because the legislative branch has money it can steal from other accounts to continue operations, so therefore there is no abolition, and therefore no need to answer the central question.

You see, the central question is not whether the governor has this authority. He does.

The central question is what happens to this power when it conflicts with the constitutional mandate that there be three separate, co-equal branches of government.

In other words, what happens when the line item veto power prevents the legislative branch from operating?

The Supreme Court said that since there is money the legislature can raid from other funds to keep running, there is no need answer the question because it isn’t in front of the court.

In other words, the governor didn’t prevent the legislature from operating because there is other money they can use.

The Court argues that it’s skillful deflection of the issue is evidence of high-minded judicial restraint.

We argue that they ducked the question and got it wrong.

So, what happens next?

This publication hopes legislative leadership continues to resist Mark Dayton’s call to re-negotiate budget items to which he has not only already agreed, but already signed into law.
The legislature will limp along until coming back into session in early 2018.

At that time, the legislature should pass a bill to restore their funding and dare the governor to veto it.

If so, conventional wisdom holds his veto will be overridden by legislators of both parties who will come together to protect legislative prerogative.

Moreover, there is no love lost between Sen. Tom Bakk, who leads DFL senators.

On top of that, Dayton is a lame duck and thus has limited influence.

While some pundits are declaring Dayton a winner, it’s hard to see how he comes out on top of this one.

He’s a lame duck and was never that good at legislative poker.

Daudt and Gazelka will likely wait him out, send him the bill and force him to sign or suffer the humility of a veto override.

As readers know, the issue of sexual harassment in the workplace has exploded to fore recently, including our political institutions and those who run them.

In many respects, that’s a good thing.

This publication joins thousands of other individuals and organizations in condemning sexual harassment.

There is no place for it in our society and those who engage in that behavior should be held accountable for their unacceptable behavior – period.

Having said that, there is a very troubling aspect of this development that many people don’t want to discuss.

Namely, there has been a rush to judgement regarding some of these allegations, with calls for punishment before any type of fair and impartial proceeding has been allowed to find facts and issue a determination.

On the one hand, it is refreshing and long overdue to see society finally demanding that the rights of accusers in these situations have their rights fully vindicated.

They deserve to have their allegations taken seriously and not summarily dismissed.
Accusers deserve to be heard.

Similarly, the accused have rights as well. The accused have the same to be heard in a neutral forum before an impartial and competent finder of fact.

We know such a claim isn’t popular as the accused are alleged to have engaged in vile behavior.

But inherent individual rights shouldn’t depend upon popularity or the emotions of the majority.

We are either a society of laws or we aren’t.

And if we are a society of laws, we should all jealously defend a process that seeks facts and the full vindication of the rights of the parties.

The alternative is the substitution of popular emotion for the rights of individuals.

Calls for resignation and other negative sanctions may very well be in order.

But those calls aren’t in order before the facts are established in an orderly process in which all parties have a fair opportunity to present their side of the story.

It’s deeply troubling that organizations like the Star Tribune have dismissed due process concerns because the current posture of sexual harassment allegations against elected officials isn’t a “criminal case.”

That’s a bizarre statement.

Our society rightly affords parties due process rights in both civil, criminal, judicial, and quasi-judicial proceedings.

For example, a student facing expulsion for plagiarism is almost always afforded an opportunity to be heard in an impartial forum.

Employees who violate workplace rules and face discipline are offered the same.

Athletes facing expulsion from a team are often afforded the same as well.

The rush to judgement in these cases is deeply troubling and speaks to a disturbing trend in our society of moving away from legal precepts that fundamentally recognize and protect individual rights and instead substitute popular emotional judgement in the same of “security” or “safety” or “doing the right thing.”

Similarly, voices that call for a respect for an impartial process are often drowned out.

Calling for due process and the rule of law here doesn’t equate to condoning sexual harassment nor it is evidence of a lack of interest in tackling the problem.

This is a dangerous false choice.

Our society can have both due process and good public policy.

We can work to stamp out sexual harassment without abandoning legal protections that have served society well for hundreds of years.