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Tuesday, December 31, 2013

Guest post: Your Power or Money Article Sunday, December 29, 2013

Dear Mr. Pearlstein:

Thanks for your 12/19/13, "Power or Money Article" in the Washington Post.  While the anecdotes were interesting, they do not begin to justify your conclusions or explain why you neglected to mention key forces and developments that have led to the situations you decry.

The fact that "Washington" became a money pit to be exploited by the powerful certainly did not start during the Reagan Administration.  It can much more clearly be traced to the late 1960's when adoption of the federal "Unified Budget" concept at the insistence of LBJ made it possible for almost every administration (except Reagan) and Congress since then to pretend that the federal treasury was unlimited.

By combining the Social Security surplus at the time with the rest of the federal budget permitted massive expansion of the role of government and of spending, entitlements, special interest tax breaks, and credit programs while pretending that the US had something close to a "balanced budget."  (As I'm sure you recognize, that fiction has played out now that Social Security is no longer producing a mythical surplus.)

The alleged surpluses permitted members and staff of appropriations and tax writing committees to have a "field day" in giving away tax dollars through subsidies, tax breaks, and ineffective programs while ignoring the fiscal cliff that has finally overtaken us. 

Another factor that contributed mightily to the "contracting out" practice that you claim led to "Washington wealth" was not necessarily the merits of the practice itself (which has both advantages and disadvantages) but instead to the practice encouraged by successive administrations and congress to limit the number of people on the direct federal payroll.  Contracting out permitted hiding the real size of the "federal" workforce.  Another factor leading to contracting out was the perceived need to pay more for certain kinds of talent (usually labeled "scientists and engineers," but in fact much broader) than was possible at the time under the federal Civil Service pay scales (a problem that has been over-corrected).  This occurred under the Manhattan Project and continued under the Atomic Energy Commission and the Department of Defense and then NASA, CIA, etc.

The "contracting out" practice has expanded to all agencies and proceeded to the point where federal agencies do not have the competence to oversee contracting practices in as way that protects the interests of taxpayers and/or prevents massive fraud, waste and abuse.

All of this happened while key players NOT mentioned in your article -- that is, powerful members of Congress and their staffs -- were enjoying their roles in passing out tax breaks and subsidies and collecting power, prestige, perquisites, and, perhaps most important, campaign contributions that kept them in office and enhanced their power -- at the expense of ordinary citizens and taxpayers.

While you mention the great things done by the leader of the Carlyle Group, you failed to mention that partners in hedge funds and private equity firms such as Carlyle, Blackstone and others enjoy a huge tax break in the form of the "carried interest" provision of the tax code that permits them to pay income taxes to the federal government at a 15% rate while "normal" corporations pay 35% and many taxpayers pay more than 15%, some up to 39.6%.  The great charitable contributions they make are made possible in part by shifting their tax burden to ordinary taxpayers. (You might also note the article about GRATs appearing in the same section of the Post as your article.)

I hope that in future articles you will focus more accurately on the people, positions, and policies that lead to the conditions that you don't like, especially members of Congress who are unwilling and/or unable to resist entreaties from lobbyists and using their positions to stay in power.

It is indeed sad that Washington has become such a source of easy wealth for so many individuals and some corporations.  Some very large corporations apparently have concluded that there is more profit with much less risk in "mining" the federal government for tax breaks and subsidies than in pursuing entrepreneurial, innovative, and commercially productive activity in the private sector.  Some observers have claimed that one large, formerly innovative corporation employs more lobbyists in Washington than scientists and engineers in its laboratories!

Meanwhile, associations operating in Washington -- such as the US Chamber of Commerce, National Association of Manufacturers, Business Roundtable, and others -- once ardent defenders of private enterprise now devote much of their activities to the protection and enhancement of tax breaks and subsidies for their members who exploit Washington’s weaknesses.

Happy New Year!

Glenn R. Schleede
Ashburn, VA 

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