Grassley Watch

Grassley, a U.S. Senator from Iowa, plans to run for office again in 2010 despite his age and his party likely to remain in the minority.  Read more about his intention to run, his concern about his hometown which was hit by a tornado and flooding, and a quick summary of the Senator’s positions on a few issues in Tim Gallagher’s article in the Sioux City Journal.

The Assemblies of God International Fellowship, according to the Christian Post, has come out against Grassley’s investigation into finances of six “prosperity gospel” ministries.  They believe the investigation is “crossing a legal boundary.”  Grassley’s investigation is related to the tax exempt status of the ministries and media reports of abuses of that status during the fall of 2007.

A representative for Grassley’s office defended the investigation by saying “Senator Grassley points out that the legislative branch writes the laws, and the executive branch enforces the laws.  His responsibility as a leader (chairman and now ranking member) of the Senate committee with exclusive jurisdiction over tax policy is to evaluate the effectiveness of that policy.”  While the public is surely appreciative for the civics lesson from Grassley’s office, I think the public needs to provide the Senator with a lesson on the Bill of Rights.  For his convenience, the text of the First Amendment is included here.

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise therof; or abridging the freedom of speech, or of the press; or the right of the people peaceably assemble, and to petition the Government for a redress of grievances.

Where in this amendment does it say that a Senator has the right to harass or hinder religious faithful from practicing their faith?  It does not and actually suggests the opposite.  By hindering the ability of a church to operate, the Senator is prohibiting the free exercise of religion.  Of course religious groups and churches must abide by the law, but this is not an issue of a violation of law but of harassment.

Mr. Grassley may not prefer the message from these ministries, commonly called the “prosperity gospel,” but again he must look to the First Amendment.  It provides the citizens of this country with the freedom of speech.  These ministries have the constitutional right to preach their version of the gospel no matter how distasteful it is to Senator Grassley.

The Assembly’s of God International Fellowship is the latest of religious groups that has come out against the Senator’s efforts.  A coalition of of diverse Christian ministers and organizations sent a letter to the Senate Finance Committee, who is conducting the investigation, expressing their concern over this investigation.  They believe that an investigation into the non-profit status of a church should be left to the Internal Revenue Service and the Department of the Treasury as is designated in the Church Audit Procedures Act of 1984, which was sponsored by Senator Grassley.

Among the additions Grassley has made to the Foreclosure Prevention Act is a property tax relief provision.  According to the Des Moines Register, Senator Grassley has added a federal income tax deduction for state and local property taxes.  The deduction would be available to federal tax filers that do not itemize on their federal return.  This will be of greatest benefit to lower income property owners.  While this provision may have positive aspects, it has two obvious problems.  First, it is misplaced in the foreclosure act intended to bring relief to the troubled mortgage market.  Second, this provision is a clear attempt by a federal politician to bully state and local governments into acting in the way that politician deems appropriate rather than what is in their best interest.  This is a particular problem for the flood savaged Midwest.

I will not waste too much time here discussing why this provision is misplaced in this act as I have discussed this in previous Grassley Watch posts, but I will summarize quickly.  The Foreclosure Prevention Act is a bad bill that rewards lenders and borrowers for acting irresponsibly.  The property tax deduction, as well as a few other good amendments, has been added to this bad bill in an attempt to either influence the vote on this act or push non-related political agendas under the cover of this act.  Therefore to vote against this bad bill is to vote against a number of measures intended to provide tax relief and flood assistance.  What Senator wants to be on record as voting against tax and flood relief?  My guess is very few.

Of greater concern with the property tax deduction provision is the limitation it places on local governments.  Grassley will not allow tax filers to take advantage of this provision if their state or local government increases their property tax rate before the end of 2008.  It could be said that this is a precautionary measure to ensure that states and localities do not take advantage of this tax relief by increasing their rates to increase revenues.  This sounds reasonable; however this is clearly an example of the federal government tying the hands of state and local governments; so much for federalism.

Grassley Watch would never advocate tax increases, however local governments must be able to make decisions based on what is best for their locality.  Local government officials are more accountable to their constituents than are federal elected officials.  Therefore it is more likely that they will act in the best interest of their voters than the federal government will.  Additionally, local decision can have a much greater impact on the everyday lives of voters than federal decisions.  This is especially a problem for Midwestern flood savaged areas.  Many local and state governments will soon be considering their options to fund flood recovery efforts.  Among these options may be property tax increases.  Senator Grassley has attempted to dictate property tax rates to them instead of allowing them to make these decisions where they should be made, at the local level. 

Senator Grassley’s property tax deduction will benefit and be appreciated by many.  However, his attempt to further erode the power of state and local governments is unacceptable.  Leave local decisions where they belong, at the local level, not dictated to them by federal politicians.

The Foreclosure Prevention Act, also referred to as the housing relief act, appears to be widely supported by elected officials (read more about this bill here).  Why?  It can be assumed that it is to pander to voters and possibly to help relieve some pressure on the troubled housing market.  But in the case of one senator, it is also for its extras.  Senator Grassley has placed two provisions to the Senate version of this bill.  First, he has added a tax relief package for homeowners that appears to focus on protecting Midwestern flood victims.  Second, he has added a data collection requirement that appears to intrude into the privacy of online consumers and sellers.

Senators Grassley and Harkin, both of Iowa, have filed an amendment, the Midwestern Disaster Tax Relief bill, to the housing bill currently working through the Senate.  This amendment will ”let disaster victims withdraw money from retirement plans without tax penalties, suspend limits on tax incentives for charitable contributions, create tax-exempt bond authority to help rebuild infrastructure, remove limitations on deducting casualty losses due to natural disaster, and allow additional depreciation and increased amounts for expensing property to help business.”

Grassley Watch does not oppose this effort in general, but it does oppose its inclusion in the Foreclosure Prevention Act.  This type of inclusion makes it very difficult for Senators to vote either for or against the act.  This type of politics is not uncommon, but is in very poor form.  The Act rewards irresponsible borrowing and lending, yet if this amendment is approved it will also provided needed support for disaster victims.  Who could possibly vote against supporting disaster victims?

Senator Grassley also “snuck” in a provision that requires credit card processing companies to track online purchases, and store data about those purchases, for many online vendors.  This will allow the Internal Revenue Service to examine consumers’ purchases and tax the vendors whose online sales are being tracked.  This measure is apparently intended to produce revenue to offset new spending in this act.  But this bill will produce a massive amount of data about online consumers and increase the risk of identity theft of those consumers.  Beyond this risk, it raises questions of a Big Brother scenario where the Federal government would be intruding into the lives of citizens.  This is a concern that, according to Dick Armey, has caught the attention of individuals across all political spectrums.

As of this morning, this act appears to be on hold due to an effort of Nevada Senator Ensign to include extensions for wind and solar energy producer tax breaks.  It can be assumed that Grassley, the father of the wind energy tax break, supports this inclusion.  Again, why won’t the Senate allow this issue to stand on its own merits instead of being included in this particular act.  The silver lining of Ensign’s effort is that now voters have additional time to tell Senator Grassley to vote against this act.  The Senate is not expected to take further action until after the July 4th recess.

Yesterday, Senator Grassley voted in favor of allowing the Foreclosure Prevention Act to move forward.  The cloture vote stops further debate on the bill and will allow it to move to a final vote.  While the Senator’s vote does not necessarily translate into support for the bill, it does indicate that the Senator has no interest in further debate.

Grassley Watch suggests to the Senator that debate is still necessary.  This bill protects lenders by limiting their losses from foreclosure and protects borrowers from foreclosure.  Mortgages that are in jeopardy of being foreclosed upon would first have their principal balance reduced by the lender and then refinanced into a 30 year fixed rate mortgage insured by the Federal Housing Administration.  This limits the risk and loss for lenders and provides significant benefit to the borrowers.

So in summary, this bill would bail out irresponsible lenders and borrowers.  The rest of the public is now suffering with the consequences of these lenders’ and borrowers’ actions. We are seeing low returns on savings, real losses on home equity, a slow housing market, a drop in the market values of retirement and investment accounts, and increased unemployment.  And while the banks and borrowers are being bailed out, the rest of us with mortgages continue to make our payments, as responsible borrowers should do, even in cases where our mortgages are now higher than the value of our homes.

This bill has further been rumored to be authored by the Bank of America.  If this allegation is true, it is very important that the Senate ensure that this bill does not provide any special treatment for Bank of America or Countrywide, who was recently purchased by Bank of America, or provide benefits to any of the lenders that created our current mortgage crisis.  Granted, some blame also falls on the borrowers who could not afford the homes they purchased, but the lenders allowed, and in some cases pushed, borrowers into loan contracts that were risky, costly, and irresponsible.  It is also important that Senator Dodd, who received preferential treatment from Countrywide Mortgage and substantial donations from mortgage lenders, prove without a doubt that this bill is in no way influenced by the unethical benefits he received. 

I guess debate may not be needed on this bill after all, it should simply be voted down.  Now is the time for Iowans to make their voices heard.  Tell Grassley what you think about this bill and encourage him to side with the fiscally responsible borrowers and lenders instead of those that have created the market conditions we are all now dealing with.

Stories on the gas tax are plentiful these days, but it may be worth reviewing one more time.  The concept of this tax was first conceived in Oregon in 1919, whose example was followed by many states, including Iowa, shortly thereafter.  Gas taxes now exist at the Federal, state, county, and city level averaging between 32.4 and 63.9 cents per gallon in the continental U.S.

Politicians like to finger selected reasons for the high price of gasoline including excessive profits by oil companies, increasing demand, and a shortage of supply.  What they neglect to mention is the gas tax, among other factors.  This tax accounts for anywhere between eight and sixteen percent of the price at the pump (see the current tax rates for your region here).

It could be argued that this tax is essential to maintaining our country’s infrastructure.  This is reinforced by recent stories over our “crumbling infrastructure“.  However, according to U.S. Secretary of Transportation Mary Peters, only 60 percent of the Federal gas tax is used for road and bridge construction.  This fact alone demands a decrease in the gas tax.  So why did NBC News report on June 19, 2008 that the “nation’s governors asked Congress to help plug the gap” created by a decrease in gas tax collections?  The “gap” was created by Americans driving nearly 20 billion miles fewer this year compared to the last.   This has led to the first decrease in domestic oil demand in 17 years.  As with other taxes linked to a single product, when consumers purchase less of the product, less tax can be collected.  There is now a $1 billion shortfall in Federal gas tax revenues, according to NBC news.

Regardless of the shortfall in gas tax revenues, Americans continue to pay the high price for gasoline.  Government bodies have the ability to take immediate action to recue this price.  Senator John McCain has called upon Congress to provide a gas tax holiday for the summer driving season to reduce the gas tax burden on consumers.  The reasonableness of this proposal will not be discussed here.  However, it is worth noting that some jurisdictions are considering gas tax increases.

The San Francisco Bay Area is considering an increase to fight global warming.  The increased revenues would fund public transportation projects and other traffic reduction measures.  The American Association of State Highway and Transportation Officials have suggested increases from 5 to 10 cents per gallon as a method to ensure continued funding to the Highway Trust Fund.  And of great concern for many Iowans, the statehouse, currently controlled by the Democrats, is prepared to bring legislation that would increase the state’s gas tax.  The reasoning that has been provided is that the additional revenues are needed to repair the state’s infrastructure damaged by severe flooding.  The flood however is only a convenient excuse as the proposal was also considered during the legislature’s last session which concluded prior to the flooding.

When Iowans are suffering through record high gas prices and natural disasters, why would the Iowa legislature consider increasing gas prices further?  One can assume that there is either a great disconnect with the public or a complete disregard for the impact of high gas prices on the public.  Why is Congress entertaining any proposal to fill the “gap” in the federal gas tax revenues?  One could assume it is because they are unwilling to give up their earmarks that divert current revenues away from road construction and maintenance to fund museums, build bike paths, benefit specific companies, expand rail systems, and to enhance the beauty of a California highway.

Now is the time to explore all means to lower the price of gas, not increase the burden on consumers.  Mr. Grassley needs to stand up against increases in the gas tax and supplemental spending to cover the gas tax shortfall, and should use his influence to curb the efforts of Iowa Democrats.

In the face of an obvious disaster for the ethanol industry and for consumers, Grassley begs for patience.  While the USDA won’t update their official crop forecasts until June 30, it is widely believed that up to 5 million acres of corn have been directly impacted by and likely lost to the floods so far.  With recent levee breaks in Illinois, and more likely to come as flood waters continue down the Mississippi River, more acres of corn will be lost to the flood over the next few weeks.  These losses have led to record corn prices of over $8 per bushel, an increase of more than 93% in one year.

Yet, Grassley has asked for patience.  His fear is that the ethanol industry will see a decrease in investments if Federal subsidies are the Federal mandate for bio-fuels are suspended.  The Senator would apparently rather protect his pet industry from economic hardship than his constituents and consumers worldwide.  There is no question that the price of food will increase due to the Midwestern floods, but the increase can be mitigated by eliminating the federal funding for ethanol.  Mr. Grassley, it is time to show concern for Iowans and our national economy.

A good read from Andrew Langer on Townhall.com about the impact of Grassley’s relentless pursuit of corn ethanol on small businesses.

Sen. Grassley: Squeezing Small Business To Prop Up Iowan Corn Growers?

The Grocery Manufacturers Association (GMA) has fired the next shot in the food versus fuel battle with Senator Charles Grassley.  It joined with 22 other organizations to launch the Food Before Fuel Campaign.  According to the Campaign’s website, it was “created to urge public officials to revisit and restructure policies that have increased our reliance on food as an energy source, and to carefully address how to develop alternative fuels that do not pit our energy needs against affordable food and environmental sustainability.”

The Campaign claims that one third of the total U.S. corn crop is mandated to be converted into ethanol for liquid fuel.  They do not take issue with the pursuit of alternative energy, but they do take issue with the use of a food crop to help meet our energy demand.  There is little argument that ethanol has contributed to the increase in the price of food world-wide.  The argument is over how much of the increase is directly linked to ethanol.  The Campaign attributes one third of the increase in food prices to the use of corn for ethanol. 

The livestock industry is being hit particularly hard by the increased price of corn.  Feed prices have increased to a level that has made livestock farming unsustainable for some farmers.  The price of feed is too high for some producers simply be able to maintain their animal stocks.  This could lead to livestock farmers leaving the industry which would result in a meat shortage and even greater food prices.

Senator Grassley has been angered by the GMA’s efforts to blame ethanol for the “food crisis.”  The Grocery Manufacturers Association,” according to the Senator, “needs an excuse to gouge consumers of America with higher food prices, and an easy scapegoat for increasing food prices is, of course, ethanol.” “The problem is, none of [GMA’s] criticisms are based on sound science, sound economics, or for that matter even common sense.” 

The Senator acknowledges that food prices have increased slightly due to the use of corn for ethanol.  However, he points to many other reasons for the increases in food prices and to the benefits of ethanol.  One of Grassley’s explanations is the increasing demand for food from the quickly developing nations of China and India.  This increased demand has contributed to an international food shortage increasing prices.  Supplies have also been threatened due to African and Asian countries’ agricultural policies preventing normal trade and in many cases preventing optimal production of crops.  Additionally, shortages have been created by a historic drought across Australia reducing supplies of wheat and rice, again driving up prices.  Grassley puts the greatest amount of blame for the high price of food on the price of oil.  He points to a Texas A&M study that shows that oil is the driving force behind the increase in food prices.  Senator Grassley finally touts the benefits of ethanol.  He believes that ethanol has helped to keep the price of gasoline down.  He estimates that without ethanol, gasoline would be selling for 30 or 40 cents more per gallon.  This would more than offset the increases of food prices caused by ethanol, if his figures are correct.  The Senator also strongly believes that ethanol will help the U.S. become less dependent on imported oil.

So what comes next?  The GMA and Senator Grassley have now agreed to sit down for a meeting on June 24, 2008.  This meeting was requested by the CEO of the GMA and has now been agreed to by Senator Grassley.  The Senator has also requested the CEOs of 15 large GMA member companies, including Campbell Soup Company, Del Monte Foods Company, Procter and Gamble Company and Archer Daniels Midland, to participate in this meeting.  It promises to be a heated battle between two PR campaigns full of conflicting information and disagreement.

We here at Grassley Watch hope that the Senator will listen to the concerns of the GMA and consider them carefully.  It appears to the casual viewer that both the GMA and Grassley, on behalf of the ethanol industry, are providing partial truths and blowing smoke.  Stop the PR and begin to produce a complete and accurate picture of ethanol’s benefits and costs.  Until we focus on the truths, we can not produce a strong and successful energy policy.

A serious reality of ethanol has come to the fore - natural disasters! 

The ethanol industry is facing its greatest challenge as corn supplies are threatened by the extensive flooding across the Midwest.  U.S. ethanol production relies upon Iowa corn (and Illinois corn, and Indiana corn, etc.) and when it is threatened the ethanol industry is threatened.

The U.S. is all but guaranteed to have a lower than originally projected corn yield in 2008 due to severe flooding.  The USDA recently lowered the expected yield by more than three percent (390 million bushels), which will drive the price of corn higher.  2008 prices are expected to be $1.25 per bushel higher than 2007 and $2.76 more than in 2006.  That translates into a nearly 91 percent increase in corn prices over the two year period.  This increase is expected to have wide-ranging impact, from driving up the price of meat and other grocery items, to increasing the costs of gasoline.

The increased price for corn will increase the family grocery bill as corn is an ingredient in everything from breakfast cereal to soft drinks.  Corn is also essential to the livestock industry.  Livestock producers are expected to cut back on production due to the increased costs of feed resulting in reduced supply and higher prices.  And, of course, corn will impact the costs to produce ethanol ultimately increasing the price of gas.

John Roach, commodity analyst and owner of Roach Ag Marketing, appeared on WHO radio’s The Big Show on June 12, 2008 to discuss the impact of the flooding on the corn market.  He explained that ethanol production is generally borderline profitable.  However, with this years expected increase of corn prices and decrease of supplies, it will be very difficult for producers to remain profitable.  This will jeopardize corn ethanol production.

When you pin your liquid fuel production to an agricultural commodity, it should be expected that natural disasters, whether due to drought, insects, or floods, will disrupt its supply.  Heavy reliance on crop based bio-fuels could put our energy security at risk.  Grassley Watch will not argue here that ethanol should be abandoned, but that it should not be relied upon as s significant source of energy.

A tight ethanol market will make it difficult for the U.S. to meet its renewable fuels standard (ethanol mandate).  Senator Hutchison introduced a bill last month that would freeze the ethanol mandate at current levels.  While Midwestern flooding is not the motivation behind this bill, if signed into law, it would reduce the pressure on the corn and ethanol markets potentially helping to mitigate price increases on both.  Pressure could also be reduced by eliminating the current ethanol import tariff.  A bill introduced recently by Senator Feinstein would not eliminate the tariff, but would reduce it to keep pace with ethanol subsidies.  By reducing or eliminating the tariff, ethanol would be able to be purchased at lower cost on the international market potentially lowing the price of ethanol and gasoline.  Senator Grassley opposes both measures.

Mr. Grassley has said that “floods happen.  God rules.  We don’t have any control over it.”  Yet, he also proclaims that it is not fair that the flooding will intensify criticism of the ethanol industry.  Why is it not fair, Senator?  You have long proclaimed that ethanol was an important component to providing the country with energy security.  But now that nature has shown the vulnerability of the ethanol market, are you not willing to admit that reliance on this product will increase our energy insecurity?

The anticipated decrease in corn yield, the ethanol import tariff, high food prices, and increased international demand for the U.S. corn crop, have created the “perfect storm” for ethanol.  It is now important that lawmakers have a very pointed conversation about the benefits and costs of utilizing ethanol as a significant fuel source and its place in our energy policy.  If there is a silver lining to these floods it may be that we will finally be forced to have this conversation.