K Street Confidential

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Jeffrey H. Birnbaum
Washington Post Staff Writer
Monday, May 15, 2006; 1:00 PM

K Street Confidential columnist Jeffrey Birnbaum was online to discuss the intersection between government and business on Monday, May 15 at 1 p.m. ET .

Read today's column: In Estate-Tax Battle, One Man Does What He Can .

A transcript follows .

K Street Confidential appears every other Monday in the Washington Post business section.

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Jeffrey Birnbaum: Greeting all,

Thanks for writing in. I look forward to our conversation today about lobbying in general and the estate tax in particular.

Jack Fitzgerald, of auto-sales fame, turned out to be a lovely fellow with an interesting and somewhat controversial story.

Should we sympathize with his plight? Should he win his personal lobbying battle to get rid of the estate tax, the levy on assets at death?

Write in! Let me know. Don't spare the adjectives.

So, let's go!

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Sun Prairie, Wisc.: Good day, Jeff. My question about your column today is this: if this Jack Fitzgerald fellow has the wherewithal to pay a surtax equal to what he expects his estate to have to pay when he dies, why should he not be able to sequester enough funds privately -- through some financial instrument, or even a simple bank account -- to enable his estate to pay the estate tax while keeping his business intact?

I regret his inconvenience, but no one likes paying taxes, and we do have to get the money from someone.

Jeffrey Birnbaum: You have found the weakness in Mr. Fitzgerald's plan. He doesn't literally want to pay his entire estate tax in one year. Not at all. He would spread the total tax revenues that normally go into paying the estate tax over the wealthy people who would probably have to pay it down the road.

In other words, he would pay some extra tax as a downpayment, if you will, on his estate tax liability. He would probably pay less overall under his plan than under the current law--depending of course on how long he lives. The longer he pays the annual surtax, the higher amount he will eventually pay into the system.

In any case, I am told that Mr. Fizgerald can pay his entire estate tax in advance if he wanted to, but it's probably too much--at least $20 million or so. That's why he wants the tax repealed or for it to be replaced in a way that spreads the burden.

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Washington, D.C. Why did your column this morning fail to note that the estates of persons owning farms or closely held businesses will have 15 years to pay off any estate tax liability? That seems quite germane to the subject, since a profitable business should be able to generate the revenue over that time to pay the tax, or even secure loans if worst comes to worst.

Jeffrey Birnbaum: I wasn't writing about farms, nor was I trying to cover the water front on the very complex subject of the estate tax.

But your additions are now duly noted. Thanks for writing in.

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Silver Spring, Md.: In order to be most effective, do you think it is more important to give money to congressional campaigns or to develop personal relationships with Congressmen.

Jeffrey Birnbaum: Both are important, or at least so I am told.

Giving money to campaigns is the fundamental first step in buying into the system, such as it is.

If a lobbying (or a person who wants to impact Washington) can also develop a relationship with the people in authority, so much the better.

A lot of lobbying, though, is making the case for a point of view. That's what Mr. Fitzgerald is doing when he brings a proposal and lots of statistics with him on visits with members of Congress.

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Ashland, Mo: In your recent column and others, mention is made of the "cost" of tax cuts. Has anyone done a study to show if the projected reduction in revenues occurs? Why does the government have record revenues if the tax cuts cost so much? Hasn't experience, rather than "conventional wisdom," shown Arthur Laffer to be more right than wrong?

Jeffrey Birnbaum: This is a very big topic. No one doubts that increased economic growth spurs revenue collections. The question is, What produces that growth? Tax cuts? Maybe. In any case, as the protector of the public coffers, Washington is better off estimating that reductions in taxes or in tax rates will produce lower revenue collections. To do otherwise would probably be irresponsible. At the same time, estimators these days assume that tax cuts do have a positive economic effect and this "dynamic" type of calculation allows officials to say that a tax cut won't produce as much of a fall in revenue as similar estimates produced years ago.

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Sanibel, Fla.: "Deep Throat" advised your Post collegues to "follow the money" during Watergate. With the dollar value of "earmarks" nearly doubling to over $30 billion since 2000, some of the most effective and best-known lobbyists and lobby firms have long dominated this highly specialized activity.

Now, with totally unregulated hedge funds enjoying explosive growth, and the big investment banks moving in to start their own funds to catch up, I assume we can expect this to be the next big growth area for lobbying, and the likelihood for future Enrons and Long Term Capital Managements to detonate. Since this could cause a global currency panic, maybe you can shine a light on this in one of your future columns.

Jeffrey Birnbaum: Thank you for the suggestion.

I wonder how much growth there will be in earmarking. The lobbying bill that is pending in Congress will force much more disclosure about what lawmakers are asking for in terms of narrow appropriations. The projects also have to be better justified than they have been.

I bet there will be at least a pause in the growth of earmarks. But they will not go away. Lawmakers love to bring home the bacon and this is the way they have been able to do it for years now.

It's just too much power for them to turn their backs on.

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John, Baltimore Co., Md.: The estate tax doesn't just target auto empires and industrialists. Family farms (particularly those in areas with high growth in land value) are often faced with this burden as well. Few families can afford to pay Uncle Sam without first selling the land - and the family business - to the developers that bring us urban sprawl.

Jeffrey Birnbaum: Clearly, farmers have a major problem with the estate tax. They are among a coalition of interests working hard to repeal the tax permanently. The problem is that such a repeal would be expensive--probably too expensive. So a compromise is being worked on as we chat. A lot of groups say they will accept nothing short of complete repeal, however, and that is what is likely to prevent major changes in estate taxes this year. Or at least that is what I am told from people who know.

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Arlington, Va.: I've been a strong supporter of the president's plan to eliminate the estate tax and other taxes only the rich pay. I've even heard some plan where income above $500,000 is not taxed at all. This will necessitate eliminating most social programs. We've gone a long way toward cutting taxes (still plenty to do, though), but how soon until we see Medicare, Medicare and Social Security finally dismantled?

Jeffrey Birnbaum: My guess is we will never see such eliminations. I half suspect that your question is tongue-in-cheek.

Government is around for a reason and almost nobody wants to eliminate taxes on rich people. Republicans don't like taxation much but government must be paid for--at least most of it, anyway.

I don't think there will be many more tax changes in the coming months. Elections tend to scare off ideas that will make large numbers of people angry.

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Washington, D.C.: It seems to me, an educated news watcher, that corruption seems in particular to be a significant problem within the Republican party. Of course Democrats have the same problems but no where near the amount as the GOP. With the Republicans in total control of the government this makes sense. My question then revolves around why the Post in general, and you in particular, try to play the issue as both parties being equally guilty, when clearly they are not. Is this just another attempt to appease conservative critics that you and the paper aren't biased?

Jeffrey Birnbaum: You are mistaken to think that the Post is trying to do anything other than report what's happening out there. We would be completely wrong to ignore the fact that Democrats as well as Republicans are facing ethical questions in Congress. So we have written front page stories about Rep. William Jefferson of Louisiana and now, today, a story about Rep. Alan Mollohan of West Virginia--by me. We have (and I have) written at great length about the problems Republican lawmakers are facing. In fact, that has been a majority of the stories we've written because most of the events in this area are about Republicans. But not all. We try, and I try, to present the facts without partisan bias. That's why you have seen stories pointing out bipartisan corruption allegations.

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Orlando, Fla.: Are chances improving toward reducing the power and influence of "K-Street" with Congressional action on public financing of National campaign contributions, including a low maximum limit for individual contributions to encourage volunteer and other candidate support, and what is your "take" on that path?

Jeffrey Birnbaum: Last week, a few former senators including Bill Bradley and Alan Simpson announced that they were going to work to pass public financing. Problem is, they are former senators and don't have any vote in Congress anymore. Reps. Obey and Frank did offer a plan for public financing of congressional elections and it went absolutely nowhere. Which is where I suspect the Bradley-Simpson et al plan is going as well. Lawmakers don't want to change the system that almost automatically reelects them. And voters aren't eager to be taxed to pay for politicians' campaigns. Even though public financing is a very good way to end the influence of private interests on public legislation, getting from here to there has long appeared to me to be a near impossible path.

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Alexandria, Va.: With respect to the most recent NSA revelations, isn't it worth exploring what exactly AT&T/SBC, Verizon, and BellSouth received for their cooperation with the government? What were they paid? Was there a quid pro quo for government contracts or (de)regulatory treatment?

Jeffrey Birnbaum: Yes, it is certainly worth looking into those questions. I think the Senate will take a stab or two at it, in fact. The confirmation hearings of Gen. Michael Hayden is one place. And those hearings beging Thursday. Other hearings down the raod are likely to ask the phone companies why they turned the records over. Suffice it to say, the telecommunications giants are among the most highly regulated businesses in America. Anytime they can do Washington a favor, they jump at the chance. Whether they did so in exchange for something specific we may never know. But clearly their cooperation was duly noted in high places--just as they hoped it would be.

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Warrensburg, Mo.: Why is it that almost no questions are focused on the Republican construction of the K street project. Nearly all questions i have heard, on outlets like Meet The Press for example, are framed as generalities about corruption in both parties. This is a new level isn't it.

Thanks, Joe

Jeffrey Birnbaum: The K Street Project was a Republican operation. It was designed by leaders of the House to put more GOP lobbyists into position of authority in downtown Washington. The more Republicans in charge or corporate offices and trade associations the more money flowed into the coffers of GOP candidates and the more grassroots helps for GOP legislation could be stirred back home. At the same time, lobbying was and is bipartisan. Democrats have their own power centers in downtown DC. It is wrong to think of lobbyists as from one party only. That's why questions are bipartisan. The answers are bipartisan, too. Republicans have been getting more such questions in part because disgraced lobbyist Jack Abramoff is a Republican. And also because Republicans control the House, Senate and the White House.

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Should we sympathize with his plight?: Plight?! Are you on drugs?

1. Employees. Spare me. And there is exactly what guarantee his kids would care? If they follow the pattern of other rich kids, the minute he hits the ground they sell off anyway...only pocketing the extra money.

2. Since when did we decide that reverting to a de-facto aristocracy was a good plan? Didn't we fight some silly revolution about that?

3. When did a DNA string develop independent property rights?

Geez. Let's all happily march back to 1200 AD. Start practicing your "M'lord" and "M'lady", folks.

Jeffrey Birnbaum: Oh well. I guess Mr. Fitzgerald has a few critics out there as well as some friends in Congress.

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Brattleboro, Vt.: Hi Jeffrey,

If a group of citizens wanted to balance the noise coming from K street, how many citizens would need to fill the halls of Congress to match professional lobbyists?

How much would they need to spend to get their representatives attention again?

Thanks.

Jeffrey Birnbaum: If by K Street you mean corporations, then you would need a lot of people and a lot of money. Because corporate offices in D.C. have learned how to use both very effectively.

The Internet, however, is balancing the power. Real grassroots efforts are being tied together by e-mail and Web sites. And a lot more money is being raised in small donations from Internet pleas.

But as the story of Jack Fitzgerald indications (though perhaps from a different direction than you are coming from) lobbying takes a long, long time and is frustrating--for everyone.

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Harpswell, Maine: From the perspective of a voter, how can we judge to what degree our Congressmen are receiving monetary and non-monetary rewards for their actions in Congress?

Jeffrey Birnbaum: You can look up via the Web who your congressman gets campaign contributions from, and then you can draw your own conclusions.

There are many such Web sites including opensecrets.org, politicalmoneyline.com, FEC.gov and other excellent places. It will take work to connect what your lawmaker does with what he received, but who said democracy was easy?

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Tampa, Fla.: Mr. Fitzgerald has an option to allow his paying at part of his estate tax: life insurance. Many of the biggest produces in the ranks of insurance agents sell whole life policies just for this. As for farms, the idea that the inheritance tax forces their sale is incorrect. This simply does not happen. It is a myth perpetrated by those seeking to repeal the inheritance tax.

As for supply-side economics, Laffer is wrong. The evidence does not back him. Look at what Reagan did after his huge ERTA tax cuts in 1981: He proposed some of the biggest tax increases to date in the 1982 and 1984 Tax Acts. If supply side worked, why did Reagan feel it necessary to call for tax hikes to reduce the deficit he ballooned with his '81 tax cuts?

Finally, with regard to hedge funds, keep in mind credit default swaps. Their notional value exceeds by several multiples the face value of the debt they purport to hedge, and most of them are held by hedge funds who do not hold the debt which the default swaps cover. If there's any sort of liquidity crisis in the credit derivative markets like there was when Long-Term Capital Management tanked, watch out. This is reason alone to require hedge funds to register with the SEC.

Jeffrey Birnbaum: This is more than I really want to know. But I appeciate your thoughts, nonetheless.

As to your first point, Mr. Fitzgerald told me that he pays $650,000 a year for life insurance but the $20 million coverage would not be enough to pay off the estate taxes.

Those are very big numbers and a reason why he is working so hard on the problem.

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Wdahington, D.C.: The battle over the Estate tax is really between the rich and the super rich. A deal that would exempt those who leave 10 million or less with no tax has been rejected by the Republicans who seek complete repeal.

Also, if we exempted all the farms and businesses (who are a tiny fraction of those who are subject to the estate tax) then what objection is left? Except that those who have the most assets fail to want to meet their patriotic duty to pay for being in the greatest country in the world!

Jeffrey Birnbaum: You are correct, at least in the tactical world estate tax repeal legislation. That battle between the rich and the very rich is likely to bog down the legislation in the Senate this year. My colleague Jonathan Weisman and I wrote a story in the Post a year or so ago that laid out what the positions of the rich and the very rich are. It was that story that prompted Mr. Fitzgerald to call me and talk about his efforts.

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Phoenix: The poster who asserts that Arthur Laffer is more right than wrong should take note that Ben Bernanke, Bush's new Federal Reserve Chairman, acknowledged in recent testimony to Congress that tax cuts do not pay for themselves.

Much of the recent record tax collection stems from gimmickry and nonrecurring sources, which effectively pull forward tax receipts that would have been paid in later years at much higher effective rates. One such gimmick, which accounts for much of the increase in corporate tax collections during the last two years, is the repatriation of overseas corporate profits by U.S. domiciled multinational corporations that took advantage of temporary marginal rate reductions of 5%. Another example of pulling tax revenues forward can be found in the tax cut legislation passed last week, which allows those earning in excess of $100,000 annually to convert 401(k) accounts to Roth IRAS starting in 2010 in return for paying taxes on capital gains over a three year period rather than gradually, presumably at higher tax rates, as assets are distributed during one's retirement years. The net effect of these tax law changes will be substantially less tax revenue to fund government programs during the baby boom generation's later years.

Jeffrey Birnbaum: Thank you for taking the time to answer in detail. Cheers!

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Pittsburgh, Pa.: Jeff,

Should the Democrats take control of Congress, do you anticipate the demise of the K Street Project...or has this so entrenched Republicans -- conservative Republicans -- that it will take years to undo the predisposition to a certain ideology? Is there any evidence of a shift yet?

Jeffrey Birnbaum: Democrats are having a slightly easier time finding jobs as lobbyists. And it also a little easier to raise money for Democratic candidates for office, or so I am told. If the Dems take control of the House, the Senate or both this November, the K Street Project, which already is pretty well dormant, would be dead. But there will always be a need for Republican lobbyists. Just as there will always be a need for Democratic lobbyists. Well, maybe need is a little strong . . .

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Arlington, Va.: For those who wonder about Mollahan's earmarking activities, Harold Rogers (R-KY) and Ken Calvert (R-CA) are also doing it. Although it would be appropriate for the citizens of West Virginia and the Democratic Party of that state to ask Mollahan to depart, the Republicans should cleanse themselves of the above mentioned two.

Jeffrey Birnbaum: To be fair, Mollohan told me that he is being accused of nothing more sinister than being an appropriators. I think that's an exaggeration, but, in fact, there are many many lawmakers who bring project to their home districts and states. Lots of projects! Where it becomes excessive is for voters to decide.

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Ontario, Calif.: Jeff,

Why is Lewis 'Scooter' Libby's defense attorney making such a big deal about the five witnesses who are prepared to testify under oath that Joe Wilson outed his wife Valerie Plame as a CIA employee before Robert Novak did so in his July 2003 column? After all, as Joe Wilson rightly pointed out, legally, the Libby case is not about the outing of Valerie Plame: "The last I heard, this case is about allegations Mr. Libby lied, perjured himself before the FBI, special prosecutor and grand jury and obstructed justice." So how does all of Libby's attorney's talk about who outed Ms. Plame help his client?

Thanks for the discussion!

Jeffrey Birnbaum: Thanks for the question.

Any time a defense attorney can cast any doubt on the motives or the facts of a case, he or she will do so. That's what I suspect is going on here. If one of the primary problems with the situation is undercut then there's less reason for Libby to have lied. Also credibility is an important aspect of situations like the one Libby faces. If that's undermined, the case teeters at least a little. The murkier the better, as far as defense lawyers are concerned.

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Bllomfield Hills, Mich.: Dear Mr. Birnbaum:

While your article on estate taxes did not want to cover the water front on the complex matter of estate taxes, it seems to me and others that it reads more like something written by a lobbyist for the repeal of the estate tax than an article summarizing the problems, pro and con! As a journalist, shouldn't subjects like this have some balance if there is to be some sort of meaningful debate?

Jeffrey Birnbaum: I included the arguments against repeal of the estate tax in the story. Because the story was about a lobbyist for repeal, that portion of the article did not take up as much space as, I guess, you would have liked. I was not trying to be meticulously even handed. This was a column and a story about a single person. It was not, however, an advocacy piece.

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Florida Lakes Region, North Fla.: Sounds like Arlington should read Sebastian Mallaby's piece today on "The Return of Voodoo Economics" in which he lays the 'tax cuts generate more revenue' myth to rest (again):

"every $1 trillion in tax cuts is going to add $830 billion to the national debt."

How come the press doesn't do a better job (or any job for that matter) of dispelling that myth, along with so many of the fibs told by politicians (of both pitiful, disgusting parties)?

washingtonpost.com: The Return Of Voodoo Economics , by Sebastian Mallaby

Jeffrey Birnbaum: There. That question settled. Or is it?

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Boston, Mass.: This may be somewhat outside your purview, but Brian Ross at ABC just reported that "phone calls and contacts by reporters for ABC News, along with the New York Times and the Washington Post, are being examined as part of a widespread CIA leak investigation". We now know that the Bush administration considers it legal to survey anyone's phone records without a warrant.

Is this acceptable to you?

Jeffrey Birnbaum: It is not acceptable. But I would like to know more.

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Baltimore, Md.: RE: what will happen to "earmarks": I think the future of this device could well hinge on what comes out of the investigation into Rep. Jerry Lewis and the former San Diego area Congressman (whose name I forget)over this very issue. Evidence suggest that earmarks are sometimes precisely targeted to clients of lobbyisits, making them use of public funds explicitly for private enrichment. If that turns out to be the case here, I am wondering if it could lead to a truly gigantic scandal that would make Abramoff look penny ante.

Jeffrey Birnbaum: You may well be right. That other congressman, by the way, is former representative Randy "Duke" Cunningham (R-Calif.)

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Tallahassee, FL: Why is it we calculate the solvency of Social Security or Medicare as if it were a checkbook --but when it comes to war we just print money or dig a huge debt hole and hang with the cost ---seems to be a double standard when it comes to killing - money is no object - when it come to helping people - we must be prudent!

Jeffrey Birnbaum: This is a huge debate on Capitol Hill as well. I'm afraid, though, that fiscal conservatives have won very few of these battles lately. In Washington, it's been spend, spend, spend and don't worry about the consequences for a very long time.

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Washington, D.C.: I'll do my share for Fitzgerald and his lousy dealerships. I won't buy anymore cars from him. I think that many others have already made that decision).

Jeffrey Birnbaum: Sorry to hear that. But thank you for writing in.

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Oakton, Va.: In your column today you wrote, "the estate tax has for years forced owners to sell to corporate giants," without providing any evidence to support the statement. You also wrote that Jack Fitzgerald's business is "too large for him to pass easily to his heirs without their being crushed by the estate tax," yet you chose not to include any data that would have helped your readers decide for themselves how onerous Fitzgerald's tax burden would be.

Can you elucidate?

Jeffrey Birnbaum: Mr. Fitzgerald pays $650,000 a year for a $20 million life insurance policy which he says is not enough to pay for his estate taxes. Enough facts?

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Jeffrey Birnbaum: Thanks all for a fun conversation today. Let's do it again in a couple weeks after my next column.

Cheers and all best!

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