Bureaucracy

                When Congress creates any kind of department, agency, or commission, it is actually delegating some of its powers listed in Article 1, section 8, of the U.S. Constitution. Therefore, the laws creating departments, agencies, corporations, or commissions carefully describe their purpose and give them the authority to make numerous policy decisions, which have the effect of law. Congress recognizes that it does not have the time, expertise, or ability to involve itself in every detail of every program; therefore, it sets general guidelines for agency action and leaves it to the agency to work out the details. How agencies execute congressional wishes is called implementation, the process by which a law or policy is put into operation.

                Historically, political scientists attempting to study how the bureaucracy made policy investigated what they termed iron triangles, the relatively stable relationships and patterns of interaction that occur among federal workers in agencies or departments, interest groups, and relevant congressional committees and subcommittees. Today, iron triangles no longer dominate most policy processes. Some do persist, however, such as the relationship between the Department of Veterans Affairs, the House Committee on Veterans Affairs, and the American Legion and the Veterans of Foreign Wars, the two largest veterans groups.

                Many political scientists examining external influences on the modern bureaucracy prefer to examine issue networks. In general, issue networks, like iron triangles, include agency officials, members of Congress (and committee staffers), and interest group lobbyists. But, they also include lawyers, consultants, academics, public relations specialists, and sometimes even the courts. Unlike iron triangles, issue networks constantly are changing as members with technical expertise or newly interested parties become involved in issue areas.

                As a result of the increasing complexity of many policy domains, many alliances have also been created within the bureaucracy. One such example is interagency councils, working groups created to facilitate the coordination of policy making and implementation across a host of agencies. Depending on how well these councils are funded, they can be the prime movers of administration policy in any area where an interagency council exists. The U.S. Interagency Council on Homelessness, for example, was created in 1987 to coordinate the activities of the more than fifty governmental agencies and programs that work to alleviate homelessness.

                In the end, our bureaucracy is HUGE. Since there are so many issues and concerns that need to be addressed, it is necessary for Congress to delegate powers to the bureaucracy. These departments work with the executive branch and legislative branch to facilitate the needs of the American people.  

Debt Ceiling Woes

Right after the House passed the fiscal cliff compromise, President Obama said, "I will not have another debate with this Congress over whether or not they should pay the bills that they've already racked up through the laws that they passed." But Republicans continue to insist that any increase in the debt ceiling must be exceeded by spending cuts and entitlement reforms. "[The president] doesn't even want to have a discussion about it because he knows this is where we have leverage," Sen. Pat Toomey said on MSNBC earlier this week. "We absolutely have to have this fight over the debt limit." Senate Minority Leader Mitch McConnell said Thursday that Republicans in coming months will "force the conversation that Washington needs to have" about spending cuts if need be.

The country's borrowing has already hit its legal limit -- currently $16.394 trillion. As a result the Treasury can't borrow any more money in the markets, so it has begun to use "extraordinary measures" to ensure that the government can continue to pay all its bills in full and on time. But those measures can only buy about two months' of headroom. If the ceiling isn't raised by late February or early March, the United States runs the risk of defaulting on its obligations because the Treasury would no longer have enough money available to pay all the country's bills. To cover a year's worth of borrowing, the debt ceiling may need to be raised by close to $1 trillion.

Obama and McConnell agree on one thing: They both say they have no interest in resolving the debt ceiling debate at the very last minute the way they did in 2011, the last time they went through the exercise. That debate was so bruising that the United States was downgraded after the fact by Standard & Poor's. The government's borrowing rates remained very low throughout. But the Government Accountability Office nevertheless estimates that they were higher during the standoff than they would have been otherwise. The result: An additional $19 billion in interest payments will be owed over the next decade, according to the Bipartisan Policy Center.

There's a good chance the debate this year will go down to the wire if not past it. "The two groups are farther apart than they've ever been," said Steve Bell, senior director of economic policy at the Bipartisan Policy Center. If Congress does not approve a debt ceiling increase, some believe the president could invoke the 14th Amendment, which states: "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned." By doing so, the argument goes, Obama could direct the Treasury secretary to keep borrowing in order to pay the country's bills in full. The White House has indicated that's not a strategy the president would employ.

And the country could still be hurt financially. By invoking the 14th Amendment, the president could spark a constitutional crisis -- not an affirming message to send markets already questioning Washington's ability to get beyond its dysfunction. And yet, it's not yet clear what else the president could do to contain the damage.

"It is hard to imagine any Treasury secretary, or any president, allowing himself -- or herself -- to be the first to default on the public debt," said Joseph Minarik, research director at the Committee for Economic Development and a former chief economist at the White House Budget Office. "That having been said, no one knows what other options lurk in the file cabinets of the attorneys in the Treasury. They aren't talking ... And I wouldn't have a very high opinion of anyone who did."  

Afghanistan

President Obama will soon make critical choices on Afghanistan, including how fast to withdraw 66,000 American troops and whether to keep a small residual force there once the NATO combat mission concludes at the end of 2014. His talks with the Afghan president, Hamid Karzai, this week will be an important marker in that process.

A lot has happened since the two men met in Kabul last May and signed a strategic partnership agreement. Some developments, like signs of an incipient peace process between the Taliban and the Afghan government, are promising. But many are not. The Afghan Army and police forces have taken responsibility for securing larger and larger swaths of the country, but the Pentagon has admitted that only 1 of 23 NATO-trained brigades can operate without American assistance. The recent alarming rise in fatal attacks by Afghan forces on their American military mentors has crushed whatever was left of America’s appetite for the costly conflict.

Ideally, the 66,000 American troops would already be leaving, and all of them would be out as soon as safely possible; by our estimate, that would be the end of this year. The war that started after Sept. 11, 2001, would be over and securing the country would be up to Afghanistan’s 350,000-member security force, including the army and police, which the United States has spent $39 billion to train and equip over a decade.

But there is a conflict between the ideal and the political reality. Mr. Obama has yet to decide how fast he will withdraw the remaining troops, and the longer he delays, the more he enables military commanders who inevitably want to keep the maximum number of troops in Afghanistan for the maximum amount of time. Another matter of concern is that Mr. Obama is seriously considering keeping a residual military force for an indefinite period after 2014. He needs to think carefully about what its mission would be and make his case to the public. Gen. John Allen, the commander in Afghanistan, had provided the White House with options for an enduring presence that went as high as 20,000 troops. That was an alarmingly big number, but fortunately now seems to be a nonstarter. American officials on Saturday said the administration is considering a much smaller force of 3,000 to 9,000.

If Mr. Obama cannot find a way to go to zero troops, he should approve only the minimum number needed, of mostly Special Operations commandos, to hunt down insurgents and serve as a deterrent against the Taliban retaking Kabul and Al Qaeda re-establishing a safe haven in Afghanistan. Mr. Obama will want to discuss all these issues with Mr. Karzai. The United States cannot go forward if Afghanistan opposes a residual force or puts undue restrictions on those troops.

Mr. Karzai, a deeply flawed leader who is expected to leave office next year, has his own agenda, which includes requests for updated American aircraft, surveillance equipment and longer-range artillery to modernize his army. Those requests cannot be taken seriously when Afghan security forces are increasingly murdering Americans and the Afghan government remains so profoundly corrupt. 

Fiscal Deal + Tax Breaks

The fiscal cliff deal extends four key tax credits that benefit parents. The Child Tax Credit, the Earned Income Tax Credit and the American Opportunity Tax Credit are safe for five more years, while the Child Dependent Care Tax Credit will be permanently extended. These credits were initially expanded under the Bush and Obama administrations, and they would have been reduced significantly if Congress hadn't taken action to extend them before the beginning of the year. As a result, many Americans would have been worse off by hundreds -- or even thousands -- of dollars a year.

"These are meaningful numbers to your lower or middle income taxpayers," said Arthur Bloom, a CPA and Partner at Marks Paneth & Shron LLP. "Now you can put your mind at ease, because we do have an extension, and now we at least know what the rules are going forward." Charlie and Jessica Shivers, parents of two, were bracing for a tax hit of $1,000 if the Child Tax Credit wasn't extended. Had Congress let the expanded credit expire, the maximum amount they could receive would have dropped from $1,000 to $500 for each of their children. Another parent, Linda Sadlouskos, said she would have trouble affording her son's education if she lost access to the full $2,500 American Opportunity Tax Credit she was expecting. That credit was slated to revert to the smaller Hope Credit, meaning the maximum credit would slip to $1,800, it would no longer be refundable and it would only be available for two years instead of four.

The Earned Income Tax Credit, which is estimated to keep millions of Americans out of poverty each year and especially benefits working parents with children, will also be restored for five years rather than being scaled back. Finally, the Child and Dependent Care Tax Credit was extended permanently, meaning that working parents will continue to receive a credit of as much as 35% of child care-related expenses up to $3,000 per child or $6,000 per family. If this hadn't been extended, parents would only be able to report up to $2,400 per child or $4,800 per child -- and receive a maximum credit of 30% of expenses.

One tax break that will disappear, however, is the payroll tax cut that was passed in 2010. Roughly 160 million workers can expect to pay more payroll tax, which funds Social Security, in the new year. People earning the national average salary of $41,000 will get $32 less in their biweekly paychecks. Shivers, who makes $84,000, will see his annual pay shrink by a total of $1,700.   

Jobs

Private sector employers ramped up their hiring in December, according to a report released Thursday by payroll processor ADP. Employers added 215,000 jobs in the month, ADP said, beating economists' forecasts of 140,000. That's a substantial pick-up in hiring since November, when private employers added 148,000 jobs. Medium-sized businesses with between 50 and 500 employees were the biggest job creators, adding nearly half of all new jobs. Meanwhile, smaller businesses added about 25,000 employees and larger businesses added 88,000 employees. "The job market held firm in December despite the intensifying fiscal cliff negotiations in Washington," said Mark Zandi, chief economist of Moody's Analytics, which computes the data along with ADP. "Businesses even became somewhat more aggressive in their hiring at year end."

Zandi noted stronger hiring in the construction sector as an encouraging sign, although rebuilding after Hurricane Sandy likely gave those figures a temporary boost. ADP's data shows 39,000 construction jobs were added in December. The report comes a day before the government's official monthly jobs report, but economists are skeptical about comparing the two reports. ADP looks at only private sector employers, whereas the Labor Department also includes government jobs.

Meanwhile, seasonal adjustments in the month of December often make for a wide disparity between the two reports. Last year for example, ADP predicted private sector employers added 325,000 jobs. A day later, the Bureau of Labor Statistics said private companies created only 212,000. And in December 2010, ADP's numbers for private payroll growth were 184,000 higher than the government's official numbers. The BLS revises its numbers several times, and after the revisions, the reports align more closely. ADP also changed its methodology two months ago, hoping to bring the two reports closer in line.

Nevertheless, economists still caution against using ADP's number to predict the official government figures. "We would emphasize that the recent changes to the ADP report, which brought it more in line with past BLS data, do not necessarily make it more useful for forecasting the BLS series," said Cooper Howes, U.S. economist for Barclays Capital in a note to clients.

Hopefully the government figures will show encouraging signs of growth. The last thing we need right now is dipping employment figures.