TIME republicans

Sen. Lamar Alexander Fends Off Tea Party in Tenn.

Lamar Alexander
Sen. Lamar Alexander, R-Tenn., takes part in a discussion at the National Governors Association convention in Nashville, Tenn. on July 12, 2014. Mark Humphrey—AP Photo

In another blow to the national tea party movement, Republican Lamar Alexander defeated tea-party endorsed State Sen. Joe Carr in a Tennessee primary race on Thursday

(NASHVILLE, Tenn.) — Republican Lamar Alexander became the latest U.S. senator to fend off a tea party challenge in a primary race Thursday, defeating a state senator who had used a familiar tactic in trying to cast him as an out of touch insider.

Alexander’s win dealt another blow to national tea party momentum after the stunning primary win over Republican Rep. Eric Cantor in Virginia in June.

In Tennessee, State Sen. Joe Carr had high-profile endorsements from tea party-allied figures, but he could not overcome Alexander’s fundraising advantage and 40 years in Tennessee politics. He had about 38 percent of the vote with 24 percent of precincts reporting, compared with about 52 percent for Alexander.

In heavily Republican Tennessee, Alexander is strongly favored to win re-election in November. He maintained a moderate tone in his victory speech, touting his ability to craft compromises.

“If we want to change Obamacare, we’re going to have to pass something. If we want to fix the debt, we’re going to have to pass something,” Alexander said. “And to do that we’re going to have to work with other people to get it done.”

So far this year, the argument that sitting senators have lost their connection with voters hasn’t been a winner. Republican Sens. Mitch McConnell of Kentucky, Thad Cochran of Mississippi and Pat Roberts of Kansas have all held off tea party-backed challenges.

Republican Kathy Leake, a 65-year old nurse in the Memphis suburb of Bartlett, said she would not shy away from voting for a qualified tea party candidate but had nothing against Alexander.

“I didn’t see any of the others that had anything else to offer any better than he was … I’m just sticking with him,” she said.

Alexander sought to avoid any chance Carr or Flinn could cast him as an insider by locking down key endorsements and spending the final few weeks of the campaign on a 35-stop bus tour around the state stressing his ability to get results in a divided Senate.

The senator’s stance resonated with voter Larry Harrison, a clinical services director in Nashville who considers himself an independent.

“Carr goes way too conservative for me,” said Harrison, who cited Alexander’s experience and temperament in supporting the incumbent.

“I think he’s got a mSen. Lamar Alexander fends off tea party in Tenn.ore moderate view, and I’m a more moderate person myself,” he said.

Alexander, 74, has served two terms as the state’s governor and two terms in the Senate.

Also on the Tennessee ballot Thursday is embattled Republican Rep. Scott DesJarlais, a physician from the small south Tennessee town of Jasper who won re-election in 2012 despite revelations that he once urged a patient he was dating to seek an abortion.

After the election, court officials released transcripts of divorce proceedings that included DesJarlais admitting under oath that he had eight affairs, encouraged a lover to get an abortion and used a gun to intimidate his first wife during an argument.

Last year, DesJarlais was reprimanded and fined by the Tennessee Board of Medical Examiners in May for having sex with patients. But the congressman has since doubled down on his tea party credentials and has dismissed the details about his personal life as “old news.” He faces state Sen. Jim Tracy, who has far outraised the incumbent.

In the state’s majority black 9th Congressional District, Democratic Rep. Steve Cohen, a white and Jewish Memphis native, defeated attorney Ricky Wilkins. Wilkins, who is African-American, had sought to highlight ethnic and racial differences between Cohen and his constituents in the district, which Cohen has represented since 2006.

TIME 2016 Election

Why Rand Paul Is Schmoozing in Silicon Valley

Faith And Freedom Coalition Holds Policy Conference
Sen. Rand Paul (R-KY) addresses the Faith and Freedom Coalition's 'Road to Majority' Policy Conference at the Omni Shoreham hotel June 20, 2014 in Washington, DC. Chip Somodevilla—Getty Images

As Kentucky Senator Rand Paul heads to San Francisco Thursday for a series of events over the weekend, he’s looking for two things above all: cash and geeks. Paul hopes to dip into the wealth of deep pocketed tech entrepreneurs, like PayPal co-founder Peter Thiel who donated more than $2.7 million in support of his father Ron Paul’s 2012 long shot presidential run. He also hopes to recruit tech savvy talent to work on his campaign, reports Politico.

As the scion of the country’s most prominent libertarian, Paul may find Silicon Valley to be fertile ground. Though the Silicon Valley tech scene has tended to support Democratic candidates and champion socially liberal causes, the libertarian streak that runs through the community has deep roots.

Many in the tech world embrace what author Steven Levy dubbed the “hacker ethic,” a value system stemming from the earliest days of computers that prizes transparency and voluntary collaboration and fundamentally distrusts any central authority.

With startups like Uber and Airbnb recently encumbered by regulatory moves at the state and local level, Paul’s libertarian vision of limited government oversight in the market has appeal. And Paul’s public displays of opposition to the National Security Agency’s domestic surveillance programs speaks both to Silicon Valley’s libertarian bent and to concern for the bottom line of tech titans like Google and Facebook, both of which could see business hurt by NSA snooping.

But Rand Paul is a Republican, not a registered Libertarian, and he has staked out positions that put him at odds with Silicon Valley big wigs, most notably on immigration. Paul voted against last year’s grand “Gang of Eight” compromise on immigration reform, a measure championed by Fwd.us, the Silicon Valley lobbying group led by Facebook founder Mark Zuckerberg, who would like to see more visas available for the kinds of highly-skilled workers Facebook likes to employ.

“So far he’s tried to have it both ways,” Republican pollster Whit Ayres told TIME. “There might be some alignment on some libertarian issues but there certainly is no alignment based on immigration reform.”

With unaccompanied minors flooding across the U.S.-Mexico border in recent weeks, a Gallup poll out Wednesday reveals that immigration now tops the list of problems Americans see facing the country. If he is to make powerful allies among the tech titans of Silicon Valley, Paul will have to strike a delicate balance between the Zuckerberg set and the Tea Party border security hawks that first propelled him to national prominence.

In recent days, the Senator has reportedly met privately with both Thiel and Zuckerberg.

“Maybe they’re trying to woo him to their side,” Republican strategist Michael Hudome said. “He’s not to be underestimated.”

MONEY

Here’s What Rick Santelli’s Latest CNBC Rant Is Really About

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Risk Santelli’s crazy-eyes routine on CNBC today, complete with theatrical camera walk-off as he shouted “Hasta la vista!”, is certainly something to see. But, um, what was Santelli actually arguing about? And what point was he trying to make?

If you don’t watch CNBC regularly, you may find even its normal trader banter difficult to decode. But Santelli gets worked up in a lather so quickly that some backstory needs filling in. Here’s the full 12-minute exchange and, below that, our best shot at translating the passion of Santelli:

(00:00) “I think we ought to get back to a more steak-and-potatoes, mundane, less-volatile form of central banking.”

There’s no doubt that what the U.S. central bank, the Federal Reserve, has been doing since the financial crisis is pretty exotic, i.e. the opposite of steak and potatoes. In addition to cutting short-term interest rates to roughly zero, the Fed has bought up trillions of dollars worth of bonds in an operation called quantitative easing. Economists debate exactly how and to what extent QE works, but the Fed is basically telling businesses and the market that it is going to keep its foot on the economy’s gas pedal at least until unemployment is running at 6% (we’re getting close) and inflation at 2%.

Santelli thinks this intervention is distorting the market. That’s not an especially unusual view among Wall Streeters. The other side of the argument, of course, is that without these inventions, the economy would be in even worse shape. And that inflation, the main thing we’re supposed to worry about when the Fed makes money too “easy,” is still very low.

(00:18) “Equity traders don’t seem to be bugged because they know in the end easy money will outlive any headwinds to the economy.”

He’s saying the Fed has pumped up the stock market artificially. This echoes the old idea that there was a “Greenspan put”—a common belief by bullish stock traders that past Fed chair Alan Greenspan would never let the stock market fall too far. Again, not an unusual thing to hear on the Street.

(2:29) “C’mon, Steve, be objective. You’re talking about feedback loops!… We’re in a managed setting. If a baseball league puts in his crummiest players, what’s the feedback loop for the talent?”

I don’t get the baseball thing, either. But he’s saying, I think, that it’s been so clear that the Fed would keep money easy that the market isn’t doing its job of pricing risk correctly.

And this is where the fight really starts. CNBC economics reporter Steve Liesman–possibly goaded by Santelli saying he’s not objective–pushes back by asking, essentially, if Rick Santelli is right and the Fed is obviously leading us toward disaster, why aren’t more investors fleeing the stock market? It’s a good question.

(3:55) “Do you want to hear social policy from the head of the largest central bank, who controls $4.5 trillion of American’s money?”

By social policy, he presumably means the Fed targeting low unemplyment. For the record, the Fed has a legal mandate to target both stable prices and high employment.

Remember, this is the same guy who rocketed to fame during the financial crisis with a rant about the government bailout subsidizing “losers’ mortgages.” In fact, the bailout mostly helped banks. Help for defaulted homeowners was comparatively small and slow to arrive.

(5:35)”Those young demographics don’t have money, don’t have jobs, they’re living in their parents basements, and less than half of Americans own stock portfolios. So who are we helping here?”

This is in response to a challenge from Josh Brown, who seemed to be saying that stocks are actually good investment if Santelli is right. After all, if the Fed’s wrong, and there’s inflation, you’d rather have stocks than low returning bonds.

Santelli’s response doesn’t really answer that. But hey, it’s live TV and it’s CNBC, so he’s got half a dozen people talking into his earpiece. Anyway, there’s a kernel of a solid point here: The Fed’s policy, if it’s propping up asset prices, doesn’t do much for people who don’t hold assets.

But if that’s true, that could help explain why inflation has been so low–the economy is a long way from overheating. So Brown asks how a different monetary policy–presumably, raising rates to slow growth–would possibly help this.

(6:00) “Here’s what a Fed chairman needs to stand up and do: ‘Congress, we’ve done the most we can do! … Now there’s a feedback loop—a big ruckus in November. Problem solved!”

You know who agrees that Congress should do more to stimulate the economy? Paul Krugman and every economist influenced by John Maynard Keynes ever. And the Fed, too–they point this out all the time. But something tells me that Santelli’s idea of what Congress should do is rather different.

(6:27) “If I’m a bank, why would I lend at sub risk-reward rate just because the government subsidizes it?”

He’s saying the Fed’s efforts to lower rates has made banks not want to bother lending. Huh? Nodody’s telling banks what rate they can lend at.

Then we get back to Santelli complaining about the Fed’s social engineering. Liesman asks: “Should the Fed make policy for you and the traders in Chicago.” (Santelli reports from a Chicago trading pit, where he is often cheered on by traders.) Translation: Who’s not objective here, Rick?

(7:27) “TRADERS IN CHICAGO NEVER CONTRIBUTED ONE PENNY TO THE CREDIT CRISIS!”

Sh– just got real.

(8:58) “I don’t care about the general consensus! I don’t care that Europe offers entitlements! We’re America!”

USA! USA!

The trader crowd cheers.

(10:00) “We’d be healing! Three years into a recovery. That’s what I say. Disprove it!”

This is what Santelli thinks would happen if rates were higher. It really is hard to imagine how higher rates and tighter money would make the economy stronger right now.

Stanford University economist John Taylor recently testified before Congress in favor of a law that would force the Fed to follow more predictable rules. His case is that markets need certainty to operate effectively.

But even if you accept that idea as matter of long-term policy, it’s kind of hard to see how the market would feel more certain and confident right now if the Fed were to suddenly swing to tight money.

Then, Brown says Santelli has been saying this stuff for five years.

(10:52) “AND I WAS RIGHT! End of conversation! Hasta la vista!” [Walks off camera.]

Or, as Kenny Powers says, “I’m not going to stop yelling! Because that would mean I lost the fight!”

But we’re not done. Now Liesman wants to tell viewers that listening to one his financial-news network’s stars would have lost of them money. Because if you thought the Fed was wrong, you would have bet against bonds, which have rallied, and on high inflation, which hasn’t materialized.

[Santelli returns.]

(11:10) “I wasn’t wrong on inflation. I didn’t know policy would be so bad that we’d get no velocity after five-a-half years.”

By velocity, he basically means that no one is spending money, even though the Fed’s QE program has, in a sense “printed” a lot of it. Santelli has claimed before that he didn’t actually predict high inflation. As Business Insider has pointed out, the record says otherwise.

TIME 2014 Election

The U.S. Chamber Of Commerce Is Saving the GOP Establishment at Ballot Box

Tom Donohue
U.S. Chamber of Commerce President and CEO Tom Donohue speaks during a news conference at the U.S. Chamber of Commerce in Washington on July 9, 2014. Evan Vucci—AP

Business group has been major force in 2014 races

On the day after New Jersey and Virginia’s gubernatorial elections last fall, Mitch McConnell showed up at a board meeting of the U.S. Chamber of Commerce with another race on his mind. He announced that the day’s most consequential contest had been neither Chris Christie’s victory nor Ken Cuccinelli’s defeat. Instead, the Senate minority leader explained, it had been a GOP primary in South Alabama.

The Chamber had shelled out about $200,000 in the sleepy district on the Mississippi border to rescue a mainstream candidate who was struggling to fend off a Tea Party firebrand. The race had emerged as a test of whether the GOP could thwart a conservative insurgency that threatened to swallow it. Backed by the Chamber’s money and muscle, the establishment candidate eked out a victory. If it wasn’t for you, McConnell told the audience, according to two people present, it wouldn’t have happened.

The visit was both a token of institutional gratitude and a sign of things to come. Since last fall, the Chamber has cemented itself as the GOP Establishment’s heaviest hitter in the fight to reclaim the party from Tea Party zealotry. It has forked over about $15 million to boost business-friendly candidates in 2014 elections, more than any other Republican group. And it has amassed an undefeated record in nearly a dozen races so far, including key victories over candidates backed by the national outfits that powered the shutdown.

The Chamber’s formula has been simple. It has spent heavily in key races, worked with local partners who know the issues, and tapped celebrity endorsements to lift chosen candidates. “We’re looking for ways to break through,” says Scott Reed, the Chamber’s chief political strategist.

The business lobby’s involvement in GOP primary campaigns is something new, a shift sparked by frustration with conservative groups who supported the nomination of lackluster candidates and a succession of reckless fights. “For us, it was a different approach to take a big risk early in Alabama,” says Rob Engstrom, the Chamber’s national political director. “That could have had a disastrous effect.” From there, the Chamber has triumphed around the country, from a House race in Idaho against a candidate backed by the powerful Club for Growth to a Senate primary in Georgia whose field included two Tea Party favorites that could have tipped the general election to a Democrat.

Money has been a major ingredient. The Chamber poured $2.5 million into the Georgia primary, helping to usher its candidate, GOP Rep. Jack Kingston, into the runoff later this month. It spent some $500,000 on a single ad in the Idaho House GOP primary pitting Rep. Mike Simpson, a top ally of House Speaker John Boehner, against a Club-backed candidate. In all, the Chamber could spend up to $60 million in the 2014 cycle.

When needed, the group has brought in national figures to close the deal. In Simpson’s race in Idaho, that meant enlisting Mitt Romney, whose favorability rating in the district approaches 90%. In Florida, it meant a testimonial from popular former Gov. Jeb Bush.

Perhaps the best example of this approach came in last month in Mississippi. Strategists with the Chamber scrambled to find an edge after incumbent Sen. Thad Cochran was narrowly defeated in the Republican primary, barely squeaking into a runoff three weeks later against a conservative insurgent with momentum. Cochran’s ouster would have been vindication for national Tea Party groups and a boon to their fundraising efforts. As the Establishment fretted that the race was lost, the Chamber called a Hail Mary for a Magnolia State superstar.

On June 19, former University of Southern Mississippi quarterback and NFL MVP Brett Favre endorsed Cochran in a direct-to-camera television ad. “I’ve learned through football that strong leadership makes the difference between winning and losing,” Favre, sporting a salt-and-pepper beard, explained in the 30-second commercial. “Mississippi can win big with Thad Cochran.”

The ad went viral online, and in the final week of the race the Chamber spent $100,000 per day to air it across the state. The air cover helped Cochran eke out a win five days later by a little over 7,000 votes. As it happens, the original plan called for even more local firepower. The Chamber had hoped to team Favre with New York Giants QB Eli Manning, a former Ole Miss star, before Republican strategist Ari Fleischer, who advises NFL teams and players, nixed the idea. (Manning “is not political,” Fleischer wrote in an email to TIME. “It had nothing to do with the NFL.”)

Despite the electoral success, the Chamber has continued to struggle in the GOP-controlled house, where conservatives have been frustrating the group’s agenda on immigration reform and reauthorization of the Export-Import Bank. Some Democrats have seized on these setbacks, encouraging the Chamber to switch sides. Though officially nonpartisan, the number of Democrats endorsed by the Chamber has plunged from about three dozen in 2008 to just three only six years later.

“From the Export-Import bank to tax extenders to immigration reform, Democrats and business are on the same side on a range of issues,” Sen. Chuck Schumer, a New York Democrat, said in a statement to TIME. “The Tea Party has dragged the Republican Party so far to the right that business is now closer to mainstream Democrats than Republicans.”

Not as the Chamber sees it, however. “We might have a common view with them on Ex-Im,” says Engstrom, “but the Democratic Party has fundamentally walked away from us on the issues.”

TIME Campaign Finance

IRS to Rubber-Stamp Tax-Exempt Status for Most Charities After Scandal

Internal Revenue Service Commissioner John Koskinen testifies during a hearing before the Government Operations Subcommittee of the House Oversight and Government Reform Committee July 9, 2014 on Capitol Hill in Washington, D.C.
Internal Revenue Service Commissioner John Koskinen testifies during a hearing before the Government Operations Subcommittee of the House Oversight and Government Reform Committee July 9, 2014 on Capitol Hill in Washington, D.C. Alex Wong—Getty Images

IRS head touts "efficiencies," but some groups fear fraud

Amid ongoing controversy over its scrutiny of nonprofits, the Internal Revenue Service has decided it will no longer screen approximately 80% of the organizations seeking tax-exempt charitable status each year, a change that will ease the creation of small charities while doing away with a review intended to counter fraud and prevent political and other noncharitable groups from misusing the tax code.

As of July 1, any group that pays a $400 fee and declares on a three-page online form that it has annual income of less than $50,000, total assets of less than $250,000 and is in compliance with the tax-code requirements of a charity will automatically be allowed to accept donations that are tax-deductible for the donors. Previously the groups had to fill out a detailed 26-page form, submit multiple supporting documents and provide a narrative description of their intended activities.

In an interview with TIME, IRS commissioner John Koskinen said the change would result in “efficiencies [that] will translate into a faster and better review” of bigger nonprofits, while clearing a 66,000-application backlog that has resulted in yearlong waits for groups seeking to start a charity. He said the new short form comes with 20 pages of instructions that make clear the requirements and limitations of being a charitable organization. Koskinen said that on the new short form, “people certify that they’ve gone through the instructions” under penalty of perjury.

The IRS rejected the idea of the new Form 1023-EZ in 2012, but using an expedited process this year, adopted the new procedure on the recommendation of a small team composed largely of frontline workers from the scandal-plagued division of exempt organizations, according to the IRS.

Some charitable groups worry the IRS has opened the door to abuse of tax-exempt status that will undermine the credibility of legitimate nonprofits, which are allowed to accept deductible donations under section 501(c)(3) of the tax code. “The Form 1023-EZ will increase opportunity for fraud,” said Alissa Hecht Gardenswartz, president of the National Association of State Charity Officials, and will make it harder “to protect charitable assets from fraud and abuse and to ensure that charitable assets are used for the purposes represented to the public.”

Others worry that charities, nominally barred from political activity, will come to serve the same purpose as the powerful nonprofit organizations known as 501(c)(4)s, whose donations cannot be deducted from taxes. This could give an added tax benefit to donors who have recently funneled hundreds of millions of dollars into independent political campaign spending. “What we’ll see is the so-called dark political money that flowed into the (c)(4) world is going to begin to flow into the (c)(3) world,” says Marcus Owens, who was the director of the exempt-organizations division at the IRS from 1990 to 2000, and is now in private practice at the law firm of Caplin & Drysdale.

The change will result in approximately 40,000 to 50,000 fewer (c)(3) applications for the exempt-organizations division to review each year, Koskinen says. The division, whose main office is in Cincinnati, has been at the center of the IRS scandal over alleged political scrutiny of right-wing 501(c)(4) groups under then-head Lois Lerner. That scandal centers on shortcuts the office developed to identify (c)(4) groups for further screening, including screens for groups with the names that suggested an association with the Tea Party movement.

The current legal interpretation of tax regulations allows so-called (c)(4)s to engage in political activities as long as they don’t spend more than 50% of their money on politics. In the 2010 Citizens United ruling by the Supreme Court, those same groups earned the ability to buy campaign ads in federal elections, and tax laws allowed them to conceal the identity of their donors. Since the ruling, the number of applications to become a (c)(4) has doubled, to around 1,000 per year, Koskinen says. In the 2012 campaign, (c)(4)s spent approximately $300 million dollars on politics, according to the Center for Responsive Politics.

Much of that money was spent attempting to motivate voters by advertising positions on specific issues that divide candidates. Owens, the former IRS official, says such activity can be cast under the mission of a (c)(3) devoted to educational, religious or other permitted activities, opening the possibility of deductible dark money. “The candidate links to the issue, and then the tax-exempt organization’s job is to find the voters and make sure they know the message and hear it loud and clear up to election day,” says Owens. “That’s what the (c)(4)s were doing, but that kind of activity could be just as easily in a (c)(3), but it would have the added advantage of having tax deductibility attached to it,” Owens says.

Democratic defenders of the IRS and the exempt-organizations office say both have been deprived of resources, as the overall IRS budget was cut by nearly $950 million, or around 7.8%, from 2010 to 2013, according to the nonpartisan Government Accountability Office. In an April 2014 report, the GAO found the cuts had been offset through savings and efficiencies, and by reducing, delaying or eliminating services. Koskinen says budget cuts didn’t play a role in the change in charity rules. “Obviously we are resource-constrained everywhere across the agency,” he says, but “we would want to do this anyway.”

While charity groups agree the old process for receiving tax-exempt status was too cumbersome, they and others worry that now organizations with no true charitable purpose will seek to become charities. “It’s easier to get tax-exempt status under 1023-EZ than it is to get a library card,” says Tim Delaney, president and CEO of the Council of Nonprofits. As a result, Delaney says, bad actors “will be able to operate in the name of the charity, and the IRS will never be the wiser because they’re not looking at the underlying documentation.”

Koskinen says such worries are overblown. “There’s a faith that if someone has been forced to do more paperwork they’re going to be less nefarious,” he says. He says that to prevent potential abuse, the IRS will take samples of applications to see what percentage are being filled out incorrectly, and will monitor the number of applications to see if it spikes suspiciously as a result of the new rules.

Owens says the IRS may not be able to differentiate between truly small charities and those that knowingly plan to grow beyond $50,000 in annual income. “I haven’t seen any mechanism where the IRS would be legally able to go after an organization that applied within the EZ process but then fortune shined on them,” Owens says. He also says that because of outdated software, the IRS won’t be able to track active charities back from its master file to their originating documents. An IRS official speaking on background acknowledged the software problem.

Charities complain that the change was made with little consultation from their representative lobbying organizations. The IRS sped its enactment this year by routing the change through the White House’s Office of Management and Budget for public comment under the Paperwork Reduction Act, rather than through the normal public-comment process at the IRS, nonprofit officials contend. “I just wish the IRS had used a more inclusive process from the beginning,” says Delaney of the Council of Nonprofits.

The IRS studied a simplified tax-exempt form in 2012 but rejected the idea. The group that looked at the idea, made up of outside lawyers and experts in tax-exempt organizations, said that filling out the longer form forced groups to better understand the requirements of being a charity. The group said it “may also be easier to embezzle from a small charity,” so they should be subject to more, not less, oversight.

MONEY The Economy

The Capitalist Argument for Renewing the Export-Import Bank

While this bank is a government agency, it levels the global playing field and promotes U.S. jobs.

Having excoriated big-government liberals and tax raisers, the Tea Party has now set its sights on the Export-Import Bank.

To the anti-government Tea Party movement, the bank is just one more government intrusion into things that private parties can do for themselves.

Created in 1934 by President Franklin D. Roosevelt, the Export-Import Bank is a U.S. government agency that lends money to foreign buyers to help them purchase our airplanes, computers, and other goods and services. Since 1945, its charter has been subject to periodic renewal by Congress. The latest renewal runs out in a couple of months.

In the vast majority of cases, the loans are paid back in full, with interest. Last year the default rate on loans the bank made was about 0.2%. The bank earned about $1.06 billion for the federal Treasury.

The bank is not supposed to compete with private lenders; therefore, it specializes in higher-risk loans that private institutions are unlikely to make. Over the years it has financed many large projects, including the Pan American Highway that runs from Alaska to Chile. It was involved in the Marshall Plan after World War II, and in the rebuilding of former Soviet countries after the fall of the Berlin Wall.

Who Benefits?

The purpose of the bank is not primarily to help the countries to whom money is lent. It’s to enable them to buy our goods and services, and therefore to create jobs in the U.S.

Between now and September, the reauthorization deadline, the Tea Party will be arguing that the main beneficiaries in the U.S. are big companies that don’t need help.

When you look at the organizations now lobbying for a renewal of the Export-Import Bank, it might appear that the Tea Party has a point there.

Among the organizations that have been speaking up on behalf of the bank are Boeing, General Electric, the U.S. Chamber of Commerce, and the National Association of Manufacturers.

At this moment, the battle is too close to call. In the Senate, sentiment appears to favor renewal of the bank’s charter. In the House, there is a good chance that the majority will vote for its abolition.

Competitive Landscape

My biggest disagreement with the Tea Party here is that it doesn’t make sense to be an ideological purist and think only in terms of the U.S.

Foreign companies such as Airbus receive a variety of subsidies to help them compete internationally. The Export-Import bank provides an indirect subsidy to U.S. manufacturers, helping their customers afford our goods and services.

Why should the Tea Party attack an institution that evens the playing field, helps to create jobs in the U.S., and makes money for the Treasury?

Harry Reid (D., Nev.), the Senate majority leader, is talking about a short-term reauthorization of the bank, tied to a bill that would fund the government past September 30 — again, for the short term.

A more statesmanlike solution, I’d say, would be to extend the bank’s charter for at least another three years, as Congress has done 16 times before. The most common extension period has been five years. That’s what the administration has asked for this time, and that’s what Congress should do.

John Dorfman is chairman of Thunderstorm Capital LLC, a Boston money-management firm. He can be reached at jdorfman@thunderstormcapital.com.

TIME 2014 Election

McDaniel Campaign Begins Legal Challenge in Mississippi GOP Primary

McDaniel delivers a concession speech in Hattiesburg
Tea Party candidate Chris McDaniel delivers a speech to supporters in Hattiesburg, Miss. on June 24, 2014. Jonathan Bachman—Reuters

The Tea Party challenger says a write-in campaign is not off the table

This year’s most hotly contested Republican primary elections entered a new round of controversy Thursday morning, when the Tea Party challenger attempting to unseat incumbent Senator Thad Cochran officially initiated a challenge to the results of a runoff last week.

Insurgent candidate Chris McDaniel Thursday sent a “Notice of Intent to Challenge” to the Cochran campaign, the first step in an attempt to invalidate the election by revealing voting irregularities. Early next week the McDaniel campaign will file its official challenge with the state Republican Party, which oversees the primary election, McDaniel spokesman Noel Fritsch told TIME. A legal challenge in the courts will follow, Fritsch says.

“Most important in this challenge is the integrity of the election process. That’s what this is really all about,” Fritsch said. “What you have here are multiple criminal allegations, criminal misconduct.”

Cochran won a runoff against his more conservative challenger by about 6,700 votes, in part by appealing to moderates and Democrats, who were legally allowed to vote in the Republican runoff in Mississippi if they did not vote in the June 3 Democratic primary. McDaniel alleges that a significant number of Cochran votes came from Democrats who had violated that rule.

The McDaniel campaign has thus far found more than 4,900 votes it calls into question, Fritsch says. The campaign has not yet received access to records in 31 counties or to 19,000 absentee ballots, Fritsch says.

A Cochran campaign spokesman, Jordan Russell, told TIME he could not confirm the campaign had received the notice from McDaniel but called the challenge “baseless.”

“It’s not going anywhere. There’s no evidence of any wrongdoing,” Russell told TIME. “Frankly, it’s a publicity stunt, an attempt to help him to retire his campaign debt.”

Conservative activists were outraged by Cochran’s narrow victory, won with the support of Democrats after McDaniel bested the long-time Senator in the June 3 primary (neither man won more than 50% of the vote, automatically triggering the runoff). Some in conservative circles have called for McDaniel, a firebrand State Senator and former conservative radio host, to mount a write-in campaign, which may not be legally feasible under Mississippi law. A write-in effort would be good news for Democrat Travis Childers, a former congressman from Mississippi who under normal circumstances would face extremely long odds against a Republican in the deeply conservative state.

“We’ve got thousands and thousands of people telling us to do that” Fritsch said when asked if McDaniel would consider a write-in effort. “Oh no. We’re not taking any actions off the table right now.”

-With reporting from Zeke Miller

TIME 2014 Election

Conservatives Fume After Mississippi Defeat

McDaniel
Chris McDaniel victory pins are placed near other Tea Party items for sale outside his election night headquarters on June 24, 2014 at the Lake Terrace Convention Center in Hattiesburg, Miss. George Clark—AP

Tea Party left wondering what went wrong

By nearly all accounts, they should have had their victory. Conventional wisdom had left Sen. Thad Cochran for dead after a close June 3 primary sent him into Tuesday’s runoff against former conservative radio host Chris McDaniel. The challenger was supposed to have an easy lift after winning more votes than Cochran in Round 1. House Majority Leader Eric Cantor’s surprise defeat by conservative upstart Dave Brat days later only reinforced that perception.

But Cochran, unbowed, expanded the electorate, bringing in Democratic voters and defeating McDaniel to almost certainly secure a seventh term in office. The results left establishment Republicans celebrating, having also beaten back Tea Party challengers in Oklahoma and upstate New York. As McDaniel refused to concede in a fiery speech decrying that “the conservative movement took a backseat to liberal Democrats in the state of Mississippi,” conservatives and Tea Party activists were left wondering where they went wrong—and seething at their defeat. The results show the success of a sweeping tide of establishment push-back following high profile upsets in Republican primaries in 2010 and 2012.

The Mississippi race pitted the National Republican Senatorial Committee, former Mississippi Gov. Haley Barbour’s political machine, and outside groups like the Chamber of Commerce and American Crossroads against a conservative barrage from the Club for Growth and Tea Party organizations. The NRSC, Senate Republicans’ campaign arm, spent roughly $500,000 on get-out-the-vote operations for the runoff alone, with 45 NRSC staff and volunteers knocking on 50,000 doors from the initial primary until the runoff, an official said.

“If Republicans are going to act like Democrats, then what’s the use in getting all gung-ho about getting Republicans in there,” Sarah Palin said on Fox News late Tuesday.

Amy Kremer, the former chair of the Tea Party Express, wrote on Twitter that the “GOP is done.”

“What just went down in Mississippi, with the GOP establishment despicably playing the race card against its own base in the U.S. Senate run-off, is a point of no return moment for conservatives in the party,” influential Iowa conservative radio host Steve Deace said in a Facebook post, referring to Cochran’s courtship of black Democrats. “This is a Hemlock Society victory, with the GOP establishment essentially signing its own suicide pact. It’s unforgivable, really, and it should be. I’m going to make everyone that comes to Iowa running for president and wants my support go on the record about this. It’s a line in the sand moment. You cannot align yourself with people who treat you this way. Anybody that thinks otherwise is never going to fight the system if we elect them. These tactics in perhaps the most conservative state in the union are heinous and ought to be condemned without equivocation. If a candidate isn’t going to condemn these sorts of tactics used against us, they will not stand up for us once elected.”

And conservative activist Daniel Horowitz called Cochran’s pursuit of Democratic votes in a Republican primary “treachery.”

“Campaigning openly for Democrat votes in a GOP primary using issues and arguments contrary to the party platform is one thing,” Horowitz wrote on Breitbart. “But the fact that they played the race card and ran mailers and robo calls in African American areas accusing their own party of being racist is downright despicable.

“How much longer can a party survive when its leadership is inexorably against the ethos of its base?” Horowitz added.

In a statement Wednesday morning, Club for Growth President Chris Chocola put the defeat in the context of the group’s 10-year struggle to bring the GOP closer to conservative principles. “We are proud of the effort we made in Mississippi’s Senate race and we congratulate the winner,” he said. “We expect that Senator Cochran and others gained a new appreciation of voter frustration about the threats to economic freedom and national solvency. In light of our experience of the last ten years, we move forward even more confidently than we did the day after the 2004 Pennsylvania primary.”

Conservative political consultant Keith Appell cautioned against interpreting Tuesday’s results as a knockout punch against the Tea Party, blaming McDaniel’s failure to win the required 50% of the vote in the initial primary on a blogger who incited outrage—and sympathy for the incumbent—by strangely filming inside the nursing home housing Cochran’s ailing wife.

“Interpreting this as some kind of ‘Empire Strikes Back’ moment is an overreach,” Appell told TIME. “It’s a golden opportunity blown, to be sure, but it underscores how even a good candidate isn’t enough—he or she still has to have a competent campaign. Republican leaders and their establishment backers dodged a bullet but there is still a deep and active discontent among the grassroots and it will only continue to manifest until the leadership reconnects with its base.

“Conservatives and Tea Party activists have to take the long view, the big picture is that they’re really winning,” Appell added.

RedState founder Erick Erickson wrote that he does not back the third-party approach advocated by some. “I’m just not sure what the Republican Party really stands for any more other than telling Obama no and telling our own corporate interests yes,” he said.

“As grassroots activists feel further and further removed and alienated from the party, it will become harder and harder to win,” Erickson added. “The slaughter the GOP will inflict on the Democrats in November will be a bandaid of built in momentum. When the GOP inevitably caves on repealing Obamacare, opting instead to reform it in favor of their donors’ interests, we may just see an irreparable split. Then, and even worse, if party leaders and party base voters cannot reconcile themselves to a common candidate in 2016, God help us.”

Correction: The original version of this story misstated how many terms Thad Cochran has been in the Senate.

MONEY The Economy

Fix Roads and Bridges — Just Don’t Hike Gas Taxes to Do it

Closed-up cracked asphalt after earthquake.
Yiannis Papadimitriou—Shutterstock

Raising the federal gasoline tax targets the groups that contribute most to wear and tear on America's crumbling roads. Yet there are less regressive ways to address the country's infrastructure needs.

Who should pay to repair and improve the nation’s transportation system?

Someone has to. About 10% of the nation’s approximately 600,000 bridges are structurally unsound. Another 14% are antiquated. Tunnels, highways and mass-transit systems also cry out for improvements.

Yet the federal Highway Trust Fund, which is supposed to pay for most of this, is shaky. It has needed infusions from general revenues a few times in the past six years, and will run out of money this year unless Congress gives it a new allocation.

So who will be stuck with the bill?

• Taxpayers at large? This would come through the federal income tax.
• Trucking companies that put extra wear and tear on roads? That might be done by raising tolls on federal highways.
• People who drive a lot? This would involve raising the gasoline tax, as proposed this week by a couple of Senators.

Sen. Bob Corker (R-Tenn.) and Sen. Chris Murphy (D-Conn.) want to raise the federal gasoline tax to 30.4 cents a gallon over two years, from 18.4 cents a gallon at present.

Perhaps mindful of the Tea Party’s growing power, the senators say their plan won’t necessarily raise the total tax burden on Americans. To offset the gas-tax increase, they say, Congress could extend certain tax breaks that have expired or are scheduled to expire.

As one example, they mentioned the deduction for teachers who spend money on classroom supplies. Another example was the federal deduction for taxes paid to states. These deductions may be good or bad, but none of them offer much comfort to people who use a lot of gasoline.

The federal gasoline tax is only part of the picture. When I fill the tank of my wife’s Subaru in the Boston suburbs, I pay about $55. The gasoline itself costs me roughly $48, Massachusetts takes $4 and Uncle Sam takes $3.

If I lived in California I would be paying about $11 in combined state and federal tax for the same tank of gas. It would be about $10 in Connecticut or Hawaii.

Taxes on specific goods and services, such as gasoline or cigarettes, have two main purposes — to raise revenue and to discourage the use of the item in question. Proponents of higher gas taxes often point to the health effects of air pollution and a desire to encourage mass transit.

As a clean-air proponent, I’m tempted to endorse a higher gasoline tax. But it’s a regressive tax, hitting hardest those people who – often by necessity, not choice – have to commute a long distance to work.

It is more logical to have funds for transportation infrastructure taken from general revenue. That way the benefits of each item — defense, Social Security, Medicare, bridge repair, highway construction, and so on — can be weighed each another, and we can decide how much of each we can afford.

John Dorfman is chairman of Thunderstorm Capital LLC, an investment management firm in Boston.

TIME Congress

Tea Party Gets a Seat in House Leadership

Steve Scalise
Rep. Steve Scalise, R-La., who leads a conservative faction of lawmakers in the Republican Study Committee, speaks with reporters on Capitol Hill in Washington, Thursday, June 19, 2014, after the House Republican Conference elected him to be the new House majority whip. J. Scott Applewhite—AP

Steve Scalise will be expected to bridge the establishment and Tea Party wings of a often party at war with itself

On Thursday afternoon, Peter Roskam and a group of his most loyal supporters gathered in his office on the second floor of the Cannon Building on Capitol Hill. Rep. Greg Harper (R-Miss.) quoted Proverbs 21:31 to the group: “The horse is made ready for the day of battle, but victory belongs to The Lord.” And Rep. Tim Walberg (R-Mich.), a pastor, gave a blessing. Roskam, the Chief Deputy Whip in the GOP conference, then led the solemn, dark-suited group next door into the Longworth House Office Building under skies that were threatening rain. The men and women flanking the Illinois Republican were not the funeral procession they resembled, but rather a show of force and popularity for the man they believed was about become the next House Majority Whip.

Within two hours, they were in mourning.

After losing his bid to become Whip to Rep. Steve Scalise, a Louisiana conservative, Roskam became the second House Republican leadership casualty to the Tea Party in as many weeks. On Thursday, Rep. Kevin McCarthy, the Majority Whip was overwhelmingly elected to take Eric Cantor’s spot as Majority Leader, leaving his Whip slot vacant. Scalise beat Roskam and Tea Party candidate Marlin Stutzman of Indiana. (The post of chief deputy whip is appointed by the Whip, and Scalise is unlikely to appoint his former rival to the position.)

Republican leaders hope Scalise’s ascension will satiate the Tea Party beast that claimed Cantor’s scalp so ignominiously in a primary last week, at least for a while. Elevating McCarthy, the most conservative member from liberal California, to Majority Leader did nothing to shake things up. But Scalise brings new blood to the team: He is the only Tea Partier and, excluding Texans Dick Armey and Tom DeLay, he’s the first Republican leader to be chosen from the South since Newt Gingrich resigned as House Speaker in 1999.

The night before the election, Scalise, who was elected in 2008 to fill Louisiana Gov. Bobby Jindal’s seat, ate dinner with more than 40 of his vote wranglers at a true-to-his-roots restaurant—Acadiana, a Louisiana-style fish house in Washington. There he handed out red wooden “Bring the Wood”—a football term meaning to play with extra violence or force—bats recently shipped from his state. Stutzman and his team then stayed up late in a room outside his Capitol Hill office with supporters, updating Excel spreadsheets as the undecided were called.

“Adrenaline keeps you going through to tomorrow,” Scalise told TIME Wednesday. “We’ve prepared for all scenarios—one ballot, two ballots, three ballots—whatever it takes we’re working hard until the end to win the race.”

In the end, he won it in a single ballot, showing a surprising amount of support in a three-way race where an absolute majority of the conference is needed to win. As far as Tea Partiers go, Scalise is of the relatively more mild persuasion. He was elected chair of the 170-member conservative Republican Study Committee in early 2013, but only after overcoming the reservations of some of his more activist members that he was too close to the leadership. Stutzman had run to Scalise’s right, trying to argue Scalise wasn’t conservative enough. In his new role, Scalise will be expected to bridge two arms of a party that often spends as much time hitting itself as it does the Democrats.

Scalise will face his first challenge in January, when he will be expected to help defend his fellow leaders from Tea Party challenges at the start of the next Congress. Jeb Hensarling of Texas sat out these elections so he might have a chance to take down House Speaker John Boehner next year. And Stutzman and Raul Labrador, who unsuccessfully challenged McCarthy this week for Majority Leader, could run again, especially if the Tea Party continues to surprise in this season’s primaries.

Meanwhile, Democrats have been making hay out of the GOP “disarray.” “Eric Cantor was the head of the House obstructionist caucus,” Democratic National Committee spokesman said in an email. “Yet he lost his primary seemingly for not being obstructionist or extremist enough. So does anybody really think the new House GOP leadership is going to be any better? Well, we already know the answer to that. The leading candidates running in today’s leadership election supported the government shutdown, support more hearings on Benghazi, and wasted so much time voting to repeal the Affordable Care Act.”

Can any one man heal the Tea Party-establishment rift in the Republican Party? Scalise will attempt to find out, or perhaps he’ll find himself on his own grim procession to a leadership vote where the fate of his position is uncertain, and Pastor Walberg quoting to him Proverbs 22:12: “The eyes of the Lord keep watch over knowledge, but he frustrates the words of the unfaithful.”

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