1. The first day of the House Ways & Means Committee hearing on IRS scrutiny of tax-exempt applicants indicates Republicans will expand scope to examine other instances of alleged IRS “politicization,” particularly if they can’t find evidence White House involved in “targeting” decisions. Get out your fishing poles.

2. A semi-public tussle between House GOP backbenchers and leadership seems to be breaking out over how to handle scandal investigations, as the latter fret about “overreaching” and the 1998 precedent while the former react to pressure from “the base.”

3. Polling from Gallup indicates “below-average” public interest in the Benghazi and IRS “scandals.” Interestingly enough, the two subjects register about the same interest levels, even though the Benghazi “scandal” has been in the news off-and-on for eight months and the IRS “scandal” is brand new and ill-defined.

4. In non-scandal news, the House “Gang of Eight” announces “agreement in principle” on immigration reform, just a day after rumors of a deadlock spread. It appears, however, the agreement has several major holes where competing provisions will be voted on in committee, particularly as related to health coverage of newly legalized immigrants, and the size of the proposed “guest worker” program.  All in all, it looks like an effort to “move the process along” rather than a breakthrough.

Tempting as it may be, attacking private lenders alone will not solve the student debt problem. For one, private student loans are an increasingly small fraction of total outstanding student debt. And while overall student loan defaults have been rising, private student loan defaults have been falling. Second, although not innocent, villainizing private lenders misses the point: outstanding student debt is rising too much too fast. A government-controlled student loan market will not solve the underlying problem that recent college graduates are struggling in today’s slow-growth economy.

Since the 2008 financial crisis, the Department of Education has essentially taken over the entire student loan market. The federal guarantee program was scrapped, and interest rates on subsidized Stafford loans were “temporarily” cut in half. New government student loans increased 40 percent over 2008-2012 while new private loans fell 75 percent, to just $6 billion last year. The government now holds over 85 percent of the $1 trillion in outstanding student debt. Meanwhile, just three major private lenders remain active in the market.

There’s no doubt that subsidized government student loans must be an essential part of higher education funding. College remains the best way to raise incomes and the government plays an essential role in providing access to higher education for those who are otherwise unable to afford it.

But making the government the only higher education lender, at subsidized rates, risks turning student lending into a faucet that can’t be turned off.  A government that controls all student lending could eventually be forced to get into the business of controlling today’s excessively rising tuitions. That could be a slippery slope the government may not want to slide into.

Instead of attacking the bearer of bad news, we should use private market insights to help guide future education policy. Right now the private market is questioning the financial viability of student debt. The student loan asset-backed securities (SLABS) market remains well below pre-crisis levels. The latest bond offering from Sallie Mae, which tied performance to older student debt obligations, was cancelled after two weeks. Clearly the market has doubts about the underlying quality of student debt. We would be wise to take these doubts seriously.

Part of this private market uncertainty is due to the rising chorus of student debt legislation – nobody wants to invest in an asset that may not make it to maturity.

But that’s exactly the point – investors realize young college graduates are struggling to pay off their debt for reasons other than interest rates. PPI research shows earnings for recent college graduates fell 15 percent – or by $10,000 in annual terms – since 2000. The slow-growth economy of the last decade hit young people harder than other age groups, with many college graduates taking lower skill jobs for less pay. The private market is signaling that recent college graduates are financially over-extended.

It’s easy to attack private lenders for unfairly charging high interest rates at a time when borrowing costs are historically low. But the fact is students are charged higher interest rates because they are not AA+ rated governments. They are borrowers with little to no credit whose repayment is dependent on future earnings, taking out a loan with no collateral. It’s not so simple to refinance this debt, public or private, especially if expected future earnings are falling.

Eventually the Obama administration will have to decide if subsidizing the entire student loan market is desirable or sustainable. Until then, it should work with private lenders instead of working to squeeze them out. That includes requiring better communication with borrowers and encouraging more repayment alternatives for private loans. It also includes borrower protections in the form of responsible oversight. But it should not include showing private lenders the exit.

1. Within a 24-hour period, the White House signaled support for “reporter news shield” legislation, released a large batch of emails from the period leading up to the Benghazi “talking points,” and fired the acting IRS director. There are also rumors surfacing that Obama is considering Massachusetts Gov. Deval Patrick (a former Assistant Attorney General) as a possible replacement for Attorney General Eric Holder if that particular kitchen gets too hot.  None of these actual or prospective steps is likely cool off Republican efforts to pursue all three “scandals” aggressively, but it is clear the White House isn’t buying the “damage control” strategy of refusing to “validate” complaints.

2. There’s now a minority opinion within and outside the GOP holding that the Scandal Offensive will or should lose momentum before long. The Editors of National Review have warned Republicans not to put all their eggs in this basket, citing 1998 (a midterm election when Republicans lost House seats–a very rare occurrence for the party not holding the White House–after seeking Bill Clinton’s impeachment) as a precedent.  And Ezra Klein summarizes the holes appearing in all three “scandals,” particularly in terms of presidential involvement.

3. An interesting and little-noted straw in the wind on the IRS/non-profits front: Franklin Graham complains directly to the president about IRS “targeting” of two 501(c)(3) organizations he controls, raising the possibility of the debate over tax-exempts being extended from “social welfare organizations” to the much larger universe of churches, charities and think tanks.

4. Meanwhile, back in the world of more conventional partisan warfare, the Senate HELP Committee has approved the nomination of Thomas Perez as Secretary of Labor on a party-line vote.  This could set up a dual showdown on the Senate floor, where Harry Reid has already hinted he’ll re-open filibuster reform if Republicans block a pending vote on Consumer Financial Protection Bureau director Richard Cordray.  If this actually happens, the stakes could be a lot bigger than any one or two nominations.

1. White House quickly getting behind “reporter shield” legislation long promoted by Sen. Chuck Schumer, after expressing lukewarm support at best in the past.

2. Heads will surely roll at IRS, and top Democrat on tax-writing Ways & Means Committee, Sander Levin, is already asking for resignations of acting director and officer in charge of nonprofits.

3. One of the scarce non-scandal stories at Politico reports House Gang of Eight at “impasse” on immigration bill.  This would have been a very big story a week ago.

4. My own prediction: IRS “scandal” will soon produce a major resurgence of “Fair Tax” and other flat-tax proposals that eliminate IRS altogether.  Despite being ignored in Washington, such schemes have never lost popularity with the conservative “base.”

1.The perpetual struggle between government security agents trying to stop and punish “leaks” and news organizations trolling for them has blown up again in the AP “scandal,” which because of the timing is getting far more attention that it would otherwise command.  Merits aside, the case gives news media more of a natural stake in the meta-story of “Obama scandals;” note political scientist Brendan Nyhan’s research suggesting big presidential scandals are generally a “co-production” between the opposition party and “elite political media.”

2. The details coming out about the IRS’ selective scrutiny of applications for 501(c)(4) status paint a picture of  mid-level tax officials overwhelmed with an explosion of applications going into the last two electoral cycles, utilizing a logical but politically disastrous “screen.” Ironically, the large 501(c)(4)s that have played so large a role in recent politics (e.g., American Crossroads GPS and Americans For Prosperity on the right, Priorities USA on the left) escaped scrutiny altogether, though that could change if Congress goes beyond investigations and looks into clarifying the laws under which the IRS operates.

3. In terms of the overall impact of this “triple play,” as Stu Rothenberg is calling it: Emory University’s Alan Abramowitz thinks the media are vastly overplaying it as having a certain or decisive impact on the 2014 midterm elections.

The electorate is deeply divided along party lines. These partisan divisions are very deep because they now coincide with other divisions such as race, values and ideology. Therefore, events such as these are very unlikely to cause any large or long-term shift in evaluations of the president let alone party identification or voting intentions.

4. On the intraprogressive front, watch for congressional Democrats to begin distancing themselves from the administration on the IRS and possibly the AP issues; the president himself, of course, has harshly criticized the IRS, but may not be able to disclaim ultimate responsibility.

WASHINGTON — In California, internet and tech growth is spreading outside the Bay Area to other regions not traditionally associated with the technology and internet industries, accelerating job growth and economic recovery in the state, says a new report released today by the Progressive Policy Institute (PPI).

The report, written by PPI’s chief economic strategist Dr. Michael Mandel, highlights recent encouraging signs of job growth in the Internet and tech sector in California that could lift the state out of its economic doldrums, including hard-hit areas such as the Central Valley.

The study examined help-wanted ads across California and found that ads for computer and mathematical occupations in the Central Valley are up by almost 12% over the past year, compared to a smaller 3% gain in the Bay Area. The number of want ads for media and communications workers—many of them related to social media, websites, and other online activities—is up by 34% in Southern California and 42% in the San Diego region. And, demand for web developers is skyrocketing in the Central Valley and Central Coast.

Each of these jobs has the added benefit of creating more jobs in the local economy, from plumbers and janitors to accountants.

The data, notes Mandel, “suggests that the California economy may be approaching a critical inflection point. If the Internet/tech growth continues at its current pace, it may be enough to lift the whole state out of its economic doldrums, including hard-hit areas such as the Central Valley. It also suggests that state government policy should be directed toward encouraging Internet/tech growth, rather than suppressing it.”

Download the policy brief.

Indeed, the latest official figures still show the Bay Area driving California’s economic growth, while the rest of the state lags behind. According to data from California’s Economic Development Department, the number of jobs rose by 2.2% in the Bay Area in the year ended March 2013, compared to 1.5% for Southern California and only 1.2% for the Central Valley, the region that stretches from Redding in the north to Bakersfield in the south.

However, something new and very encouraging is starting to happen: The economic benefits of Internet/tech growth are spreading outside the Bay Area to other regions of California. These gains are so recent that they don’t show up yet in the official government data.

So how do we know Internet/tech growth is spilling over to other areas? To put it simply, we look at the want ads. Internet/tech-related want ads have surged across California. For example, want ads for computer and mathematical occupations in the Central Valley are up by almost 12% over the past year, compared to a smaller 3% gain in the Bay Area. Want ads for media and communications workers—many of them related to social media, websites, and other online activities— are up by 34% in Southern California and 42% in the San Diego region. And want ads for web developers and related occupations are rising in the Central Valley and Central Coast, albeit off a very small base.

What’s more, each of these jobs tends to have a significant multiplier effect on the local economy, creating jobs for everybody from plumbers and janitors to accountants.

This suggests that the California economy may be approaching a critical inflection point. If the Internet/tech growth continues at its current pace, it may be enough to lift the whole state out of its economic doldrums, including hard-hit areas such as the Central Valley. It also suggests that state government policy should be directed toward encouraging Internet/tech growth, rather than suppressing it.

Download the policy brief.

1. The President has already spoken out sharply against the selective IRS scrutiny, and virtually every commentator from every perspective has agreed the subject deserves more discussion and remedial action. But what makes it so effective a political tool for the GOP is the incredible complexity of the underlying tax and campaign finance issues, which means any extended discussion will for most people leave the residual impression of political use of the much-feared IRS to harass enemies (which Richard Nixon famously was revealed to have encouraged during the Watergate Scandal).  Already, you can almost hear the congressional “investigators” saying: “What did the president know and when did he know it?”

2. In conjunction with the Benghazi investigations, the IRS issue makes it easy to paint a picture of an administration that’s either incompetent or dishonest on a broad front, which is precisely the picture hard-core conservatives have been struggling with little success to present of Barack Obama since the 2008 campaign. The special focus of the Benghazi investigations on 2016 Democratic presidential front-runner (and long-time conservative target) Hillary Clinton is a very large added bonus.

3. Politically, the question arising already is whether Republicans will over-reach on either or both issues, and/or conduct the pursuit of the “scandals” in a way that only resonates with anti-Obama “base” voters who view them simply as a confirmation of what they always thought.  If so, a “Ben501″ frenzy could ultimately interfere with earlier GOP efforts to enact immigration reform legislation, and in general to pursue an agenda and message more resonant with middle-class economic concerns.

4. The IRS “scandal” could also have a baleful impact on campaign finance reform efforts, insofar as the scrutinized entities (like the apparently unscrutinized 501(c)(4)’s American Crossroads GPS and Heritage Action) were inhabiting the large gray area of previously unacceptable campaign fundraising and advertising created by the Citizens United decision.

1. It is not entirely clear where congressional Republicans want to go with the Benghazi issue at this point, though the most likely gambit is to demand more testimony from Hillary Clinton, who is now squarely in the bullseye on this subject even more than the president.  Some Republicans, however, continue to talk about impeaching the president (that worked out for them so well last time around), and others are linking Benghazi to the Boston bombings to demand a general refocusing of national security efforts onto radical Muslims.  At the same time, some voices on the Right are calling Innocence of Muslims film-maker Nakoula Basseley Nakula a “patsy” or even a “political prisoner.”

2. Refusal by Mitch McConnell and John Boehner to nominate members for the Independent Payment Advisory Board charged under the Affordable Care Act with identifying cost savings in Medicare almost certainly means Republicans will filibuster any presidential appointments. This could become a very big deal, since IPAB  is what Sarah Palin famously labeled a “death panel,” and Medicare savings not involving a premium support system are universally attacked by Republicans as “Obama’s Medicare Cuts.”

3. Believe it or not, the 2016 presidential election cycle will get underway tonight with Rand Paul’s speech at the Iowa GOP’s annual fundraiser, after he participates in an influential Christian Right conclave.

4. In intraprogressive news, there’s considerable buzz over a presentation by former Clinton White House political director Doug Sosnik, who warns the “Obama coalition” of voters not reliably attached to the Democratic Party.

PRESS CONTACT:
Steven Chlapecka—schlapecka@ppionline.org, T: 202.525.3931

Regulatory Improvement Commission Would Drive Growth and Innovation

WASHINGTON—The creation of an independent, Congressionally-authorized Regulatory Improvement Commission (RIC) is the most effective way to address the build-up of regulations over time affecting businesses, says a new report released today by the Progressive Policy Institute (PPI).

The report, Regulatory Improvement Commission: A Politically-Viable Approach to U.S. Regulatory Reform, is by PPI’s Chief Economic Strategist Dr. Michael Mandel and PPI economist Diana G. Carew. It was prepared for a conference on “Regulating in the Digital Economy” held in Washington DC on May 9 and sponsored by the Kauffman Foundation.

The natural accumulation of federal regulations over time imposes an unintended but significant cost to businesses and economic growth. President Obama’s approach to regulatory look back has made some headway in clearing the regulatory underbrush but much more needs to be done. No satisfactory process currently exists for retrospectively improving or removing regulations.

“The status quo of agency self-review is not, and has never been, an effective way to address old or outdated regulations affecting consumers, as well as small and large businesses,”says one of the report’s authors, Diana G. Carew. “Regulations are important to a well-functioning economy, but a regulatory system that facilitates innovation is a critical part of a high-growth strategy – that means we need to address regulatory accumulation using a different, politically-viable approach.”

That approach, the report argues, is to establish a Regulatory Improvement Commission (RIC) that would be tasked by Congress to review the cost-effectiveness of existing regulations. Modeled after the success of the Base Realignment and Closure Commission (BRAC), the RIC would review regulations as submitted by the public and pass along a recommendation to Congress on a package of 15-20 regulations. Once Congress votes on the package, in an up-or-down vote, the RIC would be dissolved until Congress decides to restart the process.

The RIC would be politically viable even in today’s charged Washington environment. It could independently take on regulatory reform in small pieces with no preconceived agenda, thus building trust over time.