issue: Entitlement Reform

Democrats Must Step Up on Entitlement Reform for Fiscal Cliff Deal

Posted on by The Progressive Policy Institute

PPI President Will Marshall speaks to The Daily Beast regarding the compromises needed from the left to avoid the fiscal cliff:

‘It appears President Obama is serious about slowing the growth of public health and retirement costs, which is the key to bending down the curve of federal spending,’ says Will Marshall, president and founder of the Progressive Policy Institute. ‘The big question now is whether leading Democrats in Congress will stand up to the Norquists of the left and put real entitlement reform on the table.’

That is the big question. Labor unions rightly believe that they were essential to the president’s winning coalition and ground-game effort in the November election. They and many liberal partisans will insist that now is not the time to make any concessions, especially on core philosophic policies like Social Security and Medicaid. They will find comfort in the arguments of some party activists and pundits who say there is no problem, that the fiscal cliff is a myth, and that current levels of deficits and debt are perfectly sustainable, especially if we just soak the rich. They are, like their conservative corollaries, embracing a feel-good reality distortion field.

Math isn’t partisan. The Congressional Budget Office has projected that because of our aging population, cumulative spending on Social Security, Medicare, Medicaid, and interest on the debt could gobble all federal revenues by the end of the next decade. The status quo is unsustainable. We cannot simply tax or spend or borrow our way out of this problem. Striking the right decisive balance is critical to our long-term economic strength as a nation.

Read the entire article at The Daily Beast.

Why Romney’s Medicare Taxes Are So Low

Posted on by The Progressive Policy Institute

As the presidential candidates debate the fate of Medicare, it’s worth noting a very simple fact: Mitt Romney paid only 0.07% of his income in Medicare taxes in 2010. By comparison, the typical American worker paid 1.45% of his or her income in Medicare taxes plus an equal amount paid by the employer. In other words, Romney’s Medicare tax rate was about one-fortieth of the norm.

How did he manage this trick? The key is that investment income, which made up 97% of Romney’s total income in 2010, is not subject to payroll taxes that pay for Medicare or Social Security. That means he only paid Medicare taxes on his speaking and directing fees. If Romney had paid the full Medicare tax rate on all of his income, he would have paid about $628,000. Instead he paid $15,908.

Oddly enough, despite his relatively meager contribution, Mitt is also likely eligible for free Medicare coverage. Current Medicare rules stipulate that as long as he paid into the system for 10 years, he can still receive full coverage.

Because Romney is self-employed, he is paying both the employer and employee shares of the Medicare tax. We therefore compared his tax rate to the combined employer-employee rate for wage and salary workers (2.9% for Medicare taxes). And because he is self-employed Romney got to deduct a portion of his Medicare taxes to calculate his adjusted total income for tax purposes.

A new 3.8% Medicare tax on investment income for high income Americans, scheduled to go into effect in 2013 as part of healthcare reform, would dramatically boost the Medicare taxes paid by people with Romney-like returns. However, there are efforts underway in Congress to get it repealed.

Choose-Your-Benefit: Can Citizens Help Save Social Security?

Posted on by The Progressive Policy Institute

Recently, the Trustees of the Social Security and Medicare trust funds issued their annual report on the future of America’s entitlement programs. As usual, the news was bleak: Social Security is now expected to go bust in 2033, three years earlier than projected last year.

In their report, the Trustees also issued a sober warning: “Lawmakers should not delay addressing the long-run financial challenges facing Social Security and Medicare.”

Unfortunately, Congress doesn’t look like it’s up to the task, especially in an election year.  Not too long ago, the House of Representatives overwhelmingly rejected—by a vote of 382-38—a bipartisan budget plan based on the recommendations of the White House’s deficit reduction commission that would have included some highly sensible steps toward entitlement reform.

Continue reading “Choose-Your-Benefit: Can Citizens Help Save Social Security?” →

Will Marshall on Wyden-Ryan Medicare Plan

Posted on by The Progressive Policy Institute

PPI President Will Marshall breaks down the merits of the Wyden-Ryan plan for Medicare reform in Politico:

An honest debate over Medicare’s future may be too much to hope for in an election year. But candidates should think twice before staking out positions that could tie their hands in next year’s unavoidable showdown over public debts and Medicare spending.

After all, 50 percent will win and actually have to govern. That’s why it’s a big mistake to allow the leading bipartisan proposal for Medicare reform — the Wyden-Ryan plan — to fall victim to election-year Medagoguery.

It’s the brainchild of Democratic Sen. Ron Wyden, a progressive Medicare champion who once led a Gray Panthers chapter in Oregon, and Rep. Paul Ryan (R-Wis.), chairman of the Budget Committee and darling of tea party conservatives. If this political odd couple can agree on a balanced way to slow the unsustainable growth of Medicare costs, there may be hope for real entitlement reform yet.

Read the full article here.

Wingnut Watch: Texan troubles in the Sunshine State

Posted on by The Progressive Policy Institute

In February, the “invisible primary” for the 2012 Republican presidential nomination was kicked off in Washington by the American Conservative Union’s annual Conservative Political Action Conference. On Friday, a second CPAC event will be held in Orlando in deliberate proximity to tomorrow’s Fox/Google candidates’ debate and Saturday’s Florida GOP presidential straw poll (CPAC will not feature its own straw poll). As in Washington in February, the event will revolve around a cattle call of speeches by presidential candidates and conservative celebrities. The smell of red meat will hang heavy in the air, and speakers can and will be expected to forswear all ideological heresy and smite both Democrat Socialists and RINOs.

But it’s instructive to note how the presidential contest has changed in those seven months between CPAC-DC and CPAC-FL. In February, the intrepid conservative-watcher Dave Weigel of Slate ranked in order of general impressiveness the CPAC appearances of no less than twelve candidates, quasi-candidates, and possible candidates: (1) Ron Paul (who won, for the second straight year, the annual straw poll); (2) Gary Johnson; (3) Mitch Daniels; (4) Haley Barbour; (5) John Bolton; (6) Donald Trump; (7) Mitt Romney; (8) Newt Gingrich; (9) Herman Cain; (10) Tim Pawlenty; (11) Rick Santorum; (12) John Thune. You will note that five of these worthies wound up never running president. A sixth, T-Paw, has dropped out. A seventh, Gingrich, is no longer being taken seriously as a candidate, while an eighth (Cain) and ninth (Santorum) are barely clinging to relevance, and a tenth (Johnson) can’t get an invitation to a debate. Meanwhile, Weigel did not even mention Rick Perry or Michele Bachmann, both of whom actually did speak at CPAC, or Jon Huntsman, who at this point was still Barack Obama’s ambassador to China. Interesting, eh?

With four or five months (depending on decisions pending in the states on the date of the starting gun in Iowa) still to go before actual voters begin to participate in the nomination process, how much more is likely to change? A lot could depend on what happens in Florida late this week, particularly to insta-front-runner Rick Perry.

The Texan’s somewhat shaky performance in the CNN-Tea Party Express debate on September 12 (also in Florida) may embolden his rivals to go after him again tomorrow night in Orlando. His areas of vulnerability could again include immigration policy (Cuban-Americans–the Hispanic voting group most active in Florida Republican politics–are not terribly sympathetic to undocumented workers from Mexico). It’s unlikely Michele Bachmann will again bring up Perry’s unsuccessful efforts to immunize Texas schoolgirls against the HPV virus, since her handling of the issue backfired on her in the intervening days. But if she wants to pursue the “crony capitalism” rap on Perry in a way that undermines his Tea Party support, there’s rich ground available in his futile and unpopular campaign to build a giant system of privately operated toll roads—the Trans-Texas Corridor—that might have enriched some of Perry’s friends and supporters at the expense of local landowners, and that reminded some hard-core conservatives of shadowy rumors about a “NAFTA Superhighway” designed to encourage illegal immigration and threaten U.S. sovereignty. The whole issue looks tailor-made for Bachmann.

Perry’s apparently dovish feelings about overseas troop deployments could be another target, given the very hawkish tendencies of Florida Republicans (and especially Cuban-Americans, who went heavily for John McCain, then campaigning mainly on the Iraq “surge,” in the 2008 Republican primary).

But without question, Romney, Bachmann, and perhaps others will keep up the pressure on Perry about Social Security in a state where about one-third of Republican primary participants are over the age of 65. The most recent polling in Florida, by Insider Advantage, showed Romney with a healthy lead over Perry among likely primary voters 65 and older, despite Perry’s overall nine-point lead. Since Social Security is also central to Team Romney’s “electability” argument against Perry, alarming Florida seniors generally about the Texan’s expressed disdain for the New Deal program as an unconstitutional “failure” will be a priority. Republicans have reason to be anxious about the Sunshine State: the last Republican to win the White House without winning Florida was Calvin Coolidge in 1924.

Regardless of exactly how he does in the debate, or in his CPAC-FL speech, Perry has long planned to cap the week with a smashing victory in the Saturday state party straw poll (which goes by the rather self-important name of “P5” to indicate that it is the fifth such event in Florida). But Romney and Bachmann have undermined the significance of the event by declining to appear in the pre-straw-poll cattle call, or actively compete in the straw poll. The pre-ordained nature of the Perry victory, and thus its relative lack of newsworthiness, is reinforced by this straw poll’s unusual nature: voting participants were selected months ago by county GOP organizations. So Ron Paul won’t be able to win this one by any last-minute packing of the room with his youthful supporters.

P5 might, on the other hand, draw attention to Perry’s support among Florida GOP power-brokers, including several key legislative leaders, and reportedly (though he remain officially neutral), the controversial right-wing Gov. Rick Scott. But the even bigger dogs in Florida Republican politics are another matter. Sen. Marco Rubio, who is the presumptive favorite for the second spot on the ticket no matter who wins the first spot, has little reason to endorse anybody. And his political patron, former Gov. Jeb Bush, is assumed to share his clan’s general antipathy towards Perry. If Romney can build doubts about Perry’s electability and specifically his appeal to seniors, and also secure open or covert backing from Jeb Bush, this difficult week in Florida could be just the beginning of the front-running Texan’s troubles in the Sunshine State.

Obama Needs a Bipartisan Elder Statesman Road Show to Tackle the Deficit

Posted on by The Progressive Policy Institute

As President Obama begins taking the budget deficit battle show on the road, he faces a number of obvious challenges. But perhaps the most pressing one is this: In the hyper-polarized political environment, how does a President whose approval ratings are stuck in the 40s successfully make the public case for a serious deficit reduction plan?

The answer is he’s going to have to try something different. If it’s just the usual campaign-style events like the GW speech from last week (“I don’t think there’s anything courageous about asking for sacrifice from those who can least afford it and don’t have any clout on Capitol Hill.”), Republicans will respond predictably with wild demagoguery on tax hikes and entitlement cuts, and the battle lines will solidify into familiar gridlock patterns.

But here’s an alternative: Obama should to send a signal that this is serious, this is above party, this is for the good of the country, and if we don’t solve this problem soon, we’re going to pay a major price later. To do this, Obama should assemble a bipartisan team of elder statesmen to accompany him around the country as he talks about this. Imagine if he brought together Clinton and Bush Sr. on a hard-choices-to-tackle-the-deficit tour to give this some gravitas beyond the usual campaign-style events. At the very least he should be going around with Bowles and Simpson.

While the conventional wisdom is that the President can use the bully pulpit to move public opinion, the reality is that this is rarely the case. Public opinion is not easily moved, especially not by a highly divisive President on an issue that touches on issues of entitlements. (see, George W. Bush, privatization of Social Security).

And Obama seems smart enough to know that once a particular plan becomes the “Obama plan,” it’s going to be very hard to get any Republican co-sponsors, which is one reason he’s been slow to talk in specifics.

The political problem is that any serious deficit reduction plan has the dyspeptic taste of chalky medicine going down. This is not Ronald Reagan seeking public support for his tax cuts. A responsible deficit reduction proposal that requires tax increases and entitlement cuts (as a responsible plan must) exposes its advocates to attacks on the two most easily-demagogued issues in American politics. (He wants to raise your taxes! He wants to cut your Medicare and Social Security!) In other words, the politics of that responsible plan are very bad.

And yes, we know deficit reduction good for us, and increasingly, we know we really need to take that medicine (the federal deficit is rapidly shooting up among the ranks of Gallup’s most important problem). But we also keep thinking there must be a tastier medicine that can do just as good of a job, in good part because there’s always somebody out there promising a tastier medicine – magical elixirs based on heroic assumptions about tax cuts or mythical savings to be had from eliminating waste, fraud, and abuse or wooden-nickel promises about being able to preserve entitlements as they are.

If we’re going to get beyond this destructive dissembling, Obama’s going to need some Republicans out there speaking with him. Any plan needs to be sold as a bipartisan plan from the start.

While it’s unlikely any Republicans in the Senate would put themselves out on a limb and appear publicly with Obama, there should be some retired Republicans who might be willing to lend their name to a bipartisan effort to build a serious deficit reduction plan, especially given the stakes involved.

Had the President jumped out there earlier and defined the parameters of the debate on deficit reduction, he might be in a better place rhetorically. But Obama clearly believes in the rope-a-dope strategy – let the other guy (in this case Ryan) get out there first, and then punch back once he’s over-extended.

And yes, Obama can be the anti-Ryan if he wants, since the Ryan plan does not comport particularly well with the contours of public opinion. This might help in the short run. But it also runs the risk of defining the left flank of the debate, when that should really be reserved for the Progressive Caucus plan of 80 percent tax hikes.

This time, Obama should be more creative. Solving the federal deficit is a generational problem that needs to rise above party. Putting together a bipartisan road show of elder statesmen would signal that this is something grave and serious, not partisan politics as usual.

One Cheer For the Ryan Plan

Posted on by The Progressive Policy Institute

As progressives pounce on Rep. Paul Ryan’s new budget proposal, they should also give the man a little credit. The plan he unveiled today is a daring attempt to define an actual conservative governing philosophy. That’s a big improvement on the reactionary and crotchety anti-government platitudes served up by the Tea Party.

And while progressives will rightly reject Ryan’s overall plan as draconian and unfair, they ought to keep an open mind about some of its most audacious elements, especially his ideas for controlling public health care spending.

For better or worse, the House Budget Committee Chairman has produced a coherent vision for limited government. It would sharply cut domestic spending, returning it to 2008 levels, reduce federal deficits by more than $4 trillion over the next decade, and hold federal spending below 20 percent of gross domestic product. It would further roll back the state and buttress “individual responsibility” by repealing Obamacare.

Ryan embraces President Obama’s Fiscal Commission proposal to cut tax expenditures and use the proceeds to bring the top individual and corporate income tax rate down to 25 percent. But unlike the commission’s approach, which commits a chunk of the savings to deficit reduction, Ryan makes his revenue neutral in obeisance to the Prime Ideological Imperative of today’s GOP: taxes must never, on any account, be raised.

Ryan’s most controversial proposals are also his most intriguing. In what he describes as a continuation of the bipartisan welfare reforms of the 1990s, he would convert Medicaid, which provides health insurance to poor families, into a block grant. Currently its costs are shared by the federal and state governments. As critics like Ezra Klein point out, a block grant is a device to limit federal health spending, shifting costs to states and individuals. It’s true that a block grant alone doesn’t constitute “reform” of Medicaid. But in tandem with reforms in health care delivery, especially efforts to move from fee-for-service to capitated “accountable care organizations,” a block grant could dampen inflationary pressures and protect taxpayers against the automatic and unsustainable growth of public health care spending.

Similarly, Ryan proposes to control Medicare costs by replacing open-ended subsidies with a “premium support” model. Under this approach – essentially a voucher, despite Ryan’s denials – Washington would give Medicare recipients a set amount (varying according to income and health status) they could use to buy insurance from competing private plans. Although Republicans wrongly assume that competition alone will drive down health costs – again, changing incentives to focus medical spending on the value rather than the volume of care is the key — premium support at least puts a governor on the engine of mandatory public health care spending, the main driver of America’s debt crisis.

Some liberals undoubtedly will see it as a plot to destroy Medicare. But recall that a bipartisan Medicare reform commission President Bill Clinton created in 1998 came close to embracing premium support. It’s also been endorsed by leading Democrats, including former CBO chief Alice Rivlin, and is part of the Rivlin-Domenici deficit reduction plan. In fact, as part of a more comprehensive strategy to contain health care costs, a Medicaid block grant and premium support for Medicare could serve a progressive purpose, by preventing rapid entitlement spending growth from squeezing vital public investments in children and families, scientific research, infrastructure and a clean environment.

On Social Security, Rep. Ryan disappointingly punts, proving no bolder than the White House. And as certified fiscal hawk David Walker points out, the Ryan plan does not include substantial savings in defense spending, and raises not a penny in new revenues to help the nation whittle down its enormous debts.

In other words, it’s an unbalanced plan, morally and politically, that gives the Pentagon and the wealthy a pass, and concentrates the pain of deficit reduction on middle and low-income families. The Fiscal Commission’s approach, broadly endorsed by 32 Republican and 32 Democrats Senators – if not yet by Obama himself – is infinitely preferable as a starting point for a serious debate.

Nonetheless, the Ryan plan puts conservatives’ ideological cards on the table and helps clarify the trade offs that must be made to strike a bipartisan deal. And it contains some ideas for ensuring that public budgets aren’t swamped by runaway health costs – ideas that progressives ought not to reject out of hand.

Why Dems Are Doing Worse in Some States than Others: It’s Race, Not the Economy

Posted on by The Progressive Policy Institute

In 2008, Democrats enjoyed a solid advantage in partisan identification. By 2010, that advantage had largely evaporated. As I detailed in a previous post, in every state, the Democratic partisan ID advantage has declined, and by an average of nine percentage points.

But the decline has not been equal across the nation. In fact, there is a good deal of variation in the change in Democratic identification across states, ranging from a ranging from a drop of 22.2 percent in New Hampshire (from +13.2% to -9.0%) to a drop of just 1.6 percent in Mississippi (see this table for state-by-state numbers).

Why should these changes vary so much from state to state? Are there demographics that might explain this?

As it turns out, the only statistically significant predictor of the decline in democratic partisan affiliation advantage is the percentage of white people in the state. Surprisingly, the state economy (at least as measured by unemployment rate or change in unemployment rate) doesn’t seem to matter.

Unemployment

Let’s begin with the unemployment rate, since a good deal of the analysis around the 2010 election was an “it’s the economy stupid” story: voters blamed Democrats for high unemployment, and voted Republican to express their anger and frustration.

Yet, what’s remarkable about this scatterplot (above) is that the story doesn’t hold up. If anything, the relationship seems to be slightly opposite what the conventional wisdom would lead us to expect: the Democrats appear to have lost more support in states that have relatively lower unemployment rates. However, it is not statistically significant.

Still, it’s possible that what matters is not the absolute unemployment rate, but rather the change. Yet, once again, the scatterplot (below) shows that this is not the case. The more unemployment dropped between November 2008 and November 2010, the less the average decline in Dems’ partisan ID advantage. Though the relationship is actually stronger than above, it is still not a statistically significant one.

These numbers just don’t fit with the story of voters turning against Democrats for a failing economy. Take Nevada: Unemployment jumped from 8.0 percent to 14.3 percent, yet Democrats partisan ID declined by only; Similarly, California: Unemployment goes up from 8.4 percent to 12.4 percent.

On the other side, consider New Hampshire: Unemployment goes up from 4.3 percent to 5.4 percent (both among the lowest in the nation), but Democrats lose 22.2 percentage points in partisan ID advantage; Or South Dakota: Enemployment up from just 3.4 percent to just 4.5 percent, but the Dem partisan ID advantage falls up 10.4 percent.

Manufacturing

Another possibility is that what matters is the economic make-up of the economy, and in particular, perhaps states that rely disproportionately on manufacturing are more likely to have a lot of anxious voters, since manufacturing is a dying industry. But if we plot the decline in Democratic partisan ID and the manufacturing as share of the state GDP, there is no relationship.

Seniors

Another possibility is that Democrats are losing out in states with more seniors, since senior citizens are reportedly turning against Democrats. A scatter-plot shows a clear relationship, though not quite a statistically significant one (but close!). Generally, the more seniors in a state, the more Democrats have lost in their partisan ID advantage. However, the number of seniors explains only three percent of the variation in the Democratic vote share decline.

Whites

Finally, we come to the share of white voters. Here we have a consistent pattern, and one that is statistically significant (and explains 13 percent of the state-level variation). For every ten percent increase in white voters as a share of the electorate, the predicted decline in Democratic ID advantage is almost one full percentage point (the one outlier in the lower left is Hawaii, which is highly Asian. Without that outlier, the relationship would be even stronger).

This re-emphasizes the problems that Democrats seem to be having with white voters. (Democrats have not enjoyed parity with Republicans among white voters in 20 years, but 2010 was especially bad, with white voters breaking 62-to-38 for Republicans in the mid-term elections.)

This explains why the Democratic decline in diverse states like California (47 percent white) and Nevada (66 percent white) is less than in lily-white states like South Dakota (90 percent white) and New Hampshire (95 percent white), even though California and Nevada have much higher levels of unemployment.

These results exist regardless of economic circumstances (these findings are robust even in a statistical model that controls for all the other possible factors discussed).

Conclusions

The brief summary of this analysis is that race may matter more than the economy for  why voters have been identifying more and more as Republicans for the last two years.

Of course, there are obvious caveats to this interpretation, most significantly the fact that I am playing around with state-level data, as opposed to individual-level data.

But the patterns are discouraging for Obama and the Democrats. Much prognostication has argued that the number one factor for 2012 will be the unemployment rate, because historically, the unemployment rate has been a very strong predictor of whether the incumbent party wins or not. This analysis suggests that something else is going on as well. Democrats are having a hard time with seniors and particularly white voters, and it’s not just a story about the state of the economy.  Democrats ignore these scatterplots at their peril.

Update: I’ve written a response to some of the comments entitled “Am I a Race-Baiter?”

Obama’s Minimalist Budget

Posted on by The Progressive Policy Institute

President Obama’s new budget is a highly tactical exercise in fiscal minimalism. It proposes just enough spending cuts to be plausible, while putting off the critical work of tax and entitlement reform. Its unspoken premise seems to be: Given the ax-wielding frenzy that grips House Republicans, the best the White House can do now is to frame the fiscal debate on terms favorable to progressives.

The President’s $3.7 trillion budget would trim federal deficits by just over $1 trillion over the next decade. To the chagrin of liberals, the budget proposes to reach this total through a formula of two-thirds spending cuts, one-third tax cuts, rather than a 50-50 split. Also, it limits military spending growth without cutting specific programs. Meanwhile, the blueprint freezes discretionary spending for five years, and cuts over 150 programs, for $25 billion in budget savings next year. In short, the toughest discipline falls on domestic spending, so expect howls of betrayal from the left.

For all that, however, the Obama proposal would still leave us with deficits over 3 percent of GDP in 2020, while doing nothing to brake the runaway growth of costs for Medicare, Medicaid or Social Security, which account for 40 percent of the budget. These costs, propelled by soaring health care prices and demographics, and growing automatically each year, are what drive our nation’s long-term debt crisis.

The new budget does stabilize the national debt, but at a level – 77 percent of GDP – that most economists believe is well above what’s good for our fiscal health. It’s getting panned by deficit hawks. “This budget fails to meet the Administration’s own fiscal target, it fails to tackle the largest problem areas of the budget, and it fails to bring the debt down to an acceptable level,” said Maya MacGuineas of the Committee for a Responsible Federal Budget.

Over the weekend, GOP leaders lambasted Obama for not embracing the much more robust and comprehensive recommendations of his own Fiscal Commission. Its plan would cut deficits by $4 trillion by 2020, make big reductions in tax expenditures, and trim future Social Security and Medicare benefits for the well-off. Bear in mind that, even as they criticize the President’s fiscal pusillanimity, House Republicans have rejected the Fiscal Commission blueprint, oppose tax increases of any kind, and are engaged in an Alphonse-and-Gaston routine with the White House over who should go first on entitlement reform.

Nonetheless, the Commission’s Democratic co-chairman, Erskine Bowles, also expressed disappointment that the President hasn’t used its work as the point of departure for a serious push to restore fiscal stability in Washington. He accurately called the President’s proposal “nowhere near where they will have to go to resolve our fiscal nightmare.”

The administration apparently is calculating that its modest deficit-reduction proposal has several tactical advantages. First, it may better reflect the public’s actual appetite for fiscal restraint. The same polls that show strong public support for reining in public deficits also find majorities opposed to major program cuts. Second, and relatedly, the White House wants to contrast its moderate approach to GOP austerity zealots, who have launched a single-minded jihad against government spending. Once the public tumbles to the implications of the GOP’s demands for $100 billion in domestic program cuts now, Democrats reason, they will recoil and demand a more balanced approach that includes defense cuts and tax hikes.

That seems likely. Republicans have convinced themselves that most Americans share their goal of shrinking government by cutting off its credit card. “The country’s biggest challenge, domestically speaking, no doubt about it, is a debt crisis,” House Budget Committee Chair Paul Ryan said this weekend.

But progressives believe that Americans – especially the independents and moderates who abandoned Democrats in the midterm election – are even more concerned about the scarcity of good jobs and America’s eroding competitiveness. More than fiscal stringency, they are looking to their leaders for a hopeful plan to jumpstart the stalled U.S. job machine.

The President’s budget accordingly makes room for significant new public investments, especially in infrastructure, innovation, and education. He wants to spend $53 billion over the next six years on high speed rail, and invest $50 billion in capitalizing a National Infrastructure Bank. The GOP’s knee-jerk dismissal of such strategic investments as just more government waste is wrong as a matter of economics, and it leaves conservatives without a credible theory for how they would rekindle economic growth.

So maybe Obama is right to stand back and give Republicans all the fiscal rope they need to hang themselves from the tree of uncompromising budget austerity. But his Fiscal Commission, which labored diligently and successfully to find some fiscal common ground between the parties, especially on scaling back tax expenditures, deserves better from him. And sooner rather than later, the President will have to step up and lead on entitlement reform, a national imperative that can no longer be safely deferred.

Can the Republicans Really Pull Off $100 Billion in Cuts?

Posted on by The Progressive Policy Institute

Well, that was quick. Rather than risk a mutiny, House Republican leaders have agreed to now cut $100 billion from the $1.1 trillion federal budget, rather than their original plan of a mere $40 billion. The question is: Can they pull it off? And if they do, will they come to regret it?

Yesterday, I predicted a coming Republican crack-up based on the premise that the Young Turks of the Tea Party are out to take a stand (gosh darnit!) against big government, but it’s a stand that’s not compatible with the continued electoral success of the Republican Party. And the spending cuts are a perfect example.

Say Republican leaders are indeed serious about  cutting $100 billion. Where will they cut? A new Pew poll found only two federal programs in which more respondents favored a decrease in spending than an increase: Global poverty assistance (45 percent for a decrease, 21 percent for an increase) and Unemployment assistance (28 percent for a decrease, 27 percent for an increase). Neither of these are big ticket items.

The only other area that is close to even is Defense (30 percent for a decrease, 31 percent for an increase). Defense accounts for about half of discretionary spending. But I’m guessing a good percentage of those 31 percent who want to increase the military are solid Republican base voters.

So here’s the hard reality: There is some serious bloodlust going around Washington about cutting the budget, in part because there is some serious bloodlust about cutting the budget in the Tea Party base. But when it comes down to the actual programs that will get cut, the picture changes.

You see, many voters are symbolic conservatives in that they like to say they are for things like small government and fiscal discipline. But when it comes to specific government programs, well, why would you go and cut my well-deserved Medicare benefits when you could be cutting federal salaries or aid to the poor? In fact, with the exception of federal pay and foreign aid or aid to the poor, it’s hard to find a single government program or funding source that any majority would support cutting.

Democrats, of course, know this, and are just waiting for Republicans to go wild with their proposed cuts – especially Senate Democrats, who will play the role of putting the pieces back together.

In the end, there are two likely scenarios. In one, Republican leaders hold to the Tea Party line, but play right into Democrats’ hands, demanding harsh cuts — and in the process they awaken all kinds of anxious voters who are now suddenly worried about protecting the programs that benefit them. In the other, Republicans compromise, but alienate the Tea Party contingent, leading to an internecine battle. Either way, it’s not gonna be a pretty scene for the GOP.

The New Centrism

Posted on by The Progressive Policy Institute

I don’t do much politics, but I feel like I have to say something about the demise of the Democratic Leadership Council, which helped bring Bill Clinton to the Presidency in the early 1990s. A lot of writers have interpreted the end of the DLC as the end of centrism, and a sign that Washington has become completely polarized.

My take is different. To me, we’re moving into a new era of centrist ideas, based around the importance of innovation and investment, creative thinking about regulation and jobs, and a greater appreciation of a global economy built around cross-border collaboration rather than “you-me” economic nationalism.

Rather than the center disappearing, I think we’re going to start seeing both left and right start drawing on ‘new centrist’ ideas. Let me just give a few of them:

*The importance of innovation for driving economic and job growth. When businesses try and innovate, we should reward rather than punish them, especially given the innovation shortfall of the past decade.

*The need to  think about investment in broad terms, including human capital and knowledge capital. Our conventional economic statistics, which measure only physical investment, are giving us a misleading view of the economy.

*The need to understand the true nature of the long-term fiscal and entitlement problem: The long-term rise in medical spending is a total reflection of falling or flat productivity in the healthcare sector. If we can fix that–through a combination of techological advances and institutional change–we can in effect grow our way out of the entitlement problem.

*The importance of rising real wages for young educated workers as a sign of the health of the economy. Real wages for young college grads have been falling since 2000–we cannot operate a modern economy this way, because our young people can no longer afford to pay for the education they need.

*The need to find some way to lessen the burden of regulation without losing touch with our social values. We need a systematic process for examining the thousands of regulations and carefully adjusting or removing the ones that slow down growth, while protecting public health, safety, and the environment.

*The need to think about the global economy in terms of supply chains which cross national borders. The U.S. needs to make sure that we are part of global supply chains and that we are getting our fair share of the benefits.  And we need new measures of competitiveness that take account of the new world.

This piece is cross-posted at Mandel on Innovation and Growth

Framing the Fiscal Battle

Posted on by The Progressive Policy Institute

Republicans are convinced they have a mandate to cut government down to size. That’s hard to do when you only control one House of Congress, and harder still when your fiscal plans are fraught with internal contradictions.

It’s not even clear, for instance, what Republicans really want to accomplish. Senator-elect Kelly Ayotte, delivering the GOP’s weekly address Jan. 1, said that “Job one is to stop wasteful Washington spending.” At the same time, she said that “Congress must get serious about meaningful debt reduction.”

So which is it—cut public spending or cut public deficits? That’s a distinction with a difference, especially to investors worried about the basic soundness of the U.S. economy. To them, deficits are simply the arithmetic result of government spending too much, taxing too little or both, as is clearly the case today. Last month, Republicans struck a deal with President Obama on a tax cut package that will add $950 billion to the nation’s debts. Key GOP House leaders have made it clear they will oppose any tax hikes to solve the budget crisis, which they pretend is purely a matter of overspending.

Ayotte seemed closer to the mark in saying Republicans come to Washington to “make government smaller, not bigger.” In practice, however, that ideological goal may not be compatible with what the public seems to want. Independent voters especially have focused on narrowing the enormous deficits that force America to get deeper and deeper in hock to Chinese and other foreign lenders.

And if Republicans are serious about taking taxes off the table, they’ll have to make even deeper cuts in public spending—including Social Security, Medicare and Medicaid—to close our yawning budget gaps. It will be interesting to see which GOP bravos are willing to walk that plank. Thus far, House Republicans are proposing only cosmetic cuts, like trimming the House budget by $25 million. It’s a good idea for the House to discipline its own spending, but in a $3 trillion budget, that’s chump change.

Meanwhile, the GOP is planning to vitiate budget caps imposed by the previous Congress. Under the caps, any new spending or tax cuts would have to be offset by equivalent spending cuts or tax hikes. Republicans would eliminate the later requirement, so that tax cuts too would trigger deeper spending cuts. This of course is a formula for a deepening fiscal crisis and intensifying polarization between the two parties. And House Republicans will take a run at repealing Obamacare, which would certainly reduce federal spending but actually increase future budget gaps. In any event, it’s not happening

Some of the more fervid Tea Party types are even threatening to vote against raising the debt ceiling in March if Democrats don’t agree to new spending cuts. If they are serious, this could mean America would default on its debts for the first time in history. It would be, as Obama’s chief economic adviser, Austan Goolsbee, said yesterday, an act of political insanity, the equivalent of taking yourself hostage and threatening to shoot.

Finally, there’s the crucial question of timing. Incoming House Budget Committee Chairman Paul Ryan reportedly is planning a package or rescissions aimed at cutting about 21 percent from 2011 spending Congress approved last year. The aim is to return domestic spending to its 2008 level, before Obama took office.

The risk is that withdrawing a significant chunk of fiscal stimulus could abort an economic recovery that at last seems to be getting traction. There’s no question that Americans want to restore fiscal discipline in Washington, but what they want even more is for the economy to grow and unemployment to start falling.

Goolsbee hinted that Obama’s next budget also will contain some spending cuts. But the GOP’s ideological zeal to cut government gives Obama an opportunity to offer a more pragmatic approach that puts jobs growth first, while taking balanced and gradual steps to put the federal government on a fiscally sustainable course.

Progressives do need to get serious about getting federal spending under control. But by framing the coming fiscal battles as a choice between a more robust economy and a smaller government, they can speak directly to Americans’ number one priority and thereby regain the political initiative.

The Remarkable Inability of Americans to Support Their Deficit-Cutting Aspirations

Posted on by The Progressive Policy Institute

In the latest Washington Post-ABC poll, released today, contains a remarkable though not surprising finding. Americans may profess to be deeply concerned about the budget deficit. But when it comes to solutions, not a single one of the nine major proposals to cut the federal budget receives majority support.

The same disconnect jumps out from a Pew poll released last week. An impressive 93 percent agree that the federal deficit budget is a major problem, and 70 percent say it must be addressed now (the other 23 percent think it needs to be addressed when the economy gets better). Yet only two of 12 proposals to reduce the deficit received majority support.

Like St. Augustine asking for “chastity and continence, but not yet,” the American public knows that the current budget deficit of almost $14 trillion is downright sinful. But actually doing something about it, well, hold on a minute now buddy, you can’t raise my taxes or cut any of these important programs! Certainly not now!

In the Pew poll, the only two things that receive majority support are raising the Social Security contribution cap (64 percent) and freezing salaries for federal workers (59 percent). Obama’s already on top of the pay freeze.  He estimates it could save approximately $5 billion over two years, cutting the deficit to a much more manageable $13.995 trillion.

Reducing Social Security for high-income seniors wins the approval of 48 percent of respondents in the Pew poll, and 49 percent of respondents in the Post/ABC poll. Reducing defense spending gets 43 percent approval in the Pew poll and 44 percent approval in the Post/ABC poll. The most widely unpopular proposal was increasing the federal gasoline tax by 15 cents per gallon. Only 22 percent of respondents in the Pew poll and 21 percent of respondents in the Post poll approved.

Interestingly, Pew broke down the figures for Tea Party supporters, 84 percent of whom say that the federal deficit is a major problem that the country needs to address now. Yet, on seven of the 12 deficit reduction proposals, Tea Party supporters are less supportive the proposals than the general public. Again, that is LESS supportive! The only deficit reduction proposal with majority support among Tea Partiers is the aforementioned federal salary freeze (at 74 percent). And the only other to receive majority support is reducing Social Security for high-income seniors (by a narrow margin of 50-48 percent).

In a recent P-Fix post, Elbert Ventura noted that “Americans may profess to hate European-style states, but the disconnect between their hatred of taxes and love of benefits may well hasten the day of a European-style collapse.”

This is spot on. The disconnect is downright maddening. I want to shake some of these people, show them the federal ledger, and say: Here is the reality. If we want to make a dent in the deficit, we are going to have to make some choices that involve real tax increases and real cuts to benefit programs. There is no more free lunch. We can pretend that somewhere there is a $10 trillion line item labeled “waste” that politicians are conspiring to protect, or we can have an intelligent conversation about this. If we stay in a fantasy world, the inevitable reckoning is going to be a lot more painful.

Now, if only there were some political leader out there with the courage to say something like that. Because this is one of those issues where the public is simply not going to come around on its own. Sure, perhaps better economic times would make some respondents slightly more willing to see higher taxes or reduced benefits. But real sacrifice, real hard decisions? That’s going to take political leadership. Any takers?

Photo credit: mchmlbrk

Debt Commission Rises to the Occasion

Posted on by The Progressive Policy Institute

President Obama’s deficit commission fell short today of the 14 votes necessary to submit its debt reduction plan to Congress for a vote. Don’t believe for a moment, however, that the commission has failed. On the contrary, co-chairs Erskine Bowles and Alan Simpson have forged a bipartisan majority for a plan that creates the basic template for any credible effort to restore fiscal responsibility in Washington.

In pushing back against special interests and partisan polarizers, the commission has done this country a tremendous service. Whatever happens next, its members have been responsive to the solid majority of Americans who say they want to the two parties to work together to solve the nation’s toughest problems.

As the bipartisan duo of Bill Galston and David Frum noted in today’s Washington Post, a post-election Pew poll found that 55 percent of the public wants Republican leaders in Washington to work with President Obama “even if it means disappointing some groups of Republican supporters,” and even more want Obama to do the same. Independents, whose defection from Obama’s winning 2008 coalition largely accounted for the GOP’s midterm sweep, likewise express a strong preference for compromise.

To a surprising degree, that problem-solving spirit seems to have infected the deficit commission, which has been deliberating since February. Republicans don’t come any more conservative than Sen. Tom Coburn of Oklahoma, but even he is now drawing fire from anti-tax absolutists for daring to support the commission blueprint. GOP Senators Mike Crapo of Idaho and Judd Gregg of New Hampshire also endorsed the plan, while several Members from both parties in the more partisan House oppose the plan.

On the Democratic side, Sen. Dick Durbin of Illinois broke ranks with liberals to back the plan, while centrist Sen. Max Baucus of Montana raised eyebrows in opposing it. Sounding a parochial note, Baucus criticized the commission’s sensible plan to raise gas taxes by 15 percent, saying it would “paint a big red target on rural America.”

Mostly, however, reactions to the commission’s plan have divided along predictable lines, with support concentrated in the political center and opposition hardening as you move toward either end of the spectrum. Arch-conservatives decry its emphasis on cutting tax expenditures (though we’re proud that the commission adopts a long-standing PPI proposal for a “cut-and-invest” commission to go after these loopholes and subsidies), a trillion dollar drain on federal revenues. Nor are they mollified by its significant cuts in income and corporate tax rates, or its 3-to1 ratio of spending cuts to tax increases.

The left, meanwhile, is in full cry over the commission’s allegedly draconian cuts in Social Security benefits. In fact, the proposal boosts the minimum Social Security benefit for low earners, makes the benefit formula more progressive, and very gradually increases the retirement age to 69 (normal) and 64 (early) by 2075. Only today’s toddlers will be affected, and their average life expectancy probably will exceed 80 years by then. The lefty blogosphere and cable shows nonetheless have worked themselves into a hyperbolic lather about President’s Obama mean ole “catfood commission.”

This is ludicrous. The commission’s plan doesn’t actually solve America’s fiscal crisis, it merely slows spending growth to sustainable levels, and stabilizes the national debt at 60 percent of GDP by 2013. That ratio doesn’t return to 40 percent – where it was before the financial crisis hit – for 25 years. In truth the plan does not impose a pitiless austerity on America. Nor would it jeopardize economic recovery, since its changes won’t kick in until unemployment starts falling to normal levels.

Liberals are on firmer ground in arguing that the plan sets unrealistically severe limits on federal spending. It aims to get federal spending down (and revenues up) to 21 percent of GDP by 2035. Whether that is enough to meet the needs of a much grayer America, where over 20 percent of the population will be over 65, is open to doubt.

But the commission’s plan doesn’t have to be perfect. It only has to be plausible, and it more than meets that test. Although it won’t be guaranteed a vote in this Congress, there’s nothing to prevent its supporters from introducing it into the next Congress. Given the countless hours of negotiations that have shaped it, the extent to which it has absorbed the best ideas from previous fiscal reform blueprints, and its rare, bipartisan backing, the proposal could become the point of departure for next year’s debate.

That will be especially true if President Obama embraces the plan, or something very close to it. He has largely stood aloof from the commission’s deliberations, but he urgently needs to regain the political initiative after the midterm debacle. House Republicans no doubt will devise an alternative, likely drafted by Rep. Paul Ryan, a commission member who opposes its plan, that emphasizes spending cuts almost exclusively. It may also include a push to repeal Obamacare. In any case, the GOP approach won’t get much Democratic support, especially now that the ranks of moderate Democrats have been drastically thinned.

In short, President Obama has an opportunity to seize the pragmatic center in the coming debate about putting America on a fiscally sustainable course. And he can thank his Commission for dealing him a very strong hand.

A Deficit of Common Sense

Posted on by The Progressive Policy Institute

‘Tis the season for deficit commissions. The past week has brought not one, not two, but three stabs at solving America’s looming fiscal crisis. And just yesterday, the Brookings Institution hosted a panel discussion on “The Politics of Entitlement Reform and the Budget Deficit,” featuring a murderers’ row of budget experts across the ideological spectrum. All the activity underscores just how much concerns about the deficit have taken over the Washington conversation.

But will all that hand-wringing lead to anything concrete and enduring? I have my doubts. The substantive merits and faults of the plans aside, what’s striking is, frankly, how unlikely any action seems to be.

Too pessimistic? Perhaps. But at the Brookings event, there was a subterranean motif that tempered any enthusiasm one might have for any ideas put forward. Isabel Sawhill, director of Brookings’ Budgeting and National Priorities project, at one point said, “The public is in denial about the scope of the problem.” Meanwhile, Eugene Steuerle of the Urban Institute sounded another note of consternation: “Both political parties are afraid to ask the middle class to do anything.”

There, neatly stated, are two fundamental problems that stand in the way of fiscal balance: a public in denial, a politics in retreat. Simply put, the American public simply has no idea how much the government that they like to have around costs. They may profess to hate big government, but ask about cuts to the entitlement programs – by far the largest contributors to our long-term deficit – and what do they say? Hands off! Even 62 percent of Tea Partiers say that Social Security and Medicare are worth the cost of the programs; the general public is even more supportive, at 76 percent.

Recent research by Cornell political scientist Suzanne Mettler underscores the disconnect between the kind of government Americans say they want and the government they actually use. In a recent paper that takes a look at Americans’ relationship with the “submerged state” – federal policies that incentivize and subsidize behavior by individuals – Mettler found that most Americans have little awareness of how the state affects their lives. Most alarming were the results of a survey of program beneficiaries who were asked if they had ever used a government program. Forty-four percent of those collecting Social Security retirement and survival benefits said no; 43 percent who had benefited from unemployment insurance said no; nearly 40 percent of Medicare said no. There’s more: 47 percent who took home earned income tax credit said no; 53 percent of those who took Pell Grants said no; and 60 percent who benefited from the home mortgage interest deduction said no.

So the governed don’t know. What about those who govern? Alas, our political elite seems to have lost all sense of responsibility at steering the ship of state to calmer waters. The fault lies mainly with the right. Yes, Nancy Pelosi’s declaration that Social Security and Medicare cuts are off-limits is easily caricatured as liberalism at its worst, but let’s face it – Pelosi faces a lot of opposition on her side on that front. There is a genuine debate going on under the big progressive tent about just how much entitlements should be touched, if at all, and it’s testimony to the vibrancy – and fractiousness – of progressivism.

Contrast that with the right, which has become an all-tax-cut, all-the-time movement. Grover Norquist, in whose image today’s Republican Party has been modeled, dismissed the Bowles-Simpson report, with his organization, Americans for Tax Reform, calling it “a plan to raise taxes cloaked in the veil of bipartisanship” – this in response to a plan that, by any objective measure, by far does more on the spending side than the revenue side. If their starting point is no revenue increases at all, then the right has all but written the obituary on any attempt to narrow the budget gap.

So there you have: a failure of government, a failure of the governed. Until the American public begins to accept responsibility for the current fiscal straits – and it begins by asking serious questions about what they’d like to see from government and how much they’re willing to pay for it – there really is little hope that we’ll see movement on the issue. Meanwhile, the only institution that can give them that nudge, our political class, isn’t up to the task.

When asked about the worst-case scenario that would finally force policy-makers’ hand to do something, Brookings’ Henry Aaron had a one-word response: “Greece.” Americans may profess to hate European-style states, but the disconnect between their hatred of taxes and love of benefits may well hasten the day of a European-style collapse.

To Oppose or to Propose?

Posted on by The Progressive Policy Institute

France, 15 of September, 2010. The Pension Reform passes in the National Assembly after months of struggle. The obstruction instigated by the left parties leads to one of these cinema-like scenes when the right-oriented President of the Lower House (Bernard Accoyer) decides to suspend the debates, prompting call for his resignation by the Socialists – when not accusing the current government of fascism and a putsch.

The issue of reforming the pension system is in itself a subject of concern for all aging western democracies. France has an almost completely repartition-based system where working citizens contribute a percentage of their wages to the retirement pensions of the previous worker-generation. No need to explain that with the population pyramid, every developed country is facing nowadays, fewer young workers will have to pay for a “papy-boom” generation that is living longer and longer.

But what is also at issue here is the behavior of the opposition party, this vital nerve of every democracy, which faces the “to oppose or to propose” dilemma: How to make needed concessions without having them considered as surrender of principles?

After years of failed attempt at reforms, the French government has proposed extending the retirement contribution years and postponing the retirement age from 60 to 62  by 2018. Even if the Socialists officially accept lengthening the retirement contribution years, they fight against the loss of the symbolic legal age at which you can chose to quit work. The extreme left wing, for its part, is simply denying the reality of the age pyramid: They definitely want to “freeze the counters” up to 40 years of contribution, arguing that people deserve to experience healthy retirement years and that their departure would leave more work to the next generation.

The Socialist opposition clearly decided to apply the “opposing for opposing” strategy, which not only works against their interest, but also prevents any possibility of constructive democratic debates leading to a meaningful compromise.

Such an attitude makes the opposition seem unconstructive and static. At best, it only strengthens the extremes which seem to give voters a clearer choice – even if often extravagant. In the long haul, it weakens democracy not to have opposition parties willing and able to be serious partners in debate and deliberation.

Moreover, crying wolf at every proposition from the party in power turns the opposition into background noise citizens no longer bother to pay attention to. Consequently, it gives the governing party a freer hand in proposing and implementing policies — an opportunity the current French Government did not miss when passing bills against minorities without facing any reaction worthy of being called opposition.

Ultimately, it is up to the voters to reject opposition merely for the sake of opposition, and the extremism it builds. This is not always easy. Strong opposition can provide the appeal of moral clarity and righteous indignation. But it leads nowhere productive. Hard choices are ahead, but they only get harder when opposition parties take on a reflexive opposition stance and make compromise impossible.

Photo credit: marcovdz