issue: Fiscal Policies

Wingnut Watch: End-of-the-Year Standoff

Posted on by The Progressive Policy Institute

The end of the calendar year always means an assortment of “temporary” policies are approaching expiration, including some (e.g., upward revision of reimbursement rates for Medicare providers, and a “patch” to avoid imposition of the Alternative Minimum Tax on new classes of taxpayers) that happen every year. And then there are other expiring provisions central to the Obama administration’s efforts to deal with the recession, most notably unemployment benefits for the long-term unemployed, and last year’s major “stimulus” measure, a temporary Social Security payroll tax cut.

With the collapse of the deficit reduction supercommittee and an uncertain future ahead for the “automatic sequestrations” of spending that are supposed to subsequently occur, leaders in both parties are especially sensitive at the moment about taking steps on either the spending or revenue side of the budget ledger that add to deficits. But some of the “fixes” mentioned above are political musts, while others are highly popular or scratch particular ideological itches. It will be interesting to see whether conservative activists wind up taking a hard line against deficit increasing measures, and indeed, against any cooperation with Democrats so long as their own demands for “entitlement reform” and high-end tax cuts are ignored.

The payroll tax cut is an especially difficult subject for conservatives. While it will be easy for them to reject Senate Democratic proposals to pay for an extension of the cut with a surtax on millionaires, it is certainly possible, as Senate Republican leader Mitch McConnell has acknowledged, to “pay for” this tax cut with spending cuts, perhaps even some that Democrats would consider supporting.

Some conservatives, however, view any deal with Democrats on this and any other fiscal issues as a deal with the devil. One of McConnell’s deputies, Sen. John Kyl, has argued that the payroll tax cut hasn’t boosted the economy (i.e., it is not targeted to “job creators,” the wealthy) and should be subordinated to tax cut ideas that supposedly do. In an argument that is getting echoed across Wingnut World, RedState regular Daniel Horowitz suggests that GOPers make any payroll tax cut extension conditional on a major restructuring of Social Security, which of course ain’t happening.

Since virtually all the end-of-year measures under discussion will boost the budget deficit, and there are limited noncontroversial “offsets” available (mainly “distribution” of new savings attributed to the drawdown of troops in Iraq and Afghanistan), the key question will be which ones conservatives choose to pick a fight over and which ones slide quietly past the furor on unrecorded voice votes and last-minute agreements. If congressional Republicans seem to be acting in too accommodating a manner, it would not be surprising to see GOP presidential candidates using them as foils for their own claims to the “true conservative” vote as the January 3 Iowa caucuses grow ever nearer.

For the umpteenth consecutive week, the presidential contest remained full of surprises and volatility. Herman Cain’s campaign, already losing steam after his poor handling of both sexual harassment/assault allegations and the most recent debates, took perhaps a terminal blow from a new, credible-sounding allegation (made, interestingly enough, via a local Fox station in Atlanta, not some precinct of the “liberal media”) of a long-term adulterous affair. While Cain is again denying he did anything wrong, conservatives are not rushing to his defense this time, and the general feeling is that his campaign is done.

If Cain actually withdraws, it has long been assumed he would endorse Mitt Romney. But as a new analysis by Public Policy Polling showed, Cain’s supporters are very, very likely to move virtually en masse to Newt Gingrich, whose star continued to rise last week. His big news was an endorsement by the New Hampshire (formerly Manchester) Union-Leader, that sturdy right-wing warhorse of GOP politics. This step immediately makes Gingrich the most formidable rival to Mitt Romney in the Granite State: the Union-Leader does not simply endorse and ignore candidates; it can now be expected to undertake a virtually-daily bombardment of front-page editorials defending its candidate and treating his intraparty opponents (particularly Romney) as godless liberal RINOs.

But the impact of the endorsement goes far beyond New Hampshire, given the Union-Leader’s reputation for the most abrasive sort of wingnuttery. It materially helps him solidify his reputation for conservative ideological regularity, which is about to be brought into serious question by all the other campaigns, which are doubtless sorting through their bulging oppo research files on the talkative former Speaker, trying to decide which lines of attack are most lethal.

So far the he’s-not-a-true-conservative attack on Gingrich has been largely limited to his new, dangerous positioning on immigration, unveiled in a recent debate. Gingrich has been quick to stress that his proposal for a “path to legalization” for some undocumented workers does not involve citizenship, and denies its beneficiaries any government benefits whatsoever. But Iowa’s highly influential nativist champion Steve King has already branded Newt’s plan with the scarlet A-word of “amnesty,” and Michele Bachmann is trying to draw a new line in the sand suggesting that true conservatives favor deportation of every single “illegal.”

At this point, the presidential contest appears to be something of a race between Gingrich and his past words and deeds. There is a small window between now and the period immediately before and after Christmas (when something of a truce is imposed) when his opponents can try to bury him as a flip-flopper, an inveterate bipartisan, and a guy whose personal life (not just his marriages and divorces, but his finances) has been less than godly. If they don’t get their act together to do so, he’s looking very strong in Iowa, and even if he loses to Romney in New Hampshire, Gingrich is currently sporting large polling leads in South Carolina and Florida. Particularly for those candidates (Perry, Bachmann, Santorum; Ron Paul is in something of a class by himself) still hoping to seize the mantle of the true-conservative-challenger-to-Romney after Iowa, it’s getting close to desperation time.

Photo credit: FNS/cc

Wingnut Watch: Supercommittee Failure and the Gingrich Surge

Posted on by The Progressive Policy Institute

The official failure of the congressional “supercommittee” came and went without much hand-wringing in Wingnut World; indeed, the prevailing sentiment was quiet satisfaction that Republicans had not “caved” by accepting tax increases as part of any deficit reduction package. It was all a reminder that most conservative activists are not, as advertised, obsessed with reducing deficits or debts, but only with deficits and debts as a lever to obtain a vast reduction in the size and scope of the federal government, and the elimination of progressive taxation. For the most part, the very same people wearing tricorner hats and wailing about the terrible burden we are placing on our grandchildren were just a few years ago agreeing with Dick Cheney’s casual assertion that deficits did not actually matter at all.

It is interesting that throughout the Kabuki Theater of the supercommittee’s “negotiations,” the GOP’s congressional leadership came to largely accept the Tea Party fundamental rejection of any compromise between the two parties’ very different concepts of the deficit problem. From the get-go, Democrats were offering both non-defense-discretionary and entitlement cuts in exchange for restoring tax rates for the very wealthy to levels a bit closer to (though still lower than) their historic position. The maximum Republican offer was to engage in some small-change loophole closing accompanied by an actual lowering of the top rates in incomes, plus extension of the Bush tax cuts to infinity. Conservatives are perfectly happy to let an on-paper “sequestration” of spending take place, with the expectation that a Republican victory in 2012 will put them in a position to brush aside the defense cuts so authorized and then go after their federal spending targets with a real vengeance.

The GOP presidential candidates have offered two opportunities during the last week for wingnuts of a particular flavor to assess their views and character. The much-awaited Thanksgiving Family Forum in Des Moines was perhaps the first candidate forum of the cycle in which no one even pretended to set aside cultural issues in favor of an obsessive focus on the economy or the federal budget. The format, involving not a debate but a serial interrogation of candidates by focus group master Frank Luntz, was explicitly aimed at getting to each contender’s “worldview,” the classic Christian Right buzzword for one’s willingness to subordinate any and all secular considerations and choose positions on the issues of the day via a conservative-literalist interpretation of the Bible (i.e., one in which phantom references to abortion are somehow found everywhere, and Jesus’ many injunctions to social activism are treated as demands for private charity rather than redistributive efforts by government).

According to The Iowa Republican’s Craig Robinson in his assessment of the event, Rick Santorum, Michele Bachmann and Rick Perry were the only candidates who succeeded in articulating a “biblical worldview” under Luntz’s questioning. Newt Gingrich got secular media attention for his Archie Bunkerish “take a bath and get a job” shot at the dirty hippies of OWS, but inside the megachurch where the event was held, the star was probably Santorum, whose slim presidential hopes strictly depend on Iowa social conservatives adopting him as their candidate much as they united around Mike Huckabee in 2008.

It is interesting that immediately after the event, Rick Perry joined Santorum and Bachmann as the only candidates willing to sign the radical “marriage vow” pledge document released back in July by the FAMiLY Leader organization, the primary sponsor of the Thanksgiving Family Forum. This makes him eligible for an endorsement by FL and its would-be kingmaking founder, Bob Vander Plaats. It appears a battle has been going on for some time in Iowa’s influential social conservative circles between those wanting to get behind a “true believer” like Santorum or Bachmann and those preferring to give a crucial boost to acceptable if less fervent candidates like Perry or Gingrich. The outcome of this internal debate, which was apparently discussed in a private “summit” meeting on Monday, will play a very important role in shaping the endgame of the Iowa caucus contest—as will the decision by Mitt Romney as to whether or not he will fully commit to an Iowa campaign (he is opening a shiny new HQ in Des Moines, which some observers are interpreting as an “all-in” gesture).

Without question, it became abundantly clear during the last week that the “Gingrich surge” in the nomination contest is real, or at least as real as earlier booms for Bachmann, Perry and Cain. The last five big national polls of Republicans (PPP, Fox, USAToday/Gallup, Quinnipiac and CNN) have all showed Gingrich in the lead. The big question is whether and when his rivals choose to unleash a massive attack on the former Speaker based on their bulging oppo research files featuring whole decades of flip-flops, gaffes, failures and personal “issues.”

Interestingly, though, Gingrich may have already opened the door to suspicious wingnut scrutiny without any overt encouragement from his rivals. During the last week’s second major multi-candidate event, the CNN/AEI/Heritage “national security” debate last night, Gingrich may have ignored the lessons of the Perry campaign by risking his own moment of heresy on the hot-button issue of immigration, calling for a Selective Service model whereby some undocumented workers with exemplary records could obtain legal permanent status if not citizenship. He was immediately rapped by Romney and Bachmann for supporting “amnesty.” We’ll soon see if Newt’s long identification with the conservative movement and his more recent savagery towards “secular socialists” will give him protection from such attacks, or if his signature vice of hubris is once again about to smite him now that he’s finally become a viable candidate for president.

Wingnut Watch: GOP Revenue Rejection Goes Beyond Intransigence

Posted on by The Progressive Policy Institute

It was a relatively quiet week in Wingnut World, with the loudest mouths probably conserving energy for cries of “betrayal” in the unlikely case that the congressional “super-committee” actually reaches a deficit reduction agreement in time to meet its November 23 deadline.

Believe it or not, there have already been “sellout” charges aimed at super-committee conservatives based on their dubious offer to accept $300 billion in loophole-closing revenue enhancements in exchange for reductions in the top marginal income tax rate and permanent extension of the Bush tax cuts (an offer Democrats summarily rejected as “unserious”). But beyond rejecting anything that remotely looks like a tax increase, conservative activists do not seem to have a very clear party line about what their congressional allies ought to do, with some welcoming a “sequestration” of domestic and defense funds as harmless, others demanding a “back-to-the-drawing-board” cold war against domestic appropriations (with specific venom being spewed at a pending appropriations bill boosting FHA funding), and still others following Newt Gingrich’s lead in treating the entire exercise as meaningless since any defense spending “sequestrations” could be quickly reversed after a presumed GOP landslide next November. Indeed, Gingrich favors dropping the sequestration trigger altogether.

On a less murky topic, predictably enough, municipal police actions against Occupy protests around the country have been greeted with much satisfaction in Wingnut World. Some conservative commentators, like Michelle Malkin, have been liveblogging the clashes in New York with something of the air of Romans watching the Christians versus the lions. Others, like Washington Times commentator Charles Hurt, took a less playful view of the protesters:

[R]ight about when their parents were sick and tired of them stinking up their basement playing video games all day, they realized there was an economic crisis going on.

So they gathered up their tents and sleeping bags, drifted to government property, took it over as if it were their own and gave themselves a name that perfectly reflects their ideology. “Occupiers.” As in Occupied Europe when it was being defiled by the Nazi Empire. The rampant anti-Semitism at their rallies has been shocking to behold, especially since these protesters profess to be the “open-minded” liberal types.

And ever since, they have been advancing their syphilitic cause, spreading disease, stealing, allegedly raping young women, leaving their trash around. And always quick to snap up any free services such as the chow line or testing for venereal diseases.

All righty, then!

Meanwhile, out on the 2012 presidential campaign trail, the much-predicted slowdown of the Cain Train has finally begun showing up in polls, alongside an equally-predictable rise in the fortunes of Newt Gingrich, who is now actually in the national lead according to at least one new survey (by PPP). And despite an ever-growing chorus of pundits deeming Mitt Romney the certain nominee, Romney continues to show little or no direct benefit from the serial collapses of his rivals.

Since actual voting will begin in Iowa in less than seven weeks, that is where the strange dynamics of this strange nominating contest will first begin to sort themselves out. At the moment, it’s anybody’s game: a new Bloomberg survey of likely caucus-goers showed a virtual four-way tie among Cain, Gingrich, Romney and Ron Paul (who has been running TV ads in the state for quite some time). Gingrich has pledged to spend 30 of the next 50 days in Iowa. But the big question remains what Romney does in that state; just yesterday, Gov. Terry Branstad warned him that he’d better start spending quality time in Iowa, or caucus-goers will punish him with a humiliating low finish. And that shot may in part be attributable to Romney’s decision to skip the next big Iowa event, this weekend’s “Thanksgiving Family Forum” sponsored by a trio of hard-core social conservative organizations (Iowa’s own FAMiLY Leader, the anti-gay marriage group the National Organization for Marriage, and CitizenLink, a Focus on the Family affiliate). Moderated by message-meister Frank Luntz (who will follow up the forum with a focus group of “Iowa moms”), the event will not be a traditional debate, but instead an interrogation of the candidates aimed at divining their “worldviews,” a buzz-word in Christian Right circles indicating their willingness to adopt of a rigorous “biblically-based” approach to every issue.

The “Thanksgiving Family Forum,” which will be held in a Des Moines megachurch, is transparently designed to provide a focal point for a consolidation of social conservative support around a single candidate of the kind that lifted Mike Huckabee to an unlikely victory in 2008. Since only two candidates, Rick Santorum and Michelle Bachmann, agreed to sign the FAMiLY Leader’s controversial “Marriage Vow” pledge document earlier this year, the odds are good that one of them will get the nod, though Gingrich has long-standing ties to Iowa social conservatives as well.

The candidate who not that long ago was thought to represent the best conservative option for denying Mitt Romney the nomination, Rick Perry, has adopted an interesting tactic to regain his own mojo. He’s made a large ad buy on Fox TV, apparently aimed at convincing a national conservative audience that he hasn’t been beaten down by his latest debate disaster. And he’s also released a new package of proposals to radically change all three branches of the federal government, including a shutdown of three major cabinet agencies (the subject, of course, of his debate “brainfreeze”) and elimination of lifetime appointments for federal judges (a very old wingnut hardy perennial). Perry’s campaign also made it clear he supported “personhood” constitutional amendments (banning all abortions and some types of contraception) like the one just overwhelmingly defeated by Mississippi voters. Clearly, Perry thinks the only way to get back into this turbulent race is to re-establish himself as the favorite candidate of Wingnut World.

 

Photo Credit: Kynan Tait

Wingnut Watch: Cain’s Latest Problem

Posted on by The Progressive Policy Institute

Herman CainAs the November 23 deadline for congressional action on a “supercommittee” package to reduce budget deficits by $1.2 trillion and avoid automatic domestic and defense cuts approaches, conservative activists have been steadily ramping up the pressure on supercommittee Republicans to hold a hard line against any tax increases. This missive from Heritage Action for America is pretty representative of the drumbeat:

Unfortunately, the “super committee” is veering off course and the odds are growing that massive tax hikes will be part of a final deal. Even worse, not all Republicans are willing to take massive tax hikes off the table. According to news reports, more than 100 House members–Republicans and Democrats alike–sent a letter to the “super committee” urging a “big, grand bargain–taking nothing off the table.” In Washington, that is code for a tax increase.

A few anti-supercommittee conservatives are willing to come right out and say that allowing across-the-board defense cuts to be enacted is an acceptable price to pay for avoiding tax increases. The most common rationalization is that these “sequesters” would not take effect until 2013, and a newly triumphant Republican president and Congress could fix the problem after the 2012 elections. Using the same kind of arguments, many activists have long claimed that a “grand bargain” that included major changes in federal retirement programs in exchange for tax increases would be unacceptable on grounds that Democrats would never keep their promises on spending in the future.

At an earlier point in the process, it appeared conservatives might allow some “wiggle room” for the supercommittee on taxes by considering the idea of a package that includes base-broadening “tax reforms” without raising actual rates on the wealthy or any major category of corporations. But the renewed popularity of sweeping, radical tax system overhauls, as reflected in the adoption of variations on the regressive “flat tax” idea by presidential candidates Herman Cain, Newt Gingrich and Rick Perry, has undermined what little support existed on the Right for revenue-raising elimination of “loopholes” under the general framework of the current tax code.

The same wingnuts who are having little trouble sticking to their no-compromise guns on deficit reduction are having a bit more trouble settling on a presidential candidate. A week ago, the big debate in Republican political circles was whether presidential polling front-runner Herman Cain would transform himself into a serious if unconventional candidate with a real organization and a consistent presence on the campaign trail, or instead would fade in the wake of either a comeback by Rick Perry or a sort of resigned acceptance, first by conservative elites and then by the rank-and-file, of Mitt Romney as the nominee. The betting line was not in Cain’s favor.

Then came Politico’s October 30 bombshell story revealing that the National Restaurant Association had settled two claims of sexual harassment against Cain during his presidency of the trade group in the last 1990s, and a couple of days of shifting stories from Cain and his campaign in reaction to the allegations.

Although the mainstream media has concluded from almost the very beginning that the Politico story means curtains for an already implausible Cain candidacy, it looks very different from Wingnut World. Though a few conservative opinion-leaders (mostly those thought to be friendly to Mitt Romney) have either kept their mouths shut or suggested Cain should come clean, the general reaction has been to defend him, with varying degrees of heat. The most common conservative media meme, one that Cain himself has encouraged, is to compare him to Supreme Court Justice Clarence Thomas as an outspoken African-American conservative who is being smeared by the “liberal media” and “the Left” generally, who are fearful that he will liberate his people from the “plantation” of subservience to Big Government and the Democratic Party.

Beyond the chattering classes, the very initial evidence is that rank-and-file conservatives are inclined to give Cain the presumption of innocence, and perhaps of innocence persecuted. Politico itself posted a headline today reading: “Iowa yawns at Herman Cain allegations.” The story attached to it had this very revealing passage:

Gregg Cummings, the Tea Party Patriots’ Iowa state coordinator, said among tea partiers the story of Cain’s sexual harassment allegations pales in comparison to the desire to have a conservative—“not Romney”—win the caucuses and the nomination.

“Hardly anybody is talking about it,” he said. “It’s not a big issue, in other words. I think the urgency of making sure that we get a conservative candidate to win the primaries is of greater concern to most of the tea party folks right now.”

More tangibly, the first poll taken entirely after the original Politico story broke, by Rasmussen in South Carolina, showed Cain with a ten-point lead over Mitt Romney and the rest of the field, his best showing to date in any South Carolina poll.

Sometimes damaging information about candidates just takes a while to build up steam in an array of media outlets and then penetrate the public’s consciousness. So Cain is hardly out of the woods, aside from the fact that more graphic details of his behavior, or indications of a cover-up, could soon emerge. But given the impulsive reaction in Wingnut World, it’s also possible, ironically, that this is exactly what the Cain campaign needed to distract attention from his lack of interest in world affairs, his waffling on abortion, or the details of his tax plan, and instead make him a martyr to the “constitutional conservative” cause that is still in search of a champion against Mitt Romney.

Photo credit: roberthuffstutter

Supercommittee Puts GOP on Spot

Posted on by The Progressive Policy Institute

Is the supercommittee President Obama’s revenge?

After last summer’s showdown over raising the debt ceiling, Obama was roundly criticized for agreeing to a deficit-reduction deal that was all spending cuts and no tax hikes. Democrats, disconsolate over this seeming capitulation to House Republicans, saw it as the low-water mark of his presidency.

Yet the deal also created the bipartisan supercommittee, which was charged with finding at least $1.2 trillion (over 10 years) in additional cuts by Nov. 23. The supercommittee has a strong incentive to succeed, since its failure will trigger an automatic, equivalent cut in domestic and defense spending.

Now, as the supercommittee spars over dueling Democratic and Republican plans for meeting the target, Republicans are on the hot seat.

Democrats this week reportedly proposed a $3 trillion package over the next decade, including $1.2 trillion in revenue increases. Republicans came back with a smaller counteroffer of $2.2 trillion. The reason, of course, is that the GOP’s anti-tax fanaticism prevents it from matching the Democrats’ debt-reduction plan without proposing truly punishing cuts in federal spending.

The Republicans claim their package includes revenues ($640 billion worth) but much of it seems to come not from actual changes in the tax code, but from increased fees and co-pays in Medicare. The rest is supply side fairy dust—around $200 billion from the higher growth supposed to be generated by future tax reform.

The upshot is that Democrats now look like they are more serious about getting the nation’s debt under control, and in a way that spreads the pain of fiscal retrenchment more equitably. Republicans look like their top priority isn’t restoring fiscal discipline, but shielding the wealthy from higher taxes.

If they refuse to deal on taxes, they’ll likely be blamed for the supercommittee’s failure and subsequent trigger of automatic spending cuts. The GOP may not care about slashing domestic spending—even though it includes critical public investments in science and technology, infrastructure and education—but they do care about defense spending, which would take a whopping, half-trillion-dollar hit.

Of course, Republicans could offer a minimum bid of $1.2 trillion in spending cuts to avoid across-the-board cuts, and call it a day. Supercommittee Democrats, however, shouldn’t let them off the hook without substantial concessions on taxes. Democrats don’t want to trigger big domestic and defense spending cuts either, but it’s better to force the issue of GOP intransigence on taxes now than during the debt ceiling debate, when America stood on the brink of default.

Even if the supercommittee does its job and approves a bipartisan debt reduction plan by Thanksgiving, it’s by no means clear that Congress will pass it. Members of Congress hate nothing more than being “shut out of the process,” and many bridle at the idea of delegating power to 12 supercommittee members to craft a massive plan and present it for an up or down vote.

Complaining that he has “no stake” in the outcome, Democratic Rep. Henry Waxman added, “I find it an outrageous process, that 12 people could rewrite the laws of the United States and come up with ideas just setting there and getting into some mood that might influence them at the moment.”

Over on the right, there’s little love for the supercommmittee. Nothing is more predictable than that Tea Party zealots will rise in righteous condemnation of any plan that includes higher tax revenues, thus breaking the party of Lincoln’s solemn covenant with anti-tax gadfly Grover Norquist.

More favorable are congressional moderates, whose main concern is that the supercommittee won’t go far enough. Nearly 100 Members from both parties signed a letter urging the supercommittee to cut $4 trillion over the next decade, the amount most budget experts believe is necessary to stabilize the debt. For pain-averse lawmakers, the logic of “going big” and not having to keep repeating these excruciating political battles over spending and taxes is pretty compelling.

If the supercommittee fails, the economic and political consequences won’t be pretty. Fresh evidence that the nation’s political leaders are incapable of coming to grips with the debt crisis will no doubt cause the markets to nosedive, and could even lead ratings agencies like Standard & Poor to downgrade the nation’s credit again. This could cast a pall over the economy, just as it’s finally showing some signs of life.

Worst of all, it would deepen the public’s already explosive anger at Washington. A mere nine percent of the voters approve of the job Congress is doing, and 89 percent say they don’t trust the government to do the right thing. By going big on debt reduction, Congress could start earning back that trust.

Photo credit: DonkeyHotey

Policy Brief: Another Kick in the Teeth: Loan Limits and the Housing Market

Posted on by The Progressive Policy Institute

For weeks, August 2—the date on which the U.S. Treasury might have defaulted on its debts—was the deadline that drove policymakers toward a deal on raising the debt ceiling and lowering the nation’s spiraling debt and deficits.

Another pending deadline—October 1—has won far less attention. But it too could have far-reaching impacts on the U.S. economy if Congress allows it to expire.

This date is when the maximum size of a mortgage loan (the “loan limit”) that can be insured by the Federal Housing Administration (FHA) or bought by government-sponsored mortgage giants Fannie Mae and Freddie Mac (the GSE’s) drops significantly. On October 1, these loan limits will fall in 669 counties in 42 states and the District of Columbia, with an average reduction of more than $50,000 and in some cases by more than $100,000. In these areas, many prospective homebuyers once eligible for an FHA loan would no longer qualify, while others may face the prospect of a higher-cost “jumbo” loan.

The result could be the potential sidelining of a key segment of homebuyers, which in turn would further weaken demand, depress home prices and drop another wet blanket on consumer confidence as Americans continue to watch their home equity evaporate. Needless to say, this is the last thing the housing market or the economy needs as it struggles toward recovery.

Without question, government should ultimately pare back its involvement in the housing market and let private capital play the leading role. But this should also happen when the markets are ready, not according to an arbitrary timetable. Unfortunately, the initial conditions that warranted the current loan limits in the first place have not improved substantially. Nor does it seem private sources are ready to jump in if government support were to end.

Read the entire brief.

Six Reasons the Supercommittee Will Succeed

Posted on by The Progressive Policy Institute

PPI Senior Fellow Paul Weinstein finds six reasons to believe the Congressional Supercommittee will succeed:

Whatever you think of Standard and Poor’s decision to downgradeAmerica’s credit, their justification was fairly plain. Political gridlock has managed to scuttle several successive efforts to get a handle on the federal debt. And few, if anyone, is sanguine that the new “supercommittee” in Congress will have any better luck.

But a closer look reveals that, despite the nation’s pessimism, there are several reasons to believe that the 12-member supercommittee may be able to implement a plan that sets the nation back on track. The setup has been rigged to force a deal. So, in an age where “shorting” the market has become a sort of dirty word, the smart money may be in betting that Washington will enact a responsible comprehensive budget framework by the end of the year.

First, the dynamics of the committee itself suggest that that building sufficient support in the room will be that much more palatable. Negotiators need only corral seven of the twelve members (50 percent plus one) to send any deal straight to the floor of both houses of Congress. By comparison, the Bowles-Simpson Fiscal Commission was required to receive a full 77 percent, and managed only 61. In essence, the fact that a decision by any single member could boost any proposal past the required threshold will compel every member of the commission to negotiate in a serious manner. That diminishes the likelihood that political shenanigans will scuttle this deal like they have undermined previous negotiations.

Read the other five over at Real Clear Politics.

Managing Austerity’s Axe

Posted on by The Progressive Policy Institute

In the wake of Hurricane Irene, there has been consternation over whether the GOP proposed cuts to the United States Geological Survey signifies that they were actively endangering the public. Political scoreboard aside, while it is true that America as a nation could survive without quality weather surveillance, not needing a program does not automatically justify severe budget cuts.

Imagine America as a frigate. Our ship might be weighed down by our blossoming debt, but that does not mean we should be indiscriminately throwing our guns overboard in an attempt to lighten our load. Furthermore our focus on the crisis of the moment is also distracting us from one of the lessons of Hurricane Irene: the need to defend valuable government programs that cannot defend themselves. The national discussion needs to be reoriented from its current state to one about reducing the deficit in a way that does not prioritize politically expedient cuts over the budgets of beneficial government programs lacking political clout.

The smallest instance of this concept is a recent Washington Post cause célèbre – defending the Statistical Abstract of the United States. Called “America’s databook” by Post Columnist Robert Samuleson and defended by other Post Columnists E.J Dionne and Ezra Klein, the abstract provides a single destination for various sorts of facts that one normally would have to spend hours trolling through government databases to discover. While not essential to existence of the United States, the abstract provides useful information and would be in a sense akin to losing data from the Bureau of Labor Statistics, making our country worse off by making us less knowledgeable. For $2.9 million – pocket change to the federal government, the abstract is an unnecessary sacrifice in a blanket effort to reduce the budget.

To think about it another way, in pure job creation terms, government spending on the abstract creates 24 jobs at $120,000 per job – less than the $200,000 per job cost Felix Salmon finds for infrastructure spending.

Another more tangible example of this debate is a $784 million cut to Federal Emergency Management Agency (FEMA) emergency response grants. These grants fund first responders, paying for the training of local and state emergency personnel. The training prepares them to manage current crises like Vermont floods. Before immediately writing FEMA off as wasteful spending, it’s important to note the steps FEMA has taken to redeem its sullied reputation. FEMA received positive reviews from both sides of the aisle in its response to Hurricane Irene.

Yet due to a slimmed budget, FEMA disaster relief money is running out, pitting two disasters against each other for catastrophe aid. With funding not yet appropriated to help the Joplin, Missouri recovery efforts, Missouri Senators are already warning about diverting funding from rebuilding Joplin to recovering from Irene.

“Recovery from hurricane damage on the East Coast must not come at the expense of Missouri’s rebuilding efforts,” Senator Roy Blunt (R-Mo.) said Monday in a statement.

Competition should not exist between states for disaster relief. Not only is it immoral to declare one disaster more worthy of funding than another, but it also represents a basic betrayal of citizens who depend on the government for at least their very security.

Conservative economist, Doug Holtz-Eakin has a two-part test for creating government programs, “Does the economy fail to deliver something? And second, could the government do it better?” As Samuelson notes, there is no private market equivalent of the Statistical Abstract and I seriously doubt that a private corperation could provide disaster relief better than FEMA can. There is no denying that deficit reduction needs to occur, but legislators should think twice about government’s basic responsibilities before subjecting agencies without political clout to austerity’s axe.

Photo Credit: U.S Coast Guard

Obama Needs New Growth Story

Posted on by The Progressive Policy Institute

President ObamaThe White House this week is dribbling out new details about Obama’s forthcoming jobs package. Liberals already are complaining that the president is thinking too small, while conservatives dismiss his ideas as just more “stimulus” in drag.

Neither critique gets to the heart of the problem. The U.S. economy is enduring an investment and job drought that began well before the Great Recession hit late in 2007. The public is strikingly pessimistic about the nation’s economic prospects and has lost confidence in the conventional remedies pushed by both parties.

More than a batch of new programs, Americans need a new story about how to regain our economic dynamism. We need a fundamentally new model for economic growth, and the president’s kit-bag of new micro-initiatives doesn’t add up to one.

His proposals mostly seem sensible, but absent a new vision for dealing with the economy’s structural problems, they give off a whiff of spaghetti-against-the-wall desperation. The administration is hoping that something, anything will move the needle on job creation and get unemployment trending down.

Here, according to various media accounts, is what the White House job package is likely to include:

  • A $5,000 tax credit for hew hires.
  • A five percent reduction in payroll taxes on any net increase in wages.
  • $50 billion in new spending on infrastructure.
  • An overhaul of patent laws to encourage faster innovation.
  • A new mortgage refinancing scheme to help “underwater” homeowners avoid foreclosures that are depressing housing prices.

Liberals have a point in arguing that these initiatives are unlikely to have more than a marginal impact on jobs and economic growth. The tax credit and payroll tax reduction will likely expand employment, but they also will reward companies for hiring workers they would have hired in any case. Michael Greenstone, former chief economist for the president’s Council of Economic Advisers, estimates the tax credit will create 900,000 additional jobs at a cost of $30 billion. The United States must create 21 million new jobs over the next decade to return to full employment.

Modernizing America’s antiquated infrastructure is essential, even if the immediate job gains are likely to be modest. While it’s conceivable that $50 billion could leverage large-scale private investment in new infrastructure, there’s a catch: The administration does not envision funneling that money into a truly independent infrastructure bank. That’s likely to scare off private investors, who need assurances that big capital projects will be chosen on economic rather than political grounds.

The real problem, however, isn’t that Obama isn’t spending enough. It’s that this spray of programmatic buckshot won’t deal with structural impediments to economic innovation and growth. As PPI has argued, U.S. policy makers need a new model of economic growth centered on production, not consumption; on saving and investing, not borrowing; and on exports, not imports.

Obama needs to fit his specific initiatives within the broader story of an American economic comeback sparked by a shift from debt-fueled consumption to domestic production. This narrative should explain how overconsumption—by both U.S. households and governments—helped to create the job slowdown, wage stagnation, financial bubbles and exploding debts that have plagued our economy since 2000. It would connect America’s twin economic imperatives: creating jobs and controlling the national debt. It would say: If we don’t curb the unsustainable growth of entitlement spending (mostly for health care consumption), we will squeeze out strategic public investments the nation’s physical, human and knowledge capital—infrastructure, skilled workers, and new technology.

But a “producer society” narrative doesn’t just reinforce progressive demands for more strategic public investment. It also lends weight to conservative calls for policies that create a climate more conducive to innovation, entrepreneurship, and business creation. In fact, it will take a new fusion of liberal and conservative economic prescriptions to get America moving again.

Key elements of such a fusion include a sweeping overhaul of personal and corporate taxes, a light-handed approach to regulating companies that invest heavily in innovation, stronger constraints on Medicare and Medicaid spending, new investments in technical education to supply workers for advanced manufacturing, and the transformation of our archaic K-12 school system by choice and digital learning. And, as I’ve written elsewhere, it also requires a new partnership between U.S. workers and those companies that are investing in creating jobs in the United States.

President Obama’s ideas for spurring job growth are fine as far as they go, but they don’t go nearly far enough. He needs to offer the country a new story of economic success, that once again makes America a dynamo of production and middle class job creation.

Photo credit: OFA

Defense’s Careful Contribution to Deficit Reduction

Posted on by The Progressive Policy Institute

PPI’s Will Marshall and Jim Arkedis have a piece in the Detroit News this morning on the defense budget. Here’s an excerpt:

Recently, Republican and Democratic leaders of Congress unveiled their choices to head the so-called “super committee” entrusted with forging a long-term agreement to reduce the nation’s deficit.

The stakes are high for the Department of Defense. Should the super committee fail to propose legislation, or a divided Congress fail to pass a compromise, the deal to avert national default would automatically trigger a $500 billion cut from the Pentagon’s budget. Added to the $350 billion already cut by the deal, the Pentagon’s budget could shrink by $850 trillion over 10 years.

If the Department of Defense is forced to make such a substantial contribution to deficit reduction, one point is clear: Our political leaders remain unwilling to tackle the national deficit’s two main cost drivers — entitlements and taxes.

Nothing is set in stone, but the congressional super committee now faces two crucial questions: Should defense contribute more toward deficit reduction? And, if so, how do we save?

Our answers are that defense can contribute, but carefully.

Continue reading in the Detroit News by clicking here.

Photo credit: Brave Heart.

Should America Pork Out?

Posted on by The Progressive Policy Institute

On his show last week, Chris Matthews of MSNBC’s Hardball recommended that the president “pork out.” Remember those pet infrastructure projects Republicans sacrificed at the altar of declared fiscal discipline? Matthews wants the president to serve up a feast of pork as a temporary jobs plan.

The basic premise of the Matthews’ plan is that the president packages–in one bill–all of the pet projects that were requested over the past two years by Congress but failed to become law. Discarding the projects that are wasteful or don’t create jobs, the president sends the bill to Congress testing where the GOP’s allegiance lies: with the nation’s 25 million unemployed or the political gain of depressing the economy.

Can a serving of pork really pass Congress and create jobs?

Possibly. Much of the pork spending is basically targeted infrastructure spending. Bipartisan support for earmarks has been historically pervasive, and remains widespread today despite a House enforced moratorium. Senator Lindsay Graham (R-Tenn.) threatened to shutdown the Senate over $50,000 toward deepening the Charleston harbor, and presidential candidate Michele Bachmann (R-Minn.) sneaked a $700 million bridge overhaul past the earmark ban by not listing the actual cost of the bridge in the bill.

Quick calculations state that if every $1 billion of federal spending spent creates 11,000 job-years and the jobs are temporary, one year long, then allocating $10 billion would create roughly 110,000 gross jobs. Funds could be weighted to ensure the states with the highest unemployment rates receive the most money.

Furthermore the current state of the economy is a rare moment of slack in the inherent tension that exists between federal spending and private investment. Worries that earmark spending muscles out the private businesses are exemplified in a Harvard study that found earmarking by certain Congressman can lead to a 15 percent decrease in that districts’ private sector spending — a worrisome proposition. Except, right now corporations are not spending and instead are sitting on $2 trillion in cash. Federal spending repercussions are lessened because there is little private spending to crowd out.

To preempt deficit hawks, the plan should be part of a long-term deficit reduction package or paired with back-loaded spending cuts to be revenue neutral. An ideal deficit reduction plan would include a much-needed boost to the job market through targeted short-term infrastructure spending supported by former IMF chief economist Ken Rogoff while reducing the deficit over the long term. While a national infrastructure bank would be idyllic, political realities make pork a workable substitute for targeted infrastructure spending.

A good bully pulpit speech could help extinguish any other political opposition. The specificity and detailed local impact of the pork makes the plan a powerful political cudgel.

Envision the president trotting out to the Rose Garden bill in hand, declaring, “The economy is hurting, but I have a jobs plan right here that’ll create over 100,000 jobs right now at a time when 9.1 percent of Americans are out of work. It won’t add one dime to the deficit but it will pay for a wastewater treatment plant in Nevada where the state unemployment rate is 12.9 percent. Yet your representative, Dean Heller, won’t support it. It won’t add one dime to the deficit, but it will pay for a college in Florida where the state unemployment rate is 10. 7 percent. Yet your representative, John Mica, won’t support it.”

Rinse and repeat that speech for three days, and it’s hard not to expect a few Republican defections. Standing tall for spending cuts is fun and games until your district gets hurt. Even if for some reason the plan doesn’t pass, the tenor of Washington will finally be attuned to what the people want and need – jobs.

Photo Credit: Kejonbro

 

 

Did the Debt Deal Open the Door to a Third Party?

Posted on by The Progressive Policy Institute

Most political reporters have chalked up the debt ceiling deal as a “W” for House Republicans and a humiliating loss for President Obama. But when we consult actual voters, the political scorecard looks quite different.

Americans, says veteran pollster Stan Greenberg, aren’t just irritated by the games politicians play, they are “explosively angry” at Washington. There’s no love lost for either party, but Congressional Republicans now actually rank lowest in public esteem. The only “winners” in the debt limit fiasco were potential third party candidates.

According to Greenberg’s latest Democracy Corps survey, a majority of Americans (53 percent) say they would consider voting for a third party candidate. That could just be a momentary measure of public disgust, but it also points to the first serious opening for a challenge to the two-party duopoly since Obama took office. And when you break down the numbers by party affiliation, or lack of it, things start to get interesting.

By a whopping, 45-point margin (70-25) independents are the most receptive to a third party candidate. These voters swung decisively toward Obama in 2008, cementing his majority, but they are utterly up for grabs in 2012.

Democrats, on the other hand, are the most solid in their partisan commitment. By 57-39 percent, they reject the idea of a third party challenge. The big surprise is how open Republicans seem to be to bolting from their party’s ticket. A substantial majority (58-38) say they are willing to consider a third party alternative, with 38 percent “strongly” willing.

It’s hard to know exactly what to make of this. Maybe these numbers register tepid enthusiasm for GOP front runner Mitt Romney (the poll was taken before Michele Bachmann won Iowa’s straw poll and Rick Perry threw his Stetson in the ring). It’s possible GOP voters just don’t see the candidate yet who can unhorse Barack Obama. But since there aren’t many GOP moderates left, there’s another, more chilling possibility: Maybe the current crop of GOP hopefuls aren’t conservative enough for a sizeable chunk of the Republican base.

In any case, what Greenberg describes as the “unsettled” nature of Republicans’ partisan attachment could be good news for Obama and the Democrats. It could portend renegade candidacies that splinter conservatives; it’s not difficult, for example, to imagine Ron Paul running on a libertarian line if he doesn’t win the GOP nomination.

On the other hand, the public’s increasingly sour mood toward politics as usual has thrown the spotlight on a new political venture called Americans Elect. It’s a non-profit (full disclosure: I’ve volunteered to help) that is organizing a virtual or online nominating convention next June. The basic idea is to use the internet and social media to bypass the duopoly and give voters who don’t feel at home in either party a way to directly chose their own presidential ticket and platform.

Americans Elect isn’t a third party but is offering what it describes as a “second process” for choosing the next president. And it’s working to ensure that whoever wins the internet-based convention will be guaranteed ballot access in all 50 states.

I’ll have more to say about this intriguing experiment in empowering voters later. For now, it’s enough to say that the debt debacle has whetted Americans’ appetite for something completely different in national politics – and political entrepreneurs are responding.

Wingnut Watch: Wisconsin Recall Relief and Iowa Showdown

Posted on by The Progressive Policy Institute

There is joy and relief in Wingnut World today thanks to the narrow failure of Wisconsin Democrats to win enough recall elections to take over the state’s Senate chamber (needing three new seats out of the six being contested, Democrats won two and lost the crucial third by just over 2,000 votes). Though this was a very unusual election in which vast quantities of last-minute conservative money (a total of $8 million was spent in the pivotal district, a bit more than the average state legislative race) probably made the difference, you can expect many jabberers from the Right to call this the final, definitive victory of the people over “labor bosses” determined to keep Scott Walker from giving job-creators the encouragement they need to invest in the state. Next week’s recall elections for two Democratic senators, which are not expected to go well for Republicans, probably won’t get as much national attention. Democrats will then have a tough decision to make about whether to seek a recall of Walker next year. But overall, the main importance of the Wisconsin struggle is that it will likely become a sort of laboratory for what the contending parties—and their ideological allies—will do nationally in 2012.

Aside from Wisconsin, and the continued preparatory skirmishing over the budget timeline set out in the August 1 debt limit, there are two main preoccupations among conservative activists and talkers. One is the war of interpretation over economic developments, including the threat of a double-dip recession, the Standard & Poor’s downgrading of its rating for federal bonds, and the extreme instability of U.S. and global stock markets. So far few, if any, conservatives are bending their general line on the ontological necessity of sharp and immediate federal spending cuts and radical deficit reduction measures in the face of poor economic growth indicators. For example, conservatives have shown no signs of interest in the president’s call for extension of the payroll tax cuts agreed to last December. Presidential candidate Michele Bachmann gets points for audacious consistency in arguing that the bond downgrading, explained by S&P as in no small part attributable to pessimism about future debt limit agreements because of Republican fanaticism on taxes, was actually caused by the debt limit agreement itself.

The second preoccupation in Wingnut World, as in the broader world of political junkies, is with the developments in the Republican presidential race that will unfold over the next few days. In Iowa, a presidential candidate debate on Thursday will immediately be followed by Saturday’s State Republican Party straw poll in Ames. The debate, sponsored by Fox News and the conservative Washington Examiner, will include not only the candidates competing in the Straw Poll, but also Mitt Romney, who is not, and could therefore be the target of zingers from rivals desperately trying to create some turnout-generating buzz in Ames.

In terms of what is likely to happen at the Straw Poll, there is a general consensus that Tim Pawlenty has the best organization but little enthusiasm; Michele Bachmann has the most enthusiasm but a questionable organization; Rick Santorum could well surprise people by doing better than Herman Cain; and Ron Paul, with the right combination of committed supporters and superior organization, could win the whole thing if turnout is not very high. Both Pawlenty and Bachmann really need a win in Ames. But it’s Pawlenty who needs it the most, having focused on Iowa for many months and positioned himself to become the “electable conservative alternative to Mitt Romney” down the road. His limited financial means and terrible poll standings across the country—and the impending entry of another “electable conservative alternative to Mitt Romney,” Rick Perry—could mean curtains if he doesn’t pull off the Straw Poll victory.

Speaking of Perry, he’s apparently going to announce or at least semi-announce his candidacy in South Carolina in the friendly confines of the annual get-together of Erick Erickson’s Red State community. The fact that his speech in Charleston occurs the very same day as the Straw Poll has caused some angst among Iowa Republicans, who view it as an effort to horn in on their media attention. So it’s not surprising Perry is planning to scurry up to Iowa (to Bachmann’s original home town of Waterloo) on Sunday. From Perry’s point of view, a Paul win in Ames, damaging Bachmann and perhaps finishing off T-Paw, and making the entire exercise (which he skipped) otherwise irrelevant, would be ideal. But even before announcing, Perry has managed to vault himself into the top tier of candidates, essentially succeeding in taking over T-Paw’s spot as the putative “unity candidate” between the electability-challenged Bachmann and the ideologically-challenged Romney. That’s quite a feat for a guy who keeps flip-flopping on hot-button social issues; has gotten dangerously cozy with religious extremists; has a habit of startling his fellow-conservatives with stunts like his 2008 championship of Rudy Guiliani; and has never been terribly popular in his own state.

Photo credit: WordShore.

Wingnut Watch: Pivoting to Ames

Posted on by The Progressive Policy Institute

Formally, at least, Wingnut World was divided over the big votes earlier this week on the debt limit increase “compromise” package. Even as conservative blogs (generally) urged a “no” vote, with varying degrees of heat, House Republicans approved the bill by a robust 174-66 margin. The House Tea Party Caucus even favored it 33-29, though the major “splits” were less ideological than institutional; virtually anyone with a connection to the House GOP leadership or in a senior committee position voted “yea.”

But in the immediate wake of the vote, conservatives seem to have united in a strategy of utilizing the “deal” to plot an incessant, scorched-earth campaign for more spending cuts, and particularly an assault on entitlements. The deal certainly does provide many opportunities for additional fights: an appropriations battle prior to the end of the fiscal year (less than two months from now), which will almost certainly involve another effort to shut down the government; a “disapproval” vote for the president’s scheduled second-stage increase in the debt limit, which will probably occur in early October; the “debt committee” struggle over additional deficit reduction measures in November, which will occur against the background of pending automatic spending cuts that will occur in December if no action is taken; and then a longer-term fight over tax policy in 2012 in anticipation of the expiration of the Bush tax cuts at the end of that year.

While many wingnuts are relishing these battles, they will involve some intra-conservative tensions, especially in terms of the priority assigned to protection of defense spending and avoidance of revenue increases, and the relative emphasis placed on entitlements cuts as opposed to even deeper discretionary spending cuts than are already baked into the cake in the debt limit deal. On the former front, it’s worth noting that three presidential candidates who opposed the deal—Mitt Romney, Tim Pawlenty and Michele Bachmann—all cited fears of defense cuts as a factor. Efforts to resolve the conflict between defense hawks and anti-tax militants will probably push conservatives into the perilous territory of insisting on major cuts in Social Security, Medicare benefits and Medicaid. The programs are all protected in the “deal” from automatic cuts and the cuts themselves are unpopular and reinforce Democratic attacks on earlier Republican support for Paul Ryan’s radical Medicare and Medicaid proposals. Indeed, one of the major conservative grievances about what is otherwise a pretty solid victory for their cause is that the “deal” did not provide bipartisan cover for significant changes in the big entitlement programs.

All these issues, of course, will be problematic for the GOP presidential candidates, for whom the schedule of regular fiscal battles through the nominating process and into the general election campaign, will represent at best a major distraction, and at worst a long series of right-wing litmus tests in which there is only one right answer. Without question, this scenario will make it hard for any eventual nominee to “pivot” to a swing-voter friendly general election strategy.

At the moment, though, the would-be 45th presidents have other, more immediate, fish to fry. The candidates competing in the August 13 Iowa GOP Straw Poll are moving into the pre-event mobilization phase, buying tickets for anyone they think will vote for them in Ames that day, gassing up the vans and buses, planning entertainment for attendees, and managing expectations. The big question according to most handicappers is whether Pawlenty’s statewide organization can overcome Bachmann’s enthusiasm and momentum. There’s some talk that Ron Paul could sneak past both Minnesotans and pull off an upset. Rick Santorum’s organizational efforts could well push him past Herman Cain, who does a lot better in the polls but hasn’t spent much time in the state.

Meanwhile, a candidate who is not competing in Ames but is expected by most observers to announce his candidacy soon afterwards, Rick Perry, is having some issues with his outreach to the Christian Right. After last week’s conspicuous Perry flip-flop towards support for a federal constitutional amendment banning gay marriage, he’s now executed a similar maneuver on abortion, eschewing earlier statements in favor of state control of that subject and endorsing a federal constitutional ban. Additionally, there are signs that the big prayer rally he is sponsoring in Houston this weekend could have an attendance problem. A spokesman for the event, however, had this to say:

We are not really concerned with the quantity of people that come. It’s frankly more about the powerful event that will speak to those who do come. It’s never been about the numbers.

That’s probably code for what matters to Team Perry–who is on the podium representing important Christian Right factions, not who is in the seats taking in the show. They are basically props.

Photo Credit: Gage Skidmore

STATEMENT: PPI Supports Debt Deal, but Warns It’s Not Enough to Stabilize Debt

Posted on by The Progressive Policy Institute

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

WASHINGTON D.C. — PPI President Will Marshall issued the following statement on the debt limit agreement before Congress:

“The final compromise reached in the debt ceiling debate marks a disappointing end to a standoff that had already reached new lows in self-destructive political brinksmanship. After holding the U.S. economy hostage for weeks in the name of principled deficit reduction, congressional Republicans have exacted a deal that fails to address the structural drivers of our deficits. We were taken to the brink of economic catastrophe, yet this deal still won’t stabilize the debt, reform the tax code, or ensure Social Security’s long-term solvency.

“President Obama, for his part, passed on the opportunity to stand behind the balanced deficit-reduction approach endorsed by his own Fiscal Commission. The negotiated proposal passed by the House and before the Senate today includes a significant down payment on deficit reduction, but it is an inauspicious start for any long-term plan to pay down our debt. The cuts included in this package focus too much on discretionary spending alone, while tying Congress’s hands to balance those cuts with additional revenue from comprehensive tax reform.

“For all its flaws, the deal has defused the Tea Party’s time bomb and given us another chance at forging a constructive, bipartisan deficit plan. The key to those hopes lies with the special committee of Congress. Unless the committee is willing to go beyond the target in the legislation and tackle revenues and entitlement, this deal will fall far short of what it is needed.

“We need to watch carefully who is chosen to serve on the special committee—whether they are simply stalking horses for the leadership or in fact willing to make hard choices for the benefit of the country. In addition, it is vital that the Obama Administration be engaged in direct and regular communication with the special committee, otherwise this process cannot succeed.

“We are happy there is a trigger built into the deal, in case the special committee fails to deliver its proposals, but we are concerned the triggers do not go into effect until a year after the special committee is created. Furthermore, the one-sided enforcement mechanism also tips the scales too much toward discretionary spending reductions, Excessive cuts of $850 billion would be slashed from the Pentagon’s budget—an amount larger than recommended by the Simpson-Bowles Commission. We wish the trigger had applied to revenues as well.

“We hope that President Obama will show the resolve Americans need from their president to salvage this situation and recapture the political debate going forward. The surest approach to doing that is to fight for the principles endorsed by his Fiscal Commission, including broad tax reform to lower rates and eliminate tax expenditures to raise significant money for deficit reduction. And parallel to that, the president and Congress must put real entitlement reform on the table. Republicans have succeeded in ensuring spending cuts will be included in any deal—it’s now up to President Obama and congressional Democrats to restore balance to the final package between now and 2013.”

Stimulus for Entrepreneurs

Posted on by The Progressive Policy Institute

The debt-ceiling stalemate is distracting policymakers’ attention from what should be their number one economic priority: putting Americans back to work. Big jolts of conventional stimulus, through public spending or tax cuts, are off the table for now, but Washington could try a different tack — stimulating entrepreneurship.

So says economist Robert Litan of the Ewing Marion Kauffman Foundation, who unveiled last week a creative menu of proposals for rebooting America’s entrepreneurial spirit. These ideas have been incorporated into the Startup Act, a bipartisan proposal endorsed by an unlikely pair of political bedfellows, House Majority Leader Eric Cantor (R-Va.) and Senator Jon Tester (D-Mont.)

Litan’s offering came on the heels of a new Kauffman study that shows why Congress should be thinking about ways to spur entrepreneurship. Startup job growth, which Kauffman says is the main engine behind net job growth in the United States, has been slowly declining. This drop began before the Great Recession. What’s more, the survival rate of new firms is declining, along with the number of jobs created on average by new startups.

No one seems to know why start-ups have been losing momentum. But Litan, also a senior fellow at the Brookings Institution, argued that public policy can be a catalyst for new business creation, just as it can also put obstacles in the way of entrepreneurs. The Startup bill’s provisions fall in four main baskets: selective immigration reform, easier access to capitol, streamlining the commercialization of new ideas, and resetting the regulatory burden on businesses.

Immigration reform: The bill advocates green cards for any foreign student that completes a STEM (science, technology, engineering, and mathematics) degree at a U.S university and more easily available visas for non-American future entrepreneurs. Litan specifically suggested targeting talented individuals currently working in America on 6-year H-1 visas, a demographic that starts new firms at a higher rate than the rest of the workforce, as an easy starting point for reform.

Financing startups: At a time when credit is tight, the bill would generate capital to finance new startups from two sources: tax breaks and easier access to public markets. It proposes a capital gains exemption for long-term investments (those held over five years) in startups with a market value of less than $50 million. To give more startups a fighting chance to survive, the bill also would exempt them from the corporate income tax for the first five years. In addition, the act suggests would allow shareholders of startups under $1 billion in market value to decide whether or not to comply with the Sarbanes-Oxley Act, arguing that the cost of compliance for startups far outweighed any benefits compliance could provide.

Patent Reform: The bill also endorsed recent patent reform passed by both the House and Senate designed to make the process more efficient. Under this approach, smaller startups would be allowed to pay less for a priority patent review.

Regulatory Reset: Finally the plan calls for regulatory reform as well as data collection on individual states – ranking them on how well they create a favorable climate for startups. It would require a cost-benefit analysis for all proposed rules and subject them to automatic, 10-year sunset requirements. State rankings would provide states with the motivation to decrease their regulatory burden and attract more new business.

At a recent forum, Litan noted that the government seems to be out of fiscal policy bullets to jolt the economy back to life. By creating a climate more conducive to the birth and survival of new firms, however, the U.S. could spur job creation at a relatively modest cost that won’t break the bank.

Photo Credit: Ewing Marion Kauffman Foundation