Archive for the 'Congress' Category

How to end tax expenditures the right way

[by JSC5]

As per Ezra Klein in today’s Wonkbook, Martin Feldstein has a plan for decreasing the deficit: end tax expenditures.

Now, regular readers of the blog will remember tax expenditures from one of my old posts inspired by the craziness of Hawaii’s ‘Exceptional Tree’  tax deduction. The basic point to remember with tax expenditures is that they give people money through the tax code instead of by cutting them a check directly. In many ways, tax expenditures and direct spending are exactly the same: the net effect on recipients is the same (they get more money), and the net effect on the government is the same (it gets less revenue).

But tax expenditures come with a whole host of negative effects. By making Swiss cheese of the tax code, they make compliance overly complicated. They distort work and income incentives. They don’t need to be reauthorized, so they tend to persist for a long time without any legislator taking a look at them and making sure they’re still a good idea. Furthermore, most people miscategorize tax expenditures as tax cuts instead of spending, so they are easier to enact and harder to repeal than regular spending programs. Just about any economist would tell you that we should run spending programs through normal spending procedures while keeping our tax code standardized and simple.

So it’s unsurprising that veteran economist/conservative political operative Martin Feldstein has come out against tax expenditures. As a foe of tax expenditures myself, I heartily welcome the support. And yet I find it hard to really trust his plan. Let me explain.

Feldstein begins his argument for cutting tax expenditures by mentioning three areas in particular that rely on the tax code for spending: education, child care, and health insurance. One gigantic tax expenditure – the mortgage-interest tax deduction – doesn’t get a mention until the very end of the article, when Feldstein says it’s probably best to  slightly reduce (not eliminate) the deduction “to avoid economic disruptions.” Did you catch the pattern? Tax expenditures that liberals and Democrats support get the axe. Tax expenditures that conservatives and Republicans support are handled with kid gloves, since – gosh! – they’re particularly important!

The lesson I draw from reading Feldstein’s politically-opportunistic support for tax expenditures is this: if we’re really going to end spending programs through our tax code, then we need to do it all at once and for everything. If you take it issue-by-issue, then there’s always going to be a big lobby in support of that particular expenditure and a small minority whose primary concern is tax expenditures in general. Mr. X is a high income homeowner and votes yes on eliminating education tax credits and no on mortgage-interest deductions. Mrs. Y is a low-income renter and votes the opposite way. Nothing gets done.

My proposal is simple: pass one bill to eliminate tax expenditures as a way to run programs and automatically convert all tax expenditures into equally-sized direct expenditures. Everyone congressperson who dislikes tax expenditures as a tool of government can get on board — regardless of the actual content of any particular tax expenditure. Tax expenditures won’t get used as a political football by advocates with an axe to grind. Then we can leave decisions about actual levels of spending to a case-by-case review at Congress’s leisure.

We get the benefits of a vastly-simplified tax code, with easy compliance and standard, predictable incentives. And small government conservatives would still find plenty to like here. The calculus has changed: everyone now realizes that these are real dollars being spent, moving through the regular appropriations process.

That’s what real concern about tax expenditures looks like. And that’s why I doubt Professor Feldstein’s commitment to Sparkle Motion.

State-owned enterprises

[by JSC5]

A good illustration of the incoherence of our discourse about government-owned enterprises, from today’s NYT:

Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program of the Treasury Department, said both carmakers [GM and Chrysler] needed to shut down some underperforming dealerships. But it questioned whether the cuts should have been made so quickly, particularly during a recession. The report, released on Sunday, estimated that tens of thousands of jobs were lost as a result.

After having read and watched most of Mr. Barofsky’s congressional testimony for a one of my jobs, I can honestly say that I think he’s done a great job as Special Inspector General for TARP. This latest SIGTARP report, however, seems to suffer from a problem shared by just about all analysts, commentators, politicians, and academics who work on bailout issues and the problems of state ownership. What exactly are our goals with these bailed-out institutions? Should we run them for the public benefit, or run them as businesses to return them to profitability as soon as possible? Or do we have hybrid, competing goals?

I think conservatives (and the rest of us!) were worried that state-owned enterprises would get treated like adjunts of the state and be forced to operate suboptimally in order to support public goals like employment. It now turns out that the Administration, perhaps afraid this perception, has been very aggressive in pursuing profit-maximizing personnel cuts and dealership reorganizations. Does anyone think this will win the Administration any love from conservatives (or from the rest of us)? If anything, the Adminstration is now catching flack for not doing enough to support employment.

All I’m saying is, we need to decide what the proper goals for SOEs are. And then we need to tell SIGTARP, congressional representatives, and everyone else in the system, so that we don’t get whiplash going from shouts of “socialism!” to “free market ideolog!” in 2.6 seconds.

Vote for the smart, hardworking one

[by JSC5]

For a couple unrelated reasons, I’ve watched more legislative committee hearings in the past week (about 20 hours worth) than the average political junky will watch in a lifetime. It wasn’t an experience I’d really recommend to anyone else, so let me save you the trouble and summarize the take-home lesson: the vast majority of legislators in this country don’t know the first thing about anything. If we really understand that, then we should start changing the way we vote.

It’s true that your average voter dislikes a number of things about politicians. They’re perceived as being  slightly above used car salesmen in terms of trustworthiness. They’re seen as baby-kissing blowhards, shills, ideologically extreme, and creatures of special interests. But I don’t think voters usually think of politicians as dumb, ill-informed, or lazy. The stereotypical pol is far too devious and calculating to be dumb or ignorant!

But I’m here to tell you that your average politician actually is ill-informed and not very interested in learning. It’s true on the federal level, where the entire saga from the crash in 2008 to the financial regulation bill today has been hampered by a basic ignorance of how financial markets work, how they interface with the real economy, and how government policies work in this sphere. The (relatively) informed debate on health care reform is the one exception that highlights the general rule. Health care has been item #1 in progressive politics for several decades. Any politician that wanted to get progressive support had to get educated on it. And once it became a live debate on the federal level — ie, in the last 17 years or so — every politician that wanted conservative support had to bone up on the subject as well. But there aren’t many issues out there with that kind of electoral importance. In fact, it’s hard to think of a single one right now that carries the same import among the groups that determine what politicians care about.

That means politicians are free to be as ignorant as they want. And as uninformed as your average pol is on the federal level, it’s even worse in the state capitol: the elections aren’t as competitive, the activist and lobbying interests aren’t as well organized, the agendas are thinner, and elite politicians usually leave as soon as possible, dropping the average.

This leads to two unfortunate outcomes: (1) staff and lobbyists fill in the gaps left by politicians’ ignorance, letting them drive much of what happens in the legislature, and (2) most politicians are bench warmers, with only a few engaged pols taking an active role in the process. As a professor in college used to say, 90% of the work in Congress is done by 10% of the people.

This surely isn’t news to those of you who have any experience in legislative politics. But for the rest of the gin-swilling*, unwashed** masses: do yourself a favor and vote for the hardworking, smart guy/gal in the race. It’s hard for me to tease out how important competence is compared with policy positions, but it’s definitely in contention. A willingness to do your homework and come to a committee hearing prepared is rare, but the rewards for those who do — and for their constituents — are great.

As a post-script, let me say that while I’m as critical (if not more so!) of politicians as the next guy, I’m actually with Jonathan Bernstein in saying that I actually like politicians as a group. At least part of it, for me, is the fascination with a set of people who have basically said, “I’m opening up myself to be absolutely despised, denigrated, and mistrusted by a broad swath of society because” … well, fill in the blank. There are lots of ways to finish that sentence, but nearly all of them at least make for an interesting character.

* Not that there’s anything wrong with swilling gin! It’s just a catchy way of describing the general public I picked up from a fun, pompous professor I once had.

** Being unwashed actually is something of a problem. Luckily hygiene standards have improved greatly since the 19th century. But there’s still those select few, primarily hipsters, who have yet to discover ironic bathing.

Say what, Tom Friedman?

I don’t know why Tom Friedman is still a prominent public ‘intellectual’. The man has a really tough time coming up with an argument that doesn’t assume, as the old yarn goes, that the plural of story is data – as anyone who struggled through The World Is Flat will tell you. If, like me, you had to put his book down after the third OMG! anecdote involving a random CEO, a first class airline lounge, and a developing country, and you’ve been living in fear for years that everyone else on the planet thinks the book is actually good and only you hated it, then you’ll really, really appreciate these three brilliant Friedman reviews by Matt Taibbi.

With that as background, let’s look at Mr. Friedman’s recent opinion column in which he pretends like he knows something about political science. The core of his argument:

I want a Tea Party of the radical center. Say what? I write often about innovation in energy and education. But I’ve come to realize that none of these innovations will emerge at scale until we get the most important innovation of all — political innovation that will empower independents and centrists, which describes a lot of the country.

He goes on to advocate non-partisan redistricting committees as well as the Single Transferable Vote (STV). Bam, you’ve just been Friedmaned. But whereas a highly-paid, jet-setting columnist gets to disregard actual human knowledge in favor of pulling things out of his ass, we in the small-time blogging world of Joint Stock Company like to keep things a little classier. So here’s an evidence-based look at Friedman’s four key assumptions that make his argument work (or not):

  1. Independents and centrists make up “a lot of the country”
  2. Gerrymandering promotes partisanship
  3. STV reform would empower the center of the political spectrum and reduce partisanship.
  4. Moderates actually care about good governance, balanced budgets, debt reduction, and innovation.

Let’s go point by point.

First up, ‘Independents’. This one’s the easiest, since political scientists have been debunking the Myth of the Independent for over 20 years now. You can read up on some of the details on these posts from a great professional poly sci blog. The take-home lesson is that political independents aren’t actually very independent. Most are just partisans who prefer to call themselves ‘independent’ because it sounds a whole lot better. Who would you believe, the party hack, or the independent-minded bloke? Case closed. The fact is there are very few true Independents in our country. Most people are strong to mild Democrats or Republicans.

Next up, the much-maligned gerrymandering of districts. There’s actually been some academic research into the effects of gerrymandering on partisanship recently (pdf), and the researcher could not find a significant effect. This squares with arguments from policy wonk bloggers, who don’t think that gerrymandering is the source of partisanship in America.

On to voting reform. I’m actually a big fan of the Single Transferable Vote, but I don’t think it would do what Friedman seems to think it would do.  As Yglesias noted on his own Friedman response: ” The dynamics of a political system that features a President, along with a congress, creates incentives for politicians to try to fit themselves into one of the two major parties. That’s at least part of the reason why the Blue Dog group in the House has preferred to organize itself as a party faction rather than a free-floating centrist party. Moving to an STV system might push more moderate legislators in the direction of trying to run as third parties, or it might expose those legislators to third-party challenges from the left.” Or perhaps what STV would actually do would be to empower the extreme right and left (as happens often in multi-party parliaments in other countries, as DiA notes). In other words, if you’re looking for a slam-dunk path to reducing partisanship, STV ain’t it. [Though STV is great for many, many other reasons].

Finally, the actual politics of the center. Friedman wants the center to be the sober, responsible political group that will cut spending, raise taxes, and invest in education, energy, and business innovation. I sympathize, because I, too, yearn for many of Friedman’s goals. But I don’t see much reason to believe that the center of the political spectrum is where I’m likely to find like-minded individuals. Why? This one’s harder to argue on evidence than the previous 3 points (because there’s just not much data on it), but my strong hunch is that people in general love government spending when they and people like them are net recipients, and tend to dislike it when they aren’t. That’s how you get welfare state farmers complaining about spending health care reform, and Medicare recipients bashing food stamps. It’s the simple ethnocentric formula we’ve always had as a species: in-group = good, out-group = bad. For an interesting read on ethnocentrism and support for various types of government spending, see this interesting book and blog post. Are we to expect that somehow the people in the center are magically exempt from what look like general trends for the rest of the population?

In summary, Friedman is right in that he political process is hyperpartisan, but that’s because we as a people are hyperpartisan (contra Friedman). Creating a non-partisan redistricting process may be a good thing to do, but there’s no reason to think it will change the partisan nature of our politics. STV is great on its own merits, but there’s no reason to think it would increase or decrease partisanship either way. The smart way to handle modern partisanship is to realize that it’s here to stay. The idealized bipartisanship of the past was a result of political parties that were riven by race, and only after decades of ideological re-sorting following the Civil Rights Act and the Voting Rights Act did we finally arrive at a modern, ideological party system in the 1990s. Putting Friedman’s ignorance of the evidence to one side for the moment, the bigger problem with his column is his quixotic quest to 1) pretend that magical people in ‘the center’ are not partisan, and 2) empower them. Why not take people as they are, and change our naive institutions so that they can function in our brave, new, partisan world? Ending the filibuster, anonymous holds, and unanimous consent in the Senate would be a good start, and eminently more practical than waiting for the Godot of a reasonable, policy-oriented, Independent movement.

Leviathan on hold

The Affordable Care Act (ACA) is now law, and as much as this is a big victory for 30 million people without insurance and anyone else who will get sick in the future and need insurance, it’s also a victory for Executive power. “I believe this commission is the largest yielding of sovereignty from the Congress since the creation of the Federal Reserve,” says administration budget director Peter Orszag, via Ezra Klein. And given how ineffective Congress is these days, that may actually be good thing.

Orszag is specifically referring to the Independent Payment Advisory Board created under ACA. The Board’s job is to propose cost-saving measures for Medicare to keep cost inflation no higher than the average 5-year GDP growth rate plus 1%. And the Board has a great deal of power. Here’s Ezra explaining:

If Congress approves the board’s recommendations and the president signs them, they go into effect. If Congress does not vote on the board’s recommendations, they still go into effect. If Congress votes against the board’s recommendations but the president vetoes and Congress can’t find the two-thirds necessary to overturn the veto, the recommendations go into effect. It’s only if Congress votes them down and the president agrees that the recommendations die.

My guess is that the political equilibrium will be for the Board to make proposals and for the Congress and President to ignore them and thereby allow them to go into effect without being personally responsible. That gives the IPAB quite a bit of actual power to cut costs in what will soon become the largest item in the federal budget. And who decides who will be on the IPAB? The President, with the advice and consent of the Senate. The Board’s 15 members will all have 6-year terms, renewable once.

Another big win for executive power in the ACA is the role given to the Secretary of Health and Human Services, currently Kathleen Sebelius. The text of the Affordable Care Act says that the secretary shall define, determine, or create 1,697 things. New powers accruing to the Secretary include the ability to define specific benefits and regulate insurance options on the exchanges.

There are two lessons here. First, for Republicans: this is what happens when you adopt a complete rejectionist strategy instead of negotiating to improve the bill. Certainly many liberals were never interested in bipartisanship, but House Blue Dogs and Senate centrists like Baucus, Landrieu, Lieberman, Lincoln, and Nelson were dying for some bipartisan cover. Left to negotiate amongst themselves, Democrats came up with a bill that expands the discretionary powers of the presidency over the congress and the states. Presumably some authentic conservatives may have liked to avoid this situation. So next time, Republicans, try playing the game instead of taking your ball and going home.

Second, this may just push the Democrats to reform Senate procedure. As Prof. Bernstein has been saying since ACA passed, Republicans are likely to start blaming every single problem in the health care system on the newly-passed law, much like they blamed Obama and the stimulus for every economic problem after January 2009. That gives the administration and its party a large incentive to make sure the law is implemented as professionally as possible. The problem is that all the key figures for implementation (the Health Secretary, dozens of other sub- and assistant-secretaries, and the IPAB) are administration appointees, and the appointment process is broken. At this point in his presidency, Obama has had far fewer of his nominees approved by the Senate than his predecessor. Because of arcane Senate rules like unanimous consent and the anonymous hold, staffing up a modern administration turns out to be very, very difficult in a climate of partisan obstruction. The administration and the party have clearly been annoyed by this for a while, but the need to implement the ACA should give them an extra push to do something about the problem at the beginning of the next congress.

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This is a group blog. JSC5 currently writes from the US. JSC7 writes from behind the Great Firewall of China.

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