Opinion

Reihan Salam

Paul Ryan, Patty Murray and a budget walk into a bar

Reihan Salam
Mar 15, 2013 15:38 UTC

This week, House Republicans and Senate Democrats released budget resolutions that illustrate the chasm that separates the two parties.

The Republicans, led by House Budget Committee Chairman Paul Ryan, aim to shave $4.6 trillion off of the federal government’s spending trajectory. They get there primarily by reducing the growth rate of domestic social programs like Medicaid and rolling back the coverage-expanding provisions of the Affordable Care Act. Although the Ryan budget accepts the revenue increases that were part of the fiscal cliff deal and the Affordable Care Act, it does not allow for any further revenue increases.

The Democrats, led by Senate Budget Committee Chairwoman Patty Murray, aim to reduce spending by $975 billion. Yet they also call for $100 billion in new stimulus spending and shutting off the $1.2 trillion in automatic spending cuts scheduled to take place under sequestration, which suggests that spending reductions will be more than balanced by spending increases. And while the Ryan budget resists revenue increases, the Murray budget calls for $975 billion in revenue from unspecified cuts to loopholes and spending in the tax code.

Beneath the surface of these two budgets lie coalition politics. The Ryan budget, for example, delays its major Medicare reforms until today’s 55-year-olds reach retirement age. It also leaves Social Security largely untouched. One way to look at this is as a concession to the political reality that older Americans tend to support Republicans, and so reforms that reduce benefits for older Americans will be met with strong intra-party resistance. At the same time, the main beneficiaries of Medicaid expansion are low-income adults who are not, as a rule, inside the GOP tent. Conservatives generally believe that smaller government is better for everyone, including the poor. Yet conservative politicians have more to fear from voters who rely on Social Security and Medicare than from voters who rely on Medicaid, which explains their reluctance to make deep cuts in old-age social programs and their willingness to make cuts in programs that tend to benefit the young.

The Murray budget, in contrast, tries to unite a very different coalition. Democrats represent low-income adults who rely on programs like Medicaid; unionized public employees and health-sector workers who rely on federal spending to make a living; students and educators who count on higher education subsidies; and college-educated professionals who favor tax increases on people richer than themselves. This unwieldy coalition makes it very difficult to cut spending. There is a strong intellectual case that Democrats should embrace a single-payer system like Canada’s to shrink health costs, thus allowing the federal government to spend more on, say, green energy investments. But for every left-of-center Democrat who likes the idea, there is a Democrat who represents hospitals and insurers who does not. And though Democrats are far more open to tax increases than Republicans, they have backed themselves into a position in which they can only raise taxes on, at best, the top 2 percent of earners.

To create growth, unleash the invisible foot

Reihan Salam
Mar 1, 2013 16:58 UTC

Across the political spectrum, there is a growing recognition that while short-term battles over government spending are important, they would be far less ferocious and intense if our economy were growing at a faster clip. But while conservatives and liberals alike clamor for more growth, they disagree about how to produce it. The key is unleashing what the economist Joseph Berliner once called the “Invisible Foot,” the neglected counterpart to Adam Smith’s “Invisible Hand.”

Before we turn to the Invisible Foot, let’s think through the prescriptions for growth offered by Democrats and Republicans. President Barack Obama and his Democratic allies often argue that substantial increases in public investment will deliver robust growth. Republicans, in contrast, emphasize the notion that reductions in marginal tax rates will spur growth by increasing the incentives to work and invest. These approaches are obviously far apart, yet they face at least two common obstacles. First, the aging of the population and the high cost of health entitlements severely limit the government’s ability to increase spending or cut taxes. Second, advanced economies have by definition already taken advantage of the most obvious sources of productivity growth and so are forced to innovate to find new sources of productivity growth. And innovation is a trial-and-error process that is far more expensive and arduous than simply following the leader.

So the question of the day isn’t whether we want growth (yes, we want it badly) or whether we can dramatically increase public investment or dramatically cut taxes (neither strategy is in the cards). Rather, it is whether there is anything we can do to make the American economy friendlier to the kind of risk-taking and innovation that will eventually yield productivity gains without breaking the bank.

A poor solution

Reihan Salam
Feb 15, 2013 16:55 UTC

The minimum wage debate is back, thanks to President Barack Obama. In his State of the Union address this week, he noted that a full-time worker earning the federal minimum wage of $7.25 an hour would earn $14,500 a year. This is an amount that would be very low for a single adult living alone, let alone the parent with two children whom the president invoked in his speech. And so he called for a sharp increase in the federal minimum wage from $7.25 an hour to $9 an hour, an amount that would be indexed to inflation, as a way to fight poverty and to give the economy a boost.

What the president didn’t mention is that the share of full-time workers who earn the federal minimum wage is very low. Mark Perry, an economist affiliated with the right-of-center American Enterprise Institute, observes that as of 2011, only 1.7 percent of full-time hourly employees were earning the minimum wage or less. Minimum-wage earners were more common among those aged 16 to 19 – 22.8 percent of these workers were earning the minimum wage or less. Of course, many of these workers live with their parents and are generally not the sole source of support for themselves or their families.

Another reason why so few workers earn the federal minimum wage is that as the value of the federal minimum wage has eroded, dozens of states have established or raised their own minimum wages. Thus far, only the state of Washington has a minimum wage, at $9.19 an hour and indexed to inflation, higher than the president’s proposal.

For states, Washington’s budgetary seduction proves too hard to resist

Reihan Salam
Feb 6, 2013 14:22 UTC

Federalism’s days appear to be numbered. The reason isn’t so much that the power of the federal government has increased, though that’s part of it. Instead, the slow-motion death of federalism flows from the fact that a wide array of federal programs have seduced state governments into playing Washington’s tune.

This week, for example, Ohio Governor John Kasich, a conservative who first came to prominence as one of the foot soldiers of the 1994 Republican Revolution, announced that he supports the federal expansion of Medicaid, one of the central pillars of President Barack Obama’s Affordable Care Act (ACA). Opposition to ACA, and to the enormously expensive Medicaid expansion, had until recently been considered a conservative litmus test.

Kasich is the fifth Republican governor to embrace the Medicaid expansion, alongside Arizona’s Jan Brewer, Nevada’s Brian Sandoval, New Mexico’s Susana Martinez, and North Dakota’s Jack Dalrymple. And he almost certainly won’t be the last. Florida Governor Rick Scott, a former healthcare executive who strongly opposed to the Obama administration’s health reform effort in his 2010 campaign, is widely expected to do the same.

Fixing immigration, but not necessarily the Rubio way

Reihan Salam
Jan 22, 2013 22:44 UTC

In U.S. political debates, there is a tendency to separate economic issues, like taxes, spending and regulation, from social issues, like abortion rights, gay rights and gun rights. Immigration, as a general rule, tends to fall in this latter bucket, as an issue that comes up mainly because it matters to Latino and Asian voters and a handful of vocal immigration restrictionists.

There is a decent case that immigration should really be understood as an economic issue – indeed, as the most important economic issue facing U.S. policymakers. That is part of why Senator Marco Rubio (R-FL) has attracted so much attention for his recent call for comprehensive immigration reform, a call echoed by voices across the political spectrum, including President Barack Obama’s. But Rubio’s plan has been met with considerable resistance, in large part because debates over immigration policy also have a moral dimension. Understanding it is key to breaking out of our immigration impasse. 

But first, it is important to understand why the immigration issue is gaining momentum. Back in 2011, J.P. Morgan released a report that found that U.S. households own $70 trillion in physical and financial assets. This same report found that America’s stock of human capital, i.e., the collective education and experience of all U.S. workers, amounted to $700 trillion. Rather than pouring hundreds of billions of dollars into new roads, bridges and housing units, the surest and cheapest strategy for increasing our collective wealth is to import talented workers. Even as the United States is mired in a sluggish semi-recovery, vast numbers of skilled English-speaking foreigners are eager to settle in, to start  businesses and buy homes. These keen would-be immigrants represent low-hanging economic fruit, a fact that is well understood in Silicon Valley and Wall Street, where high-wattage immigrants have made an outsized contribution.

Somebody find the GOP a carrot

Reihan Salam
Jan 11, 2013 21:47 UTC

As House Republicans gird themselves for battle over the debt limit, they are united by an adamantine conviction that something must be done about federal spending, and soon. The challenge Republicans face, however, is that they’ve become the party of all sticks and no carrots.

Back in 1976, Jude Wanniski, the idiosyncratic supply-side guru, published a short essay arguing that while the Democrats are the spending Santa Claus, bearing promises of more government benefits, Republicans should become the tax Santa Claus, bearing promises of tax cuts. That is famously what happened during the Reagan era.

But as the tax burden on middle-income households dwindled, middle-income swing voters started to care less about taxes and more about the cost of medical insurance, higher education, and a whole host of quality-of-life issues. President Bill Clinton exploited this dynamic by politically championing middle-income tax cuts and tax increases on high earners at the same time, a tactic that has paid dividends for Democrats ever since. Republicans have found themselves defending tax cuts for high earners while offering little if anything to middle-income voters but calls for entitlement reform. Whether or not this stance is defensible on policy grounds, it’s certainly not what Santa would do.

Does Britain’s austerity hold lessons for the United States?

Reihan Salam
Jan 4, 2013 16:16 UTC

The dog’s breakfast of a deal that “resolved” the fiscal cliff fell far short of expectations. In the hours after it passed, deficit hawks at the Committee for a Responsible Federal Budget and the tag team of former Senator Alan Simpson and former Clinton White House chief of Staff Erskine Bowles all expressed disappointment in a bargain that was anything but grand. Senate Republicans gritted their teeth to accept a small increase in taxes on America’s highest-earning households while Senate Democrats made permanent the bulk of the Bush-era tax cuts. A number of tax provisions that hark back to the 2009 fiscal stimulus law were extended, as were unemployment benefits, thus delivering a modest income boost to a large number of low-income households. But the Social Security payroll tax cut, a Republican-backed replacement for the more narrowly targeted Making Work Pay tax credit that was part of the stimulus law, which benefited a wide range of affluent households as well as families of more modest means, was allowed to lapse. Long-term spending levels, meanwhile, were left largely untouched, which is why rebellious House Republicans came close to scuttling the delicately constructed compromise.

One group that offered at least two cheers for the deal were deficit doves, who believe that premature fiscal consolidation poses a grave threat to America’s sluggish economic recovery. Paul Krugman, the prominent economist and popular left-of-center New York Times columnist who never shrinks from apocalyptic pronouncements, was almost pleased to see that the deal avoided any serious spending cuts and that it entailed relatively modest near-term tax increases.

There is a coherent approach to reconciling the concerns of deficit hawks and doves, which has been championed by former Senator Pete Domenici and former Clinton budget director Alice Rivlin of the Bipartisan Policy Center’s Debt Reduction Task Force. Essentially, it entails addressing the federal government’s structural budget deficit — the gap between revenues and spending levels when the economy is humming along at its “normal” pace — while allowing for substantial deficits so long as the economy is in recovery mode.

After Boehner’s Plan B, crafting a new plan for Republicans

Reihan Salam
Dec 21, 2012 20:42 UTC

House Speaker John Boehner has struggled for weeks to unite his fellow Republicans around a deal to avert the fiscal cliff. Having failed to find a package of tax increases and spending cuts acceptable to the Obama administration and the House GOP, he pivoted to a politically shrewd “Plan B” that would have extended all of the Bush-era tax cuts except for the high-income rate reductions that applied to income above a $1 million threshold. But as Boehner and his lieutenants worked to rally support, they found that they didn’t have the votes to pass “Plan B.” And so Boehner has suffered what is widely regarded as a humiliating defeat, one that has left many observers wondering whether he can survive for long as speaker.

Whether or not Boehner manages to regain his standing with House Republicans, his defeat raises a number of more significant questions about where Republicans should go from here.

Until the next presidential election, Boehner and the House Republicans are the face of the GOP. There are, to be sure, a number of talented Republican governors, yet most of them are either deeply engaged with issues close to home or too obscure or low-wattage to have much of a national impact. All but a handful of House Republicans represent constituencies with substantial Republican majorities, thanks in no small part to the influence of Republican state legislators in drawing district boundaries. The GOP is thus likely to hold the House for years to come, even if Hillary Clinton wins the White House come 2016. Like it or not, conservatives need the House GOP to get its act together sooner rather than later. But how?

Tax hikes conservatives can love

Reihan Salam
Dec 14, 2012 21:22 UTC

Though it is hard to tell exactly how the fiscal cliff tug-of-war will end, what we can say is that Democrats and Republicans have been drearily unimaginative. President Obama wants to see the top two federal income tax rates increase above their current levels.

Obama has called for a top rate of 39.6 percent, though he has signaled a willingness to compromise on a somewhat lower rate. While he has said he is open to entitlement reform in some vague way, he has so far refused to be pinned down on the details. Essentially, he is asking congressional Republicans to make a big concession on taxes and to trust that he will honor his end of the deal by agreeing to embrace spending restraint in 2013.

Republicans are by and large opposed to a top tax rate above today’s 35 percent. Though they too have been light on details, many have instead embraced sharp limits on popular tax exemptions for high earners to raise revenue. Others have suggested they’d be willing to budge on tax rates. Representative Tom Cole (R-OK) has called on his fellow House Republicans to pass two bills, one that extends the Bush-era high-income rate reductions and another that extends everything else, with the understanding that the latter will become law while the former will fall into oblivion. This strategic retreat is designed to allow Republicans to use the forthcoming fight over the debt limit to secure, among other things, a hike in the Medicare eligibility age.

Rubio: Reframing a conservative agenda

Reihan Salam
Dec 6, 2012 05:44 UTC

It will take many years for Republicans to live down presidential nominee Mitt Romney’s now infamous remarks about “the 47 percent,” that broad swath of Americans he wrote off as eager for handouts and unwilling to take responsibility for their own lives. But Tuesday, Senator Marco Rubio (R-Fla.), once widely touted as Romney’s ideal running mate, gave an extraordinary address that offered a very different message — one that could foreshadow the next Republican presidential campaign.

Rubio was elected to the Senate in 2010 as a stalwart Tea Party conservative, who drove his moderate opponent Charlie Crist out of the GOP after a fiercely contested primary. Since then, however, Rubio has steered clear of the confrontational rhetoric favored by many of his conservative allies. He has instead been championing the idea that the problem facing Republicans is not the shiftlessness of the 47 percent, but rather the party’s failure to speak to the aspirations of middle-income strivers.

During an address in Washington to the Jack Kemp Foundation, Rubio laid out a compelling diagnosis of the challenges facing American society. He began on a prosaic note, describing how the failure to reform Medicare today will necessitate more stringent cutbacks in the future and how America’s byzantine tax code and excessive regulation stifle growth. So far, so familiar.

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