“Republicans To Wealthy; We Just Can’t Quit You”: Giving Equal Benefits To Everyone Would Be Ridiculous
Any marginally aware citizen is familiar with what I like to call the Four Pillars of Conservatism: low taxes, small government, strong defense, and traditional values. The simplicity and clarity of these ideas allows any Republican anywhere to move into politics with a ready-made ideological program, and as long as they stay abstract, it’s reasonably popular. It’s only when you start to get into specifics that the agenda becomes problematic.
The trick is that if you’re proposing something unpopular, to speak about it in the most abstract terms possible. “Low taxes” sounds great, because who wouldn’t like to pay less in taxes? The trouble is that what Republicans actually want is to cut taxes for the wealthy. They’re perfectly happy to cut taxes for other people if the opportunity presents itself, but the value of tax cuts for the wealthy is an absolutely foundational belief.
They know, however, that most Americans don’t agree. So when they talk about taxes, they’re supposed to be circumspect and careful, answering questions about tax cuts for the wealthy by saying that tax cuts in general are good for everybody. Which is why it’s so surprising when one of them is candid, as House Ways and Means Committee chairman Kevin Brady was in an interview with John Harwood published today.
Brady, who is in charge of tax policy, just comes out and says that Republicans won’t accept any tax reform that doesn’t include reducing the top income tax rate. All that talk of making the tax code simpler is all well and good, but there’s one thing they will absolutely not compromise on, and that’s the top rate, which is currently paid by those making over $415,000 a year:
HARWOOD: Could you envision a tax reform that you could go along with that had many elements that you liked that did not decrease the top rate?
BRADY: That’d be difficult to accept, because I think that holds back investment, both by businesses, small businesses, and by families.
HARWOOD: Because there are some conservatives who are arguing that in the environment that we’re in now, that conservative tax reformers ought to focus on things other than the top rate.
BRADY: I’d have to disagree, and here’s why. Besides businesses investing, when individuals, after they make that dollar, they have three choices. They can spend it, they can save it, which is good as well, but they can reinvest it back in the economy. And earners, not just high earners, all along the scale do that. I want to encourage families and environments to do more of that. And so on that side of the ledger, let’s look at those pro-growth packages.
There’s a rationale here, which is that when you give rich people more money, they’re more likely to invest it, which helps grow the economy over the long run. But conservatives sell this idea not as a long-term way to sustain investment, but as a short-term strategy to bring prosperity to all. This year, every Republican running for president essentially pledged to bring back George W. Bush’s economic policies. There were differences in the details of their plans, but all of them centered on large tax cuts for the wealthy, and all promised that the effects would be spectacular.
But here on Planet Earth, there is zero real-world evidence that large tax cuts for the wealthy super-charge the economy. If it were true, then Bush would have been the most economically successful president in American history. But he was actually one of the worst, and when it comes to job creation, the last two presidents who raised taxes on the wealthy — Bill Clinton and Barack Obama — were among the best. The economy created 22 million jobs while Clinton was president, and Obama is on pace to see around 16 million new jobs created since the trough of the Great Recession in his first months in office (I discussed this at length here — with charts!).
Meanwhile, media coverage continues to suggest that Paul Ryan represents some kind of sober alternative to the presidential candidates. But he has long advocated slashing the top rate from its current 39.6 percent down to 25 percent, which would represent an enormous giveaway to the wealthy (he says it’ll be paid for by “cutting loopholes,” which are never specified). Just a month ago, Ryan was asked whether he might consider a plan that’s “distributionally neutral,” in other words, one that gives equal benefits to every income group. Here’s what Ryan said:
So I do not like the idea of buying into these distributional tables. What you’re talking about is what we call static distribution. It’s a ridiculous notion. What it presumes is life in the economy is some fixed pie, and it’s not going to change. And it’s really up to government to redistribute the slices more equitably. That is not how the world works. That’s not how life works. You can shrink or expand the economy, and what we want to maximize is economic growth and upward mobility so that everybody can get a bigger slice of the pie.
To translate: Giving equal benefits to everyone would be ridiculous. The only way to expand the economy for all is to shower benefits on the rich. But most people don’t quite understand what Ryan is talking about; all they hear is that he wants more pie for everybody. That’s how you’re supposed to talk about taxes.
And this is the key thing to understand: no matter which Republican ends up being the presidential nominee, cutting taxes for the wealthy will be at the absolute top of the agenda. Even Donald Trump, who has been happy to buck Republican orthodoxy on a variety of issues, issued a tax plan the greatest benefits of which went to the wealthy — just like every other candidate.
In this election, just like in every other election, Democrats will charge that Republicans only want to help the rich. It’s an effective attack, mostly because it’s true. Or to be more generous, Republicans want to help everyone, it’s just that they really want to help the rich, and they see helping the rich as the best way to help everyone else. But it’s possible that the Democratic attack could be particularly potent this year in winning over independents and even a few Republicans. The Republican Party has spent the last year in a brutal argument about their own perfidious elites, who supposedly look with scorn on the masses in their party. And after all that, the centerpiece of their economic plans for the future is still cutting taxes at the top.
When a party advocates something that politically dangerous, it isn’t because they’re stupid. It’s because they believe in it, down the marrow of their bones.
By: Paul Waldman, Senior Writer, The American Prospect; Contributor, The Plum Line Blog, The Washington Post, April 12, 2016
“Because They’re Actually Not”: Why Republicans Struggle To Convince Ordinary Americans The GOP Is On Their Side
Attention, Republicans: if you want to know why Americans never seem to believe you when you say you have ordinary people’s interests at heart, look no further than the new regulation governing investment advisers the Obama administration has now released.
I realize that few readers will lean forward with excitement upon reading the words “fiduciary standard,” but this is actually an important topic, both substantively and politically, so stay with me. The new regulation, which had been in the works for some time, says that investment advisers are required to follow a fiduciary standard, which means nothing more than that they have to be guided by what’s in their client’s best interests, just like a doctor or lawyer must.
You might ask, who on earth could possibly object to that? Other than the investment advising industry, of course. The answer is…the Republican Party.
Not the whole party, actually. Most Republicans would rather not discuss this issue at all, because doing so puts them in an uncomfortable place. But I have yet to find a single elected Republican who comes down on the side of the fiduciary standard.
To explain briefly: As things exist today, when you hire a financial adviser, they’re under no obligation to actually give you advice that’s in your best interests. What they often do instead is sell you products from which they’ll obtain bigger commissions, pushing you into investments that make them more money but won’t necessarily be good for you. The new regulation changes that, imposing the fiduciary standard on those advisers. This is a very big deal, because we’re talking about an industry that manages trillions of dollars in Americans’ money.
This morning I spoke to University of Chicago professor Harold Pollack, co-author (with Helaine Olen) of The Index Card: Why Personal Finance Doesn’t Have to be Complicated and a longtime advocate of the fiduciary standard. He was, unsurprisingly, enormously pleased by the administration’s move.
“People are unaware of the many conflicts of interest that exist in the financial advice industry and how much money it costs them over the course of their lives,” Pollack said, noting that selling clients products they don’t need is a core part of the industry’s business model.
But Pollack is quick to note that financial advisers provide an essential service, since most of us don’t have the expertise to make good investments and save properly for retirement or our children’s education. It’s also an extremely intimate relationship — Americans are notoriously secretive about their finances, which means you’ll share details of your life with your financial advisor that you wouldn’t tell friends or even some family members. That’s why it’s essential that the relationship is based on a core of trust.
“When people are dealing with financial advisers,” Pollack says, “they need to know that what they are getting is actual advice and not a sales pitch.” He also pointed out: “The research that has come out about the poor performance of actively managed investments has had a huge impact.” More and more people are becoming aware that the best investment strategy is often to simply park most of your money in a low-fee index fund; no matter how smart your adviser is, you aren’t going to beat the market.
So what are the political implications of this new rule? On the surface, you’d think that a position in opposition to the administration’s move would be almost impossible to defend. Who’s going to argue that your financial adviser ought to be able to push you into buying something you don’t need? That’s just a couple of steps away from outright fraud.
But if you listen to Republicans, it becomes clear they don’t like the rule, but not for any specific reason relating to the rule itself. They’ll talk about Washington bureaucrats and Obama overreach, but the tell is in their repeated use of the phrase “Obamacare for financial planning!” (here’s an example from Paul Ryan). Whenever Republicans say something is “Obamacare for X,” it’s a way of saying, “We don’t like this thing, but we don’t want to say exactly why, so we’ll just say it’s like that other thing we don’t like.”
This gets to the heart of the different perspective the two parties bring to questions of the economy and government’s role in regulating it. The conservative perspective is essentially laissez-faire: if financial advisers take advantage of their clients, well, that may be regrettable, but we don’t want the government to actually do anything to prevent it, because we have to let the market do what it will. And when it comes to the affirmative policy changes they want to make, for ordinary people most of it involves waiting for things to trickle down. Let us cut taxes on the wealthy and reduce regulations on corporations, they say, and that will create the conditions that will foster economic growth, so that at some time in the future it will be easier for you to find a good-paying job (those getting the tax cuts and regulatory breaks, on the other hand, get their benefits right away).
Liberals, in contrast, are comfortable with making policies like the fiduciary rule — or increases in the minimum wage, or paid family leave, or more inclusive overtime rules — that are designed to deliver immediate benefit to ordinary people. And as complicated as economic policy can sometimes get, most voters can understand this fundamental difference. That’s why Republicans constantly have to struggle to explain why they actually have ordinary people’s interests at heart, and why Democrats can just say, “Yep, there go the Republicans again, just trying to help the rich and screw the little guy,” and voters nod their heads in recognition. Republicans may think it’s unfair, but when they oppose things like the fiduciary rule or try to shut down the Consumer Financial Protection Bureau (protecting consumers, egad!), what do they expect voters to conclude?
Both Hillary Clinton and Bernie Sanders came out in favor of the fiduciary rule last fall; it remains to be seen whether they’ll bring it up again on the campaign trail. But as Pollack notes, the change might not have been possible without the attention it has already gotten. Though people in positions of power often say, “good policy is good politics” as a way of claiming that they have only the purest of (non-political) intentions for their decisions, sometimes exactly the opposite is true.
“This is an example where good politics is actually critical to good policy,” Pollack says, “because if this had been decided quietly in Congress, there’s a good possibility it would have been weakened.” The more attention it got, the more room the administration had to do the right thing. And now that they have, Democrats should keep talking about it.
By: Paul Waldman, Senior Writer, The American Prospect; Contributor, The Plum Line Blog, The Washington Post, April 7, 2016
“Learning From Obama”: Voters Have Lately Been Given A Taste Of What Really Bad Leaders Look Like
Like many political junkies, I’ve been spending far too much time looking at polls and trying to understand their implications. Can Donald Trump really win his party’s nomination? (Yes.) Can Bernie Sanders? (No.) But the primaries aren’t the only things being polled; we’re still getting updates on President Obama’s overall approval. And something striking has happened on that front.
At the end of 2015 Mr. Obama was still underwater, with significantly more Americans disapproving than approving. Since then, however, his approval has risen sharply while disapproval has plunged. He’s still only in modestly positive territory, but the net movement in polling averages has been about 11 percentage points, which is a lot.
What’s going on?
Well, one answer is that voters have lately been given a taste of what really bad leaders look like. But I’d like to think that the public is also starting to realize just how successful the Obama administration has been in addressing America’s problems. And there are lessons from that success for those willing to learn.
I know that it’s hard for many people on both sides to wrap their minds around the notion of Obama-as-success. On the left, those caught up in the enthusiasms of 2008 feel let down by the prosaic reality of governing in a deeply polarized political system. Meanwhile, conservative ideology predicts disaster from any attempt to tax the rich, help the less fortunate and rein in the excesses of the market; and what are you going to believe, the ideology or your own lying eyes?
But the successes are there for all to see.
Start with the economy. You might argue that presidents don’t have as much effect on economic performance as voters seem to imagine — especially presidents facing scorched-earth opposition from Congress for most of their time in office. But that misses the point: Republicans have spent the past seven years claiming incessantly that Mr. Obama’s policies are a “job killing” disaster, destroying business incentives, so it’s important news if the economy has performed well.
And it has: We’ve gained 10 million private-sector jobs since Mr. Obama took office, and unemployment is below 5 percent. True, there are still some areas of disappointment — low labor force participation, weak wage growth. But just imagine the boasting we’d be hearing if Mitt Romney occupied the White House.
Then there’s health reform, which has (don’t tell anyone) been meeting its goals.
Back in 2012, just after the Supreme Court made it possible for states to reject the Medicaid expansion, the Congressional Budget Office predicted that by now 89 percent of the nonelderly population would be covered; the actual number is 90 percent.
The details have been something of a surprise: fewer people than expected signing up on the exchanges, but fewer employers than expected dropping coverage, and more people signing up for Medicaid — which means, incidentally, that Obamacare is looking much more like a single-payer system than anyone seems to realize. But the point is that reform has indeed delivered the big improvements in coverage it promised, and has done so at lower cost than expected.
Then there’s financial reform, which the left considers toothless and the right considers destructive. In fact, while the big banks haven’t been broken up, excessive leverage — the real threat to financial stability — has been greatly reduced. And as for the economic effects, have I mentioned how well we’ve done on job creation?
Last but one hopes not least, the Obama administration has used executive authority to take steps on the environment that, if not canceled by a Republican president and upheld by future Supreme Courts, will amount to very significant action on climate change.
All in all, it’s quite a record. Assuming Democrats hold the presidency, Mr. Obama will emerge as a hugely consequential president — more than Reagan. And I’m sure Republicans will learn a lot from his achievements.
April fools!
Seriously, there is essentially no chance that conservatives, whose ideas haven’t changed in decades, will reconsider their dogma. But maybe progressives will be more open-minded.
The 2008 election didn’t bring the political transformation Obama enthusiasts expected, nor did it destroy the power of the vested interests: Wall Street, the medical-industrial complex and the fossil fuel lobby are all still out there, using their money to buy influence. But they have been pushed back in ways that have made American lives better and more secure.
The lesson of the Obama years, in other words, is that success doesn’t have to be complete to be very real. You say you want a revolution? Well, you can’t always get what you want — but if you try sometimes, you just might find, you get what you need.
By: Paul Krugman, Op-Ed Columnist, The New York Times, April 1, 2016
“Completely Ridiculous Fear-Mongering”: Stop With The Zombie Lies: No, Social Security Is Not ‘Going Broke’
Even though last night’s Republican debate featured precious little discussion of the size of the candidates’ hands, there was plenty to be disappointed and angered by. The moment that perturbed me the most was when CNN’s Dana Bash, who ought to know better, said that “Social Security is projected to run out of money within 20 years.”
The discussion about America’s most successful and beloved social program had some interesting implications for the general election. But before we get to that, I need to say this slowly and clearly, so there’s no misunderstanding:
Social Security is not going to “run out of money.”
The idea that the program is going to “run out of money” or is “going broke” is a zombie lie, one that deserves to have its head lopped off with a quick slice of Michonne’s katana.
We’re going to have to get a little wonky for a bit, but I’ll try to make this as painless as possible. The short version: under the worst-case scenario, meaning that a poor economy in coming years deprives the system of money and no changes to the program’s financing are made, then Social Security recipients will find themselves getting smaller checks than they ought to. And that would be a bad thing — if you rely on Social Security as your main or only source of income, it would be terrible to get only 77 percent of what you should (I’ll reveal why I’m using that number in a moment).
But if the program were only able to deliver 77 percent of its benefits, it would not be “broke” or have “run out of money.” When the entitlement doomsayers use those words, they want everyone to believe that the program will be, well, broke, which would mean it would be able to pay nothing to the recipients. And that’s a lie.
Let’s remind ourselves how this program works. Workers pay Social Security taxes, which are then distributed to today’s recipients as benefits. But when the taxes (and the interest the program earns on the bonds it holds) exceed the benefits, what’s left over goes into a trust fund, commonly known as the “Social Security surplus.” According to the latest report from the Social Security Trustees, in 2014 the program took in $769 billion and paid out $714 billion. The extra $55 billion went into the trust fund, which at the end of that year contained $2.729 trillion.
We’re going to need the trust fund, because the very large Baby Boom generation has just started to retire, meaning more people are going to be drawing benefits. The Trustees’ projections say that starting in 2020, the program will take in less than it’s paying out, and the trust fund will be exhausted in 2035.
Now this is important: the whole point of the trust fund is to be there when that year’s taxes aren’t enough to pay that year’s benefits. When we take money out of the trust fund, it isn’t some kind of crisis, it’s the system working as it was intended.
But won’t the system be “broke” in 2035? No. Under these projections, in 2035 we’d only be paying out to recipients what we take in through taxes. At that point, recipients would get paid only 77 percent of their promised benefits.
As I said, this would be a very bad thing. But is it going to happen? It’s important to remember that the trustees make projections, so there’s a good deal of uncertainty around the numbers. It all depends on what kinds of assumptions you make about the future, particularly on what you think the economy will look like. If the economy is stronger, that means more tax revenue coming in, and the program can pay more benefits; if the economy is weaker, the program has more challenges.
Because of that uncertainty, the Trustees actually make three sets of projections, what they call high-cost, low-cost, and intermediate. It’s the intermediate one that everyone reports, and that’s where the date of 2035 and the figure of 77 percent of benefits come from. Without going too deeply into it, everything depends on how optimistic or pessimistic you want to be about America’s economic future, in terms of things like economic growth, productivity growth, and unemployment. Many people argue that the Trustees are unduly pessimistic about the future, and the most realistic projection is not the intermediate one but the one they call low-cost. And under that projection, the surplus never runs out, and we have plenty of funds to pay all benefits essentially forever, or at least for the next 75 years, which is how far out they attempt to project.
We aren’t going to settle that right now, but there’s an important piece of this to understand, which is that here in Washington, the opinion of Very Serious People is that Social Security is headed for disaster (along with Medicare, which is its own story), and the only thing to do is to either make people wait longer until they retire or cut their benefits. Indeed, proclaiming that you want to do one of those two things (or both) is in some circles how you demonstrate that you’re Very Serious about this issue. There is an entire mini-industry of think-tanks and advocates devoted to convincing lawmakers and the public that entitlements are a disaster in the making, so we need to cut them.
But there are other ways you could solve the problem, if it indeed turns out to be a problem. You could increase the cap on Social Security taxes — right now you only pay them on the first $118,500 of your income, which means that someone earning below that pays 6.2 percent of their income in Social Security taxes, while a hedge fund manager making $11.8 million pays only .062 percent of his income. You could also increase the tax itself, say by a tenth of a percent per year over ten years, which people would find imperceptible. In other words, you could maintain (or even increase) benefits by bringing in more money.
In last night’s debate, Marco Rubio said: “Social Security will go bankrupt and it will bankrupt the country with it.” This is the kind of completely ridiculous fear-mongering that gets you rounds of applause from those who want to cut the program. He then explained that he wants to raise the retirement age from 66 to 70 and reduce benefits (but of course, he says these things will happen in the future and not affect current retirees, who vote in such high numbers and are rather protective of their benefits). Ted Cruz said that he wants to slow the rate of growth in benefits (they’re adjusted for the cost of living) and convert some part of them to stock market accounts. But it’s what Donald Trump said that’s genuinely interesting:
“The Democrats are doing nothing with Social Security. They’re leaving it the way it is. In fact, they want to increase it. They want to actually give more. And that’s what we’re up against. And whether we like it or not, that is what we’re up against.
“I will do everything within my power not to touch Social Security, to leave it the way it is; to make this country rich again; to bring back our jobs; to get rid of deficits; to get rid of waste, fraud and abuse, which is rampant in this country, rampant, totally rampant. And it’s my absolute intention to leave Social Security the way it is. Not increase the age and to leave it as is.
“You have 22 years, you have a long time to go. It’s not long in terms of what we’re talking about, but it’s still a long time to go, and I want to leave Social Security as is, I want to make our country rich again so we can afford it.”
Strip away all the Trumpian bluster, and what you have is 1) a pledge not to cut benefits or raise the retirement age; and 2) the assurance that the program’s cost will be covered because the economy will perform well. Trump sounds an awful lot like…a liberal!
When Trump says, “that’s what we’re up against,” he seems to be saying that because the Democrats want to increase benefits, they’ll be able to present themselves as the program’s protectors and criticize Republicans for trying to undermine it (unless he’s the nominee). And about that, he’s right. Democrats will do that, because that’s what they almost always do. It’s usually an effective attack, both because Americans love Social Security, and because it’s true.
So how does Trump compare to the Democrats, and what is the debate on this issue in the general election going to look like? Bernie Sanders’ position is that benefits should be expanded, particularly since so many Americans lack retirement savings. He has proposed keeping the cap, but having the tax kick in again above $250,000, essentially inserting a “doughnut hole” in the tax; he has also suggested applying the tax to wealthy households’ investment income, and not just wages as it is now. Hillary Clinton has a similar, though less detailed, position: she rules out increasing the retirement age or cutting benefits, and wants to raise the cap to some unspecified level in order to increase some benefits.
Trump has broken with Republican orthodoxy in a few areas where Republican orthodoxy is deeply unpopular, and this is one of them. He probably has the political calculation right: it will be hard for Clinton or Sanders to go after him on Social Security when he’s pledging to protect it without any changes. They’re not going to move to his right on the issue, and while they’ve staked out a position somewhat to his left, he’ll be offering much the same result, without having to pay for it. A tax increase, he’ll say, won’t be necessary because when I’m president gold will practically fall from the sky.
Is that going to work? Frankly, I suspect it will, at least in taking Social Security off the table as an issue of contention between the two party nominees. But don’t worry — the Democrats will have plenty of other things to criticize him for.
By: Paul Waldman, Senior Writer, The American Prospect; Contributor, The Plum Line Blog, The Washington Post, March 11, 2016
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