A Proposal to Keep the BCA Joint Committee Moderate

The success, or failure, of the Budget Control Act’s Joint Committee, which will have the resposibility to craft a $1.2 trillion deficit reduction package, will depend in large part on who is assigned to the committee.

Party leaders from both sides are facing pressure to pick party loyalists. Many Republicans don’t want anyone appointed that will support revenue increases. Many Democrats don’t want anyone appointed that will support reductions in the growth of entitlements. If party leaders appoint people who are unwilling to compromise, the committee will stalemate and no deal will be possible.

Here is a proposal that would help the party leaders, John Boehner, Nancy Pelosi, Harry Reid, and Mitch McConnell, avoid this situation: they could each agree to choose one person from the opposite party.

Each leader chooses three members. In this scenario, each would choose two from their own party and one person from the other party. So, Boehner and McConnell would each choose two Republicans and one Democrat, and Pelosi and Reid would each choose two Democrats and one Republican, for instance.

Since Boehner and McConnell would choose centrist Democrats, and Pelosi and Reid would choose centrist Republicans, at least four of the 12 member committee would be centrists and a compromise bill would most likely emerge from negotiations.

Congress would not have to do anything to make this happen. An agreement among all four leaders is all that would be needed to make this happen.

What do you think? Please let me know in the comments below.

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Why Bills are Long: A Response to Herman Cain

Republican presidential candidate Herman Cain recently remarked that he would not sign a bill over 3 pages long. He later said that the comment was hyperbolic, but would prefer simple, short bills, “that the American public can read and understand,” over long, complicated bills. This position is, understandably, attractive to many voters. It reflects the mistrust that many have of Congress. Also, stories of earmarks and tax breaks that are “slipped” into bills are common. Short and simple bills, therefore, are seen as a solution to a crooked Congress.
Additionally, in a political campaign, candidates often attempt to find simple solutions to our nations complicated problems because they are easier to communicate to voters, and easier for voters to understand. This may also be the source of Cain’s pledge to not sign a bill over 3 pages. Tim Pawlenty’s  “Google test” would be another example.
I can imagine scenarios where making a bill shorter would improve it. I am a long time advocate of a simpler tax code, for instance. Making bills shorter does not, however, improve them by default. In most cases it would make them worse—much worse. Here is why.
The implementation of legislation is the responsibility of government bureaucrats. Bureaucracies take laws written by Congress and put them into action. Sometimes this endeavor can be straightforward. Other times, however, there can be much gray area between the intent of Congress, as stated in a law, and its implementation by a bureaucrat. Congress cannot write a bill that accounts for every possible situation that the bill will encounter. The details of implementation, therefore, are left to the bureaucrats who are responsible for the implementation of a law.
Now, imagine you are a member of Congress. You know that you may have little control over the implementation of a bill after you have voted on it. How, then, are you going to do all that you can to make sure the law is implemented how you would like for it to be implemented? The answer, of course, is to provide lots of detail and use precise language. In other words, write a long, complicated bill.
When you see, therefore, legislation that is long, complicated and uses a bunch of legalese gobbledy-gook, you are seeing the results of congress members trying to have as much control as possible over the direction of that legislation. The next question you should ask is, who do you want to have the most control over the direction of that legislation? Unelected bureaucrats, or the members of Congress who can be held accountable by voters every election?

The Purple Health Plan

Laurence J. Kotlikoff, Professor of Economics at Boston University, has devised a bipartisan health care reform plan–The Purple Health Plan. (Red and blue make purple, get it?) The plan would do away Medicare, Medicaid, and the tax deduction for employer provided health care. In its place, everyone would get a voucher for basic insurance coverage. The plan counts five Nobel Prize winning economists among its signers.

Frequent readers of this blog may recall that I made the exact same proposal over year ago with my own Proposal for Bipartisan Health Care Reform. I still recall how I came up with the idea. I was preparing to teach about health care to my Public Policy class at Marietta College and our nation was in the midst of a debate on health care reform. As Republicans and Democrats were both offering ideas on reform, and I was doing research on our current health care system, the following thoughts occurred to me:

  • Three of the biggest drivers of our health care costs are Medicare, Medicaid, and employer subsidized health care. 
  • We spend a lot of money on Medicare and Medicaid, which are grossly inefficient and contain a massive amount of fraud. And, a lot of revenue could be raised by doing away with the tax deduction for employer provided health care.
  • The US government does simple programs well, such as Social Security, which is basically sending people a check each month. The US government does complicated programs poorly, such as Medicaid, which is basically running an insurance company. 
  • Democrats mostly want universal coverage. Republicans mostly want to bring costs down through market based reforms. Can both sides get what they want?

The obvious solution flowed from these basic points. It doesn’t surprise me, therefore, that a bunch of big-time economists would, essentially, come up with the same idea.

The Purple Health Plan does contain some variations to my original plan. Take a look at it and tell me what you think in the comment section below.

Related posts:

Do We Need a Heath Care Mandate?

A Proposal for Bipartisan Health Care Reform 

Liberal versus Conservative health care policies 

 

Politifact: Could we have some consistency, please?

I’m a big fan of Politifact and Factcheck.org. They provide an important public service. But sometimes I find some of their scoring decisions strange, especially with categories like “half-true”, “mostly true”, and “mostly false”. Recently, for instance, Politifact rated Michele Bachmann “false” for stating that the top 1% of wage earners pay 40% of federal taxes, and Obama “half-true”  for stating that incomes rose for the top 1% of wage earners and dropped for everyone else. Both statements are false, but could be considered true if you make assumptions about what they really meant by their statements. In an email to Politifact, I wrote,

Regarding: http://politifact.com/truth-o-meter/statements/2011/apr/14/barack-obama/obama-says-incomes-increased-more-250000-top-1-per/

You give Obama a “half-true”, for a statement that you acknowledge is false. Apparently, the “half-true” comes after making a bunch of assumptions that he didn’t say.

Now look at this one: http://politifact.com/truth-o-meter/statements/2011/apr/18/michele-bachmann/michele-bachmann-says-top-1-percent-pay-40-percent/

Bachmann also made a false statement, and you label it as such. But, if you assume she meant federal income taxes, it would be true. So, why not “half-true”?

I suggest some consistency. Either they are both “half-true”, or both “false”. Otherwise, it appears you are willing to give Obama the benefit of the doubt, but not Bachmann.

Democrats Who Favor the Wealthy

In my previous post, I noted that some Republicans claim to defend free-market capitalism while
supporting policies that harm it. In this post, I’ll discuss an analogous hypocrisy that can be found in the Democratic party. Democrats often claim to be defenders of the poor and working classes and argue that the wealthy must pay more of the share of the tax burden, while supporting policies that harm the poor and benefit the wealthy.
Tax Deductions
One important point to keep in mind when you hear politicians debate tax policy is that the amount someone pays in federal income tax is not solely determined by the tax rates, it is also determined by deductions and credits. While Democrats often claim that the tax rate for the top income bracket needs to increase, or not decrease, few Democrats will criticize tax deductions that disproportionately favor the wealthy.
Employer provided health care and the interest paid on a home mortgage are both tax deductible, for example. Since the wealthy are more likely to have expensive health care plans and borrow money for an expensive home, these tax benefits disproportionally go to the wealthy. Tax deductions for solar panels and hybrid vehicles also disproportionately go to the wealthy. Yet, most Democratic politicians continue to support them, even as they argue that the wealthy need to pay a higher share of the tax burden.
So, in the end, these Democrats are performing a sleight of hand with voters. They can claim that they support making the wealthy pay a higher share of government revenue, but then give the wealthy some of that revenue back in the form of deductions and credits. The result of these deductions and credits is that the middle class will pay a higher proportion of government revenue.
Cash for Clunkers
“Cash for Clunkers” is another good example of a program, supported by many Democrats, that disproportionately favored the most well off in society, and, in this case, was actually harmful for the least well off. Under this program, enacted in 2009, the federal government would give you a rebate if you traded in an older vehicle for a newer one. The goal was to boost the economy, reduce pollution, and aid fledgling domestic auto makers.
This benefit, obviously, could only go to those who could afford new vehicles, which means the poor would get nothing. To make matters worse, however, by removing many used cars from the marketplace, the supply of used cars went down, thus driving up the cost of used vehicles. So, the poor, who mostly buy used vehicles, would be faced with higher prices when they purchase a “new to them” used vehicle.
Payroll Taxes
Payroll taxes are some of the most regressive taxes* at the federal level. Little support can be found among Democrats, however, for reducing these taxes. The programs that are supported by payroll taxes—Social Security, Medicare, and Medicaid—were begun under Democratic administrations and continue to be strongly supported by Democrats.
Social Security and Medicare, in particular, are also strongly supported by the public, in part, because they are for everyone, not just the needy. They are funded by payroll taxes due to the notion that you pay into these systems while you work and the programs will be available to you when you retire. In actuality, most will get more in benefits than they pay in taxes, while the wealthy and those who die before they retire will pay more into these systems than they get in benefits. So, these programs do, in fact, transfer wealth from the most well off to the less well off.
Most of the public, however, do not see them as “welfare” programs, in part because they are tied to payroll taxes. Few Democrats support a decoupling of Social Security and Medicare from payroll taxes because they are worried that this illusion of fairness (you get out what you pay into it) would erode. And, without this illusion, support for these programs would disappear.
Eliminating payroll taxes would help poor workers and spur job growth. Payroll taxes are paid by employers as well as employees. This means businesses must pay more in taxes to hire new workers, or provide overtime to current employees. Eliminating this burden on businesses would reduce the cost of hiring new workers.
The Democratic Party’s intractable position on payroll taxes can be seen in former House Republican Bob Inglis’ effort to replace them with a carbon tax. Generally, Democrats would like to reduce the amount of atmospheric carbon, as well as reduce the poor’s tax burden. One way to reduce atmospheric carbon would be to tax the industries that create it. Inglis’ proposal would seem to be a win-win, therefore, for Democrats. They could tax carbon emissions while eliminating a regressive tax. His proposal, however, got little support from a Democratically led Congress.
*A regressive tax is one for which the less wealthy you are the higher a proportion of your income goes towards paying that tax.

Anti-Free Market Republicans

Republicans often present themselves as the defenders of free-market capitalism. In defending tax breaks for businesses, for instance, Republicans might argue that a state that places too much burden upon the free flow of capital is a hindrance to free-markets. This would be true if those tax breaks applied to all businesses, but those Republicans who apply this argument to select benefits are actually behaving in opposition to some basic tenets of free-market capitalism.
In a free-market economy, the businesses that excel should be the ones that meet consumer needs by providing the best products at the best prices, not the ones that have the best lobbyists. The New York Times brought some attention to this issue when it reported that General Electric received more in tax refunds from the federal government than it paid in taxes. It turns out that, most likely, this is not true. What is true, however, is that General Electric lobbies for and receives select benefits in the tax code. General Electric is not unique in this way.
Many companies find it more cost effective to lobby Congress for benefits that directly help them, rather than for benefits for all companies in their industry, or all businesses. In the legislative process, it is much easier for a congressperson to add a rider or earmark to a bill that benefits a single company, than to pass a bill that cuts taxes for all companies, for instance.
The energy sector, for example, is awash in tax breaks and subsidies for different types of energy producers. Oil, natural gas, coal, wind, solar, and nuclear energy producers find that they must compete to have the best lobbying campaign in order to compete in price with the other energy producers. Some industries do a better job at lobbying Congress than others. Coal industry lobbyists, for instance, have done quite well while natural gas lobbyists struggle to get noticed. So, by providing more benefits to coal producers, Congress distorts the energy sector markets in favor of coal over other types of energy production.
A solution, obviously, would be to get rid of all the corporate tax breaks and subsidies and lower the tax rates across the board for all corporations. Some groups, such as President Obama’s National Commission on Fiscal Responsibility and Reform, the Bipartisan Policy Center’s Debt Reduction Task Force, and the House Republican’s 2012 Budget Proposal have all proposed doing exactly that. While many members of both parties have endorsed these plans, many others have not.
One important conservative critic is Grover Norquist, President of Americans for Tax Reform. Americans for Tax Reform has asked members of Congress to sign its “Taxpayer Protection Pledge” to not raise taxes. Currently, 237 House members and 41 Senators have signed the pledge. Norquist has stated that any attempt to close tax loopholes would be considered a violation of the “Pledge”. Senator Saxby Chambliss (R-GA), who has signed the pledge, has argued, on the other hand, that he would not consider it a violation because the overall corporate tax rate would be reduced along with the elimination of tax deductions. Norquist and his supporters, by opposing tax code simplification, are effectively saying that it is more important to keep government revenue low than to have a free-market system.
Interestingly, while the Tea-Party Republicans are often portrayed as the “far-right” of the Republican Party, on this issue, the tea-parties may find common cause with liberal Democrats. Last November, two separate letters, one from interest groups and another from US Senators, called for an end to ethanol subsidies. The former was signed by both the tea-party group FreedomWorks and the liberal group MoveOn.org. The latter was signed by tea-party supporter Tom Coburn and liberal Democrat Dianne Feinstein.
So, the next time you hear a Republican tell you they’re supporting the free-market by giving select benefits to companies, remind them that they’re actually distorting the marketplace.

>Eight Ways to Fix Social Security

>In my previous post, I explained why Social Security needs to be fixed. I said that I would offer seven ways to accomplish this in today’s post. I’ve actually done one better than that. Here are eight ways to fix Social Security.

Raise the retirement age.
When Social Security was first implemented, there were not many Americans who lived to age 65 (now 67). Today, due to advances in health care, more of us reach retirement age and live long past retirement age. This means that Social Security will pay benefits to more people for a longer period of time. Raising the retirement age would mean Americans would work longer, thus paying into the system for a longer period, and take benefits for a shorter period.
Index benefits to inflation instead of wages.
Social Security benefits increase each year based upon an index tied to wage increases. As wages rise, so do Social Security benefits. Over time, however, wages rise faster than the cost-of-living. Tying Social Security benefit increases to cost-of-living, rather than wages would, therefore, slow the growth of the program. For an excellent discussion of this proposal, watch this video from Paul Solmon on The Newshour.
Raise the limit on the amount that is taxed.
Social Security is funded through a payroll tax on workers and employers. There is, though, a cap (currently $106,800) on the wages that are taxed. You do not pay any tax on the amount you make above that amount. The cap was put in place to gain support for the program from upper-class voters. If there were no cap, wealthy workers would end up putting a lot more into Social Security than they would take out when they retire. One way to pay for Social Security deficits, therefore, would be to increase, or eliminate, the cap. Wealthier workers would pay more into the system and help pay for its deficits.
Means test benefits.
Social Security is not a welfare program. It is for everyone. This means that wealthy individuals can receive benefits along with our most needy seniors. One way to reduce the cost of the program is to add a means test. It would only be for those who most need it. The wealthy would get nothing, the middle class would get less, and most of the benefits would go to poor seniors.
One important consideration when looking at this solution, and the previous one, is that Social Security would become a welfare type program. Its main purpose would be to transfer wealth from the upper class to the lower class. Social Security already transfers some wealth from the most well off to the least well off. These two proposals would dramatically increase that tendency. While this would help balance its budget shortfalls, it may also reduce support for the program.
Increase immigration.
Due to the Baby Boom generation reaching retirement age, fewer workers are paying into Social Security for an increasing number of retirees. One way to deal with Social Security’s budget shortfalls, therefore, would be to increase the number of young workers. Since most immigrants are young, and eager to work, increasing the number immigrants would accomplish this goal.
We have many restrictions on immigration in the US. Many of these restrictions are on high wage jobs, such as doctors and computer programmers, which pay more in FICA taxes than low skilled jobs. So, lifting these restrictions would be particularly beneficial.
Undocumented workers are also particularly good at helping us pay for Social Security because they pay into the system without taking out. But, for reasons I won’t go into here, I would advise against policies aimed at increasing the number of undocumented workers.
Make more babies.
Another way to increase the number of young workers is procreation. Government policies aimed at encouraging citizens to make more babies have a poor track record, however. (For more, read this guest post by Brian Hollar.)
Personal accounts.
All of the above solutions deal with Social Security’s fiscal problem—revenue increases are not keeping pace with the cost of the program. None of them, however, deal with the structural problem—it is a “pay-as-you-go” system. When Social Security was first passed, in 1935, Congress and President Roosevelt wanted a program that could go into effect right away. To do this, they created a program in which current workers would pay for current retirees.
When you pay into Social Security, that money is not saved for you until your retirement. Instead, you pay for those who are already retired, and when you retire, those that are working will be paying into the system to pay for your retirement benefits. This, however, is the root cause of Social Security’s current deficits. We have made promises that we could not keep because we did not plan for a situation where we would have fewer workers paying into the system for an abundance of retirees.
One way to deal with this structural problem would be to wean ourselves off of a pay-as-you-go system for future generations. We could let young workers today put some of their FICA taxes into a personal account. In exchange, they would agree to reduced or no Social Security benefits when they retire. One of the difficulties of this proposal, however, is that while it helps with the structural problem, it would make the fiscal problem worse in the short term, because, less revenue would be generated for current retirees. This solution, therefore, should not be attempted without first addressing the fiscal problem.