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Monday, December 09, 2019 {{ new Date().getDay() }}

The IRS, Non-Profits, And The Challenge Of ‘Electoral Exceptionalism’

What the IRS scandal really shows us is that it’s getting harder and harder to draw a line between electioneering and political speech.

As the report of the IRS Inspector General shows, the agency’s scrutiny of conservative groups applying for non-profit status was, more than anything, a clumsy response to a task the IRS is ill-equipped to carry out – monitoring an accidental corner of campaign finance law, a corner that was relatively quiet until about 2010.

That corner is the 501(c)(4) tax-exempt organization, belonging to what are sometimes called “social welfare” groups, which enjoy the triple privilege of tax exemption (though not for their donors), freedom to engage in some limited election activity, and, unlike other political committees (PACs, SuperPACs, parties, etc.), freedom from any requirement to disclose information about donors or spending. The use of (c)(4)s as campaign vehicles didn’t originate with the Citizens United decision in 2010 (Citizens United, the organization that brought the case, was already a (c)(4)), but the decision seems to have created a sense that the rules had changed, and even small groups – especially, apparently, local Tea Party organizations — rushed to create (c)(4)s.

501(c)(4)s are not prohibited from engaging in political speech of most kinds. They are free to be “biased” without jeopardizing their tax exemption. They can advocate for or against legislation, they can lobby the government or criticize it. They don’t have to make any effort to be “non-partisan” – for example, they can support a proposal that is only supported by members of one party, or directly advise only members of one party. And they can engage in some activity directly intended to influence the outcome of an election, as long as that doesn’t constitute the organization’s primary purpose.

There’s some confusion about the definition of “primary purpose,” discussed in great depth elsewhere, but what the IRS was trying to do was to identify organizations that seemed more likely to be heavily involved in electoral activity. Since the organizations were new, there was no way to look at their actual activities to see whether they were mostly electoral. So the agency had to rely on clues in the applications, like names and telltale phrases. If organizations had words like “Democrat” or “Republican” in their titles, for example, it would be reasonable to look more closely at their election activities, or possible future activities, than an organization that called, for example, “Save the Turtles.” I’m told that organizations with the names of political parties do receive extra scrutiny, even if in some cases, like “Students for a Democratic Society,” the word might mean something unrelated to the name of the party. That’s what the closer scrutiny would find out.

“Tea Party” in 2009 and 2010 was unquestionably an election category – there were “Tea Party” candidates and there was a “Tea Party Caucus” in Congress. It was not unreasonable for the IRS to use that phrase as an indicator that an organization using that phrase might be more inclined to engage in elections. There are comparable phrases on the left – for example, the term “Netroots” might suggest election involvement, as there were groups that identified and endorsed “Netroots” Democratic candidates in 2006 and later. Perhaps there were simply fewer organizations applying for (c)(4) status with that word, or they came in before the 2010 flood, or perhaps the IRS did screen on that word – we don’t know.

While there’s a perfectly plausible case for the IRS to use flag-words that indicate an election-focused movement, the actual questions asked of the groups do raise some concerns. If accurate, they did seem to go beyond evidence that these organizations were primarily engaged in elections, such as questions about lobbying and the role of family members.

But the reason these questions are complicated for the IRS, or for any agency assigned to police these complicated distinctions, is this: The line between robust political speech and influencing elections has become frightfully difficult to draw. Finding the right line around what is an “election” is really the fundamental problem in campaign finance. Almost everyone accepts the premise of “electoral exceptionalism” – elections are structured and require some particular rules, different from the rules that apply generally to political speech. The rule in most states that keeps campaigners 75 or 100 feet from the voting booths is the most obvious uncontroversial restriction on political speech, and there is broad acceptance of the idea that direct contributions to candidates and campaigns should be limited to prevent corruption and dependence. But what happens after that? What about outside spending that looks just like campaign spending? We used to think there was a clear distinction between “issue ads” that were expressing a view on an issue and “electioneering communications” that were the equivalent of campaign contributions. That distinction is actually what the Citizens United case was about — the provision of the 2002 Bipartisan Campaign Reform Act that defined broadcast communications that mentioned a candidate within 30 days before a primary or 60 days before a general election as electioneering, which had to be financed with regulated funds.

That was an improvised line then, and it’s gotten even blurrier since. Part of the problem is partisanship – it used to be, for example, that there were environmentalists in both parties, supporters of social spending in both parties. A political ad about the environment was just that. But what’s an ad or brochure attacking “Obamacare” during the election year? Every Republican opposes it, and they’ve given it the name of the president. The Tea Party was based on issues, yes, but above all else, it was based on unflagging, total opposition to Obama and congressional Democrats.

To figure out where election advocacy begins and regular political speech ends in these cases was certainly more than mid-level IRS bureaucrats in Cincinnati could handle. But it’s not an easy challenge for anyone. All the noise about IRS “targeting” and about free speech and corporate speech is a distraction from a real challenge of money in elections: finding an agreement on the line around an “election,” and establishing some clear rules for what happens within that line in order to ensure that elections are fair and open and don’t lead to corruption.

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

Cross-posted from the Roosevelt Institute’s Next New Deal Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Photo: Matthew G. Bisanz via Wikimedia Commons

Now We Are Way Too Excited About Campaign Finance Skepticism

Some people overhyped the influence of money in the last election, but we shouldn’t downplay the need for smart, effective reform.

“We got way too excited over money in the 2012 elections,” my former colleague Ezra Klein said at a conference on inequality and politics at Yale last week, in remarks that he published as a column. A simple political science model for predicting the presidential election, which didn’t account for spending, nonetheless hit the results exactly; Citizens United didn’t unleash a torrent of corporate spending; and even in Senate races, big spending by Republican SuperPACs didn’t make much of a difference.

The first question to ask is, “What do you mean ‘we’?” More than a few of us argued that Citizens United wouldn’t be a world-changer – if major corporations had wanted to take major risks in the electoral arena, there were already ways for them to do it. (It actually had more impact than I thought it would.) And it has long been the consensus in political science that once a candidate or campaign has reached a sufficient threshold to be heard and to be competitive, extra spending beyond that has diminishing returns, whether that spending is within the campaign or from outside groups. That is, you can be outspent 3:1 and win, as long as your 1 is enough to compete in that state. Many wealthy, self-financed candidates have learned that lesson the hard way. All presidential candidates and almost all major party Senate candidates have reached the threshold where additional spending for or against them matters very little. Many SuperPACs, predictably, did more for the political consultants who were collecting fees from them (typically 15 percent for broadcast ad buys) than for the candidates they were intended to support.

There were ill-informed journalists, pundits, and advocates last year who made all sorts of claims about the impact money would have on the elections, but just because their predictions were predictably wrong doesn’t mean that “we got overexcited” or that we should stop being concerned about the influence of economic inequality on the political process. Money matters as a gatekeeper, for example: Many candidates, especially at the congressional or state legislative level, don’t have it and don’t know how to get it. It matters as a framer of the issues that are acceptable for debate – it’s not only money that gave the National Rifle Association the clout to block an amendment with massive majority support, but money helped. Money unquestionably shaped the Dodd-Frank financial reform legislation and might ultimately render it almost unenforceable. The life of a member of Congress without a very safe seat revolves almost entirely around money, as an article in the Boston Globe over the weekend showed. Newly elected Democrats were advised last fall to set aside four hours each day for “call time” to donors, more than they spend on any other activity and more than twice the time they spend with other constituents.

If money doesn’t have such a direct impact on election outcomes, then why does it have these other impacts? Are members of Congress overexcited, too? Perhaps, but most often the reason that we don’t see the impact of money so directly in the endgame of presidential and Senate elections is that the candidates have already done whatever they need to do to reach the threshold of competitiveness. They’ve done the three fundraisers a week, the hundred phone calls a day; they’ve avoided the tough votes that would alienate supporters. If they hadn’t done those things, they wouldn’t be there, in what are, in effect, the finals.

That’s why the key principle of reform is not to limit spending in the endgame, but to make it easier for candidates of all kinds to reach the threshold where they can compete, without spending all their time with major donors and without all the compromises that necessarily ensue. Trevor Potter and Bob Bauer, election lawyers for John McCain and Barack Obama, respectively, recently proposed what they called “A New Recipe for Election Reform,” which would “focus not on further restriction funding for political activity but rather on broadening avenues of citizen participation,” drawing on the experiences of states and localities with systems that encourage small donors. This is something I’ve been pushing for many years, and it has been gratifying to see a consensus build around the idea, especially as the state and local programs, such as New York City’s matching funds for small donations, have proven effective, stable, and constitutionally sound.

But back to Ezra Klein – he’s skeptical of these approaches as well. Later in the week, he went on to argue that the Potter-Bauer approach of encouraging participation would backfire, because small donors are more likely to be driven by ideology and/or partisanship (two different things that are often conflated), and are at least as bad, and maybe worse, than big donors or corporate money. “Just as big money is corrupting, small money is polarizing. And it’s polarization that probably poses the bigger threat to American politics right now.” Ezra is right that some of the federal candidates who collected the most money from grassroots donations were the most ideologically extreme, such as defeated Rep. Allen West of Florida. But that’s looking at the extremes, not the middle tier of politics, where candidates struggle to find the base of donations to be heard. And there’s no evidence that small donor systems such as New York City’s, Connecticut’s, or Minnesota’s superb system of automatic, quick tax rebates for small contributions have made those jurisdictions more polarized. (Minnesota’s system has been unfunded since 2010.)

This skepticism also reflects a quaint view of the role of big money and corporate money in politics. There was a time when corporations, through their PACs, tended to split their donations roughly 60-40 between parties, hedging their bets and mostly protecting useful incumbents. Or an industry might have Republican firms and Democratic firms. But in a polarized time (and partisan polarization reflects forces much bigger and more intractable than either money in politics or congressional procedures), corporations and major interests have moved more sharply to one side or the other. Most of the Wall Street firms, for example, moved toward the GOP, and the U.S. Chamber of Commerce, historically as cautiously solicitous of whichever party held power as possible, moved almost completely Republican. Secret vehicles, such as the Chamber’s 501(c)4 committee, allowed corporations such as Aetna to maintain the veneer of bipartisanship, while simultaneously putting millions of dollars behind one party. The most notorious SuperPACs of 2012, such as those that kept alive the candidacies of Newt Gingrich or Rick Santorum, or that targeted Senate Democrats, were at least as fiercely partisan as West’s donors.

There is a challenge for reform: Can we encourage genuinely average voters, those who don’t watch Glenn Beck or Rachel Maddow, or read RedState.com or Daily Kos, but who have preferences and views of their own, to put a few dollars behind congenial candidates? And can we boost those contributions with public financing that doesn’t have any “ask” attached to it? As we pursue the task that Potter and Bauer set out, to absorb the lessons of successful systems, this is one of the questions that we should be asking. Small donor financing won’t end partisanship or polarization by itself. But it can be a big part of a system that allows legislators to move more independently, develop new coalitions, and spend more time listening to constituents than lobbyists and donors.

The role of money in politics has sometimes been overstated, but that doesn’t justify the fashionable cynicism about money and reform that seems to be infecting the wonk class.

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

Cross-posted from the Roosevelt Institute’s Next New Deal Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

AP Photo/Charles Dharapak, File

The Case For Optimism About Campaign Finance Reform – With Scalia On The Bench

Current limits on money in politics being tested across the country should give reformers hope.

Last Monday, the Supreme Court declined to hear a case challenging the century-old ban on direct corporate contributions to federal election campaigns. That counts as good news in a month that included the Court’s earlier decision to hear a case that challenges the aggregate contribution limits in campaign finance and Obama strategist David Axelrod declaring that he would prefer a system of unlimited contributions with full disclosure. Almost all Republicans, the Supreme Court, and a powerful faction of the Democratic Party now fall somewhere on the spectrum between skepticism and vehement opposition to limits on contributions. The flimsy remains of the post-Watergate system of campaign finance regulation are on the verge of collapse.

Richard Hasen, law professor and proprietor of the indispensable Election Law Blog, argued in Slate last week that there was still hope for campaign finance reform – just not until Justice Antonin Scalia leaves the Court. But there are other reforms currently being tested on the ground that hold out hope for changing the power of money in politics.

Hasen is right, of course, that until at least one of the five members of the Citizens United majority leaves the court by death or retirement and is replaced by a Democratic appointee, the best hope is that it will rule narrowly in cases such as the one involving aggregate contribution limits, rather than using them as opportunities, as they did in Citizens United, to punch holes in the law that are bigger than the cases themselves. He’s also right that expecting a Constitutional amendment to overturn Citizens United (or do various other things, depending on the version) is far less likely to reopen the path toward a reasonable balance of the role of money in politics than a change in the membership of the court.

Hasen proposes that campaign finance reform advocates take the time now “to plan for the next Supreme Court.” We should use the indefinite waiting period to “think more about what a reasonable campaign finance regime would look like” and acknowledge that “conservatives are absolutely right that campaign finance laws can boost incumbents and stifle political competition.”

I agree with Hasen on all of that, even the last points, but I’d go even further: A reasonable campaign finance regime, one that doesn’t boost incumbents or stifle competition, could even be put in place with the existing Supreme Court. (The current Congress is another story.) The thinking he’s proposing is going on right now, and is even being tested, in systems based on the principle of “small-donor public financing.” These systems use some combination of matching funds, tax credits, vouchers, or generous public financing for candidates who show a base of small-donor support. They make it easier for candidates to run who don’t have big-donor support in order to enhance public participation and to ensure that elected officials aren’t entirely dependent on big donors or corporations, whether those donors are giving directly to campaigns or to outside groups.

The public financing systems in Arizona, Maine, and Connecticut, which have been resilient, strongly supported by the public, upheld in the courts, and used by almost as many Republicans as Democrats, fall into this category. So does the generous matching system in New York City that has the support of Governor Andrew Cuomo and a growing number of legislators, which can serve as a model for legislation elsewhere. So can Minnesota’s system, which is currently unfunded but which until a few years ago offered a quickly refundable tax credit for small contributions along with a match on the candidate side. All of these systems can be considered part of a broad experiment, and scholars are looking closely at them to see whether they change who runs for office, who donates, and ultimately whether the states’ political processes are more responsive to the public.

Legislation at the federal level has followed the small-donor model as well. Rep. John Sarbanes’ Grassroots Democracy Act, for example, draws on elements from several of the successful state programs, including a refundable tax credit for small donors along with a matching program for campaigns. The Fair Elections Act similarly incorporates a combination of small donor incentives with full public financing. A voucher that would allow every citizen to contribute in the same way that she votes, long advocated by Yale Law Professor Bruce Ackerman who calls them “Patriot Dollars,” and more recently by his Harvard counterpart Lawrence Lessig, is attracting renewed interest as well.

All these systems are voluntary, and alone they don’t go too far toward controlling big money, except for the candidates who participate. But they do make it possible for candidates to run who wouldn’t be able to otherwise or who want to run independently of big money. If they’re designed well, they can help candidates be in the position to get their messages out, and at a certain point it doesn’t matter all that much if the other candidate has a lot more money or more outside money spent on her behalf. (The Brennan Center put out an excellent report in 2011 on the many positive effects of small-donor public financing.)

The big question is whether these systems can work without limits on outside money. Without limits, candidates might hesitate to participate, voluntarily limiting their own spending, if they worry about being overwhelmed by big outside campaigns. It’s also unlikely that the public will support throwing good money into a cesspool of unregulated spending for very long. If that’s the case, these systems will need backup from the kind of limits that are under challenge in the recent cases or rejected by the court in Citizens United or other cases. But even after the court rejected a feature of the Arizona system that gave candidates more money if they were attacked by outside money, the system survived, and a majority of candidates for statewide office in 2010 and 2012 participated in the system.

The 2012 federal elections offered even more evidence that small-donor systems can work. It was not that “money doesn’t matter” (a view challenged by Roosevelt Institute Senior Fellow Thomas Ferguson and colleagues here), but rather that once a candidate for the House, Senate, or lower office has reached the threshold that allows him to be heard, extra money on the other side, whether from outside groups or the opposing campaign itself, matters less. For example, all the Senate candidates hit with outside spending by the Sheldon Adelson and Koch Brothers-funded groups won re-election. If small-donor public financing can get candidates to that threshold, then limits on outside spending won’t be as important in making the system work.

That’s not to say that it isn’t worth trying to strengthen the limits that remain and to build on the broader consensus that supports disclosure. In particular, the Internal Revenue Service should enforce the law governing 501(c)(4) non-profits, which are increasingly being used as vehicles for undisclosed and unlimited campaign spending, but which are not permitted to have influencing elections as their “primary activity.” The sheer number of mechanisms by which a donor can try to influence the outcome of an election has proliferated so far beyond the old standby of broadcast advertising that it will be impossible to chase it all down.

The next generation of campaign finance reform doesn’t have to be developed in a laboratory while waiting for Scalia or one of his colleagues to retire or to encounter a higher judge. It’s being designed, refined, tested, and improved as you read this in a half dozen states and municipalities. If it works, it will lead us to a system that will moderate the influence of economic inequality on democracy while enhancing competition and strengthening First Amendment rights of free expression.

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

Cross-posted From The Roosevelt Institute’s Next New Deal Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Photo: AP/Charles Dharapak, File

How Did ‘Fix the Debt’ Become ‘Protect the Bush Tax Cuts’?

A group devoted to reducing the deficit shouldn’t embrace the irresponsible tax cuts that created most of it.

“Fix the Debt,” as you’ve probably noticed from the Internet ads that are now as ubiquitous as the old Netflix pop-ups, is the newest high-profile effort by Peter G. Peterson and allies to build a public movement for long-term deficit reduction. Fix the Debt appears to be an ambitious public relations and grassroots lobbying effort layered on top of the other major Peterson-funded anti-deficit groups, all of them pushing for a “grand bargain” on taxes and spending, ideally before the “fiscal cliff” (or what I prefer to call the “fiscal reset,” because it’s a chance to start over and reconsider bad choices from the 2000s). These include the Committee for a Responsible Federal Budget, the Concord Coalition, the Comeback America Initiative (former Peterson Foundation president David Walker’s new project), as well as groups such as the Business-Industry Political Action Committee.

Although Fix the Debt’s co-chairs are Alan Simpson and Erskine Bowles, of the failed Simpson-Bowles commission, the organization has no specific deficit reduction plan. Its basic principles are that debt reduction is urgent and that it should be “comprehensive.” “Everything should be on the table” is the closest thing to a motto. That compares favorably to the Republican attitude, circa 2011, that everything should be on the table except taxes. Fix the Debt has enlisted several prominent Democrats in addition to Bowles, notably former Pennsylvania governor Ed Rendell.

So far, so good. No doubt the long-term budget gap needs to be narrowed and the ratio of debt to GDP stabilized, and it’s better to chart that path sooner rather than make disruptive changes later. The evidence I see indicates that long-term fiscal stability is primarily a problem of system-wide health cost inflation and historically insufficient revenues — but that just affects my idea of a solution, not the long-term goal.

But there’s one exception: When it comes to taxes, Fix the Debt has a less open-minded position than it seems: Their “core principle” is “comprehensive and pro-growth tax reform, which broadens the base, lowers rates, raises revenues, and reduces the deficit.” That could be okay, too — but everything depends on the baseline. If the Bush tax cuts are allowed to expire on January 2 in accordance with the law, then the next step would surely be to lower some of the rates that would come back into effect, principally for the middle class, and also to “broaden the base,” such as by bringing taxes on capital gains in line with other rates and thus eliminating the “carried interest loophole,” the “hedge fund loophole,” and all the others that play on that unwarranted tax preference. But that doesn’t seem to be what Fix the Debt is thinking about. They seem to hold an unspoken core principle that the grand bargain must be achieved before the fiscal reset on January 2. That, in turn, implies that any deal would “lower rates” from the already very low tax rates of the Bush tax cuts. That’s the essence, for example, of Fix The Debt leader Maya MacGuineas’s Washington Post op-ed last week, which declared as a certainty that “Going over the cliff would be the worst possible outcome.”

It’s also the argument of a paper posted prominently on the website of MacGuineas’s Committee for a Responsible Federal Budget, which challenges a study by the congressional Joint Committee on Taxation showing just how difficult it would be to achieve all the goals of lowering tax rates, raising revenues, and reducing the deficit. CRFB claims that the Joint Tax Committee study erred by starting the exercise using the “current law baseline” — that is, assuming that all the Bush tax cuts would expire. From there, letting rates go back up will have already raised a lot of revenue, some loopholes will have already been narrowed (including the preference for investment income), and there will be some limits on deductions for high earners. CRFB insists that comprehensive tax reform is possible if and only if you begin with the “current policy baseline” — that is, assume the Bush tax cuts continue and work from there, or do the deal before the cuts expire. It’s a very complicated argument, but what it comes down to is this: Letting the tax cuts expire by law would actually achieve many of the goals of tax reform, as I wrote in October. But if the tax reform is already half-completed, there’s less room for classic tax reform in a grand bargain.

And thus, Fix the Debt and its partners find themselves twisted in a knot. Because “comprehensive tax reform” is such a central component of their vision, they have to root for the Bush tax cuts, because there’s not much room for reform otherwise. But supporting the Bush tax cuts, as a baseline, is not “fixing the debt.” It’s the opposite, since the Bush tax cuts make up almost all of the long-term projected deficit, as this chart from the Center on Budget and Policy Priorities shows:

It’s also worth noting that Fix The Debt’s approach to taxes is not the same as that of the Simpson-Bowles commission. Simpson-Bowles started from the assumption that the Bush tax cuts would expire. Insisting that the Bush tax cuts form the starting point for negotiations was the position, instead, of Mitt Romney, Paul Ryan (it was one reason he opposed Simpson-Bowles), and the current House Republicans.

I’m not sure why Fix the Debt put itself in a position where it now seems more concerned with protecting the Bush tax cuts than actually reducing the long-term deficit. Maybe it’s that the devotion to the fantasy of a grand bargain that includes something called “tax reform” drove them there. Maybe it’s that it’s necessary to maintain the nominal support from Republicans and business leaders that they boast. But whatever the cause, it’s where they seem to be. And a group devoted to fiscal responsibility has no business protecting one of the two most irresponsible fiscal choices in recent history.

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

Cross-posted from the Roosevelt Institute’s Next New Deal blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Photo credit: Associated Press

A Solution For Money In Politics Highlighted By The Election

As part of our series “A Rooseveltian Second-Term Agenda,” an acknowledgment that the election didn’t just showcase the problems of outside money in campaigns, but a potential way forward.

It’s been tempting to treat the 2012 election as proof that money in politics doesn’t matter as much as commonly believed, or that Citizens United and the emergence of Super PACs and political nonprofits didn’t change things as much as predicted. “Effect of  ‘Super PACs’ proved to be less than expected,” the Los Angeles Times declared in a post-election headline.

It is true that the presidential candidacy most dependent on Super PACs and other “dark money” support was soundly defeated, and the same was true of the Senate candidates backed by Karl Rove’s American Crossroads and related groups. Prophecies that corporate money would flood in and swamp the candidates, particularly Democrats, didn’t come true. (Some of us were always skeptical of this prediction.) And it turned out the Super PACs had some particular disadvantages because they couldn’t purchase media time at the favorable rates that are available to campaigns. The Republican dark money committees’ focus on broadcast advertising to the exclusion of other campaign activities turned out to be misplaced in an election where the “ground game” of identifying voters and getting them to the polls is what mattered. (It’s also likely that the Republican Super PAC operators focused on radio and television because there are financial incentives for consultants to buy media and collect a commission of 10 or 15 percent. Voter mobilization efforts don’t have the same payoff.)

But a general election presidential campaign, and even a high-profile Senate campaign, is not where we would expect to see the decisive power of money in election outcomes. Presidential candidates, especially incumbents, are well known and have ample opportunity to get their message out without paying for it. For example, half the number of people who voted watched at least one of the presidential debates. Money is more significant in determining who has an opportunity to run for office and whether that candidate has sufficient resources to be heard.

This year’s elections for the House showed just how much money still matters. More than 9 out of 10 incumbents were re-elected, despite a backlash against the Republican House reflected in the aggregate vote (48 percent to 47 percent). While some of this incumbent advantage was a result of redistricting that entrenched Republican seats, a great deal of incumbent advantage involves money that incumbents can raise from lobbyists and few challengers can. According to the Campaign Finance Institute, incumbents who won with more than 60 percent of the vote, which accounts for more than two-thirds of races, outspent their challengers by a factor of nine. Notably, most of the seats captured by Democrats in this cycle involved very high-profile Tea Party Republicans like Allen West of Florida or Joe Walsh of Illinois and opponents who were either well known in progressive circles, such as Walsh’s successful opponent Tammy Duckworth, or former members of Congress with established fundraising bases. In many of those high-profile races, such as West’s, outside groups played a large role. Data from the Campaign Finance Institute indicates that successful challengers spent $2 million, suggesting that that is the new price of entry for a viable campaign, although this will vary greatly by region.

But even these results show some hope. Many of the successful Democratic candidates, like President Obama, were able to build strong bases of small donors. While Obama’s small donors accounted for 44 percent of his total, Duckworth, for example, raised 37 percent from small donors. The small donor era, which began in 2008, has continued in both parties. This suggests that the best path to making elections competitive and offsetting the influence of big money, outside money, and dark money is to enhance the value of small contributions. This can be done through a matching program such as New York City’s successful model, the proposed Fair Elections Now Act (supported by a majority of Democrats in 2010), or Rep. John Sarbanes’ Grassroots Democracy Act.

Since Citizens United, many reformers have worried that such initiatives would be rendered ineffective by the flood of big money, which would overwhelm the small donors, or that candidates would resist participating in these matching programs, fearing big outside-money attacks. That would argue for pursuing a remedy for Citizens United, in the Constitution or the Court, before moving on to matching fund public financing. But the election results, in which neither Obama nor successful candidates for House and Senate were overwhelmed by outside money, indicates that these systems are likely to be more resilient than we think. Giving every candidate the opportunity and encouragement to build a participatory base of small donors isn’t the only thing we need to do to offset the influence of money in politics, but it is a good start. House Minority Leader Nancy Pelosi identified campaign finance reform as a major priority for her caucus in the next Congress. The first step is to reach consensus on what is to be done, and the election points in a clear and positive direction toward solutions that encourage participation and grassroots campaigns.

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

Cross-posted from The Roosevelt Institute’s Next New Deal blog

The Roosevelt Institute is a nonprofit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Photo of Tammy Duckworth by Staff Sgt. Jon Soucy via Flickr.com

Three Principles For Restoring Progressive Taxation

As part of the series “A Rooseveltian Second-Term Agenda,” advice on revamping the tax code to raise the revenue we need.

Our current tax system is a toxic legacy of the George W. Bush years. It loomed over Obama’s first four years, bearing deficits that limited the scope of economic stimulus, drove inequality to astonishing levels, and led directly to the debt limit showdown of the summer of 2011 that forced us into even more dangerous policies. President Obama’s second term offers a long overdue opportunity to restore the promise of progressive taxation and revenues that are adequate to our long-term economic priorities. It requires both short-term and long-term action.

The greatest failure of the tax system is not that it’s too complicated or inefficient or that there are too many “special-interest loopholes,” as House Speaker John Boehner put it on the day after the election. It’s that it doesn’t raise enough money and it encourages all sorts of manipulation because of the differential rates for investment income and income from work. These are not things that developed over time, as if by some natural process — they are the product of specific decisions made in 2001 and 2003 by Republican-controlled Congresses that used the budget reconciliation process to avoid any bipartisan compromise.

Here are some principles that the administration should hold to in restoring adequate and progressive taxation:

1. Start from the law, not current tax policy. Under the law, the Bush tax cuts expire on January 2, 2013 and revert to their levels at the prosperous end of the 1990s. This expiration, along with several temporary tax cuts that expire at the same time and the budget sequester devised to escape the House GOP blackmail on the debt ceiling in 2011 is what’s known as “the fiscal cliff.” There will be an effort to negotiate a deal on taxes and spending before we hit the cliff out of fear that expiration of all the cuts at once would tip the country back into recession. But the effect won’t be felt at once, and there’s plenty of time to negotiate a new round of cuts once the law as written goes into effect. There is no reason to negotiate based on rates that are set to expire within weeks or days.

Under the law, capital gains rates will rise to 20 percent from 15 percent, dividends will be taxed at the same rate as regular income, and two provisions that limit personal deductions and exemptions for the wealthy will come back into effect. All tax rates will rise, but the tax code will instantly be fairer, by every definition, than it was in December. From that baseline — which is not some accident; it’s what the law calls for — we can have a debate about which rates should be permanently lowered. There’s a strong argument, for example, for bringing the bottom rate back down to 10 percent, given that these are the households that were hit hardest during the recession and saw few gains even during the prosperous years before 2008.

2. Don’t try to define “the rich” with arbitrary thresholds. In its first four years, the Obama administration’s tax policy was hamstrung by its commitment to the $250,000 line — that no household with taxable income lower than a quarter of a million dollars should face any kind of tax increase and any increase should apply only to the income above $250,000. Later, the line became a million dollars as the administration tried to craft what it called “The Buffett Rule” to remedy Warren Buffett’s recognition of the absurdity that he paid a lower tax rate than his secretary. These new thresholds would be grafted onto the tax code on top of the existing rate brackets. For example, households with incomes below the quarter-million line would keep the preferential rates for capital gains and dividends, while it would go up for those above it. These thresholds would add a new level of complexity to the tax code, sharply reduce the revenues that could be gained, and reinforce the impression that taxes are a sort of punishment for the rich. It’s a lot simpler, more efficient, and infinitely fairer to say that a single person who makes, say, $80,000 from capital gains alone should pay the same rate, no more and no less, as a comparable household that earns $80,000 from work. Right now, the first household would pay less. With the same rates for all income, rates can be held down and we can maintain the low-end cuts, such as the 10 percent rate for middle-class households, and gain enough revenue for the future. Artificial new thresholds, which would apply to some forms of income and not others, will make this much more difficult.

3. Consider one new source of revenue — and make it a “Pigovian” one.  Even an ideal income tax system, one in which income from any source is taxed in the same way and distorting deductions are kept to a minimum, is unlikely to raise sufficient revenues to support the level of investment the country needs in the long run. Adding one additional source of revenue will not only help to close the revenue gap, but it can serve vital purposes as well. (Such taxes, which have a dual purpose of raising revenue and reducing some undesirable activity, such as smoking, are known as “Pigovian,” after the Cambridge economist Arthur Pigou.) The two leading candidates would be a tax on carbon and a very small tax on financial transactions. The former would have some of the same effect as a cap-and-trade system to reduce emissions that cause climate change, with less complexity, and could also fund clean energy research and job creation. The latter would generate revenue from the still thriving financial industry, while putting a little bit of friction into transactions and reducing the payoff — and the risk — created by strategies that rely on massive, fast trading. While those strategies weren’t the main cause of the 2008 financial meltdown, they do play a role in creating instability (such as the “flash crash” of 2010). Either of these, or both, would helpfully supplement the income tax, the payroll tax (which supports Social Security and Medicare), the corporate income tax, and federal excise taxes.

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

Cross-posted from The Roosevelt Institute’s Next New Deal blog

The Roosevelt Institute is a nonprofit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

How the ‘Fiscal Cliff’ Could Bring About Real Tax Reform

Tax reform appears dead in the water, but the dreaded “fiscal cliff” could actually offer reformers some hope.

It began with a critique of Mitt Romney’s tax proposal. But more than two months after the Tax Policy Center released a report with the anodyne title “On the Distributional Effects of Base-Broadening Tax Reform,” the entire promise of tax reform, whether Romney’s or some other version, is near death. With its demise goes the idea of a budget grand bargain. It’s been a subtle development, but a dramatic one that will reshape the landscape of policy possibilities, especially if President Obama wins re-election — probably for the better.

Tax reform is typically sold as a win-win-win that can achieve three goals at once: reduce rates, bring in more revenue for deficit reduction, and clean up the loopholes in the tax code that create economic distortions and slow growth. This vision was not Mitt Romney’s alone. It was and still is shared by many Democrats, notably Senator Dick Durbin, the White House, most members of the Bowles-Simpson deficit reduction commission who voted for its report, and most of the promoters of a budget grand bargain. I’ve held this religion myself.

But the vision of “base-broadening tax reform” is not just a budget solution — it’s a nostalgic fantasy about American politics, a hope that we can recreate the kind of bipartisan compromise and collaboration of the idiosyncratic 1970s and 1980s, symbolized by the tax reform of 1986. (Last week I argued in a debate published in the Breakthrough Journal that the old era of bipartisanship was idiosyncratic, and we shouldn’t expect it to come back.)

The Tax Policy Center report was perceived as an analysis of the Romney tax plan, showing that his math didn’t add up. But as its title indicates, it really wasn’t a report on Romney’s plan at all, but on base-broadening reform more generally. It showed that Romney couldn’t achieve his two goals — lowering rates and eliminating tax expenditures without significantly increasing taxes on the middle class or raising the deficit — because while tax expenditures such as the home mortgage interest deduction provide large benefits to the very rich, the more numerous middle-class recipients account for a large share of the costs. If Romney can’t achieve his two goals (his plan would not explicitly aim to increase revenues or reduce the deficit, relying instead on a vague hope that lower rates would drive economic growth to implausible heights), then how could we possibly achieve three goals: lower rates, fewer loopholes, and higher revenues? Nor would it be easy to achieve two other goals, fewer tax expenditures and significantly higher revenues, while keeping rates at their current level.

That’s because we’re in a very different situation than 1986. In the 1980s, the tax code was littered with provisions that benefited specific industries (especially oil and gas) and permitted individuals and corporations to take losses for tax purposes when they hadn’t really put money at risk. These “passive losses” distorted economic decisions. Just as all those provisions had been created by a kind of log rolling among legislators (those from states that benefited from pharmaceutical or agricultural tax breaks didn’t object to the oil and gas breaks), legislators in the reform coalition were essentially able to hold hands and eliminate all of their tax earmarks at once. The tax rates were nominally quite high, though no one actually paid them, so bringing the top rate down from 50 percent was a lot easier than bringing it down from 33 percent. And while there was some concern about the short-term federal deficit in 1986, it was easy enough to separate that issue from tax reform and keep it revenue neutral in the long term.

While the tax code is a mess once again, it’s a mess in a very different way. Tax rates are now too low, not too high; the most fundamental problem with the system is that it doesn’t bring in sufficient revenue to finance basic functions of government (not just in a recession, when that’s to be expected, but in the long term); and the biggest tax expenditures are not special benefits to particular industries or constituencies, but large-scale deductions that largely benefit the well-off yet give just enough to the middle class that eliminating them affects a lot of people. And while we might prefer that tax preferences such as the mortgage-interest deduction had never been invented, eliminating them or capping them would be enormously disruptive to the fragile housing market and would disproportionately affect younger families. It’s extremely unlikely that Congress will have the will to cut that deduction, the deduction for state and local taxes, or the deduction for charitable giving.

That leaves two alternatives. One is to eliminate some or all of the tax preferences for investment income – not just the “carried interest loophole” through which Mitt Romney makes much of his vast income, but the entire preference for capital gains and dividend income that makes that and other loopholes possible. (Almost all the tax gimmicks exercised by the rich involve redefining compensation as capital gains to enjoy the 15 percent rate.) There doesn’t seem to be much enthusiasm even among Democrats for fully equalizing treatment of capital gains and dividends, although we did it in 1986 and the economy thrived. The second alternative is some kind of global cap on deductions, which is where Romney has gone, first suggesting a cap of $17,000, then $25,000, but never with much detail about which deductions would fall under the cap. A $25,000 cap would raise about $1.2 trillion over 10 years according to the Tax Policy Center, which is not trivial. But a cap would hit upper-middle income households almost as hard as the very rich.

All these moves, along with the administration’s tortured “Buffett Rule,” fall well short of real base-broadening tax reform. But the fantasy of tax reform is essential to those who believe in a budget “Grand Bargain,” because the only moments when Republicans have hinted they might accept any revenue increases have been when it’s packaged under the guise of “base-broadening reform.” No tax reform, no grand bargain. That’s why the Committee for a Responsible Federal Budget, an organization funded by the Peter G. Peterson Foundation to push for a budget deal, has been almost as obsessive about rebutting the Tax Policy Center’s and other analyses as Mitt Romney has been, though not more persuasive. Senator Charles Schumer was the first to say out loud that tax reform wasn’t going to happen, in an October 9 speech. Since then, other Democrats have recognized that tax reform, especially if it begins with the current Bush tax rates as the baseline, “could be a trap,” as Chuck Marr and Chye-Ching Huang of the Center on Budget and Policy Priorities put it in a June report.

If there’s no tax reform and no grand bargain, what’s left? The answer is what’s called, ominously and inaccurately, the “fiscal cliff.” If some sort of deal isn’t reached by January 1, 2013, then all of the Bush tax cuts, as well as some Obama tax cuts for the middle class intended as economic stimulus, will expire.* And the defense and domestic spending “sequestrations” agreed to last summer, in the deal to avoid breaching the debt limit, will hit.

Many of these outcomes are undesirable and could damage the faltering economy if higher taxes and lower spending continue well into 2013. But consider some of the things that happen to taxes:

—Rates go up: the top rate, on income over $397,000, would go from 35 percent to 39.6 percent.

—Tax rates on investment income would go up. The rate on capital gains would go from 15 percent to 20 percent, and dividends would once again be taxed at the same rate as ordinary income.

—If you like the idea of a cap on deductions, such as Romney’s $17,000 or $25,000 cap, you get something like it. The Bush tax cuts repealed two provisions, known as Pease and PEP, that phase out itemized deductions and the personal exemption for upper-income taxpayers, and both would return. These have an effect similar to Romney’s cap but hit only the very wealthy.

—The estate tax returns.

Put these together and what do they look like? They look a little bit like tax reform. It’s not necessarily a perfect version. But revenues are higher, more income will be subject to tax, deductions will be limited for the well off. This doesn’t require a grand bargain, and it’s probably better than what would result from a grand bargain, if such a thing were actually possible. It’s simply what the law calls for.

There are plenty of less desirable things that will happen on January 1. The bottom tax rate will go from 10 percent to 15 percent, and rates in the middle will go up three percentage points. The child tax credit will go down, as will the Earned Income Tax Credit. And the budget sequester will constrain domestic discretionary spending.

But once we cross that line, we’ll be in a very different world. If President Obama is re-elected, he will have the initiative to propose a package of tax cuts, restoring some of the Bush tax cuts for the middle class and perhaps others, in addition to other tax changes and modifications to the sequestration plans. Congress, even if one or both houses is controlled by Republicans, will hardly have the option to block everything, because all they would be blocking are middle-class tax cuts. The long-term budget forecast will change immediately, and any effort to temper long-term spending on programs such as Medicare and Medicaid, in addition to the savings likely to be achieved through the Affordable Care Act, will be in addition to the revenues gained from letting the Bush tax cuts expire, rather than held hostage to an unachievable grand bargain.

It’s hard for me to say this, because I’ve long bought the gospel of base-broadening tax reform, but in the weird circumstances of this moment, it’s not the right answer, and I’m glad that there’s a better alternative, which can be achieved just by letting the law take its course.

*It’s worth noting why each of the tax cuts expire. The Obama cuts expire because they were always intended as temporary stimulus. In the case of the Bush tax cuts, it’s a different story: congressional Republicans in 2001 and 2003 wanted to push the cuts through without any compromise with Democrats. To do that, they needed to use the 50-vote budget reconciliation process, which prohibits any provision that increases the deficit in the future. To avoid that, they made the tax cuts expire, even though they wanted them to be permanent. That’s the deep origins of the “fiscal cliff.

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

Cross-posted from The Roosevelt Institute’s Next New Deal blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

The Theory Of The Moocher Class

The conservative narrative of the “entitlement society” ignores the fact that most Americans are both givers and takers.

As David Brooks points out, Mitt Romney’s remarks describing 47 percent of the population as, in effect, moochers who would vote for Obama because they got government benefits were not “off the cuff,” as he described them today. There is a carefully developed theory behind his words, which has seen expression in previous Romney speeches, such as one last December in which he described Obama’s vision as an “entitlement society” in which “everyone receives the same rewards,” but in which “we’ll all be poor.”

The lab where this theory that we’re headed toward a radical egalitarian state is being developed is the American Enterprise Institute, the oldest of the conservative think tanks and one that, much like Romney, has forsaken the traditional business-minded conservatism of, say, the first President Bush, for hard conservatism in which everything is a grand showdown of incompatible worldviews. The two recent books by the current AEI president, Arthur Brooks (The Battle and The Road to Freedom) embody this apocalyptic approach, as does a recent essay-with-graphs by longtime AEI scholar and accomplished demographer Nicholas Eberstadt, called “A Nation of Takers.”

AEI invited me to participate on a panel with Eberstadt a few months ago, when the essay was just a series of unpublished PowerPoint slides. I welcomed the invitation, but had to cancel due to a conflict. However, I wrote up notes at the time, and what follows is adapted from those notes.

“A Nation of Takers” shows in some detail the expansion of government benefits since the 1960s and the share of the population they reach. The data is not wrong, but it’s selective, and the story that Eberstadt has wrapped around them – that receipt of benefits makes people “dependents,” that people are becoming “chiselers,” choosing to maximize benefits, that the expansion of entitlements was a political effort by the left that slowly overcame “resistance” from real Americans — is highly tendentious. The reality is that people who receive benefits are no more or less “dependent” than corporations that get tax breaks or legal protections, that the expanding costs of major entitlements are about rising health care costs and, to a lesser extent, the demographics of an aging nation rather than more people becoming “takers,” and that the expansion of some benefits to the lower rungs of the middle class was a bipartisan project in which conservatives should take pride.

There is a story implied in the very word, “takers,” which is reminiscent of former Senator Phil Gramm’s oft-repeated metaphor of a wagon: there are “people riding in the wagon,” he would say, and “people pulling the wagon,” and the people riding need to get out and pull. But while you can’t pull a wagon and ride in it at the same time, you can certainly be a taker and a giver at the same time, or at different times in life. For example, Eberstadt’s charts show that the government benefit that grew fastest in recent years, not surprisingly in a recession, is Unemployment Insurance. Everyone who receives benefits from Unemployment Insurance, without exception, has worked – usually full-time and steadily for at least a year – and paid into the system through their employers. And they will (they desperately hope) work again and pay even more. Some people might end up receiving more, over their long working lives, while others might pay in while having the good fortune never to be unemployed. But that’s the nature of insurance. Most of us, other than the permanently disabled, are givers and takers to government, because that’s what it is to be part of a community or a nation.

A look at the individual programs behind all of these charts indicates that the big story is the extension of the social safety net from the very, very poor to the lower rungs of the working poor, particularly through expansion of Medicaid and tax credits for working families. With bipartisan support, these innovations have fundamentally changed the social safety net that both conservatives like Charles Murray and Lawrence Mead and liberals like David Ellwood described in different ways two decades ago: a system in which it really did make more sense for poor parents not to work than to give up the linked package of benefits that went with non-work, including welfare, Medicaid, and food stamps. Meager as those benefits were, they were often economically preferable to a minimum-wage job without health care or other assistance, and with the added costs of child care.

Changing that system was not just a matter of imposing work requirements, but of smoothing the path into the workforce and toward self-sufficiency. Medicaid eligibility was delinked from welfare and linked instead to income, starting at 100 percent of the poverty level and reaching 185 percent in the Affordable Care Act. Together with the State Childrens’ Health Insurance Program, expansions of the Earned Income Tax Credit, the Child Tax Credit, the Refundable Additional Child Tax Credit, the Child and Dependent Care Credit, the Make Work Pay Credit, expansion of child care, the after-school and summer food programs, and others, we have created a safety net that extends well into the low-income working population. These individuals, too, are both takers and givers – they are working hard, contributing to the economy, and while some of them may not pay federal income taxes at the moment, they will as they move up.

This dramatic reorientation of the safety net didn’t just happen; most of these initiatives had significant bipartisan and cross-ideological support. Not only do they provide a ladder out of poverty and reward work, they also make possible the relatively low-wage, low-security labor market that gives employers enormous flexibility. Conservatives used to argue, for example, that raising the EITC was a better alternative to raising the minimum wage, and they mostly won that fight. The result is that low-wage employment is essentially subsidized, and businesses are able to hire at very low cost and low commitment, with none of the barriers to either hiring or firing that are common in Europe. Paul Ryan, Mitt Romney and others in the current wave of conservatism seem to have entirely forgotten the merits of these innovations, and in their promise to protect programs only for the very, very poor, they threaten to restore the hopeless poverty traps of the 1970s and 1980s.

It’s also worth noting that most members of the “Nation of Takers” probably don’t think of ourselves as “takers.” In her important recent book, The Submerged State, Suzanne Mettler of Cornell looked at data asking people whether they had ever benefited from a government social program. While most participants in the classic, older transfer programs were aware that they had benefited from programs, most of the newer programs, especially those delivered through the tax code, were invisible to a majority of their beneficiaries. (Even 45 percent of Social Security recipients said they had never used a government program, which may reflect the belief that they are receiving benefits they’ve paid for.)

While many on the left latched onto this data as evidence that Americans, especially conservatives, are hypocrites who revel in public benefits while maintaining an anti-government stance, there’s really much more to it than that. Delivering benefits through “submerged state” programs has broken any kind of connection between citizens and the benefits we receive. We can’t have a clear debate about whether we’re a “Nation of Takers” or whether these benefits are essential to maintaining the promise of a middle class country if most of us don’t even know the role that government plays in our lives.

Conservatives and liberals built the submerged state together, often sharing a preference for delivering benefits through the tax code. But a concerted effort to reduce the long-term budget deficit, with tax reform at the center of it, creates an opportunity to surface submerged programs and replace them with far more efficient, visible, direct programs. When the public is fully aware of the benefits it’s receiving, it’s possible that voters will recoil in shock at the degree of their dependency, or perhaps they will regain a healthy respect for the role of government in providing some of the security that helps them take full advantage of their capacities and opportunities.

It’s disappointing that Romney shows no interest in either drawing out the submerged state or in the bipartisan project (of which his health reform in Massachusetts was a part) of smoothing the path to economic success for families. Instead, he just sees half the country as people who can’t be convinced “that they should take personal responsibility and care for their lives.” That’s a very strange view of this country and a tragic development in modern conservatism.

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

Cross-Posted From The Roosevelt Institute’s Next New Deal Blog

The New New Deal And The Little-Known Transformation Of American Government

The New New Deal isn’t just another book about the White House or Congress. It tells the story of what happens when laws are passed and governing begins.

What’s the best book about the Obama administration, particularly on domestic policy? A few months ago, I would have recommended Noam Scheiber’s The Escape Artists, but The New New Deal, by Michael Grunwald of Time, is not only the best book about the administration and its immediate challenges, but perhaps the only one that will (and should) continue to be read long after 2016. This post isn’t a full review of the book (for that, I recommend Michael Cohen in The Guardian, but others are forthcoming) – rather, I want to highlight two aspects of the book that both made me feel a little guilty and got me thinking.

The narrative takes place in three locations: at the White House, in Congress as it interacts with the White House over the stimulus, and deep in the executive branch of government. Grunwald is very good on the drama in the White House, as economic advisors including Larry Summers, Christina Romer, and Jared Bernstein struggled to find a formula to contain the economic disaster that was also politically viable in an environment where neither politicians nor the public fully appreciated the depth of the crisis or the logic of Keynesian stimulus. If his book has none of the contrived Oval Office melodrama of Ron Suskind’s Confidence Men, it’s because Grunwald understands the subject, and thus knows that the range of options – and the range of real disagreement — was not that wide.

He amply demonstrates that the great alternative-universe fantasy — in which the stimulus could have been much, much larger and only political malpractice held it back – is exactly that, a fantasy. The miracle is that the economic stimulus, even if inadequate to fully restore the economy’s lost output, was as large as it was, and managed to contain such a multitude of new ideas. Nonetheless, Grunwald acknowledges and digs deeply into the errors that the White House made, such as asking Romer and Bernstein to put forth a projection of unemployment rates with and without the stimulus – which may have been accurate in estimating the difference between the two, but not the overall employment picture.

The New New Deal also shines in its accounting of the legislative response, particularly the Republican opposition to the stimulus — or, more correctly, to Obama. Grunwald offers a good model for journalists that it’s possible to do more than just transcribe something like, “Senator X said he opposed the stimulus because it didn’t contain enough tax cuts and infrastructure spending.” When a politician’s stated positions make no sense and are glaringly inconsistent, a real journalist can say just that. His parsing of Senator Judd Gregg’s shifting logic on the stimulus as he flirted with becoming Obama’s Secretary of Commerce is masterful, as is his interview with former Delaware Rep. Mike Castle, a moderate Republican whose amiable rationales make even less sense than those of conservatives.

But The New New Deal made me feel guilty in two big ways. First, I’ve on occasion made the argument that progressives don’t really have an adequate set of new ideas, especially about the future of the economy. But as Grunwald shows, not only are there ideas, but many of them are being put into place as we speak, from the Race to the Top education reforms to the birth of an American solar energy and battery industries to the mundane work of weatherization of millions of homes and businesses to save energy. I didn’t fully appreciate the scope of the changes to the Unemployment Insurance system, for example. It’s far from sufficient to offset the lost potential from the recession; there’s a lot more to be done to rebuild the foundations of a broad and secure middle class, and some of it can’t be done by government. But the germ of the ideas that will build the future are there.

Why has it been so easy to overlook that? That’s the second point on which I feel guilty. Like most writers about public affairs, I tend to focus somewhat on electoral politics and on legislative politics and policy. Most media coverage is grossly overweighted toward electoral politics – that’s why there are 15,000 reporters in Tampa to cover a fully scripted non-event. But even those of us who try to focus more on policy and legislation often overlook the big third dimension, which is government. Virtually nothing is written about the actual implementation of policy in the executive branch or in the states. Newspaper coverage is limited to a watchdog role that seeks out stories like the failed loan to Solyndra, which is how that one failure (which Grunwald shows was already underway in the last days of the Bush administration, under an existing loan program) could become the proxy for the entire stimulus, or as they call it in Tampa, the “failed stimulus.” Most federal agencies have no journalists at all covering them on a daily basis, other than reporters for specialized publications and industry newsletters.

While there are books comparable to Grunwald’s about legislation (The Bill, by Steve Waldman, about the early Clinton public service and education initiatives, Showdown at Gucci Gulch, about the 1986 tax reform, and the classroom classic, The Dance of Legislation, by Eric Redman, which is about the 1970s), very few continue to look at what happened in government after the legislation passed. The richest sections of Grunwald’s book open up the internal politics of government: one great set piece tells the story of the Department of Energy’s office responsible for administering weatherization assistance for low-income families, one that had been a “turkey farm” (a term commonly used in public administration to refer to an unimportant office to which useless employees are assigned) and couldn’t even get funds out the door. Given an impossible assignment in the stimulus – to weatherize 600,000 homes – an entepreneurial young leader, Claire Broido Johnson, turned the office around and exceeded the goal.

Such stories, along with accounts of the ARPA-E clean-energy research program and the Race to the Top education program, show that the Obama administration is changing government in ways that go much further than the “Reinventing Government” initiatives of the Clinton-Gore era, which focused mainly on government’s relation to citizens, who would be treated more like customers. Creative, ambitious leadership is encouraged, and real competitions, like Race to the Top, are replacing the formula- or earmark-funded programs of the past. It took a while to get started (which is why some of it was ineffective as short-term Keynesian stimulus), but its long-term effects on both government and the economy are likely to be profound.

To restore confidence in government, it is necessary to do all these things – to make government more responsive, imaginative, tough on failure but supportive of promising ideas. But it won’t do any good if people don’t know about it, and the phrase “failed stimulus” goes unchallenged. The New New Deal is not only one of the two best books ever written about government (the other is Cadillac Desert by Marc Reisner), but an acute reminder to every journalist, political writer and political analyst to pay more attention to real stuff of government, which doesn’t happen at either end of Pennsylvania Avenue.

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

Cross-Posted From Rediscovering Government

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Social Security’s Enduring Legacy: Adaptability

On the 77th anniversary of Social Security, we’re celebrating what has made the program so important and why it continues to be vital today. Mark Schmitt lauds it for its ability to provide security throughout tectonic shifts in our economy and society. Read the rest of our coverage here.

If Franklin D. Roosevelt rejoined the living tomorrow, he probably wouldn’t recognize Social Security, his greatest domestic legacy. That might sound like something a critic or skeptic of the program would say, as if it had broken faith with Roosevelt’s vision or expanded far beyond its original intent.

But, in fact, what Roosevelt would see would be Social Security’s greatest virtue: its adaptability to changing circumstances. Social Security has survived, thrived, and continued to provide a base level of economic security not only through big macroeconomic shifts (such as the inflation of the 1970s) but also the transformations and uncertainties in our individual and family lives. That adaptability and continuous reexamination and improvement is the quality most in keeping with the experimental, pragmatic nature of the New Deal.

Between 1935 and 2000, there were 30 major legislative changes to Social Security, roughly one every two years, under Republican and Democratic administrations. In 1939, it expanded its focus from the individual worker to the family, adding benefits for surviving spouses and young children. In 1950, it expanded to cover domestic and farm workers, whose omission was the atrocious compromise FDR had made to secure the support of Southern conservatives. In successive changes from 1954 through 1960, a disability program was created, and in the 1970s, benefits were indexed to inflation. Changes in 1977 and 1983 adjusted the financing of the program, changing the formula for benefits to reduce costs and build up more of a reserve (the Trust Fund) so that future retirees financed some of their own benefits. In 2000, the earnings test for Social Security recipients was eliminated. And while Social Security was created with the assumption of a male breadwinner, over 77 years it has been adjusted to account for the changing role of women in the workforce and the family.

The point of this history is a reminder that Social Security is not a fixed, unchanging thing, a jewel of the New Deal to be worshiped. Rather, it is an incredibly adaptive, responsive structure on which we’ve been able to build several different forms of economic and family security and adjust to radical changes in the economy, family, industry, education, and expectations over the years.

It’s become routine to say that Social Security is an industrial age program that’s ill suited, or at least needs to be modernized, to deal with information age challenges, but it’s telling that this cliché never gets to specifics. It’s true that the current era presents dramatic new challenges to economic security: household debt far larger than in the 1930s, 1950s, or even the 1980s (when most households didn’t even have access to consumer credit); the rapid decline since 1979 in the number of defined-benefit pension plans; the disappearance of lifetime employment at a single employer; and, most recently, the high rates of long-term unemployment among people in their late 50s and early 60s. But for almost every one of these changes, there’s an answer within Social Security that’s as good as any other. We could address the insecurity around pensions by creating a universal 401(k) account, but we could do exactly the same thing, with far less complexity and hassle, simply by expanding Social Security. We could construct some new form of economic security for those who have lost their jobs in their late 50s and may never work again – or, as James K. Galbraith has proposed, we could make it less costly for people to take Social Security at age 62 (which a majority of recipients do anyway) and open up opportunities for younger workers.

There are also liberals who hold the position “never touch Social Security.” They, too, should recognize the record of adaptability and change throughout the history of the program. There are bad changes to the program (such as an abrupt increase in the eligibility age) and less bad ones. But one way or another, it’s worth putting Social Security on a path that won’t require a significant cut in benefits, or hike in payroll taxes, in 15 or 20 years. I’m not endorsing any specific plan here, but just pointing out that resisting any and all changes to Social Security is really a betrayal of the program’s greatest strength.

There are programs that really are locked into a particular era and model of employment. Unemployment Insurance, for example, reflects some of the assumptions of the industrial era economy, such as a business cycle in which dips last about 26 weeks and workers return to their previous employer. But Social Security has a seamless versatility that has made it adaptable to all the massive shifts in the economy and our society since 1935. That, rather than any specific component of the program, is its greatest virtue and the reason that Social Security will endure.

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

Cross-Posted From The Roosevelt Institute’s Next New Deal Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

What Romney’s Taxes Tell Us About The Tax Code

The real question isn’t whether Mitt Romney paid his taxes. It’s whether we want to make an unfair tax code even worse.

Republican presidential nominee Mitt Romney last week promised ABC News he would “go back and check” whether he had ever paid a tax rate lower than 2010’s 13.9 percent. He hasn’t, and the questions keep piling up. This week Senate Majority Leader Harry Reid repeated a rumor, attributed to a former Bain partner, that Romney had paid no taxes for 10 years. And in the New York Times on Tuesday, Michael Graetz, a former official in the first President Bush’s Treasury, speculated about what might be in the returns. It’s possible we’ll find something in Romney’s taxes that’s disqualifying or suggests that he broke the law, but I doubt it. We’re unlikely to learn anything about Romney from his tax returns that we don’t already know – that he’s a very rich man with a taste for cutting-edge financial engineering. It’s what we’ll learn about taxes that might shock us. The Romney tax returns are a rare opportunity to see how the tax code really works for the very wealthy and whether we want to change it in the direction that Romney has proposed or take it in the direction of real fairness and efficiency.

Let’s start with the possibility that Romney paid a tax rate much lower than 13.9 in some years, or something in the low single digits. Graetz says that’s “plausible” but might be “perfectly legal.” If he did, he would probably have to show real losses on his investments, which would offset his gains. These might be “capital loss carryovers” from previous years. He had a $4.5 million carryover on his 2010 taxes, from which NYU professor Dan Shaviro inferred that he probably had more losses than gains on his 2009 return – that is, he had to “carryover” the extra losses to the next year. If so, it’s possible that he paid very little in taxes in 2009 – a bad year on the stock market – because he lost money. It’s hard to see that as a problem, though. If Romney really lost money, he had no gains to pay taxes on.

But this also reveals another way in which the tax code benefits those whose income comes from investments: they are able to move their gains and losses around and use the losses when they need them to offset their gains. Most of us can’t do that. With a couple of exceptions, as our income goes up and down, we can’t move deductions that we couldn’t use in one year and carry them over to another. We can’t use our bad years to offset the good ones.

And then there’s that massive Individual Retirement Account, valued in his financial disclosure at between $20 million and $101 million. How does that happen? Contributions to that type of IRA are limited to $30,000 a year, so these are remarkable returns. (The average IRA has about $67,000 in it.) The answer is that he’s not putting cash in the IRA; he’s putting in stock. The trick is to put in stock that has a low value but a huge upside. Graetz says that “we have to presume that Mr. Romney valued the assets he put in his retirement account at far less than he would have sold them for.” Apparently this is not uncommon – if you had just founded Facebook, for example, you could load up your IRA with shares when they were valued at $1, and then as the company grew, the capital gains would be tax-deferred in the safety of the IRA. As Graetz says, “The IRA also allows Mr. Romney to diversify his large holdings tax-free” – by which he means that if you want to have a typically diversified portfolio of high-risk/high-return investments and low-risk ones, by putting the high-return stocks into the IRA, you keep all the capital gains in that tax-deferred space. (I say tax-deferred rather than tax-free because eventually the gains are supposed to be taxed, depending on whether the Romneys withdraw funds from it or pass it on to their heirs.)

More interesting than how Romney did it is the fact that it’s even possible to wall off such a massive amount of money in an IRA. A policy that allows and encourages people to save enough for retirement makes a lot of sense, but this is way beyond what anyone needs for retirement. It’s doubtful that anyone in Congress, when IRAs were created in 1974, imagined they were creating a system for large fortunes to be held untaxed, but that seems to have been the effect.

There are two important points about the tax system that Romney’s taxes, even what we already know about them, reveal: The first is that the creation of tax-deferred accounts can take huge amounts of investment income out of the tax system entirely. A major thrust of Republican tax policy has been to expand the number of opportunities to put money – and the income it generates — into accounts that fall outside the scope of taxation. These include various forms of IRAs, health savings accounts, education savings accounts, and others. Many of them benefit the middle class, although they provide little value for low-income workers. But as we see from the Romney example, they can provide huge benefits to the wealthy. Any serious tax reform should aim to reduce the number and scope of these accounts in order to bring as much income as possible under the purview of the tax system and keep rates as low as possible.

And second, Romney’s taxes reveal how misleading just looking at the “rate” paid by Romney or any other wealthy person really is. When we eventually see the returns, we won’t know what percentage of Romney’s income he pays in taxes because we aren’t seeing all of his income – some large amount of it is flowing through this IRA. Again, that’s not a Romney problem; it’s an example of how ordinary high-end tax practices make it difficult to even judge whether the system is fair or equitable.

When we eventually see Mitt Romney’s tax returns, I hope that the debate about whether he’s a tax cheat or a mere tax-avoider won’t distract us from the fact that we’ve created a tax system that doesn’t make any sense and absurdly benefits the very well-off. There’s a choice between policies that would take the tax code even further in that direction and policies that would begin to restore sanity and fairness.

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

Cross-Posted From The Roosevelt Institute’s Next New Deal Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Note To The Last <em>Citizens United</em> Denier: It Really Did Change Money In Politics

It’ll take more than undoing Citizens United to reform money in politics, but there’s no denying that it’s had a huge impact on campaign spending.

Matt Bai argues in this coming Sunday’s New York Times Magazine that the Supreme Court’s 2010 decision in Citizens United didn’t dramatically change the impact of money in politics. Claims that it did “are just plain wrong,” he says.

Bai’s stance is not as deliciously contrarian as he might think. It is more or less the position I took at the time of the Citizens United decision and one shared at the time by a number of legal scholars and political scientists. I called myself a “Citizens United minimalist.”

And, taking things most literally, that view was not wrong. As Bai points out, Citizens United was an incremental decision in a series of moves by the Supreme Court and lower courts that weakened any efforts to control the influence of money in politics. Leaving aside the dicta in the decision (such as the majority’s suggestion that only quid pro quo corruption, and maybe not even that, could justify regulation), it was not even the most significant of those incremental moves. The Wisconsin Right to Life case that preceded CU, which first weakened the limits on electioneering communications by independent groups, and the D.C. Circuit Court’s SpeechNow decision later in 2010, which opened the door to Super PACs, are probably more consequential legally. Corporations, especially big publicly held ones, have never been the major players in outside political spending, and they aren’t even now.

I still think some of the conclusions that are frequently drawn about Citizens United are overstated. I’m still dismayed to hear claims that we need to amend the Constitution or that the decision hinged on the idea that corporations are people. (It doesn’t.)

But Bai’s stale claim that Citizens United isn’t largely responsible for the explosion of outside money in politics is no longer credible. I realized that in November of 2010, when I wrote a piece with the title “The Re-Education of a Citizens United Denier.” At the most basic legal level, Citizens United formed the basis for the D.C. Circuit Court’s decision in SpeechNow vs. FEC, and thus there is a direct path from CU to Super PACs.

But more importantly, Citizens United seems to have led to a huge shift in cultural norms and assumptions on the part of donors and money brokers. Why didn’t political money brokers use “social welfare organizations” – non-profits incorporated under Section 501(c)4 of the tax code – to facilitate pure political spending when Karl Rove formed Crossroads GPS? They were subject to neither disclosure nor limits before 2010. The law governing them hasn’t changed – it’s just the willingness of Rove or others to test the IRS and the FEC. There’s a sense now that you might as well try anything. The worst that happens is that eventually the IRS or the FEC will come back to life, or the courts will change their view.

Bai describes the view that Citizens United changed everything as “a useful story to tell, appealing to liberals and independent voters who aren’t necessarily enthusiastic about the administration but who are concerned about societal inequality.” That’s not wrong, but what it overlooks is that it’s also been a useful story for conservatives, lobbyists, and professional fundraisers and political operatives. Everything’s changed, they tell their clients or potential donors. If you’re not playing someone else is. And you’ve got to keep up.

Bai doubts (but does not link to) legal scholar Rick Hasen’s article this March in Slate, “The Numbers Don’t Lie,” which used the rapid growth in outside spending since CU to measure its impact. Hasen’s argument was that the combination of CU, SpeechNow, and the increased use of 501(c)4 non-profits (the social welfare organizations mentioned above) had unleashed a flood of outside money: $14 million in 2004, $37 million in 2008, and a projected $88 million in 2012. Non-presidential years show an even bigger jump in outside money: less than $1 million nationwide in 2002, $1.8 million in 2006 (this is less than total spending by a typical congressional candidate in a single competitive race), and then $16 million in 2010 post-Citizens United.

Bai doesn’t challenge these numbers, but says “there’s another way to interpret this data.” Focusing only on the presidential years, he points out that outside spending rose by a greater percentage from 2004 to 2008 (both years before CU) than between 2008 and projected 2012. We don’t know about and may never see much of the 2012 spending, however. Between 2004 and 2008, there was also a significant legal change, the Wisconsin Right to Life decision, which half-opened the door that Citizens United tore down.

More notably, Bai’s “another way to interpret the data” isn’t really an alternative interpretation at all. He’s basically arguing that outside money increases, period, all the time, whatever you do. In concluding, he asks Democratic operative Carter Eskew how much it would cost to run a national campaign now, including both outside and campaign money. Eskew quotes him a total of $500 million. Bai accepts that number: “it’s not clear that spending an extra $200 million or $500 million will really make all that much of a difference on Election Day.” True. But why $500 million? Without some actual explanation as to why a campaign in 2012 should cost roughly five times what it cost eight years ago, it’s not an interpretation, but just a restatement of Hasen’s data. Is it the cost of television advertising? Unlikely. Is it the wider scope of the campaign? Unlikely, since many large states that were somewhat competitive in previous elections, such as Pennsylvania and even California, are now probably locks for one party. No, a national race costs $500 million (if it does) because Eskew thinks the other guy might have $500 million. And a far greater percentage of that money is going to come through Super PACs, (c)4’s, and other outside money vehicles than ever before, which are available directly or indirectly because of Citizens United.

Simply undoing Citizens United won’t suddenly bring us back to the comparatively innocent days of 2004 or 2006, of course. It will be difficult to put some of the changes in cultural attitudes about money in politics back in the bag. And the more heated political atmosphere overall may well result in some corporations or wealthy individuals, who previously hedged their bets between the parties and participated modestly, to jump in with millions on one side, as gambling moguls Sheldon Adelson and Steve Wynn have both done. But that’s all the more reason to build a forward-looking alternative approach to campaign finance, one that incorporates public financing as well as changes to tax law to limit the abuse of political non-profits. It’s not evidence that Citizens United didn’t matter, a claim that was dubious when I made it in 2010 and is laughable now.

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

Cross-Posted From The Roosevelt Institute’s Next New Deal Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

What The D.C. Mayor’s Scandal Tells Us About Disclosure Of Political Spending

Vincent Gray’s “shadow campaign” that gave money to both the incumbent and challenger exposes the real reason some fight transparency: the desire to cover up the favors they buy with contributions.

The Senate finally took up the DISCLOSE Act today, which would respond to the post-Citizens United explosion of large and secret political spending by requiring SuperPACs and political nonprofits to promptly reveal their own political spending and their large donors. While Republicans will block it, as they did in 2010, they have developed a new argument that was unveiled by Senate Minority Leader Mitch McConnell in a speech at the American Enterprise Institute on June 15: Disclosure would feed the Obama administration in its efforts to “silence” and intimidate its opponents. This new argument was mostly developed by Brad Smith, Steve Hoersting, and their colleagues at the anti-reform Center for Competitive Politics. I wrote about it before the McConnell speech, noting that the conservative argument in the past was to oppose restrictions on political money in favor of disclosure, but now that disclosure is the only option, they have to find a way to oppose that too.

There is a lot that’s silly about the “intimidation” argument, most notably that if it were really true that the Obama administration has “got the IRS, the SEC, and other agencies going after contributors, trying to frighten people and intimidate them out of exercising their rights to participate in the American political discourse,” as McConnell said on Fox News, the appropriate remedy would be impeachment. (One of the articles of impeachment against Richard Nixon in 1974, the one that got broadest bipartisan support, was for just such activities.) Instead, McConnell’s remedy for what he claims is a lawless administration is that his party’s donors alone should get a special exemption from campaign disclosure laws.

Not only does McConnell have less than zero evidence of actual intimidation, his model of how money works in politics is an imaginary one. Let’s look at a case of real corruption here in Washington, D.C. On Tuesday, a fundraiser and friend of Mayor Vincent Gray agreed to plead guilty for her role in a $658,000 “shadow campaign” on behalf of Gray, funded by city contractor Jeffrey Thompson.

According to the Washington Post, the fundraiser, Jeanne Clarke Harris, “said Thompson opted to hide his campaign largesse in large part to avoid angering [incumbent mayor Adrian] Fenty, whose administration his businesses relied on for contracts. The Medicaid deal held by his D.C. Chartered Health Plan is the city’s largest contract: It is worth more than $300 million yearly. ‘He did not want the sitting mayor to find out he was supporting his opponent,’ Harris said. ‘If somehow the sitting mayor won, he would be in some serious contractual problems.'”

On the surface, then, this looks exactly like the kind of situation McConnell and his allies have been warning about. Harris may not be telling the truth or accurately representing Thompson’s fears, but let’s assume she is. Here we have an example of a businessperson fearing retaliation from government for expressing his political views. But I don’t see the campaignfreedom.org blog rallying to the defense of Mr. Thompson.

Perhaps that’s because its obvious that Thompson was not expressing political views by secretly supporting Gray. He was covering his bets. Like most large political donors, his main view is his interest in making more money. He expected to have more clout in a Gray administration, especially because that administration will feel more obligated to him, but he did not want to jeopardize his partial success with the Fenty administration. So he made his expenditures secretly, through Harris and other channels.

Nondisclosure allowed Thompson to basically operate without expressing a political choice, by making contributions that he hoped would ensure access and influence no matter which candidate won. That’s the more general explanation for corporations and individuals wanting to keep large expenditures undisclosed. “Retaliation,” if and when it happens (and I’m not including plainly illegal actions like turning the IRS on an opponent’s supporters), is just the inverse of the influence and access that motivates giving. And nondisclosure, of course, doesn’t mean that the politicians and elected officials who benefit from the money don’t know about it. It should really be called uneven disclosure or asymmetrical disclosure.

Disclosure generally, and the DISCLOSE Act in particular, hardly solve all the problems of political inequality. But at least they allow us to begin to see the patterns of corruption, such as the connections between Thompson’s spending and his contracts, and demand better – just as D.C. voters and councilmembers are doing in calling for the mayor’s resignation.

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

Cross-Posted From The Roosevelt Institute’s Next New Deal Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Why The GOP Won’t Repeal Obamacare — Even If They Win

Republicans are likely to leave the Affordable Care Act in place, but only because their backers in the insurance industry fear the alternative.

“If I’m the leader of the majority next year, I commit to the American people that the repeal of Obamacare will be job one.”

– Senate Republican leader Mitch McConnell, on Fox News Sunday

“If you thought it was a good idea for the federal government to go in this direction, I’d say the odds are still on your side. Because it’s a lot harder to undo something than it is to stop it in the first place.”

– Mitch McConnell, in Elizabethtown, KY, on Monday

With the Supreme Court ruling upholding the core of the Affordable Care Act, Republicans at every level have renewed their promise to repeal it. It is Mitt Romney’s “Day One” task. Because Chief Justice John Roberts upheld the individual mandate under the taxing power in the Constitution, conservatives such as economist Keith Hennessy and Virginia Attorney General Ken Cucinelli argue, the penalties for non-compliance are now a “tax,” and the mandate can be repealed under the federal budget reconciliation process, which can’t be filibustered in the Senate. That is, just 50 senators, along with a Republican vice president to break the tie, can repeal the mandate.

This is true – though the Court’s decision has nothing to do with it. Anything that has a significant impact on federal revenues or spending, such as fees, interest on student loans, or mining licenses, can be changed using the budget reconcilation process. The mandate, and some other provisions of the Affordable Care Act, can certainly be stripped out by a Republican majority. Other provisions that don’t affect the budget, such as some of the requirements placed on insurance companies to cover preexisting conditions and keep young adults on their parents’ plans, probably can’t be, because their effect on federal finances is minimal.

So if Romney wins the presidency and Republicans capture the Senate (as seems likely, if Romney wins), at the very least, we can expect them to repeal the individual mandate, right? It’s the least popular element of the law, and not too difficult to sever from the rest. As Paul Starr of Princeton and The American Prospect has argued for years, a mandate with minimal enforcement mechanisms might be worse than no mandate at all.

Whether they do that or not will be an interesting case study in the role of money in politics. Health insurance companies and HMOs, after all, are mainstays of the Republican money machine. Aetna, the health insurer that spends the most on lobbying, recently bolstered its Republican bona fides by being the first public corporation to disclose recent contributions to Republican dark-money committees, the American Action Network and the U.S. Chamber of Commerce’s political arm. Aetna’s former CEO, Ronald Williams, even went so far as to renounce the company’s long-standing support for the mandate, predicting it would fall at the Supreme Court.

But for health insurers like Aetna, stripping out the mandate alone would be the worst possible outcome. It would mean that they would still have to take all applicants, and couldn’t reject or charge more to people with preexisting conditions. And they wouldn’t have the profits from younger, healthier customers. Ideally, companies like Aetna would like to have the mandate without any of the other reforms, but that’s a political non-starter, since individuals would be mandated to buy something that the insurers would refuse to sell them. Failing that, the insurers could live with the Affordable Care Act, or the pre-ACA status quo. But what they can’t live with is the insurance reforms alone, without a mandate. (As a spokesperson for America’s Health Insurance Plans told Reuters, “There has always been broad agreement that the insurance market reforms… cannot work without universal coverage.”)


And you can be pretty sure that they won’t have to. By deepening their alliance with the Republican Party, Aetna and other insurers have made sure they would be at the table, whether the Court overturned the mandate (in which case the insurers’ goal would be to undo the rest of the law) or upheld it.

Some Republicans, including Romney, promise to repeal the whole law and “replace” it with something better, often suggesting that the replacement would include the popular provisions on preexisting conditions. That, too, is a non-starter with the party’s cash constituents. And other Republican proposals, such as to allow insurance companies to sell across state lines – that is, evade state regulations – aren’t ready for prime time. Republicans never offered an alternative during the health care debate and they don’t have one now.

Thus you have McConnell’s careful lowering of expectations on Monday: “It’s a lot harder to undo something than it is to stop it.” The Republicans will talk about repealing “Obamacare” for as long as it succeeds in firing up their base. But it’s all cheap talk; they won’t do a thing.

And so, the Affordable Care Act is secure. Unfortunately, that has less to do with public opinion or the Constitution than the simple power of money in politics.

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

Cross-Posted From The Roosevelt Institute’s Next New Deal Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

After ‘Citizens United II,’ Reformers Must Turn Away From The High Court

It should have come as no surprise that the Supreme Court would strike down the lower court decision to uphold Montana’s ban on corporate political spending. Even if Justice Anthony Kennedy, say, had been taken aback by the public reaction to his flawed opinion in Citizens United, it is extremely rare for the Court to directly reverse itself. The more likely outcome, if the Court had taken the case rather than simply reversed the lower court’s decision, would have been that it might move even further in the direction of Citizens United – for example, by indicating that it would reconsider prohibitions on direct contributions from candidates. As Rick Hasen of the Election Law Blog commented yesterday, “The best way to win before the Roberts Court if you are a campaign reformer (aside from on disclosure issues) is not to play.”

What does it mean “not to play”? It doesn’t mean giving up on everything. And it shouldn’t mean pursuing the even more futile path of a constitutional amendment to reverse Citizens United. Rather, it means getting over the obsession with corporate money, which plays a small role in federal elections and Super PACs, and getting refocused instead on the broader question of the ways in which political inequality reinforces economic inequality. To put CU in perspective, corporate money (mostly from privately held companies) represents only 17 percent of contributions to Super PACs, and Super PACs represent, so far, only about 10 percent of the total money in federal politics. That’s not to dismiss the issue or the cases, but corporate political spending is only one part of the story of how money distorts democracy.

While Citizens United and the somewhat more important SpeechNow case have certainly brought in a new atmosphere of “anything goes” to money in politics, there are answers that don’t involve waiting around for one of the five conservative justices on the Court to retire. One, of course, is generous public financing, such as New York City’s system, which provides a six-to-one match on small contributions. State legislators and Governor Cuomo have been pushing to extend the city system to the state level. Everywhere that similar public financing systems have been put in place (Arizona, Connecticut, Maine) they have been popular, resilient, constitutionally sound, and have broadened the role of small contributors and brought new candidates into the process.

The recent court decisions have also opened new opportunities for Congress and state legislatures to require the disclosure of donors to outside groups as well as to candidates. Law professor Ciara Torres-Spelicy recently described this move as a “dramatic 180 degree turn…on the issue of the constitutionality of disclosure.” Disclosure doesn’t solve all problems, but a big part of the story of money in politics post-Citizens United is the creation of political entities, such as Karl Rove’s Crossroads GPS, that are not Super PACs but instead use a section of the tax code for non-profits to avoid limits and also maintain anonymity for donors. This could be fixed by the IRS (these non-profits are not supposed to have election activity as their primary purpose) or by Congress, without the slightest constitutional problem.

While Hasen is right that it would be futile to keep knocking on the door of the Supreme Court, hoping that they’ve changed their mind, there’s a lot of work to be done, and a lot of progress that can be made, without involving the Court at all.

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

Cross-Posted From The Roosevelt Institute’s Next New Deal Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

The Win-Win Tax Reform Fantasy

Bipartisan dreams of raising revenues while lowering rates skirt the real problems in our tax code.

With your taxes due today, the Buffett Rule blocked in the Senate, and the next fiscal showdown (during the lame duck congressional session between the election and the seating of the new Congress in January) coming into sight, the phrase “tax reform” is beginning to be heard throughout the land. For those of us who have been pushing for comprehensive tax reform for many years, this should be a beautiful, thrilling moment.

But count me worried, not thrilled. We seem to be approaching tax reform for all the wrong reasons, and politicians of both parties are possessed of some dangerous illusions about what tax reform can and can’t achieve.

The push for tax reform is not based, as it was in the mid-1980s, on a shared belief by a wide range of politicians that the tax code is inefficient, overcomplicated, and unfair. Rather, it’s based on the fact that something called “tax reform” seems to be the only way out of the box that politicians have put themselves in. Obama has boxed himself in by his promise not to let taxes go up on any household with taxable income under $250,000. The Republicans have limited themselves even further by refusing to discuss any tax increases at all. Some Republicans, just a few, are willing to consider something called “tax reform” if it increases “revenues” slightly without increasing “taxes,” that is, tax rates. The option of letting the Bush tax cuts expire is unacceptable even to most Democrats, because it would raise taxes for the middle class, while a deal on extending the middle-class cuts is unacceptable to the Republicans because it would raise taxes on the wealthy.

But as last summer’s debt limit deal expires at the end of the year, the only alternative to the brutal sequesters of defense and non-defense spending promised in the deal is some movement on revenues in order to facilitate a deal to cut spending. And all that is left is something called “tax reform.” In the current environment, tax reform is not a positive goal, built on a vision of a fairer and more efficient tax system. Instead, it seems to be just the only way out of a situation that should never have been created in the first place.

And all too many politicians, including many Republicans and a good many Democrats, are caught in a fantasy: that tax reform might be a “win-win,” in which rates can go down and revenues go up, simply by “broadening the base.” Tax reform often represents a fantasy of a common-sense middle ground between the parties, one they could embrace if they just understood how easy it would be. Here’s John Avlon, a self-identified centrist and advocate for bipartisan solutions, on CNN last month: Tax reform is “the Bowles-Simpson idea. You can lower rates, close loopholes, and raise revenue. That should be a win- win. Only in Washington is that not a win-win.”

In fact, the idea of a win-win is all too appealing in Washington. Lowering rates, closing the loopholes (also known as “broadening the base”), and raising more revenue is the idea that most Democrats, and a few Republicans — including, without details, House Budget Chair Paul Ryan — have latched onto. But to call it a win-win is deeply misleading.

It’s useful to compare our situation with the circumstances of the mid-1980s, when the legendary bipartisan tax reform of 1986 was passed. At that time, tax rates were actually high (the nominal top rate was 70 percent) and the loopholes were many and insane. The top tax rates were effectively meaningless. The biggest loophole involved the deductibility of passive losses – investments in which the taxpayer didn’t actually take a risk. Even then, there were losers, particularly the oil- and gas-producing sectors, that relied on passive investment, and the powerful members of Congress who represented them. And even in that legendary win-win, only two of the three big goals were achieved. Rates were lowered. Loopholes closed. (Leaving many rich people better off, on net.) But revenues were not raised, because the goal of tax reform at the time was to separate it from arguments about raising or cutting taxes by making it revenue-neutral.

If all three goals couldn’t be achieved in 1986, that’s even more true in today’s very different circumstances. Today rates are very low by historic standards (not quite as low as the 28 percent achieved in the cleaned-up system of 1986, but that was unsustainable), and loopholes are many – but many of them reach the middle class. We can broaden the base, but if we do so in the context of long-term deficit reduction, the revenues will have to go to that purpose first.

And even doing that would require going far, far beyond the loopholes that President Obama has talked about (deductibility of expenses for private planes) and that Mitt Romney hinted he might close, in an overheard speech at a fundraiser, such as the deductibility of mortgage interest for second homes. (Or, in his case, third and fourth homes as well.) Neither of those are in the top 12 list of tax expenditures (the more formal term for loopholes, or spending through the tax code) maintained by the Tax Policy Center. To have any real impact on either revenues or tax rates, Congress would have to be willing to consider the big ones: the tax deduction for mortgage interest on high-end houses, the deduction for employer-paid health insurance (which would be far more disruptive than the Affordable Care Act), charitable contributions, or the special rate for capital gains. Much of the complexity of the tax code is now at the low end, in the myriad of credits that are partially refundable, such as the Child Tax Credit. While these should be simplified, the goal of doing so shouldn’t be to raise revenue, since it would mean raising taxes on lower-income workers.

What we need is not tax reform, but revenue reform – a system that is not only fair and efficient, but brings in adequate revenues to support, over the fairly long term, the services we want government to provide. Nothing on the table right now – not the Buffett Rule in either its specific form (a version of the Alternative Minimum Tax for those earning more than $1 million) or the general principle, nor anything in Paul Ryan’s budget – constitutes anything like revenue reform. And when we do see real revenue reform, it won’t be a “win-win” for everyone. It will have to mean that those who have been the big winners in tax policy for the last 30 years will have to pay a bit more.

Mark Schmitt is a Senior Fellow and Director of the Fellows Program at the Roosevelt Institute.

Cross-Posted From The Roosevelt Institute’s Next New Deal Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Forcing Both Parties To Get Specific About What Government Should Do

As part of the How We Value Government series, demanding that both Republicans and Democrats be forced to outline a real vision of government instead of proposing vague cuts or making specific defenses.

There’s an old rule of thumb about Americans’ attitudes toward government that’s no less true for being familiar: Americans are “operational liberals” but “philosophical conservatives,” the political scientists Lloyd A. Free and Hadley Cantril concluded in their 1967 book The Political Beliefs of Americans, based on their analysis of dozens of public opinion surveys. That is, we favor the specific services government provides, but we’re distrustful on an abstract level and respond favorably to attacks on “big government.”

This small insight was true even at the peak of the Great Society and the era of “liberal consensus,” and it fits as an explanation for much of the back-and-forth of American conceptions of government ever since. Whether it accurately represents public opinion or not, it’s a good guide to the behavior of actors in the political process. Conservatives attack “government” as an abstract concept that has little to do with our real lives and mostly creates wasteful excess benefiting either bureaucrats themselves or other people. Liberals respond by trying to show the harsh reality of cuts to particular programs, especially safe ones that reach large constituencies. In 1994 and 1995, for example, voters were first drawn to Newt Gingrich’s promises to eliminate entire cabinet departments, but as soon as the idea of cutting government was converted to the reality of shuttering national parks and slashing Medicare, the political tides turned swiftly in the other direction. George W. Bush won reelection in 2004 talking vaguely about the need to change Social Security, yet given the opportunity to put such a plan in action, he saw the public lose faith so quickly that he never found a single congressional sponsor for the legislation. Even Ronald Reagan, elected in 1980 in what we still see as a critical moment in shifting attitudes toward government, largely backed off from that agenda after the 1981 budget cuts and his own ham-fisted attack on Social Security.

Mitt Romney’s announcement recently that he would eliminate several large government programs, but wouldn’t name them lest he face political criticism, represents the conservative tactical approach to Cantril-Free perfectly. (Except they usually remember not to read the stage directions.)

The struggle over government thus often takes the form of this push-pull between the abstract, where anti-government conservatism reigns, and the specific, where people seem to appreciate government. The result, until recently, has been a happy dance through which both sides achieve their short-term objectives: Conservatives win their share of elections, which they can use to push through tax cuts, without worrying much about the size of government, while liberals get their turns at power and avoid major cuts to programs. The Cantril-Free paradox has even generated new paradoxes of its own. Conservatives often expand government as political insurance, albeit carelessly, as in the creation of the Medicare Part D prescription drug program in 2003. Liberals and Democrats are more likely to cut programs (such as the Medicare cuts of 1993 and 2010), both because they take government more seriously and in the hopes that showing a commitment to cutting waste and improving people’s experience of government will ameliorate their abstract opposition.

But what’s missing from this well-rehearsed dance is any effort to force the question, to make a real choice about what we want government to do. That missing element has been devastating in the last few years, when it seemed impossible to convince the public or Congress that an emphatic government effort was the only way to prevent a long and debilitating recession.

For the most part, as Romney’s comment suggests, the 2012 election cycle is evolving into yet another battle between the abstract call for cutting government and the specific defense of popular programs, particularly those threatened by Rep. Paul Ryan’s budget plan. But there are indications that the game might be changing. House Republicans have now tied themselves to the mast and voted twice for Ryan’s radical plan. They’ve built up some defenses against the classic attacks about cutting Medicare and other vital programs: They’ve drawn a new line that defines Medicare and Social Security for current seniors and those over 55 as benefits that have been “earned,” while for others they are unaffordable giveaways. They’ve redefined programs like unemployment insurance as if they were welfare. They’ve used deficit fever and misleading statistics to portray Social Security and Medicare as doomed, so that the only option is their cuts.

Meanwhile, embracing the need to reform entitlement programs, Democrats have (correctly and responsibly) blunted their own ability to play the old game. As Slate’s Dave Weigel wrote after the Republican victory in a special election in New York City last year, Medicare is “not really a wedge issue — it’s the slow death of a wedge issue.”

These two changes directly challenge the politics of “operational liberalism.” Going forward, it might not be enough to pick a few appealing government programs that reach the middle class and use them as political ammunition. And that could be a good thing. Instead of focusing on narrow specifics, this change demands a full-throated defense of government as a whole — programs that benefit “other people” as well as ourselves, programs that represent the shared benefits of our social contract. And it demands that we open up the “submerged state,” which obscures government programs and encourages the illusion that government programs benefit only someone else. It calls for a full-fledged commitment to making sure that government programs, especially Medicare, are in fact sustainable for the future.

The biggest risk to the promise of shared prosperity, assisted by government, is that liberals and Democratic political operatives are living in the past and believe that they can replay the old Clinton game against Gingrich over and over again.

Mark Schmitt is a Senior Fellow and Director of the Fellows Program at the Roosevelt Institute.

Cross-Posted From The Roosevelt Institute’s New Deal 2.0 Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.