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Social Security in Three Graphs

For years, Social Security has been known as the ‘third rail’ of American politics: any legislator that touches it risks ending his political life. President Franklin D. Roosevelt designed it this way. Workers pay into the Social Security program via payroll taxes and, in return, expect the program to provide for them when they retire or if they become disabled.

As a result, voters are usually very wary of any changes to the Social Security program. This has protected Social Security from lawmakers who might have wanted to scuttle the program, but it has also made it difficult to reform. Unfortunately, Social Security’s current budgetary trajectory is unsustainable. If lawmakers want to preserve the Social Security program, they should act now to bolster its financial health.

This blog post will examine the Social Security program in three graphs. It will briefly discuss the program’s history, describe the program’s funding structure, and then examine the program’s financial health. Finally, this post will conclude that, given that Social Security’s costs will likely rise faster than its revenue for the foreseeable future, legislators must raise revenue, pare back benefits, or employ some combination of the two in order to meet its obligations to elderly and disabled Americans.

GRAPH 1

The first graph depicts how the number of workers covered by Social Security, and therefore the number of workers paying into the program, has changed from year to year. As you can see, Social Security grew rapidly in its early years, mainly due to Congress expanding the types of workers that the program covers.

When President Franklin D. Roosevelt signed the Social Security Act in 1935, it only covered commerce and industry workers under the age of 65. Congress and President Roosevelt marginally expanded coverage four years later by eliminating the age limit and adding covered workers’ families to the program, but it was not until the 1950s that the federal government began to expand the program in earnest. Presidents Harry S. Truman (in 1950) and Dwight D. Eisenhower (in 1954 and 1956) extended Social Security coverage to agricultural workers, the military and other uniformed services, and to certain state and local government officials (as long as the government in question opted into the program).

Also, in 1956, Eisenhower established Social Security Disability Insurance, which expanded the scope of the Social Security program to include providing benefits to disabled covered workers. Two years later, he extended these benefits to disabled workers’ dependents, as well.

You can see these large expansions clearly in this first graph. Subsequent presidents extended Social Security to other workers, such as to federal and non-profit employees, but the number of active workers paying into Social Security has, on average, grown at a slower rate since the 1950s. This is significant, as the number of workers paying into Social Security at any given time greatly affects the program’s financial viability.

To understand why, we’ll take a look at how the government funds Social Security. It does so in two main ways, through:

  • Tax revenue (roughly 88 percent of current Social Security receipts); and
  • Interest income (roughly 12 percent of current Social Security receipts).

Workers and employers pay the majority of these taxes (96 percent) through payroll taxes.[1] The remaining 4 percent of tax revenue comes from income taxes levied on retirees’ Social Security benefits. Any tax revenue that comes in above what the government needs to pay out to Social Security beneficiaries gets put into the ‘Social Security Trust Fund.’ The government uses this excess ‘Trust Fund’ revenue to buy special U.S. Treasury Bonds from itself and to accrue interest as a second source of revenue for the Social Security program. Additionally, the government can redeem these special bonds at any time, if the Social Security program needs more revenue.

For now, though, we’ll focus on tax revenues. Consider the fact that around 85 percent of Social Security’s total annual revenue comes from payroll taxes that covered workers and their employers pay. This makes Social Security’s finances sensitive to the number of covered workers in the system at any given time. More covered workers means more people paying into the system; less covered workers means fewer people paying in.

This is not necessarily a problem, as long as the money that covered workers and their employers pay into the system still covers retirees’ benefits, as it has for most of Social Security’s existence. However, consider what might happen if the number of retirees grows faster than the number of workers helping pay for their benefits. In this case, Social Security will end up taking in less money than it needs cover their costs because there will not be enough workers to support the number of retirees drawing down Social Security benefits.

The second graph, which shows year-over-year percentage change in the number of covered workers and beneficiaries, illustrates this exact scenario.

GRAPH 2

As we can see, the number of covered workers grew robustly from the 1960s through the 1980s, as the ‘baby boom’ generation started entering the workforce.[2] For much of this period, the numbers of workers and beneficiaries grew at roughly similar rates; at some points, the number of workers grew faster, at other points the number of beneficiaries did.

However, starting in the late 2000s, we see the growth rate of workers and beneficiaries diverge. The growth rate of beneficiaries rises and stays consistently higher than that of covered workers as the baby boom generation retires and the much smaller succeeding generations take their place in the workforce.

Another common way to understand this demographic shift is by thinking about the worker-to-beneficiary ratio. This measures how many covered workers there are in the Social Security system for each single beneficiary, and it can give us a rough idea of how many covered workers contribute to the costs of one beneficiary. Since the 1960s, this ratio has equaled three or four covered workers to for each individual Social Security beneficiary. Within a decade, this ratio is projected to decrease to two workers for every one beneficiary. With the growth of the retiree population outpacing that of the covered workers, Social Security’s financial health with continue to suffer.

The second graph also demonstrates the effect the economy has on Social Security’s financial health. As discussed, payroll taxes constitute the vast majority of Social Security funding. The more workers employed, the more payroll tax Social Security takes in; the higher workers’ wages, the higher Social Security’s revenue. During recessions, however, a fall in business activity can cause employers to lay off workers and withhold raises. When this happens, Social Security’s payroll tax revenue drops — although, unless Congress legislates otherwise, its payouts to beneficiaries remains constant.

The graph illustrates the relationship between Social Security receipts and the economy by showing that the number of covered workers slows or even shrinks (that is, the percentage change becomes negatives) when the economy enters a recession. At the same time, the number of beneficiaries often continues to rise (or even begins to rise at a faster rate). A slow economy and a difficult job market can push unemployed workers who may have otherwise stayed in the labor force for another few years into early retirements. When faced with slim job prospects, they retire and draw upon their Social Security benefits for income. The longer an economy remains sluggish, the stronger one would expect this effect to be.

If a worker is too young to retire, unemployment and slow economic growth can push her or him onto the Social Security Disability Insurance (SSDI) rolls, as well. Congress created SSDI to provide assistance to disabled workers, but tough economic times (and loosened SSDI eligibility criteria) can encourage healthy workers to apply after they have exhausted their unemployment benefits and become discouraged about their prospects of finding a job. A slow economy can also encourage injured workers who otherwise might have found a job that accommodated their medical needs to join the SSDI rolls too. This further increases the number of Social Security beneficiaries and decreases the number of covered workers.

Both demographic and economic forces collided during the Great Recession. The recession began in 2007 and turned into a full-blown financial crisis in 2008. The subsequent recovery has been especially sluggish. The second graph shows a large loss of covered workers during this period. It also shows that the number of beneficiaries grew faster than at any other time since the 1970s, in part because workers retired early and applied for disability. The year 2008 did not just feature the financial crisis, it also marked the first year baby boomers could seek early retirement — and faced with a dim economic outlook, many did just that.

This situation — slower growth in tax revenues and faster growth in benefit payouts — has begun to threaten Social Security’s financial health, as we can see in the third graph.

 GRAPH 3

Since 2010, Social Security has cost the government more than it takes in through tax revenues, forcing the government to rely on both tax revenues and interest income. Although interest income has helped cover the total program cost as tax revenues have dipped below required payouts, using interest income to cover the difference can only be, at best, a short-term solution to the long-term financial sustainability of the program.

If the government continues to operate Social Security in a way that ensures tax revenues are lower than the program’s costs, its corresponding interest income (which is generated from interest on U.S. Treasury bonds — which, in turn, comes from other taxes that the government levies) will continue to dwindle. With the current revenue structure unable to support the program’s costs, the government will be forced to cover the shortfall by cashing in the U.S. Treasury bonds it holds in the Social Security Trust Fund. Eventually, if revenues do not rebound, both the Trust Fund and the interest income it generates will run out and the government will be unable to cover all of its Social Security liabilities through annual program revenues alone.

As it stands, the Social Security Trustees Report projects that without significant changes, the Social Security Trust Fund could run out by 2033.[3]

This government has faced this situation before: the last time Social Security tax revenues fell below program costs was in 1983. In response, President Ronald Reagan and the Congress shored up Social Security’s finances by increasing the payroll tax rate, increasing the retirement age, and bringing more workers into the Social Security system, among other things.

As the third graph shows, Social Security’s financial trends were heading in the wrong direction in the early 1980s. The 1983 Social Security reform boosted the program’s revenue, which allowed it to both cover its annual expenses and bulk up the Social Security Trust Fund.[3] However, the late 2000s saw the Social Security program’s revenue fall, for reasons discussed earlier (the Great Recession and demographic shifts). Revenues have already begun to recover and grow again, but so have the program’s expenses. Social Security’s costs seem likely to continually outpace its revenues going forward, as the number of beneficiaries receiving payouts grows quicker than the number of covered workers paying into the system.

Unless the government acts to restore Social Security’s financial stability (or the economic and demographic situation improve drastically), the government may be unable to fully meet its Social Security obligations in the coming decades. The Social Security Trustees Report estimates that, over the long term, Social Security’s shortfall will be about 4 percent of future taxable payrolls, or 1.4 percent of GDP. Congress and the president will have to decide whether they want to cover this shortfall by raising taxes, cutting benefits, or employing some combination of the two. They will also have to decide whether they want to act now to shore up the program or continue to let its finances deteriorate.

President Roosevelt considered Social Security the crown jewel of his New Deal agenda and he expected it to become a lasting American institution. To that end, he recognized the important role payroll taxes play in sustaining the program, both financially and politically. By requiring workers to pay part of their paycheck into Social Security in return for promised future pension benefits, Roosevelt ensured the program’s survival. Workers would now expect that, after paying into Social Security for years, they would receive their pensions when they retired.

As Roosevelt said, “with those taxes in there, no damn politician can ever scrap my Social Security program.” The president shrewdly designed the Social Security program in a way that blocked future politicians from ending it through the legislative process — but not, it seems, from ending the program by doing absolutely nothing at all.

 

NOTES

[1] In 2011 and 2012, the federal government attempted to stimulate the economy through, among other things, a ‘payroll tax holiday‘ that temporarily cut the payroll tax rate workers pay by 2 percentage points (from 6.2 percent to 4.2 percent). In order to cover this temporary cut, Congress reimbursed the Social Security program through the general fund. After several extensions, the payroll tax holiday expired at the end of 2012.

[2] The ‘baby boom’ describes the high birth rate that the U.S. experienced in the immediate post-World War II period. Many Americans returned home from the warfront and began to start large families. The resulting rise in the U.S. birth rate can be seen in the graph below.

[3] Total bond holdings in the Social Security Trust Fund started to decrease in the 1970s and 1980s, when the program’s costs were greater than its tax revenues. The Trust Fund then rebounded after President Reagan and Congress reformed the Social Security program and raised its income in 1983. Today, Social Security faces a similar situation: Social Security’s tax revenues have fallen below its costs. Unless this situation changes, the Trust Fund may run out by 2033, as seen in the graph below.

 

FURTHER READING

2013 OASDI Trustees Report,” Social Security Administration, 2013.

Scott, Christine. “Social Security: What Would Happen If the Trust Funds Ran Out?” Congressional Research Service, 21 October 2013.

Nuschler, Dawn & Sidor, Gary. “Social Security: The Trust Fund.” Congressional Research Service, 4 June 2013.

Nuschler, Dawn. “Social Security Primer.” Congressional Research Service, 17 June 2013.

Report of the National Commission on Social Security Reform (Greenspan Commission).” Social Security Administration, January 1983.

The 2013 Long-Term Budget Outlook.” Congressional Budget Office, September 2013.

Meyerson, Noah & Dacey, Sheila. “How Does Social Security Work?” Congressional Budget Office, 19 September 2013.

Meyerson, Noah & Topoleski, Julie. “Medicare and Social Security Payroll Taxes and Benefits for People in Different Birth Cohorts.” Congressional Budget Office, 20 September 2013.

Morton, William R. “Social Security Disability Insurance (SSDI) Reform: An Overview of Proposals to Reduce the Growth in SSDI Rolls.” 29 April 2013.

Social Security Issue Briefs, U.S. Department of the Treasury.

The Social Security Act of 1935.” Social Security Administration.

Kollmann, Geoffrey. ”Social Security: Summary of Major Changes in the Cash Benefits Program.” Congressional Research Service, 18 May 2000.

 

 

Elections Matter. Redistricting Matters More.

Poor redistricting. Given the tremendous impact redistricting has on all levels of government, voters simply do not tend to give it too much attention.

There are undoubtedly numerous reasons for this. For one, redistricting — the process by which legislators redraw the political boundaries defining what towns and communities they will represent at the next election — just isn’t a ‘sexy’ issue. It deals with technical issues like adjusting districts to account for population shifts and make sure each lawmaker represents about the same number of constituents as his or her colleague. It doesn’t easily lend itself to the types of human interest stories journalists use to pull readers into articles on, say, immigration, war, abortion, and many other high-profile issues.

It’s difficult to put a face to redistricting.

Also, unlike other issues, redistricting is only really pushed into the spotlight once a decade. Although voters have to live with its effects at every election, redistricting is really only brought up in discussion when legislators engage in it, after the U.S. Census information is released. Any disgust or disapproval inevitably dies down soon after, leaving lawmakers with little incentive to reform the system.

Redistricting allows lawmakers to redraw their districts in ways that benefit them. (Image from Governing Magazine's website.)

In fact, not only do lawmakers have little incentive to consider redistricting reform, they actually have every reason to actively oppose it, because reforming redistricting would dilute their own power to choose their constituents by drawing voters in or out of their districts.

For anyone who has watched the American version of the political drama House of Cards, the characters bring up redistricting several times as key to the Democrats’ efforts to hold onto the U.S. House of Representatives. They pin their hopes on a special election for Pennsylvania governor — because without a Democratic governor to oversee Pennsylvania redistricting, the Democrats are sure to lose a number of its U.S. House seats, and thus lose control of the House.

House of Cards is fiction, but the stakes are just as high in real life, as well. It was one of the first things Republicans in Texas did in 2003 once they took full control of the state legislature for the first time since Reconstruction, allowing them to lock down their control. Democrats, knowing full well the power Republicans now wielded, broke quorum and fled the state rather than allow the legislature to meet and redistrict. Eventually, though, the Republican majority passed its redistricting plans, turning the 17-15 Democratic majority in Texas’ U.S. House delegation to a 21-11 Republican majority.

Pennsylvania serves as a reminder of the power of redistricting as well. Pennsylvania Republicans have controlled the redistricting process for decades. Most recently, that control paid off in 2012. Even though Democrats swept every office up for statewide election and received more than half of all votes cast in the state for U.S. House, Republicans not only kept their majorities in the state legislature, they actually gained a U.S. House seat.

After an election in which a majority of Pennsylvanians voted for a Democrat for U.S. House, Republicans still wound up holding a full 13 of Pennsylvania’s 18 U.S. House seats – or about 72 percent of Pennsylvania’s U.S. House delegation.

(It should come as no surprise, then, that Pennsylvania Republicans have also put forward plans in recent years that would distribute electoral votes in presidential elections according to redistricting, rather than popular vote. For instance, if one of these proposals, put forward by PA Senate Majority Leader Dominic Pileggi and Gov. Tom Corbett, had been in place in 2012, Gov. Mitt Romney would have lost the popular vote to President Barack Obama 52 percent to 47 percent — but Romney still would have taken home more electoral votes. Under this plan, Romney would have received 13 electoral vote to Obama’s 7 votes.)

Redistricting has very real effects on both state and national politics. The immigration legislation pending in Congress is a fairly good case study.

Although a rough consensus seems to have formed around immigration reform and the U.S. Senate passed immigration legislation by a healthy and bipartisan 68-32 vote, the bill has stalled in the U.S. House. This seems contrary to the post-2012 election narrative that Republicans are reevaluating their Hispanic outreach efforts, considering Hispanic voters tend to support comprehensive immigration reform. But it makes perfect sense once you consider U.S. House members’ narrow constituency.

After the 2010 midterm elections, Republicans swept into power in state capitols all over the country — just in time for redistricting. House Republicans’ seats are safe. Unlike U.S. Senate and presidential candidates, House Republicans do not have to worry at all about swaying Hispanic voters. Their districts have been specifically designed in a way to ensure they win the general election.

Instead, House Republicans have to worry about other Republicans challenging them in primary elections. As a result, they have to tack harder to the right to avoid offending their base voters and to fend off any primary challengers. That means opposing the immigration reform bill, which is generally unpopular with conservatives. This is not to say passing the bill is impossible, only that it is made much more difficult due to the perverse incentives created via redistricting.

And perhaps that is the hook that journalists need to raise awareness about and put a human face on redistricting — by connecting redistricting to other issues, such as the 11 million undocumented immigrants living in America. At that point, it becomes less about lines on a map and more about the very real impact redistricting has on American families and communities.

FURTHER READING

2013 Legislative Preview Issue Brief: Elections.” Gaudini, Michael; Proft, Lena; & Rocha, J.J. Center for Politics and Governance.

Redistricting Texas: A Primer.” Gaudini, Michael.

The War on Democracy: Gerrymandering in Pennsylvania.” Gaudini, Michael.

Think Off-Year Elections are Unimportant? Think Again.” Gaudini, Michael. Narberth-Bala Cynwyd Patch.

Reforming Redistricting.” Gaudini, Michael. Baines Report.

Republicans Win Fewer Votes, but More Seats than Democrats.” CQ Voting and Elections Collection.

Immigration Reform: Clearing the First Hurdle.” Economist.

What You Should Know About Redistricting in PA,” Gaudini, Michael. Diniverse Major.

Corbett-Pileggi Election Plan Bad For Democracy,” Gaudini, Michael. Main Line Times.

What Would Have Happened in 2012 Under Gov. Corbett’s Election Plan?” Gaudini, Michael. Diniverse Major.

 

Redistricting Texas: A Primer

Click here to download my primer on redistricting in Texas. Below, you will find a very brief overview of the process to date.

OVERVIEW

Minutes after the end of Texas’ regular legislative session, Gov. Rick Perry called the House and Senate back for a special session. The focus of this special session: redistricting.

Redistricting is a contentious process — and Texas is no outlier. In addition to the normal political fights and legal challenges, the Lone Star state is also one of several states that  must submit their redistricting plans to the federal government for approval under the Voting Rights Act of 1965.

The Texas legislator passed three redistricting plans (for the Texas House, Texas Senate, and Texas’ congressional seats) in 2011. Yet, due to legal wrangling and federal disapproval, Texas’ redistricting plans have remained in limbo. The state is currently operating under temporary maps drawn by federal judges.

State legislators are meeting in Austin right now to change that and adopt plans that will define Texas’ political boundaries for the rest of the decade.

FURTHER READING

Redistricting Texas: A Primer.” Gaudini, Michael, Diniverse Major.

2013 Legislative Preview Issue Brief: Elections.” Gaudini, Michael; Proft, Lena; & Rocha, J.J. Center for Politics and Governance.

Tribpedia: Redistricting.” Texas Tribune.

Texas Redistricting.” Texas Legislative Council.

 

No, the Dollar Is Not Dying

“In truth, the gold standard is already a barbarous relic.”

- John Maynard Keynes

This year, the Republican Party polished off an idea formerly relegated to the dustbin of history. In its official party platform, the GOP calls for a commission to study the possibility of “a metallic base for U.S. currency” – in other words, a return to the gold standard.

The last time a major political party officially endorsed the idea of tying the nation’s currency to a limited, volatile commodity was in 1984. That year, the economy was booming, the dollar was peaking and the dream of a return to the gold standard was in its death throes after President Reagan’s 1982 Gold Commission rejected the idea.

Please click here to visit the Baines Report to read the rest of this post.


Why Any Debt Deal Will Need to Include Taxes

One of the major downsides to the otherwise enthralling roller-coaster ride that is the 2012 GOP primary is the way that the fight for the Republican ticket has dragged the rhetoric further and further to the right. After all, you cannot become president if you do not win the party nomination — and you cannot win your party’s nomination if you do not appeal to the base voters that turn out at the primary elections. The result is a competition to “out-conservative” each other, which may yield short-term electoral gain, but does so at the expense of cooperative politics and sound policy.

Consider this excerpt from an August 2012 GOP debate in Iowa. Fox News anchor Bret Baier asks the candidates if they would walk away from a deficit reduction deal that would cut $10 in federal spending for every $1 it raised in tax revenues. Every candidate agreed that they would.

This is, of course, absurd. There is no realistic way in which deficit reduction will ever occur solely through spending cuts alone. Think about the budget for a moment. Over 60 percent of the federal budget is mandatory spending, mainly on programs like Social Security, Medicare, and Medicaid. These are programs that, by law, provide certain benefits if you meet certain requirements, such as age or income level.

There is no wiggle room here. These payments must happen unless Congress amends the law to change benefits or eligibility requirements. It would be prudent now to recall that changes to Social Security have always been controversial among the electorate. President Roosevelt planned it that way. In 1941, he recalled:

“We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program.”

Because employees pay into the Social Security system with every paycheck, they feel entitled to their own future benefits. This makes paring back benefits or raising the retirement age very unpopular politically. There is a reason why reforms to the Social Security system in 1983 were limited to an ever-so-gradual increase in the retirement age and an increase in payroll taxes. The math is simple: retirees like their Social Security benefits, and retirees reliably turn out to vote in larger numbers than younger citizens. Similar problems face the Medicare and Medicaid programs.

Interest payments on the debt are likewise mandatory, though, they are listed as a separate category from mandatory spending.

But if cutting mandatory programs (again, over 60 percent of the budget) would involve highly risky political moves, doesn’t that still leave discretionary spending of about 40 percent to carve up? Surely, we can reduce the deficit by lopping out a chunk of discretionary spending?

Not so fast. As it turns out, a lot of discretionary spending is not so discretionary after all. More than half of all discretionary spending is defense spending — a spending area that is also fraught, as politicians strive to “support the troops” and avoid being called “soft on defense.” And the nondefense portion of discretionary spending? What does that encompass?

From the Congressional Budget Office (CBO):

Seven broad budget categories accounted for more than 75 percent of the spending for nondefense discretionary activities last year [2010]. The largest of those is the category covering education, training, employment, and social services; it is followed in size by the categories for transportation, income security programs (mostly housing), and health-related research and public health. Categories with smaller amounts of discretionary spending include administration of justice (mostly for law enforcement activities), veterans benefits and services (mostly for health care), and international affairs.

It also is worthwhile to note that President Obama’s proposed nondefense discretionary spending for 2012 is about $450 billion, or around 12 percent of the federal budget. The deficit for 2011 was over $1 trillion. So, if the entire nondefense discretionary budget evaporated, it would still not have covered last year’s deficit. Nor would it cover the projected 2012 deficit of around $828 billion. If you had the entire discretionary budget (which, when you add the $868 billion in the 2012 proposed Obama budget for defense to the total for nondefense spending comes to about $1.3 trillion), you would have just covered the deficit, at least in the short term.

In the long term, you’d still have an aging population that would stress mandatory spending programs. When the baby boomers were in their working primes, taxing their large numbers enabled the government to meet entitlement payments. There were enough workers to tax to support Social Security pensions and Medicare insurance coverage. Now that those same huge numbers are retiring, there will be a shrinking pool of people to pay and a growing pool of people that will be drawing benefits.

And then, in our hypothetical, there is the fact that we just abandoned all of the government’s defensive duties, diminishing our global power and destabilizing the world as a whole. Also, with more than $1 trillion dropping out of the economy, we’ve just descended into the depths of a long depression that will send federal revenues spiraling, creating a whole new deficit problem.

Now, this hypothetical is obviously utterly unrealistic. No one (who actually understands the federal budget) is calling for the government to abandon all discretionary spending. But it nevertheless serves a purpose. It shows that the size of the deficit is comparable to an entire section of the budget. Furthermore, it shows that, as much as people talk vaguely of “cutting waste,” there is almost no part of the budget that could be touched without sparking controversy.

This is important because cuts must occur if we are to get the deficit under control. Such cuts should be timed so as not to derail economic recovery from the Great Recession (that is to say, they should not be implemented immediately) and, importantly, entitlements like Social Security and Medicare must be reformed.

The real question is a political one: how do you pass a deficit reduction package that cuts popular programs?

The Republican candidates’ unanimous rejection of a hypothetical deficit reduction package with $10 in cuts for $1 in tax increases is one way to not accomplish this goal. The reason why is, like the question posed above, inherently political.

In order to pass such legislation, one needs the president and both houses of Congress to be onboard. A simple majority would suffice in the House of Representatives, but a supermajority (two-thirds) would be needed to overcome the inevitable filibuster in the Senate. That would be virtually impossible if one side of the aisle refused to compromise, which is essentially what the Republican candidates said when they indicated they would reject any and all tax increases.

But pretend for an instant that the impossible occurs, and the Republicans land both the presidency and a filibuster-proof majority in the Senate. Also pretend that the few moderate Republicans left in the Congress (Olympia Snowe, Scott Brown, etc…) don’t jump ship. They’ve got the numbers. Do they pass this all-cuts deficit reduction package?

No.

Any economist would tell you that the Republicans don’t pass the package, even though they have the numbers. Why? They do not pass the all-cuts package for the same reason the GOP candidates are demanding an all-cuts package: incentives.

Right now, the Republican presidential candidates have a very strong incentive to call for an all-cuts package because it will help them win the primary election. As mentioned earlier, the candidates have been pushing each other further and further to the right in a race to win the presidential ticket. Calling for an all-cuts package allows them to curry favor with primary voters and gives them cover from opponents that would otherwise attack them for not ruling out tax increases.

However, passing such a package is not in our hypothetical Republican Congress’ interests because it would be widely unpopular and would energize the opposition. Unlike the presidential candidates, such a package would actually hurt their electoral prospects.

Democrats, of course, would vote in lockstep against this package, making the issue a partisan one. Democrats across the country would campaign against the hard-hearted Republican deficit reduction that was weak on defense (cuts to defense spending), harsh on both the poor and the middle class (cuts to the social safety net and Medicare), a burden to the elderly (cuts to Social Security and Medicare), but also went easy on the rich (lack of tax increases).

Voters across the country, seeing their Social Security checks shrink, their insurance coverage dropped, their unemployment evaporate, would turn their Republican representatives out of office in record numbers at the next election. And if it is one thing that political parties loathe, it is losing power.

But how would including tax increases in deficit reduction legislation prevent any of this?

Well, first of all, it makes the legislation likelier to pass than an all-cuts package — the latter having absolutely no chance at becoming law. It has a better shot because it provides a platform for cooperation and compromise. The Democrats may have to swallow painful spending cuts, but at least they in turn get to temper some of them with tax increases. The Republicans may have to suffer tax increases, but they also get their desired spending cuts.

With members of both parties onboard, the legislation has a better chance of making it to the president’s desk. Additionally, it can be presented as bipartisan, robbing either party of the ability to use it against the other in future elections. Individuals and primary challengers may still use this narrative in specific elections, but the overall narrative will be very different with bipartisan cover. It is also much easier to take the dive when you are joined by both your allies and opponents.

There would still be much opposition in the electorate, but it would be more manageable. A compromise package could call for ‘shared sacrifice’ from every American.

History also provides a good guide. As the Economist notes:

Put simply, no fiscal consolidation that the IMF has judged to be successful relied on public spending cuts for more than 83% of its impact. In successful fiscal consolidations, tax rises accounted for between 17% and 33% of deficit-reduction measures.

So yes, deficit reduction legislation should probably rely more on spending cuts than tax increases — but both are essential parts of any successful package. This will probably not come as a surprise to the American people, as numerous polls have shown that they recognize the need for including tax increases in a deficit reduction package.

But, you might ask, why focus so much on how the GOP candidates responded at some primary debate in Iowa? Once they got into office, things would change. Everyone knows presidents never keep their promises anyway!

Not so.

Studies of the topic have shown that presidents generally try to keep their promises. And on the subject of taxes, any Republican president would likely be fearful of repeating George H.W. Bush’s mistake in choosing fiscal responsibility over ideology. The elder Bush infamously agreed to raise taxes in order to cut the deficit, despite promising he would do no such thing in the 1988 election. At the next election, Bush faced a primary challenger (Pat Buchanan) that emphasized Bush’s broken promise and went on to have a surprisingly strong showing early on in the primary season. Bush, of course, went on to face Bill Clinton who, like Buchanan, threw Bush’s 1988 promise back at him. “Read my lips: no new taxes,” Bush’s broken promise, went on to become a solemn warning to politicians of all stripes (and a Wikipedia page, too!).  Bill Clinton went on to take the presidency.

The irony here is that the very candidates who have staked their campaigns on fiscal responsibility are unlikely to successfully cut the deficit, should any of them take the White House.

Perhaps they should take a page from President Reagan’s book. Sure, Reagan passed the largest tax cuts in American history. But he also, when faced with gaping deficits and a Democratic Congress, reached across the aisle, compromised, and, yes, raised taxes.


Gerlach v. Trivedi for U.S. House of Representatives

Here are the two candidates for District 6 — Jim Gerlach and Manan Trivedi.

Update — WHYY’s Marty Moss-Coane interviewed Manan Trivedi on her radio show, “Radio Times.” You can listen to the interview at their website or find it in the iTunes store for free under “Radio Times.” On the show, Marty Moss-Coane said they are looking to set up a Gerlach interview in the coming weeks.

(Note — I’ve culled most of the information on the candidates’ stances from their own campaign sites (links: Gerlach, Trivedi) from OnTheIssues.com (links: Gerlach), and from ProjectVoteSmart.com (links: Gerlach, Trivedi).

Economy and Business

  • Gerlach
    • Opposed the Stimulus Package
    • Supported stimulus spending that involved funding transportation
    • Voted to regulate subprime mortgage industry
    • Voted to fund research and development of nanotechnology for commercialization
    • Small business tax relief
    • Lower state business taxes to stimulate growth
    • Voted to “make grants to states for the modernization, renovation, or repair of public schools, including early learning facilities and charter schools, to make them safe, healthy, high-performing, and technologically up-to-date.”
    • Voted to extend unemployment benefits during the recession
    • Opposed “Employee Free Choice Act,” which would end the need for a ‘secret ballot’ to vote on unionization after a majority of worker signatures have been collected
    • End offshore tax havens for business
  • Trivedi
    • “Support tax incentives that encourage expansion and new hiring”
    • Infrastructure spending (both physical, such as roads and bridges, and technological, such as broadband)
    • Tuition assistance programs
    • “Launch an effort to retrofit local schools to become more energy efficient by switching to clean energy sources (such as wind energy, solar power, biomass heaters”
    • Use this retrofitting plan to train vocational students and to reduce the amount of the budget spent on energy

Transportation

  • Gerlach
    • Supported stimulus spending that involved funding transportation
    • Member of House Committees dealing with transportation
  • Trivedi
    • Infrastructure spending

Health Care

  • Gerlach
    • Opposed recent Health Insurance reform
    • Tort reform
    • Voted to regulate tobacco as a drug
    • Voted to expand Children’s Health Insurance program
  • Trivedi
    • Supported a public option
    • Comparative Effectiveness Research
    • Expand health information technology to reduce costs and improve quality
    • Realign incentives to reward quality, not quantity, of care
    • Promote primary care
    • Support policies that make “all neighborhoods healthier—with walking paths, open spaces, and access to healthy groceries”

Immigration

  • Gerlach
    • Opposes amnesty for illegal immigrants in America
    • Stronger border control
  • Trivedi
    • Opposes Arizona immigration law
    • “He supports immigration reform that creates a path to citizenship, where people have to get in the back of the line and fulfill the same requirements that his father had to fulfill.”

Education

  • Gerlach
    • Voted to “make grants to states for the modernization, renovation, or repair of public schools, including early learning facilities and charter schools, to make them safe, healthy, high-performing, and technologically up-to-date.”
  • Trivedi
    • Invest in early learning
    • Reform “No Child Left Behind”
    • Change incentives to stop teachers from “teaching to the test”
    • National standards
    • Supports technical training in the clean energy industry

Energy and the Environment

  • Gerlach
    • Opposes Cap and Trade
    • Supports offshore drilling
    • Voted for “clean coal technology and developing new alternative energy through wind, solar and bio-fuels”
    • Sponsored a bill to “make federal funds available to municipalities around the country to purchase conservation easements”
    • Supports public transportation
  • Trivedi
    • Fund research and development of green energy technology
    • Support public transportation
    • “Modernization of the aging U.S. power infrastructure with the development of smart grid and meter systems”

National Security

  • Gerlach
    • Supported Patriot Act
    • Opposed closing Guantanamo Bay
    • “Co-sponsored legislation to prevent terrorists from being imprisoned on US soil”
    • Supported War in Iraq
    • Supports War in Afghanistan
    • Sanctions on Iran
  • Trivedi
    • Draw down forces in Iraq
    • Two-state solution in Israel
    • “Plan for a more reasonable deployment cycle, increase educational and healthcare benefits for the active duty and veteran community, and raise compensation for the junior enlisted, if not all our soldiers and sailors”
    • Supports War in Afghanistan

Abortion

  • Gerlach
    • Pro-life
    • Voted for stem cell research
    • Voted for “restricting interstate transport of minors to get abortions”
  • Trivedi
    • Pro-choice
    • Ensure access to contraception


Sestak vs. Toomey for PA Senator

Now that the primaries are behind us, the brawl for the Pennsylvania Senate seat is heating up. This blog post will be one in a series of posts I hope to write in which I lay out the stances of various candidates that will be on the ballots this year.

I hope that reading about those issues that matter to you will get you to the ballot box, and that this blog has helped you make an informed decision.

Update — WHYY’s Marty Moss-Coane interviewed with each of these candidates on her radio show, “Radio Times.” Follow the links below to listen, or find them for free in the iTunes store under “Radio Times”:

(Note — I’ve culled most of the information on the candidates’ stances from their own campaign sites (links: Toomey, Sestak), from OnTheIssues.com (links: Toomey, Sestak), and from ProjectVoteSmart.com (links: Toomey, Sestak). )

Economy and Business

  • Toomey
    • Tax cuts (for both individuals and businesses) and deregulation to spur economic growth
    • Opposes the Jobs Bill
    • Opposed the Stimulus Package
    • Make the Bush tax cuts permanent
    • Decrease government spending
    • Voted to end offshore tax havens
  • Sestak
    • Supported the Stimulus Package to stabilize the economy
    • Tax cuts for the middle class
    • Allow Bush tax cuts to expire
    • Federal investment in new industries
    • Supported the TARP Program (bailouts) to stabilize the financial sector
    • Close tax loopholes
    • Supported “Employee Free Choice Act,” which would end the need for a ‘secret ballot’ to vote on unionization after a majority of worker signatures have been collected
    • Increase the minimum wage
    • Discretionary spending caps
    • Voted to extend unemployment benefits during the recession
    • Invest in small business
    • Supported HOPE for Homeowners to help people refinance their mortgages
    • Supported government purchase of ‘toxic assets’ to help keep credit flowing
    • Supported Credit Card Holders’ Bill of Rights
    • Supports Pay-As-You-Go, which requires increases in spending to be accounted for

Health Care

  • Toomey
    • Opposes the recent Health Insurance reform
    • “Giving individuals who buy their own health insurance the same tax benefits that employers enjoy when they buy health insurance for their employees”
    • Allow health insurance companies to compete across state lines
    • Tort reform
    • “Allow small businesses and groups to join together to form association health plans to lower the cost of providing health care”
    • “Encourage a market for renewable health plans to help people with preexisting conditions keep their health insurance”
    • Increase awareness of health care cost
    • Voted to help establish tax-exempt Medical Savings Accounts
  • Sestak
    • Supported the recent Health Insurance reform
    • Opposes single-payer, but supported public option
    • Stop insurers from discriminating against people with pre-existing conditions
    • Health Insurance Exchanges
    • Support of stimulus package that provided funding for states so they could avoid cutting Medicare/Medicaid.
    • Invest in preventive care
    • Voted to regulate tobacco as a drug
    • Voted to expand the Children’s Health Insurance Program

Immigration

  • Toomey
    • Opposes amnesty for illegal immigrants in America
    • Secure America’s borders
  • Sestak (I cannot find Sestak’s position on this issue)

Energy and the Environment

  • Toomey
    • Offshore drilling for oil
    • Nuclear power
    • Utilize the Marcellus Shale
    • Opposes Cap and Trade
  • Sestak
    • Favors alternative energy sources
    • Supports Cap and Trade
    • “Reduce the human impact on climate change”
    • Reduce carbon emissions
    • Tax credits for renewable energy
    • Fund research and development of alternative energy
    • “Increase investment in water infrastructure development.”

National Security

  • Toomey
    • Supports SDI (“Star Wars”)
    • Supports War in Afghanistan
    • Supports War in Iraq
    • Sanctions on Iran
  • Sestak
    • Improve care for returning soldiers
    • Supported employing additional troops to Afghanistan
    • Voted to provide “additional equipment to protect our troops in harm’s way”
    • Ensure civil liberties while providing for National Security
    • Reassess the Patriot Act
    • Support G.I. Bill
    • “Economic instability around the world [is] the primary danger to our nation’s security”
    • Close Guantanamo Bay
    • Treat veterans with Post-Traumatic Stress Syndrome
    • Withdraw from Iraq
    • Restore habeas corpus for detainees

Abortion

  • Toomey
    • Pro-life
    • Encourage adoption over abortion
    • Opposes using tax dollars on abortion
  • Sestak
    • Pro-choice
    • Voted to support stem cell research
    • Ensure access to contraception

Education

  • Toomey
    • Supports charter schools
  • Sestak
    • Increase Pell Grants
    • Support early education
    • Increase funding for Head Start
    • “Reauthorize the Teach For America program, which recruits and trains recent college graduates seeking to enter into the teaching profession.”
    • “Establish tuition repayment program for individuals with degrees in Mathematics and Science who commit to serve as a teacher.”

Gay and Lesbian

  • Toomey
    • Constitutional amendment banning gay marriage
    • Banning gay and lesbian people from adopting children in Washington, D.C.
  • Sestak
    • Supports civil unions
    • Provide “federal civilian LGBT employees with the same partnership benefits that are currently offered to all spouses of federal employees”
    • Repeal the “Defense of Marriage Act”
    • End discrimination in the workplace
    • End discrimination in the military

Gun Rights

  • Toomey
    • Few limitations on gun rights
  • Sestak
    • Regulations on gun ownership
    • Federal ban on assault weapons

Internet

  • Toomey (I cannot find Toomey’s position on this issue)
  • Sestak