[Lay impressions on the week’s politics, reported to a hypothetical GOP leader curious to know whether and how the week’s political messaging was received. More information about this series here.]
Feedback on this week’s political news and messaging:
Out with the “Fiscal Cliff,” in with the “Debt Cliff”
The “fiscal cliff” seemed to end not so badly for the GOP as many feared. Most people still conclude the GOP got outfoxed, but seems like some disappointed Democrats feel otherwise. Ezra Klein assures them the president got his party a good deal. Paul Ryan and Rand Paul both cast the next fight as one over the “debt cliff.” That’s probably a good move. No one knew what the “fiscal cliff” was. We all know we’re $16 trillion in debt, and spending is nowhere close to getting in line with revenues.
On that score, I worry what would happen if Yuval Levin had been on vacation this week. No one in leadership is messaging about the spending/revenues delta as clearly. We hear a lot of talk about whether the GOP should step aside and let something “break” just to stir the public out of its apathy, that trust in financial institutions, and trust in the giant confidence game that is our national currency, is more delicate than we might think.
Greg Mankiw agrees: “Ultimately, unless we scale back entitlement programs far more than anyone in Washington is now seriously considering, we will have no choice but to increase taxes on a vast majority of Americans.”
President Obama’s talk about the “top 2 percent” is shenanigans. Flimflam. Class war. It has nothing to do with the numbers. Never did.
But most of the middle class doesn’t know who Yuval Levin or Greg Mankiw are. And let’s face it: Most people would rather believe the narrative that our problems would be fix if the wealthy “just paid a little bit more” than the narrative that we have an unhealthy addiction to government entitlements and we need to take our medicine.
Rep. John Campbell proposed one way the medicine might go down: It’s better to go over a cliff under circumstances of your choosing, rather than some unknown time in unknown circumstances in the unknown future. He also points out that market signals aren’t reliable when looking for symptoms of long term problems. Markets only signal the short-term, not the long-term. At any rate, this message, once polished up (explain what the short term pain is likely to be; explain what the future unexpected fallout might look like, etc.), could be a credible message. Maybe not a winning message—again, I just don’t think a majority will willingly reject the president’s rosier narrative—but credible enough.
“The Smart Guys,” John Eastman and Erwin Chemerinsky, agree that the president cannot unilaterally borrow money. So much for the “trillion dollar coin” and the “14th amendment option” flimflams. (The lawyers seem to agree with you, Kevin Drum.) And Treasury Secretary Tim Geithner is bailing. For serious this time, it appears, and before the debt negotiations.
Two years before he became president, Obama said “the fact that we are here today to debate raising America’s debt limit is a sign of leadership failure.” Americans will justly give him slack for extenuating circumstances, but the spending and revenue have to at least be on a trajectory in which they’re expected to intersect at some point. We’re not seeing that. That’s leadership failure.
Rep. Campbell says he expects detailed spending cut proposals to be released in a week or so. Time’s of the essence.
The Payroll Tax
The Obama-led “fiscal cliff” negotiations resulted in taxes rising on 77% of Americans with a mean increase of $1,635. Almost half of the increased taxes—about 46%—will come from the bottom 80% of Americans. Courtesy of that regressive payroll tax, the FICA, the contribution to Americans’ Social Security and Medicare “trust fund” accounts.
The payroll tax is the soft underbelly of progressivism, so I don’t understand why GOP leaders have not scored more points here. The reason the left is for such a regressive tax is because they’re juicing middle class Americans to continue supporting entitlements designed for the poor. As William Voegeli puts it in Never Enough: America’s Limitless Welfare State: “The government provides Social Security and Medicare to people who don’t need them for the sake of people who do.”
The point, again, is the management of perceptions. A simple program to help poor people, including those who are old, would make it easy to distinguish the households that are net exporters of dollars from the ones that are net importers. Liberals don’t want to run that risk. They don’t trust the prosperous citizens in the net exporter households to be generous and public-spirited enough to keep voting for welfare programs once it becomes clear to them that they are financing benefits bestowed on others.
The left believes “people can be induced to support programs to help the poor, but have no interest in relying on the prospect they can be persuaded to support them.”
As for the GOP, there seem to be two competing views, one that thinks ending the “payroll tax holiday” was a good idea because it will make more Americans aware of the consequences of our entitlement programs, and another view that says the GOP needs to make more inroads with the middle class, and eliminating this regressive tax is an excellent way to do it. There’s something to commend both, but I’m going to agree with the latter. Ross Douthat and Reihan Salam make a good case for ending the payroll tax in Grand New Party:
When you think about why voters are less enamored of tax cuts than they used to be, consider that the biggest tax most working-class Americans pay is one that nobody even considers cutting. The theory behind the payroll tax, or FICA, is simple: Over the course of our working lives, we make “contributions” to Social Security and Medicare—mandatory contributions, of course—and eventually we get our money’s worth in the form of old-age pensions and medical care well into our dotage. The truth, of course, is rather different. Social Security and Medicare are “pay-as-you-go,” with today’s workers paying for today’s retirees, and the system is enormously regressive, since workers making more than $94,200 pay nothing into the Social Security system above that threshold. This financing scheme made a certain sense in an era of relative economic equality; today, in a less egalitarian era, it’s increasingly perverse. Not only does the payroll tax fail to mitigate inequality, but it actually reinforces it.
. . . .
The ideal course, however, would be to give up completely on the illusion that Social Security is something other than pay-as-you-go, and scrap the payroll tax entirely and pay for old-age insurance out of general revenue.
The alternative is to maintain FDR’s fiction that Social Security is a “trust fund” that we “pay into.” If we were still in the first generation after Social Security was implemented, perhaps we could still maintain the hope that people would see that they were paying into Social Security as if into a trust fund, but weren’t getting benefits that way. Boomers are finding what they paid in went to the previous generation, and their children—far fewer in number—can’t contribute enough to give boomers the same retirement they gave to their parents. Why should we pay for Social Security as a separate line item if those payments don’t have any meaningful relationship with the benefits we’re to receive? It’s a flimflam. And as important as it is that those who vote for entitlements understand their costs, you don’t teach lessons about sound economic policy by perpetrating flimflam.
A few weeks back, the president’s social media team was pushing a “what does $2,000 mean to you” meme, $2,000 approximating the increase in taxes on the average middle class family if the Bush tax cuts weren’t preserved. The president repeated it during his victory lap. As it turns out, the GOP capitulated to the president’s rates, and taxes on the middle class still increased upwards of $2,200 through the payroll tax. And that was the gist of AP’s lede this week:
While the tax package that Congress passed New Year’s Day will protect 99 percent of Americans from an income tax increase, most of them will still end up paying more federal taxes in 2013.
That’s because the legislation did nothing to prevent a temporary reduction in the Social Security payroll tax from expiring. In 2012, that 2-percentage-point cut in the payroll tax was worth about $1,000 to a worker making $50,000 a year.
I’m feeling more and more like the GOP got the better of the “fiscal cliff” deal. At the very least, the Democrats failed to cover the spread.
Capital Gains and Estate Taxes
Were any efforts made to limit the increased capital gains taxes to efficiency innovation so as to encourage more investment in empowering innovation? I didn’t hear anything. Why not? The president has made clear his objective is to create “fairness” by seeking to level total wealth, not growth for growth’s sake, or opportunity for opportunity’s sake. If you oppose him full stop, you’ve already lost, because we’ve seen that it makes the GOP look like they’re just protecting the wealthy. When the president takes the wrong position on a moral issue, but the right one is unpopular, then your play is to find the narrow area of agreement and push back on the rest with practical proposals.
As for estate taxes, I don’t understand why this was a hard call. The vast majority of Americans hate the estate tax. According to a December 2010 ABC News/Washington Post Poll, 29% of respondents "support strongly" a policy of "Increasing the exemption on inheritance taxes so that only estates worth more than five million dollars are taxed," with another 23% saying they "support somewhat" such a policy. A puzzled Kevin Drum concluded “Like it or not, I think that most people simply have an instinctive feeling that you should be able to bequeath your money to whoever you want.”
If politicians want to make the argument that a decedent’s assets cease to be property upon death, then make it. If they want to make the argument that it costs the government resources to administer that property—like making probate courts available—then establish a rough approximation of that overhead and assess it against the estate. Since we are dealing mostly with fixed costs here, though, that “tax” would likely be regressive, not progressive. But if the justification for the estate tax is to “level the playing field,” to crack down on “trust fund kids,” then I have a thought experiment for you:
Remember the movie Gattaca? Imagine a future where one’s economic aptitude can be determined by a pre-natal genetic screening, sort of like in Gattaca. In the interest of establishing a truly egalitarian society where no one is unfairly advantaged at birth by the whim of nature or God, the government could require these screenings and strongly encourage the termination of pregnancies that would result in children who would undesirably deviate from the mean aptitude and upset society’s egalitarian balance.
This is analogous to the principle at work underlying an estate tax that transfers wealth out of the hands of family lineage for egalitarian redistribution by government. The idea that the moral right to property is rooted in the demonstrated merit in acquiring it is dangerous to liberty. It is indeed the very opposite of liberty when it comes to property rights: If my fellows can appear on my doorstep and announce their decision that my efforts don’t merit the car in my driveway and they’re here for the keys, then property is an empty concept. As Hayek concluded from this in The Constitution of Liberty, “The proper answer is that in a free system it is neither desirable nor practicable that material rewards should be made generally to correspond to what men recognize as merit and that it is an essential characteristic of a free society that an individual’s position should not necessarily depend on the views that his fellows hold about the merit he has acquired.” Indeed, the project of assessing merit would be hopeless anyway:
Reward according to merit must in practice mean reward according to assessable merit, merit that other people can recognize and agree upon and not merit merely in the sight of some higher power. Assessable merit in this sense presupposes that we can ascertain that a man has done what some accepted rule of conduct demanded of him and that this has cost him some pain and effort. Whether this has been the case cannot be judged by the result: merit is not a matter of the objective outcome but of subjective effort. The attempt to achieve a valuable result may be highly meritorious but a complete failure, and full success may be entirely the result of accident and thus without merit. If we know that a man has done his best, we will often wish to see him rewarded irrespective of the result; and if we know that a most valuable achievement is almost entirely due to luck or favorable circumstances, we will give little credit to the author.
We may wish that we were able to draw this distinction in every instance. In fact, we can do so only rarely with any degree of assurance. It is possible only where we possess all the knowledge which was at the disposal of the acting person, including a knowledge of his skill and confidence, his state of mind and his feelings, his capacity for attention, his energy and persistence, etc. The possibility of a true judgment of merit thus depends on the presence of precisely those conditions whose general absence is the main argument for liberty. It is because we want people to use knowledge which we do not possess that we let them decide for themselves. But insofar as we want them to be free to use capacities and knowledge of facts which we do not have, we are not in a position to judge the merit of their achievements. To decide on merit presupposes that we can judge whether people have made such use of their opportunities as they ought to have made and how much effort of will or self-denial this has cost them; it presupposes also that we can distinguish between that part of their achievement which is due to circumstances within their control and that part which is not.
So long as property has been earned lawfully, without threats or coercion, it deserves equal protection under the law. The estate tax is just more flimflam.
Newly-sworn-in Senator Ted Cruz messaged about an “opportunity conservatism”:
Don’t just say no to new taxes — fundamentally reform the tax code so that every American can file his taxes on a postcard. Eliminate the corporate welfare and complexity that enrich only accountants and lawyers.
Don’t just criticize union bosses; explain how closed shops confiscate wages and make it harder for low-skilled workers to get jobs.
Don’t talk generically about education; advocate school choice to empower parents and expand opportunity for children struggling to get ahead.
Don’t just dwell on the long-term solvency of Social Security; promote personal accounts to allow low-income Americans to accumulate wealth and pass it on to future generations.
Arthur Brooks on Hewitt’s show Wednesday also talked about an “opportunity society” for everyone. This is a winning theme.
Will the Great Doubling Stop Punishing Us and Start Paying Dividends?
By the way it’s going to be a five billion-person middle class. This will become the most powerful force in the world. Their demand for our goods and services will set off an economic boom…I believe that we’re heading for not just a sonic boom, but maybe a supersonic boom.
I hope he’s right.
Enjoy your weekend!