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The Middle Class Gets Wise

October 21st, 2013

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Perhaps we underestimate ourselves. Five years after the Lehman collapse triggered the deepest recession in eight decades, the middle class may be solving the vexing problems of income inequality and stalled wages on its own.

Faced with unemployment and dim job prospects, Americans made one significant change that should alter their fortunes and those of the middle class for decades: they went back to school. During the recession, there has been a sharp surge in the number of Americans who are getting a college degree. Read the rest of this entry »

Response to Jonathan Chait’s critique of the “Four Fiscal Fantasies”

July 3rd, 2013

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In response to Jonathan Chait’s critique of our memo on the Four Fiscal Fantasies, let’s begin with two articles from this week. The first, in The Washington Post, shows that America today is spending less to stop the spread of AIDS in Africa than we did under President Bush. The second is a piece from Elizabeth Rosenthal of The New York Times showing the outrageous prices U.S. hospitals charge to deliver babies—charges far out of line with any other country and symbolic of the epidemic of high costs throughout our health care system.

The main point in our memo is that these problems are related.

  1. We have an entitlement system that provides critical economic security and stability to Americans, but it is rife with bloated health care costs that are slowly devouring everything else that government does.
  2. The main entitlement programs for the elderly—Social Security and Medicare—are on a path to insolvency.
  3. Raising new taxes on the wealthy—though necessary—won’t solve our problems.
  4. Acting now to fix entitlements is better and easier than waiting.

Our memo lays out these cases pretty explicitly, so let’s touch on just a few things.

Read the rest of this entry »

The Left’s Four Fiscal Fantasies

June 28th, 2013

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This piece was originally published in the Washington Post.

There is a rising chorus on the left, most recently articulated in an op-ed Monday by Neera Tanden and Michael Linden [“Deficits are not destiny”] of the Center for American Progress, that our fiscal conversation should be declared over and plans for meaningful entitlement reforms mothballed. These voices argue that we can have substantial new spending on public investments, a secure safety net, no middle-class tax increase — all without addressing entitlement spending.

Lo, if it were so. But the left’s reasoning is predicated on four fiscal fantasies that Democrats must see through if they hope to expand the economy, help the middle class and keep the safety net solvent.

Fantasy No. 1 is that taxing the rich solves our problems. Let’s say the top income tax rate were raised a whopping 10 points, to 49.6 percent — a level higher than anything under serious consideration. Tack on the “Buffett rule,” with its 30 percent minimum tax on millionaires to squash loopholes. And let’s take a whack at wealthy inheritances, cutting the estate tax exemption by about one-third and setting the rate on large estates at 45 percent.

If we leave entitlements be, our annual budget deficit in 2030 would still be $1.3 trillion in today’s dollars, not much different from the $1.6 trillion deficit we’d have if income tax rates for the wealthy are kept the same. Sure, raising some additional taxes on the wealthy is necessary, but it is not nearly sufficient.

Fantasy No. 2 is that “we can have it all” — a bigger safety net and more investments that spur growth and opportunity. Events of the past 50 years say the opposite.

In the mid-1960s, the federal government spent $3 on public investments for every $1 on the major entitlement programs. By the early 1970s, the ratio was one to one. Last year, it flipped. The federal government spent $3 on Social Security, Medicare and Medicaid for every $1 on federal investments, according to our analysis of data from the Office of Management and Budget. By 2022, the ratio will be one to five. In other words, entitlement programs are drowning out public investments just as international competition and technology demand that we need these investments the most.

That is a 50-year trend, but what is most mind-boggling is that some on the left still cling to a belief — bordering on faith — that if a spending program is worthy, voters will support it without trade-offs. Yet the evidence is clear that as Democrats have sought to increase spending beyond a certain point, voters have taken them to the woodshed. Recall 2010: The health-care bill (which our organization vigorously endorsed) exceeded the limits of what voters were willing to spend after the 2009 stimulus, auto rescue and bank bailout. That November, Democrats lost the House, Republicans controlled 29governorships and the tea party became dominant.

Fantasy No. 3 is that a delay on entitlement fixes is benign for the middle class. As evidence, some liberals point to this year’s Medicare trustee report, in which the program’s fiscal outlook — mercifully — improved. In truth, it improved from horrid to awful. We can’t make even that boast about Social Security, where the outlook is plain wretched. Over the past 10 years, the Social Security insolvency date had leapt forward from 2042 to 2033. The hope was that an improving economy would push the date farther out. It did not, and every indicator of Social Security health worsened between the 2012 and 2013 trustee reports.

If there is one message from the trustee reports, it is that every year we wait, the inevitable fixes to Social Security and Medicare get harder. Here is one example: Several years ago, proponents of an all-tax solution to Social Security solvency called for eliminating the cap on payroll taxes to solve the entire problem. Now they say it solves most of the problem. That’s because we waited too long. Eliminating the FICA cap — a step that we do not support — solves 79 percent of the problem. Now, supporters of a tax-only solution also call for adding a point to the payroll tax rate for all workers. That one point means a tax increase of $650 a year for a typical working family. Over the course of their working lives, it will come out to more than $20,000. Waiting is anything but benign.

Fantasy No. 4 is that the politics to fix entitlements will get better. In fact, the politics will get worse every election cycle. In 2012, one out of six voters was a senior citizen. By 2024, one in four will be, based on the Census Bureau’s Statistical Abstract. How will we possibly fix safety-net programs for the elderly then? The answer: on the backs of the working-age middle class.

The country and Democrats face real fiscal choices. Avoiding them in favor of fantasies is not the answer.

How to Save Social Security

May 31st, 2013

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There are a lot of charts, numbers, and projections in the annual report released by the Social Security Trustees Friday, but they really boil down to this: Social Security’s trust fund has 20 years to live.

Started in 1935 as the first major strand in America’s safety net, Social Security will arrive at insolvency at the venerable age of 98. By ignoring this reality, Congress is guaranteeing that the program’s reserves will expire, forcing benefits for the retired and disabled to immediately fall by 23 percent starting in 2033.

But the retired and disabled won’t be the only victims. The rising cost of Social Security and health care programs is crowding out investments in kids and future generations. In the mid-1960s, the federal government spent three dollars on investments — in education, research, and infrastructure — for every one dollar on entitlements. In 2023, it will spend one dollar on investments for every five dollars on entitlements. That means less money for teaching kids, curing diseases, and building roads.

The question now is whether the same dysfunctional Congress that cannot seem to muster enough votes to name a post office can touch the third rail of politics, to keep Social Security from going down and taking public investments with it.

To that we answer a loud no and yes. No, Congress is unable to develop and pass a Social Security solvency plan with the necessary super majority in the Democratic Senate and a majority in the Republican House. That piece of legislation is a fantasy. But the same two chambers could pass a law that outsources the job to a commission, to develop the plan and leave Congress in the position with only two choices: vote yes on the commission plan to save Social Security or vote no to let its financing dry up. Read the rest of this entry »

Entitlement reform key to U.S. future

February 27th, 2013

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This piece was originally published in Politico.

As the sequester blame game hits fever pitch this week, Republicans’ stance on taxes is simply indefensible, falling hundreds of billions short of even their own prior positions. But as Democrats, we also share a large portion of responsibility for the coming cuts to domestic discretionary spending, as the party has decided in both action and rhetoric that meaningful fixes to the major entitlement programs of Medicare, Medicaid and Social Security are off-limits.

Think about it. Over the past three years, from debt ceiling deals to the supercommittee and the fiscal cliff, social insurance programs have escaped virtually unscathed while every other category of spending took some hit and revenue grew. And because of the sheer enormousness of the Big 3 entitlements, Democrats face a serious new crisis that is closer to home and will linger long past the sequester: There is now barely a farthing left in the budget for any new investments.

Over the past century, Democrats can boast two major economic legacies. The first is the safety net programs of the New Deal and the Great Society — successful programs that lifted the elderly and vulnerable out of poverty. The second is the New Frontier investment programs defined and expanded under President John F. Kennedy. These investments in science, space, defense, education, as well as highways, rails, ports and medical breakthroughs helped power the U.S. economy during the latter half of the 20th century.

Read the rest of this entry »

Perfect could be enemy of the good on immigration

January 31st, 2013

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This piece was originally published in The Hill.

The phone rings in the house of an undocumented immigrant who has lived here for decades. The person on the line offers her a deal. If she registers with the US government, goes through a criminal background check, and pays a fine, she will be forever allowed to work, travel, and conduct her affairs in America without fear of deportation. For her children, even better — they will be given a fast-track path to citizenship. And down the line, once more is done to secure the border, she can get in the back of the line and eventually earn her citizenship as well.
 
Is there any chance she would say no?

On Monday, a bipartisan group of 8 Senators released an immigration reform proposal that would offer exactly that scenario to undocumented immigrants. Yet many reform advocates reacted warily to the plan, and even the Administration offered a few pointed criticisms in its otherwise favorable statement. In particular, they argued that using a “trigger” of border security to determine when some immigrants can move from a provisional legal status to a permanent one with a path to citizenship is unacceptable.

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