Blog of the Century

Daily Digest: February 24, 2012

"Israeli strike on Iran would pose risk for U.S. economy, Obama re-election bid" - Daniel Alpert quoted in The Hill

"When 'Not About Politics' Means 'All About Politics" - Michael Cohen quoted in NPR

"Melissa Harris-Perry of MSNBC gives new face to cable news" - A profile of TCF Trustee Melissa Harris-Perry in The Washington Post

TCF's event, "Syria at the Epicenter" will stream live the morning of Tuesday, February 28th at 8:30AM at http://www.ustream.tv/channel/tcf-events

What Does ‘Shared Sacrifice’ Have to do with Corporate Tax Reform?

Earlier this week, the Obama administration and Treasury Department unveiled a “framework” for corporate tax reform. Like the rest of the tax code, the corporate income tax has been riddled with ever-more loopholes since the Tax Reform Act of 1986—the last significant scrubbing of the tax code. Here’s my distilled version of their five-point framework:

1. Eliminate loopholes to broaden the tax’s base, coupled with a cut to the statutory corporate rate from 35 percent to 28 percent.
2. Reinstate tax expenditures for domestic manufacturers, lowering their effective tax rate from 28 percent to 25 percent.
3. Establish a new minimum tax on foreign earnings.
4. Ever-present nod to small businesses concerns.
5. “Restore fiscal responsibility and not add a dime to the deficit.”

To lower the tax rate to 28 percent and yet keep the corporate income tax changes revenue-neutral, the framework proposes eliminating a handful of specific business tax expenditures—oil and gas subsidies, carried interest, last in, first out inventory accounting, special depreciation rules—repeatedly proposed in budget requests (summary of most of these can be found here). But the Joint Committee on Taxation recently estimated that revenue-neutral corporate tax reform could only be consistent with a top statutory rate of 28 percent if all major tax expenditures were eliminated.

The administration framework falls shy of that mark, and instead proposes new manufacturing tax incentives and a permanent extension of the research and experimentation credit (which is renewed annually as part of the “business tax extenders”). In the president’s FY13 budget, these “incentives for manufacturing” totaled $121 billion in revenue loss over a decade. The administration claims their plan will raise $250 billion—beyond offsets for the rate reduction—to pay for the permanent extension of these tax credits. JCT’s math, however, implies this figure may come from a current policy baseline assuming some of the “business tax extenders” (tax breaks which are not part of the permanent tax code but which are allegedly temporary yet extended by Congress like clockwork every year) are continued. Full continuation would reduce revenue by a hefty $839 billion over a decade.

On one hand, using this baseline seems odd; scoring any “savings” relative to current policy appears to give businesses credit for 25-plus years of successful lobbying. The bill of tax extenders includes the alcohol fuel credit, special depreciation rules for favored industries (e.g., restaurants, ethanol, race horses), special expensing rules for favored industries (e.g., film and TV production), and special foreign income deferral for the financial sector (e.g., Subpart F exception for active financing).

On the other hand, ending annual budget gimmicks (the extenders) does constitute a step toward responsible budgeting, and the depressing politics of tax reform suggests that these extenders will only be vanquished in some sort of bargain like that proposed by the administration.

But relative to current law (which does not assume the annual extension of these targeted tax breaks), Citizens for Tax Justice Director Bob McIntyre estimated that the president has proposed $1.2 trillion in tax cuts and only $0.3 trillion in offsetting loophole closers, leaving a gap of $0.9 trillion. This is hard to square with the administration’s professed intent not to add a dime to the deficit. And since when does restoring fiscal responsibility mean not adding a dime to the deficit?

Broadening the tax base and eliminating egregious preferences that have been lobbied into the tax code is good policy. But there is no reason a priori that tax reform be revenue-neutral. Indeed, the clearest flaw in the current tax system is that it simply doesn’t raise enough revenue to pay for government’s commitments. As CTJ spells out, it would be much more appropriate for corporate tax reform to be revenue-positive, relative to the much more stringent current law baseline.

Purported concern about the budget deficit always seems to vanish when it comes to tax cuts and vested business interests. “Shared sacrifice” is all the rage when it comes to reducing Medicare, Medicaid, and Social Security benefits, or raising taxes on the individual income side; where is the “shared sacrifice” in this framework for corporate income tax overhaul?

Movement in Somalia--Does Anyone Care?

Afghanistan scarcely flickers in the American campaign debate, and we have 90,000 troops engaged in active combat there.  So it’s no wonder that Somalia, where there are no regular U.S. troops on the ground, doesn’t register at all with the American political class. 

Yet Somalia is, after Afghanistan, the most hotly fought war zone in the world where international forces are battling to prevent a country’s takeover by Al Qaeda allies.  And the Obama administration has crafted alliances that are apparently turning the tide against Islamic extremists, alongside a multilateral naval force securing international shipping against piracy.

It’s not surprising that Americans have erased Somalia from their memories.  The U.S. abandonment of a United Nations peace operation there after American deaths in a botched Rangers raid in Mogadishu in late 1993 was humiliating--and is said to have emboldened Osama bin Laden to global designs.

Graph of the Day: Putting the Squeeze on Labor, Part II

Yesterday I commented on what Mark Thoma and Karl Smith both identified as one of the most significant graphs in the White House's Economic Report of the President. That graph showed how the historical post-war relationship between wages and prices—or more fundamentally, between labor and capital—has broken down over the last thirty years. You can probably guess who has gotten the short end of the stick.

Traditionally it has been the case that a competitive market prohibits businesses from raising prices too high or pushing labor costs too low, as both consumers and labor will look elsewhere for a better price. And historically, that dynamic has held: from 1947 until the mid-1980s, American wage earners accrued a proportionate share of economic output as productivity rose. But since the Reagan Revolution, corporate profits have surged while wages have flatlined, breaking the post-war trend that essentially created the American middle class.

As I argued in my previous post, the present imblanace between capital and labor is unlike anything we have experienced in two generations. A global oversupply of labor and skill-biased technological change account for much of this inequality. But we cannot ignore that "laissez-faire" policies have encouraged this unprecedented redistribution of wealth to the richest 0.1%, while diminishing social mobility for the poor. Regressive tax policies that privilege capital gains and loopholes like the carried-interest deduction have created the conditions that allow the Forbes 400 to control as much wealth as 150 million Americans while paying an average tax rate of just 18 percent. We cannot accept that disparity as the new normal.

 

View more from the Graph of the Day Series.

Affirmative Action Debate Continues

Century Foundation Senior Fellow Richard D. Kahlenberg has been following the U.S. Supreme Court case Fisher v. Texas, the most recent legal challenge to race-based affirmative action, and offering insight on the issues at stake. Here is some of his latest commentary:

• The New York Times/The Texas Tribune interviews Kahlenberg for a piece on the organizing power behind the case.
• Kahlenberg comments in a Boston Globe article about the reactions of Massachusetts colleges.
• Diverse Issues in Higher Education quotes Kahlenberg in its coverage of the case.

What's the Matter With Martin Dempsey?

Over at Foreign Affairs, Micah Zenko and I have a new piece that makes the somewhat obvious and yet counter-intuitive point that for all the doom-saying and threat-mongering of foreign policy elites . . . the world today (and the United States) is actually pretty safe:

The world that the United States inhabits today is a remarkably safe and secure place. It is a world with fewer violent conflicts and greater political freedom than at virtually any other point in human history. All over the world, people enjoy longer life expectancy and greater economic opportunity than ever before. The United States faces no plausible existential threats, no great-power rival, and no near-term competition for the role of global hegemon. The U.S. military is the world’s most powerful, andeven in the middle of a sustained downturn, the U.S. economy remains among one of the world’s most vibrant and adaptive. Although the United States faces a host of international challenges, they pose little risk to the overwhelming majority of American citizens and can be managed with existing diplomatic, economic, and, to a much lesser extent, military tools. 

And yet for a variety of reasons this singular reality of global affairs in the 21st century is pretty much not reflected in our foreign policy and national security decision-making. If you want a good explanation as to why this is - I present to you the words of the Chairman of the Joint Chiefs of Staff, Martin Dempsey, who in testifying before Congress earlier this month said this, “I can’t impress upon you that in my personal military judgment, formed over thirty-eight years, we are living in the most dangerous time in my lifetime, right now.”   

Now keep in mind, Martin Dempsey wasn't born yesterday. While this might seem obvious it's also relevant. You see, Martin Dempsey was born in 1952 and lived through 39 years of the Cold War. He lived through the end of the Korean War, the Berlin crisis of 1961, the Cuban Missile Crisis, the Vietnam War, the Yom Kippur War (which almost sparked a superpower conflict) the first few years of the Reagan Administration etc and yet in Martin Dempsey's personal judgment the most dangerous moment in his lifetime . . was February 15th, 2012.

Not only is this quite clearly and empirically incorrect - it's also completely insane. To believe that February 15th, 2012 is the most dangerous moment in Martin Dempsey's lifetime is to have a stunningly poor grasp of international relations, history and common sense.

Someone who holds such views would barely be qualified to teach undergrad IR no less be the highest ranking officer in the American military. To be sure, I don't know if Martin Dempsey actually believes what he is saying here. It may be that he is engaging in the endless bureaucratic activity of protecting his budget (i.e. if the world is really dangerous then the military needs even more advanced toys that blow s**t up) or perhaps he simply skipped over the Cold War in his academic training. (And in fairness to Dempsey he certainly has some positive attributes, like believing that an Israeli attack on Iran would be  "destabilizing.")

Whatever the rationale, however, the far bigger problem is that such statements can be made and not be dismissed as complete balderdash and gobsmackingly uninformed about the world we live in. Either way it's a problem - and that's a big part of the reason Micah and I wrote this piece (and why you should read it!)

TCF fellow Michael Cohen  is a writer and commentator on American politics and U.S. foreign policy. This piece was cross posted from Democracy Arsenal.

 

Mitt Romney Is No Horace Mann

During last night's debate, Mitt Romney took credit for the excellent performance of the Massachusetts public schools while he was governor. He said: 

We added more school choice. My legislature tried to say no more charter schools. I vetoed that, we overturned that. With school choice, testing our kids, giving our best teachers opportunities for advancement, these kinds of principles drove our schools to be pretty successful. As a matter of fact, there are four measures on which the federal government looks at schools state by state, and my state's number one of all 50 states in all four of those measures, fourth-and-eighth-graders in English and math.

But because Massachusetts public schools have been viewed as a model for the nation since the middle of the ninteenth century, when they became the pioneering common school system in the country, the person who really deserves the credit is Horace Mann. In 1837, Mann was named secretary of the Massachusetts board of education—the first such official in the country—and the nation's leading advocate for the idea of the "common school."

His six main principles were: (1) the public should no longer remain ignorant; (2) that such education should be paid for, controlled, and sustained by an interested public; (3) that this education will be best provided in schools that embrace children from a variety of backgrounds; (4) that this education must be non-sectarian; (5) that this education must be taught by the spirit, methods, and discipline of a free society; and (6) that education should be provided by well-trained, professional teachers. Mann worked for more and better equipped school houses, longer school years, higher pay for teachers, and a wider curriculum.

Throughout the 175 years since, Massachusetts has consistently played a leadership role in American public education, leading the way in such reforms as enhancing access to disabled and special needs children, establishing sports programs for girls, and equalizing school funding for low-income districts. Since the federal government began publishing state results on National Assessment of Education Progress tests, well before Romney became governor in 2003, Massachusetts has always scored at the top of the rankings for students of all races. 

Although the general educational policies Romney endorsed last night are fairly unobjectionable as he described them, the real explanation for the state's long-standing leadership derives from the principles that Mann set forth long ago. Many of those principles, it is worth noting, have been under attack from the conservative movement for decades and directly conflict with the home schooling movement that people like Rick Santorum embrace. But the best strategy toward enabling all of the states to do as well as Massachusetts—which would rank third globally if it were a country—is to pursue the original ideas that Mann advanced and which turned out to be so effective as carried out by those who followed him.

 

 

Richard D. Kahlenberg’s Commentary on Fisher v. Texas

Earlier this week, the U.S. Supreme Court decided to hear Fisher v. Texas, the most recent legal challenge to affirmative action. Century Foundation Senior Fellow Richard D. Kahlenberg has been following the case and explaining the issues at stake. “It’s not whether we should have affirmative action or whether we shouldn’t, it’s what kind of affirmative action should we stress: race-based or race-neutral?” said Kahlenberg in Slate. “The best thing the Supreme Court could do is make universities focus on the looming class divide in higher education.”

Learn more about the debate over the use of race in college admissions by following Kahlenberg’s commentary on Fisher v. Texas:

• Kahlenberg explains “What Obama Should Say About the Texas Affirmative Action Case” in Slate.
• In his latest blog for The Chronicle of Higher Education, Kahlenberg explores economically based alternatives to race-based affirmative action. (More of Kahlenberg’s commentary on the case from his Chronicle blogs throughout the past year can be found here.)
• Kahlenberg and Lee Bollinger, president of Columbia University, discuss the case on The Takeaway.
• Kahlenberg was interviewed about the case by the Los Angeles Times, Bloomberg, and Mother Jones.
  

“Arguably the nation’s chief proponent of class-based affirmative action in higher education admissions,” Kahlenberg has also worked on other projects over the years that address issues at the heart of Fisher v. Texas:

• The Remedy: Class, Race, and Affirmative Action (Basic Books, 1996)
• America’s Untapped Resource: Low-Income Students in Higher Education (The Century Foundation, 2004)
• Rewarding Strivers: Helping Low-Income Students Succeed in College (The Century Foundation, 2010)

 
 *Update: More recent reaction can be found here.

 

 

 

Highlights from #PolicyChat: The Good News about the #ACA

The Century Foundation hosted our first Twitter #policychat on Wednesday, February 22, featuring Greg Anrig (@GregAnrig), Vice President of Policy and Programs at TCF and Harold Pollack (@haroldpollack), TCF fellow and Chicago Helen Ross Professor at the School of Social Service Administration.

The health policy experts talked about the positive impact of the Affordable Care Act (ACA) and discussed the points in "A Quiet Triumph of Obama Care," their article published in the Washington Monthly. In case you missed it, you can follow along in the transcript. Or view the summary in Storify.

In the meantime, here are some highlights from the first #policychat.

Greg Anrig (@GregAnrig)

“Overall US health spending grew more slowly in 2009 and 2010 -- at 3.8% and 3.9%--than in the past 50 years.”

“The share of 19-25 year olds with insurance increased from 64% to 73% -- a huge jump.”

"Here’s a graph showing the spike in coverage for young adults since ACA took effect: http://t.co/QGM1H4Jcnn"

“The popularity of health reform will improve if the president calls attention to the success stories already happening. Otherwise conservatives will define Obamacare for him, which is what they have been succeeding at.”

Harold Pollack (@haroldpollack)

“ACA has provided important supports for community health centers, and for public health through prevention+public health fund.”

“ACA provides women with reproductive health services--through reasoned compromise that won endorsement of Catholic providers.”

"Young adults have lower wages+move between jobs. Moreover they are hard-hit by recession. So this measure esp important now."

"ACA has (and will) provide greater security for millions of people in unsettling economic times."

"Pres [Obama] has many reasons to embrace ACA. Progressives can be grateful that he accomplished what predecessors couldn't."

#PolicyCHAT PARTICIPANTS

“Change I Can Believe In! RT @GregAnrig: The share of 19-25 year olds with insurance increased from 64% to 73% -- a huge jump.”—@FlozellDaniels

“#Progressives should own #ObamaCare label. Saw Rep. Conyers @PressClubDC over a yr ago w/ "I <3 My ObamaCare" button”—@JimmyCLewis

"I am also convinced that ACA will prove popular once economy picks up. Much of its unpopularity reflects unease over economy.”— @JaniceNittoli

“A saving grace for many I know! RT @GregAnrig: It allows individuals up to age 26 to remain on their parents’ insurance plans.”—@HalleyTCF

 

Want to read the entire #policy conversation and learn more about the benefits of the Affordable Care Act? Click here to download the PDF of the one-hour conversation.

Graph of the Day: What’s Wrong with This Picture?

[via]

TCF Fellow Mark Thoma is a professor of economics at the University of Oregon and the author of the Economist’s View blog where this content is crossposted. Follow Thoma on Twitter at @MarkThoma.