Moderate Republicans Need A Tougher, Sharper Identity

In a column in today's Washington Post, commentator E.J. Dionne points to Sen. Arlen Specter's narrow victory in Tuesday's primary as evidence of the near-death status of the moderate Republican movement.

Moderate Republicans aren't dead yet, but they have a lot of work to do to clarify their identity and expand their movement.

So far, centrist Republicans have mostly defined themselves as "socially tolerant, fiscally moderate." That's a good framework -- it's where many Americans are.

And it's true that the moderate Republican Main Street Partnership -- a successful fund-raising group -- has a long list of members.

But there is little cohesion among the moderates on policy, and social conservatives do not really seem welcome in the group.

Moderate Republicans need to work toward two goals: (1) toughening and sharpening their policy principles and proposals, and (2) attracting more social conservatives to their movement.

The Main Street group would do itself a huge favor by formulating its own budget and tax plans, like the conservative Democratic "Blue Dog" coalition does. Moderate Republicans need a clearly defined balanced budget position and a set of no-nonsense entitlement reform proposals.

Balancing budgets and reforming entitlements is politically difficult. For many, it would require movement to the right on fiscal issues.

Some Republican moderates, like Sen. Specter, would prefer an image of a pork-barrel spending procurer, not a budget cutter. Others may be afraid of Democrats' idiotic-but-effective attack ads on Medicare or Social Security.

However, if moderate Republicans don't show more backbone on balancing the budget, fiscally conservative voters might decide a Democrat could do the job better. Why elect a fiscally irresponsible Republican? Why not just get a Democrat? At least Democrats are willing to raise taxes to pay for all the spending.

Second, entitlement reform -- difficult as it is -- has an extremely important political benefit. It could help inoculate moderate legislators against primary challenges funded by the radical right-wing "destroy government" crowd. The Club for Growth, which espouses a weird near-anarchist vision of government privatization (along with, of course, zero taxes for rich people), would have a harder time attacking a candidate who had a strong position on entitlement reform.

There are many social conservatives who don't have a home in the radical anti-tax Republican Party, which emphasizes tax cuts for the wealthy above any other priority.

These conservatives don't really believe the anti-tax zealots' claim that tax cuts spur so much economic growth that they raise revenues -- there's just too much evidence to the contrary. They worry about deficits, and our economy's growing susceptibility to the whims of foreign capital markets.

Besides, their constituents don't benefit very much from tax cuts targeted to wealthy people. Their voters actually are better off with more progressive taxes, and decent government services.

This was made clear in Virginia by a Republican state legislator faced with a tough budget decision. He said, "I love tax cuts, but I love Virginia more."

There are many social conservatives in Congress who love tax cuts. But they love their country more.

These pro-America, pro-strength social conservatives know it is wrong to attempt to destroy the government through deficits. The extreme anti-tax strategy risks diluting American power and influence in the world.

Moderate Republicans should embrace social conservatives who are fed up with deficits, reckless political opportunism, and a lack of vision for the future.

Their new slogans should be:

"socially tolerant, really"
"fiscally conservative, but progressive"
"problem-solvers for the future"

A coalition of socially liberal and socially conservative Republicans, united to balance the budget and address the future budgetary problems caused by the baby boom generation's retirement, would be formidable.

Link:
Washington Post The GOP's Vanishing Breed by E.J. Dionne (April 30, 2004)

Kerry Talks Social Security

Yesterday, Democratic presidential candidate John Kerry was questioned on Social Security reform by Tim Russert of Meet the Press (transcript).

Unfortunately, Kerry’s main idea to sustain the program -- faster economic growth -- and his fall-back idea, means-testing, fall well short of what should be expected. And Sen. Kerry's sidebar on Medicare solvency would be laughable if that program's cost problems weren't so serious.

Russert: “There are now 40 million Americans on [Social Security and Medicare]. There's soon to be 80 million. The trustees of Social Security told us this, that if the programs remain in their current form, we're going to have to either cut benefits by a third or double the payroll tax from 7.5 percent to 15 percent for the average wage earner. Back in 1995, you said we have to be bold. And it might be unpopular, but we should consider raising the retirement age and means testing. Do you stand by those statements?

Kerry: No, I rejected that. We looked at that and we found that we don't have to do it. But you know what's interesting, Tim--I wish I had the power to press this button and put up on the screen what you said, because back in 1997, on November 9, you sat with Bill Clinton, and what you said to Bill Clinton is--you said, "Mr. President, by the year 2001 Medicare is going to be bankrupt and you're going to have to raise the retirement age. You're going to have to raise the premiums and you're going to have to cut the benefits." That's what you said. Guess what, Tim? He didn't do it. We didn't do it. And we made Medicare whole until the year 2029. We made Social Security whole until 2037.

Along comes George Bush. We have a downturn in the economy, an increase in expenditures for the military, and a big, big, big tax cut we can't afford. And all of a sudden, you look worse for Social Security and Medicare. I'm going to put us back on the track that we were in the 1990s. We said we were going to save Social Security first, and we had the ability to do it, without doing all these terrible things that you're saying. I'm not going to do those. I'm not going to cut Social Security benefits. I'm not going to extend the retirement age. And we're not going to have to raise the premiums. We can fix Social Security beginning with a stronger economy.

Russert: Double the number of people on it with current spending?

Kerry: Tim, we're going to have a bigger economy. We have more Americans who are working. We have the ability to grow out of it. Now, if we don't do that--let me give you an idea. You and I earn a lot of money. We're very lucky. If you live to be 85, Tim, do you think it's right that somebody who earns $30,000 a year after you've gotten all your money out of Social Security, after you've gotten everything and more than you paid is paying you money? I think there are plenty of ways to look at things. We don't have to tell Americans it won't be there, because it will be there. And we certainly don't have to cut benefits to pay for George Bush's unaffordable tax cut.

Sen. Kerry hit on two main points in his discussion, economic growth and means-testing.

Kerry is right that economic growth is important. After all, retirees in the future will consume goods and services produced by workers in the future. The more workers there are, and the more productive each worker can become, the larger the economic pie will be.

But Kerry is mistaken when it comes to the effect of economic growth on Social Security’s finances, both in the short run and the long run. Kerry first argued that the slow economy of the past several years has hurt Social Security, placing the blame on President’s Bush’s policies. But whatever the impact of Bush administration policies on current economic growth, their effects on Social Security’s long-term finances has been minor.

In 2001, when the Bush administration entered office, the official Trustees Report projected that Social Security would run cash surpluses until 2016, face trust fund exhaustion in 2038, and run a combined 75-year deficit equal to 1.86 percent of taxable payroll (i.e., a payroll tax increase of 1.86 percentage points would keep the program technically solvent for 75 years).

The 2004 Social Security Trustees Report shows the program running cash surpluses until 2018, facing trust fund exhaustion in 2042 and running a 75-year deficit of 1.89 percent of payroll.

In other words, despite a recession and slow recovery, Social Security’s long-term finances have been virtually unchanged. As the date of cash flow deficits is the more important, one might even argue that Social Security’s finances have improved marginally.

Kerry’s claim that “We have the ability to grow out of it,” is, well, wrong. Just as slower economic growth the past several years hasn’t done much to hurt Social Security’s finances, faster economic growth won’t do all that much to help them.

The reason is simple: both Social Security taxes and benefits are based upon average wages, so while higher growth may raise tax receipts, it would also increase the benefits Social Security would have to pay. Envision a dog chasing its tail and you have a rough idea what’s going on; fast as he may spin, he’s not going to catch it.

The Social Security Trustees’ sensitivity analysis for wage growth shows that increasing real wage growth from 1.1 to 1.4 percent annually – a 27 percent increase – would delay the Social Security trust fund’s insolvency date by only 6 years.

Even if wage growth doubled over the long term, which is very unlikely, Social Security would still become insolvent before the traditional 75-year measurement period was ended. The Center for Retirement Research at Boston College recently published an issue brief by former Congressional Budget Office head Rudy Penner taking a closer look at this issue.

Which leads us to Sen. Kerry’s fallback: means-testing. He said to Russert “Let me give you an idea. You and I earn a lot of money. We're very lucky. If you live to be 85, Tim, do you think it's right that somebody who earns $30,000 a year after you've gotten all your money out of Social Security, after you've gotten everything and more than you paid is paying you money?” Implicit in this would be reductions in Social Security benefits for retirees with non-Social Security incomes of $30,000 or more.

Whether we call this means-testing or something else, it has several significant shortcomings. First and foremost, it wouldn’t go nearly far enough to fix Social Security’s finances, for the simple reason that there aren’t that many retirees with outside incomes of $30,000 or more. Americans are remarkably dependent upon Social Security in retirement, with roughly a third of retirees getting virtually all their income from Social Security benefits.

Second, cutting Social Security benefits based on other income would hurt the incentive to save before retirement or work after retirement, and would spawn a rush by individuals to transform their incomes to a form not subject to the means test. (For example, defined benefit pensions might shift to defined contribution, transforming an income into an asset.)

Third, means-testing would alter the “everyone pays, everyone receives” ethic that has separated Social Security from so-called “welfare programs” in the past. Granted, Social Security may already be turning into “generational welfare,” since future retirees are promised well more than the current program can afford to pay them, but many people nevertheless hold this contributory aspect of Social Security to be important.

Sen. Kerry -- and President Bush, for that matter, who has been no more specific on how to fix Social Security -- needs to look at proposals that really address the system’s problems, without the benefit of wishful thinking. One such plan is that of Sen. Lindsey Graham, who spoke with Rep. Harold Ford at a recent event co-sponsored by Centrists.Org. Another plan sponsored by Reps. Jim Kolbe and Charlie Stenholm would also permanently solve the problem.

Links:
Rudolph G. Penner Can Faster Growth Save Social Security? Center for Retirement Research, Boston College (December 2003)
Centrists.Org A Preliminary Analysis of Sen. Graham's Social Security Proposal (revised December 14, 2003)
Centrists.Org The Kolbe-Stenholm Social Security Reform Plan (revised February 14, 2004)
Centrists.Org Transcript Addressing Greenspan's Challenge on Social Security and Savings with Senator Lindsey Graham and Rep. Harold Ford (March 25, 2003)

Centrists.Org Issue Summary Social Security Reform

Ground Swell of Grass Roots Independents?

In a column in today's New York Sun, author John Avlon examines the independent political movement. Here is an excerpt:

Ideologues on both sides are deluding themselves by embracing the currently fashionable conceit that all Democrats or Republicans need to do to win an election is appeal to their base. The fact that this is self-evidently wrong as a matter of simple math or a study of American history has not stopped them from adopting this position...

Links:
John Avlon Ground Swell of Grass Roots Independents New York Sun (April 15, 2004)

Centrist Policy Network "Independent Nation" by John P. Avlon (March 5, 2004)

Well Duh! Higher-Income People More Confident During Tax Filing Season

Here's a nice graphic to help celebrate tax filing day. Consumer confidence among higher income households has split off from that of households earning less than $50,000 a year.

Maybe that's an indication of who's getting the larger tax cuts these days?

This chart courtesy of Economy.com's The Dismal Scientist website (may require subscription).

Link:
Centrist Policy Network Rep. Houghton's Tax Simplification Proposals (April 6, 2004)

Rep. Houghton's Tax Simplification Proposals

Three great centrist legislators are retiring this year: Sen. John Breaux, entitlement reform advocate and consummate dealmaker in the Senate, Rep. Cal Dooley, co-founder and long-time leader of the House New Democrats, and Rep. Amo Houghton, a leader among moderate Republicans in the House and founder of the Republican Main Street Partnership.

Last Friday, Rep. Houghton rolled out a series of proposals to simplify the tax system. The bills are numbered sequentially, beginning with H.R. 4131, a proposal to prevent the Alternative Minimum Tax (AMT) from becoming the default tax calculation for millions of middle-income taxpayers.

However, the details of the proposals are less important than the larger theme: Congress should undertake a major tax simplification project. At the least, any new tax changes should be accompanied by simplification measures.

Here is the list of Rep. Houghton's proposals:

Houghton Tax Simplification Package

Alternative Minimum Tax Repeal Act – Substantially slows the growth in the number of taxpayers subject to AMT over the next 10 years, by adjusting the AMT exemption, and finally repealing the provision after 2013.

Child Definition Simplification Act – Provides a uniform definition of a child that is based on the residence, relationship and age of the child.

Filing Status Simplification Act – Changes "Head of Household" to "Single Parent or Guardian" filing status, a term that is less likely to cause a mistake in filing status.

Home Mortgage Tax Simplification Act – Under the proposal, points paid on a home mortgaging refinancing would be fully deductible in the year in which the expense is incurred. The current law generally requires that the refinancing points be amortized over the stated life of the loan.

Taxation of Minor Children Simplification Act – Eliminates the current restrictions on adding a minor child’s income to the parent’s return. A parent could freely elect to include the income of a child under 14 on his or her own tax return.

Education Tax Credit Simplification Act – Merges the HOPE and Lifetime Learning credits, which serve nearly identical purposes but have different rules.

Small Business Tax Modernization Act – Establishes a single passthrough entity regime that preserves the major benefits of Subchapters S and K by combining the benefits of Subchapter S (S corporations) and Subchapter K (Partnerships) of the Internal Revenue Code.

Personal Holding Company Tax Repeal Act – Repeals the Personal Holding Company tax, which is outdated and has been eclipsed by subsequent changes to the tax code.

Small Business Law Tax Conformity Act – Updates the Internal Revenue Code to take into account changes that have occurred in state business law. The proposal would define earnings from self-employment to exclude the portion of a partner’s distributive share that is attributable to capital.