Conservatives And Original Thinking

Then First Lady Hillary Clinton chaired the group that, in 1993, proposed the last major attempt at health reform before the Affordable Care Act of 2010. The plan was widely panned, and politicians and pundits of every stripe (including Congressional Democrats) rushed to form alternatives. The conservative Heritage Foundation proposed an innovative idea built around insurance exchanges and an individual mandate to carry health insurance. The plan was built in recognition of costs that were inflating rapidly due to a lack of real competition.

It was an interesting idea in 1993; so interesting that when President Obama and others went looking for a politically realistic alternative to single-payer health care, they adopted the concept of exchanges (and the mandate) as the core of their plan. As Mitt Romney had already passed a version of the Heritage Plan in Massachusetts, it seemed like a good idea. The problem, of course, is that it isn’t 1993 anymore; politics isn’t about problem-solving anymore, it is about winning. To make matters worse, it appears that conservatives have abandoned any pretense of creativity or reason in their approach to leadership. Reminiscent of Henry Ford’s position on customer choice (you can have the Model-T in any color you want, as long as its black), conservatives are willing to use any means to solve national problems, as long as the solution is a tax cut.

It has a certain charm that appeals to everyone (even me); who doesn’t like a tax cut or tax credit? But the less one pays in taxes, the less value a tax cut has, and U.S. corporations already pay one of the lowest effective rates in the world (the percentage of firms in this country that pay no income tax is roughly equivalent to the percentage of households whose effective rate is zero…the difference being most of those households loan the government money throughout the year at essentially negative interest rates). The United States is consistently ranked as one of the best nations to do business within in the world. Given that information, it shouldn’t surprise us that U.S. firms aren’t inspired to hire or spend more (in this country anyway) by the Bush tax cuts or ongoing credits; they are simply sitting on the extra profits.

Amazingly, as consumers struggle, U.S. corporations are staging a nearly unprecedented comeback that’s largely escaping notice. The gargantuan, dispiriting job cuts that seem to dominate the news have also been the spur for an epic resurgence in profits. For 2009, the Fortune 500 lifted earnings 335%, to $391 billion, a $301 billion jump that’s the second largest in the list’s 56-year history, approaching the increase in the robust recovery of 2003. For last year the 500 raised their return on sales from less than 1% to 4%. That’s close to the list’s 4.7% historical average.-April 13, 2010 (CNN Money)

All told, the Fortune 500 generated nearly $10.8 trillion in total revenues last year, up 10.5%. Total profits soared 81%.-May 5, 2011 (Yahoo Finance)

It should go without saying, that these growth rates have been achieved without corresponding explosions in jobs. Despite these facts (and they are the same wherever you read), conservatives will still insist that tax cuts are the key to economic prosperity. Saint Ronnie the Gipper slashed taxes in his first 100 days, and saw unemployment continue to climb until the middle of his second summer (unemployment under President Obama peaked during the first month of his first budget year). Mr. Reagan raised taxes (shock horror) in 1982, and watched as the economy boomed. Similarly, Bill Clinton passed a massive tax increase as a core of his 1993 Deficit Reduction Act (yes, passed before Gingrich and the Contract With America); every conservative politician and every conservative member of media predicted, nay guaranteed, economic doom. The years after the hike were times of unprecedented peacetime growth.

Then there was George W. Bush. I am sorry to report that economic growth after his cuts in 2001 and 2003 (and before the recession…lest you think I am juicing the numbers), did not live up to the Clinton example. (All statements on growth can be verified at the BEA site.) The above data does not confirm that tax increases drive growth, but it definitively destroys the notion that increases are fatal to an economy. Beyond that, pick you favorite decade, and label it the “Good Ol’ Days”; taxes where higher then, much higher.

I know tax cuts sound great, I know I like paying less, but the only thing there is proof that they do is inflate budget deficits. Despite the numbers, despite the objective, non-liberally-biased, black and white, plain as day, numbers, conservatives still shout “tax-cut” anytime the public wants an idea. And the limits on creativity don’t stay in purely tax and spend issues; the point of the Heritage papers was a reform of the medical marketplace, and we are still barking over that bone today.

Many have pointed out that the problem central to most of our deepest political divides is not government health care, it is the cost of health care. Arguing about how health care should be paid for (government or private sector) misses the point. Health care costs feature a growth rate that has consistently eclipsed base inflation by four or five times annually for almost three decades. Now matter how hard you work, that explicitly means that a greater share of Americans will be unable to afford care every year. That translates into the largest population of uninsured citizens in the world, and the highest rates of revenue write-downs (by providers) in the world.

The private sector has not fixed the problem, and shows no signs of doing so in the future. Despite this, even bright and reasonable conservatives like ex-Congressman Tom Davis cling to  failed notions of “reform” that, in practise, are nothing more than “tax-cuts”.

Mr. Davis recently wrote an op-ed on CNN’s website which supposedly champions bipartisan action, but breaks no ground on the issues that divide us. With no mention of the budget effect of health care cost, Mr. Davis is free to extol the benefits of the Simpson-Bowles idea of deficit management; essentially, balance the budget by privatizing Social Security and Medicare, and diverting the funds to Wall Street.

Simpson-Bowles calls for discretionary spending cuts, tax reform, as well as important entitlement reforms. The plan is a recognition of the seriousness of the problem and at least the beginning of a comprehensive look at how we will deal with this issue in the short, medium and long term.

Consensus can and should be built around lowering health care costs through common-sense approaches such as medical malpractice reform, increased access to health savings accounts, and by promoting competition to lower health care premiums.-June 13, 2011 (Tom Davis via CNN)

It sure doesn’t sound like new stuff to me; a common-sense approach (medical malpractice reform…already done in Texas without any decrease in premium growth), increased access to MSA’s (tax-cuts that are great, except for 90% of working Americans couldn’t afford to put enough in one to handle one major procedure), and promoting competition (which is precisely what the exchanges of the Affordable Care Act were designed, by conservative pundit, to accomplish.)

I just have to believe there are ideas out there, floating around conservative circles, that are ripe for public display. There simply has to be conservative thinkers who have more than “tax-cuts” and stolen libertarian philosophy up their sleeves; but the evidence for my fantasy is stark. We have, in these United States, tried shrinking public expenditures on infrastructure and education, we have tried letting insurers set the market. The evidence on the failures of these ideas is irrefutable, unless you are willing to ignore the evidence. It is time to pay attention again to what is really happening; it is time for solutions to the real problems our democracy faces; no more treating the headache and ignoring the head wound.

The Rational Middle is listening…

(From the Publisher…the RM turns two on June 21, 2011, and we are celebrating. Join us on Facebook for a review of 10 Big Posts the last year! The RM; liberal views espoused, libertarians and conservatives welcomed…and none of the shouting or personal insults of cable news. Thanks for reading!)

 

9 thoughts on “Conservatives And Original Thinking

  1. updates: next to last paragraph should have started “I’m sure both Buffett & Gates…”

    and I found the post I was referencing. I haven’t checked the sources or numbers, but on the surface it seems rational.
    http://crazybear.posterous.com/why-the-poor-dont-work

    original discussion was here:
    http://forums.anandtech.com/showthread.php?t=2164515

    You should also work on a post where you can use the photo from this page, it’s sure nice looking.
    http://en.wikipedia.org/wiki/Next-Generation_Bomber

  2. Hi Michael, I think you pretty well summed it up for me: I do blame Clinton. Well, and Reagan too, for appointing Andrea Mitchell’s future husband who really dropped the ball at the Fed. “Irrational exuberance” was the comment made Dec 1996 pretty much square in the middle of Clinton’s two terms. I think the tech bubble resulted because Clinton’s administration wasn’t doing their jobs in overseeing the economy. When the stock markets all collapsed, investors moved money into something safe: housing. Clinton’s admin pushed for subprime borrowers so they too could live the American dream (even if they couldn’t afford it). So yes, I think he basically sat by for one bubble and directly created the next. The first exploded just as he was leaving office, the next built from 2002 until 2008 and that’s the mess we’re in now. If you want, we can agree that Bush and his administration missed the clues and failed to act. But he had always been a free-market, hands off guy. Clinton not only created the situation, but he simultaneously claimed to be looking out for the little guys. To me, it’s like the different standard you spoke of the other day and how family values Republicans have a higher standard to meet when it comes to sex scandals. Clinton turned Wall Street loose on Main Street, because Bush did not recognize the problem or care to intervene doesn’t change the source of the problem or the hypocrisy.
    I cannot find the graph right now, maybe it was here, but with the current minimum wage, if you work part time and earn just slightly more than “welfare” you actually come out behind because of taxes (income and payroll). It is better to just sit on your butt and collect a check than put out any effort. This is the donut hole that needs to be addressed. This is why illegal immigrants take jobs Americans don’t want. They cannot expect to collect the same wages for doing nothing as they can for working. Personally, I’d like to see the programs cut back restore a gradual slope of increasing lifestyle with increased income. Right now, with a dip in spendable cash if you work (more), it just encourages people to stay home. The same thing goes with single moms getting more if the dad is out of the picture. It completely boggles my mind to reward this behavior systematically. I understand the arguments for safety nets and not wanting to see the starving depression era photos, but it makes no sense to create incentives for greater public expenditure. So, yes, I do think they’re taking from us. We have a system that pays them to take from us instead of providing for themselves.
    I really don’t have a strong belief in what to do with the payroll taxes, sorry. I agree with the position (like illegals paying into social security without getting benefits) that it doesn’t seem fair to remove the cap when it’s unlikely that those higher earners would ever collect. Since it’s applied at twice the rate you quote for self-employeed it seems that could be especially harsh. Similarly, it’s weighted towards lower incomes like you stated. Not only is that a larger base to collect from, it’s also most likely that those people will collect. I really don’t have a good opinion of a solution, as I’ve mentioned in other posts, I largely think the programs as-is are failed experiments, so thinking of tweaks seems more like moving deck chairs around on the Titantic.
    I’m both Buffett and Gates pay tons more me and my family and probably everyone I know put together. My point was: if they think they’re not paying enough, there is no upper limit to what they can pay into the system themselves. They can pay more to the federal government without voicing any concern. If they feel it is appropriate, just do it. I don’t understand the argument: I don’t pay enough but I’ll only pay the minimum you force me to pay. I don’t pay enough, but I’ll use every accounting trick, loophole, and deduction to minimize what I am required to pay. I don’t see any logic in that.
    I like sexy airplanes too, but I think defense spending needs to be cut. I really would rather we spent money on education and science/math. But like medicine, it seems that we’re paying more and more for lower returns there. My mom is a teacher and it isn’t pretty in that field.

  3. Scott: you wrote, “I don’t see how Bush has ANY responsibility for something 10 months before he took office.” Bearing that statement in mind, how do you assign responsibility for job losses to President Obama for an economy that tanked before he took office, and hit its low before his first budget was a quarter old? If you aren’t assigning responsibility to Obama or Bush, then are you proposing that the recession was a result of Clinton policies?

    It isn’t clear how you can argue that point, given the amount of time that (under the most pro-Bush idea possible) George W. had, five full budget years (all with full Republican control of the legislative branch), to change course. I join you in being disappointed by some of Bubba’s actions, but to affix that level of responsibility to him regarding the economy is just not realistic. I don’t write of Clinton’s claims either Scott…the data is what it is.

    The economy does not turn on a dime, which is why my assessment of tax results is based on 5 years snapshots after cuts/increases. You are welcome to check my math; I linked the economic source material in the article.

    “There is disposable income at the bottom but too many of those people find it easier to get free money from the government than actually addressing their own situation. Lack of discipline is not a reason to not contribute or take additional money from me.”

    These would presumably be the 50% of American households that exist on $53,000 or less (gross), correct? Most of that demographic is unable to access the charity care that is often mentioned in these discussions (most Medicaid limits in the states are at or well below the poverty line, which is half of the aforementioned total). The Social Security and Medicare benefits that have been talked about, in the context of budget modifications, are paid for via a tax that is flat to regressive…everybody pays their share of the FICA line, even those who don’t ultimately benefit (for example, illegals who pay the tax without a hope of collecting). I think it is difficult for you or I to claim they are taking from us, when they are paying (in many cases) a higher share of their income to FICA (earn $50,000 and pay 7.25%, earn $200,000 and pay 3.75%, the ceiling matters).

    As to Buffet and Gates, they are just as entitled to their opinions on tax rates as you or I, and since I assume they are on the hook for a much higher bill than you, I think that they pay for the privilege of “bitching” about the tax code…at least that might be your argument in the contrary position. (If you do earn enough to pay that much in taxes, by the way, you might consider donating to the RM :) ).

    I think this a good discussion, of the type that is sorely needed at the national level (and rarely touched on). It is ironic, after this conversation, to look at historical taxes as a percentage of GDP…the federal share has gone down by only a couple of points over the last 3 decades…no more. What is clear, is that the decline/shift has burdened state governments (by shifting costs away from the scale advantages of the federal tax base), and has caused a substantial decline in commercial infrastructure quality. Something needs to change. I will look at the math (to the best of my ability) on your tax proposal…I am working on a “Rational Middle Tax Code”…perhaps your suggestion will have greater traction.

    (Of course, I could set aside my predisposition to being a liberal hawk, and point to the fact that we spend as much on defense as every other nation in the world combined…literally. I think I like sexy airplanes too much for that discussion…)

  4. Hi Michael, those are all great thoughts.
    1) I just want to be clear that I do not support tax cuts as an economic driver. I thought I was fairly clear that I support raising the rates with a slight modification at the low end to effectively extend the cuts for the lowest wage earners. Actually, if the median for a family of four is really $50k, then the majority of families would see the same or lower rates. Rates for 65K and above would rise, though the effective/net rate might still be lower than the Bush rates i would expect. I actually prefer the President’s commission recommendation which included getting rid of so many loopholes and special interests (like mortgage interest)
    2) I don’t see how Bush has ANY responsibility for something 10 months before he took office. Please explain.
    3) Just to be clear again, I voted for Clinton and I was disappointed time after time. His failures were one on top of another, not just limited to the economy. As I mentioned, I think he claims too much credit and the economy did well in spite of his actions. I think the facts clearly point to the crash coming at the end of his administration. Like an aircraft carrier, our economy is very large and does not turn on a dime. Like the carrier which takes over 1 mile to come to a full stop, it appears to me that Clinton spent 8 years screwing up things with the resulting mess within the last few months of his term.
    4) Once again, I don’t think our economy turns on a dime and I don’t offer that reversal you attribute to Obama to him.
    5) There is disposable income at the bottom but too many of those people find it easier to get free money from the government than actually addressing their own situation. Lack of discipline is not a reason to not contribute or take additional money from me.
    6) As I mentioned, I was for either reforming the tax code completely, or at least raising the rates so everyone (not just the top) pays a little more. I absolutely detest the Buffet and Gates argument and their statements that they do not pay enough. It takes exactly one click to fix. Go to treasurydirect.gov and on the right column under government, click “how to make a contribution to reduce the debt”. There is no maximum to how much money you can send into the government. If you feel you’re not paying enough, feel free to pay as much as you think you should. No one does. In his released tax return did Obama give to charity or to his country? Does Buffett give a nickel for the services we all use, or does he give it to Bill Gates because he knows Gates will spend it more effectively? Again, I tend agree with their assessment, but we’ve got real expenses and I’d like to see the books balanced, so as I’ve said I would like to see rates go up and I’d like to see everyone contribute. If Buffett or Gates or Obama or Clinton or anyone else with more disposable income would like to contribute instead of bitching about the situation, the department of the treasury will gladly cash any check they wish to mail. Otherwise, I’d just prefer they shut up regarding the topic.

  5. Hello Scott: As per usual, I will attempt your thoughts in order.

    1) Your thoughts on the boom of the 1980’s are interesting, but not supported by the data. The B.L.S. tracks productivity, and (outside of the 1983 surge as a result of corporations coming up to full capacity before they refilled their labor pools) there is nothing especially significant about the period. Similarly, the boom times of the Clinton years cannot be tied directly to the tech bubble (by way of explanation, the housing bubble was several times the size of the tech bubble, but it was the Clinton years that featured stronger growth. In either case, your arguments miss the point; the data clearly does not support tax cuts as economic driver, or tax increases as economic anchor. In both cases, the data does no worse than contradict those assertions.

    2)As I have stated on other posts, Clinton’s policies bear as much responsibility as Bush’s for the bubble (Please note that Fannie and Freddie were NOT the only entities in the secondary market buying loans). The principal failure of the Clinton Administration, was in not providing some trip wire failsafe for the derivatives market.

    3)In terms of every measurable statistic; job creation, median income growth rate, stock indices, home ownership growth rates, the Clinton economy was the best of the last 5 decades…frankly Scott, it isn’t immediately obvious what metric you can use to see the economy of the 90’s as “failure after failure”.

    4)As to current economic policy, it has (sadly) been driven by purely political mechanisms. President Obama tried to utilize Keynesian stimulus, but saw it watered down by (first) deal-making that included far to many tax cuts and credits (not as productive as infrastructure spending, and (second) reductions in spending at state and local levels that consumed almost 4/5 of the stimulus effect. Despite this, the largest recession since the Great Depression was ended within 1 year of the President’s inauguration. The recovery in the jobs market is taking substantially larger because firms are not spending their gains, but sitting on them. Additionally, the downward pressure on demand created by the foreclosure crisis has not abated, and represents a real failure of the President Obama (who could conceivably address some of the problem through executive action.)

    5)President Obama’s tax plan was to let the Bush tax cuts expire on the top two brackets, leaving the working class out of the increase. It should be noted that manipulations in lower brackets are one of the tactics I largely object to; there isn’t a great amount of disposable income to play with, and the gains to federal revenue are minimized. A point of the piece is that the Clinton economy and tax environment did not hurt business; the number of start-ups, 5 year survival rates (available via the Census website) and other metrics indicated the Clinton economy was good for business throughout the earnings spectrum. Why be complicated when simple works?

    6) On punishment and protected classes…I respect the analogy you make as a tool for debate, but wealthy individuals are not a sub-class that I can compare to demographics who have been socially shunned, denied basic rights, and excluded from the general economy. The wealthy get to operate within the same good for business environment as their forefathers did, but are demanding to pay a lower bill (and a bill that declines with every political cycle). They make these demands as they ask the working class (who manufacture and buy their products), to “sacrifice” retirement security, real wage growth, and other elements of individual economic freedom. Individuals like Warren Buffet and Bill Gates, who both have the reason and wherewithal to fight tax rates (and avoid them altogether) are convinced that they don’t pay enough. They want higher rates for greater success; not because they are gluttons for punishment but because they understand business. When an enterprise doesn’t return enough of the earnings from its top performers to the business in the form of investment, the business fails. It is an immutable law, and applies equally to democracies.

  6. Hi Michael, I think there are a lot of other ideas out there, but as you say, the whole process has been hijacked. I’d like to try to get you to revise some of your arguments again, using the chess analogy to consider several steps instead of looking for such direct causal impacts. Both Reagan and Clinton claimed credit for boom times when in fact the real driver was technology. The IBM PC (and clones, and then the PC XT in 1983 and 80286 in 1986) increased productivity (and output), not Reagan’s policies. Similarly, the commercialization of the internet in the mid-1990s was the catalyst for Clinton’s economic claims. At the time, I in fact said the economy was booming in spite of his policies, not because of them. This of course was illustrated by the tech bubble which burst when the Nasdaq hit it’s all time high in March 2000 some 7 months before presidential election. The blame for the economy that George W Bush inherited falls squarely on Clinton if we’re to believe the arguments Obama has made (even yesterday). To me Clinton really screwed it up, because his administration directed Fannie Mae and Freddie Mac to guarantee all of the subprime loans which has extended the mess. Somehow, people think Clinton’s economy was so great, but all I see is failure after failure.
    I think the Obama administration has been very poor at explaining this as well. I had written up a suggestion to pass along, but it wouldn’t fit in the 2500 character limit on the whitehouse.gov site and there’s no longer an alternative. I’ve essentially given up because half of my idea was to create jobs, but upon further thinking, reading, and looking at the position Obama has, I don’t really think he’d seriously consider it. I’ll give you the tax half of my thoughts though, and you can tell me how crazy it is. I would have suggested that we allow the Bush tax cuts to expire. As a part of the plan, the bottom bracket under Clinton (15%) would adopt the 10% Bush rate. This would leave taxes alone at the bottom in the real world, but would actually qualify as a tax cut for anyone in the 15% bracket or higher. By my numbers the 10% is only to $16k now and 15% up to $65k. There would be a big jump to the old 28% then at 65%, but the effective rate is muted by such a large low rate base. Additionally, on selling the plan, something like this that is very much weighted to those of us at the lower end of the earnings scale still qualifies as a tax cut for the rich. Those rich still participate in a progressive tax system, so a cut on their first $65k of earnings is still a cut. They’re not getting hit with the full Clinton era rates, but the savings go away as income goes higher and higher and their effective tax rate approaches what it would be without that cut.
    While not a part of my idea, I also wish the refundability of a lot of tax cuts would be removed. I think there should be a minimum of $250/yr that every tax payer contibutes every year. If you have to roll over credit from year to year, fine. But everyone should be a net payer and we can’t have 47% not paying any federal income taxes. $250 from 5 days/week and 50 weeks/year, or $1/day for workers. No need to pay for days off, holidays, vacations, but there has to be a minimum level of contribution to pay for national defense, safe skies and roads/bridges, power grids, food inspection, etc.
    I have no idea what my plan would actually cost. I’m hopeful the higher rates at the top end offset the expanded lower rate. Part of what I had written in my explanation was that to specifically target a group (high income people) who make up less than 5% of the population is not the business of government. I don’t understand how persons who bemoan the treatment of gays/lesbians (3% of the population), racial minorities, etc then flip that logic and consistently attack based on income. The mob rule and supremacy of the majority should not have a place in our government. Society, maybe it’s harder to remove, but it does not seem right to single out a minority position for punishment or harsher treatment by government decree.

  7. That idea has already been codified by health care reform. The Affordable Care Act provides for the establishment of Co-ops by July, 2013. This link offers a decent summary of the idea, along with the verbiage used in the Act itself.

    http://www.tedeytan.com/2010/04/22/5231

    I would urge all to go the Kaiser Family Foundation site, who have posted an excellent and easy to read implementation timeline of health care reform. You can find that at the following address:

    http://healthreform.kff.org/timeline.aspx

    Thanks for reading!

  8. Michael, since local credit unions seem better to put money into instead of banks, could we perhaps try pooling our local working dollars into some kind of local medical co-op that would allow us poor folk to know that our dollars won’t go to the big medical insurance guys and perhaps the money could be used to support local free clinics and such. If enough local folks team up with local doctors and clinics willing to go this route, it might work. I have a doctor who formed his own free clinic in a poor area a few years ago and he thinks this idea just might work. What do you think?

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