Economic Competition and the NCAA Basketball Tournaments

I love the NCAA tourneys. I grew up in Louisville at a time when basketball was synonymous with Kentucky, Ohio, and Indiana. I give the NCAA and the networks credit for building up the excitement, tension, and attention in this national event. This year, my interest was especially piqued because five family alma maters (including mine) made it to the Sweet Sixteen of the men’s tourney: Dayton, Wisconsin, Louisville, Kentucky, and Virginia.

My undergraduate school, Dayton, was among the elite in college basketball in the 1950s—and, to some extent, the 1960s. Dayton fell in status over time because, at least relative to some other schools, it started stressing academics more and athletics less. These experiences color the lessons on economic competition, both positive and negative, that I draw from the tournaments each year.

When competition flourishes, it’s hard to establish a monopoly.

Okay, Harvard did make it to the men’s tourney this year, but credentials don’t go very far when your accomplishments determine whether you get ahead. This stands in contrast to the politics of academia. High school seniors focus intensely on college admissions because they correctly sense that future success depends not simply on what they learn than but where they can make connections to get onto a faster career track. If you’re an economist, for instance, your odds of a top job in either a Democratic or Republican administration multiply one-thousand-fold if you have a Harvard connection at some point in your education as opposed to, say, a University of Connecticut one. It’s tough finding a job teaching history almost anywhere if your PhD is not from a ranked university, no matter the brilliance of your work. The NCAA appeals to the common person, I think, because we identify with any field where anyone with enough talent and effort can succeed.

Create a level playing field (court), and you’d be amazed at the amount of upward mobility.

Many of my fellow social scientists despair of the lack of upward mobility in American society, with young black men especially singled out as left behind. Yet notice their success in basketball, where there’s pretty much a level playing field from the time of birth. If you can run circles around me on the court, I can’t rise above you by turning to Daddy’s friends or the connections available only in higher-income communities. (Then again, maybe I can succeed in athletics by convincing the Olympic Committee to adopt some new sport played by an elite few. How many kids in inner-city Detroit have access to $100,000 bobsleds or a “playground” for luges?)

Money still matters—a lot.

As the tourney goes on and my position in the office bracket pool falls lower, I start turning to my cynical side and some negative lessons. Though there’s close to true competition among athletes, schools still compete on more than talent. Large state schools have done quite well in recent decades with the move toward big-money sports and huge TV rewards, perhaps even more so in football than basketball because of the expense involved. Multimillion-dollar coaching salaries, extraordinary facilities, the latest in physical therapy, and multiple support staff to develop statistics or simply run around as lackeys—you name it, each of these can add to the probability of success. Given this world, I shouldn’t admit that I’m still thankful to former Wisconsin chancellor Donna Shalala for bringing big-time sports success back to Wisconsin; it’s not surprising that Miami hired her away after her stint in the Clinton administration.

Those who take maximum advantage of the letter of the law often do well.

Consider the new Kentucky style of “one and done”: recruiting players who never intend to study or complete more than a year of school once they become eligible for the NBA draft. It works. It’s easy to cast Kentucky coaches in the same light as those traders on Wall Street who gain by faster computerized trading or better access to soon-to-be public information. Or multinationals that shift their profits with the flip of a switch to some low-tax country. It may all be legal (or almost legal), but dodges like these don’t generate growth in a capitalist economy or additional value for watching sporting events. In many ways, the relative advantage for these winners comes mainly from avoiding having to compete under the same rules as everyone else.

The working stiff still gets shafted.

Everyone knows that there’s big money to be made in major college sports. One way to get rich is to leverage the work of others, then claim a large share of the total rewards from the enterprise for yourself. Perhaps the few college basketball players who make it to the NBA might claim that their college training was a good investment. For many other big-time college sports athletes, the reward can be a 50+ hour workweek at almost no pay and a loss of other educational opportunities (see Joe Nocera’s take on unionization of players as employees).

Suppose society is willing to pay $1 billion to be entertained by the NCAA tournament. The players can’t get paid, though they might get some very nice meals or plush accommodations, so much of the $1 billion is up for grabs by coaches, athletic department personnel, and others—some of whom walk away with huge rewards at their athletes’ expense. The NBA also gets a free training ground and media promotion of its future players.

To be fair, the school receives some of the profits, and it divides the funds among money-losing athletics or (god forbid) academics. Still, the working stiff doesn’t have much say in the matter one way or the other.

My new book, Dead Men Ruling, is now available to order.


Why Most Tax Extenders Should Not Be Permanent

This post originally appeared on TaxVox.

What to do about the tax extenders—or, as my colleague Donald Marron calls them, the “tax expirers”? Restoring the current crop (most of which expired on December 31) for 10 years would add about $900 billion to the deficit. House Ways & Means Committee Chair Dave Camp (R-MI) and Senate Finance Committee Chair Ron Wyden (D-OR) have pledged to address these extenders, though in very different ways.

Camp would take them on one by one this year, making some permanent and killing others.  Wyden (and senior panel Republican Orrin Hatch of Utah) would restore nearly all of them but only through 2015.

Clearly, as my colleague Howard Gleckman suggests, we need to rigorously examine the merits of each one. But after paring out those we don’t want, should we make the rest permanent as Camp and many lawyers and accountants favor? Or should we keep them on temporarily?

Making them permanent would reduce complexity and uncertainty. But keeping them temporary would allow Congress to regularly review them on their merits. I believe that, with a few exceptions, most should not be made permanent. However, I’d extend most of them for a more than a year at a time according to the purpose they are meant to serve.

Why not make them permanent?  As Professor George Yin of the University of Virginia School of Law has argued, most of these provisions really look more like spending than taxes.  We must distinguish, therefore, between those items that legitimately adjust the income tax base, and those that, like direct expenditures, subsidize particular activities or persons, or respond to a temporary need.

In my forthcoming book, Dead Men Ruling, I lay out the many complications that arise when elected officials make too many subsidies permanent. Over many decades, lawmakers have effectively destroyed the very flexibility government needs to adapt to new needs and demands over time.  Making the extenders permanent would tie even tighter the fiscal straightjacket we have placed on ourselves.

Fiscal reform demands retrenchment, not expansion, of the extraordinary power of permanent programs to drive up our debt and override the ability of today’s and tomorrow’s voters to make their own political choices.

Now onto a more complicated but related issue.  The way Congress handles tax subsidies such as extenders should be treated similarly to the way it handles direct spending subsidies. But doing this requires addressing some tricky budget accounting problems.

Direct expenditures can be divided into two categories: mandatory spending, often called entitlements, and discretionary spending.  Discretionary spending, in turn, has multiyear and single-year spending programs.  Both must be appropriated occasionally.   To simplify, let’s call permanent tax subsidies “tax entitlements” and tax extenders “tax appropriations.”

The Congressional Budget Office (CBO) treats direct entitlements and tax entitlements similarly, projecting them perpetually into the future. If legislation enacted decades ago requires those entitlements to grow, CBO will treat that growth as part of the baseline of what the public is promised by “current law.”

But CBO does not treat direct appropriations and tax appropriations similarly.  It assumes that direct appropriations will be extended either according to the program rules in effect (as in the case of most multi-year appropriations) or in aggregate (as in the case of most annual expenditures).  In contrast, CBO assumes that tax extenders or tax appropriations expire at the end of each year. Continuing temporary tax extenders would be scored as adding significantly to the deficit, whereas extending many or most appropriations at current levels would not.

These inconsistent budget accounting rules mean we need to rethink how Congress treats temporary tax subsidies. If they are not going to be made into permanent tax entitlements, then, as far as practical, they should be treated closer to multiyear or annual tax appropriations.    Multiyear often makes more sense for planning purposes.  Of course, subsidies that are truly meant to be temporary, such as anti-recession relief, should be treated as if they end at a fixed date.  The net result would be that when most “tax appropriations” other than those clearly meant to be temporary meet the end of some arbitrary extension period, CBO would no longer project their future costs at zero.

However one slices it, Congress needs to avoid making permanent or converting into entitlements even more subsidy programs, whether hidden in the tax code or not.  At the same time, it must address its inconsistent budget accounting rules for direct appropriations and those extenders that are really little more than appropriations made by the tax-writing committees.


A Camp-ground for Tax Reform

This post originally appeared on TaxVox, the Tax Policy Center blog.

By proposing a far-reaching and detailed rewrite of the Revenue Code, House Ways and Means Committee Chair Dave Camp (R-MI) did something very few elected officials have done in recent years: He stuck out his neck and proposed radical reform. The initial press response has focused on politics and concluded that neither Republicans nor Democrats will be able to take on the special interests, that there is too much partisan gridlock, and that the plan is going nowhere.

But such responses largely ignore the history of successful reforms and forget that some policymakers do care about policy. If the goal is to conquer a mountain, someone has to start by building a common basecamp.

Almost any major systemic reform that does more than give away money creates losers. Someone always has to pay for whatever new use of resources the reform seeks—in this case, tax rate reduction and a leaner code with fewer complications. But politicians hate identifying losers. We voters punish them for their candor, which is why they nearly always increase deficits to achieve their goals and leave it to a future Congress to identify the losers who pay the bill.

With his full-blown tax reform proposal, Chairman Camp decided to lead and proposed repealing many popular tax breaks. There’s a lot I like and some things I don’t like in his proposal, but the simple fact is that a well-designed comprehensive alternative to current law can change the burden of proof. Change a few items, and each interest group argues that it was unfairly picked on. Put forward an alternative that takes on almost all preferences, and each interest then needs to justify why it deserves special treatment not accorded others.

The prospect for any reform is nil if no leaders do what Camp did and step up to the plate. The process is not one of instant epiphany. Rather it slowly builds support. Those who first propose change may increase the odds of success from 5 percent to 10 percent. Others who follow further improve those odds.  If we reject out of hand all ideas that start with less than a 50 percent chance of success, we’d probably never reform anything.

It often takes modest support by others to move the process forward.  In 1985, President Reagan and House Ways & Means Committee chair Dan Rostenkowski started the legislative process that yielded the Tax Reform Act of 1986 by simply agreeing not to criticize each other while the measure went through committee. Like Speaker Boehner today, Speaker O’Neill wasn’t enthusiastic about reform then, but Rostenkowski was able to proceed anyway.

In 1985, Rostenkowski knew he could pass a Democratic bill. But he knew it would go next to the GOP-controlled Senate Finance Committee. Each party would have a turn and a final agreement would come from a bipartisan conference committee. If House GOP leaders let Camp mark-up his bill now, Democrats would have their turn, at least this year, in the Senate. At least so far, both President Obama and senior Ways & Means Democrat Sandy Levin (D-MI)  have avoided any major criticism of Camp’s plan, but one wonders if Democrats aren’t going to forego an opportunity, once again joining Republicans in deciding in advance that nothing substantial can be done, so it won’t.

Leadership is seldom about achieving results that can be predicted with certainly. More often it requires using your clout to change the process or reframe the debate in ways more likely to serve the public. It’s certainly about more than protecting your party’s incumbents in the next election regardless of the policy consequences.

When I served as economic coordinator and original organizer of the 1984 Treasury study that led to the ’86 Act, it was a time when books declared major tax reform the “impossible dream.”  Sound familiar? In the face of that dispiriting commentary, I tried to encourage the Treasury staff with what I call the “hopper theory” of democracy: the more good things you put in the hopper, the more good things are likely to come out. By this reckoning, Chairman Camp has already won.


Can the Modern Politician Call Us to “Place Our Collective Shoulder to the Wheel”?

Whom do we remember as our greatest presidents? Often, the ones who call us to act on a higher plane, to be more than we have been. Some leaders stand out in every list: Washington, who led us through a treacherous beginning; Lincoln, who saved the nation; and FDR, who led us against perhaps the most evil axis of nations in history. But let’s add others: Truman, with his leadership on the Marshall Plan and postwar communist containment; and Jefferson, with the purchase of the Louisiana Territory.

Similarly, when we think about which rhetoric inspires us, we don’t usually quote the language used to back the latest farm bill or tax break. Ever undergo the emotional transition at the Lincoln memorial from feeling touristy and tepid outside this behemoth boulder building, to turning teary as you read the second inaugural address? You may not have noticed, but one line in that address mentions a new government program:

 Let us strive on to finish the work we are in, to bind up the nation’s wounds, to care for him who shall have borne the battle and for his widow and his orphan, to do all which may achieve and cherish a just and lasting peace among ourselves and with all nations.

Did you find it? Look again at how it’s worded. Lincoln didn’t promise that he would do something for widows and orphans; he called us to add that task to the many sacrifices we still needed to make.

Now consider President Obama’s State of the Union address. I don’t mean to pick on it, as it largely followed the format to which for several decades we have become accustomed. Its emotional high point wasn’t when he listed all his proposals but, at the end, when he extolled the sacrifices of Army Ranger Cory Remsburg.

Men and women like Cory remind us that America has never come easy. Our freedom, our democracy, has never been easy. Sometimes we stumble; we make mistakes; we get frustrated or discouraged. But for more than two hundred years, we have put those things aside and placed our collective shoulder to the wheel of progress—to create and build and expand the possibilities of individual achievement; to free other nations from tyranny and fear; to promote justice, and fairness, and equality under the law, so that the words set to paper by our founders are made real for every citizen.

Remsburg, by the way, was on this tenth tour of duty in Afghanistan and Iraq, when his life underwent dramatic upheaval.

Now consider what the president and his Republican counterparts, in their follow-up addresses, ask of us. For the most part, to accept more goodies: more benefits or fewer taxes somehow paid for by someone else. Fortunately, they tell us, we don’t have to put our shoulder to the wheel of progress; we only need to move aside others who block it from rolling forward.

Therein lies a great tragedy of politics and one of the greatest threats to the functioning of democratic government: politicians’ need to tell us about all the great things they will do for us, usually combined with their plodding efforts to tell us that the source of our nation’s problems is those who don’t agree with us. And the great focus they place on “I,” as in I—not you, not we—am going to make all these good things happen. Try to find “I” in Lincoln’s great addresses.

Yes, I recognize that few politicians can win elections without playing this game. Still, I don’t find myself inspired by the tax cuts or extra government benefits I might receive. I’m not moved by the call for others to sacrifice for me. I’m not motivated to do more for posterity by contemplating what you should be doing.

I’m not suggesting that sacrifice has merit in and of itself. When we make such efforts, we do so because we expect that society will benefit in the long run. But not now, when we must give up our time or energy or resources at building that better world. And not necessarily us.

One of the most popular Old Testament verses, sung and read repeatedly in churches and synagogues, comes from the most quoted of all of the Hebrew prophets:

Then I heard the voice of the Lord saying, “Whom shall I send? And who will go for us?” And I said, “Here am I. Send me!” (Isaiah 6:8).

Even if we continually vote out of office any politician who asks us to sacrifice something to make the world a bit better off, we still want to be called. We want collectively to put our shoulder to the wheel. Thanks, Cory. I hope I have half the courage in dealing with these mundane issues that you display in dealing with life and death.


On the Progressivity of Obamacare

Is the Affordable Care Act progressive in the most effective way?

In a very fine study, Henry Aaron and Gary Burtless at Brookings have looked at the ACA’s potential effects on income inequality and have preliminarily concluded that the ACA redistributes income—largely in the form of health benefits fits—to the poorest one-third of Americans. Most of the law’s additional subsidies—the expansion of Medicaid and subsidies for those buying insurance on the exchange—are highest for those with the lowest incomes. Offsets, such as some new taxes, tend to be concentrated less at those lower income levels.

What the Aaron and Burtless’ study was never intended to assess—and a lingering 21st century concern with almost all government health policies—is the ACA’s effectiveness and efficiency, both for the public in general and those with modest means in particular. For instance, many rewards of our government health policy have traditionally been captured by health industry providers, who are able to charge consumers higher prices. A program can be progressive, but still end up charging the public an additional $2 for $1.50 or $1 worth of care.

The ACA does at times attempt to deal with some of these issues and includes several experiments. But it was mainly directed at improving access, not reducing health costs. Reforms beyond the ACA still are required on that front regardless of which political party accedes to power.


Finding an Opportune Way to Expand the Earned Income Tax Credit

President Obama announced only one major new proposal during last night’s State of the Union address. Here’s what he said:

I agree with Republicans like Senator Rubio that it [the EITC] doesn’t do enough for single workers who don’t have kids. So let’s work together to strengthen the credit, reward work, and help more Americans get ahead.

Having worked on the EITC and other wage subsidies for a long time (and having introduced them at a crucial stage of tax reform efforts in the 1980s), I say it’s about time they were back on the table. Particularly since the onset of the Great Recession, policy discussions around helping those with lower incomes have focused on unemployment insurance, food stamps, and government-subsidized health insurance. Employment needs to move toward the front of our public policy agenda.

As necessary as these other social safety net programs might be—and am not trying to assess their merit here—they generally do not encourage people to stay in the workforce. Like the welfare of old, before the onset of reform of what then was Aid to Families with Dependent Children (AFDC), they provide the greatest benefit to those who do not work at all.  While it’s debatable whether a simple EITC expansion increases total labor supply, there is almost no doubt that per dollar of cost it increases employment more than many other social welfare provisions.

Employment has been a vexing and growing challenge for the American economy. The share of all adults who work—also called the employment rate— was declining even before the Great Recession, particularly among the young and the near-elderly. Indeed, a declining employment rate represents a far bigger and longer-term issue than unemployment, since the NON-employment rate includes both those who are unemployed and those who drop out of or never join the labor force.

Concern over employment makes wage subsidies fertile ground for bipartisan consensus, if—and this is a big “if” in these partisan times—both sides can claim victory from the deal.

Consider the history the EITC. Almost every president since Richard Nixon has signed legislation establishing the EITC, expanding it, or making some provisions permanent. And it’s been bipartisan. The  initial enactment and the largest increases all occurred under Republicans—Ford, Reagan, and George H.W. Bush, while the expansion during the Democratic Clinton administration was also quite significant.

Many who backed these legislative changes did not view the credit in isolation. They often favored it over some alternative—welfare for Senator Russell Long (the EITC’s first champion) and a minimum wage increase for President George H.W. Bush. Or they accepted the EITC as part of a broader tax or budget package. The EITC was never the subject of stand-alone legislative action.

That leads us to today, and what compromises might be supported by both political parties. I suggest two possibilities.

One, following our historical pattern, is to expand the EITC as an alternative to other efforts. At some point, recession-led unemployment insurance expansions will end. A bill to increase the minimum wage might go nowhere. Might an expanded wage subsidy be a compromise?  A broader tax or budget bill always presents possibilities. The EITC offers one way to mitigate the net impact on lower-income populations, whether offsetting  losses from new deficit reduction efforts, or ongoing cutbacks due to sequestration or dwindling appropriations.

The other is to tweak the EITC so it interacts better with other policy goals, such as reductions in marriage penalties—a cause often advocated by Republicans. The childless single workers identified by the president are not the only ones left out of any significant wage support. So also are many low-income married workers. Despite recent changes, the EITC still creates marriage penalties, particularly if a low-wage worker marries into a household already receiving the maximum credit. Such a low-wage worker often fares worse than a single person who gets nothing or almost nothing: once added to the household, the additional worker’s income can phase out his partner’s’ EITC benefits and reduce or eliminate any previous eligibility for other public benefits. Current government policy announces that it is more advantageous to stay unmarried.

Simply expand the current, very small, credit for childless single people, and marriage penalties would multiply in spades. I suggest including in any expansion low-wage workers who decide to marry or stay married, not only those single persons left out. Such an expansion would proceed largely along the same lines as the president’s, but also reduce marriage penalties .

In sum, the president’s best path to bipartisan support for the EITC is to stress more policies that favor employment, offer the expansion as a compromise from other efforts less favored by his opposition, and reduce marriage penalties.


The Budget Deal: A Tentative Step Forward

In a recent Washington Post article, I characterized any forthcoming budget deal as two parties who had dug a hole for themselves deciding to stop throwing shovels at each other. Despite this skepticism, I must admit that this December 2013 agreement is certainly better than throwing shovels—or, more formally, threatening another government shutdown, along with its attendant costs on the workings of government, the well-being of citizens, and economic growth.

This budget agreement also takes a couple of baby steps forward. For the first time in a while, it includes modest reforms to mandatory programs, not just discretionary programs. It cuts back slightly on the silly sequester. Perhaps more important, it gets the two budget committees functioning again. Traditionally, members of these committees have had to fight with the rest of Congress as much, if not more, than with their opponents within the committees—partly because committee members, regardless of affiliation, shared the objective of getting the budget into some sort of order.

If the committee members have really decided to restore their status, and if they are constrained by other congressional leaders from making significant headway on the budget in the months leading to the next election, I hope at least they will start working on bipartisan budget process reforms, such as reducing the game-playing in future budget agreements. One example is greater constraints on future legislation that increases long-term deficits. A trick still possible (but not used in this deal) is to avoid scoring or counting costs against a bill when they fall outside an arbitrary ten-year budget window.


Nelson Mandela and the Formation of a Nation

A few years ago I visited a history museum in an Eastern European nation that had recently abandoned communism. It was quite depressing. In one room I could read about oppression under ancient royalty, in the next oppression under Hitler, in the next oppression under communism. I became acutely aware of how lucky I was to live in a nation with a positive history and legend about its founding and development, and the related ability to triumph over evils, internal and external, ranging from slavery to fascism.

A person like Nelson Mandela takes his country onto a higher plane. He serves as a beacon and inspiration for new generations. When the South African government falters, as it will over time, Mandela’s legend will continually call the people back to a time when hope for progress drove the nation.

Any country’s story of itself evolves from the actions of its heroes and the mythology (in the most positive sense of that word) that surrounds them. In the United States, our teachers and textbooks teach our schoolchildren to try to emulate our Washingtons, Jeffersons, Lincolns, Roosevelts, and Kings. With their leadership, we—and our nation—seemed to move to a higher and better plane. We don’t have to count on our Millard Fillmores to inspire us, even if plenty of them still seem to be around.

I worry greatly about those countries without heroes to inspire their citizens. People in Russia or Egypt may come to tolerate a Putin or a Mubarak-like successor because many of them haven’t known anything better. Despite the formidable talent of the Chinese people, they still look back to a Mao rather than a Gandhi for thinking about what their nation can become—giving India, in my view, an extraordinary leg up for development in this still-young century. In a country with true national heroes, the citizens come to see themselves as part of an evolving and perfecting culture. Failures aren’t tolerated as the way of the world but seen and actively opposed as obstacles to progress.

In this way, Nelson Mandela lives on—and will do so for centuries to come.