Presidential campaign slogans often appeal to progress. Donald Trump’s has attempted to trademark “Make America Great Again,” claiming authorship of the same theme Ronald Reagan used in 1980. Barack Obama got great mileage in 2008 around his “Yes, We Can” theme. Compare on an optimism scale Franklin Roosevelt’s “Happy Days Are Here Again” with Herbert Hoover’s “We Are Turning the Corner,” and you can see one more reason Hoover lost that 1932 election.
Though I believe we should be optimistic about our future, these slogans, along with presidential campaigns more generally, pretend to offer one easy solution to thousands of very complicated problems. At their most basic, the slogans and campaign promises appeal to the notion that if we elect the right president, then progress, greatness and happiness will follow right behind. And, if our candidate is elected, we can feel really good about our achievement: we’ve won the Super Bowl of politics.
By simply choosing between candidate A and B, suddenly we can solve not just how to administer thousands of programs that together spend close to $4 trillion a year, but how to improve economic growth; address social ills; stop international terrorism; deal with worldwide economic, social, and military forces that lead to mass migration—or at least stop them from spilling over our borders; pay people to retire for one-third of their adult lives; make sure that households don’t have to pay more than $5,000 for the $24,000 worth of health care they now receive on average; keep taxes low and debt sustainable; and, of course, regulate the environment, occupational safety, and the financial industry, among others.
But where do we fit in? Do we solve the country’s problems by increasing our benefits from some government programs? By lowering our taxes? That’s what the campaigns tell us. We’re going to get more from or pay less to government AND make the world a better place along the way. Gosh, we’re good.
Identify, if you will, one candidate for president or Congress who doesn’t tell at least 90 percent of us that we are about to get something more from government if we elect her or him. Oh, a few might get less—you know, those lazy people on welfare or those rich tax avoiders who aren’t going to vote the same way as us anyway. Their losses will finance our gains, and $100 billion of higher taxes or lower benefits for a few will somehow cover $1 trillion worth of lower taxes (or higher benefits) for us.
The one-vote-solves-all mantra adds to our sense of dependence and incapacity to make the world better. What does it matter if we work harder or tutor or in other ways provide services and goods that others need? Why should we spend less on alcohol or fancy cars and donate the proceeds to some worthy cause when our contribution is just a drop into the bucket? Why should we fight terrorism by donating to the education of women in poorer countries when we can always send out more troops or bring them home, or raise others’ taxes or lower ours so the economy grows? Why should we gather in our community to address the social ills that threaten a significant portion of its children?
Why can’t others see the solution? We vote the right way, but they don’t; that’s why our problems aren’t solved. Sometimes we win, but then our successful candidate turns coat and fails to solve old problems while allowing new ones to arise. Or our favored son or daughter really tries when elected, but those others deny our democratically achieved victory from attaining its complete fulfillment.
It’s them again; it’s always them.
There is an alternative view. I firmly believe that what we are and what we achieve as a people derives from the sum total of what all of us do. Government can often help us combine our efforts, and, yes, government can block progress as well. Either way, it’s a damn poor excuse for our own failure to act well when we can and our tendency to blame others to excuse our own inaction.
So, yes, let’s engage fully in the elections. Let’s also be optimistic about the future when we live in a nation never so rich throughout all of history, and stand on the shoulders of those who went before us, who added to our store of knowledge, and sacrificed to make our own world a better place. At the end of the day, let’s also admit that progress derives from everyone’s efforts and reject wholeheartedly the dependency that derives from the notion that our role in advancing society comes mainly from flipping a toggle switch.
On October 22 Paul Ryan announced he “will gladly serve” as Speaker of the House if he can unify the Republicans around his vision for the party and the Speaker’s role within it. He faces an uphill battle: Mo Brooks of the House Freedom Caucus has already voiced his concern at Ryan’s reluctance “to do the speaker job as it’s been done in the past.”
But what if the job, not the person filling it, has become the problem? What if the expectations now placed on any Speaker of the House are so unreasonable that no one can meet them? What if the procedures of both the House and the Senate simply cannot meet modern legislative needs? Then we had best not place our hopes on the right person meeting wrong expectations.
Instead, to succeed, the next Speaker of the House must radically redefine that role and how the House conducts business. Ryan himself has stated that “we need to update our House rules…and ensure that we don’t experience constant leadership challenges and crisis.”
At least since the time of Newt Gingrich, an extraordinary amount of the House’s power has been concentrated in the Speaker’s office (although I sense that John Boehner struggled to simultaneously maintain that power and disperse it). Consider some consequences of this convergence:
- Acrimony. The antipathy that accompanies all concentrations of power has spread not just between political parties, but within them as well. One of Republican Congressman Mark Meadows’ chief complaints about John Boehner was that the Speaker had attempted “to consolidate power and centralize decisionmaking.”
- Attention to party rather than nation. In recent years, the House has attempted to confine enactments to items that receive broad consensus among members of the majority party. But the US Congress cannot operate like the British House of Commons, where party leaders become prime ministers. Our Constitution separates the country’s executive and legislative functions, slowing down reforms both good and bad. Although we can’t imitate most British parliamentary procedures, I do think the British tradition of the Speaker resigning his or her party position to serve all House members is worth looking into.
- Inefficient policymaking. Congressional committees are much weaker than they were 20 years ago. At one time the Ways and Means Committee was the most powerful in the House, and its chair was often as powerful as the Speaker. Working closely with the Senate Finance Committee, Ways and Means often took on the unpopular task of identifying how to increase taxes or cut the entitlement spending under its jurisdiction so the nation’s balance sheets maintained some semblance of order. However, once much of the committee’s power was relegated to a Speaker whose job revolved around keeping members of his party happy, necessary economic choices and the compromises that need to be ironed out in a small group— often including members of the other party—couldn’t be developed or sustained. In turn, the complicated, technical, details of policymaking—whether over a tax cut or a health care expansion—often got messed up when put under the purview of people with limited expertise on the particular laws being reformed.
In sum, a Speaker can’t serve either nation or party well when so much power is concentrated in one office, the acrimony surrounding such concentration rises so high, too many party obligations weaken the Speaker’s ability to focus on legislative obligations, and the assumption that the primary role of the Speaker is to promote partisan politics weakens the ability of the House to make tough choices and creatively draft detailed legislation.
Of course, the Speaker cannot reform his own role in isolation from other roles and rules within the House. As already noted, more legislative power can be returned to committees, and party politics can be relegated to party whips or other officers with no obligations to the House as a whole. Here I agree with many Freedom Caucus members, who claim they want to empower committees, but I disagree that this means that a small group within a majority party should be more likely to get its way. The job of the committee chair, just like the job of the Speaker, is to create legislation that will form enough consensus to pass the House, the Senate, and the presidential veto pen.
The House, led by the Speaker, must also start to tackle other obstacles to legislation. Here are three to start. First, political staffs should be reduced in size and nonpartisan staffs increased. The House budget and tax-writing committees can look to the Congressional Budget Office or Joint Committee on Taxation for objective analyses of legislative proposals; other committees lack independent reality-checkers. Second, the congressional budget process is long overdue for overhaul. As a former head of the Budget Committee, Paul Ryan should be all over this one. Third, the wasteful replication of hearings on the same subject matter across House committee jurisdictions should be curtailed.
There’s no guarantee that any particular reform will suddenly make the House more productive. But continuing under current expectations and processes almost assuredly insures that both the House and the Speaker will fail to meet their fundamental constitutional responsibilities to legislate for the nation.
Disgruntled minorities will always seek whatever power the existing structure grants them. The next Speaker can only meet his huge challenges by boldly changing the rules of the game he is called to officiate.
After weeks of hearing the presidential candidates pander to your interests and mine, asking us to give up nothing or do nothing to create a better nation—after all, the responsibility for our problems always lies with immigrants, or government workers, or the rich, or business executives, or stupid liberals or conservatives, or some other group that we don’t belong to, right?—I happened to listen again to Gene Scheer’s “American Anthem,” which was featured in Ken Burns’ documentary The War. I realized my ideal candidate would inspire with this song’s type of message.
American Anthem (first two verses)
All we’ve been given by those who came before
The dream of a nation where freedom would endure
The work and prayers of centuries have brought us to this day
What shall be our legacy? What will our children say?
Let them say of me I was one who believed
In sharing the blessings I received
Let me know in my heart when my days are through
America, America, I gave my best to you
Each generation from the plains to distant shore
With the gifts they were given were determined to leave more
Battles fought together, acts of conscience fought alone
These are the seeds from which America has grown
Let them say of me I was one who believed
In sharing the blessings I received
Let me know in my heart when my days are through
America, America, I gave my best to you
That is how Senate Majority Leader Mitch McConnell explains his support for granting the president expedited authority to negotiate trade deals and fast-track through Congress a vote those deals. The authority would apply not only to an agreement negotiated by President Obama with several Pacific partners, but to agreements made through mid-2018 and potentially through mid-2021.
McConnell recognizes, at least in this case, that a president must have enough room to perform his executive duties. The Constitution provides the president with particular powers, including the negotiation of treaties. It makes no more sense for 535 members of Congress to negotiate treaties than it does for them to micromanage other tasks that should be left to the country’s chief executive.
I would like to extend McConnell’s thought beyond treaty making. Now is the ideal time to empower both the president and Congress to better perform their assigned functions: the president to execute and Congress to legislate.
Why? First—and obviously to even the casual observer—both branches of government have been weakened extraordinarily over recent decades by the politicization of every action and the growing influence of interest groups. Many impasses in both legislation and administration arise when one party thinks that it can diminish the other by imposing roadblocks. This thought is neither new nor unique to government; when an organization’s decisionmaking boundaries are ill defined and its members cross those boundaries to seek additional power, the organization often becomes dysfunctional.
Second, less than two years away from a presidential election with an uncertain outcome, elected officials more likely recognize, as Senator McConnell does, that maintaining roadblocks deters one’s own party’s likelihood of future success as much as that of one’s opponents.
Third, the last years of a presidency seldom focus on the changes that new power brings a political party. Yet it need not be a lame-duck period. It offers the opportunity to turn to those process reforms usually neglected when the political debate centers on bigger or smaller, rather than more effective, government. President, cabinet secretary, congressional leader, and committee chair alike should be examining their power and reorganizing both internally and across jurisdictions—or, quite bluntly, they are not doing their jobs.
Behind closed doors, almost every elected official will admit that many government systems are broken. Examples abound: Medicare continually out of balance, infrastructure and highways unfunded while bridges fall apart and trains crash, the inability to pass budgets or appropriations bills, a sequester requirement that must be overridden, and much more. These are process failures, not policy failures.
How might strengthening the hands of both the president and Congress improve the likelihood of solving such problems?
Medicare provides a good example. In the last presidential election, the candidates attacked each other for trying to constrain cost growth in what both knew was an unsustainable system. Governor Romney castigated the president for cutbacks that helped expand health insurance for the nonelderly, and the president attacked the governor for favoring a voucher-like approach put forward by then–House Budget Chair Paul Ryan.
In truth, all answers to the Medicare problem involve payment constraints. The program simply has to operate within a budget. Congress won’t create a budget for Medicare, but it won’t allow the president to use his executive power to do it either. Instead Congress passes the power of appropriating money onto our doctors and us as beneficiaries.
The fix is simpler than it seems. If the Democrats favor price controls for Medicare and the Republicans favor voucher-like approaches, then set up the general rules but let whoever attains executive power use it whenever spending starts to exceed a congressionally approved limit.
This method can work well in other arenas too. Congress can set guidelines for what it wants accomplished—certainly within a budget—but then it should allow the executive branch to fulfill those guidelines. If Congress over-constrains any particular function by demanding that more be done than allowed by the budget it sets, then the executive should be empowered to make changes necessary to restore balance. This is not rocket science, it is basic management theory.
In his acclaimed book The Rule of Nobody, Philip K. Howard similarly argues that the president must have executive powers restored, to be able to avoid wasteful duplication and unnecessary bureaucracy, to expedite important public works, to refuse to spend allocated funds when circumstances change and the expenditure becomes wasteful, and to reorganize executive agencies.
When Congress limits the president on executive matters, no matter how small, it isn’t empowering itself. Instead, it entangles itself in complex and contradictory legislation, attempting to appease every interest (no matter how small), while weakening itself as it spends less and less time tackling the big issues that it is elected to address.
All this does not let recent presidents off the hook. The constant expansion in political appointees and the centralization of power in the White House over several decades has led to even more roadblocks to progress. When every decision must go through several political layers, almost no good idea can filter through to the president. When so many public statements and decisions on millions of government actions must be fed through the White House, civil servants and even top political appointees can’t function well, and they often retreat to doing nothing risky and seldom attacking limitations or failures in their own programs. Among the further consequences, many excellent government officials retreat to the private sector. Who wants to work where you are not allowed to do your job?
Whether one agrees with the examples presented here matters less than recognizing the ripeness of this time for procedural reform. Senator McConnell is right. Let’s empower the next president—and the next Congress as well.
President Obama’s tax proposals for the middle class were a key element of his State of the Union address. But they represent only relatively modest efforts to create subsidies through the tax code rather than through other departments of government. Looked at broadly, many only tinker around the edges of tax policy and count on an overloaded and troubled agency, the IRS, to administer them.
Will $320 billion of tax increases finance very much?
The President proposes $320 billion in tax increases on the wealthy. It sounds like a lot. But how much would it finance in expenditures and additional tax breaks, assuming it is all spent rather than used to reduce the deficit? Well, there are approximately 320 million Americans, so the proposal would garner about $1,000 per person. But, then again, the $320 billion would be raised over ten years, so that’s about $100 per person per year that could be financed.
Now compare the $100 per year with what we already spend. Add together federal, state, and local spending plus tax subsidies (and the President would “spend” a good deal of his additional revenue on new tax subsidies), and the figure comes out to more than $20,000 per person. And that spending is scheduled to rise by an average of several thousand dollars per year over the same ten year period, due more to (hoped for) economic growth than anything else.
None of these observations speaks for or against the proposals. I like some of them, don’t like others. But if you want to have a significant impact on the budget and on the well-being of citizens, concentrate on where the money is.
Should we throw even more subsidies into the tax code?
Like almost all his recent predecessors, the President talks in his State of the Union address about tax simplification, but in almost the same breath he proposes a range of new tax subsidies. It’s an old story. Tax cuts show up as “smaller” government to those who simply count up net government revenue as a measure of government size. According to that theory, we could achieve dramatically limited government or no government at all if we put all expenditures into the tax code, thereby collecting negative taxes on people, at least as long as we run deficits.
Huge jurisdictional problems also lead to more and more being put into the tax code. Discretionary spending is capped; tax subsidies are not. Congressional tax committees can use increased revenues to pay for increased tax subsidies, but they do not have the jurisdictional authority to spend additional tax revenues on higher levels of spending, or, on the flip side, to reduce many items of direct spending to pay for lower tax rates.
Now I’m not suggesting that a new tax subsidy is necessarily more complex than a new expenditure. But it does raise the issue of whether the IRS is the right agency to administer the subsidy. All of this is coming at a time when the IRS has lost significant resources, the Taxpayer Advocate suggests we should be ready for a horrible filing season in which taxpayers will have difficulty getting ahold of someone in IRS to advise them, and many in the IRS remain disheartened and have been pushed into a bunker mentality that fears bad publicity more than bad administration.
This column originally appeared on TaxVox.
How about a national new year’s resolution for 2015? Here’s my suggestion: let’s resolve to restore our can-do spirit, sense of destiny, and vision of frontiers as challenges rather than barriers. Let’s remember that fear and pessimism multiply the negative impact of bad events, whereas optimism reinforces positive outcomes. Think of Louis Howe, who added “the only thing we have to fear is fear itself” to Franklin Delano Roosevelt’s first inaugural address, or Henry David Thoreau, who wrote that “nothing is so much to be feared as fear.”
Now, seven years after the start of the Great Recession, it’s a good time to reflect on just how lucky we are as a nation and on the vast ocean of possibilities that lie before us. If we don’t see those possibilities, we’ve simply turned our back to them—and forgotten how America became America in the first place. In Dead Men Ruling, I attack viciously both the notion that we live in a time of austerity and the politics that sells pessimism as a way of clutching onto our piece of the national pie.
No one knows the future, of course. But the evidence points strongly toward the potential of a people whose can-do spirit helped it establish the first and now longest-lasting modern democracy, conquer frontiers of land and space alike, enhance freedom at home and abroad, and lead in the industrial, technological, and information revolutions.
Though income tracks only some of our general gains in well-being, we’re hardly poor. Our GDP per household is about $145,000, and real income per person is more than 75 percent higher than when Ronald Reagan was first elected president. We are richer than before the Great Recession. And, even projections of slower growth imply that average household income will rise by around $24,000 within roughly a decade.
We have available goods and services of which kings and queens of old could not have dreamt: not just the very visible gains in ways of communicating and entertaining ourselves, but fresh fruit and vegetables year round, life expectancies and health care far beyond those of our parents and grandparents, and continually improving automobiles, shelter, clothing, travel options, plumbing, and building architecture. And much more to come.
Of course, it’s part of our human condition to focus on the next problems, the ones we haven’t solved. Such striving provides the very basis for continued growth. Your hard labors, your dedication and sacrifices, and your everyday efforts to care for older and younger living generations may not make news. But they do make the world go around.
Our mistake comes from paying attention to those in politics, the media, or our own community who turn our mutual problems into excuses for personal attacks or a sense of helplessness rather than calls for further joint and individual efforts. We know the temptations: for the media, if it bleeds, it leads; for the politician, if it smells, it sells; for the business, if it deceives, it succeeds. But there’s no reason that either they or we need fall prey to such tricks.
If some current debates aren’t as enlightened as they might be, we can still sense progress from where they might have been a generation ago. We don’t debate whether cops should discriminate against different groups—an issue my brother-in-law confronted while working for the FBI in Little Rock, Arkansas in 1957—but instead how to pay proper respect to each person, civilian and cop alike. We don’t debate whether people should have enough food to eat but whether graduate students should collect food stamps. We don’t debate whether to help the disabled but how to extend efforts toward the mentally ill, the autistic, and those who are too old to be treated in school settings. We don’t debate whether to protect the old but whether our old age programs emphasize too much middle-age retirement rather than the needs of the old. When we engage these debates, whether on the same or different sides, most of us concentrate on how to do better, how much government efforts help or hinder progress, and how to shift our resources toward more effective or productive efforts.
In the end, the case for progress rests not on some wild-eyed dream but on the simple notion that we stand on the backs of those who went before us. Available knowledge expands. It doesn’t recede—even if at times we let our minds recede through laziness, prejudice, and fear of the new, or we reinforce political institutions that protect their power or status by blocking advancement.
That’s where we Americans are especially lucky. The can-do spirit, the entrepreneurial urge, and the freedom to try new things have been among the greatest strengths of our people, who continually find new paths forward and ever-broader vistas.
So my optimism is easy to explain: I trust in you. Happy New Year.
Jim Brady, who died on August 4, 2014, will be remembered for many things. He taught elected officials, analysts, and citizens alike not to take ourselves so seriously when engaging in policy. He brought humor to many situations, even at a cost to himself, as in the famous anecdote when he shouted “killer trees” while pointing out the window from the Reagan campaign plane after the candidate had questionably argued that trees caused air pollution.
The lesson from Brady I never forgot was BOGSAT—“Bunch of guys sitting around a table.” Brady was the first from whom I heard this quip, though I cannot track down the occasion(s). BOGGSAT (I’ve removed the sexual bias in the acronym by adding an additional “G” for “gals.”) is the best description I know for how most policy, at the end of the day, is decided. Often I write about Republicans or Democrats, liberals or conservatives, adhering to some position that I believe violates some core principle such as efficiency or equal justice under the law. There’s just a better way, I suggest, to achieve the goals that the adherents seek. But reflecting back a bit, much of the existing policy I criticize did not derive from some elaborate analysis of what was best for the country or even for the favored constituency, but as an almost accidental byproduct of a BOGGSAT.
Examples are common, and I’m sure you could come up with many. Here are some of my favorites. Social Security’s current imbalance? Some BOGGSAT of early Social Security reformers and bill developers failing to adjust the retirement age for increased life expectancy. Today’s farm bill support for corn, soybeans, and cotton, but not many other crops, in the name of “food security?” Some Depression-era congressional BOGGSAT trying to support their favorite farmers. The largest tax subsidy? Some IRS BOGGSAT determining that health insurance was compensation that shouldn’t be taxed. The continued allocation of state “economic development” subsidies to a few businesses? BOGGSATs in almost every state deciding whom to favor and whom to exclude. A rule that one shouldn’t have to pay more than 10 percent of income for health insurance? A BOGGSAT that worked this parameter into Obamacare despite the fact that health costs absorb almost one-quarter of all personal income.
When it comes to new policy design, the BOGGSATs continue their wily ways. Washington is full of think tanks that purport to provide new agendas for each major political party. Some advocates propose to convert pensions subsidies to simple credits for deposits to retirement accounts without accounting for the simple fact that a one-time deposit that withdrawn one second later doesn’t really represent saving. Others want to expand low-income access to home mortgages without worrying about the regulatory tendency to engage such efforts when market valuations are high and to discourage them when market valuations are low. Many want to cut taxes without cutting spending, which is simply a shifting of the spending burden to future taxpayers. A BOGGSAT likes to feel it is moving policy in some particular direction but often fails to consider all the alternatives or worry about the unintended consequences.
In both current law and many proposals to change it, a BOGGSAT loves to use nice round numbers with limited or no analytic justification. Think of “10-5-3” (the new cost recovery or depreciation system for deducting costs of investments, as enacted in 1981) or the 50 percent Social Security spousal benefit (the percentage added to a worker’s benefit that is paid out freely to the couple and paid for partly small part by single people and even abandoned spouses who can’t get the benefit) or “9-9-9” (a tax system with three taxes with a rate of 9 percent each, proposed by Herman Cain in the 2008 Republican primaries).
When I’m honest about it, I have to admit that many of my family’s decisions to spend or give away money come about through the BOGGSAT method. I’m guessing the same is true for you. But the BOGGSAT doesn’t have to operate purely on instinct, or the emotion of the moment, or the bargaining power of those at the table. The next time you’re engaged with others in deciding something for yourself or promoting something for the broader community, think back to Jim Brady and his quip about how decisions are made. And consider the consequences not just of the decision but the way it was decided.
Thanks, Jim. Just one more item to add to your list of lifetime gifts to us.
The 50th anniversary of President Johnson’s War on Poverty has led to a flurry of articles and debates about whether that war succeeded. That debate has been reenergized by Thomas Piketty’s best-selling book, Capital in the Twenty First Century, which argues that inequality is rising because returns to capital have risen relative to average economic growth. A solution to this inexorable force, Piketty claims, lies in some form of worldwide wealth tax.
In both cases, I find the political debate largely unproductive. Many conservatives and liberals pick at pieces of data and history to support their own forgone conclusions. Rather than seek practical margins for making progress, much of the discussion turns to thumbs up/thumbs down rhetoric or totally impractical solutions.
Here’s how the data play out. Since the late 1970s, market-based measures of poverty and the distribution of income (that is, measures of income before taking account of government redistribution through taxes and transfers) improved very little in the first case and got worse in the second. Both did much better a few decades earlier, including up to the mid-1970s. PIketty bases his broad historical conclusions about growing inequality largely on market measures. In turn, researchers ranging from Gary Burtless at Brookings to Tim Smeeding at Wisconsin to Richard Burkhauser at Cornell to Diana Furchgott-Roth and Scott Winship at the Manhattan Institute have shown greater reductions in poverty and less growth in inequality of income or consumption when market-based income is adjusted for government taxes and transfers.
These two different ways of looking at the data make for strange bedfellows as the debate turns political. Conservative critics of the War on Poverty combine with liberal world-always-getting-worse warriors, who like to cite Piketty, to form conclusions based largely on the before-tax, before-transfer measures. They unite to attack the status quo, with one suggesting fewer transfers (the war failed) and the other higher taxes on the rich (the tax system failed). Liberal defenders of social welfare programs and conservative opponents of higher tax rates, in turn, conclude that on an after-tax, after-transfer basis the world is a lot better off than the other side asserts. They defend the status quo.
Here are the statistics that I ponder. In real terms, social welfare spending averaged about $7,500 per household at the time the War on Poverty was declared. By the time that Ronald Reagan was inaugurated in 1981, spending per household had grown to $15,000. And today it has doubled again from the start of the Reagan administration to about $32,000. (These figures do not even include tax expenditures for social welfare, such as pension, housing, and wage subsidies, which averaged about $7,000 per household in 2013.) Meanwhile, GDP per household grew from about $70,000 in 1964 to nearly $140,000 today.
Over this same 50 years the official thresholds for measuring who is in poverty have not grown one dollar in real terms. These measures, adjusted only for inflation, in a sense, are based on absolute poverty, unadjusted for the new goods and services a growing economy provides or, said another way, for whether a household’s income keeps up with average or median income in the economy. For a family of four, for instance, the nonfarm poverty threshold is crossed when a household’s income falls below roughly $23,550 today, essentially the same level as in 1964. For a single person, the poverty threshold equals $11,490
“Wait a second,” you may think. The government spends far more on social welfare than would be required to give every household support above poverty levels. And in almost every year there have been substantial real increases in the amount of transfers made. Why, then, has the poverty rate not fallen more?
There is no single answer. Here are four pieces of the puzzle:
Huge gains at the top. Inequality in market-based income DID grow substantially since the late 1970s, the period when progress against poverty slowed. The ability of high-income individuals at the top of a winner-take-all economy to capture much of the extra rewards that derive from monopoly or oligopoly settings does help explain some of the stagnation in earnings growth for those with average or low earnings.
It doesn’t explain why the public supports, which have continued to grow, haven’t made greater headway in improving the skills of the population enough that their market incomes would rise more. That brings us to the next three pieces of the puzzle: the extent to which the public money has been spent to help providers, help the middle class, and pay for health care.
Providers. Beneficiaries include providers who have captured large portions of government, not just private market, money. Before you start looking elsewhere, just remember that providers include, among others, doctors, drug manufacturers, social workers, lawyers, lenders, other financial intermediaries, builders, housing officials, software developers, tax preparers, government contractors, and, for that matter, researchers like myself.
The Middle Class. The middle class rather than the poor has also captured very large portions of the social welfare budget, largely in ways that have for decades encouraged them to retire and work less for greater portions of their lives. Early growth in Social Security benefits, for instance, did a good deal to reduce poverty, but in more recent decades has made less progress because growth—the marginal increase in payments—has been concentrated preponderantly on more years of support and higher levels of benefits for everyone, from rich to poor alike. Remember that a program can on average be successful in meeting some objectives, yet still target its incremental budget poorly. Incremental spending in our public retirement programs in the modern age increasingly operates to decrease the market incomes of the middle class and, despite billions of additional dollars spent each and every year, only modestly increases the transfers received by the poor.
Health Care. A large share of the growth in the income of almost everyone but the rich has come not in cash but in the form of government and employer-provided health care and insurance. One-third of per capita income growth in our economy from 1990 to 2010, for instance, went simply to pay for real increases in health care, as average annual health care spending per household from all sources ballooned to approximately $24,000. Measures of both market income (e.g., Piketty) and most measures of after-transfer income (e.g., the official poverty measure) fail altogether to count this major source of income. Yet for many, particularly those below median income, that item has dominated the way their income has grown for perhaps three decades. The CBO has tried very recently to count health insurance received as income in some of their work, but its efforts are an exception to the rule.
These four pieces interlock in various ways. For instance, more years and money in Social Security support, particularly as people live longer, has encouraged the average worker to retire for more than a decade longer than in 1940, when benefits were first paid, thus reducing their market income. Because many of the government’s expenditures on health care have been captured by providers, the public’s gain in benefits comes out to only a fraction of each additional $1 the government spends, while in the private sector cash compensation stagnates to pay for higher costs of health insurance.
In sum, the debate over poverty and inequality deserves renewed attention. However, it provides a quandary to many in both major political parties, who are largely mired in mid-20th century debates and fighting the thumbs-up, thumbs-down battles that blocks improvement from either side. The times beg for a 21st century agenda (an issue I try to address in my new book, Dead Men Ruling).