To Govern Better, GOP Should Work From Reality
In my previous blog post, I discussed how many Republican criticisms of the Obama administration's policies are not backed up by data.
Republicans don't just have a problem with specific critiques, they also have a view of America that doesn’t match with how the country actually is. Their view disagrees with the reality of many important socio-economic problems. In some cases, such as America’s lack of upward mobility, some deny the problem exists.
It is not possible to offer good policies for the country if one of the major political parties can not diagnose what its real problems are. In the spirit of correcting these misconceptions, we have compiled this second index of Republican misunderstandings.
Republicans argue that America is an upwardly mobile society.
Paul Ryan made this claim explicitly at the Heritage Foundation on October 26th:
Instead of working with us on these common-sense reforms, the President is barnstorming swing states, pushing a divisive message that pits one group of Americans against another on the basis of class.
This just won’t work in America. Class is not a fixed designation in this country. We are an upwardly mobile society with a lot of movement between income groups.
The Treasury Department’s latest study on income mobility in America found that during the ten-year period starting in 1996, roughly half of the taxpayers who started in the bottom 20 percent had moved up to a higher income group by 2005.
Meanwhile, half of all taxpayers ended up in a different income group at the end of ten years. Many moved up, and some moved down, but economic growth resulted in rising incomes for most people over this period.
Paul Ryan’s positive description of American society does not match the more sobering data. Research from groups such as the Brookings Institute shows that for many in America, the income group you are born into is where you are likely to stay:
While cross-country comparisons of relative mobility rely on data and ethodologies that are far from perfect, a growing number of economic studies have found that the United States stands out as having less, not more, intergenerational mobility than do Canada and several European countries. American children are more likely than other children to end up in the same place on the income distribution as their parents. Moreover, there is emerging evidence that mobility is particularly low for Americans born into families at the bottom of the earnings or income distribution.
Even more striking is that America’s lack of upward mobility is most acutely expressed through racial differences. That these differences even exist is often not acknowledged in conservative rhetoric. Consider what a 2008 Pew report on had to say about the differences in black and white downward mobility:
A startling 45 percent of black children whose parents were solidly middle income end up falling to the bottom income quintile, while only 16 percent of white children born to parents in the middle make this descent.
Similar trends are found in other income groups as well. In another disturbing example, 48 percent of black children and 20 percent of white children descend from the second-to-bottom income group to the bottom income group. In addition, black children who start at the bottom are more likely to remain there than white children (54 percent compared to 31 percent).
Unlike the picture that Paul Ryan paints, American society is not only lacking in upward mobility, but some groups are more downwardly mobile than others.
If Republicans were to admit that the group you are born into does matter, then they would have to acknowledge the massive disparities that exist in American society. This is hard for them to do because...
There is a lot of conservative evasion over income inequality.
This past week, James Pethokoukis of AEI has been engaged in a multi-part debate with several other bloggers over the extent of America’s income inequality. Without getting into the weeds of the debate, Pethokoukis current contention seems to be that increases in income inequality have been exaggerated.
Yet what is unavoidable is that many sources of data (including the papers that Pethokoukis cite) confirm that there is a growing inequality, particularly at the highest level of income earners.
Exactly what should be done about this (if anything) is an interesting question. This fact raises questions about political economy-do existing laws and regulations overwhelming benefit one small part of America? If so, how could they be changed? Would income inequality be less of a problem if there is real upward mobility? How do we make sure our democratic institutions don’t let this wealth disparity distort policy?
It is not even possible to have that discussion if you don’t acknowledge that inequality exists.
Conservatives are not completely ignorant of facts and data. There are some data points that actually form the core of their messaging. Yet the reliance on this data often ignores the underlying reasons the facts exist.
Republicans have been making a lot of noise over how half of America doesn't pay any taxes. This factoid exists because...
47% of America is too poor or old to pay Federal personal income taxes.
Republicans often argue that there should not be higher taxes on high income earners but that the tax base needs to be “broadened.” The data they cite to make this point is that 47% of Americans don’t pay Federal personal income taxes.
So why do many Americans not pay Federal personal income taxes? Is to due to tax avoidance, or because of a tax code that is too progressive and generous to the poor?
Currently, nearly two thirds of those who don’t pay Federal personal income tax do pay payroll taxes. They also pay excise taxes and very probably tariffs. They bear their share of the cost to consumers of federal corporate income taxes.
So they are in fact working and paying many other taxes, they are just not making enough income to be able to pay Federal personal income taxes. The lowest 20% of America doesn’t even make $16,812.
Of those who don’t pay income or payroll tax, roughly half of those Americans are senior citizens who are only receiving social security benefits, which are not taxed.
The tax code certainly needs reform. It is complicated, and there are many deductions which lead to dubious policy outcomes (such as the home mortgage interest deduction). What is most distressing about the conservative obsession that 47% of Americans don’t pay taxes is that it ignores what could reverse this. Very simply, a more upwardly mobile and wealthy America would likely file more income tax returns.
Conservatives will have difficulty proposing policies that increase mobility without acknowledging that times have been hard for middle class Americans. This is hard for them to do because many conservative intellectuals are devoting their resources to arguing that...
Its been great for the middle class! (Despite rising healthcare costs.)
Conservative intellectuals are engaged in some interesting mental gymnastics. On the one hand, they insist that the Obama administration’s policies will lead to socialism and the end of freedom. On the other hand, they also want to argue that America’s middle class is experiencing an era of unprecedented prosperity.
Currently, there has been an effort by some to show that the American middle class is wealthy due to their increases in income and consumption over the past few decades.
This raises the question, if incomes are rising, what are Americans consuming? According to analysis done by the RAND corporation and others, the answer is higher healthcare costs:
Although a median-income US family of four with employer based health insurance saw its gross annual income increase from $76,000 in 1999 to $99,000 in 2009 (in current dollars), this gain was largely offset by increased spending to pay for health care
...
After accounting for price increases in other goods and services, the family had $95 more in monthly income to devote to nonhealth spending in 2009 than in 1999.
The tragedy is that Republicans could make a case that the President’s healthcare law does not do enough to control healthcare costs, but that would require admitting that a large portion of the country has not been receiving many economic gains over the past decade.
In addition to problems with how conservatives view America's economic problem, there are two more policy blindspots in the conservative world that need to be addressed.
Conservatives think the Community Reinvestment Act (CRA) caused the sub-prime mortgage crisis.
It would be a great narrative if the entire financial collapse could be blamed on laws that congress passed which encouraged bad loans to be made. Yet the data shows that the loans that can be traced to the CRA just weren't the bulk of the loans that caused the 2008 crisis.
According to former Fed Governor Randall S. Kroszner:
the very small share of all higher-priced loan originations that can reasonably be attributed to the CRA makes it hard to imagine how this law could have contributed in any meaningful way to the current subprime crisis.
There is a discussion to be had over how the CRA changed the housing market and created unintended consequences for how credit was rated. But as a matter of factual record, conservatives should be focusing instead on the derivatives market which was responsible for the crisis, and not in any way part of the CRA.
The final point I wish to bring up is personal pet peeve of mine:
The debt ceiling crisis did not occur because America “maxed out its credit card.”
This is an insidious and wrong-headed meme that also happens to be a bad metaphor. The story as some tell it is that because of too much spending, America 'maxed out' its 'credit card' and that congress had to raise the debt ceiling to avoid the hard choices this presented.
(This argument was dramatized in a ReasonTV video.)
America’s debt is not like credit card debt. America does not owe a company such as “Visa” any money, it owes obligations to individuals who purchase our debt.
The "debt ceiling" has no relation to the credit-worthiness of America. In fact, America is one of the only democratic countries in the world with a debt ceiling (the other is Denmark). It is an artificial constraint which has no relation to the actual interest investors have in America’s debt.
A better way to get a sense of how interested investors are in our public debt is to look at the sale of treasury bills. Amazingly, despite expectations that this would not be the case, US debt is currently considered one of the safest purchases in the world at the moment. To add insult to injury, there was a rally on US debt after the S&P downgrade.
It is hard to propose policies to reduce America's debt when there is a fundamental misunderstanding over how that debt is actually financed.
