Friday, May 22, 2015

Should Democrats be running scared?

The Democrats may be their own worst problem.

The party has considerable advantages according to recent national polls, but, at best, it comes across with a somewhat blurred image and, at worst, as pursing a version of liberalism that has limited appeal.

Yet surveys show that most Americans agree with what is usually considered Democratic policy.

Take campaign finance.  Four-fifths of people say they favor new controls over campaign spending.  Opposition to limits comes from Republicans who say bankrolling political campaigns is a form of free speech.  Democrats have not made this an issue, and may themselves also go for the big money.

Or immigration.  Almost 60 percent say that today’s illegal or undocumented aliens should have a path toward citizenship.  Republicans are divided on this, but many of them say the borders must first be secured, though they know that is not a practical possibility.

Or same-sex marriage.  This is a so-called “wedge” issue, a social issue leading voters to support the GOP’s candidates without much regard to their positions on other issues.  But a strong majority of voters nationally support it, though some conservative states strongly oppose.

It seems clear that the GOP hopes to benefit from such wedge issues including abortion and gun control.  And their adulation of Israeli Prime Minister Benjamin Netanyahu suggests they are trying to make support for Israel also a wedge issue.

Yet surveys show almost equal division of opinion on abortion and gun control with no information yet on Israel.

On the central issue, whether people have a favorable view of Republicans or Democrats, the GOP trails badly.  And since the Republicans took control of both houses of Congress this year, opinions about that institution have sunk even below their already low levels.

Despite all of this evidence that should give comfort and political strength to the Democrats, they fail to capitalize on their advantages.  In fact, they often give the impression of running scared.

The Republicans say they are the conservative party and most voters are conservative.  If the Democrats accept this view, they are tempted to move to the right and actively avoid being labeled liberals.

It’s possible that a conservative-liberal political split does not provide a true picture.  Pretty clearly, the conservatives have a coherent set of views and policies, and they freely label as liberals those that oppose them.  But are the 57 percent who say they support same-sex marriage all liberals?

We have seen the U.S. Supreme Court being reported by the media as composed of four conservatives, four liberals and one swing voter.  But a close look shows there are four, sometimes five, conservatives and four non-conservatives.  The media designation of them as “liberals” may please the GOP.

But what about Obamacare?  Isn’t the majority disapproval a sign of conservative rejection of a liberal policy?

Perhaps, but it is also a good example of the Democrats’ failure to champion their own causes and allowing themselves to be intimidated into soft-peddling their own policies.

Or the economy?  Unemployment is down, and output is growing.  While individuals should be earning more (and the top one percent is), the Democrats never fail to admit the situation is good but could be improved.  Certainly honest, but not a way to win elections.

The national media has supported the increasingly incorrect notion of a conservative-liberal split, which the right is supposedly winning.  “Red states” and “blue states” supposedly have both a political and an ideological meaning.

It’s possible to disagree with the conservative position, making you a non-conservative but not necessarily a liberal.  As the surveys show, you may be in the mainstream.

In Maine, the split between conservatives and those who have opposing views is playing out differently.  The Democrats may sometimes be drowned out by Gov. LePage, but not to the point of running scared.  And the legislative Republicans remain attached to protecting their prerogatives even from a governor of their own party.

The presidential campaign will sharpen the contrast between the conservative and non-conservative views.  If they can put one of their candidates in the White House, conservatives could then claim political domination.

Recently, the Washington Post reported that Hillary Clinton, the likely Democratic presidential candidate, is adopting positions that just a short while ago would have been deemed too liberal.  She’s not doing that to squelch more liberal challengers, but because her polling shows most voters are increasingly supporting policies formerly considered liberal.

The Democrats have the opportunity to appeal to the majority, but only if they have the courage of their convictions.  

Friday, May 15, 2015

Social Security needs major changes

The good news is Americans are living longer.

The bad news is many Americans cannot afford to live longer.

Many people do not have enough money saved or in Social Security to provide sufficient income in retirement.  Of course, some are wealthy or have good employer provided retirement plans, but they are a minority.

Most people are at least vaguely aware that Social Security will not have enough funds to make its promised payments to retirees.

The main reason for the shortfall is the decreasing number of people working and contributing to the program compared with the increasing number of people eligible for its benefits.  Current payouts have always depended heavily on current payroll contributions; its trust fund alone is inadequate.

To make matters worse, the federal government has borrowed from the Social Security trust fund to meet other expenses.  In fact, it owes Social Security more than it owes the largest foreign holder of public debt, Japan, which just passed China. 

Now comes a new issue.  The forecast of how long people will live may be too short, meaning that with people living longer than expected and receiving longer payouts, Social Security will face even more problems in keeping pace with its commitments to retirees.

The federal government will struggle to find the money to make payments to retirees, and the challenge will become greater as time goes by.

Meanwhile, retirees themselves will struggle.  About 29 percent of them have less that $1,000 in savings, and 58 percent have less than $25,000.  With so little in savings to support them in retirement, they must rely on Social Security. 

Though it was not intended to be the main source of retirement benefits, Social Security provides most older beneficiaries with more than half their retirement income.  And about a quarter of married recipients and half of single beneficiaries depend on the program for at least nine-tenths of their income.

Whatever the original intent, Social Security is becoming the default pension program just when its resources are becoming inadequate. 

It all adds up.  Fewer contributors relative to recipients, tens of millions of new retirees, Social Security itself owed money, and older people increasingly dependent on it.

Political promises to “protect” Social Security are not enough.  A more comprehensive reform is needed, though it would come at a time when there is great pressure to reduce government spending not increase it.

In the end, it is likely that each of the current problems will have to be addressed.

As life expectancy is increasing, the retirement age will be raised.  It is now on course to reach 67, up from 65.  But it may need to be raised even more, especially as the forecasts on the length of life continue to put pressure on the program.

Its outlays could be cut if benefits to wealthier people were not only taxed, as they are now, but reduced or eliminated at upper retirement income levels.

The payroll tax rate paid by all, especially upper income people, could be increased.  Perhaps the way to attract enough political support for such an increase would be to allocate some of the new funds to optional investments in financial markets.  However, given the increased level of risk, the amounts invested would have to be kept relatively small.

A payroll tax increase would not be sufficient to solve the financing problem.  The debt owed to Social Security must be paid, and that will require an increase in general taxes.  This is a clear example of the problem of pushing today’s federal deficit spending onto later generations.

Payroll tax revenues could be boosted if there were more workers contributing.  Dealing with immigrants already in the country, legally or not, and a return to America’s historic more open immigration policy could produce workers contributing to Social Security as well as new customers for American products.

It also seems obvious that workers should reduce their current spending and save for their own retirements, and they should start while still young.  That would provide security and a cushion for times, like the recent recession, when pensions stagnated thanks to reduced interest rates.  Retirees made a major contribution to economic recovery.

In effect, unless Social Security turns its back on tens of millions of older people in coming decades, it will almost certainly have to become what, for many, it already is – the national retirement plan.

This conclusion and the remedies seem almost incredible.  But the problem of assisting older Americans to survive is growing and potentially catastrophic.

Friday, May 8, 2015

Government consensus crumbling

The American political system isn’t what it used to be.

While change in governing is as inevitable as it is in every other part of life, the transformation of political practices and behavior is radical.

The system is subject to constitutions, federal and state, and to laws made to carry out their intent.  But the United States has always been governed by people who operated by interpreting the laws in an agreed manner.  In short, the political system is based on both laws and common understandings of how the game is to be played.

No constitution or law can deal with every imaginable situation.  While amendments can be adopted to deal with change, more often government operates under a gradually evolving and informal consensus.

In recent years, that consensus has been crumbling – and not gradually.  In Washington and around the country, elected leaders are using their hold on power, however temporary it may turn out to be, to make basic changes in how government operates. 

The filibuster is the most well-known example.  Originally, a rule to halt debate in the U.S. Senate was adopted as a way to prevent endless delay.  It requires a supermajority, now 60 votes, to end debate.

For decades, the Senate had no problem considering bills without a formal vote to end debate.  The filibuster was used only once or twice a year by southern senators intent on blocking civil rights legislation.

Now the threat of filibuster is used for virtually all important bills.  In effect, the simple majority required by the Constitution has been replaced by a supermajority.  That gives great power to whichever party is in the Senate minority no matter who controls the government.

For “originalists,” people who want to apply the Constitution as the Founders wrote it, this should be unacceptable.  Many of those who rely on the new practice continue to insist on their view of the original meaning of the Constitution.

Last week, the head of the Federal Election Commission said that her agency could not make any significant decisions on violations of campaign laws.  That’s because Republicans on the evenly divided six-member Commission say that limiting questionable political financial practices would violate free speech rights.  Is that what the Founders had in mind?

And the Senate, which worries about President Obama making a risky nuclear deal with Iran, wants to force itself into approving an executive agreement.  Until now, all presidents have been able to enter into working agreements falling short of formal treaties without congressional involvement.  This Senate action could set a new historic precedent.

Some senators voted against Obama’s pick for Attorney-General, because she would not promise to operate the Justice Department independent of the White House.  That’s a new standard.  Think of President Kennedy’s brother or President Reagan’s campaign chief of staff, who both served as Attorney General.

In Maine, similar change is taking place, and the driving force is Gov. Paul LePage.

To issue bonds, the Legislature must pass a bill and then send it to the voters.  They decide if the proposed use makes sense enough for the state to take on added public debt.  The campaign debates on debt can be serious and are almost always contested.

After the voters approve a bond issue, the bonds should be issued and the money put to work.  The people are the sovereign, and they have decided and not merely issued an advisory opinion to state government.

But LePage has blocked the issuance of bonds for years until the Legislature gives him something else he wants.  Republican state Sen. Roger Katz, a member of the governor’s own party, has said, “No one, including a governor, ought to have the right to be able to veto what the citizens of Maine do at the ballot box.”

But that’s just what LePage is doing.  In the process, he is changing historical practice, and his action has not been effectively challenged.

Why does LePage believe he can make such a change?  Because he blocked bond issues before he was re-elected, he interprets his election as authorization to change historic practice.  With this attitude, he is in line with members of Congress who see their own elections, not as entrusting them with protecting the generally accepted political system, but as a license to topple it.

A House member of the governor’s party defended his action with words that apply to the recent trend toward change.  “It’s politics,” he said.  Apparently, politics trumps all, including history and the need for consensus.

Friday, May 1, 2015

If business prospers, do new jobs follow?

Do government programs to encourage job creation work or do they merely guarantee corporate profits?

Nobody knows the answer with certainty, but there’s evidence corporations promote development subsidies more to boost their profits than to create new jobs.

The mantra of most politicians is “jobs, jobs, jobs.”  But many of them oppose direct government hiring or projects that will require government contractors to hire more workers.

Indirect corporate support is appealing, because it seems to have no cost for taxpayers.  The benefits are supposed to flow through the business and end up in employee paychecks and corporate profits.

Often government support for business development is offered through extremely complicated programs.  One reason for the complexity is reliance on tax breaks, which can obscure where the benefits really go.

Congress and state legislatures are convinced to enact indirect development measures without a full understanding of how they really play out.  Corporations can sell them based on the possible job gains, which sound politically appealing, without revealing the loopholes from which they expect to benefit.

Legislators believe that, if business prospers, new jobs will inevitably develop.  In that way, two objectives are met: job creation and allowing the private sector, rather than government, to shape economic priorities.  That’s consistent with a free enterprise economy and limited government.

Corporate incentives also have a clear political benefit.  As noted, they are offered without any apparent cost to taxpayers.  There’s no appropriation of public money though they receive support funded by tax revenues.  The flow of money from the taxpayer through the budget to the subsidy is too difficult to track.

Businesses like indirect support programs; their profits are virtually guaranteed even though job creation is not.  Corporate beneficiaries often turn up as political contributors, providing legislators with their own incentive for offering indirect support for business development. 

The New Markets Capital Investment program, recently revealed by the Maine Sunday Telegram, rings all the warning bells of an indirect program.  

Through gimmicks created by the corporations involved but not understood by the legislators, some of whom had received political contributions from those companies, investors will receive about $16 million from the state on a supposed $40 million investment, of which not a penny will have gone to creating jobs.

Instead of believing promises that a public indirect investment will be more than compensated by expected employment gains and resulting added tax revenues, legislators ought to regard the cost of any indirect program as an outright expenditure.

Besides, state business-boosting programs are essentially “beggar thy neighbor” measures.  They are intended to enable one state to pick up investment and jobs that might go to another state.  It’s not a competitive advantage that matters; it’s the gimmick.

At the federal level, Congress does much the same thing, willingly offering indirect corporate breaks while rejecting direct action.  It readily adopts tax breaks for the private sector, passing the resulting unpaid cost of government on to average taxpayers, while rejecting funds for roads and bridges, left to deteriorate.

Perhaps the central problem of both the federal and state governments in accepting such programs is the lack of an economic vision.  A mere commitment to “jobs, jobs, jobs” is not good enough for judging the value of proposed publicly supported programs.

A state with a coherent and consistent policy, not merely “special” job creation incentives, can prosper.  Texas, with its emphasis on little regulation and both major parties pro-business, has boomed.  New Hampshire consistently avoids a state income tax, and its economy has grown.

Maine places a higher priority on the environment.  Some investors, from renewable energy to tourism, can accept and prosper under a strong environmental regime. 

But the state fails to offer a consistent outlook to businesses.  Tax reform and a stable economic and social policy could be more effective than risky trade-offs tailored for specific companies.

The Maine Legislature signed onto an investment gimmick it did not understand in the mere hope of creating jobs.  At about the same time, it was willing effectively to expel one of the largest companies in the world that had already committed to a major renewable energy investment in the state.

The misguided New Markets tax refund program adopted by the Legislature had no chance of replacing the lost opportunity caused by breaking a deal, not involving tax dollars, with energy giant Statoil for off-shore wind energy.

Keeping policies consistent, uncomplicated and fair could produce better results with fewer chances for programs to backfire.  Such policies plus more direct economic support by government would likely produce more jobs.