Monday, February 21, 2011

Scheming Among "Moderates"

Recognizing that the tea parties have dominated, even controlled, the nation's political debates, E.J. Dionne notes

More striking is the Tea Party's influence on Washington's political elite, which looks down at the more extreme men and women of the right when they appear on Fox News but ends up carrying their water.

One such individual "carrying their water" is Washington Post reporter Lori Montgomery, to whose "news" article Dionne links. Describing the activites of three Democratic, and three Republican Senators known as the "Gang of Six," Montgomery writes that they have

been working to build support among moderates for a bold plan to control the national debt.

The group hopes to advance the commission's recommendations, which would reduce deficits by $4 trillion over the next decade. Doing so would require lawmakers to embrace some politically perilous policies, however, including raising the retirement age to 69, charging wealthy seniors more for Medicare and ending some cherished but expensive tax breaks.

Taking the commission's report as its template, the group is drafting legislation that would direct congressional committees to find a way to put it into effect. On taxes, for example, the legislation would have tax-writing panels in the House and Senate develop a tax overhaul that would raise hundreds of billions of dollars in additional revenue and lower the top tax rate, which stands at 35 percent.

The framework of this "bold" plan, according to Montgomery, includes a change to the retirement age for Social Security, means-testing Medicare, ending some tax breaks, and lowering the top income tax rate.

Increasing the retirement age to 69 is less bold than hostile to the interests of citizens who are elderly or, rather, will be, elderly. Prior to the advent of Social Security, the largest concentration of poverty in this country was composed of the elderly. But in a study for the National Bureau of Economic Research, Gary V. Englehardt and John Gruber

estimate that a $1,000 increase in Social Security benefits is associated with a 2 to 3 percentage point reduction in poverty rates for elderly households (graphic depiction, below; click to enlarge). They also find no statistically significant effect of benefits on income inequality, suggesting that higher-income and lower-income elderly benefit similarly from increases in Social Security.

Applying this estimate to the change in Social Security benefits between 1967 and 2000 suggests that the increase in benefits can explain all of the 17 percentage point decline in poverty that occurred during this period. The authors also find that higher benefits lead some elderly to live independently rather than with family members, and conclude that the effect of Social Security on poverty would have been even more dramatic in the absence of these changes in living arrangements.

The anticipated rise in longevity was built into the Social Security fix enacted during the mid '80s. Most of the rise, however, has been due to a decline in the infant mortality rate, rather than in the extension of life in the aged. And what of the latter has occurred has taken place primarily among the affluent, rather than in the working poor, working class, and others who most rely on Social Security to stay afloat- or out of poverty.

That would suggest that means-testing for Medicare would not be a tragedy. It would, however, lead to a decline in support for the program, as it devolved into a program identified as welfare. Not very popular among the American people, that welfare thing. There is a way of addressing rising Medicare costs- lowering the cost of health care. I'm sure the Republicans have an idea.

Lowering the top tax rate from 35%, cutting income taxes for the wealthy, who contribute significantly to political campaigns, is another one of those "bold" ideas. It's not enough that the top rate was supposed to rise to 38.60% in 2011; President Obama and congressional Republicans (and a few Democrats) were more intent on jacking up the deficit some $900 billion. Now, a group wants to lower to 29% the rate on the biggest incomes, lower than we've seen since the period of 1925-1931, when it was either 25% or 24%. In most of the 1990s it was 39.60% (chart of fluctuation of the top rate over time, from The Urban Institute, below; click to enlarge). Why, the Gang must be asking itself, would we want to return the economy back to the 1990s when we can return to the 1930s?

Ever mindful of giving lip service to the deficit, however, the Gang of Six is interested in eliminating tax loopholes, such as the deduction for home mortgage interest and the tax-free treatment of employer-paid health care. The proposal would replace revenue from the wealthy with revenue from the middle class, beyond that which was accomplished by the Grand Tax Deal of 2010-2011 (chart, from the Center for Budget and Policy Priorities, below).

The center of political discourse has shifted drastically rightward, as Dionne recognizes, though I would mark the beginning of the shift as January 20, 2011. Indicative of the lurch is that consideration of these changes, which did not occur, and could not have occurred, during the ultra-conservative administration of George W. Bush, is taking place during a Democratic administration. It is a conservative Republican agenda- and a reporter for one of the two greatest newspapers in the nation calls it "bold" and implies it may appeal to "moderates."

Whether the conservative turn in the nation's dialogue and politics has been encouraged by the White House, eager to appear reasonable by comparison, is a more complicated issue; but it is striking that one of the Gang of Six is Barack Obama's puppy, Richard Durbin. Of more immediate concern, though, is the emphasis the White House has placed on opposing making the 35% rate (lower than what it was supposed to have become) permanent. Is the cut being considered by this group what President Obama had in mind?

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