The most important tax reform decision

(This is cross posted at The Reality Based Community blog).

The most important tax reform decision is deciding to collect enough revenue to pay for the spending that the nation plans to undertake.

This basic decision is often lost in the discussion of other (important) issues: marginal rates, tax expenditures, the Buffet rule/fairness, changes in the mix of taxes used to collect revenue, impact on the economy, etc. There are many key decisions to be made if we are to transition toward a sustainable federal budget, but most fundamentally, we must decide what proportion of GDP will be redistributed via government expenditure, and then develop a tax code that can collect the amount of revenue necessary to pay for such spending.

If we are to ever having anything near a balanced budget again, it will require a substantial increase in taxes received as a percent of GDP over the 18 percent of GDP collected on average the past 4 decades or so. Spending has averaged around 20.5 percent of GDP over the same period of time, but that is simply a restatement of the fact that the U.S. has only had 4 balanced budgets since I have been alive.

It is of course mathematically possible to shrink spending to meet the historical level of tax collection. However, it is important to realize that we spent more than 21 percent of GDP (the target for revenue/spending balance in around 2035 suggested by Simpson-Bowles) in 1970, 1975, 1980 and 1985—and the baby boomers were mostly working and paying taxes then, and not moving into eligibility for Medicare and Social Security. And no one has identified a health reform plan that could plausibly be enacted that could slow long range health care spending growth by the degree needed to achieve a balanced budget in the 18-19 percent of GDP range preferred by many Republicans, given other spending realities.

There are technical aspects of tax reform, no doubt. However, the biggest decision is to determine how much revenue is needed to finance the spending programs the country decides to undertake, and to then move to the related issues of reforming our tax collection system. Sometimes the simplest decisions are the hardest to make.

N.C. Marriage Amendment

North Carolina will vote on an amendment to the state constitution on May 8, 2012.  A sample ballot is shown below.

The amendment has engendered a great deal of confusion, from what it is called (Amendment one, the marriage amendment, constitutional amendment) to what it will do (some favor the amendment because they think it will legalize gay marriage, when in fact it is designed to do the opposite). Further, it is quite broad, and even some who might favor a narrow limiting of same sex marriage are worried about what else this may do to contracts in North Carolina.

PPP polling’s latest has the amendment passing while an Elon poll suggests it will be defeated. A key issue is the sample frame used for fielding a poll: likely primary voters seem more likely to support the amendment, while broader swaths of the state are more likely to be opposed, so turnout will obviously be key. The Republican-controlled General Assembly passed the amendment with the support of enough Democrats to ensure that a veto by Governor Perdue (D) could be overridden, with the Democrats insisting the measure be placed on the ballot during the May primary and not the 2012 general election in return for their support. At that time it was assumed that Governor Perdue would be running for re-election, but she has since decided not to run, and a contested Democratic Governors race and the increased turnout that will bring may help to tip the balance against passage. A further unintended consequence from the perspective of the supporters of the amendment is that it has rallied liberal and progressive groups to be more focused on primary turnout than they otherwise would have been, in what amounts to a practice turnout opportunity for the November general election.

At Christmas, it seemed passage of Amendment One was inevitable. However,  it now seems an open question, and the outcome of the Amendment could provide some clues about the political climate in a crucial swing state won by President Obama by only 14,000 votes (out of 4.2 Million cast!) in 2008.

The politics of illegitimacy

I think the WaPo editorial board has it right that pre-emptive cynicism painting any decision that does not uphold the Affordable Care Act as being illegitimate is not great for the country. I confess to being bored by the legalese about the individual mandate since I am a policy guy, think the ACA was a good step that was the best that could be gotten, understand that Republicans have no track record on health reform, and am fully confident that if that changes in the future, they will construct something that looks a lot like the ACA.

The justices may well render an opinion that is fairly viewed as overly political and also not good for them as an institution, or the country, but we should read what they say before reaching this conclusion.

The politics of illegitimacy–branding any outcome “my side” doesn’t like as illegitimate–is one of the most pernicious aspects of our modern political culture today. I personally think “the other side” does this more than does “my side” but blind spots are, well blind. The following is a post I wrote on January 11, 2011, two blogs ago after the shooting of Rep. Gabby Giffords. I reproduce it below because it seems apt as I think about illegitimacy today.

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The Politics of Illegitimacy

It is a bit off-topic for this blog, but several students have written and asked me what I think of the events in Tucson. It was a terrible human tragedy and a very sad day for our nation. It was a particularly grievous act in my mind simply because the shooting took place while an elected representative was going about her duties to represent her constituents.

We don’t know why the shooter did what he did, but from past assassinations we know there is often a complex etiology for such attacks that tends to include mental illness. The role that rhetoric and imagery could have on violence is an important question, but I simply don’t have an evidence-based answer. Yet, this event feels like a momentous occasion that is worthy of introspection.

As I thrash about and try and make sense of this tragedy and what it means for our nation going ahead, I settle on something I have been thinking about for awhile, and which has crystallized in my mind the past few days. The disturbing trend in American politics for losers of elections to decry the winners as being illegitimate.

I first voted for President in 1988 and I voted for the winner in that election. The country moved on pretty well.

I voted for the winner again in 1992, but there was a very different context to the aftermath of Bill Clinton’s election. There was a general sentiment from some quarters that he was illegitimate as President because he received less than 50% of the popular vote cast due to the presence of Ross Perot’s strong third party candidacy. Of course, the President is elected by the Electoral College and there is no stipulation that the winner must get a majority of the votes cast, though that typically was the case in modern times.

In 1996, President Clinton was re-elected with less than 50% of the votes cast (49.2% to be exact), again due to Perot being a candidate. It always bothered me that opponents of the President whom I knew personally would argue that he was illegitimately elected due to the fact that ‘more people voted against him than for him.’

President Obama won approximately 53% of the popular vote, and had the largest Electoral College victory since President Reagan. Of course that hasn’t stopped some of his political opponents from arguing that he is illegitimately elected even though the issue of his citizenship was long ago decided. Much of the opposition to the President has been tied to his ‘otherness’ I think, which is all designed to label him as illegitimate, which would make his policies all the more heinous.

Of course, my chronology skipped an election.

In 2000, the tables were turned, and I voted for the loser, Al Gore, who got more votes than did President Bush. Even though I had been irritated by the phrase after the 1992 and 1996 elections, this didn’t stop me from saying to some that ‘more people voted for Al Gore than President Bush’ which is of course true but constitutionally irrelevant. I can vividly remember calling President Bush the ‘President Select’ before his January 2001 inauguration in derision of the Supreme Court’s ruling in Bush v. Gore that settled the disputed election.

Several people older than I who are not big fans of President Obama have told me that they haven’t seen the country ‘as angry as it has been the past 2 years’ in their lifetime. I always remark that they must not have come to Durham or Chapel Hill, N.C. between 2003-2008! Self righteous rage against one’s political opponents is truly bipartisan.

There was a ubiquitous bumper sticker and tee shirt in Durham, N.C. around 2003 that said ‘Somewhere in Texas a Village is Missing its Idiot.’ This always made me chuckle until one day I heard one of my young children say that President Bush was dumb. I sternly told her that was disrespectful and asked her who she had heard that from. She said simply, you Daddy.

For some reason, I cannot get that out of my mind this week as I try and make sense of the tragedy in Tucson.

I think the essence of the progressive/liberal hubris is that we think we are smarter than everyone else. Instead of listening, and then trying to be persuasive and make the case, we are tempted to construct a defense mechanism that says that if you don’t quickly adopt my view it is just because you don’t understand. If only the country was filled with those as smart as me…..

I think the essence of the conservative hubris is the belief that conservatives are more moral/noble/patriotic than others. They are tempted to write off those who disagree with them as being unworthy of America because they think we don’t love it enough. If only the country was filled with those as good as me…..

At their heart, both sources of hubris say that people with different views are illegitimate in one way or another. Someone who is illegitimate is not worth talking to, respecting, listening to, understanding, or even debating reasonably. Certainly not worthy of compromising with to solve the huge problems facing our nation.

CPC budget v. Ryan budget

It is easier to move toward a balanced budget if you are willing to raise taxes–that is the main take home for me from the Congressional Progressive Caucus (CPC) budget put forth yesterday. The Bipartisan Policy Center does a great job comparing this budget to other proposals. Here is the money graph that compares spending and revenues as a percent of GDP in 2022:

The CPC budget is not balanced in 2022–but then again neither is anyone else’s–not Bowles-Simpson, not Ryan’s, not the President’s, etc. showing that you cannot achieve balance or anything close quickly. The CPC budget is an interesting book end to Chairman Ryan’s budget because both achieve the same debt-to-GDP ratio (~62%) in 2022, but do so at very different levels of aggregate spending, as well as different spending priorities and tax burdens and distribution. When I look at Ryan v. CPC budget, the spending side for CPC is very plausible, while Ryan’s is a political fantasy. It is easy to imagine a majority of the nation getting behind the spending side of the CPC budget, but less easy to imagine them supporting the taxes necessary to pay for it. The converse is true for the Ryan budget.

At some point, we will have to grow up and decide, which of course will most likely entail a compromise, which seems both inevitable and impossible.

What the flip flops on the individual mandate mean

Governor Mitt Romney is just four years too late. If he had beaten Senator McCain for the 2008 Republican nomination, the individual mandate would  have been front and center in the campaign; a ‘make the trains run on time’ corporatist approach to pooling health insurance risk that could save the country from the wild-eyed liberal schemes that Senator Obama would surely impose, yada yada. I am sure Gov. Romney would have taken tremendous glee in saying something like this over and over: “even Hillary Clinton has embraced the individual mandate that we successfully implemented in Massachusetts; only Senator Obama remains committed to a government takeover of health care that was rejected when Hillarycare was defeated.”

Of course, the ACA (aka Obamacare) with the individual mandate front and center came to not only be called a government takeover, but an assault on liberty and freedom itself. The Supreme Court will have their say in a bit, but it is worth asking what do the flip flops on the individual mandate mean more broadly?

The President did attack the individual mandate during Democratic primary, and it was about the only substantive issue that was different between the President and Sec. Clinton. However, in choosing to support the individual mandate he choose to embrace a practical strategy to pool risk that appeared to have bipartisan support and could therefore be passed. In doing so, the President demonstrated the commitment of progressives and their most closely allied political party to move toward universal coverage, even if it couldn’t be totally achieved in the ACA.

Conservatives, and their most closely allied party, the Republicans, showed that they have no overriding vision for health reform by their widespread flip flop on what had long been the conservative, responsible way to achieve reform. They have many ideas, but they are mostly used to argue against the advances of the other side. In short, they are great on defense, but seem to have no offense. Offense implies having an overall grand vision for health care, and a practical strategy to move toward this vision that includes the willingness to use political capital to achieve large or small victories moving toward an overall goal. The overarching vision for progressives is universal coverage. For conservatives, I have no idea what it is. Do you?

There are two requirements to ever having anything near a balanced budget again: an increase in taxes over historical levels, and some way of slowing health care cost inflation while also dealing with coverage and quality issues. The Democratic party and progressives are not perfect, but they have embraced the first and passed a beginning step toward the second. Without a cogent health reform plan, the Republican party has no plausible route to a sustainable budget. They need a deal on health reform terribly.

Public opinion and health reform

The AcademyHealth Annual Research meeting in Seattle was great. I want to highlight some of the interesting research posters I saw at the conference, focusing on the work of graduate students and trainees. Richard Gonzales is a doctoral student in the interdisciplinary health policy Ph.D. program at Harvard who had an interesting poster applying small area analysis techniques to extrapolate an opinion survey’s national estimate of support for health reform to state-specific estimates of support.

When polling firms conduct surveys to determine public opinion on such topics, they typically obtain a sample that is designed to estimate the views of the nation as a whole. Also of interest are the views of residents of individual states, but conducting state-by-state surveys would be very expensive. A national perspective on a question like support of the ACA is useful, but state estimates could also be useful. The Presidential election, for example, is not determined by a national vote total, but in state-specific elections in which the winner typically gets all the electoral votes from a state. Can national data be used to estimate state-level results?

A challenge is the fact that the sample size in many states is very small (in half the states there were fewer than 10 respondents to the Dec. 2010 Gallup poll shown in the map above).The blue dots show the location of a respondent who was supportive of the ACA, the red ones, someone who was unfavorable, with black dots representing being unsure (total respondents N=1,025). Richard used a regression approach to extrapolate this information to provide a state-level support for health reform. His method is heavy on the statistics (it is a dissertation!), but he describes it this way:

To get around the challenge presented by small sample sizes, the model presented here combines the benefits of incorporating auxiliary demographic information about the states with the hierarchical modeling approach commonly used in small area estimation. The model is designed to “shrink” estimates toward the average level of support in the region when there are few observations available, while simultaneously adjusting for the demographics and political ideology in the state. This approach therefore takes fuller advantage of all information available in the data to estimate state-level public opinion.

He produced average state level estimates of support for the ACA from national estimates using the Gallup poll from Sept. 2009 to March 2010.

These estimates seem plausible to me; support is highest in Washington, DC, New York, Hawaii and Vermont and lowest in Oklahoma, Wyoming, Idaho, West Virginia and Utah. If you want more information about Richard’s work, you can email him at gonzales@fas.harvard.edu.

 

Is a bipartisan deal to cut spending on the rich possible?

Charles Blahous, a Research Fellow with the Hoover Institution, and a public trustee for Social Security and Medicare, argues that cutting spending for the rich is the best route to a bipartisan budget deal. He notes that the likelihood of reaching such a deal before the 2012 election is slim.

The essential problem is that the two major parties are now seeking to distinguish themselves on politically sensitive tax and entitlement policies at precisely the time that bipartisan cooperation on such issues is becoming most necessary. And yet there is a clear path available for the two parties to cooperate to improve the fiscal outlook while still preserving the cores of their respective political messages: namely, by cutting the growth of federal spending on “the rich.”

Democrats are largely stressing distributional issues. They charge Republicans with pursuing “tax cuts for the rich” and with plotting to cut vital spending on the poor. Democrats, at the same time, deny Republican charges that they (Democrats) are indifferent to the exploding growth of federal spending.

Republicans are generally focusing on the size of government. They charge Democrats with supporting runaway spending. They in turn deny Democratic charges that they are insensitive to the vulnerabilities of the poor.

This narrative leaves a sliver of space for the parties to agree to benefit cuts for high income persons in the areas of Social Security, Medicare and agricultural subsidies (the ‘rich’ must of course, be defined). If they cut such a deal, both parties could rightly claim they had held true to their core constituencies and stated goals (Republicans to reduce size of government; Democrats targeting resources to those most in need). Implementing a policy of cutting direct spending to the rich could be done most consequentially by slowing benefit growth to the rich in Social Security, increasing their Medicare Part B premium, and perhaps applying a new means test of some sort for them on Part A. Farm subsidies for the rich could also be ended. A deal along these lines might also help Democrats to avoid large cuts to the Medicaid program, which seems to be a priority for them.

These steps won’t do all of the work needed to address our long term fiscal imbalance, but they would represent a start, whose adoption might increase the chances that the 2012 election was fought out over the harder next steps to come on Medicare, Medicaid, Social Security, Defense and taxes.

h/t Reihan Salam

Why no one seems to change their mind

Jonah Lehrer with an interesting post reviewing social psychology literature that suggests that human’s do not reason in order to decide, but instead to be able to argue with others. He reviews experiments conducted by Amos Tversky and Thomas Gilovich that proved that the ‘hot hand’ does not exist in professional basketball, first using an analysis of the Philly 76ers of the 1980s (they say Andrew Tooney was not statistically speaking, a streaky shooter, which is by the way, obviously false!); they later confirmed the non-streak reality with an analysis of the Boston Celtics. However, no one believed the results of the study; all basketball fans know that players get hot hands, and that some are notoriously streaky.  Lehrer asks:

Why, then, do we believe in the hot hand? Confirmation bias is to blame. Once a player makes two shots in a row – an utterly unremarkable event – we start thinking about the possibility of a streak. Maybe he’s hot? Why isn’t he getting the ball? It’s at this point that our faulty reasoning mechanisms kick in, as we start ignoring the misses and focusing on the makes. In other words, we seek out evidence that confirms our suspicions of streakiness. The end result is that a mental fiction dominates our perception of the game.

The larger question, of course, is why confirmation bias exists. This is the sort of mental mistake that seems ripe for fixing by natural selection, since it always leads to erroneous beliefs and faulty causal theories. We’d be a hell of a lot smarter if we weren’t only drawn to evidence that confirms what we already believe.

Hugo Mercier and Dan Sperber have a new theory of reasoning that holds that the act of reasoning is not about discovery, choosing, figuring it out or deciding. It is only about arguing for what you believe.

Reasoning is generally seen as a mean to improve knowledge and make better decisions. Much evidence, however, shows that reasoning often leads to epistemic distortions and poor decisions. This suggests rethinking the function of reasoning. Our hypothesis is that the function of reasoning is argumentative. It is to devise and evaluate arguments intended to persuade.

Applying the notion that reasoning is only to develop better arguments to advocate for your ‘side’ in health policy/reform discussions is either liberating or profoundly depressing. Not sure which. Maybe both.

update: related Matt Yglesias post on ideology scores, and who is actually available to be a crossover voter and change their mind; h/t to Austin.

An Empirical Analysis of Congressional Gridlock, 1973-2002

by Craig Volden and Alan Wiseman appears in the April, 2011 issue of the Journal of Health Politics, Policy and Law. They ask two related questions:

• Is there evidence of legislative gridlock in Congress?
• Is it worse for health policy, as compared to other types of bills?

In addressing these questions, they lay out a variety of hypotheses that political scientists and others have advanced for why gridlock exists, why it might be worse in the health policy realm, and why gridlock may at times be overcome; none of this will be new to anyone reading this blog. The innovation and value-added from this paper is the empirical work they have done to provide an answer to these questions. In short, they show that most bills introduced do not become law, but that health policy bills are even less likely to become law than are bills that focus on other topics. There were 9,740 health policy related bills introduced into the U.S. House from 1973-2002 (8.2% of the over 119,000 total bills introduced), and they were always less likely to be become law than were bills focused on other areas. The authors take the low passage rate of bills introduced to be evidence of gridlock, and demonstrate clearly that the passage rate is lower for health policy, as compared to other types of bills (see Figure 1 below):

Table 1 shows that the rate of bill passage by topic area ranged from Social Welfare (1.33% pass rate; health policy was the second lowest at 1.58%) to the highest pass rate of 10.4% for bills addressing public lands issues over the period 1973-2002.

 

 

A sub-analysis of bills judged to be more substantive in nature/represent larger reforms by the researchers found a higher passage rate for all such bills, health policy or otherwise.  However, the more substantive health policy bills remained less likely to be passed as compared to bills addressing other topics across the entire period (Figure 2), though there were two Congresses (98th and 102nd) in which that was not true. Toward the end of the time series, it seems as though the rate of passage of the most substantive bills of all types is trending downward, which is evidence of more gridlock as they have defined it (bills not becoming law equals gridlock).

The most interesting aspect of this paper is the large effort they have undertaken to code all of the 119,040 bills introduced into the U.S. House of Representatives from 1973-2002 by type of bill and then further whether the bill was substantively important or more symbolic. The paper argues that many explanations of past health policy legislative failures or successes have relied upon idiosyncratic ‘one off’ explanations that do not take account of the long run of observational data that are available on this question. For example, after the demise of the Clinton Plan in the early 1990s, some offered as an explanation the fact that the proposal was developed primarily in the executive branch and then moved into Congress as the key explanation for its failure. Similarly, as the ACA hung in the balance in early 2010 and seemed like it would not pass, some were saying that President Obama had made a mistake by letting the proposal be first developed in the Congress and therefore had not put his stamp on the bill.  Opposite conclusions, using only 2 examples. Looking at a longer run of empirical data provides better information.

There are other details provided in the paper not highlighted in this post, such as the steady increase of the likelihood of a bill reaching the floor of the House from 1973-1984, and the subsequent decline, and there are detailed regression analyses that test specific hypotheses about what increases the likelihood of legislative success that I will cover in another post. However, the paper provides data that paint a general picture of more policy gridlock in the House of Representatives, both in health policy as well as more generally, with non passage of a bill taken as evidence of failure and therefore gridlock. Of course it is an assumption that non-passage of a bill is evidence of a problem; others might say it is evidence of a triumph.  And most persons would likely say that some bills are better passed, while others are better defeated. In any event, most bills are presumably viewed as good ideas by those who sponsor them, and most sponsors are disappointed with the outcome of the vast majority of bills they introduce. A follow up post will look at what predicts those bills that beat the odds, and what that might mean for the future of health policy legislation.