Infrastructure investment: New investments in roads, transit, ports, and so on have historically been one place where partisans come together. Our stock of public goods needs work that by definition, must come from the public sector. You can be all about shrinking government and “shuttering” agencies and all that stuff, and still recognize that private firms are not going to fix decrepit bridges. In fact, the Highway Trust Fund is patched up only until this May, so there’s an actually binding deadline in this fiscal space.
The president has a smart plan for infrastructure, a $480 billion, six-year transportation proposal paid for with a one-time revenue plug from business tax reform. U.S. firms with overseas operations have $2 trillion stashed offshore to avoid taxation here. As part of a proposal to simplify the way we tax (more accurately, “fail to tax”) foreign earnings, he levies a one-time tax on these “deferrals” at a generous 14 percent rate.
But hold up: this only works if the R’s go for his business tax plan. How likely is that? Not very, but that fact is that both sides want to update the corporate tax and that inevitably means some kind of transitional tax on that huge stock of deferred earnings (Republican Dave Camp had a similar tax in his big tax plan, though that too was quickly rejected).
End of the day, there’s considerable bipartisan interest in this type of investment and I’m confident some of it will be legislated. Instead of “DOA” attacks, partisans should immediately try to figure out how to move forward on infrastructure.
Raise the caps!: Neither side wants to live within the mindless spending caps aka “sequestration.” In fact, partisans compromised a few years ago to partially offset the cuts but that agreement expires next year. Here too, I’m moderately confident that they’ll come up with a way to not get whacked by sequestrations’ full return in 2016.
The president’s budget proposes partial relief from the caps, which, in a construction that helps with the politics, raises spending equally for annually appropriated defense and non-defense programs. As my Center on Budget colleague David Reich points out, that would still leave non-defense spending 11 percent below its 2010 level adjusting for inflation (the comparable figure for defense is 9 percent). If you adjusted for population, as I’d argue you should—there are 13 million more people here than in 2010—the spending gap is even larger.
On the non-defense side, this spending supports job training, Head Start, public health, housing, infrastructure, medical research, and more (e.g., when sequestration was upon the land in 2013, 57,000 kids lost access to Head Start—how does that help America?!). So we’re talking about government functions that are fully consistent with the need for interventions that push back against inequality and immobility.
Once again, the question is how to pay for the proposed increases. The president fully offsets the new spending in ways that R’s are already saying fuggetaboutit, as they involve new revenues from high income households.
This “where’s the money” question clearly bedevils any ideas that might be jointly embraced, so suspend disbelief for a moment and I’ll get back to it at the end.
Expanding the Earned Income Tax Credit to childless adults: Here’s one that both sides explicitly support. The EITC is a pro-work, anti-poverty wage subsidy for low-income workers but adults without kids, including non-custodial parents, get very little from the program—a couple of hundred bucks per year compared to a few thousand for families with kids. Surely, such families need more resources, but a full-time single adult working at the minimum wage gets virtually nothing from the current EITC (about $20 per year). The president’s plan would take that up to $540.
In Sunday’s New York Times, Rep. Paul Ryan, the top Republican House budget writer, said, “I want to focus on steps that are achievable, and that’s among them.”
Again, there’s that persnickety price tag, $60 billion over the next decade, according the new budget.
The Upward Mobility Project: In recent months, policy makers on both sides have recognized that we need to help promote upward economic mobility among those facing steep opportunity barriers. The budget includes a proposal to support pilot programs in 10 areas around the country “…designed to promote opportunity and economic development and reduce poverty to test and validate promising approaches to help families become more self-sufficient, improve children’s outcomes, and revitalize communities so they can provide more opportunities for their residents.”
The plan is to use “evidence-based strategies, track program performance, and evaluate intervention effectiveness” before scaling up. Funding would come from consolidating existing block grants with participating communities eligible for a total $1.5 billion in new funding over five years.
OK, we’re back live in reality, where some of you are saying, “Are you nuts?! Nothing is going to come of any of this and you D.C. wonks really need to find something better to do than fantasize about a Congress that actually agrees on useful stuff.”
Like the old song says, “You may be right. I may be crazy. But it just might be a loooonatic you’re looking for.”
That is, for all the proclamations of DOA, both sides say they want “to govern,” and I would place greater than 50 percent odds that something happens on infrastructure and sequestration. I’d place lower but non-zero odds on the other stuff above.
So what about “payfors?” The admin raises revenue from high income households and large, heavily leveraged banks, and generates $400 billion in savings (over 10 years) through less spending on health care programs, a source of long-term budget pressures.
Would the R’s go for any of that? Surely they’d be able to identify lots of spending (outside of defense) that they’d like to cut but as has been the case for far too long, they’ve stood against any new revenues, and that’s a deal breaker for the White House, which reasonably insists on balance (and the vast majority of deficit reduction we’ve done in recent years has been through spending cuts, not tax increases).
So here’s my suggestion. Moderate R’s who actually mean it when they say they’re against gridlock should take a serious look at a) closing the “stepped-up basis loophole” and b) the president’s corporate tax plan with a generous side of infrastructure.
The first item closes one of the largest loopholes in the tax code, one that lets wealthy households avoid hundreds of billions in capital gains taxes every year. I know, my loophole is your treasured “job creation program.” But when the White House first announced this reform a few weeks ago, I challenged anyone to step up and defend it and I’ve yet to see any takers (no pun intended, Mitt). It’s a legal tax dodge that allows large inheritances to pass tax free from rich people to their heirs. Again, I ask you: how is that good for America?
On the corporate side, everyone says they want to broaden the base and lower the rate. That certainly describes the president’s plan but I’m sure lobbyists will find all kinds of things they don’t like in his details. OK, so negotiate. If you’re serious about business tax reform, and you should be given the mess that our corporate tax code is today, don’t give me that DOA stuff.
In fact, that’s my, and I hope your message as well today. Simply put, it’s “GET TO WORK!”
You may hate with a passion everything in this budget. You may disagree with the few things I pulled out here. OK, we disagree. Fine. But the president has put forth a serious set of ideas that are paid for, a number of which we know Republicans broadly agree with. Now get to work and find some common ground.