Category Archives: Public Policy and Governance

Enforcing The Rule Of Law

Americans spend a lot of time arguing about legislation. For that matter, this blog is predominantly focused on what we call “public policy,” which is essentially a term meaning “laws and regulations.” What tends to get much less attention is an equally important aspect of the rule of law: enforcement.

With the exception of policing–the enforcement of criminal laws–we tend to ignore the behaviors of those who have been authorized to enforce the laws once they’ve been passed. For one thing, it is much harder to ferret out the degree of enforcement. If Congress or a state legislature passes a measure, reporting that fact– or opining about its wisdom– is fairly simple. Figuring out whether the law is being fairly and evenly applied–or applied at all–requires considerably more effort.

Take tax law. Bills to raise or lower taxes receive widespread reporting and discussion. But enforcement–or the lack thereof–is equally important, and gets much less attention. When we are talking about taxes, however, there are two equally effective methods for reducing  tax liability for the mega-rich: lower rates, and inadequate investigation and application of those rates. When staff levels at the IRS are kept too low, when the agency lacks the ability to audit more than a handful of returns, the millionaires and billionaires can be confident that the odds favor the significant success of various tax avoidance ploys.

President Biden has moved to beef up IRS’ staffing, which has been decimated by the former guy’s administration, and six former IRS commissions have applauded that move in a column for The Washington Post.They provide the context.

As former IRS commissioners, we know the challenges of administering the tax system, which has grown in size and complexity, particularly in recent years.

Yet, during the past decade, budget cuts have substantially diminished the IRS workforce. In real terms, the IRS budget is smaller than it was in 2010, and it has 21,000 fewer employees. The IRS has fewer auditors today than at any time since World War II. Moreover, the agency has struggled to keep pace as complicated tax structures, such as partnerships and pass-throughs, have grown in popularity. Workforce attrition has been most pronounced among agents who examine these complicated tax filings: Thirty-five percent fewer revenue agents handle these returns today than a decade ago.

Their essay goes on to remind readers that, despite its reduced workforce, the IRS has seen its responsibilities increase. The agency administers significant provisions of the Affordable Care Act, and during the pandemic, it has been the IRS that has delivered three rounds of federal payments to hundreds of millions of taxpayers. Now, the agency is preparing to deliver periodic payments of the recently-enacted expanded child tax credit.

Thanks to its expanding authority and reduced staffing, the former commissioners report that

There has also been a substantial decline in enforcement scrutiny of high-earners and large corporations with complex returns: Audit rates for millionaires have fallen more than 70 percent since 2011; audits of large corporations decreased from essentially 100 percent a decade ago to less than 50 percent, according to the most recent IRS estimates.

This situation is no fault of the IRS or its committed workforce, who are dedicated to fair implementation of the tax code and the strongest possible support for taxpayers. Provided appropriate resources, the IRS can make good on its commitments.

The former Commissioners agree that the changes and additional resources that President Biden proposes would “produce a great deal of revenue by reducing the enormous gap between taxes legally owed and taxes actually paid — much of it through increased voluntary compliance.”

The Biden proposal includes provisions on third-party reporting, leveraging information from financial services providers to learn basic information about account inflows and outflows. This information could assist taxpayers in filing accurate returns and help the IRS better focus collection efforts. Research shows that when the IRS has access to third-party reporting, compliance rates top 95 percent. Without third-party information reporting, compliance rates are below 50 percent. Reliable information is critical to an effective and fair tax system.

The statistics cited in the essay demonstrate the importance of effective enforcement. It isn’t simply tax rates that favor the rich–lax enforcement costs an enormous amount that the rest of us must make up. Estimates are that uncollected taxes from those sources are equal to the total taxes paid by the lower 90 percent of individual taxpayers.

It is long past time to give the IRS the resources it needs to ensure that corporations and billionaires pay their taxes. If enforcement is fair across the board, the rest of us will feel a lot better about paying ours.

 

Is Resistance Futile?

In the wake of the 2016 Presidential election, we saw a battle among figures in what the late Molly Ivins called “the chattering classes” over the nature of Trump’s support. Nice people who want to think well of their fellow Americans identified economic insecurity, while not-so-nice others (including me) attributed the bulk of Trump votes to racism.

The ensuing research validated the racism connection, but of course, neither interpretation explained all votes or described all motives. It turned out that most Trump voters were not economically insecure, and researchers confirmed that “racial resentment” was the most robust predictor of Trump support, but there was one group for which economic insecurity was a motivating factor–prior Obama voters who switched to Trump. And the source of that insecurity was the steady increase in automation and AI–artificial intelligence.

Thomas Edsall reports on a recent study of –as he puts it–an “era in which vast swaths of the population are potentially vulnerable to the threat — or promise — of a Fourth Industrial Revolution.”

This revolution is driven by unprecedented levels of technological innovation as artificial intelligence joins forces with automation and takes aim not only at employment in what remains of the nation’s manufacturing heartland, but increasingly at the white collar, managerial and professional occupational structure.

The technological innovations we’ve experienced have ushered in an economy that rewards college-educated workers and disadvantages others, contributing to economic inequality. The scholars Edsall quotes predict that these advances in technology are likely to create additional social upheaval as they steadily affect the future of jobs.

Researchers find that exposure to automation correlates with support for Trump.

The strong association of 2016 Electoral College outcomes and state automation exposure very much suggests that the spread of workplace automation and associated worker anxiety about the future may have played some role in the Trump backlash and Republican appeals.

The study Edsall cites found that so-called “heartland states” like Indiana and Kentucky, both of which have heavy manufacturing histories and low educational attainment,

contain not only the nation’s highest employment-weighted automation risks, but also registered some of the widest Trump victory margins. By contrast, all but one of the states with the least exposure to automation, and possessing the highest levels of educational attainment, voted for Hillary Clinton.

That gets us back to the relationship between populism and automation. Edsall quotes an economist at  Harvard’s Kennedy School, who studied those Obama-to-Trump voters.

Switchers to Trump are different both from Trump voters and from other Obama voters in identifiable respects related to social identity and views on the economy in particular. They differ from regular Trump voters in that they exhibit greater economic insecurity, do not associate themselves with an upper social class and they look favorably on financial regulation. They differ from others who voted for Obama in 2012 in that they exhibit greater racial hostility, more economic insecurity and more negative attitudes toward trade agreements and immigration.

In my last book, I addressed the threat automation poses to millions of jobs, and cautioned that humans tend to get meaning and purpose from employment. Edsall quotes from a 2017 paper in which economists Anton Korinek and Joseph E. Stiglitz  went further, warning that artificial intelligence has the potential to create a high-tech dystopian future.

Without extraordinary interventions, Korinek and Stiglitz foresee two scenarios: both of which could have disastrous consequences:

In the first, “man and machine will merge, i.e., that humans will ‘enhance’ themselves with ever more advanced technology so that their physical and mental capabilities are increasingly determined by the state of the art in technology and A.I. rather than by traditional human biology.”

Unchecked, this “will lead to massive increases in human inequality,” they write, because intelligence is not distributed equally among humans and “if intelligence becomes a matter of ability‐to‐pay, it is conceivable that the wealthiest (enhanced) humans will become orders of magnitude more productive — ’more intelligent’ — than the unenhanced, leaving the majority of the population further and further behind.”

In the second scenario, “artificially intelligent entities will develop separately from humans, with their own objectives and behavior, aided by the intelligent machines.”

Unlike the Borg, Korinek and Stiglitz do not conclude that resistance to these possible consequences is futile. Instead, they advocate for government intervention and redistribution to counter the threats, leading Edsall to conclude with “the” question:

If fully enacted, could Biden’s $6 trillion-plus package of stimulus, infrastructure and social expenditure represent a preliminary step toward providing the social insurance and redistribution necessary to protect American workers from the threat of technological innovation? Can spending on this scale curb the resentment or heal the anguish over wrenching dislocations of race, culture and class?

I guess we’ll see.

 

 

 

 

The Great Compression

In a recent newsletter, Paul Krugman referenced a 1991 economics paper in glowing terms. He said that he’s read many economics papers during his career, but very few that changed the way he sees the world.

This one, evidently, did.

Krugman began his discussion by reminiscing; as a Baby Boomer, he’d grown up at a time when extremes of wealth and poverty were far less pronounced than they are these days–a time when middle managers and better-paid blue-collar workers were more or less  financial equals. It was a time, as he reminds us, when  C.E.O.s of major companies were paid “around 20 times as much as the average worker, compared with more than 200 to 1 today.”

Although female and Black workers certainly weren’t equal, the extremes of wealth we see today–the enormous gap between the rich and the rest– were inconceivable, and the middle class was substantial. (I still remember a long-ago political science class that attributed national stability to the existence of a sizable middle-class, among other things.)

And we took it for granted. A more or less middle-class society, almost everyone assumed, was the state toward which an advanced economy naturally evolved.

Not so much, we learned as the boomers turned middle-aged. The future of inequality wasn’t what we expected it to be; America today has more or less returned to Gilded Age disparities in income and wealth.

The question, of course, is “why did this happen? Why isn’t the future of inequality what we expected?

The paper he was praising–“The Great Compression”– was written by Claudia Goldin and Robert Margo, and it showed that,  as Krugman put it,  America had gone to bed in 1939 in the Gilded Age and woke up in 1945 as the middle-class nation of his childhood, where wages were–as the paper labeled them–“compressed.”

Some of the reasons for that compression of wages are obvious:  World War II required a controlled economy. Wage increases were regulated– and the rules tended to be more generous to less well-paid workers. But those rules, and the economic controls, were lifted after the war.

Why didn’t things spring back to where they had been before once wage and price controls had been lifted?

One answer, as Krugman demonstrates, was the emergence of unions.

A strong union movement, it seems, was able to lock in the new wage norms created by the war for several decades after the war was over. And the rise of unions was clearly linked to politics: first the New Deal, then the war, created favorable environments for union organizing.

Another important element was public policy. Policy, as Krugman and many other economists can attest, can shape a fairer, flatter, more inclusive economy.

What does this tell us about the future of inequality? On one side, it’s encouraging: high inequality isn’t something unavoidable, the necessary consequence of implacable technological forces: political action can create a much less unequal society. On the other side, both the politics of the New Deal and, even more so, the policy environment of World War II, were pretty unique. Progressives are, in general, delighted with how activist the Biden administration is proving; but despite Republican cries of “socialism,” its actions are far more modest than what happened in the ’30s and ’40s.

The big question is how much of the Great Compression we can achieve through less dramatic policies, in a political environment where spending one percent of G.D.P. on infrastructure seems radical. No, I don’t know the answer.

Our ability to fashion public policies that reinvigorate and regrow that all-important, stabilizing middle class depends significantly on a widespread recognition of the economic reality that everyone does better when everyone does better.

Even the most creative entrepreneur cannot innovate and profit in the absence of a supportive physical and social infrastructure and enough people with the wherewithal to pay for his product.

Shame On Indiana–Again

During this year’s session of the Indiana General Assembly, environmental organizations followed–and lobbied against–an effort to roll back Indiana’s already inadequate regulations of the state’s wetlands. As usual, when there is a conflict between science and profit, profit won.

After the bill emerged from the legislative process, 110 organizations and individuals wrote a letter to Governor Eric Holcomb, “respectfully requesting” that he veto it. Governor Holcomb has proved to be far more rational than Republican members of the state legislature–more in the mold of Republicans of days-gone-by– and he had even allowed members of his administration to testify against the bill as it proceeded through the House and Senate, so there was some reason for optimism.

That optimism was dashed. Holcomb is defending his decision to sign the measure by saying that, in its amended form, the bill was less objectionable. Environmental scientists beg to differ, asserting that it ‘puts wellbeing of millions of Hoosiers at risk, now and well into the future.”

Indiana’s existing wetlands law was written in 2003, and it was admittedly due for review and revision now that the state had several years of experience with it. But experts say that rather than improving and fine-tuning the existing law, the changes made by this particular legislation will do “substantial harm to Indiana’s water future.”

According to the environmentalists and other concerned citizens who petitioned Holcomb, the legislation he has now signed puts  the vast majority of Indiana’s wetlands–and there are at least 500,000 that are under state rather than federal jurisdiction– in jeopardy. Indiana already ranks fourth among the states with the greatest loss of wetlands . The likely negative results of this measure will be increased flooding and erosion, loss of groundwater recharge and water supplies, water purification, safe recreation and tourism opportunities, and loss of the diverse wildlife that (according to the letter) “makes Indiana special.”

I am sorely tempted to offer some snark about what I think “makes Indiana special,” but I’ll restrain myself. Let’s just say it is neither respect for expertise or appreciation of nature’s bounties…

The signatories to the letter appended background information detailing the function of wetlands, and offering policy alternatives. They should have saved their pixels.

The letter was signed by a diverse number of organizations, as well as by science professors in relevant fields, and–notably–by several Indiana cities and mayors, and by religious organizations. (The latter evidently take seriously the biblical admonition to be “stewards” of the Earth.)

The letter, the list of signatories, and the science-heavy addendum are widely available online, and the addendum, especially, details the science bolstering the very serious concerns expressed. Our legislators, however, have a history of ignoring science (if you doubt that, take a look at the number of medically-inaccurate assertions they’ve included in their various attacks on reproductive choice) and they have routinely privileged the short term economic interests of their supporters over the long term best interests of Indiana citizens. 

In this case, according to those who followed the bill, the legislative priority was protection of land developers who might find themselves unable to pave over or otherwise wrest profit from every inch of property they own, even under Indiana’s relatively weak regulations.  

Oh, Indiana….will Hoosiers ever grow up?






 

 

The “Do Nothing” Senate

The 80th United States Congress met during the third and fourth years of Harry Truman’s presidency, from 1947-49. Republicans had a majority in both chambers. Truman famously nicknamed it the “Do Nothing Congress” and, during the 1948 election, campaigned as much against that “do nothing” body as he did against Dewey–and the strategy worked. Truman won, and the GOP lost nine seats in the Senate and 73 seats in the House.

Ironically, next to the sorry lot “serving” in today’s Senate, the 80th actually looks pretty good. It passed a  total of 906 bills, including the Marshall Plan and the Taft–Hartley Act. It had, however, opposed most of Truman’s Fair Deal bills, and he was able to turn that opposition into electoral victory.

Fast forward to 2021. As a newsletter from the New York Times noted,

When Republicans controlled the White House and Congress in 2017 and 2018, the only major legislation they passed was a tax cut, and the only other big bill that came close was a repeal of Obamacare, without a replacement.

When Donald Trump ran for re-election, the party did not write a campaign platform.
During Barack Obama’s presidency, and now Biden’s, Republicans have almost uniformly opposed significant legislation, be it on health care, climate change, Wall Street regulation or economic stimulus.

As President Biden has pointed out, his proposed legislation has broad bipartisan support–among voters. It’s only among members of our genuinely “do nothing” Congress that it has encountered intransigent opposition.

Admittedly, the GOP is far from a “do nothing” party at the state and local level–and what the party is doing there makes it more accurately the “do nothing good” party. State-level GOP lawmakers have engaged in multiple, unprecedented attacks on the right to vote, filing more than 360 bills to restrict voting–everything from proposals to make mail-in voting harder, to  turning minor voting errors into criminal offenses. According to one report, Michigan is even trying to stop the state’s top election official from providing a link to an absentee ballot application on a state government website.

If the United States was experiencing a period of widespread prosperity and tranquillity, a pause in legislative activity might be justifiable. There is no virtue in passing laws simply to look busy. But that is hardly the case. Substantial majorities of Americans–in both parties–identify pressing issues. Their priorities may differ, and they are proposing very different “fixes” for the issues they agree upon, but virtually all Americans believe that Congress needs to negotiate in good faith, compromise where possible, and act.

The reason for GOP intransigence is simple: for several years, Republicans in Congress have elevated party over nation. A Politico article from 2016 included a quote by former GOP Senator Voinovich that has been widely reported.It pretty much tells the tale.

Starting in 2009, the Republicans in Congress adopted a simple, coherent strategy of resisting anything Obama proposed. “If he was for it,” said former Ohio Senator George Voinovich, “we had to be against it.” No Republican senators and no House Republicans voted for the Affordable Care Act. After 2012, with healthy majorities, Republicans voted to repeal the law dozens of times, with no hope that such moves would have any effect other than to register opposition. The near debt default in 2011 to the Ted Cruz-led shutdown in 2013 to the current refusal to hold hearings for the Supreme Court seat vacated by Antonin Scalia’s death have continued that trend.

Today’s GOP is so radicalized, and its voters so misinformed (polls find that some two-thirds of self-identified Republicans think Trump won the election, despite a total lack of any credible evidence) that a Biden campaign modeled after Truman’s probably wouldn’t resonate. But it might be worth a try.

History–assuming America gets to have a history–will not be kind to the venal and self-interested poseurs occupying the halls of Congress. As Jennifer Rubin recently wrote in the Washington Post,

The Republican Party is descending into know-nothingism and nativism because of the silence of Republicans who know better. House Minority Leader Kevin McCarthy (R-Calif.) knows that November’s election was not fraudulent and that the disgraced former president incited the Jan. 6 insurrection. McCarthy is simply too cowardly to say so. Sen. Ted Cruz (R-Tex.) knows this, too; he just is too craven and ambitious to admit it. Instead of working on the country’s problems, he spends his time lashing out at Major League Baseball for opposing voter restrictions.

These pathetic excuses for public servants make the members of Truman’s “do nothing” Congress look like towering statesmen by comparison.