What Happened in 2013? Two Clarifications Among Current Debates

Jan 16, 2015Mike Konczal

Is it useful to clarify data and claims in the economics blogosphere? Probably not, but I’ll give it a shot, as there’s two sets of arguments that could use more light rather than heat.

What Happened in 2013? Sumner and Wren-Lewis

Scott Sumner wrote this about Simon Wren-Lewis:

“Simon Wren-Lewis also gets the GDP growth data wrong, in a way that makes austerity look worse. He claims that RGDP growth was 2.3% in 2012 and 2.2% in 2013 (the year of austerity in the US.) But that’s annual y-o-y data, and since the austerity began on January 1st 2013, you need Q4 over Q4 data. In fact, RGDP growth in 2012, Q4 over Q4, was only 1.67%, whereas growth in the austerity year of 2013 nearly doubled to 3.13%.”

There’s no getting it wrong here: there’s simply two methods. Is it better to take the average annual rates and compare them (as Wren-Lewis does) or is it better to look at strict endpoints (as Sumner does)? An important thing about looking at Q4 vs Q4 data, as Sumner does, is to make sure that you haven’t accidentally set up your endpoints to amplify a trend that isn’t there. That technique is very sensitive to where you put the endpoints.

And sure enough, the quarters before and after that range featured negative or near zero growth. What if you redo this moving the quarters back and forth one period? Well, Q1 over Q1 2014 data drops to 1.9%, while Q3 over Q3 2012 rises to 2.7% (Q1 over Q1 2012 was 2.1%). It’s not encouraging if your argument falls apart because you move the data one step. We can graph out the Q over Q data for every quarter in fact; note Sumner is points to a single quarter that obviously sticks out. There’s a reason people might want to average the data in these situations, as Lewis does.

Simon-Wren Lewis, whose blog I really enjoy, already pointed out austerity didn’t start on January 1st, 2013, of course. And it didn’t; note the more consistent growth in the graphic in late 2010. But even better, the fourth quarter of 2012 featured a massive decline in military spending. According to Alan Krueger for the White House, “A likely explanation for the sharp decline in Federal defense spending is uncertainty concerning the automatic spending cuts that were scheduled to take effect in January.” That’s an additional problem for setting up this issue this way.

What Did People Say Would Happen? Jeffrey Sachs

Jeffrey Sachs argues that people worried about additional austerity in 2013 were saying that it would cause another recession. Sachs: “Indeed, deficit cuts [especially in 2013] would court a reprise of 1937, when Franklin D. Roosevelt prematurely reduced the New Deal stimulus and thereby threw the United States back into recession.”

I paid a lot of attention to these debates, and saw three estimates of the impact of 2013 austerity on the recovery: Mark Zandi at Moody’s Economy, EPI, and the CBO. All three were close to each other in their estimates. None predicted that we'd go back into recession or have no growth.

What were they predicting? Zandi put it clearly: “Altogether, lower federal government spending and higher taxes are expected to reduce 2013 real GDP growth...With such a heavy fiscal weight on the economy, it is hard to see how growth could accelerate, at least in the first half of 2013.”

That’s consistent with what we’ve seen. A drag, preventing accelerate growth and delaying a takeoff in 2013 and into 2014. I don’t see how Sachs can obviously claim that these numbers aren’t consistent with the idea that the government has been a net drag since 2011, or point to a pickup in late 2014 as obviously disproving anything. Maybe on closer, empirical grounds you could (though the empirical literature is finding multiplers), but not at this high level.

In my original question about the Federal Reserve versus austerity in 2013, which seems to animate a lot of these debates, the issue I put forward was whether the Federal Reserve could hit the inflation target it announced with the Evans Rule shifting expectations and open-ended purchases to back that up, while government spending was a drag. It did not.

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Is it useful to clarify data and claims in the economics blogosphere? Probably not, but I’ll give it a shot, as there’s two sets of arguments that could use more light rather than heat.

What Happened in 2013? Sumner and Wren-Lewis

Scott Sumner wrote this about Simon Wren-Lewis:

“Simon Wren-Lewis also gets the GDP growth data wrong, in a way that makes austerity look worse. He claims that RGDP growth was 2.3% in 2012 and 2.2% in 2013 (the year of austerity in the US.) But that’s annual y-o-y data, and since the austerity began on January 1st 2013, you need Q4 over Q4 data. In fact, RGDP growth in 2012, Q4 over Q4, was only 1.67%, whereas growth in the austerity year of 2013 nearly doubled to 3.13%.”

There’s no getting it wrong here: there’s simply two methods. Is it better to take the average annual rates and compare them (as Wren-Lewis does) or is it better to look at strict endpoints (as Sumner does)? An important thing about looking at Q4 vs Q4 data, as Sumner does, is to make sure that you haven’t accidentally set up your endpoints to amplify a trend that isn’t there. That technique is very sensitive to where you put the endpoints.

And sure enough, the quarters before and after that range featured negative or near zero growth. What if you redo this moving the quarters back and forth one period? Well, Q1 over Q1 2014 data drops to 1.9%, while Q3 over Q3 2012 rises to 2.7% (Q1 over Q1 2012 was 2.1%). It’s not encouraging if your argument falls apart because you move the data one step. We can graph out the Q over Q data for every quarter in fact; note Sumner is points to a single quarter that obviously sticks out. There’s a reason people might want to average the data in these situations, as Lewis does.

Simon-Wren Lewis, whose blog I really enjoy, already pointed out austerity didn’t start on January 1st, 2013, of course. And it didn’t; note the more consistent growth in the graphic in late 2010. But even better, the fourth quarter of 2012 featured a massive decline in military spending. According to Alan Krueger for the White House, “A likely explanation for the sharp decline in Federal defense spending is uncertainty concerning the automatic spending cuts that were scheduled to take effect in January.” That’s an additional problem for setting up this issue this way.

What Did People Say Would Happen? Jeffrey Sachs

Jeffrey Sachs argues that people worried about additional austerity in 2013 were saying that it would cause another recession. Sachs: “Indeed, deficit cuts [especially in 2013] would court a reprise of 1937, when Franklin D. Roosevelt prematurely reduced the New Deal stimulus and thereby threw the United States back into recession.”

I paid a lot of attention to these debates, and saw three estimates of the impact of 2013 austerity on the recovery: Mark Zandi at Moody’s Economy, EPI, and the CBO. All three were close to each other in their estimates. None predicted that we'd go back into recession or have no growth.

What were they predicting? Zandi put it clearly: “Altogether, lower federal government spending and higher taxes are expected to reduce 2013 real GDP growth...With such a heavy fiscal weight on the economy, it is hard to see how growth could accelerate, at least in the first half of 2013.”

That’s consistent with what we’ve seen. A drag, preventing accelerate growth and delaying a takeoff in 2013 and into 2014. I don’t see how Sachs can obviously claim that these numbers aren’t consistent with the idea that the government has been a net drag since 2011, or point to a pickup in late 2014 as obviously disproving anything. Maybe on closer, empirical grounds you could (though the empirical literature is finding multiplers), but not at this high level.

In my original question about the Federal Reserve versus austerity in 2013, which seems to animate a lot of these debates, the issue I put forward was whether the Federal Reserve could hit the inflation target it announced with the Evans Rule shifting expectations and open-ended purchases to back that up, while government spending was a drag. It did not.

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For Now, Excitement of Free Community College Program Raises Lots of Questions

Jan 16, 2015David Bevevino

The initially available information about the president's free community college proposal leaves questions about implementation and additional costs unanswered. This piece expands on an earlier piece published at EAB.

The initially available information about the president's free community college proposal leaves questions about implementation and additional costs unanswered. This piece expands on an earlier piece published at EAB.

The President’s proposal to make the first two years of community college free for students “who are willing to work for it” has generated tremendous buzz in the higher education community over the past several days. For a sector of higher education that has experienced significant funding cuts as well as recent enrollment declines, this politically unlikely plan has led to excitement as well as some criticism.

Anyone interested in the particulars of the plan can review the White House Fact Sheet here. The quick take on the details reveals that students, institutions, states, and the federal government will all have skin in the game:

  • Students must attend community college at least half-time
  • Students must maintain a 2.5 GPA and demonstrate that they are making progress toward a credential
  • Institutions will be incentivized to offer programs that transfer to four-year institutions or job-training programs with proven career outcomes
  • Institutions must implement proven practices that increase student retention and completion, such as the City University of New York’s Accelerated Study in Associates Program
  • The Federal government will cover 75 percent of the average community college tuition while requiring states to cover the remaining 25 percent
  • Early analysis indicates that students could use Pell Grants and other sources of aid to pay for non-tuition costs
  • The White House has estimated the program will cost $60 billion over 10 years.

Different Populations, Different Benefits

Proponents of the president’s plan and the Tennessee Promise initiative it is based on tout expanded access and opportunity for all students. However, critics focused on low-income student issues, such as the Institute for College Access and Success explain that the financial benefits of “free” community college primarily reach middle and upper income students. Low-income students pay little to no tuition already as the Pell Grant more than covers the average community college sticker price. This differential financial benefit is one of the primary criticisms of “last dollar” programs like the Tennessee Promise which only covers tuition expenses. The Obama administration’s proposal seems to have responded to these concerns by covering tuition first and allowing students to use additional funding for non-tuition expenses such as books and commuting costs.

Despite concerns about misaligned financial benefits, low-income students benefit in another way: a clear, simple path to higher education. In the first year of the Tennessee Promise, nearly ninety percent of the 2013 graduating high school population signed up for the program, a remarkable participation rate. Many of these students would have gone straight into the workforce if the Tennessee Promise had not made them believe they could afford college.

Navigating the College Labyrinth

A major challenge for community college leaders will be how to support these newcomers to higher education. Though many organizations have focused on the need for academic assistance, our research at EAB indicates that nonacademic factors such as financial distress and the lack of a college support network drive attrition, especially among first-generation, low-income, and working students. Our study, “Turning High School Partnerships into College Enrollments,” has explored how innovative community colleges have delivered student services in high schools and how they leverage community resources such as parents and mentors to build college navigation skills.

As the proposal requires a 2.5 GPA (higher than the 2.0 required in Tennessee), a minimum of half-time status, and steady progress to degree, questions remain about how colleges can ensure low-income, first-generation, and other at-risk students receive the greatest benefit from the program. Major questions include:

  • How can community colleges provide personalized guidance to their students in an era of fewer resources and staff?
  • What strategies encourage students to navigate the college environment on their own to increase limited staff capacity to assist students with more complex needs?
  • Which successful practices can be transferred across community college campuses?
  • How should community colleges reallocate resources and staff to the most impactful student services strategies?
  • How can colleges connect students with the most relevant services before student challenges become overwhelming?

Uncertain Financial Impact on Colleges

The President’s proposal also raises questions about the financial impact on colleges and students. These include:

  • Will this new initiative be a boon to community college bottom lines? How will it affect the current trend of state disinvestment in community colleges?
  • How will the proposal affect the way states and local districts set tuition and fees, as well as estimate the per student cost of education?
  • How will institutions be measured on graduation rates, career outcomes, and institutional reform implementation under the proposals requirements?
  • If more low-income, first-generation, and part-time students enroll, will the program acknowledge the completion challenges these populations carry and not penalize colleges trying to support them?

If the proposal increases enrollments, colleges will most likely see revenue bumps. Many college leaders would welcome enrollment increases after several years of declines. However, significant upticks in student numbers may put pressure on student support capacity and physical plants at community colleges. States and local districts may be caught funding the new capital or staff investments needed to meet student demand. If they cannot meet the requirements for student support or career outcomes, community colleges may come under additional scrutiny.

Despite Political Challenges, an Exciting Day for Community Colleges

Most commentators agree that the President’s plan has little chance of passing Congress. However, the idea may spread among the states and encourage new investment in higher education after years of shrinking state and local appropriations. Though major questions about supporting students and meeting financial challenges remain, the ambitious proposal has brought much needed attention and hope to community colleges across the nation.

David Bevevino was the Vice President of the University of North Carolina at Chapel Hill chapter of the Roosevelt Institute | Campus Network in 2009. He now serves as a Research Consultant with the EAB Community College Executive Forum, a best practice research program serving community college presidents and their leadership teams.

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Daily Digest - January 16: Internet Access is the Next Tennessee Valley Authority

Jan 16, 2015Rachel Goldfarb

There will be no new Daily Digest on Monday, January 19 in observance of Martin Luther King, Jr. Day. The Daily Digest will return on Tuesday, January 20.

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Barack Obama: The FDR of Internet Access? (Moyers & Company)

There will be no new Daily Digest on Monday, January 19 in observance of Martin Luther King, Jr. Day. The Daily Digest will return on Tuesday, January 20.

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Barack Obama: The FDR of Internet Access? (Moyers & Company)

Roosevelt Institute Fellow Susan Crawford compares the president's recent push for fiber-optic Internet access to FDR's work on electricity during the New Deal.

Obama Tells Agencies to Advance Sick Leave For Feds’ New Children (WaPo)

Joe Davidson reports that the sick leave would be paired with paid administrative leave, so that federal employees with a new child could have parental leave as well as sick time to follow.

Trying to Solve the Great Wage Slowdown (NYT)

David Leonhardt looks at a new report that considers what could get wages rising again. It focuses in particular on Canada and Australia, countries similar to the U.S. that have seen wage growth.

How Elizabeth Warren Is Yanking Hillary Clinton to the Left (TIME)

Rana Foroohar says that Senator Warren is already shifting the conversation on economics, citing a new report on wages and the middle class from relatively centrist Larry Summers as proof.

Home Care Workers Denied the Right to Make Minimum Wage and Overtime (ThinkProgress)

Bryce Covert reports on a ruling that has overturned a 2013 Department of Labor rule change on the "companionship exception," which allows home care workers to be paid sub-minimum wages.

New on Next New Deal

A Battle Map for the Republican War Against Dodd-Frank

Roosevelt Institute Fellow Mike Konczal looks at the three fronts in this surprisingly sophisticated GOP war: guerilla deregulation, administrative siege, and reactionary rhetoric.

The Van Hollen Plan Takes on Soaring CEO Pay: A Debate We Need to Have

Roosevelt Institute Fellow Susan Holmberg points out that Rep. Van Hollen's plan has great political messaging around CEO pay, though it doesn't fully close the performance pay loophole.

For Now, Excitement of Free Community College Program Raises Lots of Questions

David Bevevino, a Campus Network alumnus who now researches community college best practices, poses questions about how schools will implement this program, and what extraneous costs it might have.

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The Van Hollen Plan Takes on Soaring CEO Pay: A Debate We Need to Have

Jan 15, 2015Susan Holmberg

Taxpayers are subsidizing ever-larger executive pay packages while their own wages stagnate. For the middle class to prosper, that needs to change.

Taxpayers are subsidizing ever-larger executive pay packages while their own wages stagnate. For the middle class to prosper, that needs to change.

The intrepid economic proposals in Rep. Chris Van Hollen’s action plan “to grow the paychecks of all, not just the wealth of a few” may not win over a Republican Congress, but they will reinforce the progressive economic messaging championed by Senator Elizabeth Warren and conceivably embolden more Democrats to finally take command of our economic debate in advance of the 2016 presidential election. Though Van Hollen’s tax credits for working families and dilution of tax breaks for the rich have grabbed the most headlines, another controversial but important piece of his plan is the CEO-Employee Paycheck Fairness Act, which aims to address one of the key contributing factors to soaring inequality and economic volatility in the U.S.

The CEO-Employee Paycheck Fairness Act stops corporations from claiming tax deductions for “performance pay” for executives – e.g. stock options and stock grants – “unless their workers are getting paycheck increases that reflect increases in worker productivity and the cost of living.”

The logic of this law is simple. Since 1979, productivity growth in the U.S. has risen eight times faster than the typical worker’s pay. At the same time, corporations have enjoyed a tax deduction for CEO pay levels (and compensation for other top executives) that are now 296 times median worker pay. Van Hollen’s proposal says that corporations can no longer continue to take these unlimited tax deductions for CEO and executive pay unless they are also giving their employees a raise that reflects worker productivity as well as cost of living increases. Specifically, to enjoy the tax benefit, corporations must raise the average pay of their workers earning below $115,000 by the U.S.’s average annual net productivity growth since 2000, which is about 2 percent, plus the annual inflation rate.

Most of us think of skyrocketing CEO pay as an ethical problem, not an economic one. But in fact, the problems that come with skyrocketing CEO pay – in 2013, the average CEO at S&P 500 Index companies was worth $11.7 million – are well beyond the issue of basic fairness. Exorbitant CEO pay comes with enormous economic costs to all of us.

Many of the problems stem from the tax deduction Van Hollen is referring to, the notorious “performance pay” loophole created by Section 162(m) of the U.S. tax code. Section 162(m) prohibits corporate tax deductions for executive pay over $1 million unless that pay is rewarded for meeting performance goals. This was supposed to curb skyrocketing executive pay, but after it became law in the 1990s, the predictable happened: companies started dispensing more compensation that qualified as performance pay, particularly stock options. Median executive compensation levels for S&P 500 Industrial companies almost tripled from less than $2 million in 1992 to more than $5 million six years later, mainly driven by a dramatic growth in stock options, which doubled in frequency. For more background on this issue, I recommend my primer, “Understanding the CEO Pay Debate.”

Because it makes executives very wealthy, very quickly, performance pay is not only a major driver of the U.S. inequality problem, which in itself wreaks havoc on our economy, but also encourages shortsighted, excessively high-risk, and occasionally fraudulent decisions in order to boost stock prices. What kind of effect does this behavior have on the economy at large? Many economists argue that executive compensation policies in the financial industry led to the global economic crisis. Performance pay also diminishes long-term business investments. According to economist William Lazonick, in order to issue stock options to top executives while avoiding the dilution of their stock, corporations often divert funds to stock buybacks rather than spending on research and development, capital investment, increased wages, and new hiring. And the rest of us are footing the bill: the Economic Policy Institute calculated that taxpayers have subsidized $30 billion to corporations through the performance pay loophole between 2007 and 2010. Let me rephrase that: in a three-year period, taxpayers have subsidized $30 billion for executive pay, all while seeing their own wages stagnate.

Van Hollen’s proposal to make performance pay contingent on workers’ pay is good political messaging that draws attention to the ways in which executive pay practices impact middle class wages. And if we think about it in light of Lazonick’s story about stock buybacks, it’s clear how Van Hollen’s plan could have a positive impact: either corporations would not pay their workers more, which would preclude them from using a loophole that has shaped their executive compensation strategy for the last two decades and been a core driver of the rise in CEO pay, or they would have to spend money to raise wages that would have otherwise been spent on stock buybacks, which could reduce the amount of performance pay issued. In other words, the condition on which corporations could use the performance pay loophole might force them to use it less.

But there is also a potential drawback to Van Hollen’s CEO pay proposal. Because it doesn’t fully close the problematic loophole, but instead adds another condition, it may create further complexity in a corporate tax scenario that is already hyper-complicated and thus open to manipulation by corporate accountants. A more straightforward approach can be found in the Reed-Blumenthal and Doggett bills that would close the performance pay loophole entirely and cap the tax deductibility of executive pay at $1 million.

Another idea that would match the boldness of the financial transactions tax in Van Hollen’s action plan is to peg corporate tax rates to the ratio of CEO pay to worker pay. Last year, California state Senators Mark DeSaulnier and Loni Hancock introduced SB 1372, which raised the tax rate on companies that pay their CEO 100 times more than the median worker. According to the senators, “A CEO would have to make 300 to 400 times more than the median worker for a company to see a 3% increase in the corporate tax rate.” Companies with ratios less than 100 would see their tax rates decrease. DeSaulnier and Hancock’s bill got a majority of votes in the state senate, but did not move to the other chamber because, in California, a tax bill requires a two-thirds vote to advance. Nevertheless, the idea of holding corporations accountable for the relative amounts they pay their executives and their workers has been circulating in the U.S. Dodd-Frank already includes a requirement that companies disclose this pay ratio, though the SEC has been slow to put it into effect.

Van Hollen’s action plan is an exciting set of ideas for moving the country toward a more prosperous future. Ultimately, we need policy that erases the performance pay loophole entirely, but the CEO-Employee Paycheck Fairness is important in terms of drawing attention to executive pay practices and the way they affect working families and middle class wage earners, the engines of our economy. It’s time to have the debate about how we can effectively curb soaring CEO pay while building a broad middle class.

Susan Holmberg is a Fellow and Director of Research at the Roosevelt Institute.

Image via Shutterstock

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A Battle Map for the Republican War Against Dodd-Frank

Jan 15, 2015Mike Konczal

The Republicans have declared war against Dodd-Frank. But what kind of war is it, and on what fronts are they waging this war? I think there are at least three campaigns, each with its own strategic goals and tactics. Distinguishing these campaigns from each other will help us understand what Republicans are trying to do and how to keep them in check.

First, to understand the Republican campaigns, it’s useful go over what Dodd-Frank does. Dodd-Frank can be analogized to the way we regulate driving. First, there are simple rules of the road, like speed limits and stop signs, designed as outright prevention against accidents. Then there are efforts to help with stabilization if the driver gets in trouble, such as anti-lock brakes or road design. And then there are regulations for the resolution of accidents that do occur, like seat belts and airbags, designed to avoids worst-case scenarios.

These three goals map onto Dodd-Frank pretty well. Dodd-Frank also puts rules upfront to prevent certain actions, requires additional regulations to create stability within large financial firms, and lays out plans to allow for a successful resolution of a firm once it fails. Let’s graph that out:

Prevention: Dodd-Frank created a Consumer Financial Protection Bureau (CFPB), reforming consumer protection from being an “orphan mission” spread across 11 agencies by establishing one dedicated agency for it. The act also requires that derivatives trade with clearinghouses and through exchanges or else face additional capital requirements, which brought price transparency and additional capital to the market that brought down AIG. Another piece is the Volcker Rule, which separates the proprietary trading that can cause rapid losses from our commercial banking and payment systems.

Stabilization: Dodd-Frank also provides for the expansion of capital requirements across the financial sector, including higher requirements for the biggest firms relative to smaller ones, as well as higher requirements for those who use short-term funding in the “shadow” banking sector relative to traditional banks. These firms are designed by the Financial Stability Oversight Council (FSOC).

Resolution:  The firms FSOC designates as systemically risky have to prepare themselves for a rapid resolution for when they do fail. They have to prove that they can survive bankruptcy without bringing down the entire system (an effort currently being fought). The FDIC has prepared a second line of defense, a special “resolution authority” (OLA) to use if bankruptcy isn’t a viable option in a crisis.

These elements of the law all flow naturally from the financial crisis of 2008. It would have been very helpful in the crisis for there to be more clarity in the derivatives market, more capital in shadow banks, and a process to resolve Lehman Brothers. Maybe these are great ways to approach the problem or maybe they aren’t, but to suggest they have no basis in the crisis, as the American Enterprise Institute comically does, is pure ideology.

But ignore the more ridiculous arguments. The actual war against Dodd-Frank is much more sophisticated, and it’s being waged on numerous fronts. Let’s make a map of the battlefield:

There are three distinct campaigns being waged:

Guerrilla Deregulation. The goal here is to undermine as much of the efforts of derivatives regulation, the Volcker Rule, and the CFPB as possible through quick, surprise attacks. This, in turn, has a chilling effect across regulators and throws the regulatory process into chaos.

The main tactic, as in any good guerrilla campaign, is to do hit-and-run ambushes of key, important targets vulnerable to raids. David Dayen had a helpful list of some key bills that must pass in 2015, bills likely to be perfect targets for a good guerrilla raid. The guerrilla campaign had a major victory in weakening the Section 716 “push-out” rule in the Cromnibus bill. And that will probably be a model going forward for these tactics, replicated in the recent attacks we’ve seen, down to counting the small handful of Democrats signing on as some sort of concession of bipartisanship.

Another guerrilla element will be the focus on victory through attrition. It’s not like the House Republicans have their own theory of how to regulate the derivatives market, or that they are making the full case against the Volcker Rule or the CFPB, or even proposing their own anything. They are winning simply through weakening both the rules and the resolve of reformers.

Administrative Siege: Aside from the guerrilla war of deregulation, the GOP is also waging war on another front, through a long-term siege of the regulatory agencies. This includes blockading them from resources like funding and personnel, consistent harassment, discrediting them in the eyes of the broader public, and weakening their power to act. This is a long-term battle, going back to the beginning of Dodd-Frank, and their terms are unconditional surrender.

The seriousness of this campaign became clear when the GOP first refused to appoint any director of the CFPB unless there was a complete overhaul to weaken it. This campaign has continued against the CFTC, and now extends to the FSOC trying to designate firms as systemically risky. The recent House bill to extend cost-benefit analysis to financial regulations, where it has little history, unclear analytical benefit, and could easily lead to worse rules, is also part of this siege.

One key argument the GOP is pushing is that the regulators are historically too powerful and out of control. As House Financial Services Committee chairman Jeb Hensarling said to the Wall Street Journal, the CFPB is “the single most unaccountable agency in the history of America.” This is just silly agitprop. The structure -- independent budgets and a single director -- looks exactly like their counterparts in the OCC. It’s not only subject to the same rule-making process as other regulators, but other regulators can in fact veto the CFPB, making it significantly more accountable compared to any other agency.

The same is being said about FSOC. Note that there’s always room for improvement; Americans for Financial Reform (AFR) have some ways to improve the transparency of FSOC here. But as AFR’s Marcus Stanley notes, the House’s recent FSOC bill “appears better calculated to hinder FSOC operations than to improve its transparency.” Indeed, as Better Markets notes, this FSOC battle is in large part over the regulation of money market funds, a crucial reform in fixing shadow banking. But making government work better isn’t the goal of the siege; this campaign’s goal is to break these agencies and their ability to regulate the financial system.

Reactionary Rhetoric: The goal of this ideological programming campaign is to push the argument that Dodd-Frank simply reinforces the worst part of the bailouts and does nothing productive toward reform. Instead of a series of methods to check and reduce Too Big To Fail, this campaign argues that Dodd-Frank does worse than fail. Following the rhetoric of reaction, reform simply makes the problem far worse. The point here is to remove the FDIC’s ability to put systemically risky firms into a receivership while also preparing the ground for a full repeal.

Advancing the argument that Dodd-Frank has made the bailouts of 2008-2009 permanent and serves only to benefit the biggest financial firms has become a marching order for the movement right. It was basically the entire GOP argument against Dodd-Frank in 2012 (Mitt Romney calling the act "the biggest kiss" to Wall Street), and it still dominates their talking points. If this were the case, the largest banks would receive a large Too Big To Fail subsidy, and we’d subsequently see a reduction in their borrowing costs.

Major studies tells us that the opposite is the case; since 2010 Too Big To Fail subsidies have fallen instead of stabilized or increased. This doesn’t mean the work is done - we could still see a major failure cause systemic risk, and just “avoiding catastrophic collapses” isn’t really a headline goal for a functioning financial system. There’s also little evidence that Dodd-Frank enriches the biggest banks; firms go out of their way to avoid a SIFI designation, which they wouldn’t if there were a benefit to them, and Wall Street analysts take it for granted that capital requirements and other regulations are more binding for the largest firms.

There could be a productive discussion here about finding a way to reform the bankruptcy code to help combat Too Big To Fail while keeping resolution authority as a backup option. That backup option is key though. Unlike OLA, bankruptcy is slow and deliberate, isn't designed to preserve ongoing firm business, doesn't have guaranteed funding available, can’t prevent runs from short-term creditors, and has trouble internationally. But again, the point for Republicans isn’t to try to come up with the best regime; it’s to discredit the effort at reform entirely so the other campaigns, and the overall campaign for repeal, can be that much easier.

Why do Republicans want all this? The answer you will normally hear is that they are in the pocket of Wall Street or in the thrall of free-market fundamentalism. And there’s truth to that. But they’ve also created a whole institutionally enforced counter-narrative where there was no real crisis and Wall Street committed no bad behavior except for when ACORN made them. This narrative is, bluntly, dumb. But it is the narrative their movement has chosen, and movements have a way of forcing well-meaning people who’d otherwise want to find good solutions to fall in line.

2015 will require reformers to wage their own campaigns to push additional reform (here’s a start), push for stronger action from regulators, and make the public understand the progress that has been made. But first we need to understand that while conservatives may look like they are running a smash-and-grab operation when it comes to Dodd-Frank, it’s actually a quite sophisticated series of campaigns, and they are already winning battles.

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The Republicans have declared war against Dodd-Frank. But what kind of war is it, and on what fronts are they waging this war? I think there are at least three campaigns, each with its own strategic goals and tactics. Distinguishing these campaigns from each other will help us understand what Republicans are trying to do and how to keep them in check.

First, to understand the Republican campaigns, it’s useful go over what Dodd-Frank does. Dodd-Frank can be analogized to the way we regulate driving. First, there are simple rules of the road, like speed limits and stop signs, designed as outright prevention against accidents. Then there are efforts to help with stabilization if the driver gets in trouble, such as anti-lock brakes or road design. And then there are regulations for the resolution of accidents that do occur, like seat belts and airbags, designed to avoids worst-case scenarios.

These three goals map onto Dodd-Frank pretty well. Dodd-Frank also puts rules upfront to prevent certain actions, requires additional regulations to create stability within large financial firms, and lays out plans to allow for a successful resolution of a firm once it fails. Let’s graph that out:

Prevention: Dodd-Frank created a Consumer Financial Protection Bureau (CFPB), reforming consumer protection from being an “orphan mission” spread across 11 agencies by establishing one dedicated agency for it. The act also requires that derivatives trade with clearinghouses and through exchanges or else face additional capital requirements, which brought price transparency and additional capital to the market that brought down AIG. Another piece is the Volcker Rule, which separates the proprietary trading that can cause rapid losses from our commercial banking and payment systems.

Stabilization: Dodd-Frank also provides for the expansion of capital requirements across the financial sector, including higher requirements for the biggest firms relative to smaller ones, as well as higher requirements for those who use short-term funding in the “shadow” banking sector relative to traditional banks. These firms are designed by the Financial Stability Oversight Council (FSOC).

Resolution:  The firms FSOC designates as systemically risky have to prepare themselves for a rapid resolution for when they do fail. They have to prove that they can survive bankruptcy without bringing down the entire system (an effort currently being fought). The FDIC has prepared a second line of defense, a special “resolution authority” (OLA) to use if bankruptcy isn’t a viable option in a crisis.

These elements of the law all flow naturally from the financial crisis of 2008. It would have been very helpful in the crisis for there to be more clarity in the derivatives market, more capital in shadow banks, and a process to resolve Lehman Brothers. Maybe these are great ways to approach the problem or maybe they aren’t, but to suggest they have no basis in the crisis, as the American Enterprise Institute comically does, is pure ideology.

But ignore the more ridiculous arguments. The actual war against Dodd-Frank is much more sophisticated, and it’s being waged on numerous fronts. Let’s make a map of the battlefield:

There are three distinct campaigns being waged:

Guerrilla Deregulation. The goal here is to undermine as much of the efforts of derivatives regulation, the Volcker Rule, and the CFPB as possible through quick, surprise attacks. This, in turn, has a chilling effect across regulators and throws the regulatory process into chaos.

The main tactic, as in any good guerrilla campaign, is to do hit-and-run ambushes of key, important targets vulnerable to raids. David Dayen had a helpful list of some key bills that must pass in 2015, bills likely to be perfect targets for a good guerrilla raid. The guerrilla campaign had a major victory in weakening the Section 716 “push-out” rule in the Cromnibus bill. And that will probably be a model going forward for these tactics, replicated in the recent attacks we’ve seen, down to counting the small handful of Democrats signing on as some sort of concession of bipartisanship.

Another guerrilla element will be the focus on victory through attrition. It’s not like the House Republicans have their own theory of how to regulate the derivatives market, or that they are making the full case against the Volcker Rule or the CFPB, or even proposing their own anything. They are winning simply through weakening both the rules and the resolve of reformers.

Administrative Siege: Aside from the guerrilla war of deregulation, the GOP is also waging war on another front, through a long-term siege of the regulatory agencies. This includes blockading them from resources like funding and personnel, consistent harassment, discrediting them in the eyes of the broader public, and weakening their power to act. This is a long-term battle, going back to the beginning of Dodd-Frank, and their terms are unconditional surrender.

The seriousness of this campaign became clear when the GOP first refused to appoint any director of the CFPB unless there was a complete overhaul to weaken it. This campaign has continued against the CFTC, and now extends to the FSOC trying to designate firms as systemically risky. The recent House bill to extend cost-benefit analysis to financial regulations, where it has little history, unclear analytical benefit, and could easily lead to worse rules, is also part of this siege.

One key argument the GOP is pushing is that the regulators are historically too powerful and out of control. As House Financial Services Committee chairman Jeb Hensarling said to the Wall Street Journal, the CFPB is “the single most unaccountable agency in the history of America.” This is just silly agitprop. The structure -- independent budgets and a single director -- looks exactly like their counterparts in the OCC. It’s not only subject to the same rule-making process as other regulators, but other regulators can in fact veto the CFPB, making it significantly more accountable compared to any other agency.

The same is being said about FSOC. Note that there’s always room for improvement; Americans for Financial Reform (AFR) have some ways to improve the transparency of FSOC here. But as AFR’s Marcus Stanley notes, the House’s recent FSOC bill “appears better calculated to hinder FSOC operations than to improve its transparency.” Indeed, as Better Markets notes, this FSOC battle is in large part over the regulation of money market funds, a crucial reform in fixing shadow banking. But making government work better isn’t the goal of the siege; this campaign’s goal is to break these agencies and their ability to regulate the financial system.

Reactionary Rhetoric: The goal of this ideological programming campaign is to push the argument that Dodd-Frank simply reinforces the worst part of the bailouts and does nothing productive toward reform. Instead of a series of methods to check and reduce Too Big To Fail, this campaign argues that Dodd-Frank does worse than fail. Following the rhetoric of reaction, reform simply makes the problem far worse. The point here is to remove the FDIC’s ability to put systemically risky firms into a receivership while also preparing the ground for a full repeal.

Advancing the argument that Dodd-Frank has made the bailouts of 2008-2009 permanent and serves only to benefit the biggest financial firms has become a marching order for the movement right. It was basically the entire GOP argument against Dodd-Frank in 2012 (Mitt Romney calling the act "the biggest kiss" to Wall Street), and it still dominates their talking points. If this were the case, the largest banks would receive a large Too Big To Fail subsidy, and we’d subsequently see a reduction in their borrowing costs.

Major studies tells us that the opposite is the case; since 2010 Too Big To Fail subsidies have fallen instead of stabilized or increased. This doesn’t mean the work is done - we could still see a major failure cause systemic risk, and just “avoiding catastrophic collapses” isn’t really a headline goal for a functioning financial system. There’s also little evidence that Dodd-Frank enriches the biggest banks; firms go out of their way to avoid a SIFI designation, which they wouldn’t if there were a benefit to them, and Wall Street analysts take it for granted that capital requirements and other regulations are more binding for the largest firms.

There could be a productive discussion here about finding a way to reform the bankruptcy code to help combat Too Big To Fail while keeping resolution authority as a backup option. That backup option is key though. Unlike OLA, bankruptcy is slow and deliberate, isn't designed to preserve ongoing firm business, doesn't have guaranteed funding available, can’t prevent runs from short-term creditors, and has trouble internationally. But again, the point for Republicans isn’t to try to come up with the best regime; it’s to discredit the effort at reform entirely so the other campaigns, and the overall campaign for repeal, can be that much easier.

Why do Republicans want all this? The answer you will normally hear is that they are in the pocket of Wall Street or in the thrall of free-market fundamentalism. And there’s truth to that. But they’ve also created a whole institutionally enforced counter-narrative where there was no real crisis and Wall Street committed no bad behavior except for when ACORN made them. This narrative is, bluntly, dumb. But it is the narrative their movement has chosen, and movements have a way of forcing well-meaning people who’d otherwise want to find good solutions to fall in line.

2015 will require reformers to wage their own campaigns to push additional reform (here’s a start), push for stronger action from regulators, and make the public understand the progress that has been made. But first we need to understand that while conservatives may look like they are running a smash-and-grab operation when it comes to Dodd-Frank, it’s actually a quite sophisticated series of campaigns, and they are already winning battles.

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Daily Digest - January 15: Free Community College Is "A Better Way" For Financial Aid

Jan 15, 2015Rachel Goldfarb

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The Daily Report (AM950 Radio)

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The Daily Report (AM950 Radio)

Roosevelt Institute Fellow Mike Konczal discusses his recent article about the benefits of the president's free community college plan. Mike's segment begins at 28:00.

How Congress is Crippling Our Tax Collection System, in Charts (WaPo)

Catherine Rampell breaks down a report explaining how cuts to the IRS budget are impacting its ability to actually collect the taxes that are owed, with fewer staff to investigate tax evasion.

Republicans Use 'Death by a Thousand Cuts' Strategy to Deregulate Wall Street (The Guardian)

Republicans in the House have passed their first bill to weaken Dodd-Frank, and David Dayen says there are more to come as the GOP attaches deregulation to all kinds of unrelated must-pass bills.

Obama Stands At Crossroads On Financial Reform (ProPublica)

Jesse Eisinger says that with Republicans in control of Congress, it's time for the Obama administration to go big to protect the modest reforms created by Dodd-Frank.

As Profits Fall, JPMorgan Rejects Calls To Break Up The Megabank (Buzzfeed)

Matthew Zeitlin reports on recent suggestions that JPMorgan could be more profitable if it were split up. CEO Jamie Dimon instead blames regulators for drops in profits.

We Don’t Just Need ‘More Jobs’—We Need Higher Wages (In These Times)

Leo Gerard, President of United Steelworkers, says that the new jobs showing up on the jobs report aren't enough without higher wages for workers whose wages have been nearly stagnant for 35 years.

New on Next New Deal

Is Inequality Killing U.S. Mothers?

Roosevelt Institute Fellow Andrea Flynn ties the United States' embarrassingly high maternal mortality rates to economic inequality's broader impact on health and mortality.

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Is Inequality Killing U.S. Mothers?

Jan 14, 2015Andrea Flynn

The United States' embarrassing maternal mortality figures are closely tied to extreme economic inequality, and better understanding of one will help the other.

The United States' embarrassing maternal mortality figures are closely tied to extreme economic inequality, and better understanding of one will help the other.

Imagine that each year six U.S. passenger jets crashed, killing all passengers on board. Imagine that every person who died on those planes was a woman who was pregnant or recently gave birth. Instead of offering interventions and regulations that might prevent more planes from falling from the sky, lawmakers attempted to defund and repeal the very programs meant to improve air safety. That, in a nutshell, is the maternal mortality crisis in the United States.

Today, more U.S. women die in childbirth and from pregnancy-related causes than at almost any point in the last 25 years. The United States is the one of only seven countries in the entire world that has experienced an increase in maternal mortality over the past decade (we join the likes of Afghanistan and South Sudan), and mothers in Iran, Turkey, the United Arab Emirates, Serbia and Greece (among many other countries) have a better chance of surviving pregnancy than do women in the United States.  

It should be no surprise that maternal mortality rates (MMRs) have risen in tandem with poverty rates. The two are inextricably linked. Women living in the lowest-income areas in the United States are twice as likely to suffer maternal death, and states with high rates of poverty have MMRs 77 percent higher than states with fewer residents living below the federal poverty level. Black women are three to four times as likely to die from pregnancy-related causes as white women, and in some U.S. cities the MMR among Black women is higher than in some sub-Saharan African countries.

New research suggests that one of the many factors driving this crisis might be inequality. We may have just celebrated the dawn of 2015, but in terms of economic inequality it might as well be 1929, the last time the United States experienced such an extraordinary gulf between the rich and the, well, everyone else. Today nearly one in three Blacks and one in four Hispanics (compared to one in ten whites) live in poverty, and in certain states those percentages are even higher. Since the 2008 financial crisis, the net worth of the poorest Americans has decreased and stagnant wages and increased debt has driven more middle class families into poverty. Meanwhile, the wealthiest Americans have enjoyed remarkable gains in wealth and income. Those in the top one percent have seen their incomes increase by as much as 200.5 percent over the past 30 years, while those in the bottom 99 percent have seen their incomes grow by only 18.9 percent during that same time.

As the financial well-being of the majority of Americans has eroded, so too has their health. A recent study conducted by Amani Nuru-Jeter from University of California, Berkeley shows that inequality has very different impacts on Black and white Americans. The study found that each unit increase in income inequality results in an additional 27 to 37 deaths among African Americans, and – interestingly – 417 to 480 fewer deaths among white Americans. Nuru-Jeter and her colleagues were surprised to discover the inverse relationship between inequality and death for whites, and suggested that more research is needed to better understand it. “We do know that the proportion of high-income people compared to low-income people is higher for whites than for African Americans. It’s possible that the protective effects we are seeing represent the net effect of income inequality for high-income whites,” she said.

The research shows us that rising tides might lift some boats, but it sinks others. And it is unclear if the boats of poor whites actually rise, or if it just appears like they rise because of the higher concentration of people benefitting from inequality in white communities compared to black communities.

Either way, we know that the boats of women of color have certainly not been rising in recent years and these recent findings beg us to ask how inequality is impacting U.S. mothers specifically. After all, we know that women of color have been disproportionately impacted by the economic downturn. Today the poverty rate for black women is 28.6 percent, compared with 10.8 percent for white women. A 2010 study found that the median wealth for single Black and Hispanic women was only $100 and $120 respectively, while the median wealth for single white women was just over $41,000. And in the years following the recession Black women represented 12.5 percent of all American workers but accounted for more than 42 percent of jobs lost by all women. Black women have an unemployment rate nearly double that of white women.

Given these grim statistics, it should be no surprise that inequality and maternal-related deaths have increased on parallel tracks over the last decade. But while inequality – and its threats to the economy and the wellbeing of average people – has recently gained long overdue attention, maternal mortality remains an invisible health crisis (unless, of course, you live in one of the communities where it’s all too common for women to die from pregnancy). The media rarely talks about it, foundations aren’t collaborating to invest in initiatives to help us understand – let alone improve – the situation, and policy makers aren’t even pretending to care about it. In fact, the conservative-dominated Congress seems eager to trim or prevent the very programs that help mothers have a healthy foundation for pregnancy: food stamps, reproductive health coverage and access, and wage increases, just to name a few.

The Affordable Care Act is providing much-needed health coverage to many poor women for whom it was previously out of reach and if fully implemented could certainly help stem maternal deaths. But conservative members of Congress are doing their best to make it as ineffective as possible for the people who need it the most. Nearly 60 percent of uninsured Black Americans who should qualify for Medicaid live in states that are not participating in Medicaid expansion. And a recent study found that as a result of conservative opposition to expansion, 40 percent of uninsured Blacks who should have Medicaid coverage will not get it (compared to 24 percent of uninsured Hispanics and 29 percent of uninsured whites).

Nuru-Jeter’s research shows us that we will need a host of strategies to tackle deaths in the Black community, and maternal deaths are certainly no exception. Better understanding how inequality might be driving unnecessary deaths among women of color would better enable us to identify exactly what those strategies should be and how they should be implemented. And perhaps we wouldn’t get all boats to rise immediately, but it just might get them all to float. It’s sad we aren’t even trying to accomplish that much. 

Andrea Flynn is a Fellow at the Roosevelt Institute. Follow her on Twitter @dreaflynn.

Photo via Amnesty International.

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Daily Digest - January 14: Advice From Mario Cuomo for Today's Democrats

Jan 14, 2015Rachel Goldfarb

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Mario Cuomo, the Speech and the Challenge to Democrats Today (In These Times)

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Mario Cuomo, the Speech and the Challenge to Democrats Today (In These Times)

Roosevelt Institute Senior Fellow Richard Kirsch and Dan Cantor point to Mario Cuomo's vision of mutuality laid out at the 1984 Democratic National Convention as an example today's Democrats should follow.

5 Books: Reading Race and Economics (The Nation)

Joelle Gamble, National Director of the Roosevelt Institute | Campus Network, recommends books on the intersection of race and economics to accompany an article on the economic dimension of #BlackLivesMatter.

Plunge In Wall Street Money Bolsters Populist Shift Among Democrats (HuffPo)

Paul Blumenthal says Wall Street's dramatic shift of campaign resources away from the Democrats isn't the cause of recent populist moves, but less campaign donations creates less industry pressure on the party.

  • Roosevelt Take: Blumenthal links to Roosevelt Institute Senior Fellow Thomas Ferguson's work on where different industries make their political donations; read his most recent paper on that topic here.

Calls for 'A Living Wage' (Times Union)

Matthew Hamilton reports on a Schuyler Center for Analysis and Advocacy forum, "New York's Cities: Confronting Income Inequality," which featured Roosevelt Institute Fellow Mike Konczal.

Labor at a Crossroads: How We Know We Haven't Yet Found the Right Model for the Worker Organizations (TAP)

Sejal Parikh cites the recent closing of hundreds of Wet Seal clothing stores and subsequent brief worker outburst online as proof that with the right organization, these stories wouldn't fizzle out.

How Medicaid for Children Recoups Much of Its Cost in the Long Run (NYT)

Margot Sanger-Katz looks at a new study that shows a correlation between Medicaid eligibility and future earnings. Higher earnings means higher taxes, repaying the investment in childhood health.

Elizabeth Warren Is Taking Control of the Democratic Agenda (TNR)

David Dayen writes that Antonio Weiss's withdrawal from his Treasury nomination is proof that Senator Warren has quickly learned how to exert her power over all aspects of the Senate's work.

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Daily Digest - January 13: A Tax Plan to Fight Inequality

Jan 13, 2015Rachel Goldfarb

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Democrats, in a Stark Shift in Messaging, to Make Big Tax-Break Pitch for Middle Class (WaPo)

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Democrats, in a Stark Shift in Messaging, to Make Big Tax-Break Pitch for Middle Class (WaPo)

Lori Montgomery and Paul Kane explain Rep. Chris Van Hollen's proposal, which is being pitched as the Democrats' "action plan" for fighting income inequality.

  • Roosevelt Take: Roosevelt Institute Chief Economist Joseph Stiglitz also promotes tax reform as a way reach broadly shared prosperity in this white paper.

Congress's Financial Plan for 2015: Curb Your Enthusiasm (The Guardian)

Siri Srinivas looks at the legislation that is likely to reach the House floor in 2015, and explains how Republican control of the Senate will impact this year's agenda.

Elizabeth Warren Wins on Antonio Weiss Nomination (Politico)

Ben White reports that Weiss has asked the president not to resubmit his nomination, instead accepting a position in Treasury that doesn't require Senate confirmation and carries less authority.

  • Roosevelt Take: Roosevelt Institute Senior Fellow Brad Miller argued that Weiss's nomination was indicative of a larger anti-democratic approach to economic policy.

The House Is Set to Pass a GOP Bill Wiping Out Wall Street Reforms (MoJo)

Erika Eichelberger explains how the legislation, expected to pass this week, would weaken key provisions of Dodd-Frank, including delaying the Volcker Rule and weakening transparency rules.

Labor at a Crossroads: Can Broadened Civil Rights Law Offer Workers a True Right to Organize? (TAP)

Richard D. Kahlenberg and Moshe Z. Marvit explain why individual-focused civil rights law can and should be used on behalf of union organizing to promote the collective welfare of all workers.

Investors Shift Bets on Fed Rate Increase (WSJ)

Min Zeng writes that current market patterns indicate that investors think the Federal Reserve is going to hold off on increasing interest rates for longer than was initially planned.

New on Next New Deal

Van Hollen Tax Proposal An Economic and Political Home Run

Roosevelt Institute Senior Fellow Richard Kirsch praises Van Hollen's plan for forcing Republicans to admit that they are supporting Wall Street over working-class families.

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Van Hollen Tax Proposal An Economic and Political Home Run

Jan 12, 2015Richard Kirsch

By forcing Republicans to admit their support for Wall Street over working families, Van Hollen's proposal opens the economic debate the Democrats need.

By forcing Republicans to admit their support for Wall Street over working families, Van Hollen's proposal opens the economic debate the Democrats need.

Rep. Chris Van Hollen’s (D-MD) proposal to tax Wall Street speculators and CEO millionaires to put money in the pockets of working families and the middle class, the engines of our economy, is a political and economic home run. It allows Democrats to focus on economic growth and fairness at the same time, sharply defining the debate on the key question voters ask: “Which side are you on?”

Leading politicians from both parties are all expressing sympathy for the stagnant prospects of the middle class. If you need evidence, here is Jeb Bush sounding like Elizabeth Warren: “Millions of our fellow citizens across the broad middle class feel as if the American Dream is now out of their reach … that the playing field is no longer fair or level.”

Where the two parties split – and where the core debate that will define the next two years and the 2016 election lies – is on who is to blame and what to do about it.

Americans believe we need economic growth, but they are more likely to place the blame for stagnant wages on the super-rich and powerful who game the system at their expense. That is why they told pollsters they prefer “an economy that works for all of us, not just the wealthy” over “growing the economy” by 22 points.

Van Hollen claims both grounds – growth and fairness. As he says, “What our country needs is a growing economy that works for all Americans, not just the wealthy few.”

The heart of the plan is providing a $1,000 tax credit for workers, phased out as income rises, along with an additional $250 tax credit when workers save. He would pay for that by taxing Wall Street speculation (with a tiny financial transactions tax) and closing loopholes that allow millionaires to pay lower taxes than average people.

It’s clear that this is great politics: taxing Wall Street gambling and the super-rich to put more money in the pockets of working families and the middle class.

Republicans tell another story, placing the blame for middle-class woes on government and focusing on lowering taxes and cutting government regulation to grow the economy. In opposing the Van Hollen proposal, they are forced to defend the wealthy and deny tax breaks to the middle-class, as we saw from Speaker John Boehner’s spokesperson's comment opposing the Van Hollen plan.

This is the economic argument Democrats want to have. Republicans say we grow the economy by taking the side of the Wall Street banks that wrecked the economy and the corporate CEOs who cut our wages and shipped our jobs overseas. Democrats say we move the economy forward by putting more money in the pockets of working families and the middle class.

Van Hollen adds another proposal, which is also brilliant politics and sharp economics. He would not allow corporations to get tax breaks for million-dollar executive pay unless they shared the rewards of soaring corporate profits with their workers. Van Hollen accomplishes this by proposing to end corporate tax deductions for executive compensation of over $1 million, unless the corporation’s wages are raised enough to keep up with worker productivity and the cost of living. Another way that corporations could deduct higher executive pay is by providing employees with ownership and profit-sharing opportunities.

With this proposal, Van Hollen puts the focus squarely on the corporate behavior that has driven down wages and crushed middle-class aspirations. His proposal would boost worker income, which drives the economy forward. When Republicans oppose this, the choice will again be clear to Americans: CEO millionaires or working families.

As Van Hollen recognizes, his proposal is not the complete solution to creating an economy of broadly shared, sustainable prosperity. He recognizes the need to raise wages and job standards, which directly turn today’s low-wage, economy busting jobs into economy boosting jobs. He reinforces the necessity of investment in infrastructure, research and education.

It will be important to do all these things. We need to raise wage standards and strengthen the ability of workers to organize, to make sure that every job pays enough to care and support a family in dignity. It is essential that we make huge investments in transportation, clean energy, communications, and research to build a powerful economic foundation for the future. That investment will take revenues, which can be raised from closing corporate loopholes, raising tax rates on the wealthy, or other progressive tax measures. We can also discuss whether some of the revenues Van Hollen raises would be better spent on infrastructure rather than tax breaks for upper-middle income people.

Simplicity is key to political communication. In its simplest terms, Van Hollen is saying that we drive the economy forward by putting money in the pockets of working families and the middle-class, not Wall Street and the super wealthy. And then his proposal invites Americans to ask their elected officials: “which side are you on?”

If Democrats around the country are willing to stand up to their big campaign contributors and ask that question with such a powerful proposal in 2016, they will triumph. And in triumphing, they will move the country toward an America that works for all of us, not just the wealthy. 

Richard Kirsch is a Senior Fellow at the Roosevelt Institute, a Senior Adviser to USAction, and the author of Fighting for Our Health. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform.

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