Mark Schmitt

Roosevelt Institute Senior Fellow
Roosevelt Institute Profile

Recent Posts by Mark Schmitt

  • A Solution for Money in Politics Highlighted by the Election

    Nov 20, 2012Mark Schmitt

    As part of our series "A Rooseveltian Second Term Agenda," an acknowledgment that the election didn't just showcase the problems of outside money in campaigns, but a potential way forward.

    As part of our series "A Rooseveltian Second Term Agenda," an acknowledgment that the election didn't just showcase the problems of outside money in campaigns, but a potential way forward.

    It's been tempting to treat the 2012 election as proof that money in politics doesn't matter as much as commonly believed, or that Citizens United and the emergence of Super PACs and political non-profits didn't change things as much as predicted. “Effect of 'super PACs' proved to be less than expected,” the Los Angeles Times declared in a post-election headline.

    It is true that the presidential candidacy most dependent on Super PACs and other “dark money” support was soundly defeated, and the same was true of the Senate candidates backed by Karl Rove's American Crossroads and related groups. Prophecies that corporate money would flood in and swamp the candidates, particularly Democrats, didn't come true. (Some of us were always skeptical of this prediction.) And it turned out the Super PACs had some particular disadvantages because they couldn't purchase media time at the favorable rates that are available to campaigns. The Republican dark money committees' focus on broadcast advertising to the exclusion of other campaign activities turned out to be misplaced in an election where the “ground game” of identifying voters and getting them to the polls is what mattered. (It's also likely that the Republican Super PAC operators focused on radio and television because there are financial incentives for consultants to buy media and collect a commission of 10 or 15 percent. Voter mobilization efforts don't have the same payoff.)

    But a general election presidential campaign, and even a high-profile Senate campaign, is not where we would expect to see the decisive power of money in election outcomes. Presidential candidates, especially incumbents, are well known and have ample opportunity to get their message out without paying for it. For example, half the number of people who voted watched at least one of the presidential debates. Money is more significant in determining who has an opportunity to run for office and whether that candidate has sufficient resources to be heard.

    This year's elections for the House showed just how much money still matters. More than nine out of ten incumbents were reelected, despite a backlash against the Republican House reflected in the aggregate vote (48 percent to 47 percent). While some of this incumbent advantage was a result of redistricting that entrenched Republican seats, a great deal of incumbent advantage involves money that incumbents can raise from lobbyists and few challengers can. According to the Campaign Finance Institute, incumbents who won with more than 60 percent of the vote, which accounts for more than two-thirds of races, outspent their challengers by a factor of nine. Notably, most of the seats captured by Democrats in this cycle involved very high-profile Tea Party Republicans like Allen West of Florida or Joe Walsh of Illinois and opponents who were either well known in progressive circles, such as Walsh's successful opponent Tammy Duckworth, or former members of Congress with established fundraising bases. In many of those high-profile races, such as West's, outside groups played a large role. Data from the Campaign Finance Institute indicates that successful challengers spent $2 million, suggesting that that is the new price of entry for a viable campaign, although this will vary greatly by region.

    But even these results show some hope. Many of the successful Democratic candidates, like President Obama, were able to build strong bases of small donors. While Obama's small donors accounted for 44 percent of his total, Duckworth, for example, raised 37 percent from small donors. The small donor era, which began in 2008, has continued in both parties. This suggests that the best path to making elections competitive and offsetting the influence of big money, outside money, and dark money is to enhance the value of small contributions. This can be done through a matching program such as New York City's successful model, the proposed Fair Elections Now Act (supported by a majority of Democrats in 2010), or Rep. John Sarbanes' Grassroots Democracy Act.

    Since Citizens United, many reformers have worried that such initiatives would be rendered ineffective by the flood of big money, which would overwhelm the small donors, or that candidates would resist participating in these matching programs, fearing big outside money attacks. That would argue for pursuing a remedy for Citizens United, in the Constitution or the Court, before moving on to matching fund public financing. But the election results, in which neither Obama nor successful candidates for House and Senate were overwhelmed by outside money, indicates that these systems are likely to be more resilient than we think. Giving every candidate the opportunity and encouragement to build a participatory base of small donors isn't the only thing we need to do to offset the influence of money in politics, but it is a good start. House minority leader Nancy Pelosi identified campaign finance reform as a major priority for her caucus in the next Congress. The first step is to reach consensus on what is to be done, and the election points in a clear and positive direction toward solutions that encourage participation and grassroots campaigns.

    Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

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  • Three Principles for Restoring Progressive Taxation

    Nov 19, 2012Mark Schmitt

    As part of our series "A Rooseveltian Second Term Agenda," advice on revamping the tax code to raise the revenue we need.

    As part of our series "A Rooseveltian Second Term Agenda," advice on revamping the tax code to raise the revenue we need.

    Our current tax system is a toxic legacy of the George W. Bush years. It loomed over Obama's first four years, bearing deficits that limited the scope of economic stimulus, drove inequality to astonishing levels, and led directly to the debt limit showdown of the summer of 2011 that forced us into even more dangerous policies. President Obama's second term offers a long overdue opportunity to restore the promise of progressive taxation and revenues that are adequate to our long-term economic priorities. It requires both short-term and long-term action.

    The greatest failure of the tax system is not that it’s too complicated or inefficient or that there are too many “special-interest loopholes,” as House Speaker John Boehner put it on the day after the election. It's that it doesn't raise enough money and it encourages all sorts of manipulation because of the differential rates for investment income and income from work. These are not things that developed over time, as if by some natural process – they are the product of specific decisions made in 2001 and 2003 by Republican-controlled Congresses that used the budget reconciliation process to avoid any bipartisan compromise.

    Here are some principles that the administration should hold to in restoring adequate and progressive taxation:

    1. Start from the law, not current tax policy. Under the law, the Bush tax cuts expire on January 2, 2013 and revert to their levels at the prosperous end of the 1990s. This expiration along with several temporary tax cuts that expire at the same time and the budget sequester devised to escape the House GOP blackmail on the debt ceiling in 2011 is what's known as “the fiscal cliff.” There will be an effort to negotiate a deal on taxes and spending before we hit the cliff out of fear that expiration of all the cuts at once would tip the country back into recession. But the effect won't be felt at once, and there's plenty of time to negotiate a new round of cuts once the law as written goes into effect. There is no reason to negotiate based on rates that are set to expire within weeks or days.

    Under the law, capital gains rates will rise to 20 percent from 15 percent, dividends will be taxed at the same rate as regular income, and two provisions that limit personal deductions and exemptions for the wealthy will come back into effect. All tax rates will rise, but the tax code will instantly be fairer, by every definition, than it was in December. From that baseline – which is not some accident; it's what the law calls for – we can have a debate about which rates should be permanently lowered. There's a strong argument, for example, for bringing the bottom rate back down to 10 percent, given that these are the households that were hit hardest during the recession and saw few gains even during the prosperous years before 2008.

    2. Don't try to define “the rich” with arbitrary thresholds. In its first four years, the Obama administration's tax policy was hamstrung by its commitment to the $250,000 line – that no household with taxable income lower than a quarter of a million dollars should face any kind of tax increase and any increase should apply only to the income above $250,000. Later, the line became a million dollars as the administration tried to craft what it called “The Buffett Rule” to remedy Warren Buffett's recognition of the absurdity that he paid a lower tax rate than his secretary. These new thresholds would be grafted onto the tax code on top of the existing rate brackets. For example, households with incomes below the quarter-million line would keep the preferential rates for capital gains and dividends, while it would go up for those above it. These thresholds would add a new level of complexity to the tax code, sharply reduce the revenues that could be gained, and reinforce the impression that taxes are a sort of punishment for the rich. It's a lot simpler, more efficient, and infinitely fairer to say that a single person who makes, say, $80,000 from capital gains alone should pay the same rate, no more and no less, than a comparable household that earns $80,000 from work. Right now, the first household would pay less. With the same rates for all income, rates can be held down and we can maintain the low-end cuts, such as the 10 percent rate for middle-class households, and gain enough revenue for the future. Artificial new thresholds, which would apply to some forms of income and not others, will make this much more difficult.

    3. Consider one new source of revenue – and make it a “Pigovian” one.  Even an ideal income tax system, one in which income from any source is taxed in the same way and distorting deductions are kept to a minimum, is unlikely to raise sufficient revenues to support the level of investment the country needs in the long run. Adding one additional source of revenue will not only help to close the revenue gap, but it can serve vital purposes as well. (Such taxes, which have a dual purpose of raising revenue and reducing some undesirable activity, such as smoking, are known as “Pigovian,” after the Cambridge economist Arthur Pigou.) The two leading candidates would be a tax on carbon and a very small tax on financial transactions. The former would have some of the same effect as a cap-and-trade system to reduce emissions that cause climate change, with less complexity, and could also fund clean energy research and job creation. The latter would generate revenue from the still thriving financial industry, while putting a little bit of friction into transactions and reducing the payoff – and the risk – created by strategies that rely on massive, fast trading. While those strategies weren't the main cause of the 2008 financial meltdown, they do play a role in creating instability (such as the “flash crash” of 2010). Either of these, or both, would helpfully supplement the income tax, the payroll tax (which supports Social Security and Medicare), the corporate income tax, and federal excise taxes. 

    Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

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  • How the "Fiscal Cliff" Could Bring About Real Tax Reform

    Oct 26, 2012Mark Schmitt

    Tax reform appears dead in the water, but the dreaded "fiscal cliff" could actually offer reformers some hope.

    Tax reform appears dead in the water, but the dreaded "fiscal cliff" could actually offer reformers some hope.

    It began with a critique of Mitt Romney's tax proposal. But more than two months after the Tax Policy Center released a report with the anodyne title “On the Distributional Effects of Base-Broadening Tax Reform,” the entire promise of tax reform, whether Romney's or some other version, is near death. With its demise goes the idea of a budget grand bargain. It's been a subtle development, but a dramatic one that will reshape the landscape of policy possibilities, especially if President Obama wins reelection – probably for the better.

    Tax reform is typically sold as a win-win-win that can achieve three goals at once: reduce rates, bring in more revenue for deficit reduction, and clean up the loopholes in the tax code that create economic distortions and slow growth. This vision was not Mitt Romney's alone. It was and still is shared by many Democrats, notably Senator Dick Durbin, the White House, most members of the Bowles-Simpson deficit reduction commission who voted for its report, and most of the promoters of a budget grand bargain. I've held this religion myself.

    But the vision of “base-broadening tax reform” is not just a budget solution – it's a nostalgic fantasy about American politics, a hope that we can recreate the kind of bipartisan compromise and collaboration of the idiosyncratic 1970s and 1980s, symbolized by the tax reform of 1986. (Last week I argued in a debate published in the Breakthrough Journal that the old era of bipartisanship was idiosyncratic, and we shouldn't expect it to come back.)

    The Tax Policy Center report was perceived as an analysis of the Romney tax plan, showing that his math didn't add up. But as its title indicates, it really wasn't a report on Romney's plan at all, but on base-broadening reform more generally. It showed that Romney couldn't achieve his two goals – lowering rates and eliminating tax expenditures without significantly increasing taxes on the middle class or raising the deficit – because while tax expenditures such as the home mortgage interest deduction provide large benefits to the very rich, the more numerous middle-class recipients account for a large share of the costs. If Romney can't achieve his two goals (his plan would not explicitly aim to increase revenues or reduce the deficit, relying instead on a vague hope that lower rates would drive economic growth to implausible heights), then how could we possibly achieve three goals: lower rates, fewer loopholes, and higher revenues? Nor would it be easy to achieve a different two other goals, fewer tax expenditures and significantly higher revenues, while keeping rates at their current level.

    That's because we're in a very different situation than 1986. In the 1980s, the tax code was littered with provisions that benefited specific industries (especially oil and gas) and permitted individuals and corporations to take losses for tax purposes when they hadn't really put money at risk. These “passive losses” distorted economic decisions. Just as all those provisions had been created by a kind of log rolling among legislators (those from states that benefited from pharmaceutical or agricultural tax breaks didn't object to the oil and gas breaks), legislators in the reform coalition were essentially able to hold hands and eliminate all of their tax earmarks at once. The tax rates were nominally quite high, though no one actually paid them, so bringing the top rate down from 50 percent was a lot easier than bringing it down from 33 percent. And while there was some concern about the short-term federal deficit in 1986, it was easy enough to separate that issue from tax reform and keep it revenue neutral in the long term.

    While the tax code is a mess once again, it's a mess in a very different way. Tax rates are now too low, not too high; the most fundamental problem with the system is that it doesn't bring in sufficient revenue to finance basic functions of government (not just in a recession, when that's to be expected, but in the long term); and the biggest tax expenditures are not special benefits to particular industries or constituencies, but large-scale deductions that largely benefit the well-off yet give just enough to the middle class that eliminating them affects a lot of people. And while we might prefer that tax preferences such as the mortgage-interest deduction had never been invented, eliminating them or capping them would be enormously disruptive to the fragile housing market and would disproportionately affect younger families. It's extremely unlikely that Congress will have the will to cut that deduction, the deduction for state and local taxes, or the deduction for charitable giving.

    That leaves two alternatives. One is to eliminate some or all of the tax preferences for investment income – not just the “carried interest loophole” through which Mitt Romney makes much of his vast income, but the entire preference for capital gains and dividend income that makes that and other loopholes possible. (Almost all the tax gimmicks exercised by the rich involve redefining compensation as capital gains to enjoy the 15 percent rate.) There doesn't seem to be much enthusiasm even among Democrats for fully equalizing treatment of capital gains and dividends, although we did it in 1986 and the economy thrived. The second alternative is some kind of global cap on deductions, which is where Romney has gone, first suggesting a cap of $17,000, then $25,000, but never with much detail about which deductions would fall under the cap. A $25,000 cap would raise about $1.2 trillion over ten years according to the Tax Policy Center, which is not trivial. But a cap would hit upper-middle income households almost as hard as the very rich.

    All these moves, along with the administration's tortured “Buffett Rule,” fall well short of real base-broadening tax reform. But the fantasy of tax reform is essential to those who believe in a budget “Grand Bargain,” because the only moments when Republicans have hinted they might accept any revenue increases have been when it's packaged under the guise of “base-broadening reform.” No tax reform, no grand bargain. That's why the Committee for a Responsible Federal Budget, an organization funded by the Peter G. Peterson Foundation to push for a budget deal, has been almost as obsessive about rebutting the Tax Policy Center's and other analyses as Mitt Romney has been, though not more persuasive. Senator Charles Schumer was the first to say out loud that tax reform wasn't going to happen in an October 9 speech. Since then, other Democrats have recognized that tax reform, especially if it begins with the current Bush tax rates as the baseline, “could be a trap,” as Chuck Marr and Chye-Ching Huang of the Center on Budget and Policy Priorities put it in a June report.

    If there's no tax reform and no grand bargain, what's left? The answer is what's called, ominously and inaccurately, the “fiscal cliff.” If some sort of deal isn't reached by January 1, 2013, then all of the Bush tax cuts, as well as some Obama tax cuts for the middle class intended as economic stimulus, will expire.* And the defense and domestic spending “sequestrations” agreed to last summer, in the deal to avoid breaching the debt limit, will hit.

    Many of these outcomes are undesirable and could damage the faltering economy if higher taxes and lower spending continue well into 2013. But consider some of the things that happen to taxes:

    • Rates go up: the top rate, on income over $397,000, would go from 35 percent to 39.6 percent.
    • Tax rates on investment income would go up. The rate on capital gains would go from 15 percent to 20 percent, and dividends would once again be taxed at the same rate as ordinary income.
    • If you like the idea of a cap on deductions, such as Romney's $17,000 or $25,000 cap, you get something like it. The Bush tax cuts repealed two provisions, known as Pease and PEP, that phase out itemized deductions and the personal exemption for upper-income taxpayers, and both would return. These have an effect similar to Romney's cap but hit only the very wealthy.
    • The estate tax returns.

    Put these together and what do they look like? They look a little bit like tax reform. It’s not necessarily a perfect version. But revenues are higher, more income will be subject to tax, deductions will be limited for the well off. This doesn't require a grand bargain, and it's probably better than what would result from a grand bargain, if such a thing were actually possible. It's simply what the law calls for.

    There are plenty of less desirable things that will happen on January 1. The bottom tax rate will go from 10 percent to 15 percent, and rates in the middle will go up three percentage points. The child tax credit will go down, as will the Earned Income Tax Credit. And the budget sequester will constrain domestic discretionary spending.

    But once we cross that line, we'll be in a very different world. If President Obama is reelected, he will have the initiative to propose a package of tax cuts, restoring some of the Bush tax cuts for the middle class and perhaps others, in addition to other tax changes and modifications to the sequestration plans. Congress, even if one or both houses is controlled by Republicans, will hardly have the option to block everything, because all they would be blocking are middle-class tax cuts. The long-term budget forecast will change immediately, and any effort to temper long-term spending on programs such as Medicare and Medicaid, in addition to the savings likely to be achieved through the Affordable Care Act, will be in addition to the revenues gained from letting the Bush tax cuts expire, rather than held hostage to an unachievable grand bargain.

    It's hard for me to say this, because I've long bought the gospel of base-broadening tax reform, but in the weird circumstances of this moment, it's not the right answer, and I'm glad that there's a better alternative, which can be achieved just by letting the law take its course.

    * It's worth noting why each of the tax cuts expire. The Obama cuts expire because they were always intended as temporary stimulus. In the case of the Bush tax cuts, it's a different story: congressional Republicans in 2001 and 2003 wanted to push the cuts through without any compromise with Democrats. To do that, they needed to use the 50-vote budget reconciliation process, which prohibits any provision that increases the deficit in the future. To avoid that, they made the tax cuts expire, even though they wanted them to be permanent. That's the deep origins of the “fiscal cliff.

    Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

     

    Cliff-diving image via Shutterstock.com.

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  • Romney's Tax Plan is Another Shot Fired in the Generational War

    Oct 3, 2012Mark Schmitt

    Romney's new cap on tax deductions, like his other policies, would transfer wealth to the wealthy and hit the young while shielding the elderly.

    Romney's new cap on tax deductions, like his other policies, would transfer wealth to the wealthy and hit the young while shielding the elderly.

    On Tuesday, Mitt Romney hinted at a key detail about his mysterious tax reform proposal. While he had previously suggested that he might eliminate some tax deductions or credits to pay for his proposal to reduce rates by one-fifth, yesterday he suggested that he would instead cap each taxpayer's total deductions at $17,000. Some questions remain, such as whether he would include the exclusion for health insurance in the cap, whether it applies to single filers or married couples, or whether it would raise enough money to pay for his proposed cuts. (Probably not.) But assume that it's a cap on the value of the biggest deductions, such as the mortgage interest deduction and the deduction for state and local taxes.

    Because Romney would keep the preference for capital gains and dividend income and lower the top rate, any proposal to eliminate major deductions would in effect be, exactly as the Obama campaign has argued, a tax increase for the middle class to pay for a tax cut for the rich. A cap would work differently. Since it would impact only those whose deductions total more than $17,000, it would affect only the fairly well-off – those whose mortgage interest, state and local taxes, out-of-pocket health expenses, and other deductions exceed $17,000. As Suzy Khimm points out at Wonkblog, that will mostly be wealthy people in high-tax jurisdictions – but even the purchaser of a $450,000 house in Washington, DC would pay $18,000 in mortgage interest at the beginning.

    Yet the Romney proposal as a whole, with capital gains still protected, would nonetheless redistribute income from the merely well-off to the very, very rich. To see what I mean, let's look at Mitt Romney's own tax return for 2011: Romney's deductions total $4,519,140 – a lot of money. At his average tax rate of 14 percent, deductions saved him $632,679. A cap would take away all but about $2,000 of that $632,679.

    But look at what the capital gains preference does for him: Romney took home $12,573,249 in capital gains in 2011. (I've left out dividends, just to keep it simple.) At 15 percent, that's about $1,885,950 of his taxes. But if he paid the same rate as on ordinary income, 35 percent, he would pay about $4.4 million. So the capital gains preference saved him $2.5 million, while deductions saved him only about $632,000.

    I'm just using Romney as an example here, partly because he's a very rich person whose tax return I happen to have. But a well-off family, earning maybe $200,000 a year in ordinary income with a $600,000 house, is already paying a much higher rate than the Romneys of the world and would face a significant increase.

    There's one more thing about this proposal that hasn't really been mentioned: It would be a giant intergenerational transfer from young to old. Just as Paul Ryan's Medicare proposal creates a generational divide between those currently under 55 (who have spent much of their working lives in a stagnant economy) and those who are older and whose benefits would be protected, capping deductions has a similar generational effect. Why? Because younger people benefit disproportionately from the mortgage interest tax deduction and older people benefit from preferential rates on capital gains and dividends.

    The mortgage interest deduction is worth much more in the early life of a mortgage, when most of each monthly payment is interest, than later, when it becomes mostly principal. And the deduction has no value for people who have paid off their homes or paid mostly in cash from the sale of an old home. Finally, older homeowners are more likely to have purchased before the real estate bubble of the 2000s. In a 2008 paper, the economists James Poterba and Todd Sinai examined the distribution of tax deductions by age and other categories. They found that homeowners between the ages of 25 and 35 got an average value from the mortgage interest deduction of $1,155, and homeowners between 35 and 50 got $1,598. But homeowners over 65 got only $149 on average from the deduction.

    Who benefits from the preference for capital gains and dividends? Here's a chart from Paul Caron's TaxProf Blog: 

    As the chart indicates, taxpayers over 65 are twice as likely to have capital gains or dividend income than those 45-55, and those preferred sources of income make up much more of their income than for younger groups – six times as much in the case of dividends. The Romney tax plan would protect this advantage.

    While many older Americans live under great economic stress and poverty, there is a significant portion of them who benefited greatly from the economic prosperity of the post-War era, who had significant economic gains from their early investments in housing and in the stock market in the 1970s and 1980s, and who also benefit from programs such as Medicare and Social Security that provide them significant economic security. The younger generation (by which I mean those under 55) has not had the same advantages, and both Ryan's budget and Romney's tax plan would make it worse for them while protecting the wealthiest of the older generation.

    Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

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  • The Theory of the Moocher Class

    Sep 18, 2012Mark Schmitt

    The conservative narrative of the "entitlement society" ignores the fact that most Americans are both givers and takers.

    The conservative narrative of the "entitlement society" ignores the fact that most Americans are both givers and takers.

    As David Brooks points out, Mitt Romney's remarks describing 47 percent of the population as, in effect, moochers who would vote for Obama because they got government benefits were not “off the cuff,” as he described them today. There is a carefully developed theory behind his words, which has seen expression in previous Romney speeches, such as one last December in which he described Obama's vision as an “entitlement society” in which “everyone receives the same rewards,” but in which “we'll all be poor.”

    The lab where this theory that we're headed toward a radical egalitarian state is being developed is the American Enterprise Institute, the oldest of the conservative think tanks and one that, much like Romney, has forsaken the traditional business-minded conservatism of, say, the first President Bush, for hard conservatism in which everything is a grand showdown of incompatible worldviews. The two recent books by the current AEI president, Arthur Brooks (The Battle and The Road to Freedom) embody this apocalyptic approach, as does a recent essay-with-graphs by longtime AEI scholar and accomplished demographer Nicholas Eberstadt, called “A Nation of Takers.”

    AEI invited me to participate on a panel with Eberstadt a few months ago, when the essay was just a series of unpublished PowerPoint slides. I welcomed the invitation, but had to cancel due to a conflict. However, I wrote up notes at the time, and what follows is adapted from those notes.

    “A Nation of Takers” shows in some detail the expansion of government benefits since the 1960s and the share of the population they reach. The data is not wrong, but it's selective, and the story that Eberstadt has wrapped around them – that receipt of benefits makes people “dependents,” that people are becoming “chiselers,” choosing to maximize benefits, that the expansion of entitlements was a political effort by the left that slowly overcame “resistance” from real Americans -- is highly tendentious. The reality is that people who receive benefits are no more or less “dependent” than corporations that get tax breaks or legal protections, that the expanding costs of major entitlements are about rising health care costs and, to a lesser extent, the demographics of an aging nation rather than more people becoming “takers,” and that the expansion of some benefits to the lower rungs of the middle class was a bipartisan project in which conservatives should take pride.

    There is a story implied in the very word, “takers,” which is reminiscent of former Senator Phil Gramm's oft-repeated metaphor of a wagon: there are “people riding in the wagon,” he would say, and “people pulling the wagon,” and the people riding need to get out and pull. But while you can't pull a wagon and ride in it at the same time, you can certainly be a taker and a giver at the same time, or at different times in life. For example, Eberstadt's charts show that the government benefit that grew fastest in recent years, not surprisingly in a recession, is Unemployment Insurance. Everyone who receives benefits from Unemployment Insurance, without exception, has worked – usually full-time and steadily for at least a year – and paid into the system through their employers. And they will (they desperately hope) work again and pay even more. Some people might end up receiving more, over their long working lives, while others might pay in while having the good fortune never to be unemployed. But that's the nature of insurance. Most of us, other than the permanently disabled, are givers and takers to government, because that's what it is to be part of a community or a nation.

    A look at the individual programs behind all of these charts indicates that the big story is the extension of the social safety net from the very, very poor to the lower rungs of the working poor, particularly through expansion of Medicaid and tax credits for working families. With bipartisan support, these innovations have fundamentally changed the social safety net that both conservatives like Charles Murray and Lawrence Mead and liberals like David Ellwood described in different ways two decades ago: a system in which it really did make more sense for poor parents not to work than to give up the linked package of benefits that went with non-work, including welfare, Medicaid, and food stamps. Meager as those benefits were, they were often economically preferable to a minimum-wage job without health care or other assistance, and with the added costs of child care.

    Changing that system was not just a matter of imposing work requirements, but of smoothing the path into the workforce and toward self-sufficiency. Medicaid eligibility was delinked from welfare and linked instead to income, starting at 100 percent of the poverty level and reaching 185 percent in the Affordable Care Act. Together with the State Childrens' Health Insurance Program, expansions of the Earned Income Tax Credit, the Child Tax Credit, the Refundable Additional Child Tax Credit, the Child and Dependent Care Credit, the Make Work Pay Credit, expansion of child care, the after-school and summer food programs, and others, we have created a safety net that extends well into the low-income working population. These individuals, too, are both takers and givers – they are working hard, contributing to the economy, and while some of them may not pay federal income taxes at the moment, they will as they move up.

    This dramatic reorientation of the safety net didn't just happen; most of these initiatives had significant bipartisan and cross-ideological support. Not only do they provide a ladder out of poverty and reward work, they also make possible the relatively low-wage, low-security labor market that gives employers enormous flexibility. Conservatives used to argue, for example, that raising the EITC was a better alternative to raising the minimum wage, and they mostly won that fight. The result is that low-wage employment is essentially subsidized, and businesses are able to hire at very low cost and low commitment, with none of the barriers to either hiring or firing that are common in Europe. Paul Ryan, Mitt Romney and others in the current wave of conservatism seem to have entirely forgotten the merits of these innovations, and in their promise to protect programs only for the very, very poor, they threaten to restore the hopeless poverty traps of the 1970s and 1980s.

    It's also worth noting that most members of the “Nation of Takers” probably don't think of ourselves as “takers.” In her important recent book, The Submerged State, Suzanne Mettler of Cornell looked at data asking people whether they had ever benefited from a government social program. While most participants in the classic, older transfer programs were aware that they had benefited from programs, most of the newer programs, especially those delivered through the tax code, were invisible to a majority of their beneficiaries. (Even 45 percent of Social Security recipients said they had never used a government program, which may reflect the belief that they are receiving benefits they've paid for.)

    While many on the left latched onto this data as evidence that Americans, especially conservatives, are hypocrites who revel in public benefits while maintaining an anti-government stance, there's really much more to it than that. Delivering benefits through “submerged state” programs has broken any kind of connection between citizens and the benefits we receive. We can't have a clear debate about whether we're a “Nation of Takers” or whether these benefits are essential to maintaining the promise of a middle class country if most of us don't even know the role that government plays in our lives.

    Conservatives and liberals built the submerged state together, often sharing a preference for delivering benefits through the tax code. But a concerted effort to reduce the long-term budget deficit, with tax reform at the center of it, creates an opportunity to surface submerged programs and replace them with far more efficient, visible, direct programs. When the public is fully aware of the benefits it's receiving, it's possible that voters will recoil in shock at the degree of their dependency, or perhaps they will regain a healthy respect for the role of government in providing some of the security that helps them take full advantage of their capacities and opportunities.

    It's disappointing that Romney shows no interest in either drawing out the submerged state or in the bipartisan project (of which his health reform in Massachusetts was a part) of smoothing the path to economic success for families. Instead, he just sees half the country as people who can't be convinced “that they should take personal responsibility and care for their lives.” That's a very strange view of this country and a tragic development in modern conservatism.

    Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

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