Daily Digest - August 21: Time to Consider the Mortgage Deduction?

Aug 21, 2014Rachel Goldfarb

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How a Widely Beloved Tax Deduction Really Just Benefits the Well-Off and Exacerbates Inequality (TAP)

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How a Widely Beloved Tax Deduction Really Just Benefits the Well-Off and Exacerbates Inequality (TAP)

The mortgage interest deduction primarily benefits those who make at least $100,000 a year, and dwarfs funding for housing programs for the poor, writes Alex Ulam.

  • Roosevelt Take: In his latest white paper on tax reform, Roosevelt Institute Chief Economist Joseph Stiglitz suggests changes to the mortgage interest deduction that would make it more equitable.

What Would Real Economic Justice Look Like in Ferguson? (The Nation)

Michelle Chen reports on organized labor's involvement in Ferguson, MO, where a millennial labor group called Future Fighters is asking protesters want they want their community to look like.

Fed Dissenters Increasingly Vocal About Inflation Fears (NYT)

The newly released minutes from the Federal Reserve's July meeting show that some Fed officials feel the central bank has done all it can to improve the economy, writes Binyamin Appelbaum.

CEOs are Dumb When it Comes to This (MarketWatch)

Simon Constable reports on a new study that shows that stock option compensation isn't really considered in dollars: CEOs tend to get the same number of options regardless of the stock's value.

Why Bank of America Probably Won’t End Up Actually Paying US$17B in Mortgage Securities Settlement (Financial Post)

Consumer relief as negotiated in this settlement and others rarely cost the banks much at all, says Jeff Horwitz. But with few other sources of consumer relief, advocates welcome this one.

The Latest Attack on Labor, From The Group That Brought Us ‘Harris v. Quinn’ (In These Times)

Moshe Marvit explains the National Right to Work Committee's latest tactic, which aims to end exclusive representation in public sector unions and weaken collective bargaining.

New on Next New Deal

Mean and Lean Local Government

In his video speculation for the Next American Economy project, Stefaan Verlhurst, Co-Founder of GovLab, projects how municipal governments might shift tactics to take advantage of broader resources.

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Stefaan Verlhurst: Mean and Lean Local Government

Aug 21, 2014

The Next American Economy project brought together 30 experts from various disciplines to envision tomorrow's economic and political challenges and develop today's solutions. Their assignment: be bold, and leave the conventional wisdom -- and their own opinions -- behind. In today's video, Stefaan Verhulst of GovLab speculates on future municipal policy that allows cities to do more with less.

The Next American Economy project brought together 30 experts from various disciplines to envision tomorrow's economic and political challenges and develop today's solutions. Their assignment: be bold, and leave the conventional wisdom -- and their own opinions -- behind. In today's video, Stefaan Verhulst of GovLab speculates on future municipal policy that allows cities to do more with less.

Stefaan Verhulst, Co-Founder and Chief Research and Development Officer of GovLab, speculates on future municipal policy that allows cities to do more with less. Combining open-source data with crowd-sourcing networks, city government will be able to connect experts with public problems more efficiently. An enlightened municipal agenda can help battle the recent governance deficit and lack of government trust rising in the US, Stefaan said.

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Daily Digest - August 18: Looking for Strong Statements on Ferguson

Aug 18, 2014Rachel Goldfarb

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Did Obama’s Response to Ferguson Fall Short? (Melissa Harris-Perry)

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Did Obama’s Response to Ferguson Fall Short? (Melissa Harris-Perry)

Roosevelt Institute Fellow Dorian Warren questions why President Obama has avoided unequivocal language to condemn the police state in Ferguson. His segment begins at 6:40.

Why the Liberal Love for Rand Paul is Wrong (MSNBC)

Senator Paul blames big government for what he calls the "erosion" of Black civil liberties, but Dorian Warren counters that local governments do plenty to earn the distrust of the Black community.

Phony Capitalism (Harper's Magazine)

In this excerpt from his recent white paper, Roosevelt Institute Chief Economist Joseph Stiglitz suggests better tax policies could lead to a less economically stratified economy.

‘Slack’ in Job Market Hurts Wage Growth, Chicago Fed Paper Says (WSJ)

The paper notes that the slack labor market, with so many unemployed, has an even stronger impact on wage growth for those whose wages are already low, reports Pedro da Costa.

Paul Ryan’s Welfare Reform Ideas Are Even Worse Than You Think (The Nation)

Michelle Chen says that Ryan's proposal for welfare reform marks poor people as the problem in need of fixing, rather than the economic and social structures that hold up poverty.

20 Tax Dodgers: $240 Million for CEOs, Big Loss for the American People (The Fine Print)

Scott Klinger ties tax-deductible CEO pay to a USA Today list of companies that paid no federal income taxes last quarter, and says the combination highlights just how broken our tax system is today.

New on Next New Deal

Rioting Mainly for Fun and Profit: The Neoconservative Origins of Our Police Problem

Roosevelt Institute Fellow Mike Konczal ties increased use of police force to neoconservative notions of the "urban crisis" as a failure of liberalism to be targeted with harsh enforcement.

Suspensions are Keeping Students of Color from their Diplomas

Roosevelt Institute Summer Academy Fellow Bassem El Remesh argues that Minnesota needs to adopt stricter rules for when suspensions are permitted due to the impact on graduation rates.

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Daily Digest - August 8: The Man with the Misguided Anti-Poverty Plan

Aug 8, 2014Rachel Goldfarb

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Paul Ryan’s Magical Thinking (The Baffler)

Paul Ryan's belief that poverty is rooted in personal failure isn't the only problem with his anti-poverty plan, writes Ned Resnikoff. It's also impractical to implement and too easily abused.

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Paul Ryan’s Magical Thinking (The Baffler)

Paul Ryan's belief that poverty is rooted in personal failure isn't the only problem with his anti-poverty plan, writes Ned Resnikoff. It's also impractical to implement and too easily abused.

An Interview With the President (The Economist)

While discussing corporate responsibility in this wide-ranging interview, President Obama points out that companies profess to care about social issues, but only lobby for their tax breaks.

Let's Do It! Let's Bring Back Earmarks! (HuffPo)

Ending earmarks has done nothing to reduce American cynicism about government's motives, and has contributed to congressional gridlock, writes Jason Linkins.

When U.S. Companies Skip the Country to Dodge Taxes, Their Shareholders Can Foot the Bill (Quartz)

Since shareholders are hit with a capital gains tax bill when companies use inversion (merging with a foreign company) to avoid taxes, Tim Fernholz says raising those rates could slow the problem.

These 7 Charts Show Why the Rent Is Too Damn High (MoJo)

Erika Eichelberger and AJ Vicens lay out the data explaining shifts in rental housing. They say that reducing government's role in housing finance could direct funds toward affordable rental housing.

New on Next New Deal

Without Public Investment, the U.S. Will Fall Into Chaos

In her video speculation for the Next American Economy project, Sarah Burd-Sharps, Co-Director of Measure for America, predicts that fiscal moderates will push public investment out of fear of a more costly future.

The Pragmatic Libertarian Case for a Basic Income Doesn't Add Up

Roosevelt Institute Fellow Mike Konczal says that Matt Zwolinski's case for a basic income guarantee makes faulty assumptions about what government is already providing through welfare.

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The Pragmatic Libertarian Case for a Basic Income Doesn't Add Up

Aug 8, 2014Mike Konczal

Cato Unbound has a symposium on the “pragmatic libertarian case” for a Basic Income Guarantee (BIG), as argued by Matt Zwolinski. What makes it pragmatic? Because it would be a better alternative to the welfare state we now have. It would be a smaller, easier, cheaper (or at least no more expensive) version of what we already do, but have much better results.

Fair enough. But for the pragmatic case to work, it has to be founded on an accurate understanding of the current welfare state. And here I think Zwolinski is wrong in his description in three major ways.

He describes a welfare state where there are over a hundred programs, each with their own bureaucracy that overwhelms and suffocates the individual. This bureaucracy is so large and wasteful that simply removing it and replacing it with a basic income can save a ton of money. And we can get a BIG by simply shuffling around the already existing welfare state. Each of these assertions are misleading if not outright wrong.

Obviously, in an essay like this, it is normal to exaggerate various aspects of the reality in order to convince skeptics and make readers think in a new light. But these inaccuracies turn out to invalidate his argument. The case for a BIG will need to be built on a steadier footing.

Too Many Programs?

Zwolinski puts significant weight on the idea that there are, following a Cato report, 126 welfare programs spending nearly $660 billion dollars. That’s a lot of programs! Is that accurate?

Well, no. The programs Zwolinski describes can be broken down into three groups. First you have Medicaid, where the feds pay around $228 billion. Then you have the six big programs that act as “outdoor relief” welfare, providing cash, or cash-like compensation. These are the Earned Income Tax Credit, Temporary Assistance for Needy Families, Supplemental Security Income, Supplemental Nutrition Assistance Program (food stamps), housing vouchers and the Child Tax Credit. Ballpark figure, that’s around $212 billion dollars.

So only 7 programs are what we properly think of as welfare, or cash payments for the poor. Perhaps we should condense those programs, but there aren't as many as we originally thought. What about the remaining 119 programs?

These are largely small grants to local institutions of civil society to provide for the common good. Quick examples involve $2.5 billion to facilitate adoption assistance, $500 million to help with homeless shelters, $250 million to help provide food for food shelters (and whose recent cuts were felt by those trying to fight food insecurity), or $10 million for low income taxpayer clinics.

These grants go largely to nonprofits who carry out a public purpose. State funding and delegation of public purpose has always characterized this “third sector” of civil institutions in the United States. Our rich civil society has always been built alongside the state. Perhaps these are good programs or perhaps they are bad, but the sheer number of programs have nothing to do with the state degrading the individual through deadening bureaucracy. If you are just going after the number of programs, you are as likely to bulldoze our nonprofit infrastructure that undergirds civil society as you are some sort of imagined totalitarian bureaucracy.

Inefficient, out-of-control bureaucracy?

But even if there aren’t that many programs, certainly there are efficiencies to reducing the seven programs that do exist. Zwolinski writes that “[e]liminating a large chunk of the federal bureaucracy would obviously...reduce the size and scope of government” and that “the relatively low cost of a BIG comes from the reduction of bureaucracy.”

So are these programs characterized by out of control spending? No. Here they are calculated by Robert Greenstein and CBPP Staff.

The major programs have administrative costs ranging between 1 percent (EITC) and 8.7 percent (housing vouchers), each proportionate to how much observation of recipients there is. Weighted, the average administrative cost is about 5 percent. To put this in perspective, compare it with private charity. According to estimates by Givewell, their most favored charities spend 11 percent on administrative costs, significantly more than is spent on these programs.

More to the point, there isn’t a lot of fat here. If all the administrative costs were reduced to 1 percent, you’d save around $25 billion dollars. That’s not going to add enough cash to create a floor under poverty, much less a BIG, by any means.

Pays for Itself?

So there are relatively few programs and they are run at a decent administrative cost. In order to get a BIG, you’ll need some serious cash on the table. So how does Zwolinski argues that “a BIG could be considerably cheaper than the current welfare state, [or at least it] would not cost more than what we currently spend”?

Here we hit a wall with what we mean by the welfare state. Zwolinski quotes two example plans. The first is from Charles Murray. However, in addition to the seven welfare programs mentioned above, he also collapses Social Security, Medicare, unemployment insurance, and social insurance more broadly into his basic income. If I recall correctly, it actually does cost more to get to the basic income he wants when he wrote the book in 2006, but said that it was justified because Medicare spending was projected to skyrocket a decade out, much faster than the basic income.

His other example is a plan by Ed Dolan. Dolan doesn’t touch health care spending, and for our purposes doesn’t really touch Social Security. How does he get to his basic income? By wiping out tax expenditures without lowering tax rates. He zeros out tax expenditures like the mortgage interest deduction, charitable giving, and the personal exemption, and turns the increased revenue into a basic income.

We have three distinct things here. We have the seven programs above that are traditionally understood as welfare programs of outdoor relief, or cash assistance to the poor. We have social insurance, programs designed to combat the Four Horsemen of “accident, illness, old age, loss of a job” through society-wide insurance. And we have tax expenditures, the system that creates an individualized welfare state through the tax code.

Zwolinski is able to make it seem like we can get a BIG conflict-free by blurring each of these three things together. But social insurance isn’t outdoor relief. People getting Social Security don’t think that they are on welfare or a public form of charity. Voters definitely don’t like the idea of scratching Medicare and replacing it with (a lot less) cash, understanding them as two different things. And social insurance, like all insurance, is able to get a lot of bang for the buck by having everyone contribute but only take out when necessary, for example they are too old to work. Public social insurance, through its massive scale, has an efficiency that beats out private options. If Zwolinski wants to go this route, he needs to make the full case against the innovation of social insurance itself.

Removing tax expenditures, which tend to go to those at the top of the income distribution, certainly seems like a good way to fund a BIG. However we’ll be raising taxes if we go this route. Now, of course, the idea that there is no distribution of income independent of the state is common sense, so the word “redistribution” is just a question-begging exercise. However the top 20 percent of income earners will certainly believe their tax bill is going up and react accordingly.

So?

Zwolinski is trying to make it seem like we can largely accomplish a BIG by shuffling around the things that state does, because the state does them poorly. But the numbers simply won’t add up. Or his plan will hit a wall when social insurance is on the chopping block, or when the rich revolt when their taxes go up.

The case for the BIG needs to be made from firmer ground. Perhaps it is because the effects of poverty are like a poison. Or maybe it will provide real freedom for all by ensuring people can pursue their individual goals. Maybe it is because the economy won’t produce jobs in the capital-intensive robot age of the future, and a basic income will help ensure legitimacy for this creatively destructive economy. Heck, maybe it just compensates for the private appropriation of common, natural resources.

But what won’t make the case is the idea that the government already does this, just badly. When push comes to shove, the numbers won’t be there.

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Cato Unbound has a symposium on the “pragmatic libertarian case” for a Basic Income Guarantee (BIG), as argued by Matt Zwolinski. What makes it pragmatic? Because it would be a better alternative to the welfare state we now have. It would be a smaller, easier, cheaper (or at least no more expensive) version of what we already do, but have much better results.

Fair enough. But for the pragmatic case to work, it has to be founded on an accurate understanding of the current welfare state. And here I think Zwolinski is wrong in his description in three major ways.

He describes a welfare state where there are over a hundred programs, each with their own bureaucracy that overwhelms and suffocates the individual. This bureaucracy is so large and wasteful that simply removing it and replacing it with a basic income can save a ton of money. And we can get a BIG by simply shuffling around the already existing welfare state. Each of these assertions are misleading if not outright wrong.

Obviously, in an essay like this, it is normal to exaggerate various aspects of the reality in order to convince skeptics and make readers think in a new light. But these inaccuracies turn out to invalidate his argument. The case for a BIG will need to be built on a steadier footing.

Too Many Programs?

Zwolinski puts significant weight on the idea that there are, following a Cato report, 126 welfare programs spending nearly $660 billion dollars. That’s a lot of programs! Is that accurate?

Well, no. The programs Zwolinski describes can be broken down into three groups. First you have Medicaid, where the feds pay around $228 billion. Then you have the six big programs that act as “outdoor relief” welfare, providing cash, or cash-like compensation. These are the Earned Income Tax Credit, Temporary Assistance for Needy Families, Supplemental Security Income, Supplemental Nutrition Assistance Program (food stamps), housing vouchers and the Child Tax Credit. Ballpark figure, that’s around $212 billion dollars.

So only 7 programs are what we properly think of as welfare, or cash payments for the poor. Perhaps we should condense those programs, but there aren't as many as we originally thought. What about the remaining 119 programs?

These are largely small grants to local institutions of civil society to provide for the common good. Quick examples involve $2.5 billion to facilitate adoption assistance, $500 million to help with homeless shelters, $250 million to help provide food for food shelters (and whose recent cuts were felt by those trying to fight food insecurity), or $10 million for low income taxpayer clinics.

These grants go largely to nonprofits who carry out a public purpose. State funding and delegation of public purpose has always characterized this “third sector” of civil institutions in the United States. Our rich civil society has always been built alongside the state. Perhaps these are good programs or perhaps they are bad, but the sheer number of programs have nothing to do with the state degrading the individual through deadening bureaucracy. If you are just going after the number of programs, you are as likely to bulldoze our nonprofit infrastructure that undergirds civil society as you are some sort of imagined totalitarian bureaucracy.

Inefficient, out-of-control bureaucracy?

But even if there aren’t that many programs, certainly there are efficiencies to reducing the seven programs that do exist. Zwolinski writes that “[e]liminating a large chunk of the federal bureaucracy would obviously...reduce the size and scope of government” and that “the relatively low cost of a BIG comes from the reduction of bureaucracy.”

So are these programs characterized by out of control spending? No. Here they are calculated by Robert Greenstein and CBPP Staff.

The major programs have administrative costs ranging between 1 percent (EITC) and 8.7 percent (housing vouchers), each proportionate to how much observation of recipients there is. Weighted, the average administrative cost is about 5 percent. To put this in perspective, compare it with private charity. According to estimates by Givewell, their most favored charities spend 11 percent on administrative costs, significantly more than is spent on these programs.

More to the point, there isn’t a lot of fat here. If all the administrative costs were reduced to 1 percent, you’d save around $25 billion dollars. That’s not going to add enough cash to create a floor under poverty, much less a BIG, by any means.

Pays for Itself?

So there are relatively few programs and they are run at a decent administrative cost. In order to get a BIG, you’ll need some serious cash on the table. So how does Zwolinski argues that “a BIG could be considerably cheaper than the current welfare state, [or at least it] would not cost more than what we currently spend”?

Here we hit a wall with what we mean by the welfare state. Zwolinski quotes two example plans. The first is from Charles Murray. However, in addition to the seven welfare programs mentioned above, he also collapses Social Security, Medicare, unemployment insurance, and social insurance more broadly into his basic income. If I recall correctly, it actually does cost more to get to the basic income he wants when he wrote the book in 2006, but said that it was justified because Medicare spending was projected to skyrocket a decade out, much faster than the basic income.

His other example is a plan by Ed Dolan. Dolan doesn’t touch health care spending, and for our purposes doesn’t really touch Social Security. How does he get to his basic income? By wiping out tax expenditures without lowering tax rates. He zeros out tax expenditures like the mortgage interest deduction, charitable giving, and the personal exemption, and turns the increased revenue into a basic income.

We have three distinct things here. We have the seven programs above that are traditionally understood as welfare programs of outdoor relief, or cash assistance to the poor. We have social insurance, programs designed to combat the Four Horsemen of “accident, illness, old age, loss of a job” through society-wide insurance. And we have tax expenditures, the system that creates an individualized welfare state through the tax code.

Zwolinski is able to make it seem like we can get a BIG conflict-free by blurring each of these three things together. But social insurance isn’t outdoor relief. People getting Social Security don’t think that they are on welfare or a public form of charity. Voters definitely don’t like the idea of scratching Medicare and replacing it with (a lot less) cash, understanding them as two different things. And social insurance, like all insurance, is able to get a lot of bang for the buck by having everyone contribute but only take out when necessary, for example they are too old to work. Public social insurance, through its massive scale, has an efficiency that beats out private options. If Zwolinski wants to go this route, he needs to make the full case against the innovation of social insurance itself.

Removing tax expenditures, which tend to go to those at the top of the income distribution, certainly seems like a good way to fund a BIG. However we’ll be raising taxes if we go this route. Now, of course, the idea that there is no distribution of income independent of the state is common sense, so the word “redistribution” is just a question-begging exercise. However the top 20 percent of income earners will certainly believe their tax bill is going up and react accordingly.

So?

Zwolinski is trying to make it seem like we can largely accomplish a BIG by shuffling around the things that state does, because the state does them poorly. But the numbers simply won’t add up. Or his plan will hit a wall when social insurance is on the chopping block, or when the rich revolt when their taxes go up.

The case for the BIG needs to be made from firmer ground. Perhaps it is because the effects of poverty are like a poison. Or maybe it will provide real freedom for all by ensuring people can pursue their individual goals. Maybe it is because the economy won’t produce jobs in the capital-intensive robot age of the future, and a basic income will help ensure legitimacy for this creatively destructive economy. Heck, maybe it just compensates for the private appropriation of common, natural resources.

But what won’t make the case is the idea that the government already does this, just badly. When push comes to shove, the numbers won’t be there.

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Daily Digest - August 1: Too Big to Fail vs. Too Small to Matter

Aug 1, 2014

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An In-Depth Look at Campaign Finance Reform (MSNBC)

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An In-Depth Look at Campaign Finance Reform (MSNBC)

In this extended online segment, Roosevelt Institute Fellow Dorian Warren speaks with Zephyr Teachout about using multiple matching funds as a tool to increase the power of small donors.

Playing the ‘Who’s the Boss?’ Game with Employees (WaPo)

The National Labor Relations Board ruling that McDonald's can be held accountable for franchise labor violations sheds light on the ways employers try to dodge responsibility, writes Catherine Rampell.

  • Roosevelt Take: Roosevelt Institute President and CEO Felicia Wong and Senior Fellow Richard Kirsch commented on the NLRB decision earlier this week.

‘Pension Smoothing’: The Gimmick Both Parties in Congress Love (NYT)

Josh Barro says pension smoothing, which increases revenues by allowing smaller pension contributions, and other gimmicks provide funding on too-short timelines, requiring another hunt for funds soon after.

Feds Say Big Banks Are Still Too Big to Fail (MoJo)

Despite Dodd-Frank's financial regulations, a new Government Accountability Office report says investors still expect bailouts if the largest banks fail, giving those banks advantages over smaller ones, writes Erika Eichelberger.

Hope Springs Eternal, But The Data Is Actually Pretty Mixed About Whether Or Not Recovery Is Accelerating (Working Economics)

Josh Bivens cautions against excitement about GDP and job growth as signs of a speedier recovery. The data isn't actually that strong, and he sees the potential for job growth to slow.

New on Next New Deal

Let's Hope the GAO Report Ends the Too-Big-to-Fail Subsidy Distraction

Roosevelt Institute Fellow Mike Konczal writes that the existence of a too-big-to-fail subsidy isn't as important or potentially destructive as the systemic problems of the financial system.

Education Left Behind

Edyta Obrzut, the Campus Network's NextGen Illinois Research Fellow, examines the challenges facing education policy in Illinois today, and the potential solutions put forward by NextGen caucuses.

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Daily Digest - July 28: Work Shouldn't Be a Threat to Working Families

Jul 28, 2014Rachel Goldfarb

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Poor Parents Need Work-Life Balance Too (The Nation)

Michelle Chen says that without the flexibility of scheduling offered by white-collar jobs, workers in the service industries face volatile schedules that disrupt family lives.

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Poor Parents Need Work-Life Balance Too (The Nation)

Michelle Chen says that without the flexibility of scheduling offered by white-collar jobs, workers in the service industries face volatile schedules that disrupt family lives.

Fast-Food Workers Intensify Fight for $15 an Hour (NYT)

At the largest convention of fast-food workers, Steven Greenhouse reports that workers approved escalated tactics, drawing on the nonviolent civil disobedience of the Civil Rights Movement.

Close the Tax Loophole on Inversions (WaPo)

Treasury Secretary Jacob J. Lew explains the need for immediate action to reform the tax code to limit companies' ability to avoid taxes by merging with foreign companies.

Fed’s Targeting of Asset Bubbles Leads to Contradictions (AJAM)

Bubbles might be necessary to obtain full employment, writes Philip Pilkington, but limiting bubbles is among the Federal Reserve's goals. Higher deficits or lower inequality could help.

New on Next New Deal

Two Tiers of College Tuition? Not on This Campus

Mohanned Abdelhameed, Vice President of the San Bernardino Valley Community College chapter of the Campus Network, explains why students rejected two-tiered tuition pricing models.

Inequality Could Spark a Second Civil War

In his speculation for the Next American Economy initiative, Roosevelt Institute Fellow Dorian Warren imagines a future in which national cohesion has disintegrated and a one-party civil oligarchy has taken control.

Quick Thoughts on Ryan's Poverty Plan: What Are the Risks?

Roosevelt Institute Fellow Mike Konczal says that Paul Ryan's wholesale adoption of the President's plan for the Earned Income Tax Credit shows the value of pushing further to the left.

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Quick Thoughts on Ryan's Poverty Plan: What Are the Risks?

Jul 25, 2014Mike Konczal

Paul Ryan released his anti-poverty plan yesterday, and lots of people have written about it. Bob Greenstein has a great overview of the block-granting portion of the plan.

Paul Ryan released his anti-poverty plan yesterday, and lots of people have written about it. Bob Greenstein has a great overview of the block-granting portion of the plan. I'm still reading and thinking about it, but in the interest of answering the call for constructive criticism, a few points jump out that I haven't seen others make yet.

How did we get here?

Republicans obviously have an interest in branding themselves as a "party of ideas." And many liberals and Democrats also have an interest in trying to make the GOP seem like it's been devoid of any ideas in the past several years.

But it's worth noting that within a year of Democrats and liberal thinkers getting actively behind a serious increase in the minimum wage, and many activists making strides toward it on the local level, Paul Ryan just wholesale adopted President Obama's EITC expansion program. That demonstrates the value of pushing the envelope.

Complexity and the EITC

Ryan's plan, correctly, makes a big deal out of the complexity of receiving the EITC. The difficulty of navigating the system, the large number of improper payments, people not receiving what they should, people having to use tax-prep services to get the credit, and so on.

This is why I'm a huge fan of higher minimum wages as a complement to the EITC. Instead of 40 pages of rules and a dozen potential forms to fill out, you just put a sign that reads "$10.10 an hour" on the wall. Bosses and workers can't trick each other or get confused about this, and nobody has to pay a tax-prep service to figure it out. Easy peasy.

Ryan wants to "direct the Treasury Department to investigate further" how to fix this, but in practice Treasury just turns around and yells at the IRS. And if the IRS knew how to fix it, they'd probably be on it.

There is also a simpler plan to fix this issue: just have the government mail people their tax forms already filled out, for them to either sign or correct. When a trial version of this, "Ready Return," was tried in California, people immediately saw the potential for this to fix EITC delivery issues. Perhaps anti-poverty advocates can help provide momentum on this front.

Bosses and the EITC

Both Ryan and Marco Rubio have referred to putting the ETIC credit directly into workers' paychecks. Ryan: "[A]nother potential area of reform should focus upon EITC simplicity and delivery. If families received the credit with their paychecks, the link between work and the EITC would be that much clearer."

I'd be worried if employers were the ones responsible for adding this wage subsidy. I don't think there's a convincing argument that the EITC or food stamps lower wages directly (though there is one indirectly for the EITC), but if employers got a wage subsidy themselves to pass to their workers, it's easy to imagine them pocketing part of it through lower wages, especially in the monopsony of low-wage labor markets.

A discussion of welfare reform

Rather than a "welfare reform -- yay or nay?" conversation, it would be really useful if people arguing for the block-granting of the entire anti-poverty agenda would point out what they do and do not like about what happened in the 1990s. Especially as proponents hold up welfare reform as the model.

As Matt Bruenig notes, the work requirements and other restrictions go against the concept of subsidiarity. Greenstein writes, "the block grant would afford state and local officials tantalizing opportunities to use some block grant funds to replace state and local funds now going for similar services...That’s what happened under the Temporary Assistance for Needy Families (TANF) block grant." In retrospect, TANF didn't survive the business cycle, and it clearly has cut spending by cutting the rolls. Is that what people want to accomplish with food stamps, which have done wonders to boost childhood life outcomes? If not, what can be done other than assert that this time will be different?

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Daily Digest - July 16: Flawed Models for Understanding the Wage Fight

Jul 16, 2014Rachel Goldfarb

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A Biased Report on the Minimum Wage? (East Bay Express)

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A Biased Report on the Minimum Wage? (East Bay Express)

Darwin BondGraham speaks to Roosevelt Institute Fellow Annette Bernhardt, who says a study criticizing plans for a $12.25 minimum wage in Oakland used bad methodology.

Obama Administration Urges Immediate Action on 'Inversions' (WSJ)

The administration has asked Congress to put an end to these reincorporations abroad for tax purposes, and called instead for "economic patriotism," reports John D. McKinnon.

House Votes to Pay for Roads With Underfunded Pensions (The Wire)

Arit John explains the latest short-term plan for funding the Highway Trust Fund, which he says involves spending future tax revenue now and will lead to more shortfalls in the long run.

Hobby Lobby: A New Tool for Crushing Workplace Unionization? (MSNBC)

Ned Resnikoff explains how the Hobby Lobby decision could play out if an employer claims religious opposition to collective bargaining, as is already permitted for religious schools.

A Push to Give Steadier Shifts to Part-Timers (NYT)

Steven Greenhouse looks at the momentum behind laws that aid part-time workers by requiring further advance notice, extra pay for on-call work, and preference for more hours.

New on Next New Deal

Search Models, Mass Unemployment, and the Minimum Wage

Roosevelt Institute Fellow Mike Konczal looks at what's wrong with the models some economists are using to understand high unemployment and prolonged job vacancies.

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Detroit's Revitalization Funds Could Re-Empower Residents, Too

Jul 9, 2014Dominic Russel

Through participatory budgeting, Detroit could bring its resident's hyper-local expertise to the revitalization process.

Through participatory budgeting, Detroit could bring its resident's hyper-local expertise to the revitalization process.

The city of Detroit is suffering. It has the highest unemployment rate of the nation’s largest cities at 23 percent, the highest poverty rate at 36.4 percent, and has been listed by Forbes as America’s most dangerous city for five years in a row. As a result of its shrinking population, the city needs $850 million worth of blight removal and cleanup. On top of this, Detroit had an estimated $18 billion in debt in 2013, which caused the state of Michigan to essentially force the city to declare bankruptcy in a desperate attempt to save it.

Detroit urgently needs funding for any revitalization efforts. One source that the city receives each year is in Community Development Block Grants (CDBG) from the federal government. The grant is one part of the funding that the federal department of Housing and Urban Development (HUD) distributes to metropolitan cities. The CDBG is the portion that must go to community development projects, including the rehabilitation of residential and non-residential buildings, the construction of public facilities and improvements, and more. CDBG budgeting also must include a mechanism for citizen participation.

Detroit’s current method for allocating CDBG funds is broken, as evidenced by both their inability to completely distribute funding and the lack of citizen involvement in the process. Each year from 2010 to 2012 the city failed to spend a portion of their CDBGs, nearly causing the federal government to recapture money and diminish future grants. Again in 2014, the city is making a last-minute amendment to their CBDG plan, reallocating $12 million to avoid a recapture. This was necessary, in part, because the city allocated funds to programs that no longer exist. The main citizen participation program is the Neighborhood Opportunity Fund (NOF), in which service organizations apply for funding from the CDBG. This process, however, is limited to organizations and leaves no outlet for individual residents. In fact, individuals have only one public hearing annually for the entire HUD program. The interests of residents are not effectively being channeled into spending. All of this adds up to a system in need of reform.

Detroit has the opportunity to use CDBGs to develop a more citizen-involved allocation process. This can be achieved by creating a participatory budgeting (PB) program, which empowers citizens to allocate a portion of their own government resources and has been recognized by the United Nations as a “best practice” for local governance. A Detroit model could be based off programs in Chicago and New York City. These programs include a series of workshops where residents brainstorm ideas and elect community representatives who turn the ideas into full proposals. Residents then vote on the proposals, and the winning projects are put into action.

In Detroit, the city’s Planning and Development Department can ensure projects conform to HUD guidelines and lead outreach. The department would target traditionally underrepresented viewpoints by aiming outreach at neighborhoods with low- and moderate-income residents, using public schools for outreach to students and parents, and locating meetings and voting stations in areas that are accessible for underrepresented groups. A PB process has the potential to engage Detroit residents and better utilize their hyper-local knowledge to allocate CDBG funding.

On the night Detroit Mayor Mike Duggan was elected in 2013 he said, “Detroit’s turnaround will not occur until everyday Detroiters are involved in this effort.” He has the opportunity to create a clear path to this community involvement for all Detroiters by using participatory budgeting to determine how to spend a portion of the city’s federal grants. Not only would this make Duggan’s dream a reality, but it would reform an antiquated allocation process that has nearly cost the city millions of dollars.

Dominic Russel, a Michigan native, is a rising sophomore at the University of Michigan and is a Summer Academy Fellow interning at the Roosevelt Institute | Campus Network as the Leadership Strategy Intern.  

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