As Super Tuesday’s nomination contests amplify contentious campaign politics, Brookings scholars highlight a range of public policy issues that require critical attention this election year, including Gary Burtless on tax cuts, Bill Frenzel on controlling the deficit, Audrey Singer on U.S. immigration policy, Russ Whitehurst on the importance of education reform and school choice, Howard Wial on the need to boost American manufacturing, and Jonathan Rauch on foreign policy challenges facing the nation.
A Tax Cut that Can Actually Spur Employment
Gary Burtless, Senior Fellow, Economic Studies
A topic on most voters’ minds—and thus politians’—is how to cut unemployment and boost the pace of the recovery. Can policymakers bribe employers to hire additional workers? Many economists, including me, think we can and we should. The crucial question is how to design the bribe so it is as cheap as possible for taxpayers and as effective as possible for the unemployed.
One idea pushed by economists is to establish a temporary tax subsidy for employers who add workers to their payrolls. The reasoning behind this idea is that by cutting the cost of hiring added workers, the government can induce employers to boost the ranks of the employed. Experience with past employment subsidies suggests these tax cuts should be easy to understand, inexpensive to administer, targeted to encourage payroll expansion, and, of course, designed to minimize payments to employers for hiring that would they would have done anyway, without the tax credit.
A simple way to target the tax credit effectively is to focus the subsidies solely on workers who represent net additions to an employer’s payroll. If an employer had 100 workers on its payroll last year, it must have at least 101 this year to obtain any subsidy. For most employers, this requirement is straightforward to enforce because payrolls must be reported to the unemployment insurance system on a regular basis. Employers may be tempted to boost their payrolls by reducing the work hours assigned to each employee. The hiring subsidy can be set up to avoid this kind of gaming. To get a subsidy, employers can be required to maintain quarterly average wages within a fixed percentage of the previous year’s average wage
A major challenge is to design a credit that is both easy for employers to understand and cheap to administer. The simplest way: structure the subsidy as a cut in a tax that employers already must pay—specifically, the employer contribution for Social Security and Medicare. For workers who earn less than $106,800, the employer contribution is 7.65% of the worker’s wage. A simple hiring subsidy would be one that eliminates the employer payroll tax contribution on wages paid to workers who represent net new hires, that is, who increase the employer’s total payroll. (To protect the Social Security and Medicare programs, the payroll tax losses of the Trust Funds should be made up with transfers from general revenues.)
Tight limits on the hiring subsidy to reduce employer abuses tend to make the subsidy more complicated, reduce employers’ participation, and increase the government’s cost of administration. On the other hand, dramatic simplifications can unnecessarily increase the cost of the subsidy without increasing its effect on employment. For example, if we temporarily eliminate the payroll tax on the wages of all new hires, an overwhelming percentage of credit payments will go to subsidizing employment that would have occurred anyway, even in the absence of the credit. Our labor market is dynamic — millions of new hires and terminations occur every month, whether the economy is lagging or is expanding robustly. It makes no sense to subsidize the new hires of high-turnover employers unless they are increasing the size of their workforce over the course of a year.
Crafting a well-designed employment subsidy may not be easy, but it isn’t impossible. To quote Napoleon, “Impossible is a word only to be found in the dictionary of fools.” Hiring subsidies are a more promising approach to employment expansion than many of the stimulus measures we have tried so far. If voters and lawmakers are worried about adding to the national debt, we should adopt stimulus measures that are as economical as possible while still addressing the central problem of high joblessness. Providing a simple, but temporary, subsidy for additions to company payrolls can boost employers’ willingness to hire.
It’s already Super Tuesday. There are only 8 months left before the election. It’s been an exciting scramble so far. A plethora of Republican candidates has produced a series of rising and falling favorites. For racing fans, it’s fun. It is less amusing for serious voters.
The Republican candidates have frenetically campaigned through rallies and debates, caucuses and primaries. As expected, they have been obliged to pander to the most avid activists in their party. They have relentlessly focused on abortion, gay rights, immigration, budget-balancing, huge tax cuts, and excoriating the incumbent president.
Meanwhile the uncontested Democratic candidate, the president, happily rakes in more money than all the Republicans combined. He doesn’t say much about his budget, another nearly $1 trillion ocean of red ink, but he does remember clearly that it is his predecessor’s fault. His solution is to “tax the rich”.
None of them are facing up to the one overriding issue—how to get the U.S. deficit and debt ratio under control. They dance around it in classic political style. The president’s increased spending for “investments” will make it worse. So will the Republicans’ big tax cuts.
In an election year, the serious voter should be able to listen to careful discourses on how to reduce the deficit so that the debt can be stabilized at the 60% level over the next decade, how painful that process must be, and how long after that it will take to balance the budget. That’s tough enough, but the answers are complicated by the danger of slowing down our weak economic recovery, the failure of budget negotiations in 2011, and the need to include other moving parts like tax reform.
Since the policy makers seem determined to push all fiscal matters off into a post-election Lame Duck Session, it is devoutly hoped that the general election will be more edifying than the primary, but don’t bet on it. Slogans that mobilize the party bases are the order of the day. There is no reason to believe that they will be replaced by serious debate. So the campaign will still probably be “tax the rich” versus “cap, cut and balance”; or “drill baby, drill” versus “save the planet”; or “save our jobs” versus “the Dream Act”.
The fact that the public prefers dueling bumper strips to a real examination of the issues is a disturbing thought. But politicians always try to make the best use of their resources. They must think that sloganeering and finessing the issues are just what the public wants. That makes the disturbing thought terrifying.
Super Tuesday and Immigration
Audrey Singer, Senior Fellow, Metropolitan Policy Program
The slowing of immigration to the United States has done little to quell the bitter debate around how to secure America’s borders and what to do about the millions of immigrants living in the United States without legal status. The GOP presidential primary debates have placed the issue as a top agenda item, but the public doesn’t list it as a major problem.
Recent polls show that fewer Americans rank illegal immigration as a priority in 2012 (39 percent) compared to 2007 (55 percent). The drop is especially notable among Republicans, 69 percent of whom ranked it high in 2007—and second only to terrorism then—and who now rank it 11th among priorities facing the nation. However, polling data also show a nation divided on how to address unauthorized immigrants in the country: just less than half of Americans believe they should be able to stay in the U.S. and apply for citizenship, one quarter support a guest worker program, and one quarter believe they should be required to leave the country.
Just like the rest of Americans, Latinos consider the economy to be the most important issue in 2012, but Latinos rank immigration reform as a higher priority — number three —than other U.S. residents. Latinos are driving population growth in the United States through a combination of immigration and birth rates . Their expanding presence in states like North Carolina, Nevada, and Indiana played a significant role in turning these red states blue in 2008. Candidates’ stances on immigration in battleground states like New Mexico, Colorado, and Florida will matter greatly; these states have large voter-eligible Latino populations.
Connecting with that group of voters is always tricky for Republican candidates. But Obama has run into problems with Latinos for not keeping his campaign promise on reforming immigration policy, including a legalization program during his first term. His administration’s actions—largely stronger enforcement measures— have also hurt. Nevertheless, it seems that the Republican candidates have an even bigger hill to climb to convince Latinos that they will make progress on this front.
Keep Your Eye on Education
Grover J. “Russ” Whitehurst, Director, Brown Center on Education Policy, Senior Fellow, Governance Studies
Education fell between the cracks in the last presidential election, despite two large foundations investing millions in an ad campaign intended to get the candidates to address education reform. With the 2012 campaign likely to be about jobs and with jobs and education inextricably mixed, the Broad and Gates foundations can save their money this time around. The question is not whether the candidates will address education, but whether we will see mostly slogans, or policy proposals that are lists of disconnected initiatives, or coherent positions that make sense in terms of the philosophies of the political parties and their candidates. A good dose of the latter will give the American voting public a meaningful choice and serve as a better guidepost to the actions of the next president than a list of specific programs or feel-good slogans about jobs, education, and the economy.
One of the clear dividing lines between Democrats and Republicans already evident is on the dimension of federalism. The Obama administration has shown its strong preference for developing policies in Washington and imposing them on states through competitions and waivers, e.g., evaluating teachers based on student test scores; closing low performing schools, national standards and assessments. The Republican position is likely to be to devolve substantially more authority to states and school districts. But both parties’ positions are likely to have glaring philosophical inconsistencies. For example, the Obama administration has created a blueprint for reauthorization of No Child Left Behind that promises “broad flexibility” to schools. But at the same time it is pushing for national standards and assessments and statewide teacher evaluation systems that will inevitably decrease flexibility. Likewise, the Republican-dominated House Education and Workforce Committee has introduced legislation to reauthorize No Child Left Behind that calls for returning “responsibility for student success to states and school districts” at the same time that it dictates how states and school districts must evaluate teachers.
While it is likely we will have an election in which the underlying education policy differences are with respect to the balance of power between federal and state government and the details of particular reforms, we might see the emergence of a third perspective, one that has the goal of wresting top-down power from all levels of the school bureaucracy and putting it in the hands of consumers of education. In this third way, the role of federal and state government would be: to afford parents and students the maximum choice among schools by creating barriers to students being forced to attend a particular school based on their neighborhood of residence and by having public funds follow students to their school of choice; to provide valid and useful information on school performance in easily used forms to support school choice; to offer technical assistance and support the development of knowledge and innovative technologies to improve the delivery of education; and to enforce civil rights.
Manufacturing, the U.S. Economy, and the Presidential Election
Howard Wial, Fellow, Metropolitan Policy Program
The recovery and health of our economy is at the forefront of the minds of millions of American voters this election year. As the campaign escalates, voters will be listening for policy prescriptions that can spur economic growth and job creation, now and into the future. And when it comes to addressing America’s long-term growth, voters may want to take a closer look at the importance of ensuring a strong, vibrant manufacturing sector.
There are a range of reasons why manufacturing is indispensible to the U.S. economy – but here are two critical ones. First, manufacturing pays more than other industries—creating better jobs and increasing financial security for more Americans. Losing manufacturing jobs would lower American wages, particularly for workers at the lowest rungs of the economic ladder.
As a new Brookings report outlines, even after taking into account the characteristics of workers and jobs that influence wages (such as education, occupation, union status, geographic location, and demographics), manufacturing workers earn about 8 percent more per week than employees in other industries. Lower-wage workers especially benefit, earning about 11 percent more than their peers in other businesses. As long as manufacturers continue to have greater need for skilled, motivated workers (and they are likely to), they will continue to pay more than other companies.
Second, manufacturing is responsible for increasing American innovation, the force that powers long-term improvements in our standard of living. Manufacturers engage in more research and development and produce more new products and services than non-manufacturing firms. Each year, production workers, engineers and managers relentlessly apply knowledge and skill to solve technical problems and make production more efficient. The innovation spillovers that manufacturers produce flow throughout the U.S. economy, and improve standards of living for all of us.
That’s not to say reinvigorating our manufacturing base is a silver bullet for economic recovery. But if we want more rapid growth and a more equal distribution of income, we can’t be indifferent to whether the United States has a healthy manufacturing sector. Public policy can and should strengthen American manufacturing – and whoever wins this November will play crucial role in determining whether it declines or flourishes in the decades to come.
Presidential reelection campaigns are usually referendums on the incumbent and the economy, and this year is no exception. Foreign policy is on the back burner. Still, it has not completely fallen off the stove. This year, voters will have the opportunity to choose a president whose foreign policy stands firmly in the Republican realist tradition of presidents Eisenhower, Nixon, and George H.W. Bush. I mean, of course, President Obama.
Beyond the predominance of the economy, there are a couple of reasons foreign policy is getting so little attention in this primary season. One is that Republicans don’t perceive Obama as very vulnerable on the issue (though a crisis over Iran and the Persian Gulf could change that). Another is that the leading Republican contenders, Mitt Romney and Rick Santorum, don’t disagree much. Both take aggressive postures toward Iran, oppose withdrawal from Afghanistan, support Israel unconditionally, and criticize Obama as too apologetic. Both, in other words, sound less like realists in the George H.W. Bush mold than like the hawkish neocons who came to dominate the party under the elder Bush’s son.
By contrast, without fanfare, Obama has moved himself and his party to the realist center, the space Republicans used to own. For example:
- He has dialed back his predecessor’s “freedom agenda” in order to stabilize relations with Russia and China. In particular, the “Russian reset,” though unheralded (actually, partly because it is unheralded), is one of the great successes of Obama’s first term. As a result, he has given himself more maneuvering room elsewhere.
- He has reduced U.S. engagement in Iraq and Afghanistan while avoiding a Vietnam-style collapse, recalibrating commitments that unsustainably overshot U.S. domestic support. The result may be to extend, not curtail, U.S. influence in both places.
- He has sought to balance support for Israel against other regional goals. Here his execution has been clumsy, if not naive, but the approach tears a page straight out of the Eisenhower, Nixon, and George H.W. Bush playbook.
- In dealing with Iran, Libya, and other crisis theaters, he has tried to maximize offshore balancing, an approach which allows other countries to do much of the work (as they did in Libya, for example). To that end, he has been far more sensitive to overseas public opinion and to real-world limits of American power than have been the neocons.
- Nonetheless, he has not been shy about deploying American power, notably in his Afghanistan “surge,” his mini-invasion of Pakistan to kill Osama bin Laden, and his aggressive use of drones for targeted killing (a policy the U.S. once decried). As is typical of realists, he regards U.S. power as a precious and inherently scarce resource: one to be used, yes, but always marshalled with care, never just splashed around.
I could go on, but you get the point. Obama’s capture for himself and his party of what had been Republicans’ core competence amounts to a quiet coup. It seizes the center, marginalizes the right, takes away Republicans’ best issue (Democrats’ alleged weakness), and, not least important, puts U.S. foreign policy where it tends to produce the best results.
On Super Tuesday, you won’t hear much about any of that. Which, when you think about it, is the point.