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This article came from the Economist and I think it is a valid critique of where to many Democrats stand on the issue of taxes. The Republicans are much worse on this issue but I honestly think that if the Democrats are going to stand a chance to regain power then they're going to need a real set of decent policies. The Democrats have tried, with some success, to articulate a good set of principles and specific policies but there has been way to much of this opportunistic grandstanding.
It's a great article; I hope you read it.
It's a great article; I hope you read it.
Helping America's workers
Sep 21st 2006
From The Economist print edition
The Democrats need to posture less and think harder
BACK in the 1990s, when Democrats last had any power in Washington, the party was run by economic centrists. Bill Clinton and his crowd believed in free trade and free markets. They were friendly to business and wary of unions. The centrists' creed was that government should not interfere with the market, but help workers cope with the consequences.
Judging by the political rhetoric of the mid-term election campaigns, that centrism has all but disappeared. As they rail against America's growing income inequality and the stagnation of many workers' wages, the Democrats have tilted clearly to the left. Gone is the firm defence of globalisation. In its place is a new populism, based on bashing business, boosting the unions and meddling with markets. The party's bigwigs attend anti-Wal-Mart rallies and lambast the company—America's biggest retailer and private employer—for failing to provide adequate health care or recognise unions. Virtually every Democrat in Congress wants new laws to make union organising easier (see article). And almost everyone puts top priority on raising the minimum wage.
This populism is based on a dangerous combination of nostalgia and sloppy thinking. The nostalgia is for a rose-tinted version of the 1950s and 1960s. If only the unions were stronger or big business cowed, the argument runs, the middle class would once more flourish, and the gap between rich and poor would narrow.
That is nonsense. The principal causes of rising inequality, in America and much of the rest of the world, are rapid technological innovation and globalisation. These structural shifts, which have spawned enormous prosperity, are boosting the earnings of the most skilled and well-educated far faster than the rest. Neither business-bashing nor union-boosting will turn back the clock, as most Democrats privately admit. But Wal-Mart is an irresistibly easy target. Crafting an agenda that would really help American workers would be rather more demanding.
Start with tax reform
If Democrats are serious about fighting inequality, their top priority ought to be tax reform. America's tax code is the country's main mechanism for redistributing income. Yet it is a tangled mess, increasingly reliant on regressive taxes, such as the payroll tax, and full of subsidies that benefit rich people while reducing economic efficiency.
The mortgage-interest deduction, a subsidy for home-owners, costs some $80 billion a year, does little to help poor people buy their own homes and does a lot to encourage rich people to buy McMansions. Over half the subsidy goes to the richest tenth of Americans. Tax incentives for employer-provided health insurance cost some $150 billion a year and are a big reason for America's escalating medical costs. Again, the richest tenth of Americans captures more than one-quarter of the benefits. All told, the tax code is larded with more than $700 billion-worth of inefficient subsidies. Scaling them back would improve the economy's efficiency and would free up a huge amount of money, both to reduce the deficit and to shift resources to poorer Americans.
And the best way to shift those resources is again through the tax code, by expanding the Earned Income Tax Credit (EITC). Introduced in 1975 and extended by Ronald Reagan and every president since, the EITC is a type of negative income tax for poor workers and is America's most efficient anti-poverty tool. If Democrats are serious about helping poor workers, they should advocate further expansion. But few Democrats mention the EITC on the hustings. Instead they want to raise the minimum wage, a market-meddle whose costs are debated, but which few would prescribe as the most efficient route to helping the poor—particularly since not all minimum-wage workers are poor.
In sum, today's Democratic politicians care more about embracing empty symbolism than crafting effective policies. Not only do they fail to push ideas, such as EITC expansion, that are known to work; but they have also avoided intellectually tougher debates, such as how to revamp health-care or counter the rising elitism of the universities (see article). A few hardy souls in Washington think-tanks still dream up market-friendly centrist ideas—the latest a proposal to aim unemployment benefits at workers whose old jobs have gone for good and whose new jobs pay less, rather than those who are temporarily out of work (see article). But Democratic bigwigs are too busy sounding populist to notice.
Sep 21st 2006
From The Economist print edition
The Democrats need to posture less and think harder
BACK in the 1990s, when Democrats last had any power in Washington, the party was run by economic centrists. Bill Clinton and his crowd believed in free trade and free markets. They were friendly to business and wary of unions. The centrists' creed was that government should not interfere with the market, but help workers cope with the consequences.
Judging by the political rhetoric of the mid-term election campaigns, that centrism has all but disappeared. As they rail against America's growing income inequality and the stagnation of many workers' wages, the Democrats have tilted clearly to the left. Gone is the firm defence of globalisation. In its place is a new populism, based on bashing business, boosting the unions and meddling with markets. The party's bigwigs attend anti-Wal-Mart rallies and lambast the company—America's biggest retailer and private employer—for failing to provide adequate health care or recognise unions. Virtually every Democrat in Congress wants new laws to make union organising easier (see article). And almost everyone puts top priority on raising the minimum wage.
This populism is based on a dangerous combination of nostalgia and sloppy thinking. The nostalgia is for a rose-tinted version of the 1950s and 1960s. If only the unions were stronger or big business cowed, the argument runs, the middle class would once more flourish, and the gap between rich and poor would narrow.
That is nonsense. The principal causes of rising inequality, in America and much of the rest of the world, are rapid technological innovation and globalisation. These structural shifts, which have spawned enormous prosperity, are boosting the earnings of the most skilled and well-educated far faster than the rest. Neither business-bashing nor union-boosting will turn back the clock, as most Democrats privately admit. But Wal-Mart is an irresistibly easy target. Crafting an agenda that would really help American workers would be rather more demanding.
Start with tax reform
If Democrats are serious about fighting inequality, their top priority ought to be tax reform. America's tax code is the country's main mechanism for redistributing income. Yet it is a tangled mess, increasingly reliant on regressive taxes, such as the payroll tax, and full of subsidies that benefit rich people while reducing economic efficiency.
The mortgage-interest deduction, a subsidy for home-owners, costs some $80 billion a year, does little to help poor people buy their own homes and does a lot to encourage rich people to buy McMansions. Over half the subsidy goes to the richest tenth of Americans. Tax incentives for employer-provided health insurance cost some $150 billion a year and are a big reason for America's escalating medical costs. Again, the richest tenth of Americans captures more than one-quarter of the benefits. All told, the tax code is larded with more than $700 billion-worth of inefficient subsidies. Scaling them back would improve the economy's efficiency and would free up a huge amount of money, both to reduce the deficit and to shift resources to poorer Americans.
And the best way to shift those resources is again through the tax code, by expanding the Earned Income Tax Credit (EITC). Introduced in 1975 and extended by Ronald Reagan and every president since, the EITC is a type of negative income tax for poor workers and is America's most efficient anti-poverty tool. If Democrats are serious about helping poor workers, they should advocate further expansion. But few Democrats mention the EITC on the hustings. Instead they want to raise the minimum wage, a market-meddle whose costs are debated, but which few would prescribe as the most efficient route to helping the poor—particularly since not all minimum-wage workers are poor.
In sum, today's Democratic politicians care more about embracing empty symbolism than crafting effective policies. Not only do they fail to push ideas, such as EITC expansion, that are known to work; but they have also avoided intellectually tougher debates, such as how to revamp health-care or counter the rising elitism of the universities (see article). A few hardy souls in Washington think-tanks still dream up market-friendly centrist ideas—the latest a proposal to aim unemployment benefits at workers whose old jobs have gone for good and whose new jobs pay less, rather than those who are temporarily out of work (see article). But Democratic bigwigs are too busy sounding populist to notice.
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