Mark Schmitt

Time to pay a little more attention to China

The Broder/Eilperin story in yesterday's Post -- To Some in GOP, Bush's Troubles Become a Liability (washingtonpost.com) -- didn't quite deliver all that the headline promised. But in its interviews with Republican members of Congress, the following jumped out:

In most instances, the jobs picture -- and especially the loss of U.S. jobs to China (and to Mexico, to a lesser extent) -- was the first and main issue raised by these Republican lawmakers in recent interviews.

"I think [Secretary of Commerce Donald L.] Evans and the administration are finally getting it, that we are in an economic war with China and if we lose that war, winning in Iraq is not going to mean that much." -- Rep. Phil Gingrey

Rep. Steven C. LaTourette (R-Ohio), a fellow Midwesterner, is also worried.
"We have a lot of machine shop owners, first- and second-generation Americans, and they are concerned," he said. "They see some signs of the economy improving, but they see a lot of tool-and-die trade going to China. They're concerned that in a few years, they will be servicing the equipment, not making it."

Suddenly, this is the sound of 1988. Even though the economy was a powerful issue, it seemed that the trade dimension of it had almost disappeared, except for the anti-WTO crusaders. This is a big change, and not one that most of the Democrats are prepared to take advantage of, with one exception. (Hint: "It's Your Fight, Too!)

Removing the Cap on FICA Taxes Is NOT the Answer to the tax problem

The Daily Kos features a nicely done argument, with good graphs, from Nathan Newman's blog, in favor of removing the cap on taxable earnings for Social Security. (Currently, only wage income up to $87,000 is subject to the FICA tax of 6.2%, as well as the employers' share which is another 6.2%. Above that income, no more tax is paid, which is one reason lower- and middle-income workers pay a higher effective tax rate, taking all federal taxes together, than those in the $100,000+ range.)

Lifting the cap on the payroll tax seems like it might catch on as an answer to the call that several of us have issued to consider wholesale reform of the tax system. But there is a significant pitfall to this proposal that advocates should at least be aware of: It would create a class of people for whom Social Security is a manifestly bad deal. And I think that when that happens, it will be much harder to save Social Security from its enemies.
Remember that the payroll tax is not a general tax paid for an array of government services, like the income tax. Thanks to FDR, it is a premium paid into an insurance system. That system is mildly redistributive, but one of its most distinctive features is that it offers a pretty good deal, at least a secure pot of savings, for almost everyone. For the most part, the only people who don't get at least a little more out of Social Security than they put in are those who die before collecting or within a few years after retirement, and whose children or spouse aren't in a position to collect survivors' benefits.

When the Bush gang went after Social Security in 2001, they struggled to show that it was a bad deal for workers, and even without the usual inhibition against totally false statements, they still couldn't make the case. Their most outrageous claim was that Social Security was somehow biased against African-Americans, which is true only because a greater number of African-Americans die at a young age, a fact that privatization of Social Security would not change and that the administration did not show much concern about. (See this response from three top economists to the Bush commission in July 2001.)

The best the Bush privatizers could do was argue that Social Security provided an inferior return on investment compared to equities, which is true, but didn't seem so compelling after the stock markets crashed. In fact, Social Security provides every family with a modest core of absolutely secure savings which then allows them to take greater risks with other investments. After all, if you didn't have Social Security, you would probably be well-advised to put at least a few thousand dollars a year into the safest investments possible, such as T-bills, passing up the returns on stocks for greater security.

In the end, there was no constituency for Social Security privatization other than Wall Street, and the idea collapsed. I think that's because there was no one for whom Social Security was a bad deal. If you live to the average life expectancy, you will get back more than you put in, after inflation, and then some. But all that changes if you eliminate the cap. All of a sudden, a worker earning $120,000 is paying almost $15,000 into Social Security (compared to $10,000 with the cap), and the most he will ever get under current law is about $1300 a month. That means, in short, that he will have to be alive and retired for as long as he was working at high wages, in order to get his money back. (Both figures are in current dollars, so don't need to be adjusted.)

I'm not in the business of feeling sorry for people who earn more than $100,000 a year, but about one-fifth of households earn more than the current FICA ceiling (although if the earnings are from two people and/or from investment income they might not be affected by removing the cap), and the experience with the estate tax shows that people can believe they will be affected by a tax even if the chances are remote. The last thing we need is a backlash from the mid- to upper-middle class.

There may be some room for increasing the cap into the 90s, but the real solution for regressive and over-complex taxation is within the income tax system, not within the payroll tax itself. It's possible to fix the regressivity of the payroll tax through refundable credits on the income tax side -- after all, that's what the Earned Income Tax Credit was originally intended to do. This has the effect of using general revenues to subsidize Social Security. Government is, in effect, paying the insurance premiums for low-income working people. We can improve that system by consolidating and increasing the four different credits that these families receive. And then we should pay for that by increasing income taxes, not payroll taxes, on the better-off. Doing so would capture their investment income, not just their income from work. The first step is to end all special preferences for investment income over income from work.

This approach is much wiser than a strategy that might put all of Social Security at risk by creating for the first time a class of people who would not benefit.

The Radicalization of the Brookings Institution

One of the more mystifying side-stories of the Watergate scandal was Nixon's directive to firebomb the Brookings Institution in Washington. It's mystifying because to anyone in Washington in the last two decades, Brookings has hardly seemed a left-wing threat to the conservative establishment. Mostly it has been, as Timothy Noah put it in a review of Eric Alterman's What Liberal Media?, "a bastion of centrist technocrats, many of whom are Republicans." In the early 1990s, I would have said that Brookings and the American Enterprise Institute occupied overlapping positions very near the center of the American political spectrum, with Brookings perhaps two degrees off-center to the left, and AEI perhaps five degrees off to the right. Since then, AEI has moved consciously to the right, and Brookings has not changed in any deliberately way, although the relatively new president, Strobe Talbott, is certainly more dynamic and engaged than his predecessors.

But, perhaps thanks to the radicalism of George W. Bush, these centrist technocrats have been drawn into a position of quite vigorous, and very significant, opposition:
Consider the Tax Policy Center, joint venture of Brookings and the Urban Institute. Home of the best analysis, in real time, of all the tax bills as they've moved through Congress, the best information on the Estate Tax, etc. Look also at this wonderful short essay by Eugene Steuerle -- who's actually based at the Urban Institute, but is a partner in the Tax Policy Center, a Reagan Treasury official, and the very definition of a centrist technocrat. It's a profound indictment of a political culture that rewards the already-advantaged without regard to whether the policies result in any larger benefit for society, all the more powerful because it is written in the measured tones of a centrist.
Or, read the new book by Brookings foreign policy specialists Ivo Daalder and James Lindsay, America Unbound. It is a challenge to "the fundamental premise of the Bush revolution, that America's security rested on an America Unbound," but written by people who have a thorough understanding not just of Bush's policies, but of the historical and international context.

There are other examples as well, not only at Brookings but at other institutions. The radicalization -- not by their own choice -- of so many "centrist technocrats" by the extremism of the administration is one of the most important, neglected stories of the last few years. Among other things, it gives the lie to all David Brooks's nonsense about how all opposition is driven by "Bush-hating." These are not people who are eager to hate a Republican president. They are accustomed to serving in responsible positions in both Democratic and Republican administrations and are undoubtedly surprised to find themselves in this position. And this phenomenon will have an impact for years to come, as these scholars help to craft the moderate/progressive alternative to the Bush revolution.

Clark and Lieberman Are Out of Iowa. What's Everyone Else's Excuse??

So Clark and Lieberman have decided not to contest the Iowa caucuses. Good for them.2 Top Democrats Will Not Contest Iowa's Caucuses
This is not a risky move, nor should they have to apologize for it. The Iowa caucuses are a mugs' game. They are about organized constituencies -- labor, agriculture to some extent, organized liberals and very active Democrats, and not the kind of voters that a candidate has to reach in November. No one in Iowa can spontaneously decide they like a candidate and go vote for him. It requires giving up an evening, at least -- something regular people don't do. A candidate who doesn't have an organized base in one of the groups that can deliver people to the caucuses, particularly labor, will have little to gain from Iowa in exchange for a lot of work in a cold place. Iowa is still living on the legend that it created Jimmy Carter, the last Democrat who won the Iowa caucuses and went on to win the presidency. But Carter made the caucuses -- it was only the second time they'd been run -- and used them to take the field by surprise. That's not possible anymore, as presumably Carter's old Iowa mastermind, Tim Kraft, will find as he works the state for Dean.
So it's about time Clark and Lieberman got out. Now how about Edwards and even Kerry? What do they have to gain in Iowa? Nothing. Leave it to Dean and Gephardt to fight over a minor prize. And for that matter, it's a trap even for Gephardt (who I think will win). He's got everything to lose; if Dean beats him solidly in Iowa, he's all but finished. But if he wins, he's still just another in the top four, which is what he is right now. And Dean? If he wins, he remains a formidable front-runner, which is what he is now, and if he loses, there's just a little more at stake in New Hampshire.
The Times editorial criticizes both Iowa and New Hampshire, but that's a little unfair. New Hampshire is a real primary, in which all kinds of people, not just those organized through interest groups, can and do vote. And Republicans and independents can vote in the Democratic primary, which is a big deal and an interesting test of a candidate's ability to reach beyond core Democrats. (And the group that I'm watching to see if they get interested in Clark.) True, it's not a diverse state and true its Democrats lean left, but it's still great to give candidates their first test in a state that's small enough that a candidate can really meet a lot of voters and be seen at a lot of events. Democrats could start the process in a state like Missouri or Illinois or New Jersey, but then we'd just have a television campaign from day one.

Now, back to Lieberman and Clark: The one who had a tough call to make here was Lieberman. Not that Iowa was going to be "Lieberman country," but if not there, where? He won't stand out in New Hampshire, almost certainly coming in behind the other two New Englanders and quite likely Clark and Gephardt as well. Like everyone else, he's looking at South Carolina, which is certainly going to be the first primary that will really shake out the field, but that seems to be based on a mistaken idea that there is such a thing as a "DLC voter." There really isn't -- not in a Democratic primary. The South Carolina primary will be at least 50% African-American voters. Of the rest, most will be those random liberals one finds anywhere, around Columbia or Charleston. Not that "NASCAR Dads" aren't important -- they are in the general election, not in the primaries.
I like Lieberman. He was my state senator when I was a little kid, and I worked with him and his staff a lot when I worked on the Hill. They were great to work with for two reasons: they were never nasty about getting credit, and they were always serious and dedicated. He's a truly decent person with a record in the Senate that belies his self-styled image as the conservative in the race. For example, his voting record from the League of Conservation Voters was 82% last year, 100% the year before, better than Dodd's, and he's done more on the environment than any of the others. I think he's also done more on campaign finance reform than anyone except McCain, Feingold, and Senator Levin. Unlike several other Senators, he hasn't split with the party to back Bush on anything that I can think of. So why do so many people I know glibly declare that they'll vote for any Democrat against Bush "except Lieberman"? Or, another way to put the question is, why has he chosen to portray himself in presidential politics in a way that sacrifices much of the advantage of what he's accomplished over the years?
It's too bad. I think if he campaigned on his record, he'd reach a lot of people who are now attracted to Kerry or Gephardt or Edwards. But presidential politics is a matter of finding a niche, and he's chosen a niche that is, unfortunately, a bit of a trap. He'll still be a good Senator for a long time.

Getting noticed

So far, I haven't done too much to let people know this blog exists. I've wanted to make sure I actually got into the rhythm of posting every day or at least every other day. So I'm grateful to Brad DeLong for doing a little bit of my work for me and citing The Decembrist in his own Semi-Daily Journal. Originally, I had the idea that in my links sidebar, instead of linking to a hundred sites and blogs, there would just be two: Talking Points and deLong. Those are really the only two I read all the time, without fail, and they are the two from which I continually learn the most. I gave up that idea when I saw a few more sites I wanted to link to, but still, those two are where I get my Anxiety of Influence.

I wonder if money in politics doesn't matter as much as it did...

One of the few issues on which I have some real expertise is campaign finance reform and the role of money in politics. (Although I'm also sick and tired of the issue.) I have to finish a book chapter about the topic in the next week or two, and so I wanted to update a statistic that I had calculated a year or two ago: In 2000, every newly elected member of Congress, with one exception, from a competitive district spent more than one million dollars to get elected. And the exception spent $980,000. So the barrier to entry for a competitive congressional race would seem to be $1 million. That applies not just to challengers facing incumbents, but to elections for open seats.
The other day I set out to update that statistic. I assumed the price of entry would be higher -- perhaps as much as $1.5 million. And there were some incredibly expensive races last year -- the top 25 spenders range from $8 million down to $2.3 million. But I noticed two interesting things: First, all five of the top spenders, and seven of the top ten, lost. (That's not entirely surprising, because with a few exceptions, these are self-financed candidates, who sometimes lack other political skills.) Second, as I started looking at the freshmen, unlike 2000, there were a few who not only didn't spend a million, they were actually outspent. On Long Island, for example, Rep. Tim Bishop beat an incumbent with only $800,000 to the incumbent's $1.3 million. In a Republican-leaning district in Louisiana, a guy named Rodney Alexander won a hair's-breadth victory, also spending only $800,000. And there are several other examples as well.
Not that $800,000 isn't a lot of money. It's more than most people can raise in small contributions. And I don't mean to minimize the role of money in politics. Incumbents still raise enough to scare off all but the bravest, richest, or most well-connected challengers. Maybe all these are anomalies. But it's also possible that as politics becomes a little more ideologically polarized, money might matter a little less. Perhaps money has more influence in an environment of ideological and party ambiguity, when a candidate can get away with running thousands of ads that either tear down his opponent or fudge his own positions.
Another example: Presidential fundraising. Coverage of Governor Dean's fundraising success has noted that he broke Clinton's 1992 single-quarter fundraising record, but more interesting to me, all of the Democrats are exceeding what Democrats have been able to do in the past, by a lot. Here's a link I found to an FEC chart comparing fundraising through January of the election year from the 1998 election through the 1996 election:
In 1992, all of the Democrats put together, including the nutcases, had raised less than $18 million at that point, of which Clinton had $5.5 million. Today, at the end of just the third quarter of the year before the election, all the Democrats together have raised about $84 million. These are not directly comparable numbers, of course: the campaign started earlier; these numbers aren't adjusted either for standard inflation or actual inflation in campaign expenditures such as television time. But the bottom line is that it has proven easier for these Democrats, particularly Dean, Clark and, to some extent Edwards and Kerry, to raise money than they probably imagined. The Internet is part of the story. Bush is the other part of the story -- all of a sudden, there is motivation for small donors. Powerlessness, combined with the particular qualities of these candidates, are actually helping the Democrats get out of the trap that Tony Coelho built for them in the late 80s, of dependence on big corporate donors, many of whom give to Democrats solely on the gamble that they would continue to control at least one house of Congress.
The third example is the possibility that Haley Barbour (who is, basically, what George W. Bush would be if he hadn't stopped drinking) might, just might, get his ass kicked in his attempt to become the lobbyist/governor of Mississippi.
None of this is a huge change in the culture of politics. But one of my deep convictions is that we often miss these big shifts, and that by the time we pass legislation or other policy changes to respond to problems, the problems have either evaporated or shifted form. I'm not sure this is the case with money in politics, but I'm surprised to find that it's not as easy to make the case about the problem.

Rahm Emanuel is a Great Member of Congress

Finally got hold of Rep. Rahm Emanuel's WSJ op-ed, "The Democrats Can Win on Taxes," mentioned below.
It's right on: "The candidates should stop rearranging the Bush tax cuts and start proposing fundamental reform of the tax code." It concludes that, "A tax code that respects the values and intersts of the middle class should be the Democratic Party's battle cry in 2004."

And he makes a point that I wanted to make in my piece (and did make in an earlier memo): "Elections are about the future not the past. An argument about the 2001 and 2003 tax cuts...would forfeit the mantel of owning the future and would mire us in an argument about the past." True.

His argument differs from mine only a little bit: He wants the Democrats to call attention to specific outrages, such as corporate inversions, the employee life insurance scam, and the $18 billion in unneeded tax giveaways in the energy bill, which apparently are one of the only things the conferees could agree on, so far. I'd prefer to see fewer specifics and more a statement of principles from the Democrats, much as Bush offered mostly broad principles (which were a lie) in 2000.

Interestingly, not only doesn't he mention that he's supporting/advising General Clark, as The Note pointed out, the article also singles out for praise Lieberman's tax proposal. Perhaps that's only because it's just the news peg for this week, but it seems to me that it is still Edwards who comes closest to the right idea on taxes. It's Edwards who understood that the preference for taxing work income over investment income is "the most radical idea since Socialism." But perhaps all the candidates are slowly stumbling toward the right message.

Emanuel is going to be great to have in Congress. Where plenty of freshman Democrats would be frustrated by their utter powerlessness -- and he in particular must feel he has less influence than at any time in the previous decade -- he has so much energy and creativity that he is going to find a way, inside the institution or out, to make a difference.

Did Bush Ignore Warnings on Al Qaeda?

Clinton warned Bush of bin Laden threat

At Wednesday's luncheon, Clinton said his inability to convince Bush of the danger from al Qaeda was "one of the two or three of the biggest disappointments that I had."

This is from a Reuters story recounting a Clinton speech at "a luncheon sponsored by the History Channel." Clinton said that in his "exit interview" with Bush, he sought to dissuade the new president of his focus on Iraq and missile defense, telling him that the top priority was Al Qaeda, followed by the Israel/Palestine peace process, and then followed by WMD proliferation, with India/Pakistan and North Korea higher priorities than Iraq.
This seems to be a significant move on Clinton's part. He never said anything quite like this when he was being generally supportive on Iraq last fall and in the spring. It's coupled with Madeline Albright's fairly aggressive attack on Bush in Paris:

"It's difficult to be in France and criticise my government. But I'm doing so because Bush and the people working for him have a foreign policy that is not good for America, not good for the world," she said.

Neither speech was designed to get much press attention. But that might just be intended as a message to Bush that the staff of the previous administration don't intend to hold back any longer.
The Reuters story on Clinton alludes to Michael Elliott's Time story from August 2002, which contended that the Clinton administration had not only tried to tell Bush's crew that Al Qaeda would inevitably be a top priority, but had handed over a specific plan to "roll back" Al Qaeda in Afghanistan, a plan which they had hesitated to implement in the last months of 2000 because it would mean handing the new president a war in progress that would have been quite similar to the Afghanistan war eventually fought. But the plan languished for the better part of the year, according to Time, because the administration had other priorities (missile defense and Iraq), and because the rejection of anything left over from Clinton was total, regardless of merit.
That whole Time story then disappeared without further notice. If true, it should have been damning. The White House barely tried to deny it. (Their best response was that Bush was not content merely to "roll back" Al Qaeda, but instead wanted to eliminate it, and didn't get a plan to actually eliminate the organization until the weekend before September 11, 2001.
The Valerie Plame story shows that even known facts can languish for months before something breathes life into them that makes them a real story. It's just possible that if Clinton, Sandy Berger and a few others -- perhaps even lower-level NSC or State Dept. staffers who stayed through the transition -- decide to speak out, it could just be the final blow to Bush's reputation as an active leader in the struggle against terrorism.

Politics of Taxes

Apparently Rep. Rahm Emanuel (D-Ill.) has an op-ed in the Wall Street Journal making exactly the argument I've been making about the politics of taxes. Here's the summary from The Note:

Then read Congressman Rahm Emanuel's (D-Wrigley Field) important op-ed in the Wall Street Journal on how the Democratic presidential candidates should be for tax reform and tax fairness and stop being tricked by the president into a debate on the past and the Bush tax cuts.

Funny there is no mention here that Emanuel supports Wes Clark, and no indication that Clark is taking this seemingly smart advice.
Here's my own statement of the same case.

I guess I'll have to go pay good money for the Journal. Here's the link, for subscribers.

How to read a poll

I suppose it doesn't really matter, since public opinion is what it is, and polls are just a clumsy way to measure it, but it is absurd that this headline appeared in so many papers today: Newsday.com - President's Job Approval Rating Rebounds, followed by this lede:

President George W. Bush's job approval rating, which had slumped in several recent polls, has bounced back to 56 percent in a CNN-USA Today-Gallup poll released yesterday.

Here's political analyst Charlie Cook's take, from the very best poll, also today:

Since Labor Day, the decline looks more like a real drop than a
settling, and the triple issues of the economy, the deficit and Iraq
have become conjoined. An Ipsos/Cook Political Report poll taken last
Tuesday through Thursday of 787 registered voters showed Bush's approval
rating had dropped four points from three weeks ago, from 55 percent to
51 percent. That was six points lower than the 57 percent approval
rating seen in both the months of July and August.

It's this simple: The CNN/Gallup approval numbers have always been higher than other polls, by five or six points. I'll leave it to Ruy Teixera to explain exactly why, although I'll note that the reason is usually not bias, but a simple methodological difference. (This beautiful chart at Pollkatz shows the various polls -- the pink diamonds near the top each week are the CNN-Gallup numbers.) The 50% approval a week or so ago was an anomaly in the Gallup poll, and everyone knew it. Having Bush back at 56% approval is just a return to the normal trend for this Bush-tilting poll, and it's still lower than his approval in that particular poll at any time between Sept 11, 2001 and August 2003.