From Medicaid to housing and the Federal Reserve, here are the issues the Obama and Romney campaigns haven't talked enough about.
For those of you in presidential debate withdrawal ... well, who are you? For the rest of you in policy debate withdrawal, well, we have you covered. I talked with Harold Pollack, a professor of public health and social service administration at the University of Chicago as well as a health policy blogger, about some of the biggest policy issues that have gotten short shrift during the campaign.
In other words, come for the Medicaid talk, and stay for the discussion on housing and the Federal Reserve.
The debates are finally over and there's just over a a week until Election Day. What issue do you think didn't get enough attention during the four presidential and vice-presidential debates?
I've been disappointed the Democrats haven't done a better job calling out the Republicans on the phony studies supporting their $5 trillion tax cut plan, but I'm also sorry that there hasn't been more on Medicaid. While Romney-Ryan's Medicare plan is complex and, I think, deceptively packaged, their Medicaid proposals are immediate and straightforward -- really deep cuts and a shift to block-granting. What does this mean? It shifts huge costs and burdens onto states from the federal government. Within a decade, federal support for Medicaid would be cut by roughly a third, with deeper cuts later. I care for a medically-challenged 46-yar-old man who is intellectually disabled. Our extended family -- like many middle-class families -- relies on Medicaid and is grateful for that essential support. I am flabbergasted that Romney-Ryan propose such deep cuts within the most under-funded and disciplined part of our entire health care financing system.
My big issue is how little an idea of what a Romney administration would do. Jonathan Cohn of The New Republic has pointed out the Romney budget would actually lead to deeper cuts than the Ryan budget, because of the spending caps in Romney's plan. Now, Mitt Romney is a smart guy and I don't think he'd actually go through with that. But it leaves the question: what would he do? Especially if he was working with a Republican Congress.
The budget numbers imply really remarkable cuts. The Romney-Ryan approach is a dangerous combination of vaguely-packaged cuts that create plausible deniability for some very punishing cuts that affect real people. Leaving the states to decide how to allocate deep cuts is fundamentally irresponsible. And since two-thirds of the Medicaid budget finances services for the elderly or disabled, you can imagine what these consequences will be. I think the only silver lining is the human consequences of the Republican budget proposals make them politically self-immolating. Unfortunately I believe Congressional Republicans would still give it a try. I think Democrats should be less focused on Romney's protean nature, and more focused on what he is likely to do based on his campaign rhetoric in the primaries. Compassionate conservatism is a useful October campaign trope. That's not the way modern Republicans actually govern.
Grover Norquist has been quite explicit about his hopes that a President Romney would just be a rubber stamp for Congressional Republicans. I think anybody telling you that they have a good idea what Romney would do in office is lying. A lot depends, obviously, on who controls the Senate.
I would expect for even more regressive tax policies and deep cuts in domestic discretionary spending, and deeper deficits too. One thing is for sure -- the numbers on Republican tax and budget proposals won't add up -- as you and Josh Barro have pointed out. By the way, I'm still confident of an Obama reelection. He has key advantages in battleground states. He has a good ground game.
It's certainly going to be close. But regardless of who wins, the immediate question will be what happens with the fiscal cliff. My colleague Derek Thompson pointed out how surprising it is that neither candidate has come out for extending the payroll tax cut Goldman's chief economist estimates the payroll tax cut lapsing would hurt the economy just as much as QE3 will help it.
Larry Summers has called for a payroll tax cut extension, but his influence might be more limited than I thought. I'm actually kind of ambivalent about it. I wish it had been implemented in a revenue-neutral way. I'd love to see Congress tax upper-middle-class households more for this -- myself included.
Making it revenue neutral is an interesting idea. Chuck Marr at the Center on Budget and Policy Priorities had a chart comparing how much bang for the buck we get from the payroll tax cut and from the high end Bush tax cuts Spoiler alert: the payroll tax cut is much more stimulative Even a revenue neutral plan where you offset a payroll tax holiday with higher taxes on higher earners would most certainly be a net plus for jobs.
Right, the payroll tax cut is certainly much more stimulative. To switch tacks, because I earn a good salary and yet depend on social insurance programs, I often have a schizoid reaction to public policy. I feel very vulnerable to Medicaid policy changes and very under-taxed at the same time.
That's exactly the point you made about Medicaid -- we are all vulnerable, whether we realize it or not. A long-term medical crisis could bankrupt any of us, even the well-off among us.
Let me give you one example. My own effective capital gains rate is pretty much zero. The untaxed returns on my 529 account since the President's inauguration day cover one year of college tuition for each of my children. Despite this, the lesson I draw from my own experience taking care of my brother-in-law is indeed that we are all vulnerable. He had to be hospitalized three times just in August, and if I had to cover that, I'd be wiped out.
We have to take care of each other. And we have to all make reasonable compromises within interest-group politics to make our social insurance system sustainable. When it comes to compromise, I do see two points of agreement between liberals such as myself and fiscal conservatives. First, Romney and Ryan are right to say that affluent seniors should pay more for Medicare benefits -- although they don't say the other part, which is that affluent seniors should pay higher taxes, too. Second, I find my attitudes about intergenerational equity have hardened a bit, watching the debate over health reform. An influential group of seniors take an absolutist zero-sum stance on Medicare, while opposing reasonable and necessary help for younger people.
What do you think of the Romney-Ryan approach of keeping Medicare as is for people 55 years old and over? Jim Tankersley of National Journal had a piece blasting the Boomers as the worst generation, not just because of this, but more generally.
I think we need to methodically improve Medicare over time without distinguishing the 55 and over crowd. Some measures, such as curbing overpayments for Medicare Advantage, should be implemented now. Others will take more time. On the whole, the Affordable Care Act sets out a very sensible start on what will be a very challenging effort to slow Medicare cost growth. I don't believe we will bend the cost curve for a long time. That's one reason I favor a value-added tax (VAT). We need a stable financing structure for the social programs we have and want.
That brings us to question of how we'll pay for the spending we want over the long-term, and it brings me to a question that's been set aside the past few weeks -- Mitt Romney's taxes. What are your thoughts on the 14.1% effective rate he paid last year?
There actually wasn't all that much new information in the 2011 return that we didn't already know from 2010 Romney gets a LOT of money from investments -- mostly offshore funds -- he gets some carried interest, and he gives to charity.
It seems a bit odd for someone running for president to have such complicated taxes with all these offshore accounts? Relatedly, do you think this presidential race increases the pressure to close the carried interest loophole?
Well, Romney's taxes show the difference between the rich and the super-rich, The rich invest in mutual funds. The super-rich invest in hedge funds. (Which, coincidentally, isn't necessarily a great idea. After taking fees into account, hedge funds have barely, if that, kept up with the S&P 500). These funds are domiciled in the Caymans so institutional investors like university endowments can avoid this special tax called the Unrelated Business Income Tax. That's why Romney has all these offshore accounts -- not to minimize his own taxes, but to minimize Harvard or Stanford's taxes. As for carried interest, I hope this draws attention to it, but I doubt anything will happen soon. For the uninitiated, carried interest is the loophole that lets venture capitalists, private equity managers and hedge funders classify the fees they earn from profits as capital gains instead of as ordinary income. So instead of paying 35 percent in taxes, they pay 15 percent.
A month or so ago on 60 Minutes, Romney was asked directly if it's fair that he pays a lower effective tax rate than someone making $50,000 a year, and rather astonishingly he said yes. He's advocated a similar approach to the 1986 tax reform -- lower rates and a broader base. Do you think this is realistic?
Probably not. Romney offered almost no details about which deductions he would eliminate, before he changed tacks. Now he's talking about imposing a $25,000 deduction cap, which is a clever way to do tax reform, but doesn't solve all the problems. Interest groups are still lining up against the idea (not to mention that the deduction cap wouldn't come close to paying for his tax rate cuts). Maybe I'm being too cynical, but I have a hard time seeing the Washington of today coming together on this.
It seems kind of nuts to think you could slash major tax expenditures, like the home mortgage or charitable deductions, when you're too afraid to even campaign on it. Ironically, there's a decent policy case to be made for cutting out these deductions.
The other question is how much would this help? A simpler tax code with lower rates would increase efficiency and incentives, but maybe not a lot. Alan Viard of the American Enterprise Institute did a study that says we shouldn't expect big growth effects from revenue neutral tax reform, since incentives don't change all that much if your overall tax bill doesn't, even if your marginal tax rate does. Of course, a revenue neutral reform is exactly what Romney has proposed, though it doesn't look like a credible proposal from what he's told us.
This probably wouldn't help growth as far as bona fide experts can says. Two other wonky issues. First, the 1986 reforms have basically unravelled over time. I fear the same would happen this time, so we'd eventually end up with lower rates and just replace the old loopholes and deductions with new ones. And second, the 1986 reform had much higher rates to bring down.
Exactly. Tax reform sounds great in theory, so people on both sides tout it. But as far as pressing problems go, I'd rank it much lower How about putting people back to work first?
We seem politically gridlocked in fiscal policy. Can Bernanke do better? Can you explain what he is doing with so-called QE3?
Bernanke has been mad at Congress for the past few years for not doing more -- or anything! -- to help him. There's a bit more he can do, but the Fed is much more on the right track now. There probably isn't a more misunderstood policy than quantitative easing (QE). It's just the Fed buying bonds, like it always does, except it's buying either mortgage or long-term bonds instead of short-term bonds, since the yields on short-term bonds are already at zero. With QE3, the Fed has promised to buy $40 billion of mortgage bonds a month until the recovery strengthens -- as long as inflation stays low. In other words, unlike previous rounds of QE, the Fed is targeting a result and not an amount.
I take it I should refinance my house. How or when will we know whether this approach is helping?
Probably? Now, mortgage rates haven't fallen quite as much as mortgage bonds have risen, because we don't have enough mortgage lenders still -- since 2006, 75 percent of the biggest mortgage originators have either been bought up or closed up shop. But it's not just housing that will tell us whether QE3 is working or not. It's about expectations too. The Fed is hoping to convince people things will get better by saying they will keep buying bonds even after the recovery strengthens. If people think things will get better, they'll start spending more, and things will get better. It's kind of like a Jedi mind trick.
I note you haven't directly answered my personal refinancing question! But are there other housing policy initiatives Obama might push? We have four empty houses on my street.
The big thing Obama could do is replace Ed DeMarco, the Federal Housing Finance Agency (FHFA) chief. DeMarco is the regulator in charge of Fannie Mae and Freddie Mac, which basically gives him a veto over housing policy. DeMarco has used that veto. He stopped the administration from writing down mortgages, even when FHFA analysis said it made sense, and has checked refinancings, even at their modest level. The good news is Obama has said he would recess appoint a new FHFA chief if he wins reelection -- DeMarco is a holdover from the Bush years -- so housing might get a nice little kick. And that might happen even if Romney wins. His chief economic adviser, Glenn Hubbard, has suggested not replacing DeMarco has been a big mistake, and is a big advocate of refinancings himself -- even though Romney's campaign hasn't said a word about refis.
I feel quite badly for serious conservative policy experts. There doesn't seem to be room right now for serious policy analysis on a number of issues, including climate and healthcare, at least when it comes to the campaign. This shows up on the Romney tax plan, whose numbers don't add up. it shows up in their shifting approaches to Medicare. I feel that on one side we have Democrats offering imperfect policy proposals. And on the other, we get either vaporware or proposals that just aren't serious. Do you have the same sense?
Pretty much. Conservative wonks do have real ideas about the big issues -- like Hubbard with refinancings -- but they've pretty much been mothballed during the campaign. Maybe a Romney administration would use some of these ideas, maybe they wouldn't. It's really impossible to say.
I'd love to see Hubbard's proposals gamed out and taken seriously. I feel that Romney has been trying to run out the clock on offering any specifics or a coherent conservative policy vision. I think they're afraid a set of truly conservative ideas would be rejected by the American people.
That political calculus is probably correct. The problem is too few conservatives seem to have rethought the Bush years. Republicans won back the House in 2010 by virtue of just saying no for two years, and they didn't have that time out in the wilderness to figure out what went wrong between 2000 and 2008. The economy wasn't good even before the financial crisis hit, at least not for most families. Health care costs soared and median wages actually fell during the "Bush boom", such as it was. Now, this strategic vagueness might work for Romney. If he does win, it will be the first time the Republicans have won a national election without a Bush or Nixon on the ticket since ... Herbert Hoover.
Wow. Well, we'll see in a week whether or not that streak holds. If it does, maybe Jeb Bush will keep it going in 2016. You never know.