Today’s Policy Agenda: Grit Fosters Upward Mobility

by Andrew Smith

Our savings rate needs to rise. Could a progressive consumption tax be the way to do it?

Over at Wonkblog, Jonnelle Marte discusses the latest research on savings — we may need more of it, soon. She writes:

It’s saving, not spending, that will solidify the recovery and make the country less vulnerable to another downturn, says a report released Tuesday morning by the consulting firm Oxford Economics . . . The thinking is that by boosting savings, specifically retirement savings, people will be less likely to fall into poverty in old age, making them less reliant on government-funded programs like Medicaid. They might also have more money to pass on to their children or to invest in the market, reducing the need for American companies to rely on foreign capital. Indeed, the writers argue that raising the savings rate could add $7 trillion to the U.S. economy over the next 25 years.

More savings provides the big long-term growth boost Marte describes by lowering interest rates and increasing investment, enabling a more productive economy down the line. While the proposals Marte notes — the president’s MyRA plan or requiring employers to offer tax-advantaged savings plans — may or may not significantly increase the savings rate, a more significant change to the tax code might be in order.

Instead of taxing income and employment (payroll tax), two things we want more of, taxing only spending on goods and services would discourage consumption in favor of savings. The so-called X-tax, in which total income minus savings and investment is taxed at progressive rates, could be made revenue-neutral and as progressive as our current code while raising revenue in a much more pro-growth manner by increasing our savings rate. Which, by the way, is at historically low levels:

The X-tax structure’s elegance stems from devising a way to tax consumption, usually done through regressive sales taxes, progressively, which is critical because standard consumption taxes hurt the poor because of their higher marginal propensity to consume and more pressing material needs.

There actually are some solutions to gridlock conservatives should like.

Olympia Snowe and Dan Glickman, both relatively centrist former members of Congress, argue in Politico for ten ideas to improve the functioning of our democracy. A few of them:

1. Increase Voter Participation in primaries
2. Balance Access and Integrity in Our Elections
4. Tackle Money in Politics
5. Reform the Filibuster and Senate Debate
6. Empower Congressional Committees

While hand-wringing over the filibuster and money in politics is tiresome for conservatives who have their doubts that either is the cancer some think they are, the other three items above have some promise. First, ending nominating conventions and closed primaries would make sure general-election candidates are selected by more than just the ends of the ideological spectrum, a helpful adjustment in this political environment. Using big data to both expand voter registration to underrepresented populations and to verify the voter rolls is a compromise that’s a bargain at twice the price for conservatives. Meanwhile, Rand Paul and others have recognized that the off-putting focus on voter ID is alienating voters when voter fraud doesn’t appear to be a major problem.

Finally, one trend in Congress in recent years has been the decline in importance of committee leadership. Unfortunately, committee chairmen are the very members who have the experience and relationships to foster cooperation and get things done. Think about some of the best true policymakers in the Republican party: Paul Ryan, Dave Camp, Bob Corker, John Thune — all committee chairmen or ranking members. Giving these leaders more authority would be a positive development on the Hill.

Character and Mindset Matter in Rising Out of Poverty

At Real Clear Policy, Michael Cipriano interviews Lanae Erickson Hatalsky, author of a new Third Way paper on mobility and the character traits that enable it. Hatalsky:

There has been a lot of research on the education front lately about what folks have called non-cognitive characteristics . . .Those that drive your behavior, things like perseverance and delayed gratification. Grit is defined as the ability to see a long-term goal and then take the steps and persevere to get to it…But we haven’t focused in the past on these important aspects of a mobility mentality. So I think what we need to do is look at all the ways government interacts with people in the lowest quintile, and in each of those programs reform them to be instilling and encouraging a growth mindset and grit…I think in order to increase mobility there are definitely economic things that we need to do to enable people to succeed. But we also need to focus on these social aspects, because simply providing the economic support we need isn’t enough to overcome the gravitational pull that poverty has.

The safety net is vitally important and alleviates suffering for many, but mobility requires traits that no transfer program can provide. However, there are ways that government can empower society to instill these values of grit, hard work, and a “growth mentality.” First, any reader of this blog understands that the workplace and responsible employers can teach grit and hard work, and that there are a slew of policies government could pursue that would help poor individuals gain these transformative experiences. Second, we expect parents to develop these traits in their children, but common sense and academic studies show that children from single families are less likely to have these character traits and to be upwardly mobile. Brad Wilcox’s chapter in Room to Grow – while his proposals may be more contentious – offers a number of ways government could strengthen American families and help their children thrive.