Matt Steinglass on the Pension-Slashing, Social Security-Reforming, Loophole-Closing Democrats

There are terrific writers contributing to The Economist’s Democracy in America. Roger McShane, the online US editor of The Economist, for example, is a very sharp guy. But I must admit I find Matt Steinglass’s contributions to DiA puzzling.

Consider Steinglass’s most recent post, on Ramesh Ponnuru’s proposed agenda for Republican congressional candidates. After very kindly linking to my post on the same subject, Steinglass makes a number of observations that anyone familiar with the domestic political scene in the U.S. would find jarring.

Here’s the problem I see: I suspect its planks could largely be embraced by most of the Democrats in Congress without too much trouble. A few are problematic. Repealing universal health care is a non-starter, but also a political loser, so it’s not likely to go very far.

We’ll bracket this question. I disagree with Steinglass, but this is at least a debatable proposition.

The permanent ban on federal funding of abortion is a bad idea, but it’s also meaningless, as there will be no federal funding of abortion with or without a ban.

This, of course, is not as clear as Steinglass seems to think. Indeed, a variety of groups favoring abortion rights believe that there is enough ambiguity in the law as to merit legal challenges to the settlement the White House reached with anti-abortion congressional Democrats. But we’ll leave this aside for the sake of argument.

And a federal hiring freeze is a bad idea, both because it’s the kind of arbitrary global restriction that wreaks pointless havoc on good programmes, and because, in the midst of a crushing low-employment period that may well be part of a historic shift in demand away from private goods and towards public ones, the government may need to hire more people, not fewer. (Mr Salam dislikes the idea too, pointing out that it will probably do nothing but aggravate the trend towards governments paying high-priced private contractors to do jobs that agencies used to do themselves.)

There’s more to this, and Steinglass oversimplifies the relevant issues by my lights. That said, one can make a plausible case that at least resembles what Steinglass wrote on this matter.

But the rest of the planks all sound like they could have come straight from the Obama administration. Federal aid to states, conditioned on cuts in their pension plans?

Steinglass believes that aid to states conditional on major retrenchment of public pensions plans is an Obama administration proposal, or rather is an entirely plausible Obama administration proposal. In light of the significant role played by public employee unions in the Democratic coalition, this is a very interesting view. The idea has indeed been endorsed by centrist Democrats outside of Congress, as we’ve discussed. Yet if cash-for-cuts were so congenial to Democratic policymakers, one wonders why the proposal hasn’t made more headway. I’d like to hear some theories. The most plausible theory, in my view, is that a significant majority of elected Democrats believe that public pensions can and should be defended, in part due to a lack of understanding of the long-term costs involved.

Tax relief for parents?

Of course, Ponnuru backs a very specific form of tax relief for parents as part of a broader revenue neutral tax overhaul. Note that Steinglass left out the “increased incentives to work and save,” a important proviso that is very much in tension with increases in implicit and explicit marginal tax rates embedded in PPACA.

It’s by no means clear that congressional Democrats would back the proposal, which Ponnuru and Robert Stein have outlined in detail. But of course Ponnuru backs the idea in part because he believes — indeed, he has explicitly stated — that it could attract support from at least some moderate Democrats. This was part of the argument he made in his first National Review article on the subject. Democrats, in a similar vein, will often tout policies that they imagine might receive Republican support. This is a strategy designed to win the votes of the persuadable, a strategy that has been part of successful Republican and Democratic campaigns for many years . Yet would the expansion of the family-friendly tax reform Ponnuru envisions be embraced by the Obama White House or by the majority of congressional Democrats? That is far less clear. Indeed, that is why it might prove an effective “wedge issue” — a proposal that divides a rival political coalition while uniting one’s own. To be sure, Ponnuru could be wrong about all of this. But that is the basic idea.

Restricting Social Security growth for high earners to the inflation rate? I’d bet two-thirds of the Democrats in Congress would be amenable to these reforms.

We had a test case for this during the Social Security reform debate in 2005. I am quite confident that two-thirds of the Democrats in Congress would not be amenable to these reforms. I would, however, be very pleased if congressional Democrats could be convinced of the merits of this proposal. Steinglass can be very helpful in this regard.

And one of Mr Ponnuru’s ideas, repealing the federal tax exemption for local and state taxes, is essentially a tax hike on high earners. I doubt many Democrats would be upset if the GOP embraces that proposal. 

This is a particularly interesting view, given the heavy concentration of elected Democrats and Democratic donors in high-tax states. Robert Stein has described the incidence of this proposal in his National Affairs essay, which I linked in the aforementioned post.

Given the loss of the state and local tax deduction, the tax hike will be particularly acute for high earners from high-tax states. And although the top income-tax rate would be capped at 35%, that rate would kick in at lower income levels than it does today. The result would be a marginal tax-rate hike — and a corresponding weakening of work incentives — for many workers who today find themselves in the 25%, 28%, and 33% brackets.

Superimposed on a partisan map of congressional districts, it is safe to say that this reform would impact large numbers of Democratic voters in heavily Democratic districts. Steinglass believes that this would be welcome. Having discussed this idea with Democratic staffers and at least one Democratic member of Congress, I can confidently say that this is far from the case. And it’s also worth noting that high earners in high tax jurisdictions often face a high cost of living — though I support the reform, as I think it would help promote spending discipline at the state and local level, many of those who would be hit hardest by the reform would be very sympathetic, despite their nominally high incomes, e.g., many two-earner couples with children living in above-average school districts, facing high fixed costs.

One thing any partisan political agenda has to do is distinguish its party from the other guys. To the extent that this agenda fails to distinguish Republicans from Democrats, it’s not much of an agenda for the GOP to run on this fall.

Again, the idea that this agenda fails to distinguish Republicans from Democrats is far from the case, as any number of incumbent congressional Democrats would very happily make clear. That said, the universe in which this agenda would be embraced by congressional Democrats would be a great one, particularly with regards to cash-for-cuts. All the more reason, then, for Republican congressional candidates to coalesce around this agenda — perhaps it would incline Democrats to have a change of heart.