1) If we were really serious about adjusting income tax rates for cost of living expenses, then the best way to do this would be to index the marginal tax rates to cost of living by region. Politically, though, this is bound to be a non-starter. But rectifying it through deductions is at best a messy indirect way of addressing the problem: one additional big global form of consumption that Nolan fails to identify is savings for retirement.
2) Reducing the rate at which high income earners can write off tax deductions, in my opinion, is there simply as a way to get an extra tax increase on high income earners into the budget without having to vote directly on a higher marginal tax rate, as he gets his current tax increase just by letting the Bush tax cuts expire. With Nolan’s previous post in mind, though, I’d think supply-siders would actually prefer this kind of tax increase (to, for example, simply raising the highest marginal tax rate to 41% instead of 39.6%), as it doesn’t reduce the incentive to work. What it does do is reduce the incentive to participate in activities the bring about tax write offs. The most popular topic to talk about in this regard in charitable giving, although I think this is kind of red herring. I’ve seen reports of studies saying that people reports tax considerations as very low on their priority list when considering charitable giving, but of course this could be subject to all sorts of response bias. Would be very interested to see if anyone had data/studies on whether changing the marginal tax rates has an effect on charitable giving by the highest wage earners?
3) What is potentially more interesting, however, is that it could begin to address one of the more distortive elements of the US tax code, which is the massive subsidy given to home buyers as opposed to renters. The justification for this subsidy has been that it helps promote an “ownership society” by making it easier for people to move from being renters to home owners, but of course the recent criticism has been that it helped inflate the housing bubble. Seen this in light, the Obama plan is potentially very clever: it keeps the subsidy for low wage earners, but for higher wage earners it might make them think twice about taking on a larger mortgage. So ostensibly it shouldn’t have much of an effect on most potential home owners entering the market, but might control some of the excess at the upper end of the market in the future.
In a recent post, I suggested that Republicans might want to be careful about following a strategy in which attempts to influence policy (e.g., working with Obama to shape legislation) are abandoned as part of a political strategy that essentially bets the house on continued economic deterioration. Let me now follow this up with two other disturbing trends for the Republican party, which together present a valuable long-term opportunity for Democrats:
1) In a compilation of CBS/NY Times polls released today, the current gap in 18-29 year olds identifying with either the Democrats or Republicans has reached 14% points (http://www.nytimes.com/imagepages/2009/03/01/weekinreview/20090301_CONNELLY_GRFK.html) in favor of the Democrats; by contrast, this age group favored Republicans through most of Reagan’s second term and Bush 41’s first term. One thing political scientists have learned about partisan identification in the United States is that while it tends to bounce around a bit while people are in their 20s, identifications held by people in their 30s tend to stick. While we don’t know if the current 18-29 year old generation will necessarily hold the same preferences when they pass through their 30s, if they do it could spell big problems for the Republican party for decades.
2) My understanding of the reason why Democrats have so many “superdelegates” involved in the selection of their presidential nominee was to counter a concern that arose in the late 1970s and early 1980s that the primary process encouraged presidential candidates to run so far to the left during the primaries that they would be unable to win enough of the center to be competitive in the general election. Watching the current festivities unfold at CPAC (http://www.politico.com/news/stories/0209/19449.html), I wonder if the 24 hour news media / new media / blogosphere world hasn’t put us in a state of perpetual primaries. After all, it really seems like many of the speakers CPAC are behaving as if they are already fighting for the 2012 nomination. If this is the case, then I’d suspect the same problems will be in play for the Republicans over the next 3-4 years that the Democrats worried about previously: more and more attention paid to wooing primary voters (e.g., the conservative wing of the party). With this process apparently starting so early now, though, this means the main message coming from most of the potential “leaders” of the Republican party is going to be targeted at this narrow audience. If such a message is all that voters hear associate with the Republican party between now and 2012, then one is left to wonder how any eventual nominee could ever be able to credibly come back to the center enough for the general election. Put another way, imagine a thought experiment where you are the campaign manager for the Republican candidate in 2012. Would you prefer that for the previous 4 years the Republican Party had built up an image that appealed to the median voter in the country, or the median primary voter in the Republican party? Of course you’d want the former option, but it looks like we’re headed for the latter. It should be noted that unlike the trends in party identification this is not a Republican problem by definition, since it is being driven by technological innovation. Nevertheless, it is likely to be a particular problem for opposition parties in the first term of a presidency, as sitting incumbents do not (generally) have to worry about a primary process. So for now, it is a Republican problem.
And it is an especially troublesome Republican problem in view of my first point about party identification. Combining these two trends suggests a not unrealistic prediction is that as the Republican party increasingly trumpets a message designed to appeal to a far-right portion of the electorate over the next 3-4 years, 18-29 year olds that already prefer the Democratic party by a wide margin will find no reason to abandon that position as they move into a more politically stable period of their lives. This strikes me as a very dangerous scenario for the Republican Party, and one which I would suggest the Democratic party would benefit from trying to bring to fruition.
As a corollary to Nolan’s commendation of President Obama’s efforts at bipartisanship, I would suggest that the behavior of the Republicans during the stimulus debate may have created some longer term problems for the party. While in the short term the members of the minority party are likely to be commending themselves for flooding the cable news networks, seizing control of the “message” (albeit temporarily) surrounding the stimulus, and maintaining strong party discipline, let’s take a look at what will be left once the bill is signed into law: (1) Despite near total unity, the Republican party will have been unable to prevent the bill from passing; (2) The only Republicans who will have had a modicum of an effect on the bill’s content are precisely the same people that the party spent most of the Bush years marginalizing, moderate Republicans from the North East; and (3) the dominant narrative on bipartisanship will have been set by President Obama in his press conference: he (Obama) goes farther than any previous president to embrace the other side, but has been rebuffed by a dominant partisan culture; nevertheless, he’ll keep trying in the future because he’s the candidate of change. The net result: Obama looks like he is keeping to his bipartisan promises, the Republicans look obstructionist, and a bill that is almost entirely written by Democrats (with contributions from a few moderate Republicans) gets passed.
From a policy perspective, this can not be good for Republicans. So probably we should conceive of these tactics as primarily political, a kind of doubling down on the 2010 midterm elections by reestablishing the Republican brand in voters’ minds. But what is really likely to happen in 2010? While it is of course too early to know for sure, the simple mathematics of which seats are being contested in 2010 suggests that by far the most likely outcome is that the Democrats will hold on to their majority in the House and may even gain seats in the Senate. For example, the website fivethirtyeight.com ranks Senate seats in terms of their likelihood of changing parties: the top five are all Republican seats, as are 8 of the top 10. While past patterns suggest that the out of power party usually picks up seats in off-year elections, there is a non-trivial chance that after the 2010 elections Obama will have a filibuster-proof majority in the Senate and a sizable (if even somewhat smaller) majority in the House. With this in mind, does the Republican party really want to spend all of this term putting its effort into unified opposition to the President?
The wild card in all this is of course the economy. Perhaps economic conditions will deteriorate to such an extent that voters will be throwing Democrats out of office left and right in 2010. (But as an aside, do the Republicans really want to look like they are rooting for a continued deterioration of the economy?) But perhaps the economy will make voters react with even more venom than usual against parties that are viewed as being obstructionist in a time of national need. We just don’t know the answers to these questions yet, but it is probably something the Republican party ought to consider as the legislative term moves forward.