Category Archives: Public Policy and Governance

The Complicated Perquisites of the 1%

It’s amazing what you can learn from research. Recently, the Brookings Institution took note of the oft-made assertion that the corporate tax rate in the U.S. (at 35%) is too high. The usual response is to point out that 35% may be the statutory rate, but many of our largest and most profitable corporations take advantage of tax breaks that substantially reduce–or even eliminate–federal taxes.

This report, however, looked at a different issue.

Corporations used to be the dominant form in which business was done. Partnerships and other “pass through” entities–so named because the income “passes through” and is taxed as the partners’– were far fewer.  In 1980, only 20.7% of all business income was earned by pass-through entities; in 2011, the share had grown to 54.2%.

So a band of number-crunching economists at the U.S. Treasury and some academic partners, with access to far more data than outside researchers can see, set out to answer two simple questions: Who is getting all this partnership income? And what tax rate do they pay? They offered their answer Thursday in a paper presented at a National Bureau of Economic Research conference in Washington.

The findings are significant. And troubling.

*Pass-through business income is even more concentrated among the richest Americans than traditional corporate profits. “Overall, 69% of pass-through income earned by individuals accrues to the top-1%. Corporate income is similarly concentrated, but other business income (typically considered very concentrated) is substantially less concentrated.

* The average federal income tax rate paid by individuals who report pass-through business income was 19% in 2011. In part, that’s because so much of that income is considered capital gains or dividends, which are taxed at preferential rates.

* Across all business entities except for sole proprietorships, the average tax rate of U.S. business income in 2011 was 24.3%, they estimate. That’s lower than is often assumed in debates over corporate tax reform.

* “The migration of business activity out of the C-corporate sector and into the pass-through sector has likely substantially reduced U.S. tax revenue,” the economists conclude. If pass-through activity had remained at the (low) level of the 1980s, then the average tax rate on total U.S. business income in 2011 would have been approximately 28% rather than 24%, and tax revenue would have been at least $100 billion higher.

Who was it who used to say “A billion here, a billion there–pretty soon, you’re talking real money”?

Go Back to Wherever You Came From is Not a Policy and Not in America’s Interests

Pew recently issued the results of its in-depth research on immigration.

First, a few “factoids.”

When we include the children and grandchildren of those who have immigrated to the U.S. since 1965, immigrants have accounted for 55% of America’s subsequent population growth. (They’re projected to account for 88% of the population increase over the next 50 years.)

Nearly 14% of the population is foreign born.

Compared with U.S.-born adults, recent arrivals are less likely to have finished high school, but they are more likely to have completed college or to hold an advanced degree.

As with so many other issues, American attitudes are polarized: Some 45% of adults say immigrants in the U.S. are making American society better in the long run, while 37% say they are making it worse.

A recent op-ed in the New York Times offered some useful perspective on the issue:

History provides some clarity about the relative costs and benefits of immigration over time. Fifty years ago this month, Lyndon B. Johnson signed the Immigration and Nationality Act of 1965 at the foot of the Statue of Liberty. By any standard, it made the United States a stronger nation. The act was endorsed by Republicans and Democrats in an era when cooperation was still possible. Indeed, the most serious opposition came from Southern Democrats and an ambivalent secretary of state, Dean Rusk. But it passed the Senate easily (76-18), with skillful leadership from its floor manager, Senator Edward M. Kennedy, and Johnson himself….

The flood of new immigrants also promoted prosperity in ways that few could have imagined in 1965. Between 1990 and 2005, as the digital age took off, 25 percent of the fastest-growing American companies were founded by people born in foreign countries.

Much of the growth of the last two decades has stemmed from the vast capacity that was delivered by the Internet and the personal computer, each of which was accelerated by immigrant ingenuity. Silicon Valley, especially, was transformed. In a state where Asian immigrants had once faced great hardship, they helped to transform the global economy. The 2010 census stated that more than 50 percent of technical workers in Silicon Valley are Asian-American.

Not to mention that our food choices have improved immeasurably….In short, any rational analysis demonstrates that immigration has been (and continues to be) incredibly beneficial to the country.

I suspect that it is another “factoid” from the Pew survey that really explains “the Donald”– and for that matter, most opposition to immigration: By 2055, the U.S. as a whole is projected to have no racial or ethnic majority.

Let’s be honest: much of the animus expressed toward immigrants (and protestations to the contrary, that animus is not limited to those labeled “illegals”) is based upon the “otherness” of some of them. To be blunt, much of it is racist.

As I’ve noted previously, my son-in-law is a (legal) immigrant, and in his thirty-plus years in America, has never experienced that animus. I’m sure it’s just coincidental that he’s a very pale Brit….

What Makes a Community?

Last night was the second in our three-part series “Electing Our Future.” The panelists were great, and I will post a link when WFYI uploads the video. In the meantime, here are my opening remarks introducing the panel:

What is the difference between cities that are collections of homes and businesses and cities that are genuine communities?

The last forum in this series described the systems we’ve developed—sometimes intentionally, sometimes not—to govern Indianapolis. That forum tried to answer the question: what does Indianapolis look like today? What’s its structure? How do we elect the people who manage the services we expect government to provide? How do we decide what those services are, and—not so incidentally—how do we pay for them?

Whatever we think about our city—what works well, what doesn’t, what isn’t getting done, what is getting done that perhaps shouldn’t be—one fact is inescapable: there aren’t enough resources to do everything that everyone would like to see our City do. Indeed, increasingly we find ourselves trying to stretch limited dollars just to do the very basic sorts of things that all citizens expect.

All cities have to set priorities, and we in Indianapolis are no different. Those priorities need to be informed by those of us who live here. And I want to suggest that those priorities tell the people who live here and the people who might want to start businesses here or live here or even visit, a great deal about us.

If we want Indianapolis to be a genuine, healthy community, rather than a collection of unrelated inhabitants—if we want to marshal the talents and goodwill of our neighbors in ways that will build on our strengths and compensate for our weaknesses—we need to consider what it takes to create that community, and we need to ask ourselves which of those tasks are properly the job of our municipal government.

Setting priorities requires us to agree on the elements that make for a good quality of urban life. In an era of scarce resources, that process also requires us to decide which services are essential, and which fall under the category of  “would be nice if we could  afford it.”

The process of setting priorities requires us to decide what trade-offs are worthwhile, and which ones shortchange us as a community.

Most of us want to feel safe in our homes and on our streets—but we don’t want that security to come at the cost of people’s civil liberties. 

We want to send our City’s children to schools that will prepare them for life in the 21st Century, that will give them critical thinking skills, because we know that great cities don’t exist without great schools and educated populations.

We all want a government that represents us, that is trustworthy and transparent and responsive to its constituents.

Most of us want to live in a city that is inclusive and welcoming, with a citizenry that sees diversity as an opportunity and difference as enriching, rather than a city that is a collection of separate communities walled off from and suspicious of each other.

And most of us want the amenities that make cities such wonderful places to live and work: parks and trails, libraries, museums, great public transportation, clean air and water, well-tended streets, roads and bridges—the social and public infrastructure that facilitates urban well-being.

The question is: how do we pay for all that? And if we can’t pay for it all, which of those public goods must take priority?

Our panelists have been selected because they are in positions that make them ideally suited to address those questions.

Julia Vaughn has been working with Common Cause to fight for good government for many years. She has been a voice for ethical governance and sanity at the Indiana Statehouse and in City Halls around the state.

Kelly Bentley, who is serving her 4th term as a member of the Board of Commissioners of IPS, has been a longtime ardent supporter of public education and educational reforms that serve our city’s children.

Judge David Shaheed recently retired from the bench; he has long been one of the most thoughtful observers of issues in the community involving re-entry,  disadvantaged populations, and diversity in general.

Troy Riggs recently left his position as Indianapolis’ Director of Public Safety, and has a uniquely informed perspective on the issue of crime in our city.

Through her work with Health by Design, Kim Irwin has come to understand that civic health involves far more than the physical health of its inhabitants, important as that is; healthy cities are cities with a great quality of life.

And finally, John Ketzenberger of Indiana’s Fiscal Policy Institute knows better than most of us the challenges we face in paying for our priorities and funding that good quality of life.

Tea Party Priorities

Evidently, the theatrics–make that “tea” actrics–will not end anytime soon.

You may remember that, in 2011, when he was still in Congress, Mike Pence was an enthusiastic leader of that year’s “defund Planned Parenthood or shut government down” effort. It’s 2015, but in the crazy caucus, only the faces have changed. Last week, Indiana Congressmen Young and Stutzman were among those voting to shut down government.

Despite last week’s passage of a short-term “clean” funding measure to keep government open until December, the zealots are still intent upon shutting down government unless Planned Parenthood is defunded, and a not-insignificant number of them say they’ll refuse to raise the debt ceiling when the time comes. (That, of course, would cause a massive default by the U.S. on its obligations, including such obligations as military pay, social security and medicare.)

Given so many Republicans’ willingness to do it again, you’d think the last shutdown (in 2013, over Obamacare) had been a rousing success for the would-be extortionists. It wasn’t–at least, not in what the rest of us call the “real world.”

Indeed, as the zealots prepare to play yet another game of chicken, twenty thousand federal workers are still suing over the last government shutdown, and a recent report by the Congressional Research Service calculated the economic damage done by that fit of pique:

Federal employees worked 6.6 million fewer hours during the 16-day government shutdown in October 2013, according to a recent report, with the loss of productivity resulting in a 0.3 percent loss in economic growth.

In other words, sending more than 850,000 federal employees home without pay for at least part of the shutdown took billions of dollars out of the economy.

Although the ideologues refuse to believe it, most government employees work at jobs that actually need to be done. When those jobs don’t get done, the economy slows, hurting everyone.

None of that matters to the zealots. In order to “defund” Planned Parenthood–that is, in order to keep Medicaid from reimbursing the organization for medical services provided to poor women and men (STD tests, breast cancer screenings, birth control pills, etc.), they’re willing to make poor people poorer. And sicker.

Tea Party “patriots” are willing to ignore the reality that there are no other providers with the capacity and reach to substitute for Planned Parenthood, and that defunding the organization would cut off medical care to millions of Americans.

Poll after poll confirms that most Americans support Planned Parenthood, value its services and don’t want to see it defunded. They also don’t want another government shutdown.

Americans would really like to see a Congress that governs rather than postures, but apparently, that’s too much to ask.


Democratic Heresies

My husband and I have had a long-running argument about primary elections. (Hey–you argue with your spouse about whatever is important in your house, and we nerds will argue about what preoccupies us…)

My husband insists that primaries have contributed mightily to political polarization. It’s unarguable that the people who turn out for primary elections are more partisan and ideological than other voters, and he’s nostalgic for the smoke-filled rooms where party elders chose candidates more likely to appeal to the moderate middle.

My rejoinder has been that more democracy is good, and smoke-filled rooms had their dark side. We just need more competitive primaries, and more people voting in them.

Now, a respected scholar at the Brookings Institution has weighed in…on my husband’s side.

Noting the recent resignation of the Speaker, she writes

John Boehner became Speaker at a point in time when four different reform ideas—all enacted with the best of intentions—interacted in ways that made his job impossible. These are structural and will impede the job of the next Speaker as well.

Primaries. The United States is one of the very few democracies in the world that uses primaries to nominate the members of the legislative branch. That means, for all practical purposes, anyone can become the nominee of a political party simply by declaring, running and winning. It also means that defying the party leader, in this case the Speaker, has very few consequences. While Boehner has been able to strip some of his problem members of committee assignments that has not proven to be a very powerful tool. Unlike leaders in parliamentary parties, Boehner cannot decide to keep someone off the list for bad behavior. And primaries are notoriously low turnout events in which a small group of ideologically motivated voters can control outcomes. Thus it is no wonder that Members of Congress have come to fear being “primaried” more than they fear displeasing the leadership.

She identifies three other “reforms” and their unintended consequences: parties (actually, their loss of power; they have less clout than billionaires with SuperPaks), privacy (which has diminished, taking with it the ability to negotiate in relative confidence), and pork (eliminating the goodies that everyone criticized also eliminated the ability to wheel and deal and actually get stuff done.)

I hate it when my husband turns out to be right….