Tuesday, May 24, 2022

Legislative Strategies for Reducing Inequality

David Super

      Income and wealth inequality has exploded in this country since the 1970s.  Scholars debate the relative importance of various causes:  the U.S. labor movement going into sharp decline, Ronald Reagan breaking the Democratic Party’s previously solid connection with white working class voters, Democrats’ courtship of a segment of the affluent to redress imbalances in campaign finances, changes in the world economy (and this country’s place in that economy), and several others. 

     Some have interpreted Thomas Piketty’s work as suggesting that public policies cannot fully check the growth in inequality.  Even if that is true, however, those concerned about inequality presumably want to do what they can, at a minimum preventing public policy from exacerbating inequality. 

     But how?  This post evaluates the various legislative strategies open to those seeking to reduce inequality.   

     A crucial starting point for this discussion is knowing what one means by combatting inequality.  Although inequality results from the combination of the greater income and wealth for those at the top and reduced income and wealth for those at the bottom of spectrum.  In practice, most people discussing inequality focus on either the top or the bottom but not both. 

     The Occupy Movement and others lambasting “the one percent” are clearly focused on the top.  These advocates no doubt think benign thoughts about those struggling to avoid homelessness and hunger, but they devoted relatively little of their attention to advancing concrete proposals for the poorest.  This may make some political sense – those in the middle three quintiles are more likely to join a battle against “the one percent” if they believe that the proceeds of any redistribution will come to them.  I have characterized this group as “redistributionists”; they are firmly associated with the left.

     The other major set of anti-inequality advocates focus much more on those at the bottom of the spectrum.  They would happily finance increases in housing assistance, food aid, and the like with funds from any group that is higher on the economic spectrum.  I have called these people “humanitarians”, and at least until fairly recently their ranks included some quite conservative Republicans.  Humanitarians’ political premise is that the poorest of the poor are doing so badly that even relatively small amounts –  amounts that more affluent or even middle-income people would not notice – can make a big difference.  To keep costs below the political radar, they commonly resist expanding initiatives to serve people too far up the income scale. 

     Whichever approach to inequality one has, three main legislative strategies are available.  First, one could seek to move stand-alone legislation to make specific changes one-by-one that would inequality by raising taxes on the affluent, by reducing taxes or expanding benefits for those with lesser means, or both.  Second, one could advance omnibus legislation making several such reforms together.  And third, one could seek to attach specific policies that reduce inequality to legislation containing policies that would benefit the affluent. 

     The problems with reforms individually are the same problems with moving any individual piece of legislation:  it is much easier to block legislation than to advance it.  Public choice problems, and the general disempowerment of low-income people, make it difficult to generate enough momentum for anti-poverty reforms to make it all the way down the legislative track; massive public choice problems derail freestanding attempts to raise taxes on the top, usually before they start.  Changes in the federal budget process enacted in 1990 made it harder to move fiscal legislation that does not contain offsets, and both committees’ jurisdictions and other aspect of budget process rules make politically viable offsets difficult to include in standalone legislation. 

     The challenges of the one-step-at-a-time approach led anti-inequality advocates to shift their attention to omnibus legislation.  This may sometimes be a broad reauthorization of expiring programs.  For example, some reauthorizations of the Higher Education Act have expanded student aid. 

     More commonly, the omnibus legislation is a budget reconciliation act that involves several congressional committees and is immune to the filibuster.  This can solve the problem of offsets by bringing the tax-writing committees – House Ways and Means and Senate Finance – into the same legislation as other committees with jurisdiction over anti-poverty programs.  During periods when pay-as-you-go rules were not in effect, this sometimes eliminated the procedural need for budgetary offsets (although the political need often remained).  Reconciliation acts have expanded food assistance, the Earned Income Tax Credit, child-care subsidies, and other inequality-reducing programs. 

     Most dramatically, Rep. Henry Waxman and his allies (including both moderate and anti-abortion Republicans) grew Medicaid from a tepid adjunct to Aid to Families with Dependent Children into a major force in health-care financing by including one or another set of expansions in annual reconciliation acts from 1984 to 1990.  Many observers believed that these expansions were in fact funded by reductions in Medicare’s provider reimbursements, but with both sets of provisions buried in much larger packages Members of Congress did not have to defend such a shift publicly. 

     A key problem with omnibus legislation is its very size.  Just as single-purpose legislation may lack sufficient mass to generate support, omnibus legislation has so many components that inevitably some of them will draw opponents who might sink the bill. 

     Omnibus legislation also can trigger unrealistic ambitions among supporters.  Progressive welfare reform legislation proposed by Presidents Nixon and Carter that would have dramatically improved the position of low-income families with children failed when progressives disappointed that the plans did not go father allied with conservatives against it.  The 1993 reconciliation act, containing several fairly large initiatives, almost failed when moderate Democrats wanted more deficit reduction.  Last year’s Build Back Better reconciliation bill, which would have made transformational changes in nine different areas, collapsed when progressives disappointed that two other sets of reforms were left out and alienated Sen. Manchin with a crude pressure campaign.  

     This has led to increasing interest in inequality-reducing offsets for proposals that benefit wealthy special interests.  This is not an altogether new idea:  farm bills expanding anti-hunger programs and pro-developer legislation expanding housing assistance have moved intermittently since the middle of the last century.  Speaker Tip O’Neill insisted that the Tax Reform Act of 1986 yield favorable distributional effects notwithstanding its sharp reduction in top marginal tax rates. 

     In recent years, however, the principle that legislation benefiting the affluent should not move unless it contains some provisions benefiting those with the least has gained considerable traction.  Quite remarkably, managers of the 2017 tax bill, which showered favors on the affluent and did not depend on any Democratic votes, nonetheless felt obliged to include an expansion of the Child Tax Credit for lower-income people. 

     The second, third and fifth coronavirus relief acts combined deep corporate subsidies with substantial expansions of food assistance, health care access, money states and localities could spend for rental assistance, and above all unemployment compensation.  Progressives later decried the corporate subsidies, and the Trump Administration’s steering of that money to its friends, but most congressional Democrats understood all along that those subsidies’ main purpose was to secure cooperation from Majority Leader McConnell and President Trump to enact the anti-poverty initiatives. 

     At this writing, two significant efforts to attach inequality-reducing legislation to bills with strong special interest support are underway. 

     Ohio Senators Sherrod Brown (D) and Rob Portman (R) are seeking to raise the amount of savings that the low-income elderly and people with disabilities may have without being denied Supplemental Security Income (SSI) benefits.  This legislation would be a natural inequality-reducing offset for pending legislation to liberalize the Internal Revenue Code’s treatment of upper-income people’s retirement savings.  Despite half-hearted efforts to sell this “pensions” legislation as helping workers across the income spectrum, it is a special-interest vehicle whose benefits flow overwhelmingly to the affluent.

     Another set of business interests is seeking major tax breaks on the “COMPETES Act”, whose core provisions seek to improve this country’s international competitiveness in various technology fields.  Although these big corporate tax cuts were in neither version of the bill that passed the two chambers, special interests have a good chance of adding them in the current House-Senate conference committee.  An effort is underway to insist that the price of any upper-income tax breaks must be lower-income tax benefits, particularly reinstatement of some of the 2021 improvements to the Child Tax Credit. 

     Establishing a norm that inequality-increasing legislation must also contain inequality-reducing provisions would follow the example of the “pay-as-you-go” budget process rules.  Beginning in 1990, these rules obstructed passage of deficit-increasing legislation based only on the promise that some revenue-raising or expenditure-cutting legislation would follow along later to rebalance the scales. 

     An obstacle to the inequality offsets approach is that Members who might be inclined to support it also want to win the favor of the special interests promoting the underlying legislation.  They can expect fewer rewards if they qualify their support by saying that they only want to pass it with offsets.  And if they become too vocal in favor of the special interest legislation, they may not be able credibly to threaten to withhold their support if the offsets fail.  That was the problem with the fourth coronavirus relief bill:  so many Democrats had enthusiastically supported deepening the corporate subsidies in earlier legislation that Majority Leader McConnell and President Trump called their bluff and refused to consider any significant inequality-reducing components. 

     A similar dynamic destroyed pro-immigrant Members’ longstanding plan to pair a path to citizenship for the undocumented with tougher border enforcement and implicit business subsidies through increasing the numbers of very-high- and very-low-skill workers admitted to the country.  So many Members were eager to associate themselves with the border enforcement and business immigration proposals that anti-immigrant Members saw no reason to deal. 

     The success of efforts to entrench the inequality-reducing offset principle in our political culture remains to be seen.  Unless the current, virtually even, ideological division of the electorate changes, not enough Members may care enough about inequality to impose this principle.  Nonetheless, in a country that has difficulty paying attention to small and medium-sized legislative proposals or agreeing on grand, transformational ones, any movement toward offsets is encouraging.


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