Validating Reforms that Expand Opportunity

By: AIF Staff

Earlier this week, American Idea Foundation President Paul Ryan took part in a bipartisan panel discussion hosted by the Brookings Institution’s Hamilton Project. The conversation, entitled Resilience After Recession: The Emerging Landscape for American workers and families, centered on how the COVID-19 pandemic has exacerbated economic disparities and how policymakers can ensure that workers, families, and children have the support necessary to thrive and prosper.

Along with experts and thought-leaders from across the ideological spectrum, Speaker Ryan shared his thoughts on the Democrats’ proposed reconciliation package and discussed provisions of the legislation that will, and in some cases, will not, assist lower-income Americans in successfully navigating the post-COVID economy. He also touched on how evidence and data provide opportunities to cut through partisan gridlock that is leaving too many Americans struggling economically.

The panel discussion is accessible below. Excerpts of Speaker Ryan’s remarks, edited slightly for clarity, follow.

Concerns with the Democrats’ reconciliation bill and its potential economic impact:

“It should come as no surprise that I think this reconciliation bill would be a big mistake for a couple of reasons, but I’ll try to say something positive about it at the end.

“Number one, I think it’s going to do a lot of harm to our economy. Just with these tax provisions alone, you’re going to reignite inversions. You’re going to bring the business tax rate for corporations and pass-throughs back to the highest in the industrialized world when you add state taxes on top of it. As a result, you’re going to make American workers and companies much, much less competitive.

“New inversions are going to start. You’re going to slow down job growth and slow down economic growth and at a very basic level, where we should start with is [agreeing] that we want economic growth. You cannot have upward mobility without economic growth. I like the fact that our labor markets are tight, but I want to make sure that we have jobs that can pull people into the workforce at higher-paying jobs and that depends on economic growth. If you make it harder for the job-producers and smaller businesses to expand and grow, as this bill does, then I think you’re going to be self-defeating in that area. Then the fiscal effects from this, you take a look at this bill, and I spent my career doing reconciliation, it’s kind of a fiscal train wreck.

“The Democrats are disguising the true cost of the bill and they’re disguising how much money you’re going to actually raise in revenue from the pay-fors, so I don’t think it is paid for and it’s going to give us a huge fiscal headache. Our debt and deficits are going to get out of control. This will put pressure on our dollar as a world reserve currency and our economy is going to slow down with bad tax policies.

“If we lose sight of the debt and deficits and the cost of financing our social contract, it becomes really difficult to finance and think of the social chaos and the political chaos that would occur with a debt crisis. First, let’s focus on getting this economy growing and, like I said, before COVID, the bottom two quintiles of income earners were getting the biggest wage increases they’ve ever had, so we had real standard of living increases.

“In addition to this, I think this [reconciliation bill] is going to increase inflation in the economy.  I think a lot of these spending programs will convert inflation from what was hopefully temporary to more structural, so I think this bill is going to give us the wrong kind of pressure on inflation. I think that the reconciliation bill would be a big mistake.

Finding specific policies within reconciliation that both parties can embrace:

“Let me try and find something positive to say about it: I think the Earned Income Tax Credit (EITC) reforms are good reforms and that is something I’d like to see both parties embracing. I tried doing an EITC expansion for childless adults and I think that’s just a no-brainer. The data is really clear on this….

“We also need to have it embedded in the first paycheck on a monthly basis. There’s a systems problem at Treasury that we need to overcome but the Childcare Tax Credit and the EITC should not be a lump sum at the end of the year, it should be embedded in the paycheck. I think that’s something that everybody should come together on because the data is really clear that that really works.

“There are some discrete points I think that could be passed and that people on both sides could embrace, but I just think the reconciliation bill, particularly because the tax policy and the fiscal time-bomb and nature of these entitlement programs will actually give us a worse situation and slow down economic growth.”

What policymakers can do to ensure a more robust and equitable economic recovery:

“One thing I think we should focus on is data. My foundation is focused on making sure that the Evidence Act is well executed. The Office of Management and Budget is leading on this and I think there’s a lot of room to improve data collection, especially since COVID, because blue collar workers were harmed so much more than white collar workers.

“And so, I think there’s a lot of room for data collection and room to improve the evidence around these policies around workforce training. There are a lot of workforce training programs out there, but the problem is we haven’t really tracked the evidence of success. There are some that have been done using randomized control trials (RCTs) that show where success can be had, so my argument at this moment is: Let’s use data to find out what works and to find out what doesn’t work. I think there’s an opportunity to follow the data.”

Rethinking and customizing our social insurance system:

“I think in the 21st century with data and digital advances and with the economics field that we have currently, we can re-think how we design our social insurance system. I mean, look at my own experience with EITC and just trying to make it monthly. I didn’t have any problems with my side of the aisle. I didn’t have any problems with Democrats. I couldn’t do it because the federal government just couldn’t do it. This stuff is just ridiculous.

“And so, I really believe we need to rethink the way our systems work and the way we design our benefits. We just paint everyone with the same brush. We treat everybody the same and as a result of this bad macroeconomic policy, we have bad micro-economic policies with benefit offsets and with benefit cliffs and that really sets people back.”

The need to modernize the social safety net:

“We have a 20th century social insurance system that we need to turn into a 21st century social insurance system… I really do think our entire social insurance safety net is due for an overhaul. It should be based on data, based on evidence, based on what is proven to work, and yes, we should do some experimentation. We should run some RCTs across the board but I think adding new programs on top of old failed programs and hoping that it’s going to be done differently or produce new results is just not going to work and is the same mistake that we’ve been making.

“Frankly, given what we have in technology, in data and analytics, and in digital technology, I really believe we can streamline our social insurance system with an eye toward proven methods of upward mobility to help those people who historically have not gotten ahead. I think the pandemic hurt the least among us the most and I think Michelle was right about the post-2008 recession, it was the wealth effect by the Federal Reserve which helped people at the top do extremely well and we had stagnation below that because of bad fiscal and regulatory policy.

“I think there are better policies to get us faster economic growth, faster wage growth, better living standards, but throwing on top of it brand new ideas that are untested and putting them on top of a creaky social insurance infrastructure from the 20th century that is not meeting its potential, I just don’t think it is a smart move and I think it’s going to give us a huge debt hangover. I think it’s going to be bad for our economy.

“I would take today’s technology, overhaul the social insurance system, focus on getting the incentives right, the benefit mixes right, and the thing that always bothered me when I studied all of this stuff is the benefit offsets….

“I think there’s a way of dealing with the benefit cliffs so you can customize benefits on a per person basis using technology and using good economics so that it always pays to move ahead. You’re always making sure that the benefit mix – whether it’s job training, childcare, transportation, I’m in Wisconsin so heating, is designed properly so that a person is always on the curve on the way up and you don’t have all these benefit cliffs knocking them back. That’s what I would be focusing on right now to try and build a 21st century social insurance system that is durable, effective, and by the way, affordable, and that doesn’t bankrupt the country.”

By: AIF Staff

Earlier this summer, the American Idea Foundation facilitated site visits to a Nurse Family Partnership and an Opportunity Zone in South Carolina. The purpose of these visits is, in part, to give legislators the opportunity to listen and learn first-hand from the very people being impacted by the policies they pass. The American Idea Foundation believes that by connecting legislators with these organizations and individuals in our communities and by providing lawmakers with relevant examples and evidence of how public policies are being executed and implemented, Congress can improve outcomes and better people’s lives.

Speaker Ryan was joined on the site visit to the Charleston Digital Corridor by Senator Tim Scott and Representatives Joe Wilson and Ralph Norman. While at the tech incubator, the legislators held a roundtable with area job-creators to discuss how the incentives provided by Opportunity Zones, which were passed as part of the 2017 Tax Cuts and Jobs Act, were spurring investment and employment opportunities in a part of South Carolina that has battled persistent poverty.

Earlier this week, Senator Scott was interviewed by RNC Chairwoman Ronna Romney McDaniel on her Real America podcast and touched on the site visit specifically and the Opportunity legislation more broadly.

Listen to the entire episode here and check out the relevant discussion below.

Romney McDaniel: You fought so hard to make sure that [Opportunity Zones] were part of the 2017 Tax Cuts and Jobs Act. And what that has done for communities around the country — and you can talk about that even more, which is save these communities that were not getting the resources and helping them, investing in them and building them up.

Senator Scott:On a recent Friday, myself and former Speaker Paul Ryan and a number of business leaders and Congressman Ralph Norman and Congressman Joe Wilson, all sat at a table in an Opportunity Zone at a new tech start-up building that is attracting cool companies to provide real jobs in areas of the community that were blighted before.

The person who is the Executive Director of the building said that he’s getting calls from community members asking for training because they’re technologically illiterate. They want to work in this new, shiny building in the neighborhood and we are working on that next iteration, to make sure that the job-training apparatus is close enough to the tech center so they can work and walk in that same community.

And Opportunity Zones, $75 billion of private sector resources, being deployed around the country to the poorest, economically-disadvantaged communities in this country were brought to you by the Republican Party.

We actually work from a theory that common sense leads to common ground and when you find it, you stand on it and people’s lives are better. We don’t care about who gets the credit. We can about who gets it done.

For additional information on the South Carolina site visit, click here.  

By: Kevin Seifert

As the nation responds to the economic turbulence caused by COVID-19, Congress should build on elements of the American Rescue Plan by further reforming and expanding the Earned Income Tax Credit (EITC). Since 1975, the Earned Income Tax Credit has proven to be one of the federal government’s most effective poverty-fighting programs and enhancing the credit is one of the best ways Congress can ensure a strong, bottom-up recovery from the pandemic.

A common-sense expansion of the EITC is precisely the medicine the U.S. economy needs to return to full health. The economy is still 6.7 million jobs short of its February 2020 levels but as the American Enterprise Institute’s Survey Center on American Life reported this month, 3 in 4 individuals who have been unemployed for less than two years are currently looking or planning to look for work. Correspondingly, employers are hungry for workers and need them to keep up with rising demand for goods and services.

Unfortunately, during the pandemic, the federal government erected new short-term disincentives – most notably through enhanced unemployment benefits and other direct payment programs, that have slowed individuals’ re-entry into the workforce. While stabilizing measures were necessary at the pandemic’s outset, Congress needs to shift from emergency responses to policies that help individuals and families over the long-term. An expansion of the Earned Income Credit will accomplish this by incentivizing labor-force participation and targeting benefits to those individuals and families most in-need.

As the American Enterprise Institute’s Michael Strain succinctly stated: “If you want more of something, subsidize it.” The EITC benefit is equal to a percentage of annual earnings and determined by the number of children living in the household. In short, it is a tax credit that subsidizes work. For millions of Americans with lower-incomes, because of the Earned Income Tax Credit, the more they earn, the larger the benefit they receive. The EITC’s intentional design not only helps employers and their employees but it directly aids families and their children as well. The benefit helps society’s most vulnerableand because it is tied to earnings, it reinforces the values that come with a steady paycheck.

The effectiveness of the EITC is precisely why Members of Congress already agreed to expand the benefit via the American Rescue Plan. The recent reforms extended the benefit to Americans aged 19 to 24, increasing the credit’s maximum value and the income cap for adults without children. According to the Center for Budget and Policy Priorities, these reforms will help over 17 million low-income Americans.

In a time of legislative gridlock, these changes made to the EITC via the American Rescue Plan were a meaningful step in the right direction, but Congress should not stop there.

Congress can easily address the significant marriage penalty associated with the current Earned Income Tax Credit. Many low-income families are faced with a choice of remaining unmarried or losing EITC benefits. Congress can fix this “benefit cliff” by increasing the income limit where the EITC begins to phase-out and by reducing the phase-out rate. This would help lawmakers achieve the dual goals of incentivizing work and encouraging family formation.

Though the Earned Income Tax Credit has been historically focused on individuals with children, further increasing the overall amount of the credit for single individuals would promote work among younger Americans and assist a wider array of people battling poverty. There are 5.8 million working age adults  without children, including 1.5 million Latino and 1 million Black workers, who stand to benefit from a more expansive EITC. And given those who lost jobs during COVID-19 generally skew younger, an EITC expansion for single individuals would give this cohort a timely boost, pushing job-seekers into the workforce and incentivizing continued employment.

The EITC is already one of the largest federal safety-net programs and these potential enhancements are not without costs, which is why legislators should scour the federal budget to identify offsets. One option, long supported by both conservatives and good-government advocates, is reducing the billions in improper payments associated with the IRS’ processing of the EITC. Another approach is to reduce spending on ineffective federal poverty-fighting programs that lack the evidence and data to justify continued funding. The federal government could reallocate funds from under-performing social programs and put them towards an enhanced EITC. The federal government spends hundreds of billions of dollars annually on fighting-poverty and it should be prioritizing programs that actually improve outcomes. The EITC has demonstrated its effectiveness over decades and expanding the program would be consistent with taking an evidence-based approach to battling poverty.

An enhanced tax credit that reduces the marriage penalty, fixes the “benefit cliffs” and increases benefits for single individuals would address our labor-force participation issues and would assist those battling persistent poverty or temporary financial difficulties related to COVID-19. It would help families, job-seekers, and job-creators alike.

A more generous Earned Income Tax Credit is not a silver bullet to alleviate poverty, but it does represent one of the most powerful tools at the federal government’s disposal. It has already done a great deal to help Americans economically and if Congress continues to sensibly build on the program, it will benefit even more in the future.

Kevin Seifert is the Vice President of the American Idea Foundation, a non-profit headed by former Speaker of the House Paul Ryan committed to promoting evidence-based public policies and programs that expand economic opportunities and fight poverty. This op-ed originally appeared in The Hill.