Taxes

Restricting Free Trade to Save Free Trade

Globalization has come under sharp scrutiny in the 2016 presidential election, exposing deepening political fault lines. Harvard professor and author Dani Rodrik offers ideas for how to save international trade by giving individual nations a license to restrict trade to protect domestic economic and political institutions. (Illustration by Andrew Holder/New York Times)

Globalization has come under sharp scrutiny in the 2016 presidential election, exposing deepening political fault lines. Harvard professor and author Dani Rodrik offers ideas for how to save international trade by giving individual nations a license to restrict trade to protect domestic economic and political institutions. (Illustration by Andrew Holder/New York Times)

Globalization has gotten a black eye in the 2016 presidential election and in the Brexit vote in the United Kingdom, but populist opponents have offered few tangible alternatives other than a trade war, rejecting the Trans Pacific Partnership or trying to renegotiate existing trade deals.

Dani Rodrik, a Harvard professor and author, offers suggestions in a New York Times op-ed that will annoy populists, labor unions and globalization cheerleaders. He says to preserve free-flowing trade – and the democracies the engage in it – will require giving individual nations the autonomy to protect their own interests. 

“Globalization has deepened the economic and cultural divisions between those who can take advantage of the global economy and those who don’t have the resources and skills to do so” Rodrik wrote. “Nativist politicians like Donald J. Trump have channeled the resulting discontent as hostility to outsiders: Mexican or Polish immigrants, Chinese exporters, minorities.” 

Rodrik’s solution is to cap “hyper-globalization” and replace it with a form of globalization with increased national autonomy. For example, he says nations should be able to place restrictions on cross-border transactions that involve worker or environmental rights violations.

That sounds eerily similar to the kind of trade restrictions that globalization and free-trade agreements have sought to eliminate. Rodrik claims some trade trimming will be necessary to salvage the basic idea of free trade, which he notes has “pulled 700 million people out of poverty." “Globalization,within limitations,” he says, “has been good economics. Globalization, within limits, can be good for our democracies, too.”

In his op-ed, Rodrik offers four specific suggestions:

  • Give individual nations the autonomy to choose trade-related institutions that best represent their interests and reflect their risk-tolerance.
  • Countries should be able to prevent “regulatory arbitrage” whereby corporations circumvent national labor or environmental laws by moving operations to offshore locations.
  • International economic negotiations should pivot on domestic policy autonomy combined with increased trade transparency to ensure both sides keep their commitments.
  • Global governance should focus on enhancing democracy, not globalization.

“Global governance cannot overcome major problems like inequality, social exclusion or low growth,” Rodrik says. “But it can help by devising norms that improve domestic policy transparency, public deliberations, broad representation, accountability and use of economic evidence in domestic proceedings.”

Interesting by its omission is mention of reforms to trade adjustment assistance, which has drawn criticism for being inadequate and training dislocated workers for jobs that don’t exist in their community – or at all.

The fundamental question raised by Rodrik’s call for a “little-less-free trade” is whether a little would turn into a lot. Nations already file actions alleging unfair trade practices that range from “dumping” products at low costs to self-serving tariffs that make imported products noncompetitive. The license to protect domestic economic interests could embolden industry, labor and environmental advocates to push for greater protections, which could trigger what amounts to trade wars between nations or international regions.

Rodrik also doesn’t address the issue of globalization of financial markets, which dwarf the movement of goods and services across national boundaries. Restricting the flow of money is considerably more complex and can be tied up with another international bugaboo – concessionary tax policies and tax havens.

None of this discounts the value of the conversation Rodrik’s op-ed started, which highlights the many moving pieces that must be addressed to find a balance that benefits consumers without unduly exposing workers to economic discoloration and ultimately posing a challenge to democratic governance.

The Slow Suffocation of U.S. Market Competition

Elizabeth Warren says competition is dying a slow death in the American marketplace, hurting consumers, small businesses, innovation and workers.

Elizabeth Warren says competition is dying a slow death in the American marketplace, hurting consumers, small businesses, innovation and workers.

While Donald Trump’s poll numbers slump and Hillary Clinton continues to stumble in explaining her use of a private email server for official State Department business, Elizabeth Warren has plopped a major public policy option on the table. She has called for stronger antitrust action to restore competition to U.S. markets, from banks to cable operators to technology companies and health insurers.

In an election punctuated by insults and insinuations, Warren said, “Today in America, competition is dying. Consolidation and concentration are on the rise in sector after sector. Concentration threatens our markets, threatens our economy and threatens our democracy.” It’s only surprising that the presidential candidates haven’t raised the topic.

Warren gave the keynote speech at New America’s Open Markets program the day after she appeared alongside Clinton to endorse her. Her premise was that “reigniting competition” in a broad range of increasingly monopolized markets will benefit consumers, small businesses and workers.

“The first problem is that less competition means less consumer choice,” the Massachusetts senator said. “When consumers can purchase similar products from multiple competitors, they force market players to constantly seek out new ways to reduce prices and increase the quality of goods and services to get their business.”

Lack of competition “can lock out smaller guys and newer guys,” she said. “Google, Apple and Amazon have created disruptive technologies that changed the world, and every day they deliver enormously valuable products. They deserve to be highly profitable and successful. But the opportunity to compete must remain open for new entrants and smaller competitors that want their chance to change the world again.”

Revenue of Top 200 U.S. Corporations as Percentage of Total Business Revenue, U.S. Economy, 1950–2008

Source : Data for the top 200 corporations (see notes) were extracted from COMPUSTAT, “Fundamentals Annual: North America” (accessed February 15, 2011). Total revenue was taken from “Corporate Income Tax Returns” (line item “total receipts”) Statistics of Income (Washington, DC: Internal Revenue Service, 1950–2008).

Source: Data for the top 200 corporations (see notes) were extracted from COMPUSTAT, “Fundamentals Annual: North America” (accessed February 15, 2011). Total revenue was taken from “Corporate Income Tax Returns” (line item “total receipts”) Statistics of Income (Washington, DC: Internal Revenue Service, 1950–2008).

When competition declines, small businesses can be wiped out. Warren cited the “Walmart effect” created by a single company delivering more than 30 percent of the products Americans consume and controlling critical supply chains.

Key Facts From Warren's Speech:

  • The number of major U.S. airlines has dropped from nine to four in the last 10 years, due to consolidations. Last year, those four airlines brought in a record profit of $22 billion.
  • Five companies control more than 83 percent of national health insurance market.
  • CVS, Wallgreens and Rite Aid own more than 99 percent of the drug stores in the U.S.
  • Four companies own about 85 percent of the U.S. beef market, and three control nearly half of all chicken in the U.S.
  • More than half of all cable and internet subscribers in America have service through Comcast, which has consolidated by buying up rival companies.

Concentrated markets tend to lead to concentrated political power, Warren asserted. “This is a big one, and it should terrify every conservative who hates government intervention.... Concentrated markets dominated by a handful of powerful players, on the other hand, don’t produce the consumer benefits that flow from robust competition. Instead, benefits are sucked up by a handful of executives and large investors.” Their lobbying, in turn, focuses on protecting their market advantage and resisting restoration of competition.

The ultimate victim of market concentration, Warren said, is America’s middle class. People at the top get richer, she claimed, while others struggle. “Concentration is not the only reason for rising economic insecurity, but it is one of them. Concentrated industries result in concentrated profits. It’s the ultimate price squeeze."

Her solution is to hold the line on what she called anti-competitive mergers, give close scrutiny to so-called vertical mergers and require all federal agencies to promote market competition. Warren also believes that businesses can’t be allowed to become “too big to fail.”

“For much of our history, Americans organized and protested against the forces of consolidation,” Warren concluded. "As a people, we understood that concentrated power anywhere was a threat to liberty everywhere. It was one of the basic founding principles of our nation. And it threatens us now.”

The market threat Warren points to is easily of greater consequence to average Americans than Mexican immigration or careless handling of sensitive emails. In the 90 days between now and Election Day, perhaps it will be mentioned on a presidential stage.

The Brexit Message for America

Britain’s vote to exit the European Union generated a huge drop in the British pound and shock waves for global stock markets. It should jolt American policymakers to discuss how to cope with the side effects of globalization, not flee from them.

Britain’s vote to exit the European Union generated a huge drop in the British pound and shock waves for global stock markets. It should jolt American policymakers to discuss how to cope with the side effects of globalization, not flee from them.

The Brexit vote sent shock waves throughout the world and raised questions about whether simmering anger over the effects of globalization could lead to Donald Trump winning the White House this fall.

The plummeting British pound and sagging worldwide stock markets provided an immediate warning sign of the portentous moment caused by the vote to leave the European Union. Prime Minister David Cameron’s decision to step down and allow someone else from his Conservative Party to navigate the departure confirmed the vote has clear political consequences.

But the anxieties reflected in Britain don’t exactly equate to those in the United States. While older, white Britons voted to leave, younger Brits voted to remain in the EU. Trump has won the hearts of older, white Americans, younger voters gravitated to Democrat Bernie Sanders.

A weekend editorial in the New York Times offered an explanation. Economically stressed working class voters blame their plight on trade deals that have profited corporations and banks, but cost them good-paying jobs and economic security. Younger voters feel the same stress and anger over income inequality resulting from a global capitalism, but see value in “economic integration, mobility and diversity.” They favor political action to fix, not flee from, economic dislocation.

There are material differences in the makeup and diversity of British and American voters that make analogies to the Brexit vote and the 2016 presidential election tricky at best. But the real lesson from Brexit may be the sharp distinction between how older alienated voters and younger anxious voters want to face the future. “Leave” voters in Briton yearned to a return when they fared better. “Remain” voters acknowledged problems, but seek forward-looking solutions.

Trump, who praised the Brexit victory while in Scotland to promote his golf course, is clearly pointing back in time to when “America was great.” The question is how Hillary Clinton can carve her message to resonate with those who want change, but not reversion to the past. The litmus test of her success will be how well she wins over the young voters who flocked to Sanders’ candidacy.

“The lesson for American voters,” the New York Times editorialized, “is to see their economic problems clearly, lest they be manipulated into voting against their own and their nation’s interests.”

Who wins the presidential race in November could come down to, as it has so often, a handful of swing states, several of which are in the Rust Belt, which have borne the brunt of the effects of globalization combined with technological changes and moves to reduce greenhouse gas emissions. Trump and Sanders have blasted previous trade agreements and strongly opposed the Trans Pacific Partnership negotiated by the Obama administration. Clinton, whose presidential husband steered through NAFTA, initially favored the TPP, but during the campaign dropped her support.

Opposing trade deals may appease older, alienated voters, but it may not be enough for younger, anxious voters. Opposing the TPP won’t stop trade, any more than Britain departing the EU will halt trade, even if new tariff barriers are erected. So the forward-looking question may be how to take into account and address the inevitable dislocations from globalization.

This question will be of consuming interest to voters in Ohio and Pennsylvania, but it should be a top priority for the entire country because economic dislocation knows no boundary. In Oregon, many rural communities remain in economic distress because of changing policies on timberland management.

The nation would benefit from a robust, candid conversation about how to cope with the side effects of globalization, not hide from them.

Gary Conkling is president and co-founder of CFM Strategic Communications, and he leads the firm's PR practice, specializing in crisis communications. He is a former journalist, who later worked on Capitol Hill and represented a major Oregon company. But most importantly, he’s a die-hard Ducks fan. You can reach Gary at  garyc@cfmpdx.com and you can follow him on Twitter at @GaryConkling.

Political Independents Likely to Elect Next President

The surge in 2016 presidential primary voting can be attributed to campaigning that has activated political independent voters. It is very likely the next president will be elected because he or she wins the most independent votes.

The surge in 2016 presidential primary voting can be attributed to campaigning that has activated political independent voters. It is very likely the next president will be elected because he or she wins the most independent votes.

Independent voters may replace battleground states as the key indicator to watch in this year’s presidential election.

Voters who weren't registered as either Republicans or Democrats have contributed to the surge in presidential primary voting. In closed primary states, such as Oregon, they have switched registration so they could vote for a presidential candidate.

Non-establishment candidates, such as Republican Donald Trump and Democrat Bernie Sanders, have benefited most from this tide of independent voters, which is the largest voting bloc in the U.S. electorate. According to the Pew Research Center, independents make up 39 percent of total voter registration, compared to 32 percent as Democrats and 23 percent as Republicans.

Gallup has conducted extensive research on who makes up this group of non-affiliated voters and found that a common strain is disaffection with both major political parties in America. Within the independent bloc are voters who lean Democratic or Republican. The rest are true swing voters.

As Trump has shown after he became the presumptive GOP presidential nominee following the Indiana primary, a political party’s base tends to unify. Democratic frontrunner Hillary Clinton – who appears mathematically certain to win her party’s nomination – is still competing in primaries with Sanders, with the next big test coming June 7 in California. Chances are good that Democrats who support Sanders will swivel to support Clinton in the general election when she is the nominee. 

That leaves open the question of who will appeal the most to independents. Trump has demonstrated his appeal to independents, especially white working class males. Sanders’ surprising political viability is the result of melding votes from the Democratic Party’s progressive left wing with strong support from independents, especially young people.

Pew Research shows nearly half of 18 to 33-year-olds are registered as independents. Sanders has ushered a lot of Millennials into Democratic voter registration this year and it will be Clinton’s political task to keep them there and win over their support by November.

NPR reported earlier this year that independents are among the most upset voters in America. They recoil from what they see as political dysfunction in Washington and want to see fundamental change. Older independents are upset at international trade deals, which they believe cost them their good-paying jobs. Younger independents are frustrated by the high cost of college and rising student debt.

When activated, independent voters make a difference. NPR points to the 2012 presidential election in Colorado in which GOP nominee Mitt Romney received more Republican votes than Barack Obama received Democratic votes. Obama carried the state because of heavy voting by independents, especially Millennials.

National polls indicate Trump and Clinton are in a virtual dead heat. Electoral wizards can illustrate how the 2016 presidential election will boil down to a few battleground states, such as Ohio, Florida and Virginia. However, the impact of independents on the race is likely to expand the battleground to more states, including some improbable ones. 

Republican strategists believe usual Democratic stalwarts in presidential elections – such as Michigan, Pennsylvania, Wisconsin and Minnesota – could be in play. Democrats think there is a chance for their candidate in unlikely places like Georgia and Arizona. Independent voters already have shown they can tilt an election outcome in states like Colorado, North Carolina, New Mexico and Iowa. In the end, even more states could be up for grabs, depending on who can nail down the votes of political independents.

The 2016 election cycle – which has already ground on for a long time and still has almost six months to go – has been anything but typical. Trump vanquished 16 political rivals and buffaloed the GOP establishment by running an earned media campaign. He said outlandish things and tweeted insults that, in the words for a Ted Cruz campaign aide, “won the day.” Sanders has adopted the role as pied piper of a political revolution, drawing huge crowds to hear him rail against a rigged economy and political system.

The Trump and Sanders campaign styles, combined with some common policy positions on trade and foreign involvement, have aroused political independents. That’s why some Sanders supporters claim he is better positioned to battle Trump than Clinton, who emphasizes her experience and detailed policy positions.

Confusing things even more, Trump and Clinton have historically high negative ratings. They are even likely to go down as Trump and Clinton have already begun trading blows and posting attack ads. Clinton points out Trump’s business failures and brands him a bully. Trump dredges up past sexual scandals involving Bill Clinton and accuses Hillary of being an “enabler.”

For some independent voters, Trump’s brash braggadocio is his brand, and he’s the kind of disruptive force who could make real change. For others, his race baiting and loose talk about nuclear weapons are too alarming to allow his finger anywhere near the red button.

Many independents agree with Republicans that Hillary Clinton is untrustworthy. But others may be repelled by Trump’s controversial references to women and attracted to Clinton’s potential to crack the highest glass ceiling in the world.

Establishment and moderate Republicans will press Trump to tone down his rhetoric on tearing up trade deals and banning Muslims. Sanders and Democratic progressives will push Clinton to be more vocal about confronting Wall Street and embracing ways to make college more affordable.

The red and blue political bases will get behind their respective party standard-bearers. How independents split their votes will determine who becomes the next president.

Toasting the Men from the North

President Obama hosted the heads of government from the five Nordic nations, which are valued American allies and where citizens by and large trust their governments.

President Obama hosted the heads of government from the five Nordic nations, which are valued American allies and where citizens by and large trust their governments.

When you mention Scandinavia, you think of saunas, Volvos and Scarlett Johansson. You don’t picture some of the most steadfast U.S. Allies on the planet.

For geographically-challenged Americans, the Nordic nations include Sweden, Norway, Finland, Denmark and Iceland.

Contemporary Viking ancestors are less inclined to conquest as they enjoy a lifestyle, public services and political stability that are the envy of most of the world’s people. One of the most desired destinations for refugees from the war-torn Middle East is Sweden. Bernie Sanders has lionized Nordic universal health coverage. Surveys show Scandinavians are some of the happiest people outside of Bhutan.

All of which contributed to the unusual sight last week of a White House state dinner for five national leaders. In a welcoming ceremony earlier in the day, President Obama praised the five Nordic nations for “punching above their weight.”

“I really do believe the world would be more secure and more prosperous if we just had more partners like our Nordic countries,” Obama said. "There have been times where I’ve said, ‘Why don’t we just put all these small countries in charge for a while, and they could clean things up.’”

The President added on a more serious note, "Sometimes we have a tendency to take our best friends for granted, and it’s important that we not do so."

There is a striking amount of common cause between the Nordic nations and the United States. We share a suspicion of Russian intentions, especially in Ukraine, and concern over climate change and its effects on the Arctic. We agree on the need to combat terrorism and sustainably manage fisheries.

Given diplomatic hierarchy, it is unlikely the prime minister from any single Nordic nation would be feted with a state dinner. However, Obama keenly saw an opportunity to recognize reliable partners as a group. The only thing awkward about the situation was the quick-stepping of the color guard to change flags when each country’s prime minister rolled into the White House portico. 

Not surprisingly, there is disagreement over why the Nordic nations enjoy the prosperity they do. Some say it is because they loosen the reins of government on the free market; others claim it is because government controls the eccentricities and abuses of the free market. It could be both.

But one startling fact is the relatively high level of trust Scandinavians have in their government. The trust isn’t blind. Scandinavians demand transparency. Official records are viewed as public records that anyone can review. Politicians must meet public expectations in the way they behave. They can’t slip off their bikes into official limos.

One analyst said Scandinavians have figured out how to combine right-wing pragmatism and left-wing idealism into a tough-minded, constantly evolving government model. They don’t view government as an obstacle, but as an instrument. Modesty is considered a virtue, but it is born out of necessity. The population of Nordic nations is small, which amplifies citizen engagement.

A former Swedish prime minister compared Nordic economies to honey-laden bumblebees. They have heavy bodies, tiny wings and yet still manage to pollinate plants and produce honey.

Naturally at the state dinner for Nordic officials, the White House was decked out with wooden farm tables and ice sculptures. The men from the north were served braised beef short ribs from Nebraska.

Both Parties Lack Middle-Class Confidence

Political pundits have spun a lot of spitballs to explain voter anger in this year’s presidential election. The Pew Research Center may have the answer in data that shows voters question both political parties' commitment to rescue America’s struggling middle class.

Rejection of “status quo” solutions and “establishment” economics by large blocs of voters in the Republican and Democratic parties have been attributed to concerns about job security, inability to put aside money for retirement and rising college student debt.

Pew Research findings suggest another reason – "62 percent of Americans say the federal government does not do enough for middle-class people.” That view, Pew says, has persisted since 2011, which may account for the simmering resentment and political disenchantment evident on the campaign trail.

Respondents to the Pew poll conducted in early December say Republicans tilt more toward the rich and Democrats care for the poor, but they don’t see much difference in Republican and Democratic policies toward the middle class.

That lukewarm assessment of both parties parallels the decline over the last four decades of middle-income Americans as a percentage of the population along with a shift of aggregate household income to upper-income families.

Providing more help to the middle class isn’t just a middle-class concern. It is a view shared by older people, children and poor people. The only cohort that disagrees, according to the poll, are wealthy people who believe the middle class gets too much help.

Seventy-seven percent of Democrats and 61 percent of non-aligned voters believe wealthy people get too much help from the federal government, as do 44 percent of Republicans.

As the Democratic and GOP presidential races tighten heading into New Hampshire next week, it is worth noting that nominees who don’t win on the first ballot of their party convention are more likely to lose the general election.

As the Democratic and GOP presidential races tighten heading into New Hampshire next week, it is worth noting that nominees who don’t win on the first ballot of their party convention are more likely to lose the general election.

Self-assessments within economic classes have generally improved as the United States has climbed out of economic recession. People who identify as part of the middle class and say they are in financially good shape has ticked up 12 percent over a similar financial self-assessment in 2011.

Despite improving economic conditions, 48 percent of the middle class describes themselves as “staying even” and 43 percent say they are “falling behind.” Lower-income Americans have a gloomier outlook, with 66 percent feeling they are “falling behind.”

As presidential campaigns tighten as they head into next week’s New Hampshire primary, Pew Research offers another cheery note – nominees who fail to win on the first ballot in their party conventions are more likely to lose the general election. Pew reached that conclusion by looking at presidential elections between 1868 and 1984.

The Search for an Obamacare Alternative

Congressional Republicans have failed so far to offer a comprehensive alternative to Obamacare, but there is a surge of support on the campaign trail to look at a single-payer health care system.

Congressional Republicans have failed so far to offer a comprehensive alternative to Obamacare, but there is a surge of support on the campaign trail to look at a single-payer health care system.

While congressional Republicans continue to look for an Obamacare replacement, others are stepping up with alternatives they may like even less but may appeal to a significant segment of the U.S. population.

Democratic presidential candidate Bernie Sanders has been a consistent voice for a single-payer national health care system, which could be a simple as having everyone enrolled in Medicare. His support for a single-payer health care system is credited by some political observers for his strong showing in early Democratic presidential polls as he challenges Hillary Clinton, who also has a reputation for health care reform.

The single-payer system Sanders has supported on the presidential stump is estimated to cost $15 trillion over 10 years. But Sanders and like-minded supporters say a single-payer system would eliminate $5 trillion in “administrative waste" in that same period. The plan would be paid for by what is described as a “progressive” payroll tax

A Colorado group has placed Initiative 20 on that state's 2016 general election ballot to create ColoradoCare. Under this universal health care coverage proposal, people who live or earn money in Colorado could choose their providers, but medical bills would be paid by the state.

Backers of the Colorado initiative would pay for ColoradoCare through a 10 percent payroll tax, which would generate an estimated $25 billion per year. Under the plan, employers would pay two-thirds of the 10 percent payroll tax and employees the remaining one-third. Self-employed individuals would pay the entire 10 percent on their net income, according to The Denver Post.

The concept of a national single-payer health care system has been floated before and generally beaten back because of fears of an even larger federal bureaucracy, increased health care costs and higher taxes. Hillary Clinton’s proposed health care reform measure stopped short of a single-payer system, as does the Affordable Care Act, which tries to reduce the number of people without health insurance by creating a government-managed marketplace.

While it is easy to point at warts in Obamacare, it is much harder to come up with a plan to replace it, which is why congressional Republicans have voted scores of times on repeal and zero times on a substitute. One reason for the difficulty is that the U.S. health care system has lots of parts. There is the part where workers and their families receive health insurance offered through their employer. Then there is Medicare, Medicaid, the Veterans Administration, Indian Health, federally funded clinics, school clinics, psychiatric care and alternative care such as naturopathy and chiropractic.

The complex health care system and health insurance coverage only partially overlap, which sometimes leads to awkward and expensive health care delivery, such as children from low-income families being forced to seek care in a hospital emergency room instead of a school clinic or people suffering from mental illness receiving prescriptions for psychotropic drugs from primary care physicians.

One of the underlying appeals of a single-payer system is its promise to consolidate the silos in the health care delivery system and eliminate (or at least shrink) the disparity between health care delivery and health insurance.

Skeptics question whether a single-payer health care system would live up to its promise in the United States, where many people are accustomed to a broad range of choices in providers and some providers decline to serve patients in a public health program because of lower fees. Skeptics also doubt Americans are willing to pay higher taxes and hand over more control of their lives to the federal government.

While those arguments have prevailed in the past, progressives such as Sanders and the Initiative 20 backers in Colorado are saying that tinkering with the health care system is not enough to stem rising health care costs and ballooning insurance premiums. They say if you want an alternative to Obamacare, here’s one to consider.

In the absence of another comprehensive alternative, the single-payer system appears to be gaining some momentum as a policy option.

Congress Reaches $1 Trillion Spending, Tax Deal

New House Speaker Paul Ryan turned a "crap sandwich" into a $1.1 trillion spending and tax deal that both Republicans and Democrats can point to with provisions they support.

New House Speaker Paul Ryan turned a "crap sandwich" into a $1.1 trillion spending and tax deal that both Republicans and Democrats can point to with provisions they support.

Congressional negotiators have reached an agreement on a $1.15 trillion federal spending bill that will carry through until Sept. 30, 2016. Most of the contentious policy "riders" were dropped in the final package.

The House is expected to vote Friday on the 2,009-page measure. Senate action will follow. Because the short-term spending extension expires tonight, Congress is expected to rush through another extension until Dec. 22 to allow time for the in the House and Senate on the omnibus package, which consists of 12 appropriations bills.

The deal also involves a 233-page bill that extends various tax provisions, including a five-year extension of tax credits for the wind and solar industries and a two-year delay of the so-called "Cadillac" tax on health insurance plans. The measure locks the research and development credit and Section 179 small business expensing deduction into law.

Reaching a spending agreement was a heavy lift for new House Speaker Paul Ryan, who called the job a "crap sandwich."

To reach a deal, Ryan and Senate Majority Leader Mitch McConnell were forced to drop provisions Democrats opposed to defund Planned Parenthood, block funding for the 10,000 Syrian refugees that President Obama has agreed to accept, blunt an Obama administration clean water rule and peel back portions of the Dodd-Frank financial overhaul legislation.

Ryan and McConnell hope to attract as many Republican votes as possible through tax extenders, an end to a 40-year ban on U.S. oil exports and a reformed visa waiver program that no longer will apply to anyone who has travelled to Iraq or Syria. The omnibus package also stops what GOP critics call an Obamacare "bailout" of health insurers.

Democrats mostly played defense on the spending bill, but achieved policy goals on the tax measure, including expansion of the child, earned income college tuition tax credits. The measure also indefinitely extends state and local sales tax deductions and a deduction for teachers' out-of-pocket expenses. New York Senator Charles Schumer successfully inserted a provision to provide a tax benefit to mass transit riders that parallels an existing exclusion for employer-paid parking.

Provisions of particular interest to CFM clients include the following:

•  CDBG: $3 billion (equal to FY15 enacted level)

•  HOME: $950 million ($50 million increase over FY15 enacted levels)

•  Byrne Memorial Justice Assistance Grants: $347 million (slight increase over FY15 enacted levels)

•  Economic Development Administration, Public Works Programs: $100 million (increase over FY15 enacted levels)

•  FEMA Assistance to Firefighter Grants: $690 million — $345 million for AFG and $345 for SAFER (increase over FY15 enacted levels)

•  TIGER: $500 million (equal to FY15 enacted level), although the bill does not provide funds for planning grants. 

While the omnibus spending and tax extender bills are expected to pass, most likely with bipartisan support, there is sure to be sniping about items buried in the bowels of the mammoth legislation, especially given the little amount of time Members of Congress will have before votes begin.

Lessons from Reagan’s 1982 Gas Tax Hike

In the fall of 1982, President Reagan’s opposition to a gas tax increase couldn’t be more clear. When he was asked at a September 28 press conference, “Can you assure the American people that you’ll flatly rule out any tax increases, revenue enhancers or specifically an increase in the gasoline tax?” Reagan responded, “Unless there’s a palace coup and I’m overtaken or overthrown, no, I don’t see the necessity for that.” 

Well, it didn’t take a palace coup. It took a mid-term election in which Republicans lost seats and rising unemployment, which cracked double digits for the first time in decades. Three months later, in December 1982, President Reagan signed a groundbreaking transportation bill that more than doubled the federal gas tax from 4 cents to 9 cents and increased transit funding.

The measure's incredible journey offers lessons for today’s leaders who face a similarly troubled landscape  – crumbling infrastructure, a highway trust fund on the verge of bankruptcy and divided government. 

Eno Trans Jeff Davis researched the provocative tale of the 1982 transportation bill and revealed how one of the most important public infrastructure bills of the 20th century became law. With his new report, “Reagan Devolution: The Real Story of the 1982 Gas Tax Increase,” Davis unearths a roadmap for how leadership, pragmatism and relationships can be leveraged to move past ideology. You can read the report for yourself here. Below are some reflections on what I think are the most relevant components for today’s debate.

1.  Under the Guise of Devolution: President Reagan understood well the nation’s infrastructure gap, but he also didn’t want to grow the size of the federal government. Initially, Reagan supported a plan that would transform the federal transportation framework by giving significant control back to the states. If Reagan was going to support a gas tax increase, the authority to spend every penny of the new increase would ultimately be given back to the states – a concept called devolution. The feds would thus retain spending authority over the current 4 cent per gallon gas tax to focus on the federal highway system, but over time, the 5-cent increase would be devolved to the states. While devolution was ultimately left on the cutting room floor, the ideological framework would give transportation supporters in the Administration the space they needed to keep the option of a gas tax on the table. These architects knew full well it was unlikely the Congress would go along with devolution, but they were appealing to Reagan’s conservative values. Ultimately, their persistence paid off.  

Today, devolution supporters point to Reagan’s efforts to return control of transportation spending authority to states but often fail to acknowledge that Reagan acquiesced in favor of pragmatism. While devolution never materialized, it was a big part of feeding Reagan’s conservative, reform minded ideology as the package was being devised. Legislators today could consider a similar approach. While devolution is not a realistic nor prudent option in my opinion, leaders could try to appease conservative devolution advocates. Congress could consider adding elements of local control of federal resources without jeopardizing the health of the nation’s interconnected network of roads. 

2.  User Fee and Shock Absorbers: Reagan was vehemently opposed to raising general income taxes, but he understood the need for increasing the gas tax because those who paid directly benefited. He always preferred to use the term user fee over gas tax.

This is how Reagan framed the discussion in his November 27 radio address. “So, what we’re proposing is to add the equivalent of 5 cents per gallon to the existing Federal highway user fee, the gas tax. That hasn’t been increased for the last 23 years. The cost to the average motorist will be small, but the benefit to our transportation system will be immense… The program will not increase the Federal deficit or add to the taxes that you and I pay on April 15. It will be paid for by those of us who use the system, and it will cost the average car owner only about $30 a year. That’s less than the cost of a couple of shock absorbers.” 

Today, the same argument could easily be restated. The gas tax hasn’t been increased in 22 years – back in 1993 – and the impact to the average driver would still cost less than the price of a couple shock absorbers. The shock absorber argument was effectively and brilliantly used often by the Administration. Because a driver would likely need to replace their shocks more frequently if the government didn’t fix the roads and potholes in disrepair, you might as well fix the roads. That logic still holds up today.

3.  Leadership: In 1982, the country was still in the grips of one of the worst recessions since the Great Depression. Unemployment had just surpassed 10 percent.  Passing a gas tax increase was just as toxic back then as it is now. After Democrats had picked up seats in the mid-term election, the President and his team knew action was needed on the jobs front. There were leaders in both the Executive and Legislative branches that had strong working and personal relationships. This trust was critical to the Democratically controlled House and Republican Senate. The transportation bill was portrayed as a “jobs” bill by both parties and the President understood the Congress was going to act. 

As a pragmatic politician, the President got on board and ultimately pushed for the bill. As Jim Baker, the President’s chief of staff said at the time, “If Reagan told me once, he told me fifteen thousand times – I’d rather get 80 percent of what I want than go over the cliff with my flags flying.”

Today, there is a serious lack of leadership in DC and trust between the Executive and Legislative branches is nearing all-time lows. As the transportation proposal moves through Congress, this may be the most challenging obstacle to overcome. If the transportation bill can be reframed as a jobs bill, like in 1982, maybe both parties can pull another rabbit out of the legislative hat and come up with a compromise that both parties could tout. 

4.  The Grease – Demonstration Projects: When the Reagan Administration got on board and started lobbying for a transportation bill, agency officials started reaching out to wavering Members of Congress. The Administration promised federal funding for pet projects across the country. Not only were “Demonstration Projects” explicitly written into the bill, but DOT officials would call wavering Members to assure certain construction projects would be funded by the DOT. Runway extensions, control towers, roads and bridges were all used to grease the congressional wheels and quiet opposition to raising the gas tax. 

Earmarks are prohibited in the current Congress. Members have little incentive to support a gas tax increase because they can’t point to projects in their states and districts. While earmarks may be out of favor with the public broadly, Congress could come up with a way to ensure enough states and districts receive their fair share of federal spending to construct key infrastructure projects that benefit the daily lives of commuters.

Tax Day 2015: Where Your Money Goes

It's a common misconception the federal government spends a significant portion of its budget on foreign aid. According to a recent Pew poll, a majority of Americans believe 28 percent of the federal budget is spent on foreign aid. This number is way off. It's so far off that most people don't believe me when I tell them the actual percentage is 1 percent of a $2.3 trillion budget.

So what the heck is our government doing with our money?
 
For tax day, the Committee for a Responsible Debt put together three useful charts outlining where our tax money goes, who pays the most and maps out the history of our deficit spending ways. 

Federal entitlement programs far and away take the cake in terms of percentage of federal spending. Social Security, Medicare, Medicaid, Unemployment Insurance and interest on the debt make up more than 55 percent of our annual spending. Once defense is added to the shopping list, 76 percent of the budget percent already been spent. Thus, all other domestic programs make up less than 24 percent of the government's budget. You'll see foreign aid at the bottom, barely making the list.

According to the report, we have a pretty progressive tax code. The top 20 percent of households pays almost 70 percent of the nation's taxes, while the bottom 20 percent pays .6 percent. The tax rates were made more progressive in recent years due to the fiscal cliff deal and the Affordable Care Act that raised taxes on the wealthy.

Finally, the chart above shows that we have made some progress since 2010 when our annual deficit was $1.5 trillion. Between the increase in taxes and budget sequestration, our annual deficit has dropped by $1 trillion (although our overall debt is still $18 trillion).
We certainly have more work to do. This leaves us with the question, how are we going to balance our books? Well one answer is obvious, we can't do it by simply eliminating foreign aid.