Building a New Era of Governance – Part 1

*Note: the views expressed in this posting are my own, and do not in any way represent the views of any other group or institution, public or private


Last Tuesday, November 4th, it is fair to say that the second Republican “wave” since 2010 swamped Congress and state governments across the nation. In Congress, the GOP managed to pick up at least 7 seats in the Senate (giving them a majority of 52, over the key threshold of 51), as well as at least 12 seats in the House (increasing their majority to at least 244). Gubernatorial elections also proved to be a route for the Democrats, as the Republicans snatched up another 3 governor-ships from the Democrats.

Despite these impressive gains, however, they will prove to be utterly meaningless unless Republicans in Congress can seize this opportunity to act in a bold, pragmatic, and bipartisan manner to go about conducting the nation’s business. More than anything, people are simply disgusted and fed up with what is shaping up to be (by many measures) one of the least productive governmental terms in American history (see chart).  While some may view inaction as a good thing (less activity means a smaller government = good, right?) I do not see this stagnation as benefiting anyone.  Even if few bills are passed, old ones already enacted are left to atrophy and will not be updated regularly to adapt to changing circumstances, creating new problems.  Additionally, it takes legislation to repeal legislation; inaction does not mean the government is in fact getting any smaller (and assuming a smaller government is even desirable in the first place).

Overall, as many pundits have noted, it is best to view the results of this election as an expression of disillusionment with a lack of leadership on either side of the aisle and a desperate plea for governance, as opposed to an endorsement of some ideological mandate. Especially when it comes to Congress, people are incredibly irritated that its members are well-paid, work part time (with much of their time spent campaigning), and yet very little of the country’s increasingly urgent problems are attended to. It is true, what many business-minded people would say: if the government were a private entity, they would’ve pushed out of the market a long, long time ago.

4.10.14.2

In terms of bills passed per legislative session, the 113th Congress is shaping up to be among the least productive in recent history

It is true that the outlook for an increase in Congressional productivity remains bleak, at least for the next two years. It’s a well-established pattern by now that American government doesn’t do too much unless a single political parties occupies both the Whitehouse and controls both chambers of Congress. However, this need not be an excuse for inaction; in fact, it cannot. The following is an agenda that I think Republicans can pursue that will not only help to solve the problems the public wants solved (and in a way that is congruent with the wishes of the electorate), but to help to build a new era of lasting American governance.

1) Lengthen the terms of the President, House, and Senate.  Of the many issues facing the country, this one (along with the next two agenda items) may seem like one of the least deserving of our attention.  However, relatively short Senate, Presidential, and (especially) House terms I believe has had a dramatic impact on the productivity of individual members.  Since elections come so frequently, many in the federal government must be in a near constant campaign mode that not only distracts them from legislative work but serves to polarize their “views”, making bipartisan consensus much more difficult.  At least attempting a Constitutional amendment, though quite unlikely to pass, could get the ball rolling on a future reform down the road.  Enactment of this reform, along with the following agenda item, could help to address the entrenched legislative paralysis.

2) Find a way to tie Congressional & Presidential pay to performance.  This one would be tough to implement (requiring another Constitutional amendment) and to find sufficient political support for, but I think it is an absolute must if we are to make meaningful legislative activity a core incentive for our politicians.  In my view, an independent committee (much like a state-level Civil Service Commission) would simply be given power to set Congressional & Presidential salaries and benefits upon a non-biased, impartial “performance review”.  This commission would be made up of individuals equally divided between the main political parties and would themselves be subject to background checks to ensure institutional independence

Many other potential reforms, such as a partial or complete scrapping of First-Past-The-Post (FPTP) representation in favor of more proportional representation and the outsourcing of congressional redistricting to independent commissions could help to both decrease the partisanship of the federal legislature and increase the “representative-ness” of individual members of Congress.  Ironically, the prospects of these reforms passing is weak at best; nonetheless, they would be crucial for the government to enact productive agendas in the future, and thus should be given priority in the agenda of the 114th Congress, even if chances of passage are slim.

As for other politically-feasible policy objectives that should be on the Congressional calendar:

3) Immigration reform.  No, seriously.  As discussed in more detail in my post “Why Republicans Should Embrace Comprehensive Immigration Reform”, the United States is in desperate need of both low and high-skilled labor, especially as the population ages in the coming decades.  Allowing in more immigrants (especially high-skilled) is not only politically reachable but is in line with a Republican emphasis on supply-side economic reforms.  Emphasis on increased border security (which is a prerequisite for any action for the party base, even if redundant and impractical) could be combined with reforms and/or increased funding to streamline the legal naturalization process.  At the very least, both Democrats and Republicans agree on the need for more high-skilled immigrants and an increase on the cap for H-1B work visas.  Increasing visa caps could help stem the tide of illegal immigrants (which Republicans are more concerned about anyway) via the substitution effect.  For best chances of passage, I would leave out measures that deal with illegal immigrants currently residing in the U.S. – a piecemeal, incremental approach would work best here.  Overall, immigration reform is an almost cost-free method to spur the economy in both the short and long-term, and considering how long it has been on the national agenda, it is incomprehensible that some sort of agreement cannot occur.

Due in part to an aging population, the U.S. Labor Force Participation Rate has reached levels not seen since 1978, increasing the need for new sources of labor

4) Corporate tax reform 

Again, opportunities for bipartisan agreement are rife here.  Everyone knows the corporate tax code is an unmitigated disaster, with high rates, too many loopholes, lost revenue, and distorted economic activity.  Make the system more territorial, modify depreciation schedules, scale down MNC deferral opportunities, eliminate tax expenditures, and reduce marginal rates.  Specific expenditures that are especially worthy of the chopping block are special preferences for oil & gas operations, insurance companies, corporate jets.  This operation need not be revenue-neutral, either; although this would technically constitute a tax “increase”, the removal of distortions and tax compliance hurdles will act as a counter-acting tax cut.  The government can gain revenue by increasing effective rates while simultaneously increasing growth and leaving businesses feeling better off than they do under the current tax regime.

5) Replace the sequester with targeted cuts & incremental, implement long-term reforms

The era of yawning short-term fiscal deficits is over – temporarily, at least.  Indeed, America has witnessed its fastest pace of fiscal consolidation since World War 2, with deficits as a percentage of GDP falling from 9.8% of GDP in FY 2009 to 2.8% of GDP in FY 2014 – a swing of 7% in just 6 fiscal years.  This has come about due to a variety of factors, including economic growth, slightly higher taxes and broad-based cuts to discretionary outlays.  It is this last option that is cause for concern, however, as the cuts initially enacted in the Budget Control Act of 2011 (the founding legislation of the so-called “sequester”) are quite blunt.  They also come at a time when discretionary spending is approaching record lows as a percentage of GDP, and arguably when increased federal spending on items such as infrastructure are desperately needed and interest rates remain at historic lows.  Additionally, they have subtracted from economic growth in the short-term, lengthening the time needed to close the output gap between real and potential GDP.  As has been projected for decades now, the biggest threat to American fiscal sustainability is the coming explosion in mandatory spending.  Therefore, the new GOP-led Congress must enact gradual but effective entitlement reform now – the longer it waits (as past Congresses have), the more abrupt the future adjustment.

Fiscal policy has not been this contractionary since the end of World War 2

Fiscal policy has not been this contractionary since the end of World War 2

Economic growth since 2009 has increased revenues and decreased "automatic stabilization" spending.  Meanwhile, higher taxes have also increased revenues, and new spending cuts have been enacted.

Economic growth since 2009 has increased revenues and decreased “automatic stabilization” spending. Meanwhile, higher taxes have also increased revenues, and new spending cuts have been enacted.

Non-defense discretionary spending has fallen to record lows as a percentage of the American economy

Non-defense discretionary spending has fallen to record lows as a percentage of the American economy…

...even as interest rates remain at record lows

…even as interest rates remain at record lows

Debt Held

The true threat to America’s finances comes from the coming explosion in mandatory “entitlement” spending. Congress much enact tough reforms now to stem this tide of red ink.

 

To be continued…

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