In exchange for ‘free’ college, millennials will pick up middle-class boomers’ extravagant tab.
Millennials are too young to remember Monty Hall’s original “Let’s Make a Deal” game show, unless they’ve seen reruns on cable. So it might not be immediately clear to these voters that baby boomers are asking them to play a version of that game right now. Or that this political version is rigged.
Behind door number 1: the “car” of $1.6 trillion in student-loan relief, plus free college for all. Behind door number 2: the “goat” of uncountable tens of trillions of dollars in unfunded Social Security and Medicare liabilities to benefit boomers.
This is the best way to understand the flamboyant debt-forgiveness proposals lately put forward by the likes of Bernie Sanders and Elizabeth Warren. These programs are presented—not least by the sponsors themselves—as a form of old-style, rich-versus-poor class warfare. Mr. Sanders says he can fund $2.2 trillion of debt forgiveness and free public-university degrees with a financial-transactions tax on “Wall Street speculators.” Ms. Warren says her relatively modest $1.25 trillion debt-and-tuition deal can be financed by a wealth tax.
Stipulate that what we’re talking about here, on student loans or any other issue in the resentment sweepstakes of the Democratic presidential primary, doesn’t really help the poor. The audience for the class-war rhetoric from Mr. Sanders and Ms. Warren is the middle class, which is the intended recipient of most of the redistribution they promise. Even with the income limits on eligibility Ms. Warren builds into her plan, 58% of the debt relief would flow to households with incomes between $42,000 and $111,000. Mr. Sanders imposes no limits at all—his proposal is a subsidy for doctors and lawyers more than anyone else.
No surprise here. Redistribution to the middle class is a conspicuous feature of the European social-welfare states American leftists admire. This is why it doesn’t matter that the student-debt fiasco is mainly a middle-income crisis. That’s a trenchant but not entirely relevant observation raised by some conservative critics befuddled that Mr. Sanders and Ms. Warren are investing so much political capital in a giveaway for the better-off. The middle-class nature of the new entitlement is the whole point. That’s where the votes are, and also where any sense of economic hardship lingers in developed economies that already have solved the worst problems of extreme poverty.
What these politicians aren’t telling millennials, though, is that the middle class always pays for its own benefits in some way. Financial-transaction taxes chronically underperform estimates of the revenue they’ll generate, and wealth taxes are so ineffective that even France scrapped its version in despair in 2017.
Much heavier middle-class taxation is what feeds European social-welfare states. The taxman takes well north of 30% of the total labor income of the average single-earner household in France, Germany, Sweden and Norway, compared with 19% in the U.S., according to the Organization of Economic Cooperation and Development.
And if you think middle-class boomers are lining up to pay their “fair share” toward student debt relief once all the wealth-taxation gimmicks have failed, think again.
The federal government is running a deficit today, and politicians of both parties show little willingness to balance the budget in the immediate future. Absent entitlement reform, the task will become impossible in the 2030s once the youngest boomers have retired and started drawing the Social Security and Medicare benefits they never bothered to fund. After wealth taxes fail to generate the expected revenue, the Bernies and Warrens will turn to borrowing to finance student-loan relief—those new government debts to be repaid, naturally, by the millennial taxpayers of the future.
What’s the point, then? A cynic would suggest the student-loan gimmick is primarily an inducement for younger voters who’ll unwittingly assent to assume the fiscal burdens of old-age entitlements.
Those programs might be at least partially reformed, and their fiscal drag on the young ameliorated, by rebalancing their benefits away from middle-class boomers, perhaps via means-testing. But boomers have always staunchly resisted such reforms, and no politicians have been as fearsome tribunes of that refusal as progressives of the Bernie Sanders and Elizabeth Warren variety.
So faux debt relief is likely on offer in order to induce millennials to elect either of two progressive presidential candidates who will absolutely never, under any circumstances, ease the fiscal burdens of the much larger old-age entitlements distributed to the elderly tranche of the middle class.
Think a student-debt write-down and free college is a great deal? Wait until you see what you’ll have to pay in return.
Be very skeptical about how much revenue Elizabeth Warren’s wealth tax could generate
Their response is disingenuous. They focus most of their fire on what they label as our revenue estimate: that the proposed wealth tax would raise $25 billion annually, rather than the $187 billion they estimate. In reality, we are explicit that $25 billion is a rough back-of-the-envelope number and state that “We would be surprised if the $25-billion-a-year figure we suggest was not a significant underestimate of the revenue potential of a 2 percent wealth tax.” The purpose of our piece was not to provide an alternative revenue estimate for the wealth tax but to call into question the naively high estimate provided by Saez and Zucman.
.. As we explain at some length in our piece, naive estimation of the kind offered by Saez and Zucman tends to be way optimistic relative to scorekeeping by government experts. This point is well illustrated by the difference between academic and government estimates of taxing carried interest as ordinary income or of the value-added tax. Nothing in Saez and Zucman’s response suggests they are immune from this problem.
They attempt a broad allowance for tax avoidance, assuming the rich would successfully shelter at most 15 percent of their wealth from taxation. They base this guess on four academic studies that consider the international experience of wealth taxation, which find that a 1 percent wealth tax reduces reported wealth by 0.5 and 35 percent, which they simply average to 15 percent. But this strikes us as too low.
First, Saez and Zucman’s interpretation of the international experience differs from ours. They rely on estimates suggesting that a 1 percent wealth tax in Denmark and Sweden results in evasion of less than 1 percent (which makes their 15 percent estimate look huge). But in both countries, wealth taxation proved so easy to avoid and so difficult to administer that these taxes were repealed. In fact, of the 12 nations in the Organization for Economic Cooperation and Development that had wealth taxes in 1990, only three still have them today.
Second, the estate tax is informative on the potential magnitude of wealth tax evasion. Let’s consider Saez and Zucman’s estimated tax base for people with wealth greater than $50 million: about $9.3 trillion in 2019. If we were to apply the current 40 percent estate tax to this figure — assuming 2 percent of those families will experience a death this year (a conservative estimate) — we would expect that tax to generate about $75 billion this year. And if we apply the effective estate tax to that figure (accounting for charitable contributions and spousal bequests), it would raise $25 billion this year. In reality, the estate tax will raise about $10 billion from estates of more than $50 million this year. In other words, it seems plausible that tax avoidance is closer to 60 percent.
It is worth noting that estimating the tax base for those worth more than $50 million in itself is a difficult task — let alone estimating the revenue that taxing these households can raise. Different approaches to measuring top wealth can paint very different pictures. And the numbers reported in the Forbes 400, which Saez and Zucman rely on repeatedly in their rejoinder, are thought of by many as dubious.
This isn’t to say that our method should be viewed as definitive, but it does suggest the Saez and Zucman estimation is likely too high. As an illustration of the crudity of their analysis: They neglect to contend with behavioral responses that would inevitably follow a 2 percent tax on a small group of wealth holders. For example, there would be a significant incentive to accelerate charitable giving, which would decrease the wealth tax base. It seems important to account for the fact that the wealthy (and their tax planners) will inevitably be motivated to limit tax liability.
Saez and Zucman are at pains to suggest that their proposal is for a ramped-up Internal Revenue Service that is much more serious about collections than the current estate tax. We share their view that more could be done to collect estate tax revenue (and tax revenue more generally).
And we certainly do not start from “the premise that the rich cannot be taxed,” as Saez and Zucman allege. Instead, we share their objective that it is imperative to raise more tax revenue from those at the very top, and we propose a variety of progressive reforms to this end.
However, government budget scorekeepers properly score proposals in the form in which they would likely be enacted, not on the basis of the aspirations of their academic authors. So, we stand by our position — which will possibly be tested someday — that official scorekeepers would be very unlikely to validate the Saez-Zucman estimate of Warren’s proposed wealth tax, and that the gap would likely be substantial.
There Are Really Two Distinct White Working Classes
One is solidly Republican and will stay that way; the other leans Democratic. And then there are the in-betweeners.
At Nancy Pelosi’s news conference last week, a reporter asked her about Joe Biden’s comments on his congenial dealings in the senate of the 1970s with the Southern Democrats James O. Eastland and Herman Talmadge, who were both staunch opponents of Civil Rights legislation and racial integration:
There’s been a back‑and‑forth between Vice President Biden and some of the candidates. Do you think that it is helpful to the party to sort of fight that fight over who best represents the party when it comes to sensitivities about race?
“That’s not what this election is about,” Pelosi answered in a severe tone. “This election is about how we connect with the American people, addressing their kitchen table needs.”
Reporters continued to press Pelosi: “What do you think about Vice President Biden’s words, referencing his work with segregationists and talking about his idea of civility?”
She shot back: “I have answered that question, and that’s all I’m going to say.”
The intensity of the exchange shows how determined key Democratic leaders are to keep the party focused on the bread-and-butter issues of jobs, health care and financial stability and to shore up the gains the party made in 2018, especially among whites.
Pelosi’s response illustrates the deep fear among the same leaders that the agenda could shift to issues of race and immigration. These are issues that a cadre of newly elected progressive members of Congress including Alexandria Ocasio-Cortez, Ilhan Omar, Rashida Tlaib and Ayanna Pressley — as well as Democratic presidential candidates like Elizabeth Warren, Kamala Harris and Cory Booker, all with warmly enthusiastic followings — have brought to the fore. Race and immigration are just the issues Donald Trump and his Republican allies want to place front and center in 2020.
Underlying this is the recognition by many Democratic strategists of the continuing political centrality of less highly educated white voters. Marginal shifts in partisan balloting by the white working class have been a crucial determinant in the outcome of elections since 1968.
This non-college white constituency — pollster shorthand for both the white working class and the white middle class without college degrees — makes up a massive bloc of the electorate, with estimates ranging from 48 percent of the entire electorate in 2016, according to an analysis by Catalist, a liberal voter research group, to 54 percent, according to the Cooperative Congressional Election Study.
Pete Brodnitz, founder and president of Expedition Strategies, a Democratic polling firm that has performed studies for the Democratic House Majority PAC, wrote by email that in 2018 he found that the white working class could be divided into five political categories:
- reliably Democratic, 33 percent;
- lean Democratic, 7 percent;
- true independents, 10 percent;
- lean Republican, 7 percent; and
- reliably Republican, 44 percent.
How each of these categories voted in 2016 shows the importance of these distinctions. In a poll of battleground House Districts, Hillary Clinton carried the reliably Democratic base by a solid 67-point margin (78-11) and the lean Democrats by 61 points (64-3). She lost the true independents by 16 percentage points (21-37). Trump won overwhelmingly among the lean Republican whites (73-12, a 61-point margin) and the solid Republicans by 84 points (88-4), according to the data collected by Expedition Strategies working with Normington/Petts, another Democratic polling firm.
“In almost every way, white non-college Democrats and white non-college Republicans are nothing alike,” Michael Podhorzer, the political director of the AFL-CIO, emailed in response to my inquiry.
Polling conducted by GQR, a Democratic firm, for the AFL-CIO, found that among the Republican white working class, 79 percent identify as Christian, two thirds of whom are evangelical or born again. Among the Democratic non-college electorate, 44 percent said they were Christian, and one third of them said they were evangelical or born again.
The Democrats are much younger, according to Podhorzer: 22 percent are Gen Z or Millennial compared with 12 percent of working class white Republicans. The Democratic members of the white working class are 59 percent female and 41 percent male, compared with 51 percent female, 49 percent male among Republican non-college whites.
Perhaps most important, the white non-college Republican and Democratic constituencies differ radically on policy and political beliefs.
Take favorability ratings of
- Obamacare,
- Black Lives Matter and
- Medicare for all.
Among working class white Democrats, the ratings are uniformly positive, according to AFL-CIO data: 89 percent, 80 percent and 85 percent. Among their white Republican counterparts, the ratings are uniformly dismal: 5 percent, 9 percent and 18 percent.
What this data shows is that Democrats should have little trouble retaining the support of members of the white working class who identify as Democrats, but they will struggle mightily to win over their Republican counterparts.
This divide leaves the small percentage of the white working class whose views put them in the middle ground between left and right up for grabs and likely to determine the outcome in 2020.
The AFL-CIO survey suggests that the roughly 10 percent of non-college whites who do not identify with either party may be reachable for Democratic candidates, but there are big hurdles.
For one thing, these self-described independents do not side with mainstream Democrats on the kinds of incendiary issues that President Trump loves to promote.
The AFL-CIO study examined four categories of voters: all Democrats; non-college white Democrats; independent non-college whites; and Republican non-college whites.
The survey asked, for example, whether voters agree or disagree with the statement “Social and economic problems in this country are largely due to individuals across races and origins refusing to work and expecting handouts.”
All Democrats, including white non-college Democratic respondents, took liberal stands, sharply disagreeing with the statement by 62 points (78-16) and 56 points (76-20). Independent voters in the white working class were in favor by 11 percentage points (52-41), and Republican respondents were solidly in agreement, by 72 points (84-12).
On a similar racially freighted question — “Social and economic problems in this country are largely due to certain groups failing to work hard and play by the rules” — Democrats disagreed by large margins, while independent white non-college voters showed greater conservatism, agreeing 54-36; Republican non-college whites strongly agreed, 79-12.
The accompanying graphic shows the pattern of opinion on three additional questions measuring what sociologists call “anti-black affect.”
A Partisan Chasm on Race
Less-educated white Democrats largely agree with Democrats overall, but the views of independents and Republicans are the reverse. Percentage of respondents to a 2018 survey who agreed or disagreed with these statements.
AGREE: White people in the U.S. have certain advantages because of the color of their skin.
ALL DEMOCRATS
83%
76
DEM.
WHITES WITH
NO COLLEGE
29
IND.
17
REP.
AGREE: Generations of slavery and discrimination have created conditions that make it difficult for African-Americans to work their way out of the lower class.
ALL DEMOCRATS
73
69
DEM.
WHITES WITH
NO COLLEGE
24
IND.
8
REP.
DISAGREE: Ethnic groups like the Irish, Italian, Jewish and many other minorities overcame prejudice and worked their way up. Blacks should do the same without any special favors.
ALL DEMOCRATS
57
49
DEM.
WHITES WITH
NO COLLEGE
14
IND.
4
REP.
The next accompanying graphic illustrates hostility toward immigrants — or acceptance.
Democrats Stand Alone on Immigration
Percentage of respondents who disagreed with these two statements.
DISAGREE: Increase border security by building a fence along part of the U.S. border with Mexico.
ALL DEMOCRATS
80%
DEM.
82
WHITES WITH
NO COLLEGE
IND.
28
REP.
3
DISAGREE: Deport undocumented immigrants to their native countries.
ALL DEMOCRATS
56
DEM.
55
WHITES WITH
NO COLLEGE
IND.
14
REP.
1
The AFL-CIO survey demonstrate why liberal Democratic leaders like Pelosi are resolved to stand clear of some of the issues that divide their party from independents. At the same time, it shows why Pelosi and others want to focus on so-called kitchen table issues.
On health care and economic matters, there is far more overlap between the views of Democrats as a whole and independent white working class voters.
Support for a tax on wealth in excess of $100 million tops 90 percent among Democrats, while white working class independents support such a proposal 59-25.
A proposal supported by Democrats of all stripes — “Having the government produce generic versions of lifesaving drugs, even if it required revoking patents held by pharmaceutical companies” — has the backing of non-college white independents, 56-25.
By two to one, white independents agreed with two liberal populist statements: that “social and economic problems in this country are largely due to a handful of wealthy and powerful people rigging the rules to their advantage” and that “social and economic problems in this country are largely due to a handful of wealthy and powerful people dividing us against each other so they can take more for themselves.”
Two proposals backed by some of the Democratic presidential candidates — Abolish ICE and Medicare for All — do not sell well among white non-college independents, who opposed the two initiatives by 71-15 and 48-31.
Podhorzer argues that in the 2020 battleground districts and states the contest will be fought over the 13 percent who are swing voters, a group he calls “partisan bystanders.” He described them as “voters who either have a very negative view of both parties or do not have strong feelings about either party. These voters favored Democrats in the 2018 midterms by 11 points after favoring Trump by 6 points in 2016.”
According to Podhorzer, almost half (46 percent) of the partisan bystanders are “white non-college, so this group, especially white non-college women, is going to be a battleground for both campaigns.”
Podhorzer makes a key point: In his view, this 13 percent is receptive to Democratic appeals because they
are looking for answers to the basic economic challenges they face. That issues like health care are much more important to them makes sense given that just about everyone who cares about issues like immigration has already picked sides and won’t be moved.”
In some respects, the AFL-CIO poll provides ammunition to the Third Way, a centrist Democratic advocacy group.
Jonathan Cowan, president and co-founder of Third Way, argued in an email that:
Going forward to 2020, there are lines that Democrats can’t cross if they want to win nationally and hold the House and gain in the Senate. Medicare for All is one of those lines. But there are others like abolishing ICE, a guaranteed federal job, and certain climate proposals that ignore the economic circumstances of the interior of the country.
A Third Way survey of Democratic primary voters, conducted in May by David Binder Research, found that calls to abolish ICE in particular are problematic. In fact, Democratic presidential candidates are backing away from their earlier support of the idea, despite the horror show that is happening on the border right now.
The Third Way poll found that Democratic voters of all stripes prefer a candidate who promises to expand employment opportunity to one who would guarantee everyone a government job; and these voters prefer a candidate who would ensure “that every student who enters college can finish with a degree” to one “who supports free 4-year college for all students.”
In the case of health care, the Third Way survey of Democratic primary voters found that a plurality, 42.9 percent, preferred a candidate “who wants an annual cap that limits the costs people pay while making sure everyone has insurance coverage” while 35.2 percent prefer a candidate “who wants to pass a single-payer, Medicare for All government-run plan.”
Both Democratic and Republican strategists are putting all of these findings under a microscope because in a highly competitive election, seemingly small shifts can determine the outcome.
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Take the difference between Hillary Clinton’s performance in 2016 and the performance of House Democratic candidates.
In 2016, all non-college whites went 60-34 for Trump over Clinton, while voting 58-38 in favor of Republican House candidates, according to Brian Schaffner, a political scientist at Tufts and senior researcher at the Cooperative Congressional Election Study.
This may seem insignificant, but if Clinton had been able to match the margin of Democratic House candidates, not only would she have picked up 2.9 million votes nationwide, she would have won Michigan, Pennsylvania and Wisconsin by a combined total of 383,000 votes instead of losing them by a total of 79,646 votes.
One interpretation of Democratic success in taking control of the House in 2018 suggests a strategy of moderation, while using animosity to Trump to boost turnout in hard core Democratic constituencies, including among minorities, young voters and single women. If the 2018 House give hints on the type of voters who offer the best targets for 2020, it is worth recalling that more than three quarters of the newly Democratic seats are in centrist districts.
According to data provided by Third Way, the new Democratic districts are predominately upscale, with higher than average percentages of well-educated, well-off whites and lower than average percentages of less-well-off whites.
However, the demographics of these districts mask the significant gains Democrats made in 2018 among non-college, less affluent whites. This becomes clear in an analysis of the 2018 election by Yair Ghitza, chief scientist at Catalist.
“There has been a lot of attention paid to the Democratic victories in suburban areas, but we find that Democratic gains were actually largest in rural areas,” Ghitza wrote:
These gains weren’t enough to get over 50 percent and win seats in many rural districts, so they have escaped much of the mainstream election analysis to this point. These changes are nonetheless important, particularly because they were large in many of the Midwest battleground states that will no doubt be important in 2020.
Ghitza provided further support for the Democratic strategy of going after white non-college voters by noting that 2018 Democratic gains were “largely driven by voters who voted for Trump in 2016 and voted Democratic in 2018.”
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It is no wonder, then, that Pelosi is not the only party leader warning Democrats to be wary of the danger of focusing too much on social and cultural issues in the heat of the primaries. Such counsel also comes from African-American Democrats.
Take Representative Cedric Richmond of Louisiana, who suggested to the Washington Post last week that there should be less attention paid to Biden’s stumble on race: “African-Americans are worried about the safety of their families. They’re worried about jobs. They’re worried about health care, diabetes, cancer, and they’re worried about how to pay for kids’ college.”
Richmond was joined by Representative John Lewis, who said he didn’t think Biden’s remarks were “offensive,” before adding, “During the height of the civil rights movement we worked with people and got to know people that were members of the Klan — people who opposed us, even people who beat us, and arrested us and jailed us.”
The Rev. J.M. Flemming, president of the Greenville NAACP, told the Washington Post:
“I’m not going to let anybody sidetrack folks that I know about who are looking at Biden, when we ought to be looking at the things said by Trump. Nobody is making anybody out to be a perfect person, but what Trump is doing, for me, that’s far worse.”
The concerns of African-Americans, in this view, are substantially the same as the concerns of the millions of white working class voters who remain open to Democratic candidates — or at least they coincide in critically important ways.
The fate of the Democratic Party in 2020 hangs on this premise and on a united resistance to Trump’s malign strategy of divide and conquer.
Opinion: A Warren Boomlet, A Biden Backlash
While Elizabeth Warren rises in the polls with her policy centered pitches, the Democrats turn on frontrunner Joe Biden. Image: Bloomberg News