At the Joint Economic Committee, we believe knowledge of social capital is vital to achieving our goal of expanding economic opportunity for all Americans. Join us as we invite hearing witnesses to engage in a deeper social capital conversation on The Social Capitalists Podcast: Post-hearing Discussions with the Joint Economic Committee Republicans.
Listen to Episode 4, subscribe, or read the transcript below:
Sen. Mike Lee: Hi, I’m Senator Mike Lee, Chairman of the Joint Economic Committee, and you’re listening to the Social Capitalists Podcast.
Scott Winship: Executive Director of the Joint Economic Committee and Director of the JEC’s Social Capital Project. On the podcast we invite our hearing witnesses to join JEC staff in a post-hearing discussion, so we can get a little more in the weeds and dive more deeply into the issues we’re covering during our hearing. We just finished our hearing on family affordability. You can read our witness’s opening statements and watch the full hearing on our website, as well as read our latest paper Wealth of Relations which talks about our family affordability priorities and the other policies that we’re looking at.
Okay, so today on our podcast, I’m excited to be joined by the two witnesses of the Chairman’s office and for our hearing. Ryan Bourne is the R. Evan Chair for the Public Understanding of Economics at the Cato Institute and Lyman Stone is an adjunct-fellow at AEI and a Research Fellow at the Institute for Family Studies. Thank you both for joining us.
Ryan Bourne: Great to be here
Lyman Stone: Good to be here
Scott Winship: Excellent! Well, the hearing was really interesting, I want to say we pulled it out of a ditch, the viewers don’t know but there a game of musical chairs happening. There were votes scheduled on the House and Senate side, I think at one point four different people had the gavel, so a highly unusual hearing but you guys did it like pros. Why don't we just start off by giving a summary of the gist of your testimonies, starting with Ryan.
Bourne: Yeah, well thank you and thank you for hosting us for this podcast Scott. I guess the key point I was trying to make in my testimony was to say that there clearly are challenges for many families in regards to affordability in terms of being able to access basic goods and services, necessities that we all agree that people need. Things like housing, to a lesser extent childcare, food, transport, all of these other things but when it comes to policy debates around these issues what tend to happen is people advocate what I call income based solutions. They either advocate for expanding federal government subsidies for certain areas in order to displace the cost from individuals and families. They argue for changes to the tax code or tax credits, or they argue for increase in the minimum wage to try to increase the return to work. I was trying to really point out that actually there's another way of doing things here, which is to look at what drives up the cost of basic goods and services in the first place.
What I found during my research is even though lots of things are getting more affordable over time, there are a whole range of government policies that actually inflate the cost of living quite often in a regressive way to a large extent and i prefer policy makers to focus on the harm that existing policies do, before advocating for new interventions or subsidies.
Winship: Yeah it was definitely interesting, the extent to which the democratic witnesses were focused on this income based approach to poverty alleviation that you've talked about. Lyman you're take on policy on this area incorporates elements of both I would say. Tell us about what your testimony was all about.
Stone: so I’m sympathetic to some of the income or benefit based proposals that we hear from the left, not all of them. I'm not a big fan of universal day care for example, but a child benefit seems like a decent idea to me but honestly i think the meat of my testimony and one that was probably the newest thing for some of the members to hear was about marriage penalties. This is actually another case where there is an existing harm of misguiding government policy that I think we can fix. We have situations where there are two people and they're getting a set of government benefits but if they get married, there combined income is above the threshold for a household of two people or whoever many people and they lose their benefits. What this does is it says as long as you stay single you get your government benefits, but if you get married, or actually i didn't say this but in some cases it's not even marriage it's just if you live in the same house, you lose benefits. Now this is especially destructive if these people have children and you say, well we'll pay you as long as you don't get married and don’t live together, but if you try to actually be a family altogether in one place, then oh boy Uncle Sam is gonna take back his money. So really raising awareness that this is a real problem--the dollar signs attached to it are big and that it quite neatly associates with the groups of Americans especially working class Americans who have had the most significant decline in marriage. I think that's worth talking about and saying, hey can we do something to fix this.
Winship: This great line in your testimony, I think, which was that the US does have a marriage policy, what was the line?
Stone: what people always get back with is well it’s not our place to legislate marriage, okay i agree but the problem is we already do. We have a marriage policy and it’s that--because in the nineties there were all these marriage penalties in the tax code, but we fixed them for middle class earners, but not for working class people. The EITC got even, the marriage penalty grew actually, so we have a marriage policy, and it’s that if you're high income, especially if you're very high income, then we actually have some benefit here because unequal incomes tend to be favored by the tax code because it doubles in width and all these different things, which is you know, okay fine, I'm fine with having a marriage subsidy in there, but that's not how it works for working class people.
The first myth to dispel is idea that our existing system is neutral. I would like a neutral system, I'd love that. That's not where we are. To get there, we have to remove marriage penalties.
Winship: And Ryan, you're work is also interestingly enough concerned about the particular impact on folks at the bottom and the ways that government intervenes in major areas of our life--expenses that we can't avoid at all. How big a deal is this in dollar terms according to the research that you've looked at?
Bourne: Well, I've looked at a range of different areas. If you look, people spend a fair chunk of their income. If you add together the amount that poorer families spend on food, clothing, childcare, utilities, transport, and all of these things, it comes to a lion share vast majority of the amount that they spend in any given year. So what I tried to do was focus on particular government policies at the federal, state, and local level which had clear price inflating effect and which the broad scope academic evidence suggest didn't really improve quality of the product, so on net it had quite destructive consequences. So the two big ones are really housing zoning and land use planning laws, which is obviously something that by and large occurs at a very local level and also childcare regulations as well, they're the two big ticket items. But beyond that I also looked at three measures milk, marketing orders, the ethanol mandate and sugar programs that inflate grocery prices. I looked at protectionism in clothing and footwear. I looked at the broad impact of occupational licensing combined, which has seen some interesting studies on. When you add together all of these things, depending on where people live, depending on how any children they have the aggregate impact, directly in terms of raised prices is anywhere between about 830 dollars a year and 3,500 dollars a year. Now to put that into context for a family, the average family in the bottom income quintile, that's between 7 and 30 percent of their after-tax income. So individually, a lot these measures might seem small fry and it's easier to focus on introducing a new tax credit or expanding an allowance or whatever, but combined these add up to a great deal and if we undo at least some of that damage, perhaps the demand for these new policies or interventions or price controls might not be there.
Winship: Yeah that's a significant amount, thinking of a 30% coupon for everything you purchase for a year that's potentially a really big deal. Lyman let's talk a little bit about some of your research that you've done on marriage and fertility. Both of those have been declining for a long time to what extent do you think that reflects the fact that's becoming harder economically to get married or to have kids, to what extent is it just changes in the culture. What's your take on the long term trends?
Stone: I appreciated one thing Ryan said in the question and answer session where he mentioned that actually the US still has a younger age of marriage than many other countries and so you know is this really a problem? How much of this is just a cultural trend that you can't really fight? Some of it is just a cultural trend that you can't fight. It's people... the timing of life has changed, and that's just reality, however, it's also reality that the timing of human biology has not changed, that there are ages of life where it is more difficult to have a child, there are ages of life where even if you have the child, the lifting them and chasing them is a bit different on your neck and back. I'm quite young, and yet im still thinking, this is going to be harder in a few years. The point is that yeah the timing of life is changing, but if you think our country is worth having, and by country I don't just mean the institutions, i mean people who we are the people of "by and for the people" then you probably think that people, if people want to have 2.3 kids, they should probably have 2.3 kids. You can have immigrants, this is the beauty of America, you could always be making new Americans through immigration, but there are challenges with that as well, with declining fertility and immigrant-sending countries increasing competition for immigrants, and obviously there is a political question on how reliably we can maintain any given level of immigration. So, I think perhaps there is this cultural trend that's changing, but as culture changes, policy responses also change, that's life. So if culture is changing, then maybe we should just say, okay people still have these desires, the survey result hasn't changed, so what can we do to facilitate them and especially this policy angle will occur, the question is will it occur on the left with trying to have the state take of your life from cradle to grave? Or are we going to have an answer on the right where we're going to say, no we empower you and your family to live an independent life. So, my interest is really in saying okay, culture is changing, policy is going to change, how do we make sure the change that occurs is the one that is most conducive to the things that families actually say they want?
Winship: Okay, this next round of questions, I'm gonna have Lyman answer it in a British accent.
Stone: I felt at a great disadvantage I did not know there would be someone with a British accent at the table.
Winship: It's intimidating
Stone: I must sound less professional
Bourne: well it's less of a disadvantage than not really knowing much about the US tax code.
Winship: Well when I come back to you Ryan, you’re going to have to answer in Kentucky accent, but seriously, another question for you Lyman, towards the end you all were asked about the three things you would do or maybe it was... I think you sort of disregarded, I think you both disregarded the question to some extent.
Stone: Well we were told the one thing we could do, the one thing.
Winship: I think your one thing was three pronged or something.
Stone: Well, I said when Congress does one thing they always attach riders to it, so I will too.
I said, the first thing we should do is to get rid of the EITC because it is a huge marriage penalty and also it's like you give all this money to families but they get it a year after they needed it, so we should get rid of it. As far as the work subsidy part of it, we should just do it with wage subsidy, you did the work, you did the hours, here's your wage subsidy. Obviously, you know means tested at some level, but just we don't carry your family status, but the EITC also has this child component, so that just roll into a bigger child tax credit. Then you say, well if this costs something, then how are we going to pay for it? Normally I would get creative with a balanced budget but since, the questioner had introduced the possibility of talking about the Fed I said that we really need nominal GDP targeting to encourage faster economic growth to pay for it. I think that was just sort of a B-side that not a lot of listeners will get the serious or the joke side of that, but that was my proposal--you gotta have a pay-for-it.
Winship: Absolutely, absolutely B-sides, to our younger listeners, come from 45 inch records. Google it and see what you get. Ryan, getting back to this idea, of income-based approaches, we heard a lot today around things like child allowances, I don't think we heard much about UBI per se, universal basic income. What do you think of all of the energy and movement on the left, these days around universal subsidies, whether it's tied to children or overall. Pro or con?
Bourne: Well I think there are--you know I'm a great fan of that Thomas Sowell quote, and probably butchering it here "there are no solutions, only trade-offs" and I was kind of disappointed by all of the proposals that I was hearing from some of the Democrat witnesses in that they didn't, you know they quite often introduced them as win, win, win, win and you'd think there were no downsides, no cost to employers, or no cost to taxpayers as well. Look, my starting point on this type of stuff is that if we're gonna have an income tax and broadly, we do have an income tax right now, why do we have an income tax? We have an income tax because we believe that your tax liability should be linked to your ability to pay and that's proxied well by income. To the extent that that's true having children clearly reduces the household ability to pay tax because children require a degree of investment, time and effort and money, so to the extent that we're gonna have a policy in recognition of that, I don't think it's overturning libertarian principles too much to think some sort of allowance or universalized child benefit is a way of recognizing the cost of raising children. Now, clearly the amount of programs that would be advocated would significantly to the federal budget already running a budget deficit of, I think somewhere between 4 or 5 percent of GDP depending on which forecasters you look at. And in the long term that's just not sustainable particularly given the tidal wave--well it's better to think that this is an iceberg right-- you have accumulate debt but then, because of the many demographic issues we're talking about, it's actually a debt iceberg in that below the water there's all these contingent liabilities that we're set to hit in the coming decades. So, I think, you know our starting point here should be what are the things we can do to make families' incomes go further in delivering the sorts of lifestyles that they want for themselves and their family and the best way to do that is to think first about the cost side, and you know not all of these solutions are at a federal level. A lot of this stuff needs to be done at the state and local level, particularly on childcare and housing.
Winship: Okay, I wanted to explore one point of maybe minor disagreement that came up between the two of you towards the end of the hearing which is this question of whether changes to tax incentives-- how big an effect that can have on increasing fertility, marriage and policy goals like that. Lyman what's your general take on that question?
Stone: My take is that the effect of any given change in tax or spending policy, is probably on the whole fairly small, unless the initial effect you're measuring is a really big effect. So if I tell you I will take 50% of your income, or 0% based on these two different things, yeah the effect, like how much will this change your behavior per percent of income I’m taking might be small, but I’m taking half of your income! This will change your behavior. So if you do like a child benefit that increases, that makes children 75 dollars more affordable, this is going to do nothing. It's going to do nothing, but if it's something that makes them 15-20% more affordable or less affordable--actually I didn't realize that the scale that Ryan was talking about with some of these programs, he said I think 7 to 30 percent of a lower income family's budget could be going to pay for these government created costs, that's bigger than I realized, that's very similar to the scale I'm talking about with the marriage tax penalty. These are not trivial, these are not around the edges policies, these are actually like a lot of money on the line. Now, for a family making $150,000 does a child benefit of a $1000 dollars more change the fertility decision, nope! IT just doesn't. But for a family making $75,000 maybe it does. For a family making $20,000 it really might, especially with marriage in particular, it's almost certainly sensitive given that to some extent it's just a piece of paper, that is you can--it's not like society is going to burn down your house of yore living together without being married, so this is highly susceptible to tax. There's a lot of literature suggesting that formal married filing status and legal marriage is sensitive to policy.
Winship: If we had another 20 minutes, I would totally ask you to expound on the literature on this topic, sadly, we're going to have to save that for another episode. Ryan, you're more skeptical of this view I think, or at least you suggest during the hearing that you might be.
Bourne: Well, I think this is one of the areas where I believe that incentives matter, that's a key underpinning part of any free market economist's toolkit, but one point I would say is that all countries tend to struggle with the trade-offs of this policy issue. You start off and you say you want neutrality across the tax code on different household competition so that people can make free choices as much as possible, but then you say okay well we need to deal with poverty, where does poverty most acute? It tends to be single mothers with children and then there becomes a penalty to household formation. Depending on what prism you look at this issue through you could come to some very different conclusion and it's not inherently clear to me that one is right and one is wrong. So, just looking at the big picture where i have some skepticism that this will make a big difference--first of all if you look across countries [inaudible] in every major developed country the fertility rate is now below two. We're talking about Americans potentially wanting 2.3 to 2.5 kids no other major advanced economy in the world is there at the moment, and across those countries they have a wide range of tax and benefit policies. The second point is the mechanism that Lyman outlines is that the tax system may deter or at least delay the age of marriage, but if you look at the age of the first marriage of a woman it's actually lower, or younger, in the US than other countries such as France and Sweden which actually have higher fertility rates. Now, clearly you have to control for a lot of other factors, there are other big cultural differences, there may well be cultural reasons why French and Swedish want to have more kids, but it’s not entirely clear to me, looking at these two big pieces of evidence that eliminating the tax penalties is going to eliminate that fertility gap that Lyman is worries about.
Winship: well we'll end on that. I think that despite that being kind of a small disagreement, I was struck that--I mean there's a lot for libertarians and social conservatives to agree on when it comes to this issue of increasing family affordability, and that's what the Social Capital Project is all about, bringing all factions of conservative coalition together in recognition of our associational life and the repair that it needs. Well thank you both for taking time out again to be on the podcast, we'll be back after our next hearing, until then you can follow our work at jec.senate.gov/republicans also subscribe to the podcast on Apple podcasts or wherever you're listening today and be sure to rate the episode and leave us a review. Scott Winship, Executive Director of the Joint Economic Committee. Thanks for joining us! JEC-later.