Posted by Curt on 13 January, 2015 at 5:41 pm. 1 comment.


James Pethokoukis:

There’s been a big gap between how Democrats have described America’s economic problems and the scope of the solutions they’ve offered. Recall President Obama’s late 2013 speechwhere he declared the “dangerous and growing inequality and lack of upward mobility that has jeopardized middle-class America’s basic bargain” to be the “defining challenge” of our time. Strong stuff.

But what have been the subsequent policy prescriptions? Relatively small stuff, like raising the minimum wage. You can debate whether it’s a good idea or not, but only 3% of workers age 25 and over earn the minimum wage or less. Raising it to nearly $10 would raise incomes of only 11% of workers who live in poor households. Or take the “free” community college proposal. Attendance is already essentially free for many students. What’s more, research on student outcomes suggest, notes AEI’s Andrew Kelly, that “pushing tuition to zero may not be a silver-bullet solution to lackluster student success.”

Party progressives, such as Elizabeth Warren, have pushed for bolder policies. And a new proposal by Rep. Chris Van Hollen — the ranking minority member on the House Budget Committee not some radical back bencher — certainly qualifies. This from ace Washington Post reporter Lori Montgomery:

The centerpiece of the proposal, set to be unveiled Monday by Rep. Chris Van Hollen (D-Md.), is a “paycheck bonus credit” that would shave $2,000 a year off the tax bills of couples earning less than $200,000. Other provisions would nearly triple the tax credit for child care and reward people who save at least $500 a year. The windfall — about $1.2 trillion over a decade — would come directly from the pockets of Wall Street “high rollers” through a new fee on financial transactions, and from the top 1 percent of earners, who would lose billions of dollars in lucrative tax breaks. The plan also would use the tax code to prod employers to boost wages, which have been stagnant for four decades despite gains in productivity and profits. … To spur employers to increase pay, the plan would target corporations, prohibiting companies from deducting executive performance bonuses in excess of $1 million, a benefit worth $66 billion from 2007 to 2010. To claim the deduction, companies would have to demonstrate that workers had shared in the company’s good fortunes by increasing wages about 4 percent, on par with inflation and productivity growth.

Bold, even breathtaking. A WaPo headline writer gets it correct with this summary: “Democrats take a sharp left on the economy.” It represents the most concrete effort by Democrats to apply their novel theory of “middle-out economics” to policymaking. The theory posits that long-term economic growth is driven by middle-class consumer spending rather than investment, whether in physical capital, human capital, or ideas. But that has it backwards, of course. Long-term economic growth, as economist Casey Mulligan has noted, “begins with investment and ends with consumer spending.” Yet, as the WaPo story makes clear, Democrats are trying hard to redefine in the public mind how economies grow:

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