The Gingrich Factor

Blitzed by Romney’s Restore our Future super-PAC and quixotic Texas Congressman Ron Paul, the former Speaker’s political standing fell precipitously and Gingrich came away soundly defeated in Iowa. But, the wounded Gingrich is furious, and his concession speech was anything but conciliatory. He has effectively taken a berserker posture, implicitly promising to take Romney down at any cost and proposing a conservative alliance between himself, Perry, and Santorum.

Unlike Perry and Santorum though, Gingrich has a strong ally in the Granite State, New Hampshire Union Leader publisher Joseph McQuaid. McQuaid, whose paper endorsed Gingrich late last year, is a titan in NH conservative circles. He eviscerated Romney four years ago, and has already hammered the former Massachusetts governor for being another “squishy-moderate Republican”.

Meanwhile, Gingrich’s pledge to maintain a positive campaign has been thrown out the window. His campaign is already blanketing the state with television and newspaper ads attempting to contrast himself with Romney. Furthermore, look for Gingrich to broadside Romney in two debates this weekend. Gingrich’s attacks could very well diminish Romney’s final performance here, gift-wrapping a present to Santorum.

Can Huntsman Survive?

The Huntsman campaign has stumbled badly over the past few months: his service to the Obama administration as Ambassador to China hurt his standing with rank and file Republicans, and the media certainly did not help by anointing him the “moderate” in the race. His campaign narrative emphasizing bipartisanship disastrously misread the mood of the GOP electorate, which wanted someone to pugnaciously take on Obama.

The NH electorate is tailor-made for someone like Huntsman: state laws allow the independents and Democrats Huntsman is banking on to vote in the primary, and the state lacks a strong social conservative presence. He has put more time into New Hampshire than any other candidate, holding hundreds of events and bypassing other states. But, he trails Romney by approximately 30 percentage points in recent polling. Huntsman’s limited fundraising will assuredly dry up without a strong showing here, and should he poll a distant third or fourth behind Romney and Paul, his campaign will likely end.

Santorum’s Staying Power

Santorum’s emphasis on family values won him the endorsement of Iowa heavy hitter Bob Vander Plaats, whose backing provided a critical conservative seal of approval. However, New Hampshire is considerably less religious than Iowa, and Santorum’s economic populism (for example, he proposes eliminating the corporate tax entirely for manufacturers) may not resonate here.

Nevertheless, for Santorum to demonstrate his viability as a national candidate, he must exceed expectations. No Republican has won the nomination in the past half century without placing first or second in New Hampshire. Given that Romney’s expectations for the state are stratospheric, a strong second or third place finish for Santorum would dominate the post-primary narrative and position him to consolidate the anti-Romney vote in South Carolina. A distant finish, coupled with Rick Perry and Newt Gingrich’s continued presence in the race, would likely relegate Santorum as perhaps the final anti-Romney to emerge.

Photo Credit: The Boston Gobe

BACKGROUND

Jon Huntsman first gained national prominence for becoming the youngest ambassador in 100 years after George H. W. Bush appointed him the U.S. Ambassador to Singapore in 1992. Under George W. Bush, Huntsman served as a Deputy Trade Representatives. Huntsman then served as Governor of Utah from 2001 to 2009, leaving with an approval rating of over 80% and Pew Center recognition of Utah as the best managed state. President Obama appointed him U.S. Ambassador to China in 2009, a position that he left in April of 2011 in order to return to the United States to explore a bid for the presidency.

POLL NUMBERS AND MONEY

Huntsman’s poll numbers are consistently in the low single digits. In the last Des Moines Register poll before the Iowa Caucuses, Huntsman placed last with only 2% of Iowans indicating him as their top choice. In New Hampshire, where he has concentrated most of his effort, Huntsman is polling among likely voters at only 9%, a solid 3rd place finish.

MAJOR POLICY STANCES

Although labeled a moderate among the Republican nominees, Huntsman does have traditional conservative stances on most policy issues. He supports the construction of a wall between the United States and Mexico, though as Utah Governor he signed a law allowing illegal-immigrants to receive “driving privilege cards.” He is pro-life, and is against same-sex marriage (though not civil unions). Huntsman has frequently pointed to simplification of the tax code as a major campaign issue, arguing that closing loopholes could help significantly with U.S. debt reduction. He supports lowering the corporate tax rate, and many of his policy stances are pro-business. In terms of foreign policy, Huntsman has focused mainly on potential U.S. leadership in Asia, particularly emphasizing the benefits of teaming with China to confront a North Korean nuclear threat. Huntsman is perhaps most notable for his belief in global warming, and he has frequently spoken critically of his “anti-science” opponents.

STRENGTHS

Huntsman’s experience both domestic and international is significant. This has helped him frequently in debates, particularly against the less-experienced candidates such as Bachmann and Perry. In general, his greatest strength is his appeal to both moderate Republicans and Democrats dissatisfied with President Obama. However, this popularity is little shown in Republican primaries where the highly conservative base has not warmed to the former Utah governor.

CHALLENGES

The moderate label is a double-edged sword for Huntsman. Instead of running as a reform-minded, conservative former governor and Washington outsider, he embraced the imagery of bipartisanship. His campaign highlighted his recent service as Obama’s Ambassador to China and willingness to cooperate with Democrats rather than the job growth and tax cuts he helped foster in Utah. The GOP electorate, having taken a sharp rightward turn over the past four years, has not embraced these qualities of Huntsman. Additionally, many voters do not see Huntsman as sufficiently socially conservative.

PROSPECTS

Huntsman has staked his entire campaign on a strong finish in the New Hampshire primary next Tuesday. The demographics and strong independent presence are conducive to a candidate of his background. For all the hours logged in the Granite State though, his poll numbers have failed to take off. Unless Huntsman pulls off an incredibly strong second place finish, his slim chance of winning the nomination will disappear.

But economists are not soothsayers, and the CBO now projects that debt will equal 185 percent of GDP by 2035 unless momentous policy changes are enacted. Like a company that finds itself mired in the red, the nation is reviewing its revenue sources and expenditures. Last year, President Obama appointed a bipartisan commission—called the Bowles-Simpson commission for its co-chairs—to perform precisely that analysis. Though its proposals never received official consideration by legislators, economists believe the thorough redesign of the tax system recommended by the commission is necessary. Policy makers must consider three core factors: simplicity to taxpayers, equity, and promotion of economic efficiency. Yet oddly enough, of all places debt-plagued Europe may provide an additional revenue mechanism for combating the American debt crisis.

Income Tax: Simplification for Taxpayers

When President Bush’s signature tax cut legislation became law, legislators and administration officials alike envisioned that tax receipts from the nation’s increased output would counter any reduced revenues in the form of tax cuts. What happened then? Congressional Democrats and the administration are eyeing eliminating these tax cuts for the wealthiest Americans to close an ever-widening budget deficit. President Obama has proposed ending them for individuals making more than $200,000 and couples making more than $250,000 annually. The liberal Center for American Progress has estimated that keeping the tax cuts for the wealthiest two percent would directly increase the debt by $690 billion over the next decade, with an additional debt service cost of $140 billion. The Progressive Caucus in the House went even further, proposing ending all Bush tax cuts and increasing taxes on the wealthiest Americans to raise $3.9 trillion over the next decade.

But Obama’s bipartisan debt commission proposed a markedly different strategy, calling for the elimination of all tax expenditures, which are revenue losses resulting from tax credits and deductions. The commission estimates that approximately $1.1 trillion is lost annually through these measures, and the loopholes merely add to the increasingly byzantine tax code. These deductions led the Tax Policy Center, operated by the Urban Institute and Brookings Institution, to estimate that 48.5% of households paid zero income taxes in 2008.

The commission’s proposal has received bipartisan support as a revenue-neutral reform of the tax system. Senior tax policy analyst for the conservative Heritage Foundation, Curtis Dubay, agrees that we must “reduce economically unjustified deductions and credits that litter the code.” Notably, the commission recommends that only $80 billion be reserved for reducing the deficit, while the rest would be utilized for lowering tax rates across the board. The debt commission recommends simplifying the tax code further, decreasing the number of income brackets from six to three, and decreasing the highest marginal tax rate from 35 to 24 percent.

Not only would this greatly simplify the tax code, but it would also mitigate the reduced savings that income taxes naturally cause. “Increasing marginal tax rates is a bad idea, since this would affect incentives to work and save adversely,” says Harvard economics Professor Dale Jorgenson. “A much more promising approach is to reduce average tax rates by eliminating tax credits and deductions.”

Strengthening Jorgenson’s call for simplicity, the Tax Policy Institute notes that tax expenditures “are most valuable for high-income households,” and House Budget Committee Chairman Paul Ryan (R-WI) stated that eliminating tax expenditures, “would stop diverting economic resources to less productive uses, while making possible the lower tax rates that provide greater incentives for economic growth.”

Another weakness of the current tax system is the alternative minimum tax (AMT), which was initially designed to ensure that the wealthy paid their fair share. After numerous calculations, taxpayers would be presented with both the standard and the alternate tax, and pay the higher of the two. For over four decades, the AMT operated parallel to the standard income tax system. Despite the AMT’s laudable goals of closing loopholes, an unintended consequence arose: because the AMT is not indexed to inflation, it has slammed an increasing number of middle class citizens whose salaries have largely kept pace with inflation. According to the CBO, the AMT has gone from affecting less than one percent of taxpayers before 2000 to affecting 16 percent of taxpayers in 2010. Both Bowles-Simpson and another bipartisan tax reform proposal from Senator Ron Wyden (D-OR) and former Senator Judd Gregg (R-NH) propose eliminating the AMT.

There is general consensus from both parties that too many tax expenditures exist. But excessively partisan proposals from both ends have made little headway towards the lofty goals of increased economic productivity and deficit reduction. Some conservative Republicans have opposed closing expenditures, deeming that akin to raising taxes, while other progressive Democrats believe that increased taxation on the wealthy is an essential pillar to debt stabilization.

Corporate Tax: Making America Competitive Again

With significant obstacles to income tax reform, policy makers have turned towards another revenue source: American businesses. Every year, multinational corporations keep profits stored in overseas accounts to avoid paying relatively high marginal corporate tax rates. Any company with taxable income exceeding $18.3 million, which includes all major corporations, is subject to the 35 percent marginal tax rate, minus taxes already paid overseas. For example, if Google made $2 billion in profits in Ireland and then transferred those profits back to the United States, it would first pay 12.5% of that profit to Ireland, before paying 22.5% to the U.S. government. This makes repatriating profits an unattractive option, and leads companies to keep resources offshore.

According to the Organization for Economic Cooperation and Development, once Japan completes its planned reduction of the corporate tax rate, the U.S. would be left with the highest corporate rate among industrialized, democratic nations. The Win America campaign, a coalition of several dozen corporations, including Apple and Google, has proposed a temporary reprieve that would dramatically lower the corporate rate from 35 to 5.25 percent. These multinationals argue that this would incentivize the return of over $1 trillion, which companies would then utilize to invest and hire new employees.

A corporate tax reprieve has been tried before, but with questionable success. The 2004 Homeland Investment Act did not contribute to domestic economic growth, concluded economists Dhammika Dharmapala, C. Fritz Foley, and Kristin Forbes in a 2009 National Bureau of Economic Research paper. Their research shows that most of the repatriated money actually went towards paying dividends rather than reinvestment and hiring new employees. Opponents further argue that offering a windfall on repatriation would unfairly punish companies that did transfer money overseas back into the United States.

But, the Win America campaign raises a pertinent concern: the corporate rate is excessively high. Martin Feldstein, former chair of the Council of Economic Advisors for President Reagan, wrote in the Wall Street Journal on February 15, 2011, that “The high corporate tax rate causes a misuse of our capital stock. More specifically, the high rate drives capital within the U.S. economy away from the corporate sector and into housing and other uses that do not increase productivity or raise real wages.” High business taxes raise the cost of capital and encourage companies to invest abroad. The Bowles-Simpson commission proposes reducing the rate from 35% to 27% in conjunction with closing corporate tax loopholes, which would make American companies more competitive with foreign ones while being deficit neutral.

Progressives have been infuriated by stories of companies like General Electric, which actually claimed $3.2 billion in tax benefits even though it made $14.2 billion in profit in 2010. The outrage translated to demands for higher corporate tax rates. But reduced marginal tax rates and sharply limiting deductions would most greatly improve economic efficiency. Not only would companies greatly curtail time spent on bureaucratic paperwork dealing with taxes, but the provisions recommended would also incentivize corporations to return overseas profits for investments or dividend payments which could then be taxed. The current business tax structure must be overhauled to help American business compete in emerging markets abroad.

Value Added Tax (VAT) and Sales Taxes: Reducing Savings Distortion

Beyond the traditional income and corporate taxes, other economically developed nations have targeted consumption. The VAT, unlike income or payroll taxes, targets the American pastime of consumption and minimally impacts savings and investment, which economists believe Americans do too little of. President Obama was criticized last year for broaching the politically taboo subject of the VAT as an opportunity to raise additional revenue. Conservatives immediately countered by stating that the debt arose primarily because of spending, not revenue, and that Bowles-Simpson did not recommend the VAT.

But economists have been more receptive to the concept as part of an overall reformation of the tax system. European nations in particular rely heavily on the VAT, and the European Union requires its members to have a VAT of at least 15 percent.

The value added tax in theory collects the same amount of revenue as a sales tax, but instead levies the tax at various levels of production. Foreign governments have also imposed various credits to avoid double taxation. Consider the following example with a five percent VAT: a pencil maker purchasing $1000 in wood would pay $50 for his purchase. However, if the pencil maker had spent $400, with an additional $20 VAT, for machinery, then the final VAT paid by the pencil maker would be $30. Since corporations would merely collect the taxes for the government, and consumers would not file tax returns, this is an attractive alternative to the income tax. “As a form of fundamental tax reform a VAT is more viable,” says Dubay. “In theory it is a more economically efficient tax than our current system.”

Although a formal VAT proposal has not been floated, conservative legislators have proposed the Fair Tax, a 23 percent national sales tax that would replace all income, employment, estate, and gift taxes. The Fair Tax would offer an annual rebate for all taxpayers to mitigate the effect that the national sales tax would have on the poor. This falls more in line with Harvard public policy expert John Donahue, who argues, “a tax levied on consumption that spares the first chunk of household spending, falls lightly on consumption up to middle-class levels, and more heavily on luxury purchases and/or very high levels of aggregate household consumption seems like a great idea.”

Already, U.S. taxes on consumption average 4.7 percent of GDP, through state and local sales taxes that apply to particular commodities. The gasoline tax, currently 18.4 cents per gallon, accounted for 35.4 percent of all excise taxes in FY 2009 alone. Economists generally agree that taxes that counter negative externalities, like pollution, enhance overall economic welfare. To that end, Bowles-Simpson also proposed increasing the gasoline tax by 15 cents, raising the total federal tax to 33.4 cents per gallon. Currently, including both federal and state taxes, gasoline is taxed around 40 cents per gallon, much lower than the Eurozone, which taxes around $4 per gallon.

But, the gasoline consumption tax offers a glimpse into the potentially fatal flaw of a national VAT and sales tax: the poor and middle class spend a greater portion of their income on gasoline than the wealthy. The political will for imposing the VAT does not exist because consumption occupies a greater proportion of income for the poor than the rich. Without determining the various deductions necessary to reduce that inequity and simultaneously stopping special interests from carving out exemptions for certain products, taxing consumption on the national level is infeasible.

Political Machinations

Unfortunately, America’s fiscal health will remain in dire straits for the foreseeable future. But the recent budget negotiations over the debt ceiling entailed some core tenets of what economists have sought for years: the elimination of loopholes, reduction of across the board rates, and simplification of the tax code.

Once economic stabilization is achieved, policy makers should consider expanding the tax base via the VAT. With its inherent advantage of a potential $8.8 trillion tax base and minimal distortions of savings and investment, a VAT could be utilized to improve economic efficiency and reduce the income and corporate tax burden.

Design by Melissa Wong

With the 2010 midterms in the books, prospective candidates are already looking ahead to the 2012 presidential election. While President Obama will probably secure the Democratic nomination easily, Republicans must develop their campaigns in the coming months to navigate the political jungle that is the presidential nomination process.

The fun starts early. During the 2008 election cycle, candidates for both parties’ nominations were fundraising and campaigning as early as late 2006. The primaries themselves have steadily inched forward into early January, as states jockey with each other for prestige and influence. However, 2008’s protracted Democratic contest highlighted several flaws in the current nomination process, most notably the disproportionate weight given to early primaries and caucuses. Contingents from both major parties have proposed modifying the primary schedule to rectify this situation, but ultimately, opposition from existing party structures and from states will likely scuttle any major reform movement.

The Current Model

Traditionally, Iowa and New Hampshire have had outsized influence in the nomination contest because winners in these states, which hold their primary elections the earliest, gain valuable momentum in fundraising capacity and media visibility. Candidates with theretofore limited means or attention have taken advantage of these opportunities to sail to their party’s nomination. Richard Parker, a lecturer in public policy at the Harvard Kennedy School, explained that there are really three contests in the nomination process: a struggle for the support of elite party members, a fundraising battle, and finally, the actual vote tally. For example, then-Senator Barack Obama garnered immense support from liberal elites and from the grassroots before the Iowa caucus, which translated into huge fundraising opportunities after his victory there. Thomas Patterson, a professor of government at the Kennedy School, agreed. “The problem is that money is too big of a factor and early states have too big of an influence,” Patterson said.

In 2008, though, many states that do not typically influence the nomination process played a crucial role, because no clear front-runner emerged in either party following the contests in Iowa and New Hampshire. As Timothy McCarthy, a lecturer in public policy at the Kennedy School said, “The good thing about the 2008 election cycle was that many states got to have a say.” McCarthy continued, “The candidates visited, debated, and campaigned heavily in states that had never gotten any attention.” The challenge for reformers is to remake the system so that this happens in every primary election season, not by chance but by design.

Regional Primaries

One of the most commonly offered solutions to improve this system is to institute  a regional primary. One proposal made by the National Association of Secretaries of State in 1999 would have divided the nation into four regions and implemented a rotating system: Regions would hold primaries one each month, March through June, switching up the order with every presidential election cycle. Sens. Amy Klobuchar (D-Minn.), Lamar Alexander (R-Tenn.), and Joseph Lieberman (I-Conn.) proposed a variation of the NASS plan in Congress in 2007, which would have allowed Iowa and New Hampshire to retain their first-in-the-nation status.

But Elaine Kamarck, a lecturer in public policy at the Kennedy School, explained in her book, Primary Politics: How Presidential Candidates Have Shaped the Modern Nominating System, that such proposals have garnered little support in recent years. “In contrast to voters, most of whom favor a national primary,” she wrote, “politicians tend to value the sequential nature of the nomination process.” Given that the candidates prefer the system the way it is, there is no significant impetus for change.

Prerequisites for Reform

If meaningful primary reform is to be adopted, the two parties and the 50 states must agree on a plan, which, given the current political climate, is highly unlikely. Enacting any changes, Kamarck explained, would require either congressional action or an agreement among all 50 states to hold their primaries and caucuses in some equitable order. “Neither of these things,” Kamarck said, “is likely to happen in the near future.”

The first possibility, congressional action, would require significant cooperation between leading Democrats and Republicans. Obviously, such cooperation has been a rarity in recent years. Legislators interested in reform are also wary of antagonizing party leaders, who have a stake in the current political system. Former Sen. Bill Brock (R-Tenn.) explained to the HPR why this process would be so difficult. “You really need to have leadership of the two parties sit in council with each other and say, ‘Okay, what is realistic on your side? How much of your political capital are you willing to spend on this?’” Brock continued, “Then they have to start marketing it to the political leadership, the top candidates, and the president. It’s going to take a lot and it’s going to take a sustained effort.”

The second option, cooperation between the states, may be even less likely. Historically, state parties have been given much flexibility in determining the date of their own primaries; as the controversy caused by the Michigan and Florida primaries in the 2008 Democratic contest showed, this can sometimes lead to major conflicts between states and between the political parties and states. Patterson explained, “It’s hard to get the party to agree on reform, but even then, since we have a federal system, party rules are not binding on states.”

Furthermore, parties must enforce guidelines on their own presidential candidates, who often maneuver in early primary states to gain strategic advantages. McCarthy explained why this is so hard to control. “Because the electoral system is so rife with the politics of self-interest, which manifests itself in the levels of candidates, parties, and state committees, you’re always going to have them fighting for what’s best for them, not what’s best for the country,” he said.

Inertia Takes Hold

Ultimately, the grim prospects for reform of the nation’s presidential nomination system are just a matter of inertia: Significant reforms are unlikely to pass in the near future because the current primary nomination system has been utilized by the political establishment for decades, and despite occasional calls for reform, there has not been a strong, sustained movement. Furthermore, friction between the two parties and state control over primaries are major impediments to reform, and therefore the 2012 nominees will likely be determined by the existing nomination process. Of course, this will hardly be the end of the world. But the 2008 election showed real problems with the way we nominate presidential candidates. There must be intense demand from both politicians and the population at large to initiate the reform process, and as the desire for change gradually increases, these reforms may become a reality.

Alexander Chen ’13 is a Staff Writer and Daniel Granoff ’14 is a Contributing Writer.

Photo Credit: Flickr (Eric Hersman)

At press time, most political prognosticators give the Republicans better-than-even odds of taking control of the House of Representatives in the November elections. Regardless of the outcome, however, President Obama will likely tack towards the center to prime himself for reelection. This will leave the Republicans facing a difficult choice: energize the base by creating legislative gridlock, which may turn off independents, or fight Obama for the center and cooperate with him on moderate legislation, at the risk of alienating the Tea Party supporters that have been essential to the party’s revitalization. Compromise between those two extremes is possible, and in fact, such a compromise may improve the productivity of the very Congress that conservatives have railed against.

President Obama’s Response

Regardless of who controls Congress, President Obama will likely pursue a centrist agenda to position himself for reelection in 2012. Carlos Diaz, a lecturer in government at Harvard, noted that until recently Obama has taken advantage of lopsided Democratic majorities in Congress. “Obama has been able to sail through Congress [and pass] major initiatives without much bipartisan compromise,” said Diaz. While health care reform and the financial overhaul were passed with little Republican support, to regain his footing after the inevitable loss of seats Obama will undoubtedly try to find common ground with Republicans.

Obama has already joined hands with Republican leaders to support some controversial new education reforms; the “Race to the Top” initiative—though criticized heavily by teachers’ unions for emphasizing merit pay—has gained bipartisan support. This is one of several areas where it is possible for Obama to ally with Republicans but still make headway on the issues he campaigned on. By showing the electorate his willingness to extend an olive branch, Obama can lay claim to the center ahead of the presidential election.

Gridlock or Compromise?

The first challenge the GOP will face after the midterms is uniting the party behind its leadership. The party is currently divided into many factions: moderates are facing off against conservatives, the establishment against the grassroots, and the “old guard” against the “young guns.” As Diaz noted, “After the 1994 elections there was a clear leader of the Republican Party, Newt Gingrich. We haven’t seen that yet today.”

Republicans will face the challenge of keeping their core supporters and Tea Party activists energized, while at the same time appealing to enough moderates to recapture the presidency. The first of these two tasks could entail opposing the Obama administration on all new legislation and blocking any initiatives unpalatable to the conservative base. For example, Congressman Darrell Issa (R-Calif.) has said he will flood the White House with subpoenas for documents, a proposal that Minority Leader John Boehner (R-Ohio) publicly supported. That would undoubtedly exacerbate already tense relations between the two parties, and could backfire for the Republicans, as their impeachment of President Clinton did in 1998. Republicans have also said that they will attempt to repeal the health care bill, a proposal which has energized the GOP base but may not resonate with voters looking for a positive agenda.

On the other hand, the GOP could reciprocate Obama’s attempt to claim the center by cooperating with Democrats. This possibility might seem unlikely at first; as Steve Ansolabehere, a professor of government at Harvard, pointed out, the Tea Party’s defeat of a number of establishment GOP candidates “might frustrate Republicans” in any attempt to move towards the center.

Still, conservative Republicans and like-minded Democrats could find common ground. The two parties could try to whittle down the federal deficit by reducing earmarks and reforming the tax system to eliminate inefficiencies. If both parties come together in a play for the center ahead of 2012, we may, in fact, see a surprisingly functional Congress next year.

Preparing for 2012

Newly elected GOP congressmen and senators will have to consider their roles in Washington carefully. President Obama has already begun bringing in a new cadre of advisors, and will likely steer towards the center next year. Battling the Democrats will likely fill Republicans’ coffers with donations from conservatives and energize the Republican base, but competing for the center may actually swell GOP ranks with support from both the Tea Party and the moderate middle. Either way, the GOP will require decisive leadership that can unify the party before the 2012 elections, when voters will render a more direct judgment on the Obama administration.

Alexander Chen ’13 is a Staff Writer.

The Tea Party movement attracted a lot of attention with its vocal opposition to the Democratic health care legislation, but it took shape at the very beginning of the Obama presidency. It arose out of widespread libertarian and populist outrage over the federal government’s intervention in the economy. While opposing the Obama administration, the Tea Party movement has remained independent from the Republican Party, sometimes openly confronting the GOP establishment. Yet the two organizations are united by their opposition to the Democratic agenda. What will ultimately determine the future of the Tea Party movement, then, is how successfully Republicans can incorporate elements of the Tea Party’s doctrine into their party platform. And how effectively they can prevent the Tea Party from bringing down more electable, establishment candidates.

The Origins of the Tea Party

When CNBC commentator Rick Santelli railed against the “homeowner bailout” at the Chicago Mercantile Exchange in February 2009, he tapped into a widespread frustration with government “handouts.” Santelli famously declared that he wanted to oppose Obama’s economic agenda with a “Chicago Tea Party” in July. Within weeks, anti-tax groups had sprung up across the country. Zephyr Teachout, a professor of public policy at the Harvard Kennedy School, emphasized the importance of these early events in an interview with the HPR. “While right-wing media and politicians fueled the anger around health care reform and other programs,” she said, “I suspect that some of the organic growth of the Tea Party movement came from extraordinary anger at the bank bailouts.” Indeed, the bailouts—combined with the stimulus package’s $787 billion price tag—were major instigators for the Tea Party movement.

Kate Zernike, national correspondent for the New York Times, told the HPR that “the motivating grievance for most [Tea Partiers] was when Congress passed TARP—under President Bush.” TARP, which provided emergency assistance for major financial institutions, was maligned by populists on both the left and right. Furthermore, many Ron Paul supporters, devoted libertarians, provided an organizational structure for the nascent movement. A loose populist-libertarian coalition arose that sought to limit federal spending and roll back newly acquired government powers. The stimulus bill, Zernike said, was just fuel on the fire.

Tea and GOP

The Tea Party movement has repeatedly rebuffed the GOP establishment’s attempts to co-opt it, which has alarmed some Republicans. Richard Parker, a professor at the Harvard Kennedy School, observed, “The RNC remains concerned about three things: the impact of Tea Party primary challengers on the electability of general election candidates, how Tea Party voters will vote in November, and the potential political damage that negative perception of the Tea Party can cause.”

Overall, though, the Tea Party movement has chosen to operate as a wing within the Republican Party in the upcoming midterms, recognizing that fielding candidates against Republicans in general elections would be counterproductive. Indeed, Rasmussen Reports has found that in three-way contests between Democrats, Republicans, and Tea Party candidates, the anti-Democratic vote is split down the middle. Zernike explained, “Tea Party leaders generally boil their issues down to three things: fiscal responsibility, constitutionally limited government, and free markets.” These issues comprise the core values of fiscal conservatives, and Tea Partiers generally recognize that Republicans are better aligned with their interests than Democrats. Still, there is no doubt that the Republican establishment should be concerned, as it has seen a number of preferred candidates receive strong challenges from the Tea Party movement.

Tea Futures

As the economy recovers, the anger and frustration driving the Tea Party could abate. The principles behind the movement, however, will survive. If the Republican establishment adopts Tea Party planks and refrains from voting for new spending programs, Tea Party leaders will feel more incorporated into the political mainstream. The Republican caucus has already unanimously opposed numerous Democratic proposals, most notably President Obama’s health care initiative. As long as Tea Partiers believe that Republicans are listening to their concerns, the Tea Party is likely to function as “an outside advocacy group” that “works for Republican candidates, but does not uniformly support them,” Zernike predicted.

The Tea Party, originally a reactionary movement against what was perceived as unnecessary federal intervention in the nation’s economy, has become an organized political force. Although the Tea Party movement has not outright endorsed the Republican Party, it can exert significant pressure on the GOP to maintain a platform of strict fiscal conservatism, as seen in such primary challenges as Marco Rubio’s in Florida or J.D. Hayworth’s in Arizona. Though the economic conditions fueling the Tea Party’s growth will dissipate, the movement itself may have a long-term impact on American politics.

Alexander Chen ’13 is a Staff Writer.

Photo Credits: Flickr (Caveman 92223 and bisongirl)

A Republican resurgence in the 2010 election?

One year into the Obama presidency, the Democrats have faltered on key initiatives, most notably health care reform, and public dissatisfaction with Congress has skyrocketed. Many factors that allowed for the GOP takeover in 1994, including voter frustration, a struggling health care reform effort, frail economic conditions, and a weakened Democratic president, recur today. Although the Democrats are prepared to defend their seats, if the GOP can take advantage of voter frustration and control the energized Tea Party contingent of its party, the Republicans will make significant gains in both the House and Senate in the upcoming midterm elections.

ANGRY ANGRY VOTERS

When Obama took office, he enjoyed high approval ratings and seemingly insurmountable congressional majorities. Voters had entrusted the Democratic Party with complete control of the federal government after expressing intense frustration with the Bush administration during the 2006 and 2008 elections. However, Matthew Baum of the Harvard Kennedy School explained that “expectations were so high and reality so bleak that it is not a surprise that many people were disappointed with Obama’s first year in office.” Indeed, despite the Obama administration’s and Congress’ efforts, the economy has not fully recovered, and the job situation is still bleak. Furthermore, Obama invested much of his political capital in health care reform, and has not yet seen tangible results. If reform does pass, it will nevertheless have cost Obama a great deal more time and political capital than he expected.

What may have turned popular support away from the Democrats was the extraordinary breadth of the agenda that Obama pursued. With a very high unemployment rate, Obama attempted to tackle health care reform, overhaul the conduct of two wars, and pass climate-change legislation. Many voters perceived all this activity as disregard for fiscal discipline. Former representative Ernest Istook (R-OK) told the HPR, “People have realized that spending more and increasing the size of government seems to be the common factor and principal motivation behind the decisions made in Washington.” According to a Rasmussen survey from early February, 75 percent of likely voters are “angry at [the] government’s current policies,” numbers typically seen before elections marked by major pick-ups for the minority party. Congressional approval ratings are similarly disastrous, a bad sign for the Democrats, who have controlled the legislative branch since 2007.

DEMS AND REPS MANUEVER

Democratic performance in November will depend on some semblance of economic growth, and though the economy has improved recently, high unemployment bodes poorly for the Democrats’ prospects heading into the midterm elections. Republican Scott Brown’s surprise victory in the Massachusetts Senate race set off alarm bells within the Democratic Party, prompting national attempts to rally an unenthusiastic base. According to Baum, “hubris definitely contributed to electoral defeat [in 1994],” and this year the campaign committees for House and Senate Democrats are fundraising nonstop, resolved not to repeat their mistakes.

The GOP cannot approach the midterms too complacently, however, as Republican incumbents must be careful to fend off attacks from the right. Even 2008 Republican presidential nominee Sen. John McCain (R-AZ) is facing a serious primary challenger, former representative J.D. Hayworth. Tea Party members, who are strongly opposed to many of Obama’s economic policies, are threatening Republicans to push their candidates rightward. The Tea Party movement, which has energized conservative and libertarian activists nationwide, has gained a significant following. But Istook predicts that “there will be continuing friction, but not major conflict” between the mainstream Republicans and the Tea Party.

An enthusiastic Republican base, including the Tea Parties, and widespread dissatisfaction with Democrats are key advantages for the GOP. If Republicans and passionate conservative activists cooperate, the overall conservative movement can overcome minor internal dissension. Furthermore, huge swings in independent support have uprooted the political balance. In recent elections in three states that Obama carried in 2008, Virginia, New Jersey, and Massachusetts, independents have voted 2:1 for Republican candidates.

Significant Republican gains in the House and Senate are extremely likely, given the present political climate and the lessons of history. Having won many competitive seats in the past two election cycles, the Democrats have a lot of ground to defend, a weakness compounded by the current economic environment. Although voters have not fully forgiven the GOP for its missteps during the past decade, by skillfully channeling voter frustration and offering a clear vision for America’s future, the Republicans could take back control of Congress.

Alex Chen ’13 is a Staff Writer.

Photo Credit: asecondhandconjecture (Flickr)

Chaos reigns as states try to budget in the recession

The financial crisis affected millions of Americans, drove down property values, crippled the mortgage industry, spiked unemployment rates, and revealed the unwieldiness of the American banking system. In response, the U.S. government attempted to resuscitate the economy with a nearly $800 billion stimulus. Meanwhile, state governments have been struggling with falling revenues and mounting expenditures. The intensity of each state’s budgeting dilemma was determined by a confluence of factors: state constitution budgeting requirements, longstanding fiscal policies, and political culture. In some states, such as California and New York, weaknesses in all three areas made these states particularly vulnerable to the sudden economic downturn. If state governments do not reform these problematic policies, they in essence leave their citizens a legacy of unpreparedness for future financial crises. 

Constitutional Constraints

California is Exhibit A in the case against certain constitutional constraints on state budgeting. The initiative and referendum system has not proven to be a reliable source of rational economic policies. Proposition 13, for example, capped property tax rates in California and required a two-thirds supermajority of the state legislature to pass tax increases and operating budgets. This popular measure did not foresee that dedicated partisans from either political party, with only a minority of the California State Assembly, could easily block necessary fiscal reforms. Such a deadlock occurred during the most recent budget deliberations, with Democrats intent on maintaining social services and Republicans opposed to any tax increases. Harvard Law School visiting professor Sanford Levinson told the HPR, “We are seeing an ongoing internal conflict as voters demand fewer taxes and more spending.”

Beyond California, balanced-budget requirements in many states have tied the hands of governors and state legislators. Voters have demanded that states control their budgets, and bond owners in particular want guarantees that their bonds will be paid in full. But Keynesian economics, which has reemerged as the dominant economic theory in Washington, holds that deficit spending during economic recessions is necessary to restore growth. State borrowing is typically forbidden; voters have refused to provide legislators with deficit-spending powers. As Harvard economics professor Gregory Mankiw told the HPR, “From an economic perspective, we should allow states to borrow and lend.” The inability to do so has left the federal government as the revenue source of last resort.

This year, many states incorporated funds from the stimulus package to maintain spending on education, unemployment insurance, and other social programs. New Hampshire State Sen. Peggy Gilmour (D-Hollis) summed up many legislators’ worries when she told the HPR, “This year, we could rely on federal stimulus money to fully fund programs. But, going forward we’re going to face an increasing challenge.” And even with the stimulus money, drastic cuts were necessary in many states. Balanced-budget requirements eliminated one fiscal tool that state governments could have used to combat the recession.

The Fiscal Trap

For years, New York, New Jersey and other states have relied heavily on a combination of income, sales, and capital-gains taxes to raise revenue. Unfortunately, actual revenues for these states fell dramatically short of projected revenues following the financial crisis. Perhaps the most significant instance of diminished tax revenues occurred with capital-gains taxes: when the market meltdown crippled stock values and wiped out earnings for investors, state tax coffers that relied heavily on these taxes were devastated.

Similarly, the economic recession has depressed the retail sector and eliminated many jobs, chipping away at the sales and income tax bases. Even New Hampshire, the only U.S. state without an income or sales tax, has had difficulty in budgeting because it depends heavily on business profits and business enterprise taxes. Arizona, meanwhile, depends heavily on property taxes; once the housing bubble burst, Arizona found itself facing a budget deficit about one-sixth the size of its operating budget.

At the same time, expenditures, especially on Medicaid, insurance for state employees, and social services, have markedly increased. Retired and unemployed citizens rely more on state services during recessions, even as balanced-budget requirements force states to slash spending. David Luberoff, executive director of the Rappaport Institute at Harvard University, told the HPR that the key question for state legislators to ask over the next few years is “What’s our social safety net?” If social safety nets cannot be maintained during recessions, when they are most needed, they constitute little more than false promises.

Another constraint on state governments is the often-difficult budget-passing process, in which legislators must decide which programs to salvage or dismantle. Sen. Gilmour told the HPR, “fulfilling state obligations to mandated programs and vital services takes first priority.” But inefficient programs are often phased out rather than eliminated, and department heads must always be consulted in such situations. Reforming programs can take time, and many programs have entrenched defenders. Taken together, all of these little requirements and constraints mean that states cut spending when they ought to increase it, lose tax revenue and cannot regain it, and slash programs that are in high demand instead of those that do not work.

Culture and Leadership

Another major stumbling block in the way of state-level fiscal reforms is a heavily ideological political culture. Partisan legislators can more easily block reform when assisted by structural obstacles, as demonstrated by California. And a combative political culture can always amplify existing problems. For example, the New York State Senate has historically been one of America’s most dysfunctional bodies, and its recent leadership crisis merely underscored the struggles that New York must face when attempting to pass any legislation, let alone a budget.

Strong leadership, however, can make the difference between gridlock and success. For instance, Massachusetts Gov. Deval Patrick recommended that his state end its reliance on capital-gains taxes. Patrick called for future budgeting processes to disregard capital-gains revenue; instead that revenue will directly supplement the state’s rainy-day fund. Such innovations can be dangerous, though: Massachusetts Secretary of Administration and Finance Leslie Kirwan told the HPR, “Many public officials will pay the political price [for Patrick’s reforms], but that is the essence of leadership.”

The pains of the financial crisis hold valuable lessons for state governments. States will need to work to overcome not only constitutional and legal obstacles to an effective budget process, but also precarious taxing and spending commitments and political cultures in which it pays to stand in the way of effective government. This is a tall order, but it is necessary to ensure that states are ready for the next big recession.