Michael Hicks: Some places of economic compromise


The quasi-end of the election has most of us thinking about what the results mean for the economy. Other than forecasting a recession among political pollsters, there are few certain answers. However, we have to face the fact that bipartisan lawmaking has been absent since about 2002. That leaves a lot of issues needing the kind of thoughtful, principled compromise that is really the hallmark of American democracy. I’m not excited about some of the likely outcomes, but that is how compromise works. Here’s where compromise is most probable.

We are in the worst economic downturn since the Great Depression, and that gives us a chance for Congress to compromise. The pandemic is worsening across most of the nation and nearly one out of every six Americans who was working last January is now jobless. This should prompt a major COVID relief bill. It will support workers, some businesses and state and local governments. It will also add something between $1.5 trillion and $2.5 trillion to our national debt.

Federal taxes are certain to increase. The whopping $1.05 trillion deficit from the “world’s best economy” of 2019 illustrates the need for change. The democrats will want to roll back much of the Tax Cuts and Jobs Act and the republicans will not, but there some areas ripe for compromise. The TCJA cut corporate tax rates, simplified tax filing, eliminated some state and local tax deductions and eliminated several tax loopholes. All but the state and local deductions were also supported by the Obama Administration. A compromise might include somewhat higher rates offset by the phase out of more corporate tax loopholes.

Few in Congress wish to see the U.S. return to the highest corporate taxes in the developed world, but the trade-off lies in cutting loopholes. Every elected leader has a large employer in their district demanding their favorite be maintained. Still, a bipartisan, multi-year sunset of deductions and credits would be palatable to most businesses who crave tax certainty.

A second area of bipartisan agreement is infrastructure spending. Though I appreciate their clearly unbiased view of things, the U.S. is not in the crisis civil engineering group that they would have us believe. Still, a multi-year agreement on transportation, water and environmental cleanup is a likely area of bipartisan consensus. Our roadways need a slew of new bridges, and more importantly the technology to accommodate smart vehicles. We have a history of long-term transport funding. So, this would simply be more comprehensive and longer term. It may also set up other changes to a spending process that a majority in Congress will support.

The Affordable Care Act is here to stay. It was, after all, nothing much more than a Medicaid expansion to which most states eagerly signed on. Still, it needs lots of marginal changes, including a public or not-for-profit option. While touching healthcare will be the toughest of bipartisan compromises, it is also among the least important.

The biggest remedy to skyrocketing healthcare prices lies not in the halls of Congress or the Supreme Court, but in the Department of Justice and state Attorneys General. It is time to enforce anti-trust legislation on hospital systems. This is primarily a state role, except where systems spill across states. Bipartisanship doesn’t just happen in Congress.

Almost every program involving funding causes disagreement about who administers and distributes funds. Until recently, the GOP pushed for more state and local control, while democratic policymakers sought a strong federal role. This tension over fiscal federalism won’t disappear, but city leaders, who are disproportionately democrats, have recently pushed for more local influence over spending.

This fiscal federalism should not be a partisan issue. Any party who believes their ideas are better should welcome more effective state and local governments to nurture them. Allowing state and local governments to succeed or fail differently is an important ingredient to policy success over the long term. This is a wonderfully heterogenous nation, with very different state and local priorities. Seeing what does or does not work elsewhere is of great advantage in developing successful policies.

A growing number of Americans wish to see a narrowed federal effort on the war on drugs. Changes to sentencing guidelines and the type of federal assistance to police departments should be easy areas to assemble votes. Decriminalization or reduced enforcement of marijuana laws also seem a more palatable area for compromise. Such changes to policy still allow states to deal with this complex problem differently.

Serious immigration reform is a huge economic issue, about which there is a lot of magical thinking. By my calculation, it would take every bus from every school, government and private sector organization a full year to transport all the undocumented workers back to the closest national border. They are more likely to ride sparkly chartreuse unicorns. We need serious, honest understanding of the problem and the possible solutions.

George Bush’s 2007 bill is a good platform. It enjoyed broad bipartisan support but was derailed by those who sought to preserve immigration as a cultural wedge issue. There are clear areas for compromise on border security and guest worker programs. Here, a president wields real power through the use of amnesty for those who have entered the nation illegally. So, like changes to the TCJA, compromise on immigration likely depends on who wins the presidency, which as of this writing is not clear.

These economic issues offer important areas of compromise. The tight election makes clear neither party has a strong control of the electorate.

As I wrote last week, the Democratic Party has a clear economic agenda, while the GOP could not agree upon one. With worries about the economy looming large in exit polls, it seems clear that GOP vagueness is at least as appealing as democratic specificity. That should hold lessons for both parties and provide incentives to move towards a common middle.

Michael J. Hicks is the director of the Center for Business and Economic Research and an associate professor of economics in the Miller College of Business at Ball State University. Send comments to [email protected].

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