The Democrats’ new plan

July 25, 2006

The DLC has come up with a plan for victory in ’06 the basic idea is that the Democrat party must win back the middle class. I’ll be examining their ideas in this post.

Higher education block grants — $150 billion over 10 years — to states, based in part on the number of students who attend and graduate from college. States would have to promise not to raise tuition higher than inflation.

Another of the many proposals to lower the cost of college. This one does add to the general idea by capping tuition increases at inflation rate. The real problem with this idea is that colleges have many ways of raising costs and tuition is just one of the ways for them to raise costs. Also with about 10,000,000 college students a year even this plan falls 200 billion dollars short of matching the rate of inflation for college costs. Of course the one proposal which would help is usually rejected out of hand. The proposal is to let student sell a portion of their wages in exchange for a college education. This is done in poor countries where the college educated students provide for their family. In the U.S. this could be done by insurance companies or some other firm on the open market.

• $3,000 college tuition tax credits to help families pay for college.

The same goes for this proposal which has an even more obvious effect than the first one. Tuition will go up $3,000 and only the colleges gain.

• A permanent “saver’s credit” aimed at helping low-income families build equity by having the government match 50% of their savings, up to $2,000 a year.

This proposal is government at its most paternalistic. In general low income families should be spending their free money on some form of education rather than saving the money. This proposal would likely have the effect of reducing education levels and would cost the government large amounts of money.

• Greater disclosure and oversight of pension fund investments and greater disclosure of executive compensation in publicly held companies.

Greater disclosure is in general a good thing and these seem like good ideas. It seems to me that they are trying to solve a problem which doesn’t really exist. Employees generally know where their pension money is going and executive compensation is usually given in the form of retirement bonuses which cannot be revealed ahead of time since they are frequently decided at retirement time.

• “Pay-as-you-go” budgeting and tighter congressional caps on discretionary spending.

These are good proposals but any Congress would put enough caveats into these rules to make them meaningless. Also discretionary spending is a small problem compared to Medicare and Social Security which the Democrats are staunchly against reforming.

• $500 savings bonds for each of the 4 million children born annually in the United States and letting families with income under $75,000 augment the bonds by putting existing annual tax credits in them.

Thi proposal is so pointless that it’s hard to see how any rational person could support it. Why spend 2 billion a year on the people who need it least. These children are going to be far more prosperous on average 30 years from now than 30 year olds today. Also the second proposal is redundant. People are allowed to buy bonds for their children without governmnt action in their favor. 2 billion dollars could be far better spent as a benefit to 30 year olds today rather than those in 2036. My feeling is that this bill is meant to reduce the ‘problem’ of foreign ownership of American bonds.

• Pooling small businesses into a single national insurance purchase pool to augment bargaining power and streamline administrative costs.

Small buisnesses can do this on their own if they want to. In addition this pooling would be unnecesary if interstate insurance sales were allowed.

• Universal health care for children. The DLC says 9 million Americans under age 18 are uninsured.

Again the government wants to cover those who need it least. This is an expensive plan which would do little and tax money from those who need the insurance more leading to less coverage for the middle-aged.

• Setting up an independent commission to crack down on business subsidies, which Clinton, Vilsack and their compatriots believe save the government $250 billion over 10 years.

Fair, but if you do this it would take the utmost hypocrisy to complain about outsourcing. Of course, Congress still will whine but what can you do? Also Clinton and Vilsack’s estimate is based on buisnesses changing nothing based on these changes, an unrealisti idea.

• Tax credits for employers that offer employee housing assistance programs, especially for public employees, and a $5,000 tax credit for first-time home buyers.

Why should we encourage employees to pay salaries in ways less valuable than cash to their employees. If the worker wants a house he can pay for it out of his wages and if he doesn’t want to buy a house part of his salary is wasted. Also if you offer a $5,000 subsidy to house buyers then houses will cost about $5,000 more. (I’m not sure if this means 5,000 less in taxes or taxable income 5000 less if the latter than home’s will cost around 1,000 more.)

• Reducing by 100,000 the number of federal consultants and contractors, which the DLC estimates at 5 million. The group says that would save $50 billion over 10 years.

A good idea indeed.