Why is Cuomo Leaving Wall Street Cash on the Table?

Co-Written with Lenore Palladino.

Governor Andrew Cuomo has claimed that he’s “a progressive Democrat who’s broke.” But in his most recent executive budget, he proposes ending a little-known tax that could make all the difference. For the last century, New York State has had a stock-transfer tax, which taxes nearly every stock trade. Since 1981, it’s been instantly rebated—no money is actually collected—leaving potential revenue on the table even as financial profits skyrocket. Cuomo suggests ending the tax, citing “unnecessary administrative work.” But New York’s stock-transfer tax can be easily re-implemented, instead putting that administrative work to good use.

Cuomo should work to end or reduce the tax rebate, rather than take the tax off the books. New York isn’t broke so much as unequal: one in every twenty-two people in New York City is a millionaire, while 56,987 New Yorkers live in homeless shelters. A tax like this could raise hundreds of millions of dollars.

The financial sector grew as a share of the economy by 175 percent from 1947 to 2013. This rapid growth has led many to observe that the financial sector increasingly relies on rent-seeking: making money from moving money around only to make more money. Financiers no longer need bother with productive investments.

Wall Street is flush with cash, but the state’s coffers continue to struggle. Public employment in New York dropped by 4.2 percent between December 2007 and June 2014. A modest 0.02 percent tax on stock transactions would raise hundreds of millions of dollars annually. New York City faces incredible risks from climate change. A recent report estimates that, without adaptation, the annual costs of climate change will be between $3.8 billion and $7.5 billion per year at mid-century. The stock-transfer tax could provide, on its own, a major head start toward protecting New York City from devastation.

Opponents of a tax on stock transactions claim that it would reduce trading and jobs and harm the economy, and it would certainly slow down short-term, highly speculative trading to some extent. The real question is: What are the costs that New Yorkers face right now from runaway speculation and insufficient public investment? Our research finds that New York would gain more from the revenue raised, which could be funneled toward job creation, even though falling trade may cause some job loss in the financial sector. Of course, some of those astronomical profits that Wall Street banks keep reporting could be put toward the tax as well.

Finance has increased inequality, pulled money out of the job-creating economy and largely sustained itself on grift. To reduce these negative effects, we should tax financial transactions as well. In the wake of the recent financial crisis, a tax could be a way to reduce systemic risk. Although the New York stock-transfer tax would cover only stock trades, it could provide a model for a more comprehensive national tax on a broader range of financial transactions, like derivatives.

Such a tax isn’t unprecedented. After all, New York had one in place from 1905 to 1981. From 1914 to 1966, the United States levied a modest tax on sales and transfers of stock. House Speaker Jim Wright pushed for a renewed federal tax in 1987, proposing a fee of 0.25 to 0.50 percent on the buyer and seller in each securities transaction, highlighting the tax’s progressive aspects. More recently, Senator Tom Harkin and Representative Peter DeFazio proposed the Wall Street Trading and Speculators Tax Act, which would assess a tax of 0.03 percent on trades of stocks, bonds, futures, options, swaps and credit-default swaps and would generate some $350 billion over nine years. Representative Keith Ellison proposed the Inclusive Prosperity Act, which would entail a 0.5 percent tax on stocks, a 0.1 percent tax on bond trades and 0.005 percent tax on derivatives; that bill was projected to raise similar amounts.

On May 6, 2014, ten European nations issued a joint statement that a financial tax would commence in 2016 as a means to reduce speculation and raise revenue. The initial tax will focus on the trading of stocks and some derivatives. The European Commission estimates that a broad tax could raise 31 billion euros ($39 billion) in annual revenue.

In New York, revenue is desperately needed. Governor Cuomo should support Assemblyman Phil Steck’s bill, which would begin collection for 40 percent of the tax and was supported by economist Jeffrey Sachs. Sachs has said that the “financial transactions tax is a solid idea that has been resisted by Wall Street for years.” Instead of repealing the tax, New York should restart collection and use the revenues to stimulate equitable economic growth.

This article originally appeared in the print version of The Nation and online.

Big Box Retailers Own The Political Process On Black Friday

Co-Written with Catherine Ruetschlin.

Big retail has dramatically increased the amount of money it spends influencing the political system. Back in 2000, all the big retailers together (Walmart, Costco, Home Depot, Target, Lowe’s and Best Buy) spent a meagre $5 million (in 2013 dollars) buying influence. In 2014, a relatively unimportant midterm election, that number increased six-fold.

Among the big box retailers we examined, the biggest were Walmart and Home Depot, followed by Target and Best Buy. Walmart’s political activities are unsurprising — politicians have richly rewarded the company. A recent study by Americans for Tax Fairness finds that Walmart saves $1 billion a year in tax breaks and avoids taxes on $21.4 billion it holds offshore. Added to that are the $6.2 billion Americans taxpayers subsidize Walmart’s employees with food stamps and other public aid, because Walmart doesn’t pay its workers enough to live. In a recent annual report, Walmart openly admitted that changes to government food stamp programs may hurt its financial performance.

Walmart’s spending on the political system has increased dramatically, with total spending topping $10 million in the last four elections. It’s clear why, the AFT estimates that Walmart could save $7 billion more over the next decade if the corporate tax rate falls to 25 percent.

In addition to Walmart’s spending, the Walton family spends millions on the political system. They’ve also hired a private lobbyist to lobby for changes to the estate tax that now benefit them to the tune of hundreds of millions. In addition the Walton Family Foundation is one of the biggest education funders in the country, and is one of the biggest supporters of the privatization agenda. As the chart below shows, Democrats rarely benefit from the Walton family’s largess.

In fact, Democrats rarely benefit from any of the big retailers. Over the period studied, Republicans got $2 for every $1 given to Democrats for the major retailers. Among the big retailers, only Costco showed a preference for Democrats, while Lowe’s had the largest disparity, favoring Republicans 3.5 to 1.

It’s important to note that these numbers massively understate the influence of big box retailers. Because of bad disclosure laws, we just don’t know that much about corporate spending. We don’t have the foggiest idea what big box retailers are spending on state and local elections. We don’t know how much they pay to be members of organizations like ALEC. We don’t know how much they give to 501(c)6 organizations like the Chamber of Commerce. Walmart, for instance, is a member of the the RATE Coalition, Alliance for Competitive Taxation (ACT) and the Business Roundtable (BRT).

All of this money brings rewards for companies. Retailers lobby on a variety of issues, including tax policy, labor issues, and the terms of international trade. A vast literature shows that these efforts produce returns, often at the expense of other democratic interests. The research firm Strategas maintains an index of the fifty firms that lobbying most intensely. The index hasoutperformed the S&P 500 every year since 1998. In a comprehensive study of conflicts between lobbying groups and other coalitions, researchers found that business interests prevailed in 9 out of 11 issues in which businesses and labor were opposed. In the 16 cases that pitted business groups against citizen group coalitions, businesses won 9.

Although the vast amounts of money went to lobbying, campaign contributions also produce benefits There is strong evidence that the most important impact of campaign contributions is to increase access to politicians with the intent of setting the political agenda. A study of the telecommunications industry finds that regulators respond to private political spending with regulations that favor the donors. Companies that bid for federal contracts across industries are more likely to be granted those contracts if the bids are complemented by campaign contributions. Big retail normally backs winners: a Demos analysis finds that 81 percent of the 291 candidates that received money from Walmart in 2014 won their election.

What can be done to stop the spread of big money in politics? Over the long-run we need to overturn laws like Citizen’s United that opened the floodgates of money into Congress. But there are also short-term solutions. The Supreme Court explicitly endorsed disclosure as the alternative to campaign contribution limits. On the heels of Citizens United, Congress came within one vote of overcoming a party-line filibuster to pass the DISCLOSE Act. In the absence of Congress, shareholders should demand that corporations either get out of politics, or disclose their donations to organizations like ALEC that they might not approve of. SEC should require this disclosure if Congress won’t.

Publicly financed elections can help candidates not in the pockets of big money get into office, and more states should consider the system. To slow the rise of lobbying states and the federal government should regulate it more strictly. Patrick Flavin finds that states with stricter regulations on lobbying are more politically equal — that is, responsive to voters of all income groups. Policies that help people vote, instead of disenfranchising them, would also go a long way to making the political system more responsive. Americans need to tell Congress that even on Black Friday, government isn’t up for sale.

This article originally appeared on Talking Points Memo

New York already has a financial transaction tax on the books — it’s time to start collecting it

Co-Written with Lenore Palladino.

Recently re-elected Governor Andrew Cuomo likes to complain that he’s “a progressive Democrat who’s broke.” Here’s a simple way to raise millions of dollars and make the economy safer at the same time: a small tax on financial transactions. Politically impossible? Not in New York, where Governor Cuomo could lead the way to reinstate New York’s Stock Transfer Tax, which remains on the books but currently is not collected.

A modest tax on financial transactions would raise revenue while slowing down the frenetic short-term trading that could drive us straight into another financial crisis. Gridlock at the federal level will make congressional action tricky. New York State has had a financial transaction tax-specifically a stock transfer tax– on the books since 1906, but since 1981 has instantly rebates all of the money.  It’s time to start collecting.

The case for a Financial Transaction Tax

The idea for a financial transaction tax has been around for since John Maynard Keynes’sGeneral Theory. The basic argument is that a small fee would be trivial for long-term investors, and only deter the activities of socially useless high-turnover speculators. The idea began to gain traction in the late 70s and 80s with the rapid growth of the financial sector. In 1989, Lawrence Summers and Victoria Summers proposed a U.S. Securities Transfer Excise Tax, arguing that it could raise some $10 billion annually. Recently, the International Monetary Fund (IMF) has supported a financial transaction tax as well. A metastudy by Neil McCulloch and Grazia Pacillo finds that a Tobin Tax (a type of FTT) would be “feasible and, if appropriately designed, could make a significant contribution to revenue without causing major distortions.”

From 1914 to 1966, the United States levied a 0.02 percent tax on sales and transfers of stock. Federally, Speaker Jim Wright pushed for a renewed tax in 1987, proposing a fee of 0.25 percent to 0.5 percent on the buyer and seller of each securities transaction, highlighting the tax’s progressive aspects. More recently, the “Wall Street Trading and Speculators Tax Act” was proposed by Senators Harkin and DeFazio, which would assess a tax of 0.03 percent on trades of stocks, bonds, futures, options, swaps, and credit-default swaps, and would generate $352 billion over 10 years.

Such a tax would not be unprecedented. On May 6th, 2014, ten European nations issued a joint statement that a financial tax will begin in 2016 as a means to reduce speculation and raise revenue. The initial tax will focus on the trading of stocks and some derivatives, even though the initial proposal included taxing most financial products. The European Commissionestimates that a broad tax could raise $39 billion (31 billion EUR) in annual revenues.

New York’s Stock Transfer Tax

Capital intermetiation is an important and integral part of the modern economy. However, rapid deregulation has allowed it to become poisoned by rent-seeking and hyperactive trading while exacerbating rising inequality. A modest tax on financial transactions could reduce the propensity for systemic risk, while providing much-needed money to revenue-starved governments. However, it’s unlikely that such a tax can be passed at the federal level, given the partisan climate.  That’s why New York’s Stock Transfer Tax is such an important opportunity.

There was a Stock Transfer Tax in place in New York from 1905-1981. Revenue from the tax was split between the city and state (in the 1960s the full revenue reverted entirely to New York City). Beginning October 1, 1979, 30% of the tax was rebated to the investor, which was increased to 60% in 1980 and then the full value of the tax in 1981 Because of this quirk in its phase-out, the STT was never repealed. Instead, 100 percent of the revenue is rebated to the trader. Because the tax remains on the books, politically putting the tax in place would not require passage by the legislature of a new tax, but instead the reduction of the rebate, whether by 100% or some smaller percentile.

Governor Cuomo included a repeal of the tax in his Executive Budget (S. 6359), by calling for a full repeal of the tax due to its “unnecessary administrative work for the financial services industry as well as for the Department of Taxation and Finance,” (along with a separate proposal by the Governor to repeal the bank tax). This followed a recommendation by his Solomon/ McCall Commission to repeal ‘nuisance taxes’ like the STT. Assemblyman Phil Steck proposed a bill (A. 8410) to reduce the rebate and re-start collection of 40% of the nominally-collected tax. The threat of a final repeal of the tax prompted action from a variety of stakeholders, including a call by Jeffrey Sachs for a reinstatement of collection. The final enacted budget bill (S. 6359) did not include a repeal of the tax; it remains on the books as a fully-rebated tax.

New York could serve as a pilot program for an eventual national tax. A modest tax on stock transactions would raise millions annually, which could be used to offset any minimal job loss. If the revenue was directed toward creating public jobs and infrastructure, New York could reduce the twin risks of climate change and rampant economic inequality at the same time.

Instead of repealing the tax, Governor Cuomo should re-start collection and use the revenues to stimulate equitable economic growth.

This piece originally appeared on Vox.

The Case for a Financial Transaction Tax

The financial industry is a behemoth. Over the past 150 years, it has grown dramatically as a share of GDP. And entrance into its ranks has become a great way to enter into the top 1 percent of earners. (According to recent data, financial professionals have nearly doubled as a share of Americans in the top 1 percent.) At the same time, Wall Street is one of the most reviled institutions in the United States, with a recent study finding the lowest trust in finance recorded over 40 years.

Here are three good reasons to be distrustful of Wall Street, followed by one policy that would address all of them.

1. The Financial Industry Engages in Rent-Seeking

In economics, rent-seeking is the practice of making money simply by moving money around and collecting the resulting fees, rather than by facilitating profitable investment. The latter role is necessary for functioning markets; rent-seeking, however, is not.

There is now a strong literature suggesting that at some point, finance largely becomes extractive, while remaining at the same efficiency level. Thomas Philippon finds that the cost of financial intermediation has not fallen in 30 years. As Gautam Mukunda writes in a recent Harvard Business Review article, “Creative work increases a society’s wealth. Distributive work just moves wealth from one hand to another. Every industry contains both. But activity in the financial sector is primarily distributive.” Other studies come to the same conclusion:

  • Ozgur Orhangazi finds a negative relationship between real investment and financialization. The author proposes two channels to explain the relationship: “First, increased financial investment and increased financial profit opportunities may have crowded out real investment by changing the incentives of firm managers and directing funds away from real investment.”
  • Stephen Cecchetti and Enisse Kharroubi examine a sample of developed and emerging economies and find that financial development is good for emerging economies, but is detrimental to productivity growth for advanced economies.
  • Jean-Louis Arcand, Enrico Berkes and Ugo Panizza find that when private sector credit exceeds 110 percent of GDP finance begins to become a drag on growth, a situation the U.S. is currently in.

This rent-seeking has increasingly starved the public sector across the nation. The Financial Times reports that “public investment in the U.S. has hit its lowest level since demobilization” after World War II.

2. The Financial Industry Makes Inequality Worse

The International Labor Organization’s (ILO) Global Wage Report finds that the financialization of the economy has been the most important factor in the decline of income share accruing to labor in developed countries. This is because the financial industry primarily distributes wealth upward.

A 2011 study examining the U.S. finds that, “financialization accounts for more than half of the decline in labor’s share of income, 10 percent of the growth in officers’ share of compensation, and 15 percent of the growth in earnings dispersion between 1970 and 2008.” In a paper published this year in the British Journal of Political Science, Christopher Witko finds, “financial deregulation was one policy translating the political power of these actors into economic outcomes.” That is, the rise of finance was a money grab by the 1 percent.

Because relatively few low-income and middle-income families own financial assets, they largely haven’t benefited from the rise of finance. Instead, it’s enriched the wealthy while saddling the middle class with debt. A recent study by Emmanuel Saez and Gabriel Zucman finds,

The key driver of the declining bottom 90%  share is the fall of middle-class saving, a fall which itself may partly owe to the low growth of middle-class income, to financial deregulation leading to some forms of predatory lending, or to growing behavioral biases in the saving decisions of middle-class households.

The charts below show how finance has enriched the top, whose wealth came from equities, while sucking money from the middle, whose wealth consisted of housing and pensions:

 

Those who had no assets at all saw their incomes shrink while wages remained stagnant for decades. As Matt Yglesias notes, in 2013, 25 hedge fund managers took home more twice as much as every kindergarten teacher in the country combined. This while hedge funds have failed to perform better than the market.

3. The Financial Sector Is Increasingly Engaged on High-Frequency Trading

One particularly negative form of trading that the STT could reduce is High-Frequency Trading (HFT). HFT is a useless and distortionary practice that allows investors to make money off of millisecond-quick trades. (HFT recently attracted attention in Michael Lewis’ book “Flash Boys.”) The practice has been derided by Nobel laureate Joseph Stiglitz as a sophisticated version of front-running (buying a stock shortly before a pending order to take advantage of the price increase).

The problem is that instead of channeling money toward profitable investment, HFT is a prime example of making money off of moving money around. A recent study finds that a one millisecond advantage can increase a firm’s earnings by $100 million a year. Ironically, while bridges are vulnerable to collapse across the country and infrastructure in general is sorely undercapitalized, high-speed traders spent $2 billion on infrastructure in 2010 — for high-speed cables to NYSE. HFT does nothing to benefit markets, but instead makes them more volatile. 

The solution: A Financial Transaction Tax

When an industry has negative impacts on the broader public, economists call these effects “externalities.” It doesn’t mean we should destroy the industry, but rather, limit the harmful behavior. In much the same way that we should tax carbon dioxide — and do tax cigarettes and alcohol — we should also tax financial transactions.

The idea for a financial transaction tax has been around since John Maynard Keynes’ “General Theory.“ However, the idea began to gain traction in the late ’70s and ’80s with the rapid growth of the financial sector. In 1989, Lawrence Summers and Victoria Summers proposed a U.S. Securities Transfer Excise Tax, arguing that it could raise some $10 billion annually. Recently, the International Monetary Fund (IMF) hassupported a financial transaction tax as well. A metastudy by Neil McCulloch and Grazia Pacillo finds that a Tobin Tax (a type of FTT) would be “feasible and, if appropriately designed, could make a significant contribution to revenue without causing major distortions.”

From 1914 to 1966, the United States levied a 0.02 percent tax on sales and transfers of stock. Federally, Speaker Jim Wright pushed for a renewed tax in 1987, proposing a fee of 0.25 percent to 0.5 percent on the buyer and seller of each securities transaction, highlighting the tax’s progressive aspects. More recently, the “Wall Street Trading and Speculators Tax Act” was proposed by Sens. Harkin and DeFazio, which would assess a tax of 0.03 percent on trades of stocks, bonds, futures, options, swaps and credit-default swaps, and would generate $352 billion over 10 years.

Such a tax would not be unprecedented. On May 6, 2014, 10 European nations issued ajoint statement that a financial tax will begin in 2016 as a means to reduce speculation and raise revenue. The initial tax will focus on the trading of stocks and some derivatives, even though the initial proposal included taxing most financial products. The European Commission estimates that a broad tax could raise $39 billion (31 billion EUR) in annual revenues.

Further, there was a Stock Transfer Tax (a type of FTT) in place in New York from 1905 to 1981; revenue from the tax was split between the city and state (in the 1960s the full revenue reverted entirely to New York City). Because of a quirk in its phase-out, the STT remains technically legal in New York, though it is automatically rebated to the trader at a rate of 100 percent. Reducing this rebate would be a great way to boost revenues for New York and show the viability of a more expansive tax.

Finance is an important part of any economy. But the unprecedented rise of finance has harmed the real economy, propelled inequality and created opportunities for rent-seeking. To rein in Wall Street and prevent another financial crisis, and to give governments much needed money to invest, we should levy a modest tax on financial transactions. Right now, the financial industry subsists on monetizing privilege. It needs to shrink so we can grow.

This article originally appeared on Salon

Mr. Walton Goes to Washington

When retail workers want something, they ask their employers, get denied, get bullied and sometimes fired. Sometimes, they take to the streets, as they have for the last three years on Black Friday. By contrast, when retailers want something, they scurry to the halls of Congress, where they purchase influence with their exorbitant profits.

The largest big-box retailers have spent a total of $111 million since the 2000 election cycle on lobbying and campaign contributions. During the 2014 election cycle, big-box retailers spent $30 million on federal campaign contributions and lobbying, which is almost six times what they spent in 2000 (after an inflation adjustment).

Wal-Mart in particular is known for its status as a corporate-welfare queen; one studyestimates that one 300-person Supercenter costs taxpayers $904,542 to $1,744,590. Another estimates that Wal-Mart and the Walton family pull in $7.8 billion a year in tax breaks and subsidies. Meanwhile, a brand-new report from Americans for Tax Fairness finds that Wal-Mart also avoids taxes on more than $21 billion in offshore profits. In its most recent annual report, Wal-Mart openly admits that changes to government food stamp programs may hurt its financial performance. Hundreds of thousands of Wal-Mart workers make near-poverty wages.

Wal-Mart certainly benefits from other favorable government actions. Changes to labor laws allow it to abuse worker schedules, although sometimes it ignores them completely and just refuses to pay workers, flat out. Since Wal-Mart is a serial polluter, lax environmental standards are beneficial. It’s also very concerned about taxes, trade and intellectual property. To advance these interests, Wal-Mart spent $2.4 million on campaign donations and $12.5 million in lobbying in 2014 alone.

As the data below show, the last four election cycles have seen an explosion of big-box money in politics.

Of all spenders, Wal-Mart was by far the largest, followed by Home Depot. Both companies are considered “heavy hitters” by the Center for Responsive Politics, meaning they are among the top 100 political donors over the period for which data is available.

Even still, these numbers vastly understate political spending. For one, there is not yet a comprehensive database on state and local political spending. Further, many of these retailers are members of 501(c)6 groups like the American Legislative Exchange Council (ALEC) and the Chamber of Commerce; money paid to these groups is not reported. Also unreported are donations to 501(c)3 groups. As Demos has noted before, there is a clear need for stronger disclosure requirements, so that the full political influence of companies can be made available to the public. What we do know tells us that Republicans live up to their reputation as the “party of big business” and pull in more than $2 from retail for every $1 that goes to Democrats. With the exception of Costco, every big-box retailer heavily favors Republicans.

Numerous studies find that this money buys influence. Retailers lobby on a variety of issues, including tax policy, labor issues and the terms of international trade. A vast literature shows that these efforts produce returns, often at the expense of other democratic interests. In a comprehensive study of such conflicts, researchers found that business interests prevailed in 9 out of 11 issues in which businesses and labor were opposed. In the 16 cases that pitted business groups against citizen group coalitions, businesses won nine.

Taxes were the most frequently lobbied issue by large retailers in 2014, and by a wide margin. This legislative area has proven lucrative for business in the past; a 1 percent increase in businesses lobbying expenditures yields a lower effective tax rate of between 0.5 and 1.6 percent for the firm that lobbies. One study on the subject finds that the market value of an additional dollar spent on lobbying could be as high as $200. In 2014, the largest big-box retailers reported lobbying on a total of 37 incidences of specific taxation issues, including corporate tax reform, Internet sales tax and the extension of temporary tax breaks. The next most common issues of lobbying were health care reform, labor, antitrust and workplace regulations. As one example of the power of lobbying, the research firm Strategas maintains an index of the 50 firms that lobbying most intensely. The index has outperformed the S&P 500 every year since 1998.

Campaign contributions also produce benefits. There is strong evidence that the most important impact of campaign contributions is to increase access to politicians with theintent of setting the political agenda. A study of the telecommunications industry finds that regulators respond to private political spending with regulations that favor the donors. Companies that bid for federal contracts across industries are more likely to be granted those contracts if the bids are complemented by campaign contributions.

What can be done to stop the spread of big money in politics? Over the long run it will be necessary to overturn laws like Citizens United that opened the floodgates of money into Congress. But there are also short-term solutions. The Supreme Court explicitly endorsed disclosure as the alternative to campaign contributions. On the heels of Citizens United, Congress came within one vote of overcoming a party-line filibuster to pass the DISCLOSE Act. In the absence of Congress, shareholders should demand that corporations either get out of politics, or disclose their donations to organizations like ALEC that they might not approve of. The SEC should require this disclosure if Congress won’t.

Publicly financed elections can help candidates not in the pockets of big money get into office, and more states should consider the system. To slow the rise of lobbying, states and the federal government should regulate it more strictly. Patrick Flavin finds that states with stricter regulations on lobbying are more politically equal — that is, responsive to voters of all income groups. Politicians need to tell Congress that even on Black Friday, government isn’t up for sale.

This article originally appeared on Salon

Congress Is Rich: Here’s Why It Matters

Congress is rich. The average net worth in Congress is a bit more than $6 million, while the median net worth is $1 million. To put that in context, $4 million in net worth is enough to put someone in the top 1 percent, and $660,000 is enough to put an individual in the top 10 percent. Meanwhile, the median family wealth for whites is $134,000 and for blacks is $11,000. Emerging political science research suggests that the implications of this class bias are profound and important.

Political scientists have long debated the importance of “descriptive representation” or “reflective democracy.” Reflective democracy means that representatives share salient characteristics with their constituents. Most political scientists now agree that reflective representation leads to better substantive representation: that the interests of constituents are being reflected by legislator choice.

It’s increasingly clear that descriptive representation matters, particularly as related to race and gender. Political Scientists Robert R. Preuhs and Eric Gonzalez Juenke findthat black and Hispanic legislators are more responsive to the interests of black and Hispanic constituents than white legislators, after controlling for party. Legislators of color also serve an important veto function — preventing laws from passing that would disproportionately harm communities of color. Daniel Butler and David Broockman findthat politicians are more responsive to letters from constituents of the same race. This is confirmed by a study that finds legislators that support voter ID laws are less likely to respond to inquiries from Latino constituents. Further, black legislators are also more likely to hire black staffers. In addition, Economist Ebonya Washington finds that having a daughter makes a congressperson more liberal, particularly on reproductive rights. Some studies suggest that female representatives are more likely to set an agenda around women’s issues.

Given this, should we worry that more than half of all members of the House of Representatives are millionaires? Further, while two-thirds of the population don’t have a college degree, only two House members (Robert Brady of Pennsylvania and Stephen Fincher of Tennessee) and one senator (outgoing Mark Begich of Alaska) lack one.

Nicholas Carnes of Duke University has recently taken up the question of how class affects votes. In a 2012 paper, he finds that “representative from working-class occupations exhibit more liberal economic preferences than other legislators, especially those from profit-oriented professions.” Other research has confirmed this. Christopher Witko and Sally Friedman find that “House members with business backgrounds have closer relationships with business interests… and demonstrate more probusiness roll call voting.”

While descriptive representation of women and people of color has increased dramatically, the descriptive representation of working-class people has remained stubbornly flat (see chart).

As Carnes writes,

If millionaires were a political party, that party would make up roughly 3 percent of American families, but it would have a super-majority in the Senate, a majority in the House, a majority on the Supreme Court and a man in the White House. If working-class Americans were a political party, that party would have made up more than half the country since the start of the 20th century. But legislators from that party (those who last worked in blue-collar jobs before entering politics) would never have held more than 2 percent of the seats in Congress.

Those data end in 1998, but Carnes maintains his own database using similar metrics that picks up again in the mid-2000s. He finds that the line has remained flat, or if anything declined. At the state and local level, the picture isn’t much better. According to theNational Council of State Legislators, the share of legislators who worked in business in a non-managerial position (i.e., workers) has declined from 4.4 percent in 1976 to 2.8 percent in 2007.

Carnes defines class by occupation, and although his main regression finds that high-income congresspeople are more economically conservative than other members, the results are not statistically significant and not as strong as the correlation with occupation. However, other studies suggest that certain votes certainly contain an income component. Michael Kraus and Bennett Callaghan find that rich members of the House are more likely to accept high levels of inequality than less rich members. The effect is particularly strong on Democrats (see chart).

In a recent study, political scientist Christian Grose finds that “members of Congress with more money invested in the stock market were more likely to vote to increase the debt limit, presumably in order to avoid a market crash.” John Griffin finds that wealthier legislators were more likely to cosponsor and vote for bills to repeal the estate tax. This held even after controlling for party affiliation, their views on other taxes and their constituent opinions. A Mother Jones investigation finds that the 10 richest members of Congress (a bipartisan group) all voted to extend the Bush tax cuts.

It is therefore clear that we need more workers in office, but what will the impact be for the gains of women and people of color? Carnes finds that we can have our cake and eat it too. Using the Local Elections in America Project (LEAP) database of 18,000 local and county elections in California, he finds that working-class candidates are less likelyto be white men that white-collar candidates (see chart).

At the federal level, Carnes finds that between 1999 and 2008,

the average male member of Congress spent about 1 percent of his labor precongressional career in working-class jobs, while the average female member spent about 3. The average white member spent an average of 1 percent of his career in working-class jobs, compared to 3 percent among the average black or Hispanic member and 5 percent among the average Asian member.

It is clear, then, that policies to increase working-class representation in Congress might also increase the representation of women and people of color. But what policies could do so? Carnes tells Salon that in yet unreleased research he finds that publicly financing elections can increase working-class representation.

This isn’t surprising. A study of New York City’s public financing scheme finds that it increased the class and racial diversity of political donors. Carnes also argues that recruiters need to do more to encourage working-class voters to run. In a recent paper with David Broockman, Melody Crowder-Meyer and Christopher Skovron, he finds that “party leaders exhibit some biases against blue-collar workers” which likely prevent many from running. Research on the lack of candidates of color has also found such biases.

Carnes tells Salon that another solution is programs like the AFL-CIO “Labor Candidate School,” which began in New Jersey but now exists in North Carolina, Oregon, Nevada, Maine, New Haven and New York City. The programs, which train politically savvy members to run for office, have a good success rate; 75 percent of those who run after going through the New Jersey program win their races. Carnes tells Salon he’ll be working on an effort in Durham next year. “I believe in the potential of this model so much, I’m going to try it out myself,” he says.

As the Democratic Party increasingly moves to the center to please an elite donor base, the last hope for action on economic inequality might be more blue-collar politicians.

This piece originally appeared on Salon

When Retailers Shop the Season Doesn’t End at Christmas

Co-written with Catherine Ruetschlin, Senior Policy Analyst at Demos.

Unfortunately for voters, the $3.7 billion spent over the most recent election cycle did not come with a gift receipt. Despite being rung up as the most expensive midterm in US history, nearly two-thirds of Americans sat out the election—the lowest voter turnout in more than 70 years. Those who didn’t turn-out were disproportionately low-income people, who are increasingly shut out of the political process. It makes sense to see growing disillusionment with politics alongside massive outside spending, since the interests of ultra-wealthy donors are unlikely to reflect the experiences of most citizens. On issues like the minimum wage, the divergence can be stark. That is one reason why low-wage retail workers are making their case for better working conditions in big-box parking lots for the third straight year of Black Friday strikes. They need a public forum on the Walmart economy, and big-box retail took the last one on the shelf.

In our recent paper, Retail Politics: How America’s Big-Box Retailers Turn Their Economic Power into Political Influence, we found that the six largest big-box retailers in the US spent $30 million on campaign contributions and lobbying during the latest election cycle—that’s six times more than they spent in 2000. Walmart and Home Depot, in particular, rank among the top campaign spenders in the nation. And this spending is not like consumption spending on, say, some cheap imported merchandise, it is an investment with real returns.

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Political spending of big business is as much about flooding the process with friendly faces as it is about establishing access once the election is over. The campaign and committee donations of wealthy interests first fill the playing field with candidates who share their priorities, and then elevate the issues they care about most. Over time, big-box retailers have supported Republicans over Democrats by a clear margin of 2-to1. But in the 2014 cycle these companies spent their political dollars widely, giving on both sides of the aisle—and even donating to opposing candidates in contested races.

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This campaign spending combines with millions of dollars in lobbying to allow those with the fattest wallets to shape the country’s political agenda. As a result, the small population of affluent Americans sees their priorities reflected in our legislative objectives, even when the majority of the country disagrees with their preferences. For example, taxes were the most frequently lobbied issue by big-box retailers in 2014 by a large margin. This legislative area has proven lucrative for business in the past—experts in corporate strategy research show that a 1 percent increase in businesses lobbying expenditures yields a lower effective tax rate of between 0.5 and 1.6 percent for the firm. Yet when there is conflict between big corporations and other interests over policy change, policy sides with big business lobbyists the vast majority of the time.

Meanwhile, the increase in big-box retail’s political spending occurred at the same time that the most important lobby for workers floundered. Previous research by our organization, Demos, has found that unions are the only interest group that consistently lobbies in the interests of average Americans. However, data from the Center for Responsive Politics show that business interests outspend unions 15 to 1. The democratic chorus in Washington has shifted from one that is broadly in favor of business interests to one virtually devoid of any other voices. It is unsurprising in this context that after an almost two-decade fall, the share of Americans saying that government is “run by a few big interests,” is as high as 70 percent.

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That loss of trust in the equal democratic voice for all Americans also reflects where the money is. According to data from American National Election Studies, unskilled workers  are more   likely to agree that government is run by a few big interests than their white collar and professional peers. That perception is reinforced by the escalating importance of private money in elections, and it shows an intuitive read of the very real problems with democracy, like research that suggests the preferences of average Americans simply won’t change much in Washington.

There are no Black Friday bargains when it comes to political contributions, but there are ways to make small-dollar donations matter more to those on the receiving end. Public finance, federal matching of small donors and effective lobbying regulations can amplify the voices currently drowned out by big money, and begin assuring Americans that democracy is not for sale.

This piece originally appeared on Huffington Post. 

Republicans at a Crossroads: Win Over People Of Color, or Make Sure They Don’t Vote?

Last week’s election has seen many Republicans scoffing at the thesis, put forward by John B. Judis and Ruy Teixeira in 2004, that there was an“Emerging Democratic Majority” that would usher in a long period of Democratic dominance. Ross Douthat, for example, has written of an “Evaporating Democratic Majority.” The subsequent analysis has often focused on low turnout among young voters — an important story, but far from the whole thing. In fact, this election sets the stage for how the Republican Party will react to changing demographics over the next several election cycles. Will they change their policies to appeal to a how America has changed, or will they try to change who gets to vote?

The dramatic age gap in the most recent midterm election has been frequently noted in recent discussions on the midterms. While it is certainly important that only 12 percent of voters in the most recent election were under 30 and 37% were over 60, this doesn’t tell much. About 12% of voters in the 2010 and 2006 elections were under 30 as well, if anything the increasing gap is largely due to the aging of the population (and persistent gaps in youth turnout). However, while the “liberalism” of youth has been widely discussed, there are problems with the narrative, among them, the huge differencesbetween young whites and young people of color (see chart). Much of the liberalism of millennials is not that young whites are more liberal, but simply that there are fewer of them. Even with these caveats, it’s clear that much of the current Republican agenda (particularly opposition to gay marriage) is anathema to young voters, while racial appeals make voters of color who might otherwise support Republicans wary.

 

The question for Republicans is how they will respond to an increasingly diverse population and one that doesn’t support their agenda. One option, and the one that gave them the Senate this year, is massive voter suppression. They will have many more opportunities for such suppression: Before the election, Republican controlled 59 of the 98 state legislative chambers; they now control 67. That means they’ll be able to pass more ALEC-sponsored legislation to reduce reproductive rights, bust unions and cut education and health insurance. It also means that Democrats will find it difficult to win back these chambers in time for the 2020 redistricting. (Redistricting is part — though not all — of the reason for Republican stranglehold over the House.) Republicans will also have leeway to pass even more restrictive voting laws — rolling back same-day registration and early voting, passing voter ID laws and tightening restrictions on convicted felons. All of these laws are proven to shift the electorate toward conservative policies by reducing turnout among people of color, young people and low-income people. Unsurprisingly, the ones already on the books have worked, and the 2014 midtermhad lower turnout than any election since 1942 (before the Voting Rights Act).

As I’ve shown, there is a strong chance that felon disenfranchisement laws affected the outcomes of important Senate races. I also found evidence that voter ID laws (particularly those that required a photo ID) reduced turnout. These findings are support by academic studies on the question. Long story short: It’s almost certain that voter suppression efforts led to an election in which three in ten eligible citizens voted. It’s highly likely that they tilted the playing field toward conservative politicians.

Republicans as a party could likely remain viable for a while with this strategy. They control enough legislatures to effectively gerrymander the congressional map. The Senate favors sparsely populated Conservative states. Democrats are concentrated in urban areas which further solidifies Republican avantages. Republicans would have trouble getting enough voters to win the Presidency, but with control of both bottom chambers, they could still gridlock the political system. Since such gridlock primarily benefits the rich, who are the main constituency of the Republican party, this isn’t much of a problem. Further, research shows that when whites are informed that the country is becoming increasingly diverse, they show a stronger preference for the Republican party. Recentresearch by Felix Danbold and Yuen J. Huo finds the whites informed that they will no longer be the majority in 2050 are less likely to say they support diversity. Political scientist Spencer Piston tells Salon that in his research using the American National Election Studies data, “I find no relationship between age and prejudice against blacks (as measured by a stereotype battery) among whites.” This suggests that voter suppression and coded racial appeals could serve Republicans for a long time.

The other option is for Republicans to tailor their agenda to people of color. While this may seem impossible — given the recent race-baiting by a gargle of Republican candidates — it is not. Spencer Piston recently released research showing that light-skinned Latinos and Asian-Americans are more likely to support Republicans than darker-skinned Latinos and Asian-Americans. He tells Salon that this held even after controlling for income, nationality and gender. Further, in currently unpublished research, he finds that support for redistribution is not affected by skin tone. This suggests that Republicans could possibly win over some Latino voters with a conservative message, if only they reduced racial resentment. But they won’t.

As I’ve shown, the class bias in our electorate benefits the rich. One study of developed countries finds that in countries with higher turnout, governments redistribute more money. The U.S. has the second lowest rate of turnout among OECD countries, and it also, unsurprisingly, has some of the lowest levels of redistribution. As long as the Republican party serves the interests of the rich, it will work endlessly to suppress low-income voters. Further, it will hold the government in gridlock, which benefits the rich.

At the end of the day, the sad fact is that the more people who vote, the worse it is for the wealthy people who overwhelmingly support Republicans.

There were other factors at play in the Senate race, certainly. The incredible cynicism of modern conservatives — who both actively sabotage government and then complain when it doesn’t works — was important. Americans, constantly told by pundits that a President should lead, appear to be unable to understand that deep structural factors prevent himfrom doing so (a problem on both sides). Further, in many races, the liberal candidateswere simply inept, and those who ran on truly progressive agendas, like Governor Malloy of Connecticut, did well.

However, it cannot be ignored that in recent years, one political party has centered their election agenda around disenfranchising voters. Midterms are historical bad for groups that vote Democratic, but massive voter suppression is the only way to explain the Republican “wave.”  With the aid of the Supreme Court’s decision in Shelby County,states have been able to pass legislation which cause mass disenfranchisement. There will certainly be more. As the country becomes more diverse, the Republican party has a choice: play on racial fears, stoking racial animus or try to broaden its coalition of voters. Right now, it has prefered the former. That isn’t good for democracy.

This piece originally appeared on Salon

Russell Brand is wrong: Voting really can change America for the better

Last year, Russell Brand declared in a New Statesman article that he had never voted because he “regard[s] politicians as frauds and liars and the current political system as nothing more than a bureaucratic means for furthering the augmentation and advantages of economic elites.” And Brand, in many ways, is right — just not about voting. A growing body of political science literature actually finds that voting is an incredibly important lever of policy change. To understand why, though, we need to start with the matter of class.

The class bias in voter turnout in America is strong. A recent study estimates that in 2008, voter turnout among the wealthiest 1 percent of the population was an astronomical 99 percent. It’s not surprising that this level of participation doesn’t hold for all tax brackets; yet the chart below still shows a startling trend. There is only a single instance over the past three election cycles of a lower income bracket having higher turnout than a higher bracket.

For a long time, political scientists weren’t worried about turnout disparities. In their seminal 1980 study on the question (using data from 1972), Raymond Wolfinger and Steven Rosenstone argued that, “voters are virtually a carbon copy of the citizen population.” Later, in a 1999 study, Wolfinger and Benjamin Highton find a slightly larger gap between voters and non-voters, but still conclude that “non-voters appear well represented by those who vote.”

However, in a more recent review of the data, Jan Leighley and Jonathan Nagler find “enduring and increasing” differences between voters and non-voters on issues relating to class-based issues.  They find that non-voters are far more likely to support union organizing, a job guarantee and universal health insurance.

Why the differences in the studies? It turns out, the reason is historical. Difference between voters and non-voters with regards to the size of government and redistributionweren’t as strong in the 1970s and 1980s, when the earlier studies were conducted; since then, according to Larry Bartels, the U.S. has become a world leader in class conflict over government spending. These biases began accelerating at the end of the 1980s.

Since then, the Leighley and Nagler thesis has enjoyed increasing support. A 2012 Pewsurvey revealed similar differences, with non-voters far more supportive of government intervention in the economy and far more supportive of the Affordable Care Act. A Public Policy Institute of California (PPIC) study of Californians from 2006 finds that non-voters are also more likely to support higher taxes and more services. They were more likely to oppose Proposition 13 — a constitutional amendment that limits property taxes — and to support affordable housing.

Given all of this, it’s unsurprising that the current Republican electoral strategy is based around disenfranchisement through means like voter ID laws. Consider a Pew poll taken from before the 2012 election: Among “likely voters,” Obama and Romney were split, with 47 percent of voters each. Among non-voters, however, Obama had 59 percent support, compared with Romney’s 24 percent support.

 

One problem with this is that turnout inequality affects both parties — pulling the Democrats and Republicans to the right. The corollary is that voter suppression efforts pursued by Republican partisans also affect the behavior of Democrats. And there is strong evidence that voter suppression efforts increase turnout inequality.

For instance, one study finds that “state voter registration laws pose a substantial barrier” to the mobilization of low-income voters.  While 63.2 percent of citizens in the lowest income bracket (less than $10,000) are registered, a full 87.1 percent of those in the top bracket ($150,000 or more) are. Research shows that same-day registration decreases the class bias of the electorate, so rollbacks of same day registration will also harm low-income voters.

It’s important to note that the gap between registration and turnout is higher for low-income citizens. A bit more than 16 percent of registered low-income citizens don’t vote, while only 6.9 percent of registered citizens in the top income bracket don’t vote. (See chart) Much of the problem, then, is getting low-income voters  – who are hampered by voter ID laws and reduction in early voting — the the ballot box. It’s unsurprising that an investigation of Republican voter suppression efforts finds that “larger increases in class-biased turnout, indicating higher turnout among lower income voters relative to wealthy voters, is significantly associated with a larger volume of proposed legislative changes.” This finding was confirmed by a study of Indiana’s voting law by Matt A. Barreto, Stephen A. Nuño and Gabriel R. Sanchez.

Where class bias is lower, the poor benefit. Christopher Witko, Nathan Kelly and William Franko studied 30 years of data on turnout inequality and find, “where the poor exercise their voice more in the voting booth relative to higher income groups, inequality is lower.” Their results show that lower turnout inequality leads to significantly more leftist governments and significantly more liberal economic policies. In currently unpublished research, James Avery studied the period between 1980 and 2010 and finds  “unambiguous” evidence that increased turnout bias leads to “greater income inequality several years later.”

This means that the impact of voting goes beyond simply elections.

In the wake of the 1965 Voting Rights Act, long-term Democratic incumbents shifted their voting behavior to respond to the newly mobilized Southern black electorate.Thomas Hansford and Brad Gomez studied more than 50 years of data and find that the “effect of variation in turnout on electoral outcomes appears quite meaningful.” One recent studyfinds that where there is less class bias in turnout, party policy platforms are more favorable to the poor. James Avery and Mark Peffley find that states with low-income voters turned out to vote, politicians were less inclined to pass restrictive eligibility rules for welfare.  Political scientists Kim Hill and Jan Leighley find in two studies that states with a more pronounced class bias, social welfare spending is lower. David Broockman and Christopher Skovron find that legislators tend to overstate the conservative attitudes of their constituents. This could be because their constituents tend to be wealthier. One study of wealthy citizens finds that, “on economic issues wealthy Democratic respondents tended to be more conservative than Democrats in the general population.”

Voting should only be the beginning of political change; it should not be the end. It is, however, necessary. In their study, Hill and Leighley find, “it is the underrepresentation of the poor, rather than the overrepresentation of the wealthy” that explains why states with high turnout inequality have low social welfare spending. The fight to reduce the influence of the wealthy will be a long one, but it begins at the ballot box.

So don’t listen to Russell Brand. Vote.

This article originally appeared on Salon

Voter Suppression in the 2014 Midterm

Political scientist Michael P. McDonald recently released  preliminary turnout rates at the state (and national) level. These data are preliminary and will be continuously updated, but still yield some insights.

Firstly, we can look at the impact of felon disenfrachisement.

Research finds that felon disenfranchisement laws have influenced the outcomes of both presidential and Senate elections. Such laws disenfranchised almost 6 millions voters this year—most of them poor and people of color.

Just look at seven key Senate races and one gubernatorial race (Florida, where Rick Scott tightened felon re-enfranchisement laws in one of his first acts as governor) in the most recent elections. In three of those Senate races and the gubernatorial election, the number of disenfranchised felons was greater than the margin of victory. Not only does felon disenfranchisement contribute to the class and race bias in the electorate by primarilyimpacting low income people and people of color, it often disenfranchises more voters than the margin of victory.

Secondly, we can compare states with voter ID laws to those without.

Obviously, there are many other factors here. The states that tend to pass voter ID laws are a self-selected group. They tend to have more competitive elections and recent increases in turnout among low-income voters and African-Americans.

They are also almost all passed by Republican legislatures, reducing turnout. Recently, the GAO examined voter ID laws and finds that out of ten studies, five had mixed results, four showed a statistically significant drop in voter turnout and one showed an increase in voter turnout. GAO finds that turnout decreased between 1.9 and 2.2 percentage point in Kansas and 2.2 to 3.2 percentage points in Tennessee.

For this year’s midterm, comparing McDonald’s turnout estimates with states with photo ID, non-photo ID and no ID law at all shows that on average, states with a photo ID law had 4.4 percentage points lower turnout than those that did not. States with a non-photo ID law also had lower voter turnout, about 1.52 points lower than states without voter ID. There are numerous factors at work here, but given Silver’s findings, the GAO review and anecdotal evidence at polling stations, it is plausible voter ID depressed turnout.

Given that voter ID laws are generally passed in states with competitive races, we would expect to see higher turnout (election competiveness boosts turnout)—instead we see the opposite. The Brennan Center has collected all of the studies on voter turnout here.

Third, we can examine the impact of same-day registration.

Research suggests that same-day registration reduces the class bias of the electorate. Previous Demos research finds that when same-day registration is available, hundreds of thousands of voters use it. Demos also finds that states with same-day registration consistently have higher levels of turnout than states without it. Numerous studies confirmthat SDR increases turnout.

And this was true in the 2014 midterms. States with SDR had turnout 7.92 points higher than states without SDR. This is likely a combination of factors, including the fact that states committed to turnout generally pass many reforms which work together to boost turnout.

Above all, turnout for the most recent election was dismal: 36.6%. That compares with 40.9% in 2010 and 40.4% in 2006. It’s the lowest of the last five elections. That’s why states should consider same-day registration, early voting, mail-in voting, felon re-enfranchisement and other laws that will get millions of voters to the polls next election.

This post originally appeared on Policyshop